Identification and Classification of Place of Residence of a Company for Assessing of Income

by LFIAdmin | May 5, 2021 | Uncategorized

By Deobrat.S.Gaur, Student, University Of Petroleum And Energy Studies, Course-Bcom LLB(Hons) Specialization in Taxation Laws

deobrat11gaur@gmail.com | May, 5 2021

The tax incidence and imposition of tax is dependent upon the residential status of a person. Therefore, the identification and classification of the residence of a person is one of the first steps to be carried out in order to proceed with the assessing of income of a person. The rules for determining the residential status of a person is governed by Section 6 of Income-tax Act.

For the purpose of determination of the place of residence of the companies the concept of POEM is been introduced in Finance Bill 2015 which amended the Section 6 of the existing Income Tax Act, 1961, replacing the words stated there control and management by Place of Effective Management.

The condition for determination of residential status of the company will be on:

1) If A the company is Indian company – then it is presumed to be Resident of India

2)The foreign company- then the test of POEM is applied.

Poem is universally recognised test for the purpose of determination of the residential status of the company, which is either incorporated in a foreign Jurisdiction, as per the explanation facilitated in section 6(3) POEM mean, any place where key management and commercial decision that are of quitessential importance taken or decisions which are necessary for the conduction of a business.

Hence, foreign company is considered resident in India if the place where key management and commercial decision that are of quitessential importance taken or decisions which are necessary for the conduction of a business are taken in India. To bring to tax those companies that are incorporated outside India but controlled from India, the condition of POEM has been introduced.

CBDT issued guidelines for determining POEM by way of Circular No 6 of 2017 dated jan 23 2017 states that:-

The foreign company whose turnover is 50 crore or more , its POEM will have to be seen.

For the purpose of determination of POEM, we need to see:

A) ABOI .i.e the test which check whether the company is engaged in an active business outside India or not , and if it satisfied, then POEM is outside India

And

B) Majority of Board meeting Held Outside India:

The ABOI test lays down that, for the purpose of sound determination active business outside India following is to be analyzed:

a) The company’s passive Income is not more than 50% of its total income

b) The 50 % or more of the aggregate assets of the company are situated outside India.

c) The 50 % or more of the total no of Employees employed in the company are situated outside India , or 50% or more are not the resident in India

d) The aggregate or the total pay roll expenses of those employees are less than 50%

Passive Income would mean income generated from the Transaction where Both the sales and Purchase of good is conducted from and enterprise to its related enterprises

Income from Interest, Dividend, Rental Income , Income from Capital Gains etc..

If Aboi i.e all the 4 test laid down and Majority of Board meeting Held outside India, if both are outside India, then the company is outside India, hence a Non Resident.

CASES IN WHICH ABOI is not situated Outside India , – in such scenario The POEM will be determined after analyzing the following.

• To determine the person who is actually responsible in making the key managerial or the commercial decision

• And identification of the place where the decision are taken meaning of the term “Business Connection”.

Section 9 talks about income which is deemed to accrue or Arise in India

A relationship of business of Non- resident with Indian Territory which yields profits or gains to NR, then such income will be deemed to accrue or Arise in India. The connection between the business of NR and India is known as business connection.

Non Resident will have business connection in India if

a) If an agent or any person habitually conclude contract on behalf of Non Resident, or

b) If the agent or the person plays principal role in concluding contract on behalf of Non Resident, or.

c) If the agent or the person maintains stocks and delivers in India on instructions of Non Resident ,or

d) The agent or person habitually secures orders mainly and fully for the Non Resident,

Income from such business connection to the NR will be income deemed to accrue or arise in India, even if it arise outside, Provided the Agent should have dependent status and not the independent status

E.g. if agent has independent status where he is securing order for many Non-Resident and having independent status, then there will be no business connection, hence only if the agent secures orders mainly and fully for the Non Resident,

Explanation 2A attached to section 9(1) states applicable from 1st march 2019, significant economic presence of a particular NR in India then , the NR will have business connection in India, nature of transaction should be such that transaction in respect or good service which includes download of data etc. in respect.

The cases in which the business connection of NR will not be considered to have business connection in India

a) If the agent /person is just purchasing in India and exporting, neither selling, nor concluding any contract in India

b) If the agent or person is just collecting news and views in India , for transmission outside India

c) If the person is NR and also not a citizen he comes to India to shoot cinematographic flim or movie in India

In case of partnership, all the partners, should be Non Resident and not a citizen
In case of company all the shareholders Non Resident and not a citizen

d) If the foreign company is mining diamond outside India, and just displaying raw uncut diamond in India , in the specific zones notified by Indian government in India.

WHY IS CANADA IMMIGRANTS’ PARADISE

by LFIAdmin | Jun 8, 2021 | Uncategorized

By Manju Hirani,
Hirani Canadian Immigration and Consultancy Solutions Inc,
Canada

hiraniimmigration@hotmail.com, Ph:001(778) 8962567| June 08, 2021

The US News & World Report in its “2021 Best Countries Report” recently announced Canada as the best country in the world.

Canada has a very friendly attitude towards immigrants and it is one of the most popular choices for immigrants from across the world.

Canada is a safe country to live in and raise a family. Canada offers the best combination of urban life with a laid-back rural lifestyle. It is a country where you can get both professional growth as well as work – life balance. Canada offers better quality of life with more earning and more savings.

The underlying principle of Canadian Immigration Law is the belief that skilled workers are the major contributory factor for taking Canada to the path of prosperity. Foreigners with work permits and international students can easily apply for permanent residency after meeting the minimum eligibility requirements.

Skilled workers who can contribute to the Canadian economy are welcomed with open arms. The following are the requirements for immigration of skilled workers:

• Good health
• No criminal history
• Bachelor’s degree in any stream
• Minimum one years’ continuous work experience (more experience will get you extra points)
• Ability to speak, read and write English or French or both languages (language test is mandatory)
• A score of 67 points in Canada’s point based immigration selection system
• One can apply for Permanent Residence (PR) in Canada from India( with skilled work experience of minimum one year)
• If married, spouse and children under 21 years of age can also migrate along with the principal applicant
• Spouse gets right to work
• After three years, can apply for Canadian citizenship

Canada offers plenty of opportunities for those looking to migrate to the country. One can work in Canada as a Skilled Worker under the Temporary Foreign Worker Program and apply for permanent residency through the Express Entry Programs: Federal Skilled Worker, Federal Skilled Trades or Canadian Experience Class.

