CS Professional – Page 17

Adjudication, Prosecutions, Offences and Penalties – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

December 28, 2022

Adjudication, Prosecutions, Offences and Penalties – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Question 1.
The current regulatory scenario demands the Company Secretary to be more vigilant and diligent specifically about the applicability of multiple laws and timely compliances. Briefly comment on the statement.
Answer:
The Company Secretary has a vital role to play in the event of invocation of any action under the Act. The current regulatory scenario demands the Company Secretary to be more vigilant and diligent, specifically about the applicability of multiple laws and timely compliances thereunder. Since he is a Key Managerial Person, he is jointly liable for any non-compliances under the applicable legislation.

The role of Company Secretary is:

To ensure timely compliances of the provisions of the Companies Act to avoid any action for default or failure.
To represent the Company before the ROC, RD or NCLT, in the event of any action for default or failure.
To develop a robust internal compliance system which generates the details of compliances undertaken and any compliance lapses in a timely manner.
To initiate the compounding procedure in the event of any non-compliance(s) coming to light and to avoid recurrence of such non-compliances in future.
To ensure timely and appropriate disclosure pertaining to penalties or compounding offences or action by any authorities.

Further, since the Practicing Company Secretaries are also covered under section 447 of the Companies Act, 2013, they should ensure that they are not certifying any returns or issuing any report which contains any false certification or information or omits any material information or facts, as such a failure to ensure proper verification of compliances may lead to the Practicing Company Secretary being liable to penalties under the above-referred provisions as well as disciplinary proceedings under the guidelines issued by ICSI.

Question 2.
X, a director of PQR Private Limited, is authorised by Board of directors to prepare and file returns, reports or other documents with the Registrar of Companies (ROC) on behalf of the Company. He files all the required documents with ROC, despite being aware of material discrepancies in them. Subsequently, it was found that the documents filed with ROC contained materially false details. Explain the penal provisions under the Companies Act, 2013 for this offence.
Answer:
Section 448 of the Companies Act, 2013 provides that, if any person makes a statement which is false in any material particulars, knowing it to be false or omits any material facts, knowing it to be material, such person shall be liable under section 447 of the Companies Act, 2013.

Further, as per Section 447, any person who is found to be guilty under this section shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud. Provided that, where the fraud involves public interest, the term of imprisonment shall not be less than 3 years. Hence, X, director of PQR Private Limited § shall be punishable with imprisonment and fine as mentioned above.

Question 3.
Super Source Limited has filed Form AOC-4 with Registrar of Companies after 85 days of its Annual General Meeting along with additional fee. State whether the Company can be penalized again under section 403 of the Companies Act, 2013.
Answer:
Yes, the additional fee does not absolve the Company from the liability of penalty or any other action under the Act for such default or failure. One of the significant changes brought in by the Companies (Amendment) Act, 2017 is the amendment in section 403 of the Companies Act, 2013. Pursuant to the said amendment, the non-offence period of 270 days has been omitted from the Companies Act, 2013 and the filing of forms, returns or documents within the time prescribed under the relevant provision has been made mandatory.

Accordingly, the non-filing of forms, returns or documents within the time prescribed under relevant provision (e.g., Form AQC-4 within 30 days of date of AGM) is now considered as a default or failure and the payment of additional fees does not absolve the company from the liability of penalty or any other action under the Act for such default or failure.

Question 4.
G is the General Manager (HR) of XYZ Limited. He wrongfully withholds the flat of the Company and also lets it out on rent to someone. XYZ Limited has filed a complaint against G. What are the penalties for such a conduct under the Companies Act, 2013?
Answer:
The Company is entitled to take following actions against “G” in accordance with section 452 of the Companies Act, 2013. It provides that:
1. If any officer or employee of a company-
a. Wrongfully obtains possession of any property, including cash of the company or

b. having any such property including cash in his possession, wrongfully withholds it or knowingly applies it for the purposes other than those expressed or directed in the articles and authorised by this Act, he shall, on the complaint of the company or of any member or creditor or contributory thereof be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

2. The Court trying an offence under subsection (1) of Section 452 of the Companies Act, 2013 may also order such officer or employee to deliver up or refund, within a time to be fixed by it, any such proper¬ty or cash wrongfully obtained or wrongfully withheld or knowingly misapplied, the benefits that have been derived from such property or cash or in default, to undergo imprisonment for a term which may extend to two years.

Question 5.
Can Registrar of Companies order adjudication proceedings under Section 454 of Companies Act, 2013? In what cases can the Central Government appoint him as the Adjudicating Officer?
Answer:
The Registrar of Companies may note the non-compliance of the provisions of Companies Act as arrived at under section 206(4) of the Companies Act, 2013 either:

by himself on a scrutiny of documents filed with him and on his satisfaction or
based on any report on inspection or investigation, if any, under the relevant provisions of the Companies Act, 2013, or
on the qualifications of the statutory auditors in the Annual Report or by the secretarial auditors in their Secretarial Audit Report whereby he can ascertain and identify the nature of non-compliance or default.

In all these cases, he himself cannot initiate any adjudicating proceedings if he is the adjudicating officer even as he may be clothed with a power of adjudication. Therefore, if adjudicating powers are under his jurisdiction, any other officer who is independent of his office has to identify the exis¬tence of violation as otherwise the adjudicating officer, being the head of his office may be biased.

This is a grey area to be addressed by the Central Government as otherwise, the adjudicating officer will be sitting on a judgement of the findings of his own office. It is pertinent to note that it would, therefore, be only logical, prudent and wise for the concerned Regional Director not to appoint as the adjudicating officer pursuant section 454(2) of the Companies Act, 2013, the same jurisdictional Registrar of Companies whose office has identified the violation.

Question 6.
During the previous year, Alfa Limited could not conduct its Annual General Meeting (AGM) within the timelines as per the Companies Act, 2013 due to some internal and operational issues. In the current year also, the Company could not conduct its AGM within stipulated time, thereby committing the same default in the current year as well. What would be the penal provisions for such default?
Answer:
As per the provisions of Section 99 of the Act, if the Company has defaulted in holding a meeting in accordance with Section 96 or Section 97, then the Company and every officer would be liable to fine upto ₹ 1 Lakh and further fine upto ₹ 5000 for each day of continuing default.

As per Section 451 of the Companies Act, 2013, if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Hence, Alfa Limited would be liable to twice the fine as mentioned above, as it has committed the same default within a period of 3 years.

Question 7.
Infomatika Limited, a Public Limited Company was incorporated under the Companies Act, 1956 in the year 2010. During the financial year ended March 31, 2019, the Company made a contribution of ₹ 50 Lakhs to a local political party, which amounts to 9% of its average net profits during three immediately preceding financial years. Is the Company compliant with the provisions of the Companies Act, 2013, if not, what would be the penal provisions for such an act?
Answer:
As per Section 182 of the Companies Act, 2013, a company, other than a Government company and a company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party.

Further, such contribution shall be approved by a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors.

Every company shall disclose in its profit and loss account the total amount contributed by it as contribution to political parties during the financial year to which the account relates. Such contribution shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

However, a company may make contribution through any instrument, issued pursuant to any scheme notified under any law for the time being in force, for contribution to the political parties. Section 182(4) states that company shall be punishable with fine which may extend to five times the amount so contributed and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed.

lnfomatika Limited has made a political contribution of ₹ 50 Lakhs to a local political party. To become a compliant company, lnfomatika Limited shall be in compliance with the provisions of section 182 of the Companies Act, 2013.

Question 8.
In the Annual General Meeting (AGM) of Jollydays Limited, the matter of reappointment of Mr. Jolly, the Executive Director (ED) came up for voting. During such discussion, allegations of fraud and financial irregularities were levelled against him by some members, which resulted in chaos in the meeting.

The situation was normal only after the Chairman promised to initiate an inquiry against Mr. Jolly. The resolution at AGM to reappoint Mr. Jolly as ED was not passed. The matter was published in the newspapers next day. Under the Companies Act, 2013, can a Court take cognizance of the matter and Suo moto initiate action against Mr. Jolly based on the media reports?
Answer:
Section 439 of the Companies Act, 2013 provides that:
Notwithstanding anything in the Code of Criminal Procedure, 1973, every offence under this Act except the offences referred to in sub-section (6) of section 212 shall be deemed to be non-cognizable within the meaning of the said Code.

No court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, a shareholder or a member of the company, or of a person authorised by the Central Government in that behalf.

Further, the court may take cognizance of offences relating to issue and transfer of securities and non-payment of dividends, on a complaint in writing, by a person authorised by the Securities and Exchange Board of India.

Thus, in the given situation, a Court shall not initiate any Suo moto action against Mr. Jolly without receiving any complaint in writing of the Registrar of Companies, a shareholder of the company or a members or of a person authorized by the Central Government in this behalf.

Question 9.
What do you understand by Compounding of offences under Companies Act, 2013?
Answer:
The Companies Act, 2013 does not define or for that matter, the erstwhile Companies Act, 1956, did not define the word compounding or the terms “compounding or composition of offences”. The dictionary meaning of the word compounding means “on prosecution. a prosecutor of an offence accepting anything of value, say a monetary fine, under an agreement not to prosecute the victim orto hamper the prosecution of an offence. To compound would simply mean “to come to a settlement or agreement. As per the Black’s Law Dictionary, to compound means “to settle a matter by a payment of money in lieu of any other liability.”

This definition represents the concept of compounding as a Settlement Mechanism, a settlement by paying the fine to the concerned compounding authority in lieu of facing the prosecution for the offence committed. However, on analysis of section 621 A of the erstwhile Companies Act, 1956.

or section 441 of the Companies Act, 2013, we can infer that compounding is nothing but admission of guilt by the person accused of violation of law. In the process of compounding, the person may either suomoto or on receipt of notice of default/initiation of prosecution, admits the commission of default and makes an application for compounding of the alleged offence.

The defaulters agree to pay the fine which may be ordered by the Central GovermnenL Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of payment of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence.

Question 10.
Explain in brief Consitution of Special Courts under Prevention of Money Laundering Act, What offences are triable by special courts?
Answer:
Provisions regarding Special Courts are contained under Section 43 of the Prevention of Money-laundering Act, 2002.
The Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts or such area or areas or for such case or class or group of cases as may be specified in the notification.

Explanation. In this sub-section, “High Court” means the High Court of the State in which a Sessions Court designated as Special Court was functioning immediately before such designation.

1.While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974), be charged at the same trial.

Offences triable by Special Courts (Section 44):
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),-
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence be¬fore the commencement of this Act, shall continue to try such scheduled offence; or;

(b) a Special Court may, upon a complaint made by an authority authorized in this behalf under this Act take cognizance of offence under section 3, without the accused being committed to it for trial;

(c) if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money-laundering under subclause (b), it shall, on an application by the authority authorized to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed;

(d) a Special Court while trying the scheduled offence or the offence of money laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) as it applies to a trial before a Court of Session.

2. Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of 1974) and the High Court may exercise such powers including the power under clause (b) of sub-section. (1) of that section as if the reference to “Magistrate” in that section includes also a reference to a “Special Court” designated under section 43.

Question 11.
Write a short note on Directorate of Enforcement.
Answer:
Provisions regarding Directorate of Enforcement are given under Section 36( 1) of The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
1. The Central Government shall establish a Directorate of Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the purposes of this Act.

2. Without prejudice to the provisions of sub-section (1), the Central Government may authorize the Director of Enforcement or an Additional Director of Enforcement or a Special Director of Enforcement or a Deputy Director of Enforcement to appoint officers of Enforcement below the rank of an Assistant Director of Enforcement.

3. Subject to such conditions and limitations as the Central Government may impose, an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act.

Question 12.
What are provisions regarding revocation of detention border under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
Revocation of detention orders is prescribed under Section 11 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
1. Without prejudice to the provisions of section 21 of the General Clauses Act, 1897, a detention order may, at any time, be revoked or modified-
(a) notwithstanding .that the order has been made by an officer of a State Government, by that State Government or by the Central Government;
(b) notwithstanding that the order has been made by an officer of the Central Government or by a State Government, by the Central Government.

2. The revocation of a detention order shall not bar the making of another detention order under section 3 against the same person.

Question 13.
Explain in brief offences which are triable by Special Courts under Prevention of Money Laundering Act, 2002.
Answer:
Offences triable by Special Courts is provided in Section 44 of the Prevention of Money-laundering Act, 2002.
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973-
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence be-fore the commencement of this Act, shall continue to try such scheduled offence; or;

2. Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 and the High Court may exercise such powers including the power under clause (b) of sub-section (1) of that section as if the reference to “Magistrate” in that section includes also a reference to a “Special Court” designated under section 43.

Question 14.
Explain in brief the procedure and powers of Appellate Tribunal under Prevention of Money Laundering Act, 2002.
Answer:
Procedure and powers of Appellate Tribunal are covered under Section 35 of the Offence and penalties under Prevention of Money-laundering Act, 2002.
1. The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Appellate Tribunal shall have powers to regulate its own procedure.

2. The Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in respect of the following matters, namely:-

summoning and enforcing the attendance of any person and examining him on oath;
requiring the discovery and production of documents;
receiving evidence on affidavits;
subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any office;
issuing commissions for the examination of witnesses or documents;
reviewing its decisions;
dismissing a representation for default or deciding it ex parte,
setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and
any other matter, which may be, prescribed by the Central Government.

3. An order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of civil court and, for is purpose, the Appellate Tribunal shall have all the powers of a civil court.

4. Notwithstanding anything contained in sub-section (3), the Appellate Tribunal may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

5. All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code and the Appellate Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973.

Question 15.
The Prevention of Money Laundering Act, 2002 empowers the Government with certain powers to prevent money laundering and terrorist financing. In the light of this statement, highlight provisions regarding Summons, Searches and Seizures under the said Act.
Answer:
Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source. The Prevention of Money Laundering Act, 2002 enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.

Power of survey [Section 16(1)]
1. Notwithstanding anything contained in any other provisions of this Act, where an authority, on the basis of material in his possession, has reason to believe (the reasons for such belief to be recorded in writing) that an offence under section 3 has been committed, he may enter any place-
(i) within the limits of the area assigned to him; or

(ii) in respect of which he is authorized for the purposes of this section by such other authority, who is assigned the area within which such place is situated, at which any act constituting the commission of such offence is carried on, and may require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, such act so as to,-

afford him the necessary facility to inspect such records as he may require and which may be available at such place;
afford him the necessary facility to check or verify the proceeds of crime or any transaction related to proceeds of crime which may be found therein; and
furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceedings under this Act.

Explanation-For the purposes of this sub-section, a place, where an act which constitutes the commission of the offence is carried on, shall also include any other place, whether any activity is carried on therein or not, in which the person carrying on such activity states that any of his records or any part of his property relating to such act are or is kept.

2. The authority referred to in sub-section (1) shall, after entering any place referred to in that sub-section immediately after completion of survey, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period as may be prescribed.

3. An authority acting under this section may-

placemarks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom,
make an inventory of any property checked or verified by him, and
record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.

Search and seizure [Section 17(1)]
Where the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, on the basis of information in his possession, has reason to believe that any person-

has committed any act which constitutes money laundering, or
is in possession of any proceeds of crime involved in money laundering, or
is in possession of any records relating to money laundering, or
is in possession of any property related to crime, then, subject to the rules made in this behalf, he may authorize any officer subordinate to him to-

(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;

(b) break open the lock of any door, box, locker, safe, almirah or other receptacles for exercising the powers conferred by clause (a) where the keys thereof are not available

(d) placemarks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom

(e) make a note or an inventory of such record or property

(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 or a complaint has been filed; by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer, not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorized by the Central Government, by notification, for this purpose.

(1A) Where it is not practicable to seize such record or property, the officer authorized under subsection (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:

Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60, it becomes practical to seize a frozen property, the officer authorized under subsection (1) may seize such property.

2. The authority, who has been authorized under sub-section (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

3. Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence:
Provided that no authorisation referred to in sub-section (1) shall be required for search under this subsection.

4. The authority seizing any record or property under sub-section (1) or freezing any record or property under sub-section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing served under sub-section (1A), before the Adjudicating Authority.

Question 16.
What are the provisions regarding appointment of Adjudicating Authority under FEMA, 1999?
Answer:
Appointment of Adjudicating Authority (Section 16):
1. For the purpose of adjudication under section 13, the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an inquiry in the manner prescribed after giving the person alleged to have committed contravention under section 13, against whom a complaint has been made under sub-section (3) (hereinafter in this section referred to as the said person) a reasonable opportunity of being heard for the purpose of imposing any penalty:

Provided that where the Adjudicating Authority is of opinion that the said person is likely to abscond or is likely to evade in any manner, the payment of penalty, if levied, it may direct the said person to furnish a bond or guarantee for such amount and subject to such conditions as it may deem fit.

2. The Central Government shall, while appointing the Adjudicating Authorities under sub-section (1), also specify in the order published in the Official Gazette, their respective jurisdictions.

3. No Adjudicating Authority shall hold an enquiry under sub-section (1) except upon a complaint in writing made by any officer authorized by a general or special order by the Central Government.

4. The said person may appear either in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority.

5. Every Adjudicating Authority shall have the same powers of a civil court which are conferred on the Appellate Tribunal under sub-section (2) of section 28 and all proceedings before it shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code.

6. Every Adjudicating Authority shall deal with the complaint under sub-section (2) as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint:

Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period.

Question 17.
Broadly explain the procedure for enforcement of the orders of adjudicating authority under FEMA, 1999.
Answer:
Enforcement of the orders of Adjudicating Authority (Section 14)
1. Subject to the provisions of sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him under section 13 within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section.

2. No order for the arrest and detention in civil prison of a defaulter shall be made unless the Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property, or

(b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

3. Notwithstanding anything contained in sub-section (1), a warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.

4. Where appearance is not made pursuant to a notice issued and served under sub-section (1), the Adjudicating Authority may issue a warrant for the arrest of the defaulter.

5. A warrant of arrest issued by the Adjudicating Authority under sub-section (3) or sub-section (4) may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.

6. Every person arrested in pursuance of a warrant of arrest under this section shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey): Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.

Explanation. – For the purposes of this sub-section, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

7. When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison.

8. Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required.

9. Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest: Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied.

10. When the Adjudicating Authority does not make an order of detention under sub-section (9), he shall, if the defaulter is under arrest, direct his release.

11. Every person detained in the civil prison in execution of the certificate may be so detained,-

where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and
in any other case, up to six months:

Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison.

12. A defaulter released from detention under this section shall not, merely by reason of his release, be discharged from his liability for the arrears, but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison.

13. A detention order may be executed at any place in India in the man¬ner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973.

Question 18.
Briefly explain the powers of Appellate Tribunal and Special Director (Appeals) under FEMA, 1999. Are the provisions of Civil Procedure Code, 1908 applicable to proceedings before Appellate Tribunal and Special Director (Appeals)?
Answer:
Procedure and Powers of Appellate Tribunal and Special Director (Appeals) (Section 28):
1. The Appellate Tribunal and the Special Director (Appeals) shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Appellate Tribunal and the Special Director (Appeals) shall have powers to regulate its own procedure.

2. The Appellate Tribunal and the Special Director (Appeals) shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:-

summoning and enforcing the attendance of any person and examining him on oath;
requiring the discovery and production of documents;
receiving evidence on affidavits;
subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 requisitioning any public record or document or copy of such record or document from any office;
issuing commissions for the examination of witnesses or documents;
reviewing its decisions;
dismissing a representation of default or deciding it exparte
setting aside any order of dismissal of any representation for default or any order passed by it ex parte, and
any other matter which may be prescribed by the Central Government.

3. An order made by the Appellate Tribunal or the Special Director (Appeals) under this Act shall be executable by the Appellate Tribunal or the Special Director (Appeals) as a decree of civil court and, for this purpose, the Appellate Tribunal and the Special Director (Appeals) shall have all the powers of a civil court.

4. Notwithstanding anything contained in sub-section (3), the Appellate Tribunal or the Special Director (Appeals) may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

5. All proceedings before the Appellate Tribunal and the Special Director (Appeals) shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code and the Appellate Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973.

Question 19.
Discuss the penalties under Foreign Exchange Management Act, 1999.
Answer:
CONTRAVENTION AND PENALTIES, ADJUDICATION AND APPEAL UN¬DER FOREIGN EXCHANGE MANAGEMENT ACT, 1999 Penalties (Section 13)
1. If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

(1A) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggre¬gate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37A, he shall be liable to a penalty up to three times the sum involved in such contravention and confiscation of the value equivalent, situated in India, the Foreign exchange, foreign security or immovable property.

(1B) If the Adjudicating Authority, in a proceeding under sub-section (1A) deems fits, he may, after recording the reasons in writing, recommend for the initiation of prosecution and if the Director of Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director.

(1C) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggre¬gate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37A, he shall be, in addition to the penalty imposed under sub-section (1A), punishable with imprisonment for a term which may extend to five years and with fine.

(1D) No court shall take cognizance of an offence under subsection (1C) of section 13 except as on complaint in writing by an officer not below the rank of Assistant Director referred to in sub-section (IB).

2. Any Adjudicating Authority adjudging any contravention under subsection (1), may if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf.

Explanation-For the purposes of this sub-section, “property” in respect of which contravention has taken place, shall include-

deposits in a bank, where the said property is converted into such deposits;
Indian currency, where the said property is converted into that currency; and
any other property which has resulted out of the conversion of that property.

Question 20.
What is the maximum period of detention prescribed under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
Section 10:
The maximum period for which any person may be detained in pursuance of any detention order to which the provisions of section 9 do not apply and which has been confirmed under clause (f) of section 8 shall be a period of one year from the date of detention or the specified period, whichever period expires later and the maximum period for which any person may be detained in pursuance of any detention order to which the provisions of section 9 apply and which has been confirmed under clause (f) of section 8 read with subsection (2) of section 9 shall be a period of two years from the date of detention or the specified period, whichever period expires later Provided that nothing contained in this section shall affect the power of the appropriate Government, in either case, to revoke or modify the detention order at any earlier time.

