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National Stock Exchange of India Ltd. Versus Moneywise Media (P.) Ltd. and Others

Application for injunction in a defamation action brought by the National Stock Exchange ("NSE") - The NSE complains that an article published on 19th June 2015 by Defendants Nos. 2 and 3, Ms. Sucheta Dalal and Mr. Debashish Basu, on their online news and analysis journal or website moneylife in, is per se defamatory. - Ms. Dalal is the Managing Editor of Moneylife; Mr. Basu is its Executive Editor. Their article accuses the NSE of actively permitting, in circumstances that I will describe in so .....

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way. It is to me a matter of very great dismay that the NSE should have attempted this action at all. Except where it is shown that the article complained of is facially defamatory, that is to say, it is prima facie intended to defame or libel, an injunction will not readily be granted. Every criticism is not defamation. Every person criticized is not defamed.

We forget that it is these persons we are so wont to mock who are, truly, the watchdogs of our body politic, the voice of our .....

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nges are strangers to scandal; no matter what the NSE may think of itself, and even if Dr. Tulzapurkar insists that the past is the past and irrelevant today, public memory is not that short.

The scams that beleaguered our exchanges in the past, and those that continue to occupy the time of this Court have at least in part come to light because of persons like Ms. Dalal and her fellow travellers. If regulatory agencies have been compelled to make changes, and if our own Supreme Court .....

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ce. Neither the NSE nor the judiciary are exceptions to this. It presents a very real dilemma, for the existence of our institutions is posited on that very public confidence and faith and its continuance. The challenge is, I think, in finding legitimate methods of restoring that public trust, that balance. Hence the cries for transparency and accountability everywhere; and I see no reason why the NSE should be any exception to this.

As a result, there is no prima facie case made here .....

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vour of Ms. Dalal and Ms. Basu separately. In addition, the Plaintiff will pay an amount of ₹ 47 lakhs in punitive and exemplary costs payable not to the Defendants but to public causes, viz., in equal parts to the Tata Memorial Hospital and the Masina Hospital, it being made clear that these amounts are to be used only for the free treatment of the indigent. - Decided against the petitioner. - NOTICE OF MOTION NO. 1220 OF 2015 IN SUIT NO. 627 OF 2015 - Dated:- 9-9-2015 - G.S. PATEL, J. Fo .....

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al and Mr. Debashish Basu, on their online news and analysis journal or website moneylife.in, is per se defamatory. Ms. Dalal is the Managing Editor of Moneylife; Mr. Basu is its Executive Editor. Their article accuses the NSE of actively permitting, in circumstances that I will describe in somewhat greater detail shortly, illicit trading advantages being afforded to a select few using high-end technology. Much of what is alleged is very technical indeed, but the NSE's case as presented by D .....

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ith any information or to provide any clarification. 2. On 14th January 2015 an anonymous letter in hard copy was sent to Mr. B.K. Gupta, the Deputy General Manager of the Market Regulation Department of SEBI.( Plaint, Exhibit A1 , p. 44) This document was copied to Ms. Dalal. It is a most technical eight page letter and it appears to detail at very considerable length what it describes as the illegality or impropriety in "high-frequency trades" ("HFT") or algorithmic trades .....

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famation. These are reproduced from paragraphs 11, 16 and 18 of the plaint. "11(i) Finance Ministry nudges regulators in Mumbai to probe NSE's HFT scam. (ii) ...certain institutions registered for HFT...were allowed to profit illegally by the NSE's (National Stock Exchange) insiders..." immediately preceded by the statement that "...multiple agencies have woken up to the possible dangers of large-scale market manipulation by large institutional traders who run high-frequen .....

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whistleblower's letter) may need a detailed review by SEBI or an investigation agency."" [Emphasis supplied] (v) NSE operates like a fortress and outsiders had no details..." [Emphasis supplied] (vi) "Then, there is the issue of corruption. Clearly, people at the NSE and SEBI who permitted the manipulation of algo trades and attempted to bury the scandal cannot be in charge of this investigation." [Emphasis supplied] 16(i) "For several months, I shared the lette .....