One can study in Canada and apply for permanent residency through the Canadian Experience Class after meeting the minimum eligibility requirements.

Another way is to immigrate through the Provincial Nominee Programs. Our provinces offer several paths for qualified immigrants looking to make Canada their home.

When you become a permanent resident of Canada, you are entitled to the same rights and privileges as a Canadian citizen except for the right to vote and the right to apply for a Canadian passport , are entitled to equal treatment and equal protection.

There are excellent schemes such as Old Age Security, Guaranteed Income Supplement, and Canada Pension Plan – all three of these programs are designed to provide financial support to workers after they reach retirement age – currently age 65. To be eligible, you have to meet specific residency requirements and to have contributed to the system by paying taxes in Canada.

Medical expenses are covered through the Canadian health care program on payment of nominal amount and in certain cases no amount is payable. These expenses include visits to emergency room, immunizations, yearly exams, etc.

All children under 18 are entitled to a free education in the Canadian Public School System, which provides world class education.

In Canada, working parents are given time off when a new baby is born or adopted. Parents can opt to take leave up to 12 months and split the leave between parents.

Canada is the perfect destination for you and your family to move to. The government of Canada believes that emigration to Canada is a major driving factor of economic growth; it welcomes the diverse traditions, rituals, and customs that immigrants bring into the cultural fabric of this evolving nation.

SEAT OF ARBITRATION AND TERRITORIAL JURISDICTION OF THE COURT

by LFIAdmin | May 1, 2021 | Uncategorized

By Jineshi Thakar, Advocate

jineshi1010@gmail.com | May 1, 2021

Over the years, whenever laws relating to arbitration have been discussed upon, legal concept of seat of arbitral proceedings and territorial jurisdiction of courts thereto has always been debated at length. The courts have exhaustively scrutinized the concept through its several judgments; In yet another case before the Hon’ble Apex Court, it had to juxtapose the aforesaid legal concepts in the matter of M/S. Inox Renewables Ltd. v. Jayesh Electricals Ltd.

In order to resolve the dispute amongst themselves, the Parties had mutually agreed to change the place of arbitration from Jaipur to Ahmedabad, irrespective of the specific clause as to the same, which was recorded by the Arbitrator in the award. Pursuant thereto, the Arbitrator passed an award in favour of Jayesh Electricals Ltd. Thereafter, M/S. Inox Renewables Ltd. filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Commercial Court at Ahmedabad and the judgment was passed in favour of Jayesh Electricals Ltd. M/S. Inox Renewables Ltd, thereafter filed a Special Civil Application bearing No. 9536 of 2019, before the Hon’ble Gujarat High Court, against the order of the Commercial Court, Ahmedabad which was dismissed, holding that the courts at Rajasthan would have jurisdiction to the petition under Section 34. Subsequent to the said judgment, M/S. Inox Renewables Ltd filed an appeal before the Hon’ble Supreme Court.

The Supreme Court whilst determining the issue pertaining to the jurisdiction was posed with the following propositions on behalf of Jayesh Electricals Ltd:-

(i) The place of arbitration cannot be changed without a written agreement between the parties;

(ii) The shift in the place of arbitration by mutual consent does not amount to the change in the seat of arbitration and that the same is done under Section 20(3) of The Arbitration and Conciliation Act, 1996; and

(iii) The arbitration clause shall be read independently from that of the clause pertaining to the jurisdiction of the court before which further remedies may be sought.

The Supreme Court disproved the above propositions whilst relying on the judgment of BSG SGS SOMA JV v. NHPC Limited [1] as well as Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited [3]. The Court observed that since the change in the place of arbitration was recorded with the consent of both the parties and the same remained undisputed by them, a separate agreement isn’t required to record the same. Secondly, the Court opined that the change in the venue of arbitration is by mutual consent and therefore it is as per Section 20(1) of the Arbitration and Conciliation Act, 1996 and not as per Section 20(3) and the same amounts to the seat of arbitration. The court relied on the judgment of BSG SGS SOMA JV [3] which read as under:-

“53. In Indus Mobile Distribution (P) Ltd., after clearing the air on the meaning of Section 20 of the Arbitration Act, 1996, the Court in para 19 (which has already been set out hereinabove) made it clear that the moment a seat is designated by agreement between the parties, it is akin to an exclusive jurisdiction clause, which would then vest the courts at the “seat” with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.”

Lastly, the Court observed that the entire arbitration clause has to be read as a whole alongwith the clause pertaining to the jurisdiction of the court and further noted that, “the moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration.”

The Court through this judgment highlighted distinctly that the venue of arbitral proceeding mutually agreed by the parties amounts to the seat of arbitration and hence the exclusive jurisdiction then vests with the court wherever the seat of arbitration is. The appeal was allowed and it was held by the Supreme Court that the court in Ahmadabad had the jurisdiction to deal with the Section 34 petition.

[1] (2020) 4 SCC 234

[2] (2017) 7 SCC 678

[3] supra

MERE USE OF TRADEMARK IN AN ARTICLE DOES NOT AMOUNT TO FALSE APPLICATION

by LFIAdmin | Apr 29, 2021 | Uncategorized

By Heena Thalesar, Advocate

heenathalesar2233@gmail.com | April 28, 2021

BACKGROUND OF THE CASE:-

Recently, in a judgement delivered by the Hon’ble Bombay High Court in Prateek Chandragupt Goyal vs. State of Maharashtra and others (Criminal Writ Petition No. 62 of 2021), it has quashed an FIR registered by Pune City Police against one Journalist Mr. Prateek Chandragupt Goyal for using logo of “Sakal Media Group” in two articles which were published on 27 March 2020 and 11 June 2020 respectively on an online news portal “news laundry”. The case was registered at Vishrambag Police Station at Pune for an offence under Section 103 of Trademarks Act, 1999.

