Monthly Legal Bulletin - March 2020
A) LABOUR LAWS
i) Retired Employees can form Unions under Trade Union Act 1926: Madras High Court
India is a democratic country, where there is no restriction for the citizens to express their grievances to Government through Ahimsa and as such, preventing one sect of persons, namely, retired employees to form a Trade Union to espouse their cause to the Government cannot be permitted at any cost, by giving a different interpretation to the provisions of law. The word used under the Act, 1926 is “persons engaged or employed in an industry with which the Trade Union is connected” and it might be including all persons irrespective of whether they are in service or retired.
Even if seven employees were not on the roll, they are entitled to form an Association that has got to be registered under the Act, 1926 and the same cannot be refused to be registered on this score.
Though the existing Union with permanent employees can espouse the cause of retired employees or others, who were not in employment, on the ground of community of interest, consequent to the absence of such interest in the present days, there is nothing wrong in permitting the retired employees to have their Association under the Act, 1926, as Unions, having permanent employees on the Roll, are withering away and shirking from their moral responsibilities to espouse the cause of employees, who ceased to be on the roll. The Association with retired employees cannot, in any event, raise a dispute about the service conditions of employees on the rolls. [Karur Vysya Bank Retirees’ Association vs. Deputy Commissioner of Labour (Civil Miscellaneous Appeal No.2758 of 2019) Judgment dated 10.12.2019]
ii) Contractual employees, are entitled to the benefit of provident fund: Supreme Court
The Apex Court has held that contractual employees, who draw wages/salary directly or indirectly, are entitled to the benefit of provident fund under Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Section 2(f) of the Act the definition of an 'employee' is an inclusive definition, and is widely worded to include "any person" engaged either directly or indirectly in connection with the work of an establishment, and is paid wages. Members of the labour union of the Appellant Company and all other similarly situated contractual employees, are entitled to the benefit of provident fund under Act. [ M/S. Pawan Hans Limited and Ors. v. Aviation Karmachari Sanghatana and Ors (Civil Appeal No. 353 of 2020) Judgment dated 17.01.2020.]
iii) ESIC Test inspections records shall not exceed 5 year period:
As per the second proviso to Section 45-A(1) the time limit of 5 years is strictly to be adhered to in determining the contributions and issue of speaking orders of the authorized officer. The said officer shall not ask for any records beyond the period of 5 years from the employer. As the contribution cannot be determined for the period beyond 5 years the SSO shall not ask for any records beyond 5 years from the employer. [Employees State Insurance Corporation, Circular dt. 28-01-2020.]
B) COMPANY LAW
i) If the delay is not due to the ‘Corporate Debtor’ but force majeure, it cannot be alleged that the ‘Corporate Debtor’ defaulted in delivering the possession.
The Respondents, in the present case, had booked an apartment in a residential project. The Corporate debtor had issued a joint allotment letter and executed a Flat Buyer’s Agreement. The possession of the flat was to be provided within 36 months by 3rd August, 2015, but could not be delivered because the construction was not completed. As per the Agreement, in the event of construction not being complete, the Corporate Debtor is under obligation to pay the allottee(s) compensation @ Rs.7/- per sq. ft. of the super area per month for the entire period of such delay, to be adjusted at the time of conveying the apartment and it would be treated as a distinct charge. The ‘Corporate Debtor’ stated that the processing of its application for obtaining an Occupation Certificate was under the control of the concerned Government/ Competent Authority and any delay on account of the actions inactions and omissions on the part of the Government/ or Authority was beyond the reasonable control of the ‘Corporate Debtor’/ Promoter. In the circumstances, in terms of the Flat Buyer’s Agreement a ‘force majeure’ condition would be applicable.
The questions that arose for consideration were whether the corporate debtor could be held to have committed default where the possession was delayed due to reasons beyond the control of Corporate Debtor.
The Court observed that the Adjudicating Authority before admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by allottee(s) will take into consideration the decision of the Hon’ble Supreme Court in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.
