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Case Laws - Income Tax
- 2024 (3) TMI 831
Reopening of assessment u/s 147 - Eligibility of reasons to believe - AO jurisdiction to issue notice - as decided by HC 2021 (11) TMI 538 - BOMBAY HIGH COURT] allegation in the reasons recorded for reopening that petitioner has not disclosed all fully and truly material facts necessary for the assessment is incorrect, one of the condition for reopening the assessment before the AO could assume jurisdiction for issuing notice u/s 148 has not been satisfied
HELD THAT:- We are not inclined to interfere with the impugned judgment and order passed by the High Court. Hence, the Special Leave Petition is dismissed, however, question of law is kept open to be considered in an appropriate case.
- 2024 (3) TMI 830
Review petition - validity of Revision u/s 263 by CIT - deduction claimed by the assessee as cost of improvement while computing long term capital gains - What can be said to be prejudicial to the interest of the Revenue? - As decided by SC [2023 (4) TMI 295 - SUPREME COURT] only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable u/s 263. Applying the law laid down in the case of Malabar Industrial Co. Ltd [2000 (2) TMI 10 - SUPREME COURT] that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue - also observed that if due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.
Assessment order was not only erroneous but prejudicial to the interest of the Revenue also - High Court has committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act.
HELD THAT:- Application for stay is rejected.
We have carefully gone through the review petition and the connected papers. We do not find any error, much less apparent, in the order impugned, warranting its reconsideration.
The review petition is dismissed accordingly.
- 2024 (3) TMI 829
Adjustment made u/s 154 - addition of surrendered income by the assessee was included in the book profit of the assessee as per Section 115JB - ITAT held non-inclusion of income surrendered u/s. 115 JB could not have been corrected in rectification proceedings u/s. 154 - HELD THAT:- The Hon’ble Delhi High Court in the case of RTCL. LTD. [2012 (4) TMI 287 - DELHI HIGH COURT] has held that the book profits as declared by the assessee was in conformity and as per the provisions of parts II and III of the Schedule VI of the Companies Act, 1956 and there was nothing on record to suggest that the book profits were contrary to such provisions or not in consonance with such provisions.
In view of the conclusion arrived at by the Tribunal that such inclusion of the disclosure made by the assessee company would require long drawn reasoning and debate and therefore, when the issues and contentions being debatable on uncertainty, the Assessing Officer could not have invoked the power under Section 154 of the Act for rectification of the mistake apparent on record. The Tribunal, therefore, was right in observing that the action of the Assessing Officer as well as the CIT(A) under Section 154 of the Act was not warranted. Decided against revenue.
- 2024 (3) TMI 828
Validity of reopening of assessment - Sanction for issue of notice u/s 151 - manner of recording the approval granted by the prescribed authority u/s 151 for reopening of assessment proceedings a/s 148 - HELD THAT:- the satisfaction arrived at by the prescribed authority u/s 151 must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under Section 148 of the Act. The said approval cannot be granted in a mechanical manner as it acts as a linkage between the facts considered and conclusion reached. In the instant case, merely appending the phrase “Yes” does not appropriately align with the mandate of Section 151 of the Act as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose.
Therefore, it is seen that the PCIT has failed to satisfactorily record its concurrence. By no prudent stretch of imagination, the expression “Yes” could be considered to be a valid approval. In fact, the approval in the instant case is apparently akin to the rubber stamping of “Yes” in the case of Central India Electric Supply. ITAT correctly held that the prescribed authority has granted approval under Section 151 in a mechanical manner. Decided against revenue.
- 2024 (3) TMI 827
Condonation of filling appeal before ITAT - delay of 37 days in filing of the appeal - HELD THAT:- The bench noted that the assessee has explained the reasons that in fact there is no delay and the date of intimation was inadvertently left blank. Even the date of intimation and service there was an email id of the consultant who was now not looking to the affairs of the trust and the details of the trustee have been updated on the portal and thus even on this reasons there are reasonable cause in filling the appeal though belated. Based on these observations we found merits in the reasons advanced and we concur with the submission of the assessee and see that there were reasonable cause for the delay and thus, the delay in filing the appeal by the assessee before the ld. CIT(A) is condoned in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others [1987 (2) TMI 61 - SUPREME COURT] as the assessee is prevented by sufficient cause and the appeal of the assessee taken up for deciding on the merits of the case.
Exemption u/s 11 - assessee had belatedly e-filed the Audit Report in Form 10B along with the return of income filed under sub section (1) of section 139 - whether the assessee denied the benefit of exemption as a trust merely on the reason that the audit report in Form no. 10 B filed belated? - HELD THAT:- For delay in filling the audit report in form no. 10 B we note that the assessee has filed the said audit report on 13.03.2024. Assessee placed on record that even the CBDT vide F.No. 225/358/2018/ITA.II dated 08.10.2018 wherein the due date extended upto 31.10.2018 and the assessee in this case e-filed the form no. 10B on 13.03.2024.
This issue is decided in the case of Sarvodaya Charitable Trust Vs. ITO(E) [2021 (1) TMI 214 - GUJARAT HIGH COURT] where assessee, a public charitable trust registered u/s 12A, had substantially satisfied condition for availing benefit of exemption as a trust, it could not be denied exemption merely on bar of limitation in furnishing audit report in Form No.10B especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned. Also see Shri Laxmanarayan Dev Shrishan Seva Khendra [2023 (7) TMI 293 - ITAT AHMEDABAD] and Sh. Rajkot Vishashrimali Jain Samaj [2023 (3) TMI 765 - ITAT RAJKOT] - Thus we direct the Jurisdiction Assessing Officer (JAO) to consider the Form no. 10B through belated and allow the claim of exemption u/s. 11. Appeal of assessee allowed.
- 2024 (3) TMI 826
Disallowance u/s 14A r.w.r. 8D - Addition of interest and administrative expenses - HELD THAT:- As decided in Gujarat Flurochemicals Ltd [2023 (12) TMI 713 - GUJARAT HIGH COURT] has held that the disallowance u/s 14A r.w. Rule 8D of Income Tax Rules cannot exceed the amount of exempted income.
Also decided in Craft Builder Construction private limited [2020 (1) TMI 135 - SC ORDER] disallowance under section 14A cannot exceed exempt income of relevant year. Thus as coming to the facts of the case on hand, admittedly the exempted income is of Rs. 1,08,650/- only and therefore, respectfully following the judgments as discussed above, the disallowance cannot exceed the amount of exempted income. Hence, the ground of appeal of the assessee is partly allowed.
Addition to the book profit u/s 115JB for the amount disallowed u/s 14A r.w. Rule 8D - HELD THAT:- We note that the in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] has held that the disallowance made u/s 14A r.w.r. 8D cannot be the subject matter of disallowance while determining the net profit u/s 115JB of the Act.
Thus, it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expense as mentioned under clause (f) to explanation 1 to section 115JB of the Act.
Disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of Jayshree Tea Industries Ltd. [2014 (11) TMI 1169 - CALCUTTA HIGH COURT]
Disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - We feel that an ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus, we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus, we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus, the ground of appeal of the Revenue is partly allowed.
- 2024 (3) TMI 825
Eligibility for deduction u/s 80IAB - assessee earned interest on the advances received from the developers and contractors to facilitate the execution of work entrusted to them - AO considered the interest received on advances to the developer/contractors under the head “income from other sources” and proceeded to hold that the said income does not have nexus with the business of the assessee, hence not eligible for deduction under section 80IAB - CIT(A) allowed the deduction - HELD THAT:- As relying on assessee’s own case for A.Y. 2008-09 [2014 (8) TMI 959 - ITAT MUMBAI] CIT(A) has rightly considered interest earned by the assessee company from developers and contractors, being eligible for deduction under section 80IAB. Decided against revenue.
Lease rent claimed for deduction u/s 80IAB - AO disallowed claim on the ground that the said income does not have any nexus with the business of the assessee - CIT(A) overturned the findings returned by the AO holding that lease rent income received by the assessee is an income from business and eligible for deduction under section 80IAB - HELD THAT:- Bare perusal of the findings returned by the Ld. CIT(A) goes to prove that this issue is no longer res-integra having already been decided by the Tribunal in assessee’s own case in A.Y. 2010-11 & 2011-12 [2019 (6) TMI 1370 - ITAT MUMBAI] whereby income derived by the assessee from the lease rental has been held to be eligible as business income for the purpose of deduction under section 80IAB of the Act. So finding no illegality or perversity in the impugned findings ground No.3 raised by the Revenue is hereby dismissed.
Nature of receipt - Grant received from Government of Maharashtra towards the repair and maintenance of airports - revenue or capital receipt - A.Y. 2012-13 - HELD THAT:- This issue is no longer res-integra having already been decided by the Tribunal in favour of the assessee in its own case for A.Y. 2010-11 [2019 (6) TMI 1370 - ITAT MUMBAI] as held Maharashtra Government release the grant in favour of assessee for the repairs and maintenance of airports . It is if any capital in nature and is not liable to be considered as revenue in nature. Thus we are of the view that the grant released by Government of Maharashtra on account of repairs and maintenance of airports is not liable to be treated as income of the assessee being in the nature of capital receipt. Decided in favour of assessee.
Receipts on behalf of Government of Maharashtra for the purpose of Grant-in-aid for the rehabilitation of Project Affected Persons (PAP) and for infrastructure development of airports in notified area - AO treated the grant-in-aid as income of the assessee and made addition thereof to the total income of the assessee company - A.Y. 2013-14 and 2014-15 - HELD THAT:- Undisputedly the assessee company was incorporated as a company under the Companies Act, 1956 by the Government of Maharashtra as a special purpose company to develop multi model international hub airport at Nagpur and aviation infrastructure in the State of Maharashtra in order to provide regional air connectivity and operationalising certain government schemes. Also not in dispute that the assessee company is appointed by the State Government as a special planning authority under section 40(IB) of the Maharashtra Regional Town Planning (MRTP) Act, 1966; that it is also not in dispute that the assessee company being a special planning authority is required to carry out the work of development and disposing of land in the notified area as an agent of the state.
CIT(A) has erred in treating the grant-in- aid received by the assessee company from State of Maharashtra as capital receipt rather utilization of the grant-in-aid by the assessee company for acquisition of land, development of airports, repair and maintenance of airports is the statutory functions of the assessee company as an agent of the State of Maharashtra, hence, not assessable to tax under Income Tax Act.
Receipts of an amount on account of development charges levied by the assessee company u/s 124J of Maharashtra Regional Town Planning (MRTP) Act, 1966 - CIT(A) held the receipt on account of development charges as business receipt and liable to be taxed - HELD THAT:- As the assessee company is held to be a state only for the purpose of receiving grant-in-aid from the state government as a special planning authority and collecting the development charges from various lessees/unit holders in ‘Multi- Model International Passenger and Cargo Hub Airport at Nagpur' (MIHAN) area are to be used for development of the land acquired by the assessee company with the grants-in-aid provided by the state government and as such is also a statutory function. Because without developing the land purchases with grant-in-aid received from the state government, which ultimately vests in the state government the purpose of providing public amenities as prescribed under the scheme of the Act cannot be fulfilled.
CIT(A) has erred in treating these development charges which are inextricably linked to the development of the project under the scheme, akin to the lease rental/usage charges. So the findings returned by the Ld. CIT(A) are hereby set aside and the AO is directed to delete the addition made by the AO and confirmed by the Ld. CIT(A).
Disallowance u/s 14A r.w.r. 8D - as argued there is no exempt income and own funds of the assessee are far more than the investment made by the assessee during the years under consideration - CIT(A) deleted the addition - HELD THAT:- No illegality or perversity in the impugned findings returned by the Ld. CIT(A) deleting the addition made by the AO under section 14A read with rule 8D as it is a settled principle of law that when there is no exempt income earned by the assessee during the year under consideration no disallowance can be made under section 14A read with rule 8D - See Era Infrastructure (India) Ltd [2022 (7) TMI 1093 - DELHI HIGH COURT]
Characterization of receipts - interest on fixed deposits - business income or income from other sources - HELD THAT:- In view of the order passed by the co-ordinate Bench of the Tribunal [2014 (8) TMI 959 - ITAT MUMBAI] we remit this issue back to the AO to decide as per the directions given by the co-ordinate Bench of the Tribunal wherein A.O. is directed to verify whether the FDs have been made out of surplus funds or out of loans and borrowing of the assessee and whether the FDs were for short period of time. The assessee is directed to file necessary details before the A.O.
Nature of receipt - Receipt of fire service fee - AO as well as the Ld. CIT(A) by declining the contentions raised by the assessee company held that the assessee company is to manage a property by taking various measures as per section 114 of the MRTP Act and section 11 of MFPLSM Act, 2006 empower MADC to levy fire service fees on various unit holders within the area of its jurisdiction and the said amount is credited separately to the MIHAN development fund account, and treated the same as revenue in nature - HELD THAT:- when the fire services fee is to be applied for the purpose of maintaining fire brigade which is also mandatory for the assessee company to maintain in compliance to section 25 of chapter VII of MFPLSM Act, 2006, section 11 of the MFPLSM Act, 2006 also empowers the assessee company to levy fire services fee on all owners of various buildings within the area of its jurisdiction, the same cannot be treated as receipt of revenue in nature. Since the entire project was being executed by the assessee as a stated owned company fire services fees which was not received in the ordinary course of business and was strictly applied for the purpose of maintaining fire brigade is like development charges collected by the assessee company and as such is inextricably linked with the success of airport project being executed by the assessee company on behalf of the state government and as such it cannot be treated as income. So the same is ordered to be treated as revenue in nature as claimed by the assessee.
Disallowance of Loss in respect of power distribution and water supply activities - CIT(A) has considered the losses due to water evaporation - HELD THAT:- As not in dispute that no company will deliberately decrease its profit. Main cause as brought on record by the assessee has been duly perused by the Ld. CIT(A) for loss on account of distribution of water is underutilization of water supply which led to low sale and it has increased the losses. It is also not in dispute that sometimes a purchaser has no option except to purchase the electricity at the higher cost and there has to be energy loss due to transmission distribution and scheduling losses. Similarly so far as water losses are concerned it is a proved fact on record that the assessee has not fully utilized the installation capacity of water supply which has become the main cause of losses for which cost has to be incurred to procure the same. Moreover, when the AO has not disputed the books of account disallowance merely on the basis of surmises is not sustainable. Decided against the Revenue.
Admission of additional grounds - assessee company by moving an application sought to raise the additional grounds on the ground that the same are purely legal grounds and can be raised at any stage of the proceedings - As contended by the Ld. A.R. for the assessee that qua assessment year 2008-09 in the first round of litigation the Tribunal has passed an order whereby issue as to earning interest being interest on fixed deposits was ordered to be decided afresh and AO has passed an order giving effect to the order passed by the Tribunal i.e. after a period of about three years - HELD THAT:- Bare perusal of the grounds goes to prove that these are purely legal grounds and as per the law laid down by the Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. [1996 (12) TMI 7 - SUPREME COURT and Jute Corporation of India Ltd. [1990 (9) TMI 6 - SUPREME COURT] the legal grounds can be raised at any stage of the appellate proceedings and hence the same are allowed.
In all eventualities the AO is required to pass the order within a period of nine months/three months as the case may be which the AO has failed to pass. Even it is not the case of the Revenue that their case falls under proviso 1 & 2 to section 153(5) of the Act nor any explanation has been brought on record. When the AO was required to pass the order giving effect to the order passed by the Tribunal within a period of three months from the end of the month in which order under section 250, 254, 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner as the case may be the assessment order passed by the AO after a period of about three years is barred by limitation, void, ab-initio and bad in law.
So the additional ground No.1 raised by the assessee is allowed. When the appeal filed by the assessee is allowed on technical ground the assessment order passed by the AO being barred by limitation, void, ab-initio and bad in law the cross appeal filed by the Revenue is also not maintainable in the eyes of law and as such is liable to be dismissed. When the additional ground No.1 raised by the assessee is allowed the Bench has decided not to go into the merits by deciding other grounds.
- 2024 (3) TMI 824
Addition u/s 69A - unexplained money u/s 69A - assessee has failed to furnish explanation/supporting documents in respect of deposit of cash on various dates and credit of amount in bank account - assessee submitted that he has received cash money from father-in-law at the time of marriage and assessee also filed an affidavit submitted the fact that on account of loss incurred in the speculative transaction. He has also sold the jewellery received by him at the time of marriage and various other subsequent functions - he has also filed a detailed list of gift received at the time of marriage and therefore, considering that aspect of the matter and considering the financial crises/shortage of funds he has deposited the cash which is receipt of gold ornaments and the money lying on him supported by the list of gift received at the time of marriage.
HELD THAT:- As agreed assessee recently been married and the cash deposit of Rs. 13,85,200/- and credit worth Rs. 14,72,754/- cannot be considered as income of the assessee. Considering all facts and arguments presented before us, we are of the considered view that the addition sustained by the lower authorities is not justified and the same is directed to be deleted. Appeal of the assessee is allowed.
- 2024 (3) TMI 823
Validity of reopening of assessment - doctrine of merger - notice of reopening as issued beyond 4 years - deduction u/s 80IA - HELD THAT:- It emerges that in original assessment order AO denied impugned deduction as claimed by the assessee u/s 80IA - CIT(A) partly allowed the claim and the assessee was allowed deduction by AO. It is crystal clear that the order of Ld. CIT(A) was confirmed by Tribunal and revenue’s appeal was not admitted by Hon’ble High Court. This issue, thus, has attained finality. The first appellate order got merged with the orders of high authorities. By revisiting this issue in reassessment proceeding, in our opinion, would tantamount to disturbing the already concluded issue which could not be permitted. Therefore, the reassessment proceedings could not be upheld for this reason alone.
Also perusal of recorded reasons would show that no new tangible material has come into the possession of Ld. AO which would indicated any escapement of income. There is no allegation in the reasons by Ld. AO that the assessee failed to disclose material facts which were necessary for assessment of income. This condition is mandatory condition since the reopening is beyond 4 years. It could also be seen that the reopening is merely at the behest of revenue audit objection. The prime requirement to reopen the case is that Ld. AO has reasons to believe that certain income had escaped assessment. The formation of belief should be based on tangible material. This condition, in the present case, has not been fulfilled.
In the case of CIT vs. Shwing Stetter India P. Ltd. [2015 (6) TMI 497 - MADRAS HIGH COURT] held that for the purpose of assumption of jurisdiction u/s 147, the AO must have reason based on materials that there has been an income escaping assessment, which warranted assumption of jurisdiction under section 147. In the absence of any such material indicating escapement of income, the proceedings would be invalid.
AO did not record any reason that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. When the AO had failed to record anywhere in his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued u/s 147 beyond the period of four years was wholly without jurisdiction and could not be sustained. This case law clearly supports the case of the assessee.
Computation u/s 115JB - Mere omission on the part of Ld. AO to consider the same could not trigger reassessment proceedings unless there was any failure on the part of the assessee to make full disclosure thereof. The complete details, in this regard, was made available by the assessee in the computation of income. Therefore, no allegation of disclosure of true facts could be made against the assessee.
We would hold that the reassessment proceedings were bad-in-law. The assessment order is accordingly quashed.
- 2024 (3) TMI 822
Addition u/s 69 - Unexplained investment by sending monies abroad in illegal means - onus to prove - material that is relied upon by the revenue is the hard disk seized during search - whether the expression “amounts sent” of 19500000 USD mentioned in seized data represent amounts sent by assessee under hawala route or the amounts sent by LGF from Cyprus to assessee company? - HELD THAT:- We are in agreement with the argument advanced by the ld. AR that if the seized documents were already provided to the assessee on 04.12.2018 itself, then what is the need for the ld. AO to grant an opportunity to the assessee to be present for receiving the cloned copy of the hard disk on 05.02.2019. Hence the version of the assessee that the cloned copy of the hard disk-2 which allegedly contained the material for making the impugned addition was never handed over to the assessee requires to be accepted.
In this background, the stand taken by the assessee that it had not sent any monies abroad through illegal means and hence there cannot be any addition u/s 69 towards unexplained investment in the hands of the assessee company requires to be accepted. We hold that when assessee states that it had not made any investment by sending monies abroad in illegal means, it cannot be asked to prove the negative. The onus shifts on the revenue to prove the fact with cogent materials that statement of assessee is incorrect. Without doing so, the revenue cannot directly proceed to make an addition u/s 69 of the Act by entertaining a huge suspicion.
We find that from perusal of the records, there is no evidence to prove that the “amounts sent” shown in the hard disk is actually amounts sent by assessee company in hawala route which had ultimately found its way in the form of share capital and share premium under FDI route. The revenue had completely addressed this issue and made an addition purely on suspicion and surmise without any basis thereby making the addition totally unsustainable in the eyes of law.
It is trite law that suspicion howsoever strong would not partake the character of legal evidence and hence a greater onus is casted on the revenue to bring on record cogent evidences to justify its suspicion, which is conspicuously absent in the instant case. The only material that is relied upon by the revenue is the hard disk seized during search which only contained the details of “amounts sent” and “amounts received”. Nowhere the said material even suggested that the amounts were sent by assessee company in illegal route which in turn had surfaced back in the form of share capital and premium under FDI route from Cyprus.
This case was even subjected to examination by CBDT Foreign Tax Division wherein FT & TR reference was also made to Cyprus tax authorities. FT & TR had submitted its report duly confirming the fact that LGF had raised monies through issue of shares and those monies had been utilized by them for making investment in shares of Assessee Company under FDI route. No adverse comments were indeed given by FT &TR of CBDT with regard to these transactions. Hence the source of source is also duly established and proved by the assessee company herein - Decided in favour of assessee.
- 2024 (3) TMI 821
Political party seeks treatment on par with Trusts - recovery proceedings initiated under Section 226(3) - seeking Stay the recovery of the impugned disputed demand - Political Party claiming exemption under Section 13A denied - Special provision relating to incomes of political parties - Denial of the exemption claimed by the assessee u/s 13A - reasons for the denial are violation of the third Proviso to Section 13A and violation of clause (d) of the first Proviso to Section 13A - HELD THAT: - Section 13A of the Act is a special provision relating to incomes of Political Parties. It prescribes that any income of a Political Party under the head – ‘income from house property’, ‘income from other sources or capital gains’ or ‘income by way of voluntary contributions received’ from any person shall not be included in the total income of such Political Party if it fulfils the conditions prescribed thereof.
In the instant case, the pre-requisites for the assessee-Political Party to exclude its voluntary contributions received and other incomes from the total income is subject to the fulfillment of the conditions prescribed therein. The scope and nature of the conditions prescribed in Section 13A of the Act has been a subject-matter of consideration by the Hon'ble Delhi High Court in assessee’s own case [2016 (3) TMI 879 - DELHI HIGH COURT] relevant discussion in the judgment of the Hon’ble High Court compliance with the conditions prescribed in Section 13A of the Act is mandatory for a Political Party in order to be eligible for the claim of exemption under Section 13A of the Act.Assessee’s case for exemption u/s 13A has to be examined in the aforesaid light.
The first case by the Assessing Officer is qua the third Proviso to Section 13A - The compliance with the third Proviso can be understood as being two-fold. First, that a Political Party is required to furnish its return of income in accordance with the provisions of sub-section (4B) of Section 139; and, second that such return is to be furnished “on or before the due date under that Section”. So far as the first essential is concerned, the same has been complied with inasmuch as there is no dispute that assessee has filed its return of income; in order to examine the second essential of the Proviso, one has to decipher the meaning of ‘due date’ for furnishing of return as envisaged in the third Proviso to Section 13A of the Act. For this purpose, we may go to sub-section (1) of Section 139, which requires an assessee to furnish its return of income on or before the ‘due date’. Explanation 2 thereof enumerates the ‘due date’ applicable to the different category of assessees, and, insofar as the due date applicable in the instant case is concerned, there is no dispute between the parties that the same is 31st December, 2018 (since extended from 30th September, 2018). Ostensibly, the return of income has been filed on 2nd February, 2019, which is beyond the due date. Consequently, there is an apparent non-compliance with the requirements of the third Proviso to Section 13A of the Act.
The third Proviso, as reproduced by us in the earlier part of this order, was inserted in Section 13A by the Finance Act, 2017 with effect from 1st April, 2018. As per the Memorandum explaining the provisions introduced in the Parliament, it was noted that Political Parties were required to file their return of income in terms of Section 139(4B) of the Act; So, however, the filing of the return was not a condition precedent for availing exemption under Section 13A of the Act. The Proviso was introduced to make it mandatory for a Political Party seeking exemption under Section 13A of the Act to furnish its return of income for the relevant year on or before the due date under section 139.
As Senior Counsel submitted that since Section 139(4B) of the Act provides that “all the provisions of this Act” shall apply to a return filed by a political party “as if it were a return furnished under subsection (1) of Section 139”, therefore, it would encompass sub-section (4) of Section 139 of the Act also.
In our view, the said argument is quite misplaced as it would negate the purpose for which the third Proviso has been inserted by the Finance Act, 2017. Moreover, the third Proviso contains the expression “the due date under section 139” and a plain reading of the provisions shows that the due date for the purpose of Section 139 is defined in terms of Explanation 2 below Section 139(1) of the Act and that such ‘due date’ is not controlled by the provisions of sub-section (4) of Section 139, which merely permits filing of belated returns.
As per the CBDT, the trusts who have filed return under Section 139(4) of the Act need not be refused the exemption for the reason that the return of income filed was not within the due date of filing of the return. It has been canvassed by the learned Senior Counsel that the two provisions being pari materia, similar reasoning should govern the understanding of the condition prescribed in the third Proviso to Section 13A of the Act with regard to the due date of furnishing of the return.
In our view, the plea of the assessee to seek treatment on par with Trusts, is misplaced having regard to the pronouncement of Hon'ble Delhi High Court in assessee’s own case.
It is incongruent for a Political Party to canvass that inspite of accepting Donations in cash exceeding Rupees two thousand each, clause (d) is not violated merely because it has maintained the details as per clause (b) of the first Proviso. Each of the conditions laid down in clauses (a), (b), (c) and (d) of the first Proviso are to be mandatorily complied with in order to claim exemption under Section 13A of the Act, as per the ratio of the judgment of the Hon'ble Delhi High Court in the case of the assessee (supra).
In the present case, the detail of Rs. 14,49,000/- clearly show that each contribution is in cash in excess of Rs. 2,000/-, thereby reflecting clear violation of clause (d) of the first Proviso. At this point, we are conscious of the statement made by the learned Senior Counsel at Bar that out of the sum of Rs. 14,49,000/-, a sum of Rs. 3,00,000/- has been received by transfer through RTGS. However, even after considering the same, violation of clause (d) to the first Proviso is palpable qua the balance of the amount.
As component of Donations received in cash in excess of Rs. 2,000/- each was merely 0.1% of the total contribution received and, therefore, the same should not invite wholesale denial of exemption under Section 13A - In our view, the said plea is manifestly contrary to the understanding placed by the Hon’ble High Court on the provisions of Section 13A of the Act. In fact, the following discussion by the Hon’ble High Court does not leave us in any doubt that once the mandatory requirements contained in Section 13A of the Act is violated, there is no discretion with the income tax authorities to give any relaxation in allowing the exemption.
Therefore, the Revenue is justified in relying on the findings of the Assessing Officer to the effect that “the assessee has complied with the provisions of clause (b) but still violated the provisions of clause (d) of first proviso to section 13A of the Act which clearly prohibit receipt of donation in excess of Rs. 2,000/- in cash”.
On the basis of the aforesaid discussion, and having regard to the legal position and the material on record, it is reasonable to conclude that the income tax authorities have not made any error in denying the exemption claimed by the assessee under Section 13A of the Act due to violation of clause (d) of the first Proviso as well as third Proviso to Section 13A of the Act. Consequently, in our view, the Applicant has been unable to make out a strong prima facie case against the interpretation of Section 13A of the Act as adopted by the Revenue to deny the exemption, so far it is relevant for the purposes of examining the merits of the present Application.
Expenditure of a political party - Once the income by way of voluntary contributions is not excludible from total income on account of denial of exemption under Section 13A of the Act, the same is liable to be treated as “income from other sources”. Thereafter, the question of allowability of expenditure incurred by a Political Party for attaining its aims and objects was declined by the Hon'ble Delhi High Court.
Recovery proceedings - The chronology of events, which have been canvassed before us starting from the passing of the assessment order on 6th July, 2021 and ulminating with the issuance of notice under section 226(3) of the Act on 13th February, 2024, in our view, does not justify an inference that the recovery proceedings have been done in an undue haste. We do not find that the recovery notice under Section 226(3) of the Act issued by the Assessing Officer on 13th February, 2024 is lacking in bona fides, so as to require us to intervene.
It was an accepted practice at the level of the Tribunal that taxpayer is entitled to a stay on the recovery proceedings on payment of 20% of the demand during the pendency of the Appeal before the Tribunal. The aforesaid argument, in our view, is too general and does not merit acceptance. Moreover, as we have already discussed in the earlier paragraphs, each Application for stay has to be decided on its own facts and circumstances, and there can be no generalized approach.
- 2024 (3) TMI 820
Disallowance of personal expenses - assessee has made payment/remittance to USA towards medical treatment of one of its Directors - HELD THAT:- We find due to non-submission of the Board Resolution approving the treatment of the Chairman of the company in USA and in absence of production of any evidence that the Chairman has admitted such expenditure as perquisites in his hands to tax, the AO disallowed the expenditure incurred by the assessee towards the treatment of the Chairman of the company in USA.
We find in absence of any further details filed before the learned CIT (A) NFAC, the learned CIT (A) NFAC upheld the action of the AO. Assessee referred to the certified copy of the Bozard Resolution and copy of Form 16 filed in the paper book and requested for admission of the same as additional evidence. He submitted that given an opportunity, the assessee is in a position to produce the copy of the resolution of the Board of Directors approving the treatment of the Chairman of the company in USA and also file the copy of the ITR of the Chairman wherein such amount has been admitted to tax as perquisites.
Thus we deem it proper to restore the issue to the file of the AO with a direction to grant more opportunity to the assessee to file the requisite details to his satisfaction and decide the issue as per fact and law - Grounds No.1 to 3 raised by the assessee are accordingly allowed for statistical purposes.
Belated deposit of employee’s contribution to PF - HELD THAT:- Issue which has now been settled by the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd [2022 (10) TMI 617 - SUPREME COURT] wherein it has been held that the employee’s contribution to PF & ESI, if not remitted before the due dates mentioned in the respective Act, cannot be allowed as a deduction. Assessee also fairly conceded that the above issue stands decided against the assessee by the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd vs. CIT (Supra). Accordingly, this ground raised by the assessee is dismissed.
Addition towards interest paid on customs duty - Allowable revenue expenses or not? - as per AO assessee had defaulted in payment of customs duty which is an offence and only on the direction of the Hon'ble Supreme Court, the assessee has paid customs duty along with interest and if assessee paid the customs duty in time, the interest expenditure would not have arrived - HELD THAT:- We find the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980 (4) TMI 1 - SUPREME COURT) has held that the interest paid u/s 3(3) of the U.P Sugarcane Cess Act, 1965 cannot be described as a penalty paid for an infringement of the law. The Coordinate Bench of the Tribunal ENKEI WHEELS INDIA LTD[2023 (2) TMI 687 - ITAT PUNE]following the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (Supra) has held that the interest paid for delayed payment of such taxes is a deductible item of expenditure. In view of the above discussion, we do not find in any infirmity in the order of the learned CIT (A) NFAC holding that the interest paid on customs duty is allowable as revenue expenditure and is not in contravention to Explanation (1) of section 37(1) of the I.T. Act. Accordingly, the ground raised by the Revenue is dismissed.
- 2024 (3) TMI 819
Addition u/s 40A - purchases in cash in excess of ₹ 20,000/ - case of the assessee that all the cash purchase are fully covered under Rule 6DD(e)(ii) of the Income Tax Rules, as many venders do not have bank account and the purchases were done away from remote areas - whether assessee has fulfilled the condition laid down in Rule 6DD? - HELD THAT:- Considering the fact that out of total purchase of 2,69,92,101/- the assessee had purchased in cash of Rs. 74,67,186/- and also by taking into consideration of the nature of the business of the assessee and by respectfully following the ratio laid down in the case of Gee Square Exports [2018 (11) TMI 658 - SC ORDER], we find merit in the Grounds of appeal of the assessee, accordingly, the disallowances/additions made by the A.O. which has been upheld by the CIT(A) is hereby deleted. Appeal filed by the assessee is allowed.
- 2024 (3) TMI 818
Deduction u/s 80IA - claim rejected on non-filing of Form 10CCB alongwith return of income - CIT(A) deleting the disallowance u/s 80IA holding that filing of Form 10CCB within the specified date as provided in section 80IA(7) of the act is not mandatory but directory in nature - HELD THAT:- On going through the contents of the order passed by the Ld. CIT(A) we observe that the order passed by Ld. CIT(A) is a non-speaking order in which the Ld. CIT(A) has not analyzed the relevant judicial precedents on the subject as applicable to the assessee’s set of facts. Further, it is observed that Ld. CIT(A) has simply accepted the version of the assessee without independently applying his mind to the facts of the case. The Ld. CIT(A) has not even considered the impact of Supreme Court judgment in the case of Wipro Ltd. [2022 (7) TMI 560 - SUPREME COURT] which was passed prior to date as passing of order by Ld. CIT(A).
Accordingly, looking into the instant facts, in the interest of justice, the matter is being restored to the file of Ld. CIT(A) for de-novo consideration - Appeal of the Department is allowed for statistical purpose.
- 2024 (3) TMI 817
Registration u/s 80G(5) - application rejected as assessee has mentioned in Form No. 10AB that one of it’s objects is “religious” in nature - Assessee submitted that on perusal of the trust deed submitted before Ld. CIT(E), it can be seen that the objects of the trust which have been mentioned are medical relief, educational objects, general public utility, preservation of environment etc. - HELD THAT:- CIT(E) while rejecting the application filed by the assessee has summarily rejected the application without analyzing the facts of the assessee’s case. CIT(E) has not pointed out any specific object in the trust deed which could be termed as “religious” in nature.
CIT(E) has also not analyzed whether any expenditure was incurred by the applicant towards “religious” purposes. We also observe that the applicant had filed written submissions on two occasions and there has been no non-compliance on part of the applicant trust in response to notices issued by CIT(E).
CIT(E) did not confront the applicant trust with regard to it’s observation that one of the objects of the assessee trust is religious in nature and simply proceeded to dismiss the application filed by the applicant without provided any opportunity of hearing to the applicant to rebut the findings made by CIT(E) which formed the basis of rejection of application by the applicant trust. Accordingly, looking into the instant facts, in the interest of justice, the matter is being restored to the file of the Ld. CIT(E) for de-novo consideration after giving due opportunity of hearing to the assessee, in accordance with law. Appeal of the assessee is allowed for statistical purposes
- 2024 (3) TMI 816
Registration u/s 80G(5)(vi) - CIT(E) rejected the application filed on the ground that the assessee / applicant has mentioned in Form 10AB that two of the objects of the assessee are “religious” in nature - CIT(E) observed that the assessee / applicant in Form No. 10AB has mentioned that it has incurred expenditure of religious nature and was of the view that Section 80G of the Act specifies that there is no provision for application of fund for any purposes other than a “charitable purpose” - HELD THAT:- Explanation 3 to Section 80G(5) suggests that the termed “charitable purpose” does not include any purpose, the “whole or substantially the whole” of which is of a religious nature. This implies that some part of the activities of a trust are permitted to be of a religious nature
Sub-Section (5B) provides that an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding 5% of it’s total income in that previous year, shall be deemed to be a institution or fund to which the provisions of this section apply. Further, notably sub-Section 5B starts with the words “Notwithstanding anything contained in Clause (ii) of sub-Section (5) and Explanation 3”. Therefore, on plain reading of sub-Section (5B) to Section 80G, it is evident that if any institution or fund incurs any expenditure which is of a religious nature for an amount not exceeding 5% of it’s total income, in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply. In the instant facts, we observe that Ld. CIT(E) has relied upon only two out of ten objects to show that the assessee is a religious trust.
CIT(E) has not made any specific observations as to whether less than 5% of the total income has been spent by the assessee towards religious purposes.
Accordingly, in the interest of justice, the matter is being restored to the file of CIT(E) for de-novo consideration after analyzing whether less than 5% of the total income has been incurred by the assessee trust towards religious activities. In case it is found that less than 5% of the total income has been incurred as expenditure by the applicant trust towards religious purposes, then benefit of Section 80G(5) of the Act may be granted to the assessee, in accordance with law. Appeal of the assessee is allowed for statistical purposes.
- 2024 (3) TMI 815
Dismissal of appeal of assessee ex-parte before the Ld.CIT(A) - there was no compliance from the assessee to the notices issued and served on the assessee - AR contended that the assessee was not given sufficient opportunities to substantiate her case and therefore, pleaded for another opportunity of being heard before the CIT(A) - AO applied the section 56(2)(vii) - HELD THAT:- As in view of the foregoing facts and circumstances of the case and keeping in view the principles of natural justice, we are inclined to remit the matter back to the file of the Ld.CIT(A) and direct the Ld.CIT(A) to afford the assessee, another opportunity of being heard before the Ld.CIT(A) and to pass order on merits. The assessee is also directed to adhere to the notices issued by the Ld.CIT(A) and furnish relevant material evidences to substantiate her case. Accordingly, the grounds filed by the assessee are allowed for statistical purpose.
- 2024 (3) TMI 814
Penalty u/s 271(1)(c) - assessee has not filed the original return of income though he had taxable income/Interest income - bonafide belief - AO had information in his possession that the assessee had made investment in FDR and had received interest income - assessee contended before the AO that he was a non-resident not well versed with the income tax law in India and return was not field due to bonafide ignorance of law - penalty order had mentioned that the notice was issued on 16-12-2021 requesting the assessee to furnish reply by 20-12-2021 but no reply was furnished by the assessee.
HELD THAT:- Observation of the AO is totally erroneous as the assessee had submitted the reply on the income tax portal on 18-12-2021 (i.e. before the due date) which is evident from the screen shot of the income tax portal and thus penalty levied by the AO is without considering the reply filed by the assessee and it is unjustified and thus deserves to be deleted.
It is noted that the assessee before leaving India, was employed in Indian Company and used to live at a rented premises. He had parked his Indian Savings fixed deposits and mutual funds which continued during the year under consideration. The assessee did not file his income tax returns due to bona fide ignorance that tax has already been deducted by the Bank on interest income and due to his stay outside India. Thus the penalty was levied by the AO on interest income on which TDS was deducted which is also reflected in Form No. 26AS.
Keeping in view the above facts, circumstances of the case and also the decision of ITAT Ahemdabad in the case Vijaybhai Dashrathbhi Patel [2022 (2) TMI 1429 - ITAT AHMEDABAD] wherein held assessee had earned interest income (being the only source of income for the captioned year), on which taxes had been duly withheld by the payer. Therefore, the assessee is conscious of the fact that the Income Tax Department is aware about his having income, but was of the mistaken view that once taxes have been deducted on this income, the assessee was not required to be filed return of income, thus not a fit case for levy of penalty since the assessee in the instant set of facts had reasonable cause for not filing of return of income - we do not concur with the order of the ld. CIT(A) and thus the appeal of the assessee is allowed.
- 2024 (3) TMI 775
Exemption u/s 11 - whether the objects of the trust were charitable? - as submitted entire benefit u/s 11 will be disallowed and it cannot be restricted only to that income of the trust which was used/applied for the benefit of the prohibited persons - HELD THAT:- Having considered the judgment of the Apex Court in Bharat Bourse (2002 (12) TMI 8 - SUPREME COURT], in our view, the issue primarily in that matter was whether assessee was a trust entitled to the benefit of Section 11 of the Act and secondly whether there was a breach of the provisions of Section 13 of the Act, where one Bharat Shah can be said to be a founder of the institution within the meaning of sub-clause (a) of sub-Section (cc) of Section 13(3) of the Act. The judgment does not say whether the entire benefit under Section 11 of the Act will be disallowed or disallowance will be only to the extent of income diverted. The basic dispute in Bharat Bourse (supra) was whether the objects of the trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act.
We also find support for this view in Audyogik Shikshan Mandal [2018 (12) TMI 1344 - BOMBAY HIGH COURT] held on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. In our view, as regards proposed question nos. (A), (B) and (C) no substantial question of law arise.
Appeal is admitted on the following question of law - “Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that expenditure incurred on new objects are eligible for exemption u/s 11 even if such new objects had not been intimated to the concerned CIT, without appreciating the fact that since the objects of the trust deed which were the basis of grant of registration u/s 12A of the Act have been altered after grant of such registration, the very foundation of registration having been removed by voluntary act of the assessee?”
- 2024 (3) TMI 774
High court power or jurisdiction to condone the delay - Condonation of delay in instituting an application for grant of leave to appeal against an acquittal or entertaining the appeal against acquittal - HELD THAT:- Upon due consideration, we are satisfied that Mohd. Abaad Ali [2024 (2) TMI 1012 - SUPREME COURT] considers and answers all the vital arguments raised in this reference and, therefore, this reference will have to be disposed of by adopting the binding reasoning therein and holding that this Court has the power or jurisdiction to condone the delay in filing an application seeking leave to appeal against an acquittal or in entertaining an appeal against acquittal under the Code of 1973.
Thus we dispose of this reference by holding that the application for condonation of delay in seeking special leave to appeal against acquittal filed by the applicant Department is maintainable. The questions framed in the learned Single Judge's order [2021 (12) TMI 766 - BOMBAY HIGH COURT] stand answered by the decision of the Hon'ble Supreme Court in Mohd. Abaad Ali's case[ supra] and there is no point in us repeating those answers.
- 2024 (3) TMI 773
Validity of Adjusting Disputed Tax Demand Against Refunds Without Considering Stay Application - Stay of demand - pre-deposit prescriptions - grant of stay pending appellate remedies - petitioner has prayed for the refund being processed after adjustment of 20% of the disputed demand for AY 2018-19 - HELD THAT:- In our considered opinion, the respondents have proceeded on a wholly incorrect and untenable premise that the assessee was obliged to tender or place evidence of having deposited 20% of the disputed demand before its application for stay under Section 220(6) of the Act could have been considered. The interpretation which is sought to be accorded to the aforesaid OM is clearly misconceived for the following reasons.
It must at the outset be noted that the two OMs’ noticed above neither prescribe nor mandate 15% or 20% of the outstanding demand as the case may be, being deposited as a pre-condition for grant of stay. The OM dated 29 February 2016 specifically spoke of a discretion vesting in the AO to grant stay subject to a deposit at a rate higher or lower than 15% dependent upon the facts of a particular case. The subsequent OM merely amended the rate to be 20%. In fact, while the subsequent OM chose to describe the 20% deposit to be the “standard rate”, the same would clearly not sustain in light of the discussion which ensues.
More recently in Indian National Congress vs Deputy Commissioner of Income Tax Central – 19 & Ors. [2024 (3) TMI 669 - DELHI HIGH COURT] we had an occasion to examine the scope of the power conferred by Section 220(6) wherein as held 20% which is spoken of in the OM cannot possibly be viewed as being an inviolate or inflexible condition. The extent of the deposit which an assessee may be called upon to make would have to be examined and answered bearing in mind factors such as prima facie case, undue hardship and likelihood of success.
We note that while dealing with the question of the claim of stay as made by an assessee and the competing obligation to protect the interest of the Revenue, the Supreme Court in Benara Valves Ltd. & Ors. Vs Commissioner of Central Excise & Anr. [2006 (11) TMI 6 - SUPREME COURT] wherein held for a hardship to be 'undue' it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it. The word "undue" adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
Though some of the decisions noticed by us hereinabove pertained to pre-deposit prescriptions placed by a statute, the principles enunciated therein would clearly be of relevance while examining the extent of the power that stands placed in the hands of the AO in terms of Section 220(6) of the Act. In our considered opinion, the respondents have clearly erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been entertained without a 20% pre-deposit. The aforesaid stand as taken is thoroughly misconceived and wholly untenable in law.
Undisputedly, and on the date when the impugned adjustments came to be made, the application moved by the petitioner referable to Section 220(6) of the Act had neither been considered nor disposed of. The respondents have thus in our considered opinion clearly acted arbitrarily in proceeding to adjust the demand for AY 2018-19 against available refunds without attending to that application. This action of the respondents is wholly arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it is found that the application for stay remained pending and the said fact is not an issue of contestation. WP allowed.
- 2024 (3) TMI 772
Capital gain - Valuation of the property sold by the assessee - reference to DVO for the determination of the value of the cost of suggestion declared by assessee - Scope of amendment in section 55A(a) w.e.f. 01-07-2012 allowing reference for determination of fair market value of cost of land - HELD THAT:- Amendment brought w.e.f. 01-07-2012 would be applicable from Assessment Year 2013-14 and therefore the submission made by the ld. A.R. that such reference cannot be made u/s. 55A of the Act for the year under consideration i.e. Assessment Year 2012-13 is found to be acceptable.
Therefore, argument advanced by the ld. senior counsel on the merit of the matter and the order passed by the Kolkata Bench, we do not hesitate to hold that the reference made by the ld. A.R. in the instant case u/s. 55A of the Act is not found to be sustainable in view of the amendment in section 55A(a) w.e.f. 01-07-2022 applicable from Assessment Year 2013-14 and not to the instant case for Assessment Year 2012-13. Thus we delete the addition made by the authorities below.
- 2024 (3) TMI 771
Disallowance of claim of interest expenses u/s. 57(iii) - assessee has returned the loss under the head “income from other sources” - AO noted that while the assessee had charged interest @12%, the same had been advanced by charging lower rate of interest, i.e. ranging from 6% to 10% and the difference accordingly was worked out and was disallowed in terms of section 57(iii) - HELD THAT:- As is evident from the order of the AO reproduced above, he has disallowed that portion of the interest expense incurred on loans taken which was in excess of the interest charged on loans given by the assessee. Which means that in sum and substance he accepted the usage of interest bearing funds for earning interest income when he allowed that portion of interest expense which was in parity with the interest charged by the assessee on loans/advances given. Having accepted this fact therefore the AO was precluded from making any disallowance of interest u/s. 57(iii) since the only requirement to be fulfilled for claiming expenses under the said section is that they must have been incurred wholly and exclusively for the purpose of earning income from other sources. What is relevant therefore is only the nexus of expenditure for earning income and the quantum of expenditure incurred therefore is of no consequence.
For allowability of expenses under the said section, the nexus of the expenditure with the earning of income is essential conditions to be fulfilled.
Clearly the disallowance made u/s. 57(iii) is contrary to law as interpreted by the Revenue authorities themselves. Revenue authorities have also misinterpreted the provision of section 57(iii) of the Act by stating that expenses under the section can be allowed only if income is earned from the incurrence of the said expense, and the term income means profit earned. The Revenue authorities have made the disallowance in the present case noting that assessee had made losses and therefore as earned no income.
This basis of the Assessing Officer is completely devoid of any merits, what the section requires is that expenses must have been incurred for the purpose of earning income to be eligible to claim the same against the said income. There is no question of interpreting the term “income as profits”. The moment expenditure has been incurred for earning income, the expenditure incurred for the same qualifies for deduction u/s. 54(iii) - In the present case, it is not disputed that the assessee has earned interest income - Therefore, the AO’s finding that there is no income is factually incorrect and this basis of the AO is, therefore, for denying the assessee’s claim of expenditure u/s. 57(iii) of the Act is liable to be quashed.
We find that the AO has dismissed this contention of the assessee stating that there ought to be a clear nexus between the expenditure incurred and the income earned as observed in SETH R. DALMIA VERSUS COMMISSIONER OF INCOME-TAX, DELHI [1977 (9) TMI 1 - SUPREME COURT].
AO has not stated as to how in the light of the facts stated by the assessee, the nexus was not established, he has just summarily dismissed the contention of the assessee. In the absence of the AO pointing out as to how despite the assessee’s explanation, there was no nexus between the interest bearing-funds and their utilization for making advances for earning interest income, no disallowance u/s. 57(iii) of the Act was tenable. Assessee appeal allowed.
- 2024 (3) TMI 770
Deduction u/s 80P - interest earned on deposits parked with Krishna Co-operative Central Bank Limited - contention of the Ld. AO and the Ld. DR is that interest accrued on Reserve Fund Deposits is not eligible for deduction U/s 80P - HELD THAT:- Respectfully following the decision of Vavveru Cooperative Rural Bank Ltd [2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] and Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited [2023 (9) TMI 211 - ITAT VISAKHAPATNAM] wherein held interest income should be allowed as deduction u/s. 80P(2)(a)(i), thus we are inclined to quash the order passed by the Ld.CIT(A) and allow the appeal of the assessee.
- 2024 (3) TMI 769
Accrual of income India - Service PE/ virtual service PE in India - computation of threshold date for constitution of service PE - attribution of the entire receipts to such alleged service PE/ virtual service PE of the assessee in India - AO held that the services were provided by the employees of the assessee to the clients in India for a period of more than 90 days, physical presence of employees is not relevant and accordingly constituted virtual service PE in India on account of the nexus rule provided in Article 5(6) of India-Singapore DTAA.
HELD THAT:- The term “fiscal year” means the previous year as defined under section 3 of the Act which is the relevant AYs in the present case and the threshold of 90 days is to be applied since the services are rendered to independent Indian client by the assessee and not to its related enterprise.
Applying the provisions of Article 5(6)(a) to the present case, in our considered view to constitute a service PE actual performance of service in India is essential and accordingly only when the services are rendered by the employees within India with their physical presence during the financial year relevant to the AYs under consideration shall be taken into account for computing threshold limit for creation of a service PE of the assessee in India. The Hon’ble Supreme Court in the case of E-funds IT Solutions Inc. [2017 (10) TMI 1011 - SUPREME COURT] observed that requirement of service PE is that services must be furnished “within India”.
As undisputed fact that the employees of the assessee were present in India for total number of 120 days in AY 2020-21 and none of the employees were present in India in AY 2021-22. Out of the total 120 days the vacation period amounted to 36 days which has been substantiated by the assessee by furnishing the relevant evidence thereof.
To arrive at the threshold, the Ld. AO has considered business development days comprising of 35 days as well as common days comprising of 5 days which in our considered view should be excluded while computing the threshold of service PE as no services were provided to customers in India on the days spent on business development activities and the computation of threshold should not be based on man days by aggregating common days spent by more than one individual. In effect, the services have been furnished by the assessee only for 44 days in India after excluding vacation period, Business Development days and common days and accordingly the assessee does not constitute service PE in India as per India-Singapore DTAA during the AY 2020-21.
So far as AY 2021-22 is concerned, as discussed above physical rendition of services in India beyond the threshold period is a prerequisite for creation of service PE and as none of the employees of the assessee were physically present in India during the AY 2021-22, in our view, the assessee does not constitute service PE even in AY 2021-22.
Thus the arguments put forth by the parties and the judicial precedents relied upon by the Ld. AR, we hold that the assessee does not constitute service PE/virtual service PE in AY 2020-21 and 2021-22. The receipts by the assessee in AY 2020-21 and AY 2021-22 are in the nature of business profits of the assessee not taxable in India in the absence of the PE of the assessee in India in terms of Article 7 r.w. Article 5(6)(a) of the India- Singapore DTAA. Accordingly, ground Nos. 5 to 7.1 in AY 2020-21 and ground No. 6 to 8.1 in AY 2021-22 are allowed.
Levy of interest u/s 234A on the ground that the income tax return was filed within the extended due date for filing the return - HELD THAT:- Interest under section 234A is levied only in cases where the assessee does not furnish its return of income or furnishes it after the due date prescribed under section 139 of the Act. The Ld. AR submitted that the assessee filed its return of income within the prescribed (extended) due date applicable to the relevant AYs under consideration which is supported by the copies of the ITRs filed before the lower authorities. Hence we deem it fit and proper to restore this issue to the file of the Ld. AO for verification as to the filing of date of return viz-a-viz the due date of filing of return for the AYs 2020-21 and 2021-22 and decide it afresh in accordance with law.
Levy of interest u/s 234B - AR submitted that proviso inserted in section 209(1)(d) of the Act by the Finance Act, 2012 w.e.f. 01.04.2012 would apply only in a scenario where person responsible for deducting tax has paid or credited such income without deduction of tax - HELD THAT:- As relying on Amadeus IT Group SA levy [2023 (10) TMI 1138 - ITAT DELHI] interest under section 234B of the Act is not called for. Accordingly, interest levied under section 234B of the Act is hereby deleted.
Addition of income received from ICICI Bank and addition of interest on income tax refund - Addition made on the ground that the same was appearing in Form 26AS for AY 2021-22 and that such amount was received by the assessee during the year under consideration which was not offered to tax while filing the return of income - HELD THAT:- Additions of income from ICICI Bank Ltd. and interest income on income tax refund solely on the basis of the fact that such amounts are appearing in Form 26AS is not sustainable in law and hence liable to be deleted. In support reliance is placed on the decision of Ravinder Pratap Thareja [2015 (10) TMI 1487 - ITAT JABALPUR] wherein it is held that merely because a payment is reflected in Form 26 and is shown to have been made to the assessee, it cannot be brought to tax in his hands when the said money is not received by the assessee. Support may also be drawn from the case of Dr. Swati Mahesh Vinchurkar [2021 (6) TMI 1123 - ITAT SURAT] wherein the Tribunal placing reliance on the decision of Ravinder Pratap Thareja’s case (supra) held that once the assessee denied that she has not earned such income as reflected in her Form 26AS, the onus is shifted on the Revenue Authorities to prove that such income belongs to the assessee.
The assessee has claimed that it has not received any payment from ICICI Bank and any refund and interest on refund from the Income Tax Department on which TDS has been deducted which is reflected in Form 26AS - thus considering matter and judicial precedents cited above we restore the matter to the file of the Ld. AO to verify the claim of the assessee - Decided in favour of assesse for statistical purposes.
Case Laws - GST
- 2024 (3) TMI 836
Constitutional validity of Section 15(5) of the CGST Act and Rule 31-A of the CGST Rules - Challenge to SCN on the grounds that such notice was issued under the provisions, which were unconstitutional according to the petitioners - HELD THAT:- The petitioners did file the application before the Adjudicating Authorities for information and documents and it is not as if such information and documents were not furnished to the petitioners. All the documents or information may not have been supplied, but that was mainly because the petitioners avoided the specifics and even refused to explain the relevancy. All this has to be considered in the light of a clear and categorical submission/statement that the impugned show cause notices are to be disposed of based upon the RUDs and the non-RUDs already furnished to the petitioners.
In T. Takano [2022 (2) TMI 907 - SUPREME COURT] relied upon by the petitioners, the Hon'ble Supreme Court has held that it could not be oblivious to the wide range of sensitive information that the investigation report submitted under Regulation 9 of the SEBI Regulations may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The Court held that the report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities marker. Therefore, the Court held that the requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or regards the dealings of third parties. The investigating authority may acquire information of a sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected.
In T. Takano, the Hon'ble Supreme Court relied upon Natwar Singh [2010 (10) TMI 156 - SUPREME COURT], wherein it was observed that there are exceptions to the general rule of disclosing evidentiary material. The Court held that such exceptions can be invoked if the disclosure of material causes harm to others, is injurious to public health or breaches confidentiality. The Court held that while identifying the purpose of disclosure one of the crucial objectives of the right to disclosure is securing the transparency of instructions. The claims of third-party rights vis-a-vis the right to disclosure cannot be pitted as an issue of public interest and fair adjudication.
T. Takano provides that a quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication. A mere ipse dixit of the authority that it has not relied on certain material would not exempt it from its liability to disclose such material if it is relevant to and has a nexus to the action taken by the authority. Thus, the actual test is whether the material that is required to be disclosed is relevant for the purpose of adjudication. If so, then the principles of natural justice require its due disclosure.
On conclusion of investigation proceedings, the investigation team indeed prepared investigation report, and further it is on acceptance of the same by the competent authority that the show cause notices were issued, then subject to exceptions being made out by the respondents, copy of such investigation report should be furnished to the petitioners. If such an investigation report contains sensitive information regarding the identity of the sources or regarding third parties and unrelated transactions, respondents can always furnish such investigation reports to the petitioners by redacting such portions and such information.
Thus, no directions are called for in the context of inter-departmental communications or records/file notings or data/information shared with ISI. Records show that respondents have furnished all the documents relied upon in the show cause notices and even allowed the petitioners' inspection based upon which they retrieved the Non-Relied Upon Documents. The show cause notice is detailed and refers to the material/documents based upon which it is issued. All this, coupled with the statement/submission that the show cause notices would be disposed of by reference to the documents furnished to the petitioners, suggests sufficient transparency and fairness.
The petitioners must join the adjudication process and not delay the same. This clarification is necessary because Ms Desai, at the stage of admitting these petitions, has made a statement that final orders will not be made without the leave of this Court.
All these civil applications are disposed of.
- 2024 (3) TMI 835
Maintainability of petition - appealable order u/s 107 of the Goods and Service Tax, 2017 - petitions have been dismissed by this Court on the ground of availability of an efficacious alternative remedy - HELD THAT:- In Hameed Kunju vs. Nizam [2017 (7) TMI 1414 - SUPREME COURT] the Apex Court held that any petition under Article 227 of Constitution of India should be dismissed in limine when there is statutory provision of appeal. In another case ANSAL HOUSING AND CONSTRUCTION LTD. VERSUS STATE OF U.P. AND ORS. [2016 (3) TMI 1435 - SUPREME COURT] it is held that when there statutory appeal is provided, then the said remedy has to be availed.
Looking to the fact of availability of an efficacious alternative remedy, it is not found proper to entertain this petition. Petitioner would be at liberty to avail the alternative remedy in accordance with law, if so advised.
Petition dismissed.
- 2024 (3) TMI 834
Orders passed u/s 83(1) of the CGST Act - repeated issuance of provisionally attachment order - cash credit accounts - HELD THAT:- Learned counsel for the petitioners submits that repeated attachment of cash credit accounts in exercise of power u/s 83 of the CGST Act is in breach of the provisions of Section 83(2) and such exercise could not have been undertaken. He further submits that petitioners have not received copies of attachment order dated 13.12.2023.
Admittedly, the order subject matter of these proceedings has ceased to operate, the petition is disposed of reserving the right of the petitioner to impugn the fresh attachment order dated 13.12.2023 in accordance with law. The question of validity of repeated issuance of attachment orders u/s 83 of the CGST Act is left open.
All rights and contentions of parties are reserved.
- 2024 (3) TMI 833
Cancellation of CGST registration - defective Show Cause Notice - HELD THAT:- Learned counsel for the petitioner inter-alia submits that since there were no details of the alleged invoices or bills which were made without supply of goods or services provided the petitioner was precluded from filing a reply to the Show Cause Notice.
Thus, order dated 23.12.2021 is set aside. Respondents are directed to furnish all material that they possess in support of the Show Cause Notice dated 05.11.2021 to the petitioner within one week. Petitioner shall file a reply within a period of seven working days thereof. Respondents shall thereafter adjudicate the Show Cause Notice in accordance with law within a maximum period of two weeks of filing of the reply.
It is clarified that this Court has neither considered nor committed on the merits of contentions of either party. Proper Officer shall adjudicate the Show Cause Notice uninfluenced by anything stated in this order on merits. He shall pass a detailed speaking order after giving an opportunity of personal hearing to the petitioner.
Petition is disposed of in the aforesaid terms
- 2024 (3) TMI 832
Utilization of CENVAT credit available in the Electronic Credit Ledger - whether the appellant, to comply with the requirement of sub-section (6) of Section 107 of the CGST Act of paying a sum equal to 10% of the amount of tax in dispute arising out of the impugned order, can pay the amount utilizing the credit available in the Electronic Credit Ledger? - HELD THAT:- The aforesaid question is no more res integra. The Hon’ble Bombay High Court in the case of Oasis Realty [2022 (10) TMI 42 - BOMBAY HIGH COURT], having considered the relevant provisions, held CBIT&C has itself clarified that any amount towards output tax payable, as a consequence of any proceeding instituted under the provisions of GST Laws, can be paid by utilisation of the amount available in the Electronic Credit Ledger of a registered person. The CBIT&C has also requested that suitable trade notices be issued to publicize the contents of the circular.
Keeping in mind the ratio laid down by the Hon’ble Bombay High Court in the case of Oasis Realty as well as the circular dated 6th July 2022 issued by the GST Policy Wing, Central Board of Indirect Taxes and Customs, Ministry of Finance, Government of India, it has been clarified that the payment of pre-deposit can be made by utilizing the Electronic Credit Ledger (ECL).
The petitioner may utilize the amount available in the Electronic Credit Ledger to pay the 10% of Tax in dispute as prescribed under sub-section (6) of Section 107 of the CGST Act. Accordingly, the impugned order-inappeal No.CR/ADC/APL/147/2022 dated 25th July 2022 passed by the respondent No.2 is hereby quashed and set aside. The appeal is restored to file on the undertaking of the petitioner that it shall debit the Electronic Credit Ledger within two weeks of this order getting uploaded towards this 10% payable under Section 107(6) (b), if not already debited, is accepted.
Petition disposed off.
- 2024 (3) TMI 788
Dismissal of contempt petition - appellant submits that the contempt bench has dismissed the contempt petition being not maintainable by observing that there is no provision under the G.S.T. Act for deciding the representation - HELD THAT:- After hearing learned counsel for the parties, independent of observation made by contempt bench that there is no provision under the Act, 2017 for deciding the representation, we find that the representation of the petitioner in terms of Writ Court's order dated 4.8.2023 stand decided by the competent authority by passing the order dated 21.9.2023 and, therefore, on the face of it, no contempt is made out as the remedy before the petitioner is to challenge the said order in accordance with law.
Petition dismissed.
- 2024 (3) TMI 787
Extension of time to file appeal under sub-section (1) of Section 107 of the Central Goods and Services Act, 2017 till January 31, 2024 - it is submitted that this notification only deals with the orders passed under Sections 73 and 74 of the Act and does not take into account the orders passed under Sections 129 and 130 of the Act - HELD THAT:- This Court is not in a position to issue a writ of mandamus directing the Central Government to include Sections 129 and 130 of the Act in the said notification. However, the Government can very well consider adding these two Sections in the said notification, so that the benefit that has been provided for the orders passed under Sections 73 and 74 of the Act can be extended to Sections 129 and 130 of the Act.
The GST council and the Central Board of Indirect Taxes, Ministry of Finance, is directed to look into this aspect of the matter at the earliest.
The matter is adjourned sine die with liberty granted to the counsel appearing on behalf of the petitioner to mention the same at the appropriate time.
- 2024 (3) TMI 786
Maintainability of appeal - requirement to make pre-deposit of 10% of the disputed tax amount - Permission to petitioner to withdraw and/or to operate the Petitioner’s bank account, so as to make pre-deposit for filing of such Appeal - HELD THAT:- The prayers as made in the Petition are required to be permitted, as such amount is to be utilized by the Petitioner for making the pre-deposit, hence, it would not fall under the description of the amount being used for any private purpose, but to deposit the same, with the Government for maintaining the Appeal. We have taken a similar view in other proceedings.
The Petitioner is permitted to operate Bank Account No. 713915009 to withdraw the amount of Rs. 7,89,09,671/- to be deposited for the purpose of filing of the Appeal in assailing the impugned Order-in-Original - Petitioner is also permitted to avail of the facility of electronics (NEFT/ RTGS) transfer for making such deposit. To such extent and only in respect of the said amount, the provisional attachment of the Bank Account in question shall stand lifted, and for no other purpose. It should be a single transaction - Petition disposed off.
- 2024 (3) TMI 785
Penalty proceedings u/s 129(3) of UPGST Act - search and seizure is carried out at the godown - subsequent to search and seizure carried out under Section 67 of the Act, penalty proceedings have been launched - HELD THAT:- There does not seem to be any controversy with regard to the facts as penned in the writ petition with regard to the imposition of the penalty under Section 129 (3) of the Act, in spite of there being search and seizure carried out under Section 67 of the Act.
The entire proceedings that have been initiated have no feet to stand, and accordingly, the impugned orders dated June 15, 2018 and May 1, 2019 are quashed and set aside - Petition allowed.
- 2024 (3) TMI 784
Violation of principles of natural justice - order under Section 74 of the Act was passed without granting any opportunity of hearing to the petitioner - HELD THAT:- Upon an examination of the material on record, it is found that this will be an exercise in futility to grant time for filing the counter affidavit, as the point involved in this writ petition is only a point of law. Firstly, as held by this Court in M/S SHREE SAI PALACE VERSUS STATE OF U.P. AND OTHERS [2024 (3) TMI 49 - ALLAHABAD HIGH COURT] this Court has held that if an adverse order is passed under Section 74 of the Act, it is mandatory that opportunity of hearing be granted under Section 75(4) of the Act. On this very basis, the impugned orders do not have any legs to stand and are liable to be quashed and set aside.
