MCA NOTIFIED THE NCLT AND NCLAT RULES, 2016

CENTRAL GOVERNMENT NOTIFIED THE NCLT AND NCLAT RULES, 2016

The Ministry of Corporate Affairs (“MCA”), vide Notification dated. July 21, 2016, has notified the National Company Law Tribunal Rules, 2016/ NCLT Rules, 2016, which has replaced the Company Law Board. Further, the rules for the National Company Law Appellate Tribunal have also been notified by the Corporate Affairs Ministry. The Tribunal and its Appellate Authority are part of the Companies Act, 2013.

NCLT is initially located at ten places across India, equipped with requisite infrastructure and support staff, including Delhi, Mumbai, Kolkata, Hyderabad and Chennai. NCLT will prove out to be effective platform for adjudication of disputes on corporate law matters through disposal of such cases in a time bound and speedy manner.

NCLT and its Appellate Tribunal were constituted by the Ministry earlier to exercise and discharge the powers and functions as are, or may be, conferred on it by or under the Act with effect from the 1st day of June, 2016.

Criteria for matters before NCLT/NCLAT branch (Order No. 25/1/2016-NCLT dated June 29, 2016):-

S. No.	Bench	Matters pertaining to
1.	National Company Law Tribunal, Principal Branch	1)      Company having paid up share capital more than Rs. 50 lakhs and 2)      As per special order of the Hon’ble President, NCLT
2.	National Company Law Tribunal, New Delhi Branch	1)      Company having paid up capital upto Rs. 50 lakhs

Notifications regarding the NCLT/NCLAT Rules, 2016 can be downloaded from the below mentioned links for reference:

1.           For National Company Law Tribunal Rules, 2016:-
         http://www.mca.gov.in/Ministry/pdf/Rules_22072016_1.pdf

2.     For National Company Law Appellate Tribunal Rules, 2016:-

        http://www.mca.gov.in/Ministry/pdf/Rules_22072016.pdf

A WEEKLY SELECTION OF KEY COURT ORDERS

CONTRACT HITS IMPOSSIBLE HURDLE

The law says that a contract to do an act, which turns out to be impossible of performance after the agreement, becomes void and the person who suffers must be compensated. If environment restrictions not contemplated in the contract frustrate a project and it becomes impossible or impracticable to implement it, the contractor deserves compensation, according to the Supreme Court. The contractor who could not undertake a housing project because of environment curbs not contemplated by the government at the time of signing the agreement was compensated in the judgment, Delhi Development Authority vs Kenneth Builders.

Brief facts

The development authority (“DDA”) gave to a contractor a housing project in the ridge area of the capital, which is an ecologically sensitive area. At the time of the contract, this fact was not taken into consideration by either party. Later, it was found that the project could not be undertaken because of various regulations to protect the area. Any development activity at the site required sanction from the Ridge Management Board and the Supreme Court itself, because of environment litigation. Though DDA granted the contract on the “as is where is” basis, the construction could not be undertaken which is prohibited by law and without permission. Invoking Section 56 of the Contract Act, the court asked DDA to refund the deposit made by the contractor with interest.

REVIVED UNIT MUST PAY TAX DUES

An industrial unit which was protected by the Sick Industries Act during revival plans could be asked to pay its tax dues when it is revived, the Supreme Court ruled in the case, Director General of Income Tax vs GTC Industries.

Brief facts

The firm was declared sick in 1997 and referred to BIFR. After a draft rehabilitation scheme was circulated, the revenue authorities demanded Rs. 366 crore in taxes. However, it was barred from recovering it due to the SICA provisions. In 2007, the net worth of the company became positive and it asked the board to deregister it and it was done. Income tax authorities now demanded Rs.761 crore outstanding. The company, which allegedly alienated some of its properties, moved the board for stay of any coercive steps. It was granted. After more appeals, the high court asked the company to approach the board. The authorities appealed to the Supreme Court. It allowed the appeal and stated that the high court had gone wrong as the company has been revived and the scheme had also expired in 2011. So, the tax authorities can go ahead and recover the arrears.

MINING AFTER EXPIRY OF LICENCE

The Supreme Court last week indicted the Ministry of Environment and Forests for allowing a mining firm to continue mining though the local residents complained that its licence had expired long ago.

In this case, Talaulicar & Sons vs Union of India, the licence was granted for two years. The regulations permitted five years, which ended in 2010. When the mining continued, some residents moved the Bombay High Court and the National Green Tribunal against the operations.

The high court found that operations in the Saniem Sacorda iron ore mine was without sanction. The firm appealed to the Supreme Court. It agreed with the high court and stated that regulations, including a public hearing, have not been followed. It asked the ministry to take a fresh look at the issue and take a decision after scrupulously following the regulations and all factors leading to the environment impact assessment including effective public hearing preceded by due publication in the media.

AUCTION OF PROPERTY CANCELLED

In a dispute over the sale of property of a liquidated company, the order of the company court is binding on the recovery officer under the Debt Recovery Act, the Supreme Court has held in its judgment, Anita International vs Tungabadra Sugar Works Mazdoor Sangh. The winding up proceedings of Deve Sugars Ltd of Karnataka gave rise to complex litigation in the Madras and Karnataka High Courts.

The Madras High Court appointed an official liquidator. State Bank of Mysore, which had extended loan to the firm, moved the debt recovery tribunal in Karnataka and got a recovery certificate. This was challenged in the Karnataka High Court by the workers. Ultimately, the recovery officer sold the property to Anita International for Rs. 10.25 crore, which was alleged to be far below the actual price. Ending the multifarious litigation, the Supreme Court cancelled the sale made by the recovery officer, holding that his sale was in utter violation of the company court order.

