The Most Comprehensive Portal on Indian Laws

1^st February, 2001

Dear User, 

We give hereunder the Important Circulars, Summary of Judgements etc. received by us in the month of January, 2001. If you are not intrested in full news letter, you may select only those subjects in which you are interested by clicking against the relevant subject given below : -

Income Tax Law
Company Law
Securities and Exchange Board of India (SEBI)
Foreign Exchange (Reserve Bank of India)
Consumer Protection Act
Arbitration and Conciliation Act
Other Judgements

 

Company in which the public are substantially interested

The assessee company formed with 7 shareholders, under an ad hoc arrangement, to take over Indian business of a foreign company, later got High Court’s approval of scheme of amalgamation by which original shareholding was raised to 12. Holding that more than 50 % of voting power was controlled by 5 persons only, the Assessing Officer refused to accept the assess as a company in which public were substantially interested within the meaning of section 2 (18) (b) (iii). After considering various factors, Commissioner (Appeals) held that the assessee-company was a company in which public were substantially interested and this decision was upheld by the Tribunal and High Court. The Supreme Court held that in the given facts and circumstances of the case, no interference was called for with orders of the Commissioner (Appeals), Tribunal and High Court.

(CIT v/s Harrisson Crossfield (India) Limited – 114 Taxman 1 ( SC ) )

Business Expenditure

The assessee carried on the business of processing cashew nuts in 10 units, 4 of which were situated in Kerala. Out of these 4, 2 were owned by the assessee and 2 were taken on lease. Due to some labour problems in the Kerala units, the assessee shut down 4 units in Kerala and in the course of closing of units, certain payments were made to trade unions of workmen in Kerala units. It was held the having regard to findings of Tribunal that these 4 and all other units outside Kerala formed one business, expenditure must be held to have been incurred in regard to such business and thus was allowable under section 37.

It was further held that in respect of A.Y. 1972-73, a decision of Tribunal on facts can be gone into by High Court only if a question has been referred to it which says that finding of Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before Tribunal.

(K. Ravindranathan Nair v/s CIT – 114 Taxman 53 ( SC ))

Business Disallowance

Certain deductions are to be allowed only on actual payment. The Tribunal directed the Assessing Officer to allow claim of assessee in respect of unpaid sales tax if the same was covered by specific scheme of State Government converting deferred payment scheme into interest-free loan. As per CBDT Circular No. 496, dated 25-9-1987 claim was allowable only if the Sales Tax Act had been amended to provide that sales tax deferred under said scheme would be treated as actually paid, so as to meet requirements of section 43B. However, no notice was taken whether Gujarat Sales Tax Act had been amended to provide so. It was held that a question of law arose from the Tribunal’s order

(CIT v Gujarat Polycrete (P) Limited – 114 Taxman 58 ( SC ))

Section 269UD of Income tax Act - Purchase of Immovable properties by Central Government

It was held that where no reasonable opportunity was given to both vendor and vendee prior to purchase of property, order of purchase of property passed by appropriate authority in that regard was rightly set aside by the Single Judge.

(Appropriate Authority of Income Tax v/s Vysya Bank Limited – 114 Taxman 85 (Cal))

Undisclosed Income

While completing block assessment, the Assessing Officer made certain additions on account of jewellery and silver articles on ground that the assessee had not disclosed source of their acquisition even though same were declared and assessed in wealth-tax returns filed by the assessee. The Assessing Officer also made addition on account of unexplained expenses being difference between cost of construction of a house declared by assessee and that shown in report of department’s valuer obtained subsequent to order of regular assessment. It was held that on facts there was no justification to treat the aforesaid investments as undisclosed income of assessee and hence the additions on account of these investments were liable to be deleted.

(CIT v/s Vinod Danchand Ghodawat – 114 Taxman 90 ( Bom ))

Return of Income and Interest for late filing of return

In respect of A.Y. 1984-85, it was held that Explanation 2 to section 139 (8) was merely a clarificatory provision and had application to AY 1984-85. It was also held that while making assessment u/s 147 in case where assessee furnished return in pursuance of notice served on him u/s 148, provision for charging interest u/s 139 (8) was applicable and it was open to Assessing Officer to charge interest from the assessee in such proceedings.