Furthermore, the judgement relied upon by the learned counsel for the petitioner in M/S DAIMOND (DIAMOND) STEEL VERSUS STATE OF UP AND 3 OTHERS [2023 (4) TMI 497 - ALLAHABAD HIGH COURT]is also buttressing the arguments of the petitioner that the adjudication carried out by the authorities below was nothing but a best judgement assessment, and accordingly, is against the principles as established in law.
The impugned orders dated February 22, 2023 and January 16, 2023 are quashed and set aside with a direction upon the authorities to carry out de novo assessment, after granting opportunity of hearing to the petitioner, within a period of three months from date - petition allowed.
- 2024 (3) TMI 783
Doctrine of promissory estoppel - Benefit under incentive Scheme - Scenarios of new Acts replacing the VAT Act, ensuring entitlement despite the GST regime. - refusal to disburse the rest of the amount of the scheme on the plea that in the altered GST regime, the scheme cannot be continued, since the scheme did not contemplate of such tax - HELD THAT:- A close scrutiny of Clause 19.2 of the subsidy scheme indicates that the same specifically stipulates that in the event of the West Bengal Value Added Tax Act, 2003 “being replaced by any other Act”, the provision of the Scheme will apply mutatis mutandis even after the new Act comes into force - Thus, in the absence of any other Act being introduced apart from the GST Act, which has subsumed the VAT Act, the argument advanced by the respondents cannot be accepted.
Admittedly and even as per such judgment as cited by the respondents, the said component is also envisaged within the GST scheme of things. Both the Centre and States have their respective shares in the GST taxes. Hence, it cannot be said that the respondents would be deprived of any component if the petitioners come within the purview of the GST scheme - In the present case, the petitioners were issued both RC-I and RC-II and the petitioners’ application under the subsidy scheme was duly sanctioned.
The petitioners, in fact, have continued commercial production under the specific promise made by the State of giving the incentive/subsidy under the scheme-in question - the doctrine of promissory estoppel is squarely applicable in the present case.
The sanction was granted to the petitioners under the said Scheme, thereby clearly admitting the fact and acquiescing to the position that the petitioners were entitled to the benefits of the scheme - the petitioners are squarely entitled to claim the benefits of the subsidy scheme-in-question even after coming into force of the GST Act, as per Clause 19. 2 of the Scheme.
The respondent authorities have acted palpably de hors the scope of the scheme in passing the impugned order dated February 17, 2022 authored by the Managing Director, West Bengal Industrial Development Corporation Limited where it has been held that the petitioners are not eligible for disbursement/sanction for incentive under the Scheme. The said order is, thus, set aside - Petition allowed.
- 2024 (3) TMI 782
Levy of interest u/s 50(3) of the West Bengal Goods and Service Tax Act 2017 - wrong availment of Input of Tax Credit and reversal thereof - respondents fairly states that there has been an amendment made in the Finance Act, 2022 in Section 50(3) with retrospective effect from 1st July, 2017 which entitles the petitioner not to pay the interest on the Input Tax Credit availed and reversed but the same has not been utilized - HELD THAT:- The present writ petition is allowed and the impugned order dated 15.10.2020 passed by the respondent no.2 and an order dated 11.01.2022 passed by respondent no.3 are hereby set aside and the petitioner is relegated back to the adjudicating authority for fresh consideration as per law.
- 2024 (3) TMI 781
Recovery notice - Validity of assessment orders pertaining to four assessment years - notices were not served in accordance with Section 169 of applicable GST statutes - violation of principles of natural justice - HELD THAT:- On examining the show cause notice, it is evident that personal hearing was offered to the petitioner. In these circumstances, as a registered person, the explanation provided by the petitioner for not responding to these notices is not convincing. On examining the impugned assessment order, it is clear that the petitioner was not heard. It is also clear that the assessing officer relied on information available on a particular website on the internet to attribute values to materials used in construction. If the petitioner had been heard, the petitioner would have able to place relevant materials on record to endeavor to convince the assessing officer that the values estimated by him are incorrect. In these facts and circumstances, the impugned assessment orders warrant interference, albeit by putting the petitioner on terms.
The impugned assessment orders are quashed subject to the condition that 10% of the disputed tax demand under each assessment order be adjusted against the credit available in the electronic credit ledger of the petitioner. The petitioner is also permitted to submit replies to the show cause notice within a maximum period of fifteen days from the date of receipt of a copy of this order.
Petition disposed off.
- 2024 (3) TMI 780
Dismissal of the petition under section 107 of the Central Goods and Services Tax Act, 2017 - Seeking to avail the option under section 30 of the GST Act for revocation of the cancellation of registration - appeal dismissed on the ground of time limitation - HELD THAT:- Section 39 of the GST Act provides that every registered person other than an input service distributor or a non-resident taxable person shall for every calendar month or part thereof furnish a return of inward and outward supply of goods and service. There are other requirements/ stipulations under section 39 which every registered person/Firm is required to comply. Section 45 provides a window to the registered person/Firm for restoration of the registration by allowing/furnishing of a final return within three months from the date of the cancellation or from the date of the order of cancellation whichever is later. Under section 30, any registered person whose registration is cancelled may apply for revocation of cancellation of registration in the prescribed manner.
The primary object behind the GST Act is levy and collection of tax on intra State supply of goods or services and the matters connected therewith or incidental thereto. Now the cancellation of registration shall ensue serious civil consequences for the petitioner and his entire business shall come to a standstill. The provisions under sections 30, 45, 46, 47 etc. are intended at providing opportunity to the defaulter Firm so as the Firm continues its business. Therefore, a liberal approach is required to be taken in the matters like the present proceeding notwithstanding the period prescribed under section 30 of the GST Act having been lapsed - a permission to the petitioner to file an application under section 30 of GST Act can be granted subject to the petitioner making payment of dues and other statutory penalty/fine for moving the application under section 30 of the GST Act.
The present writ petition succeeds to the extent that the petitioner may file an application under section 30 of the GST Act within a period of 30 days and the period of limitation shall be counted from the date of this order - Petition allowed.
- 2024 (3) TMI 779
Violation of principles of natural justice - opportunity of hearing not provided - It is the case of the petitioner that the SCN itself reflects that the date of personal hearing, time of personal hearing and the venue of personal hearing has been left blank - HELD THAT:- From the perusal of Section 75(4) of the Act, it is evident that opportunity of hearing is to be granted by authorities under the Act wherein request is received from the person chargeable with tax or penalty or opportunity of hearing where any adverse decision is contemplated against such person. Thus, where an adverse decision is contemplated against a person, such a person even need not to request for opportunity of personal hearing and it is mandatory for the authority concerned to afford opportunity of personal hearing before passing an order adverse of such person, as has been held in MAT No. 205 of 2023.
This Court finds that the appellate authority has violated the principle of natural justice by not affording an opportunity of hearing to the petitioner. The delay in filing of the appeal is condoned and the present writ petition is allowed by setting aside the impugned order dated 17.01.2024 - It is hereby directed that the appellate authority shall give personal hearing to the petitioner and his appeal shall be decided on merits.
As the petitioner deposited pre-deposit amount 10% of the disputed tax amount, there shall be a stay of the recovery proceedings till disposal of the appeal case - the present writ petition is disposed off.
- 2024 (3) TMI 778
Validity of assessment orders pertaining to specific assessment years - allegation is that petitioner had not produced project wise details of work done in every financial year - concrete evidence to prove the nature of business carried on by the petitioner or not - HELD THAT:- On examining the impugned assessment orders, it is noticeable that the reply submitted by the petitioner on several dates were referred to therein. All the documents submitted by the petitioner, such as purchase documents, Government approvals, copies of sale deeds to customers, documents relating to development fees paid to the Government and the statement relating to purchase of goods were taken into account.
It is evident that the assessing officer engaged with the evidence placed on record by the petitioner and entered findings after appraising such evidence. It cannot be said that a reasonable opportunity was not provided to the petitioner and that the order is a consequence of non application of mind. In these circumstances, no case is made out to warrant interference in exercise of discretionary jurisdiction. The appropriate recourse for the petitioner would be to carry these assessment orders in appeal before the appellate authority.
These writ petitions were filed in January 2024 after orders were issued on the rectification petitions on 05.01.2024. In these circumstances, if appeals are presented by the petitioner within a period of 15 days from the date of receipt of a copy of this order, the appellate authority is directed to consider and dispose of the same on merits without going into the question of limitation.
Petition disposed off.
- 2024 (3) TMI 777
Rectification of errors in filing GST Returns - Error on the part of the petitioner while submitting its GST returns for the period July, 2017 i.e., at the stage when GST law was at its primitive stage upon being implemented with effect from 01.07.2017 - HELD THAT:- HELD THAT:- Taking note of the fact that the impugned order being totally silent about the contentions and submissions made by the petitioner in its reply to the show cause notice; it is inclined to interdict the impugned order and setting aside the same further remitting the matter back to respondent No. 1 for reconsideration of the submissions of the petitioner that were raised in its reply to the show cause notice and to pass orders afresh. It is directed that respondent No. 1 may grant fresh personal hearing to the petitioner.
In order to avoid further delay, the petitioner are directed to remain present before the authority concerned on 27.02.2024, for which there would not be any necessity of issuance of a fresh notice by the authority concerned.
Petition allowed by way of remand.
- 2024 (3) TMI 776
Condonation of delay in filing the appeal and non-payment of fee towards filing of appeal - delay of 920 days - Exemption from GST - service of cold storage of tamarind inner pulp without shell and seeds - comes within the purview of the definition of Agricultural produce vide Notification No. 11/2017 and 12/2013-CT(Rate) dated 28.06.2017 or not - HELD THAT:- The order was received by the Appellant on 03.04.2021 as per the RPAD acknowledgment card received and placed in the office records. Hence the last date for filing the appeal under Section 100(2) of the CGST Act, 2017, would be 02.05.2021. The last date for filing the appeal with a delay of 30 days with condonation petition (as per first proviso to Section 100(2) of the CGST Act, 2017) would be 01.06.2021, Whereas it is seen that the actual date of filing the appeal by the Appellant was on 07.11.2023. Clearly, there has been a delay of 920 days from the last date of filing the appeal under Section 100(2) of the CGST Act, 2017.
As per the statute, the Appellate Authority can condone a delay of 30 days beyond the normal period of thirty days given for filing the appeal provided, sufficient cause is shown by the Appellant. In the present case, there is a delay of 920 days which is way beyond the power of the Appellate authority to condone, let alone examining as to whether sufficient cause was shown by the Appellant.
The law of limitation in India identifies the need for limiting litigation by striking a balance between the interests of the state and the litigant - the filing of the appeal falls beyond the powers conferred under proviso to Section 100(2) of the COST Act, 2017.
The ruling of the Hon’ble Supreme Court in Singh Enterprises Vs CCE, Jamshedpur [2007 (12) TMI 11 - SUPREME COURT] is squarely applicable to the facts of the case. It is evident that this Appellate Authority being a creation of the statute is empowered to condone the delay of only a period of 30 days after the expiry of the initial period for filing appeal. As far as the language of section 100 of the CGST Act, 2017 is concerned, the crucial words are ‘not exceeding thirty days’ used in the proviso to sub-section (2) - further, to hold that this Appellate Authority could entertain this appeal beyond the extended period under the proviso would render the phrase ‘not exceeding thirty days’ wholly redundant. No principle of interpretation would justify such a result. Notwithstanding the above, the Appellate Authority is not a ‘Court’ and hence the power to condone beyond the prescribed period does not lie with it.
Since the appeal cannot be allowed to proceed on account of time limitation, the question of discussing the merits of the issue in this case in appeal does not arise.
The delay cannot be condoned - appeal dismissed.
- 2024 (3) TMI 748
Cancellation of GST registration of petitioner - time limitation - petitioner states that an appeal was filed against such cancellation order but that such appeal was rejected as being time barred - HELD THAT:- The appellate authority cannot be faulted for rejecting the appeal in view of the language of Section 107 of the Central Goods and Services Tax Act, 2017. At the same time, the petitioner should not be left without remedy. The reasons set out in the order of cancellation is non filing of returns for a continuous period of more than six months. In Suguna Cutpiece v. The Appellate Deputy Commissioner (ST)(GST) and others, [2022 (2) TMI 933 - MADRAS HIGH COURT], this Court directed restoration of registration subject to certain conditions. In the over all facts and circumstances, the petitioner is entitled to an order on similar lines.
The petitioner is directed to file returns for the period prior to the cancellation of registration, together with tax dues along with interest thereon and the fee fixed for belated filing of returns within a period of forty five (45) days from the date of receipt of a copy of this order - Petition disposed off.
- 2024 (3) TMI 746
Violation of principles of natural justice - ex-parte order - petitioner states that he could not file a reply as he did not had access to the portal as the registration of the petitioner had been cancelled retrospectively - HELD THAT:- Perusal of the Show Cause Notice shows that the Department has given separate headings excess claim Input Tax Credit [ITC], under declaration of ineligible ITC and ITC claim from cancelled dealers, return defaulters and tax non-payers.
The impugned order, however, after recording the narration, records that a demand as ex-parte is created - the petitioner was unable to access the Show Cause Notice or reply to the said Show Cause Notices.
The impugned order which had been passed solely on account that petitioner had not file a reply cannot be sustained. The matter is liable to be remitted to the Proper Officer for re-adjudication. Accordingly, the impugned order dated 22.12.2023 is set aside - Petition disposed off.
Case Laws - Customs
- 2024 (3) TMI 813
Levy of Merchant Overtime Fee - carrying out examination and supervision of loading of export goods at the factory of the manufacturer during office hours on working days the Central Excise Officers - HELD THAT:- It is not in dispute that the place of working/ supervision was at the factory of the appellant and it is also not in dispute that supervision was made by the Range Central Excise Officer in whose territory the factory of the appellant is located. Chapter 13 of the C.B.E. & C.’s Customs Manuals deals with “Merchant Overtime Fee” wherein it is provided that if services are rendered by the Custom Officer at a place which is not his normal place of work or place beyond the custom area, overtime is levied even during the normal working hours.
In the facts of the case, none of the condition for levy of the MOT charges is satisfied and accordingly, the appeal is allowed by answering the questions in negative and in favour of the appellant to the effect that the appellant would not be liable to pay Merchant Overtime Charges for carrying out examination and supervision of loading of export goods at the factory premises of the manufacturer during the office hours on working day by the Central Excise Officers contrary to the instruction of the Central Board of Excise and Customs.
Appeal allowed - decided in favour of appellant.
- 2024 (3) TMI 812
Cancellation of grant of authorised operations of warehousing service activities - Section 16 of the SEZ Act, 2005 - imposition of penalty under Foreign Trade (Development and Regulations) Act, 1992 as made applicable by Rule 54(2) of the Foreign Trade (Regulation) Rules, 1993 for violation of the SEZ Rules - HELD THAT:- Respondent Nos. 1 to 3 and 5 could not controvert the submissions of learned advocate for the petitioner by referring to any provision of the SEZ Act.
The espondent Nos. 1 to 3 and 5 could not controvert the above submissions of learned advocate for the petitioner by referring to any provision of the SEZ Act.
Petition disposed off.
- 2024 (3) TMI 811
Adjustment of various deposits made by entities during the course of investigation - Section 129E of Customs Act, 1962 - HELD THAT:- The CESTAT has in terms of the order impugned while taking note of the statutory position held that it is only in situations where the person or the entity seeking waiver/adjustment for the purposes of pre-deposit has itself tendered those amounts during the course of investigation, the issue of adjustment would not arise. It has further and in light of the express language of Section 129E of the 1962 Act found no justification to accede to the prayer made by the appellant.
The CESTAT has found that while various deposits appear to have been made during the course of investigation, those amounts cannot be considered for the purposes of computing the pre-deposit amount since those deposits had been effected by different entities and individuals. Undisputedly, the depositors were not the appellants before the CESTAT. It was in view of the aforesaid that it came to conclude that amounts deposited by other entities cannot be reckoned towards pre-deposit. It has further observed that even if the entities which had made those deposits had chosen not to initiate any appeals, it would still be open for them to seek refund of those amounts.
In light of the unambiguous wording of Section 129E, there are no justification to interfere with the view which the CESTAT ultimately took and stands reflected in the impugned order.
Appeal dismissed.
- 2024 (3) TMI 810
Absolute Confiscation - penalty - town seizure - Smuggling - illicit transport of Gold - burden to prove - HELD THAT:- Admittedly, the gold bars seized are of irregular shape and size and also of irregular weight other than standard gold bars. Admittedly, there is no marking of any foreign refinery on the gold bars seized. It is further found that the statements recorded by Revenue from both the appellants/staff – Mr. VK Kumar and Mr. TP are pari materia and hence, it is apparent that such statements are not freely given but the person deposed have signed on the dotted line. Similarly, the statement of Mr. B. Suresh recorded under Sec 108 also does not inspire confidence - It is also beyond comprehension that a person engaged in gold business for a long time, not usually entertaining cash dealings, will get involved in facilitating the purchase of smuggled gold from unknown person for a paltry commission of Rs.2,000/- per kg. It is further found that the statement of Mr. B. Suresh is not admissible for denial of cross-examination and accordingly, the same is inadmissible in terms of Sec 138B of the Act.
The appellant/claimant – Mr. PVMJ Rao has lead cogent evidence with regard to availability of stock, evidence of conversion of old gold ornaments to gold bars and pieces through refinery at Narasaraopet and the said refiner has also confirmed melting of old gold jewellery and thereafter, refining the gold and delivering gold bars and pieces to the appellant - further, in view of the evidence led by the appellant, they have discharged the onus under Sec 123 of the Act as to the licit source of the gold in question.
The appellant – Mr. P.V.M. Jagannadha Rao is held entitled to receive back the gold, and if the same is already disposed of by the department, shall be entitled to receive the sale proceeds of the same with interest as per Rules. All penalties also stand set aside - the impugned order set aside - appeal allowed.
- 2024 (3) TMI 809
Classification of imported goods - Battery Fuse Units (BFU) - classifiable under Chapter Heading 8529 or under Chapter Heading 8536? - exemption under Sl.No.16 of N/N. 25 /2005 Cus; dated 01.03.2005 - HELD THAT:- The technical literature placed by the appellant before the authorities is not under dispute. Before the Tribunal, they have produced the technical literature and based on the technical literature, it is seen that “The Battery Fuse Unit (BFU) connects the radio equipment to the battery backup system. Three LEDs on the front panel indicate operational status. If the mains is out longer than the available backup time, the BFU automatically disconnects the Radio Base Station (RBS) cabinet from the batteries to avoid destructive excess discharging. When the mains returns, the BFU reconnects the batteries instantly. The BFU also measures battery voltage and current. Battery temperature sensors are also connected to the BFU.” From the above, it is clear that the BFU is an independent functional unit.
There is no dispute on the observations of the Commissioner (Appeals) by the appellant and their only argument is that it is a ‘Part’ of the transmission equipment which the technical literature placed before us does not does not in any way provide any information to indicate that the same is an integral part of the communication system as claimed by the appellant. Therefore, the observations of the Commissioner (Appeals) agreed upon and the Chapter Headings - the impugned goods are rightly classifiable under CTH 8536 as ‘Automatic Circuit Breakers’ and not as ‘Part’ of the transmission system.
Eligibility of the benefit of the Notification No.25/2005-Cus; dated 01.03.2005 - HELD THAT:- The appellant claimed exemption Notification for the goods classifying the same under CTH 8529 9090 as ‘Parts’ of transmission apparatus incorporating reception apparatus. Since it is held that the goods are ‘Automatic Circuit Breakers’ rightly classifiable under Chapter Heading 8536, the question of extending the benefit of the Notification as ‘Parts’ of the transmission apparatus does not arise. Hence, the impugned goods rightly classifiable under chapter heading 8536 and they are not eligible for the benefit of the above Notification.
The impugned order upheld - appeal dismissed.
- 2024 (3) TMI 808
Refund of SAD - rejection of refund on the ground that the appellant failed to submit Chartered Accountant certificates and there had been no endorsements in the sales invoices indicating non-availibility of CENVAT credit on the imported goods sold - HELD THAT:- It is found that the conditions on which refund claims have been rejected are complied with by the appellant inasmuch as (i) Chartered Accountant certificate produced at pages 28 and 29 (in respect of appeal No. C/21068/2015) and pages 44-54 (in respect of appeal No. C/21484/2015) of the appeal paper-books (ii) Sample copy of invoice indicating endorsement is placed at page 25 and 41, respectively. Also, it is now settled law that endorsement in the sales invoice regarding non-availability of CENVAT credit cannot be a reason to deny the SAD refund.
The impugned orders are set aside - Appeal allowed.
- 2024 (3) TMI 807
Classification of goods intended to be imported - API Supari - Chikni Supari - Unflavoured Supari - Flavoured Supari - Boiled Supari - classifiable under Chapter/Heading 2106 90 30 as food preparation or under Chapter Heading 0802 80 90 or any other sub-heading of 0802 80 as areca nut? - HELD THAT:- In the instant case, betel nuts after being boiled are dried and this fact per se would not exclude the end-products from the scope of “dried nuts”. Further, boiling or mere addition of certain additives for the purpose of enhancing preservation or appearance or ease of consumption per se does not result in obtaining a preparation of betel nut - the processes to which raw betel nuts have been subjected to obtain API Supari: Chikni Supari, Unflavoured Supari, Flavoured Supari and Boiled Supari are squarely in the nature of processes referred to in the Chapter Note 3 to Chapter 8 and HSN. Therefore, at the end of the said processes, the betel nuts retain the character of betel nut and do not qualify to be considered as “preparations” of betel nut, which is sine qua non for a goods to be classifiable under Chapter 21.
Flavoured supari - HELD THAT:- The question to be answered is whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21. In this regard, the judgment of the Hon’ble Supreme Court of India in the case of M/s. Crane Betel Nut Powder Works [2007 (3) TMI 6 - SUPREME COURT] and of the CESTAT, Chennai in the case of M/s. Azam Laminators Pvt. Ltd. [2019 (3) TMI 782 - CESTAT CHENNAI] [where scented betel nut was being manufactured by cracking of dried betel nut into small pieces, and thereafter, gently heating it with addition of vanaspati oil, sweetening and flavouring agents and marketed in small pouches as Nizam Pakku (in Tamil)/Betel Nut (in English), the Hon’ble CESTAT held the resultant product classifiable under sub-heading 0802 90 19 of Central Excise Tariff and not under 2106 90 30 as supari for period after 7-7-2009] are relevant. Put simply, these decisions clearly imply that addition of flavouring agents do not change the character of the goods, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut.
All the five goods placed before me for consideration, i.e., API Supari, Chikni Supari, Boiled Supari, Unflavoured supari, and Flavoured supari, merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the sub-heading 0802 80. This is so in view of the fact that the processes to which raw green fresh betel nuts have been subjected to obtain the said five goods are squarely in the nature of processes mentioned in Note 3 to Chapter 8, and have not materially changed the essential character of betel nuts. Further, the said five goods are not classifiable under sub-heading 2106 90 30, since they have not attained the character of “preparations” of betel nut, which is sine qua non for a goods to be so considered.
- 2024 (3) TMI 764
Valuation of Goods - Bar of limitation in the exercise of powers under sub-section (2) of Section 129A - Mis-declaration and undervaluation of goods - Imports goods as ''camera stabilizer devices'' - imports identical/similar items with the same model numbers at higher and different unit prices - Duty Demand - confiscation - penalties under Sections 112(a) and 114AA - HELD THAT:- On plain reading of Section 129A, we find that no specific time period has been prescribed for the Committee of Commissioners to exercise the power under sub-section (2) of Section 129A. Section 129D of the Customs Act deals with similar powers of the Committee of Commissioners when orders are passed by the Principal Commissioners of Customs as adjudicating authority. There is a similar power to direct the proper officer to apply to the Appellate Tribunal. However, sub-section (3) of Section 129D imposes a specific limitation of three months from the date of communication of the order of the adjudicating authority. Thus, there is no prescribed period of limitation for passing an order in exercise of the power under sub-section (2) of Section 129A
In the present case, the relevant period of 10 months is covered by the COVID-19 pandemic. During the said period, in suo motu RE: COGNIZANCE FOR EXTENSION OF LIMITATION, this Court, on 23rd September 2021, while disposing of Miscellaneous Application No.665 of 2021, extended the period of limitation provided under the statutes. In the facts of the case, considering the period of the COVID-19 pandemic, it cannot be said that the Committee of Commissioners has taken an unreasonably long time to decide. Considering the extraordinary circumstances prevailing in those days due to COVID-19, the decision was taken within a reasonable time. The Committee took the decision on 2nd November 2021, which was received by the Deputy Commissioner (Review) on 11th November 2021, and the appeal was preferred on 17th November 2021. It is true that under Sub-Section (3) of Section 129A, a period of limitation of 3 months has been provided for preferring an appeal which commences on the day on which the order sought to be appealed against is communicated to the concerned Authority. But, even the said period stood extended in view of the orders this Court passed from time to time in suo motu proceedings.
Issue of undervaluation has been discussed in detail in a decision of this Court in the case of Commissioner of Central Excise and Service Tax, Noida v. Sanjivani Non-ferrous Trading Pvt. Ltd.[2018 (12) TMI 738 - SUPREME COURT].
We may also make a note of the statement made by an officer of the appellant during the inquiry before the adjudicating authority. In paragraph 11, he stated that there is a little difference in the hardware and software functions in the disputed goods as compared to the earlier versions. In the order-in-original and in the impugned judgment of CESTAT on facts, it was found that Item nos. 1 and 3 were identical goods, and Item no. 2 was of similar goods. Detailed reasons have been recorded in the order-in-original as to why the transaction value of the imported goods has been discarded. Cogent reasons have been assigned to arrive at the assessable value.
Hence, in view of the findings recorded by the CESTAT, we find no error in the view taken. No fault can be found with the imposition of penalties. Hence, there is no merit in the appeal and the same is dismissed with no order as to costs.
- 2024 (3) TMI 763
Confiscation of seized truck u/s 115(2) of the Customs Act, 1962 - levy of penalty - owner of the consignment has not come forward to claim the ownership and to claim the goods - Department has not adduced any corroborative evidence to the effect that the owner of the vehicle (the present appellant) was directly or indirectly involved in the alleged smuggling activities - HELD THAT:- It is found that after the goods have been seized, the other noticees have not proceeded further against the confiscation, redemption fine and the penalty imposed on them. The Department has confiscated beatul Nut of Rs.8,80,000/-. From the records, it is not clear as to whether the same has been auctioned off and value has been realized since the noticee has not forward to redeem the same. In the present case it is seen that only the present appellant has proceeded with appeals. It is found that the Department has not come with any proper evidence to the effect that owner of the vehicle was in any way involved in the alleged smuggling activities. However, the appellant cannot completely plead ignorance when his vehicle was used for transportation of the smuggled goods without any document.
Considering the factual details and the financial condition of the appellant, the redemption fine reduced to Rs. 50,000/- and penalty reduced to Rs.50,000/-.
Appeal allowed in part.
- 2024 (3) TMI 762
Refund of SAD - denial on the ground that certificate issued by the Chartered Accountant was not authentic - HELD THAT:- An identical issue came up before this Tribunal in the case of M/S. SKYLARK OFFICE MACHINES VERSUS COMMISSIONER OF CUSTOMS (PORT) , KOLKATA [2023 (11) TMI 877 - CESTAT KOLKATA], wherein this Tribunal observed On perusal of records, we find that no ulterior motive of the appellant towards production of the earlier certificate has been proved. They have produced a fresh Chartered Accountant’s Certificate dated 06.10.2023. Therefore, following the ratio of the cited case law, we remand the matter to the adjudicating authority.”
As on the identical facts, this Tribunal has remanded the matter back to the adjudicating authority, observing that no ulterior motive of the appellant towards production of the earlier certificate has been proved and they have produced a fresh Chartered Accountant’s Certificate. Therefore, following the precedent decision on the identical issue, matter remanded back to the adjudicating authority with the direction to check the veracity of the certificate issued by the Chartered Accountant and other relevant documents. If the same are found to be in order, pass a necessary order allowing the refund claim filed by the appellant. If the refund is held as eligible, the present confirmed demand against the appellant along with interest and penalty would get set aside.
Appeal disposed of by way of remand.
- 2024 (3) TMI 747
Seeking a writ/order/direction to the respondent No.2 to record the petitioner's statement under Section 108 of the Customs Act, in the presence of his advocate i.e. at a visible but not audible distance, during his interrogation - HELD THAT:- The petitioner's advocate is permitted to remain present when the petitioner is summoned for interrogation. The petitioner's advocate to remain present at a visible but not audible distance. We also permit videography of the said interrogation, however, at the cost of the petitioner.
It is made clear that if the advocate is unable to remain present or if the person videographing is not present, that will not be a ground for the petitioner, not to remain present, before the appropriate authority, when summoned.
Petition allowed.
- 2024 (3) TMI 706
Revocation of the customs broker licence - Misuse of G-Cards - sub-letting of the licence on commission basis for a monthly consideration - contravention of regulations 10, 11 (a), (b), (d), (e) & (m) of the Regulations - HELD THAT:- We are unable to accept the submission of the learned counsel for the petitioner for the reason that a Customs Broker occupies a very important position in the customs house. A lot of trust is kept in the customs broker by the importers, exporters as well as by the Government agencies. To ensure appropriate discharge of such trust, the Customs Broker Licensing Regulations have been framed and there has to be strict compliance thereof. Any contravention of such obligation would invite sanction as provided in the Regulations.
We are of the view that the appellant having admitted permitting the use of his licence by third party in exchange for monthly remuneration, the punishment of cancellation of licence is not disproportionate. Further, as noticed no substantial question of law arises in the subject appeal.
Thus, the appeal is dismissed.
- 2024 (3) TMI 705
Territorial Jurisdiction - Validity of summons issued - investigation against the assessee at different locations - Import of gold and silver findings - summons issued u/s 108 by the third respondent, which is the Customs Department in Hyderabad - petitioner is based in Uttar Pradesh and that investigation has been initiated in Chennai and Hyderabad - HELD THAT:- Challenge is to a summons dated 09.02.2024 and proceedings pursuant thereto. Except in extraordinary situations or in cases where the person issuing the summons does not have jurisdiction or authority to do so, it is inappropriate in exercise of discretionary jurisdiction under Article 226 to interfere with summons' and proceedings pursuant thereto. In this case, the earlier summons and investigation was undertaken by the Customs Department in Hyderabad. The impugned summons was issued by the DRI at Chennai. At this preliminary stage, it is neither advisable nor appropriate to second guess the object and purpose of the investigation. As correctly pointed out by learned junior standing counsel for the third respondent, the fact situation in this case is different from that in the judgment of the Division Bench in as much as the petitioner here is based in Uttar Pradesh. More importantly, in this case, the earlier investigation was at the instance of the Customs Department and this investigation is at the instance of the DRI, Chennai.
Thus, I am not inclined to interfere with the impugned summons. Therefore, W.P.No.5880 of 2024 is dismissed. No costs. Consequently, W.M.P.No.6511 of 2024 is closed.
- 2024 (3) TMI 704
Seeking release of the goods imported - betelnuts/supari described as Menthol Scented Sweet Supari (“goods”) - nature of the mix created - FSSAI issued test report Split Areca Nut with mild smell of Menthol and confirmed to FSSAI standards (Exhibit ‘H’) - DYCC - presence of kernel husk fragments - classification of confirmed to be falling under CTH 21069030 - HELD THAT:- From the materials on record, there was no reason for the Respondents to discard the opinion as rendered by the FSSAI so as to take a stance not to clear the goods for home consumption. In our opinion, there was also no reason for the Respondents to disown or read into the report of the DYCC as to what has actually not been provided, namely, that there are impurities in the goods much less harmful.
With the assistance of the learned counsel for the parties, we examined the issue as to what is the purport of the DYCC’s report when it uses the words “that the samples u/r contain pieces of kernel husk fragments”. It appears from the material furnished before us by the learned counsel for the parties, and which ought not to be in dispute that the “kernel husk” is the hard (brown) portion of a coconut, the particles of which may get mixed when the kernel (white edible portion inside the coconut) is grated. If the grating in a given case is little deep, it is likely that the actual kernel is mixed with the particles of the hard portion (skull of the coconut) which holds the kernel. It is also likely that some strings of the outer husk of the kernel (literally “the dry fiber part of the coconut”) can also be described to be kernel husk.
Thus, we do not find that there is any objectionable or any fatal impurity which would render the goods to be labelled as prohibitory. In our opinion, the respondents ought not to have taken such a decision that the goods should not be granted a clearance and/or a situation is brought about that they do not conform, to the opinion as rendered by the CAAR. In our view, in the facts of the present case, accepting such stand, as taken on behalf of the respondents would certainly render nugatory, the ruling of the CAAR, as also the report of the FSSAI and the DYCC. Such stand of the department thus, cannot be sustained.
The Petition is allowed.
- 2024 (3) TMI 703
Confiscation of the gold bars - remelted gold of foreign origin or not - Penalty - Seizure of gold - irregular weight and size - scope of Sec 123 - proof of bonafide purchase - validity of the retracted statement - HELD THAT:- The statement recorded by Revenue at the time of panchanama proceedings cannot be said to be freely given as Mr. A. Praveen Kumar was travelling with his wife and sister and was under fear that his wife and sister may also be arrested. Evidently, all were detained and brought to DRI office. The statement being not free is also evident from the fact that the appellant, at the first opportunity in his bail application, has denied his statement recorded on 10.03.2020 and had also stated that they have purchased gold on proper invoice. Further, the statement of Mr. V.B. Vimal of Srinidhi Gold, Coimbatore does not inspire confidence, as he stated that he does not transact in gold other than by way of banking channel. Further, he stated that he sometimes facilitates purchase from the open market, if required by customer on payment of cash, for which he charges nominal commission of Rs.2000/- per kg. The statement is self contradictory and evidently, he was under pressure when the statement was recorded as on the said date, his shop was searched and records were examined and there was shortage of gold as per stock register.
Further, Smt. A. Varalakshmi, in her very first statement (on summons), has stated the fact that they had negotiated purchase of gold from M/s Aryan Gold, Bangalore and had accordingly, gone there with her son – Mr. A. Praveen Kumar who assists her in the family business and they had taken delivery on credit basis. Further, she had stated that the payment for the same has been made through banking channel. From the perusal of the copy of invoice produced, it is evident that M/s Aryan Gold are registered with GST department and have also charged GST on the transaction. Further, Mr. Somanath of M/s Aryan Gold, who was also examined by the officers, has supported the transaction of sale of subject gold in question, to the appellants on credit basis and subsequently, received the payment through banking channel and in support thereof, had produced both the copy of invoice as well as copy of his bank statement.
Thus, there is independent external evidence available in the facts of this case and the genuinity of the transaction is evident from the bank statement, wherein payment has been received by the seller from the buyer in due course within a period of about 15 days from the date of sale. As the transaction is through banking channel, thus, prima facie is evidence of its genuineness. Thus, appellants have discharged the onus u/s 123 on them and they have explained the source with certainty.
Accordingly, allow these appeals and set aside the impugned orders. The appellants Smt. A. Varalakshmi or Mr. A. Praveen Kumar are held entitled to receive back the gold, and if the same is already disposed of by the department, are held entitled to receive the sale proceeds of the same with interest as per Rules. All penalties also stand set aside.
Appeals allowed.
- 2024 (3) TMI 702
Confiscation - fine - penalty - Mis-declaring the quantity of cigarettes imported under warehouse bill of entry for re-export purpose - HELD THAT:- On reading of the observations made by the learned Commissioner (Appeals), we find that he took a lenient view in reducing the quantum of penalty on the appellant. However, considering the overall facts and circumstances of the case, more particularly, absence of the profit margin involved in the case in hand and that the confiscated goods were still under the custody of the department, we are of the view that the ends of justice would be met, if the quantum of penalty is further reduced.
Thus, the impugned order is modified to the extent of reducing the quantum of penalty from Rs.10,00,000/- (Rupees Ten Lakhs) to Rs.5,00,000/- (Rupees Five Lakhs) u/s 112(a) ibid, which shall be paid forthwith by the appellant.
The appeal is disposed of in the above terms.
- 2024 (3) TMI 701
Duty liability - interest - penalty - Duty-free imports against the ‘scrips’ issued under the ‘target plus scheme’ of the Foreign Trade Policy - HELD THAT:- According to Ld AR, the ineligibility of the exports, against which the ‘scrips’ had been issued, rendered the exemption granted on the imports to be invalid. Reliance was placed on the decision of the Hon’ble Supreme Court in Munjal Showa Ltd v. Commissioner of Customs & Central Excise [2022 (9) TMI 1076 - SUPREME COURT].
We find that the show cause notice was issued consequent to cancellation of the ‘scrips’ by the licensing authority which, itself, was prompted by reporting of the issue by the investigating agency. We find that the Hon’ble High Court of Telangana had since set aside the cancellation of the ‘scrips’ for restoration of status quo ante. This had sufficient impact on the outcome in the impugned order as to place it in jeopardy.
Thus, it will only be appropriate to have the matter decided afresh, to enable which we set aside the impugned order and restore the dispute before the adjudicating authority for disposal of the show cause notice, preferably, within four months of receipt of this order.
- 2024 (3) TMI 700
Penalty of penalty for abetment of the fraudulent export scheme - Shifting the burden on Customs officials for proper examination of Goods - misdeclaration of quantity and value - charge of committing an act or omitting to commit act - claim for ‘authorization’ exempting duties under the ‘duty entitlement pass book (DEPB)’ scheme in the Foreign Trade Policy (FTP) on future imports - HELD THAT:- The impugned order has held that the goods having remained, albeit in the containers, in a designated area of the port of export after examination by the officer-noticee, and, though the adjudicating authority shied away from saying so, after the cessation of control over the goods by the appellant, possibility of substitution could not be foreclosed with much the same benefit flowing from shipment of goods of unknown provenance and diminished value as before; that, in any case, is different violation and allegation not incorporated in the show cause notice.
With the officer-noticee having been discharged from the allegation of not having conformed to the statutory mandate in section 51 of the Customs Act, 1962, the conformity of the contents of the container, at that point in time, with the declaration is beyond controversy. No evidence has been brought on record that the goods were not substituted after examination which would have been manifested by appeal of Revenue against the dropping of charges against officer-noticee. It would appear that such possibility had not been conjectured and not investigated by the agencies of Revenue and, in the circumstances, is not amenable for refutation of the claim of appellant seeking the benefit from that finding.
The show cause notice contains narration of role of appellant in procuring the goods, as found, and of his role in procuring documentation for non-existent goods as well as the ‘greasing’ of the system to leach the exchequer. These are derived from statements which were not subjected to the rigour of section 138B of Customs Act, 1962. Those may not, therefore, be appropriate grounds for connecting the appellant with misdeclaration or entering goods for export without declaration. The plausibility of goods having conformed to declaration, though found otherwise subsequently, at the time of completion of statutory obligation devolving on the appellant is no longer fiction and, in the absence of refuting thereto with facts, must serve the exporter too.
Consequently, we set aside the impugned order and allow the appeal.
- 2024 (3) TMI 699
Seeking revocation of suspension of the Customs license - execution of fake export through Land Customs Station - HELD THAT:- We find that the continuous suspension of the license of the Customs Broker without either conducting an inquiry or issuing a notice for revocation of the license or imposition of penalty is bad in law and needs to be set aside. We, therefore, find that the Appellant has made out a case for seeking the revocation of the suspension of the Customs license. Without passing any remarks on the merits of the case of revocation of license or imposition of penalty and giving full liberty to the Commissioner to proceed in the matter as per the regulations, order of the suspension of the Customs Broker license cannot be sustained.
Thus , the appeal is allowed.
- 2024 (3) TMI 698
Valuation of the imported goods - Mis-classification of goods - value of the goods on the basis of some entries taken from the rough note books and diaries - Demand - Penalty levied - imported goods as pre-sensitized positive offset aluminium plates - classified under CTI 8442 50 39 - whether the entries in the notebook/ diaries can be considered for determining the transaction value - HELD THAT:- In the present case, the corroborative evidence, as noted above, indicates that the value mentioned by the appellant in the Bills of Entry is comparable to the assesseed value of the good imported by other importers at the same time. The value is also comparable to the value determined by the designated authority in the Final Notification in anti-dumping matter.
It would be seen from the comments that rough entries were made and they cannot be considered towards payment received from imports. It needs to be noted that Rakesh of Aakruti Impex is an Indian buyer and Ajit Kumar Jain has maintained receipt and payment from him in Rupees with exchange rates of RMB and USD for rough estimation. Aakruti Impex is the only buyer of offset printing plate imported by Barfo Impex under the seven Bills of Entry and sold under 22 VAT invoices. The contention of the appellant, therefore, is that the local rough estimates of Rakesh of Aakruti Impex made in foreign exchange were for rough business estimation only and they cannot be considered towards payment made to overseas supplier, more particularly when the value of the imported goods is comparable to the contemporaneous imports and the value indicated in the Final Anti-Dumping Notification dated 15.05.2020.
Hence, it is not possible to accept the contention of the department that the transaction value was required to be rejected as the rough registers indicated some additional consideration, apart from the banking transactions, and the transaction value was correctly re-determined in accordance with the 2007 Valuation Rules.
Thus, the impugned order dated 06.01.2020 passed by the Principal Commissioner deserves to be set aside and is set aside. Customs Appeal are, accordingly, allowed with consequential relief (s) if any.
Case Laws - Corporate
- 2024 (3) TMI 761
Seeking waiving off the payment of Court fees in refiling the Compensation Application against the order of the Competition Commission of India - Section 26(2) of the Competition Act, 2002 - HELD THAT:- Rule 4(3) of the Competition Appellate Tribunal Rules, 2009 provides for waiving the fee, taking into consideration the economic condition or indigent circumstances of the Appellant. Herein, it is claimed that the “Advocate” was not really an Advocate and he withdrew the Compensation Application without the instructions from the Appellant. Also relying upon the judgment of Hon’ble Apex Court in RAFIQ AND ANOTHER VERSUS MUNSHILAL AND ANOTHER [1981 (4) TMI 255 - SUPREME COURT] and also of the High Court of Madhya Pradesh in SOHANLAL ARYA VERSUS THE STATE OF MADHYA PRADESH [2019 (11) TMI 1816 - MADHYA PRADESH HIGH COURT] it is claimed that his fee, may be waived for filing the Appeal.
In the first judgment of Rafiq & Anr. relied upon by the Appellant, it is noted that there was an ex-parte order of dismissal of Appeal, which was passed by the Hon’ble High Court on non-appearance of Appellant’s Learned Counsel on the date of Hearing and the application, was made by the Learned Counsel for Recalling the Order and for permission to participate in the hearing of the Appeal, rejected on ground of unexplained delay in presenting the Application to the Court. The Hon’ble Apex Court held that rejection of the Application was not justified as a Party, should not suffer for the inaction, deliberate, omission or misdemeanour of his agent i.e. the Lawyer. The case relied upon is distinguished in the sense that the Lawyer, did not appear and defaulted, but, in the instant case, he was very much present in the Hearing, and the Appellant, was also fully aware of the proceedings.
Even assuming that the Appellant, was not aware of the fact that Mr. Sumit Jain, was not an Advocate or Chartered Accountant, Company Secretary or Cost Accountant, and he withdrew the Compensation Application, without instructions of the Appellant, waiver of fee, in re-filing the Compensation Application, has to be justified, as per the Rule 4(3) of the Competition Appellate Tribunal Rules, 2009, which provides for waiver, after taking into consideration the economic condition or indigent circumstances of the Appellant. Having gone through the Appellant’s submissions, this Tribunal, does not find any such economic condition or indigent circumstances, which justifies the waiver of the fee. Therefore, the Fee for Re-filing the Compensation Application, cannot be waived.
Application dismissed.
- 2024 (3) TMI 697
Criminal proceedings against the Directors - Petitioner contending that financial transactions, inherently civil in nature, were wrongly dragged into criminal litigation - Applicability of vicarious liability in criminal proceedings - Invocation of inherent jurisdiction of this Court under Section 482 CrPC - criminal breach of trust, cheating, dishonestly inducing delivery of property, forgery and criminal conspiracy - HELD THAT:- It is manifested that the criminal contents are emanated from the alleged financial transaction took place between the present applicants along with their company namely M/s Dignify Builtech Private Ltd. and opposite party No. 2. Although financial transaction between them is admitted, however, route of money transaction has been disputed by both the parties. Opposite party No. 2 came with the case that there was bipartite financial transaction/agreement between the opposite party No. 2 and the accused company. Thus, opposite party No. 2 has directly transferred the amount in the account of accused company, having considered the negotiation took place between them. However, present applicants came with the case that it was a tripartite agreement between the parties involving one more company namely M/s Shubhkamna Builtech Private Ltd. Thus, it appears that there was circuitous route in transferring the money through another corporate being M/s Shubhkamna Builtech Private Ltd.
It would not be befitting to make any comment on the summoning order, however, technicality, if any, is not sufficient to drop the entire criminal proceeding initiated at the behest of opposite party No. 2. In this eventuality, it is always open to the present applicant to raise this objection before the court concerned, who is not bound with the police report submitted under Section 173 CrPC and the court can issue summons, having considered the facts and circumstances of the case and the material available on record, against the other person as well, who has not been arraigned in the charge sheet. He would be at liberty to take action under Section 319 CrPC. Sections 190 and 204 of the CrPC does not restrict the jurisdiction of the court concerned in issuing process against any accused, if warranted.
It is admitted to the parties that no final winding up order has been passed under the Companies Act and, while appointing provisional liquidator, company court/tribunal can impose certain conditions/limitations upon the provisional liquidator. Thus, it is evident from the relevant portion of order dated 20.9.1997 passed by Hon’ble Delhi High Court that provisional liquidator had been appointed with limited power to take all the assets, books of account and the record of the company. Exhaustive power has been given to the liquidator under the provisions of the Companies Act which, in fact, is applicable after the conclusion of winding up proceedings, therefore, there are no force in the submission that criminal proceedings should not have been initiated without sanction of the court competent - Even assuming that there is requirement of prior sanction of the court competent to institute a case on behalf of company under liquidation, no limitation has been imposed on the power of the court concerned to entertain the criminal prosecution launched in the ordinary course under the provisions of the code of criminal procedure. Provision relating to the prior sanction before filing litigation on behalf of the company is required only to ascertain the financial liabilities of the company and to secure its funds.
The opposite party No. 2 has not committed any illegality in instituting a criminal proceeding against the present applicants, who have been arraigned in the FIR for the offence under several sections of the IPC.
The criminal proceeding initiated on behalf of respondent No. 2 against the present applicant is maintainable and learned Magistrate has rightly taken cognizance on the police report submitted under Section 173 CrPC. On the facts as mentioned in the FIR prima facie commission of offence is made out against the present applicants, who are the directors of the accused company and were throughout instrumental in inducing the present applicant to purchase the land situated near NOIDA Express Way and dishonestly misused the money for other work which they had received from opposite party No. 2 in lieu of transferring the land which was agreed upon between the parties to be purchased for opposite party No. 2. Disputed question of fact has been raised by the learned counsel for the applicants in order to prove the innocence of the present applicants which can more appropriately be scrutinized by the trial court.
In the facts and circumstances of the present case, there are no abuse of the process of Court nor any justifiable ground to pass an order so as to secure the ends of justice. No ground is made out warranting indulgence of this Court in exercise of inherent jurisdiction under Section 482 CrPC to quash the criminal proceeding as prayed for.
The instant application under Section 482 CrPC, being misconceived and devoid of merits, is dismissed.
- 2024 (3) TMI 647
Initiation of prosecution proceedings for the alleged offence of non-copliance with Corporate Social Responsibility (CSR) obligation - Company fall within the purview of section 135 of Companies Act or not - whether the reserves created out of amalgamation (as in this case), can be kept out of “Net Worth” in the years following the year of amalgamation? - HELD THAT:- Corporate social responsibility (CSR) or corporate social impact is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in, with, or supporting professional service volunteering through pro bono programs, community development, administering monetary grants to non-profit organizations for the public benefit, or to conduct ethically oriented business and investment practices.
In the present case the amalgamation took place on 01.04.2008 - All assets, liabilities, properties & interest of the Transferee Company was vested into the Transferee Company (petitioner no. 1) vide order dated July 14, 2009 of the Hon’ble Court and order dated 09.08.2011 when the other companies (2) merged with the petitioner Company - Thus as per Section 2(57) of the Act. The Company gets the benefit of Section 2(57) of the Act, for the said financial year and not there after (subsequent financial years) - But the Company herein continued filing the Balance Sheet for the subsequent financial years being 2011-2012, 2012-2013, 2013-2014 & 2014-2015 in this case to take the benefit of amalgamation, year after year, to avoid their corporate social liability for which the case has been initiated by the complainant.
There is thus sufficient materials on record making out a prima facie case against the petitioners in respect of the offences alleged, and as such the case is required to be permitted to proceed towards trial. Interference at this stage would amount to abuse of the process of Court.
Revision dismissed.
- 2024 (3) TMI 411
Seeking grant of bail - long incarceration of the applicant without any hope of commencing the trial at least for a few years - serious ailments with which the applicant has been suffering at the age of 62 years - offences punishable under Section 447 of the Companies Act, 2013 and Sections 417, 420 r/w 120-B of the Indian Penal Code, 1860 - HELD THAT:- The Hon’ble Supreme Court in case of Jainam Rathod [2022 (4) TMI 1421 - SUPREME COURT] has granted bail to the applicant who was being prosecuted for violation of the provisions of Section 447 of the Act of 2013 as well as various provisions of the Indian Penal Code, 1860, including Sections 406, 417, 418, 420, 467, 468, 471, 474 and 477A. A Special Leave petition preferred by the appellant was dismissed by the Supreme Court on 27th January, 2020 with observations that it was always open for the appellant to move a fresh application for bail - The Hon’ble Supreme Court has also noted it’s judgment in the case of Serious Fraud Investigation Office V. Nittin Johari [2019 (9) TMI 570 - SUPREME COURT] while granting bail to the appellant Jainam. The appellant was released in light of the fact that in the absence of a fair likelihood of the trial being completed within a reasonable period, personal liberty of the appellant is to be protected in case of delay in conclusion of the trial.
It is well settled that if co-accused in the case are equally placed, meaning thereby, on the same pedestal then there is no reason to deny bail to the accused where other co-accused are not in custody.
Indubitably, investigation is over and the applicant’s detention is no more required in judicial custody. Nothing is to be recovered at the instance of the applicant. Almost all the evidence is in the form of documents, which is in the custody of the respondent No. 1. Learned Senior Counsel would contend that there is no reasonable apprehension of the applicant absconding or fleeing away from justice since he has always been co-operating with SFIO’s investigation for which he has been called for almost 30 times. A look out notice has already been issued against the applicant which shall deter him from leaving the country. Learned Senior Counsel submits that the applicant would surrender his passport - Since the case is predominately based on documentary evidence and investigation will mainly involve analysis of accounting entries and financial statements and other documents, the Counsel submits that there would no question of tampering with the same.
Dehors merits and demerits as well as the statutory embargo as contemplated in Section 212 (6) (ii) of the Act of 2013, powers of this Court under Article 21 of the Constitution are unfettered, in the sense, while exercising constitutional jurisdiction, statutory restrictions, per se, do not oust the ability of this Court to grant bail on the ground of violation of part – III of the Constitution; inarguably, statutory restrictions vis-a-vis constitutional jurisdiction will have to be harmonized.
The applicant – Hari Sankaran be enlarged on bail subject to fulfilment of conditions imposed - bail application allowed.
- 2024 (3) TMI 359
Seeking grant of Anticipatory bail - maintainability of application under Section 438 of the Cr.P.C. - reasons to believe - non-bailable offences contained in Sections 437, 438 and 439 of the Cr.P.C. - HELD THAT:- Section 437 and Section 439 of the Cr.P.C. relate to grant of Bail to any person who has been ‘arrested’ or is in ‘custody’. Section 438 of the Cr.P.C., on the other hand, gives a power to the Court to grant Anticipatory Bail to a person who is yet to be ‘arrested’ or taken into ‘custody’.
In BHARAT CHAUDHARY AND ORS. VERSUS STATE OF BIHAR AND ORS. [2003 (10) TMI 692 - SUPREME COURT] the Supreme Court has held that the power under Section 438 of the Cr.P.C. is available to the High Court and the Court of Sessions, even when cognizance is taken or a chargesheet has been filed.
In RAVINDRA SAXENA VERSUS STATE OF RAJASTHAN [2009 (12) TMI 1063 - SUPREME COURT], the Supreme Court reiterated that Anticipatory Bail can be granted to an accused at any time, so long as the accused has not been arrested. The High Court or the Court of Sessions cannot refuse to exercise its powers under Section 438 of the Cr.P.C. and leave the matter to the Magistrate only on the ground that the challan has now been presented.
Coming to the principles that would be applicable while considering the application of the Applicant(s) for grant of Anticipatory Bail, there is no gainsay that the Applicant(s) would have to show that they have ‘reason to believe’ that they may be arrested - As held by the Supreme Court in GURBAKSH SINGH SIBBIA VERSUS STATE OF PUNJAB [1980 (4) TMI 295 - SUPREME COURT], the belief that the Applicant(s) may be so arrested must be founded on reasonable grounds and not on mere ‘fear’ or a ‘vague apprehension’.
In the present case, the applicant(s) have met the above test. The learned counsel(s) for the Applicant(s) have placed reliance on various judgments of this Court wherein the accused, who had been similarly summoned by the same Magistrate, were taken into custody and had to suffer the ignominy of being in jail for a long period of time before they were granted Bail by this Court.
As far as merit is concerned, in SATENDER KUMAR ANTIL VERSUS CENTRAL BUREAU OF INVESTIGATION & ANR. [2022 (8) TMI 152 - SUPREME COURT], the Supreme Court had placed cases where additional conditions of compliance of provisions of Bail are to be met, including Section 212 (6) of the Act, in ‘Category C’. It was held that where the accused has not been arrested consciously by the prosecution, there is no need for further arrest of the accused at the instance of the Court.
In the entire process of investigation leading to the filing of the complaint, the Applicant(s) were never arrested by the respondent and it is not disputed that the Applicant(s) have cooperated in the investigation. Applying the test as laid down by the Supreme Court in Satender Kumar Antil, therefore, the Applicant(s) are entitled to grant of Anticipatory Bail.
It is, therefore, ordered that in case of arrest, the Applicant(s) be released on bail subject to fulfilment of conditions imposed - bail application allowed.
- 2024 (3) TMI 292
Restoration of struck name of the company from its register - default in non-filing of the Financial Statements and Annual Returns - Section 248(5) of the Companies Act, 2013 - HELD THAT:- Admittedly the impugned order was passed since the appellant had failed to produce documents to show it was still in possession of the asset and it had paid all water bills, electricity bills and rent receipt(s). It is submitted the financial statement could not be filed with the ROC inadvertently since father of the present directors was old and ill and it being a joint family set up with an incomplete professional/legal guidance and even their Chartered Accounts had unfortunately expired - the act of the Respondent in striking off the appellant from the rolls of ROC had caused a grave prejudice to the appellant herein, more specifically when the public notice issued by ROC was aimed at weeding out shell companies.
Though the annual accounts of the years stated above though were duly prepared but could not be filed, for the reasons stated above, the non-compliance appear to be inadvertent, non-deliberate and unintentional. Admittedly the appellant is ready to comply with all the statutory provisions once the name of the company is restored by the ROC. Thus there are no reason why its name should not be restored as no prejudice would be caused to the ROC if its name is restored. It is not the case of the ROC that the appellant is a shell company or was at any time engaged in syphoning of funds.
It is deemed just and equitable to restore the name of the appellant company to the record of ROC and thus the impugned order set aside to restore the name of the company to the Register of Companies subject to the compliances fulfilled - appeal alowed.
- 2024 (3) TMI 189
Oppression and Mismanagement - inherent powers of NCLT to cause audit of accounts or to make such orders as may be necessary - Section 241 & 242 of the Companies Act, 2013 - allegations of siphoning funds, breach of agreements, and failure to maintain proper books of account - whether NCLT is empowered to direct audit and is it required to give a finding of fraud before ordering the audit by independent Auditor? - HELD THAT:- As per Rule 11 of the National Company Law Tribunal Rules, 2016, Tribunal may make such Order as may be necessary for meeting the ends of justice or to prevent, abuse of the process of Tribunal - It is seen that no pre-conditions are given in the said Rules for exercising of these inherent powers by the Tribunal. The Tribunal has directed conduct of audit through independent Auditor to ascertain the correct facts in the light of allegations and counter allegations by the parties to the dispute in Company Petition filed under Section 241 & 242 of the Companies Act, 2013, which was being adjudicated upon by them.
The issues raised in this appeal were considered by Three Member Bench of this Tribunal in the case of Archer Power System P. Ltd. Vs. Cascade Energy P. Ltd. & Ors. [2020 (8) TMI 583 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] where it was held that We are of the opinion that imposition of forensic audit and calling for the report of forensic audit before the Tribunal is a measure to help the Tribunal to appreciate the issue on the basis of an independent report so as to ensure that the case is processed with due regard to rights and obligations of contesting parties would be in the interest of justice.
The Tribunal under Rule 11 of NCLT Rules, 2016 has the inherent powers to cause audit of accounts or to make such orders as may be necessary for meeting the ends of justice and there are no fault in the impugned order on this account - the present Appeal fails and is accordingly dismissed.
- 2024 (3) TMI 27
Professional Misconduct - Chartered Accountant (CA) - Significant failures to adhere to Standards on Auditing (SAs), gross negligence, and lack of professional skepticism - Non-recognition of interest cost on Bank Borrowings classified as NPAs - False reporting under CARO - Failure in performing of required audit procedures - Inappropriate Opinion on the Financial Statement for the FYs 2014-15 to 2016-17 - Non-implementation of Quality Control Measures at the Engagement Level - Non-submission of Audit File for the FY 2014-15 - penalty and sanctions.
HELD THAT:- The EP has made departures from the Standards and the Law, in his conduct of the audit of Bilcare Limited for the FYs 2014-15, 2015-16 and 2016-17. In light of the foregoing discussion, findings on each article of charge listed out in the SCN, are stated below:
(a) The EP committed professional misconduct as defined by clause 5 of Part I of the Second Schedule of the CA Act, which states that a CA is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity".
This charge is proved as the EP failed to disclose in his report the material non-compliances by the company as explained in Para 16-22 above.
(b) The EP committed professional misconduct as defined by clause 6 of Part I of the Second Schedule of the CA Act, which states that a CA is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity".
This charge is proved as the EP failed to disclose in his report the material non-compliances by the company as explained in Para 16-22 above.
(c) The EP committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the CA Act, which states that a CA is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties".
This charge is proved as the EP failed to exercise due diligence in the audit of the company in accordance with the SAs and applicable regulations, as explained in Para 16-44 above.
(d) The EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the CA Act, which states that an EP is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion, or its exceptions are sufficiently material to negate the expression of an opinion".
This charge is proved as the EP failed to conduct the audit in accordance with the SAs and applicable regulations and failed to analyse and report the appropriateness of accounting policy for recognition of interest cost on NPA loans in the financial statements as explained in Para 16-44 above.
(e) The EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the CA Act, which states that an EP is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances".
This charge is proved since the EP failed to conduct the audit in accordance with the SAs as explained in Para 16-44 above.
Therefore, it is concluded that the charges of professional misconduct enumerated in the SCN dated 14.07.2023 stand proved based on the evidence in the Audit File, the Audit Report issued by EP, the submissions made by EP, the annual report of Bilcare for the FYs and other materials available on record.
Penalty and sanctions - HELD THAT:- It is the duty of an auditor to conduct the audit with professional skepticism and due diligence and report his opinion in an unbiased manner. Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with the public interest entity - Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proven cases of professional misconduct are to be viewed, is evident from the fact that a minimum punishment is laid down by the law.
Considering the proven professional misconduct, the nature of violations, principles of proportionality and deterrence against future professional misconduct, we in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order:
I. Imposition of a monetary penalty of Rs 3,00,000/- upon CA Ratan Laxminarayan Rathi;
II. In addition, CA Ratan Laxminarayan Rathi is debarred for 2 years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
- 2024 (2) TMI 1294
Maintainability of complaint against the petitioner - Dishonour of Cheque - vicarious liability of Non-Executive Director - issuance of a legal demand notice to the accused company and its directors - HELD THAT:- It is trite that the Non-Executive Director is not involved in the day to day affairs of the company or in the running of its business. Further, when a complaint is filed against the Director of the company, who is not a signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contentions in the complaint that such Director was incharge of and responsible for conduct of the business of the company unless such Director is designated Managing Director or Joint Managing Director.
A bare reading of para 3 of the complaint shows that in the complaint it has not been substantiated that in what manner the petitioner/accused no. 4 was incharge of and responsible for conduct of the business of the accused company, which elaboration was mandatory since the petitioner is neither a signatory to the cheque nor was he the Managing Director or Joint Managing Director of the accused company. This being the position, the complaint is not maintainable against the petitioner.
In view of the undisputed status of the petitioner as a Non-Executive Director and further regard being had to the fact that the petitioner is neither signatory to the cheque nor Managing Director or Joint Managing Director of the accused company, making him stand the trial would be an abuse of process of Court.
Appeal disposed off.
- 2024 (2) TMI 1261
Effect of resignation from Directorship - Removal of name of the Petitioner as a Director of Respondent No. 4-company - HELD THAT:- Although certain compliances on the part of the company were necessary, however, in the peculiar facts of the present case, it is clear that the company itself did not commence its business, as also the other director being a foreign director did not take any steps in that regard. Added to this was the Covid-19 pandemic period during which such compliances could not be made. All these circumstances ought not to weigh against the petitioner, for deletion of his name as a director from the record of the Registrar of Companies. This also for the reason that severance of the petitioner’s relationship as a director of the company took effect from 1 September 2021 as per the petitioner’s letter dated 24 August 2021 received by the company. This is the legal consequence as brought about by Section 168(2) of the Companies Act, 2013.
Except for certain forms not being filled by the company within the prescribed time, there does not appear to be any other gross default or illegality or any other justifiable reason for the Registrar of the Companies to give effect to the resignation of the petitioner, in the official records, as maintained by him. This is fortified from the contents of the reply affidavit of the official respondents which categorically state that even the explanations / comments and / or compliances as demanded by the Registrar of Companies from respondent No. 4/company were reported to be not answered by the company. This was a default on the part of a non-functional company. Thus, this is clearly a case where the company itself was stillborn.
Petition allowed.
- 2024 (2) TMI 1188
Violation of principles of natural justice - Interim Demand Notice demanding stamp duty issued without adequately scrutinizing the case, and without going into the details along with all the supporting documents in the matter - HELD THAT:- The Petitioner had filed an Appeal challenging the Order dated 14th September 2021 on 2nd November 2021. A hearing was held in the said Appeal on 7th June 2023 and Petitioner filed its written submissions on 7th August 2023. Despite the same, and despite a period of more than 2 years having elapsed, Respondent No. 2 has not passed any order on the said Appeal. It is informed that the Presiding Officer of Respondent No. 2, who heard the said Appeal on 7th June 2023, has changed. In these circumstances, it would be in the interests of justice that Respondent No. 2 is directed to re-hear the Appeal and pass an order in the said Appeal filed by the Petitioner, in accordance with law, within a period of four months from the date of intimation of this Order.
Further, since, the said Demand Notice dated 16th March 2022 and the letter dated 23rd January 2024 had been issued by Respondent No. 3, pursuant to the said Order dated 14th September 2021, which is the subject matter of the aforesaid Appeal, it would also be in the interests of justice that, till the said Appeal is re-heard and an order is passed on the said Appeal, the said Demand Notice dated 16th March 2022 and the said letter dated 23rd January 2024 remains stayed.
Respondent No. 2 is directed to re-hear Appeal No. 227 of 2021 filed by the Petitioner and pass an Order, in accordance with law, expeditiously and, in any case, within a period of four months from the date of intimation of this Order - Till the said Order is passed by Respondent No. 2 on the said Appeal, the Demand Notice dated 16th March 2022 and the letter dated 23rd January 2024 issued by Respondent No. 3 shall remain stayed and the Petitioner shall be permitted to operate its ICICI Bank Account.
Writ petition disposed off.
- 2024 (2) TMI 1095
Prayer for being excused of any criminal liability and relieved of the alleged defaults complained of by the respondent in the notice dated 6.10.2020 - prayer for an injunction restraining the respondent / Registrar of Companies (ROC), West Bengal from initiating criminal proceedings in respect of any of the matters referred to in the notice dated 6.10.2020 - section 463(2) of the Companies Act, 2013 - HELD THAT:- In the present case, the respondent did not pass any reasoned order pursuant to the reply given by the Company on 17.11.2020. This letter was a detailed reply to the impugned Notice dated 6.10.2020. Criminal proceedings were instituted in June, 2023 after almost 3 years from the date of issuance of the preliminary findings letter. In the present case, the respondent issued the Notice dated 9.11.2023 which is a supplementary Inspection Notice from the Office of the Regional Director after filing of the present writ petition. Thus, the petitioner’s apprehension was correct and ultimately came true by issuance of the Notice dated 9.11.2023.