Explanation-In this section and in section 10A, “specified period” means the period during which the Proclamation of Emergency issued under clause (1) of Article 352 of the Constitution on the 3rd day of December 1971 and the Proclamation of Emergency issued under that clause on the 25th day of June 1975, are both in operation.

Question 21.
Under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, grounds of detention are severable. Elaborate on the related provisions.
Answer:
Where a person has been detained in pursuance of an order of detention under sub-section (1) of section 3 which has been made on two or more grounds, such order of detention shall be deemed to have been made separately on each of such grounds and accordingly-
(a) such order shall not be deemed to be invalid or inoperative merely be-cause one or some of the grounds is or are –

vague,
non-existent,
not relevant,
not connected or not proximately connected with such person, or
invalid for any other reason whatsoever, and it is not, therefore, possible to hold that the Government or officer making such order would have been satisfied as provided in sub-section (1) of section 3 with reference to the remaining ground or grounds and made the order of detention;

(b) the Government or officer making the order of detention shall be deemed to have made the order of detention under the said sub-section (1) after being satisfied as provided in that sub-section with reference to the remaining ground or grounds.

Question 22.
Explain the special provisions for dealing with emergencies under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
Answer:
Special provisions for dealing with emergency (Section 1 2A):
1. Notwithstanding anything contained in this Act or any rules of natural justice, the provisions of this section shall have effect during the period of operation of the Proclamation of Emergency issued under clause (1) of Article 352 of the Constitution on the 3rd day of December 1971, or the Proclamation of Emergency issued under that clause on the 25th day of June 1975, or a period of twenty-four months from the 25th day of June 1975, whichever period is the shortest.

2. When making an order 6f detention under this Act against any person after the commencement of the Conservation of Foreign Exchange and Prevention of Smuggling Activities (Amendment) Act, 1975, the Central Government or the State Government or, as the case may be, the officer making the order of detention shall consider whether the detention of such person under this Act is necessary for dealing effectively with the emergency in respect of which the Proclamations referred to in sub-section (1) have been issued (hereafter in this section referred to as the emergency) and if on such consideration, the Central Government or the State Government or, as the case may be, the officer is satisfied that it is necessary to detain such person for effectively dealing with the emergency, that Government or officer may make a declaration to that effect and communicate a copy of the declaration to the person concerned:

Provided that where such declaration is made by an officer, it shall be reviewed by the appropriate Government within fifteen days from the date of making of the declaration and such declaration shall cease to have effect unless it is confirmed by that Government, after such review, within the said period of fifteen days.

3. The question whether the detention of any person in respect of whom a declaration has been made under sub-section (2) continues to be necessary for effectively dealing with the emergency shall be reconsidered by the appropriate Government within four months from the date of such declaration and thereafter at intervals not exceeding four months, and if, on such reconsideration, it appears to the appropriate Government that the detention of the person is no longer necessary for effectively dealing with the emergency, the Government may revoke the declaration.

4. In making any consideration, review or reconsideration under sub-section (2) or (3), the appropriate Government or officer may if such Government or officer considers it to be against the public interest to do otherwise, act on the basis of the information and materials in its or his possession without disclosing the facts or giving ah opportunity of making a representation to the person concerned.

5. It shall not be necessary to disclose to any person detained under a detention order to which the provisions of sub-section (2) apply, the grounds on which the order has been made during the period the declaration made in respect of such person under that sub-section is in force, and, accordingly, such period shall not be taken into account for the purposes of subsection (3) of section 3.

Question 23.
Explain the procedure of filing an appeal with Appellate Tribunal under FEMA, 1999.
Answer:
Appeal to Appellate Tribunal under FEMA (Section 19)
1. Save as provided in sub-section (2), the Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to in sub-section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal: Provided that any person appealing against the order of the Adjudi- eating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government:

Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.

2. Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

3. On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

4. The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals), as the case may be.

5. The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal Provided that where any appeal could not be disposed of within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within the said period.

6. The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the Adjudicating Authority under section 16 in relation to any proceeding, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit.

Question 24.
Discuss the procedure for appeal to Special Director under FEMA, 1999.
Answer:
The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.

Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special Director (Appeals).

The appeal shall be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed.

The Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days if he is satisfied that there was sufficient cause for not filing it within that period.

On receipt of an appeal, the Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit confirming, modifying or setting aside the order appealed against.

The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority. The Special Director (Appeals) shall have the same powers of a civil court which are conferred on the Appellate Tribunal.

Question 25.
What are the provisions regarding decriminalization of offences through Companies (Amendment) Act, 2019?
Answer:
Offences triable by Special Courts (Section 44):
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973,
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such
scheduled offence; or

(d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 as it applies to a trial before a Court of Session.

Question 26.
Broadly explain the procedure for enforcement of the orders of adjudicating authority under FEMA, 1999.
Answer:
Enforcement of the orders of Adjudicating Authority (Section 14)
1. Subject to the previsions of sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him under section 13 within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section.

2. No order for the arrest and detention in civil prison of a defaulter shall be madc unless the Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied-

(a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property, or
(b) that the defaulter has or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

4. Where appearance is not made pursuant to a notice issued and served under sub-section (1), the Adjudicating Authority may issue a warrant for the arrest of the defaulter.

Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.
Explanation.-For the purposes of this sub-section, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

7. When a defaulter appears before the Adjudicating Authority pursu¬ant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison.

Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied.

10. When the Adjudicating Authority does not make an order of detention under sub-section (9), he shall, if the defaulter is under arrest, direct his release.

11. Every person detained in the civil prison in execution of the certificate may be so detained

where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and
in any other case, up to six months:

Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison.

13. A detention order may be executed at any place in India in the man¬ner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973.

Question 27.
Discuss the provision relating to Advisory Board under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
Answer:
Advisory Boards for the purposes of article 22(4)(A) and 22(7)(c) of the Constitution,-
(a) the Central Government and each State Government shall, whenever necessary, constitute one or more Advisory Boards each of which shall consist of a Chairman and two other persons possessing the qualifications specified in sub-clause (a) of clause (4) of article 22 of the Constitution

(b) save as otherwise provided in section 9, the appropriate Government shall, within five weeks from the date of detention of a person under a detention order make a reference in respect thereof to the Advisory Board constituted under clause (a) to enable the Advisory Board to make the report under sub-clause (a) of clause (4) of article 22 of the Constitution

(c) the Advisory Board to which a reference is made under clause (b) shall after considering the reference and the materials placed before it and after calling for such further information as it may deem necessary from the appropriate Government or from any person called for the purpose through the appropriate Government or from the person concerned, and if, in any particular case, it considers it essential so to do or if the person concerned desires to be heard in person, after hearing him in person, prepare its report specifying in a separate paragraph thereof its opinion as to whether or not there is sufficient cause for the detention of the person concerned and submit the same within eleven weeks from the date of detention of the person concerned

(d) when there is a difference of opinion among the members forming the Advisory Board, the opinion of the majority of such members shall be deemed to be the opinion of the Board;

(e) a person against whom an order of detention has been made under this Act shall not be entitled to appear by any legal practitioner in any matter connected with the reference to the Advisory Board, and the proceedings of the Advisory Board and its report, excepting that part of the report in which the opinion of the Advisory Board is specified, shall be confidential;

(f) in every case where the Advisory Board has reported that there is in its opinion sufficient cause for the detention of a person, the appro¬priate Government may confirm the detention order and continue the detention of the person concerned for such period as it thinks fit and in every case where the Advisory Board has reported that there is in its opinion no sufficient cause for the detention of the person concerned, the appropriate Government shall revoke the detention order and cause the person to be released forthwith.

Cases in which and circumstances under which persons may be detained for periods longer than three months without obtaining the opinion of Advisory Board (Section 9)
1. Notwithstanding anything contained in this Act, any person (including a foreigner) in respect of whom an order of detention is made under this Act at any time before the 31st day of July 1999, maybe detained without obtaining, in accordance with the provisions of sub-clause (a) of clause (4) of Article 22 of the Constitution, the opinion of an Advisory Board for a period longer than three months but not exceeding six months from the date of his detention, where the order of detention has been made against such person with a view to preventing him from smuggling goods or abetting the smuggling of goods or engaging in transporting or concealing or keeping smuggled goods and the Central Government or any officer of the Central Government, not below the rank of an Additional Secretary to that Government, specially empowered for the purposes of this section by that Government, is satisfied that such person-
(a) smuggles or is likely to smuggle goods into, out of or through any area highly vulnerable to smuggling; or

(b) abets or is likely to abet the smuggling of goods into, out of or through any area highly vulnerable to smuggling; or

(c) engages or is likely to engage in transporting or concealing or keeping smuggled goods in any area highly vulnerable to smuggling, and makes a declaration to that effect within five weeks of the detention of such person.

Explanation – In this sub-section, “area highly vulnerable to smuggling” means-

The Indian customs waters contiguous to the States of Goa, Gujarat, Karnataka, Kerala, Maharashtra and Tamil Nadu and the Union territories of Daman and Diu and Pondicherry;
The inland area fifty kilometres in width from the coast of India falling within the territories of the States of Goa, Gujarat, Karnataka, Kerala, Maharashtra and Tamil Nadu and the Union territories of Daman and Diu and Pondicherry;
the inland area fifty kilometres in width from the India-Pakistan border in the States of Gujarat, Jammu and Kashmir, Punjab and Rajasthan;
the customs airport of Delhi; and
such further or other Indian customs waters, or inland area not exceeding one hundred kilometres in width from any other coast or border of India, or such other customs station, as the Central Government may, having regard to the vulnerability of such waters, area or customs station, as the case may be, to smuggling, by notification in the Official Gazette, specify in this behalf.

Question 28.
Explain the role of Company Secretary in event of invocation of any regulatory action under Companies Act, 2013.
Answer:
The Company Secretary has a vital role to play in the event of invocation any action under the Act. The current regulatory scenario demands the Company Secretary be more vigilant and diligent specifically about the applicability of multiple laws and timely compliances thereunder.

The role which a Company Secretary can play is briefly discussed below:

To ensure timely compliances of the provisions of the Act to avoid any action for default or failure;
To represent the Company before the ROC, RD or NCLT, in the event of any action for default or failure;
To develop a robust internal compliance system which generates the details of compliances undertaken and any compliance lapses in a timely manner;
To initiate the compounding procedure in the event of any non-compliance(s) comes to light and to avoid recurrence of such non-compliances in future;
To ensure timely and appropriate disclosure pertaining to penalties or compounding offences or action by any authorities.

Further, since the Practicing Company Secretaries are also covered under section 447 of the Act, they should ensure that they are not certifying any returns or issuing any report which contains any false certification or information or omits any material information or facts.

Question 29.
Distinguish between Section 441 and Section 454 of Companies Act, 2013.
Answer:

Section 441	Section 454
A compounding order u/s 441 is not appealable	Adjudication order u/s 454 is appealable
The compounding order is delivered generally based on a consensus arrived at by both parties	Adjudicating officer’s order will be arbitrary and not based on consensus.
Powers of compounding are exercised by different authorities like Regional Director and NCLT	Power of adjudication vests only with Regional Director
Similar offences can be compounded only once in three years.	No such provision for adjudication of penalty
There are no specific rules which have been made by the Government where offences for compounding falls under the jurisdiction of the Regional Director or the authorized officer under section 441(1)(b).	The Government has framed the Companies (Adjudication of Penalties) Rules, 2014, which governs the procedure to be adopted by the adjudicating officer and is very elaborate.
Compounding of any offence under section 441 either by the NCLT or the Regional Director or by the authorized officer is prohibited if the investigation against such company has been initiated or is pending under the Act.	Adjudication proceedings can be initiated and continued while investigation is in progress.
The compounding authority need not give any opportunity to the defaulting parties of being heard since the section does not provide for any such opportunity to be given to the defaulting parties, though natural justice demands such an opportunity.	Hearing is mandatory in case of adjudication.

Question 30.
Under what circumstances can adjudication be ordered u/s 454? Or, what triggers an action u/s 454? Is it on the findings of the MCA that an offence has occurred following an inspection u/s 206 or on scrutiny of the Balance Sheet or from the statutory auditors’ report or from the % secretarial audit report?
Answer:
(a) There must have been a default or non-compliance of the provisions of the Companies Act, 2013.

(b) The default has to be ascertained and the nature of non-compliance must be identified by the concerned office of the RoC or emanate from inspection/investigation or from the statutory auditor’s report or the secretarial audit report.

(c) Fine is not the same as penalty. Penalty is a broader term which includes fine. Before initiating adjudication proceedings u/s 454, it has to be ascertained if the penal provisions in the section alleged to have been violated for which these proceedings are sought to be initiated are in the nature of fine or penalty.

In general usage, a layman uses these two words synonymously. In fact, in the Companies Act, 2013, there are many sections which talk of “fine” and many other sections talk of “penalty”.

Those sections which have stipulated “fines” will necessarily be outside the purview of section 454 since section 454(3) clearly authorizes the adjudicating officer with a power to impose only penalty and it is implied that he has to take cognizance of the penalty stipulated under the section which has been violated. In whichever fines have been stipulated, the defaulting parties can take recourse to seeking compounding of the offence whether a show cause notice is issued or not.

Question 31.
Who orders adjudication proceedings u/s 454? Is the RoC himself empowered to order? In which case can the Central Government appoint him as the adjudicating officer?
Answer:
Either the RoC himself on a scrutiny of documents filed with him and on his satisfaction has to come to a conclusion that there has been non-compliance of the provisions of the Act as arrived at under section 206(4) or has to come to a conclusion of such non-compliances based on any report on inspection or investigation, if any, under the relevant provisions of the Companies Act, 2013, or on the qualifications of the statutory auditors in the Annual Report or by the secretarial auditors in their Secretarial Audit Report whereby he can ascertain and identify the nature of non-compliance or default.

In all these cases, he himself cannot initiate any adjudicating proceedings if he is the adjudicating officer even as he may be clothed with a power of adjudication. Therefore, if adjudicating powers are under his jurisdiction, any other officer who is independent of his office has to identify the existence of violation as otherwise the adjudicating officer, being the head of his office may be biased.

Question 32.
When there is a provision for compounding u/s 441 how does section 454 come into play? Does S.454 override S.441 since it is a later section? Or do both sections play parallelly? Which section prevails over which?
Answer:
Both these sections operate independent of each other and hence the question of one section overriding the other does not arise. They operate concurrently, simultaneously but not parallelly.

The Regional Director cannot set the compounding process in motion u/s 441 and simultaneously the RoC cannot order adjudication u/s 454. Section 441 deals with compounding and Section 454 deals with adjudication. Both are not same. The adjudicating officer has no power to compound. The Regional Director has the sole power to compound. He has power to authorize another officer u/s 441 (1)(b) and not under section 454.

The adjudicating officer has no right to decide on merits and demerits of default. Under section 454 he can only adjudicate on the quantum of penalty. In fact, he can only revise the fee upwards not downwards as can be seen from the parameters set under Rule 3(9) of the Companies (Adjudication of Penalties) Rules, 2014.
On the other hand, the Regional Director or the NCLT can afford to give lot of concessions on the quantum of penalty depending on the facts of the case. The power to compound vested with the Regional Director or the NCLT is more subjective.

Question 33.
When a suomoto application for compounding is made, how does S.454 come into play?
Answer:
The debatable question that arises here is whether the Regional Director or the NCLT take cognizance of adjudication proceedings u/s 454(2) when a suomoto application made by the defaulter for composition involving an offence, the nature of which the defaulter himself has identified, is pending with him/NCLT for disposal and stop the adjudication proceedings? Therefore, it appears that prima facie section 454 will not come into play.

The RoC who has forwarded the compounding application to either of them with his report has to seek directions from the RD/NCLT in such a case. The Regional Director/NCLT may agree for adjudication after giving justifiable reasons for his choice for adjudication overriding the compounding application in a speaking manner.

But this decision can be challenged before the same RD under section 454(5) by the applicants to a suomoto compounding application if the RoC, being the adjudicating officer exercises his power u/s 454, on the grounds that the defaulting party itself has identified the non-compliance and none else and therefore, the offence will obviously come outside the purview of section 454.

Question 34.
Write a short note on SAT Litigation Division.
Answer:
1. SAT Litigation Division of Securities and Exchange Board of India (SEBI) would be responsible for handling appeals against orders of SEBI or its Adjudicating Officers.

2. While undertaking defence representation in contentious matters involving complex issues of law, the Division would liaise with Senior Advocates, law firms, solicitors firms and represent the interest of SEBI at Securities Appellate Tribunal (SAT).

3. The Division would also be an interface between SEBI and SAT while collaborating with other departments of SEBI. It would also assist SEBI in filing affidavits/written submissions, as and when needed while attending hearings.

Question 35.
What are the functions of Prosecution Division under SEBI Act?
Answer:
The Enforcement Department is responsible for handling Appeals against SEBI orders filed before the Hon’ble Securities Appellate Tribunal (SAT), Appeals filed against the SAT order in the Hon’ble Supreme Court, Criminal Complaints filed by SEBI in appropriate Courts and Settlement Proceedings.

The Department Comprises of three divisions, namely:

SAT Litigation Division
Prosecution Division
Settlement Division

The Prosecution Division shall handle work related to filing prosecution proceedings through the courts and follow up to obtain conviction. The Division will also frame procedures for cooperation with public prosecutors, other agencies and for making referrals to prosecutors and other government agencies.

Question 36.
Write a short note on Settlement Division under SEBI Act.
Answer:
Settlement Division handles the Settlement Applications filed by the Applicant for the Settlement of the Specified Proceedings that have been initiated or may be initiated by SEBI. The Settlement Applications are pro¬cessed as per SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 [Settlement Regulations] and if settlement is arrived at, the Settlement Orders are passed.

The Settlement Division is responsible for handling Registration of Settle¬ment Application, Calculation of Settlement amount as per the Settlement Regulations, organizing Internal Committee Meeting between the Applicants and Internal Committee Members for formulating the settlement amount/ terms, Organizing High Powered Advisory Committee (HPAC) Meeting, placing the recommendation of HPAC before the Panel of Whole Time Members for approval.

Question 37.
Briefly explain power of the Central Government to grant immunity under SEBI Act, 1992?
Answer:
Section 23-0
1. The Central Government may, on recommendation by the Securities and Exchange Board of India, if the Central Government is satisfied, that any person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder, has made a full and true disclosure in respect of alleged violation, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation:

Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application for grant of such immunity: Provided further that the recommendation of the Securities and Exchange Board of India under this subsection shall not be binding upon the Central Government.

2. An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Central Government, if it is satisfied that such person had, in the course of the proceedings, not complied with the condition on which the immunity was granted or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.

Question 38.
What are powers of the appropriate Government in relation to absconding persons under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
1. If the appropriate Government has reason to believe that a person in respect of whom a detention order has been made has absconded or is concealing himself so that the order cannot be executed, that Government may-

a. make a report in writing of the fact to a Metropolitan Magistrate or a Magistrate of the first class having jurisdiction in the place where the said person ordinarily resides; and thereupon the provisions of sections 82, 83, 84 and 85 of the Code of Criminal Procedure, 1973, shall apply in respect of the said person and his property as if the order directing that he be detained were a warrant issued by the Magistrate

b. by order notified in the Official Gazette direct the said person to appear before such officer, at such place and within such period as may be specified in the order; and if the said person fails to comply with such direction, he shall, unless he proves that it was not possible for him to comply therewith and that he had, within the period specified in the order, informed the officer mentioned in the order of the reason which rendered compliance therewith impossible and of his whereabouts, be punishable with imprisonment for a term which may extend to one year or with fine or with both.

2. Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence under clause (b) of sub-section (1) shall be cognizable.

Resolution of Corporate Disputes Non-Compliances & Remedies Notes

Class Action Suits – Resolution of Corporate Disputes, Non Compliances & Remedies Important Questions

December 28, 2022

Class Action Suits – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Question 1.
“The minority shareholders are empowered under the Companies Act, 2013 to bring action with a view to prevent the majority from oppression and mismanagement”. Justify the statement with rights available to minority shareholders under the Act.
Answer:
The various rights which are available to the minority shareholders under the Companies Act, 2013 to bring action with a view to prevent oppression and mismanagement are as under:
1. Oppression and Mismanagement: The minority shareholders can file an application with the National Company Law Tribunal (NCLT) under the provisions of the Companies Act, 2013. Sections 241, 242 and 244 of the Companies Act, 2013 under prescribes the remedies that minority shareholders can resort to in cases of oppression and mismanagement.

2. Class Action Suit: A class-action suit usually means a legal suit wherein a group of members can file an application to NCLT if they are of the view that the affairs of the company are being conducted in a manner that is prejudicial to the interests of the company or members or depositors. Sections 245 and 246 of the Companies Act, 2013, lays down the remedies and procedure for filing the Class Action Suit. Class Action Suit allows the members to claim damages from not only the company and its directors but also from the auditor, an expert, an advisor or a consultant.

3. Right to appoint Small Shareholders’ Directors: The small shareholders or minority shareholders of a listed company have a right to appoint a shareholder of their choice on the board and such shareholder may be called as a ‘Small Shareholders’ Director’ under section 151 of the Companies Act, 2013.

Question 2.
“Class action suit is a new mechanism in India to claim the loss caused to the speciFied stakeholders of the Company not only from the Company but also from other entities”. Analyse the statement in brief.
Answer:
Sections 245 and 246 of the Companies Act, 2013 Act specifically deals with the class action suits. Section 245(1) provides that certain prescribed number of member or members, depositor or depositors or any class of them, may file an application before the Tribunal if they are of the opinion that the affairs of the company are being conducted in a manner prejudicial I to the interests of the company or its members or depositors.

Such application may be made to claim damages or compensation or demand any other suitable action from or against.

the company or its directors;
the auditor including audit firm of the company for any improper or misleading audit report or for unlawful or fraudulent conduct;
any expert or advisor or consultant or any other person for incorrect or misleading statement made to the company or any fraudulent, unlawful or wrongful act or omission.