FACTS OF THE CASE: –

In the present case, the Petitioner sought quashing of FIR and further contended that the ingredients of the said offence are not made out in the facts and circumstances of the present case and that, therefore, the FIR deserves to be quashed. The Petitioner is a Journalist working with online news portal ‘News laundry’. It is stated that he had earlier worked with other Media entities, including ‘Sakal Times’. According to the Petitioner, he specializes in investigative journalism and that he has been working in this field since the year 2012. The FIR has been registered against the Petitioner at the behest of Respondent No.2 (original informant), who is the Chief Administrative Officer of Sakal Group, that publishes newspapers in Marathi language called ‘Sakal’ and in English language called ‘Sakal Times’. The Respondent No. 2 approached the Police for registration of FIR on 16th September, 2020 claiming that the Petitioner committed the above offence by falsely applying trade mark of Sakal Group in two articles authored by him and published in the aforesaid news portal called ‘News laundry’. The two articles were published on 27th March, 2020 and 11th June, 2020.He further contended that in the said articles, the registered trade mark of the Sakal Media Group and Sakal Times was shown with prominence at the top. In the article published on 27th March, 2020, the heading was ‘The future is bleak: Sakal Times staffers say they have been sacked in violation of Maharashtra Order’. In the article published on 11th June, 2020, the heading was ‘They wanted to get rid of us: over 50 people laid off as Sakal Times closes down’. According to Respondent No.2 these were highly defamatory articles against Sakal Media Group and that use of the official logos / trade mark of the Sakal Media Group and Sakal Times on these articles clearly amounted to falsely applying the said trade mark, thereby resulting in commission of an offence under Section 103 of the Trademark Act, 1999. In the FIR, it was stated that the offence was committed from 27th March, 2020to 11th June, 2020and, as noted above, the FIR, stood registered after three months on 16th September, 2020. It is significant that prior to lodging the complaint, leading to registration of FIR, a legal notice dated 12th June, 2020, was sent to the Petitioner alleging that the Sakal Media Group was defamed by him and an amount of Rs.65,00,000/- was claimed from him. 19th June, 2020, the Petitioner sent a reply to the said legal notice. On 03rd September, 2020, the Sakal Media Group filed a suit for injunction against the News laundry Media Pvt. Ltd. seeking an injunction against the said defendant and the Petitioner for removing the said articles from the news portal. The present writ petition was filed in October 2020, wherein notice was issued and it was directed that while the investigation shall continue, the charge sheet could be filed only with the leave of this Court. Thereafter, on 27th January, 2021, this Court recorded statement made on behalf of the Petitioner that he would appear before the Investigating Officer on a specific date and it was directed that the Investigating Officer shall not insist for production of laptop and hard disk by the Petitioner.

CONTENTION OF THE PETITIONER: –

The trade mark of Sakal Media Group was shown in the articles written by the Petitioner and published on the news portal ‘News laundry’, only to indicate that those specific articles pertained to the Sakal Media Group. In these circumstances, there was no question of the said trade mark being falsely applied to any goods or services, so as to attract the ingredients of the aforesaid offence. Additionally, and without prejudice to the aforesaid submissions, the learned Senior Counsel for the Petitioner submitted that the action of the Petitioner was protected as a nominative fair use of the trade mark of Sakal Media Group under Section 30(1)(a) and (b) of the Trademarks Act, 1999.

CONTENTION OF THE RESPONDENTS: –

Learned Counsel appearing for Respondent No.2 submitted that admitted facts in the present case demonstrated that ingredients of the offence under Section 103 of the aforesaid Act were prima facie made out and there was no question of quashing of FIR. By referring to Section 103 of the aforesaid Act, the learned Counsel appearing for Respondent No.2 submitted that in the present case, the Petitioner had clearly falsely applied the registered trade mark of Sakal Media Group by prominently showing the mark on articles published on the news portal ‘News laundry’. It was submitted that when the word ‘Sakal’ was clicked on online search, it led to the said articles authored by the Petitioner and published on the news portal ‘News laundry’, thereby demonstrating that the offence under Section 103 of the said Act was indeed committed in the present case. The learned Counsel emphasized upon Section 102(2)(b) of the said Act in support of the said contention and submitted that since Sakal Media Group and the news portal ‘News laundry’ were in the same segment of providing news services, the offence was clearly committed in the facts and circumstances of the present case. The learned Counsel for the Respondent No.2 relied upon judgment of the Madras High Court in the case of Consim Info Pvt. Ltd. Vs. Google India Pvt. Ltd. and Ors. 2010(6) CTC 813 and judgment of Delhi High Court in Hawakins Cookers Ltd. Vs. Murugan Enterprises 2012 SCC OnLine Del 2118. It was further submitted that merely because Respondent No.2 had filed a Civil suit for injunction against News laundry Media Private Limited, it could not result in the criminal proceedings being terminated at this stage.

JUDGEMENT:-

The Hon’ble High Court held that “Mere use of the registered trade mark of the Sakal Media Group in articles authored by the Petitioner and published by the news portal ‘News laundry’, do not fit into the definition of false application of the trade mark in relation to goods or services.” It is an admitted position that the articles were published in the online news portal ‘News laundry’ and there was no suggestion that the said news portal itself was that of ‘Sakal’. Merely because an online search for the word ‘Sakal’ led to the aforesaid articles of the Petitioner published in the news portal ‘News laundry’, does not mean that the registered trademark of Sakal Media Group was falsely applied to goods or services by the Petitioner. At worst, it could be said that such an online search leading to the aforesaid articles might be the subject matter of an injunction suit at the behest of Sakal Media Group due to the contents of the said articles, but, that falls within the realm of a civil dispute that could be raised by Pisal. In fact, Pisal did issue a Notice on behalf of the Sakal Media Group (claiming Rs 65 lakh for defamation) and chose to file a suit for injunction before the competent Civil Court, which is pending.

CONCLUSION:-

For use of registered trademark of the Sakal media group in the article authored by Prateek Gupta Goyal and published by the news portal news laundry do not fit into the definition of false application of the trademark in relation to goods and services.

POWER OF APOLOGY IN MEDIATION

by LFIAdmin | Apr 25, 2021 | Uncategorized

By DHRUTI M KAPADIA-ADVOCATE, SOLICITOR, ADVOCATE-ON-RECORD, SUPREME COURT OF INDIA & MEDIATOR

kapadiadhruti@gmail.com| April 24, 2021

“A WORD OF APOLOGY CAN HELP RESOLVE DISPUTES –IT IS WORTH THE TRY THAN HOLDING UPON EGOS TO CONTINUE THE DISPUTES-LEARN TO APOLOGISE IF YOU REALLY DESIRE TO RESOLVE THE DISPUTE”

Introduction:

When the mind tricks up and makes one realize that they have done a mistake than one must have the guts to admit it to the person wronged which can psychologically help relieve the pressing guilt that built over time.