The Departmental Circular dated 20th June, 2016 relied on by the respondent is an internal document. The contents of the circular are mostly illegible. In any event, the consent/sanction referred to in section 470(3) of The Code of Criminal Procedure would only be applicable where the prosecution has exceeded the limitation period due to the requirement for sanction from the concerned authority.
The reasons persuade the Court to allow the prayers in the writ petition and excuse the petitioners and each one of them of any criminal liability in respect of the alleged defaults complained of by the respondent in the impugned notice dated 6th October, 2020. The respondent is accordingly restrained from instituting or proceeding with any criminal proceedings in respect of the matter referred to in the notice dated 6th October, 2020 or take any further steps in respect thereto.
Petition allowed.
- 2024 (2) TMI 977
Constitutional Validity of Rule 37(8) of the Companies (Incorporation) Third Amendment Rules, 2016 - rejection of conversion of the Petitioner's company from an “Unlimited Liability Company” to a “Limited Liability Company” - HELD THAT:- This Court is of the opinion that the lacuna in the Companies (Incorporation) Rules, 2014 is being sought to be cured by the 2016 Amendment. Since the purpose of the amendment is to cure the defects which existed in the law by giving discretion to the RoC to satisfy himself that there are sufficient means in the company to answer their debts even after conversion, it cannot be said that it would operate only to applications filed after the 2016 amendment. Merely filing an undertaking as mandated under Section 18(3) would not take care of the interests of the creditors which is now sought to be protected under the 2016 amendment.
The Division Bench of this Court in its [2020 (3) TMI 527 - DELHI HIGH COURT] had only directed the RoC to decide the application of the Petitioner afresh in accordance with law. As of today there is no challenge to the 2016 Regulations. This Court is of the opinion that since the 2016 Amendment was only curative in nature and only intended to protect the interests of the creditors, the amended rules, therefore, must apply to applications which are pending with the RoC, and the same must apply to the application of the petitioner/company. The right of the Petitioner for conversion from unlimited company to limited company has not been taken away. In fact, the petitioner/company had no vested right to be granted a certification of conversion to a limited liability company.
The reasons given by the RoC for rejecting the application of the Petitioner on the ground that various prosecutions have been filed by the Serious Fraud Investigation Organization against the Petitioner for offences under the Companies Act and the IPC and that the e-Form 27 which was to be filed with the Registrar of Companies was not in compliance with Rule 37 of the 2016 Rules cannot be said to be so perverse especially keeping in mind the interest of the shareholders and the interest of the creditors. The RoC has also observed that the petitioner/company has suffered substantial financial losses and has a net deficit in current liabilities over the assets in excess of Rs. 2100 Crores. The registrar was also not provided with an NOC or undertaking from all the shareholders to support the conversion application and the petitioner did not even issue a public advertisement inviting objections from various creditors/stakeholders on the issue of conversion.
The anxiety on the part of the Registrar of Companies that the creditors and stakeholder should not be left high and dry cannot be said to be completely unjustified.
Petition dismissed.
- 2024 (2) TMI 976
Legality of SFIO Investigation - Alleged incorrect address mentioned in Form No.10 filed by the petitioner/Company with Registrar - Invocation of Section 12 of Companies Act, 2013 for the alleged non-maintenance of the registered office at the address mentioned in Form No.10 filed before the Registrar - HELD THAT:- Once investigation has commenced under Section 210, the statute does not render the Government of India powerless, to assign the investigation under Section 212 to the SFIO. It neither results in duplication of investigation, nor takes away any right of the petitioner. Sub-section (2) clearly mandates that once the SFIO is entrusted with investigation under Section 212, any other investigation already initiated shall not be proceeded further and further, those agencies who are/were conducting any investigation, shall transfer all the relevant documents and records in respect of those offences to the SFIO. The powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and for conduct of investigation there is procedure in place which need not require elaboration at this juncture.
The submission of the learned senior counsel for the petitioner is that when the proceedings under Section 210 are underway, assignment of investigation to the SFIO cannot take place. The strength on which the said submission is made is that there should a report under Section 210, as is directed, and only then the investigation can be handed over to the SFIO. The effect of such submission is that handing over of investigation to the SFIO, should precede a final report under Section 210. This submission is sans countenance as it travels on a slippery slope. Section 210 does speak of a report, the report can be either interim or final it need not be the final report only - It is entrusted to the SFIO which is created under the Act, i.e., in terms of Section 211 with elaborate functions under Section 212. The protection to any Company from duplication of proceedings is kept tight under sub-section (2) of Section 212 and above all, and after all, it is investigation.
A bleak attempt is made by the learned senior counsel to submit that the phrase ‘interim report’ is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability, as observed hereinabove, the report under Section 210, can either be interim or final. The said report will not result in any penalty being imposed straight away against any Company. It is for the purpose of investigation. Investigation is for the purpose of unearthing the alleged unethical activities of any Company, in the case at hand, the petitioner/Company. The Apex Court, in plethora of cases, has observed that with the advancement of technology, economic offences have become a real threat to the functioning of the financial system of the country. Those offences become a great challenge for Investigating Agencies to detect and comprehend intricate nature of transactions, as also the role of persons involved therein.
No reasons provided to invoke Section 212 of the Act - non-application of mind - HELD THAT:- The statement of objections are, in defence of interim report necessitating assignment of investigation. If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, this Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not by a stroke of pen, annul such opinion of the Union of India, unless it is contrary to the statute or the action is demonstrably arbitrary. Neither of the two is present in the case at hand, as the projection of the two, by the learned senior counsel for the petitioner is sans acceptance. Therefore, there is no warrant to interfere at this stage.
Insofar as the judgments relied on by the leaned senior counsel in support of his submissions in the case of MODERN DENTAL COLLEGE AND RESEARCH CENTRE v. STATE OF MADHYA PRADESH [2016 (5) TMI 1366 - SUPREME COURT] and in the case of UTTAM DAS CHELA SUNDER DAS v. SHIROMANI GURDWARA PRABANDHAK COMMITTEE [1996 (5) TMI 431 - SUPREME COURT] are inapplicable to the facts situation at this juncture. Reliance is placed on paragraph 60 of the judgment of the Apex Court in the case of MODERN DENTAL COLLEGE AND RESEARCH CENTRE which deals with doctrine of proportionality. It is the submission that the statute should be used only for the designated proper purpose. In the considered view of the Court, the statute is used for the designated proper purpose. Proportionality is not what can be considered at this stage of the proceedings. The stage, as observed in the course of the order, is conduct of investigation and the Apex Court is clear that investigation process should not be interdicted or annihilated unless the grounds projected are in support of such interdiction - the judgments relied on would not lend any support to the submissions of the learned senior counsel for the petitioner, in any manner. The action impugned does not suffer from any statutory aberration and therefore, the petition does not deserve any entertainment.
Petition dismissed.
- 2024 (2) TMI 775
Manipulation of voters’ list for the tenure of office bearers of the association from 2021 to 2023 by the named appellant defendants - inclusion of members whose membership had expired but renewed illegally - Order 7 Rule 11 of the Civil Procedure Code - HELD THAT:- It is not necessary to go into the issue whether the dispute between the parties was covered by Section 241 of the said Act. The reason given by the learned judge that the remedy sought by the plaintiffs could not be availed of by them because of their lack in number is in my opinion a plausible one. I also agree with the learned judge that availing of this remedy was conditional upon grant of an application by the tribunal to waive the eligibility requirement which would result in unnecessary consumption of time.
It is added that if the plaintiffs approached the tribunal for dispensing with the eligibility criteria, there was no guarantee that the tribunal would allow the application. In the event the tribunal rejected the application the plaintiffs would have to approach the civil court. The plaintiffs were justified in availing of a certain remedy rather than one which did not exist but could come into existence on fulfillment of an uncertain condition.
The plaintiffs’ decision to directly approach this court to file the civil suit was a proper step. Hence there are no reason to interfere with the impugned judgment and order dated 8th February, 2023 - impugned judgement upheld.
Appointment of independent officer or court appointed officer to act as an Administrator of the Association - appointment of independent officer or court appointed officer for smooth running of the day to day work of the Association and also only to meet the expenses of the Association to the extent to pay the salary of the employees of the AssociationInjuncting the present executive committee from taking any decision related to any financial matter on behalf of the Association or to spend any money - HELD THAT:- The election procedure of the association conducted in the year 2021 for election of the elected executive committee of the association from 2021- 2023 was challenged in this suit. It was said that the electoral roll was manipulated and fabricated showing membership of members whose membership had expired or wrongfully renewed. With this untrue voters’ list, the election was conducted by the defendants so as to elect executive committee members who were not eligible to be elected.
During argument it was conceded by both learned counsel that even after extension by the Registrar of companies, the term of the executive committee had come to an end and could not be continued to run the association. The interest of the members of the association would be best subserved if an election of the executive members of the association was conducted under the aegis of the court through an administrator. The administrator would be first responsible for preparation of a true and correct voters’ list of eligible members and then convene and hold an Annual General Meeting of the appellant association.
The appeal is disposed of by holding that the suit is maintainable before this court.
- 2024 (2) TMI 571
Condonation of delay of 18 days in preferring the instant Company Appeal - Section 421(3) of the Companies Act, 2013 - only ground pleaded for delay was the alleged indisposition of the 2nd Appellant - bonafide reasons for condoning the delay or not - HELD THAT:- Where the delay in preferring an Appeal/Restoration Application/Review etc. is not wanton or intentional, the Court would not be justified in rejecting the ‘delay condonation application’ on the basis that the Applicant had not produced a medical certificate, to show that he/she was ill and the Doctor had advised him/her to take rest, as per decision in Marry Susheela V. Shalee Kasturibai [2014 (4) TMI 1302 - MADRAS HIGH COURT].
When substantial justice and technical consideration are pitted against each other, cause of substantial justice deserves to be preferred, for the opposite party, cannot claim to have vested right in justice being denied to him / them, because of a non-deliberate delay. There cannot be any presumption or assumption that the delay as occasioned, wantonly, or on account of culpable negligence or on account of malafides - refusing to condone the delay can even result in a ‘meritorious matter’ being thrown out at the early stage and cause of justice being defeated. Also that, when the delay in question is condoned, the highest thing that can happen is that the case will be decided on merits after hearing the parties.
This ‘Tribunal’ on a careful consideration of respective contentions, on going through the facts and circumstances of the instant case comes to a ‘cocksure conclusion’ that the delay of 18 days in preferring the instant ‘Appeal’ has occurred on account of the indisposition of the 2nd Appellant, the authorised signatory of the 1st Appellant. Furthermore, on 01.05.2023, five days before the expiry of limitation period, the 2nd Appellant / MD and the authorised signatory of the 1st Appellant underwent tooth extraction, tooth implant etc. and the two weeks period came to an end of 14.05.2023 and the further delay of 10 days from 14.05.2023 to 24.05.2023 had occurred, according to the Appellants in the course of 2nd Appellant furnishing instructions in regard to the preferring of Appeal along with ancillary applications.
This ‘Tribunal’ by resorting to an elastic approach and the delay of 18 days that has occurred is covered within the further limitation period of 45 days prescribed in proviso to Section 421(3) of the Companies Act, 2013, condones the said delay of 18 days subject to a condition that the Petitioners/Appellants are hereby directed to pay a cost of Rs. 8000/- (Rupees eight thousand only) to the Prime Ministers’ Relief Fund to be paid within two weeks from today.
Appeal allowed.
- 2024 (2) TMI 570
Prayer for reception of additional documents and to consider the revival of the Company - Respondent / ROC had not followed the procedure u/s 248(1) of the Companies Act, 2013 - ‘Notices’ u/s 248(1) were not sent - ingredients of Section 248(6) of the Companies Act, 2013 not taken note of - HELD THAT:- The power of a Tribunal, to permit additional evidence to produce/documents are within the jurisdiction of the Appellate Authority. A document not pertinent to decide the dispute/controversy in a given proceeding/suit, is not to be accepted as Additional Evidence. Besides this, if there is any lacuna or gap in evidence to be filled up, the discretionary power conferred upon the ‘Appellate Authority’ does not authorise the Appellate Authority to fill the gap in question.
This Tribunal on going through the impugned order [2023 (8) TMI 1429 - NATIONAL COMPANY LAW TRIBUNAL CUTTACK] passed by the Tribunal is of the considered view that additional evidence is not to be accepted by this Tribunal, just because the documents/evidence will tilt the decision in Petitioner/Appellant’s favour - In fact, the ‘Tribunal/Court of Law’ is to see whether the Petitioner/Appellant lacked due diligence to be seen and he cannot be allowed to fill up the ‘Lacuna’ at the belated stage. As a matter of fact, the production of Additional Evidence, is not to be allowed, when an individual does not satisfy the Court of Law / Tribunal that such evidence was not within the knowledge or could not be produced with ‘Due diligence’.
This Tribunal on going through the impugned order is of the earnest opinion that the Appellant had not preferred IA No. 19/CB/2023 in CP No. 70/CB/2020 within a two years period, as enjoined as per Section 420(2) of the Companies Act, 2013 and indeed, the IA No. 19/CB/2023 in CP No. 70/CB/2020 came to be filed before the Tribunal on 16.12.2022 after a lapse of two years period on 16.12.2022. Therefore, the Tribunal had rightly opined that IA No. 19/CB/2023 in CP No. 70/CB/2020 was not to be considered in regard to the reception of additional documents/additional evidence.
Appeal dismissed.
- 2024 (2) TMI 510
Revival of the Appellant / Company - Removal the company for non-filing of Annual Return - Going Concern or not - Misinterpretation of meaning and ‘purport of Liberty’ granted to the Appellant - disregard by Tribunal of clear liberty granted to the Appellant by the Hon’ble High Court, by holding that since the Company petition was not pending, there was no question of receiving additional documents in a disposed of petition/proceeding - HELD THAT:- The power of a Tribunal to permit ‘Additional’ evidence to produce / documents is in the jurisdiction of the Appellate Authority. A document not relevant for deciding the question of controversy in a given proceeding / suit is not to be accepted as additional evidence. Also, if there is any gap or lacuna in evidence to be filled up, the discretionary power conferred upon the Appellate Authority does not authorise the ‘Appellate Authority’ to fill the gap in question.
The ‘Tribunal / Court of Law’ is to see whether the Petitioner/Appellant lacked due diligence to be seen, and he cannot be allowed to fill up the ‘lacuna’ at the belated stage. Moreover, the production of additional evidence is not to be permitted where a person does not satisfy the Tribunal / Court that such evidence was not within the knowledge or could not be produced with due diligence.
Even though in the present case, the Appellant has come out with a reason that the Petitioner/Appellant had engaged a Part Time Employee to file the Annual Return before the ‘Registrar of Companies’ and that because of the reason unknown to the Appellant, the said employee left and therefore, the Return could not be filed on time for the financial years 2016-2017 and 2017-18 and by the time it came to the knowledge of the Appellant/Petitioner Company, his name was already struck off from the register maintained by the ‘Registrar of Companies’, the Tribunal, in CP(Appeal) No.69/CTB/2020 on 21.08.2020, at para No.11 had clearly observed that ‘before striking off the name of the company from its register, ROC, had issued a show cause notice to the Company enquiring whether the said Company was carrying any business or was in operation’.
This ‘Tribunal’, on going through the impugned order dated 08.08.2023 in CA 15/CB/2023 in CP/69/CTB/2020 is of the considered view that the Appellant had not filed CA 15/CB/2023 in CP/69/CTB/2020 within the two years period as envisaged under Section 420 (2) of the Companies Act, 2013 and in fact had filed the CA 15/CB/2023 in CP/69/CTB/2020 before the ‘Tribunal’ 16.12.2022, after the lapse of two years’ period on 16.12.2022. Therefore, the ‘Tribunal’ had rightly opined that the CA 15/CB/2023 was not to be considered in regard to the receiving of additional documents / additional evidence.
Appeal dismissed.
- 2024 (2) TMI 442
Seeking winding up of the respondent company - disobedience of the orders of the Court - Sections 433(e) & (f), 434 and 439 of the Companies Act, 1956, read with Rules 6 and 9 of the Companies (Court) Rules, 1959 - HELD THAT:- The proposition of law is established that disobedience of the orders of the Court have to be shown to be ‘wilful’, such that there lies a certain mental element, and that such inaction or disobedience is done knowingly, intentionally, consciously and in a calculated and deliberate manner, with full knowledge of the consequences that may be flowing therefrom.
Hence, it flows that even when there is disobedience of an order, in such cases where the disobedience is a result of compelling circumstances, outside the control of the contemnor, the contemnor cannot be punished. The plea canvassed on behalf of the respondent is sound in so far that it has been urged that the disobedience was not wilful or intentional and this court finds the same to be sustainable in law. There has never been any wilful disobedience to violate the directions of this Court. It is but evident that efforts have been made to repay the outstanding amount as also towards revival of the company through infusion of funds. The fact that winding up proceedings were underway and thereafter proceedings under the IBC have been initiated in the interim, affords a valid and sustainable defence to the contemnor in these proceedings.
The present contempt petition is dismissed.
- 2024 (2) TMI 262
Seeking permission for withdrawal of appeal - HELD THAT:- In the instant TA (AT) No.113/2021 (Comp App (AT) No.200/2019), on the file of this ‘Tribunal’, the ‘Appellant’, is so far as the relief sought for `Set aside’ Order, dated 16.05.2019, passed by the ‘National Company Law Tribunal’, Hyderabad Bench in IA No.365/2018 in IA No.52/2018 in CA No.73/97/HYD/2016 and to punish the ‘Contemnor’ / ‘Respondent No.2’, in accordance with `Law’. The ‘Appellant’, comes out with a crystalline stand that she is not pressing the said relief.
Not resting to the above, in the said ‘Memo’, dated 30.10.2023, the ‘Appellant’, had also while seeking relief in the instant ‘Appeal’, for issuance of directions to the ‘Contemnor’ / ‘2nd Respondent’, to forthwith comply with the `Order’, dated 08.03.2018, passed by the ‘National Company Law Tribunal’, Hyderabad Bench in CA No.73/97/HYD/2016 and once again the ‘Appellant’, seeking to agitate the relief in CP No.385/2019, pending before the ‘Tribunal’, this ‘Tribunal’, is of the earnest view that according to the ‘2nd Respondent’, the instant ‘Appeal’, has become an ‘Infructuous one’ and furthermore, the ‘Appellant’ is not pressing for the relief sought for, in the instant ‘Appeal’, hence the ‘Appellant’, is not pressing the relief in the instant ‘Appeal’, seeking permission from this ‘Tribunal’ to ‘withdraw’ the same.
This ‘Tribunal’, taking into account of the Appellant’s contents of the ‘Memo’, dated 30.10.2023, filed before this ‘Tribunal’, in the instant ‘Appeal’, at this juncture, simpliciter, is of the considered view that the ‘Appeal’, has become an ‘Infructuous one’, especially the ‘Appellant’, is not pressing for the relief in the instant TA (AT) No.113/2021 (Comp App (AT) No.200/2019), and accordingly, the said `Appeal’, is ‘Dismissed’, as an ‘Infructuous one’.
Appeal dismissed.
Case Laws - IBC
- 2024 (3) TMI 806
Approval of Resolution Plan - Dues of Income Tax liability - HELD THAT:- It is not required to issue notice in the present appeal as it is apparent that the corporate debtor did not have money/assets, and the appellant under the waterfall would not have received payment.
The present appeal is dismissed.
- 2024 (3) TMI 805
Maintainability of appeal - time limitation - impugned order was passed on 10.06.2022 and the period of 30 days prescribed for filing the appeal had expired on 10.07.2022 and a further period of 15 days had also expired on 25.07.2022 but these appeals have been filed without annexing the certified copy of the impugned order and the certified copies of the impugned order were applied much after the expiry of period of 45 days - HELD THAT:- It has been found from the resume of the facts that four appeals have been filed within a period of 30 days, six appeals have been filed within the extended period of 15 days alongwith the application for condonation of delay which are yet to be decided and all these ten appeals have been filed with applications for seeking exemption from filing certified copy of the impugned order whereas three appeals have been filed without seeking exemption from filing certified copy of the impugned order which can be granted under Rule 14 of the Rules.
In all these appeals, the certified copies have been obtained after the expiry of 30 days/45 days but the fact remains that the application for seeking exemption is yet to be disposed of and this Tribunal has the jurisdiction to grant the exemption for the compliance of the Rules though on a sufficient cause shown in an appropriate application filed by the Appellant. Similarly, six appeals have been filed beyond the period of 30 days but within 45 days and the application for condonation of delay has not yet been decided. Supposing, the application for condonation of delay is allowed then the appeals shall be deemed to have been filed within the period of limitation and if the application is dismissed then the matter would be over. In so far as the remaining three appeals are concerned, these appeals have been filed without any application for seeking exemption from filing certified copy of the impugned order whereas Rule 14 clearly lays down that exemption can be granted if an application is moved in that behalf and by assigning a sufficient cause to render substantial justice.
Appeal disposed off.
- 2024 (3) TMI 804
Rejection of Section 7 Application filed by the Appellant - initiation of CIRP for default of payment of the Financial Debt owed to the Appellant - guarantor of the Financial Facilities or not - Approval of Resolution Plan lead to debt extinguishment or not.
Whether the ECL is a ‘guarantor’ to the SREI for the financial facilities availed by ESL from SREI? - HELD THAT:- The submission of the Appellant cannot be accepted that there was clear and categorical admission of Respondent No.1 in the pleadings before Madras High Court and the Hon’ble Supreme Court that Respondent No.1 stood guarantor of the Financial Facilities extended by SREI to ESL - Admittedly, Respondent No.1 mortgaged its immovable property as per the Supplementary Agreement as noted above and pleadings have to be looked into the background that mortgage was made by Respondent No.1 of his immovable property to secure the Facilities.
The issue directly arose in proceeding under Section 7, as to whether Respondent No.1 stood guarantor to SREI in reference to Financial Facilities extended to ESL, which has been answered by the Adjudicating Authority taking into consideration all relevant facts. Neither the issue was decided in proceedings before Madras High Court or by the Hon’ble Supreme Court, nor any such admission can be pressed into service as claimed by the Appellant. The Adjudicating Authority in the impugned order after considering all facts and circumstances of the present case has rightly come to conclusion that Respondent No.1 cannot be held to be guarantor to the Financial Facilities extended by Financial Creditor to the ESL. In paragraph 11 of the judgment of the Adjudicating Authority, detailed consideration and reasons have been given for holding that Respondent No.1 is not guarantor of the Financial Facilities.
Whether approval of ESL’s Resolution Plan by the Adjudicating Authority led to extinguishment of entire debt of ESL and no claim would lie against Respondent as guarantor/ third party surety in respect of the financial facilities availed by the ESL? - HELD THAT:- Law on extinguishment of claim against personal guarantor and third party on approval of Resolution Plan has been settled by Hon’ble Supreme Court in its judgment in LALIT KUMAR JAIN VERSUS UNION OF INDIA AND ORS. [2021 (5) TMI 743 - SUPREME COURT], where the Hon’ble Supreme Court held that approval of resolution plan does not ipso facto discharge a personal guarantor (of a Corporate Debtor) of her or his liabilities under the contract of guarantee.
There cannot be any dispute to the proposition that after the approval of the Resolution Plan, entire debt of the Corporate Debtor against the Financial Creditor stand discharged and after approval of Resolution Plan, Financial Creditor can have no further recourse against the Corporate Debtor. But the question as to whether debt of personal guarantor or third party which arises out of different contract shall also automatically extinguished after the approval of Resolution Plan is a question to be answered in the present case - The Minutes of the CoC throws light on the true interpretation of Clause 3.2 (ix) and cannot be said to be not relevant. When Clause 3.2 (ix) of the Resolution Plan expressly provides that all the debt shall be extinguished against the Company, but it shall not extinguish against personal guarantor and third party, nothing more is required to be looked into. The Respondent cannot be allowed to raise the submission contrary to above Clause of the Resolution Plan, which has received approval.
In view of Clause 3.2 (ix) of the Resolution Plan, when read in the light of the CoC Meeting dated 29.03.2018, which throws considerable light on the meaning and content of Clause 3.2 (ix), the submission of the Respondent cannot be accepted that after approval of Resolution Plan, the entire debt stand extinguished and no recourse can be taken by the Financial Creditor against third party.
Whether the approval of the Resolution Plan has led to extinguishment and effacement of the entire debt of ESL (including the liability owed by the CD)? - HELD THAT:- In view of Clause 3.2 of the Resolution Plan, which clearly contemplated that all rights/ remedies of the creditors shall stand permanently extinguished against the Company, except any rights against any third party (including the Existing Promoter) in relation to any portion of unsustainable debt secured or guaranteed by third parties. The finding of the Adjudicating Authority that approval of Resolution Plan has led to extinguishment and effacement of the entire debt of ESL has to be held to be finding qua the Corporate Debtor only. There is no finding recorded by the Adjudicating Authority in the impugned order that after approval of the Resolution Plan, it would lead to extinguishment and effacement of the entire debt of third party including the Corporate Debtor.
The order of Adjudicating Authority rejecting Section 7 Application filed by the Financial Creditor upheld - appeal disposed off.
- 2024 (3) TMI 760
Grant of permission to take on record the rejoinder subject to payment of cost of Rs.10,000/- - appellant contends that the said rejoinder was taken on record after conclusion of the hearing of the Financial Creditor - HELD THAT:- When the Adjudicating Authority found fit to take rejoinder on record subject to payment of cost of Rs.10,000/-, the discretion exercised by the Adjudicating Authority need not be interfered with by this Tribunal in exercise of its appellate jurisdiction. It is true that normally pleading are completed before commencement of hearing but in facts of the present case, the rejoinder affidavit was taken during course of the hearing.
Thus, no rule preclude such a course by the Adjudicating Authority - the appeal need not be entertained - appeal dismissed.
- 2024 (3) TMI 696
Seeking condonation delay of 41 days in filing the present appeal - Sufficient reasons for delay or not - Admission of section 9 application - initiation of CIRP - HELD THAT:- Any person aggrieved by any order of the Adjudicating Authority is vested with the statutory right of filing an appeal. However, the statutory right to file the appeal is required to be exercised within a period of 30 days of the impugned order before this Tribunal. If for certain reasons the right to file appeal is not exercised within the prescribed 30 days, the proviso to Section 61 (2) can be invoked which proviso provides that the appeal can still be filed subject to such appeal being filed up to a further period of 15 days only. The statutory construct is absolutely clear and unambiguous that the limitation period provided under Section 61(2) of IBC is 30 days which is extendable by a maximum of 15 days. Thus, no appeal can be filed after the expiry of the extended period of 15 days and that any appeal filed within the extended limitation period can be admitted only after satisfying the Appellate Tribunal that there was sufficient cause justifying the delay of 15 days.
IBC by virtue of being a special statute, this Tribunal is not empowered to condone any delay beyond the statutory prescriptions in IBC containing a provision for limitation. This legal precept has been squarely laid down by the Hon’ble Supreme Court and for this purpose reference made to the judgement of the Hon’ble Supreme Court in Kalpraj Dharamshi vs Kotak Investment Advisors Ltd [2021 (3) TMI 496 - SUPREME COURT] wherein it has been noticed that IBC being a special statute, for purposes of calculating the period of limitation to file an appeal, the governing section shall be Section 61 of the IBC.
Section 61 of the IBC has to be interpreted keeping in mind the overall purpose and object of the IBC which inter-alia includes timely resolution of the CIRP. That being an avowed objective of this legislation and it being settled law that for purposes of calculating the period of limitation to file an appeal in any IBC proceeding, the governing Section shall be Section 61 of the IBC, the submission of the Appellant that the period of limitation shall commence for filing the appeal when the Appellant became aware of the order is untenable.
Undisputedly, the present impugned order was pronounced on 22.11.2023. Thus, limitation for filing the appeal starts from 22.11.2023 and does not depend upon when the Appellant becomes aware of the order. The date on which the order is pronounced is to be excluded from the calculation of limitation in terms of Section 12(1) of the Limitation Act. The 30 days period comes to an end on 22.12.2023 and further period of 15 days comes to an end on 07.01.2024. The Appeal having been filed on 01.02.2024, the appeal has clearly been filed with a delay of more than 15 days from the date of expiry of limitation - the jurisdiction to condone the delay is limited to only 15 days under Section 61(2) of IBC, hence, the delay condonation application cannot be entertained.
The delay condonation application deserves to be dismissed. In result, the delay condonation application is dismissed and the Memo of Appeal is rejected.
- 2024 (3) TMI 646
Admission of section 9 application - initiation of CIRP - pre-existing disputes or not - appellant submits that even though no reply of Section 9 application could be filed but reply to demand notice contains specific details by which Corporate Debtor has given notice of dispute - HELD THAT:- The Adjudicating Authority has not noticed the contents in the reply to demand notice given by the Appellant fully and the observation that reply raises issue only two invoices 203 and 205 is incorrect. It is true that the Corporate Debtor could not file reply to Section 9 application although in the appeal, Suspended Director of the Corporate Debtor has sought to given reason as to why it could not appear and file reply, it is not necessary to enter into the said issue. The fact remain that no reply has been filed. The Corporate Debtor, however, has filed certain other correspondences between the parties prior to demand notice to which reply has also been filed by the Operational Creditor. The correspondence which was brought on the record in the appeal prior to demand notice has not been denied.
The demand notice dated 25.08.2021 was sent on the basis of ledger confirmation treating to be principal amount due as Rs.1,79,93,691/-. The demand notice was replied on 20.11.2021 and with regard to faulty cables, the Corporate Debtor has issued a debit note for Rs.67,96,800/- and further stated debit note for amount of Rs.50,00,000/- towards non-supply of G.I. Pipe for Bill number 203. The above reply to demand notice clearly indicate the dispute regarding the claim of the Appellant - there are ample materials on record to indicate that there was pre-existing dispute between the parties and reply dated 20.11.2021 replying the demand notice was not disputed, reply cannot be said to be based on no material or no evidence nor the defence raised by the corporate debtor in the reply to demand notice can be said to moonshine dispute or frivolous dispute as contended by the counsel for the Appellant. Issue of faulty cables between the parties was going on immediately after supply of the goods and joint inspection was also done on 08.12.2019 but there is no redemption was seen when faulty cables was measured. The fact thus, clearly indicate that dispute persisted between the parties and reply to the demand notice was clearly notice of dispute and, therefore, pre-existing dispute between the parties, Section 9 application ought not to have been admitted.
The Hon’ble Supreme Court in M/S S.S. ENGINEERS VERSUS HINDUSTAN PETROLEUM CORPORATION LTD. & ORS. [2022 (9) TMI 377 - SUPREME COURT] clearly held that the operational creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence. However, if the debt is disputed, the application of the operational creditor for initiation of CIRP must be dismissed - Present is a clear case where claim raised by the operational creditor where payment was disputed, notice of dispute was given on 20.11.2021. It is also noticed the correspondences between the parties prior to issuance of demand notice which indicate that the dispute persisted between the parties with regard to default in cable supplied. Thus there is pre-existing dispute between the parties and the Adjudicating Authority committed error in admitting Section 9 application.
The order passed by the Adjudicating Authority set aside - Section 9 application filed by the operational creditor dismissed - appeal allowed.
- 2024 (3) TMI 602
Permission to withdraw the present Special Leave Petition - Right to get registered as RP - Rejection of application of the Petitioner herein for registration as a Resolution Professional - It was held by High Court that This Court is of the opinion that the decision taken by the Board does not suffer from any irregularity which requires interference by this Court under Article 226 of the Constitution of India - HELD THAT:- Permission as sought for is granted.
The Special Leave Petition is dismissed as withdrawn.
- 2024 (3) TMI 601
Undervalued/preferential/fraudulent transactions - Failure to adjudicate about the ingredients of Section 43, 45, 49 and 66, specifically - Adjudicating Authority in the impugned order has only noticed the opinion of the Resolution Professional - Need for separate consideration of preferential, undervalued, and fraudulent transactions, each requiring distinct scrutiny and evidence - HELD THAT:- The Adjudicating Authority has recorded only its conclusions and that too without considering the preferential, undervalued and fraudulent, each transaction separately and there is general observation that the transactions are undervalued transactions as well as preferential and fraudulent transactions. The ingredients of preferential, undervalued and fraudulent transaction are entirely different and there has to be application of mind to the ingredients of each transaction to come to conclusion that ingredients are satisfied and the transaction falls in the said category adverting to the given pleadings in the application. The Adjudicating Authority ought to have adverted to the said pleadings and returned the finding regarding the fulfilment of ingredients of each provision. The Adjudicating Authority has only in two paras i.e. 27 and 28 has recorded his conclusion without giving any reason and without adverting to any pleadings or materials on record.
The order passed by the Adjudicating Authority cannot be sustained. Order impugned is set aside - Application revived before the Adjudicating Authority to be heard afresh and decided in accordance with law.
Appeal disposed off.
- 2024 (3) TMI 567
Constitutional validity - Disciplinary proceedings against insolvency professional agencies - suspension of authorization for assignment - Seeking review of the common order - Error apparent on the face of record or not - sufficient cause for review or not - Regulation 23 A is liable to be struck down or not - violation of principles of natural justice - Section 204 of IBC is violative of Article 20(2) of the Constitution of India or not - HELD THAT:- The alleged error pointed out is nothing but recording the case of the petitioner that by an order dated 14.01.2020 the application was rejected. Assuming that the petitioner is correct in stating that as per the counter affidavit the same was communicated on 16.07.2020, even then, the same has no bearing whatsoever to the ultimate findings and conclusions arrived at.
Even though the petitioner would term the grounds raised in the review application as ‘error apparent on the face of the record’, it could be seen that all his pleadings and arguments are nothing but pointing out that the conclusions reached by this Court are erroneous. The petitioner is virtually assailing correctness of the findings before the self same Court and pleading for re-consideration of the issue, which is nothing but an appeal in disguise, which cannot be entertained by this Court. No grounds on any materials which were not there for consideration is pleaded. The conclusions are not on the basis of any error apparent on the face of the record. No other sufficient cause which would be within the contours of review as contemplated under Order XXVII Rule 1 of CPC is made out.
There are no merits in the review application - application dismissed.
- 2024 (3) TMI 566
Admission of Section 7 petition - time barred debt or not - appellant were not given adequate opportunity to represent itself in respect of the financial statements which were placed by the CA before the Adjudicating Authority - violation of principles of natural justice (audi alterem partem) - HELD THAT:- There is force in the contention of the Appellant that it was neither aware regarding what was filed before the Adjudicating Authority by the CA nor was provided an opportunity to rebut and/or place reliance on the said balance sheets. The Appellant clearly did not get the chance to explain the notes of the said balance sheets which allegedly expressed caveats regarding the debt.
It is well settled that adherence to principles of natural justice is the essence of fair adjudication and cannot be given a go-by by the Adjudicating Authority or this Tribunal in the discharge of their adjudicatory and appellate responsibilities. Opportunity to hear is a critical limb of this principle of natural justice. The Tribunal must appraise the party of the case he has to meet so as to enable him to make his representation. This opportunity must be real and effective. The right to make representation requires that the person/entity proceeded against must have opportunity to peruse all material relied upon against him - So also in the present matter, to meet the ends of justice, it was the duty of the Adjudicating Authority to have ensured that the balance sheets produced by the CA was shared with the Appellant party since these documents were to constitute the basis on which the impugned order was premised.
Thus, justice should not only be done but should manifestly be seen to be done. In the absence of notice and such reasonable opportunity having been given to the Appellant, the impugned order passed has become vitiated. To meet the ends of justice, the Appellant deserves to be given appropriate and adequate opportunity to represent itself in respect of the financial statements which were placed by the CA before the Adjudicating Authority.
The impugned order is set aside. The orders passed by the Adjudicating Authority initiating CIRP against the Corporate Debtor and appointing Interim Resolution Professional and all other orders pursuant to the impugned order are set aside - appeal allowed.
- 2024 (3) TMI 565
Maintainability of Section 9 application - initiation of CIRP - pre-existing dispute - dispute came into the picture before the Demand Notice or not - It was contended that the grounds of pre-existing dispute raised by the Respondent were illusory and created only to wriggle out from clearing the outstanding liability - HELD THAT:- In the present case, it is an undisputed fact that the demand notice was issued by the Operational Creditor on 15.12.2017 and notice of dispute was raised by the Corporate Debtor on 26.12.2017. It is also an undisputed fact that in the present matter the Operational Creditor did not receive any further payment from the Corporate Debtor and therefore proceeded to file an application under Section 9 of IBC on 20.06.2018.
From a plain reading of the notice of dispute, it is noticed that the Corporate Debtor clearly articulated how the Agency Agreement was breached by the Appellant leading to forfeiture of their payments. It is an undisputed fact that in March 2011, the CBI had arrested some officials of the Appellant for paying illegal gratification. It is therefore the case of the Corporate Debtor that in terms of Clause 7(2) of the Agency Agreement, this constituted a breach of the said Agreement. Hence, they claimed to have terminated the Agency Agreement and consequently payments related to SAD invoices were also withheld by them. The Notice of Dispute thus makes it clear that the Corporate Debtor had not only denied their liability to pay the SAD claims but also laid the edifice of the ongoing disputes between the two parties.
The issue of denial of payment and termination of Agency Agreement by the Corporate Debtor had continued to fester the business relationship of the two parties is reinforced by another communication sent on 12.03.2015 by the Appellant in which they have sought review of the termination of their services by the Corporate Debtor. This letter has been placed on record at pages 140-141 of the APB. The said communication also reads like an admission of aberration committed on their part and failure to meet the exacting standards of compliance expected by the Corporate Debtor leading to the punitive action of termination of services.
It is a well settled proposition that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application - from the material available on record, the dispute over payment of operational debt which has been claimed by the Appellant is writ large and this dispute also clearly precedes the issue of Demand Notice.
The Adjudicating Authority has made no mistake in taking cognizance of the fact that there clearly existed dispute between the two parties anterior to the date of demand notice and that there has been a consistent and clear denial on the part of the Corporate Debtor of their liability to discharge the obligations to pay. In the present factual matrix, there are no material which has been placed on record which substantiates that the defence raised by the Corporate Debtor was moonshine, spurious, hypothetical or illusory. It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. Keeping in view that the present facts of the case indicates that the operational debt is disputed, the Adjudicating Authority has therefore correctly rejected the Section 9 application.
There are no reasons to disagree with the findings of the Adjudicating Authority. Considering the overall facts and circumstance of the present case, and in view of the foregoing discussion, it is clear that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant.
Appeal dismissed.
- 2024 (3) TMI 504
Calculation of the interest - admission of the claim by the Resolution Professional - HELD THAT:- The Adjudicating Authority in the impugned order having noticed certain instances and decided that with regard to claim charging of the interest should be examined and adjudicated, there are no error in the order of the Adjudicating Authority when direction has been passed to examine the interest charge in the claims. Till the issues are finalized, the Adjudicating Authority to balance the interest of the parties has directed that no further steps shall be taken for consideration and approval of the Resolution Plan.
It is further to be noticed that the next date fixed is 12.03.2024 and in the interest of all concerned, Adjudicating Authority may take a decision on the application and thereafter further steps may proceed in accordance with the law.
Appeal disposed off.
- 2024 (3) TMI 503
Entitlement for the benefit of Section 14 of the Limitation Act - exclusion of period during pendency of Writ Petition and SLP was pending - Sufficient grounds exists to condone the delay or not - HELD THAT:- The Adjudicating Authority has referred to earlier order dated 11.10.2023 where Adjudicating Authority expressed its prima facie opinion with regard to limitation as well as on the default. When the Adjudicating Authority has granted time to the Respondent to file reply, it is always open for the Corporate Debtor to raise all issues including the issue of limitation and the issue of default - the prima facie view which was expressed by the Adjudicating Authority shall not come in the way of the Adjudicating Authority in deciding the issue after hearing the Corporate Debtor who is permitted to file reply. We see no reason to entertain the appeal filed against the order dated 28.11.2023.
Appeal disposed off.
- 2024 (3) TMI 459
CIRP - Unsecured Financial Creditor or not - Non-registration of charge before the Registrar of Companies - the mortgaged property, will form part of the Liquidation Estate or not - mortgage rights over secured assets - failure to fulfil the requirements as per Section 52 of the Code r/w Regulation 21 of the Liquidation Process Regulations - HELD THAT:- This Tribunal keeping in mind of the prime fact that Right to recover the money, lent by enforcing a mortgage is a Right to enforce, an interest in the property and that the claim of the First Charge Holder, shall prevail over the claim of the Second Charge Holder, and the Appellant / Petitioner, can very well enforce the Security Interest, resting on Section 58(f) of the Transfer of Property Act, 1882 and Rule 8 of the Security Interest (Enforcement) Rules, 2002, comes to a resultant conclusion that mortgage, is the result of the Act of Parties, where the Transfer of Ownership Interest, in a particular Immoveable Asset is created, and that the conclusion arrived at by the Adjudicating Authority / Tribunal, in upholding the decision of the Liquidator, in classifying the Appellant / Petitioner / Bank, as an Unsecured Financial Creditor, is an illegal and an invalid one, in the eye of Law and in the Liquidation Proceedings, the Appellant /Bank, is to be treated as Secured Creditor, as held by this Tribunal.
In addition, the non-registration of the Mortgage, as per Section 77 of the Companies Act, 2013, is not a sufficient / enough ground, to come to an opinion, that the Appellant, is not a Secured Creditor. In reality, the rights of a Mortgagee, under the Transfer of Property Act, 1882 and the SARFAESI Act, are not to be diluted, in terms of Regulation 21 of IBBI (Liquidation process) Regulations, 2016.
It cannot be lost sight of the fact that CERSAI Registration, became mandatory, only in February, 2020, much after the Mortgage, was created in the instant case. Further, the fact remains that the Mortgage, was registered in the Office of S.R.O., Thovalai, Kanyakumari District, Tamil Nadu, which is again a Public Office, providing information, on the Mortgages, registered in it. Suffice it for this Tribunal, to unhesitatingly, to hold, that the Appellant’s rights, in holding a Valid Mortgage Right, over the Secured Assets, is to be protected, by any means whatsoever
The impugned order upholding the decision of the Liquidator, in classifying the Appellant/Petitioner, as an Unsecured Financial Creditor, is an invalid and illegal one and the same is set aside, by this Tribunal, to secure the ends of Justice - appeal allowed.
- 2024 (3) TMI 410
Prayer for condonation of delay in filing the Appeal - Dismissal of section 9 application - HELD THAT:- The order clearly mentions both the date i.e. date of hearing i.e. 21st September, 2023 and date of pronouncement i.e. 25th September, 2023. Order also indicates that counsel for the operational creditor i.e. Appellant was present and the order was pronounced in the presence of the Learned Counsel for the Appellant.
In view of the law laid down by the Hon’ble Supreme Court in V. Nagarajan [2021 (10) TMI 941 - SUPREME COURT], the period for filing the Appeal shall commence from the date when order is pronounced in presence of Learned Counsel for the Appellant, the submission of the Appellant relying on Judgment of Sanjay Pandurang Kalate [2023 (12) TMI 1249 - SUPREME COURT] in paragraph 20 is to be considered - Paragraph 20 as quoted were in reference of the facts of the case of Sanjay Pandurang Kalate, where although order was pronounced subsequently but earlier date was put in the order. The present is a case where both the date of hearing and date of pronouncement has been clearly mentioned in the order hence the observation of para 20 in Sanjay Pandurang Kalate has no relevance in the presence case.
The Appeal have been filed beyond 15 days after expiry of the limitation, we are unable to condone the delay since our jurisdiction to condone the delay is limited to 15 days only as per Section 61(2) proviso of the Code. Delay Condonation Application is dismissed.
- 2024 (3) TMI 291
Rejection of application filed u/s 54C of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 4 of the Insolvency and Bankruptcy (Pre-Packaged Insolvency Resolution Process) Rules, 2021 - rejection of application by entering into base Resolution Plan - HELD THAT:- On looking into sub-section (4) of Section 54C, it provides that Adjudicating Authority shall, within a period of fourteen days of the receipt of the Application, by an order - (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete. Further, the proviso provides that the Adjudicating Authority shall, before rejecting an Application, give notice to the Applicant to rectify the defect in the Application within seven days. The Adjudicating Authority in the impugned order itself has noticed the details of the Application and statutory compliances of the Application.
The provisions of Section 54A and 54C, where under Section 54C, sub-section (4), the Adjudicating Authority is required to admit the Application, if it is complete or reject the Application, if it is incomplete. In paragraphs 10 to 16 of the impugned order, the Adjudicating Authority itself has noticed that all necessary compliances are fulfilled by the Corporate Debtor in filing Application under Section 54C. Thus, when accordingly to the Adjudicating Authority itself, all necessary compliances have been completed by the Corporate Applicant, whether the Adjudicating Authority could have entered into issue of Base Resolution Plan and reject the Application on the ground that Base Resolution Plan is not acceptable is a question to be answered.
In the present case, the Adjudicating Authority has rejected 54C Application after entering into the merits of the Base Resolution Plan, which is not contemplated by statutory Scheme. The order of Adjudicating Authority, thus, rejecting the Application under Section 54C entering into Base Resolution Plan, is thus, contrary to the statutory Scheme of Chapter III-A and on this ground itself the order becomes unsustainable.
Whether M/s WZ Enterprises Pvt. Ltd. could not have submitted the Base Resolution Plan along with the Corporate Applicant? - HELD THAT:- Base Resolution Plan can very well be submitted by a Corporate Applicant individually or jointly with any other person. Thus, there are no illegality in submission of Resolution Plan by Corporate Applicant along with M/s WZ Enterprises Pvt. Ltd. – the Financial Creditor of the corporate applicant.
The Adjudicating Authority committed error in rejecting Application filed under Section 54C and the impugned order is unsustainable - appeal allowed.
- 2024 (3) TMI 290
Admission of Section 7 application filed by the Financial Creditor - invocation of guarantee - application filed by the Financial Creditor is barred by Section 10A of IBC or not - first submission is that notice dated 22.02.2020 was not notice for invoking guarantee of the Corporate Guarantor and guarantee of the Corporate Debtor was only invoked by notice dated 12.02.2021 - non-service of notice dated 22.02.2020 - HELD THAT:- The notice clearly indicates that by the notice Borrower and Guarantors were asked to pay the outstanding amount and the notice clearly mention that in event of failure of payment within seven days, the Financial Creditor shall initiate proceedings under SARFAESI Act including proceedings under the I&B Code - the notice dated 22.02.2020 was notice by which guarantee stood invoked and submission of the Appellant that said notice was not notice of invocation of guarantee, cannot be accepted.
In so far as, subsequent notice which was given to the Financial Creditor being notice dated 12.02.2021, it has been submitted by the Financial Creditor that since no payment was made in pursuance of the notice dated 22.02.2020 another letter was issued on 12.02.2021 - Section 7 application filed by the Financial Creditor has been brought on record, which clearly mentioned the notice date as 22.02.2020 which has been referred as Recall Notice issued by the Financial Creditor. When Recall Notice has been issued by the Financial Creditor, the Principal Borrower and Guarantors, liability to pay arises on all and the submission of the Corporate Debtor relying on subsequent notice dated 12.02.2021 cannot affect the right of the Financial Creditor to initiate proceeding on the basis of notice dated 22.02.2020. Even though subsequent notice dated 12.02.2021 was during 10A period but Recall Notice having been issued on 22.02.2020, the Financial Creditor was entitled to initiate Section 7 proceedings against the Principal Borrower as well as the Guarantors.
From the facts brought on the record, it is clear that after April, 2018 no payments have been made either by the Principal Borrower or the Corporate Guarantor towards the loan. Certificate issued by NeSL was also brought on the record in support of Application under Section 7 where default has been proved. It is true that date of default i.e. 15.04.2018 was initially date of default of Principal Borrower but Loan Recall Notice had been issued on 22.02.2020 which was addressed to Principal Borrower as well as all Guarantors including the Corporate Debtor – M/s Earthbuild Greencity Private Limited. The application filed by the Financial Creditor cannot be held to be barred by Section 10A.
There are no grounds have been made out to interfere with the impugned order passed by the Adjudicating Authority admitting Section 7 application - Appeal is dismissed.
- 2024 (3) TMI 289
Dismissal of Section 9 petition filed by the Appellant - Period of limitation - seeking to bring the Corporate Debtor under the rigours of Corporate Insolvency Resolution Proceedings (CIRP) - Appeal was dismissed on the ground of time limitation - HELD THAT:- There are no document/agreement between the two parties which evidences running account payment underlying their business operations. In the absence of any documentary evidence which provides foundational basis to the claim of the Appellant that there was a running account, the reliance placed on the judgment of this Tribunal in SHRI ABHINANDAN JAIN, DIRECTOR RISA INTERNATIONAL LTD. VERSUS TANAYA ENTERPRISES PVT. LTD. [2021 (3) TMI 939 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH , NEW DELHI] does not come to the aid of the Appellant. Furthermore, on perusal of the reply to the Section 8 Demand Notice sent by the Corporate Debtor on 07.01.2020, as placed at pages 127-136 of APB it comes to notice that it has been categorically denied that any operational debt was due qua the Operational Creditor - there are no merit in the argument advanced by the Learned Counsel for the Appellant that since the last invoice did not attract limitation, the other 26 invoices which have been submitted alongwith it also escapes the bar of limitation on the unsubstantiated pretext of running account of payments.
Reliance placed in the decision of the Hon’ble Supreme Court in the matter of B.K. EDUCATIONAL SERVICES PRIVATE LIMITED VERSUS PARAG GUPTA AND ASSOCIATES [2018 (10) TMI 777 - SUPREME COURT] wherein after considering the statutory provisions of the IBC and the Limitation Act, it has been settled that for filing application under Section 9 of the IBC, Article 137 is attracted.
The Adjudicating Authority has therefore not erred in holding that the Appellant cannot rely on the 26 other invoices wherein the default occurred over three years prior to date of filing Section 9 application to cross the threshold mark in claiming an outstanding amount of Rs. 1,57,06,741 / - in their Section 8 Demand Notice and Section 9 application - the principal legislative intent behind the IBC is insolvency resolution so as to bring the Corporate Debtor to its feet and in view of this clear legislative fiat, the IBC forum cannot be allowed to be used as a substitute for money recovery proceedings.
There are no convincing reasons to interfere with the order of the Adjudicating Authority. The appeal being devoid of merit, there are no reasons to entertain it. In the result, the appeal is dismissed.
- 2024 (3) TMI 243
Validity of demand notice based on the order secured by the petitioner from NCLT - Corporate Insolvency Resolution Plan approved by the NCLT which proposed a NIL value against the sales tax dues - Revision of deemed assessment - failure on the part of the petitioner to submit necessary Form-C and Form-F - HELD THAT:- The proceeding that was initiated before the National Company Law Board (NCLT) with the presentation of a petition under Section 8 of the IBC, 2016 on 16.07.2018 appears to be staged managed with a view to defeat the rights of scores of creditors including operating creditors such as the respondent Commercial Tax Department - Mere paper publications of notice to the financial creditors and the operational creditors is not sufficient. Fixing 31.07.2018 as the last date for filing claim statement also shows undue alacrity is getting orders for NCLT to defeat the rights of creditors of the petitioner.
The Order passed by the National Company Law Board (NCLT) on 01.02.2019 approving the Corporate Insolvency Resolution Plan filed by Mr.Mahavir Chand Bafna, promoter of the petitioner Company on 20.12.2018 as a resolution applicant before the National Company Law Board (NCLT) CP/682(IB)/CB/2017 has also not disclosed the names of any of the financial creditors and the operational creditors and the details of discussion of the Committee of the Creditors (COC) before the Corporate Insolvency submitted by Mr.Mahavir Chand Bafna, the promoter of the petitioner - It merely states that the meeting of the Committee of Creditors (COC) was held on 27.09.2018, 30.11.2018 and 20.12.2018. It further records that the Committee of Creditors (COC) after deliberation approved the Corporate Insolvency Resolution Plan submitted by the Corporate debtor i.e. the promoter of the petitioner Mr. Mahavir Chand Bafna by passing the Resolution on 04.01.2019.
NCLT as the Adjudicating Authority ought to have been careful before approving the Corporate Insolvency Resolution Process initiated by the promoter of the petitioner company. NCLT ought to have imposed penalty on the petitioner instead of sanctioning the plan - Entire course of event before NCLT shows that the proceedings initiated before the NCLT under Section 8 of the Insolvency Bankruptcy Code, 2016 was intended to defeat the rights of the financial creditors and the operational creditors and at behest of the petitioner. It was stayed managed by the petitioner itself.
The challenge to the impugned demand notice based on the order secured by the petitioner from NCLT on 01.02.2019 in C.P/682(IB)/CB/2017 is unsustainable. Therefore, this writ petition is liable to be dismissed - petition dismissed.
- 2024 (3) TMI 190
Direction to handover vacant and peaceful possession of the premises licensed to the Appellant by the Corporate Debtor within 15 days - impugned order has been challenged on the ground that the issue of eviction vests with the Learned Court of Small Causes under Section 41 of the Presidency Small Causes Courts Act, 1882 - HELD THAT:- The issue of passing an eviction order qua immovable properties forming part of assets of Corporate Debtor, despite injunctions, have been discussed in various judgements. In M/S. JHANVI RAJPAL AUTOMOTIVE PVT. LTD. VERSUS VERSUS R.P. OF RAJPAL ABHIKARAN PVT. LTD., AGARWAL REAL CITY PVT. LTD. [2023 (1) TMI 301 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], this Hon’ble Tribunal has taken a view in case of M.P. Accommodation Control Act, 1961 that where the Corporate Debtor has ownership right over the premises, the premises can be taken in control by IRP/.RP. This Hon’ble Tribunal was of the view that the suit is not contemplated in the statutory scheme contained in the IBC. The order of this Hon’ble Tribunal was challenged before Hon’ble Supreme Court and the petition was dismissed.
The argument that despite five attempts Respondent has been unable to carry out auction sale is also not convincing as it may be due to appellant being in possession, as no intending purchaser may purchase premises in an auction, which is in possession of someone else and may land such intending purchaser(s) in litigation. Even the subsisting status quo as was issued by the Learned Court of Small Causes, only restrained the Liquidator from dispossessing the appellant without following due process of law, but admittedly the Respondent had invoked the jurisdiction of NCLT, per Section 60(5) of the Code, hence this argument of appellant too lacks merit.
There could be no challenge to the powers of the NCLT to pass an eviction order in the factual matrix - Appeal dismissed.
Case Laws - PMLA
- 2024 (3) TMI 759
Money Laundering - Scheduled offence - Legal jugglery - framing of charges - Acquittal form predicate offence - it was held by High Court that The view as taken by the Trial Court in this matter had been a justified view of the matter and the High Court was not right in setting aside the discharge order despite the fact that the accused No. 1 had already been acquitted in relation to the scheduled offence and the present appellants were not accused of any scheduled offence - HELD THAT:- There is no reason to interfere with the impugned order. In the event, the order of acquittal against the accused in the predicate offence is overturned, the petitioner-Directorate of Enforcement are permitted to apply for revival of these Special Leave Petitions.
SLP dismissed.
- 2024 (3) TMI 695
Money laundering - written complaint filed by Bank of Baroda based on EY audit alleging that the company along with others including the petitioner committed bank fraud to the tune of Rs. 57.29 crores - petitioner is aggrieved by continuance of ED investigation conducted by the respondent under Section 120B read with Section 420 IPC, Section 13(2) read with Section 13(1)(d) of Prevention of Corruption Act, 1988 against M/s Technovaa Plastic Industries Private Limited (Company) and others, wherein petitioner is named as accused No. 3 - HELD THAT:- The summons issued by ED cannot be quashed merely because the relevant documents required for purpose of investigation or confrontation to the petitioner, have not been specified in the summons. It needs to be kept in perspective that under the scheme of PMLA, 2002 upon identification of existence of property being proceeds of crime, the Competent Authority is to inquire into relevant aspects in relation to such property and take necessary measures in this regard as per provisions of PMLA, 2002. Since ECIR in an internal document created by Department before initiation of prosecution against persons involved with process or activity connected with proceeds of crime, it is not necessary to reveal the evidence collected by the ED at this stage in the summons forwarded to the petitioner.
Petitioner is yet to be absolved of scheduled offence by way of discharge, acquittal or quashing and as such protection orders cannot be issued in favour of petitioner ignoring the mandate under Section 45 of PMLA, 2002 for grant of bail. Further the summoning in exercise of statutory powers cannot be stalled merely on mere apprehension that petitioner may be arrested and prosecuted on basis of summons issued after registration of ECIR, in proceedings initiated by ED. In the facts and circumstances, no grounds for interim relief are made out at this stage.
It may be clarified that no observations have been made on merits or demerits of the proceedings initiated by Enforcement of Directorate at this stage, and the questions are left open to be considered in the light of investigation by ED.
Application disposed off.
- 2024 (3) TMI 645
Quashing of summons dismissed - whether Section 120-B IPC is a standalone scheduled offence for invocation of provisions under the Prevention of Money Laundering Act, 2002? - HELD THAT:- The High Court, vide the impugned judgment, has held that Section 120-B IPC is a standalone scheduled offence on the basis of which provisions of PMLA can be invoked - the reasons assigned by the High Court in the impugned judgment cannot be sustained.
Appeal allowed.
- 2024 (3) TMI 644
Seeking grant of anticipatory bail - Money Laundering - applicant though not named in the FIR, prosecution complaint filed by the Income Tax Department nor named in the ECIR submitted by the Enforcement Directorate, can be involved in the commission of offence under the PMLA or not - twin conditions for grant of bail under Section 45 of the PMLA, 2002 are available on record to release the applicant by granting anticipatory bail or not.
Whether the applicant though not named in the FIR, prosecution complaint filed by the Income Tax Department nor named in the ECIR submitted by the Enforcement Directorate, can be involved in the commission of offence under the PMLA? - HELD THAT:- The applicant can be subjected to prosecution under the PMLA, 2002 if it can be established that the applicant has prima facie committed an offence under Section 3 of the PMLA, 2002 - From the statement recorded as reflected in the ECIR that there is evidence to suggest that the applicant had knowledge that the money he has received was derived from criminal activity related to a scheduled offence and did he knowingly assist accused Laxmikant Tiwari in concealing or transferring illicit proceeds of crime which is essential to constitute an offense under Section 3 of the PMLA, 2002. Therefore, the money obtained by the applicant is deemed to proceed of crime and as such, he has prima facie committed the crime under Section 3 of the PMLA, 2002 - Question is answered against the present applicant.
Whether the twin conditions for grant of bail under Section 45 of the PMLA, 2002 are available on record to release the applicant by granting anticipatory bail? - HELD THAT:- The material so collected by the investigation prima facie reflects that many hand written entries in the diaries, name of the present applicant exist. Thus, he was knowingly and actively obtained the proceeds of crime and committed the offence under Section 3 of the PMLA, 2002 - material collected by the Enforcement Directorate, prima facie, involvement of the applicant is reflected. The material collected by the Enforcement Directorate has not been rebutted which also prima facie reflects about involvement of the applicant. The record of the case would further demonstrate that the applicant is unable to fulfill the twin conditions which are required for grant of bail under the PMLA, 2002, is equally applicable for grant of anticipatory bail, which has not been satisfied by the present applicant - considering the fact that the applicant is unable to satisfy twin conditions of Section 45 of PMLA, 2002 for grant of anticipatory bail, the anticipatory bail cannot be granted - question also answered against the present applicant.
The bail application filed under Section 438 of the Cr.P.C. is liable to be and is hereby rejected.
- 2024 (3) TMI 599
Maintainability of petition - petitioners are basically aggrieved with certain observations made in the impugned judgment and order against the State Police Machinery - HELD THAT:- The respondents fairly states that the respondents are not interested in maintaining those observations. He submits that if those observations are expunged, the respondents would have no objection.
It is not required to entertain the petition in so far as final directions given in the impugned order are concerned - SLP disposed off.
- 2024 (3) TMI 598
Seeking grant of Regular Bail - Money Laundering - proceeds of crime - predicate offence - subsidy fraud in IFFCO by opening Kisan International Trading - exchange of illegal commissions in import of raw materials and fertilizers - manipulation of sales data of fertilizers for claiming higher subsidy etc. - specific allegation against the petitioner is that he along with the co-accused acted as intermediaries who channelized the ill-gotten money through various firms and companies registered either in their names or in the names of the sons of the Managing Directors of IFFCO and IPL.
CBI's Jurisdiction to register the RC - HELD THAT:- The first submission of the learned Senior Counsel for the petitioner is that since IFFCO and IPL are no longer government entities and it is not yet clear whether the co-accused namely, P.S. Gahlaut and U.S. Awasthi are “public servants”, hence, no offence under the provisions of the Prevention of Corruption Act is made out. It was further elaborated that even an inquiry by CBI in respect of IPL was closed stating that it has no jurisdiction over IPL since it is not a public authority. The said submission cannot be gone into at this stage as a co-ordinate Bench of this Court is stated to be seized of the specific issue with regard to the jurisdiction of the CBI to register the RC, in the writ petitions filed by the co-accused - Both offences under Section 120-B and Section 420 IPC find mention in Schedule-A of the PMLA, therefore, such offences by themselves can be a predicate offence to trigger the offence of money laundering under the PMLA.
To what extent reliance could be placed on the statement under section 50 of PMLA at the stage of considering bail application - HELD THAT:- The principle that emerges from Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT] as regards the statement recorded under Section 50 of the Act is that such statements are recorded in a proceeding which is deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code and is admissible in evidence. The said statements are to be meticulously appreciated only by the Trial Court during the course of the trial and there cannot be a mini-trial at the stage of bail. However, when the statements recorded under Section 50 of PMLA are part of the material collected during investigation, such statements can certainly be looked into at the stage of considering bail application albeit for the limited purpose of ascertaining whether there are broad probabilities, or reasons to believe, that the bail applicant is not guilty.
Whether the confessional statement of co-accused u/s 50 of PMLA can be used against other accused - HELD THAT:- It is trite that the court cannot start with the confession of the co-accused to arrive at a finding of guilt but rather after considering all other evidence placed on record and arriving at the guilt of the accused, can the court look at the statement of the co-accused to receive assurance to the conclusion of guilt - In Surinder Kumar Khanna vs. DRI [2019 (1) TMI 828 - SUPREME COURT] the Hon’ble Supreme Court tracing the law as regards the general application of a confession of a co-accused as against other accused under Section 30 of the Evidence Act, laid down that the Court cannot start with the confession of a co-accused person; it must begin with other evidence adduced by the prosecution and after it has formed its opinion with regard to the quality and effect of the said evidence, then it is permissible to turn to the confession in order to receive assurance to the conclusion of guilt which the judicial mind is about to reach on the said other evidence.
Thus, the confessional statement of a co-accused under Section 50 of the PMLA is not a substantive piece of evidence and can be used only for the purpose of corroboration in support of other evidence to lend assurance to the Court in arriving at a conclusion of guilt.
Money trail should remain unbroken to hold the petitioner guilty - HELD THAT:- For an offence of money laundering, there should be generation of proceeds of crime from the scheduled offence and the person sought to be prosecuted should be directly or indirectly involved in any process or activity connected with the said proceeds of crime. Thus, the existence of proceeds of crime is essential for initiation of prosecution under the PMLA. It is the case of the respondent/ED that the petitioner has received proceeds of crime through two routes which before reaching the petitioner passed through the hands of various individuals/entities. Thus, there are two money trails which have been referred to hereinabove. To hold the petitioner guilty there has to be an unbroken money trail i.e., generation of proceeds of crime which eventually leads to the petitioner and in case there is a break in the trail, the said break shall enure to the benefit of the petitioner.
Before proceeding to examine the two money trails/routes, it is required to be noticed that the first two steps viz., (i) payment of inflated prices inclusive of commission/bribe money by IFFCO/IPL to Uralkali Trading for the import of fertilizers from it, and (ii) payment of commission/bribe money by Uralkali to Rajeev Saxena, are common to both the trails/routes, therefore, apt would it be advert to the same at the outset - The two steps are Step 1: Inflation of prices and Step 2: Flow of proceeds of crime from Uralkali Trading to Rajiv Saxena.
The lack of evidence at ‘Step 1’, as well as, the conflicting stand of Rajeev Saxena in ‘Step 2’, are circumstances, which cannot be ignored altogether at this stage.