It was further held that first or initial assessment u/s 147 is regular assessment within meaning of section 139 (8) and therefore in such assessment made u/s 147, it is open to assessing authority to charge interest for default in filing return u/s 139 (8).

(K. Govindan & Sons v/s CIT – 114 Taxman 94 ( SC ) )

Agricultural Income

In respect of A.Y. 1975-76 to 1977-78, it was held that section 5 (j) of Kerala Agricultural IT 1950 is residuary in nature. It was further held that Explanation 2 applies to entirety of section 5 and it would be wrong to say that its application is restricted to section 5 (j).

(Commissioner of Agricultural Income Tax v/s Plantation Corporation of Kerala Limited – 114 Taxman 103 ( SC ) )

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Company Law

Director’s Report

The details of employees which have to be given in the director’s report have been revised. The Statement showing The limits of remuneration of employees in respect of whom details were to be given have been enhanced as follows :-

The aforesaid revision will apply in respect of Directors’ Reports annexed to those Balance Sheets the financial year in respect of which has closed on or after 25.12.2000

Corporate Identity Number

The Registrar of companies will allocate corporate identity number (CIN) to each company registered on or after 1.11.2000 vide Circular No.12/2000, dated 25.10.2000 issued by the Department of Company Affairs. The CIN has been designed to help easily identification of companies belonging to a State, industry, ownership or age. It will be a 21 digit number. The first letter denotes listed or unlisted company. The first five digits represent the economic activity of the company, the second two places represent the State in which the company’s registered office is located, the four places indicate the year in which the company was incorporated, the next three places indicate ownership code and the last six places in the CIN are the unique numbers assigned to every company in any particular economic activity, in a particular State, of a particular year of incorporation and of a particular ownership category.

Transfer of Shares

It has been held by the that the term ‘sufficient cause’ as appearing in proviso to section 111A(2) would cover only instances under which rectification of register of members can be ordered in terms of section 111A(3)

It has further been held that as per section 108A, even when a dominant undertaking agrees to or intends to acquire shares in a company, if such proposed acquisition together with existing holding would exceed 25 per cent shares in target company, previous approval of Central Government is necessary.

Gujarat Machinery Manufacturers Limited had acquired 9.58 % shares of the other company between period 23.4.1997 to 11.2.1998. Similarly, its subsidiary company Karamsad Limited had acquired 0.33 % shares of the company. While registration was pending, Karamsad Limited made public announcements to acquire further 20 per cent shares of company. The Central Government had declared GMM, as a dominant undertaking. The other company refused registration of transfer on grounds of violation of section 108A. It was held that in terms of regulation 7 of the Takeover Code, GMM should have informed company of acquisition of 9.58 % shares within four days of such acquisition and as intimation was given after delay of more than one month, there was clear contravention of provisions of Regulation 7 of Takeover Code.

It was further held that since proposal of Karamsad Limited to acquire 20 % shares together with existing shareholding of 9.91 % would be more than 25 % shares, it should have obtained previous approval of Central Government before making offer and since it had not done so, acquisition of shares during offer period was in violation of section 108A.

It was also held that since all acquisition made by petitioners were in violation of provisions of Takeover Code / Companies Act, company could be said to have rightly refused registration of transfers with sufficient cause.

(Company Law Board, Southern Region Bench, Chennai - Gujarat Machinery Manufacturers Limited v/s Nile Limited – ( 2001 ) 29 SCL )

Public Deposits

As company failed to repay accepted deposits from depositors, depositors filed application under section 58A(9). The Company stated reasons for not making repayment and proposed a repayment scheme. It was held that after perusing company’s repayment scheme, CLB had rightly directed company to make repayment of deposits as per time-bound schedule proposed by CLB.