The prime step in mending a relationship which is broken is by attempting to move towards a sorry-apology as it will help move forward in re-building the trust broken and will be step climbing up to sooth the communication relationship between each other.

The ease one gets by hearing another person say sorry is pretty comforting in the mind and it leads to step forward for opening dialogues , clearing out bitterness towards each other and also will help playing on stuffed emotions between the each other.

Why people Apologize?

Apology is also a healing tool and brings in good gestures between the parties. It says that you share values regarding appropriate behavior towards each other, that you have regrets when you don’t behave according to those values (intentionally or unintentionally), and that you will make greater efforts to live up to your shared standards of behavior. Timing can be crucial. An apology delayed may be an opportunity lost.

Generally it is human nature that when they are hurt or humiliated they often hope for an apology. They may hope that an apology from the person who caused them harm will restore dignity, trust, and a sense of justice. Whether you are requesting an apology or considering giving one, it is important to realize that a thoughtful apology can mend a relationship while a thoughtless one may cause further conflict.

Finally, the good apology is a gift to the relationship. Two people can feel secure in the knowledge that if they behave badly, even fight terribly, they can repair the disconnection. We strengthen our relationships when others know that we’re capable of reflecting on our behavior, that we’ll listen to their feelings, and that we’ll do our best to set things right.

Example of how to put forth Apology:

You could say: “I’m sorry that I used derogatory language at you yesterday at dinner party. I feel embarrassed and ashamed by the way I acted.”

To resolve the issue by apology, your words need to be sincere and authentic. Be genuine and honest with yourself, and with the other person, about why you want to apologize and then only you can expect the other person to let go or forgive.

In mediation the most compelling apology would consist of 6 main elements:

 Expression of regret
 Explanation of what went wrong
 Acknowledgment of responsibility
 Declaration of repentance
 Offer of repair
 Request for forgiveness

Why People don’t apologize?

Main reason why people don’t apologize is because they are afraid the apology will be seen as a sign of weakness and/or guilt. But in reality, an apology indicates great strength as it is a munificent act that restores and rehabilitates the self concept of the offended party.

Therefore in mediation apology mediator and parties must make an attempt to move forward the sessions with apology it may be as simple as resolving a dispute at home by saying a sorry and conflict between the parties may end.

Apology Advice to Clients:

One road leads toward anger, fear, hate confrontation, bitterness, and revenge, and pushes forward towards disputes and heavy litigation.

A second leads moves towards empathy, acceptance, honesty, collaboration, and mutual respect; it draws the ropeway into negotiations to resolve the disputes.

Yet there is a still deeper third road that is largely hidden from many of the clients who come for advice , this is a very sensitive area which needs efforts to move into insight, discovery, wisdom, affection, and heartfelt communications; which enables them to mirror reflect their present. This method encourages the client to apologize; reach forgiveness; seek release, renewal, and reconciliation. It allows us to sustain openhearted relationships. It wakes them up, makes them more mindful of their own reflection and others. It nurtures them towards the session of mediation where they get prepared to apologize. This is the path of transformation and transcendence, of wisdom and heart. As their legal advisor it is essential we advice our clients that revenge is complex whereas apology, forgiveness, and reconciliation are simple, yet powerful transformative tools, and doorways to inner and outer peace in mediation.

This advice and efforts should be continuous while setting up mediation session or during the sessions at times it may be nearly unnoticeable but this advisory tool on apology to be powerful can integrated into every kind of mediation practice. They can help free clients from the past and allow them to reach closure, to let go of whatever has kept them trapped in conflict, and move in healthier, more positive directions, towards deeper levels of resolution and relationships with the other side.

Conclusion:

Tool of apology can be used by mediator to make parties feel comfortable to apologize or even by attorneys to advice the parties in mediation wherein resolving complex multi-party conflicts which include: matrimonial disputes, community, grievance and workplace disputes, collective bargaining, negotiations, organizational and school conflicts, sexual harassment , commercial disputes and public policy disputes.

EMERGENCY CREDIT LINE GUARANTEE SCHEME 3.0

by LFIAdmin | Apr 23, 2021 | Uncategorized

By Esha Malik, Advocate

eshamalik322@gmail.com | April, 23 2021

In view of the second wave of COVID-19 Pandemic in India and its impact, the Government of India has under its Atmanirbhar Bharat Initiative decided to extend its Emergency Credit Line Guarantee Scheme (ECLGS) 1.0 and 2.0 by introducing ECLGS 3.0 for a period of three months i.e. 30th June, 2021 with more advanced and business uplifting changes proposed in the revised scheme.

ECLGS 3.0 is an amended government scheme designed to provide additional support to various stressed service sectors amid the unprecedented Second Wave of COVID-19 and the subsequent lockdown once again to help sustain employment, meet liabilities and reduce the pressure to meet working capital requirements, in turn reviving the Indian economy.

Earlier, the ECLGS Scheme was available to MSME’s only which later was amended through ECLGS 2.0 including 26 stresses sectors. The new ECLGS 3.0 will cover within its fold additional business enterprises in the Hospitality, Travel and Tourism, Leisure and Sporting sectors as identified by the K. V. Kamath Committee having as on 29-02-2020, a total credit outstanding not exceeding Rs. 500 Crores and overdue, if any being less than 60 days from the date i.e. 29-02-2020. However, loans provided in individual capacity will not be covered under this Scheme. Further, borrower accounts declared as NPA or SMA-2 status as on 29-02-2020 shall not be eligible for availing benefit under the Scheme.

ECLGS was first valid until October, 2020 and later extended from time to time last being March, 2021 and now by introducing the ECLGS 3.0 until 30th June, 2021.

Key Highlights of ECLGS 3.0:-

(i) Addition of Additional Credit i.e. 40% outstanding across all lending institutions as on 29-02-2020 as against earlier 20% outstanding overdue;

(ii) Entities to be upto 60 days past overdue as against 30 days under ECLGS 2.0;

(iii) The tenor for such a 100% collateral free loan has been extended upto 6 years with moratorium period of 2 years as against 5 years with Moratorium period of 1 year on principal re-payment;

(iv) Validity of ECLGS 1.0, 2.0 are extended till 30-06-2021 or until Guarantees of Rs. 3 Lakh Crore are issued;

(v) Introduction of Incentives to Member Lending Institutions (MIL’s) like Banks, NBFC’s and other lending institutions to enable availability of funding facility to the eligible beneficiaries providing 100% guarantee by National Credit Guarantee Trustee Company (NCGTC) to such Member Lending Institutions (MLIs).