BANK MUST PROTECT CASH IN TRANSIT AND THE INSURER IS NOT LIABLE FOR THIS

If proper security is not provided by a bank for transiting huge cash and it is robbed on the way, the insurer would not be liable, the National Consumer Commission ruled last week, setting aside the order the Gujarat state commission ordering New India Assurance to recoup the loss to a cooperative bank in Ankhleswar.

Brief Facts

According to the indemnity policy, the bank was required to employ two guards with firearms when the amount is more than Rs. 10 lakh. However, the Navsarjan Industrial Bank sent two clerks and a guard with a wooden stick to State Bank of India to encash a cheque of Rs. 20 lakh. While returning with the cash, two men on bike fired the guard injuring him. They carried away the trunk with cash. The coop bank sued the insurance company. The state commission allowed the claim. New India appealed to the national commission. It set aside the state commission judgment and ruled that the coop bank had infringed the conditions in the policy regarding the number of guards with firearms. The commission rejected the contention of the coop bank that it was not told about those conditions. It also did not believe the coop bank which pleaded that Ankhleswar being a small city, it was difficult to find armed guards. 

(Source: Business Standard)

WEEKLY CASE LAWS UNDER DIFFERENT STATUES

SICA PREVAILS OVER COMPANIES ACT

The Supreme Court (“SC”) stated last week that different situations might arise when a sick company is before both the company court for winding up and before the Board for Industrial and Financial Reconstruction (“BIFR”) for its revival, “but whatever be the situation, whenever a reference is made to the BIFR under the Sick Industries Act (“SICA”), the provisions of the latter would come into play and they would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under the Sick Industries Act.” The court reiterated this view after going through the case law on this issue in its judgment in the Case, Madura Coats Ltd vs Modi Rubber Ltd. Madura Coats moved the Allahabad High Court for winding up Modi Rubber as its dues were not paid.

The company court appointed an official liquidator, against which Modi appealed to the high court. Meanwhile, Modi also moved the BIFR and a rehabilitation package was approved. The high court stayed the company court proceedings. This situation raised the question which law would prevail and the Supreme Court upheld the high court view. The judgment noted that since Madura Coats has already participated in the BIFR proceedings, nothing survived in this case. “Strictly speaking, we have merely undertaken an academic exercise,” the three judges observed in this 14-year-old litigation which is still continuing.

INSURANCE CLAIM EVEN AFTER ASSIGNMENT

Even if a firm assigns its rights regarding insurance to another firm, it still retained its right to sue the insurer, unless it is specifically barred, the APEX Court declared last week its judgment, United India Insurance vs Leisure Wear Exports Ltd.

In this case, the Ludhiana garment factory exported INR 2 crore worth of goods in 320 cardboard boxes to Moscow firm Magna Overseas via Mumbai port. The consignment was transported from Odessa in Ukraine by road to Moscow. On arrival, several cartons were missing. Since the cargo was insured under the Open Marine Policy, the shortage was reported to United India. When the insurer rejected the claim, the Ludhiana firm moved the Punjab state consumer commission, which ordered the insurer to pay compensation.  On appeal, the National Commission upheld order.

In the appeal before the Supreme Court, the insurer argued that since the exporter had assigned his rights to the Moscow firm, the Ludhiana firm had no locus to move the consumer forums. The court rejected the argument citing Section 17 of the Marine Insurance Act. The judgment doubted any assignment at all. Even if there was an assignment, the exporter was “legally entitled to retain, enjoy and exercise all those rights, which are available to it under the contract of insurance, despite making assignment of their policy.” Section 17 of the Act in terms permitted the insured to make assignment of their insurance policy in favour of an assignee and at the same time allowed the insured even after making an assignment to retain all those rights which are available to them under the contract of insurance with the Insurer, the judgment explained while dismissing the appeal of United India.

TIME LIMIT STARTS FROM FIRST DEFAULT

The Supreme Court had last week dismissed the appeal of Sundaram Finance Ltd against the Kerala High Court judgment which stated that its suit against a defaulting borrower, Noorjehan Beevi, was beyond the time limit of three years.

In this case, a woman bought a vehicle on hire purchase from the financing firm in 1984 but defaulted after a year. The company took over the vehicle and sold it, though there was no term in the contract empowering the company to sell it. However, the amount recovered was not sufficient to clear the loan and the company sued the woman for the balance. She argued that the suit was filed beyond the limitation period. The company argued that the time started from the sale of the vehicle. The woman contended that the time should be counted from the first default. The trial court, the high court and now the Supreme Court agreed with her.

MD ABSOLVED FROM POLLUTION CHARGE

The Madhya Pradesh High Court has quashed proceedings initiated by the Bhind magistrate against the managing director of Cadbury India for exuding untreated effluents from its factory there. The high court ruled that Manu Anand, MD, was not in charge of the day to day affairs, as argued by the MP pollution control board. It was the factory manager who was in charge, and prosecuting the MD was unlawful. The judgment cited Section 47 of the Water Pollution Act which stated that the person who is in charge of and responsible to the company for the conduct of the business of the company, as well as company, shall be deemed to be guilty of the offence. Moreover, proceedings cannot be initiated against a person if he is able to establish that the offence was committed without his knowledge or that the same was committed despite the said person exercising due diligence to prevent the offence.

The judgment derived its reasons from decisions under the Negotiable Instruments Act dealing with bouncing cheques.