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.

LATEST JUDGEMENT UNDER DIFFERENT STATUTES

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)

SALIENT FEATURES OF DRAFT GST BILL

Ministry of Finance has published the Draft Goods and Service Tax Bill, 2016 (“GST BILL"). The draft of GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016 is also published along with the Bill.

Salient Features of GST as per the Discussion Paper issued by Empowered Committee of state finance ministers (“SFM”) are as follows

1. All forms of "supply" of goods and services such as sale, transfer, barter, exchange, license, rental, lease and import of services of goods and services made for a consideration will attract CGST (central levy) and SGST (state levy).
2. As GST will apply on "supply", the erstwhile taxable heads such as "manufacture", "sale" and "provision of services", among others, will lose relevance.
3. The liability to pay CGST or SGST will arise at the time of supply.
4. With GST to be applicable according to whether a transaction is "intra-state" or "inter-state", separate provisions are there to help an Assessee determine the place of supply for goods and services.
5. States will draft their own State GST based on the draft model law with minor variations.
6. GST would be payable on "transaction value", being the price actually paid or payable, and said to include all expenses in relation to sale, such as packing and commission.
7. As the threshold limit, the draft GST Bill proposes Rs 10 lakh, and for Northeast states and Sikkim, an amount of Rs 5 lakh.

WHAT NEXT?

With the empowered GST committee of SFM making headway in Kolkata, the road ahead becomes clearer:

In the House: The Constitution Amendment Bill for the Goods and Services Tax (GST) will be taken up by the Rajya Sabha in the Monsoon session. The Lok Sabha has already cleared it

In the states: At least 50% of the state legislatures have to ratify the Bill, all states expect Tamil Nadu are on board.

For the public: The draft GST law is in the public domain for feedback

To be a law: The Lok Sabha has to pass it. The states have to pass their own GST laws

Three hurdles: 1% per cent inter-state additional levy: Congress wants it abolished. BJP held out for sometime but Jaitley said on Tuesday the Centre would be flexible on this

Cap on GST rate in the Bill: Congress wants the cap to be a part of the Bill. Govt feels it should not be in the Bill, as the Constitution would need to be amended for any future change.

Dispute resolution: States seeking authority to assess and resolve cases below Rs 1.5 crore, taking majority of the service tax cases from the Centre. Meeting in July to discuss this — though the Centre might relent

Current rollout target: April 1, 2017

(Source: Business Standard)

PATENT OFFICE ISSUES GUIDELINES FOR STARTUPS

Indian Patent Office has issued guidelines for facilitators and start-ups with respect to filling and processing of applications for patent, designs and trademarks aiming to encourage budding entrepreneurs and boost innovation.

As per the guidelines, a start-up willing to file a Patent,design or trademark application for an invention will have to select a facilitator from the list published on the official website http://www.ipindia.nic.in/ who would help in preparing the request and also assess the patentability of the invention as per acts and rules, the Controller General Patents, Designs and Trade Marks.

If the start-up is unable to select a facilitator, it should contact the head office of the respective Patent Office as per jurisdiction for assistance

The fee for filing the application & other statutory fees would have to be borne by the start-up (Person 

who desires to file the application).

The facilitator shall also have to monitor and perform further steps of proceedings of start-ups patent 

application, prepare the reply to any query from patent office.

The office has also released a list of about 280 facilitators in such regard.

The move is aimed at promoting awareness and adoption of intellectual property rights by start-ups and facilitate them in protecting and commercialising those rights.

Public Notice

CG/F/Start-up/Guidelines/2016/79, dated June 8, 2016

Link to download the notice

http://www.ipindia.nic.in/Whats_New/Guidelines_Startups_09June2016.pdf

We are at S. No. 168 in the list of the Facilitator issued by the patent office on their website. List can be viewed from below link:

http://www.ipindia.nic.in/Whats_New/patent_Facilitators_09June2016.pdf

COMPANY SECRETARIES CAN ALSO CERTIFY THE REFUND PROCESS OF THE COMPANIES

SEBI ALLOWS COMPANY SECRETARIES TO CERTIFY COS' REFUND PROCESS

Securities and Exchange Board of India (“SEBI”) allowed Independent Practising Company Secretaries to certify the refund made by firms in a public offer involving allotment of securities to more than 49.However, the limit is restricted to 200 investors in a financial year.

Currently, only Independent Practising Chartered Accountants are allowed to certify the repayments.

SEBI, in December 2015, directed that the unlisted companies raising funds through securities without having a public offer document will be exempted from penal action if they provide a refund option along with 15 per cent interest rate at the time of issuance.

Above stated relaxation is be applicable to entities that have raised funds by issuing securities to more than 49 persons, but up to 200 individuals in a financial year.

“According to the Para 7 of the Circular issued the SEBI dated December 31, 2015 earlier:

Which require submission of a certificate from an independent peer reviewed practicing Chartered Accountant certifying compliance.

Now, It has been decided that the certification as provided in Para 7 of the Circular dated December 31, 2015 may also be provided by an independent peer reviewed practicing Company Secretary.”

SEBI Circular No. CFD/DIL3/CIR/ P/2016 / 53, dated May 3, 2016.