| Complain against the actual service provider |
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Mehta is a member of Mount Everest Co- op. Housing Society. He had corresponded with the Society on various matters but did not receive any reply. Mehta claimed a secretary of aco- operative housing society who fails to reply to a member's letter is negligent in performing his duties, which constitutes a deficiency of service under the Consumer Protection Act. So, he filed a consumer complaint against Sanjeev Shah, honorary secretary of the Society. In his complaint on May 11, 2009, Mehta pointed out various instances of the secretary's failure to reply to his letters. When he made a written application to the Society for a no- objection certificate to sell his flat, it was not issued. So, he lost an excellent offer for the sale of his flat. In another instance, Mehta made a written request for aresident certificate required for the passport renewal of his son, Pratik, who was residing with him since birth but the Society failed to issue it. In September 2008, Mehta had wanted to avail of the government's ' amnesty scheme' for registration of the agreement for the flat but the Society initially failed to issue the certificate, and later issued it without the supporting documents. Consequently, Mehta could not get the benefit of the amnesty scheme. When he tried to lodge the nomination form, it was returned to him because the managing committee considered him to be a defaulter. For these alleged deficiencies, Mehta claimed Shah as the secretary should be personally liable to pay a compensation of ₹ 20,000, with 18 per cent interest. Shah contested it, saying there was no complaint against the Society, so this would not be maintainable for non- joinder of necessary parties. Mehta countered that his grievance was only against Shah and that he did not want to proceed against the Society or the other officebearers who were giving their time and energy for the work on an honorary basis. Shah denied the allegations and claimed Mehta was in the habit of filing frivolous litigation against the Society or its committee members. He pointed out that of the seven cases filed by Mehta over 14 years, six had been dismissed and only one was pending. SM Ratnakar, delivering the judgement on behalf of the bench, with S S Patil, observed Mehta had failed to join the Society as a necessary party, despite the objection to the maintainability of the complaint. Mehta had not paid any fees or charges to Shah. So there is neither a consumer and service provider relationship, nor privity of contract between Mehta and Shah. The Society is the service provider. Since the Society is not a party to the dispute, a complaint against Shah in his individual capacity is not maintainable. Accordingly, the consumer forum, by its order dated June 15, 2013, refused to consider the complaint on merits, and dismissed it as untenable. The consumer forum noted Mehta had earlier filed a similar complaint, dismissed for identical reasons. It indicted Mehta of filing a false and frivolous complaint despite knowing the correct legal position. Observing that unfair complaints require to be curbed, the Forum imposed costs of ₹ 2,000 to be paid by Mehta to Shah. Thus, after four years of litigation, the complaint came to be dismissed as the service provider was not joined as a party. Consumers often make similar mistakes by filing complaints against the divisional officer of an insurance company who is a separate and distinct legal entity from the insurance company which is the service provider. When the proper person is not a party before the forum, the complaint gets dismissed on technicalities, regardless of merit. The author is a consumer activist CONSUMER IS KING JEHANGIR GAI Consumers often complain against the divisional officer of an insurance company who is a separate legal entity |
Companies bill enhances responsibilities.
Finally when after years of deliberations and procrastinations and peripatetic peregrinations across long stretches of skepticisms and uncertainties, the Companies Bill is set to become law, the rhetorical question of
Charles Ludwig Dodgson " Which form of proverb do you prefer — " Better late than never," or " Better never than late" can be confidently answered. Notwithstanding the protestations of the critics about of the shortcomings in the Bill, which more often than not, are a function of the interests they serve, there are several reasons to applaud the " much of the muchness" of the newness in the Bill.
The Bill has been widely discussed, and the sections on the mandatory rotation of auditors and their firms ( India being one of the few countries globally to make this law), mandatory spending by companies of two per cent of the net profits on corporate social responsibility programmes, women directors on boards, restrictions on directorships more discussed than others. But the sections of the Bill which form the " heart of internal governance" of companies seem to have by and large remained undiscussed. The intention of this piece is to discuss a few of these.
The boards of companies, because they are central to their governance have to carry the cross; the difference now is that the Bill has made the burden several times heavier for the Indian companies.