A Class Action Suit can be filed against the auditor or an expert or advisor or consultant and damages can be recovered. The definition of expert is wide under the Companies Act, 2013 which includes an engineer, a valuer, a company secretary, a chartered accountant, a cost accountant and any other person who has authority to issue certificate in pursuance of any law for the time being in force.

However the definitions of advisor or consultant has not been provided in the Companies Act, 2013. The meaning of the same will be derived in common parlance.

Thus a class action suit is a new mechanism to claim the loss caused to the specified stakeholders of the company not only from the company but also from other entities.

Question 3.
HDF Limited, a listed entity was into real estate business. Over a period in an attempt to diversify its operations it borrowed heavily from banks and financial institutions. The Company appointed a Merchant Banking firm, to provide strategic inputs for its business operations. On the recommendation of the firm, the Company created complex group structures and business models.

Due to financial mismanagement and lack of strategic operations, the Company started making losses and over a period was not able to repay the loans it had taken. The Company also failed to repay the deposits had raised from public. Gradually, the market capitalization of the Company eroded and now it has been reduced to a penny stock. The shareholders are evaluating the option of filing a case against the Company, the Merchant Banking firm and also the Rating Agency which were involved with the Company during such period. Evaluate whether the shareholders and depositors be successful in filing a suit in these circumstances.
Answer:
1. Section 245(1) provides that certain prescribed number of member or members, depositor or depositors or any class of them, may file an application before the Tribunal if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors.

Such application may be made to claim damages or compensation or demand any other suitable action from or against.

the company or its directors for any fraudulent, unlawful or wrongful act or omission;
the auditor including audit firm of the company for any improper or misleading audit report or for unlawful or fraudulent conduct;
any expert or advisor or consultant or any other person for f incorrect or misleading statement made to the company or any fraudulent, unlawful or wrongful act or omission.

2. Requisite number of member or members to file an application under j section 245(1) shall be:

Company having Share Capital: at least 5% of total number of members or 100 members whichever is less. (Listed or Unlisted)
Unlisted Company: member or members holding not less than five per cent (5%) of the issued share capital.
Listed Company: member or members holding not less than two per cent (296) of the issued share capital.

3. Requisite number of depositor or depositors to file an application under section 245(1) shall be

At least five per cent (596) of the total number of depositors of the company or one hundred (100) depositors of the company
Depositor or depositors to whom the company owes five per cent of total deposits of the company.

4. In the light of the above-mentioned provisions of section 245, the members and depositors will be successful in filing the Class Action Suit against the company, its directors and consultants including merchant banking firm and rating agency. ;

Question 4.
What do you mean by Class Action Suit?
Answer:
In a class-action suit, a large group of people, having same or similar injuries caused by the same person, collectively bring a claim to court, represented by one or more persons. This form of lawsuit is also called a Representative Action. One set of persons representing a larger group approach the court for redressal of their grievances.

The rationale behind such suits are – firstly to protect the interest of members of a class who are geographically dispersed and secondly to reduce the duplication of the litigation as it combines the various proceedings initiated in different parts/jurisdictions bearing same cause of action(s).

Further it also makes adjudication possible; otherwise, as per the rule of necessary party all the members of a class are required to be made plaintiff, which otherwise would have made the adjudication impossible.

In January 2009, India witnessed one of its biggest corporate scandals the ‘Satyam scandal’ also referred to as ‘India’s Enron’. Satyam Computers Services Limited (“SCSL”) was under the microscope for fraudulent activity and misrepresentation of its accounts to its board, stock exchanges, regulators, investors and all other stakeholders.

Thereafter, shareholders of SCSL, approximately 300,000 were unsuccessful in claiming damages worth millions due to the absence of the provision for filing a class action suit under the Companies Act, 1956. American investors on the other hand were able to claim their part of damages in the US Courts through a class action suit against SCSL.

The concept of class action was first introduced in the US in the year 1938. ‘Class Action’, which is also known as ‘Representative Action’, is actually a form of lawsuit where a large group of people collectively brings a claim to the court through a representative. A class-action suit is filed generally when a number of people have suffered the same or similar injuries. Often many of the individuals’ injuries are relatively minor, such that they might not pursue legal redress on their own. Together, however, the value of the claims of the class add up, and claiming as a class helps consolidate the attorneys, evidence, witnesses, and most other aspects of the litigation.

Class Action suits under Companies Act, 2013:
1. A suit can be filed or any other action may be taken by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus under the following provisions of the Act. (Section 37)

Section 34 – Criminal Liability for misstatements in prospectus
Section 35 – Civil Liability for misstatements in a prospectus
Section 36 – Punishment for fraudulently inducing persons to invest money.

2. A class action suit can be filed by members or depositors of the company or any class of them if they Eire of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interest of the company or members or depositors. (Section 245)

Question 5.
What reliefs can be sought under Class Action Suit?
Answer:
Following orders can be sought from Tribunal by Members/Depositors:
(A) To restrain the Company from:

committing an act which is ultra vires to Memorandum of Association (MOA) or Articles of Association
(AOA) committing breach of any provision of MOA or AOA
acting on resolution which is void (due to suppression of facts/ misstatements)
doing an act which is contrary to the provisions of this Act or any other Act
taking action contrary to any resolution passed by the members

(B) to claim damages or compensation or demand any other suitable action from or against

the company or its directors
the auditor/audit firm for any improper or misleading statement made in audit report or for any fraudulent, unlawful or wrongful act or conduct
any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;

(C) to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by misstatement to the members or depositors

(D) to seek any other remedy as the Tribunal may deem fit.

Question 6.
State the persons against whom class action suit can be filed?
Answer:
A class-action suit can be filed against following persons to claim damages or compensation or demand any other suitable action from or against

the company or its directors for any fraudulent, unlawful or wrongful act or omission.
the auditor/audit firm for any improper or misleading statement made in audit report or for any fraudulent, unlawful or wrongful act or conduct.
any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part.

Question 7.
Write a short note on Class Action Suits and related law In India.
Answer:
In a class-action suit, a large group of people, having same or similar injuries caused by the same person, collectively bring a claim to court, represented by one or more persons. This form of lawsuit is also called a Representative Action. One set of persons representing a larger group approach the court for redressal of their grievances.

The rationale behind such suits are- firstly to protect the interest of members ola class who are geographically dispersed and secondly to reduce the duplication of the litigation as it combines the various proceedings initiated in different parts/jurisdictions bearing same cause of action(s).

Further it also makes adjudication possible; otherwise, as per the rule of necessary party, all the members of a class are required to be made plaintiff, which otherwise would have made the adjudication impossible.

Class Action suits under Companies Act, 2013:
1. A suit can be filed or any other action may be taken by any person, group of persons or aný association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus under the following provisions of the Act. (Section 37)

Section 34 – Criminal Liability for misstatements in prospectus
Section 35 – Civil Liability for misstatements in a prospectus
Section 36 – Punishment for fraudulently inducing persons to invest money.

2. A class action suit can be filed by members or depositors of the company or any class of them if they are of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interest of the company or members or depositors. (Section 245)

Class Action suits under Code of Civil Procedure:
There are no limits on the subject matter except for actions that cannot be filed in the civil courts at all, such as mismanagement suits. All persons having same interest in the suit can make an application for the class action suit.

Class Action suits under Competition Act:
A class may dispute an agreement which causes an appreciable adverse effect on competition within India or abuse of dominant position by an enterprise. Any person, consumer or their association can bring the action. E.g. Price-Fixing.

Class Action suits under Consumer Protection Act:
The suit under this Act is restricted to disputes relating to goods and services sold/provided or delivered or agreed to be sold/provided or delivered. Consumers of the goods or services aggrieved can bring the action under this Act.

Question 8.
When Application for class action suit will be considered by Tribunal?
Answer:
Section 245(4) provides that in considering an application under sub-section (1), the Tribunal shall take into account, in particular-
(a) whether the member or depositor is acting in good faith in making the application for seeking an order;

(b) any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in this section;

(c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;

(d) any evidence before it as to the views of the members or depositors of the company who have no personal interest, direct or indirect, in the matter being proceeded under this section;

(e) where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be – authorised by the company before it occurs or ratified by the company after it occurs;

(f) where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.

Question 9.
Who can apply for Class Action Suit as per Companies Act, 2013?
Answer:
(A) Members:

Subscriber to MOA whose name is entered in ROM (Register of Members)
Person agreed to become member in writing whose name is entered in ROM
Person holding shares who is beneficial owner in the records of Depository

(B) Depositors: Companies (Acceptance of Deposits) Rules, 2014:

any member who has made a deposit u/s 73(2) of the Act
any person who has made a deposit with a public company as per section 76

Members: equity/preference shareholders (convertible/non-convertible, cumulative/non-cumulative etc.), equity shareholders having DVR (different voting right)
Depositors: depositors with different rate of return, different term of maturity, etc.

Question 10.
What are required number of Members or Depositor to apply for class action suit?
or
How many members or depositors are required for applying for class action suits?
Answer:
(A) Members:

Company having Share Capital: at least 5% of total number of members or 100 members whichever is less. (Listed or Unlisted)
Unlisted Company: member or members holding not less than five per cent (596) of the issued share capital.
Listed Company: member or members holding not less than two per cent (296) of the issued share capital.
Company having not Share Capital: at least 1 / 5th of total number of members.

(B) Depositors:

At least five per cent (596) of the total number of depositors of the company or one hundred (100) depositors of the company.
Depositor or depositors to whom the company owes five per cent of total deposits of the company.

Question 11.
What will the Tribunal take into account while considering application of class action suit?
Answer:
Section 245(4) provides that in considering an application under
sub-section (1), the Tribunal shall take into account, in particular –
(a) whether the member or depositor is acting in good faith in making the application for seeking an order;

(b) any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in this section;

(c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;

(d) any evidence before it as to the views of the members or depositors of the company who have no personal interest, direct or indirect, in the matter being proceeded under this section;

(f) where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.

Question 12.
Write a short note on procedure followed after admission of application u/s 245(5).
Answer:

In case of admission of Application [Section 245(5)]
public notice shall be served on admission of the application to all the members or depositors.
all similar applications prevalent in any jurisdiction should be conso- Mated into a single application
the class members or depositors should be allowed to choose the lead applicant
the Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings (If members/depositors can’t decide)
two class action applications for the same cause of action shall not be allowed
the cost or expenses connected with the application for class action shall be defrayed by the company or any other person responsible for any oppressive act.

Question 13.
What is the punishment prescribed for non-compliance of Tribunal’s order in case of class action suit?
Answer:
Any Order passed by the Tribunal shall be binding on the Company, Members, Depositors, Directors, Auditors, Experts, Consultant, Advisors or any other person. [Section 245(6)].

In case the company or any officer who is in default does a non-compliance of any order passed by the Tribunal under section 245, then the fine punishment is as follows [Section 245(7)]:

Company: Fine ₹ 5,00,000 to ₹ 25,00,000
Officer in Default: Imprisonment up to 3 years and fine ₹ 25,000 to ₹ 1,00,000.

Question 14.
What are the advantages of Class Action Suit?
Answer:
1. ClubbIng of similar applications and bar on futile litigations:
When the facts are similar in suits filed in different dominions by the members of the same class, standing against the same or similar defendants, it makes sense to combine them all and adjudicate it under one roof. Clubbing of similar claims/suits would also result in efficiency of judiciary, as the same would save precious time of judiciary from adjudicating the similar dispute numerous times.

Hence Class Action Suits against similar defendants/respondents seeking similar relief may be consolidated into one. Further the legislature also intends to bar the future class action on same subject matter.

2. Reduction of Cost:
The cost of bringing a claim to the settlement under the present mechanism at times is very expensive as well as time-consuming particularly while filing of suits under Civil Procedure Code, 1908. Further, the territorial jurisdiction of the civil court also leads to duplicity of litigation leading to multiplicity of cost for same cause of action. It, therefore, makes far greater sense for people to share the costs of litigation by teaming up with others in a similar position. If as a group, only one set of counsels are instructed and the factual cases of each members are identical the legal cost will be far less than that would have been if instituted individually.

3. Class action suits would allow individuals to hold some of the world’s most powerful companies and organizations accountable for their actions. These lawsuits will cover a wide range of issues including the mismanagement of monies invested with a company, securities law related fraud, malfunctioning of accounts, restraining company to act ultra vires or in breach of the articles of association of the Company, etc.

4. Class action suits will provide a window to the small shareholders to redress their grievances irrespective of their jurisdictional limitation.

5. It allows great number of interested parties (Members or Depositors) to join the litigation which otherwise would have become impracticable.

Resolution of Corporate Disputes Non-Compliances & Remedies Notes

Petition for Corporate Insolvency Resolution Process – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Petition for Corporate Insolvency Resolution Process – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
Explain the procedure to be followed by the Adjudicating Authority on receipt of an application by the financial creditor for initiation of corporate insolvency resolution process.
Answer:

Section 7 of the Insolvency and Bankruptcy Code, 2016, allows a financial creditor to initiate Corporate Insolvency Resolution Process (CIRP), via application to an Adjudicating Authority, Le. National Company Law Tribunal (NCLT).
Where a default has occurred, a financial creditor either by itself or jointly with other financial creditors, may file an application for initiating Corporate Insolvency Resolution Process against a Corporate Debtor before the Adjudicating Authority, i.e. NCLT.
The financial creditor shall submit application to the Adjudicating Authority, along with the evidence of default and name of interim resolution professional proposed to be appointed.
On receiving the application from a financial creditor, the Adjudicating Authority (i.e. NCLT) shall follow the procedure
- The Adjudicating Authority shall, within 14 days of the receipt of the application, ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor.
- Where the Adjudicating Authority is satisfied that default has occurred and application is complete, and there is no disciplinary proceeding pending against the proposed resolution professional, it may admit such application;
- Where the Adjudicating Authority is satisfied that default has not occurred or application is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may reject such application:
- The Adjudicating Authority (i.e. NCLT) shall, before rejecting the application, give a notice to the applicant to rectify the defect in his application within 7 days of receipt of such notice from the Adjudicating Authority.
- The Adjudicating Authority shall communicate to the financial creditor and the corporate debtor, within 7 days of admission or rejection of such application, as the case may be.

Question 2.
X Ltd., a corporate debtor owes to Y Ltd. ₹ 100 lakh on account of unsecured loan at 10% per annum and ₹ 35 lakh towards raw material supplied by Y Ltd. Determine status of Y Ltd. in relation to the corporate debtor. Also, state the status under which Y Ltd. can make representation on the committee of creditors.
Answer:

As per Insolvency and Bankruptcy Code, 2016, where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process.
Financial Creditor is any person to whom a financial debt is owned and includes a person to whom such debt has been legally assigned or transferred to Financial Debt means a debt (with interest), related to money borrowed, bonds, notes, deposit, debentures, hire-purchase, lease, indemnity, guarantee etc.
Operational Creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. They are suppliers of goods or services to any company or operational debtor.
In the given case, Y Ltd. will be classified as financial as well as operational creditor in relation to X Ltd., a corporate debtor.
Thus, Y Ltd. shall be included in the committee of creditors and shall have a voting share proportionate to the extent of financial debts owed to such creditor. In the instant case, to the extent of 1100 lakh, Y Ltd. being a financial creditor.

Question 3.
Perfect Polyesters Ltd. is undergoing Corporate Insolvency Resolution Process as per Insolvency and Bankruptcy Code, 2016. Committee of Creditors is constituted. In the mean time, the Corporate Debtor, Perfect Polyesters Ltd. made a settlement with the applicant financial creditor and desires to get the application withdrawn and seeks your advice.
Answer:

The Insolvency and Bankruptcy Code, 2016 provides a default-based test to initiate corporate insolvency resolution process. Such default-based test permits early intervention when the corporate debtor shows early signs of financial distress.
Section 7 of the Insolvency and Bankruptcy Code, 2016 lays down the procedure for the initiation of the corporate insolvency resolution process by a financial creditor(s).
Where the Adjudicating Authority (here NCLT) admits the application of the financial creditor, it is known as commencement of the Corporate Insolvency Resolution Process (CIRP).
As per new section 12A [Insolvency & Bankruptcy Code (Second Amendment) Act, 2018], the Adjudicating Authority may allow the withdrawal of application, on making an application by the applicant with the approval of 90% voting share of the Committee of Creditors
The Corporate Debtor shall apply to the Resolution Professional and the Committee of Creditors within 7 days and subsequently to Tribunal for approval.

Question 4.
There are certain persons who are not entitled to make application to NCLT for initiation of corporate insolvency resolution process. Explain.

Question 5.
Who are entitled and who are not eligible to make application to Adjudicating authority for corporate insolvency resolution process as per /Insolvency & Bankruptcy Code, 2016?
Answer:
→ In corporate insolvency resolution process, the financial creditors assess the viability of debtor’s business and the options for its revival and rehabilitation.

→ As per IBC, 2016, where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process. Thus, in case of default, the following people are entitled to initiate a corporate insolvency resolution process
(a) financial creditor,
(b) operational creditor, or
(c) corporate debtor itself.

→ However, as per Section 11 of the Insolvency and Bankruptcy Act, 2016, the following persons Eire not entitled to make application to NCLT for initiation of corporate insolvency resolution process
(a) a corporate debtor undergoing a corporate insolvency resolution process; or
(b) a corporate debtor having completed corporate insolvency res-olution process twelve months preceding the date of making of the application; or
(c) a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelve months preceding the date of making application; or
(d) a corporate debtor in respect of whom a liquidation order has been passed so that finality of the liquidation order is ensured.

Question 6.
Explain the steps to be followed for the “Corporate Insolvency Resolution process” with timelines.
Answer:
Following are the steps to be followed for the Corporate Insolvency Resolution Process (CIRP):
(a) In case of default committed by Corporate Debtor, the CIRP may be initiated by a financial creditor (Section 7), an operational creditor (Section 8) or the corporate debtor (Section 10).

(b) A Financial Creditor may apply to NCLT immediately upon do fault of corporate debtor. An Operational Creditor has to send Demand Notice to the Corporate Debtor. After 10 days from date of Demand Notice, the Operational Creditor shall apply to the NCLT.

(c) A Financial Creditor, Operational Creditor or Corporate Debtor shall propose the name of Insolvency Resolution Professional for the purpose of CIRP.

(d) The NCLT, within 14 days of receipt of application, may admit or reject application. Before rejecting, it should give notice to rectify the defects within 7 days of receipt of notice.

(e) Where the NCLT has admitted the application, it shall declare moratorium as well as appoint an Interim Resolution Professional (IRP).

(f) The Interim Resolution Professional shall make a public an-nouncement in newspaper (English and regional language) not later than three days from the date of his appointment. The public announcement shall contain the information of the Corporate Debtor under CIRP, name of the authority with which corporate debtor is registered. The last date for submission of claims and date on which CIRP will be closed.

(g) ‘Insolvency commencement date’ starts from the date of admission of application and it is to be completed within 180 days of commencement which can be extended by 90 days only one time by NCLT. The overall process shall be completed within 330 days including delays.

(h) The Interim Resolution professional to constitute Committee of Creditors (CoC) comprising of financial creditors (except related parties).

(i) The Resolution Professional shall manage the affairs of Corporate Debtor as a going concern, along with support of CoC and supervision of the NCLT. All decisions of Committee of Creditors shall be taken by vote not less than 66% of voting share of financial creditors.

(j) The Resolution Professional shall invite resolution plans from resolution applicants. A resolution applicant means any person who submits resolution plan. Such resolution plans shall place it before the Committee of Creditors for its approval. The resolution plan shall be accepted by the Committee of Creditors by 66% majority.

(k) Resolution Professional shall to submit approved Resolution Plan to NCLT which shall approve or reject it and order liquidation.

(l) The approved plan shall be binding on the corporate debtor, and its employees, members, creditors, guarantors and other stake-holders involved in the resolution plan.

(m) The moratorium ends on the date of approval of the resolution plan.

(n) Appeal may be made to NCLAT against the order passed by NCLT within 30 days from date of an order approving or rejecting the resolution plan.

(o) The Tribunal may order Liquidation in the following cases:

NCLT does not receive a resolution plan within the maximum time period permitted; or
NCLT rejects the resolution plan for non-compliance of the specified requirements; or
During CIRP, the Committee of Creditors have decided to liquidate the Corporate Debtor, in their meeting, by not less than 66% of the voting share.; or
Where resolution plan approved by NCLT is contravened by the Corporate Debtor.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Supply Under GST – Advanced Tax Laws and Practice Important Questions

December 28, 2022

Supply Under GST – Advanced Tax Laws and Practice Important Questions

Question 1.
Discuss in brief the ‘taxable event’ and the scope of the term ‘supply’ under GST law?
Answer:
The ‘taxable event’ under GST shall be the supply of goods or services or both in terms of Section 7 of the CGST Act, 2017. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.

The term ‘supply’ is wide in its import and covers all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service for consideration whether or not in the course or furtherance of business. It also includes transactions specified in Schedule I made without consideration.

Question 2.
What are the necessary elements that constitute supply under, CGST/SGST Act?
Answer:
In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e:

The activity involves supply of goods or services or both;
The supply is for a consideration unless the transaction is covered by Schedule I to the CGST Act.
The supply is made in the course or furtherance of business except in case of import of services;
The supply is a taxable supply; and
The supply is made by a taxable person.

Question 3.
What is Deemed Supply? Explain with examples?
Answer:
Deemed Supply means event or transaction where no or inadequate consideration is received for the supply of goods or services.

Schedule I to CGST Act, 2017: Activities to be treated as supply even if made without consideration

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

For Example:
(i) Mr. A who sells Air Conditioner (AC). He transfers 1 AC from stock in trade to his home for personal use would constitute as Supply.

(ii) Scrap of machinery destroyed by fire handed over to insurance company for settlement of claim. Since, ITC has been availed So, when the machinery destroyed by fire is handed over to insurance company in return for insurance compensation, it is a supply of goods.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods – (a) by a principal to his agent where the agent under-takes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. As per section 2(88) “Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.