To conclude, this forward-looking vision and progressive amendment by Government of India is very well appreciated and looked upon by all the eligible stressed sectors hit by the second wave of the Pandemic for a major relief amid the second lockdown and shall also pose a great support to not only businesses but also shall go a long way “in contributing to economic revival, protecting jobs, and creating conducive environment for employment generation” where people are looking for more meaningful roles to play.

ENTRIES IN BALANCE SHEET AMOUNTING TO ACKNOWLEGMENTS OF DEBT UNDER SECTION 18 OF THE LIMITATION ACT AND ITS APPLICABLILITY TO INSOLVENCY AND BANKRUPTCY CODE

by LFIAdmin | Apr 19, 2021 | Uncategorized

By Manish Doshi, Advocate

manish@vimadalal.in | April, 19 2021

In a recent judgement delivered by the Hon’ble Supreme Court of India, in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr, important questions arose for the consideration of the Court:-

A. Whether Section 18 of the Limitation Act, 1963 [“the Limitation Act”], which extends the period of limitation depending upon an acknowledgement of debt made in writing and signed by the corporate debtor, is also applicable under Section 238A of the Insolvency and Bankruptcy Code, 2016 [“the IBC”] given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC?

B. Whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act?

C. To examine the position under the Companies Act, 2013 [“Companies Act”] qua any compulsion of law for filing of balance sheets and acknowledgements made therein;

D. To examine the legality of the National Company Law Appellate Tribunal (NCLAT) judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund, where it was held that that entries in balance sheets would not amount to acknowledgement of debt for the purposes of extending limitation under Section 18 of the Limitation Act.

The undisputed and controverted facts are that in 2009, the Corporate Debtor setup a thermal power project in Jharkhand and for doing so availed loans from various lenders. The account of the corporate debtor was declared as a non-performing asset by one of the lender on 31-7-2013 and issued a loan recall notice on 27-3-2015. On 31-3-2015, some of the original lenders assigned the debts owed to them by the Corporate Debtor to the Appellant Asset Reconstruction Company (India) Limited (ARCIL). ARCIL issued a notice under Section 13(2) of the SARFAESI Act and took actual physical possession on 1-6-2016. ARCIL filed an application under section 7 of IBC before the National Company Law Tribunal, Calcutta (NCLT) for default in payments and as the relevant form indicating the date of default did not indicate any such date, ARCIL filed a supplementary affidavit specifically mentioning the date of default and annexing copies of balance sheets of the corporate debtor, which, according to ARCIL acknowledged periodically the debt that was due. On 19-2-2020, a Section 7 application was admitted by the NCLT by observing that the balance sheets of the corporate debtor wherein it acknowledged its liability were signed before the expiry of prescribed period of three years from the date of default and entries in such balance sheets being acknowledgments of the debt due for the purposes of section 18 of the Limitation Act and Section 7 application is not barred by limitation. The Corporate Debtor, in appeal filed before the NCLAT, relied upon the judgment V. Padmakumar of the NCLAT where , it had been held that entries in balance sheets would not amount to acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act. However, on 25-9-2020 another bench of the NCLAT doubted the correctness of the Full Bench judgment and suggested the constitution of another Bench to reconsider the judgment in V. Padmakumar (supra). However, the Five-Member Bench of the NCLAT, vide impugned Judgment dated 22-12-2020, refused to adjudicate the question stating that the reference to the Bench was itself incompetent; subsequently, the matter reached the Supreme Court by way of appeal. The first question before the Supreme Court was, whether Section 18 of the Limitation Act, which extends the period of limitation depending upon an acknowledgement of debt made in writing and signed by the corporate debtor, was also applicable under Section 238A given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC.

While dealing with aforesaid questions, the Supreme Court adverted to the rationale for the enactment of 238A of the IBC [1], which reads as under:

238A. Limitation.—The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

The Supreme Court has also considered various judgments [2] wherein the Report of the Insolvency Law Committee of March, 2018 observing that though the IBC is not a debt recovery law, the trigger being “default in payment of debt” would render the exclusion of the law of limitation as “Counter-intuitive” and have come to conclusion that the question of sections 14 and 18 of the Limitation are applied in the IBC and is no longer res integra.

The Supreme Court has also considered second question “whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act”.

While considering the aforesaid question, it is recorded by the Supreme Court that several judgments of the Supreme Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act.

The Supreme Court has also examined the position under the Companies Act qua any compulsion of law for filing of balance sheets and acknowledgements made therein.

While considering the aforesaid questions, the Supreme Court reproduced certain sections [4] of the Companies Act and concluded that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory and any transgression of the same being punishable by law. It is also recorded that notes that re annexed to or forming part of such financial statements are expressly recognised by section 134(7) of the companies act and equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. The said statement of law contained in Bengal Silk Mill [3]. The Hon’ble Court has also considered various judgments [5] passed by various courts on the aforesaid proposition and concluded that decision of full bench in V. Padmakumar (supra) is contrary to the aforesaid catena of judgments and holds that entries in balance sheets would amount to acknowledgement of debt for the purposes of extending limitation under section 18 of the Limitation Act.