If the delay is not due to the ‘Corporate Debtor’ but force majeure, as noticed above, it cannot be alleged that the ‘Corporate Debtor’ defaulted in delivering the possession. [Navin Raheja vs. Shilpa Jain and Ors. - Company Appeal (AT) (Insolvency) No. 864 of 2019 MANU/NL/0024/2020 Judgment dated 22.01.2020.]
ii) Companies (Winding-Up) Rules, 2020
The notification has been divided into 6 Parts, which comprises of the procedure of winding up in detail. These rules shall apply to winding up under of Companies Act 2013. These rules will come into force from 01-04-2020. [Ministry of Corporate Affairs notifies —through Notification No. G.S.R. 46(E). dt. 24-01-2020.]
Foreign Exchange Management (Debt Instruments) Regulations, 2019
In exercise of the powers conferred by clause (a) of sub-section (2) of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017, the Reserve Bank has made regulations to regulate investment in India by a Person Resident Outside India. [G.S.R . 796(E), Notification No. FEMA 396/2019-RB- Mumbai, October 17, 2019.]
D) INTERNATIONAL NEWS
i) SEBI signs Memorandum of Understanding on bilateral co-operation with the Astana Financial Services Authority, Kazakhstan:
The Securities and Exchange Board of India (SEBI) and the Astana Financial Services Authority (AFSA) have entered into a bilateral Memorandum of Understanding (MoU) for mutual co-operation and technical assistance. The MoU was signed by Mr. Ajay Tyagi, Chairman, SEBI and Mr. Mukhtar Bubeyev, the Acting Chief Executive Officer, AFSA. The objective of the bilateral MoU is to strengthen cross border co-operation in the area of securities regulation. This will facilitate mutual assistance, contribute towards efficient performance of the supervisory functions, and enable effective enforcement of laws and regulations governing the securities markets. SEBI has signed bilateral MoUs with securities regulators of a number of jurisdictions. SEBI is also a signatory to the Multilateral MoU of International Organization of Securities Commissions (IOSCO). [PR No.: 30/2019, Mumbai , December 23, 2019]
ii) Asian Development Bank , India sign $250 million loan to expand energy efficiency investments in India
The Asian Development Bank (ADB) and the Government of India on 16th December 2019 signed a $250 million loan to Energy Efficiency Services Limited (EESL) to expand energy efficiency investments in India that will benefit agricultural, residential and institutional consumers. In addition, $46 million financing will be provided from the Clean Technology Fund (CTF), to be administered by ADB.
ADB previously approved a $200 million loan to EESL, a public sector energy service company, in 2016 for Demand Side Energy Efficiency Sector Project that focused on efficient lighting and appliances.
The signatories to the loan agreement were Shri Sameer Kumar Khare, Additional Secretary (Fund Bank and ADB), Department of Economic Affairs in India’s Ministry of Finance, and Mr Kenichi Yokoyama, Country Director of ADB’s India Resident Mission, signed the agreement for EESL.
Shri Khare said after the loan signing that the project is expected to contribute to the mission of Government of India to promote energy efficiency and meet Government’s commitments to reduce energy intensity of the economy. Further elaborating on the issue, he said, introduction of energy-efficient technologies in eligible states including smart meters, distributed solar photovoltaic systems and electric vehicles will help reduce electricity network losses and reduce greenhouse gas emissions.
Talking about the deal, Mr Yokoyama said that this is one of the few ADB projects specially focused on demand-side energy efficiency targeting upstream efficiency opportunities and business models that can be scaled up in India and other ADB developing member countries. The project’s smart metering component will help address billing and collection inefficiencies.
EESL will also explore business models to generate greater public demand for e-vehicles to support India’s current push for electric vehicles.
Promoting awareness of the benefits of using energy efficient technologies is another feature of the project. Awareness campaigns will engage local organisations in knowledge-sharing and training, with a focus on women electricity consumers. Capacity building for electricity distribution, regulatory agencies, and other government bodies will also be carried out.
Accompanying the loan will be a technical assistance (TA) of $2 million to support EESL in implementing the project, including a gender action plan, mobilising private sector participation in energy efficiency services, identifying new business opportunities, and transferring knowledge about successful models.
The TA will also support the identification and development of new subprojects and pilot test some technologies. The grant comes from the Clean Technology Fund, to be administered by ADB.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.
In 2018, it made commitments of new loans and grants amounting to $21.6 billion.