( Company Law Board, Western Region Bench, Mumbai - Global lnfrastructure & Technologies Limited – (2001) 29 SCL)

Powers of Liquidators

The High Court, after having passed order in execution proceedings for sale of assets of the judgement–debtor–company, which had gone in liquidation for more than the last ten years, subsequently passed order for its sale as a going concern. It was held that in order to give last try to fond hopes of erstwhile workers of the said company, indulgence of permitting its sale as going concern might be granted within strict frame of time limit with certain conditions.

( Supreme Court of India - Allahabad Bank v/s ARC Holding Limited – (2000) 28 SCL )

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Securities and Exchange Board of India (SEBI)

Recognition to Magadh Stock Exchange

SEBI vide notification no. SO 1107(E), DATED 9.12.2000 has renewed the recognition of Magadh Stock Exchange under section 4 of the Securities Contracts ( Regulation ) Act, 1956 for three years commencing from December 11, 2000 and ending on December 10, 2003, in respect of contracts in securities subject to the conditions already prescribed or as may be prescribed from time to time.

Directions issued to Stock Exchanges for implementation based on recommendation of Secondary Market Advisory Committee

The Secondary Market Advisory Committee of the SEBI met on November 28, 2000 to discuss issues related to the regulation and development of the secondary market. Based on the recommendation of the Committee following directions have been issued to the stock exchanges for implementation.

Abolition of ‘No Delivery Period’

‘No Delivery Period’ on account of book closure / record date for corporate actions such as issue of dividend and bonus shares is being abolished in respect of the scripts which are traded in the compulsory dematerialized mode. No Delivery Period on account of book closure/record date for the rights issues, the present system will continue till further directions.

Reduction in period between two book closure

Stock exchanges have been directed to amend the clause 16 of listing agreement to reduce the requirement of minimum gap of 90 days between two book closures and record dates to 30 days.

Client Code

SEBI had earlier directed the stock exchanges to modify their software in such a way that the client code becomes mandatory at the broker level. It has now been decided that the stock exchanges which do not implement this directive by January 1, 2000, would not be permitted to conduct Modified carry forward system (MCFS) or Authorized Lending and Borrowing Mechanism (ALBM) sessions).

(Vide press release (Ref. No.PR 230/2000) dated 7.12.2000, issued by the SMDRP department, SEBI)

Vanishing Companies

SEBI has been receiving complaints from Investors’ Association and investors about certain companies suspected by them to have vanished. Upon perusal of the complaints, it was observed that basic information required for considering whether such company / ies apparently fall within the category of vanishing companies, is not contained in the complaints. In this connection, it may be noted that the following criteria are adopted to classify a company as a vanished company.

• Companies which have not complies with listing requirements/filing requirements of Stock Exchange / ROC respectively for a period of 2 years
• No correspondence has been received by the exchange from the company for a long time.
• No office of the company is located at the mentioned registered office address at the time of Stock Exchange inspection.

The Investor Associations / Investors are advised to submit their complaints about such companies giving details of the category of vanishing companies in the prescribed format to Vanishing Companies Section of Primary Market Department of SEBI at the Head Office or the respective Regional Offices of SEBI. The format is also made available on the SEBI web site at www.sebi.gov.in

(Vide Circular No. OMD/AK/VC/DT/152/00 dated 5^th January 2000 requesting to forward information on vanishing companies)

SEBI (Disclosure & Investors Protection) Guidelines, 2000

SEBI has come out with revised guideline on disclosure and investor’s protection. The guidance line for offering securities of public issues on line, through the stock exchange mechanism, have been issued by SEBI vide Circular – DIP (Compendium) Series Circular No.5 dated November 30, 2000. The Guidance are contained in a new chapter XIA after the existing chapter XI in the SEBI (Disclosure and Investor Protection) Guidelines, 2000.

The Guidelines shall be applicable in respect of fixed price issues as well as for the fixed price portion of book-built issues. The company making public issues of securities shall now have the option to issue securities through the on-line system of the Stock Exchange or through the existing banking channel.