[1] Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1

[2] Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402; A.V. Murthy v. B.S. Nagabasavanna, (2002) 2 SCC 642

[3] Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962 Cal 115;

[4] Section 2(40) “financial statement”; Section 92-Annual return; Section 128-Books of account etc., to be kept by company; Section 129-Financial Statement; Section 134-Financial Statement, Board’s report etc; Section 137-Copy of financial statement to the filed with Registrar;

[5] South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana, 1972 SCC OnLine Del 185; Pandam Tea Co. Ltd., 1973 SCC OnLine Cal 93; Hegde & Golay Limited v. State Bank of India, 1985 SCC OnLine Kar 428; Bhajan Singh Samra v. M/s. Wimpy International Ltd., 2011 SCC OnLine Del 4888; CIT-III v. Shri Vardhman Overseas Ltd., 2011 SCC OnLine Del 5599; Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd., 2013 SCC OnLine Del 2535; N.S. Atwal v. Jindal Steel and Power Ltd., 2013 SCC OnLine Del 3902; M/s. Al-Ameen Limited v. K.P. Sethumadhavan, 2017 SCC 50 OnLine Ker 11337; Zest Systems Pvt. Ltd. v. Center for Vocational and Entrepreneurship Studies, 2018 SCC OnLine Del 12116; Agni Aviation Consultants v. State of Telangana, 2020 SCC OnLine TS 1462;

GIFT OF AN IMMOVABLE PROPERTY TO A STRANGER TO THE EXCLUSION OF LEGAL HEIRS OF CLASS-I OF THE HINDU SUCCESSION ACT, 1956, CAN BE REGARDED AS A TRANSFER IN LAW?

by LFIAdmin | Apr 17, 2021 | Uncategorized

By Esha Malik, Advocate

eshamalik322@gmail.com | April, 17 2021

In a recent judgement delivered by the Hon’ble High Court at Calcutta in Prabitra Kumar Maity v. Shyamali Manna and Others, an interesting, important and significant question arose for the consideration of the Hon’ble Court “whether a gift of immovable property made to a stranger to the exclusion of the other heirs of Class I of the Schedule can be regarded as a Transfer under Section 22 of the Hindu Succession Act, 1956? (“the said Act”).

The aforesaid judgement emphasizes the preferential right under Section 22 of the said Act to acquire property in certain cases where an interest in any immovable property of an intestate, or in any business carried on by him or her, whether solely or in conjunction with others, devolves upon two or more heirs specified in class I of the Schedule, and any one of such heirs proposes to transfer his or her interest in the property or business, the other heirs shall have a preferential right to acquire the interest proposed to be transferred.
The undisputed and controverted facts are that the Plaintiff/Appellant filed composite suit for declaration, permanent injunction and preferential rights to acquire the property which was gifted by Defendant No. 2 in favour of Defendant No. 1 without any consideration and out of sheer love and affection.

While dealing with this point, the Hon’ble Court made it aptly clear that for a Gift to be valid, there must exist essential characteristics namely: (i) made voluntarily; and (ii) without consideration. On the other hand, section 22 of the said Act provides for a preferential right to acquire immovable property in certain cases and such preferential right is confined to the heirs specified in Class I of the Schedule of the said Act. Further, section 22 of the said Act is unambiguous and the interpretation adopted by the Hon’ble Court is to uplift the legislative intent recognizing a right of pre-emption in favour of all heirs of Class I and more particularly providing that if a person dies intestate and his interest devolves upon his heirs specified in Class I of the Schedule and if anyone of the heirs proposes to transfer his interest in the property, the other heirs within the said class have a preferential right to acquire such interest, which immediately gets activated the moment one of the heir specified in Class I of the Schedule proposes to transfer his undivided interest in immovable property or a business carried on by the predecessor to other person other than the heirs specified in Class I of the Schedule. The Hon’ble Court also conjunctively considered the expression “proposes to transfer” materially emphasizing that a concluded transfer cannot take away such a preferential right of pre-emption as created in favour of the other heirs of Class I and can be certainly impugned even after its finality unless the same is in compliance of section 22 of the said Act. Similarly, the Hon’ble Court also projected that a duty is cast upon the proposed transferor not to embark upon its journey for transferring his undivided share in the property to an outsider without first offering his share to the other co-sharer, inter alia in violation of section 22 of the said Act.

While deciding the above, the Hon’ble Court also considered the expression “Transfer” of the Transfer of Property Act, 1872?.

The word “Transfer”, being of a wider import includes sale, exchange, mortgage, gift and lease, being the usual modes of transfer under the Transfer of Property Act as also by way of trust. The main object being to prevent the heirs other than transferor from being compelled to be in joint possession/enjoyment of property or business with a stranger or other person whom they do not wish to associate themselves. Therefore, it would be proper to include “Gift” being made voluntarily and without consideration and gifted out of love and affection to a stranger as a “transfer”. With regards to concluded transfer, if the transfer has been affected without knowledge of the other co-heir, there is no restriction under section 22 of the said Act and the heir can impugn such concluded transfer by invoking the preferential right enshrined under section 22 of the said Act.

In the given case, the co-heir has in gross violation of section 22 of the said Act gifted the said property to a stranger without exercising right of pre-emption/preferential right of the other co-sharer coming in Class I of the Schedule of the said Act and therefore such a Gift being a transfer comes within the ambit of section 22 of the said Act and therefore, the heir of Class I of the Schedule of the said Act is entitled to a preferential right.

CAN A LLP BECOME A PARTNER IN A PARTNERSHIP FIRM?

by LFIAdmin | Apr 13, 2021 | Uncategorized

By Isha Thakur, Law Student, SNDT Law School

ishav1998@gmail.com | April, 13 2021

The ease of forming and operating a partnership has been instrumental in improving the ease of conducting business in India. With minimum intervention from regulatory authorities, non-obligatory registration process and wide decision-making power, the concept of partnership has gained momentum and popularity among medium scale firms where the probability of risk is much higher.

A Limited Liability Partnership (“LLP”) may appear to be similar to a Partnership but the provisions of the Limited Liability Partnership Act, 2008 (“the 2008 Act”), which govern the establishment of LLPs in India, recognize such LLPs as legal entities, as contrary to Partnerships. As soon as such entites are given a legal character, they attain perpetual succession and the capacity to sue and be sued, thereby, establishing an existence entirely separate from its partners. These entities have a common seal, limited liability and can buy, possess and sell properties (moveable or immovable) in its own name. Therefore, in light of the given legally recognized characteristics, a question arises herein – Can an LLP become a partner in a partnership firm?

The said issue arose before the Kerala High Court in Jayamma Xavier vs. Registrar of Firms (2020) wherein the Registrar of Firms declined the registration of a partnership firm constituted by Sleeplock LLP and one other individual on the ground that an LLP cannot be a partner of a firm. The Respondent, being the Registrar of Firms, highlighted the inconsistencies between the provisions of the Limited Liability Partnership Act, 2008 and the Indian Partnership Act, 1932 by further contending that the 1932 Act makes the partners of a partnership firm jointly and severally liable for the acts of the firm whereas on the contrary in an LLP, the liability of the partner is restricted only to the extent provided in the LLP agreement.

