NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellate Tribunal, New Delhi: The Bench of Rakesh Kumar, J., Judicial Member, and Dr. Ashok Kumar Mishra, Technical Member, while dismissing a company appeal, imposed a cost of Rs 1 lakh on the appellant for not disclosing his status, to avoid court fees and appearing before the Bench through a third party, who pretended to be an advocate.

Factual Background

The Appellant had filed Information Application under Section 19 (1) (a) of the Competition Act, 2002 before the Competition Commission of India (CCI) against 37 different government agencies. The Appellant alleged in the Information Application that Respondent, National Accreditation Board for Testing and Calibration Laboratories (NABL) had formed various exclusive supply agreements in violation of Section 3(4)(b) of the Competition Act, 2002 with the remaining 36 respondents where no other accreditation service other than that of NABL was allowed.

On 24-02-2022, the CCI passed an order under Section 26(2) of the Competition Act, 2002, and was of the view that there was no contravention of the provisions of Section 3 and 4 of the Competition Act. Aggrieved with the order passed, the Appellant filed the Company Appeal under Section 53B against the order given by the CCI. The Company Appeal was taken up for hearing on 01-06-2022.

Observation, Analysis, and Decision

While hearing the Appeal, the Bench suspected the status of the Appellant and thereof directed his counsel to submit a detailed affidavit verifying the status of his client. After the Affidavit was submitted, the Bench observed that the appellant evaded the applicable court by not mentioning before either the CCI or the Bench that he was a proprietor of an accreditation agency.

Further, the Bench observed that not only the Appellant as well as his acting Counsel, Sumit Jain, misled the court as he was neither a lawyer nor a Chartered Accountant, Company Secretary, or Cost Accountant.

At this juncture, the Bench referred to the provisions under Section 35 and Section 53(s) of the Competition Act and was of the view that a party cannot be represented by any third person who is not included in either of the aforesaid statutory provisions. Therefore, the Bench held that Mr. Sumit Jain had not only unauthorisedly represented the Appellant but impersonated himself to be counsel for the Appellant.

Hence, the Bench opined that neither the Appellant was competent, nor the Company Appeal was competent to be taken note of.

Thereby, the Bench dismissed the Company Appeal on the grounds of non-maintainability and said, “To preserve sanctity of the court proceeding and confidence of the public in the system, simply dismissal of this Appeal may not serve the purpose. Further to prevent recurrence of such activity, while dismissing the appeal it is appropriate to impose cost on the appellant.” Hence, imposed a cost of Rs.1 lakh on the appellant.

Further, the Bench directed CCI to remain vigilant while entertaining Information applications.

[Dushyant v. CCI, COMPETITION APPEAL (AT) NO. 27 OF 2022, decided on 29-07-2022]


Advocates who appeared in this case :

Sumit Jain, Advocate, for the Appellant;

Shama Nargis, Dy. Director, Law, CCI, and Krishan Kumar, Nital Pal, Swikritmala Dubey, Arun Kumar, and Prema Priyadarshini, Advocates, for the Respondent.

Rajasthan High Court
Case BriefsHigh Courts

   

Rajasthan High Court: In a case where the secured creditors like Unit Trust of India (‘UTI') and a workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up, Pushpendra Bhati, J. held that they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to Kotak Mahindra Bank which is a late entrant to the dispute.

Factual Background

A company named Derby Textiles Limited (‘respondent company') was incorporated on 22-05-1980 as a Public Limited Company, limited by shares. It requested the UTI (petitioner in Company Petition 07 of 2000) to subscribe for Secured Redeemable Non-Convertible Debentures (‘SRNCD') of the face value of Rs.4.00 crores, which was thereby agreed and disbursed. On deviation from payments agreed recall notices were issued for payment of outstanding debt along with interest.

Company Petition 07/ 2000

A winding up petition was preferred under Sections 433, 434 and 439, Companies Act, 1956, seeking winding up of the company and appointment of an official liquidator regarding all the assets and properties of the respondent-Company, since the respondent-Company was unable to pay the outstanding debt amount. As the proceedings were pending, the respondent-Company meanwhile made an application that it has been registered as sick company with Board of Industrial and Financial Reconstruction. The company kept dilly-dallying on some or the other issues thereafter in the Court and the matter kept on getting adjourned, even when the Court cautioned the parties that no further adjournments would be given.

Application No.2 of 15 in Company Petition No.9 of 2014

The Company petition was filed for liquidation proceedings to begin and while such adjudication was going on, an application was filed by a workman, i.e. Application No. 2 of 2015 in company petition No. 9 of 2014, contending, as the auction proceedings had already taken place, and unless an official liquidator is appointed to secure the debts of the petitioner, the petitioner's rights shall be permanently prejudiced being a prioritized creditor.

As no one appeared for the respondent company an interim order was passed by the Court on 28-03-2022, “Despite service, none appears for the respondent-Company. In the interest of justice, further proceedings in case No.144/2004 before the Debt Recovery Tribunal, Jaipur shall remain stayed.”

Challenging the aforesaid order, an SLP was filed before Supreme Court which upheld the stay order. Consequently, vide another application Kotak Mahindra Bank Limited was impleaded as party respondent. Thus, application No.01 of 2022 (in company petition No.7 of 2000) was filed on behalf of Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and one another application No. 4 of 2022 (in company petition No.9 of 2014) was filed by Mr. Anil Vyas, Advocate (on behalf of the auction purchaser- M/s. Noble Art & Craft House, Jodhpur) seeking modification of the aforementioned interim order dated 28-03-2022.

It was contended by Kotak Mahindra Bank Limited as well as the auction purchaser, that their proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (‘RDDB Act') is on a stronger footing, and that, leave of the Company Court is not necessary under Sections 537 or 446 of the Companies Act, 1956 is a settled proposition and there cannot be any second thought in the mind of the Court.

The Court noted that the jurisdiction of the Tribunal and the Recovery Officer, in terms of the RDDB Act, is exclusive, in respect of the debts payable to Banks and Financial Institutions, and the Company Court cannot use its powers under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956, against the Tribunal/recovery officer, and thus, Sections 442, 446 and 537 cannot be applied against the Tribunal, is a settled proposition.

The Court further observed that merely because the company was not cooperating and the adjudication of the matter took a long time, the company petitioner cannot be rendered remediless by this Court on account of the complete assets being disbursed by the DRT in a separate proceeding under the RDDB Act. Thus, in the present case, one of the secured creditors UTI and workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up and the protection of their respective interests, and thus, they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to the Kotak Mahindra Bank Limited and the auction purchaser, who are subsequent entrants in the dispute.

Placing heavy reliance on Bank of Nova Scotia v. RPG Transmission Limited, 2004 SCC OnLine Del 1048, the Court did not allow application No.1 of 2022 in company petition No.7 of 2000 filed on behalf of the Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and application No. 4 of 2022 in company petition No.9 of 2014 filed on behalf of the auction purchaser seeking modification of the said interim order.

[The Specified Undertaking Of the UTI v. Derby Textiles Limited, SB Company Petition 7 of 2000, decided on 27-07-2022]


Advocates who appeared in this case :

Mr. Manoj Bhandari Sr. Advocate assisted by Mr. Aniket Tater. Mr. Siddarth Tatiya and Mr. Shailendra Gwala, Advocates, for the Petitioner(s);

Mr. Sanjay Jhanwar Sr. Advocate assisted by Mr. Rajat Sharma & Mr. Pranav Bafna. Mr. Sanjay Nahar Mr. Anil Vyas Mr. Sanjeet Purohit with Mr. Surendra Thanvi Mr. Naman Mohnot Mr. Pushkar Taimini, Advocates, for the Respondent(s).


*Arunima Bose, Editorial Assistant has reported this brief.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellate Tribunal, New Delhi: The Bench of Ashok Kumar Bhushan, J., Chairperson, M. Satyanarayana Murthy, J., Judicial Member, and Barun Mitra, Technical Member set aside an order given by the National Company Law Tribunal, New Delhi (NCLT, New Delhi) and held that the Appellant, Entertainment City Ltd., is an affiliate of the Unitech Group. Hence, the moratorium imposed by the Supreme Court in orders given in the case of Bhupinder Singh v. Unitech Ltd. Civil Appeal No. 10856 of 2016, on 20-01-2021 and 24-03-2021 would apply to the Appellant and the application filed by the Respondent for initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016 stood adjourned sine die.

