Case BriefsSupreme Court

Supreme Court: In a case where a bank manager had sanctioned and disbursed loans without following the due procedure contemplated under law, the 3-judge bench of Ashok Bhushan, R. Subhash Reddy* and MR Shah, JJ has held that

“When the procedural guidelines are issued for grant of loans, officers/employees are required to follow the same meticulously and any deviation will lead to erosion of public trust on the banks.”

Background

In the present case, there were allegations against a manager of Lakhimi Gaolia Bank of misappropriation, disbursing loans irregularly in some instances to (a) units without any shop/business; (b) more than one loan to members of same family etc.

Based on the findings recorded by Enquiry Officer, the disciplinary authority had tentatively decided to impose punishment of compulsory retirement and had issued a show cause notice to the manager to which he responded that “due to work pressure some operational lapses have occurred”.  Further, if the bank has sustained any loss due to his fault, he is ready to bear such loss from his own source.

Thereafter, the disciplinary authority imposed the punishment of compulsory retirement.

The decision of the disciplinary authority was challenged on the ground that even before tentative conclusion is arrived at by the disciplinary authority, the enquiry report has to be served upon him.

Analysis

After Enquiry Officer records his findings, it is always open for the disciplinary authority to arrive at tentative conclusion of proposed punishment and it can indicate to the delinquent employee by enclosing a copy of the enquiry report.

The argument that even before tentative conclusion is arrived at by the disciplinary authority, the enquiry report has to be served upon him, was not accepted by the Court as there is no such proposition laid down in the judgment of this Court in the case of Managing Director, ECIL,   Hyderabad (supra).  In the aforesaid judgment of this Court it is held that

“delinquent employee is entitled to a copy of the enquiry report of the enquiry officer before the disciplinary authority takes a decision on the question of guilt of the delinquent. Merely because a show cause notice is issued by indicating the proposed punishment it cannot be said that disciplinary authority has taken a decision.”

In the present case, along with the show cause notice itself enquiry report was also enclosed.  Hence, it cannot be said that the procedure prescribed under the rules was not followed by the bank.

Further, it is well settled that if the disciplinary authority accepts the findings recorded by the Enquiry Officer and passes an order, no detailed reasons are required to be recorded in the order imposing punishment.  The punishment is imposed based on the findings recorded in the enquiry report, as such, no further elaborate reasons are required to be given by the disciplinary authority.

The Court also refused to accept the argument that the punishment imposed is disproportionate to the gravity of charges. The charges framed against the appellant in the departmental enquiry are serious and grave.

“If we look at the response, in his letter dated 16.08.2005, to the show cause notice issued by the disciplinary authority, it is clear that he has virtually admitted the charges, however, tried to explain that such lapses occurred due to work pressure. Further he went to the extent of saying – he is ready to bear the loss suffered by the bank on account of his lapses.”

If the manager of a bank indulges in such misconduct, as is evident in the present case and the findings of the enquiry officer, it indicates that such charges are grave and serious.

“The manager of a bank plays a vital role in managing the affairs of the bank. A bank officer/employee deals with the public money. The nature of his work demands vigilance with the in¬built requirement to act carefully. If an officer/employee of the bank is allowed to act beyond his authority, the discipline of the bank will disappear. When the procedural guidelines are issued for grant of loans, officers/employees are required to follow the same meticulously and any deviation will lead to erosion of public trust on the banks.”

Inspite of proved misconduct on such serious charges, disciplinary authority itself was liberal in imposing the punishment of compulsory retirement and hence, the Court refused to hold that the punishment imposed in the disciplinary proceedings on the appellant, is disproportionate to the gravity of charges.

[Boloram Bordoloi v. Lakhimi Gaolia Bank, 2021 SCC OnLine SC 65, decided on 08.02.2021]


*Judgment by: Justice R. Subhash Reddy

Know Thy Judge| Justice R. Subhash Reddy

Appearances before the Court by

For appellant: Advocate Parthiv Goswami, 

For Bank: Rajesh Kumar

Hot Off The PressNews

Positive Pay System for Cheque Truncation System (CTS)

The concept of Positive Pay involves a process of reconfirming key details of large value cheques. Under this process, the issuer of the cheque submits electronically, through channels like SMS, mobile app, internet banking, ATM, etc., certain minimum details of that cheque (like date, name of the beneficiary/payee, amount, etc.) to the drawee bank, details of which are cross-checked with the presented cheque by CTS. Any discrepancy is flagged by CTS to the drawee bank and presenting bank, who would take redressal measures.