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ck boxes in heavily guarded buildings. Even the experts entrusted with your money don't know what is happening and those who do aren't about to tell because they are making a killing." (iv) These high-frequency trades contributed to the huge froth of trading volumes on the Exchange. Since top management salaries at the NSE are linked to the turnover and profit generated by the Exchange, there may have been a reluctance to upset the applecart. The NSE is unique in having had the same .....

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quate safeguards. Government sources also tell us that NSE's management of HFT servers in the initial years until 2013 (which are the subject of the whistle-blower's letter) may need a detailed review by SEBI or an investigation agency." (iv) Soon, SEBI and RBI dutifully responded to the finance ministry's direction. The Financial Stability Report (FSR) released in June suddenly identified algo trading as an area of concern." (v) "Immediately thereafter, the Business S .....

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s because of the articles that regulators such as the Reserve Bank of India ("RBI") and SEBI have commenced investigations; second, that there are serious wrongdoings on the part of the NSE; and third, that the NSE itself is complicit in permitting these illegal HFTs or algo trades. 5. Dr Tulzapurkar submits that these allegations are entirely false. He points to paragraph 18A of the plaint, one that was added by an amendment permitted on 24th July 2015, after the suit was filed and on .....

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ace, and bandwidth to retail subscribers. This allows for leveraging economies of scale, more advanced infrastructure, lower latency (lag times), upgraded system security and so on. In the present variant, I understand the complaint in the anonymous letter to mean that the NSE permitted, for a significant rental, premium co-location access. This is allowed at a very high premium to persons or entities engaged in high volume and high value transactions. It is, in my understanding of it, intended .....

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nd reasonably disruption-free access to the servers. This is useful in an age when the trades are no longer done manually but are all done digitally and online. 7. Algo trades are the product of very high end mathematical modelling. These are models devised specifically to anticipate the most microscopic changes in markets and to respond to those changes in a matter of seconds. This is done not through any human intervention, an aspect that is totally eliminated, but in a wholly automated fashio .....

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ade at a lower value so that when the markets later reach the higher level, a considerable profit is then, equally automatically, generated and booked. The same can also operate in reverse to minimise a potential loss. Of course, these are utterly basic examples. I imagine the actual models are far more sophisticated and complicated, for use in complex scenarios for highly evolved financial and security transactions. The point is, however, that these trades are automatic and computer-generated, .....

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thus allowing the person or persons who first received the data to act on it well before others downstream received the data. In the intial days, traders were allowed to deploy the NSE's application programming interfaces or APIs to write their own programs. The system, so the anonymous letter seems to say, was not designed for high traffic volumes; and, given the sequential (as opposed to simultaneous) dissemination of data (as might be achieved using the User Datagram Protocol or UDP, for .....

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tream had to deal with increasingly burdened servers as more and more persons connected, with a corresponding increase in latency. Switching on servers ahead of time allowed some to gain an advantage and a priority. To mitigate this, the NSE took steps to balance its server loads and to more evenly distribute them. Technically, the letter suggests, this should have been enough. But (and this appears to be the nub of it) some started connecting to backup real-time servers with nil traffic, even t .....

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to, as the Defendants put it, 'front-run' the rest of the market. In other words, knowing that a stock was likely to move, say, in a particular direction, algo trades would be triggered to take advantage of that advance information long before other individual traders lacking the advantage of co-location could capitalize or move on that information. The result is not as negligible, the Defendants say, as might appear. There is, firstly, some question of whether these algo trades worked .....

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got advantage with connivance of the Plaintiff over others is false. It is impossible for any trading member to ensure a particular position in a queue in the port since such a position is automatically allocated by the network card and cannot be tweaked manually. There are maximum 30 trading members per port. The time lag between the first person and the last person (depending on the load) is maximum 50 micro seconds (1 micro second = 1 millionth of a second) which by no stretch of imagination .....

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the plaint, the articles cannot be fair comment and no qualified privilege attaches to them. Any such privilege, Dr. Tulzapurkar submits, must be "relevant to the occasion". It cannot be absolute and there is no absolute privilege that attaches to any such article. 12. To begin with, I believe this paragraph is yet another attempt at misdirection. Curiously, the anonymous letter seems to presage or anticipate precisely such a response. The last paragraph on page 4 of the letter (Motion .....