Established in 1966, it is owned by 68 members — 49 from the region. [Press Information Bureau, Government of India, Ministry of Finance, December 17,2019.]
iii) India recognises UAE as a reciprocating territory for the purposes of enforcing foreign civil decrees
In exercise of the powers conferred by Explanation 1 to section 44A of the
Code of Civil Procedure, 1908 (5 of 1908), the Central Government hereby declares, United Arab Emirates to be a reciprocating territory for the purposes of the said section and the following Courts in United Arab Emirates to be superior Courts of that territory, namely:-
(1) Federal Court-
(a) Federal Supreme Court;
(b) Federal, First Instance and Appeals Courts in the Emirates of Abu Dhabi, Sharjah, Ajman, Umm Al Quwain and Fujairah;
(2) Local Courts-
(a) Abu Dhabi Judicial Department;
(b) Dubai Courts;
(c) Ras Al Khaimah Judicial Department;
(d) Courts of Abu Dhabi Global Markets;
(e) Courts of Dubai International Financial Center.
[G.S.R. 38(E) Ministry Of Law and Justice (Department of Legal Affairs)
Notification dated 17th January, 2020.]
E) TAXATION LAW
i) Tax Tribunal upholds the characterisation of share capital infusion as ‘not clean money
The Income Tax Appellate Tribunal (Tribunal), has held that the tax officer’s characterisation of primary share capital infusion as ‘not clean money’ was accurate as the taxpayer company had not clarified the doubts as to the genuineness of the identity and creditworthiness of the share applicants or genuineness of the transaction. In doing so, the Tribunal also laid down a 15-point questionnaire which should be checked by the tax authorities to assess whether identity and creditworthiness of the share applicants and the genuineness of the transaction are established or not. [ITO v APJ Construction Private Limited (ITA No. 722/Del/2015) dated 31 December 2019.]
ii) NRI Tax : Clarification regarding proposal in Finance Bill, 2020
The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.
The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. In some section of the media the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.
In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law. [Ministry Finance , Press Release dt. 02-02-2020.]
F) CUSTOMS AND EXCISE
i) Court strikes down levy and collection of tax on Ocean Freight for transport of goods in a vessel from a place outside India up to the customs station by a person located in non-taxable territory
A Division Bench comprising of J.B. Pardiwala and A.C. Rao, JJ., declared the tax on Ocean Freight levied for transportation of goods in a vessel by a foreign seller, as ultra vires the Integrated Goods and Services Tax Act, 2017 (IGST).
The writ-applicant moved to the court contending that there is levying of IGST on Ocean Freight for services supplied by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, by a person located in the non-taxable territory of India. Both the service provider and the recipient were supposed to pay this tax according to a notification issued under this Act. The writ-applicant contended that since on CIF (sum of Cost, Insurance and Freight) basis, both the service provider and the recipients were outside India, such levy of tax goes beyond the mandate of Section 1 of the IGST Act, 2017, which extends to the whole of India but not outside of it. Whereas, in the case of transportation on the basis of Free on Board (FOB), the ocean freight is paid by the writ-applicant to the foreign shipping line which is situated on a port outside India. Thus, it is outside the purview of the tax. The writ-applicant further contended that since they had already paid the “Integrated Tax” on the imported goods under IGST Act, 2017, levying the Ocean Freight under the same Act amounts to double taxation.
The respondents, represented by Nirzar S. Desai, Parth H. Bhatt, Ankit Shah and Dhaval D. Vyas, justified the notifications contending that the notification is not arbitrary and is aimed at providing level playing field to the Indian Shipping Lines and that it does not result in an additional cost to the importer in India.
The Court rejected the arguments of the respondents and held that there is no extraterritorial jurisdiction of the said Act on the non-taxable persons and hence the notification was considered ultra vires to the Act. Strong reliance was placed on the case of the Indian Association of Tour Operators v. Union of India, 2017 SCC Online Del 10178, where the taxable territory of the Finance Act, 1994 did not apply to the State of Jammu and Kashmir.