For example, the Bill lays a strong emphasis on the internal controls, risk management and internal audit and includes these concepts for the first time in a legislation. The Directors' Responsibility Statement ( DRS) in the Board's report ( section 134 ( 5) ( e)) for the listed companies will now have to include astatement from the directors that " they had laid down internal financial controls to be followed by the company and that
such internal financial controls are adequate and were operating effectively. The explanation of " internal financial controls" in the Bill is elaborate and covers in abroad sweep most of the critical elements of the Integrated COSO Framework. The companies should treat this statement in the DRS far more seriously than a weather report or the disclaimer about smoking on cigarette packets and because of the grave penal consequences for the contravention of this section. The management and the directors would also need to figure out the basis on which the boards would be able to give such a definitive declaration.
Till now, only the audit committee was mandatory under the clause 49 of the Listing Agreement. It and three other committees have been included in the Bill and all have become mandatory for all companies. The Bill has extended some of the responsibilities laid down for the committee under the clause 49. For example, under the Bill, the committee is required to evaluate ( instead of reviewing as in clause 49) the internal controls and risk management systems. The committee can also obtain professional advice from external sources on certain matters specified in section 177 of the Bill. By implication, the committee will be liable to be questioned if it does not exercise this right in matters in which it feels itself to be inadequate. The burden on the audit committee has only increased.
The business judgment rule is a judicially developed doctrine that presumes that directors acted on an informed basis, in good faith and with the best interests of the company in mind; it provides a strong deference to the integrity of those decisions in the face of claims of malfeasance or negligence. This doctrine and the fiduciary duties of a director to act in good faith, with due care and diligence and avoid conflicts of interest have now become a part of the Bill. This is a doubleedged sword, which gives protection to the directors on the one hand and enhances their responsibilities on the other.
Then there is the section 149 of the Bill and the schedule IV on the Code for Independent Directors dealing with the roles and responsibilities of the independent directors. Under these the performance of the board, the board chairman and non- independent and non- executive directors and of the independent directors prior to re- appointment would have to be evaluated. These concepts have been fiercely resisted by the corporate sector in India since the time clause 49 sought to make them mandatory.
The last point in this article is about the governance of the frameworks of corporate governance. The Bill incorporates most of the areas covered by clause 49 and even goes beyond it. There are difference in the compositions and constitutions of the boards and the committees as well. It needs to be seriously deliberated if there is a need to retain both the frameworks on the same subject and if so is there a scope of efficacious harmonisation.
The Bill has attempted to overhaul a 57- year- old corporate legislation which had fallen behind the changes in business practices. But it will be quite some time for the new legislation to become effective, for the rules, which are much too many, are to be notified. Writing the final rules will not be easy and quick, even though a large part of the exercise may have been completed informally. There are two views on the Bill – an optimistic view which holds that the Bill when it becomes a law, will help reform some of the arcane systems. The other which says that all the provisions will lay waste as we, as Indians, are good at box ticking compliance. The sceptics who hold this would like to believe that the Bill may seek to increase the overall responsibilities of the board and directors, but for many companies it will still be business as usual even in the future, because of the proverbial laxity in enforcement in this country.
But given the rise of investor advisory services, class action suits becoming a possibility under certain sections of the Bill and growing media pressure, shareholder activism should see a rise and when that happens. When that happens, reliance on laxity and sluggishness of enforcement action would unlikely remain a dependable refuge for the companies.
But good governance always would. The design of the Bill is wise and just; that ascertained, let us pursue it resolutely.
(The author was formerly executive director of Sebi and is currently an advisor and consultant to Deloitte Tohmatsu Touche India Pvt Ltd and the World Bank.