As per section 2(5) of CGST Act, 2017 “Agent” means a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent by whatever name called who carries on supply or receipt of goods or services or both on behalf of another.

4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

For example: X Ltd. USA is the holding company of Y Ltd., India. Y Ltd. imports business consultancy services from A Ltd. in the course or furtherance of business then the aforesaid importation of service shall fall within the ambit of term “Supply” and Y Ltd. shall be liable to pay IGST.

Question 4.
State whether the following are supply of goods/services, as per GST law, with brief reasons:

Mr. X availed the architectural services of his son living in France (free of cost) for designing his residential building and factory layout.
Scrap of machinery destroyed by fire handed over to insurance company for settlement of claim.
Lease of land for two-wheeler parking stand.
Permitting use of registered patent for annual fee.
Transfer of tenancy right by executing and registering a document.

Answer:
1. In terms of Section 7 of the CGST Act, 2017, import of service for a consideration whether or not in the course of or furtherance of business is a supply. Here, the services received by Mr. X is without consideration, thus not a supply. It is not subject to GST.

2. As per Para 1 of Schedule I of the CGST Act, Permanent transfer or disposal of business assets where input tax credit has been availed on such assets is considered as supply. When the machinery destroyed by fire is handed over to insurance company in return for insurance compensation, it is a supply of goods.

3. As per Clause 2(a) of Schedule II of the CGST Act, any lease, tenancy, easement, licence to occupy land is a supply of services. Thus, lease of land for two-wheeler parking is a supply of service.

4. As per Clause 5(c) of Schedule II of the CGST Act provides that temporary transfer or permitting the use or enjoyment of any intellectual property right is supply of service. Hence, permitting use of registered patent/trademark shall amount to supply of service.

5. The activity of transfer of tenancy rights is squarely covered under the scope of supply of service in terms of section 7. However, renting of residential dwelling unit for use as a residence is exempt.

Question 5.
Examine the following independent transactions/activities in accordance with the provisions contained under in the CGST Act, 2017 and state in brief whether the same constitute “Supply” under the said Act:

Arya Pvt. Ltd. entered into a hire purchase agreement for ₹20 lakhs with Anu Machines Pvt. Ltd. for supply of a heavy-duty machine unit.
Asha got a LED TV of 52 inches from Sony Electronics Stores in exchange, for her old 52 inches TV.
M/s Bharat Electronics disposed scrap part of its electric unit to a scrap dealer in the normal course of business.
Mr. Babu Lai borrows an amount of ₹1,50,000 from one of his relatives Mr. Shyam Lai and agrees to repay the entire amount of ₹1,50,000 after a year.
M/s Raj Enterprises applied for a loan from State Bank of India against which loan processing fees and interest are charged by the bank.

Answer:
1. Hire purchase involves transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration, as per Schedule II read with section 7 of CGST Act, 2017 and thus be classified as supply of goods.

2. The supply of LED TV in exchange of old TV falls under the scope of supply under section 7 of the CGST Act, 2017 for Sony Electronics store. But the supply of old TV by Asha shall be included under scope of supply only if in the course or furtherance of her business.

3. The disposal of scrap part of electric unit to the scrap dealer is in the normal course or furtherance of business of M/s Bharat Electronics and thus shall be considered as supply.

4. The activity of borrowing from a relative is without any charge of interest and hence it will be considered as merely a transaction in money and shall not be treated as supply.

5. The activity of borrowing loan amount for which a consideration in form of processing fee has been charged by State Bank of India shall be considered as supply of service. Further, with respect to activity of borrowing loan amount for consideration in form of interest shall also be supply of service but it is fully exempt vide Notification No. 12/2017-CT read with section 11 of CGST Act.

Question 6.
ACD Sweets Ltd., registered in Kerala dealing in supply of sweets from its shop in city “X”. It has shops (units) in City “Y” and City “Z” in Kerala and City “W” in Tamil Nadu. It transfers some of its stock from its shop in City “X” to its other units in Kerala (intra-state) and Tamil Nadu (inter-state). Whether such self-supplies are taxable under Goods and Services Tax?
Answer:
The definition of supply given under section 7 of CGST Act, 2017 is an inclusive one. It does not specify that supply is to be made by one person to another. So, self-supplies are to be treated as supply in terms of section 7 of CGST Act.

Establishment of same person in different states to be treated as establishment of distinct person [Section 25(5) of CGST Act, 2017] Further, section 25(5) of CGST Act, 2017 provides that where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory or in the same state or Union territory provided such establishment is separately registered in GST, then such establishments shall be treated as establishments of distinct persons.

Clause (2) of Schedule I of CGST Act, 2017 inter alia provides that supply of goods & services between distinct persons as specified in section 25 made in the course or furtherance of business is to be treated as supply even if made without consideration.

The legal position is thus crystalized that Inter-state self-supplies such as stock transfers, branch transfers or consignment sales shall be taxable under IGST even though such transactions may not involve payment of consideration and Intra-state self-supplies shall also be taxable provided the recipient is separately registered.

In view of the above discussed legal position, Inter-State transfer of stock made by ACD Sweets Ltd. i.e. to its shop located in City “W” in Tamil Nadu are taxable under GST.

Assuming that the shops of ACD Sweets Ltd. Located in City “Y” and City “Z” in Kerala are not separately registered, self-supplies made to such shops are not taxable under GST.

Question 7.
Distinguish between composite supply and mixed supply. Explain in the context of CGST Act, the liability on composite and mixed supplies?
Answer:
In terms of Section 2(30) of the CGST Act, 2017, composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination there of, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The illustration of composite supply appended to Section 2(30) is as follows: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

In terms of Section 2(74) of the CGST Act, 2017 mixed supply means two or more individual supplies of goods or services or any combination there of, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

The illustration of mixed supply appended to Section 2(74) of the CGST Act, 2017 is as follows: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

The tax liability on a composite or a mixed supply shall be determined in the following manner:

(i) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. Hence, in case of composite supply, tax rate as applicable to principal supply would apply to entire supply; and

(ii) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Hence, in case of mixed supply, highest tax rate as applicable to any single supply would apply to all supplies forming part of mixed supply.

Question 8.
State which of the following is composite supply or mixed supply under the GST law:

Sale of car with warranty coverage.
Gift pack with chocolates and books.
Sale of Refrigerator with power stabilizer.
Hotel accommodation with complimentary breakfast.
Doctor providing consultancy and dispensing medicines.

Answer:
Composite Supply or Mixed Supply:

1. Composite Supply:
Sale of car with warranty coverage is a compo¬site supply as both supplies are naturally bundled and sale of car is a principal supply.

2. Mixed Supply:
Gift pack with chocolates and books are not bundled due to natural necessities and hence they are mixed supply.

3. Mixed Supply:
Refrigerator and power stabilizer are not inseparable and are not bundled due to natural necessities. They are mixed supply.

4. Composite Supply:
Hotel accommodation with complimentary breakfast is a composite supply as the principal supply is supply of accommodation service.

5. Composite Supply:
Doctor providing consultancy and dispensing medicine is a composite supply as the principal supply is supply of medical service.

Question 9.
Harry has rented his building consisting of ground floor, first and second floors. The building is located in a residential complex. The ground floor is rented out for the purpose of residence to B. The first and second floors have been rented out for providing commercial coaching to the same person B. Harry charges a lump-sum amount of ₹1 lakh as rent from B. Renting of immovable property for residential purposes is exempted and for commercial purposes attracts 18%.

Is Harry liable to pay GST and if yes, what would be the value on which tax has to be paid, say for the month of April, 2018?

Would your answer be different, if the rent for residential purposes is ₹25, 000 and the rent for commercial purposes is ₹75, 000 per month? Harry has effects other taxable supplies also.
Answer:
Even though the building is part of residential complex, it has partly been used for commercial purpose. As the rents for residential purpose and commercial purpose have not been segregated and no break-up is available, the supply is a mixed supply as per section 2(74) of the CGST Act, 2017.

In the case of mixed supply, the supply that attracts the highest rate of tax that is commercial renting would be applicable on the entire amount of ₹1 lakh. Therefore, Harry would be liable to pay ₹18, 000 towards GST (₹1,00,000 × 1896).

If rent for the residential purpose is separately charged and the rent for commercial purpose is also charged separately, even if such charges are collected from a single person, the rent for immovable property rented out for residential purpose is exempt and would not attract the levy of GST.

It will suffice if GST is paid on the rent for the portion used for commercial purpose which amounts to 113, 500 (₹75, 000 × 18%).

Question 10.
Sugandha Enterprises, dealers of Watches, Leather goods and other items is supplying a Kit containing a piece of Watch, a Wallet and a Pen bundled as a Combo Pack for ₹12,500. The rales of GST on pen is 12%, on wallet is 18% and on watch is 28%. The selling price of individual items is Watch ₹11, 000, Wallet ₹1,000 and Pen ₹1,500.

Determine the nature of supply of the combo pack and the rate of GST to be charged.

Answer:
Each of the goods in the package has individual identity and can be supplied separately, but is deliberately supplied conjointly for a single consolidated price. Hence, the supply of all the three items in the combo pack would constitute mixed supply as per section 2(74) of CGST Act, 2017.

As per section 8(b) of CGST Act, 2017, the tax rates applicable in case of mixed supply would be the rate of tax attributable to that one supply (goods, or services) which attracts the highest rate of tax from amongst the supplies forming part of the mixed supply. Therefore, entire package will be chargeable to GST @28%.

Question 11.
Explain: The liability on composite and mixed supplies?
Answer:
As per section 8 of CGST Act, 2017, the tax liability on a composite or a mixed supply shall be determined in the following manner:

(a) A composite supply Comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. Hence, in case of composite supply, tax rate as applicable to principal supply would apply to entire supply; and;

(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Hence, in case of mixed supply, highest tax rate as applicable to any single supply would apply to all supplies forming part of mixed supply.

Question 12.
In the following cases based on information given and the query, give your comments on the taxability under GST and the rate of GST applicable, if any:

(i) Space Bazar offers a free bucket with detergent purchased. It is composite supply or mixed supply? Assume rate of GST for detergent @ 28% and bucket @ 18%.

(ii) Mr. A booked a Rajdhani train ticket, which includes meal. It is composite supply or mixed supply?

(iii) Mr. Ravi being a dealer in laptops, sold a laptop bag along with the laptop to a customer, for ₹ 55,000. CGST and SGSTfor laptop @ 18% and for laptop bag @ 28%. What would be the rate of tax leviable? Also find the GST liability.

(iv) Renting of vacant land to a stud farm for ₹ 1,50,000. Is it a supply of service? Will GST be leviable?

(v) A contract awarded by Kolkata Municipal Corporation (KMC) for repair of a particular road to M/s B Ltd., with terms and conditions that the entire work should be completed within 30 days. However, there is a delay of 10 days to complete the work. KMC charged liquidated damaged of ₹1,20,000 and the same recovered from M/s B Ltd. Applicable rate of CGST 9% and SGST 9%. Previous year turnover of M/s B Ltd. ₹2 crores.

Find the following:
(a) Who is liable to pay GST on what amount?
(b) Total tax liability if any.

(vi) M/s X Ltd. paid penalty under section 49 of the CGST Act, 2017, ₹2,00,000 to the Department in the month of October, 2018. Is it taxable under the GST law?

(vii) M/s M & Co. a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture of furnish his house permanently. Will the transaction be a supply in terms of GST Act?
Note: ITC on such furniture not availed.
Answer:
(i) This is a mixed supply. These items can be sold separately. Product which has the higher rate, will apply on the whole mixed bundle i.e. 2896.

(ii) It is a bundle of supplies. It is composite supply where the products cannot be sold separately. The transportation of passenger is, therefore, the principal supply. Rate of tax applicable to the principal supply will be charged to the whole composite bundle. Therefore, rate of GST applicable to transportation of passengers by rail will be charged by IRCTC on the booking of Rajdhani ticket.

(iii) If the laptop bag is supplied along with the laptop in the ordinary course of business, the principal supply is that of the laptop and the bag is an ancillary. Therefore, it is a composite supply and the rate of tax would be that as applicable to the laptop. Hence, applicable rate of GST is 1896 on ₹55,000. CGST is ₹4,950 and SGST is ₹4,950.

(iv) It is supply of service. GST is liable to be paid.

(v) In the ordinary course it is a supply of service. However, non-performance of contract by the supplier of service in case of supplies to Government, local authority is covered under exemption. The fine or penalty chargeable by Government or local authority imposed for violation of statute, bye-laws, rules or regulations or contract are not leviable to GST. Hence no liability to GST and no tax liability.

(vi) Such payment is not a supply of service. The fine or penalty chargeable by Government or local authority imposed for violation of statute, bye-laws, rules or regulations are not leviable to GST. The penalty of ₹ 2,00,000 is not taxable under GST law.

(vii) No, the transfer of the furniture by the owner without consideration is not a supply of goods, because credit is not allowed in case of personal consumption of business assets under section 17(5)(g) of CGST Act, and ITC on such furniture is not availed.

Question 13.
Explain the concept of supply made in the course or furtherance of business as a taxable event under GST law.
Answer:
Supply made in the course or furtherance of business:
(a) In the course of business: Every person carries out certain activities regularly for running trade or commerce.
(b) Furtherance of business: Every business person thinks how to develop his business or carrying out new activities. Such activities called as furtherance of business.

GST is essentially a tax only on commercial transactions. Hence, only those supplies that are in the course or furtherance of business qualify as supply under GST. Hence, any supplies made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business as defined in the Act.

Sale of goods or service even as avocation is a supply under GST. Therefore, even if a famous politician paints painting for charity and sells the paintings even as a onetime occurrence, the sale would constitute supply.

Supply Under Gst Notes

Sections involved: 7 and 8 of CGST Act (including Schedules I, II, and IH to CGST Act).
What is supply is discussed in section 7(1) of the CGST Act?

Clause (a): All forms of supply for CONSIDERATION and IN COURSE OR FURTHERANCE OF BUSINESS.
Clause (b): IMPORT OF SERVICE for consideration whether or not in course or furtherance of business.
Clause (c): Activities specified in SCHEDULE I, made or agreed to be made without consideration. 2

Section 7(1A): Certain activities to be treated as supply of goods and § certain activities as supply of services as referred in SCHEDULE II. f
Section 7(2): The activities or transactions specified in SCHEDULE in are neither supply of goods nor supply of services.
Apart from this, such activities or transactions undertaken by Central Government, State Government or Local Authorities in which they are engaged as public authorities, as may be notified by Government are also neither supply of goods nor supply of services.
Section 8 deals with taxability of COMPOSITE SUPPLY* and MIXED SUPPLY**

a. Composite Supply shall be treated as supply of such PRINCIPAL
b. Mixed Supply shall be treated as supply of that particular supply which attracts HIGHEST RATE OF TAX.

COMPOSITE SUPPLY [Section 2(30) of CGST Act]: It means supply consisting of two or more taxable supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. (Here, Principal supply means supply of goods or services which constitutes the predominant element of a composite supply, and to which any other supply forming part of that composite supply is ancillary section 2(90) of CGST Act.)
**MIXED SUPPLY [Section 2(74) of CGST Act]: It means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

CS Professional Advance Tax Law Notes

Tax Treaties – Unilateral And Bilateral Relief – Advanced Tax Laws and Practice Important Questions

December 28, 2022

Tax Treaties – Unilateral And Bilateral Relief – Advanced Tax Laws and Practice Important Questions

Question 1.
Reddy India Ltd. is an Indian company. The following incomes are noted from its books of account:
Income from a business in India: ₹ 3,80,000
Income from a business in a Foreign country with whom India has ADT Agreement: ₹ 2,16,000
According to the ADT agreement, ₹ 2,16,000 is taxable in India. However, it can also be taxed in foreign countries @ 11.85% which can be set off against Indian Tax liability.
Find out the Indian Tax liability.
Answer:
(Computation of net tax payable by Reddy India Ltd. for Assessment Year) 2021-22

Particulars	Amount (₹)	Amount (₹)
Income from Business in India		3,80,000
Income from a business in a foreign country (Taxable in India as Reddy India Ltd. is Resident in India being Indian Co.)		2,16,000
Total Income		5,96,000
Tax on above @ 25% (Assuming that Turnover in PY 2018-19 did not exceed ₹ 400 crorcs) 5,96,000 × 25%	1,49,000
Add: H&EC @4%	5,960	1,54,960
Less- Relief u/s 90 Le. As per DTAA, to the extent of tax paid on ₹ 2,16,000 in foreign country (2,16,000 × 11.85%)		(25,596)
Net Tax liability		1,29,364
Rounded off to nearest of ₹ 10 u/s 288B		1,29,360

Question 2.
Mahesh, aged 64 years, is a resident in India. His income is ₹ 16,80,000 from a business in India and ₹ 5,45,000 from a business in a foreign country with whom India has an agreement for the avoidance of double taxation (ADT). According to the ADT agreement, income is taxable in the country in which it is earned and not in another country. However, in another country, such income can be included in the computation of tax rates. According to the tax laws of foreign countries, Mahesh has paid ₹ 32,000 as tax in that country. During the previous year, Mahesh has paid ₹ 28,000 as tuition fee for his daughter in India and ₹ 90,000 as tuition fee for his son outside India for full-time education. Mahesh has also received interest of ₹ 48,000 on Government Securities. Find out the tax liability of Mahesh.
Answer.
Computation of Tax Liability of Mr. Mahesh for Assessment Year 2021-22

Particulars	Amount(₹)	Amount(₹)
Profits and Gains from Business or Profession in India		16,80,000
Income from other sources (Interest on Government Securities)		48,000
Gross Total Income		17,28,000
Less-. Deduction under Chapter VIA
u/s 80C: Tuition Fees of a daughter, education in India		28,000
Total Income		17,00,000
Add: Foreign Income only for computing effective rate of tax as per DTAA		5,45,000
Total Income for computing effective rate of tax		22,45,000
The effective rate of Tax
Tax on ₹ 22,45,000
₹ 0-3 lacs (Being Resident Senior Citizen as age 60 or more than 60 in the PY)	–
₹ 3 to 5 lacs, Tax @5%	10,000
₹ 5 lacs to 10 lacs @ 2096	1,00,000
Above ₹ 10 lacs @ 3096 (12,45,000 × 30/100)	3,73,500
	4,83,500
Add: H&EC @ 496	19,340
	5,02,840
Therefore, effective rate of tax (5,02,840 / 22,45,000 X 1 00)%	22.3982
Therefore, Tax liability in India on ₹ 17,00,000 (1700000 X 22.3982/100)		3,80,769
Rounded off to nearest of 10 u/s 288B		3,80,770
Relief (For your understanding)
Tax payable if there was no DTAA	5,02,840
Tax payable considering clause in DTAA	3,80,770
Relief as per DTAA AS PER GIVEN CLAUSE	1,22,070

Question 3.
Amar, an individual, resident of India, receives the following payments after TDS during the previous year 2020-21:
Professional Fees on 17-8-2020: ₹ 2,40,000
Professional Fees on 4-3-2021: ₹ 1,60,000
Both the above services were rendered in Pakistan on which TDS of 4 ₹ 50,000 and ₹ 30,000 respectively has been deducted. He had incurred an expenditure of ₹ 2,40,000 for earning both these receipts incomes. His income from other sources in India is ₹ 3,00,000. Compute the tax liability of Amar and also relief under section 91, if any, for Assessment Year 2021-22.
Answer:
Computation of Tax liability of Mr. Amar for Assessment Year 2021-22

Particulars	Amount (₹ )	Amount (₹ )
Gross Income from Pakistan (Net Received + TDS)	4,80,000
Less: Deductions w.r.t Expenditures incurred to earn this income	2,40,000	2,40,000
Indian Income		3,00,000
Gross Total Income/Total Income		5,40,000
Tax
2.5 lacs to 5,00,000, Tax @ 5%	12,500
5 lacs to 10 lacs, Tax @ 20%	8,000
Total	20,500
Add: Health & Education Cess @ 4%	820	21,320
Less: Relief u/s 91 of Income-tax Act
Lower of 2
Doubly Taxed Income × Indian Rate of Tax (2,40,000 × 3.9481%)	9,475
Doubly Taxed Income × Foreign Rate of Tax (2,40,000 × 16.6667%)	40,000
Relief u/s 91		9,475
Net Tax liability		11,845
Rounded off to nearest of ₹ 10 u/s 288B		11,850
Working Notes:
Indian Rate of Tax (21,320/5,40,000 × 100)	3.9481
Foreign Rate of Tax Total TDS/Total Income in foreign × 100 (80,000/4,80,000 × 100)	16.6667

Question 4.
Lolita, a resident Indian has derived the following income:
(a) Income from Profession: ₹ 4,80,000
(b) Share income from a partnership firm in country M (Tax paid in-country M for this income in equivalent Indian ₹ 10,000): ₹ 50,000
(c) Commission income from a concern in country N (Tax paid in-country N @ 20%) converted in Indian ₹ 35,000.
(d) Interest from scheduled banks: ₹ 18,000
She wishes to know whether she is eligible for any double taxation relief and if so, it’s quantum. India does not have any double taxation Avoidance Agreement with Country M & Country N.
Answer:
Computation of Tax liability for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Income from profession		4,80,000
Income from other sources (Interest from Scheduled Banks)		18,000
Share Income from Partnership Firm in Country M		50,000
Commission FROM CONCERN IN Country N		35,000
Gross Total Income/Total Income		5,83,000
Tax Liability
On Income up to ₹ 2,50,000
On Income Between ₹ 2.5 lacs to ₹ 5,00,000 @ 5%	12,500
On Income Between ₹ 5 lacs to ₹ 10,00,000 @ 20%	16,600
	29,100
Add: H & EC @ 4%	1,164	30,264

