A constitutional battle that was foretold
Parliament passed a new company law this year. However, even as the
Companies Act, 2013, was legislated, a legal challenge to an important
area of the law was foretold.
In May 2010, a constitutional bench of the Supreme Court had ruled on
a challenge to the formation of the National Company Law Tribunal,
formed under the amendments to the old law made in 2002. By these
amendments, the tribunal was to replace high courts for their role
under company law. The Supreme Court had ruled that it would indeed be
constitutional for Parliament to create tribunals in areas
traditionally handled by the courts of law and justice.
However, the apex court struck down as unconstitutional, provisions
governing how the tribunal should be manned.
One would have expected the new law to address the concerns of the
apex court so that there is no challenge to it. However, the new law
contains the very nature of provisions that the Supreme Court had
disagreed with only recently. The essence of the courts objections to
the law on the tribunal was the provision for appointment of "
technical members" who had no judicial background. The amendments
under the old law would have resulted in individuals with no judicial
experience or company law experience being regarded as a valid
substitute to the company courts.
However, Section 409 of the new law provides that the tribunal could
have technical members who could be any person who has been in the
Indian Corporate Law Service ( basically with the Ministry of Company
Affairs) or in the Indian Legal Service ( Ministry of Law) for at
least fifteen years, but has been of a rank of joint secretary or
above for at least three years. A chartered accountant, cost
accountant or a company secretary for at least fifteen years, or
someone who has spent five years as the presiding officer of alabour
court or tribunal or any other " person of proven ability, integrity
and standing", too, could be a member.
Now, see what the Supreme Court had said in 2010: " As the NCLT takes
over the functions of high court, the members should as nearly as
possible have the same position and status as high court judges. This
can be achieved, not by giving the salary and perks of a high court
judge, but by ensuring that persons who are as nearly equal in rank,
experience or competence to high court judges are appointed. Only
officers who are holding the ranks of secretaries or additional
secretaries alone can be considered for appointment as technical
members of the National Company Law Tribunal." Quite blatantly, this
ruling from a Constitutional Bench of the Supreme Court has been
ignored — a joint secretary would be lower in rank as compared with
the additional secretaries.
Under the new law, the tenure of office has been fixed at five years
subject to a retirement age. These run counter to the Supreme Court's
observations: "Term of three years with the retirement age of 65 years
is perceived as having been tailor- made for persons who have retired,
or shortly to retire encourages these tribunals to be treated as
postretirement havens. If these tribunals are to function effectively
and efficiently they should be able to attract younger members who
will have a reasonable period of service." However, under Section 413,
a very high " minimum age" of 50 years has been stipulated. Under
Section 412, the members of the tribunal would be chosen by a
committee where judicial persons would be outnumbered by bureaucrats —
clearly an element contrary to the Supreme Court's ruling on the
constitutional validity.
Therefore, a constitutional challenge was craving to be filed at the
very inception. Indeed, the Madras Bar Association is said to have
filed a writ petition challenging the new law.
The petitioner has demonstrated its credibility by approaching the
apex court directly instead of moving a high court, saving extra
rounds of litigation on a matter on which the apex court has ruled
only recently.
A quasi- judicial job is a full- time day job that requires a member
of the bench to sit on one chair for an entire day, day after day,
focusing all energy on the case being argued. For abureaucrat who has
spent a lifetime in an executive job, jumping from one meeting to
another and relying immensely on gut feel and intuition to get the job
done, a quasi- judicial role could be a recipe for disaster. In all
likelihood, the Supreme Court would need to reiterate its position. It
may even constitute another Constitutional Bench. One wonders why the
government piloted legislation with provisions directly in conflict
with the apex court's view.
The author is a partner of JSA, Advocates & Solicitors. The views
expressed herein are his own. somasekhar@ jsalaw. com
Under the new law, the tenure of office has been fixed at five years,
subject to a retirement age
Supreme Court feels formation of tribunals is constitutional, but
provisions governing their manning is unconstitutional
WITHOUT CONTEMPT
SOMASEKHAR SUNDARESAN
Just nomination is not enough
YOGINI JOGLEKAR
Most of us are busy slogging for better pay. We spend a lot of time
planning our finances, pondering over that expensive house we plan to
buy and creating wealth through stocks and gold. For many, the sole
motive of such measures is leaving a legacy for their children.
Therefore, it's important that the wealth falls into the right hands.
Why is nomination important? It plays a crucial role while investing
in financial products. It is vital to have a nominee, as well as a
will in place, as there should be someone to take charge of your money
in case you die. The nominee has to distribute the wealth received by
him/ her on the basis of succession laws.
the nominee should be the one who inherits the wealth. However, for
most financial products, the nominee will not receive the assets
unless it is mentioned in the will.
Property: In 2009, Tarabai fought a property case in the Bombay High
Court against her son, Rameshchandra. Tarabai's late husband, Ramdas
Shivram Sattur, had bought a plot in Nav Rajasthan Co- operative
Housing Society in Pune, with Tarabai named as the nominee. After his
death, when Tarabai tried to sell the property, she was sued by her
four children, who claimed equal shares in the property.
According to the court's ruling, in a co- operative housing society,
the nominee does not inherit the property and the asset must be
distributed according to the will. In the absence of a will, the legal
heirs have a right to the property.