The offering of primary market issues through the stock exchange mechanism would reduce the time currently taken for completion of the issue process and cost of issues. It would also benefit the issuers since the process would lead to quicker listing of the securities thereby enabling quicker access to the funds raised in the issue.

Use of Digital Signature on Contract Notes

Following passing of the Information Technology Act, 2000 (IT Act), contract notes with digital signatures are legally valid. This issue was discussed in the meeting of the Secondary Market Advisory Committee (SMAC) of SEBI held on November 28,2000. SEBI has clarified that the brokers are allowed to issue contract notes authenticated by means of digital signatures provided that the broker has obtained digital signature certificate from Certifying Authority under the IT ACT,2000. Mode of confirmation by the client may be as specified in the agreement between the broker and the client.

(Vide press release (Ref. No. PR 238/2000) dated 15.12.2000, issued by the SMDRP Department, SEBI )

Take Over Code

Appellant acquired certain shares as a result of which appellant’s shareholding accounted for 10.92 per cent of voting rights in the company. The Report required to be submitted in terms of regulation 3(4) of the SEBI Takeover Regulations was submitted, belatedly, on its own by appellant on coming to know about lapse while preparing annual disclosures under regulation 8. SEBI imposed penalty on appellant under section 15A(b). It was held that SEBI’s action in terms of clause(b) of section 15A was legally unsustainable.

(Housing Development Finance Corporation Limited v/s Securities and Exchange Board of India – Securities Appellate Tribunal – Mumbai 2000 28 SCL)

Venture Funds

SEBI had set up the K B Chandrasekhar Committee to identify the impediments in the development of venture capital industry in India and to suggest suitable measures for its rapid growth. The report of the Committee was submitted to the SEBI Board in January 2000. The recommendations were accepted in principal by the Government and pursuant to the same, the Finance Minister in the Budget 2000 announced that SEBI will be the single point nodal agency for registration and regulation of both domestic and overseas venture capital funds and the SEBI registered Venture Capital Funds would be given total tax-pass through. One important recommendation of the committee was also aimed at making an hassle free environment for investment and disinvestment by Foreign Venture Capital Investors in India and it was proposed by the Committee that similar to Foreign Institutional Investors (FIIs), Foreign Venture Capital Investors (FVCIs) should be provided a facility of registration with SEBI which should enable them to make investments in India without specific investment approvals from FIPB within the overall sectoral ceilings for foreign investment under the Statement of Industrial Policy of the Government of India. Also, such FVCIs should have hassle free exit without requiring pricing approval from RBI based on the old CCI formula.

The following are the salient features of SEBI (Venture Capital Funds) (Amendment) Regulations, 2000:-

1. Definition of Venture Capital Fund
2. Definition of Venture Capital Undertaking
3. Minimum contribution and fund size
4. Investment Criteria
5. Disclosure and Information to Investors
6. QIB status for Venture Capital Funds
7. Relaxation in Takeover Code
8. Investments by Mutual Funds in Venture Capital Funds
9. Government of India Guidelines
10. Definition of Foreign Venture Capital Investor
11. Eligibility Criteria
12. Investment Criteria
13. Hassle Free Entry and Exit
14. Trading in unlisted equity

( Vide press release (REF. No. PR 185/2000) dated 14.9.2000, issued by SEBI )

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Foreign Exchange (Reserve Bank of India)

Payment to a person resident outside India on invocation of guarantee

Vide notification No. GSR 860(E) (No. FEMA/29/RB-2000), dated 26.9.2000, issued by the Exchange Control Department, RBI, the Reserve Bank of India has permitted a person resident in India, being the principal debtor, to make payment to a person resident outside India being a guarantor, such payment being by way of reimbursement of the payment made to the resident creditor by the non-resident guarantor under the guarantee furnished by him on behalf of the principle debtor. The amount payable by way of reimbursement by the resident principal debtor shall not exceed the rupee equivalent of the amount paid by the non-resident guarantor under the guarantee. Further where the payment of the amount is made by the guarantor out of funds held in NRNR / NRO / NRSR accounts maintained with an authorized dealer in India, the amount paid by way of reimbursement shall not be remitted outside India or credited to NRE / FCNR account of the non-resident.