The Appeal was filed against the order dated 06-04-2022 wherein NCLT, Delhi rejected the prayer of the Appellant, that the proceedings in Section 7 Application be adjourned sine die because of the Moratorium passed by the Supreme Court in Bhupinder Singh v. Unitech Limited.

The Bench noticed that the order of the Supreme Court dated 20-01-2020, referred to the expression which “included all its affiliates, trusts, subsidiaries, etc.” Hence, the Bench referred to the definition of ‘affiliate' defined in the Subscription-cum-Shareholders Agreement. As per paragraph 1 of the agreement, an affiliate refers to “Affiliate” means in relation to any party, (i) any person that directly or indirectly Controls, is Controlled by, such party; or (ii) any person, the legal and beneficial ownership of at least 26% of which is directly or indirectly held (including through one or more persons) collectively or severally by such party; (iii) any trust in respect of which such party is a direct or indirect a beneficiary; and (iv) in the case of a natural person, any Relative of such person.” Further, “the term “Affiliate” shall include (i) any fund, collective investment scheme, trust, partnership (including without limitation anyco-investment partnership), special purpose or other vehicles, or any subsidiary or Affiliate of any of the foregoing, in which any member or subsidiary of Investor is a general or limited partner, shareholder, investment manager or advisor, member of a management or investment committee, nominee, custodian, trustee or unit holder

In the light of the above definition, the Bench concluded that Unitech Holdings Ltd, a wholly owned subsidiary of Unitech Ltd, has a shareholding to the extent of 41.95% in the Appellant. Hence, the Appellant is an affiliate of Unitech Group.

Therefore, the Bench held that the order dated 06-04-2022 passed by the NCLT, Delhi was set aside and the Application under Section 7 filed by the Respondent was adjourned sine die till the Moratorium imposed by the orders of the Supreme Court.

[Entertainment City Ltd v. Simran Kaur, Company Appeal (AT) (Insolvency) No. 431 of 2022, decided on 25-07-2022]


Advocates who appeared in this case :

Siddharth Batra, Shivani Chawla, and Chinmay Dubey, Advocates, For Appellants;

Piyush Singh and Aditi Sinha, Advocates, for the Respondents.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellant Tribunal, New Delhi: The Bench of Ashok Bhushan, J., Chairperson, and Shreesha Merla, Technical Member, while dismissing a company appeal held that when a Corporate Debtor as a Guarantor has not invoked the Corporate Guarantee before the initiation of Corporate Insolvency Resolution Process (hereinafter as ‘CIRP') under the provisions of Insolvency and Bankruptcy Code, 2016 (Hereinafter as ‘IBC') then the ‘right to payment' cannot be accrued by the Corporate Debtor.

Background of the Case

The Appellant, IDBI, was appointed as a Debenture Trustee for the benefit of the Holders of certain Debentures issued by M/s. Saha Infratech Pvt. Limited (Principal Borrower) as per the Debenture Trustee Agreement dated 18-05-2016. The first Respondent, Mr. Abhinav Mukherjee, is the Homebuyer of Palm Developers Pvt. Ltd., ‘Corporate Debtor' having a claim of Rs.2,94,43,634/-; the second Respondent Mr. Krit Narayan Mishra is the Resolution Professional of the ‘Corporate Debtor', appointed vide letter dated 13-07-2021 in I.A. 1742/2021 replacing the erstwhile IRP, Mr. Manoj Kumar Singh. The Appellant, ECL Finance Limited is the original Debenture Holder which executed the Assignment Agreement dated 27-03-2020 whereby all rights regarding the Financial Assistance were assigned in favour of Assets Care and Reconstruction Enterprise Limited (‘ACRE').

The appeals were filed under Section 61 (1) of the IBC challenging the impugned order dated 14-03-2022 passed by the National Company Law Tribunal, New Delhi, wherein the application filed by a homebuyer was allowed and held that ‘IDBI Trusteeship Services Limited' and ‘ECL Finance Ltd.', the Appellants are not ‘Financial Creditors' and also observed that the Appellants are ‘Related Parties' to the ‘Corporate Debtor'.

Analysis and Decisions

  • Whether the NCLT, Delhi was right in applying the ratio of ‘Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v Axis Bank and holding that the Appellants are not ‘Financial Creditors' since there was no ‘direct disbursal' of the amount to the ‘Corporate Debtor'/Guarantor.

The Bench observed that a ‘Guarantee is included' as one of the illustrations which specify the definition of ‘Financial Debt' under Section 5(8)(i) of the IBC. Further, the Bench referred to the judgment given in Ascot Realty Private Limited v. Ajay Kumar .', (2020) SCC OnLine NCLAT 732, where it was held that for initiation of Insolvency Proceedings against the Corporate Guarantor, the element of disbursal for ‘Time Value of Money' is not required. Hence, the Bench opined that there was no direct disbursal of the amount to the Corporate Guarantor, any amounts released to the Principal Borrower and not to the Corporate Guarantor do constitute ‘Financial Debt' as defined under Section 5(8) of the IBC and it cannot be said that such amounts do not have consideration for ‘Time Value of Money'.

Therefore, the Bench held that the ratio of Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd v. Axis Bank, 2019 SCC OnLine SC 1775 is not applicable.

  • Whether the locus of the ‘Individual Homebuyer' or Financial Creditor to challenge the Constitution of the Committee of Creditors (‘CoC')?

The Bench in this regard referred to the judgment of the Supreme Court in Phoenix Arc Pvt.Ltd.' v. Spade Financial Services Ltd. (2021) 3 SCC 475, wherein it was held that ‘Financial Creditors' forming part of the CoC must be heard during proceedings which would establish the status of other ‘Financial Creditors'. Further, the Bench even referred to the judgment given in Aashray Social Welfare Society v. Saha Infratech Pvt. Ltd. & Ors., Comp. (AT) (Ins) No. 904 of 2021, wherein it was held, “It cannot be said that since the Authorised Representative has not come up before the Adjudicating Authority for filing the impleadment application, the Appellants who themselves are Homebuyers have no right to participate in the adjudication initiated by filing applications”.

Therefore, in the light of the above cases, the Bench held that the Homebuyer has every right to be heard and has the locus to challenge the Claim of the Appellants.

  • Whether the Appellants are ‘Related Parties' of the ‘Corporate Debtor' and were in a ‘position' to ‘control' the affairs of the ‘Corporate Debtor', to fall within the ambit of the definition of ‘Related Party' as defined under Section 5(24) of the IBC.

The Bench observed that the purpose of excluding a related party of a ‘Corporate Debtor' from the CoC is to obviate conflicts of interest that are likely to arise if a related party is allowed to become a part of the CoC. The Supreme Court in many judgments has held that the exclusion under the first proviso to Section 21(2) of the IBC was related not to the debt itself, but to the relationship existing between the related party ‘Financial Creditor' & ‘Corporate Debtor'.

Hence, the Bench relied on the judgment given in the case of Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, and held that the Appellants do have ‘Positive Powers'and are in a position to directly and indirectly control the management and the policy decisions of the ‘Corporate Debtor'.

  • Whether the Appellant can make a ‘Claim' based on the ‘Guarantee Deed' which was never invoked pre-commencement of the CIRP, and remained uninvoked even as on the date of filing of the ‘Claim', thereby meaning that ‘Right to Payment' has not yet accrued?

The Bench relied on the observation of the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, where it was observed that “Whereas a “claim” gives rise to a “debt” only when it becomes “due”, a “default” occurs only when a “debt” becomes “due and payable” and is not paid by the debtor. It is for the reason that a financial creditor has to prove “default” as opposed to an operational creditor who merely “claims” a right to payment of a liability or obligation in respect of a debt which may be due.” Therefore, the Bench opined that he Appellants cannot Claim the amounts in the CIRP of the ‘Corporate Debtor' who is a ‘Corporate Guarantor ‘based on the Deed of Guarantee which was never invoked as on the date of filing of the Claims.

Further, the Bench placed reliance on the judgment of the Supreme Court in Ghanshyam Mishra and Sons Pvt Ltd v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 and held that when the ‘Corporate Debtor' is a ‘Guarantor' and the ‘Corporate Guarantee' was not invoked before the commencement of the CIRP, as on the date of filing of the Claims, the ‘Right to Payment' cannot be accrued.