The Court, hence struck down the impugned notification and held that levy and collection of tax on such Ocean Freight under the impugned notification is not permissible under the law. Therefore, the Court put a stay on the operation of the impugned notification. [Mohit Minerals Pvt. Ltd. v. Union of India, 2020 SCC OnLine Guj 49, decided on 23-01-2020]
ii) Electronic sources of evidence cannot be used as proof unless they satisfy conditions of S. 138-C of Customs Act for proving undervaluation of goods
A two-member Bench of Justice Anil Choudhary, Member (Judicial) and Justice Bijay Kumar, Member (Technical) allowed the appeals of the appellate companies Indo Silicon Electronics Pvt Ltd and Vortex Industries Pvt Ltd with H S Chadha (managing director) alleged under undervaluation of tyres for both the companies.
In the instant case, the goods (tyres and tubes) of the appellant were seized under Section 110 of the Customs Act, 1962 in lack of RSP Stickers and failure of the appellant to produce the legal documents for their possession. It was also found from the mail exchanges of the appellant that there were different sets of prices for the same goods as shown in the two sets of commercial invoices which could be further negotiated with the suppliers. And thus accordingly the Adjudicating Authority charged the appellant for undervaluation of the goods.
The counsel for the appellant, Aakarsh Srivastava submitted that the prices reflected in the emails were only quotations and not final prices and thus cannot be relied upon. Further, the department did not investigate the correctness of the prices and relied on emails that were not admissible evidence under Section 138C of the Act. Moreover, the department failed to bring any evidence of contemporaneous imports or NIDB (National Import Database) to show undervaluation nor there has been any proof that the commercial invoices accompanying the bills of entry do not reflect the actual transaction value. He further contended that the impugned order did not mention the rule of the Customs Valuation Rules, 2007 applied to arrive at the predetermined value. So the whole case is on assumptions and undervaluation could not be proved to make the appellant not liable to pay any penalty.
However, the counsel for the respondent, Rakesh Kumar contended that Rule 3 of the Customs Valuation Rules, 2007 has been used for the rejection of the declared value. He further contended that the appellant had accepted the prices on the emails as the true prices for the assessment of imports of Infinity brand tyres without any objection. Moreover, when the appellant himself admitted the undervaluation and the existence of the parallel quotations, it need not be proved by the department, therefore, making him liable.
The Tribunal, therefore, held that the allegations of confiscation of goods demand of penalty, and denial of SAD (Special Additional Duty) exemption cannot stand on the appellate company. Further, the department miserably failed to prove undervaluation on the basis of transaction value so it could not be established against the company. Therefore, the appeals were allowed with consequential benefits for the company and any amount appropriated by the impugned orders of the department stood revoked. [H S Chadha v. Commr.of Customs (Preventive), Customs Appeal No. 51768 of 2016, decided on 09-01-2020]
iii) Standard Operating Procedure to be followed by exporters :
It has been found that the Input Tax Credit (ITC) was taken by the exporters on the basis of fake invoices and IGST on exports was paid using such ITC.
To mitigate the risk, the Board has taken measures to apply stringent risk parameters-based checks driven by rigorous data analytics and Artificial Intelligence tools based on which certain exporters are taken up for further verification. Overall, in a broader time frame the percentage of such exporters selected for verification is a small fraction of the total number of exporters claiming refunds. The refund scrolls in such cases are kept in abeyance till the verification report in respect of such cases is received from the field formations. Further, the export consignments/shipments of concerned exporters are subjected to 100 % examination at the customs port. [Ministry of Finance Department/Board; GST Circular Circular No. : 131/1/2020-GST Date : 23.01.2020]
i) Formation of Conciliation and Dispute Resolution Cell in K-RERA:
Whereas, the chairperson, Karnataka Real Estate Regulatory Authority is vested with the powers of general superintendence and directions in the conduct of affairs of the Authority under section 25 of the Real Estate [Regulation and Development] Act,2016.
Whereas, as per section 32(g) of the Real Estate [Regulation and Development] Act, 2016 Karnataka Real Estate Regulatory Authority must take measures to facilitate amicable conciliation of disputes between promoters and allottees.
It has been observed in some complaints concerned parties are desirous of undertaking Conciliation process so as to ensure participative decision making, preservation of ongoing relationships and mutually win-win solutions.
Whereas, section 38(2) of Act provides for regulating its own procedures:
Therefore, Karnataka Real Estate Regulatory Authority finds it necessary to form a conciliation and Dispute Resolution Cell to facilitate alternate dispute resolution.