Less: Relief u/s 91 of Income-tax Act w.r.t. Unilateral relief
w.r.t. Income from Country M
Doubly Taxed Income from M X Indian rate of tax (₹ 50,000 × 5.1911%) or;	2,596
Doubly Taxed Income X Foreign rate of tax of Country M (₹ 50,000 × 20%)	10,000
Relief		2,596
w.r.t. Country N
(₹ 35,000 × 5.1911%) or;	1,817
(₹ 35,000 × 20%)	7,000
Relief		1,817
Therefore, Tax liability		25,851
Rounded off to nearest of ₹ 10 u/s 288B		25,850

Working Note:
Indian Rate of Tax (₹ 30,264/₹ 5,83,000 × 100)	5.1911
Foreign Rate of Tax w.r.t. Country M (₹ 10,000/ ₹ 50,000 × 100)	20.00

Question 5.
Paresh, aged 66 years and an ordinary resident in India, is a professional. He has earned ₹ 1,00,000 from services provided outside India. His foreign income was taxed at 20% in that country where services were rendered. India does not have any tax treaty with that country. Assuming that the Indian income of Paresh is ₹ 6,00,000, what relief of tax under section 91 of the Income-tax Act, 1961 will be allowed to him? He has contributed ₹ 32,000 towards PPF.
Answer:
Computation of Tax liability of Mr. Paresh for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Foreign Income		1,00,000
Indian Income		6,00,000
Gross Total Income		7,00,000
Less: deductions under Chapter VI-A u/s 80C (Deposit in PPF)		32,000
Total Income		6,68,000
0-3 lacs (No Tax being Resident Senior Citizen)	–
3 lacs to ₹ 5,00.000	10,000
₹ 5 lakhs to ₹ 10,00,000, Tax @ 20% (₹ 6,68,000 – ₹ 5,00,000) × 20%	33,600
Sub-Total	43,600
Add: H & FX @ 4%	1,744	45,344
Less: Relief u/s 91
Lower of the following
Doubly Taxed Income X Indian Rate of Tax (₹ 1,00,000 × 6.7880%)	6,788
Doubly Taxed Income X Foreign Rate of Tax (₹ 1,00,000 × 20%)	20,000
Therefore, Relief u/s 91		6,788
Net Tax liability		38,556
Rounded off to nearest of ₹ 10 u/s 288B		38,560
Working Notes:
Indian Rate of Tax (₹ 45,344/₹ 6,68,000 × 100)	6.78

Foreign Rate of Tax	20.00

Question 6.
Shilpa, an individual, and citizen of India received remuneration from a foreign client in the previous year 2020-21. There is no DTAA in that country. The remuneration was ₹ 60,00,000 and ₹ 12,00,000 was a tax imposed by that country. Income from other sources of Shilpa in India is ₹ 9,50,000. She has deposited ₹ 1,00,000 in PPF in the previous year 2020-21.
Compute the tax relief available in India, if she brings ₹ 48,00,000 in India in convertible foreign exchange.
Answer:
Computation of tax liability of Mrs. Shilpa for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Foreign Income		60,00,000
Indian Income		9,50,000
Gross Total Income		69,50,000
Deduction u/s 80C		1,00,000
Total Income		68,50,000
Tax Liability
a. On Income up to × 2,50,000	–
b. On Income between × 2.5 lacs to 5 lacs	12,500.00
c. On income between × 5 lacs to 10 lacs	1,00,000
d. On Income above × 10 lacs @ 30%	17,55,000
	18,67,500
Add: Surcharge @ 10% as Total Income exceeds
X 50 lacs but does not exceed X 1 crore	1,86,750
Sub-Total	20,54,250
Add: H&E @ 4% of Sub Total	82,170	21,36,420
Less: Relief u/s 91 of Income-tax Act i.e.
Unilateral Relief
Lower of 2:
Doubly Taxed Income × Indian Rate of Tax
₹ 60,00,000 × 31.1886%	18,71,316

Doubly Taxed income × Foreign rate of tax
₹ 60,00,000 × 20%	12,00,000

Therefore, Relief u/s 91		12,00,000
Net Tax Liability		9,36,420
Rounded off to nearest of ₹ 10 u/s 288B		9,36,420
Working Notes	%

Indian Rate of Tax	31.1886
(₹ 21,36,420/₹ 68,50,000 × 100)

Foreign Rate of Tax	20.00
(₹ 12,00,000/₹ 60,00,000)

Question 7.
Nitin, a resident of India has the following incomes during the previous year 2020-21:
Income from Textiles business in India: ₹ 7,30,000
Income from Garments business in Canada (with which India does not have DTAA): ₹ 2,40,000
Tax Levied in Canada on the above said income: ₹ 54,000 Purchase of NSC issue: ₹ 70,000
Compute the tax liability of Nitin.
Answer:
Computation of Tax liability of Mr. Nitin for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Indian Income		7,30,000
Foreign Income		2,40,000
Gross Total Income		9,70,000
Less: Deduction under Chapter VI-A
u/s 80C (NSC)		70,000
Total Income		9,00,000
Tax Liability
On Income up to ₹ 2,50,000	–
On Income between ₹ 2.5 lacs to ₹ 5 lacs	12,500
On Income between ₹ 5 lacs to ₹ 9 lacs	80,000
Total	92,500
Add: H& EC @ 4%	3,700	96,200
Less: Relief u/s 91 of Income-tax Act
Lower of the following
a. Doubly Taxed Income × Indian Rate of Tax (2,40,000 × 10.6889%)	25,653

b. Doubly Taxed Income × Foreign rate of Tax (2,40,000 × 22.5%)	54,000
Relief u/s 91		25,653
Net Tax liability		70,547
Rounded off to nearest of ₹ 10 u/s 288B		70,550

Working Notes:
Indian Rate of Tax
₹ 96,200/₹ 9,00,000 × 100	10.6889
Foreign Rate of Tax
₹ 54,000/₹ 240,000 × 100	22.50

Question 8.
Yogita Kumari, a resident individual, is a freelancer dancer deriving an income of ₹ 75,000 from shows performed outside India. A tax of ₹ 10,000 was deducted at source in the country where the shows were performed. India does not have any DTAA with that country. Her income in India amounted to ₹ 3,00,000. Compute tax liability of Yogita for the assessment Year 2021-22 assuming she has deposited ₹ 10,000 in Public Provident Fund and paid ₹ 20,000 as medical insurance premium in respect of her father (Age 65 years)
Answer:
Computation of Tax liability of Mrs. Yogita for Assessment Year 2021-22

Particulars	Amount(₹)	Amount(₹)
Foreign Income		75,000
Indian Income		3,00,000
Gross Total Income		3,75,000
Less: Deductions under Chapter VIA
u/s 80C (PPF)	10,000
u/s 80D (Mediclaim)	20,000	30,000
Total Income		45,000
Tax Liability
0-2.5 lakhs	–
2.5 lakhs to 5 lakhs, Tax @ 5%	4,750
(3,45,000 – 2,50,000) × 5%
Total	4,750
Less: Rebate to the extent of ₹ 2,500 or Tax liability, whichever is less as TI does not exceed ₹ 3,50,000 for resident individual	2,500
Add: H & EC @ 4%	90	2,340
Less: Relief u/s 91 i.e. Unilateral Relief
Lower of 2
Doubly Taxed income X Indian rate of tax (₹ 75000 × 0.6783%)	509
Or
Doubly Taxed income X Foreign rate of tax (₹ 75,000 × 13.3333%)	10,000
Therefore Relief		509
Therefore, Tax Liability		1,831
Rounded off to nearest of ₹ 10 u/s 288B		1,830
Working Notes
Indian Rate of tax (%)	0.6783
(₹ 2,340/₹ 3,45,000 × 100)
Foreign Rate of Tax (%)	13.3333
(₹ 10,000/₹ 75,000 × 100)

Question 9.
The following are the particulars of Income earned by Mrs. Sunita, a resident Indian aged 25 years, for the assessment year 2021-22:

Particulars	Amount (₹)
Income from playing basketball matches in Netherland	12,00,000
Tax paid in Netherland	1,80,000
Income from playing Basketball matches in India	19,20,000
A life insurance premium paid	1,20,000
A medical insurance premium paid through net banking for her father aged 62 years	25,000

Compute her total income and tax liability for the assessment year 2021-22. Assume there is no Double Taxation Avoidance Agreement between India and Netherland.
Answer:
Computation of Tax Liability of Mrs. Sunita for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Income from playing basketball matches in a foreign country		12,00,000
Income from playing basketball matches in India		19,20,000
Gross Total Income		31,20,000
Less: Deductions under Chapter VI.A
u/s 80C (Life Insurance Premium)	1,20,000
u/s 80D (Mediclaim for father who is Senior Citizen, therefore 25,000 or 50,000 whichever is less)	25,000	1,45,000
Total Income		29,75,000
Tax on Above
0-2.5 lacs	–
2.5 lacs to 5 lacs, tax @5%	12,500
5 lacs to 10 lacs, tax c 20%	1,00,000
On income above 10 lacs, tax @ 30%	5,92,500
	7,05,000
Add: H&EC 4% of tax	28,200	7,33,200
Less: Relief u/s 91 w.r.t. doubly taxed Income
Lower of the following:
Doubly Taxed Income 2,95,745 X Indian rate of tax ( 12,00,000 × 24.645496)
or;
b. Double Taxed Income × Foreign rate of tax (1200000 × 15%)	1,80,000
Therefore, relief u/s 91		1.80,000
Therefore, Tax liability		5,53,200
Working Notes
Indian rate of Tax 24.6454 ( 7,33,200/e 29,75,000 × 100)	24.6454
Foreign Rate of Tax	15.00

Question 10.
Mrs. Kareena, an individual resident, and citizen of India earned remuneration in the foreign currency from an enterprise in a foreign country during her stay in that country in the previous year 2020-21. There is no DTAA in that country. The remuneration was ₹ 8,00,000 and ₹ 1,60,000 was deducted at source by the enterprise. Income from other sources of Mrs. Kareena in India was ₹ 2,00,000.

Compute the relief available to her u/s 91 assuming that Mrs. Kareena f brings ₹ 3,00,000 in India in convertible foreign exchange by 30th September 2020. Also, compute the taxable income and tax liability of Mrs. Kareena for the Assessment Year 2021-22.
Answer:
Computation of Tax liability for Mrs. Kareena for Assessment Year 2021 -22

Particulars	Amount (₹)	Amount (₹)
Foreign Income		8,00,000
Indian Income		2,00,000
Gross Total Income/Total Income		10,00,000
Tax Liability
a. On Income up to ₹ 2,50,000	–
b. On Income between ₹ 2.5 lacs to ₹ 5 lacs	12,500
c. On Income between ₹ 5 lacs to ₹ 10 lacs	1,00,000
	1,12,500
Add:H&EC@4%	4,500	1,17,000
Less Relief under section 91
Lower of the following:
a. Doubly Taxed Income × Indian Rate of Tax ( 8,00,000 × 11.70)	93,600
b. Doubly Taxed Income X Foreign rate of ( 8,00,000 × 20%)	1,60,000
Relief u/s 91		93,600
Net Tax Liability		23,400
Rounded off to nearest of 10 u/s 288B		23,400
Working Notes:
Indian Rate of Tax ( 1,17,000/e 10,00,000 × 100)	11.70
Foreign Rate of Tax ( 1,60,000/e 8,00,000 × 100)	20.00

Question 11.
Arvind, a textile merchant, and resident Indian is doing business in India and abroad. During the previous year 2020-21, he disclosed the following information:
Figures in ₹
Income from a business in India 27,00,000
Income from a business in country A with which India does not have
Agreement for avoidance of double taxation 15,00,000
Income Tax levied by Government in country A 5,00,000
Loss from business in country B with which also India does not have
Agreement for avoidance of double taxation (4,00,000)
Contribution to Public Provident Fund 1,50,000
Payment of Life Insurance Premium on the life of his 20,000 father and Mother
Compute the tax liability of Arvind for the Assessment Year 2021-22.
Answer:
Computation of Tax Viability of Mr. Arvind for Assessment Year 2021-22

Particulars	Amount(₹)	Amount(₹)
Income from a business in India.		27,00,000
Income from Foreign country A		15,00,000
Loss from foreign Country B being set off		-4,00.000
Gross Total Income		38,00,000
Less: Deductions under Chapter VIA
u/s 80C (PPF) (LIP does not qualify here as Parents life)		1,50,000
Total Income		36,50.000
Tax Liability
On Income up to ₹ 2.5 lacs	–
Income between 2.5 lacs- ₹ 5 lacs, Tax 5%	12,500
Income between 5 lacs to 10 lacs, Tax 20%	1,00,000
Income above ₹ 10 lacs, Tax @ 30%	7,95.000
	9,07,500
Add: H & EC 4% Less: Relief u/s 91	36,300	9,43,800
Lower of the following
Doubly Taxed Income X Indian Rate of Tax (Only Country A)( ₹ 1500000 × 25.8575%)	3,87,862
Doubly Taxed income X Foreign Rate of Tax (Only Country A)( ₹ 1500000 × 33.3333%)	5.00.000
Therefore, Relief u/s 91		3,87,862
Net Tax liability		5,55,938
Rounded off to nearest of ₹ 10 u/s 288B		5,55,940
Working Notes
Indian Rate of Tax (₹ 9,43,800/₹ 36,50,000 × 100)	25.8575
Foreign Rate of Tax (₹ 5,00,000/₹ 15,00,000 × 100)	33.3333

Question 12.
Usha, aged 50 years, a resident in India for the previous year 2020-21 receives a professional fee of ₹ 4,50,000 for rendering services outside India. A tax of ₹ 1,20,000 was deducted at source in the country with which India does not have any double taxation avoidance agreement. She incurred ₹ 1,60,000 as an expenditure for earning this fee. She has income from other sources in India amounting to ₹ 2,50,000. Compute the tax liability and relief under section 91 of Income-tax Act, 1961.
Answer:
Computation of Tax liability for Usha for the Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Gross amount received from a foreign country	4,50,000
Less: Expenses incurred to earn such income	-1,60,000	2,90,000
B. Indian Income (Income from other sources)		2,50,000
C. Gross Total Income/Total Income		5,40,000
Tax Liability
₹ 0 to ₹ 2.5 lacs	–
₹ 2.5 lacs to ₹ 5 lacs, Tax @ 5%	12,500
₹ 5 lacs to ₹ 10 lacs, tax @ 20%	8,000
Sub Total	20,500
Add: H & EC @ 4% of tax	820	21,320
Less-. Relief u/s 91
ie. Unilateral Relief
Lower of the following:
Doubly Taxed Income X Indian Rate of Tax (₹ 2,90,000 × 3.9481%)	11,449
Doubly Taxed Income X Foreign rate of tax (₹ 2,90,000 × 26.6667%)	77,333
Relief		11,449
Net Tax liability		9,871
Rounded off to nearest of ₹ 10 u/s 288B		9,870
Working Notes:
Indian Rate of Tax	4%
(₹ 21,320/₹ 5,40,000 × 100)
Foreign Rate of Tax	27%
(₹ 1,20,000/₹ 4,50,000 × 100)

Question 13.
Mr.Beeta, aged 30 years, resident in India and a musician derived income of ₹ 5,00,000 from concerts performed outside India. A tax of ₹ 1,00,000 was deducted at the source in the country where the concert was given by Mr.Beeta. India does not have any agreement with that country for the avoidance of double taxation. Indian income of Mr. Beeta during the year was ₹ 3,00,000. Work out the amount of tax payable and relief due to him under section 91 for the Assessment Year 2021-22.
Answer:
Computation of Tax liability for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Foreign Income		5,00,000
Indian Income		3,00,000
Gross Total Income/Total Income		8,00,000
Tax Liability
On Income upto ₹ 2,50,000	–
Income between 2.5 lacs to 5 lacs@ 5%	12,500
Income between ₹ 5 lacs to ₹ 8 lacs @ 20%	60,000
Total	72,500
Add: H & EC @ 4%	2,900	75,400
Less: Relief under section 91
Lower of the following:
Doubly Taxed Income X Indian Rate of Tax	47,125
₹ 5,00,000 X 9.4250%
Doubly Taxed Income X Foreign Rate of Tax	1,00,000
₹ 5,00,000 × 20%
Therefore, Relief u/s 91		47,125
Net Tax Liability		28,275
Rounded off to nearest of ₹ 10 u/s 288B		28,280
Working Notes:
Indian Tax Liability (₹ 75400/ ₹ 8,00,000 × 100)	9.4250
Foreign Tax liability (₹ 1,00,000/₹ 5,00,000 × 100)	20.00

Question 14.
Compute the amount of tax relief under section 91(1) and of tax payable by the assessee, an Indian resident, aged 50 years having following incomes during the Previous Year 2020-21:
a. Business income in India: ₹ 5,50,000
b. Business income in Country A of ₹ 2,00,000 on which tax was deducted in the foreign country by the Government of ₹ 50,000
c. Loss from business in country B: ₹ 1,00,000
(Note: Government of India does not have any Double Taxation Avoidance Agreement with either Country A or Country B.)
Answer:
Computation of tax liability & relief u/s 91 for Assessment Year 2021-22

Particulars	Amount (₹)	Amount (₹)
Income from Business in India		5,50,000
Income from business in Country A		2,00,000
Loss from business in Country B		-1,00,000
Gross Total Income/Total Income		6,50,000
Tax liability
On income upto ₹ 5 lacs	12,500
On income between ₹ 5 lacs to ₹ 6.5 lacs	30,000
	42,500
Add: H&E @ 4%	1,700	44,200
Less: Relief u/s 91
Doubly Taxed Income × Indian Rate of Tax
₹ 2,00,000 X 6.8%	13,600
Doubly Taxed Income × Foreign Rate of Tax
₹ 2,00,000 X 25%	50,000
Relief u/s 91		13,600
Net Tax liability		30,600
Rounded off to nearest of ₹ 10 u/s 288B		30,600
Working Notes:
Indian Rate of Tax (₹ 44,200/₹ 6,50,000 × 100)	6.80
Foreign Rate of Tax (₹ 50,000/₹ 2,00,000 × 100)	25.00

Question 15.
Discuss the modes of granting relief under avoidance of double taxation agreements.
Answer:
Primarily there are two modes of granting relief under the bilateral agreements le. DTAAs with respect to doubly taxed income:
a. Exemption method:
Under this method, the income from various specified sources which j are likely to be taxed in both the countries is taxed only in one of the two countries.

b. Tax Credit method:
Under this method, the assessee is liable to have his income taxed in both countries. The home country calculates the tax after including the income earned in the source country. Thereafter, the home j country allows deduction of the tax paid in the source country from j the tax payable in its country.

Question 16.
Discuss the scope of the provisions the Central Government may make under section 90A(1) of the Income-tax Act, 1961 in respect of an agreement between specified associations.
Answer:
The provisions of section 90A are the same as of section 90. The only modification is that the power to enter into DTAA has been granted to any specified association in India, with any specified association in the specified territory outside India. Such DTAA shall be applicable only if the same has been adopted by Central Government by notification in the official gazette. Specified Association means any institution, association, or body, whether incorporated or not, functioning under any law and which may be notified as such by Central Government.

Question 17.
Write a short note on unilateral relief u/s 91 of Income-tax Act, 1961.
OR;
Question 18.
A resident of India has paid tax in a foreign country in respect of his income which accrued in that country. India has no double taxation avoidance agreement with that country. Such income is also taxable in India. Is there any relief available to him in respect of the tax paid by him? Explain.
OR;
Question 19.
Under what circumstances can Unilateral Relief be granted to avoid Double Taxation under section 91 of Income-tax Act, 1961?
Answer:
Unilateral Relief under section 91 of Income-tax Act, 1961 is allowed where no double taxation avoidance agreement exists between the Indian Government and the Government of another country.
The assessee shall be allowed relief in respect of such income under section 91 provided all the following conditions are fulfilled:
a. The assessee is Resident in India during the relevant previous year.
b. The income accrues or arises to him outside India during that previous year.
c. Such income is not deemed to accrue or arise in India during the previous year.
d. The income in question has been subjected to tax in the foreign country in the hands of the assessee and the assessee has paid tax on such income in the foreign country.
e. There is no agreement under section 90 for the relief or avoidance of double taxation between India and the other country where the income has accrued or arisen.

In such a case, the assessee shall be entitled to a deduction from the Indian income tax payable by him. The deduction would be a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax in said country, whichever is lower.

In other words, lower of the following sums shall be deductible from the Indian Income Tax-.

Doubly Taxed Income × Indian rate of tax
Doubly Taxed Income × Rate of tax paid in another country

Question 20.
Define Tax Treaty. Discuss the principal objectives of Indian Tax Treaties.
Answer:
Tax Treaty: A Tax treaty is a bilateral agreement made by two countries I to resolve issues involving double taxation of passive as well as active income Tax treaties generally determine the amount of tax that a country can levy on a taxpayer’s income/capital. It is also called a Double Taxation Avoidance Agreement.
The principal objectives of India Tax Treaties are as under:

(1) For granting relief in respect of:
CL Income on which tax has been paid both under the Income-tax Act, 1961 and Income-tax Act prevailing in the other country; or
b. Income-tax chargeable under the Income-tax Act, 1961 and under the law in force in that country to promote mutual economic relations, trade, and investment; or

(2) For the avoidance of double taxation of on income under the Income-tax Act, 1961 and under the corresponding law in force in that country; or

(3) For exchange of information for the prevention of evasion or avoidance of Income-tax chargeable under the Income-tax Act, 1961 or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or

(4) For recovery of income tax under Income-tax Act, 1961 and under the corresponding law in force in that country.

Tax Treaties – Unilateral And Bilateral Relief Notes

The concept of double taxes arises as tax is charged on both, on basis of residential status of the assessee as well as on the basis of source of income of the assessee.
There could be mitigation of double taxes as per the Double Taxation Avoidance Agreement (DTAA), if such agreement exists between India and the other country in which income has been taxed doubly. In such cases relief for doubly taxed income is given on the basis of either “Tax Credit clause” or “Exemption clause” or any other clause – as mentioned in the DTAA between two countries with respect to that specific income.