Hence, the Bench dismissed the company appeals.

[IDBI Trusteeship Services Ltd. v. Abhinav Mukherjee, 2022 SCC OnLine NCLAT 267, decided on 12-07-2022]


Appearances before the tribunal

COMPANY APPEAL (AT) (INSOLVENCY) No. 356 of 2022

Dr. Abhishek Manu Singhvi, Sr. Advocate with Gaurav Mitra, Dev Roy, Himanshi Rajput, Atul Sharma, and Aditya Vashisth, Advocates, for the Appellants;

Abhijeet Sinha, and Raghavendra M. Bajaj, Advocates, for the Respondent No.1;

Milan Singh Negi, Advocate, for the New IRP.

COMPANY APPEAL (AT) (INSOLVENCY) No. 358 of 2022

Ramji Srinivasan, Sr. Advocate with Gaurav Mitra, Dev Roy, Atul Sharma, Renuka Iyer, Aditya Vashisth and Ms. Himanshi Rajput, Advocates, for the Appellants;

Abhijeet Sinha and Raghavendra M. Bajaj, Advocate for R-1;

Milan Singh Negi, Advocate, for the New IRP.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal, Mumbai: The Bench of Ashok Bhushan, J., Chairperson, M. Satyanarayana Murthy, Judicial Member, and Naresh Salecha, Technical member has dismissed a company appeal and has held that interest on delayed payment is also a form of debt and therefore, would form a part of the operational debt under Insolvency and Bankruptcy Code, 2016.

Background of the case

Operational Creditor supplies different types of yarns and has supplied goods to Bombay Rayons Fashions Ltd., Corporate Debtor. The Operational Creditor raised invoices between March, 2017 and January 2020, wherein, Operational Creditor supplied goods for Rs. 2,02,26,017/- under nine invoices. The Corporate Debtor paid three invoices with substantial delay; for one invoice part payment made and remaining five invoices, Corporate Debtor failed to make any payment.

Operational Creditor filed an application under Section 9 seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor. The Adjudicating Authority admitted the application and approved initiation of CIRP along with appointment of Insolvency Resolution Professional. The company appeal was filed against the order passed by the Adjudicating Authority dated 07-06-2022.

Analysis and decision

First, the Bench referred to the definition of debt, as per Section 3(11) of the IBC, “a debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.” Therefore, the Bench observed that the definition of debt includes ‘claim’ which is being defined under Section 3(6) of the IBC. As per the provision of IBC a claim means-

“(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured.”

Further, the Bench observed that vide the Notification No S.O. 1205 (E) dated 24.03.2020, issued by the Ministry of Corporate Affairs, the threshold Limit to initiate a CIRP has increased from Rupees 1 Lakh to Rupees 1 Crore.

Therefore, in the light of the above analysis, the Bench held that the total amount for maintainability of claim will include both principal debt amount as well as interest on delayed payment which was clearly stipulated in the invoice. Thus, in light of this the outstanding debt amounts to Rs. 1,60,87,838/- (principal debt amount of Rs. 97,87,220/- plus interest @18% p.a.).

Hence, as the total debt outstanding was above Rs. 1 crore as per requirement of Section 4 IBC read with notification No. S.O 1205 (E), the present Application was maintainable.

[Prashat Agarwal v. Vikash Parasrampuria, Company Appeal (AT) (Ins) No. 690 of 2022, decided on- 15-07-2022]


Advocates who appeared in this case :

Abhijeet Sinha, Sunil Vyas, Nausher Kohli, Palzer Moktan, Dipti Das, Deep Morabia, and Aditya Shukla, Advocates, for the Appellant;

Saurabh Pandya, Viraj Parikh, Mahur Mahajan, Advocates, for R-1;

Rubina Khan & Rohit Gupta, Advocates, for R-2.

Jharkhand High Court
Case BriefsHigh Courts

Jharkhand High Court: Sanjay Kumar Dwivedi, J., quashed the criminal proceeding registered under Sections 420, 406, 34, 120-B of the Penal Code on the ground that only the directors of the company were made accused in the FIR and not the Company. There was no mention of the bad intentions of the directors in the FIR too.

Facts:

The FIR was lodged by the informant alleging that the informant and his wife opened two Demat Trading Accounts through franchisee agent, Jitendra Agarwal, in M/S Bonanza Portfolio Ltd (‘Company’), with its proprietary/partners with S.K.Goyal, S.P. Goyal, V.K. Agarwal, Shiv Kumar Goyal and Narendra Singh.

The informant used to invest money in Yes Bank Shares’ Future and delivery stock. The Company sold the shares of the informant without disclosing it to the franchisee broker and committed a breach of trust. The shares were valued at the lowest price of Rs. 4.95 with a credit balance of Rs. 5,43,150.46 in the accounts of the informant and his wife.

Allegedly, instead of just selling those shares whose value equaled the short amount, the Company sold all the shares from the informant’s and his wife’s account, from the Delhi office. The Company was not supposed to sell the shares as the trading work for the informant was done by the local broker, Jitendra Agarwal. The Company neither informed the informant nor the local broker about the sale and the difference margin.

The informant claimed that the five partners of the Company, under a conspiracy, committed fraud, cheating and breach of trust by selling all shares of Yes Bank of informant’s and his wife’s account. It is also claimed that on 06-03-2020, mighty share brokers with the help of the operators cause fall of Yes Bank shares by 85% for few seconds and sold off all shares for making wrongful gains. Due to this, there was a loss of Rs. 41,78,307.67 in both the accounts. On 11-03-2022 and 12-03-2022 the informant made representation to the Company but did not receive any reply.

Arguments:

Senior counsel, M.S. Mittal, appearing for the petitioners/ partners of the Company submitted that the Company has not been accused in the FIR and relied on the Sharad Kumar Sanghi v. Sangita Rane, (2015) 12 SCC 781, in which the Supreme Court quashed the criminal proceeding on on the same ground.

Relying on the case Shiv Kumar Jatia v. State (NCT of Delhi), (2019) 17 SCC 193, he submitted that as no specific allegation were made against the Directors in the FIR and in absence of any material to prove that the Directors had criminal intent, continuation of such proceedings would be an abuse of the process of law.

Lastly, he submitted that the Court is competent to quash the FIR itself as the dispute is purely civil in nature and there is mechanism of arbitration and the Member Client Agreements are safeguarding the company. He submitted that as the Directors are not directly alleged and the company is not made an accused, the entire proceeding is fit to be quashed.

The counsel for the informants submitted that in the judgment relied on by senior counsel in the case Sharad Kumar Sanghi v. Sangita Rane (Supra), the complaint was filed, cognizance was taken by the Court against the Managing Director of the Company, and the Company was not made as an accused, this was the reason the entire proceeding was quashed. In none of the cases relied on by the petitioners, the FIR has been quashed. Hence, it was not justified for the Court to interfere at this stage as the investigation was still going on in the case at hand and there are parameters for quashing FIR.

Observation and Analysis:

The Court observed that law is well settled that if a wrong has been done by a company, the representatives of the wrong doer can be proceeded with, where the company is made a party, which is lacking in the case in hand. The entire allegation is civil in nature.The Court further noted that there is no doubt that criminal proceedings and civil proceedings can go simultaneously if there are allegations of criminality, and it is proved both the cases can go simultaneously. However, it is well settled that if the criminality is not made out, the continuation of criminal case will amount to an abuse of the process of law.

After considering the arguments of both sides, the Court analyzed that it is a fit case to exercise the power under Section 482 of the Code of Criminal Procedure, 1973. Accordingly, the FIR and the entire criminal proceeding was quashed.

[S.K. Goel v. State of Jharkhand, 2022 SCC OnLine Jhar 654, decided on 12-07-2022]


Mr. M.S. Mittal, Sr. Advocate, Mr. Salona Mittal, Advocate, for the Petitioners;

Mr. Ashish Kumar, A.C. to G.A. II, for the State;

Mr. Shailesh, Advocate, for the O.P. No.2.

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Tribunal, Mumbai: The coram of H.V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member, declared that the auction purchaser of the Corporate Debtor company, as a going concern is responsible for any claims/ liabilities/ obligations of the Corporate Debtor.