National Payments Corporation of India (NPCI) shall develop the facility of Positive Pay in CTS and make it available to participant banks. Banks, in turn, shall enable it for all account holders issuing cheques for amounts of ₹50,000 and above. While availing of this facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheques for amounts of ₹5,00,000 and above.

Only those cheques which are compliant with the above instructions will be accepted under dispute resolution mechanism at the CTS grids. Member banks may implement similar arrangements for cheques cleared/collected outside CTS as well.

Banks are advised to create adequate awareness among their customers on features of Positive Pay System through SMS alerts, display in branches, ATMs as well as through their website and internet banking.

Positive Pay System shall be implemented from January 01, 2021.


Reserve Bank of India

[Press Release dt. 25-09-2020]

Cabinet DecisionsLegislation Updates

Scheme of Amalgamation

The Union Cabinet has given its approval to the Scheme of Amalgamation of Lakshmi Vilas Bank Limited (LVB) with DBS Bank India Limited (DBIL).

On 17.11.2020, to protect depositors’ interest and in the interest of financial and banking stability, on RBI’s application under section 45 of the Banking Regulation Act, 1949, LVB had been under a moratorium for a period of 30 days. In parallel, RBI, in consultation with Government, superseded the Board of Directors of LVB and appointed an Administrator to protect the depositors’ interest.

After inviting suggestions and objections from the public and stakeholders, RBI prepared and provided a scheme for the bank’s amalgamation for the Government’s sanction, well in. advance of the end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimised. With the approval of the scheme, LVB will be amalgamated with DBIL from the appointed date, and with this there will no further restrictions on the depositors regarding the withdrawal of their deposits.

DBIL is a banking company licenced by RBI and operating in India through wholly-owned subsidiary model, DBIL has a strong balance sheet, with strong capital support and it has the advantage of a strong parentage of DBS, a leading financial services group in Asia, with presence in 18 markets and headquartered and listed in Singapore. The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600.

The speedy amalgamation and resolution of the stress in LVB is in line with the Government’s commitment to a clean banking system while protecting the interests of depositors and the public as well as the financial system.


Cabinet

[Press Release dt. 25-11-2020]

Case BriefsSupreme Court

Supreme Court: The 3-Judge Bench of Arun Mishra, B.R. Gavai and Krishna Murari, JJ., set aside the NCLAT’s Order with regard to the appointment of Resolution Professional.

Question for Consideration

Whether an ex-employee of the ‘Financial Creditor’ having rendered services in the past, should not be permitted to act as ‘Interim Resolution Professional’ at the instance of such ‘Financial Creditor’, regard being had to the nature of duties to be performed by the ‘Interim Resolution Professional’ and the ‘Resolution Professional’?

NCLT’s position

State Bank of India (Financial Creditor) had filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 with regard to initiation of Corporate Insolvency Resolution Process before the National Company Law Tribunal, Delhi.

NCLT on noting the objection regarding the proposed ‘Interim Resolution Professional’ — Shailesh Verma directed the Financial Creditor to perform it’s statutorily mandatory obligation by substituting the name of the ‘Resolution Professional’ to act as an ‘Interim Resolution Professional’ in place of Shailesh Verma as it was of the view that Shailesh Verma having worked with the State Bank of India for 39 years before his retirement in 2016, there was an apprehension of bias and was unlikely to act fairly and could not be expected to act as an Independent Umpire.

NCLAT’s position

Aggrieved with the above position, Financial Creditor preferred the appeal before NCLAT on the ground that the proposed ‘Interim Resolution Professional’ Shailesh Verma fulfils the requirement for appointment as ‘Interim Resolution Professional’/ ‘Resolution Professional’ under the ‘I&B Code’ and admittedly bears no disqualification.

NCLAT opined that the apprehension of bias expressed by the ‘Corporate Debtor’ qua the appointment of Shailesh Verma as proposed ‘Interim Resolution Professional’ at the instance of the Appellant — ‘Financial Creditor’ cannot be dismissed offhand and the Adjudicating Authority was perfectly justified in seeking his substitution.

——————————————————————————-

Supreme Court’s position

In the above background, Bench observed at the outset that, NCLAT’s approach was not correct that merely Resolution Professional who remained in the service of SBI and is getting pension was disentitled to be Resolution Professional.

Solicitor General, Tushar Mehta as well as Senior Counsel, Krishnan Venugopal agreed for the appointment of new Resolution Professional by NCLT.