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y, possibly in the hope that the judicial mind can safely be presumed to be ignorant of all matters technical and too easily overawed by an outpouring of technical jargon. The issue is also not about ensuring a prior place but, as the letter says, whether it is possible to 'game the system' through a variety of means, including continuous server-pinging to test when the server comes online, to gain even a minute advantage. The issue is also not about an absolute advantage, but rather one .....

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drew the NSE's attention. Instead, that paragraph cherry-picks one isolated facet that possibly relates to an earlier point in the history of the NSE's systems automation and presents that as a 'complete' answer. Indeed it is not. And this is telling: for at least now, after the suit was filed, the NSE had the undeniable opportunity to deal with the technical aspects. It has chosen not to do so, and the reasons that suggest themselves are, in my estimation, and I expect in the e .....

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in slander. It related to an article in a weekly journal in Gujarati. Wadia J held that even if there is criticism in the press it must be fair and while it may not be necessary to prove malice by the defendant, the test must be this: whether any reasonable person, however prejudiced or however strong of opinion, could say that the work in question was a fair comment. Even allowing latitude for personal opinion and individual prejudice, the test must be that of a reasonable, and I would suggest .....

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e in civil law, and I am mindful of the fact that while the Defendants have attempted to place this in the context of a fundamental right to freedom of expression and Constitutional guarantees, that is not my direct remit in a civil suit, though Courts seem to have often juxtaposed the two concerns. If the imputation or the conclusion remains unwarranted by the facts, it cannot be fair comment. The Defendants must show, to claim a qualified privilege, that they had some duty public or private, l .....

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ther or not the target audience is a select niche audience or the public at large. Dr. Tulzapurkar also refers to a Division Bench decision of the Calcutta High Court in Tushar Kanti Ghose v. Bina Bhowmick 57 CWN 378 to much the same effect and most importantly saying that fair comment is not the private preserve of newspapers but is a right of other citizens and persons in the country. 14. In Shree Maheshwar Hydel Power Corporation Ltd. v. Chitroopa Palit & Anr., 2004 Vol. 106(1) Bom.L.R. 1 .....

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o produce sufficient material supporting their contentions and the Court is certainly entitled to scrutinize these. Should substance be found in this material then the plea of justification in defence is proper. Much case law was cited in this regard before the Court, which held that the article complained of may be justified in the public interest if it be shown that the defendants had taken every reasonable precaution of ascertaining the truth. The defendants must therefore show on material av .....

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them in Court. They contain much that is, perhaps understandably, generalized and not strictly speaking in the nature of legal submissions. I will refer to only such portions as are necessary for our purposes. 16. The single most important factor that strikes me in this particular case, quite apart from the technical aspects of it, is the enormous time gap between the receipt of the anonymous letter in January 2015 and the publication of the first article on 19th June 2015. What is it that Ms. D .....

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have been disclosed. Maybe so. However, there is other material that Ms. Dalal has disclosed but the Plaintiffs have not though, in my view, they were obliged to do so. This is the fact that on 11th June 2015, well before the article appeared, Ms. Dalal emailed the Chairman of SEBI with a copy to the two persons at the helm of the NSE's affairs, Mr. Ravi Narayan and Ms. Chitra Ramakrishan, persons who have been in those positions for a very long time indeed and who can reasonably be suppose .....

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ything to say on these emails (Motion paperbook, p. 91). Again: no response. There are, thus, three distinct communications from Ms. Dalal to the two persons at the NSE best placed to answer the questions she raised. There is not even a whisper of these communications in the plaint. Even today, despite the amendment, there is no explanation as to why these two persons chose not to respond to Ms. Dalal. What is stated in paragraph 18A of the plaint cannot be new. It was then known to the NSE. If .....

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;s undoubted and well documented track record in financial matters. She is a much-decorated and highly regarded journalist in financial sectors with nearly three decades of experience in the field. Her work and she have received recognition and are renowned. She is not, despite the quite petty-minded and churlish statements in the Affidavit in Rejoinder, somebody who can be said to be even remotely irresponsible, scare-mongering, populist or given to hyperbole. To the contrary. It is to her cred .....