An interlocutory application was filed by the applicant to resolve the issue whether the sale of the Corporate Debtor as a going concern under Section 60(5) of Insolvency and Bankruptcy Code, 2016 [IBC] and Regulation 32-A of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 [IBBI Regulations] includes both assets and liabilities or assets alone without any liabilities. The applicant prayed for not making him responsible for any claims/ liabilities/ obligations payable by the Corporate Debtor, (Gajanan Industries Limited) to the Financial Creditors (Harsh Vinimay Pvt. Ltd) or any other stakeholders including Government dues.

After becoming a successful auction purchaser, the applicant, in respect of an e-auction dated 03-03-2021 conducted by Liquidator, , he was declared as the highest bidder of the Corporate Debtor. Further, a letter of intent was issued by the liquidator as per the requirements of the banker and on the request of the applicant. On 31-05-2021, the applicant made the full payment to which the liquidator confirmed the amount of interest and communicated- “on the payment of the full amount, the sale shall stand completed, the liquidator shall execute certificate of sale or sale deed to transfer such asset and the assets shall be delivered to him in the manner specified in terms of sale”.

Further, the applicant wanted to know about the process to be followed for completion of the deal and to clarify certain issues. The liquidator in reply to this said that the procedure must be followed as per the law and indicated that the entire responsibility of the Corporate Debtor falls on the applicant.

The Tribunal relied on a similar matter in Visisth Services Limited v. S.V. Ramani, 2022 SCC OnLine NCLAT 24, where the same bench held that the sale of Corporate Debtor as a going concern as is where basis under Regulation 32-A of IBBI Regulations and the IBC includes that where the committee of creditors has not identified the assets and liabilities, the liquidator has to do the same and group the assets and liabilities.

The Tribunal held that the applicant is not entitled for the relief sorted in his prayer. Therefore, the above application was dismissed.

[Gaurav Agarwal v. CA Devang P Sampat, I.A. 1253/2021, decided on 06-05-2022]


Advocates who appeared in this case :

Nausher Kohli, Amey Hadwale and Geeta Lundwani, Advocates, for the Applicant;

Rohaan Cama, Kunal Mehta and Gauri Joshi, Advocates, for the Respondents.

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: In a case where a Resolution Professional (RP) had submitted a report even prior to the order by the Adjudicating Authority that had appointed him, the bench of of H. V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member, has asked him to submit a fresh report.

The petition was filed by Bank of Baroda for initiation of Insolvency Resolution Process under Section 95(1) of Insolvency and Bankruptcy Code, 2016. It was passed against Mr. Pawan V Kikavat, Personal Guarantor of Mahavir Roads and Infrastructure Pvt. Ltd.

The counsel for the Bank of Baroda mentioned the demand notice dated 06-11-2020 invoking the Guarantee against the Personal Guarantor. He also gave proof of delivery of the demand notice. The deed of Guarantee dated 26-04-2012 executed by Bank of Baroda was also brought to the notice of the Bench. The petitioner also suggested the name of RP, Mr. Kairav Anil Trivedi, to conduct the Insolvency Resolution Process.

The counsel for the Personal Guarantor opposed the maintainability of the Petition pointing out that the RP has already filed his report without there being any order passed by the Adjudicating Authority appointing him and directing him to do so.

The issue was whether the report filed by RP without him receiving directions can be taken on record or a separate order should be filed by RP on the directions given.

The Bench appointed Kairav Anil Trivedi to submit a fresh report after examining the petition within 10 days of the date of this order.


[Bank of Baroda Limited v Pawan V Kikavat, 20 C.P. (IB)-140(MB)/2022, decided on 29-06-2022]


Counsels:

For Petitioner: Kairav Trivedi, PCA

For Personal Guarantor: Advocate Nausher Kohli


Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Kolkata Bench I: The Bench of Rajasekhar V.K., judicial member and Balraj Joshi, technical member has held that no fresh legal proceeding can be initiated, including personal debts, and all pending legal action will be stayed during the interim moratorium period, as per Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). The interim moratorium period commences from the date of filing of the application and continues until the application is rejected or admitted by the Adjudicating Authority.

EMC was admitted into Corporate Insolvency Resolution Process (CIRP) on 12-11-2018 and an Interim Resolution Professional (RP), Rakesh Kumar Agarwal, was appointed. On 06-02-2019 one Kannan Tiruvengadam was appointed as Resolution Professional, and the resolution was approved through order dated 21-10-2019.

In the present case, State Bank of India (‘SBI’) and Industrial Financial Corporation of India (‘IFCI’) filed two separate applications under Section 95 and Section 95(1) of the IBC for initiation of insolvency against Manoj Toshniwal (Personal Guarantor of EMC, EMC being the Corporate Debtor) on 09-07-2021 and 29-09-2021 respectively. In the application filed by SBI, a coordinate bench of the NCLT appointed a Resolution Professional (‘RP’) who was directed to file a report under Section 99 of IBC, by order of 14-01-2022 (‘SBI Order’). On 21-02-2022, the order was modified and a new RP was appointed. The NCLT also heard the application filed by the IFCI and appointed a different RP and directed him to submit the report vide order dated 17-02-2022 (‘IFCI Order’).

Meanwhile, Manoj Toshniwal also filed an application under Section 60(5) of IBC for setting aside the IFCI Order contending that by the virtue of the SBI Order, an interim moratorium period already commenced against the creditors ruling out initiation of any legal action against the personal guarantor with respect of any debt. Hence, the proceedings initiated by the IFCI must be stayed.

Analysis and decision

NCLT made the following observations-

  1. Interim moratorium commences from the date of filing of application under Section 95 of IBC and ceases to have effect on admission and rejection of the application from the same date. During this period, all legal actions pending in respect of any debt should be stayed and creditors cannot initiate any fresh legal action in respect of any debt.

  2. The Bench also observed that the term “and” in Section 96 IBC should be read as a conjunctive clause. Meaning, interim moratorium commences against all debts- including his personal debt, and creditors are barred from initiating any legal proceedings.

  3. It was concluded that the interim moratorium against the personal guarantor commenced from 09-07-2021 as the application by SBI was filed on the same and the application by IFCI was filed after that date, i.e. on 29-09-2021.

Hence, the application made by Manoj Toshniwal, personal guarantor of corporate debtor was allowed by this Bench. As a result, the application by IFCI was stayed and the RP appointed on 17-02-2022 by the virtue of IFCI Order was discharged of his duties.

[IFCI Limited v. Manoj Toshniwal, 2022 SCC OnLine NCLT 172, decided on 07-06-2022]

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal, New Delhi: The Coram of  Ashok Bhushan, J (Chairperson), Shreesha Merla (Technical member), and Naresh Salecha (Technical member) has held that regardless of the delay made in filing the claims by homebuyers, a resolution professional should include the corporate debtor’s liabilities as mentioned in the Memorandum of Information(MoI).

Facts of the case and issue raised

An appeal was filed against the Order passed by the Adjudicating Authority (NCLT, New Delhi).

The observation of the Adjudicating Authority was that the claims of the homebuyers have been filed after a gap of eight months from the last date of the submission of the claim and therefore the claims cannot be admitted. Further, it was stated that the Committee of Creditors (CoC) had already approved the resolution plan.

The following issues were raised-

  • Whether the Resolution Professional was obliged to include the details of Homebuyers as reflected in the records of the Corporate Debtor in the Information Memorandum, even
    though they have not filed their claim before the Resolution Professional within time?
  • Whether Resolution Applicant ought to have also dealt with Resolution Plan regarding Homebuyers, whose names and claims are reflected in the record of the Corporate Debtor, although they have not filed any claim?

Submissions of the counsel

Appellant’s Counsel submitted that even though they could not file their claims within the time prescribed, details of their allotment and payments made by them already existed in the records of the Corporate Debtor. It was further submitted that it was the duty of the Resolution Professional to inform the Appellants to file their claims and in case the financial creditors were not able to do so the Resolution Professional could have included their claims in the Information Memorandum prepared under Regulation 36 of Corporate Insolvency Resolution Process (CIRP) Regulations as liabilities to Corporate Debtor.

Respondent’s Counsel submitted that Appellants did not file their claims within the time and filing of their claims was also beyond 90 days as provided by Section 12 of the Insolvency and Bankruptcy Code, 2016 (IBC) therefore no error was committed by Resolution Professional by not including the names of the Appellants in the ‘list of creditors’.

Analysis and decision

Firstly, the Coram stated that when the allotment letters are issued to the Homebuyers against the payment made, the real estate company is under the obligation to provide possession of the houses along with other attached liabilities.