Hence, the Bench held that new Resolution Professional be appointed by the NCLT in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016.

While concluding the order, Court stated that the change of Resolution Professional shall not reflect adversely upon the integrity of Resolution Professional concerned, who has been replaced.

Since the impugned order does not reflect the correct approach, the same shall not be treated as a precedent.[State Bank of India v. Metenere,  2020 SCC OnLine SC 837, decided on 19-08-2020]


Also Read:

[SC ALERT] NCLAT’s decoder on appointment of a person as Resolution Professional: Will an ex-employee of Financial Creditor be eligible for appointment? Read on

Op EdsOP. ED.

We are living in a digital age, much more so after the onset of Covid-19. Business, meetings, interaction, banking, even education has shifted to online mode. Every person is accessing and sharing so much of data that it is very scary as one never knows who hands your data lands up in.

With this, concerns about data privacy have become more important than ever before in everyone’s mind.

Data can be classified into two categories as personal and non-personal. With the advancement of digital technology, there is a tremendous upsurge in storage, handling and processing of data by companies and humans in digital format.

It reflects the need to establish distinct regulatory mechanism for handling and processing of personal and non-personal data to preserve the confidentiality and secrecy of such data.

The Central Government is on course to develop a mechanism for regulating the collection, storage and usage of personal data and non-personal data separately.

Work on the non-personal data bill is going in parallel with the Personal Data Protection Bill, 2019. The Central Government had constituted a panel to develop a draft report on non-personal data governance.

The prime job of panel is to perform extensive research and to study all vital aspects associated with governance and regulation of non-personal data.

According to the draft report, non-personal data means data which is not personal. The panel has submitted its report to Central Government for review. The Central Government has invited comments from general public along with all stakeholders concerned by 13-8-2020 in this regard.

The idea of seeking comments from public is to give final shape to draft in progress to address all concerns and issues related to non-personal data in a comprehensive method.

An interesting outcome of the research by panel is that companies with largest data pools are unbeatable and have techno-economic advantages over small-medium companies.

According to available statistics, few startups established during the period (1990-2000) has emerged as larger corporations with economic capacity of USD 1 trillion market due to their stronghold in collection and analysis of users’ data.

Some interesting facts about larger corporations:

(a) 60% of internet advertising market in the United States is being dominated by Google and Facebook.

(b) 37% of online e-commerce market controlled by Amazon in United States.

These statistics reflects the power of right collection and processing of data.

According to the draft report, companies which are gathering and collecting data beyond certain limits will come under the ambit of a “data business” and have to register as “data business” in India. Such companies need to report the method of data collection and mode of data usage to regulatory authority.

Development of a data sharing framework is critical to:

(a) address and resolve privacy concerns in a timely manner;

(b) condense the side effects related to non-personal data processing; and

(c) generate social, public and economic value creation.

Establishment of data sharing platform reflects in transparency in data usage and handling, quantify efficiencies and better quality services.

It is expected that sharing of non-personal data could encourage companies to come up with new and innovative services and products to cater the needs of public at large.

Establishment of regulatory authority is a decisive connection in non-personal data governance – such authority should be empowered with the right set of legal and administrative tools to monitor data sharing acts of companies, collection and reviewing of data from companies and to resolve data privacy-related disputes.

Certain companies are misusing the data for their benefit causing considerable data privacy issues to the users — it is about time to develop distinct laws and mechanism for handling, processing and usage of personal and non-personal data to curb misuse of personal and non-personal data by companies.

Inception of separate laws for regulation of personal and non-personal data along with right implementation would result in:

(a) streamline the process of data handling and collection;

(b) make companies collecting and processing data more accountable and responsible;

(c) improve transparency standards in collection and usage of data; and

(d) provide more control to users on the aspect of collection and usage of their data.


*Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at bhumesh.verma@corpcommlegal.in. **Paruchuri Baswanth Mohan, Research Associate and can be contacted at  paruchuribaswanthmohan@gmail.com

New releasesNews

Banking And Negotiable Instruments – Law and Practice

by P. Vasantha Kumar

Overview:

The learned author has written the book with the objective to make the non-law and non-commerce readers grasp the subject-matter with ease. A thorough and up-to-date exposition of the law and practice of banking. The author has put forth in this work, his intense and deep study of the subject of Banking Law and his 30 years of experience in the banking industry.

 The book is divided into nine parts. The author has used short sentences, brief paragraphs and numbered lists to highlight key points for a more comprehensive and complete understanding of the subject matter.