Direct route through Ratul Puri - HELD THAT:- It is the case of the respondent that thereafter the proceeds of crime were collected by one Puneet Banthia (employee of Sanjay Jain) from Ratul Puri/Rajiv Aggarwal. However, neither Rajiv Aggarwal (employee of Ratul Puri) nor Ratul Puri, has admitted to dealing with Puneet Banthia for the purpose of handing over cash to him to transport the same to the petitioner - Thus, it is only Puneet Banthia who has supported the case of the prosecution in his statement dated 10.10.2022 recorded under Section 50 of PMLA to the effect that he was asked by the petitioner to pick up some cash from the office of Moser bear and have it delivered at the office of Sh. Sanjay Jain in Defence Colony. He has also stated that he carried cash in the year 2016, whereas the transactions in Rajeev Saxena’s ledgers connected with Uralkali are up to the year 2014. In this backdrop, the contention of the learned Senior Counsel for the petitioner that even if the statement of Puneet Banthia is taken on face value, the cash carried by him has no connection with the import by IPL / IFFCO from Uralkali, cannot be said to be wholly without substance.
Indirect route through Alankit Group - HELD THAT:- It is the case of the respondent that thereafter the proceeds of crime from Rayon Trading have come to Alankit Group. At this stage, suffice it to note that Alok Aggarwal in his statement dated 28.11.2022 under Section 50 has made it clear that the money received from Rayon Trading is for genuine purposes/transaction. Therefore, Alok Kumar Aggarwal has not supported the case of the prosecution. Further, Alok Kumar Aggarwal is a co-accused in the present matter, therefore, as already noted above, his statement can only be used for the purpose of corroboration and is not a substantive piece of evidence - It is further case of the respondent that the proceeds of crime from Alankit Group to Sanjay Jain/petitioner have come through cash/bank transfer and for this purpose, the respondent has relied upon the ledger maintained by one employee of Alok/Ankit Aggarwal namely, Sunil Kumar Gupta, but said Sunil Kumar Gupta in his statement recorded under Section 50 of PMLA has admitted that he has no knowledge whether the said payment was actually made to the petitioner as he was merely noting the entries at the instructions of Alok/Ankit Aggarwal. Therefore, his statement at best is hearsay as he has not witnessed the transaction himself.
Claim of higher subsidy on inflated prices - HELD THAT:- There is no document to indicate that IFFCO / IPL are industry leaders. Assuming arguendo, that the said entities are market leaders and they could manipulate the average industry prices, but there is not an iota of evidence to demonstrate that the average industry price was actually manipulated by IFFCO and IPL. Further, in this regard the observations of this Court under the heading ‘Step 1’ may be referred to - On the other hand, it can be seen that after 01.04.2010, the “Nutrient Based Subsidy Scheme” [“NBS Scheme”] became applicable whereunder the cost of production/import price of the fertilizers has no relevance to the amount of subsidy which could be claimed by the importer. Therefore, there seems to be some merit in the contention of the learned Senior Counsel for the petitioner that post introduction of the NBS Scheme the case set up by the CBI and the Respondent itself appears to have become improbable.
Examination of the predicate offence - HELD THAT:- As this Court has prima facie observed that there is no material showing imports at inflated prices by IFFCO/IPL and consequent payment of higher subsidy and there appears to be a break in the money trails, therefore, the evidence to prove conspiracy or wrongful loss to IFFCO/IPL, its shareholder and to the Public Exchequer and the resultant wrongful gain to the petitioner, is lacking. Thus, at this stage based upon the material produced before the Court, it can be said that prima facie the predicate offence appears to be weak in nature and the petitioner is entitled to the benefit of the same.
Bail on the ground of parity - HELD THAT:- There is merit in the contention of the learned Senior Counsel for the petitioner that non-arrest of co-accused is a relevant factor which can be taken into account in addition to other surrounding factors to grant the concession of bail to the petitioner - the petitioner is also entitled to the benefit of the fact that the main accused, as well as, some other accused have not been arrested and bail has already been granted to other co-accused - On the basis of the material available on record, this Court is satisfied that there are reasonable grounds for believing that the petitioner is not guilty of the offence and that he is not likely to commit any offence while on bail.
Thus, the petitioner has made out a case for grant of regular bail. Accordingly, the petitioner is enlarged on bail subject to fulfilment of conditions imposed - bail application allowed.
- 2024 (3) TMI 597
Grant of anticipatory bail - Money Laundering - siphoning off of funds - sale of the properties belonging to Kalpataru Grih Nirman Society, in which, FIR has been registered against Dilip Sisodia for defrauding the society by diverting Rs. 4.89 Crores in his own personal account - HELD THAT:- Section 3 of the PMLA Act says that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. Therefore, the allegation in the ECIR against the applicant that he was involved in the process or activity connected with the proceed for crime and its concealment. Therefore, even if, as on today, he is not an accused in the FIR will not be a ground for anticipatory bail in view of rigor of Section 45 of the PMLA Act. At this stage, this Court cannot held that the applicant is not guilty of the offence under the PMLA Act.
In the case of Y.S. Jagan Mohan Reddy [2013 (5) TMI 896 - SUPREME COURT] the apex Court has held While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations.
Even otherwise, the warrant has been issued by the Court but the present applicant is not appearing before the Court, therefore, he is not entitled for anticipatory bail.
The applicant may surrender and apply for regular bail - Application dismissed.
- 2024 (3) TMI 582
Money Laundering - existence of a predicate/ scheduled offence - sine qua non for proceeding upon the offence of money laundering as defined under Section 3 of the Act - accused discharged or acquitted of the scheduled offences - HELD THAT:- The Apex Court in the case of Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT] has already settled the controversy that if a person is finally discharged or acquitted of the scheduled offences or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.
The impugned order dated 10.06.2023 passed by the Special Judge, Prevention of Money Laundering Act, 2002 in Special Case No. 47/2015 is set-aside and the present petitioner be discharged from the charges framed under PMLA and all further proceedings emanating therefrom against the petitioner.
Criminal revision allowed.
- 2024 (3) TMI 564
Provisional attachment order - whether the appeal filed by the appellant only impugns the order confirming the provisional attachment and did not impugn the order rejecting the application filed before the Adjudicating Authority for non-supply of certain documents and non-supply of legible copies of certain Relied Upon Documents - HELD THAT:- Perusal of the prayer paragraph of the appeal shows that the appellant has not only impugned the order dated 14.12.2015 (Annexure A1 to the appeal before the Tribunal) whereby the provisional attachment order was confirmed, but has also impugned all proceedings prior thereto including the detailed order dated 24.11.2015 (Annexure A-11 to the appeal before the Tribunal).
Clearly, the Tribunal has erred in not noticing that the appellant has not only impugned the order of confirmation of provisional attachment, but also the order whereby the application of the appellant seeking copies of the Relied Upon Documents was rejected. On that ground, we are of the view that the impugned order cannot be sustained and calls for a remit.
The order dated 14.12.2023 is set aside. The application of the appellant for supply of documents is restored to its original number on the records of the Appellate Tribunal - appeal disposed off.
- 2024 (3) TMI 409
Seeking for transfer of investigation of Case - money laundering case involving public distribution system scam in which a cabinet Minister of the State of West Bengal was arrested - Whether the facts and circumstances in the case on hand would fall within the parameters as mentioned by the Hon’ble Supreme Court in STATE OF WB. & ORS. VERSUS COMMITTEE FOR PROTECTION OF DEMOCRATIC RIGHTS WB. & ORS. [2010 (2) TMI 1118 - SUPREME COURT]? - whether ED was justified in seeking for transfer of the cases to CBI? - whether the State of West Bengal was justified in seeking to set aside the constitution of SIT and allow them to retain the powers to investigate those cases and proceed further?
HELD THAT:- Merely because ED had not sought for transfer of the predicate offence to CBI would not disentitle them to seek for a transfer of the three cases to an independent agency. It is not in dispute that the case investigated by ED involves a sitting Minister of the West Bengal Government, the person whose premises were to be searched namely, Shahjahan is a very influential person in the ruling party and has been on the run for over 50 days and apprehended only on 29th February, 2024. Above all, the circumstances under which FIR No. 7 of 2024 which was registered by the Inspector-in-charge, Nazat Police Station is clouded with suspicion for more than one reason.
In Paragraph 13 and 14 of the interim order dated 11th January, 2024, the learned Single Bench has recorded a finding that an officer-in-charge who has registered an FIR had signed it at 10:30 A.M. in the morning on the complaint of the security guard of Shahjahan could not have signed another FIR on the same day based on a complaint of a Sub-Inspector of Police (Suo Moto). Therefore, the Court observed that there was a clear inconsistency between the two FIRs which disclose completely different version of the incident and the Court’s mind is not free from doubt that FIR No. 7 of 2024 may have been pre-timed based on a procured complaint to show prior FIR on the same day against the officials of ED and therefore, the allegations made by ED cannot be brushed aside. It is no doubt true that the order passed in CRR 164 of 2024 dated 11.01.2024 is only an interim order.
The case which has been registered by ED, investigating into the public distribution system scam involves highly politically powerful persons which include the accused Shahjahan. Thus, what is required, is a fair, honest and complete investigation and this alone will retain the public confidence in the impartial working of the State agencies. There are no hesitation to hold that this confidence has been shaken and there can be no better case than the case on hand which requires to be transferred to be investigated by CBI. It is a pitiable state of affairs when we hear the allegation made by ED that they were not even given the copy of the FIR registered based on their complaint in FIR No. 9 of 2024 and they were able to secure a certified copy only after they file the writ petition.
The accused who has been apprehended on 29th February, 2024 after being on the run for more than 50 days is not an ordinary citizen. He is an elected representative of the public, holding the highest office in a Zilla Parishad, he was fielded as the candidate at the elections held for the said post by the political party which is ruling dispensation. Thus, it has become imperative and absolutely necessary for doing complete justice and enforcing the fundamental rights of the public in general and the public of the locality that the cases be transferred to the Central Bureau of Investigation for investigation and to proceed further.
The order passed by the learned Single Bench constituting the Special Investigating Team is set aside - Petition allowed.
- 2024 (3) TMI 358
Seeking grant of Default bail - case of petitioner is that on the date of filing of the prosecution complaint, the investigation was incomplete - complaint was not accompanied by the FSL report - ED after filing of the complaint has issued summon to one director of Supertech - HELD THAT:- The right to default bail has been recognised as a statutory right. This right accrues in favour of an accused, if the chargesheet or complaint as the case may be, is not filed within the stipulated period. The Courts have also in no uncertain terms held that filing of an incomplete chargesheet/complaint would not come in the way of this indefeasible right of the accused - In the present case indisputably, the respondent had filed its complaint within the period of 60 days. The application for default bail came to be filed approximately 30 days after filing of the complaint.
In the present case, the respondent has already submitted the requisite documents for obtaining expert opinion from FSL. Preparation of the FSL report is not in the control of investigating agency, though it can take steps for expediting the process - it is the categorical stand of the respondent that investigation against the present petitioner is complete. Mere issuance of summons to another person or seeking leave of the Court to file additional evidence, without there being any other sufficient material to challenge, the petitioner cannot be held to be entitled to a default bail.
There are no merit in the petition and the same is accordingly dismissed.
- 2024 (3) TMI 357
Petition for grant of Bail - Money Laundering - proceeds of crime - specific case of the respondent is that the petitioner in his official capacity as a Transport Minister of State of Tamil Nadu, conspired with his brother Ashok Kumar, Assistants - Shanmugam and Karthikeyan and officials/personal assistants of Transport Department and orchestrated a strategy to exchange cash for job selections under various categories in the Transport Department - HELD THAT:- The learned Senior Counsel for the petitioner submitted that the entire files should have been analysed and there is no question of selecting certain files and analysing the same. This Court is not able to agree with this submission. It is always left open to the prosecution agency to select the relevant files and seek for the analysis report. Hence, the investigation agency in the predicate offence thought it fit to select the relevant files numbering 284 and the same was analysed and a report was given by TNFSL.
In any case, this Court cannot come to a conclusion that the differences pointed out is as a result of manipulation. That would tantamount to an extreme presumption which is not warranted at this stage. It must be borne in mind that these materials and reports were collected by the investigation agency, who investigated the predicate offences and the respondent is merely relying upon the same in order to prosecute the petitioner for offence under Section 3 of PMLA. It is not necessary for the respondent to rely upon all the materials collected in the predicate offence and it is always left open to the respondent to select the relevant materials to make out a case under Section 3 of PMLA. The seized digital evidence is in the custody of the Special Court dealing with MP/MLA cases and what the respondent has done is that they have obtained a copy of the digital evidence in printout form which has been certified by the Court.
It must be borne in mind that this Court cannot conduct a roving enquiry or a mini trial to test the probative value of the electronic record relied upon by the respondent. What is required is to see as to whether there is prima facie genuineness in the materials that are sought to be relied upon by the respondent. If on going through the materials, this Court is convinced that there is no doubt on the genuineness of the materials relied upon by the respondent, there is no question of doubting the probative value of those documents at the stage of dealing with the bail petition. The submission made by the learned Senior Counsel for the petitioner as if, 284 files had increased to 472 files and therefore, there is manipulation of pen drive, is totally unsustainable.
The file path has been explained at paragraph no.14.5.8 of the complaint and when this is read along with relied upon documents 28 to 33 filed along with the complaint, it becomes clear that the excel sheet is very much a part of CF-27/21. To add strength to the same, it is also seen that the relevant document has been certified by the Special Court and this document is a print out of what is contained in the file. These documents, prima facie establishes that the entire recruitment process in the Transport Corporation was manipulated by fixing specific rates for various posts and based on the payment of money, the marks were manipulated and the recruitment had taken place. It is seen that there was a large scale manipulation resorted to which has been explained at paragraph no.11 of the complaint and which shows that payments have been made by many job aspirants for jobs either directly or through the associates to B.Shanmugam and M.Karthikeyan, who were the unofficial personal assistants of the petitioner during the relevant point of time - If there is a prima facie material to show that the amount has been received by misusing the position of the petitioner who was the then Transport Minister, that by itself will be construed as proceeds of crime and it is not necessary for the respondent to further establish that such proceeds of crime was projected as untainted money subsequently.
The next submission that was made was that most of the statements that were recorded under Section 50 of PMLA are that of the co-accused or the suspects. There are only six independent witnesses available and none of them implicate the petitioner - The above submission made by the learned Senior Counsel for the petitioner does not hold water. As on date, the petitioner alone has been made as an accused and the complaint has been filed only as against the petitioner. None of the other persons from whom statements have been recorded under Section 50 of PMLA are shown as accused or suspects.
The petitioner resigned from the post of Minister without a portfolio just one day prior to the hearing of this bail petition. The fact that the petitioner continued to hold the position as a Minister for nearly eight months and that to without a portfolio when he was inside the jail, shows the tremendous influence of the petitioner and the importance that is given to him by the State Government. Even if the petitioner had resigned from his position as a Minister, he continues as a MLA belonging to the same party which is running the Government in the State of Tamil Nadu and therefore, without any hesitation, this Court holds that the petitioner continues to wield a lot of influence on the Government. When such is the position, the witnesses who are mostly the officials belonging to the MTC and the prospective job seekers who had paid the money, will be influenced/tampered with - This Court is also taking into consideration the larger interest of the Public/State since the petitioner was involved in a cash for job scam by misusing his position as a Transport Minister and thereby, genuine aspirants for the job were deprived of level playing field and in their place, persons who paid money were accommodated. In this process, the respondent has identified the proceeds of crime at Rs. 67.74 crores. If the petitioner is let out on bail in a case of this nature, it will send a wrong signal and it will be against larger public interest. Therefore, this Court holds that even under Section 439 Cr.PC, the petitioner is not entitled to be considered for enlargement on bail.
This Court does not find any merits in this bail petition and accordingly, the same is hereby dismissed.
- 2024 (3) TMI 356
Maintainability of petition - proceeds of crime - provisional attachment of immovable properties appear to have been confirmed without any knowledge of the petitioner - alternative appellate remedy - HELD THAT:- Appeals under Section 26 of PMLA lie against " an order" of the Adjudicating Authority 'under this Act' - On a careful reading of Section 26 of the PMLA, 2002 and Rule 2 of the Rules of 2005, it is clear that any person aggrieved by the order, even if a person is not a party to the order can file an appeal u/s 26 of the PMLA, 2002 before the Appellate Tribunal.
Taking into consideration, the aforesaid provisions, this Court is not inclined to entertain this petition - Petition dismissed.
- 2024 (3) TMI 355
Attachment of property - It is the specific case of the petitioner that the department instead of proceeding with Resurvey No.47/6A2, which stands in the name of the seventh respondent, has wrongly included Resurvey No.47/6B2 owned by the writ petitioner - HELD THAT:- The persons involved in the prize chits and money circulation were all arrayed as accused and on completion of investigation, final report was filed and the same was taken on file by the respective Metropolitan Magistrate (Sub Sessions Court, Egmore, Chennai). After filing the final report, the Enforcement Directorate found that the offence alleged to have been committed also attracts the provisions of Prevention of Money Laundering Act (PMLA Act) and therefore, the case was registered under PMLA Act against the persons, who were managing M/s.Oakdale Properties Private Limited and its sister concerns. This case was taken on file in C.C.No.7 of 2018 on the file of the Special Court constituted under PMLA Act.
The Enforcement Directorate also thought fit to invoke the provisions of interim attachment as contemplated under the PMLA Act and the properties of Ms/Oakdale Properties Private Limited came to be attached. While so, the writ petitioner herein claiming that her property, which falls under Resurvey No. 47/6B2 had been wrongly attached. Therefore, the petitioner has filed this writ petition seeking to quash the provisional attachment order dated 05.04.2017 and to correct the survey number in the impugned provisional attachment order.
As stated by the learned counsel for the respondents 1 to 3 since the entire proceedings initiated against the seventh respondent has been quashed, both predicate offence as well as the offence under PMLA Act, this Court is of the view that the relief as prayed for in the writ petition has become infructuous and the error of including the property of the petitioner in the attachment proceedings herein has to be rectified.
The sub registrar/sixth respondent is directed to delete any entry in respect of Resurvey No.47/6B2, which were made pursuant to the proceedings of the Enforcement Directorate - Petition dismissed.
- 2024 (3) TMI 354
Money Laundering - Scheduled offences or not - attachment of properties - Court had quashed the entire complaint - HELD THAT:- Since the complaint itself is not maintainable, the respondent has no jurisdiction to attach the properties of the petitioners and therefore the order of attachment passed under Section 5(5) of the Prevention of Money Laundering Act, 2002 dated 30.09.2022 impugned in this writ petition, is liable to be quashed and hence, quashed.
Petition allowed.
- 2024 (3) TMI 188
Seeking grant of bail - Money Laundering - proceeds of crime - scheduled offence - reasons to believe - twin condition as available under Section 45 of PMLA - Principles of parity - cessation from the directorship from the above companies - beneficial ownership directly or indirectly through company - HELD THAT:- The “offence of money-laundering” means whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering - It is further evident that the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.
In the judgment rendered by the Hon’ble Apex Court in Vijay Madanlal Choudhary and Ors. Vs. Union of India and Ors. [2022 (7) TMI 1316 - SUPREME COURT] as under paragraph- 284, it has been held that the Authority under the 2002 Act, is to prosecute a person for offence of money-laundering only if it has reason to believe, which is required to be recorded in writing that the person is in possession of “proceeds of crime”. Only if that belief is further supported by tangible and credible evidence indicative of involvement of the person concerned in any process or activity connected with the proceeds of crime, action under the Act can be taken forward for attachment and confiscation of proceeds of crime and until vesting thereof in the Central Government, such process initiated would be a standalone process.
It is alleged that cessation of Dilip Kumar Ghosh from the directorship from the above companies of the Agarwal group was thoughtful move driven by a deliberate and the conspiracy between Amit Kumar Agarwal and Dilip Kumar Ghosh to project Dilip Kumar Ghosh as a separate and detached entity from the Agarwal group of companies and acquire the property in possession of defence Indirectly through Jagatbandhu Tea Estates Pvt. Ltd. - it is evident that the email ids of Rajesh Auto Merchandise Pvt. Ltd. (a company which is owned by Rajesh Kumar Agarwal and Amar Kumar Agarwal, (brothers of Amit Kumar Agarwal) and SanayuktVanijyaPvt. Ltd has been used in the KYC of M/s Jagatbandhu Tea Estate Pvt. Ltd. which leads to the conclusion that M/s Jagatbandhu Tea Estate Pvt. Itd. is a company which is solely under the control of Amit Kumar Agarwal - It is, thus, evident on the basis of the aforesaid material collected that there is reason to believe of commission of offence said to be committed under the provisions of the Act, 2002.
Principles of parity - HELD THAT:- Law the well settled that the principle of parity is to be applied if the case of the fact is exactly to be similar then only the principle of parity in the matter of passing order is to be passed but if there is difference in between the facts then the principle of parity is not to be applied - It is further settled connotation of law that Court cannot exercise its powers in a capricious manner and has to consider the totality of circumstances before granting bail and by only simple saying that another accused has been granted bail is not sufficient to determine whether a case for the grant of bail on the basis of parity has been established.
The Hon'ble Apex Court in Tarun Kumar Versus Assistant Director Directorate of Enforcement [2023 (11) TMI 904 - SUPREME COURT] where it has been held that parity is not the law and while applying the principle of parity, the Court is required to focus upon the role attached to the accused whose application is under consideration. In has further been held in the said judgment that the principle of parity is to be applied in the matter of bail but equally it has been laid down therein that there cannot be any negative equality, meaning thereby, that if a co-accused person has been granted bail without consideration of the factual aspect or on the ground said to be not proper, then, merely because the co- accused person has been directed to be released on bail, the same will not attract the principle of parity on the principle that Article 14 envisages positive equality and not negative equality.
This Court on the basis of the different role committed by Dilip Kumar Ghosh, the accused person who has been granted bail and comparing his accountability with the act of the present petitioner, is of the view that it cannot be said that what has been done by Dilip Kumar Ghosh is identical to the case of the present petitioner as it would be evident from the discussion made in the preceding paragraphs as also by going through the counter affidavit that the said company, i.e., M/s Jagatbandhu Tea Estate Pvt. Ltd. is completely under the control of Amit Kumar Agarwal - It is, thus, evident that so far as the case of the present petitioner is concerned, the twin condition as provided under Section 45(1) of the Act, 2002 is not being fulfilled so as to grant the privilege of bail to the present petitioner. Even on the ground of parity, the same on the basis of the role/involvement of the present petitioner in the commission of crime in comparison to that of the said Dilip Kumar Ghosh is quite different.
This Court is of the view that the present application is fit to be dismissed - the instant application stands dismissed.
- 2024 (3) TMI 133
Seeking grant of Bail - money Laundering - Scheduled offence - opening of bank account by forging documents in the name of fictitious persons - scope of section 45 of the PML Act 2002 - HELD THAT:- The present petitioner namely Tara Chand has created a fictitious person namely Sachin Gupta and also opened three bank accounts in the name of three proprietorship viz M/s Om Traders, M/s Shri Khatu Shyam Traders & M/s Anil Kumar Govind Ram, of this fictitious person Sachin Gupta by forged documents. He also opened one bank account in his real name. Further Tara Chand provided these four bank accounts to Neeraj Mittal (Accused no 7) for the purpose of laundering of Proceeds of crime of Veerendra Kumar Ram. Same bank accounts were also used for routing of other funds.
Thus from the investigation it appears that the present petitioner was engaged in the illegal business of money transfer and providing entry, in lieu of commission and on the instructions of Neeraj Mittal used to collect cash from Ram Parkash Bhatia, which was actually the proceeds of crime of Veerendra Kumar Ram. It has come on record that credit transaction of Rs 122 crores approximately have taken place from the said four bank accounts of Tara Chand and thus same amount was used for routing of funds - Thus, prima-facie, the involvement of the present petitioner in illegal routing of proceeds of crime cannot be denied as he played the vital role in this organized structure/process of illegal routing of proceeds of crime of accused Veerendra Kumar Ram.
Scope of section 45 of the PML Act 2002 - HELD THAT:- Section 45 (ii) of the PMLA Act, 2002 provides twin test. First ‘reason to believe’ is to be there for the purpose of reaching to the conclusion that there is no prima facie case and second condition is that the accused is not likely to commit any offence while on bail - It is, thus, evident by taking into consideration the provision of Section 19(1), 45(1), 45(2) of PML Act that the conditions provided therein are required to be considered while granting the benefit of regular bail in exercise of power conferred under Section 438 or 439 of Cr.P.C., apart from the twin conditions which has been provided under Section 45(1) of the Act, 2002.
This Court, based upon the imputation as has been discovered in course of investigation, is of the view that what has been argued on behalf of the petitioner that proceeds cannot be said to be proceeds of crime but as would appear from the preceding paragraphs, money which has been obtained by the accused person Veerendra Kumar Ram has been routed by this petitioner and he has also withdrawn the money from different fake accounts and transferred it into the account of the accused persons.
Now coming in to facts of the present case, it is evident from various paragraphs of the prosecution complaint dated 20.08.2023 that the petitioner is not only involved rather his involvement is direct. Further, it has come that part of the proceeds of crime acquired in the form of commission/bribe in lieu of allotment of tenders by the accused Veerendra Kumar Ram, a public servant and the said bribe money was getting routed by the help of present petitioner and Delhi based CA Mukesh Mittal to the bank accounts of family members of Veerendra Kumar Ram with the help of bank accounts of Mukesh Mittal's employees/ relatives.
There is no reason to believe by this Court that the petitioner is not involved managing the money said to be proceeds of crime - This Court, in view of the aforesaid material available against the petitioner, is of the view, that in such a grave nature of offence, which is available on the face of the material, applying the principle of grant of bail wherein the principle of having prima facie case is to be followed, the nature of allegation since is grave and as such, it is not a fit case of grant of bail.
The petitioner failed to make out a special case for exercise of power to grant bail and considering the facts and parameters, necessary to be considered for adjudication of bail, without commenting on the merits of the case, this Court does not find any exceptional ground to exercise its discretionary jurisdiction to grant bail - this Court is of the view that it is not a case where the prayer for bail is to be granted, as such the instant application stands dismissed.
- 2024 (3) TMI 132
Money Laundering - proceeds of crime - duping investors after having obtained licence to develop a housing project which also had been obtained on submission of forged and fabricated documents - about 3000 investors had been left high and dry and a wrongful loss of around one thousand crores had been caused - furnishing of fake bank guarantees, collaboration agreement, special power of attorney etc. - HELD THAT:- It is common knowledge that of late, economic offences, which strike at the very economy of a country have spiralled. Scams running into hundreds and thousands of crores of rupees no longer surprise the common citizen as they seem to have become a norm. Litigation pertaining to these disputes are consuming substantial time of the Courts. Where there is an illegality, the same has to be struck down. At the same time, frivolous and luxury litigation needs to be discouraged. It is for the Courts to separate the grain from the chaff with a view to ensure that whereas the rights of citizens are not harmed, litigation also does not flood the Courts.
The first argument that once the operation of the impugned order dated 07.01.2021, passed by the Chief Judicial Magistrate, Gurugram and further proceedings in the consequential FIRs Nos. 10 & 11 dated 14.01.2021 respectively had been stayed, the ECIR could not have been recorded, is devoid of merit - It has been categorically held by the Hon’ble Supreme Court of India in the case of MANIK BHATTACHARYA VERSUS. RAMESH MALIK AND ORS. [2022 (10) TMI 1196 - SUPREME COURT] that a restraint order passed in a criminal matter would not affect proceedings under the PMLA especially once the Enforcement Directorate was not a party to the same and also because the offence of money laundering is an independent offence wherein, an accused would have independent remedies in case of violation of the statutory provisions.
The second argument that once, vide orders dated 05.07.2023, the Chief Judicial Magistrate, Gurugram had been directed to pass a fresh order on the complaint filed under Section 156 (3) Cr.P.C., the orders dated 07.01.2021 would be deemed to have been set aside and the consequential FIRs would become non-est and would be deemed to have been quashed or set aside is also devoid of merit.
The 3rd argument that non-bailable warrants could not have been issued in aid of investigation is also devoid of merit. Firstly, it has come on record that the petitioners had not been cooperating with the respondents and that while they initially appeared in pursuance to the notices issued, they gave evasive answers and now they have not been appearing in pursuance to the summons/notices issued by the respondents. If this argument was to be accepted, an Investigating Agency, be it the jurisdictional police, the Enforcement Directorate, CBI or any other agency would have no remedy if an accused chose not to cooperate with the investigation. It cannot be accepted that an Investigating Agency would be rendered without any remedy. Even otherwise, it is now well settled that an accused can very well be summoned or his presence can be compelled by way of non-bailable warrants by the Court at the instance of the Investigating Agency.
As regards the argument that petitioner Dharam Singh Chhoker had never been the director and, therefore, no proceedings could have been issued against them, the same is also devoid of merit. The argument that since Dharam Singh Chhoker was not arraigned as an accused in the complaints submitted by Neeraj Chaudhry, no proceedings could have been issued against him is also devoid of merit - All these issues have been dealt with by the Hon’ble Apex Court in the case of PAVANA DIBBUR VERSUS THE DIRECTORATE OF ENFORCEMENT [2023 (12) TMI 49 - SUPREME COURT] wherein it was held In a given case, if the prosecution for the scheduled offence ends in the acquittal of all the accused or discharge of all the accused or the proceedings of the scheduled offence are quashed in its entirety, the scheduled offence will not exist, and therefore, no one can be prosecuted for the offence punishable under Section 3 of the PMLA as there will not be any proceeds of crime.
A perusal of the aforesaid judgment shows that even if one of the petitioners was not shown to be an accused, he could be prosecuted under the PMLA so long as the scheduled offence exists. The scheduled offence, as already mentioned in the preceding paragraphs, is not only in FIR Nos. 10 & 11 dated 14.01.2021 but also in other FIRs referred to therein. It is also clear from a perusal of the aforesaid judgment that since there were other FIRs also, proceeds of crime cannot be ruled out and, therefore, it cannot be said that no offence of money laundering can be said to have been committed - The reality would emerge only once the concerned Investigating Agencies conclude the investigation/inquiry.
The petitions are devoid of merit and accordingly, the same are dismissed.
- 2024 (3) TMI 77
Rejection of bail of the applicant - co-accused - Money Laundering - Proceeds of crime - scheduled offence - accusation is that the applicant has misused his authority as despite the land falling within CRZ- III in respect of which no permission could have been granted, the applicant knowingly proceeded to grant such permission - HELD THAT:- The Special Court has observed that the role of the applicant is not of generating proceeds of crime as defined under section 2(1) (u) and laundering the same as per section 3 of the PML Act. It is further observed that it is not even the contention of ED that the applicant is beneficiary of proceeds of crime or recipient thereof. The Special Court recorded the contention that the applicant has not laundered the proceeds of crime. The Special Court then referred to paragraph 12.2 of the prosecution complaint where it is mentioned that during the applicant’s tenure as Sub-Divisional Officer, Dapoli, the applicant misused his position and directly assisted in money laundering activities of accused Sadanand Kadam. In this context, it is important to note the observation of the trial Court that the role attributed to the applicant is that he had ‘knowingly assisted’ the process of money laundering.
The applicant – Jayram Vinayak Deshpande be released on bail on his furnishing P.R. Bond of Rs. 1,00,000/- with one or more sureties in the like amount - Until the applicant- Jayram Vinayak Deshpande furnishes surety, he be released on cash security of Rs. 1 lakh along with PR bond - bail application allowed.
- 2024 (3) TMI 76
Limitations of Enforcement Directorate's Powers under PMLA - Money Laundering - proceeds of crime - illegal mining - compoundable offences or not - reasons to believe - petitioner's first prayer is for the issuance of directions to ensure that the respondents do not violate the spirit and sanctity of the proceedings - violation of statutory provisions contained in the MMDR Act & Haryana Rules 2012 - statutory limits of Section 66 (2) under the Prevention of Money Laundering Act, 2002 - HELD THAT:- As per the instructions supplied by the ED, in furtherance of the PMLA proceedings, based on reasons to believe, a search u/s 17 of the PMLA, 2002 was conducted at multiple premises to investigate the offense of commission of money laundering through illegal mining at large scale in Yamuna Nagar and nearby districts. Two premises of the Petitioner-residence and registered office of M/S Mubarikpur Royalty Company were searched, and multiple incriminating documents, digital devices, and evidence were recovered, which reveals the generation of "proceeds of crime" by the Petitioner's firm. Also, unaccounted Cash of Rs. 4,50,000/- which is believed to be Proceeds of Crime, was also recovered from the residence of the Petitioner.
The material in possession, and findings of the Directorate of Enforcement, information was shared under section 66(2) of the PMLA, 2002 with the Police. Further, under the information shared u/s 66(2) of the FMLA, 2002, an FIR No. 21 dated 19.01.2024 was registered u/ s 120-B, 420 of IPC, 1860, 21(1) of Mines and Minerals (Regulation of Development) Act, 1957 and 15 & 16 of Environment Protection Act, 1986 at P.S. Pratap Nagar, Yamuna Nagar.
Violation of statutory provisions contained in the MMDR Act & Haryana Rules 2012 - HELD THAT:- Once the petitioner has been made an accused by the ED itself in the FIR, it cannot be countenanced that he will be asked to appear in person in terms of Section 50 PMLA, which contemplates obligation on the person to attend as directed; to state the truth and the proceedings before the ED officer would be a “judicial proceeding.” The whole context of Section 50 PMLA would have a different outlook once the ED itself has chosen to arraign the petitioner as an accused in the FIR lodged by themselves. Therefore, the petitioner’s fundamental rights under Article 21 of the Constitution of India are grossly violated as the procedure established by law is not followed, and the proceedings launched are grossly actuated with malice in law.
The petitioner’s contention that the said communication amounts to direction is misreading of the said communication, which has been reproduced in para 16. The communication is only information and it is the power of concerned investigator/SHO to register FIR if they are satisfied and found offence cognizable, as such, the present petition deserves dismissal even on this prayer and related prayers.
Thus, if this court disrupts the proceedings at this stage, it will amount to interfering in the investigation and presuming the malicious intent. It is not that the petitioner has been deprived of his liberty but to carry out investigation is also the statutory obligation of the investigators. If the prosecution is launched, it is always permissible to an accused to seek discharge and even to challenge the charges, if framed. However, disrupting proceedings at initial stage would violate the duty to investigate the crime and bring guilty to justice to do justice to the victim.
An analysis of the above does not make a case for issuing a formal notice and seeking a reply, and no response is required for the following clarifications. Consequently, the petitioner does not justify any prayer except that the further investigation will also be carried out in accordance with law and that in the future also, if any information is shared, the same shall again be shared within the parameters of section 66 of PMLA.
Petition dismissed.
Case Laws - SEBI
- 2024 (2) TMI 1028
Exit Policy of SEBI - letter issued by SEBI calling upon CSE [Calcutta Stock Exchange] to apply for voluntary exit - Exit policy of SEBI in consonance with the provisions of the SCR Act [Securities Contracts (Regulation) Act] or not? - Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012 ? - Whether steps towards compulsory withdrawal of recognition of CSE suffer from a jurisdictional error and violation of the principles of natural justice
HELD THAT:- In the circular issued by the SEBI, it has been stated that the same has been issued in exercise of powers conferred under Section 11(1) and 11(2) (j) of the SEBI Act, 1992 read with Section 5 of the SCR Act to protect the interest of investors in securities and to promote the development of and to regulate the securities market. Thus, it is clear that the circular has been issued with a particular object and in exercise of the statutory power conferred on the SEBI as a statutory authority. It has a force of law and is binding to all the stock exchanges in the country. In the said conspectus, we are unable to accede to Appellants ’s argument that Exit policy of SEBI is not in consonance with the provisions of the SCR Act.
Regulations such as those which have been framed by the SECC Regulations, insofar as they define the conditions for recognition, of minimum net worth, composition of the board of directors, dispersal of ownership and norms for governance, do not infringe any legal right of the stock exchange. The challenge is, therefore, lacking in substance. Nothing has been indicated before the Court to establish that the determination of the threshold or the manner of its computation is untenable and is so disproportionately high so as to constitute the very negation of the right to carry on business.
CSE cannot be accused of any offence or wrongdoing. It is a question of existence of an institution which had operated for more than a century and thereafter it was not being able to conduct its business due to mandatory imposition of a condition towards having a turnover of Rs. 1000/- crore on continuous basis and to set up a separate clearing corporation or tie with an existing recognized clearing corporation. Such circumstances may not warrant a zero-tolerance approach moreso when the terms and conditions for compulsory derecognition are yet to be specified by SEBI.
Judiciary has a strong sense of justice and it works to maintain social justice and fairness as distinguished from misplaced sympathy. In the peculiar facts and circumstances of the case and though we are not inclined to interfere with the order impugned, we are left with an avenue to issue necessary direction on the basis of the findings of the learned Single Judge as regards the fourth issue which has been answered in the affirmative, in favour of SEBI and against CSE.
Disengaging ourselves from the logjam, we direct that CSE would be at liberty to establish a clearing corporation in compliance with the provisions of SECC Regulations, 2012 or to tie up with another clearing corporation eligible to clear trades as per SECC Regulations, 2012 to achieve the prescribed net worth within a period of six months from date. In the event CSE fails to do so, SEBI would be free to take necessary steps thereafter, in accordance with law.
With the above observations and directions, the appeals and all connected applications are disposed of.
- 2024 (1) TMI 1022
Termination of petitioner as a Depository Participant of CDSL[Central Depository Services] - Requirement of meeting the net worth and minimum turnover - petitioners being required to have a turnover of Rs. 3 crores as not adhered - According to CDSL, the termination is in lieu of SEBI-2018 Regulations and more particularly the amendment brought about to the said 2018 Regulations with effect from 23 February, 2022 to Regulation 35 by insertion of a proviso inter alia in regard to a stock broker requiring to have a net worth of Rs. 3 crores within one year from the date of notification of the 2022 amendment to the 2018 Regulations - HELD THAT:- We are of the opinion that respondent no. 1 itself was in some state of uncertainty as to whether the consequence of noncompliance of regulations of the SEBI would entail a consequence as foisted on the petitioners. CDSL in such regard, had infact approached the SEBI, however, the SEBI did not inform the CDSL on any position it should be taking on such compliances.
In such context, as informed to us by Respondent No. 2/Mr. Sancheti, learned senior counsel for SEBI that once the SEBI had prescribed the requirements under the said regulations, the compliance was an issue between the CDSL and its participants on which SEBI would not have any control.
Thus prima facie we find much substance in the contentions as urged on behalf of the petitioners that petitioners being put to a notice by the CDSL for compliance to be submitted in terms of what was recorded in the letter dated 24 February, 2023 as noted by us hereinabove, which the petitioners complied by submitting a “Net Worth Certificate” on 20 April, 2023. Such a certificate was not rejected by CDSL even on the ground that it is not based on audited accounts. On behalf of the petitioners, it is stated that in fact it was issued only after an audit.
Prima facie, we find much substance in the contentions as urged on behalf of the petitioners and wonder whether the petitioner could have been foisted with termination and more particularly considering the decision the respondent had taken in its letter dated 24 February, 2023, by which also a legitimate expectation was created in the petitioners to achieve the compliance by 24 April, 2023.
CDSL could not have turned around and then shown the rule book to the petitioners, after having granted such opportunity in its letter dated 28 February, 2023 providing time to the petitioners to achieve compliance by 24 April, 2023. In our opinion, such course of action as adopted by CDSL was in fact in consonance of its bye laws which we have noted hereinabove.
SEBI mandated such compliance but compliance of such a nature, namely of a turnover, in our prima facie opinion cannot amount to compliance of such fundamental nature that a participant needs to instantly lose its right to do business as permitted by a registration as granted by respondent no. 1, when it otherwise acts in accordance with all the legal requirements, this more particularly when about 700 participants of the petitioners would suddenly be in a limbo.
All the aforesaid issues would require examination at the final hearing of the petition. We, accordingly, feel it appropriate to admit the petition. Hence, Rule. Respondents waive service.
Pending the hearing and final disposal of the petition, the impugned order of termination dated 10 November, 2023 as confirmed by the appellate order dated 8 January, 2024 shall remain stayed.
- 2024 (1) TMI 985
Writ petitions impugning the Revocation Order within the territorial jurisdiction of Delhi High Court - Violation of SEBI’s Minimum Public Shareholding Norms (‘MPS Norms’) and disclosure requirements - SCN provided an option for settlement mechanism under the SEBI (Settlement Proceedings) Regulation, 2018 - SEBI passed a common Settlement Order as stated that certain monetary and non-monetary terms were imposed on the Appellants in the Settlement Order, and steps have been taken by the Appellants to implement the said Settlement Order - Settlement Order stood revoked and withdrawn by SEBI in terms of Regulation 28 of the Regulations of 2018 on the ground of alleged failure of the Appellants to comply with the terms of the Settlement Order.
HELD THAT:- The conclusion that the cause of the action of the Appellants to challenge the legality of the Impugned Revocation Order issued by SEBI at Mumbai has no nexus with the receipt of the said order at Delhi; as this is not the material or integral fact to the said cause of action. The Impugned Revocation Order was admittedly received by the Appellants in multiple jurisdictions and this fact if held to be determinative would enable Appellants to pick and choose jurisdictions which is the mischief that the Full Bench of Kerala High Court has opined should not be permitted and we agree with the same. Therefore, the receipt of the Impugned Revocation Order at Delhi cannot alone be held determinative of the jurisdiction of this Court.
Effect of the Impugned Revocation Order felt at Mumbai - grievance of the Appellants in the writ petitions is that the issuance of the Impugned Revocation Order of SEBI has resulted in re-initiation of the proceedings and hearing at Mumbai pursuant to the SCN dated 28.10.2020; thereby exposing the Appellants to regulatory proceedings - It is the facts pleaded in the grounds, which constitute the material and integral facts, which the Appellants will have to prove, if traversed by SEBI, to seek a judgment of the Court. The challenge to the Impugned Revocation Order has been raised on the grounds of inter-alia non-adherence to the principles of natural justice by SEBI. It has been pleaded that the SEBI failed to provide the Appellants an opportunity of hearing prior to revocation and the order is unreasoned. It is further pleaded that the impugned order is contrary to the extant law. It is the facts pleaded in these grounds which would constitute the cause of action in favour of the Appellants herein. A bare perusal of the grounds would show that each one of them allege acts and omissions by SEBI at Mumbai. Therefore, in our considered opinion as per the grounds set out in the writ petition the cause of action for challenging the impugned order against SEBI has arisen at Mumbai.
In the facts pleaded by the Appellants for invoking the writ jurisdiction of the Courts at Delhi, undoubtedly, it cannot be said that the High Court of Delhi had no territorial jurisdiction for admittedly, the Appellants reside within the jurisdiction of this Court. However, none of the facts pleaded by the Appellants for invoking the jurisdiction of this Court are integral and material fact for challenging the Impugned Revocation Order. The said facts are not sufficient for compelling this Court to hear the matter on merits. For the same reason, the contention of the situs of shares of BNL is not an integral fact.
Forum Conveniens at Mumbai - In the facts of this case, admittedly the High Court of Judicature at Bombay has the jurisdiction as the decision of SEBI to revoke the Settlement Order took place at Mumbai and all events prior thereto with respect to issuing the SCN and passing of the Settlement Order also occurred at Mumbai.
The High Court while exercising its jurisdiction under Article 226 of the Constitution of India to entertain a writ petition, in addition to examining its territorial jurisdiction also examines if the said Court is the forum conveniens to the parties. The issue of forum conveniens is seen not only from the perspective of the writ petitioner but it is to be seen from the convenience of all the parties before the Court. In the facts of this case, as is evident from the record that the forum conveniens for the both the parties is Mumbai. The Appellants since the year 2020 have been appearing in Mumbai before SEBI.
This Court is of the view that the learned Single Judge has rightly concluded that applying the principles of forum conveniens, it would not be appropriate to entertain the writ petitions and the Appellants may approach the appropriate High Court.
Summoning of the record of the SEBI would be necessary for examining the rival contentions of the parties in the writ petition.
- 2024 (1) TMI 734
Rights of the minority shareholders - Restoration of the Writ Petition - SEBI's Role and Response to Complaints
The case involves the petitioners, who are minority shareholders of Bharat Nidhi Ltd. (BNL), filing a writ petition against BNL and the Securities and Exchange Board of India (SEBI) for various alleged violations of securities laws. The petitioners claimed that SEBI had not provided them with the investigation report or relevant documents related to their complaints against BNL, despite them being shareholders. They argued that BNL, along with majority shareholders (respondent nos. 3 to 9), committed several illegalities and violations of securities laws, including the Minimum Public Sharing Norms and disclosure issues.
One key aspect of the case was SEBI's issuance of a show cause notice to BNL and others, which was later settled through the SEBI (Settlement Proceedings) Regulation 2018. The petitioners contended that the violations alleged in the show cause notice were serious and could not be settled.
During the final hearing, the petitioners requested SEBI to provide documents relevant to their complaints. Despite opposition from SEBI and other respondents, the Court ordered SEBI to provide these documents, emphasizing that minority shareholders are integral to a company and entitled to such information.
This order was challenged in the Supreme Court by both respondent nos. 2 and 9, and later by SEBI. However, the Supreme Court dismissed these challenges, upholding the High Court's order.
Subsequently, SEBI revoked the settlement order it had passed, which led to the contention that the substantive prayers in the original petition (prayers a and b) had become infructuous. However, the petitioners opposed this view, asserting that prayers c and d of the petition still required adjudication.
Ultimately, the High Court maintained its interim directions, requiring SEBI to furnish the documents and keeping open the contentions regarding prayer clauses c and d for future proceedings. The Court stressed that SEBI, as a public body, should act in public interest and comply with court orders.
The petitioners later filed an interim application to restore the writ petition for a final hearing, arguing that respondent nos. 2 to 9 had engaged in forum shopping and deceit by not informing the Court about their steps to challenge SEBI's revocation order in the Delhi High Court. This was viewed as potentially fraudulent behavior, intended to secure the disposal of the writ petition in their favor.
Respondent nos. 2 to 9 and SEBI, on the other hand, argued that the petitioners had no cause of action to seek restoration, that the reliefs in prayer clauses c and d could not be granted due to the completion of the buyback process, and that no prejudice was caused to the petitioners as these issues could still be agitated in appropriate proceedings.
In conclusion, the Court decided to keep open the issues related to prayer clauses c and d for future action.
The Court noted that the issue of the Postal Ballot Notice dated 22 September 2022, related to prayer clause (d) of the Writ Petition, became a moot point following the revocation of the Settlement Order by SEBI. The Court had previously decided to keep these matters open for future proceedings, allowing the petitioners to raise these issues at an appropriate time.
The Court further observed that the conduct of respondent nos. 2 to 9, particularly in not disclosing their intention to challenge the revocation of the Settlement Order, did not reflect a fair, just, or upright approach. However, it did not constitute fraud or deceit in the legal sense. The Court emphasized that the situation had not materially changed since its order on 1 December 2023, as the revocation of the Settlement Order was still in effect. Therefore, there was no cause for the Court to review or reverse its previous orders and directions.
In conclusion, the Court found no merit in the application to restore the writ petition and rejected it, maintaining its earlier orders and observations. The Court's decision was based on the principle that there was no material change in circumstances and that the substantive issues related to the revoked Settlement Order and subsequent actions remained open for future adjudication.
Application rejected.
- 2024 (1) TMI 588
Issue of the Non-Convertible Debentures (NCDs) without complying with the listing provisions - Liability of directors - 'officer in default' - HELD THAT:- Learned counsel for the appellants have made an attempt to distinguish the role as assigned to the appellants as Directors. But at present, we are not influenced by such submissions. In view of the above, the civil appeals stand dismissed.
Pending applications stand disposed of.
- 2024 (1) TMI 188
Violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957 - failure to disclose transactions with related parties and other relevant information which concerns related parties to SEBI - Precipitate decline in investor wealth and volatility in the share market due to a fall in the share prices of the Adani Group of Companies. “Adani group” - situation was purportedly caused by a report which was published on 24 January 2023 by an “activist short seller”, Hindenburg Research about the financial transactions of the Adani group.
The Hindenburg Report and certain newspaper reports allege that some Foreign Portfolio Investments “FPIs” in Adani group stocks in the Indian stock market are owned by shell companies based outside India, which have close connections with the Adani group. Such investments in Adani stocks allow the Adani group to maintain financial health and artificially boost the value of stocks in the market, in violation of Indian law;
Adequacy of SEBI’s investigation - scope of judicial review over SEBI’s regulatory domain - transfer of investigation from SEBI to another agency or to an SIT - Whether SEBI has prime facie conducted a comprehensive investigation? - Allegations of conflict of interest against members of the Expert Committee - petitioner’s case appears to rest solely on inferences from the report by the OCCRP, a third-party organization involved in “investigative reporting”. The petitioners have made no effort to verify the authenticity of the claims.
Whether there is no apparent regulatory failure attributable to SEBI? - petitioners have submitted, based on the Hindenburg Report and other newspaper reports, that the FPIs investing in Adani group stocks in the Indian stock market are shell companies outside India owed by the brother of the Chairperson of the Adani group
HELD THAT:- In a consistent line of precedent, this Court has held that when technical questions arise particularly in the financial or economic realm; experts with domain knowledge in the field have expressed their views; and such views are duly considered by the expert regulator in designing policies and implementing them in the exercise of its power to frame subordinate legislation, the court ought not to substitute its own view by supplanting the role of the expert. Courts do not act as appellate authorities over policies framed by the statutory regulator and may interfere only when it is found that the actions are arbitrary or violative of constitutional or statutory mandates. The court cannot examine the correctness, suitability, or appropriateness of the policy, particularly when it is framed by a specialized regulatory agency in collaboration with experts. The court cannot interfere merely because in its opinion a better alternative is available.
The power of this Court to enter the regulatory domain of SEBI in framing delegated legislation is limited. The court must refrain from substituting its own wisdom over the regulatory policies of SEBI. The scope of judicial review when examining a policy framed by a specialized regulator is to scrutinise whether it violates fundamental rights, any provision of the Constitution, any statutory provision or is manifestly arbitrary.
No valid grounds have been raised for this Court to direct SEBI to revoke its amendments to the FPI Regulations and the LODR Regulations which were made in exercise of its delegated legislative power. The procedure followed in arriving at the current shape of the regulations does not suffer from irregularity or illegality. The FPI Regulations and LODR Regulations have been tightened by the amendments in question.
SEBI has completed twenty-two out of the twenty-four investigations into the allegations levelled against the Adani group. Noting the assurance given by the Solicitor General on behalf of SEBI we direct SEBI to complete the two pending investigations expeditiously preferably within three months - This Court has not interfered with the outcome of the investigations by SEBI. SEBI should take its investigations to their logical conclusion in accordance with law;
The facts of this case do not warrant a transfer of investigation from SEBI. In an appropriate case, this Court does have the power to transfer an investigation being carried out by the authorized agency to an SIT or CBI. Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, willful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist.
The reliance placed by the petitioner on the OCCPR report to suggest that SEBI was lackadaisical in conducting the investigation is rejected. A report by a third-party organization without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof. Further, the petitioner’s reliance on the letter by the DRI is misconceived as the issue has already been settled by concurrent findings of DRI’s Additional Director General, the CESTAT and this Court;
The allegations of conflict of interest against members of the Expert Committee are unsubstantiated and are rejected.
The Union Government and SEBI shall constructively consider the suggestions of the Expert Committee in its report detailed in Part F of the judgment. These may be treated as a non-exhaustive list of recommendations and the Government of India and SEBI will peruse the report of the Expert Committee and take any further actions as are necessary to strengthen the regulatory framework, protect investors and ensure the orderly functioning of the securities market and SEBI and the investigative agencies of the Union Government shall probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law and if so, suitable action shall be taken.
Before concluding, we must observe that public interest jurisprudence under Article 32 of the Constitution was expanded by this Court to secure access to justice and provide ordinary citizens with the opportunity to highlight legitimate causes before this Court. It has served as a tool to secure justice and ensure accountability on many occasions, where ordinary citizens have approached the Court with well-researched petitions that highlight a clear cause of action. However, petitions that lack adequate research and rely on unverified and unrelated material tend to, in fact, be counterproductive. This word of caution must be kept in mind by lawyers and members of civil society alike.
We are grateful to all the members and the Chairperson of the Expert Committee for their time, efforts, and dedication in preparing their erudite, comprehensive, and detailed report in a time-bound manner. Subject to the consent and availability of the members and Chairperson of the Expert Committee, SEBI and the Government of India may draw upon their expertise and knowledge while taking necessary measures pursuant to the recommendations of the Committee.
- 2023 (12) TMI 915
Determination of jurisdiction of High Court for SEBI violations - Violation of SEBI’s minimum public shareholding norms and violation of SEBI’s minimum public shareholding norms - Separate and independent settlement applications were also filed by respondent nos. 2 to 8 - Whether this court is the appropriate forum for deciding the present writ petitions and granting the reliefs as prayed for? - HELD THAT:- A perusal of Clause 2 of Article 226 indicates that the writ jurisdiction can be exercised by the High Court primarily in relation to the territories within which the cause of action, wholly or in part arises. However, the location of such Government or authority or residence of such person, outside the territories of the High Court will not deter the High Court from issuing the appropriate writ.
The introduction of Clause (2) in Article 226 of the Constitution of India widened the width of the area for issuance of writs by different High Courts, however, the same cannot be construed to completely dilute the original intent of the Constitution makers which is succinctly encapsulated in Clause (1) of Article 226. Rather, Clause (2) is an enabling provision, which supplements Clause (1) to empower the High Courts to ensure an effective enforcement of fundamental rights or any other legal right. Therefore, the power of judicial review cannot be circumscribed by the location of the authority against whom the writ is issued, however, the same does not mean that the constitutional mandate enshrined under Article 226 (1) can be completely neglected or whittled down.
The ‘cause of action’ means a bundle of facts, which is necessary for the plaintiff to prove in order to succeed in the proceedings. It does not completely depend upon the character of the relief prayed for by the plaintiff. It is rather the foundation upon which the plaintiff lays his/her claim before the court to arrive at a conclusion in his/her favour. It depends on the right which the plaintiff has and its infraction.
Section 20 of the Civil Procedure Code, 1908, provides a generic definition of the term ‘cause of action’ to mean fact, which is necessary to establish to support a right to obtain a judgment.
The question whether cause of action has arisen within the territorial jurisdiction of a court, has to be answered based on the facts and circumstances of the case. The cause of action, thus, does not comprise of all the pleaded facts; rather it has to be determined on the basis of the integral, essential and material facts which have a nexus with the lis.
It is also a settled proposition of the law that the location where the tribunal/appellate authority/revisional authority is situated would not be the sole consideration to determine the situs of the accrual of cause of action, ignoring the concept of forum conveniens in toto. Hence, even if a small part of the cause of action is established, and the same is found to be non-integral or non-material to the lis, the court may invoke the doctrine of forum non-conveniens and decline to exercise its writ jurisdiction, if an alternative, more efficacious forum for the same exists.
It is, thus, unequivocally clear that the petitioners participated before SEBI’s Internal Committee on different dates at Mumbai and thereupon, a settlement had arrived at. It is, thus, seen that it is not merely the location of the respondent-SEBI’s Head Office at Mumbai, but rather the entire genesis of the dispute lies in Mumbai itself. The settlement was finalized at Mumbai. The determination of the settlement not being fulfilled was made at Mumbai. The consideration to that effect has taken place at Mumbai and the decision to revoke the settlement has also been passed at Mumbai only.
Merely because some of the writ petitions were entertained by this court relating to certain violations of norms and regulations of respondent-SEBI by the respondent companies therein and issues arising out of consequential settlement application, that in itself would not determine the integral, essential and material part of the cause of action as the pendency of the writ petition before this court has no relation with the impugned revocation order which has taken place subsequent to the said writ petition. The law relating to the doctrine of forum conveniens, as discussed above, already makes it explicitly clear that the jurisdiction has to be determined on the facts and circumstances of each case.
With respect to the averment that this court is the most convenient forum for the petitioners, it would be inappropriate and myopic to assume that while determining the jurisdiction, only the convenience of the aggrieved party approaching the court has to be looked into. In fact, with the advent of technology in contemporary times, the courts have transcended the geographical barriers and are now accessible from remote corners of the country. Therefore, the convenience of the parties cannot be the sole criterion for the determination of jurisdiction considering the broader perspective of dynamism of technology and increased access to justice. The determination of cause of action and territorial jurisdiction has to be in line with the constitutional scheme envisaged under Article 226 of the Constitution of India.
Moreover, the litigation history of the present writ petitions reveals that the parties have, in fact, agitated their concerns before the Hon’ble High Court of Judicature at Bombay. Nothing has been put before this court, that shall allow the conclusion of the Hon’ble High Court of Judicature at Bombay being a non-convenient forum. The forum, in the considered opinion of this court, is available, convenient, as also approachable.
In all fairness, the petitioners herein ought to have disclosed the said fact before the Hon’ble High Court of Bombay regarding reserving the right to challenge the settlement order. Undoubtedly, they can challenge the same without prior intimation to the Hon’ble High Court of Bombay, but the recourse must have been taken before an appropriate forum/court. The burden of a fair demeanour on the part of litigants considerably amplifies when they approach the courts under the extraordinary jurisdiction. Therefore, at times, it is the constitutional courts upon which falls the burden to prevent the abuse of jurisdiction and eliminate any susceptibility of forum shopping.
It is, thus, seen that under the facts of the instant matters, the integral, essential and material part of the cause of action had arisen with the territorial jurisdiction of the Hon’ble High Court of Judicature at Bombay and even assuming that a slender part of cause of action has arisen within the jurisdiction of this court, applying the principles of forum conveniens as has been held by the Hon’ble Supreme Court in the case of State of Goa [2023 (3) TMI 683 - SUPREME COURT], this court does not deem it appropriate to entertain the instant writ petitions. The instant writ petitions are, therefore, dismissed.
- 2023 (12) TMI 381
Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - misconduct dereliction of duties and abhorrence of due diligence while conducting statutory audit - auditor as directed that the certified copy of the order be forwarded to the Institute of Chartered Accountants of India ("ICAI") and National Financial Reporting Authority ("NFRA") for appropriate action against the appellants - HELD THAT:- The scope of inquiry by SEBI is very limited and is confined only to the charge of conspiracy of involvement of the appellant in the fraud, if any, and to take consequential action if there is connivance or conspiracy with the appellant and its directors. Only then, SEBI could take action under the SEBI Act and the PFUTP Regulations otherwise it is not open to SEBI to inquire into any charge of professional negligence of the auditor since the audit firm is not dealing directly in securities.
The scope and jurisdiction of SEBI to conduct an inquiry against a Chartered Account or a Chartered Accountant Firm was considered by the Bombay High Court in Price Waterhouse & Co. & Another vs. SEBI [2010 (8) TMI 173 - HIGH COURT OF BOMBAY] it is not open to SEBI to encroach upon the powers vested with the Institute under the CA Act and if there is any material against the Chartered Accountant to the effect that he was instrumental in preparing false and fabricated accounts then SEBI has powers to take remedial or preventive measures under the SEBI Act. The Bombay High Court held that the jurisdiction of SEBI would also depend upon the evidence which is available during such inquiry and if it is found that a particular Chartered Accountant has concocted false accounts in connivance and in collusion with the Officers / Directors of the Company then SEBI could take action.
Jurisdiction of SEBI would depend upon the evidence which is available and if there was some omission without any mens rea or connivance with anyone, in any manner then SEBI cannot issue any further direction and was required to drop the proceedings.
In the instant case, the WTM has given a categorical finding that there is no evidence showing fraud or connivance by the appellants with the officers or directors of the Company. WTM has further given a finding that there is insufficient evidence to hold that the appellants had actually manipulated the books of accounts with knowledge and fraudulent intention and that there was no tangible evidence to show that the appellant had committed a fraud in collusion or connivance with the officers of the Company or its management.
Once there is a finding that the appellants have not manipulated the books of accounts with knowledge and fraudulent intention or in connivance with the officers or management of the Company then no directions could be issued by the WTM to the ICAI or NFRA to consider dereliction of duties and abhorrence of due diligence while conducting statutory audit as in our opinion it was outside the domain of the WTM to issue such directions. At best, administrative directions could have been issued by SEBI to the aforesaid institutions to consider the alleged irregularities but beyond that no adjudicatory directions could be issued by the WTM.
- 2023 (12) TMI 318
Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - Charge of conspiracy and involvement in the fraud against CA firm - statutory auditor working against the fiduciary capacity - appellant is a leading firm of Chartered Accountants consisting of 14 partners and 250 accountants, article assistants and others - appellant was appointed as the joint statutory auditor - appellant had acted against the fiduciary capacity and instead of working in the interest of the shareholders of the company the appellant facilitated the scheme of cleaning up the books of account of the Company despite being aware of the irregularities and misstatements in the financial statements of the Company - investigation report alleged that on the basis of the hand written note the appellant had facilitated the scheme of cleaning up of the books of the Company and therefore recommended initiation of adjudication proceedings. Accordingly, adjudication proceedings were initiated against the appellant under Section 15HA of the SEBI Act - Whether appellant was not involved in the fudging of the books of accounts?
HELD THAT:- In Price Waterhouse Co. Vs. SEBI [2019 (9) TMI 592 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] this Tribunal while considering the role of the appellant as a firm of the C.A.s found that the scope of the enquiry was only restricted to the charge of conspiracy and involvement in the fraud and not to any charge of professional negligence since the C.A. / C.A. firm were not dealing directly in the securities. This Tribunal held that in absence of inducement, fraud was not proved nor there was connivance or collusion by the C.A.s and therefore, the provision of section 12 (A) of SEBI Act and Regulation 3 & 4 of PFUTP Regulations are not applicable. This Tribunal held that gross negligence or recklessness in adhering to the accounting norms in the course of auditing can only point out to the professional negligence which would amount to a misconduct to be taken up only by ICAI.
Once an investigation or a finding in the inquiry comes that the appellant was not involved in the fudging of the books of accounts and that there was no collusion or connivance by the appellant as a statutory auditor with any employee, promoter or director of the Company then the matter has to be dropped and SEBI could not proceed any further. The scope of inquiry was only restricted to the charge of conspiracy and involvement in the fraud and not to any charge of professional negligence since the chartered accountant or chartered accountant firm were not dealing directly in the securities.
Considering the aforesaid the show cause notice only alleged that the appellant had facilitated the scheme of cleaning up of the books of accounts of the Company.
There is no finding of the appellant’s direct involvement in the cleaning up of the books of accounts or in the fudging of the books of accounts of the Company. There is also no finding of the appellant’s collusion or connivance with any director, promoter or employee of the Company and consequently the appellant cannot be charged under Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations.
While conducting the statutory audit of a company, one of the objectives of an auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels. For this purpose, the relevant standard is the Standard of Auditing (‘SA’) 315 titled ‘identifying and Assessing the Risk of Material Misstatement Through Understanding the entity and its Environment’. As per the said standard, identification of risk of material misstatement is a matter of professional judgement.
In the context of SA-315 pertaining to identifying and assessing the risks of material misstatements in financial assessment, it is pertinent to bear in mind that any audit is subject to inherent limitations and that owing to such inherent limitations of an audit, there is an unavoidable risk that some material misstatement of the financial statements may not be detected even though the audit is properly planned and performed in accordance with the SA’s which was also stated by the appellant in the engagement letters executed with CG Power. Risk of not detecting a misstatement resulting from fraud is higher than the risk of not detecting a misstatement resulting from an error. Similarly, the risk of not detecting a material misstatement resulting from management fraud is greater than that resulting from an employee fraud.
The standard of accountancy framed by the ICAI makes a distinction between a statutory auditor and a forensic auditor. We may state here that the role of a statutory auditor is not to function like a forensic auditor. Any statutory audit unlike an internal or forensic audit is inherently carried out on a test check / sampling basis which in the instant case had been done by the appellant. As part of the audit process the appellant had duly carried out the exercise of identifying and assessing the risk of material misstatements in the financial statements in accordance with SA 315.
Accordingly, in its professional judgement and after exercising reasonable professional skepticism, ledger accounts with zero balance in the advance to suppliers / advance from customer account were not identified as those which were subject to risk of material misstatement since zero balances would not have impacted the financial statements and therefore, were not considered for further audit procedures.
Conversely, those accounts which had a closing balance in advance to suppliers / advance from customer account were considered for further audit procedures such as obtaining balance confirmation, verification of underlying service agreements and supply contracts etc. Further, any statutory audit, unlike an internal or a forensic audit, is inherently carried out on a test-check / sampling basis, which was done by the appellant in the case of CG Power also.
We are of the view that if the appellant had not carried out the statutory audit as per the accounting standards framed by the ICAI and in the event the appellant could not have resigned without filing the complete audit report or had failed to consider the netting of amount transferred as loans to Action and Avantha then it was open for SEBI to refer to the ICAI to take disciplinary action against the appellant for violation of the accounting standards. SEBI’s role was limited and confined to the conspiracy charge against the appellant with regard to fudging of the accounts of the Company.
The impugned order cannot be sustained and is quashed. The appeal is allowed.