(Of course, students are not expected to know any of the DTAA specifically, but sums could be asked where either of the simple clauses is to be interpreted and relief is to be computed. Illustrations for the same are given in Q.l & Q.2 below.). In the Indian scenario, these DTAAs are permitted to be entered into as per provisions of section 90/90A of Income-tax Act, 1961.

In case DTAA does not exist between India and other country’s Govern¬ment from which there is a doubly taxed income, then tax is mitigated/ relief is availed as per section 91 of Income-tax Act which deals with “Unilateral Relief”. As per section 91 of the Income-tax Act, such relief is to the extent of lower of the following:—
(a) Doubly taxed Income X Indian rate of tax; or;
(b) Doubly Taxed Income X Foreign rate of tax
NOTE: As per new section 115BAC inserted by Finance Act, 2020, an individual can compute tax liability either as per normal rates of tax OR; he may opt for ALTERNATIVE TAX rates. However, if he opts for ALTERNATIVE TAX RATES, he cannot claim multiple allowances and deductions including deductions of Chapter VI-A (Except a few).
While solving questions here, WE HAVE SOLVED as per NORMAL RATES of tax and hence claimed deductions of Chapter VI-A.

Author’s Opinion:
Unless otherwise mentioned in the Exam, do tax liability computation as per normal rates of tax.

CS Professional Advance Tax Law Notes

CS Professional Drafting, Pleadings and Appearances Question Paper

December 28, 2022

CS Professional Drafting, Pleadings and Appearances Question Paper New Syllabus

Question 1.
(a) Determine the amount of Input Tax Credit (ITC) admissible under the provisions of CGST Act, 2017 to PQR Ltd. in respect of the following transactions which have taken place in the month of January, 2020.

Take note that (i) all the conditions necessary for availing the ITC have been complied with and fulfilled; and (ii) the registered person PQR Ltd. is not eligible for any threshold exemption.

Support your answer by giving brief reasons. (5 Marks)

Particulars	Amount of GST (₹)
(i) Goods used in constructing an additional floor of office building at Jaipur.	24,750
(ii) Packing materials used in the factory	6,500
(iii) Goods destroyed in flood waters due to natural calamities	4,750
(iv) Paper purchased for computer printing and for photocopying machine used in Administrative Office	1,250
(v) Inputs used for tests or for quality control check	15,600

Answer:
Computation of Input Tax Credit (ITC) admissible to PQR Ltd. for the month of January, 2020:

Particulars	Amount (₹)
a. Goods used in constructing an additional floor of office building at Jaipur (Note 1)	–
b. Packing material used in factory (Note 2)	6,500
c. Goods destroyed in flood waters due to natural calamities (Note 3)	–
d Paper purchased for computers printing and for photocopying machine used in Administrative office (Note 2)	1250
e. Inputs used for tests or for quality control check (Note 2)	15,600
Total Input Tax Credit admissible	23,350

Notes:
1. As per section 17(5) of CGST Act, 2017, Input Tax Credit (ITC) is blocked on any goods used in construction of an immovable property.

2. Input Tax Credit is allowed with respect to GST on goods or services which are used or intended to be used in the course or furtherance of business.

3. As per section 17(5) of CGST Act, 2017, Input Tax Credit is blocked on any goods which are damaged, destroyed or lost.

(b) Romeo Small Finance Bank Ltd. is engaged in providing financial related services and of various types of loan facilities to its constituents, furnishes the following information relating to various services provided and the gross amount received during the month of December, 2019.

Particulars of service	Amount (₹ in lacs)
(1) Commission received for debt collection service	10
(2) Discount earned on bills discounted	3
(3) Penal interest recovered from the customers for the delay in payment of loan EMIs/Dues	2
(4) Commissioner received for service rendered to Government for the collection of taxes	5
(5) Interest earned on reverse repo transaction	10
(6) Service to merchants accepting credit/debit card payments using point of sale (PoS) machine of Bank. (In 30% cases, the amount per transaction was up to ₹ 1,800 while in the other cases, the amount was exceeding ₹ 2,000)	20

Compute the value of taxable supply and of the amount of GST payable for the month of December, 2019 of Romeo Small Finance Bank Ltd. Gross amount does not include the amount of GST. Take the Rate of GST as 18%. (5 Marks)
Answer:
Computation of value of taxable supply and GST payable thereon for the month of December, 2019 for Romeo Small Finance Bank Ltd.

Particulars	Amount (₹)
a. Commission received for debt collection service (Note 1)	10,00,000
b. Discount earned on bills discounted (Note 2)	–
c. Penal interest recovered from the customers for the delay in payment of loan EMIs/ dues (Note 2)	–
d Commission received for service rendered to Government for the collection of taxes (Note 3)	5,00,000
e. Interest earned on reverse repo transaction (Note 2)	–
f. Service to merchants accepting credit/debit card payments using Point of Sale (PoS) machine of Bank. (Taxable only where the amount of transaction exceeds ₹ 2,000. Hence, Taxable = ₹ 20,00,000 × 70%) (Note 4)	14,00,000
Total Value of taxable services	29,00,000
GST payable @ 18%	5,22,000

Notes:
1. Charges collected in course of transfer or assignment of a debt is chargeable to GST being in the nature of consideration for supply of services.

2. As per Entry No. 27 of Notification No.l2/2017-CT, inter alia, services by way of extending deposits loans or advances insofar as the consideration is represented by way of interest or discount (other than interest involved in credit card services) is exempt from GST.
Accordingly, discount on bills discounted shall be exempt.

Further, penal interest recovered from customers for delay in payment of loan EMI/dues shall also be exempt as it satisfies definition of “interest” as contained in Entry No. 27, the said interest cannot be treated as consideration for liquidated damages.

Moreover, interest on instruments like repos and reverse repos shall also fall within ambit of Entry No. 27 as repo and reverse repo transactions have characteristics of loans and deposits.

3. There is no specific exemption for services of collection of taxes rendered to Government and hence, it shall be chargeable to tax.

4. As per Entry No. 34 in Notification No. 12/2017-CT, services by an acquiring bank, to any person in relation to settlement of an amount upto ₹ 2,000 in a single transaction transacted through credit card, debit card, charge card or other payment card service is exempted.

(c) Examine the correctness or otherwise of the following statements in accordance with the provisions of GST Act, 2017 and support your answer by giving brief reasons :
(i) The composition scheme will not be an optional scheme.
Answer:
Incorrect
Composition scheme as stated in section 10 of CGST Act is an OPTIONAL scheme.

(ii) A taxable person having same PAN can opt to pay tax under composition scheme by seeking separate registration for branches. (1 × 5 = 5 Marks)
Answer:
Incorrect
A registered person cannot opt for Composition scheme if its other unit Le. branch is paying tax as per normal levy under GST. Hence, a taxable person having same PAN cannot opt to pay tax under com-position scheme by seeking separate registration for branches.

(iii) A taxable person will be eligible to opt for composition scheme only for one out of the three or more business verticals.
Answer:
Incorrect
A registered person cannot opt for Composition scheme if its other unit Le. branch is paying tax as per normal levy under GST.

(iv) Composition scheme can be availed, where the taxable person effects inter-state supplies.
Answer:
Incorrect
A registered person should not be engaged inter alia in inter-State taxable supplies in order to be eligible to opt for composition scheme.

(v) Composition tax can be collected from the customers.
Answer:
Incorrect
Composition tax cannot be charged separately and hence, it cannot y be collected from the customers. Composition Tax is to be paid at specified percentage of the turnover in the state.

(d) Ram Bharose, intends to start business of supply and selling of the special goods in Delhi as proprietor. However, he is not able to determine because of the complexity of the provision of the GST Act, 2017 as to:
(i) the classification of the goods proposed to be supplied by him [as the classification of said goods has been contentious]; and
(ii) the place of supply as the supplies of the said goods is to be made from Delhi to buyer located in New York.
He therefore approached his tax advisor, who advised him to get first registered under the CGST Act and thereafter apply for the advance ruling in respect of these issues as the advance ruling would bring certainly and transparency and would also avoid litigation later.
In this backdrop and the information given, you are required to advise Ram Bharose with respect to the following:

(i) Whether he needs to get himself registered first under GST law before applying for the advance ruling? (2 Marks)
Answer:
As per section 95(c) of CGST Act, 2017, “Applicant” for the purpose of Advance Ruling means a person who is registered under GST or desirous of obtaining registration under GST.
Hence, Mr. Ram Bharose need not get himself registered under GST for the purpose of applying for Advance Ruling under GST.

(ii) Can advance ruling be obtained to determine (a) the classification of the goods proposed to be supplied; (b) the place of supply, where the supplies of said goods is from Delhi to buyers in New York? (3 Marks)
Answer:
As per section 97(2) of CGST Act, 2017, there are specific questions j regarding which an application can be made for advance rulings. Those questions inter alia include classification of goods or services or both. However, “place of supply” is not covered under the same. Hence, Mr.Ram Bharose can obtain Advance Ruling regarding “classification of goods” proposed to be supplied but cannot obtain advance ruling regarding “place of supply” where supplies of said goods is from Delhi to the buyers in New York.

Attempt all parts of either Q. No. 2 or Q. No. 2A

Question 2.
(a) PQR Travels Ltd. engaged in providing diversified services of transportation of passengers by various modes provides the details of the various services so provided to the passengers and of the amount collected there against for the month of March, 2020.

Service of Transportation of Passengers:

(1) by National Waterways	₹ 40,00,000
(2) by air conditioned State carriages	₹ 30,00,000
(3) by contract carriages for tourism purposes	₹ 25,00,000
(4) from Mumbai to Chennai port in a vessel and such service is not for tourism purpose	₹ 12,00,000
(5) in Metered Cab	₹ 32,50,000
(6) in Radio Taxis	₹ 25,00,000
(7) in Air conditioned contract carriages	₹ 25,00,000

Compute the value of the taxable supply of the services and of the amount of GST liability payable thereon by PQR Travels Ltd. for March, 2020 by taking the applicable rate of GST at 5%. (5 Marks)
Answer:
Computation of Value of Taxable supply of services and GST liability thereon for PQR Travels Ltd. for March, 2020:

Particulars	Amount (₹)
a. Service of transportation of passengers by National Water – ways (Note 1 )	–
b. Service of transportation of passengers by Air Conditioned State carriages (Note 2)	30,00,000
c. Service of transportation of passengers by contract carriages for tourism purposes (Note 3)	25,00,000
d. Service of transportation of passengers from Mumbai to Chennai in a Vessel where such service is not for tourism purpose (Exempt) (Note 1)	–
e. Service of transportation of passengers in a metered cab (Exempt) (Note 4)	–
f. Service of transportation of passengers in radio taxis (Note 5)	25,00,000
g. Service of transportation of passengers in Air Conditioned Contract Carriages	25,00,000
Total Value of Taxable Services (including GST @ 5%)	1,05,00,000
Assessable Value of taxable services (i.e. excluding GST, ₹ 1,05,00,000 × 100/105)	1,00,00,000
Therefore, GST @ 5% on ₹ 1,00,00,000	5,00,000

Notes:
1. A service of transportation of passengers by Inland waterways is exempt from GST as per Entry No. 17 of notification No.12/2017-CT.

2. Entry No. 15 of notification No. 12/2017 provides exemption for transport of passengers by stage carriage other than air conditioned stage carriage.

3. Entry No.15 of notification No.12/2017 provides exemption for transport of passengers by non-air conditioned contract carriage excluding for the purpose of tourism.

4. A service of transportation of passengers by metered cabs or auto rickshaws (including e-rickshaws) is exempt from GST as per Entry No.17 of notification No. 12/2017-CT.

5. Entry No. 15 of notification No. 12/2017 provides exemption for transport of passengers by non-Air Conditioned contract carriage other than radio taxi, for transport of passengers, excluding tourism, conducted tour, charter or hire.

6. Here, it is assumed that GST is not collected separately L e. the amounts collected are inclusive of GST. Hence, ? 1,05,00,000 = 105 (100 + 5).
Therefore, Assessable Value = Total Value including GST × 100/105

(b) Anand Kumar, a regular taxpayer, filed his return of outward supplies (GSTR-1) for the month of August, 2019 before the due date. Later on, in February, 2020 he discovered certain error in the GSTR-1 return of the month of August, 2019 so filed before the due date and thus intends to correct the GSTR-1 and consults you to seek an opinion.

You are required to advise as to the suitable course of action to be taken according to statutory provisions contained under the CGST Act, 2017 so as to enable him to rectify the error so noticed in the already filed GSTR-1 return of the month of August, 2019. (5 Marks)
Answer:
If the supplier discovers any error or omission in GSTR-1, he shall rectify the same in the tax period during which such error or omission is noticed, and pay the tax and interest, if any, in case there is short payment, in the return to be furnished for such tax period.

The maximum time limit within which such amendments are permissible is earlier of following dates:

Date of filing of monthly return under section 39 for the month of September following the end of financial year to which such details pertain

Date of filing of relevant annual return.
In given case, Anand Kumar has to rectify certain error in GSTR-1 for the month of August, 2019 which is discovered in month of February, 2020. As the same is discovered within the time limit prescribed above, Mr. Anand Kumar is advised to rectify the error relating to the month of August, 2019 while filling GSTR-1 for the month of February, 2020.

(c) Radhey Gobind & Co. engaged in the wholesale business particularly dealing in the product of which supply was exempt from tax under GST. Subsequently, tax was imposed on the sale of the product by a notification issued from 1-10-2019. Radhey Gobind & Co. continued to sell the product without making any change in the selling price of the product. Later, in the month of March, 2020 they realised that because of no change in the selling price, they has paid higher quantum of tax and therefore decided to file an application for refund claim by stating that there was no change in the price before and after imposition of tax and hence the burden of tax had not been passed on to the buyer.

Discuss and explain in the context of provision of the CGST Act, 2017 supported with a decided case law, if any, whether the stand taken for refund claim by Radhey Gobind & Co. shall be acceptable. (5 Marks)
Answer:
As per section 54 of CGST Act, 2017, in order to claim refund, the registered person should give the application for refund which should be accompanied by documentary evidence or other evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person.

In given case, Radhey Gobind & Co. did not separately collect GST from the recipient of supply as is evident as selling price of the product when it was exempt from GST as well as selling price of the product after it becoming liable to GST is same.

In such cases, it is deemed that amount collected from customer/recipient of supply is inclusive of GST and accordingly registered person is liable to pay GST to the Government. Registered person not charging GST separately does not waive off its liability.

Hence, contention of Radhey Gobind & Co. to claim refund of GST by stating that there was no change in the price before and after imposition of tax & hence, burden of tax had not been passed on to the buyer will not be held as liability of Radhey Gobind & Co. continues under GST law. Therefore, it will not be granted refund.

(d) A show cause notice (SCN) indicating various discrepancies was issued by the proper officer to a registered person. However, the registered person despite opportunity given, failed to given satisfactory explanation and reply relating to the shortcomings indicated in the SCN.

In this backdrop, state as per provision of the CGST Act, 2017 what actions now against the registered person may be taken by the proper officer? (5 Marks)
Answer:
Proper Officer may have issued Show Cause Notice (SCN) to a registered person under section 73 or section 74 of CGST Act, as the case may be, depending on whether fraud is involved or not. Both the sections present opportunity to registered person to give explanation relating to shortcomings in the SCN.

However, if the registered person is unable to give satisfactory explanation, then as per sub-section (9) of section 73 or section 74, as the case may be, the proper officer shall determine the amount of tax, interest and penalty, as applicable due from such person and issue an order to demand the same.

It should be borne in mind that such order is to be issued within the time limits as mentioned in sub-section (10) of sections 73 and 74 of CGST Act. The time limit is 3 years from the due date of furnishing of Annual Return for the financial year to which tax not paid, etc. relates in case where fraud is not involved. Further, where short payment, non-payment, etc. is on account of involvement of fraud, the time limit is 5 years instead of 3 years.

OR (Alternate question to Q. No. 2)

Question 2A.
(i) Destiny Advertising Agency, Ahmedabad supplying services to different customers for making booking of advertisements in different media, provides the following details and of the amounts charged there against for the month of January, 2020:

Particulars	Amount (₹ lakh)
(1) Aerial advertising	15
(2) Sale of time slot for advertisement to be broadcast on television	12
(3) Advertisement via banner at public places	7
(4) Sale of time slot for advertisement on FM Radio/98 Radio Mirchi	13
(5) Advertisement in Dainik Bhaskar newspaper	9
(6) Advertisement on cover and back pages of books	1

Compute the taxable value of the services and of the amount of GST payable. Take the rate of GST in print media of 5% and in other cases of 18%. All amounts given are exclusive of GST. Ignore the threshold limit. (5 Marks)
Answer:
Computation of value of taxable supply of services and amount of GST payable by Destiny Advertising Agency, Ahmedabad for the month of January, 2020:

Particulars	Amount (₹)
Value of taxable supply of services in other than print media:
a. Aerial advertising	15,00,000
b. Sale of time slot for advertisement to be broadcast on television	12,00,000
c. Advertisement via banner at public places	7,00,000
d. Sale of time slot for advertisement on F.M. radio/98 Radio Mirchi	13,00,000
Total Value of taxable supply of services IN OTHER THAN PRINT MEDIA (A)	47,00,000
GST payable on above @ 18% (C)	8,46,000
Value of taxable supply of services in Print Media:
a. Advertisement in Dainik Bhaskar Newspaper	9,00,000
b. Advertisement on cover and back pages of books	1,00,000
Total Value of taxable supply of services in PRINT MEDIA (B)	10,00,000
GST payable on above @ 5% (D)	50,000

Total Value of Taxable supply of Services (A + B)	57,00,000
Total GST payable (C + D)	8,96,000

(ii) Trident Beauty Cosmetics Ltd. operating multiple wholesale outlets of cosmetic products in different suburbs in Mumbai, Maharashtra received an order worth ₹ 3,54,000 (inclusive of GST leviable @ 18%) for supply of different cosmetic products from Prasanna Cosmetics Store of Delhi. Trident Beauty Cosmetics Ltd. while checking the stocks found that order worth ₹ 1,18,000 can be fulfilled from the company’s Dadar (Mumbai) store and remaining goods worth ₹ 2,36,000 can be supplied from its Malad (Mumbai) store. Both the stores were instructed to issue separate invoices for the goods supplied and send by them to Prasanna Cosmetics Store of Delhi. The goods are required to be transported to Delhi in a single conveyance owned by Radhey Transport Carriers of Dadar (Mumbai).

You are required to advise Trident Beauty Cosmetics Ltd. as per provision under the CGST Act, 2017 with regard to issuance of e-way bill/(s). (5 Marks)
Answer:
Whenever there is a movement of goods of consignment value exceeding ₹ 50,000.

In relation to a supply; or
for reasons other than supply; or
due to inward supply from an unregistered person,

the registered person who causes such movement of goods shall furnish the information relating to the said goods as specified in Part A of Form GST EWB-01 before commencement of such movement.

Here, consignment value of goods shall be the value:

determined in accordance with the provisions of section 15,
declared in an invoice, a bill of supply or a delivery challan, as the case may be, issued in respect of the said consignment and
also includes the Central Tax, State or Union Territory Tax, integrated Tax and cess charged, if any, in the document and
shall exclude the value of exempt supply of goods where the invoice | is issued in respect of both exempt and taxable supply of goods.

In given case, Trident Beauty Cosmetics Ltd. is causing movement of goods I having consignment value of ₹ 3,54,000 in total (₹ 1,18,000 in one Invoice and ₹ 2,36,000 in another invoice) for supply of cosmetic products from its two of outlets in Mumbai to Prasanna Cosmetic store of Delhi.

Since, the consignment value in each case exceeds ₹ 50,000 in relation to supply of goods, it is mandatory for Trident Beauty Cosmetics Ltd. to issue two different E-way Bills. Further, the details of these two E-way Bills may be denoted in a Consolidated E-way Bill by the transporter Radhey Transport Carriers.

(iii) A show cause notice (SCN) under section 73(1) of the CGST Act, 2017 is being proposed to be issued to Evergreen Farm Technologies Pvt. Ltd. on 31.07.2023 on account of short payment of tax during the period between 1.7.2019 and 31.12.2019. Evergreen Farm Technologies Pvt. Ltd. contends that the slow cause notice so proposed to be issued on 31.07.2023 is time barred in law and is thus a bad notice.

You are required to examine the technical veracity of the contention of Evergreen Farm Technologies Pvt. Ltd. as per CGST Act, 2017. (5 Marks)
Answer:
As per section 73(10) of CGST Act, 2017, the Show Cause Notice (SCN) should be issued at least 3 months prior to the time limit specified for passing the order determining the amount of tax, interest and any penalty payable by the defaulter.

Further, the order referred herein has to be passed within 3 years from the due date for furnishing the Annual Return for the financial year to which the tax not paid/short paid/ITC wrongly availed/utilised relates to or within 3 years from the date of erroneous refund.

Thus, the time limit for issuance of Show Cause Notice is 2 years and 9 months from due date of filing Annual Return for the financial year to which the demand pertains or from the date of erroneous refund.

In given case, a Show Cause Notice is proposed to be issued on account of short payment during 1.7.2019 and 31.12.2019 that is for financial year 2019-20. The due date for filing Annual Return for said financial Year is 31.12.2020. Consequently, last date for issue of Show Cause Notice (SCN) shall be 30.09.2023. Here, notice has been proposed to be issued on 31.07.2023 that is within time limit.

Hence, the contention of Evergreen Farm Technologies Pvt. Ltd. that Show Cause Notice proposed to be issued on 31.07.2023 is time barred in law and thus a bad notice is NOT CORRECT.

