Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical) allowed the appellant (shareholder of the Corporate Debtor) to pay the total dues of the Operational Creditor after the application filed against it under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted by the the National Company Appellate Tribunal, Bengaluru.

The appellant submitted that though the Section 9 application was admitted against it, however, the Committee of Creditors was not yet constituted. He submitted that he was ready to pay the total dues of the Operational Creditor which brought the application before NCLT.

Three demand drafts brought by the appellant were produced before the Appellate Tribunal, which were directed to be handed over to the Operational Creditor in the discharge of Corporate Debtor’s liability towards it. In view of the fact that the total amount was paid to the Operational Creditor and the Committee of Creditors was not yet constituted, the Appellate Tribunal set aside the impugned order of NCLT admitting the Section 9 application against the Corporate Debtor. [A.P. Abdul Kareem v. Om Industrial Corpn., 2019 SCC OnLine NCLAT 154, Order dated 16-04-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice A.I.S Cheema, Member (Judicial) and Balvinder Singh, Member (Technical) observed that a shareholder of a company is entitled to file a petition for the revival of the company.

The name of one “Venku Hospitals (P)Ltd.” was struck off from the Register of Companies in 2005 for non-filing of annual accounts and returns w.e.f. the Financial Year ending 2000-2001. A petition was filed before the National Company Law Tribunal, Chennai for the restoration of the company’s name in the Register under Section 252 of the Companies Act, 2013. However, the petition was dismissed by NCLT on the ground, inter alia, that Appellant 2 (Director of Venku Hospitals) had no locus standi to file the same. Aggrieved thereby, the present appeal was filed.

Anandh K., Advocate for the appellants made extensive arguments assailing the order of the Registrar of Companies, Chennai and the subsequent order of NCLT. Per Contra, Registrar of Companies supported its order in the reply filed by it. Sanjiv Kumar Mohanty, Advocate appeared as Amicus Curiae.

At the outset, the Appellate Tribunal observed that Appellant 2 was also a shareholder of Venku Hospitals and as per Section 252(3), he was entitled to file the petition for the revival of the company. However, on perusing facts of the case, it was held that no relief could be granted to the appellants. It was noted that all the documents filed by Venku Hospitals to support their case were old and irrelevant. Thus, the Appellate Tribunal did not find any occasion to interfere with the impugned order and hence, the appeal was dismissed. [Venku Hospitals (P) Ltd. v. Registrar of Companies, 2019 SCC OnLine NCLAT 7, dated 18-02-2019]

Case BriefsForeign Courts

Constitutional Court of South Africa: A Single Judge Bench comprising of Mogoeng, CJ. Dlodlo, Goliath, Petse, AJ, Froneman, Jafta, Khampepe, Madlanga, and Theron, JJ., unanimously granted the applicants rescission in terms of the Uniform Rules of Court and granted leave to intervene to applicants in the trial.

This application was filed for leave to appeal against an order of Supreme Court Appeal where a refusal of rescission and dismissal of an application for leave to intervene by the High Court of South Africa was upheld. The issue before the Court was whether rescission and leave to intervene should have been granted.

Facts of the case are that a group of individuals acquired a company to use the same as a vehicle for commercial opportunities for the benefit of black people. Applicants were shareholders of this company. The company was converted into a public company in order to open up the shareholding to more than 50 persons. It was renamed NC Housing Services and Development Co. Ltd. Due to failure to file annual company returns ROC removed the name of the company from companies register. Later company wanted to sell its major asset for which they applied for re-registration and were subsequently re-registered. A dispute arose between the applicants and the second and third respondents, regarding the proportion of shares owned by the various shareholders.

The respondent filed an application in High Court against the company where the matter was referred to Trial. High Court held that the shareholders could not have been a party in trial as they could not have personally fought the case as they were representative directors. Supreme Court of Appeal held that although the applicants had been participating in the proceedings both as directors and as shareholders, the resolution passed by them barred them from participating in the litigation due to their failure to have set aside the above resolution.

Therefore, this Constitutional Court held that when an individual shareholder is presented as “shareholder” in court proceedings, he becomes party in the litigation in his personal capacity. Orders of the Supreme Court of Appeal and High Court of South Africa were set aside. Court granted rescission in terms of the Uniform Rules of Court and leave to appeal to intervene in the trial. [Morudi v. NC Housing Services and Development Co. Ltd. , (2018) ZACC 32, dated 25-09-2018]

Case BriefsSupreme Court

Supreme Court: Explaining the term ‘dividend’ under Section 2(22)(e) of the Income Tax Act, 1961, the Court said that the said provision gives an artificial definition of ‘dividend’ and creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. Stating that the dividend taken note of by this provision is a deemed dividend and not a real dividend, the Court explained that loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder.

The Court, however, clarified that for certain purposes, the Legislature has deemed such a loan or payment as ‘dividend’ and made it taxable at the hands of the said shareholder. The conditions required to be fulfilled to attract tax under the said clause are:

  • Payment is to be made by way of advance or loan to any concern in which such shareholder is a member or a partner.
  • In the said concern, such shareholder has a substantial interest.
  • Such advance or loan should have been made after the 31.05.1987.

The question that came before the bench of Dr. A.K. Sikri and Abhay Manohar Sapre, JJ was that whether in view of the settled principle that HUF cannot be a registered shareholder in a company and hence could not have been both registered and beneficial shareholder, loan/advances received by HUF could be deemed as dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 especially in view of the term “concern” as defined in the Section itself.

The Court noticed that, in the present case, the Karta is, undoubtedly, the member of HUF. He also has substantial interest in the assessee/HUF, being its Karta as he was entitled to not less than 20% of the income of HUF. Hence, it was held that the provisions of Section 2(22)(e) of the Act get attracted and it is not even necessary to determine as to whether HUF can, in law, be beneficial shareholder or registered shareholder in a Company. As per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. [Gopal and Sons v. CIT, Kolkata, 2017 SCC OnLine SC 17, decided on 04.01.2017]