Notable features include:

  1. Discusses at length banking law’s interaction with FEMA and Insolvency and Bankruptcy Law in separate chapters.
  2. Important topics of Customer Service, KYC, Negotiable Instruments and Payment Systems are discussed in detail.
  3. Discusses the details regarding RBI regulations on FEMA, 1999.
  4. The topic of “Operational Risk” is explained in detail with examples.
  5. Details of Insolvency and Bankruptcy Code, 2016, Banking Regulation Act, 1949 has been discussed in separate chapters.
  6. Provides paraphrased Court rulings for easy understanding of law points.
  7. Written in simple and lucid manner.

Bonus Feature: Two informative articles by Industry Leader Pramod Rao: 

  • “How Banking Business Works: A Banking Lawyer’s perspective” and
  • “Bounced Cheques: A commercial Problem needs a Commercial Solution”

Get your copy here:

Banking And Negotiable Instruments – Law and Practice by P. Vasantha Kumar

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: The 5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ has held that

“’banking’ relating to co­operatives can be included within the purview of Entry 45 of List I, and it cannot be said to be over inclusion to cover provisions of recovery by co­operative banks in the SARFAESI Act.”

The judgment of the Court came in a reference made in view of conflicting decisions in Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd., (2007) 6 SCC 236, Delhi Cloth & General Mills Co. Ltd. v. Union of India, (1983) 4 SCC 166, T. Velayudhan Achari v. Union of India, (1993) 2 SCC 582 and Union of India v. Delhi High Court Bar Association, (2002) 4 SCC 275.

Holding that Co­operative bank’s entire operation and activity of banking are governed by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry 38 of List I, the bench said,

“recovery of dues would be an essential function of any banking institution and the Parliament can enact a law under Entry 45 of List I as the activity of banking done by co­operative banks is within the purview of Entry 45 of List I. Obviously, it is open to the Parliament to provide the remedy for recovery under Section 13 of the SARFAESI Act.”

The Court further explained that the main aspect of the activity of the cooperative bank relating to banking was covered by the BR Act, 1949, and the Reserve Bank of India Act, which legislations are related to Entries 45 and 38 of List I of the Seventh Schedule. The aspects of ‘incorporation, regulation and winding up’ are covered under Entry 32 of List II of the Seventh Schedule.

“In our opinion, the activity of banking by such bankers is covered by Entry 45 of List I considering the Doctrine of Pith and Substance, and also considering the incidental encroachment on the field reserved for State is permissible.”

It further said that by enacting the SARFAESI Act, Parliament does not intend to regulate the incorporation, regulation, or winding up of a corporation, company, or co­operative   bank/cooperative society. It provides for recovery of dues to banks, including co­operative banks, which is an essential part of banking activity. The Act, hence,  in no way trenches on the field reserved under Entry 32 of List II and is a piece of legislation traceable to Entry 45 of List I.

In a 159-pages long verdict, the 5-judge concluded,

  • The co­operative banks registered under the State legislation and multi­State level co­operative societies registered under the Multi­State Co­operative Societies Act, 2002 (MSCS Act, 2002) with respect to ‘banking’ are governed by the legislation relatable to Entry 45 of List I of the Seventh Schedule of the Constitution of India.
  • The co­operative banks run by the co­operative societies registered under the State legislation with respect to the aspects of ‘incorporation, regulation and winding up’, in particular, with respect to the matters which are outside the purview of Entry 45 of List I of the Seventh Schedule of the Constitution of India, are governed by the said legislation relatable to Entry 32 of List II of the Seventh Schedule of the Constitution of India.
  • The co­operative banks involved in the activities related to banking are covered within the meaning of ‘Banking Company’ defined under Section 5(c) read with Section 56(a) of the Banking Regulation Act, 1949, which is a legislation relatable to Entry 45 of List I. It governs the aspect of ‘banking’ of co­operative banks run by the co­operative societies. The co­operative banks cannot carry on any activity without compliance of the provisions of the Banking Regulation Act, 1949 and any other legislation applicable to such banks relatable to ‘Banking’ in Entry 45 of List I and the RBI Act relatable to Entry 38 of List I of the Seventh Schedule of the Constitution of India.
  • The co­operative banks under the State legislation and multi­State co­operative banks are ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The recovery is an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh Schedule to the Constitution of India, is applicable.
  • The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to cooperative banks. The provisions of Section 2(1)(c)(iva), of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, adding “ex abundanti cautela”, ‘a multi­State co­operative bank’ is not ultra vires as well as the notification dated 28.1.2003 issued with respect to the cooperative banks registered under the State legislation.