- 2023 (12) TMI 295
Request to place on record a compilation of documents - Writ petitions by minority shareholders - HELD THAT:- This Court is apprised of the fact that the proceedings are listed tomorrow (29 November 2023) before the High Court of Judicature at Bombay. Hence, it is not necessary for this Court to entertain the Special Leave Petition at this stage, particularly bearing in mind what has been observed in paragraphs 2 and 3 of the earlier order [2023 (12) TMI 241 - SC ORDER] which read as follows:
“2 Since the impugned orders of the High Court are purely of an interlocutory nature, we are not inclined to entertain the Special Leave Petitions under Article 136 of the Constitution.
However, the parties would be at liberty to pursue their remedies in accordance with law on all counts after the final judgment of the High Court.”
Should it become necessary for SEBI to raise the issue of interpretation of Regulation 29 at a future date, that issue is kept open to be agitated. SLP dismissed.
- 2023 (12) TMI 260
Unlawful gains by fraudulent and manipulative strategy made by Reliance Company - responsibility of noticee no. 2 i.e. the Managing Director - violating Section 12A of the SEBI Act r/w Regulations 3 and 4 of the SEBI PFUTP Regulations - vicarious liability on both criminal and civil liability for contravention of the SEBI Act, Rules and Regulations - Liability against violations committed by the company - WTM issued directions to disgorge the unlawful gains of Rs. 447.27 crores along with interest @12% per annum and further prohibited the Company and the 12 entities from dealing in equity derivatives in the F&O segment of the stock exchanges directly or indirectly for a period of 1 year - Whether Section 27 of the SEBI Act prior to its amendment w.e.f. March 08, 2019 provided for vicarious liability only in respect of criminal proceedings initiated against a Company for contravention of the SEBI Act - Allegation of manipulative scheme - HELD THAT:- There is a distinction between “offence” and “contravention”. Consequently, one has to see the intention of the Parliament when it uses the word “offence” or where it uses the word “contravention”.
Section 27 prior to the amendment i.e. prior to March 08, 2019 had no application to civil liability and only after the amendment w.e.f. March 08, 2019 that Section 27 provided for vicarious liability on both criminal and civil liability for contravention of the SEBI Act, Rules and Regulations.
Finance Act, 2018 did not give retrospective effect to this amendment nor can such effect be inferred by necessary implication from the language of the amendment. The amendment, being substantive in nature can only be prospective and cannot have any retrospective application. The impugned order holding the amendment to be clarificatory in nature is thus patently erroneous.
The meaning of the term “offence” is required to be understood in the context in which it is used in the legislation. A suggestion that the term “offence” as occurring in the SEBI Act also covers civil proceedings is at odds with the range of provisions in Chapter VII of the SEBI Act which is a facet that was not even examined by the AO, much less ruled upon. We find that parliament was conscious of the usage of the two words “contravention” and “offence” in the SEBI Act and consciously chose to replace “offence” with “contravention” explicitly, in order to enlarge the scope of Section 27.
Section 27 of the SEBI Act as it stood prior to the amendment did not apply to civil liability and, therefore, the Managing Director could not be penalised by SEBI u/s 27 of the Act.
It is not necessary for us to deal with the issue as to whether the Managing Director could be made vicariously liable under Section 27 of the SEBI Act for contravention of the Section 12A and Regulations 3 and 4 of the PFUTP Regulations.
Board of Directors had specifically directed the two officers to explore, identify and implement optional avenues of funding and thereafter on 19.11.2007 the Board of Directors were informed by these two persons that the funds are being raised by disposing 5% of RPL shares through trades in RPL securities. In view of this impeccable evidence, notice No. 2 had discharged the burden under Section 27 of the Act and the onus shifted upon SEBI to prove that notice No. 2 was complicit. The finding that the appellant was complicit to the violations committed by the company and, therefore, liable under Section 27 of the Act is patently erroneous and is based on surmises and conjectures.
Specific denial was made by noticee no. 2 of his involvement in the trades executed by the two officers of the company. We also find that the AO in paragraph 64 holds that it is relevant to examine the role of the Managing Director in terms of direct involvement or knowledge with regard to the manipulative scheme or trades undertaken by the company. We find that the AO failed to establish either direct involvement or knowledge of the Managing Director with regard to the trades undertaken by the company and, therefore, the finding that the Managing Director was ‘complicit’ to the violations committed by the company through its two officers is based on surmises and conjectures and on the basis of the figment of his imagination.
The burden that the Managing Director of the Board of Directors exercised all due diligence was discharged and, therefore, the onus shifted back to SEBI to show that the Managing Director was responsible for the execution of the trades in question. In the absence of any finding being given by the AO establishing direct involvement or knowledge of the Managing Director in the execution of the trades the finding that the Managing Director was complicit in the execution of the trades with the two officers is purely based on surmises and conjectures. Thus, on this score noticee no. 2 i.e. the Managing Director cannot be held responsible for the execution of the shares in the facts and circumstances of the present case.
The limited role played by the Board was only to take note of the transactions after they had been executed by the two senior executives. Without considering the findings of the WTM the AO in the impugned order has misdirected itself in holding that the Managing Director was responsible under Section 27 of the SEBI Act merely on the ground that he was the Managing Director.
Assuming that Section 27 of the SEBI Act is applicable for civil proceedings, we find that the requirement to impute a vicarious liability is not satisfied. The law is well settled that the mere fact that a person holds a designation of Managing Director does not suffice for imputing a vicarious liability to such person. It has been repeatedly held that the proof of “active role” in the alleged contravention in issue must be demonstrated by clear and concrete evidence of his active role coupled with criminal intent as a necessary pre-condition for affixing vicarious liability.
Board of Directors in a company is supreme. The Managing Director reports to the Board. The Board has the full authority to delegate any function to any officers of the Company to the exclusion of the Managing Director. The contention of the respondent that the Managing Director is responsible for the day to day affairs of the Company and the officials report to him and, therefore, the Managing Director is responsible is deemed to be in the knowledge of the transactions is not applicable in the case in hand, especially when the Board had specifically authorised the two senior most officials to execute the trades in question. We also find that in the instant case the two officials have reported to the Board and not to the Managing Director.
AO in the impugned order does not arrive at any conclusion that the appellant was involved in the actual conceptualisation and execution of the alleged trades by RIL. We are of the opinion, that whereas the AO recognises that knowledge by the appellant was a pre-requisite for a finding that noticee no. 2 was liable for RIL’s alleged violation yet without giving a conclusive finding has travelled beyond the show cause notice to conclude in paragraph 72 of the impugned order that noticee no. 2 had implicit knowledge of the alleged trades and authorised the implementation plan. The AO further went on to hold that it is highly unlikely that noitcee no. 2 was not aware of the execution of the trades. The findings given by the AO in our opinion is purely based on surmises and conjectures.
In this regard, the word “complicit” means involvement with others in an activity which is unlawful. On the other hand, the word “implicit” is suggestive though not directly expressed.
Thus, in the absence of any specific finding by the AO on noticee no. 2 complicit involvement in the execution of the implementation plan or in the execution of the trades, the AO cannot dwell into surmises and conjectures and base its findings on presumption to hold that the noticee no. 2 was implicitly involved in the transactions on the ground of being a Managing Director and which implies a high level of accountability of knowledge of overall functioning of the Company.
The burden under Section 27 was discharged by noticee no. 2 and the AO has miserably failed to prove that noticee no. 2 was involved in the execution of the trades carried out by two senior executives.
Inordinate delay in the initiation of the proceedings against the noticees - Both noticee nos. 3 and 4 are involved inter alia in the business of construction of building, infrastructure, setting up of a Special Economic Zone (SEZ) and acquisition of properties and invested their idle funds by lending the same by way of short term inter corporate deposits to other companies in order to earn interest and, if necessary, also avail inter corporate deposits from other companies by paying interest - After 10 years the show cause notice dated 21.11.2017 was issued alleging that noticee nos. 3 and 4 were promoted by the Reliance Group and that noticee nos. 3 and 4 by financing the monies to Vinamra were complicit and aided and abetted the manipulation of the trade executed by RIL through its 11 agents - AO has rejected the contention of the appellants holding that there is no delay on the ground that SEBI had taken an internal decision to await the Section 11B proceedings against RIL and its agents before taking further action in the matter.
HELD THAT:- The Limitation starts running from the day the impugned order is passed. Limitation order does not stop on the whims and fancies of a regulator. The regulator cannot stop the clock on the ground that they would await the decision in proceedings initiated u/s 11B before taking further action in the matter. In our opinion, there is no legal bar of initiation of adjudication proceedings during pendency of Section 11B proceedings. In our opinion, adjudication proceedings and Section 11B proceedings can be held in parallel.
There has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and the Regulations for issuance of a show cause notice and for completion of the adjudication proceedings, nonetheless, the authorities are required to exercise its powers within a reasonable period
Time starts to run from the date of commission of the alleged violation. The respondents being aware of this fact and having knowledge of the alleged transactions chose deliberately not to initiate proceedings and, consequently, the action of the respondents cannot be justified by initiating a belated show cause notice.
There is a violation of principles of natural justice in not supplying the documents to noticee nos. 3 and 4 which documents were relied upon in the show cause notice. We find that noticee nos. 3 and 4 had repeatedly addressed letters to SEBI on 11.06.2018 and 25.06.2018 requesting certain documents which were specifically mentioned in the show cause notice. Some of these documents were provided by SEBI vide letter dated 17.06.2019 and 08.03.2019. The documents which were not provided were specifically again asked for which also included a copy of the investigation report.
As decided in T. TAKANO VERSUS SECURITIES AND EXCHANGE BOARD OF INDIA & ANR. [2022 (2) TMI 907 - SUPREME COURT] investigation report is an intrinsic component of the Board’s satisfaction for determining whether there has been any violation of the regulations and that the investigation report forms the material on the basis of which a show cause notice is issued. Since the show cause notice is on the basis of the investigation report there was an obligation imposed upon the respondent to provide the documents asked for by the appellants which they failed to supply. Non supply of the documents was violative of the principles of natural justice. We are also of the opinion that prejudice caused because of non-disclosure of the relevant material was writ large.
On merits finding has been given by the AO that on a combined reading of the Facility Agreement and Agency Agreement it can be inferred that noticee nos. 3 and 4 had prior knowledge of the scheme of alleged manipulative trades by RIL and that noticee nos. 3 and 4 were fully aware that the funds given by them to Vinamra was meant for financing the alleged trades in question and, therefore, noticee nos. 3 and 4 aided and abetted in the manipulative scheme.
This finding in our opinion cannot be sustained as Facility Agreement was signed on August 04, 2007 and September 22, 2007. The execution of these documents is not disputed nor there is any allegation that these agreements were manufactured for the purpose of this case. The starting point for the alleged manipulative scheme by RIL was the decision taken in an around October 30, 2007 to sell RPL shares. These facts are noted in paragraph 26 of the impugned order. On or before October 30, 2007 noticee no. 3 had already advanced funds to the tune of Rs. 625 crores and noticee no. 4 had loaned an amount of Rs. 45 crores on or before October 30, 2007. We are of the opinion, that as on the date of the execution of the Facility Agreement it was not possible for noticee nos. 3 and 4 to have knowledge that RIL would sell shares in the cash segment in November 2007 and that RIL would take positions in the futures segment through its agents. There is no evidence to show that prior to October 30, 2007 the decision of RIL to sell shares of RPL and appoint 12 agents was known to noticee nos. 3 and 4.
Execution of the Facility Agreement had nothing to do with the Agency Agreement which came two months later and, therefore, the Facility Agreement and the Agency Agreement cannot be read together. The two agreements are wholly unconnected and cannot raise any kind of an inference as held by the AO in the impugned order.
The evidence that has been brought on record does not indicate that noticee nos. 3 and 4 could have known in August / September 2007, namely, at the time of execution of the Facility Agreement that RIL would decide in end of October to sell the RPL shares or that RIL would take position in the November futures through its agents or that RIL would enter into agency agreements with the 12 agents or that RIL would trade in the last 10 minutes on November 29, 2007 in such a manner so as to suppress the price of the RPL shares. Thus, in our opinion, when the Facility Agreement was executed, noticee nos. 3 and 4 could not have known that RIL would enter into the cash segment or would take positions in the November 2007 futures.
Assumption / presumption drawn by the AO that the Facility Agreement was entered into solely for the purpose of funding RIL transactions in the November 2007 futures market is wholly erroneous. Pursuant to the Facility Agreements ICDs were placed as early as on September 2007 much before the subject transactions took place and continued to be placed from time to time till March 2008. The finding given by the AO that Rs. 2,775 crores advanced by noticee nos. 3 and Rs. 550 crores advanced by noticee no. 4, to Vinamra were utilised by the 12 agents for the purpose of funding the manipulative trades of RIL is patently erroneous and cannot be sustained. The ICDs given by noticee nos. 3 and 4 were from September to March whereas the funds required by the 12 agents were from November 01, 2007 to November 06, 2007 when they took short positions in the futures segment.
AO however has considered the entire loans of Rs. 2775 crores given by noticee no. 3 and Rs. 550 crores given by noticee no. 4 from the period September 2007 to March 2008. We may note that noticee no. 4 did not lend any money to Vinamra between November 01, 2007 to November 06, 2007 and that noticee no. 3 had given a loan of Rs. 350 crores in two transactions of November 05, 2007 and November 06, 2007 to Vinamra. Thus, the finding of the AO that Rs. 2775 crores and Rs. 550 crores totalling Rs. 3325 crores were given by noticee nos. 3 and 4 that funded the 12 agents for the alleged trades is patently erroneous.
One of the basic charge against noticee nos. 3 and 4 was that noticee nos. 3 and 4 were promoted by Reliance Group. This allegation was found to be false. The AO found that Anand Jain was the Chairman of noticee nos. 3 and 4 and that noticee nos. 3 and 4 were not promoted by the Reliance Group. Once this fact became clear that noticee nos. 3 and 4 were not promoted by the Reliance Group, the AO should have dropped the matter instead of going into a tirade that Anand Jain was closely associated with Reliance Group as a strategic advisor or that Sanjay Punkhia was a common director of noticee nos. 3 and 4 and Vinamra and, therefore, there is a connection between noticee nos. 3 and 4 with Reliance Group. In our view, the reasoning adopted by the AO in coming to a conclusion that noticee nos. 3 and 4 are connected to RIL is baseless and cannot be accepted. Such indirect connection without any further evidence of their involvement cannot be a ground to hold that noticee nos. 3 and 4 were aware of the manipulative trades allegedly conducted by RIL and its agents. It is thus not necessary for us to go into the question of their connection in detail.
It is not necessary for us to go into the question as to whether noticee no. 3 and 4 by giving loans to Vinamra could be held to be dealing in securities violating the PFUTP Regulations as in our view no case is made out of any violation by noticee nos. 3 and 4. Appeal allowed.
- 2023 (12) TMI 241
Request to place on record a compilation of documents - As decided by HC [2023 (10) TMI 1173 - BOMBAY HIGH COURT] once it is the entitlement of the petitioners in law to receive such documents, they need to be furnished such documents, unless furnishing of these documents would stand prohibited in law, which is certainly not a situation in the present facts.
HELD THAT:- All material which is directed to be disclosed by the High Court shall be used only for the purpose of the proceedings pending before the High Court and shall not be disseminated to any third party.
Since the impugned orders of the High Court are purely of an interlocutory nature, we are not inclined to entertain the Special Leave Petitions under Article 136 of the Constitution.However, the parties would be at liberty to pursue their remedies in accordance with law on all counts after the final judgment of the High Court.
Special Leave Petitions are dismissed.
- 2023 (12) TMI 186
Violation of SEBI Act - validity of settlement orders, which according to the petitioners were patently illegal being beyond the authority and power of the SEBI to accept any settlement - petitioners in writ petitions are minority shareholders - case of the petitioners is to the effect that there is a severe prejudice caused to the petitioners due to several illegalities committed by BNL, at the instance of the majority shareholders who are respondent Nos. 3 to 9 - petitioners have contended that they are the victims of BNL not being listed on a recognized stock exchange, which has severely affected their interest as investors in BNL - before the show cause notice(s) could be taken to its logical conclusion, respondent No. 2 to 9 had moved an application for settlement of the show cause notice(s), by invoking the provisions of 2018 Regulations - petitioners had urged that the SEBI be directed to provide documents to the petitioners as prayed for and directed that the documents, subject matter of prayer clause (g) of the petition be provided to the petitioners.
This Court [2023 (10) TMI 1173 - BOMBAY HIGH COURT] observed, that by no stretch of imagination, could it be said that the petitioners in the present case, who were minority shareholders and in such capacity, being part owners of the company (BNL), to the extent of their shareholding, were not outsiders / alien to the company, and that they were integral to the company, having an inextricable concern and interest in the functioning and management of the company.
Special Leave Petition of respondent no. 2 - BNL and respondent No. 9-Vineet Jain was dismissed by the Supreme Court, as also a decision being taken by the SEBI to assail our order dated 23 October, 2023 before the Supreme Court, what has happened at SEBI’s end in regard to the SEBI’s proceedings against BNL, is not only interesting but quite intriguing.
HELD THAT:- On perusal of the show cause notice, a copy of which is produced for perusal of the Court on behalf of the SEBI, we find that non-compliance interalia of the Rules and Regulations of SEBI are subject matter of the show cause notice, and any plea in opposition as may be urged by BNL and respondent Nos. 3 to 9 (the majority shareholders), would fall for consideration in the adjudication of the show cause notice. This would, however, not mean that the petitioners in their capacity as shareholders, would be dis-entitled or would cease to have any locus to have information / documents in regard to such affairs of BNL and to seek compliance of the Rules and Regulations and the norms of the SEBI by respondent No. 2 and those controlling BNL.
SEBI now needs to resort to a lawful course of action, to adjudicate the show cause notice, so as to reach to a conclusion, whether respondent Nos. 2 to 9 have violated the provisions of the Act, Rules and Regulations, as alleged in the show cause notice and the complaints of the petitioners. We are thus of the opinion that in the facts and circumstances of the case, it would be appropriate that the SEBI expeditiously takes forward the show cause notice and comes to an appropriate conclusion, in accordance with law, in regard to the allegations as made in regard to respondent Nos. 2 to 9 in the show cause notice.
SEBI from 23 October 2023 has not complied our order directing that the documents be furnished to the petitioners. As pointed out on behalf of the petitioners, SEBI has resorted to all possible efforts, not to comply with the order dated 23 October, 2023. Even after the Special Leave Petitions of BNL and Vineet Jain - respondent No. 9 were dismissed by the Supreme Court, the documents were not furnished to the petitioners. SEBI thereafter assailed the orders dated 23 October 2023 before the Supreme Court resulting in dismissal of its Special Leave Petition. Now the SEBI is before the Court taking a stand that the documents need not be furnished and the petitions be disposed of as they are rendered infructuous. We wonder, as what can weigh with the SEBI, in not complying our order dated 23 October, 2023 and not furnishing the documents to the petitioners, except to benefit respondent Nos. 2 to 9. Even such plea that the SEBI would have a legal right or an entitlement, not to furnish documents to the petitioners as ordered by us, was the core issue under our orders, being urged by the SEBI before the Supreme Court, apart from the plea of interpretation of Regulation 29 of the 2018 Regulation.
Considering all these circumstances, we are of the clear opinion that the entitlement of the petitioners to our order dated 23 October 2023, would certainly subsist and the petitioners need to be provided such documents by the SEBI. Moreover, not providing such documents, merely on the ground of the subsequent development that the settlement orders now stands revoked, would completely be an untenable proposition and contrary to our orders dated 23 October 2023, as confirmed by the Supreme Court. Although respondent Nos. 2 to 9 in their business interest may overlook the solemnity of the orders passed by this Court, however, SEBI in its public character cannot take the same approach. In these circumstances, the order dated 23 October 2023 cannot be rendered nugatory. The SEBI is required to holistically consider such orders and not merely in the context of the settlement proceedings, as such order considers the substantive rights of the petitioners, who are shareholders of respondent No. 2 – BNL, having equal rights to that of respondent nos. 3 to 9. SEBI cannot have different yardstick between shareholders. We therefore, direct that our order dated 23 October 2023, which has attained finality, needs to be forthwith complied by SEBI.
On the issue whether the Court should adjudicate prayer (c) and (d) of the petitions, taking an overall view of the matter, and that, now the show cause notice is required to be taken forward, we are of the opinion that in so far as such reliefs are concerned, the same needs to be kept open to be agitated by the petitioners at the appropriate time in appropriate proceedings in the context of the decision which may be taken by the SEBI on the show cause notice. We accordingly, propose to dispose of these petitions by the following order:-
ORDER
(I) The petitioners are entitled to the benefits of the order dated 23 October 2023 as confirmed by the Supreme Court, by rejection of the Special Leave Petitions of respondent Nos. 2 and 9 and thereafter, by rejection of the Special Leave Petition filed by the SEBI.
(II) The order dated 23 October 2023 passed by this Court, be forthwith complied by SEBI.
(III) All the contentions of the petitioners and of the respondents on issues in regard to prayer clauses (c) and (d) are expressly kept open to be agitated at appropriate time in appropriate proceedings.
- 2023 (12) TMI 38
Default of appointment of additional director in the category of non-executive independent director by way of a board resolution - person above the age of 75 years as appointed by the board of directors - non-compliance of Regulation 17(1A) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’ for short) - whether approval is required to be taken from the shareholders of the Company through a special resolution before a person who has attained the age of 75 years can be appointed? - HELD THAT:- The board of directors can appoint any person as an additional director who shall hold office up to the date of the next Annual General Meeting.
A reading of Section 152(2) and 161(1) of the Companies Act makes it clear that a director can only be appointed by the shareholders of the Company in an Annual General Meeting. However, the board of directors can appoint any person as an additional director who will hold office up to the date of the next Annual General Meeting.
In the instant case, the board of directors appointed Mr. Swaminathan Sivaram as an additional director till the date of the next Annual General Meeting and subject to the approval given by the members of the Company through a special resolution.
From a conjoint reading of Section 149, 152(2), 161(1) of the Companies Act 2013 read with Regulation 17(1A) and 17(1C) of the LODR Regulations makes it apparently clear that the director is required to be appointed by the members of the Company. If a person is appointed as an additional director by the board of directors then his appointment is till the next annual general meeting. Regulation 17(1A) provides that if a person who has attained the age of 75 years then his appointment has to be made by a special resolution passed by the members and Regulation 17(1C) provides that appointment must be approved in the next general meeting or within three months from the date of the appointment whichever is earlier.
In the instant case, the appointment was made on May 16, 2023 by the board of directors which was approved in the next annual general meeting by the member of the Company through a special resolution and that this special resolution was passed on August 10, 2023 within three months from the date of appointment. Thus, from a conjoint reading of Regulation 17(1A) and 17(1C) of the LODR Regulations appointment of an additional director can be made by the board of directors which is required to be approved by the members of the Company through a special resolution and such approval is required to be made within three months.
In Nectar Life Sciences Ltd. vs. SEBI & Ors [2023 (5) TMI 447 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] Tribunal considered the provisions of Regulations 17(1A) with other provisions and held that the word “unless” as depicted in Regulation 17(1A) does not mean “prior approval” nor the requirement of passing a special resolution was a qualificatory condition for appointment as a director.
Thus the contention of the respondent that no person can be appointed as a non-executive independent director unless prior approval of the shareholders was made by a special resolution is erroneous.
Thus Regulation 17(1A) and 17(1C) has to be read harmoniously with the provisions of Section 152(2) and 161(1) of the Companies Act which will make it clear that a person above the age of 75 years can be appointed by the board of directors. Such appointment is required to be approved subsequently within the prescribed period by a special resolution in the next general meeting by the members of the Company which in the instant case was done within the prescribed period. No penalty could have been imposed by the BSE and NSE for violation of Regulation 17(1A) of the LODR Regulations.
- 2023 (11) TMI 67
Share manipulation - unlawful gains through disguised trading - transaction pursuant to the alleged SMS - synchronized trades, self-trades and reversal of trades thereby creating a false appearance of trading and manipulation of the trading volumes in the scrip in question - violation of Section 12A of the SEBI Act r/w Regulation 3 and 4 of the SEBI “PFUTP Regulations” - combined shareholding had triggered the requirement of making an open offer under Regulations 10 and 11 of the SAST Regulations as these 5 noticees were acting in concert and had failed to make an open offer thereby violating the said regulations - orders restraining the appellant from accessing the securities market for a period of four years and from associating himself with any listed Company as a Director
HELD THAT:- The finding that the modus operandi adopted by Arvind Babulal Goyal was to accumulate the shares and thereafter dispose off such shares pursuant to circulation of SMS is patently erroneous and against the material evidence on record.
As upon perusal of the relevant documentary records, we find that the finding that the appellant was trading from the account of Abhay Javlekar is not based on proper appreciation of the documentary evidence. In the first instance, we find that the Know Your Client (“KYC”) document of Abhay Javlekar shows the email ID of Arvind Goyal and mobile number as given - WTM has presumed that the mobile no. is of Arvind Goyal. This number has been denied by the appellant. No effort was made by the investigating officer or by the WTM to find out as to who is the owner of this mobile no. quoted.
Abhay Javlekar admits before the investigating officer that his DIS slip book and cheque book was issued to one Jayesh Solanki which statement is contrary to the stand which he now takes that Arvind Babulal Goyal had taken the DIS slip and cheque book for the purpose of trading.
In our opinion, contradictory stand has been taken by Abhay Javlekar. Abhay Javlekar further admits that many trades were carried out without his knowledge by Pradeep Makhija of Yoke Securities. In the light of the aforesaid glaring evidence which is on record it is difficult to believe that Arvind Babulal Goyal was using Abhay Javlekar’s trading account. Thus, the finding given by the WTM that Arvind Babulal Goyal was using Abhay Javlekar’s account for trading purpose is not based on sound evidence.
Similarly, the finding that Arvind Goyal was involved in manipulative and unfair trade practice by employing self-trades, synchronized and reversal trades thereby creating an artificial volume in the scrip in question is again erroneous and against the evidence in as much as no trades were carried out by Arvind Goyal or Pooja Goyal after the issuance of SMS.
Since no trades were carried out by Arvind Goyal and Pooja Goyal pursuant to the alleged SMS the question of their trades being manipulative and adopting unfair trade practice does not arise. For the same reason, the violation of Regulations 3 and 4 of the PFUTP Regulations cannot be sustained as a result the order of disgorgement towards unlawful gain or loss averted cannot be sustained since we do not find any violation of the PFUTP Regulations.
Order of disgorgement - We are of the opinion that the disgorgement amount has been crystalized under the show cause notice and therefore the said amount could only be considered by the WTM and the WTM could not consider the figures mentioned in the impounding order. We further find that the direction to pay 12% interest per annum on the disgorged amount could not have been issued as we find from a perusal of table 17 that the disgorged amount included the component of interest and, therefore, double interest cannot be charged.
Since we have already held that Arvind Goyal had not traded from the trading accounts of Abhay Javlekar, the allegation that they were acting in concert is thus not proved.
Arvind Babulal Goyal, Pooja Goyal and Abhay Javlekar in their own capacity had acquired the shares. Whether they individually crossed the trigger of 15% / 5% under Regulations 10 and 11 of the SAST Regulations is required to be considered afresh. The AO is required to see whether or not Arvind Babulal Goyal and Pooja Goyal collectively as husband and wife and Abhay Javlekar in his individual capacity had triggered the obligation to make an open offer under Regulations 10 and 11 of the SAST Regulations respectively and if they had triggered the requirement of making an open offer under Regulations 10 and 11 of the SAST Regulations then appropriate penalty commensurate with the acquisition should be levied. Appeal allowed.
- 2023 (11) TMI 66
Front running trading activity by certain entities - fraud’ for the purposes of the PFUTP Regulations - Offence under SEBI - investigation found that the appellant Manish Chaturvedi was the key person who perpetrated the front running activity with the aid and assistance of other noticees including his parents (Laxmi Chaturvedi and Manohar Chaturvedi) - HELD THAT:- WTM and the AO correctly held that the trades of Anandilal Chanda and Anandilal Chanda HUF were based on the specific information obtained by Anandilal Chanda from Madhu Chanda, and more so in the absence of any plausible explanation by the appellants (the Chandas) of the peculiar and unusual manner in which their trades were executed ahead of the trades of the clients of Sharekhan and matched with the trades of the Sterling group.
We further find that the nature, volume and value of trades of Anandilal Chanda and Anandilal Chanda HUF further corroborate the fact that they were carrying out front running activity in order to front run the clients of Sharekhan based on the information that was being passed on by Madhu Chanda to Anandilal Chanda.
WTM order and the AO order have correctly held that due to the trading based on prior information of trades of the aforesaid 7 noticees and of the Sterling group, Madhu Chanda, Anandilal Chanda and Anandilal Chanda HUF defrauded investors in the securities market and caused loss to other investors / deprived the investors from profits, and made unlawful gains in their respective trading accounts.
The front runners viz. Viraj Mercantile, Josh Trading, Pinky Auto, E-Ally, Shree Jaisal and Bhavesh Gadhavi respectively have also admitted their role in lending the trading accounts to Praveen Jain and in fact couched their submissions before this Hon'ble Tribunal as a 'mercy petition' whereby they have restricted their submissions only to reduction of penalty and period of debarment imposed against them. In this regard, it is submitted that lending of trading accounts is an offence of grave nature as the same may lead to misuse of trading accounts for activities in the securities market that may not be for genuine transactions as has happened in the present case and the same amounts to ‘fraud’ for the purposes of the PFUTP Regulations.
- 2023 (11) TMI 65
Fraudulent Scheme of using the GDR proceeds to fund a subscriber - GDR issue was fully subscribed was misleading as the investors were not informed that the GDR was subscribed by only one entity - fraudulent scheme and violative of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations - AO found that the GDR was subscribed by one entity, namely, Vintage - AO further found that on account of the pledge created by the Company with EURAM Bank the funds were not made available at the Company’s disposal and the same became available in tranches as and when the loan amount was repaid by Vintage. Further, the loan agreement was not disclosed to the stock exchange and to the Indian investors.
HELD THAT:- We find that this modus operandi in the instant appeals is the same as has been dealt with by this Tribunal in a large number of matters relating to the GDR issue wherein the Tribunal has held that non-disclosure of the loan agreement and the pledge agreement was totally fraudulent and violative of the Listing Agreement. This Tribunal also held that the Company and its MDs were aware of the execution of the pledge agreement as well as loan agreement and it was no longer open to them to deny the existence of the said agreements. This Tribunal also held that the Company and its Directors misled SEBI into believing that there were more subscribers to the issue and not one subscriber.
We also held that Company and its MDs were aware of the pledge agreement, non-disclosure of the pledge agreement and loan agreement invited penalty. Further, the corporate announcement did not disclose the fact that the subsisting pledge agreement facilitated the subscribers to subscribe to the GDR issue. The corporate announcement was misleading and presented a distorted version to the investors and created a false version inducing the investors to deal in securities. See Sibly Industries Ltd. vs SEBI . [2022 (7) TMI 1478 - SECURITIES APPELLATE TRIBUNAL, MUMBAI], Aksh Optifibre Ltd. [2022 (6) TMI 1441 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] and Praveen Kumar Hastimal Shah [2022 (7) TMI 1477 - SECURITIES APPELLATE TRIBUNAL,
WTM and the AO while admitting that the appellant was a non-executive independent director and had resigned on February 7, 2012 found that he was a member of audit committee and was required to ensure all the transfer of the GDR proceeds to the accounts of the Company in India - The finding given by the WTM and the AO cannot be accepted. There is nothing on record to indicate that the matter relating to GDR issue was placed by the Company before the audit committee. In the absence of any evidence the finding that it was the responsibility to monitor the end use of the funds is patently erroneous. We are of the opinion that Section 177(4) of the Companies Act, 2013 cannot be applied in the instant case inasmuch as the said provision only came into existence when the Companies Act, 2013 was enacted.
n the absence of any finding that the GDR issue was placed before the audit committee we are of the opinion that members of the audit committee cannot be held responsible for the alleged violation. Further, the finding that there was a long association with the Company is purely based on surmises and conjectures. We also are of the opinion that there is no finding that the appellant was involved in the day to day affairs of the Company merely attending board meetings cannot lead to a conclusion that the appellant was involved in the day to day affairs of the Company.
Independent directors cannot be penalized when they are not part of day-to-day affairs of the company. See Prafull Anubhai Shah vs SEBI [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] and Rajesh Shah vs SEBI [2021 (7) TMI 1433 - SECURITIES APPELLATE TRIBUNAL, MUMBAI]
In view of the aforesaid, the impugned orders passed by the WTM and AO cannot be sustained and are quashed insofar as it relates to the appellant. The appeals are allowed.
- 2023 (11) TMI 64
Unfair Trade Practices relating to Securities Market - scheme of using the GDR proceeds to fund a subscriber to the GDR issue was a fraudulent scheme and violative of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations - non-disclosure of the loan agreement and the pledge agreement was violative of Clause 36 of the Listing Agreement as well as Section 21 of the SCRA Act read with Clause 32 and 50 of the Listing Agreement - penalty imposed on company and directors and MCDs
HELD THAT:- We find that this modus operandi in the instant appeals is the same and has been dealt with by this Tribunal in a large number of matters relating to the GDR issue wherein the Tribunal has held that non-disclosure of the loan agreement and the pledge agreement was totally fraudulent and violative of the Listing Agreement. This Tribunal also held that the company and its MDs were aware of the execution of the pledge agreement as well as loan agreement and it was no longer open to them to deny the existence of the said agreements. This Tribunal also held that the company and its Directors misled SEBI into believing that there were more subscribers to the issue and not one subscriber.
We also held that company and its MDs were aware of the pledge agreement, non-disclosure of the pledge agreement and loan agreement invited penalty. Corporate announcement did not disclose the fact that the subsisting pledge agreement facilitated the subscribers to subscribe to the GDR issue. The corporate announcement was misleading and presented a distorted version to the investors and created a false version inducing the investors to deal in securities - in the light of the aforesaid decisions the findings against the appellants in the instant appeals does not require any interference nor we require to give elaborate reasons. The findings of the AO are upheld.
Quantum of penalty and on the issue of proportionality - SEBI has passed various orders against company and its directors imposing different penalties for identical / similar offences. In a large number of penalties ranging from Rs. 25 lakh to Rs. 1.25 crore have been imposed upon the companies which we have appropriately reduced to Rs. 25 lakh. Similarly, for managing director considering the factor in each of the case the penalties have been reduced to Rs. 10 lakh and Rs. 20 lakh. Similarly, in many cases the penalty ranging from Rs. 5 lakh and Rs. 10 lakh have been imposed upon the directors. In a large number of cases, we have exonerated independent directors.
Thus without going into the specific details, in the instant case, we find that penalty imposed against the company is appropriate as in many other cases we have been reduced the penalty against the company to Rs. 25 lakh. Thus, the penalty imposed by the AO against the company noticee nos. 1 needs no interference. Similarly, we find that the penalty of Rs. 25 lakh imposed upon the noticee nos. 2 who is the CMD is also appropriate and commensurate with the alleged violation as he was the signatory to the account charge agreement / pledge agreement. In so far as noticee nos. 3, 4, 5 and 6 are concerned, we find that noticee nos. 3 was non-executive director and noticee nos. 4, 5 and 6 were independent directors. There is no evidence to show that all these noticees apart from being signatory to the resolution of the board of directors were not involved in the day-to-day affairs of the company nor were they aware or monitor the issuance of the GDR issue.
Independent directors cannot be penalized when they are not part of day-to-day affairs of the company. See Prafull Anubhai Shah vs SEBI [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] and Rajesh Shah vs SEBI [2021 (7) TMI 1433 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] - Thus the penalty imposed upon notice nos. 3 to 6 to the tune of Rs. 10 lakh each are set aside.
- 2023 (11) TMI 18
Ex-parte ad interim order - Appropriation of a fixed deposit - squaring off the loans of related parties - diversion of funds and its circuitous routing which was solely for the benefit of the promoter group as the appellant was the Managing Director and was not only in control over ZEEL but, being a key managerial personnel, was also in control of the seven associate entities - investigation revealed that Axis Bank instead of squaring off the credit facility of EGML had adjusted the fixed deposit against the credit facility given to seven related entities of ZEEL - restraint order passed by the respondent pursuant to the ad interim order and the confirmatory order restraining the appellant to function as a Managing Director
HELD THAT:- As round tripping of funds happened in a few minutes. Can it be said that each of the transaction was a sham or a fictitious transaction? There was a reason for making the payments. Everyone owed someone, the receptionist paid his debt, the chef paid his debt, the wife paid her debt and the milkman paid his debt. Everything works on credit and through the aforesaid payments everyone was happy. This is how the system works. Can it be said that the entire transaction done by the aforesaid entities was a sham transaction on account of proximity of time?
We find that the transaction between the ZEEL and the first entity was validly explained and therefore, at this stage, it was not necessary to go into the context of a larger transaction involving the circular rotation of funds. The decisions cited by the respondent in this regard are not applicable at this stage.
Chairperson has proceeded on the presumption that the appellant was involved in the affairs of the Essel Group companies including the borrower entities other than ZEEL. We find that this finding is based on pure surmises and conjectures. There is no material whatsoever which would demonstrate that the appellant was involved in the alleged transactions.
The finding that Essel Group companies were involved in the layering of the funds transactions and were under the influence / control of the appellant by virtue of its shareholding and shareholding of his family members is patently erroneous. There is nothing on record to show that the appellant had participated in the affairs of the borrower entities or any other Essel Group entity. We find that the appellant is neither an authorized signatory nor a director in the borrower entities and was not involved in the operation, financing or day to day management of the affairs of the borrower entities. In the absence of any active role of the appellant in Essel Group companies / borrower entities, the presumption drawn by the Chairperson that the appellant had exercised control over borrower entities is patently erroneous.
The word “control” has been mostly used by the Chairperson to show that the appellant had an active role in the borrower entities Essel Group companies which is based on presumptions.
Finding that the appellant exercised control over the borrower entities / Essel Group companies was based on presumptions in the absence of any material evidence to show that the appellant was actually in positive control of the Essel Group companies / borrower entities.
The finding that the appellant had exercised control over Sprit Infrapower & Multiventures Private Limited Churu Enterprises LLP through shareholding interest and designated partners is again stretching the matter a bit too far in the absence of material evidence to show that the appellant was actively involved in the day to day management of these two entities.
We further find that the direction that if the appellant is allowed to continue as the Managing Director in ZEEL it would impede or tamper with the investigation is erroneous in as much as we do not find any single incident to show that the appellant has obstructed in the investigation conducted so far.
We are also of the opinion that the impugned order relies upon the bank statement which cannot be tampered and which cannot be changed and therefore the presumption that if the appellant is allowed to continue as Managing Director in ZEEL it would impede or tamper with the investigation is patently erroneous. The finding that the appellant should be kept away from the helm of affairs of ZEEL so that the appellant may not exercise his influence over relevant entities to misdirect the course of investigation is patently erroneous.
We also find that the Chairperson has applied different yardstick regarding the alleged transaction arising out of ZEEL. On one hand the Chairperson has based its finding on a preponderance of probability while on the other hand has refused to accept the evidence filed by the appellant and has rejected the same on the ground that the documents do not prove the genuineness of the transaction beyond a reasonable doubt. This contrary stand taken by the Chairperson is, in our opinion, arbitrary. In any case, an incorrect application of the principles of preponderance of probability has been applied.
Whether a proper balance has been made by the impugned directions on the rights, liberties or interest of the person keeping in mind the purpose which it was intended to serve? - Doctrine of proportionality has not been correctly applied and a correct balance has not been made. Considering the genuineness of the documents so produced by the appellant, the first leg of the transaction was validly explained which indicates that the funds moved pursuant to a long standing commercial business relationship. The entries in the bank statement are not fictitious or sham transactions and therefore proceeding and issuing directions on the basis of preponderance of probabilities is, in our opinion, at this stage arbitrary and excessive. The directions ex facie, is punitive and not preventive and is based on incorrect apprehensions and on the basis of preponderance of probabilities.
Ex-parte ad interim order could have been passed in extreme urgent cases and that such power should be exercised sparingly and should not be exercised in a routine manner. Considering the facts and circumstances of the present case, we do not find that any extreme urgent situation existed in 2023 which warranted the WTM to pass an ex-parte ad interim order with regard to a certain set of transactions which occurred in the year 2019.
We find that 99.97% of the shareholders of ZEEL had reposed complete faith in the appellant as recent as into 2022 to continue as Managing Director and Chief Executive Officer of the merged entity between ZEEL and Sony. Pursuant to the ex-parte ad interim order NCLT has approved the scheme of amalgamation in which the appellant would hold the post of a Managing Director of the merged entity. This aspect has wrongly been construed by the Chairperson that it will wield substantial power of management of the affairs of the merged company upon the appellant which he cannot be permitted to do so.
In our opinion such approach is unwarranted apart from the fact that there is no evidence to show that the appellant exercised positive control over the borrowed entities. The fact that greater responsibility (if any) has come upon the appellant pursuant to the merger, then all the more reason that the appellant should be allowed to continue rather than putting the merger to continue headless when 99.97% of the shareholders reposed faith in the appellant to continue as Managing Director of the merged entity.
Structure of the merged entity is that Sony Group would have the majority shareholding in the merged entity and will also have majority members in the board of directors and would have right to appoint key managerial personnel like Chief Financial Officer, Chief Compliance Officer, Company Secretary etc. the appellant would be just one of the nine directors of the merged entity. Hence, his continuation as the Managing Director in the merged entity would have no impact on the investigation.
Chairperson while confirming the ad interim order directed the investigation to be completed in eight months. No reason was given as why eight months is required to complete the investigation especially when only bank transactions are to be looked into.
During the course of arguments, it has been stated by the respondent that other LoCs given by the promoter group of the appellant including the LoC given by the father of the appellant to the tune of Rs. 4210 crore are now being scrutinized and therefore comprehensive investigation is being done and consequently these five transactions which is impugned in the order is only part of the wider investigation. In view of the aforesaid, we are of the view that prima facie the diversion of funds has not as yet been proved.
Sufficient explanation backed by genuine document have been shown by the appellant and having validly discharged their burden. The investigation is going on and considering the track record of SEBI for which we take judicial notice, no investigation is completed within the stipulated period. We have seen that on numerous occasions whenever this Tribunal or the superior Court has directed SEBI to complete the investigation within a stipulated period, the same has not been done and applications after applications are being filed by SEBI seeking time to extend the period of investigation.
The impugned order cannot be sustained and is quashed insofar as it relates to the appellant. The restraint order passed by the respondent pursuant to the ad interim order and the confirmatory order restraining the appellant to function as a Managing Director and as directed in paragraph 108(ii) of the impugned order is set aside. The appeal is allowed. The appellant shall, however, cooperate in the investigation.
- 2023 (10) TMI 1258
Insider trading in the scrip of the Company - corporate announcement regarding an update on the real estate operation of the Company - penalty of Rs. 10 lakhs u/s15G(i) of the SEBI Act imposed - allegation levelled against the appellant [Vice Chairman and Managing Director of the Company and also a Member of the Audit Committee] was that the Company made corporate announcement regarding an update on the real estate operation of the Company for third quarter on the Bombay Stock Exchange and the National Stock Exchange of India Limited - corporate announcement revealed that the Company during its second quarter had achieved a new sales volume which was up by 5.6% as compared to the preceding quarter - appellant as urged that the real estate operational data was not a price sensitive information - HELD THAT:- Corporate announcement regarding update on the real estate operation of the Company was a price sensitive information. UPSI has been defined under Regulation 2(1)(n) which means any information that is not generally available and which upon becoming generally available is likely the materially affect the price of the securities.
In the instant case, the real estate operational update were part of the financial results for the quarter ended 30.09.2017. It was a price sensitive information and upon announcement it had a material impact in as much as the price of the scrip increased.
Appellant was in possession of this price sensitive information and had traded in the scrip during the period in question. In our opinion, obtaining necessary pre clearance and making requisite disclosures were not enough to show that his trades were not motivated by UPSI.
Regulation 4 of the PIT Regulations prohibits any insider from trading in securities while in possession of UPSI. The proviso to Regulation 4 of the PIT Regulations gives a window to the insider to prove his innocence by demonstrating the circumstances under which he has traded. In the instant case, the appellant is an insider and, therefore, it was upon him to prove that the trades were not motivated by UPSI. We find that no plausible explanation has been given in this regard.
Appellant had traded in the scrip of the Company while in possession of UPSI and had violated Section 12A(d) and (e) of the SEBI Act, 1992 and Regulation 4(1) of the PIT Regulations. No error in the impugned order. Appeal fails.
Case Laws - FEMA
- 2024 (3) TMI 600
Offence under FEMA/FERA - Levy of penalty - Review petition - proceedings against matter had gone up to the Hon’ble Apex Court and the SLP had been dismissed - taking or refraining from taking action which had the effect of securing receipt of the full export value of the goods exported from the country of final destination had been delayed beyond the prescribed period in contravention of Section 18 (2) of the FERA read with notification dated 01.01.1974 issued by the Central Government - penalty imposed upon the appellants and the proforma respondent vide order dated 14.07.2009 (Annexure A-4), they were directed to make a pre-deposit of 10% of the amount of penalty within a period of 30 days
HELD THAT:- Section 19 of FEMA deals with appeals to the Appellate Tribunal and provides that any person appealing against the order of the Adjudicating Authority levying any penalty shall, while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government. The proviso lays down that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship, the Appellate Tribunal may dispense with such deposits, subject to such conditions as it may deem fit to impose so as to safeguard the realization of penalty.
Strangely enough, after the dismissal of the SLP, instead of complying with the order and depositing the 10% amount, the appellants and the proforma respondent filed a review petition before the Appellate Tribunal. It was pleaded before the Appellate Tribunal that the appellant company was willing to tender the amount and that in case the order was not reviewed, the delay in depositing the amount be condoned. The review petition was, however, dismissed vide order dated 24.06.2015 (Annexure A-6).
Thereafter, the proforma respondent filed CWP before this Court, which was decided [2017 (8) TMI 1723 - PUNJAB AND HARYANA HIGH COURT] and the condition of pre-deposit of the 10% of the penalty amount was set aside. The stand taken before the Co-ordinate Bench in the writ petition (IBID) was that the proforma respondent had never been the Director of the company and that she was only a Director in M/s Sachdeva and Sons Rice Mills Ltd. which was a separate legal entity. This stand was accepted and the writ petition was allowed. It would be essential to notice that all this while, the matter having gone up to the Apex Court was concealed.
After the aforesaid decision, the appellants filed a review petition before the Appellate Tribunal which was dismissed by way of order dated 06.06.2019, leading to the filing of the present appeal. The Appellate Tribunal dismissed the review petition by observing that repeated petitions were being filed and one such review petition had already been dismissed on 24.06.2015 - Here also, it appears that the Tribunal was not apprised that the matter had already been decided by the Apex Court.
Undeterred by all proceedings which had gone against the appellants, the appellants preferred the present appeal. In the considered opinion of this Court, the present appeal is nothing but a gross abuse of the process of law. The appellants have misled the Courts at every step and despite the matter having been finalized by the Apex Court, the appellants have raked up the same in subsequent petitions. The conduct of the appellants is highly deprecated. Once the matter had gone up to the Hon’ble Apex Court and the SLP had been dismissed, no further proceeding would lie. In the present appeal, the appellants have selectively filed documents and have also made attempts to mislead this court
- 2024 (3) TMI 502
Violation under FERA - export proceeds were not realized - as alleged transactions A1 to A3 have contravened the provisions of Section 18(2) and 18(3) of FERA Act, 1973 for failing to take steps to realize bill value of export proceeds and A2 and A3 abetted A1 in sending said consignments towards exports and the export proceeds were not realized, which is in violation of the said provisions of FERA - According to A1, the signatures on G.R.Forms were forged by A2, as such, she cannot be held responsible for the said exports. Export transactions are apparent and they were done on behalf of A1’s firm with the involvement of A2. A3 as the Customs House Agent had helped in the documentation for exports and received huge amounts for his services.
HELD THAT:- Learned Sessions Judge in appeal found that A2 was using cell phone of A3 and he has made payments to A3 by way of cheques. The said cheques are Exs.P18 to P21 in the name of A3 issued by A1 on behalf of M/s.Sai International. Since the cheques were encashed, the complicity of A3 in the transactions cannot be doubted. Such huge amounts cannot be towards services of a custom house agent.
The fact remains that the acts of A1 to A3 failing to realize the default value of the export proceeds, having availed duty draw back amount from the Customs Authorities in the name of M/s.Sai International is in violation of provisions of FERA.
Both the Courts below have adjudicated the case on the basis of oral and documentary evidence. The grounds raised by the accused cannot form basis to set aside the well reasoned judgment of Courts below and the findings regarding the culpability of the petitioners. Both the Criminal Revision Cases are dismissed.
- 2024 (3) TMI 19
Adjudication made under FEMA Act - Non issuance of show cause notice as well as non giving of an opportunity of being heard within the meaning of Section 16 of the Act r/w Rule 4(1) and 4(3) of the Rules certainly would amount to violation of principles of natural justice - as decided by HC [2023 (12) TMI 914 - MADRAS HIGH COURT] notice as contemplated under the Act as well as the Rules as discussed herein above have been served on these noticees and Merely because at the time of serving the notice, these noticees were not available at the address at Bengaluru would not ipso facto entile them to claim immunity that the notices served on them at the Bengaluru address cannot be construed as a notice within the meaning of Section 16 r/w Rule 4(1) and Rule 14(b) or (c) of the Rules.
HELD THAT:- We are not inclined to interfere with the impugned judgment, but observe that the petitioners have a right to file an appeal under Section 19 of the Foreign Exchange Management Act, 1999.
However, we clarify that the observations and findings recorded in the impugned judgment are tentative and prima facie.The appellate tribunal will be entitled to go into all issues and contentions in accordance with law.
Recording the aforesaid, the special leave petitions are dismissed.Pending application(s), if any, shall stand disposed of.
- 2024 (2) TMI 1257
Violation under FERA - charge u/s. 56 of FERA - Company being in Liquidation - Offences by companies u/s 68 of FERA - As submitted Company being in Liquidation and a Provisional Liquidator having been appointed for it, only the Provisional Liquidator can represent the Company in the proceedings pending before the learned ACMM and not the petitioner herein.
Whether the charge against the Company can be framed through the petitioner? - HELD THAT:- As per Section 305 CrPC Procedure when corporation or registered society is an accused would show that where the accused person is a company, it may appoint a representative for the purpose of the trial, and where such representative appears, any requirement of the CrPC that anything shall be done in the presence of the accused or shall be read or stated or explained to the accused, shall be construed as a requirement that that thing shall be done in the presence of the representative or read or stated or explained to such representative. Sub-Section (4) of Section 305 CrPC states that where the representative of a company does not appear, any such requirement as is referred to in sub-Section (3) of Section 305 CrPC shall not apply.
In the present case, there is no authorization of the petitioner to represent the Company in the trial. In fact, the Company is in liquidation and a Provisional Liquidator already stands appointed for the Company.
In terms of Section 457 of the Companies Act, 1956 (as was then applicable), it is only the Provisional Liquidator or person authorized by the Provisional Liquidator, who could represent the Company in the trial. The petitioner, therefore, cannot be said to be representing the Company. It is another thing to say that he would face the trial in his individual capacity as an accused, but another thing to say that he would also face the trial as a representative of the Company.
Though the above issue was flagged before the learned Trial Court, as is reflected in the Orders the learned Trial Court proceeded to frame the charge against the Company taking the petitioner herein to be representing the Company. The same cannot, therefore, be sustained.
Conclusion & Directions - Trial Court has clearly erred in framing the charge against the Company through the petitioner. The charge against the Company has to be through the Provisional Liquidator appointed for the Company. The impugned order dated 03.08.2007 shall stand modified to this limited extent. It is clarified that the charges framed against the petitioner in his individual capacity have not been interfered with by this Court.
- 2024 (1) TMI 337
Power of search and seizure conferred on the Directorate of Enforcement as per FEMA - validity of seizure/confiscation made by the respondents - seeking a direction to return/release the money, currency illegally confiscated/seized - HELD THAT:- The provisions of Section 132B of the Income Tax Act, 1961 inter alia provides for application of seized and requisitioned assets which provides that the assets seized may be dealt with in the manner provided therein, whereby, the amount of any existing liability and the amount of liability determined on completion of the assessment may be recovered out of such assets, however, such power is, thereafter, governed by two provisos
A bare look at the first proviso would reveal that on an application made for release of the assets while indicating the source of acquisition of such assets, after adjusting the liability, remaining portion of the assets has to be released. The second proviso indicates that such asset or any portion thereof shall be released within a period of 120 days from the date on which the last of the authorizations for search was executed.
The proviso are not without reason inasmuch as the same have been incorporated only with a view that to ensure that determination of liability has to take place expeditiously and in case the same does not take place the assets have to be released.
In the present case, search took place on 14/3/2019 and despite repeated representations made in the year 2019 and 2020, neither the assets have been released nor the representations have been rejected indicating any reason. Further, even when a show cause notice was issued on 16/10/2020 and a response was filed on 19/3/2021, despite passage of over 02 years and 09 months, no determination has taken place.
So far as the source of acquisition is concerned, as required by the first proviso (supra), a specific submission has been made that the books of account have been seized along with currency and everything is recorded therein and, therefore, the source is very much reflected and available with the respondents.
Thus plea raised by respondents pertaining to attempt to challenge the show cause notice is concerned, the adjudication/determination of the show cause notice is well within the powers of the respondents and none prevented them from determining the same expeditiously, however, the respondents have chosen not to make the determination and continue to sit over the various representations made for release of assets, which action cannot be countenanced.
Respondents despite release of the seized currency are free to make the determination of the show cause notice, qua which no relief has been claimed presently.
Action of the respondents in not releasing the seized assets of the petitioners is essentially in violation of Section 132B of the Act, 1961, which is applicable in terms of Section 37(3) of the FEMA, 1999 and, therefore, the inaction of the respondents in this regard cannot be sustained. Petition is partly allowed. The respondents are directed to pass appropriate orders for release of the seized assets pursuant to the search conducted on 14/3/2019 within a period of four weeks from today.
- 2023 (12) TMI 914
Adjudication made under FEMA Act - Non issuance of show cause notice as well as non giving of an opportunity of being heard within the meaning of Section 16 of the Act r/w Rule 4(1) and 4(3) of the Rules certainly would amount to violation of principles of natural justice - HELD THAT:- The mode of service of notice has been clearly demonstrated at Rule 14, i.e., 3 methods, namely 14(a), 14(b) and 14(c). At least Rule 14(b) and 14(c), the notices have been served on these noticees in their last known address or the address where they carried on business last.
Merely because at the time of serving the notice, these noticees were not available at the address at Bengaluru would not ipso facto entile them to claim immunity that the notices served on them at the Bengaluru address cannot be construed as a notice within the meaning of Section 16 r/w Rule 4(1) and Rule 14(b) or (c) of the Rules.
Therefore, this Court have no hesitation to hold that, notice as contemplated under the Act as well as the Rules as discussed herein above have been served on these noticees.
Under Section 42(1), if a person committing a contravention who is a company, every person who at the time of contravention was committed was incharge of and was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceed against and punished accordingly.
Insofar as the application of Section 42(1) against these noticees are concerned, it was the vehement contention of Mr.Shah, that the two Noticee namely Noticee No.17 and 20 were the nominee Directors, i.e., Non-executive Directors of the first Noticee company on behalf of the fourth Noticee company. When their very appointment as a Director itself is a mere nominee on behalf of the fourth noticee company as a Non-Executive Directors, therefore they are not incharge of and was responsible to the conduct of the business of the company as well as the company.
Therefore assuming that, any contravention that has been made by the first Noticee company, for which these noticees namely Noticee No.17 and 20 cannot be found fault with. Therefore u/s 42(1) no contravention cannot be attributable against these Noticees. Insofar as this contention of the learned counsel appearing for the petitioners are concerned, whether they were the Non-Executive Directors or nominee Directors and during the relevant point of time whether they were in the helm of affairs or the company or not, whether the contravention that has been made by the first Noticee company would amount to the contraventions of the persons like Noticee No.17 and 20 also, for which, they are also to be proceeded against and be punished by imposing penalty or not, are all the matters for adjudication which have been adjudicated and decided by the Adjudicating Authority through the impugned order.
As against the impugned order, an appeal has been provided before the Appellate Tribunal under Section 19 of the Act. Even if there is any failure before the Appellate Tribunal and it goes against the interest of these noticees, again a further appeal is provided under Section 35 of the FEMA Act, where Second Appeal can be preferred before this Court (High Court).
When such a hierarchy of appellate forum is provided under the Act itself, whether the jurisdiction that has been conferred under the Act, especially u/s 35 of the Act to the appellate side of this Court, whether can be taken away by entertaining these writ petition is a question, for which the answer is in the negative. The reason being that, the law which has been held by law courts with regard to the exhaustion of alternative remedy is well settled. Though it is not a hard and fast rule that each and every case, the exhaustion of alternative remedy shall stand in the way in entertaining the case under the extraordinary jurisdiction of this Court under Article 226 of the Constitution, still limitations are there for the High Courts who are empowered to issue prerogative writs under Article 226 of the Constitution of India.
While exercising such extraordinary jurisdiction under Article 226, the High Court on the one side cannot take away or absolve the appellate jurisdiction being exercised by the same High Court under the provisions of the statute which is special in nature.
Here in the case in hand, ultimately the aggrieved party can approach this Court by filing the Second Appeal under Section 35 of the Act, instead, if these writ petitions are entertained and the impugned order of adjudication is challenged and a decision is made on the merits of the issue, certainly that will amount to interfering or transgressing the appellate jurisdiction of this Court, which normally the court would not do in exercising the extraordinary jurisdiction under Article 226 of the Constitution.
We do hold that, absolutely there has been no quarrel on the said principle stated by the learned Judge in the said Judgment. However in the facts of the present case, what is the uncurable defect, that has been committed by the original authority in the present case is the question. As we held above, the notice, i.e., show cause notice had already been served properly under the mode as contemplated under the Act as well as the Rule. Therefore, first of all it cannot be construed that the principles of natural justice has been violated. Assuming that, because of the enquiry notice that has not been served on the noticees as claimed by them, whether any injury is caused by virtue of passing of adjudication order, certainly those issues can be canvassed before the Appellate Tribunal challenging the order of adjudication. Hence, we do not find that any uncurable defect or injustice caused to the noticees at the adjudication stage and therefore, that cannot be stated that such a defect, if any, cannot be cured by the appellate forum.
We have held that, as contemplated under Section 16 r/w Rule 4 and 14 of the Rules, show cause notice since have been served on all the petitioners herein, i.e., Noticee No.4,17 and 20, on the alleged ground of violation of principles of natural justice, these writ petitions cannot be entertained especially in applying the principle as laid down by the Hon’ble Supreme Court in the Radha Krishan Industries case cited supra.
Despite the above, it is open to the petitioners to raise these point of the violation of principles of natural justice before the Appellate Tribunal in case still the petitioners feel that the issue also can be adjudicated as one of the issue before the Appellate Tribunal. That apart, insofar as the merits of the case is concerned, as we held above, we do not want to hold anything on the merits of the case, because that will have a bearing on the cause of the petitioners, when they approach the Tribunal by filing the appeal. WP dismissed. However it is open to the petitioners to approach the Appellate Tribunal by filing appropriate appeal against the impugned order of adjudication u/s 19 of the FEMA Act.
- 2023 (12) TMI 787
Offence under FEMA - petitioner had made foreign remittances to different foreign companies under the guise of payments against the bogus import of services and that these amounts are held outside India by the related foreign companies of the petitioner - petitioner is engaged in the business of providing unsecured short-term loans to its customers/borrowers in India via its Digital Application based platform called the ‘CashBean’ - As contended that the petitioner had engaged a Hong Kong based Company, for procurement of an IP licence and had entered into a Software Licence Agreement with it for providing IP and Digital Lending Software Licence, that is, the CashBean App to the petitioner for the Indian digital micro-lending market.
As alleged petitioner had made foreign remittances to different foreign companies under the guise of payments against the bogus import of services and that these amounts are held outside India by the related foreign companies of the petitioner
HELD THAT:- Section 37A(1) of the Act states that if the Authorised Officer prescribed by the Central Government has reason to believe that any Foreign Exchange, Foreign Security, or any Immovable Property, situated outside India, is suspected to have been held in contravention of Section 4 of the Act, he may, after recording the reasons in writing, by an order, seize value equivalent thereto situated within India.
It need not be emphasised that the power of seizure is of far-reaching consequences and, therefore, the pre-conditions stipulated in Section 37A(1) of the Act must be scrupulously complied with. The ‘reason to believe’ must be based on tangible material, and as held by the Supreme Court in Radha Krishan Industries [2021 (4) TMI 837 - SUPREME COURT] should not be based on the ‘imaginary grounds, wishful thinking, howsoever laudable that may be’
The foreign exchange transactions can be bifurcated into ‘Current Account Transactions’ and ‘Capital Account Transactions’, as defined in Section 2(j) and 2(e) of the Act respectively.
The transactions in question, which have been made the basis of the seizure order, can be categorised as ‘Current Account Transactions’.
As alleged petitioner has contravened the provisions of Section 4 of the Act, inasmuch as it holds foreign exchange outside India through its group entities and such foreign exchange has been transferred to such accounts by way of bogus transactions with its group companies - Violation of Section 10(6) of the Act cannot be alleged merely because, according to the respondents, the commercial arrangement entered into by the declarant under Section 10(5) of the Act does not appear to be commercially prudent to the respondents, but at the same time, the respondents in the present case are using the above assertions in support of their conclusion that the amount of foreign currency has been clandestinely transferred by the petitioner in the name of licence fees and other charges to the foreign entities and are, in fact, being held by the petitioner itself in the bank accounts of such foreign companies which are related to the Opera Group. In this manner, the respondents alleged violation of Section 4 r.w.s.10(6) of the Act and claim to satisfy the condition set out in Section 37A of the Act, which requires the foreign exchange to be held outside India and which is suspected to have been so held in contravention of Section 4 of the Act.
The Impugned Order is to be based merely on ‘reason to believe’ that any foreign exchange situated outside India is suspected to have been held in contravention of Section 4 of the Act by the person against whom the order under Section 37A of the Act is being passed. At the stage of passing the order under Section 37A(3) of the Act, the Competent Authority is not to arrive at a conclusive finding on the above. Though it may be true that the ‘reason to believe’ must also be based on certain tangible material and should be reasonable and not be arbitrary or whimsical, at the same time, the Court in the exercise of its powers under Article 226 of the Constitution of India cannot act as an appellate authority and substitute its own opinion for that of the Competent Authority.
In the present case petitioner has been unable to make out such a case which would warrant an interference of this Court with the Impugned Order. The allegations of the respondents and the defence of the petitioner would need to be tested by the Adjudicatory Authority. On facts, it cannot be said that the action of the respondents is ultra vires the Act or so whimsical as to warrant an interference of this Court at this stage, when the proceedings are pending before the Adjudicatory Authority.
This Court is also cognizant of the fact that pursuant to the Impugned Order, the respondents have also filed a complaint before the Adjudicating Authority. This Court has been informed that substantial hearings have already taken place before the Adjudicating Authority on such complaint, and the same is likely to be disposed of in near future. This adds as a further reason for this Court not to exercise its discretionary powers under Article 226 of the Constitution of India. Petition dismissed.
- 2023 (12) TMI 786
Offence under FEMA - bidding process for the IPL franchise organised by the BCCI - arrangement of the flow of funds by Respondents was made to route the investments through Mauritius as the funds flowing into India from UK was not permissible - maximum penalty imposed - Special Director indicates that although satisfaction in respect of contravention of the provisions of the FEMA has been recorded, there is no explanation or any discussion in respect of the basis on which maximum penalty has been imposed - Tribunal has recorded a that an exorbitant penalty has been imposed upon the individuals arrayed without recording any findings on the specific roles of said individuals - Whether interference by the Tribunal in the order of the Special Director is justified on the touchstone of the doctrine of proportionality?
HELD THAT:- Overall, the Tribunal has found that firstly, no loss has been caused to exchequer; secondly, the remittances have come into India and remained in India. This is not a case where any foreign exchange has gone out of India; thirdly, the remittances were utilised for the purposes for which they were intended and there is not even an allegation of utilization of the money for extraneous purposes; fourthly the entities have not gained any benefit whatsoever and in fact suffered considerable financial detriment as shares having beneficial transferable interest have not been issued against remittances to the said entities for the past 11 years; and fifthly, 'Rajasthan Royals' franchise has participated in the IPL since 2008 with no other allegation of contravening any FEMA provisions or regulations made thereunder. Thus, the Tribunal found no justification in the order passed by the Special Director for imposing maximum penalty on Respondents and contraventions are categorized at best as technical and venial.