Further, the Coram opinioned that the liability towards Homebuyers who had not filed their claim exists and are required to be included in the Information Memorandum. Non- consideration of such claims in the information memorandum can lead to inequitable and unfair resolutions.

Therefore, the Coram directed the resolution professional to submit the details of homebuyers, which are mentioned in the records of the corporate debtor including their claims, to the resolution applicant, based on which the resolution applicant shall prepare an addendum to the resolution plan, which may be placed before the CoC for consideration.

[Puneet Kaur v. K.V. Developers (P) Ltd., 2022 SCC OnLine NCLAT 245, dated- 01-06-2022]


Advocates before the tribunal

For Appellant(s): Mr. Mahesh Kumar and Ms. Simran Soni, Advocates.
For Respondent: Mr. Abhinav Vasisht, Sr. Advocate with Mr. Rakesh Kumar Bajaj and Mr.Harish Taneja, Advocates, Mr. Nitin Kumar and Mr. Gagan Gulati, Advocate.
Mr. Sumesh Dhawan and Ms. Vatsala Kak, Advocates.

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: The bench of Abni Rajan Kumar Sinha, Judicial Member and Hemant Kumar Sarangi, Technical Member has held, that default made in payment of instalment amount as per the terms of the settlement agreement does not fall under the definition of operational debt.

Facts of the case

Operational creditor, Ahluwali Contracts (India) Pvt. Ltd. entered into a Memorandum of Understanding (MoU)/ Settlement Agreement with corporate debtor, Logix Infratech Pvt. Ltd. on 30-09-2019 for the final settlement against the work done by the operational creditor according to the ‘Work Contracts’.

The operational debtor defaulted in making payments of instalments as determined under the settlement agreement. Operational creditor filed a company petition seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against corporate debtor by invoking the provisions of Section 9 r/w Rule 6 of the Insolvency and Bankruptcy Code, 2016 (IBC) for a resolution of Operational Debt of Rs 7,72,00,000.

Issue Whether the breach of terms and conditions mentioned under the settlement agreement comes within the purview of ‘operational debt’?

Analysis and decision

Firstly, the Bench noted that operational debt means a claim in respect of provision of goods and services including employment. In the present petition, the claim of the operational creditor did not fall under the category of either goods or services provided by the operational debtor. Rather, the present application was being pressed by the operational creditor only in respect of default made due to the breach of terms and conditions mentioned under the settlement agreement.

At this juncture, the bench referred to the decision of NCLT, Allahabad in Delhi Control Devices Pvt. Ltd. v. Fedders Electric and Engineering Ltd. (Company Petition (IB) No. 343/ALD/ 2018 wherein the bench held that, “unpaid instalment as per the agreement cannot be treated as operational debt a per Section 5(21) of IBC. The failure or Breach of settlement agreement can’t be a ground to trigger CIRP against corporate debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority”. A similar view was followed in the case Nitin Gupta v. International Land Developers Pvt. Ltd. (IB No. 507/ND/2020).

Hence, the bench applied the same principle as laid down in the aforementioned cases and considered that the default of payment of settlement agreement does not come under the definition of operational debt.

Therefore, the bench dismissed the application.

[Ahluwali Contracts (India) Pvt. Ltd. v Logix Infratech Pvt. Ltd., 2022 SCC OnLine NCLT 169, decided on 03-06-2022]


Advocates before the Tribunal

For the Applicant: Adv. Dhruv Rohatgi

For the Respondent: Adv. Nitish K. Sharma


Case BriefsSupreme Court

Supreme Court: The Division Bench of Dinesh Maheshwari and Aniruddha Bose, JJ., issued notice to Topworth Urja & Metals Ltd. in a case alleging oppression and mismanagement in appointment of additional directors.

The question of law before the Court was whether a non-member/non-shareholder director is barred from raising a dispute regarding oppression/mismanagement and the illegal appointments of directors before the Civil Court u/s 430 of the Companies Act, 2013?

The appellant, Manish Kumar was holding the directorship in the respondent Company, which was engaged in the business of manufacturing of state-of-art range of steel, pipes, tubes, mining offered steel et cetera. The grievance of the appellant was that the respondent company had illegally appointed respondents 2 to 6 as the Additional Directors of the company. Further, the appellant alleged that the appointment was made without giving notice to the appellant and other aggrieved directors.

Therefore, the appellant had approached the Civil Court, alleging that the conduct of the company amounted to mismanagement qua the directorial appointments which were per se illegal in nature and were made with the intention to siphon off funds. The Civil Court had dismissed the application and relegated the appellant to National Company Law Tribunal (NCLT) to agitate his issues.

Aggrieved, the appellant approached the Bombay High Court seeking declaration that the alleged appointment of directors was illegal and void-ab-initio and to restore status quo ante with respect to directorship as on 23-11-2021. The appellant argued that he being a director without being a shareholder was not a ‘member’ within the meaning of Section 2(55), therefore, he could not seek relief for oppression before NCLT u/s 241 of the Act, 2013, since the said section is restricted to “a member of the Company”.

Rejecting the contentions of the appellant, the High Court held that the word ‘matter’ used in Section 430 is of wide amplitude and it cannot be read in a constricted way to limit it to an individual, but it will have to be given the widest meaning to cover any matter which the Tribunal is empowered to determine under the Act and this would necessarily cover the dispute regarding the affairs of the Company alleged to be conducted prejudicial to the interest of the Company or even any allegation of oppression or mismanagement.

Therefore, dismissing the appeal, the High Court observed that if any person, who is interested in the affairs of the Company alleges mismanagement or oppression, he shall not be restrained from knocking the doors of the Tribunal merely because the words employed in Section 241.

The High Court held that the words ‘any member’ if read constrictively and confining it only to member as defined, it would result in defeating the intention of law makers, who created the special Tribunal with exclusive jurisdiction only for corporate and reduce the multiplicity of litigation before different forums, including civil courts and to provide justice at close range.

The appellant had challenged the impugned High Court order stating that both the Civil Court and the High Court had fell into grave error by misinterpreting the law on the issue of jurisdiction under Section 430 of the Companies Act, 2013 and relegating the appellant to approach NCLT.

Further, the appellant alleged that the both the Civil Court and the High Court had erroneously relied on Chiranjeevi Rathnam vs. Ramesh, (2017) SCC OnLine Mad 23049, and had failed to appreciate the plain interpretation of the wording of Sections 2(34), 2 (55) and Section 244 of the Act, 2013.

Reliance was placed by the appellant on the decision of NCLT in Jithendra Parlapalli v. Wirecard India (P) Ltd. (judgment dated 16-02-2022), wherein the NCLT had, by detailed reasoning, distinguished the judgment of Chiranjeevi (supra) and held that, a non-member director cannot file an application before NCLT under Sections 241 and 242 of Companies Act, 2013 due to the embargo under Sec. 244 of the Companies Act, 2013.

The Court had issued notice to the respondent company.

[Manish Kumar v. Topworth Urja & Metals Ltd., Special Leave to Appeal (C) No. 9191 of 2022, order dated 18-05-2022]


Appearance by:

For Petitioner(s): Siddharth Bhatnagar, Sr. Adv.

Swarnendu Chatterjee, AOR

Aditya S., Adv.

Pranav Auhad, Adv.

Darshana Naval, Adv.

Yashwardhan Singh, Adv.


Kamini Sharma, Editorial Assistant has put this report together 


Case BriefsSupreme Court

Supreme Court: While rejecting an appeal to quash proceedings under Section 138 of the N.I. Act, 1881 at pre-trial stage, the Division Bench comprising of K.M. Joseph and Hrishikesh Roy*, JJ., held that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties.

The Bench upheld the impugned judgment of Delhi High Court wherein the High Court had – while acting as a quashing court under Section 482 of CrPC – refused to quash proceedings at pre-trial stage. The Bench observed,

“The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested.”

Factual Backdrop

Evidently, the complainant invested a substantial sum in the appellant’s company, however as some dispute arose between them, the parties decided that the invested money would be returned to the complainant and the shares allotted to the complainant will be proportionately transferred to the appellant. Pursuant to such compromise, the four cheques were issued by the appellant, which on being presented by the complainant, got dishonourned due to insufficient fund. Consequently, proceedings under NI Act came in picture.