Foreign Travel

RBI has issued circular no. 20 A.P. (DIR SERIES), dated 16.11.2000 in respect of foreign travel. The details of the circular are given below :-

1. Vide paragraph 1 of A.P. (DIR Series) Circular No.1 / A.P.(F.L. Series) circular No.1 dated June 1, 2000 authorized dealers could release foreign exchange not exceeding U.S. $5,000 or its equivalent per person, in one calendar year for one or more private visits and not exceeding U.S.$25,000 or its equivalent for business travel to countries other than Nepal and Bhutan.
2. Now, it has been advised that where a person is going abroad for business purposes, it is not mandatory for authorized persons to endorse the amount of foreign exchange sold for the purpose, on the traveller’s passport. Authorized persons may, however if requested by the traveller, record under their stamp, date and signature details of foreign exchange sold or such travel. Wherever foreign exchange is sold for a private visit, it should invariably be endorsed on the traveller’s passport under the authorized person’s stamp, date and signature.

Bank financing of Equities and Investments in Shares

The guidelines on bank’s investments in shares and financing of equities have been finalized based on the feed back received from banks and other market particulars on the draft guidelines earlier issued in RBI. These guidelines cover :-

1. Ceiling on banks’ investments in shares and debentures
2. Financing of Initial Public Offerings (IPOs)
3. Issue of guarantees on behalf of brokers
4. Advances against shares and debentures to individuals and share brokers and market makers
5. Conformity with provisions of Banking Regulation Act, 1949
6. Risk Management and internal control
7. Valuation and disclosure
8. Review of Guidelines
9. Reporting requirements

Vide DBOD No. Dia BP.BC. 51/21/04.137/2000-2001, dated 10.11.2000 issued by the RBI

Trade Finance Facilities with South Korea

Export Import Bank of India (Exim Bank) has concluded an agreement with Korea Development Bank on May 31, 2000, making available to the latter uncommitted trade finance facility upto US $ 20 million. This credit is available for financing 100 % value of export of eligible goods to South Korea. Goods eligible for export under the line of credit are indicated in the annexed to the circular ( A.P. (DIR SERIES) circular no. 21, dated 4,12.2000 issued by the Exchange Control Department, RBI ). Eligible goods also include raw materials, agricultural products, marine products, iron and steel products and software. The broad terms and conditions of the committed trade finance facility are as under :-

1. The facility has no last dates for utilization and shall be available until further notice. Each party shall have the right to terminate the facility without prior notice at any time.
2. The contract must be expressed in US Dollars.
3. No minimum amount for export of goods under the agreement has been stipulated.

Remittance towards schemes involving money circulation

The Exchange Control Department, RBI has issued A.P. (Dir Series) circular No.22 dated 7.12.2000, in respect of remittance towards schemes involving money circulation. The following is the text of the circular :-

1. "Reference have been received in Reserve Bank in the recent past from individuals / authorized dealers seeking approvals / clarifications for effecting remittances in foreign currency towards purchase of web-sites. Many such schemes offer earnings in US Dollars and / or in other foreign currency, on incremental basis, depending on the number of new clients / customers added to the chain, thereby making the operations of such schemes akin to money circulation. It is clarified that authorized dealers should not allow remittances to operators of such schemes and / or to any other overseas company carrying on such types of activities.

2. Authorized dealers may, however, allow remittance if they are satisfied that the web-site is being sold unconditionally and the remitter is purchasing it for developing it for his present / future business and not for the purpose of adding further members to the chain. For this purpose authorized dealers should satisfy themselves about the bona fides of the overseas company and / or the operators and the scheme, through proper documents.
3. Authorized dealers may being the contents of this circular to the notice of their constituents concerned.
   
4. The directions contained in this circular have been issued under section 10 (4)and section 11(1) of the Foreign Exchange Management Act, 1999 and any contravention or non-observance of these directions is subject to the penalties under the said Act."