In the instant case, there is a finding of fact by the Tribunal and all the relevant facts have been considered in a proper light. The Tribunal has arrived at its conclusion on the basis of evidence to support and after analysing the said evidence. The findings are far from being perverse. Thus, no question of law arises in the case. The question raised by Appellant relating to justification of the reduction of penalty imposed by the Special Director is purely based on facts and no question of law even remotely, arises from the same.
We find that in fact no justification has been recorded by the Special Director to impose maximum penalty as opposed to the Tribunal having considered relevant material has interfered and reduced the penalty. We do not find it proper to transgress the limits of this Court's jurisdiction, preferring the view of the Tribunal or that of the Special Director, one way or the other, in regard to factual appreciation of the finding of facts in the matter.
We find that the Special Director has completely failed to apply the doctrine of proportionality as interpreted and elucidated by the Apex Court in its various decisions, while choosing to impose maximum penalty on Respondents. Having gone through the impugned order, this Court does not find anything perverse in the findings, reasoning and conclusion of the Tribunal. We are in agreement with the finding of the Tribunal that in the absence of any discussion or justification pertaining to the basis for imposing the maximum penalty and juxtaposing this with the alleged acts attributed to each individual, the order of the Special Director is unsustainable. No error in the impugned judgment of the Tribunal.
- 2023 (12) TMI 442
Validity of enquiry / investigation proceedings - taking cognizance of the complaint - Investment in foreign companies - violation of Sec.4 of FEMA - Competent Authority passed orders not to seize the assets of the petitioners - as alleged assessee subscribed to 70.0 lakhs shares in certain M/s. Silver Park, a Singapore based company, registered as per the laws of Singapore, and that he had later transferred those shares to his wife and two children outside India.
Adjudicatory Authority in his show cause notice has indicated that they would be proceeded against u/s 13(2) and enquiry into this is underway - Adjudicating Authority had issued a corrigendum dated 13.03.2023, altering the provision from Sec.13(2) to Sec.13(1A) - Competent Authority constituted under the Act had vide his proceedings dated 03.02.2021, had decided not to seize the assets of the petitioners on a finding that these petitioners did not violate Sec.4 of the Act.
HELD THAT:- Sec. 13 of the Act merely spells out the consequence of the violation of any of the provision of the Act, which includes Sec.4 embargo on a resident Indian, which mandates that no one who is resident in India shall hold foreign exchange or foreign securities outside India. The accusation which the petitioners herein now face is that they, as citizens and residents of India, are holding shares of a foreign company, and thus they have over stepped the line of prohibition under Sec.4. If the scheme of the statute is observed, Sec.13 comes into play only in the eventuality of the Adjudicating Authority entering a finding that the petitioners are guilty of the accusation which is now under enquiry.
Set in the context, the corrigendum does not introduce any new set of allegations midway through an enquiry, but only put the petitioners on notice, that in the eventuality of they being found guilty of violating Sec.4, that the Adjudicating Authority might proceed against them under Sec.13(1A) consequence. Therefore, any alteration of provision regarding the consequence that may visit the petitioners will not, and cannot, prejudice the petitioners visa- vis the nature of accusation that they are now facing. Secondly, a close analysis of Sec.13 shows, it only provides a buffet of options to the Adjudicating Authority to choose from, on the course of action that the Authority may adopt when the stage is set for deciding the penal consequence of entering a finding of guilt. This situation is more akin to a Criminal Court altering a charge under Sec.216 Cr.P.C, without altering the facts constituting the accusation.
The basic elements of principles of natural justice requires that the petitioners are put on notice on the possible course of action in the contemplation of the Adjudicatory Authority, if the petitioners are found guilty of the violation of Sec.4 On facts, the petitioners have entered appearance for a hearing on the notice of corrigendum, and that they have began participating in the proceedings. They are now given an opportunity to raise their objection before the Adjudicatory Authority. In a circumstance such as this what is the prejudice that has visited the petitioners which warrants an interference by this court? None.
Here it is significant to note that in Raj Kumar Shivhare [2010 (4) TMI 432 - SUPREME COURT] has held that FEMA is a self-contained code and remedial fora, the Act as created should not be bye-passed.
Its now time to consider the merit of the arguments of the petitioners' counsel on the effect of the order of the Competent Authority passed under Sec.37-A of Act, releasing the properties of the petitioners from seizure. The reason which has formed the ground for the decision of the Competent Authority is that there are no materials to suggest that any money or foreign exchange has flown out of India to support the purchase of the shares in the Singapore based company.
The fact that the Statute has created two independent authorities, one for adjudicating on the accusation under Sec.16 read with Sec.13, and the other for deciding on the seizure of assets of those who face the accusation, does not enable telescoping the effect of the what latter may do into the power vested in the former. What if the statute had vested both the powers in the same authority? Then the power of seizure will be construed as an interim arrangement in aid of final adjudication. And, the law is settled that the reasoning of an interim order will have zero potency to impact the reasoning for a final decision. The fact, that both these powers are vested in different Authorities, does not make the order passed by the Competent Authority vis-a-vis the seizure of assets any superior as to interfere with the power of adjudication of the Adjudicatory Authority. It is plainly a question on jurisdiction, and it cannot be expanded interpretatively.
Secondly, if the reasoning of the Competent Authority in refusing to seize the property is considered, it focuses essentially on whether payment has been made by the petitioners for the purchase of shares in the Singapore based company, which is forbidden under Sec.3(b) of the Act.
. The way statute has presented Sec.3 and Sec.4, it appears to create independent class of prohibitions. Now, if the reasoning of the Competent Authority is required to be transmitted into the adjudicatory process contemplated under Sec.16, as was canvassed by the petitioners, then it may involve a need to read Sec.3 into Sec.4. The permissibility of reading Sec.3 into Sec.4 requires to be considered independently, and the present stage is too premature for considering it. At any rate it cannot be considered in this proceedings, for, it was held in Raj Kumar Shivhare case [supra] FEMA is a complete Code, and it must be allowed its free space to work itself.
The foregoing discussion leads this Court to the only conclusion: That these petitions are not entertainable. Now it is time to resume the enquiry by the Adjudicating Authority. The petitioners will be entitled to take all such defences which they are entitled to take under law.
- 2023 (11) TMI 480
Validity of order of forfeiture of properties u/s 7 of SAFEMA consequent to revocation of the detention order passed under COFEPOSA - as argued that as detention order passed u/s 3 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 [COFEPOSA] has been subsequently revoked/withdrawn as such SAFEMA proceedings would become non est and untenable
HELD THAT:- SAFEMA was enacted to provide for the forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith or incidental thereto as such activities were having a deleterious effect on the national economy. Section 2 provided for the application of the provisions of the Act only to the persons specified in sub-section (2) thereof. According to sub-section (2)(b) every person in respect of whom an order of detention has been made under COFEPOSA, the Act would be applicable subject to four clauses mentioned under the proviso thereto.
A perusal of the above quoted provision makes it clear that apart from the four contingencies given in clauses (i) to (iv) above, every person against whom an order of detention has been passed under COFEPOSA, the provisions of SAFEMA would apply. In the present case, it is an admitted position that an order of detention under COFEPOSA was made against the appellants.
The order of detention had not been revoked on the report of the Advisory Board or before the receipt of the report of Advisory Board or before making a reference to the Advisory Board. Further, it was an order of detention passed under Section 3 of COFEPOSA. Section 9 and Section 12 A of COFEPOSA had no application to the detention order. As such, clause (i) would not be applicable.
Clause (ii) would also not be applicable in as much as neither the detention order was made to which provisions of Section 9 of COFEPOSA would apply nor had it been revoked before the expiry of the time on the basis of review on the report of the Advisory Board.
Further, clause (iii) would also not be applicable as Section 12A of COFEPOSA had no application to the detention order.Lastly, the detention order had not been set aside by the Court of competent jurisdiction. Therefore, clause (iv) would have no application.
To the contrary, in the present case against the detention order, the appellant had made a representation which had been rejected. Thereafter the said order was challenged before the High Court by way of a writ petition which had also been dismissed on merits by a detailed order upholding the detention order.
The revocation however had been made on a statement given on behalf of the Union of India before this Court in order to institute a complaint under the relevant statute. The said revocation is not contemplated under Section 2(2)(b) and its proviso, and, therefore, no benefit can be extended to the appellant(s) on the said count. Therefore, in our view, the impugned judgment does not suffer from any infirmity warranting interference. The appeals lack merit and are, accordingly dismissed.
Dismissal of the complaint and the withdrawal of the penalty under the Act 1962 and Act 1968 - This argument has no relevance to the applicability or non-applicability of the impugned proceedings and forfeiture under SAFEMA. They were independent proceedings under the provisions of the Act 1962 and the Act 1968.
- 2023 (11) TMI 315
Recovery of penalty imposed on the respondent - Validity of insolvency notice issued to the respondent - interpretation of statute - words creditor, debt and debtor as defined under Section 2A and 2B of the Presidency Town Insolvency Act should be given a restricted conventional meaning - term decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act 1909 would mean only a decree or order of a civil Court or would it include any order for payment of money passed after an adjudicatory process? - maintainability of application under Section 9(5) - Enforcement Directorate is competent to initiate proceedings in insolvency for failure in payment of penalty imposed or not - invocation of Section 9(2) before the decree or order becoming final.
Definition of the terms creditor, debt and debtor - Section 2(a) of the Presidency Towns Insolvency Act 1909 - HELD THAT:- As could be seen from the definitions, both the definitions are inclusive definitions. In REGIONAL DIRECTOR EMPLOYEES' STATE INSURANCE CORPN. VERSUS HIGH LAND COFFEE WORKS OF PFX. SALDANHA & SONS [1991 (7) TMI 367 - SUPREME COURT], the Hon'ble Supreme Court had considered the import of the term 'includes' used in a definition clause, the Hon'ble Supreme Court had held The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occur- ring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include.
The word “includes” as pointed out by the Hon'ble Supreme Court has been used with a intent to impart wider meaning to the terms defined. We should also be alive to the various developments in law since the enactment of the Presidency Towns Insolvency Act, 1909, more than a century ago. Various other Forums, Tribunals and alternative Dispute resolution mechanism have been put in place and those Forums and Tribunals have been empowered to decide legal disputes and have been empowered to pass orders for payment of money. Therefore, at this distant point of time, the meaning of the words appearing in Sections 2(a) and 2(b) of the Presidency Towns Insolvency Act, 1909 should not be restricted and the other creditors not to be deprived from invoking the provisions of the Act - thus, in view of the inclusive definition adopted in Section 2(a) and 2(b) of the Presidency Towns Insolvency Act, 1909, the terms creditor, debt and debtor defined thereunder should be given a wider meaning and it cannot be restricted to a decreed debt or a debt payable under order of a Court.
Whether the term decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act 1909 would mean only a decree or order of a civil Court or would it include any order for payment of money passed after an adjudicatory process? - HELD THAT:- While considering this definition the Hon'ble Supreme Court after referring to the inclusive definition, held that the judgment in PARAMJIT SINGH PATHEJA VERSUS ICDS LTD. [2006 (10) TMI 419 - SUPREME COURT] being one with regard to legal fiction provided under Section 36 of the Arbitration and Conciliation Act cannot be taken as a precedent for having decided on the effect of various orders that may be passed by various Tribunals or Authorities who are empowered to pass orders imposing financial liability.
Sections 50 and 51 of the Foreign Exchange Regulation Act, 1973 provides for a mechanism for determination of the penalty payable by a person who violates the provisions of the said Act. Section 56 of the said Act enables prosecution and that is without prejudice to the power to levy penalty - Though the word penalty is used in Section 50 it is not a fine levied on the basis of conviction or a penalty as used under Article 20(1) of the Constitution of India. The provisions of Sections 50 and 51 of the Foreign Exchange Regulation Act, 1973 are more in the nature of recovery of loss that is caused to the exchequer because of the violation of the provisions of the Foreign Exchange Regulation Act and the Act also provides for criminal prosecution without prejudice to the power to levy penalty.
The conclusion of the learned Single Judge cannot be agreed upon where he held that an order of the Adjudicating Authority imposing penalty would not create a debt within the meaning of Section 2(b) and the person in whose favour the order is passed could not be creditor within the meaning of Section 2(a), in order to enable them to invoke Section 9(2) of the Presidency Towns Insolvency Act, 1909.
Whether the application under Section 9(5) on the grounds mentioned in it is maintainable? - Whether Section 9(2) can be invoked before the decree or order becoming final? - HELD THAT:- The failure to pay, on being served with the notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909, would amount to an act of insolvency to enable the creditor to initiate insolvency proceeding. This is a reason why the grounds set out in Section 9(5) of the Presidency Towns Insolvency Act, 1909 are very relevant. Section 9(5) of the Presidency Towns Insolvency Act, 1909 extracted above would show that the specific grounds have been set out. The question as to whether a debt existed or not is not a ground that is postulated in the said provision - No doubt, the words “being a decree or order which has become final and the execution thereof has not been stayed” would definitely provide a ground under Section 9(5) of the Presidency Towns Insolvency Act, 1909. The very jurisdiction to issue an insolvency notice would be in doubt, since the appeal in CMA.No.914 of 2001 was pending on the date when the insolvency notice was sought to be issued.
The reference to the provisions of Section 138 of the Negotiable Instruments Act and the judgment of the Hon'ble Supreme Court concluding that a complaint filed under Section 138 of the Negotiable Instruments Act before the expiry of 15 days time could still be sustained, if the drawer had not paid the money due under the cheque within 15 days from the date of receipt of summons cannot be applied to the instant case, inasmuch as it is the non-payment of money ordered to be paid within a particular time that constitutes the act of insolvency - the very act of insolvency would occur only if the debtor fails to pay within 31 days from the date of issuance of a notice, the money payable under an order which has already become final.
The question Whether Section 9(2) can be invoked before the decree or order becoming final is not answered.
Application is dismissed upholding the order of the Hon'ble Single Judge only on the ground that the insolvency notice issued on 28.02.2001 is unsustainable, in view of the fact that it has been issued when the Civil Miscellaneous Appeal was pending and the order has not become final.
- 2023 (10) TMI 1118
Proceedings initiated u/s 56 of FERA - non issue of SCN - Violation of principle of natural justice - HELD THAT:- No complaint can be filed unless the person accused of such offence has been given an opportunity of showing that he has such requisite permission. It is clear that from the facts of this case and also not disputed by Respondent that there is no such show cause notice which was issued and served on the fresh address of the petitioner at Gurugram. That apart, it is pertinent to note that though the notice issued under proviso to Clause (ii) of sub section (2) of Section 61 FERA was not served upon the petitioner, the demand notice dated 28.08.2020 was served upon the correct address. There is no explanation as to how and from where the ED obtained this correct address of the petitioner while issuing the demand notice.
So far as the judgments of State Bank of India [2023 (3) TMI 1205 - SUPREME COURT] and Oil and Natural Gas Corporation Limited [2014 (10) TMI 589 - SUPREME COURT] relied upon are concerned, they laid down the law in respect of what is trite by now that rule of Audi Alteram Partem is fundamental to the policy of Indian law and as such any order by any quasi-judicial authority or any administrative authority entailing drastic civil consequences cannot be sustained except after affording an opportunity to the person who would have to face such civil consequences. There is no doubt in the mind of this Court that there has been clear violation of principles of natural justice in the present case.
Since the respondent therein had failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court in that case clearly had erred in taking cognizance and on that basis, quashed and set aside the impugned order on charge.
This Court respectfully concurs with the observations and the ratio laid down in the case United India Airways Ltd. & Anr. [2018 (4) TMI 421 - DELHI HIGH COURT]
Proceedings being separate and not intertwined in respect of violation u/s 18(2) and (3) and Section 56 of the FERA - This Court is of the considered opinion that the substratum of violation of under Section 18(2) for becoming an offence u/s 56 has to be tested first by issuing show cause notice/opportunity notice so as to permit the petitioner to explain as to whether it got the requisite permission in accordance with law or not.
Since the show cause notice or opportunity notice was never served upon the petitioner, the consequent proceedings initiated u/s 56 FERA cannot be continued. It is for violation of Section 18(2) and Section 18(3) of the FERA that would entail action u/s 56 FERA, but the intervening threshold of issuance of show cause notice/opportunity notice and hearing the notice before passing the decision upon such mandatory application of principles of natural justice alone that the action u/s 56 could, at all, have been initiated. As such the submission of Respondent on that count are found to be untenable.
Present writ petition is allowed and as a consequence thereof, a writ of certiorari is issued quashing the exparte proceedings issued by the ED.
- 2023 (10) TMI 891
Foreign contribution utilized for undesirable purposes - Suspension of certificate - seeking Release/permit the Petitioner to utilize 25% of the total foreign contribution amount/funds held by the Petitioner u/s 13(2)(b) of the Foreign Contribution (Regulation) Act - HELD THAT:- Section 13(2) of the FCRA permits utilization of foreign contribution which is in custody of the person whose certificate has been suspended. There is no occasion to restrict the term “his custody” only to the current account. The amounts which are held in fixed deposits or in government bonds etc. are also unutilized foreign contributions which can be made available to the person whose account has been suspended pending the inquiry u/s 14 of the FCRA.
There is no reason for this Court to disbelieve the statement that the Petitioner has already utilized the figures given by it regarding the expenses to be incurred for its survival pending consideration of the cancellation of registration u/s 14 of the FCRR.
There is nothing in the said Section which restricts that only the amounts lying in the current account can be permitted to be utilized, this Court is inclined to allow the Petitioner to utilize the 25% of the total FCRA funds held it in fixed deposits, government bonds etc. pending consideration of the cancellation of registration under Section 14 of the FCRR.
The outward disbursement of the amounts shall only be for the purpose of carrying out the day-to-day activities and for no other expenses.
A complete statement of the Petitioner’s FCRA account and the amounts deposited in fixed deposits and government bonds etc. along with expenses incurred from the date of suspension shall be submitted to the Respondent periodically.
- 2023 (10) TMI 377
Offence under FEMA - gold bullion of 3773.52 gm. was seized along-with other articles like electronic devices mobile phones, hard disk etc during search operations - HELD THAT:- The provisions of Section 37 of the FEMA read with Sections 132 and 132B of the Act of 1961 including its proviso clauses clearly speak that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business. Further, where the person concerned makes an application to the AO within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained, to the satisfaction of the AO, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released with the prior approval of the certain authorities, as mentioned in the provisions, to the person from whose custody the asset was seized.
The proviso clause further provides that such asset or any portion thereof is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last date of the authorizations for search under Section 132 or for requisition under Section 132A, as the may be, was executed.
Recently in Mangilal Agarwal vs. Deputy Director of Income Tax (Investigation-1) [2023 (8) TMI 1358 - RAJASTHAN HIGH COURT] this Court considering the statement made by the counsel appearing for the respondents upon instructions from the respondent authorities submitted that no order has been passed by the competent authority under section 132B of the Income Tax Act. On the basis of such statement, the Court observed that the goods including gold bullion, which were taken in possession, have to be released and the respondents counsel therein informed that in case the petitioner approaches the competent authority for release of the Gold Bullion, the same shall be accordingly released.
Finally the writ petition was disposed of as having become infructuous in view of the fact that the gold bullion was released to the petitioner therein. The judgments cited by the counsel for the petitioners as a whole speak that the respondent authorities are under an obligation to consider the representation of the petitioners including all the relevant documents submitted along-with the same explaining that the gold bullion seized during the search is stock in trade and are duly accounted in the books of accounts. The aforesaid inaction on the part of respondents in failing to consider and decide the representation of the petitioners in not releasing the seized gold bullion, is illegal and contrary to the provisions of Section 132(1) and 132B of the Act of 1961.
The provision of Section 132B of the Act of 1961 mandates the respondent authorities to take a call on the application/ representation submitted by a person and after consideration such asset or any portion thereof seized during the search of which nature and source of acquisition is explained, the same should have been released within one twenty days.
The respondent authorities are under an obligation to abide by the law in force but in the present case the respondent authorities have failed to act upon the representation submitted by the petitioners on 19.02.2020 which led to miscarriage of justice.
Respondent authorities in view of the mandate of Section 132B were under an obligation to consider the application/ representation of the petitioners submitted on 19.02.2020 showing the credentials and explaining that the gold bullion seized during the search was stock-in-trade and are duly accounted in the books of accounts which were based on the documents enclosed along-with the representation which have been placed on record before this Court also. The respondent authorities have not cared to consider the representation and the documents submitted by the petitioners and to hold that the gold bullion seized during the search was not stock-in-trade. Therefore, this Court on consideration of the documents submitted along-with the petition without there being otherwise decision of the respondent authorities, does not hesitate to hold that the gold bullion seized during the search was stock-in-trade and are duly accounts in the books of accounts and accordingly the petitioners are entitled to retain the same.
Writ petition deserves to be allowed and is therefore allowed. The respondent authorities are directed to return the gold bullion 3773.52 gm. seized by them in the course of search on 15/16.02.2020 forthwith to the petitioners after complying with the requirement provided i.e. making a note of inventory.
- 2023 (10) TMI 292
Stay of demand / waiver of pre-deposit - Levy of penalty - Contravention of Section 18(2) of FERA - failure to realize export proceeds to the tune of US $ 2,03,925/- - Penalties Levied - Tribunal has waived 60% of the total penalty calling upon the appellant to deposit only 40% thereof, for which a period of 30 days was granted - plea for full waiver of mandatory, statutory pre-deposit and non-compliance with an interim order of the Tribunal - HELD THAT:- Tribunal has, in waiving 60% of the penalty, and directing deposit of only 40%, taken note of all contentions of the Appellant, including the hardship projected. In fine, a balance has been struck and the Appellant directed to remit only 40% of the penalty, bearing in mind the interest of the State as well.
Taking a cue from the order in the case of Monotosh Saha [2008 (8) TMI 9 - SUPREME COURT]we made a similar offer to the appellant to remit at least a portion of the amount in order that we may consider directing the Tribunal to hear the appeal. Learned counsel, upon instructions, is categoric that no amount of the penalty can be remitted, as the appellant has absolutely no available resources.
In Nimesh Suchde Prop.Siddharth Polymers, the Delhi High Court [2009 (7) TMI 1328 - DELHI HIGH COURT] on the facts of that case, and taking note of judgment in Monothosh Saha felt, prima facie, that the appellant had satisfied the condition of undue hardship. The question that arose related to the valuation of a consignment for the purpose of levy of import duty.The appellant had sought waiver of pre deposit and that request had been dismissed directing deposit within 30 days, premised upon the finding that the goods imported, were higher in value than disclosed. A Single Judge of the Delhi High Court confirmed the order of the Tribunal as against which, an appeal had been filed.
The Division Bench considered the plea of waiver in light of Sections 8(3) and 8(4) of the FERA, that imposed restrictions on dealing with foreign exchange. The Adjudicating Officer while invoking Sections 8(3) and 8(4) of the FERA was expected to examine the matter independently and arrive at a conclusion in the matter. In that case, the Officer had merely relied on the order passed by the Customs Authority which, in turn, had been based on the premise that the import was without a valid import license. The Bench noted that no independent finding had been rendered by the Authority in regard to the finding of undervaluation rendered by the Customs Officer which was a pre-requisite while invoking Sections 8(3) and 8(4) of the FERA.
Mere reference to an order passed by the Customs Authority would not suffice. It was on the above facts that the Bench concluded that the dismissal of request of dispensation of pre deposit had not been decided in proper light by the Tribunal. The facts of this case are not analogous to the case of Siddharth Polymers and hence do not advance the case of the Appellant.
We do not find any extenuating circumstances warranting interference in the discretionary order passed by the Tribunal. In fact, the Tribunal has itself waived 60% of the penalty based on the plea of financial stringency put forth by the petitioner. We find very little justification to interfere in the discretion exercised by the Tribunal as it not shown to be perverse in any way.
The order of the Tribunal is confirmed and this Civil Miscellaneous Appeal is dismissed. Since the appeal is stated to be listed on 05.10.2023, the appellant is permitted to remit the amount by then, to condition of which the Tribunal will proceed with the appeal.
- 2023 (10) TMI 118
Detention order - whether the inordinate delay of thirty years in the execution of the detention order is explained by the concerned authorities? - detention order indicates that the detaining authority has relied upon the search and seizure proceedings u/s 34 of the Foreign Exchange Act 1973 (“FERA”) - HELD THAT:- The detention under the COFEPOSA Act is for the purpose of preventing persons from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or preventing from smuggling goods, or abetting smuggling goods, or engaging in transporting or concealing or keeping smuggled goods or dealing with the same or harbouring person engaged in such activities. Hence, there must be conduct relevant to the formation of the satisfaction having reasonable nexus with the petitioner's action, which is prejudicial to make an order for detaining him.
The unexplained and inordinate delay of thirty years in the present case does not justify the preventive custody of the petitioner. As held in the case of Shafiq Ahmad [1989 (9) TMI 381 - SUPREME COURT] the satisfaction of the authorities based on conduct must precede action for prevention based on subjective satisfaction.
In the present case, the action based on satisfaction is not commensurate with the situation after thirty years of the detention order. It is not even the case of the authorities that in the last thirty years, the petitioner was engaged in any prejudicial activity or has indulged in any objectionable activity.
Petitioner is right in submitting that there was no material adduced indicating that the petitioner was “absconding” or that the petitioner was evading arrest. Thus, by relying on the principle of law laid down by the Hon’ble Supreme Court in the case of Shafiq Ahmad, we find that the action under Section 7 of the COFEPOSA Act would not be decisive or determinative of the question of whether there was undue delay in serving the order of detention in the present case.
In the facts of this case, no attempts had been made to contact or arrest the petitioner. There is no explanation forthcoming for not taking any action to trace the whereabouts of the petitioner, and also, after the gazette publication in the year 1995 under section 7(1)(b) of the COFEPOSA Act, there is no action taken to serve the detention order.
Thus, there is no merit in the submissions supporting the detention order. We find substance in the ground of challenge raised on behalf of the petitioner that the detaining authority has not meticulously followed the procedure to serve the detention order, making it invalid due to the passage of time.
- 2023 (9) TMI 1102
Offences committed under the repealed FERA Act - prosecution for the offences punishable as committed prior to the repeal of FERA - purposes of the prosecution of offences punishable under Sections 56 and 57 of FERA - HELD THAT:- What is material here is sub-section (4) of Section 49 of FEMA, which provides that subject to the provisions of sub-section (3), all offences committed under the repealed Act shall continue to be governed by the provisions of the repealed Act as if that Act had not been repealed. Sub-section (3) of Section 49 saves the prosecution for the offences punishable under Sections 56 and 57, which have been committed prior to the repeal of FERA, provided the competent Court takes its cognizance within two years from the date of coming into force of FEMA. In view of sub-section (4) of Section 49, for the purposes of the prosecution of offences punishable under Sections 56 and 57 of FERA, by a legal fiction, the provisions of the repealed Act will continue to apply. However, the same will continue to apply only for the purposes of prosecution of the offences which are saved by sub-section (3) of Section 49 of FEMA.
That is how the complaint filed by the Enforcement Officer, duly authorised under clause (ii) of sub-section (2) of Section 61 of FEMA, will continue to be valid, inasmuch as by virtue of the legal fiction incorporated in sub-section (4) of Section 49, the prosecution will continue to be governed by the provisions of FERA as if the same had not been repealed. Therefore, during the sunset period, the authorisation of the Enforcement Officers to file the complaints continues to be valid for the limited purposes of sub-section (3) of Section 49 of FEMA.
If the arguments of the appellants are accepted, the officer nominated under sub-clause (b) of clause (ii) of sub-section (2) of Section 61 of FERA will not be empowered to file complaints for the offences punishable under FERA even within the sunset period of two years. Such interpretation will prevent the Court from taking cognizance after the repeal of FERA on a complaint filed after the repeal of FERA by an officer authorised under sub-clause (b) of clause (ii) of sub-section (2) of Section 61 of FERA. Thus, no complaint can be filed during the sunset period of two years provided in sub-section (3) of Section 49 of FEMA. A Statute cannot be interpreted in such a manner that any provision thereof is rendered otiose. Therefore, we are unable to accept the submissions made by the learned senior counsel appearing for the appellants. Any construction which will defeat the plain intention of the legislature must be rejected. The Court must adopt the interpretation which makes the provisions of a Statute workable.
By FERA, the Foreign Exchange Regulation Act, 1947 (for short, ‘FERA, 1947’) was repealed. The repealing provision is provided under sub-section (1) of Section 81 of FERA. This Court, in the case of M/s. P.V. Mohammad Barmay Sons v. Director of Enforcement [1992 (8) TMI 225 - SUPREME COURT] interpreted clause (a) of sub-section (2) of Section 81 of FERA as held despite repeal of Act 7 of 1947 by operation of Section 6 of the General Clauses Act read with Section 81(2), the penalty incurred by the appellant continued to subsist and the respondents are entitled to institute the proceedings, conduct investigation or enquiry and impose such penalty.
The appeal fails, and the same is, accordingly, dismissed. As the complaint remained stayed from 7th January 2011, we direct the Trial Court to give necessary out of turn priority to the disposal of the complaint which is the subject matter of this appeal.
- 2023 (8) TMI 60
Proceedings under FEMA - receiving foreign exchange in lieu of issuance of equity shares/share warrants - whether no approval has been granted by FIPB? - HELD THAT:- As clearly transpires without any semblance of doubt that the custodian general of foreign exchange is the Reserve Bank of India and any permission with regard to inflow of foreign exchange would definitely have to have the permission of the Reserve Bank of India.
In the case on hand, the permission is for receiving foreign exchange in lieu of issuance of equity shares and for the said purpose, the appropriate authority to grant permission is FIPB. Newbridge, the foreign investor, intended to invest in equity shares in the petitioner-company, with further downstream investment in the sister concern of the petitioner company for which necessary approval was granted by FIPB. In fact, the 1st respondent is also not disputing the approval granted to the petitioners for issuance of equity shares. However, the show cause notice was issued only on account of the petitioner company issuing share warrants, which was later converted into equity shares.
The sequence of events for obtaining approval have already been extracted above. In this regard, the initial approval was granted by FIPB on 27.12.2005. Thereafter, as there was certain errors in the number of equity shares, further approval was solicited, which was also granted by FIPB on 31.01.2006. There is no quarrel that equity shares were issued by the petitioner company in favour of Newbridge. However, for an amount of about Rs.243 Crores, share warrants were issued, which was subsequently converted into equity shares.
It has been the ratio of the Supreme Court even in LIC case [1985 (12) TMI 289 - SUPREME COURT] that RBI is the custodian general of foreign exchange. In the present case, the foreign investment was approved by FIPB.
Communication reveals that FIPB had nowhere said that the issuance of warrants at the point of time when it was issued by the petitioner company required permission. In fact, the order clearly spells out that there was no explicit policy at the material point of time with regard to issuance of warrants. The above stand of FIPB unequivocally speaks to the effect that there was no explicit policy with regard to warrants, which effectively could only mean that there was no prohibition on issuance of warrants.
The further stand of FIPB that no post facto approval is required as the warrants have since been converted into equity shares should not be read in isolation and it should be read in conjunction with the earlier part of the order, where FIPB has intimated that there was no explicit policy with regard to issuance of warrants at the relevant point of time.
Omission to spell out warrants to be included in the term ‘security’ as defined u/s 2 (za) of FEMA cannot be taken mean that issuance of warrants is prohibited. Prohibition should be clearly spelt out either explicitly or even impliedly. There is neither an implicit nor an explicit prohibition. The mere omission of warrants, therefore, cannot be construed that it is a prohibited instrument and, therefore, it is a contravention of Section 6 (3) (b) of FEMA, 1999.
As on the relevant date when the share warrants were issued, there was no regulations bny the 2nd respondent prohibiting the issue of share warrants, which was the only reason the 2nd respondent had directed the petitioners to approach FIPB to obtain post facto approval. If really there were any regulations, or even implied prohibition in the issuance of share warrants, RBI being the custodian general of foreign exchange, would definitely have called upon the explanation of the petitioners.
When the 2nd respondent itself has accepted that there was no contravention of Section 6 (3) (b) of FEMA, 1999, the show cause notice issued by the 1st respondent to the petitioners alleging that there is no permission for issuance of share warrants is not only uncalled for, but is also an act usurping the powers of the 2nd respondent.
When FIPB, the authority, who is vested with power to grant approval has held that no post facto approval is required, interpreting the order in any other fashion, that too by an authority, who is not empowered to decide on the manner in which the said order has been passed, it does not lie in the mouth of the 1st respondent to claim that approval has not been obtained and such a finding is not only perverse, but arbitrary, illegal and unreasonable and, therefore, the impugned order passed as a consequence of the said finding deserves to be interfered with.
This Court is of the considered view that the writ petitions deserve to be allowed by setting aside the orders impugned herein. Accordingly, the impugned order passed by the 1st respondent is set aside and all the writ petitions are allowed. Consequently, connected miscellaneous petitions are closed.
- 2023 (7) TMI 1126
Validity of proceedings under FERA, 1973 post introduction of FEMA, 1999 - contention of the appellants that the department had invoked the provisions of the repealed Act of 1973 subsequent to the Act of 1999 coming into force requires consideration - appellants contented that since the department did not act in terms of Section 49 of the Act of 1999 in invoking the provisions of FERA within the time period prescribed, therefore, the act of the department is invalid - HELD THAT:- Sub Section (3) of Section 49 of the Act of 1999 casts an embargo upon a Court from taking cognizance of an offence under the Act of 1973 and on the Adjudicating Officer from taking notice of any contravention under Section 51 of the Act of 1973, after the expiry of a period 2 years from the date of commencement of the Act of 1999.
The Act of 1973 has contemplated civil liability for contravention with the power to adjudicate on the same being vested with the Adjudicating Officer under Section 51. Section 56 of the Act of 1973 has provided that, without prejudice to any award of penalty by the Adjudicating Officer, if a person contravenes any of the provisions of the Act of 1973, other than Section 13, 18 (1) (a), 18 A, 19 (1) (a), 44 (2), 57 and 58 or any rule, direction or order made thereunder, such person upon conviction by a Court, be punishable with the quantum of punishment as has been prescribed.
The Act of 1973 has therefore contemplated both civil and criminal liability for contraventions of the provisions of the Act of 1973 to be scenario specific. Some contraventions are purely civil in nature while others entail both civil and criminal liability. Therefore, the Act of 1973 does not contemplate that in respect of a particular case, there must be simultaneous taking of notice of contravention by an Adjudicating Officer and cognizance of the same by the Court. The functions of the two Adjudicating authorities have been prescribed to be disjoint. In such circumstances, it would be appropriate to construe the word ‘and’ used in Section 49 (3) of the Act of 1999 as ‘or’. Any other construction would militate against the scheme of the Act of 1973 and would do violence thereto.
Appellants in the first appeal had sold foreign currency on sponsoring of fictitious firms who in turn sponsored fake names between the period April 1, 2000 and May 6, 2000. The records produced in court have established that, Manas Kumar Moitra and Mrs Rooma Maitra had formed some fictitious firms/companies who gave certain names or sponsored persons for purchase of foreign currency projecting their impending foreign business tour but all such persons were not traceable. These persons had been sponsored repeatedly within a short period of time.
Similar is the case in the next two appeals where Manas Kumar Maitra along with 4 others had been involved in creating fake firms/companies for sponsoring persons for alleged business travel within a short period of time.
In both the set of cases, both at the level of the Adjudicating Officer as also at the level of the Appellant Authority, there is a concurrent finding that, the appellants had acted without due care and in violation of the guidelines of the Reserve Bank of India in selling foreign currency to those persons. It has been concurrently held that, the appellants had failed to discharge their duty of reasonable care in selling foreign currencies to those persons involved when such currencies were sought for within such a short period of time with same dates of travel.
In all the three appeals, there have been on current finding on facts. The adjudicating officer in all the proceedings had found violations of the guidelines of the Reserve Bank of India by the appellants, in their dealings with the sale of foreign currency to the delinquents. The findings returned by the adjudicating officer and by the appellate authority on such factual aspects have not been established to be perverse in these appeals.
Thus the appeals FEA 5 of 2008, FEA 22 of 2009, FEA 23 of 2009 being without any merit are dismissed without any order as to cost.
- 2023 (7) TMI 1125
Offence under FERA - sum received by petitioner from person outside India and the Petitioner was to make payment to various persons in India on behalf of the person outside India - contravention of the provisions of Section 9(1)(b) and 9(1)(d) of the FERA - HELD THAT:- As after being unsuccessful in the first round, the E.D. had issued a second Show Cause Notice. The E.D. department had not recorded statement of any person who according to them had received any benefit from the said amount - There was no evidence to prove the petitioner guilty as regards proposed distribution.
Petitioner had officially received these amounts and had shown the same in the Income tax returns. In fact, in the Order of the CIT (Appeals), it has been quoted that the assigning officer in his remand report dated 17th June, 2004 had admitted that seized cash seems to be cash on hand on the firm.
There is nothing on record to prove that the Petitioner had committed an offence under Section 9 (1) (d) of the FERA Act. No case is made out for holding the Petitioner guilty for violation of Section 9(1)(d) r/w Section 64(2) of the Customs Act. The seized documents do not corroborate the fact of receipt and distribution of said amount by the Petitioner.
This is a clear case where the Petitioner appears to have been deprived of his amount of Rs. 1,48,000/- without authority of law on a totally untenable basis. The Petitioner could have utilized the said amount, the value of which at the relevant time was substantial. Considered from all angles, the Respondents could not have retained the said amount depriving the Petitioner from his legitimate entitlement. We would, hence be justified in allowing interest to the Petitioner in allowing this Writ Petition.
An amount of Rs. 1,48,000/- shall be refunded by the respondent to the petitioner within a period of four weeks from today with simple interest at the rate of 6% per annum from 12 May 1988.
Case Laws - Service Tax
- 2024 (3) TMI 803
Accepting the balance payment as per the Sabka Vishwas (Legacy) Dispute Resolution Scheme, 2019 (SVLDRS) Form 3 - HELD THAT:- It is apparent that the petitioner has not made balance payment of Rs. 12,32,643/- within the extended period of time. The petitioner has also not pointed out any circumstances which suggests that the petitioner was under severe financial crunch as canvassed before the respondents authorities in the representation made by the petitioner pursuant to the order passed by this Court.
As held by the Hon’ble Supreme Court in the case of Yashi Constructions [2022 (3) TMI 110 - SC ORDER] that the time limit cannot be extended by the Court as the same would amount to modifying the scheme, it is only the respondent authority or the Government can extend the time, which is already extended during the COVID-19 pandemic upto 30th June 2020 and later on, upto 30th September 2020.
This petition is not entertained and is, accordingly, dismissed.
- 2024 (3) TMI 802
Levy of service tax - services of laying Pipes were provided to Government of Gujarat under ‘Sujalam Sufalam Yojana’ and the same was not provided for commercial purpose or otherwise - HELD THAT:- From the decision in LARSEN & TOUBRO LTD. VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD [2011 (1) TMI 188 - CESTAT, AHMEDABAD], it can be seen that in the above case also the similar activity of laying of pipe line was carried out for the state of Gujarat Board i.e. ‘Gujarat Water Supply and Sewerage Board’ wherein the demand of service tax was set aside. The facts and issue in the present is the identical to above case. Therefore, the ratio of above decision is directly applicable in the present case.
The demand in the present case is also not sustainable. Hence the impugned order is upheld - appeal of Revenue dismissed.
- 2024 (3) TMI 801
Extended period of limitation - suppression of facts or not - Denial of CENVAT Credit - inputs and capital goods - HELD THAT:- It is a settled principle that the demand can be invoked only during the normal period of limitation unless one of the elements required to invoke the extended period of limitation were present in this case. The Commissioner held that there was suppression of facts for the reason that the assessee had not declared that it had availed CENVAT credit on certain capital goods and had also not sought any clarification from the department. It is found that the responsibility of the assessee is only to file ST-3 returns. Unless the ST-3 return requires declaration of details of the goods on which the credit was taken, CENVAT credit can be availed without declaring the details and no fault lies at the doorstep of the assessee. In fact, since the ST-3 returns are to be filed online, there is no scope for assessee to add any extra information - there is no requirement or provision under the Act to seek clarification from the Department. As far as self-assessment is concerned, it is followed by every assessee in service tax and operating under self-assessment is not a ground on which the extended period of limitation can be invoked. For these reasons, the demand of CENVAT credit for the period up to 30.06.2012 needs to be set aside on this ground of limitation alone.
CENVAT Credit - capital goods - 38 tippers - 4 excavators - HELD THAT:- Undisputedly the excavators, tippers and the graders were not exclusively used but were used partly for providing exempted service, namely, road construction and partly used for providing taxable services. For this reason Revenue’s appeal needs to be dismissed - Appeal dismissed.
Interest on capital goods CENVAT Credit - HELD THAT:- There are force in the contention of the assessee insofar as the order for recovery of interest on this amount of CENVAT credit is concerned. Learned counsel for the assessee is correct in his assertion that CENVAT credit can be availed once the capital goods are received and there is no prescription under the rules as to when they should be put to use in providing taxable services nor is there any provision under which any interest can be recovered for the period between the date of taking credit and date on which they are put to such use. Therefore, the demand of interest needs to be set aside.
CENVAT Credit on tyres, tubes and flaps - HELD THAT:- The issue on the question of limitation has been decided in favour of the assessee. It has been found that no case has been made out by the Commissioner in the impugned order for invoking the extended period. The demand of CENVAT credit tyres tubes and flaps cannot be sustained and, therefore, needs to be set aside.
CENVAT Credit on Soil Compactor and roller - HELD THAT:- The Commissioner was correct in stating that as per rule 6(c) of CCR no CENVAT credit can be availed on capital goods which are used exclusively for providing exempted services. However, it is the assertion of the assessee that after the show cause notice was issued, the capital goods were indeed, used for providing some taxable service also this submission was not accepted by the learned Commissioner. Notwithstanding this fact, we find that the demand is time barred. It, therefore, could not have been sustained in any case. It is set aside on the ground of limitation.
Penalties - HELD THAT:- The necessary ingredient for imposing penalty under 15 of CCR or invoking section 78 is an element of fraud or collusion or willful misstatement or suppression of facts or violation of Act and Rule with intent to evade payment of service tax. We have already held that no case has been made out in the impugned order for invoking the extended period of limitation. Therefore, penalty invoking section 78 also cannot be sustained. Accordingly, the penalties of Rs. 7,46,081/- and Rs. 12,29,271/- set aside - penalty of Rs. 5000/- imposed under rule 15A cannot be sustained and, accordingly, the same also needs to be set aside.
Appeal disposed off.
- 2024 (3) TMI 800
Invocation of Extended period of limitation - classification of services under Business Support Services or not - HELD THAT:- From the fact that several show cause notices have been issued by the Department, it cannot be said that the Department is not aware of the allegations now being made in the instant show cause notice. The facts were in the knowledge of the Department. In fact, the learned Counsel for the appellant has referred to Order-in-Appeal No.278/2013 dated 19.07.2013, where the show cause notice dated 5.4.2010 was under challenge wherein the demand pertained to the period May, 2006 to September, 2008 for rendering the services towards arranging travel of clients covered under the “Business Support Services”. The show cause notice was confirmed by the order-in-original dated 13.06.2011 by the Addl. Commissioner of Service Tax, Bangalore and on the same being challenged by the appellant, the Commissioner (Appeals) held the demand under the “Business Support Services” as unsustainable, observing that it is not the case of the Department that the assistance provided by them is used for the purpose of business or commerce referring to the Circular No.109/03/09 dated 23.03.2009 issued by the Board.
In view of these facts, the issue of limitation is squarely covered by the decision of the Supreme Court in Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT] where the Court held that the allegation of suppression of facts against the appellant cannot be sustained, when the first show cause notice was issued all the relevant facts were in the knowledge of the authorities.
The assessee was under statutory obligation of self-assessment to disclose the requisite details and pay the correct service tax amount and non-disclosure thereof amounts to suppression of material facts from the Department and therefore, the extended period of limitation of 5 years from the relevant date can be invoked under Section 73(1) of the Act - The allegation of suppression of facts have been buttressed on the ground that by virtue of the audit of the accounts by the Central Excise Revenue Audit (CERA) of the Chennai location of the assesse it came to knowledge that they were charging the ‘management fee’ which is in addition to the price of the ticket.
As the issue on limitation has already been answered by the decision of the Apex Court in Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT] and also by the Tribunal in M/s G. D. Goenka [2023 (8) TMI 995 - CESTAT NEW DELHI], there is no reason for us to differ from that view and following the same, we are of the considered opinion that the department cannot invoke the extended period of limitation and therefore the demand in so far as it falls beyond the normal period of limitation is unsustainable and is accordingly set aside.
The appellant merely facilitates and assist the individuals who are travelling on which no service tax is leviable for the simple reason that service tax is charged on the service provided. The services in question does not fall within the scope of “Business Support Service” and therefore no service tax is leviable under the said category.
The Larger Bench in Kafila Hospitality and Travels Pvt Ltd. [2021 (3) TMI 773 - CESTAT NEW DELHI (LB)] had observed that the definition of “air travel agent” includes all services connected with or in relation to the booking of passage for travel by air. The miscellaneous services rendered by the appellant are also in furtherance of the travel agent service to its customers and hence cannot be classified under the “Business Support Service”.
The learned Counsel has further argued that no reliance can be placed on the Board’s Circular No.137/6/2011- ST dated 20.04.2011 as relied on by the Commissioner in the impugned order. There are force in the submissions of the learned Counsel that services have to be classified in terms of section 65A/66F of the Act - the Larger Bench in the case of Kafila Hospitality [2021 (3) TMI 773 - CESTAT NEW DELHI (LB)] also dealt with the similar contention where the two competing entries were ATA service and BAS and relying on the provisions of section 65A(2)(a) of the Act concluded that the classification of the service would fall under air travel agent services and not business auxiliary service. Applying the same principle, we are of the view that the services rendered by the appellant being in connection with the air travel agent service has to be classified therein and not under the “business support service” as claimed by the Revenue.
Since the issue decided on merits in favour of the appellant and also on the issue of extended period of limitation there is no need to go into the question of interest or penalty. The appeal filed by the Revenue on the plea that the demand for the period 2010-2011 is within the period of five years also does not survive in view of the issue decided on extended period of limitation and on merits.
The impugned order needs to be set aside - the appeal filed by the assessee is accordingly allowed.
- 2024 (3) TMI 799
Imposition of personal penalty on the appellant in terms of Section 78A of the Finance Act, 1994 - appellant was one of the partner of the main notice - HELD THAT:- From Section 78A it is evident that penalty under this section can be imposed only on a person who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention. Original authority has instead brushed aside the submissions made by the appellant on the basis of supplementary agreement, as afterthought, without examining the same. In absence of any finding to the effect that appellant was responsible for the conduct of business of the firm at the time of contravention, there are no merits in the orders of lower authorities imposing penalty on the appellant under Section 78A.
There are no merits in the impugned order which is set aside - appeal allowed.
- 2024 (3) TMI 798
Short payment of service tax - Business Auxiliary Services - appellant submitted that the rate of service tax has changed from 10.2% to 12.24% w.e.f. 18.04.2006 and therefore the appellant was liable to pay the service tax @ 12.24 % only on the amount realized in respect of taxable services provided on or after 18.04.2006 - HELD THAT:- It is found that the basis of the show cause notice is only that a sum of Rs.1,12,960/- is short paid by the appellant and no allegations have been made that these services were provided after the cut off date, i.e. 18.04.2006.
The High Court of Delhi in VISTAR CONSTRUCTION (P) LTD/PIYARE LAL HARI SINGH BUILDERS PVT LTD VERSUS UNION OF INDIA AND ORS [2013 (2) TMI 52 - DELHI HIGH COURT], relying on the decision of the Apex Court in ASSOCIATION OF LEASING & FINANCIAL SERVICE COMPANIES VERSUS UNION OF INDIA AND OTHERS [2010 (10) TMI 4 - SUPREME COURT], declared the Instruction invalid as it made the service tax chargeable on receipt of payment for the service. The Court held that the rate of tax applicable on the date on which the services were provided would be the one that would be relevant and not the rate of tax on the date on which payments were received as the taxable event under the Finance Act was providing or rendition of the taxable services.
The Commissioner, while passing the impugned order has gone beyond the scope of the show cause notice in observing that the appellant have not produced or enclosed the copies of the relevant bills/invoices, the copies of the ledger of the parties to whom the invoices for the period on which rate of service tax at the rate of 10.2% was applicable so as to prove the services in respect of said realisation were rendered during the earlier period, when rate of service tax was 10.2% and in the absence thereof, it cannot be confirmed that services were rendered during the earlier period. As noticed above, the show cause notice is absolutely silent as to the reasons for raising the demand and hence the show cause notice is unsustainable.
The impugned order deserves to be set aside and accordingly, the appeal is allowed.
- 2024 (3) TMI 797
Recovery of service tax alongwith interest and penalty - admissibility of the exemption under Notification no 6/2005-ST - benefit denied on the ground that appellant have in their ST-3 return shown certain amounts as CENVAT credit - Renting of Immovable Property service - suppression of facts or not - invocation of Extended period of Limitation - HELD THAT:- The ST-3 return which has been relied upon by making the demand, against the appellant is for the period April 2008 to September 2008. As per this return the appellant have indicated the Opening Balance for the month of April 2008 as Rs 61,711/- and the credit taken during the month as Rs 1,66,326/-. The breakup of this credit taken during the month of April 2008 was also indicated in the chart enclosed with ST-3 return. On going through the said chart it is quite evident that the appellant had availed the CENVAT Credit in respect of certain documents, which were dated much before the 1st April 2008. The fact of taking the credit against these documents was reflected in ST-3 return and enclosed chart, filed with the range officer 20.10.2008. While acknowledging the said return, superintendent has observed on 23.10.2008 stating “Defective ST-3 on account of CENVAT Credit in ST-3 of Transport of Goods”. Thus it is evident that the fact that appellant had availed the CENVAT Credit while claiming the benefit of exemption under Notification No 6/2005-ST as amended during the Financial Year 2007-2008 was well in knowledge of the department.
No ST-3 return for the period 2007-08 has been produced during the entire proceedings. The fact that appellant was availing the CENVAT Credit against the documents which are for the Financial Year 2007-08 was disclosed to the concerned jurisdictional officers while filing the ST-3 return for the period April 2008-September 2008 - No ground for alleging suppression has been brought forth in the show cause notice or in the orders of lower authorities. The show cause notice alleging the suppression and invoking extended period of limitation for making demand for the period 2006-07 is bad in law.
The bonafide belief of the appellant that this tax was not due from them is well founded in these correspondences. Further it is noted that the issue of renting of immovable property was in dispute and matter challenging constitutional validity of levy was taken before various high courts.
Without going into the merits of admissibility of Exemption Notification 6/2005-ST, this appeal cannot be disposed of on this ground itself - As the demand is held barred by limitation, the penalty imposed on the appellant under Section 77 & 78 are also set aside.
Appeal allowed.
- 2024 (3) TMI 796
Maintainability of appeal - Time limitation - appeal dismissed for the reason that though the appeal was filed after the expiry of two months from the date of receipt of the order, the appellant did not file any delay condonation application to explain the delay in filing the appeal - HELD THAT:- Section 85 (3A) of the Finance Act provides that an appeal shall be presented before the Commissioner (Appeals) within two months from the date of receipt of the decision or order of the adjudicating authority, but the Commissioner (Appeals) may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of two months, allow it to be presented within a further period of one month.
In the present case, it is not in dispute that the appeal was filed before the Commissioner (Appeals) after the expiry of two months but before the expiry of the further period of one month.
It is correct that the appeal has to be filed within two months from the date of receipt of the order, but the Commissioner (Appeals) does have the power to condone the delay of a period of further month provided he is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the stipulated time - In the facts and circumstances of the case, when the covering letter that was sent to the appellant enclosing the order passed by the Assistant Commissioner mentions that the appeal could be filed within three months, it is clearly a case where the delay, even if an application had not been filed, should have been condoned.
In such circumstances, it is not possible to sustain the view taken by the Commissioner (Appeals) that in the absence of a delay condonation application, the appeal was liable to be dismissed - the matter is remitted to the Commissioner (Appeals) to decide the appeal on merits.
Appeal allowed.
- 2024 (3) TMI 758
Refund of service tax paid as sub-contractor - Rejection on the ground that Section 102 exempts services rendered to a Government, a local Authority or a Government Authority and does not exempt services rendered to a private company which in this case is M/s NBCC.
Revenue states that the main contractor M/s NBCC could have applied for refund under Section 102 but have not done so. Because the main contractor had failed to apply for refund, it does not mean that the sub-contractor can claim refund of that amount.
HELD THAT:- It is not in dispute that the ultimate client in this case is University of Lucknow which is an educational establishment. “ONGC Centre of Advanced Studies” of this educational establishment was being constructed by the main contractor M/s NBCC and a portion or that work has been sub-contracted to the Appellant. The exemption available to the services provided to University of Lucknow does not depend on whether such services are provided directly by the main contractor or by the main contractor using the services of a sub-contractor. In view of the above, it is found that on merits, the services rendered by the Appellant through the main contractor to University of Lucknow are exempted under Section 102 of the Finance Act, 1994. The application for refund has been filed within the time stipulated in the Section.
As long as the service is rendered to a client, the taxability has to be decided accordingly regardless of whether the service was rendered directly by the main contractor or through a subcontractor or through a sub-sub-contractor. Accordingly, the Appellant is not liable to pay service tax as he has already paid the same and he is entitled to refund under Section 102 of the Finance Act, 1994.
The impugned order set aside - appeal allowed.
- 2024 (3) TMI 757
Exemption to SEZ Units from payment of Service Tax under N/N. 17/2011-S.T. dated 01.03.2011 - Reversal of CENVAT Credit utilized by the Appellant for discharging service tax liability which was allegedly not permissible under the Exemption Notification - Scope of SCN - HELD THAT:- The Exemption Notification which is applicable in the present case provides for refund of Service Tax paid by a SEZ Unit or a SEZ Developer, The Notification also does not provide for any conditions or restrictions on the discharge of the output liability of an SEZ Unit making sales or providing services in the DTA by utilising the Cenvat credit of a Non-SEZ Unit of the same assessee when both units are covered under the same centralized registration.
It is well settled law that there is no bar on units registered under a centralized registration utilizing accumulated Cenvat Credit in discharge of liability, even if the said units were not entitled to avail Cenvat Credit on inputs/input services - Reliance can be placed in BE. BILLIMORIA & CO. LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI [2013 (4) TMI 272 - CESTAT MUMBAI] where it was held that As decided in Bharat Heavy Electricals Ltd. Vs. CCE [2012 (4) TMI 197 - CESTAT, MUMBAI] wherein held that the appellant are entitled to utilize centralized Cenvat credit for payment of service tax for the service availed under the category of ‘Commercial or Industrial Service' and ‘Construction of Complex Services'.
The Ld. Commissioner (Appeals) ought to have considered that there is no statutory basis for holding that there was a requirement of having the same invoicing series for units having a centralized registration. It is submitted that the sole basis for confirmation of demands in the Order-in-Original was that different invoicing series were being used for the two Units of the Appellant under centralized registration.
Holding that the appellant does not have a centralized registration as they do not maintain centralized billing or accounting system as appearing from different invoicing series of the SEZ and Non-SEZ unit of the appellant. Even the learned Commissioner (Appeals) further digressed from the SCN and held the SEZ unit cannot operate under a centralized billing system under Rule 19(7) of the SEZ Rules.
Both the Adjudicating Authority and the learned Commissioner (Appeals) have travelled beyond the scope of SCN which is not permitted - support found the from the judgment of the Hon’ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS M/S BALLARPUR INDUSTRIES LTD [2007 (8) TMI 10 - SUPREME COURT] that a show cause notice being the foundation of the matter, it was not permissible for the Commissioner to travel beyond it.
The impugned order cannot be sustained and are accordingly set aside - Appeal allowed.
- 2024 (3) TMI 756
Refund of service tax paid - entitlement for Cenvat credit of the service tax paid on the ocean freight on the reverse charge mechanism - rejection of refund on the ground that since the amount of service tax was paid on insistence of the audit party, there is suppression of fact and in terms of Rule 9 (1) (bb) of Cenvat Credit Rules, 2004, the appellant is neither entitled for the Cenvat credit nor for the refund of the said amount - HELD THAT:- It is found that the service tax on ocean freight was paid by the appellant only on insistence by the audit party whereas levy of service tax on the ocean freight was debatable and various litigation were going on and finally it was held that ocean freight is not liable to service tax, despite this the appellant have paid the service tax on the ocean freight alongwith interest.
Moreover, the appellant was not issued any show cause notice invoking the extended period for demand of service tax, interest and equal amount of penalty, this itself shows that there is no suppression of fact on the part of the appellant in payment of service tax on the ocean freight - it is observed that unless until the issue of suppression of fact is adjudicated in a demand case, the allegation of suppression of fact is based on assumptions and presumptions only. Accordingly, it cannot be said that there is suppression of fact in payment of service tax on ocean freight in the present case.
In view of the decision in PACIFIC HARISH INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & ST, SURAT [2019 (10) TMI 626 - CESTAT AHMEDABAD], it is settled law that under the identical circumstances, suppression of fact cannot be alleged. Accordingly, the appellant was entitled for the Cenvat credit and therefore, they were also entitled for the consequential refund of the service tax along with interest paid on ocean freight.
The appellant is entitled for the Cenvat credit and refund thereof along with interest paid on such service tax. Since with the present litigation there is delay in giving refund, appellant is also etitled for interest on refund amount in terms of Section 11BB of Central Excise Act, 1944 from three months of filing refund claim till the date of sanction of refund - the impugned order set aside - appeal allowed.
- 2024 (3) TMI 755
Levy of service tax - Export of services or not - The appellant argued that although the payment was made in Indian Rupees, the contract specified commission rates in US dollars, demonstrating that they received the amount in dollar terms. - Agency Commission Contract with the Appellant for the wagons procured by the Indian Railways - main ground taken by the Department was that the service cannot be treated as Export of Service because the amount has been received in Indian Currency and hence, Rule 3 (2)(b) of the Export of Service Rules, 2005 is not fulfilled - time limitation - HELD THAT:- Admittedly, there is no dispute that the service has been provided by the Appellant in the capacity of an agent for the overseas exporter. There is nothing to suggest that they have acted as purchase agent on behalf of the Indian Railways. As per the details given at Para 4(iv) of the OIO (Page No. 8), it is seen that the Indian Railways is required to pay the net amount of US $ 1167/1081 to the Chinese Company. Apart from that they are required to pay US $ 67/US$65 to the Appellant on account of Chinese Commission wherein the rate of exchange has been taken as US $ 1= Rs. 39.82. Based on this rate of exchange, Indian Railways has paid the commission amount to the Appellant in Indian Rupees.
A harmonious reading of the Contract would clarify that when Chinese Company says it is exclusive of Agency commission, they have made it clear that they want net payment of US $ 1167/1081 from Indian Railways without any deductions. Apart from that they have directed Indian Railways to pay US $ 67/US $ 65 to the Appellant towards Agency Commission. This would show that the net cost for Indian Railways would be US $ 1167+US $ 67 and US $ 1081 +US $ 65 based on the type of wagon purchased by them.
There is nothing to indicate that there was any contract between Indian Railways and the Appellant to make any payment as a Purchase Agent on behalf of Indian Railways. So long as the Indian Railways has not given any contract, they are not required to pay any amount to the Appellant. Obviously, in this case, they have paid the amount only on the specific instruction of the Chinese Company on their behalf.
Coming to the decision of the Rajasthan High Court in COMMISSIONER OF CENTRAL EXCISE JAIPUR-1 VERSUS M/S NATIONAL ENGINEERING INDUSTRIES LTD. [2017 (10) TMI 1496 - RAJASTHAN HIGH COURT] where it was held that the assessee was a party to the services which was required to be rendered for earning the foreign exchange therefore a very narrow compass put by the department is considered then no citizen in India will be benefited from the exchange of foreign currency.
Thus, appeal allowed on merits.
Time Limitation - HELD THAT:- There are force in the Appellant’s arguments that there has been no concealment on their part. All their commission receipts were reflected in their P & L Account and in their Balance Sheet from where the data was collected by the Department to issue the Show Cause Notice. Therefore, SCN issued on 21/04/2012 for the period 2009- 10 is time barred. Therefore, Appeal allowed even on account of limitation.
Appeal allowed.
- 2024 (3) TMI 754
Levy of service tax - Business exhibition service - Demand on electricity charges - Mandap keeper service - penalty - HELD THAT:- The appellants are engaged in various activities and the department, based on their documents like ledgers, etc., considered certain services as falling under certain specific headings and therefore, liable to service tax.
Business exhibition service - HELD THAT:- The Original Authority has not given substantive grounds to cover their activities and has not effectively rebutted their submissions. On the other hand, the judgment cited by the appellant in M/S. KARNATAKA EXHIBITION AUTHORITY VERSUS C.C.,C.E. & S. T-MYSORE [2018 (7) TMI 1672 - CESTAT BANGALORE], which covers almost identical activities clearly holds that such activities would not fall under ‘business exhibition services’. Therefore, demand in both the appeals under the category ‘business exhibition service’ is not sustainable and accordingly, demand to that extent is set aside.
Demand on electricity charges - HELD THAT:- It appears that they were being collected on actual basis and being submitted to the electricity department and therefore, the same cannot be liable to service tax and therefore, the demand to that extent is also set aside.
Mandap keeper service - HELD THAT:- The demand on ‘Mandap Keeper service’ amounting to Rs.9,727/- is upheld as he has already accepted the demand on services other than ‘Business Exhibition service’.
Penalty - HELD THAT:- In view of the facts of the case and lack of substantive grounds to establish any deliberate attempt to evade service tax, the penalty under Sec. 76, 77 and Fine under Sec 70 are also set aside.
Appeal allowed in part.
- 2024 (3) TMI 694
Levy of service tax - sales/gross receipts - demand worked out on the basis of Income Tax Returns for the year 2014-15 to 2017-18 filed by the appellant and on the basis of 26 AS and profit and loss accounts for the aforesaid period - Corroborative evidences or not - time limitation - HELD THAT:- It is an established principle of law that no tax can be demanded on figures artificially worked out, merely on the basis of some third party data unless they are co-related independently with other evidence. The sustenance of demand amount without other corroborative evidence cannot be upheld. Moreover, due abatement of threshold exemption limit, if admissible, is a right of the appellant and cannot be ignored and therefore cannot be denied. Moreover, it is held in a series of cases that no tax is leviable on the tax component perse.
The demand for duty as made out in the show cause notice and consequent demand for payment of interest and penalty cannot be considered and is not made out. The impugned order of the lower authority is set aside and the matter remanded with the direction that due abatement as admissible to the appellant based on threshold limits, as well as discounting of sales that are VAT paid be considered before re-adjudicating the matter afresh.
Appeal disposed off by way of remand.
- 2024 (3) TMI 693
Liability to service tax - construction activities - main contractor was discharging Service Tax liability - Revenue is of the view that during the impugned period, sub-contractors are required to pay Service Tax in terms of Master Circular No. 96/7/2007-S.T. dated 23.08.2007 - Time limitation - HELD THAT:- Although in terms of the Master Circular No. 96/7/2007-S.T. dated 23.08.2007 the respondents were liable to pay Service Tax being the sub-contractor, on the premise that the main contractor had discharged their Service Tax liability, the respondents did not pay Service Tax. The fact of non-payment of Service Tax had come to the knowledge of the Revenue in 2008 when the audit was conducted at the end of the main contractors, who were discharging Service Tax liability on the activity of the respondents who were sub-contractors. Despite that, no investigations were conducted at the end of the respondents.
Time Limitation - HELD THAT:- Moreover, the Show Cause Notices were issued after almost three years of knowing the fact that the respondents were not paying Service Tax being sub-contractors - The whole of the demand is barred by limitation.
There are no merit in the appeals filed by the Revenue. The same are dismissed.
- 2024 (3) TMI 692
Levy of service tax - collecting transfer/administrative charges for providing services in relation to change/substitution of the names in cases where the property were transferred by original customers - suppression of facts or not - extended period of limitation - HELD THAT:- M/s Vatika Ltd. have charged administrative/transfer expenses for incorporating the name of the new buyer in their records in case of any sale by the original buyer to others; it is not brought on record as to whether M/s Vatika Ltd. were involved in any sale/purchase of the property as a mediator or in any capacity. They have not involved themselves in the negotiations between the purchaser and seller. Tribunal has been consistent in holding that such transfer/administrative charges are not chargeable to service tax.
Tribunal held in the case of CST, NEW DELHI VERSUS M/S ANSAL PROPERTIES AND INFRASTRUCTURES LTD. [2017 (9) TMI 1071 - CESTAT NEW DELHI] that in the present case the respondent is a real estate developer selling their constructed flats. They are dealing with the buyers, old or new, on principal to principal basis. Accordingly, we are in agreement with the impugned order that no service tax liability can be confirmed against the respondent under this category.
Appeal filed by Revenue is dismissed.