Submissions of the Parties

The appellant argued that without satisfying the essential ingredients for the offence under Section 138 of the N.I. Act to the effect that the dishonoured cheque received by the complainant was against “legally enforceable debt or liability”, the criminal process could not have been issued. According to the appellant, the cheques in question were issued as “security” for buyback of shares and not in discharge of any “legally recoverable debt” and therefore they could not have been prematurely presented to the bank and should have been presented for encashment only after transfer of the complainant’s shareholding in the appellant’s company.

On the contrary, the complainant contended that when the cheques were issued and the signatures thereon were admitted, the presumption of a legally enforceable debt would arise in favour of the holder of the cheque. The complainant argued that the appellant should first pay and then as per the usual practice in the trade, the shares would be transferred to the appellant in due course within the time permitted by law.

Analysis and Conclusion

In HMT Watches Ltd. v. M.A. Abida, (2015) 11 SCC 776, and in Rajiv Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330, it has been held that unless the Court is fully satisfied that the material produced would irrefutably rule out the charges and such materials being of sterling and impeccable quality, the invocation of Section 482 Cr.P.C power to quash the criminal proceedings, would be unmerited.

The Bench opined that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties. The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested. The Bench observed,

“The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable.”

The Bench stated that at any rate, whenever facts are disputed the truth should be allowed to emerge by weighing the evidence. Otherwise, the accused may get an un-merited advantage in the criminal process. Hence, the Bench held that when the cheque and the signature were not disputed by the appellant, the balance of convenience was in favour of the complainant/prosecution and the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption.

In the light of above, the Bench reached to following findings:

  1. In shares transactions, there is a time lag between money going out from the buyer and shares reaching to the seller.
  2. The burden of proving that there is no existing debt or liability, is to be discharged in the trial.
  3. The legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage.
  4. In a situation where the accused moves Court for quashing even before trial has commenced, the Court’s approach should be careful enough to not to prematurely extinguish the case by disregarding the legal presumption which supports the complaint.

Consequently, the Bench held that when the proceedings are at a nascent stage, scuttling of the criminal process is not merited. Hence, the impugned judgment was upheld as the same was found to be rendered by applying the correct legal principles.

[Rathish Babu Unnikrishnan v. State (NCT of Delhi), 2022 SCC OnLine SC 513, decided on 26-04-2022]


*Judgment by: Justice Hrishikesh Roy


Appearance by:

For the Appellant: Krishnamohan K., Advocate

For the Complainant: K.M. Nataraj, ASG and Rebecca M. John Senior Counsel


Kamini Sharma, Editorial Assistant has put this report together

Case BriefsSupreme Court

Supreme Court: The bench of UU Lalit and S. Ravindra Bhat*, JJ has held that whether corporate death of an entity upon amalgamation per se invalidates a tax assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.

Facts Background

The Court was deciding an appeal against the order of the Delhi High Court rejecting the appeal, by the revenue and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee Mahagun Realtors Private Limited (MRPL).

MRPL, a real estate company, amalgamated with Mahagun India Private Limited (MIPL) on 01.04.2006. The Assessing Officer (AO), issued an assessment order on 11.08.2011, assessing the income of ₹ 8,62,85,332/- after making several additions of ₹ 6,47,00,972/- under various heads. The assessment order showed the assessee as “Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd”.

It was argued before the Court that the assessment framed in the name of amalgamating company which was ceased to exist in law, was invalid and untenable in terms of Section 170(2) of the Income Tax Act, 1961.

Analysis

Section 170 of Income Tax Act, inter alia, provides that where a person carries on any business or profession and is succeeded (to such business) by some other person (i.e., the successor), the predecessor shall be assessed to the extent of income accruing in the previous year in which the succession took place, and the successor shall be assessed in respect of income of the previous year in respect of the income of the previous year after the date of succession.

Further, there are not less than 100 instances under the Income Tax Act, wherein the event of amalgamation, the method of treatment of a particular subject matter is expressly indicated in the provisions of the Act. In some instances, amalgamation results in withdrawal of a special benefit (such as an area exemption under Section 80IA) – because it is entity or unit specific. In the case of carry forward of losses and profits, a nuanced approach has been indicated. All these provisions support the idea that the enterprise or the undertaking, and the business of the amalgamated company continues. The beneficial treatment, in the form of set-off, deductions (in proportion to the period the transferee was in existence, vis-à-vis the transfer to the transferee company); carry forward of loss, depreciation, all bear out that under the Act, (a) the business-including the rights, assets and liabilities of the transferor company do not cease, but continue as that of the transferor company; (b) by deeming fiction through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor.

The amalgamation of two or more entities with an existing company or with a company created anew was provided for, statutorily, under the old Companies Act, 1956, under Section 394 (1) (a). Section 394 empowered the court to approve schemes proposing amalgamation, and oversee the various steps and procedures that had to be undertaken for that purpose, including the apportionment of and devolution of assets and liabilities, etc.

Reading Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act together, the Court reached to the conclusion that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation, continues.

The Court observed,

“Amalgamation, thus, is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues – enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease – depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall.”

Ruling on facts

The Court specifically noticed that, in the present case,

  • The amalgamation was known to the assessee, even at the stage when the search and seizure operations took place, as well as statements were recorded by the revenue of the directors and managing director of the group.
  • A return was filed, pursuant to notice, which suppressed the fact of amalgamation; on the contrary, the return was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.
  • Even the affidavit before the Supreme Court was on behalf of the director of MRPL.
  • The assessment order painstakingly attributed specific amounts surrendered by MRPL, and after considering the special auditor’s report, brought specific amounts to tax, in the search assessment order.

The Court was, hence, of the opinion that all the aforementioned points clearly indicated that the order adopted a particular method of expressing the tax liability. The AO, on the other hand, had the option of making a common order, with MIPL as the assessee, but containing separate parts, relating to the different transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.).

“The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it.”

Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order – and Section 394 (2). Furthermore, it would be anybody’s guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL).

Having regard to all these reasons, the Court held that the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee.

[Principal Commissioner of Income Tax v. Mahagun Realtors (P) Ltd, 2022 SCC OnLine SC 407, decided on 05.04.2022]


*Judgment by: Justice S. Ravindra Bhat


Counsels

For Petitioner: Advocate Raj Bahadur Yadav

For respondents: Advocate Kavita Jha

Case BriefsHigh Courts

Meghalaya High Court: Sanjib Banerjee, CJ, addressed a petition wherein a creditor’s winding-up petition was instituted under Section 433 of the Companies Act, 1956 and the same was not yet advertised.

Section 433 of the Companies Act, 1956

  1. Circumstances in which company may be wound up by Court. A company may be wound up by the Court,-

(a) if the company has, by special resolution, resolved that the company be wound up by the Court;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;

(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;

(e) if the company is unable to pay its debts;

(f) if the Court is of opinion that it is just and equitable that the company should be wound up.

High Court expressed that there was a divergence in the practice followed in different High Courts since the inception of the Companies Act, 1956. Some High Courts required the immediate publication of an advertisement upon the creditor’s winding-up petition being filed; whereas others, including Calcutta and Gauhati, required the Company Court to first be satisfied as to the existence of the indisputable debt before directing the publication of the advertisement.

Invariably, when the Court was satisfied that the debt was indisputably due, an option would be given to the company to pay off the same, failing which, the advertisement would ensue.

With respect to the present matter, the advertisement had not yet been published.

Though the petition was filed before the relevant provisions of the Companies Act, 2013 were notified and the Insolvency and Bankruptcy Code, 2016 came into effect, the law, as it stands now, permitted only matter that has been advertised to be retained by the Court and requires all other matters to be transferred to appropriate Company Law Tribunal since the entire regime as to insolvency had been recognized and parked with such authority.

Hence, the entire matter stood transferred to the National Company Law Tribunal, Guwahati.[Walchandnagar Industries Ltd. v. Green Valley Ind. Ltd., 2022 SCC OnLine Megh 44, decided on 23-2-2022]


Advocates before the Court:

For the Petitioner/Appellant (s)

: Mr. K.K. Mahanta, Sr. Adv. With Mr. K.M. Mahanta, Adv.

Mr. S. Gautam, Adv.

For the Respondent (s)

: Mr. K. Paul, Sr. Adv.

Mr. JM Thangkhiew, Adv.