Advances against shares and debentures

The RBI has issued notification No. DBS. FID No. C.5/02.01.00/2000-2001, dated 19.9.2000, in respect of advances against shares and debentures. The following is the text thereof :-

1. It has been brought to our notice that a financial institution has granted advances against shares that were already pledged with some other financial institution for obtaining loans against them. Such type of fraud could have been avoided if the transfer procedure or registration of lien in respect of shares held as security had been adopted by financial institutions, irrespective of the fact whether shares were obtained as primary or collateral security against such advances. In order to avoid such a situation, it is advised as under:
2. Whenever the limits of advances granted to a borrower against the security of shares / debentures exceed Rs.10 lakhs, it should be ensured that the said shares / debentures are transferred in the FI’s name.
3. SEBI has amended the SEBI (Depositors & Participants) Regulations, 1996 to facilitate the pledge of dematerialized securities. The securities pledged by the borrower get blocked in favour of the lending FI. In the case of default by the borrower, the FI may invoke the pledge, subject to the provisions of the pledge document and on such invocation, the depository will register the name of the FI as beneficial owner of such securities. In view of the above position, securities which are held in dematerialized form under the depository system, the requirement that the shares / debentures should be transferred in FI’s name need not be insisted upon provided the securities have been blocked in favour of lending FI. FIs are therefore free to take their own decision in regard to transfer of securities in their name.

In view of the facility provided by the depository system under the Depositories Act, 1996 to hold shares / debentures in dematerialized form, FIs could accept shares/debentures held in such form in addition to those in the physical form as security for advances to further safeguard their interests.

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Consumer Protection Act

Compensation Amount

The Complainant claimed compensation of Rs. 5.17 lakhs for alleged deficiency of service in not sending share certificates of Rs. 4,500. Out of this, Rs. 5 lakhs was stated to be towards mental agony, business loss, telephone, E-Mail expenses, etc but computation particulars were not furnished. It was held that on facts that claim had been escalated to attract jurisdiction of Commission, but compensation payable would definitely be a minimal sum. It was further held that the State Commission had no jurisdiction to entertain this complaint and proper forum to be approached would be District Forum and, hence, complainant to be directed to approach the District Forum after amending claim suitably.

( Tamil Nadu State Consumer Disputes Redressal Commission, Chennai - N. Alagammai v/s Indus Ind Bank Limited – ( 2001 ) 29 SCL )

National Savings Certificates

The post office refused to pay maturity value of National Savings Certificate (NSC) purchased by complainant in the name of HUF, on the grounds that NSC could be issued only in name of individual or joint names and not in name of Hindu undivided family as per rule 6 of Important General Orders of Post Office. It was held that it is the duty of issuing post office to see that NSCs are issued as per post office rules and complainant could not be blamed or penalised when fault lay with issuing post office. It was therefore held that order by District Forum directing payment of maturity value of NSC with interest required no interference.

( Uttar Pradesh State Consumer Disputes Redressal Commission, Lucknow - Union of India v/s Vyapak Krishna Puri – ( 2001 ) 29 SCL )

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Arbitration and Conciliation Act

Jurisdiction of Arbitral Tribunal

It was held that in a matter where there has been some transaction between parties and existence of arbitration agreement is in challenge, proper course for parties would be to trash out such question under section 16 and not under section 11 of the Arbitration and Conciliation Act, 1996

(Supreme Court of India - Nimet Resources Inc. v/s Essar Steels Limited ( 2000 ) 28 SCL)

Appointment of Arbitrator

It was held that nature of function performed by Chief Justice, being essentially to aid constitution of Arbitration immediately and Legislature having consciously chosen to confer power on Chief Justice and not on Court, it is apparent that order passed by Chief Justice or his nominee is neither a judicial nor quasi-judicial order but an administrative order. It was therefore held that even an order refusing to appoint an arbitrator will be unamenable to jurisdiction under article 136 of the Constitution –It was further held that an order refusing to appoint an arbitrator after deciding contentious issues would be an act of non-performance of duty and concerned authority could be directed by mandamus to perform its duty.