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ne former chairman of SEBI. All of this is in the public domain. It acquires significance only for this limited purpose: Ms. Dalal's query to Mr. Ravi Narayan and Ms. Chitra Ramakrishan was no idle accusation. She had then not gone to press with her article. She took the trouble firstly to make her own investigations, and then specifically to solicit the views of the two persons who manage and run the NSE. I do not believe she was duty-bound to do more. She had with her a damning letter, alb .....

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the story. Very often, as in such cases, while silence might not quite be 'consent' as Mr. Malcolm for the 1st Defendant would have it, it might certainly be enough to lead one to a conclusion that the addressees of this letter had nothing in fact to say in response at all. The only alternative to that view is again a point that Ms. Dalal makes in her articles, viz., that the persons in charge at the NSE felt it beneath them to deign to respond to what is indubitably a very serious case .....

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a case to make. I do not think that it is at all possible for the NSE to try and retrofit answers in this fashion. Even assuming that the contents of paragraph 18A of the plaint are correct, I do not see how Ms. Dalal's articles could be said to be defamatory on account of an answer that came after those articles rather than being given before them when an answer was indeed sought. This is putting the cart very firmly before the horse. What paragraph 18A says is hardly public-domain materia .....

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iffs' answer in paragraph 18A of the plaint is therefore far too little far too late. 18. I do not think it necessary to examine NSE's past record in any great detail. This is not because Dr. Tulzapurkar claims it to be entirely irrelevant, though he may be right to some extent, but because it is a needless distraction at this stage. What is not, however, irrelevant is a point that Mr. Basu makes in his written submissions, that even following the report complained of, apart from the NSE .....

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of the material that is required to be placed to substantiate justification? As a responsible journalist, one who is not some sensationalist muck-raker, Ms. Dalal certainly had and has a duty to the common investor, the everyday trader. That is her social and moral duty. But she also has a perhaps more profound ethical duty, and that is to take all possible steps to ascertain her position before she goes to press. Had she not sought the NSE's views, and merely accepted as gospel what the ano .....

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standards when, despite the opportunity, it chose not to respond. Was Ms. Dalal supposed to imagine and speculate what that response might be? I find it exceedingly odd, too, that despite having received these communications, the NSE does not even mention them in the plaint. It gives instead the impression that Ms. Dalal acted immediately and solely on the anonymous letter and rushed to print. Nothing could be further from the truth. The elision of that correspondence from the plaint is neither .....

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s not even a holding reply to Ms. Dalal's queries), both occasion and context presented themselves; and what followed can only be called, I think, fair comment precisely for want of that very response that Dr. Tulzapurkar now extols. Indeed, I would venture to suggest that the so-called response in paragraph 18A of the plaint is itself out of context and now irrelevant to the occasion, which is the present suit. In the plaint itself, a very curious picture is attempted to be portrayed of the .....

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of the plaint and it seems strangely like a claim to the kind of infallibility best left to divinities not mortal institutions; and, as our mythology tells us, even our divinities have their foibles and failings. The NSE expects respect. That is to be earned. It is not to be torn out of the throats of public the NSE is meant to serve. The NSE is after all a public institution and it is in some sense or the other a custodian if not of public funds then at least of an undeniable public trust. Thi .....

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example of the most egregious hubris and arrogance or, alternatively, an admission that there is an element of truth in what was being said. There is no third alternative. 21. In his written submissions, Mr. Basu makes this telling point: that despite the articles of which it complains, the NSE has suffered no loss or damage at all. He produces some documents that prima facie so indicate (Exhibits A and A-1 to Mr. Basu s compilation.). It is one thing to contend that damage must be presumed if d .....

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NSE undoubtedly is, as opposed to a private citizen. He cites, of course, the classic decision in New York Times Co. v. Sullivan 376 US 254, for its proposition that a public official cannot recover damages in a defamation action unless he proves with convincing clarity that the statement was made with knowledge of its falsity or with reckless disregard of whether or not it was false. This standard has been generally applied to public figures, but I will for the present, set this to one side sin .....

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se of Lords in Reynolds inter alia reviewed the law from other jurisdictions, including ours: it referenced the Supreme Court decision in Rajagopal v State of Tamil Nadu [1994] 6 SCC 632, to much the same effect as Sullivan in relation to public officials. Now if there is no doubt, and I do not think there can be any doubt, that the NSE is very much a public body, then this standard must apply. In that situation, a demonstration that the defendant acted after a reasonable verification of the fac .....