For this purpose, it is material to look into the definition of Partnership under Section 4 of the Indian Partnership Act, 1932 which lays down:

“Partnership is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all.”

The Kerala High Court, while scrutinizing the above definition, focused on interpreting the term “persons” to deal with the said question. Since, the term “persons” is not defined under the 1932 Act or the 2008 Act, the definition given in the General Clauses Act, 1897 was referred to be as:

“(3)(42) “person” shall include any company or association or body of individuals, whether incorporated or not”

A partnership can be entered into between two persons where such persons can be an incorporated body of individuals. The Court also relied on its decision laid down in M. M. Pulimood vs. Registrar of Firm wherein the Court found that a Private Limited Company incorporated under the Companies Act, being a corporate body, comes under the definition of “persons” and could execute a partnership deed and as per Section 3 of the 2008 Act, a limited liability partnership is deemed to be a body corporate.

Rebutting the contentions of the Respondent, the Petitioner stated that the liability of partners of LLP and liability of the LLP as a partner under the Partnership Act, 1932 would be different. The question of liability of the partners of the LLP would not arise when the LLP itself is a partner in the partnership firm as a body corporate which would be analogous to that of a company joining a partnership firm.

The Court disposed of the present writ petition and set aside the order of the Registrar of the Firms (the Respondent herein) on the principle that Section 4 of the 1932 Act permits constitution of a firm or partnership between one or more persons. The partnership deed, in the present case, was executed between an individual and an LLP which is a body corporate having a legal entity and coming within the definition of “person”. The Court further clarified that the difference in the provisions under the 1932 Act relating to liability of the firm or the individual partners would not affect the formation of partnership with an LLP. Hence, an LLP cannot be disqualified from entering into a partnership with an individual or any other persons.

INFRINGEMENT OF COPYRIGHT U/S 23 OF THE COPYRIGHT ACT, 1957 AND TRADEMARK U/S 103 OF THE TRADEMARK ACT,1999 ARE NON-BAILABLE OFFENCES

by LFIAdmin | Mar 27, 2021 | Uncategorized

By Heena Thalesar, Advocate

heenathalesar2233@gmail.com | March 27, 2021

WHAT IS INFRINGEMENT?

Infringement refers to the unauthorized use of material that is protected under intellectual property laws. This usually refers to instances of copyright infringement, such as when artistic works, music or literary works are used without the creator’s permission. However, infringement can also lead to a legal dispute. Proving infringement usually requires that there is a subsisting copyright, trademark or patent. It also requires proof that the defendant uses the material, artistic work or invention without notifying the person who has ownership rights in the material.

BACKGROUND:-

The Bombay High Court in ABA NO.336 of 2021 has held that offences of infringement of copyright under the Copyright Act, 1957 and of falsely applying any trademark under the Trademarks Act, 1999 are non-bailable offence as the punishment attracted is up to three years. The legal question was raised as to whether these offences were bailable or non-bailable. The first point which the High Court considered was whether offences under Ssection 63 of The Copyright Act,1957 (i.e. infringement of copyright) and Section 103 of Trademark Act,1999 (i.e. infringement of trademark) which are not there in the Indian Penal Code,1860 but attract up to three years imprisonment. The Court held both the offenses to be “non-bailable”.

FACTS OF THE CASE:-

In Piyush Subhashbhai Ranipa vs. The State of Maharashtra (ABA NO.336 of 2021), the Applicant was seeking anticipatory bail in connection with C.R.No. 865 of 2020 registered with Mohol Police Station, Solapur, District Solapur, under sections 418, 465, 482, 483, 485, 486, 488 r/w. 34 of the Indian Penal Code (for short ‘IPC’) and under section 63 of the Copyright Act, 1957. Subsequently section 103 of the Trademarks Act, 1999 is also applied. The First Information Report (F.I.R.) was lodged by one Mr. Prakash Gore. He was a Zonal Manager of Jain Irrigation System. His company received complaints that substandard goods in the name of their company were sold in the market. The informant received secret information that one Eicher truck bearing No. GJ03/BV-9840 was carrying goods in the name of the complainant’s company which actually were not genuine goods. That vehicle had started from Gujarat and was going towards Karnataka. On 19/12/2020, at about 4:00p.m. the informant and his associates saw that vehicle. They made inquiries with the driver Jeevan about the goods. He informed that the goods were loaded from Tera-flow Company Ribda and he was going to Chadchan. He showed invoices. The invoice mentioned four different HDPE pipes worth Rs.94,485/-. The informant physically saw those goods. He saw that some goods were bearing mark ‘Jain HDPE’ bearing stamp of CML (Certificate of Manufacturing License) 7018761. That stamp was a forged stamp. The goods were being transported and sold using fake trademark and, therefore, he lodged this F.I.R. The investigation was carried out and the goods were seized. The first point for consideration was whether the offence under Section 63 of the Copyright Act, 1957 and also subsequently applied section 103 of the Trademarks Act, 1999 were bailable or non bailable. The Advocate for Applicant invited courts attention to the order passed by the learned Magistrate, wherein the co-accused were granted bail on the ground that, section 418 of I.P.C. was bailable and, therefore, bail was granted to the co-accused. Perusal of that order shows that the learned Magistrate has only referred to Section 418 of IPC and has not considered Section 63 of the Copyright Act and Section 103 of the Trademarks Act. Advocate for Applicant claimed parity with co-accused in this case. The allegations against the applicant are that he was manufacturing all these pipes and at his instance the pipes were being transported and sold. The investigation papers produced by Advocate for State before the court showed photographs of those pipes which bore the aforementioned name and registration number of the trademark of complainant’s company. Therefore, the first question which needed to be addressed and decided is to whether the offence punishable under Section 63 of the Copyright Act, 1957 and Section 103 of Trademarks Act, 1999 are bailable or non bailable.