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

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Customs, Excise and Services Tax Appellate Tribunal (CESTAT)


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Competition Commission of India (CCI)


TRP Scam: CCI orders closure of information filed against BARC alleging contravention of Competition Act

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Consumer Disputes Redressal Commission, Gujarat State, Ahmedabad


Hospital is liable with respect to medical negligence that may be direct liability or vicarious liability which means the liability of an employer for the negligent act of its employees.

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Income Tax Appellate Tribunal (ITAT)


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National Consumer Disputes Redressal Commission (NCDRC)


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Offering possession of incomplete construction and without obtaining “Completion Certificate” does not justify the act of the builder.

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National Company Law Appellate Tribunal (NCLAT)


Existence of Dispute prior to issuance of Demand Notice-NCLT and NCLAT in rhythm, rejects appeal

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Securities Appellate Tribunal (SAT)


Relents unrelentingly | Tribunal concerns and the concerns of the concerned counterbalanced- 4 weeks and 2000 crore, to lift attachment order while withdraws for some on exigencies and age

“…we are of the opinion that even though it would have been appropriate for the respondent to await the result of the decision of this Tribunal, however, there is no embargo upon the Recovery Officer to proceed independently to recover the amount under Section 28A of the SEBI Act since there was no stay of the impugned order”.

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Securities Exchange Board of India (SEBI)


Exception granted for gifting shares in an acquisition| Proposed acquirer to file report within 21 days post-acquisition

S.K. Mohanty, Whole Time Member, while deciding an order, granted exemption to the Anived Family Trust (Proposed Acquirer) from complying with the requirements of Regulation 3(2) of the Takeover Regulations, 2011 with respect to the proposed direct acquisition in the, Renaissance Global Limited (Target Company), by way of proposed transaction as mentioned in the Application.

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Assuring profits in a market already subjected to risk- Debarred from the market for subjecting others to risk

“Investments in securities markets are subject to risks and hence the returns are unpredictable. Therefore, guarantee of assured profits by the Noticee in any manner through its plans/schemes is fraudulent and might have induced the investors to invest in such plans/schemes”.

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Telecom Disputes Settlement & Appellate Tribunal (TDSAT)


Dual Till, Light Touch Regulation and exclusion from liability to pay UDF by transit passenger; Telecom Tribunal’s decision deals a blow to BIAL

“An impression is created by isolated reading of Section 13(1)(d) that the Authority can only monitor such performance standards relating to quality as have been set specifically by the Central Government or its authorized authority. But full reading of the provisions in the Act and the binding effect of the Concession Agreement easily lead to the conclusion that power under Section 13(1)(d) is an additional power and it does not take away powers and duties of the Authority to monitor quality of the services on the basis of current prevailing national and international practices and the standards.”

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Case BriefsSupreme Court

Supreme Court: In a case relating to dishonour of cheques where it was alleged that the complaint was filed by the managing director in his personal capacity and not on behalf of the Company, the bench of Sanjay Kishan Kaul* and MM Sundresh, JJ has held that there could be a format where the Company’s name is described first, suing through the Managing Director but there cannot be a fundamental defect merely because the name of the Managing Director is stated first followed by the post held in the Company. It was further held that it would be too technical a view to take to defeat the complaint merely because the body of the complaint does not elaborate upon the authorisation.

Facts

The respondent had issued 8 cheques totalling to Rs.1,60,000/- in favour of Bell Marshall Telesystems Limited, however, all the cheques got dishonoured on account of “funds insufficient” after which legal notices were issued by the beneficiary under Section 138(b) of the Negotiable Instruments Act, 1881. The demand was, however not met within fifteen days of the receipt of the notice nor was any reply sent which resulted in the complaint being filed by the Company’s Managing Director Bhupesh Rathod before the Special Metropolitan Magistrate, Mumbai. The Company also filed an affidavit through its Managing Director, i.e., Bhupesh Rathod, stating that it had authorised to file a complaint case against the respondent. A copy of the Board Resolution was also presented.

The respondent took an objection that the complaint was filed in the personal capacity of Bhupesh Rathod and not on behalf of the Company. On the other hand it was contended by the appellant that the complaint was in the name of the Company and in the cause title of the complaint he had described himself as the Managing Director. The Company was a registered company under the Companies Act, 1956. On this, the respondent contended that it is only in the aforesaid title description that the complainant is described as the Managing Director of the Company but in the body of the complaint it is not so mentioned.

Analysis

The Court took note of the facts that the description of the complainant with its full registered office address is given at the inception itself except that the Managing Director’s name appears first as acting on behalf of the Company. The affidavit and the cross-examination in respect of the same during trial supports the finding that the complaint had been filed by the Managing Director on behalf of the Company.

It, hence, noticed that the format itself cannot be said to be defective though it may not be perfect.

“The body of the complaint need not be required to contain anything more in view of what has been set out at the inception coupled with the copy of the Board Resolution. There is no reason to otherwise annex a copy of the Board Resolution if the complaint was not being filed by the appellant on behalf of the Company.”

It further explained that a Manager or a Managing Director ordinarily by the very nomenclature can be taken to be the person in-charge of the affairs Company for its day-to-day management and within the activity would certainly be calling the act of approaching the court either under civil law or criminal law for setting the trial in motion.

“It would be too technical a view to take to defeat the complaint merely because the body of the complaint does not elaborate upon the authorisation. The artificial person being the Company had to act through a person/official, which logically would include the Chairman or Managing Director. Only the existence of authorisation could be verified.”

The Court considered the governing principles in respect of a  corporate entity which seeks to file the complaint, as laid down in Associated Cement Co. Ltd. v. Keshavanand, (1998) 1 SCC 687, and said that,

“If a complaint was made in the name of the Company, it is necessary that a natural person represents such juristic person in the court and the court looks upon the natural person for all practical purposes. It is in this context that observations were made that the body corporate is a de jure complainant while the human being is a de facto complainant to represent the former in the court proceedings. Thus, no Magistrate could insist that the particular person whose statement was taken on oath alone can continue to represent the Company till the end of the proceedings. Not only that, even if there was initially no authority the Company can at any stage rectify that defect by sending a competent person.”

Further, the Court noticed that the signatures on the cheques were not denied. Neither was it explained by way of an alternative story as to why the duly signed cheques were handed over to the Company. There was no plea of any fraud or misrepresentation.

“It does, thus, appear that faced with the aforesaid position, the respondent only sought to take a technical plea arising from the format of the complaint to evade his liability.”

Ruling

The Court held that the complaint was properly instituted and also that the respondent failed to disclose why he did not meet the financial liability arising to a payee, who is a holder of a cheque in due course.

The Court was of the view that the respondent should be sentenced with imprisonment for a term of one year and with fine twice the amount of the cheque, i.e., Rs.3,20,000/-. However, since 15 years have elapsed since the complaint was filed, the Court directed if the respondent pays a further sum of Rs.1,60,000/- to the appellant, then the sentence would stand suspended.

[Bhupesh Rathod v. Dayashankar Prasad Chaurasiya, 2021 SCC OnLine SC 1031, decided on 10.11.2021]


*Judgment by: Justice Sanjay Kishan Kaul

New releasesNews

Company Law by Rinita Das


The law relating to the companies is complicated and requires great patience and dedication to understand the intricacies thoroughly. Through this book, author Rinita Das has made an attempt to make the law simple and comprehensible for the readers.

In India, the Companies Act, 2013 regulates companies. However, this legislation has to be read with the rules, regulations and notifications of the Ministry of Corporate Affairs and the guidelines issued by SEBI. This book introduces not only the provisions of the Companies Act, 2013, but also relevant Companies Rules, the provisions of SEBI regulations, and the MCA notifications along with case laws in a simple and lucid manner.

The object of the Companies Act, 2013 is to build a better corporate governance structure for the companies and increase accountability of the people representing the company by bringing out greater transparency in the administration. Nevertheless, this legislation has undergone many amendments since 2013, whenever the need was felt to modify it to suit the requirements of industry and ease the doing of business. All changes and modifications made in the law have been duly incorporated in this book to make it thoroughly updated and relevant.

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Case BriefsSupreme Court

Supreme Court: Taking note of the depleting strength of the members of the NCLT and NCLAT, the 3-judge bench of L. Nageswara Rao, Hemant Gupta and S. Ravindra Bhat, JJ has issued certain directions and has asked the Government to complete the reappointment process “at the earliest and not later than two months”.