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o ascertain the 'other side of the story' and this opportunity, when presented, has been ignored, no more can be expected if it is also shown that the article when published was not unreasonable in its content, tone and tenor. This decision gave us the 'Reynolds defence', one that can be raised where it is established that the journalist in question had a duty to pubish an allegation even if it ultimately turned out to be wrong. The fact that this has now been abolished by a subs .....

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e extent to which the subject-matter is a matter of public concern. 3. The source of the information. Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories. 4. The steps taken to verify the information. 5. The status of the information. The allegation may have already been the subject of an investigation which commands respect. 6. The urgency of the matter. News is often a perishable commodity. 7. Whether comment was sought .....

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lodestar for assessment in such cases. What is relevant is that these observations, a little over a decade and a half ago, seem oddly prescient today. Consider items 2, 4, 5, 6, 7 and 9. Each of these seems to have an echo in the case before me. That must surely be enough. Even if we do not adopt the Reynolds defence as an absolute standard, the decision nonetheless contains valuable guides to a judicial assessment in a case such as this. 23. With that, I return to the tests in Wadia J's dec .....

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am unable to understand how it can be possibly said in these situations that the refusal to answer a legitimate query, one raised in the public interest where a large body of investors is concerned can be said to be defamatory. 24. As I said earlier, this is not directly a question of freedom of press or free speech. At the same time I do not believe that a defamation action should be allowed to be used to negate or stifle genuine criticism, even pointed criticism or criticism that is harshly w .....

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to be used to gag, to silence, to suppress, to subjugate. Ms. Dalal and Mr. Basu are I think correct generally when they say that of all the freedoms guaranteed by Article 19 of the Constitution, the freedom of speech and expression is arguably the most volatile, the most sensitive to assault, and the most precious. Its restrictions, and defamation law is indeed such a restriction, are to be narrowly construed (Devidas Ramachandra Tuljapurkar v State of Maharashtra, (2015) 6 SCC 1; Shreya Singh .....

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, or what passes for it, was not provided when an opportunity presented itself, and the fact of that answer being sought is so wholly concealed. More and more, in the name of security or reputation, we are increasingly too eager to surrender this, and its sister, freedoms. When we do so we forget: we forget that these freedoms are vital to our survival and our existence as a nation, as a people. We forget that these freedoms have not come easily. They have not come cheap. They were hard won afte .....

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past two decades would have been possible without journalists, editors, newspapers and television news anchors. We have grown accustomed to mocking them. We deride their manner, describing them as loud, brash, obnoxious, abrasive and opinionated. We forget. We forget that but for them the many uncomfortable questions that must be asked of those in authority and those with the sheer muscle power of money would forever go unasked and unanswered. We forget that it is these persons we are so wont to .....

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cages, then that is all to the good. Neither of our principal stock exchanges are strangers to scandal; no matter what the NSE may think of itself, and even if Dr. Tulzapurkar insists that the past is the past and irrelevant today, public memory is not that short. The scams that beleaguered our exchanges in the past, and those that continue to occupy the time of this Court have at least in part come to light because of persons like Ms. Dalal and her fellow travellers. If regulatory agencies hav .....

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stitutions face the crisis of dwindling public confidence. Neither the NSE nor the judiciary are exceptions to this. It presents a very real dilemma, for the existence of our institutions is posited on that very public confidence and faith and its continuance. The challenge is, I think, in finding legitimate methods of restoring that public trust, that balance. Hence the cries for transparency and accountability everywhere; and I see no reason why the NSE should be any exception to this. Quellin .....

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or public comment in relation to such bodies or persons. If there is indeed a factual error, can it be said to have been made in good faith, and in a reasonable belief that it was true? The 'actual malice' standard seems to me to suggest that one or both of these must be shown: intentional falsehood, or a reckless failure to attempt the verification that a reasonable person would. In this case, I do not think that the Plaintiffs have met that standard, or demonstrated either intentional .....