[Pandurang Ganpati Chaugale v. Vishwasrao Patil Murgud Sahakari Bank Ltd,  2020 SCC OnLine SC 431 , decided on 05.05.2020]

Case BriefsSupreme Court

Supreme Court: Holding the Reserve Bank of India [RBI] Circular issued on 12.02.2018 ultra vires Section 35AA of the Banking Regulation Act, 1949, the bench of RF Nariman and Vineet Saran, JJ directed,

“all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular.”

Salient features of the RBI Circular

  • restructuring in respect of borrower entities de hors the Insolvency and Bankruptcy Code, 2016 can only occur if the resolution plan that involves restructuring is agreed to by all lenders, i.e., 100 per cent concurrence.
  • With respect to debts with an aggregate exposure of INR 2000 crore and over on or after 01.03.2018, if default persists for 180 days from 01.03.2018, or if the date of first default is after 01.03.2018, then 180 days calculated with effect from that date, lenders shall file applications singly or jointly under the Insolvency Code within 15 days from the expiry of the aforesaid 180 days.

“In short, unless a restructuring process in respect of debts with an aggregate exposure of over INR 2000 crore is fully implemented on or before 195 days from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code.”

Power to issue the RBI Circular

The Court noticed that the sources of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government’s circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934.

Section 35A of the Banking Regulation Act

“When resolution through the Code is to be effected, the specific power granted by Section 35AA can alone be availed by the RBI. When resolution de hors the Code is to be effected, the general powers under Sections 35A and 35AB are to be used. Any other interpretation would make Section 35AA otiose.”

Explaining that ‘default’ would mean non- payment of a debt when it has become due and payable and is not paid by the corporate debtor, the Court said that what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA.

“It must also be observed that the expression “issue directions to banking companies generally or to any banking company in particular” occurring in Section 35A is conspicuous by its absence in Section 35AA. This is another good reason as to why Section 35AA refers only to specific cases of default and not to the issuance of directions to banking companies generally, as has been done by the impugned circular.”

Section 45L of RBI Act

The Court noticed that the impugned RBI circular nowhere said that the RBI has had due regard to the conditions in which and the objects for which such institutions have been established, their statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets.

“There is nothing to show that the provisions of Section 45L(3) have been satisfied in issuing the impugned circular.”

Severing Non-Banking institutions from Banking Institutions

The impugned RBI circular applied to banking and non-banking institutions alike, as banking and non-banking institutions are often in a joint lenders’ forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned circular is concerned.

“It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned.”

Ruling

“the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law.”

[Dharani Sugars and Chemicals Ltd. v. Union of India, 2019 SCC OnLine SC 460, decided on 02.04.2019]

Case BriefsSupreme Court

Supreme Court: The bench of Abhay Manohar Sapre and Indu Malhotra, JJ  has held that there cannot be a uniform qualification or/and disqualification for the Board of Directors under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

Background of the case:

The case at hand related to the nomination of a Director from the workman/employee category falling in clause (e) of Section 9(3) of the Act and as well as to his/her disqualification for being nominated as a Director in that category Section 9(3) of the Act provides for composition of Board of Directors and also provides as to who can be nominated as Directors in the Board of Directors. Clauses (a) to (i) of sub­section (3) of Section 9 of the Act sets out various categories from which   one Director from each of such categories is nominated in the Board of Directors. Clause(e) deals with a category of workman/employee Director whereas clause(f) deals with a category of officer/employee Director for their nomination in the Board of Directors.

On Distinction between Clauses (e) and (f) of Section 9(3) of the Act:

Both the categories of employees are different as per the perusal of the clauses (e) and (f) of Section 9(3) of the Act that:

  1. One is worker/employee category as defined under Section 9(3)(e) and the other is officer/employee category as defined under Section 9(3)(f) of the Act.
  2. It is for the legislature to decide as to what qualifications and disqualifications should be prescribed for various categories of the employees for their nomination on the post of Director.
  3. There lies a distinction between the worker and the officer. The former, i.e., worker is defined under Section 2(s) of the Industrial Disputes Act, 1947 and is governed by that Act whereas the latter, i.e., officer is not governed by the Industrial Disputes Act but is governed by separate service rules. Both these categories of employees, therefore, cannot be equated with each other and nor can be placed at par for providing equal qualification or/and disqualification for their nomination as a Director in the Board of Directors.
  4. Article 14 of the Constitution applies inter se two equals and not inter se unequals.
  5. The nominee worker/employee has only a right under the Act to be appointed as Director from the category of worker/employee in terms of Section 9 (3)(e) of the Act provided the concerned nominee whose name is recommended by the Union fulfils the qualifications laid down in Clause 3(2)(iii) of the Scheme but not beyond it.