( Supreme Court of India - Konkan Railway Corporation Limited v/s Mehul Construction Co. – ( 2000 ) 28 SCL

Appointment of Arbitrator

In Konkan Railway Corporation Limited v/s Mehul Construction Co, it was held that no appeal is maintainable under article 136 against an order passed by the Chief Justice directing appointment of arbitrators under section 11 in as much as such orders are administrative in nature. The Appellant contended that the above judgment required reconsideration because if such an order of the Chief justice (or his nominee) was to be treated as an administrative order, it could be challenged before a Single Judge of the High Court and then before a Division Bench and then in Supreme Court under article 136 and such a procedure would only delay the arbitration proceedings more than in case the order was accepted as a judicial order and was permitted to be challenged directly under article 136. It was held that in view of appellant’s contention, the question as to whether Chief justice’s order regarding appointment of arbitrator could be regarded as a judicial order open to challenge under article 136 required to be re-examined.

(Konkan Railway Corporation Limited v/s Rani Construction (P) Ltd – (2000) 28 SCL ( SC))

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Other Judgements

Government Savings Certificates Act

Nomination

It was held that though nominee of National Savings Certificates has a right to be paid the sum due on such savings certificates after death of holder, yet he retains said amount for benefit of persons who are entitled to it under law of succession applicable subject to exception of deductions mentioned in sub-section (2) of section 8 of the Government Savings Certificates Act. It was further held that any amount paid to the nominee after valid deductions becomes estate of deceased and such an estate devolves upon all persons who are entitled to succession under law, custom or testament of deceased holder.

( Supreme Court of India - Vishin N Khanchandani v/s Vidya Lachmandas Khanchandani – (2000) 28 SCL )

Bank Nationalization Act

The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Act, 2000 has reduced the mandatory government holding in public sector banks from 51 % to 33 % of the paid up capital.

In section 9 (3) (a) of the Bank Nationalization Act, for the words "not more than 2 whole-time directors", the words "not more than 4 whole time directors" shall be substituted.

In section 9 (3)(b), the following proviso shall be substituted namely-

"Provided that no such director referred to in this clause shall be a director of more than 2 other corresponding new banks’

In section 9 (3)(h), for the words not more than 6 directors to be nominated by the Central Government, the words not more than 8 directors to be nominated by the Central Government shall be substituted.

A new section 9A has been inserted :-

Power of Reserve Bank to appoint additional director : If the Reserve Bank is of the opinion that in the interest of banking policy or in the public interest or in the interests of the corresponding new bank or its depositors, it is necessary to do so, it may, from time to time and by order in writing, appoint, with effect from such date as may be specified in the order, one or more persons to hold office as additional directors of the corresponding new bank.

Other amendments include :-

1. Balance Sheet of corresponding new bank to include certain particulars as to its subsidiaries
2. Power of the Central Government to supercede the Board of Directors of the new corresponding bank
3. Constitution of Financial Restructuring Authority
4. Appointment of CEO on supercession of Board by Central Government

Industrial Disputes Act

It was held that all Government functions can be construed as either primary or inalienable sovereign functions. It was further held that mere fact of an enterprise being statutory corporation / creature under statute would not take it outside ambit of ‘industry’ as defined under Industrial Disputes Act. It was further held that sovereign functions are primary inalienable functions which only state could exercise. It was also held that dichotomy between sovereign and non-sovereign functions could be found by finding which of functions of State could be undertaken by any private person or body and one which could be so undertaken would be non-sovereign function. It was therefore held that functions of the appellant, an Agricultural Produce Market Committee established under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 being regulation of activities within market area with respect to trading in agricultural produce which could be undertaken even by private persons and were to be held to be on non-sovereign in nature. The appellant thus would fall within definition of ‘industry’ under section 2(j). It was also held that absence of profit-making or mere quid pro quo would not take such enterprise outside ambit of ‘industry’. Agricultural Produce Market Committee v/s Ashok Harikuni – ( 2000 ) 28 SCL

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