pratipkar21@ gmail. com)
The Bill lays strong emphasis on internal governance, the boards need to be alive to these needs
PRATIP KAR
DECODING THE NEW COMPANIES BILL
|Bill lays a strong emphasis on internal controls, risk management and internal audit and includes these concepts for the first time in a legislation |The Directors' Responsibility Statement in the board's report ( section 134 ( 5) ( e)) for listed companies will now have to include a statement from the directors saying they had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively |Section 149 of the Bill and the schedule IV on the Code for Independent Directors deal with the roles and responsibilities of the independent directors. Under these, the performance of the board, the board chairman and non- independent and non- executive directors and of the independent directors prior to re- appointment would have to be evaluated |There are differences in the compositions and constitutions of the boards and the committees as well. It needs to be seriously deliberated if there is a need to retain both the frameworks on the same subject and if so is there a scope of efficacious harmonisation |The Bill attempts to overhaul a 57- year- old corporate legislation which had fallen behind the changes in business practices. But it will be quite some time for the new legislation to become effective, for the rules, which are much too many, are to be notified |There are two views on the Bill — an optimistic view which holds that the Bill when it becomes a law, will help reform some of the arcane systems. The other says that all the provisions will lay waste as we, as Indians, are good at box- ticking compliance
| >LEGAL DIGEST |
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The Supreme Court has stated that high courts should not set aside auction sale conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, ( SARFAESI Act) exercising its writ powers. In this case, GM, Sri Siddeshwara Co- operative Bank Ltd vs Sri Ikbal, the borrower of a housing loan was a " chronic defaulter" and therefore, the property was auctioned and it was sold in the presence of the borrower. After four years, the borrower challenged the sale certificate of the auction purchase in the Karnataka High Court in a writ petition. The high court quashed the auction sale and ordered a fresh auction. It further made certain observations against the bank officer and directed its registrar to refer the matter to the Superintendent of Lokayukta police at Bijapur for further action in accordance with law. The high court's view was that the mandatory rules were not followed. The bank and the auction purchaser moved the Supreme Court. While quashing the high court order, it stated that the Act provided a remedy for the borrower and there was no reason to bypass it and move the high court with a writ petition. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Insurance co held liable The Supreme Court has ruled that the insurance company is liable to pay compensation to a road accident victim when it informed the insured that his cheque was dishonoured after the mishap. In this appeal, National Insurance Company vs Balkar Ram, the motor accident tribunal had ordered compensation to the victim. The company appealed against it, arguing that the cover note for the policy was issued against a cheque which was dishonoured even before the accident. On the other hand, the victim argued that the intimation regarding the dishonour of the cheque and cancellation of the policy was communicated to him after the date of the accident. The cheque bounced on April 17, the accident took place two days later and the intimation of the dishonour was conveyed on April 26. The court ruled that till then the insured was holding a valid policy and therefore the insurer must pay compensation. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Doubt on bounced cheque settled Resolving doubts over two differing interpretations of the Supreme Court in the matter of Negotiable Instruments Act, a larger Bench last week stated that for the purpose of calculating the period of limitation of one month, which is prescribed under Section 142( b) of the Act, the period has to be calculated by excluding the date on which the cheque was dishonoured. A division Bench had referred the question to the larger Bench as the principle laid down in the case, in Saketh India Ltd vs India Securities Ltd, and in the case, SIL Import, USA vs Exim Aides Silk Exporters, differed with each other. The new judgment, Econ Antri Ltd vs Rom Industries Ltd, settled the question by holding that the first case laid down the correct principle and should be followed by all courts below. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Higher sum for displaced persons The Supreme Court has directed the Vidharbha Irrigation Development Corporation to pay ₹ 3.70 lakh each to project affected persons, without discrimination. In this case, Daulat Sitaram vs state of Maharashtra, lands of villagers in Bhandara district were submerged due to Gosikhurd irrigation project in 1997. They were declared project affected persons under the Maharashtra Project Affected Persons Rehabilitation Act. They were allotted plots in another village, but they did not accept it as they lacked basic amenities. They were instead given ₹ 50,000 in compensation. In 2006, another set of villagers affected by the same project were given ₹ 3.70 lakh in compensation. Therefore those who got ₹ 50,000 moved the high court for equal amount. The corporation argued that the earlier group had a binding agreement with the government while accepting the amount and they cannot ask for modification of it. The Bombay High Court accepted the government's argument and rejected their plea. They moved the Supreme Court. It asked the government to pay the same amount, pointing out that under contract law any agreement which was unconscionable and against public policy was invalid. Such unconscionable terms imposed on the people are " Henry VIII clause", named after the imperious English king. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Land acquisition for coal quashed The Supreme Court last week dismissed the appeal of Singareni Collieries Co against the Andhra Pradesh High Court judgment which had quashed the land acquisition proceedings in favour of the government company. The coal firm wanted 35 acres in three districts and the collector notified it in 1992. However, proceedings dragged on. When some land owners moved the high court, it held that the collector who acquired the land made the award beyond the period of two years stipulated in section 11- A of the Land Acquisition Act, and therefore the acquisition lapsed. This view was upheld by the Supreme Court. MJ ANTONY |