On Uniform Qualification/Disqualification for Board of Directors under Section 9(3) clause (a) to (i):

The Board of Directors consists of persons coming from different fields. There cannot, therefore, be a uniform qualification or/and disqualification for such persons. Indeed, the qualifications and disqualifications are bound to vary from category to category and would depend on the post, experience and the stream from where a person is being nominated as a Director. Moreover, the qualification and disqualification has to be seen prior to his/her becoming a Director and not after his/her appointment as a Director.

[Federation of Bank of India Staff Unions v. Union of India, 2019 SCC OnLine SC 302, decided on 01.03.2019]

Business NewsNews

The government is considering a nationwide single GST registration process for the aviation, banking and insurance sectors. A single registration will potentially solve a majority of the compliance problems that services companies have been complaining about. They now have to register themselves and file GST returns in every state or union territory (UT) they operate in. But the change will require the approval of the GST Council, the top decision-making body under the new tax system, where states are expected to oppose it fearing revenue loss as they have done when the proposal had come up before.

While goods-producing industries were used to making multiple state-wise returns for value-added tax under the previous regime, this is a new requirement for services companies, which complain it as a cumbersome process involving lot of paperwork and manpower. For instance, since most airlines have pan-India operations and sales offices, they have to make about 30 registrations. In each territory, they have to file two returns every month: GSTR1 on outward supply or sale and GSTR 3B, which is a summary of all transactions and credits. With two more being added — GSTR 2 on inward supply or purchase and GSTR 3on reconciliation or credits to be claimed from the government — the number of returns that an airline has to file is set to increase to 120 a month, or 1,440 a year.

There are other fears as well. Inter-company transactions in some sectors could attract transfer pricing issues. In such cases, the company will have to pay tax. There could be problems also over tax assessment due to reassignment of work within the tax authorities. The government has assigned GST assessing officers from a combined pool of officials who previously dealt with sales tax, excise or VAT. Some of them, especially those working in state governments, may not be familiar with the way services industries operate. Earlier, state officials dealt primarily with manufacturing companies, collecting VAT. The central government collected excise tax as well as services tax from industries like aviation and financial services. Service providers, which were previously assessed only at the central level, are also assessed by state officials under GST. A common registration system, with a centralized filing of returns, will significantly cut compliance costs and complexities, a key issue that almost all of corporate India has raised about the tax structure that combines several indirect taxes into one.

[Source: The Economic Times]

Case BriefsSupreme Court

Supreme Court: Dealing with the matter where it was contended that a Sale Notification issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was in infraction of Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960, the Court held that the dominant legislation being the Parliamentary legislation, the provisions of the Tripura Act of 1960 would be invalid. It is the provisions of the Act of 2002, which do not contain any embargo on the category of persons to whom mortgaged property can be sold by the bank for realisation of its dues that will prevail over the provisions contained in Section 187 of the Tripura Act of 1960.

Applying the test of ‘dominant legislation’ on the encroachment in the present case, the Court, explaining the difference between the Central and State Law, said that the provisions of the Act of 2002 enable the bank to take possession of any property where a security interest has been created in its favour, specifically, Section 13 of the 2002 Act enables the bank to take possession of and sell such property to any person to realise its dues. The purchaser of such property acquires a clear title to the property sold, subject to compliance with the requirements prescribed. Section 187 of the Tripura Act of 1960, on the other hand, prohibits the bank from transferring the property which has been mortgaged by a member of a scheduled tribe to any person other than a member of a scheduled tribe.

The bench of Ranjan Gogoi and Abhay Manohar Sapre, JJ, hence, said that sale of mortgaged property by a bank is an inseparable and integral part of the business of banking. So long there did not exist any parallel Central Act dealing with sale of secured assets and referable to Entry 45 of List I, the State Act, including Section 187, operated validly. However, the moment Parliament stepped in by enacting such a law traceable to Entry 45 and dealing exclusively with activities relating to sale of secured assets, the State law, to the extent that it is inconsistent with the Act of 2002, must give way. [UCO Bank v. Dipak Debbarma, 2016 SCC OnLine SC 1391, decided on 25.11.2016]