(iv) When can Summary Assessment order be made by the proper Officer under the provisions of the CGST Act, 2017? Can such an order be requested to be withdrawn and if yes, then how and before which authority ? (5 Marks)
Answer:
Summary assessments can be initiated to protect the interest of revenue with the previous permission of Additional Commissioner/Joint Commissioner when:

the proper officer has evidenced that a taxable person has incurred a liability to pay tax under the Act, and
the proper officer has sufficient grounds to believe that delay in passing an assessment order may adversely affect the interest of revenue.

The Summary Assessment Order may be withdrawn by Additional Commissioner/Joint Commissioner

on an application filed by taxable person for withdrawal of the summary assessment order within 30 days from the date of receipt of order; or
on his own motion, where he finds such order to be erroneous and may instead follow the procedures laid down in section 73 or section 74 to determine the tax liability of such taxable person.

Question 3.
(a) Examine by giving reasons in brief in the context of provisions contained under the CGST Act, 2017 as to taxability or otherwise of the ) following independent supply of services:
(i) Tejas & Co. of Delhi a tour operator provided services to Robert, a foreign tourist resident of UK for his tour conducted in Rajasthan and Agra for a sum of ₹ 2,50,000 and of Jammu Kashmir for a sum 11,00,000 and received the total amount of ₹ 350,000.
Answer:
Since, location of recipient of service is outside India, provisions of section 13 of IGST Act shall apply to determine place of supply of services.

As per section 13(2) of IGST Act, 2017, the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of recipient of services:

Provided that where the location of recipient of services is not available in the ordinary course of business, the place of supply shall be location of supplier of services.

It should be noted that services of tour operator is not covered any where in sub-sections (3) to (13) of IGST Act and hence will be covered by sub-section (2).

In given case, Tejas and Company of Delhi a tour operator provided services to Robert, a foreign resident of UK for his tour conducted in Rajasthan and Agra. Hence, place of supply shall be location of recipient of service that is UK.

Here, location of supplier is in India and place of supply is outside India & hence, it will be considered as export of service and therefore not chargeable to GST.

(ii) Ms. Purnima acts as a Team Manager for Indian Sports League (ISL) a recognized sports body. She was contracted by a Multi Brand Retail Company to act as Manager for a Tennis tournament organised by them and was paid an amount ₹ 5,00,000. (4 Marks)
Answer:
Services provided by Ms. Purnima as a team manager to Indian Sports League (ISL) a recognised sports body shall be exempt as per Entry No. 68 of Notification No.12/2017-Central Tax.

However, services provided by her to Multi Brand Retail Company as Team Manager for tennis tournament organised by them shall not be exempt as it is out of purview of Notification No. 12/2017. Hence, the said consideration of ? 5,00,000 shall be chargeable to GST assuming that she is taxable person under GST (Her aggregate turnover exceeds ? 20,00,000 during a financial year.)

(b) Determine the time of supply (ToS) by giving reason in brief in each of f the following cases in accordance with the provisions in CGST Act, 2017 (4 Marks)

Answer:
As per section 13(2) of CGST Act, 2017, Time of supply of services under forward charge mechanism where invoice is issued within specified time ie. within 30 days from the date of completion of service shall be:

Date of issue of invoice or date of receipt of payment, whichever is earlier.

However, where invoice is not issued within time, it shall be date of completion of service or date of receipt of payment, whichever is earlier.

Keeping the aforesaid provisions in view, time of supply of services can be determined as follows in given cases:

1. It shall be earlier of date of invoice ie. 21.07.2019 or date of receipt of payment ie. 26.08.2019 as invoice is issued within 30 days of completion of service.
Hence, time of supply shall be 21.07.2019.

2. It shall be earlier of date of invoice ie. 11.09.2019 or date of receipt of payment ie. 01.09.2019 as invoice is issued within 30 days of completion of service.
Hence, time of supply shall be 01.09.2019.

3. Invoice is issued within 30 days of completion of service and hence, it shall be date of issue of invoice or date of receipt of payment, which ever is earlier.
Therefore, for part payment, it shall be 11.10.2019 or 01.10.2019, whichever is earlier. Hence, it shall be 01.10.2019.
Further for remaining payment it shall be 11.10.2019 or 26.10.2019, whichever is earlier. Hence, it shall be 26.10.2019.

4. Invoice is issued within 30 days of completion of service and hence, it shall be date of issue of invoice or date of receipt of payment, which-ever is earlier.
Therefore, for part payment, it shall be 11.11.2019 or 12.11.2019, whichever is earlier. Hence, it shall be 11.11.2019.
Further for remaining payment it shall be 11.11.2019 or 15.11.2019, whichever is earlier. Hence, it shall be 11.11.2019.

(c) Ram Avtar resident of Nagpur has entered into a rollover contract approached NDMC Bank Ltd. on 12-1-2020 for selling US $ 4,50,000 at the rate of ₹ 75 per USD. RBI reference rate on 12-1-2020 was ₹ 76 and the rate of exchange declared by CBEC for the day was ₹ 76.50 per USD.

Calculate the value of taxable supply by explaining in brief the provisions of CGST Act, 2017 and rules framed thereunder. (4 Marks)
Answer:
Computation of value of taxable supply of Foreign Exchange services for NDMC Bank Ltd. as per Rule 32(2) of CGST Rules, 2017:

The Value shall be computed as difference between the buying rate or selling rate of currency, as the case may be and RBI reference rate for that currency at the time of exchange multiplied by total unit of foreign currency.

Hence, Assessable Value shall be (₹ 76 – ₹ 75) × 4,50,000 = ₹ 4,50,000.
Note: The rate of exchange as notified by CBEC is to be neglected.

(d) Discuss and explain in brief the provisions relating to refund of the amount of advance tax deposited by a casual taxable person under section 27(2) of the CGST Act, 2017. (4 Marks)
Answer:
As per section 54 of CGST Act, the amount of advance tax deposited by Casual Taxable Person or Non-Resident Taxable Person under section 27(2) shall be refunded only when such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39.

Further, refund of any amount, after adjusting the tax payable by the applicant out of advance tax deposited by him under section 27 at the time of registration, shall be claimed in the last return required to be furnished by him. (Rule 89 of CGST Rules.)

(e) The proper officer under the CGST Act, 2017 can authorize arrest of any person under section 69 of the CGST Act, 2017. State all those situations when the proper officer can authorize arrest of any person. (4 Marks)
Answer:
The Commissioner can authorise an officer to arrest a person if he has reasons to believe that the person has committed an offence attracting a punishment prescribed under section 132(1)(a)/(b)/(c)/(d) or section 132(2) of CGST Act.

According to said section of CGST Act, 2017, following are the offences (Situations when proper officer can authorise arrest of any person):

(a) Supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

(b) Issues any invoice or bill without supply of goods or services or both in violation of provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of Input Tax Credit or refund of tax;

(d) Collects any amount as tax but fails to pay the same to the Government beyond period of three months from the date on which such payment becomes due.

Further, where any person convicted of an offence under this section is again convicted of an offence under this section, then also commissioner can authorise arrest.

Question 4.
(a) Ram Ratan who has imported a machine from UK in India provides the following information and details relating to such machine and requests you to compute the assessable value and of the total amount of payable Custom duty and other taxes to be levied :
(i) FOB value of machine – 8,000 UK Pounds
(it) Air Freight paid – 2500 UK Pounds
(iii) Design and development charges paid in UK – 500 UK Pounds
(iv) Commission payable to local agent @2% of FOB in INR
(v) Date of bill of entry – 24-10-2019 (Rate BCD 20%, Exchange rate as notified by CBIC ₹ 120 per UK Pound)
(vi) Date of entry inward – 20-10-2019 (Rate BCD 18%, Exchange rate as notified by CBIC ₹ 115 per UK Pound)
(vii) Integrated tax payable @ 12%
(viii) GST Compensations Cess – Nil
(ix) Insurance charges actually paid but details not available. (6 Marks)
Answer:
Computation of Assessable Value and Customs Duty payable by Ram Ratan on machine imported from UK

Notes:
1. Design and development charges paid in UK and commission paid to local agent (since is not a buying commission) are includible in the assessable value (Rule 10 of Customs Valuation Rules.)

2. As per section 14 of Customs Act, for computation of Assessable Value, the rate of exchange as notified by CBIC prevailing as on date of presentation of Bill of Entry is to be considered. Hence, in given case, the rate of exchange as on 24.10.2019 is considered ie. ₹ 120 per UK Pound.

3. As per section 15 of Customs Act, for determining the rate of duty in case of imported goods cleared directly for home consumption, the rate as on date of presentation of Bill of Entry or date of entry inward of vessel, whichever is later is to be considered. Hence, rate of duty as on 24.10.2019 ie. 20% shall be considered.

(b) Specify all those conditions which are required to be satisfied for impo-sing countervailing duty on the subsidized articles as specified in section 9 of the Customs Tariff Act, 1962. (4 Marks)
Answer:
The countervailing duty on subsidised articles is imposed if the following conditions are satisfied:
a. Any country or territory, directly or indirectly, pays or bestows subsidy upon the manufacture or production or exportation of any article. Such subsidy includes subsidy on transportation of such article.

b. Such articles are imported into India.

c. The importation may/may not directly be from the country of manufacture/production.

d The article may be in the same condition as when exported from the country of manufacture or production or may be changed in the condition by manufacture, production or otherwise.

PART II

Question 5.
(a) Chetan Lai had borrowed on Hundi a sum of ? 25,000 by way of a bearer cheque on 11-9-2019 and repaid the same with interest in total amounting to ? 30,000 by account payee cheque on 12-12-2019.

The Assessing Officer (AO) had issued a show cause notice to treat the amount borrowed by Chetan Lai on Hundi as income chargeable to tax during the previous year ended on 31 -3-2020. Chetan Lai seeks your opinion as to the correctness of the action of the AO. (3 Marks)
Answer:
As per section 69D of Income-tax Act, where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be. Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.

In given case, Chetan Lai had borrowed on Hundi a sum of ₹ 25,000 by way of bearer cheque on 11.09.2019 and hence, it shall be deemed as income in his hands for assessment year 2020-21. Therefore, the contention of Assessing Officer to treat the amount borrowed by Chetan Lai on Hundi as income chargeable to tax during the previous year ended on 31.03.2020 is correct.

It should be noted that repayment of the amount along with interest amounting to ₹ 30,000 is by way of account payee cheque and therefore, provisions of section 69D will not attract in that case.

(b) The concept of Permanent Establishment is important in determining the tax implications of cross border transactions. Examine the significance thereof (PE), when such transactions are governed by Double Taxation Avoidance Agreements (DTAA). (3 Marks)
Answer:
Significance of Permanent Establishment:

Permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
Every DTAA has a specific clause, which will deal with an explanation of permanent establishment for the purpose of such DTAA.
Business income of a non-resident will not be taxed in India, unless such non-resident has a permanent establishment in India.

As per Article 5(2), the term Permanent Establishment includes:
a. A Place of Management
b. A Branch
c. An Office d A factory
e. A Workshop
f. A Sales Outlet
g. A Warehouse
h. A mine, an oil or gas well, a quarry, or any other place of extraction of natural resources (not exploration)

(c) How and when a unilateral Advance Pricing Agreement (APA) entered into can be converted into a bilateral APA ? (3 Marks)
Answer:
As per Advance Pricing Agreement Guidance with FAQs, a unilateral Advance Pricing Agreement (APA) can be converted into a bilateral APA before the mutually agreed draft agreement is forwarded by DGIT (International Taxation) to the Board.

While converting a unilateral APA application to a bilateral APA application, the applicant or its AE needs to make a similar request with the competent authority of the other country.

The bilateral request of the applicant shall be forwarded by the DGIT to the competent authority in India. The competent authority of India shall decide whether the bilateral request is allowable based on existence of appropriate provision on lines of OECD Model Article 9(2) in the tax treaty between India and the other country and also on the existence of an APA program in that other country. If the request is allowed, then the application would be processed as a bilateral APA application.

(d) What is the legislative intent/objective of bringing into existence the provisions relating to transfer pricing in relation to international transactions? Explain the statement in the context of Income-tax Act, 1961. (3 Marks)
Answer:
Increasing participation of multinational groups in economic activities in India has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same group.

Hence, there was a need to introduce a uniform and internationally accepted mechanism of determining reasonable, fair and equitable profits and taxes in India. Accordingly, the Finance Act, 2001 introduced law of transfer pricing in India through Sections 92 to 92F of the Income-tax Act, 1961 which guides computation of the transfer price and suggests detailed documentation procedures.

(e) The Assessing Officer can complete the assessment of income from international transactions in disregard of the order passed by the Transfer Pricing Officer (TPO) by accepting the contention of the assessee. Explain. (3 Marks)
Answer:
Provisions of section 92CA of Income-tax Act deal with reference to Transfer Pricing Officer (TPO).

It is specifically mentioned in sub-section (4) of said section that on receipt of order from Transfer Pricing Officer determining Arm’s Length Price (ALP) in relation to international transaction, the Assessing Officer shall proceed to compute the total income of the assessee in conformity with the arm’s length price so determined by the Transfer Pricing Officer.

The wording “shall” clearly indicate that Assessing Officer cannot complete the assessment of income from international transactions in disregard to order passed by the TPO by accepting the contention of the assessee.

Attempt all parts of either Q. No. 6 or Q. No. 6A

Question 6.
(a) Examine in the context of provisions contained under the Income- tax Act, 1961 in each of the following independent cases and state in brief whether there exists business connection in each of the cases in India so as to bring the income earned in the previous year, if any to be taxed in India: (2 Marks each – 6 Marks)

(i) A1 Rahim Ltd. a company resident in Dubai had setup a liaison office at Mumbai to receive trade enquiries from the customers in India. The work of the liaison office is not only restricted for forwarding the trade enquiries to the company in Dubai but was also to negotiates and enters into the contracts on behalf of Al Rahim Ltd. with the customers in India.
Answer:
As per Explanation 2 to section 9(1)(ii) of Income-tax Act, “business connection” shall include any business carried out through a person acting on behalf of the non-resident.

Further, for a business connection to be established, the person acting on behalf of non-resident inter alia must have an authority, which is habitually exercised in India, to conclude contracts on behalf of the non-resident and such contracts are in the name of the non-resident.

In given case, Al Rahim Ltd. a company resident in Dubai has set up a liaison office at Mumbai to receive trade enquiries from customers in India. Further, the work of this liaison office is not only restricted for forwarding trade enquiries but it also negotiates and enters into the contracts on behalf of Al Rahim Ltd. with the customers in India.

Hence, it can be said that Al Rahim Ltd. has business connection in India and accordingly any income accruing or arising to Al Rahim Ltd. in any place outside India whether directly or indirectly through or from business connection in India would be deemed to accrue or arise in India. Further, for business carried on through this business connection, so much of income as is attributable to operations carried out in India shall be deemed to accrue or arise in India.

(ii) John Muller Pty Inc a resident company of USA has set up a branch office at Delhi for the purpose of purchase of various materials which are being used for manufacturing its products. The branch office is engaged in selling the products manufactured by John Muller Pty Inc and also in providing the sales related services to the customers in India on behalf of John Muller Pty Inc.
Answer:
For a business connection to be established, the person acting on be-half of the non-resident inter alia habitually secures orders in India, mainly or wholly for the non-resident.

In given case, John Muller Pty Inc. a resident company of USA has set up a branch office at Delhi which is inter alia engaged in selling the products manufactured by John Muller Pty Inc. Therefore, we can say that John Muller Pty Inc. has a business connection in India through this branch office at Delhi.

Accordingly, any income accruing or arising to John Muller Pty in any place outside India whether directly or indirectly through or from any business connection in India would be deemed to accrue or arise in India. Further, for business carried on through this business connection, so much of income as is attributable to operations carried out in India shall be deemed to accrue or arise in India.

(iii) Rajendra, a resident in India and based at NOIDA is appointed as agent by KOK Pty Inc a company incorporated in USA for exploring the Indian markets. He had not been given any authority to accept the orders but was allowed for canvassing the orders and then to communicate the same to company in USA. All the orders were directly received and accepted by the company and after receiving the price/value thereof, the delivery of goods was given directly by the company from any of its outlets outside India, None of the activities either of purchase of raw material or of manufacturing of finished goods took place in India. The agent was entitled to receive the commission as a percentage on the sale so concluded by KOK Pty Inc of USA.
Answer:
It is specifically stated that business connection, shall not be established where the non-resident carries on business through a broker, general commission agent or any other agent having an independent status, if such person is acting in the ordinary course of his business.

In given case, KOK Pty Inc., a company incorporated in USA has S appointed Rajendra, a resident in India based at Noida as agent. The scope of work of agent involved is only canvassing the orders and 1 then communicating the same to the company. Further, the delivery of goods was given directly by the company. The agent was just entitled to receive the commission as percentage of sales so concluded by KOK Pty Inc.

Hence, it can be concluded that KOK Pty Inc. does not have any business connection in India and therefore, none of its income shall be deemed to accrue or arise in India.

(b) Explain the taxability or otherwise of the following transactions entered into during the previous year 2019-20 in the hands of the recipients as per provisions contained under the Income-tax Act, 1961: (4 Marks)

(i) Nistha, a member of her father’s HUF, transferred a house property owned by her to the HUF of her father without taking any consideration. The stump duty value of the house property so transferred by her on the date of transfer is assessed at ₹ 15,00,000. The property so transferred by her was given on rent by the HUF.
Answer:
Any sum of money or movable /immovable property received without consideration will not be charged to tax in case of HUF where received from any member thereof.

In given case, Nistha, a member of her father’s HUF has transferred house property owned by her to the HUF of her father without taking consideration. Hence, it will not be chargeable to tax in hands of HUF.

However, where HUF has given such property on rent, it will be chargeable to tax under the head income from house property in hands of HUF.

(ii) Akshat received 1000 shares as a gift of ATOZ Ltd. having face value of 110 each from his friend on the occasion of his 25th marriage anniversary. The fair market value on the date of gift of the shares of ATOZ Ltd. was of ₹ 100 per share. He also received a car from his nephew on the same day and the fair market value of the car on the date of gift was assessed at ₹ 5,25,000.
Answer:
Where aggregate fair market value of movable property received by taxpayer during the year exceeds ₹ 50,000, it shall be chargeable to income tax.

Here, movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion.

In given case, Akshat has received 1,000 shares as a gift from his friend, total fair market value of which is ₹ 1,00,000 (1,000 shares × ₹ 100 per share). Since, the fair market value of movable property received from other than relative during a financial year exceeds ₹ 1,00,000, it shall be chargeable to tax.

It should be noted that entire amount of ₹ 1,00,000 shall be taxable under the head Income from Other Sources.

Note: Gift received by assessee on occasion of his marriage is not taxable. Here gift of shares is received on occasion of marriage anniversary and hence continues to be taxable.
However, gift of car received by Akshat from his nephew would not be chargeable to tax as definition of property does not include “car”. It should be noted that irrespective of value of car, it will not be chargeable to tax.

(c) Examine in brief the doctrine of “form and substance” in the context of tax planning under the Income-tax Act, 1961. Support your answer with the decided court cases explaining the principle of form and substance which will prevail in Income Tax matters. (5 Marks)
Answer:
One of the reasons which prompts a taxpayer to resort to tax planning is the existence of the doctrine of form and substance.

The principle involved in this doctrine is simple. How far court may stretch the wording of a statute to cover a particular set of facts, where those facts have clearly been created by the taxpayer in order to avoid or minimise his tax and the literal interpretation of the statute is not, at first sight apt to cover them? Is it possible to ignore the form of a transaction and determine substance thereof?

Landmark judgments explaining the principle of form and substance will prevail in income tax matters:

1. In Commissioner of Income Tax v/s Motor and General Stores (P) Ltd., the Supreme Court had observed that in the absence of any suggestion of bad faith or fraud the true principle is that the taxing statute has to be applied in accordance with legal rights of the parties to the transaction. According to the Court, when the transaction is embodied in a document the liability to tax depends on the meaning and content of the language used in accordance with ordinary rules of construction.

2. It was held in CIT v/s B.M. Kharwar (SC) that the taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by device the legal relation, it is open to the taxing authority to unravel the device and to determine the true character of the relationship. However, the legal effect of a transaction cannot be displaced by probing into the substance of the transaction.

OR (Alternate question to Q. No. 6)

Question 6A
(i) What do you understand by the term double taxation ? Discuss the connecting factors which lead to double taxation of an income. (6 Marks)
Answer:
1. Double Taxation means taxing the same income twice in the hands of an assessee. It is likely to arise where a taxpayer is a resident in one country and has a source of income situated in another country.

2. There are two rules which govern the process of International Taxation in such cases;

The Source Rule: Income is to be taxed in the country in which it originates irrespective of whether it accrues to a resident or a non-resident.
The Residence Rule: Authority to tax should rest with the country in which the taxpayer resides.

3. If both the above mentioned rules are applied simultaneously to an assessee, it will lead to double taxation as, being a resident of one country, if he earns an income in another country and is taxed by the country of residence applying the Rule of Residence and then again being taxed by the source country in which the income has been originated.

4. Double taxation may occur in a transaction where the Governments of two countries have not entered into a Double Taxation Avoidance Agreement (DTAA) resulting into taxing an assessee twice as per the taxation laws of both the countries.

5. A business entity may also be taxed doubly by the simultaneous application of both the rules resulting into the entity suffering heavy operating costs and it will also deter the process of globalisation.

(ii) “Live Tele Films”is a UK base foreign company not having any Indian citizen/resident of India holding its shares. It has shot a TV film during the year ended on 31-3-2020 entirely on the Indian locations so as to show the Indian cultural heritage. The film is to be telecast exclusively in the foreign countries, but it has also been agreed with the Government of India to give the right of telecast of the film in India to “DD-II” free of charge. The A.O. issued a show cause notice asking the foreign company to pay tax in India on the income derived by it from the telecast of the film for A.Y. 2020-2021. Company claims that it is not liable to pay any tax in India and therefore seeks your opinion. (5 Marks)
Answer:
As per section 5 of Income-tax Act, a non-resident is liable to pay income tax on income received in India or income accruing or arising in India or is deemed to accrue of arise to him in India during such year.