| Transfer pricing deals: Compulsory scrutiny limit tripled to ~ 15 cr |
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TP provisions were introduced in India by the Finance Act, 2001, so as to protect India's right to collect afair share of tax in respect of cross- border transactions. In simpler terms, TP provisions were introduced to ensure that an international transaction between two associated enterprises is made at arm's length price ( ALP) so that both the countries involved get a proper share of tax revenue in their respective jurisdiction. It should be appreciated that India is a developing country with alot of constraints. The international transactions in India are susceptible to international economic pressure. The profit margin in India does not often compare favourably with international margins. Therefore, the transfer pricing provisions in India have to take into consideration the economic realities prevailing in the country. However, the revenue authorities generally take a view which is against the tax payers. This results in litigation in thousands of cases. Going by the figures of fiscal 2011- 12, TP additions were made in 1,338 cases creating an additional tax demand of ₹ 44,500 crore. The aforesaid position and the difficulties of the tax payers have also been fully recognised by the government. The memorandum explaining the Finance Bill 2009 specifically took note of the difficulties faced by the assessees as under: "Section 92C of the Income- tax Act provides for adjustment in the transfer price of an international transaction with an associated enterprise if the transfer price is not equal to the arm's length price. As a result, a large number of such transactions are being subjected to adjustment giving rise to considerable dispute." Determination of arm's length price ( ALP) in an international transaction is a specialist's job. Therefore, section 92CA provides that where the assessing officer considers it necessary or expedient so to do, he may refer the computation of ALP in relation to an international transaction to the transfer pricing officer ( TPO). In the initial years of implementation of TP provisions and pending development of adequate data base for determining ALP, the Central Board of Direct Taxes ( CBDT) rightly decided that it would be appropriate if a small number of cases are selected for scrutiny of transfer price. The CBDT, therefore, decided that only where the aggregate value of international transaction exceeds ₹ 5 crore, the case should be picked up for scrutiny and reference be made to the TPO. It was, however, soon realised by the government that the limit of ₹ 5 crore for making reference to TPO is hardly adequate. Therefore, in a welcome move, the CBDT vide instruction no. 10/ 2013 dated August 5, 2013, have further relaxed the monetary limit for selection of TP cases for compulsory scrutiny. Under the new instructions, the following categories of cases/ returns shall be compulsorily scrutinised: —Cases where value of international transaction as defined u/ s 92B of Income- tax Act exceeds ₹ 15 crore. —Cases involving addition in an earlier assessment year on the issue of TP in excess of ₹ 10 crore which is confirmed in appeal or is pending before an appellate authority. It may be clarified here that the limit of ₹ 15 crore for selection of TP cases for scrutiny was prevailing earlier also. But the said limit was only by way of internal instructions. The above relaxation made by the government will certainly help a large number of tax payers who are involved in international transactions. In this context CBDT is also requested to find an appropriate mechanism so as to reduce the element of time in settling TP disputes. It will be recalled that creation of Dispute Resolution Panel ( DRP) for expeditious disposal of TP cases has not fulfilled its objective. Whenever a reference is made by an assessing officer ( AO) to a transfer pricing officer ( TPO), AO gets an additional time of 12 months to complete a ' draft' assessment order. Then upon reference to DRP, a further time of nine months is allowed to DRP and one month to AO to complete assessment. Thus the assessment procedure takes around 22 extra months. For example, the assessment for AY 2010- 11 should be made latest by March 2013. But if reference is made to TPO, draft assessment order will be allowed to be completed by March, 2014 and final assessment order ( after DRP order) by January, 2015. A large number of foreign companies were tempted to opt for DRP route rather than routine CIT( A) route because of the declaration made by the finance minister in his budget speech that: " the dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained only after a long drawn litigation till the Supreme Court. Flow of foreign investment is extremely sensitive to a prolonged uncertainty in tax- related matter. Therefore, it is proposed to amend the Incometax Act to provide for an alternate dispute resolution mechanism which will facilitate expeditious resolution of disputes on a fast track basis." The government is urged to find some meaningful alternative to DRP so that foreign companies' tax disputes are settled expeditiously. hp. agrawal@ sskmin. com a. gupta@ sskmin. com FOREIGN ENTERPRISE HP AGRAWAL |
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