SC LIFTS CORPORATE VEIL ON SHARE DEALS
The Supreme Court (“SC”)
lifted the corporate veil and upheld the cancellation of plot for an
information technology campus because a Singapore company, the Allottee,
transferred the plot to a Dubai company without approval. In this case, Estate
Officer, UT Chandigarh vs Esys
Information Technologies Ltd, the plot was allotted for running an
institution. However, the Singapore firm transferred its shares to a Dubai
firm, Esys Global Holdings. There was another disputed transfer of shares to a
Chennai firm. The Estate officer asked the Allottee company about the share
transactions and nature of the business. He did not get a satisfactory answer.
Therefore, he threatened to
take back the land. The company moved the High court. It stayed the take-over. On
appeal, the Apex court set aside the High court order. It stated that the
company had concealed facts about the share transfers and not come to the court
with “clean hands”. There was a
sale, not mere transfer of shares.
The judgement emphasised that
courts are entitled to “lift the mask of corporate veil when it is used for perpetrating
fraud or for evasion of tax. Corporate veil can also be lifted where promoters
act in furtherance of their dishonest and fraudulent design.”
ARBITRATION CLAUSE MUST BE FOLLOWED
When the arbitration clause in
an agreement specifies the place of arbitration and the law applicable, it should
be followed, the Supreme Court stated while dismissing the appeal case, Ashapura
Minechem Ltd vs Eitzen Bulk A/S. The dispute arose out of the Contract
of Affreightment Eitzen of Denmark entered into with Ashapura of Mumbai as
charterers for shipment of bauxite from India to China. Disputes having arisen,
the arbitrator in London held that Ashapura was guilty and awarded Eitzen Bulk
$36,306,104-plus interest.
The Indian firm moved Gujarat
courts against the verdict without success as Eitzen insisted that Indian
courts had no jurisdiction. However, a division bench of the Gujarat high court
held in favour of the Mumbai firm. The dispute was also before the Bombay high
court which ordered enforcement of the award. Meanwhile, the foreign firm got decrees
in its favour from courts in the Netherlands, England and New York, all of them
ruling that the award was enforceable in India. Both parties approached the Supreme
Court. It ruled that the Bombay High Court was right and the Gujarat High Court
wrong.
PENALTY FOR VIOLATION OF LABOUR LAWS
The Supreme Court has imposed
a fine on Growth Shop of Tata Steel Ltd
in Jharkhand for violating various provisions of the Factories Act and rules.
The allegations were that the management took overtime service from contract
labourers without providing them overtime slips, they were not given leave book,
and in the canteen there was no partition for women workers, doors and windows
were not fly-proof, there was no rate card nor hot water to clean dishes. Cases
were filed against the manager and others concerned.
They moved the high court
which refused to quash the criminal proceedings. They appealed to the Supreme
Court. It gave a chance to rectify the defects as they were “apparently trivial”. The accused
persons returned stating that the defects have been cured. Then the question
arose whether that was enough and whether they should be punished under Section 92 of the Act. They argued that
they had no criminal intent and therefore should be exonerated. The state
government contended that the violations should not be considered “trivial”.
The Supreme Court ruled that though there was no criminal intent, still labour
law was violated. It imposed INR 50,000
as punishment.
CLUB SEEKS SALES TAX EXEMPTION FOR FOOD
A tricky question over sales
tax on food and drinks served in a club to its permanent members has arisen in
the Supreme Court and a division bench has referred it to a larger bench. The
West Bengal government demanded ST from permanent members of Calcutta Club Ltd.
The company objected, stating that as permanent members, they constituted the
club, they are not “buying” anything, the suppliers and consumers are the same,
and the items are bought from the market by the club as their agent. This view
was accepted by the tribunal and the Calcutta high court. The government
appealed, arguing that after an amendment to Article 366 of the Constitution
defining sale and purchase of goods, the transaction was eligible to tax.
The
interpretation of Article 366(29A) in this case, West Bengal vs Calcutta Club, will affect clubs all over the
country.
PACKMUST SHOW CONSUMER CARE ADDRESS
The Delhi High Court has
dismissed the plea of Standard Fireworks Ltd of Sivakasi, Tamil Nadu, seeking
to quash its prosecution by the Delhi government for not printing the consumer
care number on a package of ‘Thunder Bomb’ sold in the capital. The
manufacturers argued that the metrology rules mandated only the printing of their
address, but not the consumer care number. The high court rejected the defence
pointing out that Rule 6(2) of the Legal Metrology (Packaged Commodities) Rules
clearly provided for mentioning of the name, address, telephone number, email address
of the office which can be contacted in case of any consumer complaint.
(Source:
Business Standard)