- 2024 (3) TMI 691
Nature of activity - sale or service - Classification of services - purchase/import of Certificate of Authenticity(COA)/ stickers/labels on high sea sale basis from M/s Priya Ltd., later affixed on the manufactured ‘Thin Clients’ already installed with MS software embedded system procured from local Microsoft authorized distributors - Information Technology Software Services or not - demand issued on 23.06.2011 for the period from 01.04.2008 to 31.03.2010 - invocation of extended period of limitation.
Whether the purchase/import of COAs/stickers / labels will result in sale or service?
HELD THAT:- On a cumulative reading of the definitions and the ‘Licence Grants and Limitations’ in the present context, it is found that the appellant are engaged in the manufacture of ‘Thin Clients’, which required a software to make it functional/operational and they are not distributors/resellers of the installed/ embedded software. For the said purpose, to acquire the necessary software to be embedded with the system, they entered into an agreement with MS, whereby they were authorized to procure off-shelf MS OS software, which also provided them the right to replicate into individual hard discs installed later into the Thin Clients. The software would be operational or functional only with affixation of the stickers i.e. COAs procured separately for each of the Thin Clients from the authorized MS distributors. Clause ‘m’ of the ‘Licence Grants and Limitations’ makes it clear that the appellant shall not advertise, provide a separate price for, or otherwise market or distribute the Licensed products or any images as a separate item from the Embedded system.
Merely by affixing the stickers / labels providing authenticity to software loaded to each of the Thin Clients cannot be construed as a ‘service’ received by the appellant under the category of ITSS as held by the Commissioner in the impugned order - in the absence of a transfer of copyright of the software but only on mere right to use the software as clarified in the aforesaid circulars in explaining the scope of the levy as ‘service' under ITSS, distinguishing the same from levy of excise duty and applicable customs duty being Information Technology software falling under Chapter 85 of Central Excise Tariff Act, 1985 or CTA,1985 as the case may be, the import of stickers/labels, later affixed to the Thin clients cannot considered as a ‘service’ and attract levy under ITSS.
There are merit in the contention of the learned senior advocate for the appellant that the whole transaction/activity including the installation of the software and later affixing stickers / labels to the Thin Clients procured / purchased on HSS basis from M/s. Priya Limited are in the nature of ‘sale’ and not service. Consequently, demand of service tax on reverse charge basis on the Appellant cannot be sustained.
Time Limitation - suppression of facts or not - HELD THAT:- The stickers / labels have been imported by the appellant by filing relevant Bills of Entry from time to time and the said stickers/labels are assessed as ‘goods’ by the Customs department, which are later warehoused as per the procedure under the Customs Act and the Rules made thereunder. In these circumstances, allegation of suppression of facts cannot be sustained.
The appeal succeeds both on merit as well as on limitation.
- 2024 (3) TMI 643
Levy of service tax - activity of construction of ‘Mechanised fertiliser handling and bagging facility’ on the land leased out - invocation of extended period of limitation - It was held by CESTAT that Since, on the grounds of limitation itself, the SCN is not sustainable, the case on merit as to whether or not the Appellants were eligible for the benefit of Notification No.25/2012-ST, is not examined in the facts of the case - HELD THAT:- There are no merit in the present Civil Appeals - appeal dismissed.
- 2024 (3) TMI 642
Classification of service - activity of transporting waste from mine head to waste dump yard within the mine leased area - taxable as mining service or as Goods Transport Agency service - expenditure incurred by the appellant on feasibility study for acquiring/procuring coal mines outside India would be classified under Management Consultants Service or not - Cenvat Credit rightly taken on tippers and dumpers supplied to M/s AMR Constructions Ltd during the course of providing output service supply of tangible goods or not - extended period of limitation.
Whether the activity of transporting waste from mine head to waste dump yard within the mine leased area, would be taxable as ‘mining service’ or as ‘Goods Transport Agency service’ in facts of present case? - HELD THAT:- The services are, therefore, primarily of transportation as the assessee is not engaged in winning the ore. Further, there are force in the submission of the appellant that the tenor of the agreement is an important factor while determining the classification. The agreement between the parties simply provides the rate for transportation per tonne from mine head to the dump Yard. Merely because transportation services are being rendered within the mine lease area cannot make the services mining services, unless it is an integrated contract, which includes transportation of waste as well as mining activity, which we find from record is not the case of the department - appropriate classification in so far as the aforesaid activity is concerned would be goods transport agency services and not mining services - no case of suppression or willful misstatement has been made out in the present case as the department is not clear about the classification issue when they had issued the Show Cause Notice. Therefore, the demand of Service Tax confirmed against the appellant is set aside.
Whether the expenditure incurred by the appellant on feasibility study for acquiring/procuring coal mines outside India would be classified under “Management Consultants Service’? - HELD THAT:- The services rendered should be in connection with management of any organization or business. If the services are not related to management of any business or organization, then it would not fall under meaning of the term ‘management or business consultant’ - issue of classification of feasibility study services is now settled in the case of M/S BMD PVT. LTD. VERSUS CCE, JAIPUR [2016 (12) TMI 1395 - CESTAT NEW DELHI], relied upon by the appellant wherein it has been held that feasibility study would be covered under “market research agency service - the demand of Rs.5,63,009/-, confirmed against the appellant, is set aside.
Whether Cenvat Credit was rightly taken on ‘tippers and dumpers’ supplied to M/s AMR Constructions Ltd during the course of providing output service “supply of tangible goods”? - HELD THAT:- The issue is squarely covered by the precedent decision of this Tribunal in M/S IBC LTD. VERSUS CC, & ST, TIRUPATI [2016 (8) TMI 1029 - CESTAT HYDERABAD] - it is found that under similar circumstances for the period April 2008 to September 2009 it was held that the for supply of tangible goods namely dumpers and tippers, will need to be considered as primary requirement for providing the output service of SOTG. We also find that insertion of goods like tippers dumpers and equipments as eligible input/capital goods vide notification dated 22/06/2010, is Clarificatory in nature. This is further explained or amplified vide Board instructions/circular dated 23/10/2008. We therefore hold that taking of cenvat credit on tippers and dumpers cannot be said to be irregular. Therefore, the demand confirmed by denying the Cenvat credit of Rs.5,88,51,540/- and Rs.4,94,41,516/- are set aside.
Whether extended period of limitation have been rightly invoked? - HELD THAT:- Appellant was registered with the department, had been maintaining regular books of accounts and were also filing the returns regularly. The issues involved and are allegations are as a result of change of opinion on the part of revenue. This is evident on the face of record, as for the same service of transportation in mining area, when provided by the Appellant was proposed to be classified as mining service instead of GTA service, on the other hand the same service when received by the Appellant for a different site/mine was proposed to be taxed as GTA services. Accordingly, extended period of limitation is not available to revenue.
The impugned order set aside - appeal allowed.
- 2024 (3) TMI 641
Short levy of service tax - Manpower Supply Services and Works Contact Services under Reverse Charge Mechanism (RCM) in terms of proviso to Section 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST dated 20.06.2012 - transmission or distribution of electricity by an electricity transmission or distribution utility and covered under negative list of services under clause (k) of Section 66D of the Finance Act, 1994 - HELD THAT:- Section 67(2) of the Finance Act, provides that “where the gross amount charged by the service provider, for the service provided or to be provided is inclusive of service tax payable the value of such taxable service shall be such amount as with the addition of tax payable is equal to gross amount charged.” It is therefore clear that where service tax is not separately collected by the assessee, than the price of the goods or gross amount charged for such service rendered shall be deemed to include service tax as may be applicable. It is also a settled proposition in law that no tax is leviable on state dues in the nature of tax/duty/cess etc.
As no tax can be recovered on the component of labour cess discharged by the appellant, it is incumbent upon the authorities to rework the demand amount after discounting the aforesaid labour cess component from the value of taxable services as arrived at by the Revenue in the light of the aforesaid example. In view of the findings, the order of the lower authority is set aside and the matter remanded to the original authority to work out the demand amount afresh after giving due consideration from the contractual value for the labour cess amount paid for which all documentary evidence as placed on record shall be considered by the original authority. Needless to state that natural justice shall be adhered to and the appellant given reasonable opportunity to present their case.
Appeal disposed off by way of remand.
Case Laws - Central Excise
- 2024 (3) TMI 795
Maintainability of appeal - monetary amount involved in the appeal - Motor Vehicle - exemption under exemption Notification No. 462/86-CE., dated 9th December 1986 as amended - CESTAT allowed the appeal and exemption as claimed - HELD THAT:- This appeal is dismissed on the ground of low tax effect.
- 2024 (3) TMI 794
Interest on refund received belatedly - Section 11BB of Central Excise Act, 1944 - HELD THAT:- A perusal of the material on record, comprising of the details of the refund orders and refund payments made in favour of the petitioner as enumerated in Annexure-C clearly indicate that, the petitioner would be entitled for interest for delayed refund in terms of Section 11BB of the Act. The reasons assigned by the respondents in refusing grant of interest in Annexure-B dated 25.04.2022 is clearly erroneous in as much as adjudication proceedings have not been initiated against the petitioner as borne out from the material on record even till today. Under these circumstances, there is absolutely no impediment to direct the respondents to grant applicable interest on delayed refund in terms of Section 11BB of the Act in favour of the petitioner.
However, in order to grant an opportunity to the concerned respondent for the limited purpose to verify the calculation of quantum of interest on the delayed refund as claimed by the petitioner, it is deemed just and appropriate to set aside Annexure-B dated 25.04.2022 and direct the concerned respondent to grant interest on the refund as sought for in Annexure-C dated 15.06.2022 in favour of the petitioner after making due verification and in accordance with law within a stipulated time frame.
Petition allowed.
- 2024 (3) TMI 793
Process amounting to manufacture - unauthorised manufacture and removal of pressure tanks meant for the storage and transportation of carbon dioxide - time limitation - HELD THAT:- It can be seen that the Tribunal in SOUTH INDIA CARBONIC GAS INDUSTRIES VERSUS COLLR. OF C. EXCISE, MADURAI [1993 (6) TMI 177 - CEGAT, , MADRAS] had set aside the demand in respect of pressured vessels for the disputed period on the ground of limitation - the Tribunal had held that there is no suppression of facts with intent to evade payment of duty on the part of the appellant and set aside the demand on the ground of limitation. The matter was remanded to the Adjudicating Authority only for reconsidering the issue as to whether the activity carried out by the appellant in the nature of providing insulation to the pressured vessels would amount to manufacture or not. The Department had not filed any appeal against such order. The same has attained finality.
The demand having been set aside by the Tribunal on the ground of limitation, as per SOUTH INDIA CARBONIC GAS INDUSTRIES, the demand confirmed by impugned order requires to be set aside. The impugned order is set aside to the extent of confirming the demand and the penalties imposed without interfering with the findings or discussions in the impugned order as to issue of manufacture - appeal allowed.
- 2024 (3) TMI 792
Remission of Central Excise Duty - Rule 21 of Central Excise Rules, 2002 - interpretation placed by the Commissioner on second proviso to rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, tenable or not - unjust enrichment.
Whether the claim made by appellant for remission of duty as per Rule 21 of Central Excise Rules, 2002 maintainable? - HELD THAT:- From perusal of Rule 21 of the Central Excise Rules, 2002 reproduced earlier (in the impugned order), it is quite evident that the said rule provides for remission of duty in respect of the finished goods lost or destroyed prior to clearance of the same from the factory of production. The wording of the rule is very clear and unambiguous. It is not the case of the appellant that any goods which were to be cleared on payment of duty subsequently have been destroyed in fire. But it is the case of appellant that on account of this fire accident that occurred in their factory they were unable to produce the goods during this period and hence there was loss of production capacity. Rule 21 do not provide for such a situation.
Admittedly appellant has was operating under the Compounded Levy Scheme as provided by the section 3A of the Central Excise Act, 1944 read with Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. It has been held by Hon’ble Supreme court in the case of M/S HANS STEEL ROLLING MILL VERSUS COMMNR. OF CENTRAL EXCISE, CHANDIGARH [2011 (3) TMI 2 - SUPREME COURT] that the scheme of Compounded levy scheme is totally a different and self contained scheme. Importing the provisions of any other scheme of taxation would only lead to catastrophic results.
Whether the interpretation placed by the Commissioner on second proviso to rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, tenable? - HELD THAT:- Rule 10 provides for the abatement of duty for the period of closure for whatsoever reason. In fact as per the submission of the appellant the unit was non operational for five days. Hence the benefit of abatement could not have been allowed. Section 3A (3) itself provides for the closure of the unit for fifteen days or more for allowing the abatement on proportionate basis. Any closure which is less than fifteen days is not recognized as closure by the statue, for the reason as stated in Sub Section (1) of Section 3A of the Central Excise Act, 1944 – these goods are evasion prone. The submissions made by the appellant relying on various case laws with regards to the legal fiction etc., cannot carry forward the case of the appellant in view of the statutory provisions as per the Central Excise Act, 1944 and the Rules - It is not found that Rule 21 of the Central Excise Rules, 2002 to be not applicable to the present case we are not pronouncing on various decision relied upon by the Appellant with regards to “natural cause or unavoidable accident.”
Whether by rejecting the claim for remission the department is unjustly enriched? - HELD THAT:- Reliance has been placed by the Appellant on the decision of Hon’ble Supreme Court in the case of Kanhaiya Lal Mukund Lal Saraf, to argue that the revenue cannot be unjustly enriched at the expense of assessee. Howver we note that the said decision has been held to be not a good law by a nine judges bench of Hon’ble Supreme Court in the case of MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA [1996 (12) TMI 50 - SUPREME COURT] - Thus argument of unjust enrichment of the state has been considered and rejected by the Hon’ble Supreme Court as per the above stated decision. The case of THE SALES TAX OFFICER, BANARAS AND OTHERS VERSUS KANHAIYA LAL MAKUND LAL SARAF AND OTHERS [1958 (9) TMI 57 - SUPREME COURT] has been held to be not stating the correct position in law hence reliance placed by the counsel of appellant on this decision, is totally misplaced. The decision of Hon’ble Orissa High Court placing reliance on the said decision of Hon’ble Apex Court cannot also be pressed, because the said decision has been rendered before the decision of the decision in case of Mafatlal Industries, and has been held to be wrongly decided.
There are no merits in this appeal - appeal dismissed.
- 2024 (3) TMI 753
Jurisdiction - appropriate forum - Maintainability of the present appeal before the High Court - withdrawal of SSI exemption - applicability of bar as provided under Clause (1) of Section 35G of CEA - jurisdiction of High Court to entertain the appeal - HELD THAT:- An appeal would lie to the High Court, if the High Court is satisfied that the case involves a substantial question of law, however, appeal would not lie, if the same pertains to determination of any question having relation to the rate of duty of excise or to the value of goods for purposes of assessment.
In Commissioner of Central Excise, Jaipur vs. Electro-Mechanical Engineering Corporation & Ors. [2008 (7) TMI 77 - SUPREME COURT], appeal was filed by the Commissioner of Central Excise, when the benefit of SSI Exemption was denied by the Revenue on the ground that respondent had floated two front units in order to fraudulently avail the SSI Exemption. The said appeal was filed before the Apex Court knowing pretty well that appeal is not maintainable before the High Court. In that case, appeal was entertained by the Apex Court.
In the case in hand, SSI Exemption for payment of central excise duty has been granted to the respondent. If this exemption is withdrawn, excise duty would become leviable and consequently, it would be an order relating among other things to the determination of any question having a relation to the rate of duty of excise. Further, if the exemption is withdrawn, the goods will be valued for the purpose of assessment and thus, it would fall within the exception as provided under Clause (1) of Section 35G of the Act - There being a specific bar on entertaining of appeal, if the question pertains to rate of duty of excise or the value of goods for the purpose of assessment, the present appeal is not maintainable before the High Court.
It is not required to entertain the present appeal on the ground of lack of jurisdiction - appeal dismissed.
- 2024 (3) TMI 752
Reversal of Cenvat credit in terms of Rule 4(5)(a) of CCR, 2004 - appellant has not received back goods sent to the job worker within the stipulated period of 180 days in terms of Rule 4(5)(a) of CCR - HELD THAT:- The provisions of Rule 4(5)(a) of CCR are attracted only when raw material or partially processed raw material are sent to the job work or for further processing, etc. But where the manufacturer has manufactured finished goods/intermediate goods, which have been sent for job work, the provisions of Rule 4(5)(a) are not attracted, as in such case, at best, the rate of duty as per Central Excise Tariff will be applicable.
The provisions of Rule 4(5)(a) are not attracted in the facts and circumstances of the present case. Accordingly, impugned order is set aside and appeal is allowed. Appellant shall be entitled to consequential benefits, in accordance with law. As appeal is allowed on merits, the ground of limitation is left open.
Appeal allowed.
- 2024 (3) TMI 751
CENVAT Credit - input service credit distributed by ISD under Rule 7 of the Cenvat Credit Rules, 2004 - denial of input service credit availed by the appellant on the strength of invoices issued by the input service distributor i.e. Head Office - HELD THAT:- Admittedly, in this case, the appellants are having different manufacturing unit and their Head Office is located in Pune and and is registered as the Input Service Distributors (ISD). The Head Office distributed the input service credit to their manufacturing unit in proportionate of their clearance during the particular period. It cannot be said that on which service, the appellant has entitled to take the cenvat credit as the same cannot be available with the appellants.
As the Head Office of the appellant is registered as ISD and distributed the cenvat credit in proportionate to the appellant i.e. 54.51% is valid documents to avail the cenvat credit in terms of Rule 9 of the Cenvat Credit Rules, 2004. If the Revenue wants to deny the availament of cenvat credit i.e to be only to the Head Office, who is registered as ISD. As no investigation has done at the end of the ISD for distributing ineligible cenvat credit to the appellant, the cenvat credit cannot be recovered from the appellants.
As it has not been questioned that ISD has taken inadmissible cenvat credit, in that circumstances, the cenvat credit cannot be recovered from the appellants holding that the appellant has availed inadmissible cenvat credit. In fact, the appellant has availed cenvat credit on the invoices issued by ISD under Rule 7 of the Cenvat Credit Rules, 2004, which is eligible to avail the cenvat credit under Rule 9 of the Cenvat Credit Rules, 2004.
There are no merit in the impugned orders and the same are set aside - appeal allowed.
- 2024 (3) TMI 690
Availment of wrongful benefits under the Central Excise Notification - Appellant is a sub– contractor of ONGC or not - goods cleared under International Competitive Bidding - invoking condition no. 41 c (iv) of the Customs Notification No. 12/2012 – Customs dated 17.03.2012. to deny the Appellant exemption availed under Central Excise Notification - Appellant has not furnished an affidavit to the effect that they are the bonafide sub – contractors of ONGC - HELD THAT:- The demand has been raised by the Department asserting that the Appellant has not furnished an affidavit to the effect that they are the bonafide sub – contractors of ONGC. It is pertinent to note here that the condition for claiming exemption under the said notification corresponds to the requirement of the goods being eligible for exemption and the furnishing of such documents in support of the claims by the importers whereas in the present case the Appellants are domestic suppliers and as regards the goods being eligible for exemption there exists no dispute to the fact by the Department.
The said issue under similar circumstances has been settled by the Hon’ble Tribunal, Mumbai in the case of KENT INTROL PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE [2014 (2) TMI 633 - CESTAT MUMBAI] has held that So long as the goods are exempt, the condition to be satisfied by the domestic suppliers is that they should be supplied under International Competitive Bidding which the appellant has fulfilled in these appeals. Therefore, we have to uphold the contention of the appellant and reject the contention of the Revenue.
In view of the above judgment, in the present case being similar issue and facts involved that of above judgment, the Appellant are eligible for exemption under Central Excise Notification under Notification No. 12/2012 – CE upon fulfilling all conditions stipulated therein, thus sufficiently establishing that the goods dealt with by the Appellants qualify for exemption - it is found that the department’s allegation that the Appellant has wrongfully availed exemption has no basis as demand has been confirmed demand on an insignificant issue as domestic manufacturers cannot be expected to comply with such conditions that are required to be imposed on importers. Therefore, the appeal succeeds on merits.
The impugned orders are set aside and appeals are allowed.
- 2024 (3) TMI 689
Valuation - physician samples cleared by the appellant to the principal manufacturer or manufactured and cleared on job work basis - applicability of Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or Rule 8 of the said Rules - levy of penalty under Rule 25 of the Central Excise Rules - HELD THAT:- The Hon’ble Supreme Court in MEDLEY PHARMACEUTICALS LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE [2011 (1) TMI 13 - SUPREME COURT] has laid down This Court has upheld the conclusion of the Tribunal that the physician’s samples have to be valued on pro-rata basis.
The physician samples cleared to their principal manufacturer are assessable under Rule 4 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Also, the physician samples manufactured and cleared on job work basis for free distribution also be assessed on the value of retail sale price of similar goods and not under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, since the same were not cleared for captive consumption as observed by the Tribunal in the case of GOA ANTIBIOTICS & PHARMACEUTICALS LTD, GOA VERSUS GOA ANTIBIOTICS & PHARMACEUTICALS LTD, GOA VERSUS [2013 (12) TMI 390 - CESTAT MUMBAI] - the demand of differential duty with interest confirmed in the impugned orders does not warrant interference.
Penalty u/r 25 of the Central Excise Rules, 2002 - HELD THAT:- Since the issue relates to interpretation of valuation rules, there are no merit in imposing penalty on the appellant under Rule 25 of the Central Excise Rules, 2002.
The impugned orders are modified to the extent of setting aside the penalty, while upholding the demand of differential duty with interest in all the appeals. Appeals are disposed of.
- 2024 (3) TMI 688
Recovery of amount already discharged as duties of central excise for the period from March 2011 to July 2011 by debit of CENVAT balance - assessee had not been subjected to the requirement of rule 8(3A) of Central Excise Rules, 2002 - HELD THAT:- There is a clear finding that, in view of all declarations having been made and the deficiency noted therefrom, none of the ingredients permitting imposition of penalty under section 11AC of Central Excise Act, 1944 were existent. The appeal has not controverted this finding. The impugned order also found that the stipulation on manner of payment of duty has been breached for March 2011 to July 2011 but that, in the absence of recovery mechanism in Central Excise Rules, 2002, only penal consequences may arise. This, too, has not been controverted in the appeal. It was also held that the disputed amount, as arrears of duty, was payable either by deposit or debit of CENVAT balance in much the same way as regular discharge of duty liability.
The grounds of appeal put forth the unheard of, and perverse, proposition that law, in the form of Act and Rules, will always prevail over judgements; apparently, these worthies are unaware that law comprises streams which include legislated statutes and judge-rendered opinions. They also seem to be in ignorance of interpretative function which vests exclusively in the judicial institutions. If that is the comprehension of law among enforcers of an enactment that is also the author of their being, it is a saddening to those who believe in rule of law. Indeed, Montesquieu, and several of those who followed, would surely be turning over in their graves at this patent disrespect for this fundamental foundation of rule of law.
The impugned order has directed that duty discharge must be accompanied by interest. There is no appeal against that part of the order - there are no reason to interfere with impugned order - appeal dismissed.
- 2024 (3) TMI 687
Clandestine removal - alleged shortage of goods said to be found on the basis of comparison of the quantity accounted in SAP system - sole ground based on which the demand has been confirmed by the Commissioner is that there was certain difference in quantity of fruit pulp accounted for in RG1 Register (defunct) and those physically available in the factory premises, when compared with the stock accounted for in SAP system - Extended period of limitation - penalties - HELD THAT:- The Department’s claim is that differential quantity between the two has been considered as clandestinely removed by the Appellants and the demand has been confirmed accordingly. It is an admitted fact that the Appellants were maintaining all their records, including statutory records relating to production and clearance of the final products, in SAP system. Inter alia, the production as well as clearances of fruit pulp was accounted for on day-to-day basis in said SAP system and this fact was brought to the notice of the Officers, who conducted the stock taking, on the very first day of their visit to the factory and subsequently, by way of various correspondence exchanged by the Appellants with the Commissioner.
It is found that despite repeated requests, the Department preferred to compare the physical stock with defunct RG-1 stock, even though correct stock, on day-to-day basis, was maintained by the Appellants in their SAP system - the records maintained in SAP system cannot be manipulated easily. For the reason best known to department, no attempt was made by department to cross check the veracity of averments made by appellant regarding maintenance of record on SAP systems was made.
When the Dept. did not accept the records maintained by the Appellants in their SAP system while issuing the SCNs for confiscation of excess stock of finished goods claimed to be found by the Officers, then the Dept. cannot take an altogether different stand and rely upon the records maintained in SAP system and compare it with so called RG-1 for confirming demand on the alleged shortage of goods - the claim of the Appellants that if the balance quantity recorded in SAP system and correct physical stock available is compared, there was no excess stock and rather there was negligible shortage due to leakage of drums, date expired stock, puffing, handling/storage loss, etc.
When physical stock verification carried out by the Officers was not fool proof and there were anomalies, the benefit of doubt should be extended to the assessee. Further, the allegation of clandestine removal of goods cannot be based on assumption or surmises and the Department should prove clandestine removal with cogent and tangible evidences - It is an admitted fact that no incriminating documents were found or recovered by the Officers during their both visits to the factories and the so called shortage was alleged solely based on physical verification and method adopted by them for comparison of figures shown in RG1 Register/ER1 Returns and in SAP system, which appears to be not a correct method, when the Dept. was taking different stand at different points of time.
In the facts of the case, the SAP alone was the proper account being maintained and there cannot be any comparison with so called RG1 register either for excess or for shortage. The physical stock taking is a verifiable fact which needed to be compared with production and clearance of pulp as reflected in SAP system.
The computation of demand is not proper, as the Dept. has taken the total production accounted in SAP system, subtracted the quantum of production accounted in RG1 & so called quantity physically found in the factory at the time of stock verification, and the differential quantity was claimed to be shortage and alleged to be cleared clandestinely, which is not correct, as the Dept. should have compared physical stock with the details accounted in SAP system. Taking all the aspects of the case and the evidences, it is found that the Department has not been able to conclusively prove clandestine removal of goods.
So far as valuation adopted by the Appellants for stock transfer of fruit pulp to their sister unit is concerned, it is found that the same is correct, as they have adopted comparable price and no favoured treatment was afforded and, hence, differential duty confirmed in the impugned Order, is not sustainable - Therefore, entire exercise also leads to revenue neutral situation and there was no inducement for the Appellants to undervalue the fruit pulp stock transferred by them to their sister units. Therefore, the demand confirmed on this count is not sustainable and deserves to be set aside.
Penalties - HELD THAT:- In the absence of any conscious and deliberate suppression of facts or wilful mis-declaration and also in the absence of mens rea, penalty is not imposable. Therefore, the penalty imposed on the Appellant-company deserves to the set aside. Since Shri Sameer Sharma, Associate Vice President of the Company, has acted as an employee, in the ordinary course of discharging his assignments, and he could not have unduly gained anything personally, penalties imposed on Shri Sameer Sharma is not sustainable and deserves to be set aside.
The impugned Orders are not sustainable on merits - Appeal allowed.
- 2024 (3) TMI 686
Valuation - inclusion of notional cost of drawings and designs supplied free of cost by Maruti to the vendors in the assessable value of parts or components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty or not - demand of differential central excise duty from the vendors - Extended period of limitation - HELD THAT:- In the present case, Maruti provided specifications of the parts or components to be fitted in the motor vehicles manufactured by Maruti to the potential vendors. The parts or components have necessarily to be manufactured as per the requisite dimensions of the parts or components so that they can be fitted in the vehicles manufactured by Maruti. It is for this reason that Maruti shared the requirements at the ‘Request for Quotation’ stage. The detailed drawings and designs were prepared by the Research and Development Division of the appellant with the help of technical support received from Denso, Japan. Maruti does not have the necessary technology to manufacture the products. As such, the technology has been patented by the parent company of the appellant, namely Denso, Japan for which the appellant has also been paying running royalty amount for receipt of technical support. The appellant has also included the cost incurred towards preparation of detailed drawings and designs in the assessable value of the final products.
The specifications provided by the Maruti were merely layout or dimensions of the desired parts or components. The appellant prepared detailed drawings and designs for alternator assembly in line with the specifications provided by Maruti. The designs prepared by the appellant contain details of various elements to be used in the manufacture of alternator assembly. It contains 23 sub-components required for manufacturing alternator assembly, which is not even referred to in the specification drawings provided by Maruti to the appellant.
This would show that it is the responsibility of the appellant to design and manufacture the parts or components. Thus, the specification drawings are neither used in the production of the components nor are they necessary for the production of the components. Rule 6 of the 2000 Valuation Rules is, therefore, not attracted.
Learned authorized representative appearing for the department has placed reliance upon the decisions of the Tribunal in COMMISSIONER OF CENTRAL EXCISE JAMSHEDPUR VERSUS TATA MOTORS [2008 (12) TMI 129 - CESTAT KOLKATA] and M/S. AVTEC LTD., M/S. FORD INDIA (P) LTD. VERSUS CCE, LTU, NEW DELHI [2017 (3) TMI 996 - CESTAT NEW DELHI] These decisions deal with cases of drawings supplied by the motor vehicle manufacturers to the manufacturers of parts and components free of cost, but the designs were supplied after the sale agreement was executed and the manufacturer used the same for producing the components. There is nothing in these decisions which may indicate that the specification drawings were supplied at the stage of tender process and identification of vendors, nor does it transpire from the said decisions that after receipt of specification from buyer, the vendors prepared their own detail drawings and designs on the basis of which the final components were manufactured.
The present appeals do not relate to toolings being supplied free of cost by Maruti to the appellant. In fact, the show cause notice also admits that tooling cost has been amortised and excise duty has been paid - thus, the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty.
Extended period of limitation - HELD THAT:- It would not be necessary to examine the contention that has been raised by the learned counsel for the appellants that the extended period of limitation could not have been invoked in the facts and circumstances of the present case.
The impugned order set aside - appeal allowed.
- 2024 (3) TMI 637
Recovery of Arrears of tax dues / duties - Denial of Exemption in terms of notification No.8/2003-CE dated 01.03.2003 - eligibility for CENVAT Credit - HELD THAT:- The appellate authority modified the impugned order to the extent of affirming the tax demand subject to verification of the petitioner's eligibility for cenvat credit and the extension of benefit of such credit, if applicable. The said order has attained finality in view of the rejection of the petitioner's appeal before the CESTAT. In those circumstances, it was necessary for the original authority to give effect to the order of the appellate authority. A remand is necessary for such purpose.
Meanwhile, the recovery notice was issued by treating the petitioner under the category of 'arrears'. On examining circular No.1081, such circular specifies that if there is a remand for de novo adjudication, the case will not fall within the category of 'arrears'. As indicated earlier, the appellate authority did not set aside the order of the original authority and remand the matter for de novo adjudication. Hence, the conclusion that the petitioner's case falls within the category of 'arrears' does not contain any infirmity.
Nevertheless, since the direction issued by the appellate authority was not given effect to, W.P.No.2222 of 2024 is disposed of by directing the first respondent to examine the petitioner's claim for cenvat credit - petition disposed off.
- 2024 (3) TMI 636
Demand of duty based on discrepancy in Invoice towards quantity of goods cleared - Validity of Demands Based on Proforma Invoices - Duty on Goods Found in Factory Premises without declaring in RG-1 stock register - Levy of penalty under rule 209A of CER - assisting and abetting in evasion of duty by SIPL or not - benefit of SSI Exemption.
Demand of Excise Duty of Rs 1,06,687.52 for the goods cleared as per Invoice No 16 & 18 dated 24.04.2001 - HELD THAT:- The Central Excise Invoices referred to the description for which order was placed on the appellants giving the number of complete credenza/ storage cabinets supplied by the appellant. To ascertain the correctness of the claim no enquiries were conducted from HFCL in respect of the alleged discrepancies. Further the transaction/ Assessable Value for 44 pieces, as appearing in the RG-I Register is the same as appearing in the Central Excise Invoice No 16 and 18, both dated 20.04.2001. In view of the above revenue authorities have totally failed to adduce evidence to show that appellant had cleared 44 pieces against these invoices. The order for confirming the demand by taking 44 number as appearing in RG-1 register as complete credenza/ storage cabinets is contrary to the facts on record and no effort has been made to ascertain true facts by making any enquiry/ investigation at the customer end. There are no merits in this demand.
Demand of Rs 90,720/- for the goods alleged to be cleared to Sita Resorts on the basis of the proforma invoices - HELD THAT:- It is not placed on record through any tangible evidence to show that the goods were cleared against these proforma invoices. Even Shri Soni has in his statement stated so. Two more statements of Shri Soni were subsequently recorded and no question on these clearances was put to him. Appellant had asked for the cros s examination of Shri Soni which was also not allowed. Impugned order records that allowing/ non-allowing of Cross Examination is the discretion of the Adjudicating Authority, ignoring the fact that entire demand is based on the statement of Shri Soni, goes contrary to the settled position in law.
Demand of Rs 70,320/- towards the goods lying within the factory as per the panchnama - HELD THAT:- The fact that appellants have removed the goods for consumption by installing them in their own office and canteen premises is not in dispute. In my view the removal of the goods for personal consumption within the office and canteen premises of the appellant is removal of the goods as per the provisions of Central Excise Law. The value as has been indicated in the Panchnama has been ascertained from the coordinating architect. Both the authorities have concluded similarly in respect of this demand and there are no merits in the submissions made by the appellant in this respect. Thus this demand along with the interest as applicable confirmed.
Rs 5,59,158.48 for the period 06.04.2001 to 21.08.2001 in respect of the goods cleared by wrongly availing the benefit of SSI exemption - HELD THAT:- Undisputedly appellant were not eligible to the benefit of exemption under this notification. However it is also undisputed that appellant were duly filing their RT-12 returns during the Financial Year 2000-01 and the value of clearances of dutiable goods was indicated on the Rt-12 returns. The fact that they continued to clear the goods availing the benefit of this exemption during the year 2001-02 was duly reflected in their Rt-12 Returns filed. Original Authority has in the order in original recorded the fact that the appellant was filing the Rt-12 returns giving all the details (Para 14.2). That being so when the appellant 1 has duly declared all the facts in their Rt-12 returns, a fact acknowledged in the order in original, there are no merits in the order making this demand by invoking extended period of limitation as per proviso to section 11 A (1) - there are no merits in this demand by invoking the extended period of limitation as per proviso to section 11A (1).
Imposition of Penalty on Appellant 1 - HELD THAT:- In view of the fact that against the total demand of Rs.8,26,886/- which has been upheld by impugned order, there exists no position to the demand beyond Rs 70,320/-. Accordingly penalty under Section 11AC imposed on the Appellant is reduced to Rs 70,320/- from Rs 8,26,886/- imposed by the original authority and affirmed by the impugned order.
Penalty on Appellant 2 and Appellant 3 - HELD THAT:- No active role played by the appellant 2 and appellant 3 in respect of the evasion/ short payment of duty to the extent upheld by me, by the Appellant 1. Hence there are no position to uphold the penalties imposed upon Appellant 2 and Appellant 3 under Rule 209A of the Central Excise Rules, 1944.
Appeal allowed in part.
- 2024 (3) TMI 635
Valuation - non-inclusion of After Sales Service (ASS) and Pre-Delivery Inspection (PDI) charges in the assessable value - HELD THAT:- This Tribunal in the appellant’s own case for the previous period [2023 (11) TMI 370 - CESTAT CHANDIGARH] has decided the issue in favour of the appellant involving identical issue - this issue is no more res integra and has been settled by various judicial forums as relied upon by the appellant. It has been consistently held that the cost of ASS shall not be includible in the assessable value of the goods.
The impugned order not sustainable - appeal allowed.
- 2024 (3) TMI 634
Penalty imposed on them under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - appellant has taken CENVAT Credit on the strength of fake invoices, but the same was reversed along with interest - HELD THAT:- In the case of THE COMMISSIONER OF CENTRAL EXCISE CUSTOMS & SERVICE TAX VERSUS M/S. JUHI ALLOYS LTD., ANIL KUMAR SHUKLA [2014 (1) TMI 1475 - ALLAHABAD HIGH COURT], the issue before the Hon’ble High Court of Allahabad was the availment of CENVAT Credit to the manufacturer whereas the invoices had been issued by the registered dealer which were found to be fake. Therefore, it was held that CENVAT Credit could not be denied.
Further, in the case of M/S. RAJAN ENGINEERING WORKS VERSUS CCE, DELHI-IV, FARIDABAD [2011 (7) TMI 626 - CESTAT, DELHI]. The demand in the said case was raised only on the basis of the statement of the input supplier, which is not the case in hand as, in this case, the appellant has admitted that they had taken the CENVAT Credit on the strength of fake invoices although it was not known to them; the same has been reversed along with interest and they are seeking immunity from the penalty imposed on them.
As the appellant has already reversed the amount of CENVAT Credit along with interest and contesting the same, in these circumstances, we hold that penalty on the appellant is to be imposed at only 25% of the amount involved. Therefore, in terms of proviso to Section 11AC of the Act, the penalty on the appellant is reduced to 25% of the penalty imposed as the appellant has already reversed the CENVAT Credit along with interest.
Appeal disposed off.
- 2024 (3) TMI 592
Condonation of gross delay of 412 days in filing these appeals - justification for delay or not - HELD THAT:- The appellant sought to justify the delay - the reasons assigned for condonation of delay not impressive and the same are not acceptable.
The application seeking condonation of delay is dismissed.
- 2024 (3) TMI 591
Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - HELD THAT:- The respondent had applied under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and the application was processed and eventually certificates dated 24.01.2020 and 07.02.2020 under SVLDRS-4 scheme has already been given resolving the dispute.
The statement of the learned counsel for the respondent is recorded and the Civil Appeals disposed off in view of the above statement.
- 2024 (3) TMI 590
Condonation of delay in filing the appeal - impugned order was reviewed by the concerned committee of Chief Commissioner beyond the prescribed period of three Months, from the date of receipt of the order - Section 35E of CEA - HELD THAT:- It is seen that as per proviso to Sub-Section (3) only the Board has power to condone the delay in reviewing the order beyond three Months and no other Authority could have condoned the said delay. The Tribunal also has no authority to condone this delay.
The Chief Commissioner has no authority to condone such delay or permit the committee of Commissioners to review the order beyond a stipulated period of three months. The provisions for review are to be construed very strictly as has been held by various authorities including the Hon’ble Supreme Court in the case of COLLECTOR OF CENTRAL EXCISE VERSUS MM RUBBER CO. [1991 (9) TMI 71 - SUPREME COURT], wherein it was held that the period of one year fixed under sub- section (3) of Section 35E of the Act should be given its literal meaning and so construed the impugned direction of the Board was beyond the period of limitation prescribed therein and therefore invalid and ineffective.
This application for Condonation of delay has been filed without any jurisdiction and authorization. Tribunal does not have any power to consider and condone this delay so the same is dismissed.
- 2024 (3) TMI 589
Maintainability of appeal - non-prosecution of the case - Request for adjournment, which cannot be accepted in virtual hearing - While making the request for virtual hearing, Counsel also undertakes that he will not seek adjournment in this matter - HELD THAT:- It is also observed that the matter has been listed on the request of the Counsel for the appellant. This appeal has been listed for hearing on 16.08.2023, 15.09.2023, 20.10.2023 and for today. The Counsel for the appellant either in person or through the letter has only sought taking adjournments in the matter.
In case of ISHWARLAL MALI RATHOD VERSUS GOPAL AND ORS. [2021 (9) TMI 1301 - SUPREME COURT] condemning the practice of adjournments sought mechanically and allowed by the Courts/Tribunal’s Hon’ble Supreme Court has observed considering the fact that in the present case ten times adjournments were given between 2015 to 2019 and twice the orders were passed granting time for cross examination as a last chance and that too at one point of time even a cost was also imposed and even thereafter also when lastly the High Court passed an order with extending the time it was specifically mentioned that no further time shall be extended and/or granted still the petitioner – defendant never availed of the liberty and the grace shown. In fact it can be said that the petitioner – defendant misused the liberty and the grace shown by the court.
There are no justification for adjourning the matter beyond three times which is the maximum number statutorily provided - Appeal is dismissed for non prosecution in terms of Rule 20 of CESTAT Procedure Rules, 1982.
Case Laws - Vat / CST
- 2024 (3) TMI 791
Levy of penalty u/s 54(1)(2) of the U.P. VAT Act, 2008 - men-rea on the part of the assessee is an essential pre-requisite condition for imposition of penalty or not - penalty can be imposed upon assessment is made on the basis of Best Judgement Assessment or not - imposition of penalty of 7 times the total tax imposed towards alleged concealed turnover was justified when the express provision of Section 54(1)(2) of the Act provides for imposition of a maximum penalty of 3 times of concealed turnover.
HELD THAT:- A perusal of Section 28(2) of the Act 2008 would indicate that where after examination of books, accounts and other records referred to in Section 28(1) of the Act, 2008 the assessing authority is satisfied about correctness of sale or purchase or both, it may the assess the amount of tax payable by the dealer - A further perusal of Section 28(2) of the Act 2008 indicates that the power of assessment of the amount of tax payable by the dealer on such turnover and for determining the amount of input tax credit admissible to the dealer has been given to the assessing authority and further where the assessing authority is of the opinion that turnover of sale or purchase or both disclosed by the dealer is not worthy of credence it may determine to the best of its judgement the turnover of sale or purchase or both and assess the tax payable on such turnover.
The assessment order dated 30.10.2010 would indicate that the same has been passed considering the provisions of Section 28(2) of the Act, 2008 on the basis of best of its judgement meaning thereby that it is an assessment which has been made by the assessing authority.
The jurisdiction of the assessing authority while taking recourse to the "best judgement assessment" is well settled. Hon'ble Supreme Court in the cases of State of Kerala vs C. Velukutty [1965 (12) TMI 32 - SUPREME COURT], The Commissioner of Income Tax, Calcutta v. Padamchand Ramgopal [1970 (4) TMI 2 - SUPREME COURT], M/s Joharmal Murlidhar and co. v. Agricultural Income Tax Officer, Assam and others [1970 (8) TMI 5 - SUPREME COURT] and Shri S. M. Hasan, S.T.O. Jhansi and another v. M/s New Gramophone House, Jhansi [1975 (9) TMI 177 - SUPREME COURT], has categorically held that while assessing on the basis of "best judgement" the assessing authority has to make the assessment honestly and on the basis of intelligent well grounded estimate rather than pure surmises i.e. the assessment so made while taking recourse to the "best judgement assessment" should be on reasonable guess based upon the material available before the assessing authority.
The order of penalty passed under Section 54(1)(2) of the Act, 2008 is based on the order of the assessing authority as passed under Section 28(2) of the Act, 2008. The assessment order under Section 28(2) of the Act, 2008 is on the basis of well grounded estimate or reasonable guess as held by Hon'ble Supreme Court meaning thereby that the said order does not indicate the willful attempt to defeat or circumvent the tax law to reduce the tax liability. Once the sine qua non to imposition of penalty is evasion of payment of tax and for evasion there has to be a willful act consequently the Court will have to examine as to whether there has been willful act on the part of the revisionist in evasion of tax.
The revisionist has already paid the tax as assessed after modification by the learned Tribunal vide the order dated 22.06.2016. At no stage is there any finding of any willful evasion of tax by the revisionist or a finding of there being any deliberate attempt on the part of the revisionist in avoiding the payment of tax. It is for the authorities to specifically prove the evasion of payment of tax on the part of the revisionist where the evasion has been defined as a willful attempt i.e. the authorities would have to prove a willful attempt on the part of the revisionist to evade tax. In absence thereto the order imposing penalty on the revisionist based on the assessment order passed under Section 28(2) of 2008 cannot be said to fall within the ambit of any of the eventualities as provided under Section 54(1)(2) of the Act 2008 more particularly it cannot be considered to be an evasion of payment of tax by the dealer / revisionist so as to attract the penalty as has been imposed on the revisionist.
The judgement and order dated 06.04.2021 passed by learned Commercial Tax Tribunal, Lucknow in Second Appeal No. 50 of 2017 is set aside - revision allowed.
- 2024 (3) TMI 790
Violation of principles of natural justice or not - petitioner failed to respond to the show cause notice or avail of an opportunity of personal hearing - Validity of assessment order - HELD THAT:- The documents on record include the show cause notice dated 23.02.2023. The said notice offered a personal hearing to the petitioner. Therefore, the respondents cannot be faulted for the petitioner failing to avail of such opportunity. At the same time, it is noticeable that the impugned order does not make reference to the earlier reply issued by the petitioner in February 2020. It is also noticeable that a sum of Rs. 4,55,013.70 was appropriated from the petitioner's bank account in the Punjab National Bank as against the total amount due of Rs. 4,52,341/- under the impugned assessment order. Therefore, at this juncture, revenue interest is fully secured. In these circumstances, the impugned order calls for interference solely with a view to provide an opportunity to the petitioner.
The impugned assessment order is quashed and the matter is remanded for reconsideration. The petitioner is permitted to submit a reply to the show cause notice dated 23.02.2023 within a period of two weeks from the date of receipt of a copy of this order - Petition disposed off by way of remand.
- 2024 (3) TMI 587
Levy of VAT on royalty on which Service Tax has already been paid - It is the respondent’s contention that the assessment orders dated 29 March, 2019 and 31 March, 2020 could not have been passed by the Assessing officer at Mazgaon jurisdiction and in fact such orders ought to have been passed by the Assessing Officer at the Kalyan jurisdiction - HELD THAT:- Insofar as the period which was spent by the petitioner in pursuing the present proceedings are concerned, which is the period from 11 November, 2022 till the passing of this order, the petitioners would be entitled to avail of the benefit under the provisions of Section 14 of the Limitation Act - Insofar as the period of limitation for filing the statutory appeal is concerned, all contentions of the respondents in regard to any issue of limitation and more particularly on the question that the assessment orders dated 2 March, 2017 and 7 June, 2017 were not served in September, 2022 but earlier thereto, we keep open the contentions of the parties.
Needless to observe that for the period 2010-11, 2011-12 in respect of which assessment orders dated 29 March, 2019 and 31 March, 2020 are sought to be withdrawn, the petitioners would be entitled to file statutory appeal as permissible in law within a period of six weeks from today. If so filed, let the appeals be decided without an objection as to limitation and on merits.
Petition disposed off.
- 2024 (3) TMI 487
Levy of interest on late payment of profession tax - requirement to deduct the profession tax from the salaries and wages of the employees - time limit for filing return and payment of profession tax under the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 - interest for delayed payment of tax - HELD THAT:- In State of Himachal Pradesh v. Himachal Techno Engineers [2010 (7) TMI 875 - SUPREME COURT] one of the questions which arose was that “whether the period of three months can be counted as 90 days” while answering, the Hon’ble Apex Court held that, considering Section 34 (3) of the Arbitration and Conciliation Act 1996 and also the definition of ‘month’ as defined in Section 3 (35) of the General Clauses Act, 1897 that the legislature had the choice of describing the periods of time in the same units, that is, to describe the periods as “three months” and “one month” respectively or by describing the periods as “ninety days” and “thirty days” respectively. It did not do so. Therefore, the legislature did not intend that the period of three months used in sub-section (3) to be equated to 90 days, nor intended that the period of thirty days to be taken as one month - The Hon’ble Apex Court clearly held that a ‘month’ does not refer to a period of thirty days, but refers to the actual period of a calendar month.
The present case pertains to the period prior to the amendment in Rule 12 by which a specific date i.e., on or before 10th day of the month succeeding the month for which the return has to be filed, has been specified.
The further submission of the learned counsel for the petitioner based on the amendment in the year 2011 is that it ‘the amendment’, fortifies that there was no date prescribed prior to the amendment and consequently, the same has been specified by way of amendment and consequently, there would be no liability for payment of interest. The said submission also deserves rejection. Even if there was no specified date, as has now been incorporated in Rule 12, it cannot be said that there was no date prescribed for filing return or/and payment of tax - Now in view of the amendment of Rule 12 (1) the said period is ‘on or before 10th day of the month succeeding the month for which the return has to be filed’.
From the aforesaid provisions of Sections 4, 5, 7, 11, 12 of the Act 1987; the Rules 12 unamended (as the present case is prior to amendment), 13, 24 of the Rules 1987 and Form-V, it is evident that the liability for payment of interest on tax is on the assessee, if the assessee does not deduct the tax at the time of payment of salary or wages. Liability would also be if after deducting, the assessee fails to pay the tax as required by or under the Act. Such liability was monthly liability for payment of tax and filing of returns. This liability to pay the interest is in addition to the amount of profession tax if the same was not paid on monthly basis i.e., up to the last date of the succeeding month for which the return had to be filed.
There are no substance in the submissions advanced by the learned counsel for the petitioner that there was no liability to make payment of interest, as there was no time specified for payment of professional tax - the impugned order does not suffer from any illegality.
Petition dismissed.
- 2024 (3) TMI 445
Exemption granted on turnovers relating to Bottle breakage charges and Levy of Rental Charges at 5% on bottles and craters - HELD THAT:- When the bottles travels from the manufacturer to wholesaler and the retailer, the active possession of bottles and crates are in the hands of sellers. The Tribunal found fault with the revisional authority analysis that generally all lease transactions will be for a specified period. However, Section 5-E of the Act provides for unspecified period and the appeal was allowed to that extent.
There is no question of law framed by the petitioner for entertaining the Tax Revision Case. An order of remand for re-assessing the factual possession cannot be considered as an erroneous decision on the question of law. As seen from the order of the Tribunal, the Tribunal has not decided on any issue on the question of law. It has fairly considered the issues before it and passed the orders partly allowing the appeal and remanding back to the Revisional Authority.
There is no question of law framed by the petitioner for entertaining the Tax Revision Case. An order of remand for re-assessing the factual possession cannot be considered as an erroneous decision on the question of law. As seen from the order of the Tribunal, the Tribunal has not decided on any issue on the question of law. It has fairly considered the issues before it and passed the orders partly allowing the appeal and remanding back to the Revisional Authority.
The Tax Revision Cases are dismissed.
- 2024 (3) TMI 444
Validity of assessment orders in respect of assessment years 2007-08 to 2014-15 - freight not reported and goods sold with under value - petitioner contended that the computation in respect of freight charges in the notice under reply is not based on any material evidence, but entirely based on assumptions and presumptions - Whether proceedings relating to assessment years 2007-08 to 2010-11 are barred by limitation? - HELD THAT:- Under Section 27(1) of the TNVAT Act, the limitation period in respect of escaped assessment is six years from the date of assessment. Section 22(2) deals with deemed assessment. The principal clause prescribes that there will be deemed assessment on the 31st October of the succeeding year to the relevant assessment year - Admittedly, assessment orders were not issued in these cases pursuant to returns being filed. Since the proviso applies to these cases, as regards assessment years 2007-08 to 2010-11, limitation should be computed from 01.07.2012. If so computed, the assessments relating to the above mentioned orders are within the six year period of limitation because re-assessment proceedings were initiated pursuant to notice dated 12.08.2016.
In the impugned assessment orders, the assessing officer has applied a flat rate per consignment based on the State from which the consignments were delivered to the petitioner. For instance, as regards the State of Gujarat, the freight charges per consignment was fixed at Rs. 1,00,000/-. As regards the State of Rajasthan, it was fixed at Rs. 80,000/-. The assessment orders also record the petitioner's contention that about 13 consignments from Gujarat were of the value below Rs. 50,000/- per consignment. Effectively, the freight charges determined by the assessing officer were twice the value of the consignment as regards those 13 consignments. Similarly, the petitioner has pointed out that six consignments were below the value of Rs. 1,00,000/-. Once again, the freight charges determined by the assessing officer is slightly more than the value of consignment as regards these six consignments. These illustrations demonstrate that the assessing officer did not determine the alleged suppressed freight charges on a rational basis. Hence, the assessment orders as regards assessment years 2007-08 to 2013-14 warrant interference.
With regard to this assessment year, the petitioner had filed a rectification petition which was disposed of by order dated 05.06.2020. In the notice dated 12.08.2016, the suppressed turnover with regard to freight was specified as Rs. 89,31,520/-. As against this, in the rectification order, the assessing officer has determined the suppressed freight charges as Rs. 13,17,651/- and computed tax on that basis. It also appears that some additional factors were taken into consideration in the rectification order.
The impugned assessment orders are quashed and these matters are remanded for re-consideration - petition disposed of by way of remand.
- 2024 (3) TMI 400
Condonation of delay in filing rectification application - Refusal to entertain the rectification application of the petitioner on the ground that the same was time barred - attachment of bank account - HELD THAT:- It is to be noted that the Supreme Court in In Re: Cognizance for Extension of Limitation [2022 (1) TMI 385 - SC ORDER] allowed the limitation to be extended till February 28, 2022.
The petitioner, in the present case, has filed the application on March 11, 2022, that is, only 11 days after the end of the above period. Furthermore, petitioner’s case is that it was not made aware of the order dated March 18, 2017 and it came to know about the said order only on September 14, 2021 when its bank account was attached.
Without going into hyper technicality with regard to period of limitation, this Court keeping in mind the Supreme Court judgment for extension of period of limitation and the fact that Section 5 of the Limitation Act would apply to Section 31 of the VAT Act is of the view that the delay in filing the rectification application should be condoned. In light of the same, the order dated April 6, 2022 passed by the Tribunal is quashed and set aside with a direction upon the Tribunal to hear the rectification application of the petitioner on merit and decide the same within four months from date.
Petition allowed.
- 2024 (3) TMI 225
Condonation of delay in filing appeal - sufficient cause for condoning the delay or not - HELD THAT:- The High Court has not been convinced by the reasons stated for seeking condonation of delay and hence has dismissed the appeals on that ground.
The High Court has also considered the case of the appellants on merits and has simply extracted the findings of the Tribunal and has observed that there was no illegality or perversity in the said findings. Without going into the question as to whether the respondent was entitled to exemption under Section 11(1)(i) of Haryana Special Economic Zone Act, 2005 (HSEZ Act) and particularly after the amendment made to the said provision.
These petitions disposed off by observing that the High Court was right in dismissing the applications seeking condonation of delay in filing the appeals and consequently the appeals on that ground only.
- 2024 (3) TMI 224
Validity of orders of assessments under the Puducherry Value Added Tax Act, 2007 - challenge on the premise that the same has been completed without even issuing a show cause notice to the petitioner contrary to Section 24 of the Act which provides that no assessment shall be made without the grant of reasonable opportunity and thus a nullity - violation of principles of natural justice - HELD THAT:- This Court is conscious of the fact that writ petition under Article 226 of the Constitution of India would not be entertained normally if statutory remedy is available. However, existence of alternate remedy is not an embargo or an absolute bar to exercise power under Article 226 of the Constitution of India but a self-imposed restriction and the following circumstances viz., violation of principles of natural justice or lack of jurisdiction or error apparent on the face of the record are some of the exceptions carved out to the rule of alternate remedy for exercise of discretion under Article 226 of the Constitution of India. The impugned orders are made in violation of principles of natural justice and thus falls within the exceptions carved out to the rule of alternate remedy for entertaining writ petition under Article 226 of the Constitution of India.
While this Court is conscious of the fact that though law of limitation does not strictly apply to the writ petitioner, nevertheless Courts would be loathe in permitting writ petitions after inordinate and unexplained delay or laches. Though the same by itself may not be an absolute impediment to exercise judicial discretion and rendering of substantial Justice. From a reading of the extract from the affidavit filed by the petitioner this Court is satisfied with the explanation for the delay in approaching this Court. Importantly, the orders having been made in complete disregard to the mandate contained in Section 24 of the Act, the impugned orders of assessment are a nullity and thus liable to be set aside. The petitioner would treat the impugned orders of assessment as show cause notice and submit its objections within a period of 4 weeks from the date of receipt of a copy of this order and the Respondents shall proceed to complete the assessment within a further period of 12 weeks from the date of receipt of objections.
In the event the petitioner fails to submit its objections within the period stipulated herein i.e., 4 weeks from the date of receipt of a copy of this order, the orders of assessment will stand restored and it shall be open to the Respondents to proceed in accordance with law.
The writ petition disposed off.
- 2024 (3) TMI 223
Rectification of error - assessments deemed to have been completed in terms of Section 22(2) of the TNVAT Act, 2006 as amended vide Act No.23 of 2012 with effect from 19.06.2012 - It is the case of the petitioner that the impugned notices issued seeking to revise the assessment on 04.11.2020 for the respective assessment years were time-barred.
HELD THAT:- Since the monthly returns filed by the petitioner under Section 21 of the TNVAT Act, 2006 read with Rule 7 of the TNVAT Rules, 2007 were incorrect, the respondent was entitled to pass orders dated 24.12.2020 to the best of his judgement after the completion of the year in terms of Section 22 (4) of the TNVAT Act, 2006 - There is no limitation prescribed for passing order under Section 22(4) of the TNVAT Act, 2006. The language adopted in Section 22(4) of the TNVAT Act, 2006 merely indicates that the assessment order has to be passed after the completion of that year. It would imply that such assessment orders have to be passed within the reasonable period.
Assessment orders cannot be passed long after the expiry of the limitation prescribed under Section 27 of the TNVAT Act, 2006, had the petitioner filed proper monthly returns in time with all the particulars as was required for completing the assessment.
The Impugned Assessment Orders dated 24.12.2020 and Impugned Notices dated 20.12.2021 for Assessment Year 2011-2012 and for Assessment Year 2012-2013 challenged in W.P.No.513 of 2022 and W.P.No. 516 of 2022 are liable to be quashed. There is no merits in challenge to Assessment Orders dated 24.12.2020 and Impugned Notices dated 20.12.2021 for the Assessment Year 2013-2014 - Petition disposed off.
- 2024 (3) TMI 123
Availment of Input Tax Credit - appeal dismissed on the basis of invoices and bank transactions inasmuch as the transactions have not been proved as a bonafide and genuine transactions otherwise establishing the actual transportation of goods - finding of fact has been recorded against the dealer and the benefit has been allowed only on the basis of tax invoices and bank transactions - HELD THAT:- In the present case, counsel on behalf of the revisionist has submitted that the documents in relation to the transportation of goods were also provided to the authorities below. However, the same do not find reflection in the order passed by the first appellate authority and the Tribunal. It is also true that the Tribunal has recorded finding that the Department has not been able to show any adverse document against the revisionist. The ratio of the decision of the Tribunal is contrary to the judgment of the Apex Court in THE STATE OF KARNATAKA VERSUS M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED [2023 (3) TMI 533 - SUPREME COURT] as the Tribunal has granted the I.T.C. merely on the basis of invoices and payment details.
The order passed by the Tribunal is required to be quashed and set-aside with a direction to the Tribunal to hear the matter afresh allowing the revisionist to produce documents in relation to the transactions including transportation documents and any other relevant document which the petitioner wishes to place. The Department may also be allowed to adduce further evidence, if it so desires - The Tribunal to decide the matter afresh.
The revision petition is, accordingly, allowed.
- 2024 (3) TMI 122
Violation of the principles of natural justice - impugned order is non-reasoned as the application for recall of the order was considered as application for rectification of mistake only - failure to consider the explanation of the Revisionist as sufficient cause for non- appearance on the date (07.12.2016) on which hearing was fixed - date of which certified copy of the Order dated 08.12.2016 is obtained, is to be considered as the date from which limitation period commences under the Uttar Pradesh Trade Tax Act, 1948 or Uttar Pradesh Value Added Tax Act, 2008 - affidavit of the Revisionist is enough to establish that the copy of order was not served upon the Revisionist - HELD THAT:- Absence of reasoning would render the judicial order liable to interference by the higher court. Reasons are the soul of the decision and its absence would render the order open to judicial scrutiny. The consistent judicial opinion is that every order determining rights of the parties in a Court of law ought not to be recorded without supportive reasons. Issuing reasoned order is not only beneficial to the higher courts but is even of great utility for providing public understanding of law and imposing self- discipline in the Judge as their discretion is controlled by well- established norms. Absence of reasoning is impermissible in judicial pronouncement.
It is the duty cast upon the Appellate Authority that even if it is in agreement with the view taken by the first Appellate Authority, it should give its own reasons/findings which may indicate that there has been application of mind and also the consideration of grounds raised in the appeal by the revisionist. In absence of reasons it is difficult to come to a conclusion that there has been any application of mind by the Tribunal and such an order in the opinion of the Court cannot be sustained and deserves to be set aside.
The question posed for consideration in the revisions is answered in favour of the assessee and it is held that the Tribunal has committed manifest error of law in not complying the provisions of Clause 5 of Section 63 of the Rules, 2008 - the impugned order dated 08.12.2016 is hereby set-aside - revision allowed.
- 2024 (3) TMI 64
Time Limitation for reopening of assessment - impugned notice were issued after a lapse of five years for these assessment years - HELD THAT:- If no returns were filed or if the returns filed were incomplete or returns filed were incorrect or did not accompany any of the documents prescribed with proof of payment of tax, the Assessing Officer has to make a proper enquiry and assess a dealer to the best of this judgement, subject to such conditions as may be prescribed, after the completion of the year.
There are no records to substantiate that the petitioner had filed returns in time for the respective assessment years in various assessment circles as is contemplated in Rule 7 of the TNVAT Rules, 2007. No Assessment Order was passed by the Assessing Officer for the years in question. Therefore, question of either inferring deemed assessment as is contemplated under section 22 (1) and (2) of the TNVAT Act, 2006 or actual assessment would not arise for the purpose of computation of limitation under Section 27 of the TNVAT Act, 2006.
Since no Assessment Order came to be passed, question of the petitioner getting an opportunity to file a fresh return as is contemplated under section 22 (6) (a) (b) or (c) of the TNVAT Act, 2006 also did not arise - Since no returns were filed by the petitioner in time or thereafter as is prescribed under Rule 7 of the TNVAT Rules, 2007, it has to be construed that the Impugned Assessments dated 23.12.2019 is the first assessment passed by the Assessing Officer under Section 22(4) of the TNVAT Act, 2006.
The limitation for reopening the Assessment under Section 27 of the TNVAT Act, 2006 will apply only six years thereafter. Therefore, there is no merits in the challenge to the Impugned Order. Since the demand has now been confirmed there cannot be any interference with the Impugned Notices issued to the respective banks attaching the accounts of the petitioners maintained with them.
Petition dismissed.
- 2024 (3) TMI 2
Refund of tax - contention of the appellant is that, by way of deduction of 2% tax at the time of payment and on his declaration of the turnover for every assessment years, he is entitled for refund of tax - whether the judgment rendered in Mahindra and Mahindra Ltd. [2020 (11) TMI 970 - MADRAS HIGH COURT] has any bearing to the case in hand? - HELD THAT:- The judgment in Mahindra and Mahindra Ltd. relied upon by the learned counsel for the appellant is in respect of entertaining a Writ Petition without exhausting alternate remedy. In the above referred case, without affording opportunity, order levying penalty was issued and therefore, without preferring statutory appeal, the assessee approached this Court. In the said circumstances, the Division Bench of this Court held that existence of alternate remedy will not disentitle the writ petitioner to invoke Article 226 of the Constitution when the action of the statutory authority is unfair and against the principles of natural justice.
The facts involved in the case cited is different from the facts of the case in hand. It is not the case of the appellant that he was not given an opportunity. In fact, the impugned notice of the fourth respondent clearly indicates that the notice is to afford an opportunity for being heard and for participating in the proceedings. Therefore, by no stretch of imagination, the dictum laid in Mahindra and Mahindra Ltd. will apply to the case in hand.
Section 22(2) and amendment to Section 28 of the TNVAT Act to be read together to understand the intention of the legislature. The returns filed prior to 19.06.2012 under the self assessment scheme, but no explicit assessment orders are passed in these cases. By introducing the deeming clause, the assessee gets the privilege of assessment. At the same time, to prevent escaped assessment, the authority is vested with the power to revise any return, which has been deemed to have been assessed by virtue of Section 22(2) of the TNVAT Act and such power to revise, is restricted to the period of six years.
In this case, the assessing authority while causing the show cause notice has given opportunity to the assessee to participate in the proceedings. The order of the assessing authority is not final. The statute provides for appeal remedy. Hence, this Court finds that the Writ Petitions are frivolous litigations initiated by the assessee to circumvent the procedure established. Hence, this Court finds no merit in the Writ Appeals.
Appeal dismissed.
- 2024 (2) TMI 1299
Sales tax demand for use of invalid ST-1 Forms, by the selling dealer - it was held by High Court that The rejection of the Forms in the present case and claiming deduction on the basis thereof for the sale of PVC resins at ₹ 9,25,52,964/- was contrary to law. The findings of the Sales Tax Tribunal and the Authorities below are accordingly reversed - HELD THAT:- Leave granted. Hearing be expedited.