Anshuman Jagtap, advocate, Hariani & Co, says a nominee to a property
in a housing society doesn't automatically inherit that asset. " For
instance, on the death of the original owner, the housing society has
to transfer the shares of the deceased to the nominee, who must, in
turn, transfer those to the legal heirs." In other words, if the
deceased doesn't leave a will, the wife and children can claim their
rights on the property equally.
Insurance: Experts say many have lost cases in anticipation the
nominee, who they feel is the legal owner. However, Gaurav Mashruwala,
a Mumbai- based financial planner, says a nominee to any financial
product is merely a trustee who receives assets on the death of the
owner. " For instance, if you want the nominee to receive the maturity
amount, the person who made investments should ensure he says this in
the will." Else, the maturity amount will go to the nominee, who will
be liable to give that money to the legal heir of the deceased — the
mother, the wife or the children.
If the legal heir is the nominee, one needn't worry, as irrespective
of the will, the wealth will go to him/ her. Public Provident Fund (
PPF) &Employees' Provident
Fund ( EPF): In case of PPF, an outsider can also become a nominee,
though usually, the spouse and children are the nominees. " The
exclusive right of the nominee in a PPF is to receive and not provide
that the same shall become the absolute property of the nominee," said
aruling in the Manjula Verma vs Kumari Sarla Verma case on December 3,
2007.
Under EPF, the family may include dependent parents, while under the
pension fund, it is restricted to the spouse and children. Therefore,
it is advisable to have the spouse as nominee, in case a nominee
hasn't been named before marriage.
In case of EPF, the nominee, not the person stated in the will,
inherits the amount. In open a bank account with a family member,
which allows the survivor to operate it, and invest jointly in savings
certificates & mutual funds.
Suresh Sadagopan, who runs Ladder 7 Financial Advisory Services, says
one should remember to keep his/ her spouse or other family members
updated on assets and liabilities. " Most youngsters should remember
to change their nomination after marriage." If you don't want to
disclose it right away, keep a record at a safe place and let your
family know where to look for it if need be. Remember, just appointing
nominees isn't enough, especially when it comes to financial products.
A nominee is not the owner of the asset, unless a will says so
BRIEF CASEN [1] M J ANTONY
Five elements in cheque bounce cases
The offence of issuing a cheque without sufficient amount in the bank
has five ingredients and it is not necessary that all of the
components should be present for prosecuting the drawer, the Supreme
Court reiterated last week in its judgment in the case, Devendra
Kishanlal vs Dwarkesh Diamonds Ltd. The five elements are drawing of
the cheque, presentation to the bank, bouncing, giving notice to the
drawer and his failure to make payment within 15 days. It is not
necessary that all the above acts should be carried out in the same
locality. It is possible that each of those five acts were done at
different places. In this case, the business dealing was held at
Mumbai, products were supplied from Mumbai to Delhi, cheques were
handed over in Mumbai and were dishonoured by the bankers of Delhi and
legal notice was issued from Mumbai. When the complaint was filed in
Mumbai, it was rejected by the magistrate stating that he has no
jurisdiction and Delhi was the right place. The sessions judge took a
contrary view. The Bombay High Court held that the session judge was
wrong. On further appeal, the Supreme Court ruled that the high court
was wrong and the sessions judge was right in holding that the Mumbai
magistrate has jurisdiction, as some of the transactions occurred
there.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Territorial curb on sale impractical
Imposing geographical restrictions on the sale of goods with disputed
trade mark would be unjust, the Supreme Court remarked while
dismissing the appeal of Satnam Overseas against the Delhi High Court
judgment in its dispute with rival Sant Ram & Co. Satnam moved an
application before the registrar with regard to the trade mark
'Kohinoor' rice and he allowed the product to be sold in six cities of
Uttar Pradesh. The dispute was taken to the Delhi High Court, which
allowed Sant Ram to sell its rice in the entire state. Satnam appealed
to the Supreme Court, which rejected its argument that the high court
was wrong. The judgment said that restricting the trademark to a few
cities would create a lot of complications and litigation as to the
exact boundary of a particular or district. It would also be
impossible for Sant Ram to ensure that its products are not sold to
retailers outside the six cities.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Tax on imported software
The Delhi High Court has dismissed the appeal of the director of
income tax against the order of the Income Tax Appellate Tribunal,
which had held that the consideration received by Infrasoft Ltd on
grant of licences for use of software is not royalty within the
meaning of Article 12( 3) to the Double Taxation Avoidance Agreement
between India and the United States of America. The company involved
was an international software marketing and development arm of an
international group. The holding company is Infrasoft Corporation
based in US. Its branch in India imported certain packages in the form
of floppy disks or CDs for private consultants in civil engineering
and designs. Revenue authorities taxed the receipts on sale of
licensing the software as " royalty". The company maintained that it
was at best business profit. In a 175page judgment, the high court
held that " what has been transferred is not copyright or the right to
use copyright, but a limited right to use the copyrighted material and
does not give rise to any royalty income."
A weekly selection of key court orders
--
CS A Rengarajan
9381011200
CS Benevolent Fund is a collective effort towards extending the much
needed financial support to the community of Company Secretaries in
times of distress Let us lend support and join for noble cause.
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