The direction came in the petition filed by the National Company Law Tribunal and Appellate Tribunal Bar Association seeking direction to the Central Government

  • to fill up the vacancies of Chairman, NCLAT and President of NCLT without any further delay.
  • to issue letters of appointment to the candidates pursuant to the Selection procedure initiated in 2019 and to fill up the remaining vacancies of Members of NCLT and NCLAT.
  • to extend the term of six Members of the NCLT and NCLAT for a further period of five years as they are completing the tenure by June, 2021.

The Additional Solicitor General Balbir Singh had told the Court that the process for appointment of candidates who have been selected pursuant to the procedure which was initiated in 2019 shall be expedited and orders of appointment shall be issued soon. In respect of the process to be initiated for filling up the existing vacancies, a search cum Selection Committee has to be constituted. The Court, hence, directed that the Selection Process shall be initiated at the earliest.

On the issue of extension of the term of the Members of the NCLT and NCLAT who are completing their tenure in June, 2021 is concerned, Attorney General KK Venugopal submitted that the government has initiated the process for reappointment by requesting the Chief Justice of India to constitute a committee for the purposes of the reappointment of members to the NCLT and NCLAT.

As per Section 413 of the Company’s Act 2013, the President or other members of the Tribunal shall hold office for a period of 5 years and shall be entitled for reappointment for another term of 5 years.

The petitioner, however, requested that the members who are completing their tenure should be permitted to continue till the process of reappointment is completed.

“… there are 39 members at present for a sanctioned strength of 63 and the depletion of the strength of the members will adversely affect the smooth functioning of the Tribunals.”

The Court, hence, directed the Government to complete the process within two months and said,

“As the Government has already initiated the process of reappointment by writing to the Hon’ble Chief Justice, we trust and hope that the reappointment process should be completed expeditiously, as there is no necessity of issuance of any advertisement for participation of other eligible candidates. Reappointment of members can be considered separately without waiting for the process of fresh appointments to commence.”

[National Company Law Tribunal and Appellate Tribunal Bar Association v. Ministry of Corporate Affairs, 2021 SCC OnLine SC 406, order dated 31.05.2021]


For Petitioner(s) Mr. A.S. Chandhiok, Sr. Adv. Mr. Virender Ganda, Sr. Adv. Mr. Ajay Kumar Jain, Adv Mr. Rakesh Kumar, Adv Mr. Vipul Ganda, Adv Mr. Vishal Ganda, Adv Mr. Satyajit A. Desai, Adv. Mrs. Anagha S Desai, AOR Ms. Aastha Trivedi, Adv Ms. Guresha Bhamra, Adv Mr. Tejasvi Chaudhry, Adv Mr. Satya Kam Sharma, Adv.

For Respondent(s) Mr. KK Venugopal, Ld. AG Mr. Balbir Singh, Ld. ASG Mr. R. Balasubramanium, Sr. Adv. Mr. Zoheb Hossain, Adv Ms. Shradha Deshmukh, Adv. Ms. Chinmayee Chandra, Adv. Mr. Shyam Gopal, Adv. Mr. Ankur Talwar, Adv. Ms. Suhasini Sen, Adv. Mr. Gurmeet Singh Makker, AOR

Case BriefsForeign Courts

Supreme Court of Pennsylvania: While deliberating upon the question that whether no-hire, or “no poach,” provisions that are ancillary to a services contract between business entities are enforceable under the laws of Pennsylvania, the Bench of Baer, CJ., and Saylor, Todd, Donohue, Dougherty, Wecht and Mundy, JJ., unanimously held that no-hire provision creates a likelihood of harm to the public, i.e., non-parties to the contract. “The no-hire provision impairs the employment opportunities and job mobility of PLS employees, who are not parties to the contract, without their knowledge or consent and without providing consideration in exchange for this impairment”. Such provisions undermine free competition in the labor market in the shipping and logistics industry, which creates a likelihood of harm to the general public, thus in the instant case the “no- hire” provision is unenforceable.

Facts:

Pittsburgh Logistics Systems, Inc. (hereinafter “PLS”) is a third-party logistics provider that arranges for the shipping of its customers’ freight with selected trucking companies. Beemac Trucking (hereinafter “Beemac”) is a shipping company that conducts non-exclusive business with PLS. In August 2010, PLS and Beemac entered into a one-year Motor Carriage Services Contract, which automatically renewed on a year to year basis until either party terminated it. It contained both a non-solicitation provision and the no-hire provision. While the contract was in force, Beemac hired four PLS employees.

On 29th November, 2016, PLS filed an action in the Court of Common Pleas of Beaver County against Beemac alleging breach of contract, tortious interference with contract, violation of the Pennsylvania Uniform Trade Secrets Act, and civil conspiracy. PLS also sued its 4 former employees for breach of contract, alleging they had breached the non-competition and non-solicitation provisions of their employment contracts. Following a three-day preliminary injunction hearing, the Trial Court refused to enforce the no-hire provision, finding the provision violated public policy. Subsequently the PLS appealed, but the Superior Court affirmed the Trial Court’s decision.

Contentions:

PLS contended before the Court that by voiding the no-hire provision, the Superior Court disregarded Pennsylvania public policy which advised it to enforce the terms of the agreement that these parties who were on a level playing field negotiated in good faith and entered at arm’s length. PLS further stated that the cases relied upon by the Superior Court in support of its conclusions are distinguishable, and that “cases enforcing no-hire provisions are not only based on sound jurisprudential grounds, but are properly appreciative of the economic context and business realities that lead intermediary companies, like PLS, to find them necessary to further their business interests”.

Per contra, Beemac stated that that the Superior Court correctly applied Pennsylvania law regarding restraints of trade in holding that the no-hire provision violates public policy. It was argued that PLS failed to explain why a company, already in a superior bargaining position when hiring and negotiating with employees, should be free to contract away the rights of its employees by way of contracts to which they are not parties and for which they receive no consideration. Beemac drew the attention of the Court upon the fact that recently the Department of Justice (DOJ) has taken a strong stand against no-hire restrictions. Beemac further argued that governmental rejection of no-hire restraints “is firmly rooted in long-established ethical and moral standards

Observations:

Noting that there is a dearth of Pennsylvania case laws with regards to ‘no-hire’ provisions, therefore in order to resolve the dispute the Court deemed it fit to review the judgments of other jurisdictions upon which the parties have relied on.

Upon extensive perusal of the case laws cited by the parties, the Court observed that, “To determine the enforceability of a provision in restraint of trade that is ancillary, or supplementary, to the principal purpose of a contract, we employ a balancing test to determine the reasonableness of the restraint in light of the parties’ interests that the restraint aims to protect and the harm to other contractual parties and the public”. Applying the said balancing test, the Court noted that in the instant case the no-hire hire provision was ancillary to the principal purpose of the shipping contract between PLS and Beemac. The no-hire provision is a restraint on trade because the two commercial entities agreed to limit competition in the labor market by promising to restrict the employment mobility of PLS employees. The Court further observed that PLS had a legitimate interest in preventing its business partners from poaching its employees, who had developed specialized knowledge and expertise in the logistics industry during their training at PLS; however, the no-hire provision is both greater than needed to protect PLS’s interest and creates a probability of harm to the public. It is overbroad because it precludes Beemac, and any of its agents or independent contractors, from hiring, soliciting, or inducing any PLS employee or affiliate for the one-year term of the contract plus two years after the contract ends. The no-hire provision precluded Beemac from hiring or soliciting all PLS employees, regardless of whether the PLS employees had worked with Beemac during the term of the contract.

Agreeing with the observations of the Superior Court, the Bench concluded that PLS enforced the no-hire provision by seeking to enjoin Beemac from employing the former PLS employees who had already left PLS and obtained employment with Beemac. If PLS was successful, the effect of its enforcement of the no-hire provision would have deprived its former employees of their current jobs and livelihoods; “Balancing PLS’s interest against the overbreadth of the no-hire provision and the likelihood of harm to the public, we conclude that the no-hire provision is unreasonably in restraint of trade and therefore unenforceable”.

[Pittsburgh Logistics Systems, Inc. v. Beemac Trucking LLC., No. 31 WAP 2019, decided on 29.04.2021]  


Sucheta Sarkar, Editorial Assistant has put this report together