- 2024 (2) TMI 1298
Rectification of mistake - Refusal to exercise the jurisdiction under Section 31 of the U.P. V.A.T. Act, 2008 - miscarriage of justice or not - failure to exercise a jurisdiction duly vested by the authority of law - HELD THAT:- Perusal of Section 31 of the U.P. V.A.T. Act, 2008 would indicate that there is no such restriction in the learned Tribunal exercising its power of rectifying the mistake in as much as Section 31 of the U.P. V.A.T. Act, 2008 does not provide that such power can only be exercised by learned Tribunal in exparte orders rather Section 31 of the Act 2008 goes to the extent of empowering any officer, authority, learned Tribunal or this Court on its own motion or on the application of the dealer or any other interested person to rectify any mistake apparent on the face of record in any order passed under the provisions of the Act, 2008. Once no such restriction is contained under the provisions of the Section 31 of the Act 2008 as such it is apparent that learned Tribunal has patently erred in law in rejecting the said application vide the order dated 16.04.2018.
The matter is remitted to learned Tribunal to decide the application of the petitioner filed under Section 31 of the Act, 2008 in accordance with law - the revision is partly allowed.
- 2024 (2) TMI 1247
Classification of goods - Ujala Supreme - classifiable under Entry No. No.54 (113) of Schedule-A, Part II-A of H.P. VAT Act, 2005 as ‘synthetic organic colouring matter’ or not? - It was held by High Court that The product ‘Ujala Supreme’ is held liable for VAT under H.P. VAT Act at the rate which is applicable for items against Entry 54(113) of the Part-II of Schedule-A of H.P. VAT Act - HELD THAT:- It is not required to interfere in the matter(s) - SLP dismissed.
- 2024 (2) TMI 1246
Maintainability of petition - Jurisdiction - powers of AO to re-assess the escape turnover - Power of suo moto revision.
Maintainability of petition - HELD THAT:- The Supreme Court of India in the case of Godrej Sara Lee Limited Vs. Excise and Taxation Officers-cum-Assessing Authority and Others [2023 (2) TMI 64 - SUPREME COURT] has observed that the power to issue prerogative writs under Article 226 of the Constitution of India is plenary in nature and the Article 226 does not, in terms, impose any limitation or restraint on the exercise of powers to issue writs. Mere existence of an alternative statutory remedy would not oust the jurisdiction of this court to entertain writ petitions and to issue prerogative writs under Article 226 of the Constitution of India, if the case of the petitioner falls within any of the exceptions carved out in the case of Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai [1998 (10) TMI 510 - SUPREME COURT].
There appears to be no dispute at bar that the power of assessment under Section 14 of the Nagaland (Sales of Petroleum and Petroleum Products, including Motor Spirit and Lubricants) Taxation Act, 1967 has been delegated to the Superintendent of Taxes by the Commissioner of Taxes under Section 45 of the said Act. In the instant case also, in all the writ petitions, the original assessment orders were passed by the Superintendent of Taxes.
The petitioner’s contention, in all three writ petitions, is that the powers to re-assess the escape turnover is primarily vested by Section 14 on the Assessing Officer and same is to be exercised subject to certain limitations and that in exercise of power under Section 20(1) of the Act, the Additional Commissioner does not have the power to re-assess the escape turnover which is outside the purview of the powers of suo-motu revision conferred on the Additional Commissioner. In the present bunch of writ petitions, the petitioner has challenged the very jurisdiction of the respondent authorities to issue impugned show cause notices as well as to pass impugned order.
From a reading of subsection (1) of Section 20, it is clear that the power of suo-moto revision can be exercised by the Commissioner only if, on examination of the records of any proceeding under this Act, he considers that any order passed therein by the person appointed to assist him is “erroneous in so far as it is prejudicial to the interest of revenue” - The Commissioner cannot initiate proceedings with a view to starting fishing and roving inquiries into matters or orders which are already concluded. Such actions will be against the well accepted policy of law, and there must be a point of finality in all legal proceedings. That stale issue should not be re-activated beyond a particular stage, and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must be in other spheres of human activity.
For exercising powers under Section 20 of the Nagaland (Sales of Petroleum and Petroleum Products, including Motor Spirit and Lubricants) Taxation Act, 1967, the Commissioner must come to a conclusion that the orders passed by the person appointed under Section 5 of the Act to assist him is erroneous, however, in the instant case, bare perusal of the orders dated 09.09.2020 passed in connection with the Assessment year 2014-2015, 2012-2013 and 2013-2014, it appears that though it is observed therein that the assessment orders are erroneous so far as it is prejudicial to interest of revenue, however, it is also mentioned therein that it requires further inquiry and verification, which itself shows that the respondent No. 3 had not arrive at a conclusion that the order of assessment passed by the Assessing Officer were erroneous, rather, it appears that the respondent No. 3 had embarked upon reverification and recalculation of the assessment proceedings which were already examined by the assessing authority at the time of completion of the original assessment - The finding that the assessment orders are erroneous and prejudicial to the interest of revenue must be based on the materials available from records called for by the Commissioner and for arriving at the said conclusion, he cannot call for the documents from the assessee himself as it would amount to reexamination and reverification of the returns filed by the assessee.
The respondent No. 3 cannot initiate proceedings with a view to start a fishing and roving inquiry in matters or orders which are already concluded unless there are materials available on records called for by him from which he arrives at a conclusion that the assessment orders are erroneous and prejudicial to the interest of revenue - the power under Section 20 of the Act cannot be exercised by the Commissioner without satisfying the two components mentioned in the Section 20(1) of the Act, the Commissioner does not have the power to reexamine the accounts and determine the turnover himself at a higher figure merely because he is of the opinion that the estimate made by the assessing authority was on the lower side.
This Court is of considered opinion that the respondent No. 3 acted beyond jurisdiction in issuing show cause notices dated 28.04.2020 to the petitioner for the assessment years mentioned therein and also in issuing orders by which the assessment for the years 2012-2013, 2013-2014 and 2014-2015 were revised and turnover escaped assessment and short payment of notice taxes were determined. The respondent No. 4 has also acted beyond jurisdiction in issuing demand notices dated 09.09.2020 on the basis of orders passed by respondent No. 3 - The proceeding for suo-motu revisions under Section 20 (1) of the Act in all three cases pending before the Additional Commissioner of Taxes are hereby quashed.
Petition allowed.
- 2024 (2) TMI 1217
Validity of recovery certificate dated 12.6.2019 issued by the respondent No. 3 - refund the amount of advertisement tax paid in advance by the petitioner - HELD THAT:- The interest of justice would be subserved if the interim order dated 05.08.2019 is continued till the disposal of the writ petition. Since the matter is remanded to the High Court, the parties are directed who are represented by their respective counsel to appear before the High Court on 11.03.2024 without expecting any separate notices from the High Court and bring to the notice of the concerned Roster Bench the remand of the matter so that it could be considered and disposed of expeditiously as possible. With the cooperation of the parties it is expected that the High Court will dispose of the matter as expeditiously as possible.
Appeal disposed off.
- 2024 (2) TMI 1216
Seeking review - error apparent on the face of record or not - rate of tax on Bar attached Hotels and shops - HELD THAT:- Review jurisdiction is to be exercised in a very limited manner where there is an error apparent on the face of the record. This Court has considered each and every document and the submissions while rendering the Judgment in SREEVALSAM RESIDENCY, M/S. SNEHA REGENCY, A UNIT OF KOLLENGODE HERITAGE HOTELS & TOURISM PVT. LTD., M/S HOTEL JEENA AND UDAYA BAR, HOTEL ZODIAZ INTERNATIONAL, SAMS PROPERTY DEVELOPERS AND HOTELS P LTD, DAHLIA TOURIST HOME, VERSUS STATE OF KERALA, STATE TAX OFFICER, COMMISSIONER, KERALA STATE GST DEPARTMENT, STATE TAX OFFICER (ARREAR RECOVERY) AND OTHERS [2023 (12) TMI 109 - KERALA HIGH COURT]. Furthermore, these documents were not part of the pleadings. Review does not mean rehearing or appeal. There has to be finality to a litigation. This Court, based on the submissions, documents and evidences, has rendered the Judgment sought to be reviewed.
There are no error apparent on the face of the record which warrants this Court to reconsider this Judgment under review. There is no substance in these review petitions - petition dismissed.
Case Laws - Indian Laws
- 2024 (3) TMI 789
Dishonour of Cheque - vicarious liability of the director - appellant was in-charge of day-to-day affairs of the Company or not - HELD THAT:- In the case of SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA [2005 (9) TMI 304 - SUPREME COURT], this Court was considering the question as to whether it was sufficient to make the person liable for being a director of a company under Section 141 of the Negotiable Instruments Act, 1881. This Court considered the definition of the word “director” as defined in Section 2(13) of the Companies Act, 1956 - It was held that merely because a person is a director of a company, it is not necessary that he is aware about the day-today functioning of the company. This Court held that there is no universal rule that a director of a company is in charge of its everyday affairs. It was, therefore, necessary, to aver as to how the director of the company was in charge of day-to-day affairs of the company or responsible to the affairs of the company. This Court, however, clarified that the position of a managing director or a joint managing director in a company may be different.
It could thus clearly be seen that this Court has held that merely reproducing the words of the section without a clear statement of fact as to how and in what manner a director of the company was responsible for the conduct of the business of the company, would not ipso facto make the director vicariously liable.
It can thus be clearly seen that there is no averment to the effect that the present appellant is in-charge of and responsible for the day-to-day affairs of the Company. It is also not the case of the respondent that the appellant is either the Managing Director or the Joint Managing Director of the Company - It can thus clearly be seen that the averments made are not sufficient to invoke the provisions of Section 141 of the N.I. Act qua the appellant.
The judgment and order passed by the High Court dated 26th April, 2022 is quashed and set aside - Appeal allowed.
- 2024 (3) TMI 750
Ex-parte ad-interim injunction against the appellants - Defamatory Article authored by Defendant Nos. 3-5 and published by Defendant Nos. 1 and 2 as stated in the present Suit are defamatory to the Plaintiff - Article titled as “India Regulator Uncovers $241 Million Accounting Issue at Zee” was published on the website about the status of the Zee-Sony merger as well as an ongoing investigation carried out by the the Securities and Exchange Board of India qua the Respondent.
Appellants’ contend that appellant nos. 1 & 2 are companies incorporated under the Companies Act, 1956 and operate and function as a media publication under the name of “Bloomberg”. The appellant no. 3 is the Editor, South Asia and Middle East, of the appellant no. 1 company and the appellants’ no. 4 & 5 are journalists of the appellant no. 1 company. The respondent is a company incorporated under the Companies Act and is engaged inter alia in the business of media and entertainment.
As submitted Article in question is not only ex-facie defamatory but also suffers from inherent contradictions. The headline of the said Article is deceptive which in no manner is in consonance with the contents mentioned in the body of the Article. The headline is an eyecatcher and the Article is against the spirit of journalistic conduct. SEBI has not released any so called finding, which bear any connection to the purported $ 241 million diversion of funds. The Article has not only implicated the respondents as being guilty of the diversion of illegal funds but has also taken the liberty to fix the quantum of such a fictitious amount. It was submitted that a malicious story has been cooked to intentionally tarnish the reputation & public image of the respondent and there is 15% drop in the share price of the respondent.
HELD THAT:- The position of law is well settled with respect to the scope of interference by an appellate Court in an interlocutory injunction granted by the Court of first instance while exercising its discretion and substituting its own discretion.
It is settled law that unless there is a grave urgency shown as to entertain an appeal against an ex-parte ad-interim order, an appeal is not maintainable either under Order XLI Rule 1 of the Code of Civil Procedure or under Section 10 of the Delhi High Court Act against an ex-parte ad-interim order. Order XXXIX Rule 3 read with Order XLIII Rule 1 of the Code of Civil Procedure shows that in fact no appeal lies against an order passed under Order XXXIX Rule 3 of the Code of Civil Procedure. It is also settled law as laid down by the Hon’ble Supreme Court in the case of Wander Ltd & Anr vs Antox India Pvt. Ltd.[1990 (4) TMI 280 - SUPREME COURT] that it will not be appropriate for the Appellate Court to substitute its own discretion differently from the discretion exercised by the Court of first jurisdiction.
As would be evident from the impugned order, the learned ADJ has clearly taken into consideration relevant factors for the purpose of grant of ex-parte ad-interim injunction. Further, there is no final adjudication on the subject matter of the suit which is at the very threshold. The learned ADJ is yet to hear the Appellants and dispose of the interim application.
Insofar as the other submissions of the Appellants on their defence and the documents placed with their written submissions are concerned, these issues were not placed before the learned ADJ. The appellants have rushed to this Court without exploring the option of filing their reply to the application under Order XXXIX Rule 1 and 2 of the Code of Civil Procedure and/ or application under Order XXXIX Rule 4 of the Code of Civil Procedure for modification of the ex-parte ad-interim order.
A reading of the impugned order suggests that the learned ADJ applied his mind to the facts of this case and satisfied himself that prima facie there was enough material to come to the conclusion for the purpose of granting an ex-parte ad-interim injunction, otherwise the entire purpose of filing the application would have been rendered infructuous. Being conscious of the provisions of Order XXXIX Rule 3A of the Code of Civil Procedure, the learned ADJ has fixed the next date of hearing as 26.03.2024 for deciding the application under Order XXXIX Rule 1 and 2 of the Code of Civil Procedure. I, thus, do not find any ground to interfere with the order impugned herein. Consequently, the appeal along with pending applications, stands dismissed.
However, in case of any kind of urgency, the parties are at liberty to approach the Court of learned ADJ for an early hearing. It is clarified that the appellants to comply with the directions of learned ADJ vide order dated 01.03.2024 within three days from today.
- 2024 (3) TMI 749
Disqualification of qualified bidder - disqualified on the ground that false information regarding ‘GST’ number was incorporated in the Tender submitted by the Petitioner - HELD THAT:- It is trite law that Tendering Authority has right to incorporate the conditions of Tender and also seek the compliance from the bidders. Pertinently, in present case condition no.11 mandates that Bidders must furnish GST numbers as well as the details of returns for financial year 2022-2023 certified by the Competent Authority. It is not the case of the Respondents that the petitioner has misrepresented or submitted false documents depicting that he is complaint of the condition no.11. The aforesaid fact was very well before the Tendering Authority since the Petitioner had not submitted the GST returns or the certificate of clearance. However, the Committee of 11 Class-1 officers, on scrutiny of the technical bids, declared the petitioner as qualified. Pertinently, one more bidder, who has not submitted GST returns, is also declared as qualified, although technical evaluation report takes special note of such non-compliance, disqualification was not ordered on that count.
The condition no.11 under the tender was waived by the Tendering Authority. Pertinently, there is a reason for such waiver. As can be seen from the notification issued by the Ministry of Finance, Government of India, (Department of Revenue) – Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union Territory or Local Authority or Governmental Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution has been exempted.
It is, therefore, evident that waiver of condition no.11 by the Tendering Authority was based on rational. Such waiver is neither a mistake of fact or accidental omission. This appears to be thoughtful decision to waive unessential tender condition - the Tendering Authority/Respondent no.3 has chosen not to insist condition no.11 since it was of little or no significance or it was classified as non-essential condition of eligibility being ancillary or subsidiary with main object to be achieved by the condition. It is well settled that Tendering Authority may deviate from and not to insist upon the strict literal compliance of the condition in appropriate cases.
Once it is concluded that there was deliberate/thoughtful waiver of the condition no.11 by the Tendering Authority, by which the petitioner was declared as qualified, although he was not holding GST registration or clearance certificate, it is difficult to justify the subsequent order disqualifying petitioner relying upon the same condition - when the petitioner objected to such an action of respondent no.3 through his representation and later-on by filing present petition, a show cause notice appears to have been issued to him quoting non-compliance of the condition no.11 and, consequently, second impugned order of disqualification of the petitioner has been passed.
The Petitioner is qualified and entitled to participate in the further process of E-Tender floated under notice dated 13.7.2023 and entitled to be dealt with as the Lowest Bidder (L-1) - Petition allowed in part.
- 2024 (3) TMI 586
Constitutional validity of Electoral Bond Scheme and the provisions of the Finance Act 2017 which amended the provisions of the Representation of People Act 1951 and the Income Tax Act 1961 - non-disclosure of information regarding the funding of political parties is violative of the right to information of citizens under Article 19(1)(a) of the Constitution or not - crux of the submission of the SBI is that the matching of information to ascertain who contributed to which political party is a time-consuming process since the information is maintained in two separate silos - HELD THAT:- The Miscellaneous Application filed by the SBI seeking an extension of time for the disclosure of details of the purchase and redemption of Electoral Bonds until 30 June 2024 is dismissed. SBI is directed to disclose the details by the close of business hours on 12 March 2024.
During the pendency of the proceedings before the Constitution Bench, ECI had, in compliance with the interim order passed by this Court, filed its statements which have been maintained in the custody of the Court. Copies of the statements which were filed by the ECI before this Court would be maintained in the Office of the ECI. ECI shall forthwith publish the details of the information which was supplied to this Court in pursuance of the interim orders on its official website.
The Miscellaneous Application for extension of time shall accordingly stand dismissed.
- 2024 (3) TMI 585
Legislative competence, the constitutional validity and the vires of the Himachal Pradesh Water Cess on Hydropower Generation Act, 2023 - Case of State is that Since water is a State’s subject matter and comes under entry 17 of List-II, therefore, the State has legislative competence to make law and hence there is no violation of article 265 of the Constitution of India.
Nature and event of taxation under the impugned Act - HELD THAT:- The power to tax is on generation of electricity and user of water is only incidental. The “user of water” is not being taxed and it is only the “user of water for generation of electricity”, who is being taxed. Therefore, it is a tax on generation of electricity. If it was the quantum of water used, then the height from which the water would fall as a measure to determine the rate of cess would be wholly irrelevant. It is evidently clear from the aforesaid notification dated 16.02.2023 that the quantification is not based on the use of water, but is based on the height from which the water falls. The “use of water” in fact does not go by the text of the impugned Act. It is “generation of electricity” that is the “bone” and “water drawn” is only the “flesh”. The taxable event is “hydropower generation” and not the “usage of water” because if there is no generation, then there is no “tax”. Moreover, if the cess was on “usage of water”, then how could the height, at which the water falls on the turbine, be made the taxable event?
It is settled principle of law that standard adopted as a measure of levy, although not determinative, is at least indicative of the nature of the tax. Weighed alongwith and in the light of other relevant circumstances, the method adopted by the legislature would be relevant in determining the character of the impost.
The impugned levy varies in quantum with the quantum of electricity generated but not the quantum of water drawn and, thus, makes it clear that its character or nature is such that it is inextricable with electricity generation. Thus, there are no hesitation to answer the point in favour of the petitioners by concluding that by the impugned Act cess is sought to be imposed on “generation of electricity” as against “water” and, therefore, it is a misnomer that tax is levied on “water” and not “generation of electricity”, and is, therefore, not a water tax - answered in favour of petitioners.
Pith and substance of the taxing legislation which assumes significance not to the question of bonafides or malafides but in examining the competence of the legislature - HELD THAT:- In determining whether an enactment is a legislation with respect to the given power, what is relevant is whether in its “pith and substance”, it is law upon the subject matter in question. Therefore, it is necessary here to subject the impugned Act to the test of “pith and substance” to ascertain its true intent and character, which is relevant in determining as to which list it would fall under and also to trace the State's competence to have promulgated the impugned Act arises. As per Article 265, no tax can be levied or collected except by authority of law.
Competence of the State to promulgate the impugned Act whether can be traced to Entry 49 of List-II to the Seventh Schedule of the Constitution as contended by the State - HELD THAT:- It is well settled that while the widest amplitude should be given to the language used in one entry, every attempt has to be made to harmonise its contents with those of other entries, so that the latter may not be rendered nugatory.
Competence to promulgate the impugned Act whether can be traced to Entry 50 of List-II as contended by the State - HELD THAT:- The State's competence to impose impugned levy cannot be traced to Entry 50 of List-II as contended by it. Activity of non-consumptive drawl of water for generation of hydropower, where the water drawn is allowed to flow back to its source, being a single inextricable event cannot be brought under the purview of taxing mineral rights - even Entry 50 of List-II cannot be held to countenance the States’ taxation on water drawl for generation of electricity.
Competence to promulgate whether can be traced to Entry 45 of List-II - HELD THAT:- The State's competence to promulgate the impugned Act cannot be traced to Entry 49 of List-II. Therefore, Rekchand's case [1997 (5) TMI 441 - SUPREME COURT] is not applicable in the present case and the State's competence cannot be traced to Entry 45 of List-II - in Rekchand case, the levy was imposed on drawl of flowing water by artificial contrivance for industrial purpose. The rates of such levy were specified under Resolution. It was on account of the definition of land under the Transfer of Property Act, 1882, which included right to water flowing therefrom, the said levy was sustained by the Hon'ble Supreme Court under Entry 45, List-II.
Competence to promulgate whether can be traced to Entries 17 & 18 read with 66 of List-II as a “tax” - HELD THAT:- The State has relied on Entries 17 & 18 of List-II to demonstrate its competence to have legislated the Impugned Act. In this regard, it is a settled principle of law that taxation entries are distinct from general regulatory entries. Entries 1 to 44 in List-II are regulatory, whereas Entries 45 to 63 are taxing entries. Therefore, the legislative competence to impose any tax on water drawn for hydropower generation cannot be imposed by the State by referring to Entries 17 & 18 of List-II being regulatory entry - considering the charging section, taxable event and nature of levying under the impugned Act as well as subjecting the impugned Act to the test of “pith and substance”, it is absolutely clear that the impugned Act imposes tax on generation of electricity and not merely on water as a subject or on drawl of water, which the State is not competent to do. It also imposes an inter-State tax on inter-State supply of electricity for which again the State is not competent to do so.
Competence to promulgate whether can be traced to Entries 17, 18 read with 66 of List II as a “fee - HELD THAT:- Once it is held that the cess sought to be imposed by the impugned Act is not on the “water drawn” but on the “generation of electricity”, then, it is the Central Government alone which could levy tax on generation electricity - Noticing that electricity is goods - the Hon’ble Supreme Court CST vs. M.P. Electricity Board [1968 (11) TMI 85 - SUPREME COURT] observed that levy of State duty on production of electricity is covered with the phrase “other goods manufactured” in Entry 84 of List I and this is within the exclusive jurisdiction of the Parliament. Consequently, it was declared that the State has competence to levy tax only on the sale and consumption of electricity - the Hon’ble Supreme Court held that the levy on generation of electricity is not within the legislative competence of the State - Point answered in favor of petitioner.
Without prejudice, the impugned Act is unconstitutional for it suffers from vice of excessive delegation - HELD THAT:- In the instant case, three essential components can be clearly identified within the impugned statute, which are taxable events, “the person liable to pay tax” and the “rate of tax”. However, the impugned legislation fails to identify the fourth and equally critical component i.e. measure of tax, which is the value on which the rate of tax will be applied for computing the tax liability - In exercise of powers vested under Section 15(2) of the impugned Act that the State Government issued a Notification dated 26.08.2023, whereby the tariff structure on water cess was fixed on the basis of “Head”. However, even the said notification failed to prescribe the measure of tax and instead proceeded to prescribe tariff rate without any indication or measure on which such tariff rate will be applied. Moreover, measure of tax being vague, based upon the “assessment” or water drawn, which would form the basis of the tax imposed is also vague and fraught with lack of adequate guidelines, as is evident from the combined reading of Section 12 with Section 17 of the impugned Legislation.
The preamble of the impugned Act merely states that it is an act to levy water cess on hydropower generation in the State of Himachal Pradesh, the Statement of Objects and reasons merely states that the objective of the impugned Act is revenue generation. Therefore, on account of having delegated power to fix rates of impugned levy to Government of Himachal Pradesh without any legislative policy or guidance, the impugned Act is unconstitutional - point is accordingly answered in favour of the petitioners.
Promissory Estoppel - HELD THAT:- The question of promissory estoppel has been rendered academic and, therefore, need not be answered.
To conclude, it was held as follows:
(i) The provisions of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, are declared to be beyond the legislative competence of the State Government in terms of Articles 246 and 265 of the Constitution of India and, thus, ultra vires the Constitution.
(ii) Consequently, the Himachal Pradesh Water Cess on Hydropower Electricity Generation Rules 2023, are also quashed and set aside.
(iii) Sections 10 and 15 of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023, as have been made applicable to the existing projects, are also declared to be ultra vires the Constitution and are accordingly quashed and set aside.
(iv) The amount, if any, recovered by the respondents from the petitioners under the provisions of the Himachal Pradesh Water Cess on Hydropower Electricity Generation Act, 2023 and the Rules framed thereunder are ordered to be refunded within four weeks from today.
(v) The letter/notice issued by the State Government/Himachal Pradesh State Commission for Water Cess on Hydropower Generation pursuant to the impugned Act, Rules, seeking recovery of water cess from the petitioners, are declared as illegal and are accordingly quashed and set aside.
The petition is allowed.
- 2024 (3) TMI 584
Seeking exemption from pre-litigation mediation, as required by Section 12-A of the Commercial Courts Act, 2015 - Proceedings u/s 138 of the Negotiable Instruments Act, 1881 - suit for recovery alongwith interest and future interest - HELD THAT:- The plaintiff’s case here is predicated only on the fact that it has already undertaken efforts to settle the disputes between parties. Appellant refers to in paragraph 3 of the application, wherein it is stated that the parties were also referred to mediation. However, I do not find this case to be supported by the documents annexed to the application. There is no report of any mediation centre stating that mediation has failed. The orders of the learned Judicial Magistrate, Chandigarh, annexed to the application, also demonstrate only that the parties submitted before the Court that there was chance of compromise, but the attempt was ultimately found to be futile.
In the present case, there is no record that an attempt has been made in mediation, and that no urgent relief is sought. Pre-litigation mediation was therefore mandatory.
The application is consequently dismissed, and the plaint is also rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908. The suit is accordingly dismissed.
- 2024 (3) TMI 583
Arbitration agreement - Refusal to grant work order - L1 bidder in the tender process - forfeiture of the Earnest Money Deposit (EMD) - GST payable was @ 12% - Subsequently, by a notification of the Government, rate was enhanced from 12% to 18% - Wednesbury test - it is argued that if prayer of the petitioner, is allowed, would tantamount to a modification of the tender terms - since there was an acceptance on the part of the parties with regard to the tender conditions, the same has to be treated on the same footing as a contract.
HELD THAT:- In the facts of the present case, although the State takes a stand that the prayer of the petitioner would tantamount to rewriting the contract between the parities, it is not so in view of the Memorandum issued by the State itself on November 22, 2022. The said Memorandum, in no uncertain terms, provides for enhancement of GST by 6% from 12% to 18%, even in cases where work order has been issued. In cases where the tender is under process and there is clear indication of rate of GST @ 12%, the Memorandum provides for enhancement by 6% on account of GST. The acceptance order dated January 16, 2023 was issued subsequent to the November 22, 2022 Memorandum and, as such, was subject to the operation of the said Memorandum.
Since the petitioner had participated in the tender before the enhancement of GST from 12% to 18%, the provisions of the Memorandum dated November 22, 2022 were squarely applicable in the present case. Thus, the respondent authorities ought to have honoured the commitment of the State issued by way of a Memorandum dated November 22, 2022 by enhancing the GST from 12% to 18% and/or permit the petitioner to refurnish the quotations by incorporating such 6% enhancement, which was the precise request of the petitioner vide its communication dated April 17, 2023.
It is well-settled that State actions have to be scrutinized on a higher standard of fairness than the action of private employers.
Supreme Court in [2019 (3) TMI 600 - SUPREME COURT] categorically applied the Wednesbury test and opened up a window for judicial review even regarding the tender terms where there is arbitrariness, discrimination, unreasonableness and malice. The present instance is one where there is palpable arbitrariness and discrimination against the petitioner insofar as the respondents refused to apply the provision of the Memorandum dated November 22, 2022 to the petitioner, despite the petitioner coming under the purview of the same.
Hence, on the score of such arbitrariness and discrimination, the respondent authorities fail the Wednesbury test and, as such, their action is palpably unreasonable and discriminatory against the petitioner.
Since the expression of the petitioner’s interest to terminate the tender was obviously under State coercion and duress, the same cannot said to be an unqualified intention on the part of the petitioner or any admission on the part of the petitioner regarding termination of the tender or the work order envisaged thereunder. Hence, the said action of the petitioner cannot be held to be on such a high footing that the same would preclude the petitioner’s very challenge to the respondents’ action in not giving effect to the Memorandum dated November 22, 2022 in respect of the petitioner.
Thus, the respondents were duty-bound to permit the petitioner to enhance the GST rates by 6 per cent in terms of their own Memorandum dated November 22, 2022 read in conjunction with Notification No. 03/22-Central Tax (Rate) dated July 13, 2022 whereby the enhancement of GST rates took effect, coupled with WBGST Rate Notification No. 1393-FT dated August 23, 2022 whereby the State of West Bengal adopted the GST enhancement.
Thus, the impugned action of the respondents in refusing such request of the petitioner and consequential refusal to issue work order and forfeiture of the EMD cannot be sustained.
Thus, as a consequence of the setting aside of the refusal by the respondents to give the work order to the petitioner, all subsequent action taken by the State, including subsequent tender, if any issued, are hereby set aside.
The respondents shall issue work order to the petitioner by permitting the petitioner to incorporate the enhancement of 6% to the GST rates in its freshly quoted rates. Such fresh quotation shall be given by the petitioner to the respondent authorities within a week from date. Upon such rates being served on the respondent authorities, the respondent authorities shall issue the work order in terms thereof in favour of the petitioner pursuant to the tender-in-question. Alternatively, the respondent will be at liberty to refund the entire earnest money paid by the petitioner with interest @ of 10% till the date of such payment to the petitioner, in which case subsequent action taken by the State in issuing fresh tender shall be sustained.
- 2024 (3) TMI 486
Dishonour of Cheque - civil nature dispute - main contention of the petitioners is that the transaction between them and respondent No. 2 was purely of civil nature as such, the respondents could not have given a criminal colour to it by registering the impugned FIR - whether in the face of aforesaid nature of dispute between the parties, it would be open to set the criminal proceedings into motion at the instance of one party to the dispute against the other and whether this Court in exercise of its jurisdiction under Section 482 Cr.P.C. can quash impugned proceedings?
HELD THAT:- This issue has been discussed and deliberated upon by the Supreme Court in the case of INDIAN OIL CORPORATION VERSUS NEPC INDIA LTD & ORS [2006 (7) TMI 575 - SUPREME COURT] has held that A commercial transaction or a contractual dispute, apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. As the nature and scope of a civil proceedings are different from a criminal proceeding, the mere fact that the complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available or has been availed, is not by itself a ground to quash the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not.
From the foregoing enunciation of the law on the subject, it is clear that a commercial transaction or a contractual dispute apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. It is also clear that the scope of a civil proceeding is different from a criminal proceeding and the mere fact that the allegations relate to a commercial transaction or breach of contract for which a civil remedy is available, is not by itself a ground to quash the criminal proceedings.
In the present case, the petitioner-Mohd Afzal Beigh despite having the knowledge that he was not the owner of the property in question, represented to respondent No. 2 that he is owner of the property in question.
Whether the action of petitioner-Mohd. Afzal Beigh amounts to the offence of cheating? - HELD THAT:- The fraudulent intention on the part of petitioner Mohd Afzal Beigh was existing there from the very inception of the transaction between the parties. It is not a case where petitioner-Mohd Afzal Beigh was owner of the property and he had agreed to sell the said property to respondent No. 2 and for any reason, he could not execute the sale deed, but it is a case, where he falsely represented to respondent No. 2 that he is owner of the property in question, which he was not. So from the very beginning, he was knowing that it was not within his power and competence to execute the sale deed in respect of the land in question in favour of respondent No. 2, but despite this, he entered into agreement to sell with respondent No. 2 and made her to part with partial amount of sale consideration. Thus, offence under Section 420 IPC, which is a cognizable offence, is made out from the allegations made in the complaint and the material available on record.
Petitioner-Mohd Afzal Beigh has executed a number of affidavits declaring therein that he has received an amount of Rs. 1.80 crores from respondent No. 2, which he has been unable to repay to her. Subsequently cheques have also been issued by his wife petitioner- Fehmida Kouser in connection with repayment of the aforesaid amount but the cheques have been dishonoured, in respect of which separate proceedings are stated to be pending. There are allegations against the petitioners that after receiving the amount from respondent No. 2 they have diverted the funds and out of the said funds, petitioner-Abdul Rashid Beigh has constructed a building in his village. This prima facie goes on to show that the petitioners were having fraudulent intention while entering into transaction with respondent No. 2 and all the petitioners appear to be having a role in it.
The power under Section 482 Cr.P.C. to quash the criminal proceedings has to be exercised sparingly only in deserving cases in the circumstances illustrated in the aforesaid judgment. Even allegations of mala fides against the informant by itself is not a ground for quashing the criminal proceedings. The defence set up by the petitioners particularly the petitioners-Abdul Rashid and Fehmida Kouser can be looked into by the Investigating Agency during the investigation of the case and not by this Court in their proceedings by holding a mini trial. Having regard to the fact that allegations made in the impugned FIR disclose commission of cognizable offences, therefore, exercise of jurisdiction under Section 482 Cr.P.C. to quash the proceedings in the instant case would amount to stifling a legitimate prosecution, which is not permissible in law.
There are no merit in the instant petitions. The same are dismissed.
- 2024 (3) TMI 443
Market fee/mandi shulk - Whether ghee is a product of livestock under the provisions of The Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966? - whether the Government notification (G.O. Ms. No.286 dated 05.07.1994), which inter alia notifies ghee as one of the products of livestock for the purpose of regulation of purchase and sale of ghee in all notified market areas was published after due compliance of the procedure contemplated under the provisions of the Act?
HELD THAT:- The argument that “ghee” is not a product of livestock is baseless, and bereft of any logic. The contrary argument that “ghee” is indeed a product of livestock is logically sound. Livestock has been defined under Section 2(v) of the Act, where Cows and buffalos are the livestock. Undisputedly, “ghee” is a product of milk which is a product of the livestock.
The majority opinion of the Full Bench decision in Kommisetty Nammalwar [2009 (5) TMI 1021 - ANDHRA PRADESH HIGH COURT] while referring to the judgments of this Court in Park Leather Industry (P) Ltd. v. State of U.P. [2001 (2) TMI 893 - SUPREME COURT]]; Kishan Lal v. State of Rajasthan [1990 (3) TMI 323 - SUPREME COURT]; Ram Chandra Kailash Kumar v. State of U.P. [1980 (3) TMI 262 - SUPREME COURT] and Smt. Sita Devi (Dead) by LRs. v. State of Bihar & Ors. [1994 (11) TMI 439 - SUPREME COURT] held that all animal husbandry products would fall within the meaning of ‘products of livestock’ as defined under Section 2 (xv) of the Act. Further, the majority decision has also held that the inclusion of “ghee” as a livestock product cannot be faulted merely because it is derived from another dairy product. It was observed by the High Court that even though “ghee” is not directly obtained from milk, which is a product of livestock, it would still be a “product of a product of livestock”.
The second argument of the appellant that the procedure given under Section 3 of the Act has not been followed, is also not correct. There is a basic difference between the notification which has to be made under Section 3 of the Act and the notification which has to be made subsequently under Section 4 of the Act. What has to be done under Section 3 is a onetime measure where the Government notifies an area where purchase and sale of agricultural produce, livestock and products of livestock can be made. This is a one-time exercise - A perusal of Sections 3 and 4 of the Act clearly shows that whereas a draft notification is mandatory under Section 3 and so is the hearing of objections to the draft notification, there is no similar provision under Section 4 of the Act.
Market fee - HELD THAT:- Since the 1994 notification had an effect which made ‘Ghee’ a product that could be regulated under provisions of the Act, Market Committees were empowered to levy fee on the sale and purchase of ‘ghee’ as per section 12 of the Act. During the pendency of the matter before the High Court, the appellants were not required to pay market fee as they were granted interim protection by the High Court. After the majority decision of the High Court in Kommissetty Nammalwar [2009 (5) TMI 1021 - ANDHRA PRADESH HIGH COURT], market committees started issuing demand notices to the producers of ‘Ghee’ asking them to pay fees from the date of the notification in the year 1994 to the date of the High Court judgment i.e. 01.05.2009.
As per section 4(2) of the Act, the Market Committee has the duty to enforce the provisions of the Act within a notified area. Section 4(3), which empowers Market Committees to establish markets within the notified area, also directs that these Market Committees have to provide facilities in the markets for the purchase and sale of notified products. Appellants’ argument that these Market Committees did not provide any facilities has already been dealt with and rejected by the High Court and we are also of the same view as that taken by the High Court. The appellants have availed the facility given by the Market Committee and hence they are liable to pay the fee.
Appeal dismissed.
- 2024 (3) TMI 442
Criminal breach of trust - loan and its repayment - dishonest intention or not - proceeding under Section 138 of the N.I. Act is pending - Parallel proceedings or not - HELD THAT:- In the present case, the dispute relates to a loan and its repayment. There is absolutely no material on record to prima facie show that the accused has dishonestly mis-appropriated or converted the property for his own use. There is a strong case of repayment in this case.
In respect of the present dispute even though a proceeding under Section 138 of the N.I. Act is pending, the present case under Sections 406/409/420/120B of IPC on the same dispute is maintainable as, though the facts may overlap but the ingredients of offences in the two proceedings are entirely different.
In the present case, admittedly there was a business transaction between the parties but there is no case against the petitioners that he dishonestly induced the complainant. There was neither any deceit nor any inducement to deceive the complainant. The transaction was admittedly for the benefit of both the parties. The fact of wrongful loss of one resulting in wrongful gain of another is not present in this case as loan has been admitted and the dispute relates to its repayment. Thus the ingredients required to constitute the offence under Section 420 IPC are clearly absent in the present case.
In the present case there is no materials to show that there was any existence of dishonest/fraudulent intention while making any initial promise that is from the beginning of formation of contract - The petitioners were repaying the loan as agreed, when they decided to the clear the dues prematurely.
In the Present case, there is no substance in the allegations and no material exists to prima facie make out the complicity of the petitioner in a cognizable offence as alleged. As such the proceedings in this case should be quashed by exercising this courts inherent powers for ends of justice and to prevent the abuse of process of the court.
Revision application allowed.
- 2024 (3) TMI 441
Dishonour of Cheque - application seeking summoning of the records/documents/books of accounts mentioned in the said application for purposes of cross-examination of the Authorised Representative of the respondent/complainant company dismissed - HELD THAT:- The present petition was first listed before this Court on 26.04.2022. This Court directed the petitioner to file a three page summary clearly identifying the documents of which the petitioner seeks summoning before the learned Trial Court, and referring to the relevance of the said documents within the context of the proceedings under Section 138 of the NI Act instituted by the respondent against the petitioner.
The petitioner is seeking the production of documents only with the intent of conducting a fishing and roving inquiry and to, in fact, embarrass the trial. Such attempt of the petitioner cannot be allowed to succeed. In any case, if the learned Trial Court is later of the opinion that these documents were relevant to be produced by the respondent for proving the case against the petitioner, the Court will draw an adverse inference of their non-production against the respondent. However, at this stage, this Court is of the opinion that the documents, production of which are sought for by the petitioner, are neither relevant nor necessary for a proper and fair adjudication of the Complaint filed by the respondent.
In KAILASH VERMA VERSUS PUNJAB STATE CIVIL SUPPLIES CORPN. [2005 (1) TMI 406 - SUPREME COURT], the Supreme Court has held the power under Section 482 of the Criminal Procedure Code has to be exercised sparingly and such power shall not be utilised as a substitute for second revision. Ordinarily, when a revision has been barred under Section 397(3) of the Code, the complainant or the accused cannot be allowed to take recourse to revision before the High Court under Section 397(1) of the Criminal Procedure Code as it is prohibited under Section 397(3) thereof. However, the High Court can entertain a petition under Section 482 of the Criminal Procedure Code when there is serious miscarriage of justice and abuse of the process of the court or when mandatory provisions of law are not complied with and when the High Court feels that the inherent jurisdiction is to be exercised to correct the mistake committed by the revisional court.
There are no merit in the present petition. The same is, accordingly, dismissed.
- 2024 (3) TMI 399
Dishonour of Cheque - acquittal of accused - evidence on record has not been properly appreciated by the learned trial court - appellant submits that the evidence produced by the respondent/accused before the trial court does not rebut the said presumption as the same is contradictory and un-reliable in nature - whether there was a compromise between the parties in pursuance whereof any payments were made by the respondent to the appellant? - HELD THAT:- The facts relating to issuance of cheques and dishonour of the cheques for insufficiency of funds are not in dispute, therefore, in terms of Section 139 of the NI Act, it has to be presumed that the appellant has received the cheques in discharge of whole or part of the debt or liability. However, the said presumption is rebuttable, as is clear from the provisions contained in Section 139 of the NI Act.
The Supreme Court has, in the case of RANGAPPA VERSUS SRI MOHAN [2010 (5) TMI 391 - SUPREME COURT] while discussing the legal position as regards the nature of presumption that arises under Section 139 of the NI Act and the standard of proof required to rebut such presumption, observed it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of ‘preponderance of probabilities’. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his/her own.
From a perusal of the afore-quoted observations of the Supreme Court, it is clear that once a presumption arises in terms of Section 139 of the NI Act on the basis of the facts proved on record, the person against whom presumption is drawn is not precluded from rebutting it and proving the contrary. It is also clear that the rebuttal does not have to be conclusively established but the person against whom the presumption has arisen, has to adduce such evidence in support of his defence that the Court may either believe the defence to exist or consider its existence to be reasonably probable. The standard of reasonability has to be that of a prudent person.
Adverting to the facts of the instant case, the respondent/accused while making his statement under Section 242 of the J&K Cr. P.C. has clearly stated that after issuance of the cheques in question, there was a compromise between the parties before SHO, Police Station, Chanderkote, DW-Diljit Singh as the appellant/complainant had held up his vehicle at Chanderkote. It is his defence that during the compromise an amount of Rs. 50,000/- was paid to the complainant and the balance amount was paid to him after withdrawing the same from the ATM after some days, but in spite of this, he did not return the cheques. In order to establish this defence, the respondent/accused has examined DW-Shafiq Ahmad and DW-Mohd Amin, who were working as Mates with the respondent. The statement of the then SHO, Police Station, Chanderkote, Diljit Singh has also been recorded.
The defence of respondent/accused that he had paid the cheque amount to the appellant, even before the same were presented for encashment, appears to be probable.
So far as the allegation regarding receipt of demand notice by respondent/accused is concerned, the same has never been put to him to seek an explanation from him at the time of recording his statement under Section 242 of J&K Cr.PC. The learned Magistrate did not explain the particulars of the fact relating to service of demand notice upon him while recording his statement under Section 242 of the J&K Cr. P.C., though it is an essential ingredient of offence under Section 138 of NI Act. The statement of the accused under Section 342 Cr.P.C. has not been recorded at all by the learned trial Magistrate on the ground that no such statement was required to be recorded in a summons trial case. Thus, even the evidence regarding service of demand notice has not been put to the accused for seeking his explanation.
The view taken by the learned trial Magistrate that there was no requirement of recording the statement of the accused under Section 342 Cr. P.C. is not in accordance with law. Thus, even in summons trial cases a criminal court is obliged to question the accused generally on the case after the witnesses of the prosecution have been examined.
It is a settled law that the incriminating circumstances, regarding which no explanation has been called from the accused, cannot be used against him while deciding veracity of the accusation against him. The evidence which has not been put to an accused has to be eschewed from consideration. Therefore, the evidence, as regards service of demand notice upon the respondent/accused having not been put to him, cannot be taken into consideration while deciding the veracity of the accusations against him.
If the drawer of the cheque pays a part of whole of the sum between the period the when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque. Therefore, unless the part payment is endorsed on the cheque as per the Section 56 of the NI Act, the complaint under Section 138 of NI Act would not be maintainable once part payment is made by the accused - even if the contention of the learned counsel for the appellant that payment of Rs. 2,10,000/- by the accused to the appellant is not sufficiently proved, still then in the absence of endorsement on the cheques regarding receipt of Rs. 40,000/-, the complaint could not have proceeded.
This Court is of the considered view that the accused/respondent has succeeded in probablizing his defence so as to rebut the presumption that had arisen in favour of the appellant/complainant. The view taken by the learned trial court is definitely a passible one, as such, this Court does not find any ground to interfere in the impugned judgment passed by said court - Appeal dismissed.
- 2024 (3) TMI 398
Dishonour of Cheque - Seeking setting aside of summoning order - vicarious liability on partner of a firm - requirements of Section 141 of the NI Act, satisfied or not, especially in view of the fact that in a previous complaint between the same parties, with respect to the same subject matter, the present petitioner was not named as an accused (as a person in-charge of conduct of day to day affairs of the accused partnership firm).
HELD THAT:- In the present case as noted hereinabove, the allegation with respect to the present petitioner is to the extent that she alongwith with other accused in the said complaint were partners of the partnership firm and “are responsible for the day to day affairs of the Accused No. 1 and are incharge and in control and management of the Accused No. 1”. A further reading of the complaint reflects that the subject matter of the same was a Development Agreement dated 16.03.2018 for developing a land owned by respondent no. 2. It is an admitted case that the said agreement has not been signed by the present petitioner. It is a matter of record that respondent no. 2, in the previous complaint filed on the basis of said Development Agreement did not implead the present petitioner as an accused.
The name of the petitioner is conspicuously not mentioned as an accused or a person responsible for the affairs of the said partnership firm. In the complaint that is the subject matter of the present petition, no averment has been made by respondent no. 2, to state that the petitioner, although not named in the previous complaint but on account of some subsequent development, came to know that she was incharge of affairs and also responsible for conduct of business of the accused partnership firm at the relevant time. In view of the fact that the previous complaint did not name the present petitioner, it was incumbent upon respondent no. 2 to place on record more particulars about the role of the present petitioner in the complaint.
The petitioner is admittedly a 65 years old lady and the accused partnership firm is a family concern. The reliance placed by respondent no. 2 on Income Tax Returns for the financial year 2015-16, filed under the signatures of the petitioner cannot bring her case within Section 141 of the NI Act. As held in SIBY THOMAS VERSUS M/S. SOMANY CERAMICS LTD. [2023 (10) TMI 487 - SUPREME COURT] it is be shown that the petitioner was responsible for the affairs of the partnership and in control of the same for the relevant transaction, .i.e., present cheques in question which are dated 27.07.2018 and 05.08.2018. Admittedly, the petitioner is not a signatory to the cheque. Apart from the above basic averment, nothing has been placed on record to show the petitioner’s involvement in the firm or with respect to the subject transaction.
The summoning order dated 25.07.2019, arising out of CC No. 344/2019, qua the petitioner, is hereby quashed - petition allowed.
- 2024 (3) TMI 397
Declaration of bodies corporate, their promoters and directors, as “wilful defaulters” - seeking various declaratory reliefs whereby adherence to principles of natural justice, including provision of inspection of relevant material, is sought to be read into the due process stipulated by the Respondent No. 2, the Reserve Bank of India - HELD THAT:- The Union Bank is firmly of the view that it is not obligated to provide any material to prove its allegations and that the onus is on the Petitioner to prove his innocence. Therefore, the stance of Union Bank is in conflict with first principles of the rule of law in India. Put differently, once a bank has accused someone of being a wilful defaulter (without providing supporting material), the person accused has to shoulder the onus and burden of proving his innocence. The affidavit in reply makes no bones about the Union Bank’s belief that no underlying material needs to be disclosed to any noticee under the Master Circular - There cannot be a concept more alien to the constitutional protections available under the rule of law in India. The aforesaid stance flies in the teeth of the “imperative” requirements of transparency stipulated by the RBI in the Master Circular.
It is now trite law that in proceedings that can inflict serious civil consequences on any citizen, the noticee should be able to appreciate the case made out against him so that he may deal with the allegations to the best of his ability. The only means of doing so is to provide detailed proper notice of the reasons for having formed a prima facie view when calling upon the noticee to show cause why such prima facie view must not translate into a final view. Such an approach would enable the noticee to understand in a cogent manner the case that he is supposed to meet.
Union Bank is granted liberty to make a proper disclosure of materials and information on which the SCN is based. Once such disclosure is made to the Petitioner, the Petitioner is at liberty to submit a fresh reply to the SCN, after which a reasoned draft order may be issued by the Identification Committee. This draft order of the Identification Committee shall be served on the Petitioner so as to enable him to make his representation to the Review Committee why the said order ought not to be confirmed. Thereafter, a reasoned final order may be passed by the Review Committee, if it is found that there has been a wilful default attributable to the Petitioner.
The Union Bank is permitted to withdraw the final order dated 28th February, 2023 passed by the Review Committee as also the draft order dated 5th August, 2022 purported to have been passed by the Identification Committee, insofar as it relates to the Petitioner - Any agency, including Respondent Nos. 3 to 6, that has published or disseminated the name of the Petitioner identifying him as a wilful defaulter on the strength of the orders that now stand withdrawn by Union Bank, shall forthwith remove such identification from publicly accessible information resources.
Petition disposed off.
- 2024 (3) TMI 396
Disciplinary proceeding against the govt officer - Punishment of withholding of 10% of monthly pension for a period of three years - misconduct - failure to maintain absolute integrity - lack of devotion to duty - violation of Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of the Central Civil Services (Conduct) Rules, 1964 - HELD THAT:- Neither the inquiry report nor the order of punishment dated 26th April, 2013 passed by the Disciplinary Authority has recorded any finding about doubtful integrity of the petitioner. The Disciplinary Authority in his order, on the other hand, records a categorical finding that “the charge of lack of integrity against the Charged Officer could not be substantiated”. It is also to be noticed that even the Inquiry Officer has not found any such material on record which would lead him to doubting the integrity of the petitioner; the finding rather is that there was no malice or mala fide intent on the part of the petitioner and further that there was no allegation of any corrupt practice or extending undue benefit to the importer, against the petitioner.
Accordingly, neither is there any material nor any finding recorded by the Inquiry Officer or the Disciplinary Authority about doubtful integrity of the petitioner even qua the conduct of the petitioner which became subject matter of disciplinary proceeding against him. To charge and punish a government servant for violation of Rule 3(1)(i) of the Conduct Rules, 1964, it should be proved that the officer concerned has failed to maintain absolute integrity. Since there is nothing on record which even remotely suggest that petitioner failed to maintain absolute integrity, no punishment on that count will be permissible against him. The finding recorded by the Inquiry Officer as also by the Disciplinary Authority are otherwise - in this view of the matter the petitioner in the instant case cannot be said to have found to have failed to maintain absolute integrity.
So far as Rule 3(1)(ii) of the Conduct Rules, 1964 is concerned, it mandates that every government servant shall at all times maintain devotion to duty and any breach thereof will amount to misconduct - So far as the facts in the instant case are concerned, there is nothing on record; neither is there any finding recorded by the Inquiry Officer or by the Disciplinary Authority that the petitioner was habitual of failing in performance of the tasks assigned to him within the timeframe for the purpose and with the quality of performance expected of him. The petitioner was charged for solitary act of cancellation of bonds and bank guarantees without proper scrutiny and verification of documents put up before him, however, the explanation given by the petitioner was that he cancelled the bonds and bank guarantees on the recommendation of the Appraisal Officer. Apart from the solitary incident in terms of the charge memorandum, nothing is available on record which may establish the charge of the petitioner having failed habitually in performance of the tasks assigned to him.
Any penalty under Rule 9 of the Pension Rules, 1972 can precipitate in two circumstances, namely, (i) if a government servant is found guilty of grave misconduct or negligence and (ii) such misconduct causes pecuniary loss to the government. From a perusal of the Inquiry Officer’s report as also the findings recorded by the Disciplinary Authority in the punishment order dated 26th April, 2013, breach of either Rule 3(1)(i) or 3(1)(ii) or 3(1)(iii) of the Conduct Rules, 1964 is not made out. There is no finding on record relating to pecuniary loss caused on account of the alleged misconduct of the petitioner in the order of punishment dated 26th April, 2013. In absence of finding of proof of charge of pecuniary loss to the government and also because on the basis of material available on record of the departmental proceeding, no breach of Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of the Conduct Rules, 1964 is found, the impugned order passed by the Disciplinary Authority dated 26th April, 2013 inflicting punishment of recovering 10% of monthly pension for a period of three years, in our opinion, is not sustainable.
The order of punishment dated 26th April, 2013 is hereby quashed - writ petition allowed.
- 2024 (3) TMI 274
Disciplinary proceedings - Reliance on confessional statements made by accused persons during the investigation - Petitioner, who at the relevant point of time, was working as Superintendent of Central Excise - Landing of smuggled explosives, arms and ammunitions which were used in conducting bomb blast in Mumbai during the year 1993 - Penalty of compulsory retirement from Government service in terms of Rule 11(vii) of the Central Civil Services (Classification, Control & Appeal) Rules, 1965 - entitled to only 65% of the full compensation of pension and gratuity under Rule 40 of the Central Civil Services (Pension) Rules - contravention of provisions of Rule 3(1), (i), (ii) and (iii) of the Central Civil Services (Conduct) Rules 1964 - principles of judicial review.
Whether the confessional statements made by accused persons during the course of investigation of a criminal case where the employees were not tried as co-accused and the accused persons retracted from the confessional statements in their deposition during the course of trial, forms sufficient evidence to bring home the charges in departmental proceedings? - Whether there is any evidence on record of the departmental proceedings drawn and conducted against the employees in these cases other than the confessional statements made by certain co-accused persons in the criminal case during the course of investigation before the Investigating Agency/Officer, on the basis of which the charges leveled against them can be said to be proved or it is a case of no evidence?
HELD THAT:- The legal principle which emerges as per cumulative reading of Sections 25 and 26 of the Indian Evidence Act and Sections 161 and 162 of the Cr.P.C. is that any statement made before a Police Officer cannot be proved during the course of a criminal trial and accordingly no confession made by any person in custody of Police Officer shall be proved against such person. The statement recorded under Section 161 of the Cr.P.C. can, during the course of trial, be used only for the purpose of contradiction.
Since in the instant matters, the Disciplinary Authority has relied upon the confessional statement made during the course of investigation by the Investigating Officer of a criminal case pertaining to TADA, it is also noted that Section 15 of the TADA Act which carves an exception to the provisions of the Indian Evidence Act and the Cr.P.C., however, the exception is circumscribed by certain conditions. According to Section 15 of the TADA Act, a confession made by a person before a Police Officer not below the rank of a Superintendent of Police and recorded by such Police Officer, shall be admissible in trial of such person or co-accused, abettor or conspirator for an offence under the TADA Act - However, so far as the admissibility of confessional statement under Section 15 of the TADA Act against co-accused or abettor or conspirator is concerned, the proviso appended to Section 15 needs to be noticed, according to which, for such confessional statement to be admissible against co- accused, such co-accused should be charged and tried in the same case together with the accused whose confessional statement is relied upon as an evidence against co-accused.
Analyzing the evidence available on record of the disciplinary proceedings, it is found that the department has relied upon the confessional statements made by four accused persons during the course of investigation of criminal case and these accused persons are (i) Uttam Potdar (smuggler) (ii) Mohd. Sultan Sayyed, Superintendent, Customs Officer (iii) R. K. Singh, Assistant Commissioner and (iv) Dawood M. Phanse (smuggler). These persons were not examined during the course of departmental proceedings; rather, to prove the confessional statement Police Officers were examined. Smt. Meeran Chadha Borwankar, Superintendent of Police was examined before the Inquiry Officer as witness in the departmental proceedings. This witness in the departmental proceedings has only stated she had recorded the confessional statement of Uttam Potdar during the course of investigation of the criminal case conducted by her and that the confessional statement was made by Uttam Potdar without any duress.
The principle that any punishment order passed in disciplinary proceedings can be subjected to judicial review in a case where the punishment order is based on no evidence, is already well established. From these discussions, it is apparent and well established that it is a case where despite existence of no evidence to prove the charge in the departmental proceedings, the employees have been punished by the Disciplinary Authority. The evidence available on record is only the confessional statements made by the accused persons during the course of investigation of the criminal case which, for the reasons already stated, could not be made basis of inflicting the punishment upon the employees in this case. In absence of any evidence, it is not even a case where guilt of the employees in the departmental proceedings can be said to have been proved even on preponderance of probabilities.
There are no hesitation to hold that the Tribunal, while passing the impugned judgment and order dated 13th June 2013 in Original Application No. 465 of 2010 was in error in dismissing the said Original Application - petition allowed.
- 2024 (3) TMI 273
Dishonor of cheques - Condonation of delay of 1259 days in filing the complaint for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 - sufficient reason to condone the delay or not - HELD THAT:- The nature of the proceedings in a complaint under Section 138 of the Act, assumes significance. Learned Counsel for the Petitioner made an earnest endeavour to draw home the point that the prosecution for an offence under Section 138 of the Act, entails punishment, and, therefore, a strict interpretation is the norm. The courts below could not have, therefore, condoned the delay in a light manner.
Chapter XVII came to be inserted in the N.I. Act by the Amendment Act, 1988 with the object of enhancing the acceptability of the cheques for the settlement of liabilities. The primary object of visiting the penal consequences to the dishonour of the cheque is not mere penal, but also to maintain the efficiency and value of a negotiable instrument in commercial transactions by making the accused to honour the negotiable instrument and pay the amount for which such instrument had been drawn. The object of provisions contained in Chapter XVII has thus been described as both punitive and compensatory.
The Supreme Court in P. MOHANRAJ & ORS. VERSUS M/S. SHAH BROTHERS ISPAT PVT. LTD. [2021 (3) TMI 94 - SUPREME COURT] delved into the question as to whether the proceedings under Section 138 of the Act, are quasi criminal in nature. In paragraph No. 84 of the said judgment, the Supreme Court concluded that given the hybrid nature of a civil contempt proceeding, described as ‘quasi-criminal’ by several judgments of the Supreme Court, there was nothing wrong with the same appellation ‘quasi-criminal’ being applied to Section 138 proceeding for the reasons given by the Supreme Court on an analysis of Chapter XVII of the Act, 1888.
Another three Judge Bench of the Supreme Court again had an occasion to consider the nature of the proceedings under Chapter XVII of the Act, 1888 in the case of M/S GIMPEX PRIVATE LIMITED VERSUS MANOJ GOEL [2021 (10) TMI 378 - SUPREME COURT]. The Supreme Court observed that the nature of the offence under Section 138 of the NI Act is quasi-criminal in that, while it arises out of a civil wrong, the law, however, imposes a criminal penalty in the form of imprisonment or fine. The purpose of the enactment is to provide security to creditors and instil confidence in the banking system of the country.
In the case of DAMODAR S. PRABHU VERSUS SAYED BABALAL H. [2010 (5) TMI 380 - SUPREME COURT] the Supreme Court has observed that it is quite obvious that with respect to offence of dishonour of cheques, it is compensatory aspect of the remedy which should be given priority over the punitive aspect.
The aforesaid being the nature of the proceedings under Section 138 of the Act, 1881, the circumstances in which the complainant could not lodge the complaint, within the prescribed period, deserves to be apprised in a slightly different perspective than a case where the prosecution is under an enactment, the primary object of which, is punitive. The conduct of the parties also becomes relevant.
In the case at hand, there are documents which indicate that after the service of the demand notice, the accused had not only acknowledged the liability, but also expressly requested the complainant not to act on the demand notice. Subsequently, again a MOU was executed acknowledging the liability and promising to pay the amount in five installments. There are number of messages exchanged between the parties on Whatsapp, which lend prima facie credence to the claim of the complainant that he was made to believe the representations of the accused and forebear from lodging the complaint.
The learned Magistrate cannot be said to have committed an error in exercise of discretion to condone the delay. The Revisional Court was justified in refraining from interfering with the exercise of discretion by the learned Magistrate. As the courts below cannot be said to have exercised the discretion in the manner which could be termed perverse and the discretion has been exercised positively to condone the delay which promotes the cause of substantive justice, this Court does not find any reason to interfere with the impugned orders - Petition dismissed.
- 2024 (3) TMI 265
Application under Section 156(3) of the Code - misuse of digital signature of the petitioner, uploaded false returns by even including the names of clients whom the petitioner has never dealt with - non-submission of PF and ESI returns of the company - HELD THAT:- It appears that no report in final form has yet been submitted in respect of Jadavpur Police Station Case No.59 dated 07.04.2023 - Let the investigating agency conclude the investigation expeditiously and in accordance with law.
The petition disposed off.
- 2024 (3) TMI 222
Dishonour of Cheque - security cheque or not - lease deed has been obtained by misrepresentation or not - rebuttal of presumption u/s 139 of the NI Act - HELD THAT:- In the present case, as the debt or liability in terms of the Agreement to Sell and/or the Addendum itself had not arisen, Section 138 of the NI Act was not attracted and the ingredients of the offence were not satisfied - Though the power under Section 482 of the Cr.P.C. is to be exercised sparingly and in the rarest of rare cases, at the same time, where, from a bare reading of the complaint, the offence is not made out, the power must be exercised to quash such a complaint.
In S.P. Mani & Mohan Dairy v. Snehalatha Elangovan, [2022 (9) TMI 846 - SUPREME COURT], the Supreme Court has held The Court concerned would owe a duty to discharge the accused if taking everything stated in the complaint is correct and construing the allegations made therein liberally in favour of the complainant, the ingredients of the offence are altogether lacking.”
Applying the abovementioned principles enunciated by the Supreme Court to the facts of the present case, as the Complaint filed by the respondent lacks the necessary averments that would give rise to the debt and/or liability of the petitioners for which the cheque had been issued, the complaint filed by the respondent deserves to be quashed.
Complaint, being pending before the Court is hereby quashed - Petition allowed.
- 2024 (3) TMI 221
Dishonour of Cheque - Rebuttal of presumption - Financial Capacity - misuse of Cheque by the complainant - The petitioner argued that the complainant did not have the financial capacity to lend the amount mentioned in the cheques, as it was not reflected in his income tax returns. - presumption of legal liability under Section 139 of the Negotiable Instruments Act to be read with Section 118 of the Act - rebuttal of presumption - HELD THAT:- Petitioner does not dispute his signature on any of the two cheques in question. His defence is that said cheques have been misused by the complainant. Once signature on the cheques are not in dispute, there is a presumption of legal liability under Section 139 of the Negotiable Instruments Act to be read with Section 118 of the Act, in favour of the complainant, though the said presumption is rebuttable.
In Rangappa vs. Sri Mohan [2010 (5) TMI 391 - SUPREME COURT], a three judge bench of the Hon’ble Supreme Court held that Section 139 of the NI Act includes the presumption regarding the existence of a legally enforceable debt or liability and that the holder of a cheque is also presumed to have received the same in discharge of such debt or liability. It was clarified in the aforesaid decision that the presumption of the existence of a legally enforceable debt or liability is, of course, rebuttable and it is open to the accused to raise a defence, wherein the existence of a legally enforceable debt or liability can be contested. Without doubt, the initial presumption is in favour of the complainant - An accused may not be expected to discharge an unduly high standard of proof, reverse onus clause requires the accused to raise probable defence for creating doubt about the existence of a legally enforceable debt or liability for thwarting the prosecution. The standard of proof for doing so would necessarily be on the basis of “preponderance of probabilities” and not “beyond shadow of any doubt.”
In present case, in order to rebut the presumption, petitioner contended that complainant did not have the financial capacity; that he did not show the amount allegedly lent to the complainant in his income tax returns; and that cheques were managed by the complainant, when he was working as accountant with the accused and which he later on misused - Learned Trial Court rightly observed that no further question was asked from the complainant as to when the land was sold and for how much sale. Thus, the financial capacity of the complainant to lend the money is duly established.
The complainant is not obliged to prove the loan or the financial capacity. Once the presumption under Section 139 of the NI Act is available to the complainant, entire burden shifts upon the accused to rebut that presumption, which in the present case accused-petitioner has utterly failed - In Rohitbhai Jivanlal Patel v. State of Gujarat & another [2019 (3) TMI 769 - SUPREME COURT], it was held by the Hon’ble Supreme Court thatIn the case at hand, even after purportedly drawing the presumption under Section 139 of the NI Act, the Trial Court proceeded to question the want of evidence on the part of the complainant as regards the source of funds for advancing the loan to the accused and want of examination of the relevant witnesses who allegedly extended him money for advancing it to the accused. This approach of the Trial Court had been at variance with the principles of presumption in law. After such presumption, the onus shifted to the accused and unless the accused had discharged the onus by bringing on record such facts and circumstances as to show the preponderance of probabilities tilting in his favour, any doubt on the complainant's case could not have been raised for want of evidence regarding the source of funds for advancing loan to the accused-appellant. The aspect relevant for consideration had been as to whether the accused-appellant has brought on record such facts/material/circumstances which could be of a reasonably probable defence."
It is held that the learned Trial Court rightly concluded that the defence as pleaded by the accused was not probable and thus, he had failed to rebut the presumption under Section 139 of the Negotiable Instruments Act available to the complainant. Learned Appellate Court has also considered all the pleas as raised by the petitioner accused. This Court does not find any illegality in the impugned order.
Present revision is hereby dismissed.
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