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acated. 28. There remains the question of costs. Looking to the material that has been published, and the manner in which this action has been brought, I have very little doubt in my mind that this is a matter that cries out for the award of costs. Not only is this necessary because the NSE is what it says it is, but if it is truly an organization or an institution that acts in the public interest then this must be demonstrated. The suit and the NSE's conduct seem to me attempts at deflectio .....

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Notification: Amendment in Appendix 3 (SCOMET items) to Schedule- 2 of ITC (HS) Classification of Export and Import Items 2012

Forum: GST Invoice

Notification: The Customs and Central Excise Duties Drawback Rules, 2017

Circular: The Customs and Central Excise Duties Drawback Rules, 2017 and All Industry Rates (AIRs) of Drawback related changes -reg.

News: GST implementation smoother than expected: Jaitley

Forum: GST - TRAN1 - filed - Data uploaded with Remarks Processed with Error - Not coming in Electronic credit ledger - need suggession guidance

Forum: 3B mistake

Forum: Input tax credit

Forum: Excise duty credit on finished stock at additional place of business.

Forum: Due date of Filing TRAN-1

Highlight: Diversion of income at source - Joint venture agreement - 97% of the receipt transfer to M/s TRG Industries (P) Ltd. - scope of the agreement - it is diversion by overriding title - not taxable in the hands of assessee - HC

Highlight: Expenditure on eligible projects or schemes u/s 35AC - After 01.04.2017 the legislature desired to withdraw such deduction. - The Union legislature was competent to introduce such amendment - HC

Highlight: Transfer of trading assets at cost price, the profit component also stood transferred to the outgoing Directors, which otherwise belonged to the Company - the fact that AO has made the addition in the hands of the Directors would not make any difference - additions confirmed - HC

Highlight: The interest u/s 234B of the Act cannot go beyond the stage of S.245D(I) before the Settlement Commission - HC

Highlight: Galvanized iron pipe is a different commercial commodity than a iron pipe, therefore the activity of galvanization in our considered opinion amounts to manufacture - Deduction u/s 80-IB allowed - HC

Highlight: Penalty u/s 271C - non deduction of TDS on interest paid to sister concerns in terms of Section 194A - Levy of penalty confirmed - HC

Highlight: Disallowance of interest - reference to section 179 - The legislature has also recognised, that the doctrine of lifting of veil in the matter of tax dues is to be applied to prevent fraud etc. and not where the company has suffered despite its normal bona fide function. - HC

News: RBI Reference Rate for US $

Notification: Amendment in Notification No. S.O. 3118(E), dated the 3rd October, 2016

Highlight: Discount on ESOP to be allowed as business expenditure u/s 37(1), during the years of vesting on the basis of percentage of vesting during such period, subject to upward or downward adjustment at the time of exercise of option.

Notification: Central Government appoints the 20th September, 2017 as the date on which proviso to clause (87) of section 2 of the Companies Act 2013, shall come into force

Notification: Companies (Restriction on number of layers) Rules, 2017

Highlight: Penalty u/s 271(1)(c) - additional income disclosure - surrender of income post survey u/s 133A - he disclosure made by the assessee is voluntary in nature, in the revised return - no penalty

Highlight: Reopening of assessment - notice u/s 148 issued on the directions of JCIT / CIT - a perusal of reasons for initiating reassessment proceedings clearly show that they are against the sprit of provisions u/s 147

Highlight: MAT - Adjustment to book profit - computation u/clause (f) of Explanation-1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w.Rule 8D of I.T. Rules.

Highlight: Addition on account of alleged suppression of service value received - the addition made simply believing the Form 26AS will be an arbitrary exercise of power which cannot be sustained

Notification: Exempts intra state supply of heavy water and nuclear fuels from DAE to NPCIL

Notification: Seeks to amend notification No. 12/2017-UTT(R) to exempt right to admission to the events organised under FIFA U-17 World Cup 2017

Notification: Seeks to amend notification No. 11/2017- UTT(R) to reduce CGST rate on specified supplies of Works Contract Services

Highlight: Liability to pay duty on import of software - Though no authorization was given by the appellant to DHL, it is an undisputed position that the software has, in fact, been ordered by the appellant and have been delivered to them by DHL - the appellant is to be considered as the importer



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