Hereinafter, called ‘The CDR Cell’ is as follows:
The objectives of the CDR Cell is as follows:
a) To constitute CDR Cell of a panel includingrepresentatives Home-buyer Association and developers/ promoters Association.
b) To popularize conciliation as an effective dispute redressal mechanism for the speedy settlement of complaints.
[RERA/ADM/C.R.51/2019-20 Dated 27.11.2019]
i) Assessment under S. 125 CrPC relates back to the date of application; family court’s decisions granting maintenance from the date of order set aside.
Manoj Kumar Ohri, J., allowed a criminal revision petition filed by the complainant-wife challenging the order of the family court whereby the maintenance of Rs 20,000 under Section 125 CrPC was awarded to her only from the date of the order.
The wife represented by Amitabh Kumar Verma, Advocate, contended that the family court ought to have granted the maintenance from the date of the application filed under Section 125. Per contra, Charu Bharadwaj, Advocate appearing for the respondent-husband supported the order passed by the family court.
After considering the facts of the case, the High Court reiterated: “the maintenance to a wife is not a bounty but is the award so that she can survive, it is normally to be awarded from the date of the application. In the present case, the family court, while passing the final order, has not given any reasons as to why the maintenance was awarded only from the date of the passing of the order and not from the date of filing of the petition.” It was noted that Section 354(6) CrPC requires that every final order under Section 125, should contain the points for determination, the decision thereon and the reasons for the decision. One of the points to be determined while awarding maintenance is the time from which such maintenance is to be granted. Since the final order passed by the family court did not mention any reason or justification for the award of the maintenance from the date of the order, it was set aside only to the aforesaid limited extent.
Furthermore, placing reliance on Jaiminiben Hirenbhai Vyas v. Hirenbhai Rameshchandra Vyas, (2015) 2 SCC 385; Bhuwan Mohan Singh v. Meena, (2015) 6 SCC 353; Nisha Saifi v. Mohd. Shahid, 2019 SCC OnLine Del 7902; and Bimla Devi v. Shamsher Singh, 2015 SCC OnLine Del 11553, the High Court observed: “Once the court comes to a conclusion that the wife is entitled to an award of maintenance, the assessment relates back to the date of the application and as such there have to be compelling reasons for the family court to restrict the award of maintenance from the date of the order and not from the date of the application.”
In such view of the matter, the final order passed by the family court was modified to the extent that the husband will pay the maintenance to the wife amounting to Rs 20,000/- from the date of the filing of the application. The husband was further directed to clear the entire amount of arrears within a period of six months. [Asha Karki v. Rajesh Karki, 2020 SCC OnLine Del 444, decided on 29-01-2020]
ii) Larger period of limitation for filing appeals prescribed in Hindu Marriage Act would prevail over the period prescribed under Family Courts Act
A Division Bench of Mohammad Rafiq and Narendra Singh Dhaddha, JJ. quashed the appeal which pointed out that the appeal against the judgment of the Family Court was invalid as the period of limitation for filing an appeal against the judgment of the Family Court vis-à-vis the Family Courts Act, 1984 had expired.
The counsel for the appellant, Ganesh Khanna on behalf of Shiven Gupta, taking note of Section 19(3) of the Family Courts Act which prescribes a period of 30 days for filing an appeal, pointed out the delay of 57 days in filing of the appeal. However, the Court also considered provisions of Section 28(4) of the Hindu Marriage Act, 1955 which postulates a period of 90 days for filing an appeal against any decree or order passed under the provisions of the Hindu Marriage Act.
The Court relied on Bombay High Court’s view in Shivram Dodanna Shetty v. Shamila Shivram Shetty, 2016 SCC OnLine Bom 9844 which held the limitation period prescribed in the Hindu Marriage Act to be the prevailing one since it had seen the latest amendment with respect to the period of limitations.
In view of the above, the Court ordered the Judicial Registrar of the Court to issue the necessary direction to the Office which was to consider 90 days as the period of limitation with respect to appeals filed against the judgments and decrees passed by the Family Court. [ Kuldeep Yadav v. Anita Yadav, 2019 SCC OnLine Raj 4016, decided on 06-11-2019]