JUDGEMENT:-

The High Court rejected the Anticipatory Bail in the present case after considering various judgments submitted by both the parties. It held that the question, whether the offence is bailable or not has to be seen in the light of definition of bailable offence provided under section 2(a) of the Cr.p.c. which reads thus:

“2. Definitions…… (a) “bailable offence” means an offence which is shown as bailable in the First Schedule, or which is made bailable by any other law for the time being in force; and “non bailable offence” means any other offence;” the next relevant sections would be sub section 2 of section 4 and section 5 of the CrPC. as they are referred to by the Division Bench of this court in the case of Mahesh Shivram Puthran (supra). Bare reading of Part II of the Schedule-I of CrPC. shows that, if the offences in the other laws are punishable with imprisonment for three years and upwards then the offences are cognizable and non bailable. Wherever it is possible to impose the punishment extending to three years, this category would apply, because in such offences it is possible to impose sentence of exact three years. In such cases offences would be non-bailable. First question raised before the court is answered that the offences under section 63 of the Copyright Act, 1957 and section 103 of Trademarks Act, 1999 are non bailable in nature and, therefore, since these sections are applied here, the application for anticipatory bail is maintainable. The Advocate for Applicant submitted that, sub section 4 of section 115 of the Trademarks Act, 1999 prohibits investigation by any other officer below the rank of Deputy Superintendent of Police. He also relied on the same provision and submitted that the police officer before making any search and seizure had to obtain opinion of the Registrar on the facts involved in the offence relating to Trademark and shall abide by the opinion so obtained. Justice Sarang Kotwal held that in the present case that whether there is infringement of Copyright Act attracting punishment under section 63 of the Act; is a matter of investigation, but certainly there appears to be infringement of the trademark registered in the name of the informant’s company. Therefore, commission of offence punishable under section 103 of the Trademarks Act is clearly made out. The accused have falsely applied the informant’s trademark to their own products and have attempted to sell those products. Thus, the act of the accused also amounts to offence under section 420 r/w. 511 of the IPC. By their act, the public was induced, or an attempt was made to induce the public to buy these products under the impression that they were manufactured by the informant’s company.

CONCLUSION:-

The punishment for the offence made under the Section 63 of the Copyright Act Act and Trademark Act, 1999 is imprisonment which cannot be less than 6 months, but which may extend to 3 years. The Code of Criminal Procedure, 1973 lays down that if the offence is punishable “by imprisonment for three years and upwards but not more than seven years”, the procedural law provides that the offence will be cognizable and non-bailable whereas if any offence is punishable with imprisonment of less than 6 months then it is a non-cognizable offence. Therefore, in such circumstances the offence committed under Section 63 of the Copyright Act, 1957 and Section 103 of the Trademarks Act, 1999 has to be held cognizable and non-bailable.

Restriction on Sale of Immovable Property by Non-Citizens

by LFIAdmin | Mar 20, 2021 | Uncategorized

By Isha Thakur, Law Student, SNDT Law School

Ishav1998@gmail.com | March 20, 2020

Austere regulations and surveillance of capital asset transactions for maintaining foreign exchange reserves is not an uncommon practice. In fact, countries around the globe have legislated rigid and stringent processes with a view to avoid drainage of such reserves and minimize foreign participation. The Supreme Court of India, while dealing with Section 31 of the Foreign Exchange Regulation Act, 1973 in the case of Asha John Divianathan v. Vikram Malhotra (2010), reiterated such legislative intent to reduce the drainage of foreign exchange by way of repatriation of income specifically through disposal of immovable properties held by foreigners – non-citizens.

Section 31 of the 1973 Act

Imposes a restriction on the transfer of immovable properties (in India) by way of sale, mortgage, lease, gift, settlement or otherwise to be executed by an individual of foreign nationality. The said provision, being in consonance with the objective of the Act, was specifically enacted to conserve the foreign exchange resources of the country at a time when the country was facing a shortage and with a view of achieving proper utilization thereof, the Reserve Bank of India was delegated the authority under the Act in the interest of economic development of the country.

Section 31 of the Act lays down that a non-citizen of India and a company not being incorporated under the Indian laws cannot hold, transfer, acquire or dispose of any immovable property situated in India except with the prior permission of the RBI. The said section provides an exception to the given rule if the property in question is transferred by way of lease for a period not exceeding 5 (five) years. Moreover, any person requiring the said permission shall have to make an application to the said authority and the RBI, on receipt of the application shall have the discretion to either grant or refuse the permission applied for, however, it shall give the applicant a reasonable opportunity for representation before refusing the application. The said Section, additionally, imposes a time limit of 90 (ninety) days on RBI to express its decision to the applicant and on failure to convey its decision within the said period, the application shall be deemed to be approved.

The Supreme Court priori declared that transfer or disposal of immovable properties situated in India by a non-citizen without the prior sanction or special permission of RBI is forbidden, unenforceable and void. Dismissing the inconsistent opinions of various High Courts, the Bench consisting of Justice A.M. Khanwilkar, Justice Indu Malhotra and Justice Ajay Rastogi accentuated the mandatory nature of the said provision rather than it being directory.

The issue in dispute arose in absence of an express provision specifying the reverberations for violating the said section due to which the implications of the said provision have been construed to mean only a regulatory measure and not one of prohibiting transfer. The deficiency being acknowledged by the Supreme Court, it highlighted the intent of the legislation for imposing the requirement under Section 31 of the Act which the contrary decisions of High Courts completely missed. The Hon’ble Court expressly stated that unless the required permission is not granted by the authority, the transfer cannot be effectuated and would attract a penalty under Section 50 of the Act.

The Supreme Court opined as aforesaid in view of Section 31 to be conjointly read with Sections 47, 50 and 63. Section 47 of the Act prohibits a person from entering a contract or agreement which would violate any of the provisions of the Act unless an approval is obtained from the RBI or the Central Government. Considering the said Section applies to every agreement constituted under the Act, Section 31 duly comes within the ambit of the same. Secondly, though no particular penalty is provided for contravening Section 31, Section 50 of the Act lays down a penal provision for imposing a liability against every individual who acts in contravention of any provision of the Act. Lastly, Section 63 empowers a Court trying a contravention under Section 56 and Section 51 of the 1973 Act, to confiscate any currency, security or any other money or property in respect of which the infringement has taken place. The expression “property” under Section 63 has been interpreted to include immovable property referred to in Section 31 of the 1973 Act.

In the light of the aforesaid decision of the Hon’ble Court, the practice and policy of mandatory sanction of Reserve Bank of India with regard to immovable properties situated in India to be obligatorily obtained by foreigners is substantiated and backed by penal provisions overseeing the breach of the same. While concluding, the Court remarked that the RBI has absolute authority under the act with respect to the permission granted by it. The Reserve Bank of India is empowered to grant as well as refuse the required permission, however, at the same time there is no possibility of providing an ex post facto approval.