Further as per clause (d) of Explanation 1 section 9(1)(z) of Income-tax Act, inter alia, in the case of non-resident being a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such company through or from operations which are confined to the shooting of any cinematograph film in India.

In given case, “Live Tele Films” is a UK based foreign company not having any citizen/resident of India holding its shares. Further, it has only shot a TV Film in India. It should be noted that the film is to be telecast exclusively in foreign countries and therefore, no income is deemed to accrue or arise in India. Moreover, even with respect to right of telecast of film in India to “DD-II”, it is free of charge. Hence, in that respect also there is no income arising in India.

Hence, the contention of Assessing Officer asking the foreign company to pay tax in India on income derived by it from the telecast of the film for A.Y. 2020-21 is not correct. The company is not liable to pay any income tax in India.

(iii) XYZ Ltd. took over the running business of a sole-proprietor by a sale deed. As per terms of the sale deed, XYZ Ltd. required to pay overriding charges of ₹ 75,000 p.a. to the wife of the sole-proprietor for ten years in addition to the sale consideration. The sale deed also specifically mentioned that the amount of ₹ 75,000 is a charge on the net profits of XYZ Ltd. who had accepted the obligation as a condition of purchase of the business as a going concern. Is the payment of overriding charges by XYZ Ltd., to the wife of the sole-proprietor in the nature of diversion of income or application of income ? Discuss and explain as per provisions of Income-tax Act, 1961. (4 Marks)
Answer:
The Supreme Court decision in case of CIT v. Sitaldas Tirthdas is the authority for the proposition that where by an obligation, income is diverted before it reaches the assessee, it is deductible from his income as for all practical purposes it is not his income at all (as it is diversion of income by overriding title). But, where the income is required to be applied to discharge an obligation after it reaches the assessee, it is not deductible (as it is called as application of income). Thus, there is the difference between the diversion of income by an overriding title and application of income as the former is deductible while the latter is not.

In given case, XYZ Ltd. is required to pay overriding charges of ₹ 75,000 p.a. to the wife of sole proprietor for 10 years in addition to the sale consideration. Further, it is specifically mentioned that the amount of ₹ 75,000 is a charge on net profits of XYZ Ltd. who had accepted the obligation as a condition of purchase of the business as a going concern.

Therefore, the payment of overriding charges by XYZ Ltd. to the wife of sole proprietor is in the nature of diversion of income. It should be noted that it is an expense which is deductible. It is a charge on the profits and the available profits to the company will be lower to the extent of such overriding charges paid.

Drafting, Pleadings and Appearances Notes

Role, Function, Duties of Insolvency Resolution Professional – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Role, Function, Duties of Insolvency Resolution Professional – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
The moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor. Do you agree with this? What is the effect of the order of moratorium? What are the purposes served by the declaration of moratorium?
Answer:
When a financial creditor files an application for initiating the Corporate Insolvency Resolution Process, the NCLT may admit or reject it. If the application is admitted, NCLT is empowered to take certain actions. After admitting the application, the NCLT shall

declare a moratorium,
give a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims, and
appoint an interim resolution professional.

As per Section 14 of the Insolvency and Bankruptcy Code, 2016, on insolvency commencement date, the Adjudicating Authority (NCLT) shall declare moratorium. Following is the effect of moratorium:

prohibition on institution of suits or continue pending proceedings against Corporate Debtor;
prohibition on transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;
prohibition on any action to foreclose, recover or enforce any secu¬rity interest created by Corporate Debtor in respect of its property including any action under the SARFAESI, 2002;
prohibition on the recovery of any property by an owner or lessor where such property possession of the Corporate Debtor.
supply of essential goods, services to Corporate Debtor shall not be terminated/suspended.
any license, permit, concession given by Govt, to corporate debtor shall not be suspended

However, such moratorium does not apply to a surety in a contract of guarantee to a corporate debtor. The moratorium order shall be effective from the date of NCLT order till the completion of corporate insolvency resolution process or liquidation order of Corporate Debtor. Purpose of Moratorium

Ensures that multiple proceedings are not taking place simultaneously and thus avoids the possibility of potentially conflicting outcomes of related proceedings;
Keeps the Corporate Debtor’s assets together during the insolvency resolution process and facilitates orderly completion of the process;
Ensures that the company may continue as a going concern while the creditors assess the options for resolution of default;
Prohibition on disposal of Corporate Debtor’s assets ensure that the Corporate Debtor does not transfer its assets, thereby reducing its value.

Question 2.
Sun Finserve Ltd., a financial-cum-operational creditor to a corporate debtor is aggrieved by the action of the resolution professional. Suggest the measures available to the company under the Insolvency and Bankruptcy Code, 2016
Answer:
→ An aggrieved financial creditor or operational creditor or corporate debtor may make an application to the Adjudicating Authority (within ten days) challenging the action of the Resolution Professional, on the following grounds
(a) that the Resolution Professional has not given an opportunity to the corporate debtor or the financial/operational creditor to make a representation; or
(b) that the Resolution Professional colluded with the other party in arriving at the decision; or
(c) that the Resolution Professional has not complied with the requirements.

→ The Adjudicating Authority shall decide the application against the Resolution Professional within 14 days of receipt of such application and make an order as it deems fit.

→ Where such application has been admitted by the Adjudicating Authority, it shall forward its order to the IBBI and the Board may take such action as may be required against the Resolution Professional

→ Hence, in the given case, Sun Finserve Ltd. shall file an appeal with the Adjudicating Authority, against the actions of the resolution professional.

Question 3.
An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person. How will you judge that a person is independent of the corporate person?
Answer:
→ An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person.

→ As per Regulation 3 (1) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, a person shall be considered independent of the corporate person, if he
(a) is eligible to be appointed as an independent director on the Board of the corporate person under Section 149 of the Companies Act, 2013, where the corporate person is a company;
(b) is not a related party of the corporate person; or
(c) has not been an employee or proprietor or a partner

of a firm of auditors or secretarial auditors or cost auditors of the corporate person; or
of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten percent or more of the gross turnover of such firm, in the last three years.

Question 4.
As per section 25(2) of the Insolvency and Bankruptcy Code, 2016, the Resolution Professional shall undertake actions in order to preserve and protect the assets of the corporate debtor. Briefly explain the duties of the Resolution Professional.
Answer:
Section 25 of the Insolvency and Bankruptcy Code, 2016 provides the duties of resolution professional to preserve and protect the assets of the corporate debtor.

The resolution professional shall undertake the following actions:

take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings,
raise interim finances subject to the approval of the Committee of Creditors,
appoint accountants, legal or other professionals in the manner as specified by Board,
maintain an updated list of claims,
convene and attend all meetings of the committee of creditors,
prepare the information memorandum,
invite prospective resolution applicants (with the approval of committee of creditors), having regard to the complexity and scale of operations of the business of the corporate debtor,
present all resolution plans at the meetings of the committee of creditors etc.

Question 5.
On or after promulgation of Insolvency and Bankruptcy Code, 2016 only the qualified person can be appointed as a Resolution Professional or a Liquidator of a Corporate Body – Discuss briefly.
Answer:

As per Section 206 of the Insolvency and Bankruptcy Code, 2016, no one can render services of an Insolvency Professional (IP) without being enrolled as a member of Insolvency Professional Agency (IPA) and registered with Insolvency and Bankruptcy Board of India (IBBI).
Thus, only persons with requisite qualifications and registered as In-solvency Professional can take up the role of Resolution Professional or Liquidator including Voluntary Liquidation.
IBBI (Insolvency Professionals) Regulations, 2016 require a person to complete pre-registration educational course, as may be required by the Board, from an insolvency professional agency after his enrolment as a professional member.
Section 207(2) of the Code empowers the IBBI to state eligibility cri¬teria for the persons having exposure in finance, law, management, insolvency or such other field, as it deems fit.
Hence, only qualified persons can be appointed as a Resolution Professional or Liquidator of a Corporate Body.

Question 6.
In the “Resolution Process”, define the functions of Insolvency Professionals. Is their contribution being noticed?
Answer:
→ An Insolvency Professional means a person enrolled with an Insolvency Professional Agency as its member and registered with the IBBI. The Code provides for IP as intermediaries who would play a key role in the efficient working of the insolvency and bankruptcy process.

→ Insolvency Professional (IP) plays a very important role under the Insolvency and Bankruptcy Code, 2016. Insolvency Professionals are intermediaries that facilitate the efficient working of the bankruptcy process. They are private professionals who are experts and experienced.

→ The functions performed by Insolvency Professionals are:
(a) Conducting Resolution Process;
(b) Conducting Meeting of Creditors;
(c) Management of operations of corporate debtor as going concern;
(d) Preparation of Information Memorandum;
(e) Submission of resolution plan; and
(f) Conducting of Liquidation process under the order of Adjudicating Authority if the resolution plan is not accepted or approved, etc.

→ The contribution of IPs has become significant and professional bodies are imparting Training such that more IPs come to this profession. The contribution has just been initiated, but the role shall be greater and more prominent in future for IPs.

Question 7.
Discuss the functions and code of conduct of Insolvency Professional under the Insolvency and Bankruptcy Code, 2016.
Answer:
→ An Insolvency Professional means a person enrolled with an Insolvency Professional Agency as its member and registered with the IBBI. The Code provides for IP as intermediaries who would play a key role in the efficient working of the insolvency and bankruptcy process.

→ He acts as an ‘Interim Resolution Professional (IRP)’ and ‘Resolution Professional (RP)’ in the Corporate Insolvency Resolution Process. Further, an Insolvency Professional acts as a liquidator as well as a ‘bankruptcy trustee’ for the estate of the bankrupt.

→ As per section 208 of the Insolvency and Bankruptcy Code, 2016, where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of an insolvency professional to take such actions as may be necessary, in the following matters:
(a) a fresh start order process
(b) individual insolvency resolution process
(c) corporate insolvency resolution process
(d) individual bankruptcy process
(e) liquidation of a corporate debtor firm.

→ As per section 208 of the IBC, 2016, every insolvency professional shall abide by the following Code of Conduct
(a) to take reasonable care and diligence while performing his duties;
(b) to comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member;
(c) to allow the insolvency professional agency to inspect his records;
(d) to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and
(e) to perform his functions in such a manner and subject to such conditions as may be specified.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Drafting and Conveyancing Relating to Various Deeds and Documents-II- Drafting, Pleadings and Appearances Important Questions

December 28, 2022

Drafting and Conveyancing Relating to Various Deeds and Documents-II – Drafting, Pleadings and Appearances Important Questions

Question 1.
Comment on the following statements; Essentials of a Promissory Note.
OR
Anil took a loan of 10 lakh from JF Financial Corporation (A registered financial company) for purchasing a one-bedroom flat on an agreed rate of interest of 16% per annum. Along with agreement papers, a promissory note (P/N) was signed by Anil which read Anil has taken lo2h whenever JF financial corporation demands its return Anil shall payback in ten instalments to them or to bearer of this P/N. After one year Anil defaulted in return of loan on demand by JF Financial Corporation.

Consequently, a summary suit was instituted by JF Financial Corporation against Anil in the court of civil judge. After scrutiny, the court .dismissed the suit holding that the P/N was void. What drafting precautions ought to have been taken by JF Financial Corporation when Anil was executing the P/N payable on demand? Cite the relevant case law, if any.
Answer:
Meaning: Promissory note is a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on-demand. It is one of the negotiable instruments recognized under the Negotiable Instruments Act, 1881.

According to Section 4 of the Negotiable Instruments Act, 1881:-
A “promissory note” is an instrument in writing (not being a bank¬note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Parties to a Promissory Note:-
The maker: the person who makes or executes the note promising to pay the amount stated therein.
The payee: one to whom the note is payable.
The holder: is either the payee or some other person to whom he may have endorsed the note’.
The endorser: A person who endorses the promissory note
The endorsee: A person to whom a promissory note is transferred by endorsements.

Essentials of a promissory note:-
a. It must be in writing. An oral promise to pay will not do.
b. It must contain an express promise or clear undertaking to pay. A mere acknowledgement of debt is not sufficient.
c. The promise or undertaking to pay must be unconditional. A promise to pay “when able”, or “as soon as possible”, or “after your marriage to D”, is conditional.
But a promise to pay after a specific time or on the happening of an event which must happen is unconditional.
For example; “I promise to pay 11000 ten days after the death of B”, is unconditional as death of a person is bound to happen.
d. The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.
e. The maker must be a certain person, i.e., the note must be clear; ‘ who is the person engaging himself to pay.
f. The payee must be certain. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order.
g. The sum payable must be certain and the amount must not be capable of contingent additions or subtractions.
For example: “A promises to pay ₹ 100 and all other sums which shall become due to him”. This instrument is not a promissory note.
h. Payment must be in legal money of the country. For example; “A promise to pay ₹ 500 and deliver 10 quintals of rice” is not a promissory note.
i. It must be properly stamped in accordance with the provisions of the Indian Stamp Act.
ii. It must contain the name of place, number and the date on which it is made. However, their omission will not render the instrument invalid.

Conclusion: In the light of the above, JF Financial Corporation ought to have taken the above precautions at the time of execution of Promissory note (P/N).

Question 2.
Distinguish between the following; Promissory Note and Bill of Exchange.
Answer:

BASIS	PROMISSORY NOTE	BILL OF EXCHANGE
1. Meaning	A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.	A bill of exchange means a bill drawn by a person directing another person to pay the specified sum of money to another person.
2. Section	A promissory note is defined by Section 4 of the Negotiable Instruments Act.	A bill of exchange is defined by Section 5 of the Negotiable Instruments Act.
3. Issued by	A promissory note is issued by a debtor.	A bill of exchange is issued by a creditor.
4. Number of parities	Number of parties It involves only two parties:- Drawer/maker Payee	It involves three parties:- Drawer/maker Drawee Payee
5. Acceptance	Need not be accepted by drawee to be valid and legally binding.	Must be accepted by the drawer before paying to be valid and legally binding.
6. Order/Promise	It is a promise, to pay.	It is an order to pay.
7. Example	I promise to pay B or order ₹ 500.	X orders Y to pay t 50000 for 90 days after date and Y accepts this order by signing his name, then it will be a bill of exchange.

Question 3.
Distinguish between the following; Power of Attorney and Letter of AuthorIty.
Or
Write notes on the following; Letters of authorIty.
Or
Comment on the following; A letter of authority is nothing but a power of attorney.
Answer:
The following are the differences between Promissory Note and Bill of Exchange:
1. A power of attorney is a written document that grants one person the authority to act on behalf oÍ another. it is made by “donor” authorising another, who is called the attorney of the person or “donee”, appointing him to do any lawful act instead of the donor.

2. As defined by Stroud, a power of attorney as an authority whereby one is asset in turn, stead or place” of another to act for him.

3. As per Section 2(21) of the Indian Stamp Act, 1899, TM Power of Attorney” includes any instrument (not chargeable with fee under the law relating to Court fees for the time being in force) empowering a specified person to act for and in the name of the person executing it.

4. As per Section lA of the Powers-of-Attorney Act, 1882. “Power of attorney includes an instrument empowering a specified person to act for and in the name of the person executing it.

5. A power of attorney can be executed:

By any person, who can enter into a contract i.e. a person of sound mind who has attained majority.
Only in favour of a major.

6. Agent vs. Principal: While functioning as an attorney, the donee is acting as an agent of the donor i.e. the executor of the power of attorney, who is the principal.

7. Applicability of Section 2 of the Powers-of-Attorney Act, 1882 clearly specifies that the signature of the agent will be deemed to be the signature of the principal.

8. Form: Power of attorney is executed in the form of Deed Poll, usually in the first person. It begins as:
By This Power Of Attorney, I, Etc.” Know All. Men By These Presents That I Etc.’

Letter of Authority:
Following are the key points on letter of authority:

A letter of authority is nothing but a power of attorney.
They are executed on plain paper and not on stamp paper.
Usually, these are issued for collection of some documents, papers, dividends, interests etc. by one person on behalf of another.
By and large, the law relating to power of attorney will also apply to the letters of authority.

Question 4.
Distinguish between the following; Special and General Power of Attorney.
Answer:
Meaning: A “power of attorney” is a legal document that authorizes a person called an “agent” to act on behalf of the person who created the power of attorney, known as the “principal”.
Types: A power of attorney can be classified into two types; special power of attorney and general power of attorney.

Following are the differences between the two:
Special Power of Attorney – “Special power of attorney” is a power of attorney executed for the purposes of a specific act. It is also called a “particular power of attorney”. A specific act is meant to imply either a specific act or acts related to each other as to form one judicial transaction, such as all the acts necessary to perfect a mortgage or a sale of a particular property.

Duration: A general power of attorney will continue to be in force until expressly revoked or determined by the death of either party or expressly or impliedly limited for a particular period.

Judicial Precedent: In the case of Fowler v. Broode P.N. Light & Co., (1893) 1 Ch. 724, the Court held that-
“In the case of a company, the power of attorney executed by the directors ceases to be operative as soon as an order for winding up is made as the directors cease to function.”

Question 5.
Write notes on the following; Revocable and Irrevocable power of attorney.
Answer:
”Power of attorney” includes any instrument empowering a specified person to act for and in the name of the person executing it. The donor may execute either a revocable power of attorney or irrevocable power of attorney in favour of the donee.

Revocable Power of Attorney A power of attorney executed in favour of a person can always, at the discretion of the donor thereof, be revoked as the donee of a power of attorney is an agent of the donor.
Irrevocable Power of Attorney A power of attorney executed, in which the donee himself has an interest, is irrevocable.

As per Section 202 of the Indian Contract Act, 1872 “Where the agent has himself an interest in the property.
which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.”

It is clear from the analysis of the above-stated section; if a donee himself has an interest in the matters covered by the power of attorney, which forms the subject matter thereof, the power of attorney in the absence of express contract cannot be terminated to the prejudice of such interest.

Irrevocable powers of attorneys are executed in favour of the financial institutions by accompanying who offer financial assistance to the latter.

Through such irrevocable powers of attorney, powers arc given to the financial institutions for executing a security document for securing the financial assistance in the event of a company failing to execute such a document by a certain date.

Irrevocable power of attorney will need registration.
Agency coupled with interest cannot be terminated without the consent of the other party.

Question 6.
Is it necessary to get the Power of Attorney attested?
Answer:
A “power of attorney need not be attested. However, it would be advisable to execute the power of attorney before and have it authenticated by a Notary Public or any Court Judge/Magistrate, Consul or Vice-Consul,or representative of the Central Government.

Effect of attestation:
If a power of attorney is authenticated, Courts shall presume the execution of the power of attorney according to the section given below:
Section 85 of the Indian Evidence Act, 1872: The Court shall presume that every document purporting to be a power of attorney, and to have been executed before and authenticated by a Notary Public or any Court, Judge, Magistrate, Indian Consul or Vice-Consul or representative of the Central Government, was so executed and authenticated.

Section 33(1) of the Registration Act, 1908: If a power of attorney gives authority to present documents for registration under Section 32 of the Registration Act, 1908 it must be executed before and authenticated by the following if the principal at the time of executing the power-of-attorney:
Resides in any part of India where Registration Act, 1908, Is in force: -Before Registrar or Sub-Registrar within whose District or Sub-District the principal resides.

Resides in any part of India where Registration Act 1908, is not In force: Before any Magistrate.
Does not reside in any part of India i.e. if ills executed outside India:-Before a Notary Public, or any Court, Judge, Magistrate, Indian Consul or Vice-Consul or representative of the Central Government.

A power of attorney empowering an agent to execute a deed conveying an immovable property and get the deed registered thereby perfecting the transaction of conveyance, need not be executed before the Officer appointed to authenticate and register.

Question 7.
Briefly discuss the legal position as to duration of Power of Attorney with reference to case law on the subject.
Answer:
A power of attorney is a written document that grants one person the authority to act on behalf of another. It is made by “donor” authorising another, who is called the attorney of the person or “donee”, appointing him to do any lawful act instead of the donor.
Following are the provisions of duration of power of attorney:-
Duration of general power of attorney:
A general power of attorney will continue to be in force until expressly revoked or determined by the death of either party.

Duration of special power of attorney:
A special power of attorney to do an act is determined when the act is done.

Judicial Precedent: In the case of Fowler v. BroodeP.N. Light & Co., (1893) 1 Ch. 724, the Court held that-
“In the case of a company, the power of attorney executed by the directors ceases to he operative as soon as an order for winding up is made as the directors cease to function.”

In case it is desired that the power should continue for a particular period or until a certain event happens, an express provision to that effect should be made in the deed itself.

Question 8.
‘B’ has filed a title suit against ‘A’ in the court of City Civil Judge (S.D.) as a long cause suit. Pending its hearing, ‘B’ executed a power of attorney j in favour of ‘D’ and got it registered. Later on, without consulting ‘D’, ‘B’ signed a compromise deed with ‘A’. ‘D’ challenged the compromise as it was entered into without informing him or obtaining his consent, and so it prejudiced his rights. Would ‘D’ succeed? Cite case law.
Answer:
Following are key points on power of attorney:
As defined b Stroud, a power of attorney is an authority whereby one is “set in turn, stead or place of another to act for him.

Revocation of power of attorney:
As per Section 207 of Indian Contract Act:
Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively.”
Illustration: A empowers B to let A’s house. Afterwards, A lets it | himself. This is an implied revocation of B’s authority. A empowers B to let A’s house. Afterwards, A lets it himself. This is an implied revocation of B’s authority.”

Judicial precedent on revocation of power of attorney:
Deb Ratan Biswas & Other v. Anand Moyi Devi & Other AIR 2011 SC page 1653 wherein Supreme Court held that:
“It is well settled that even after execution of a power of attorney the principal can act independently and does not have to take the consent of attorney. The attorney is after all only agent of the principal Even after executing a power of attorney the principal can act on his own.”

Conclusion:
In the present case ‘B’ is principal and ‘D’ is attorney. D being an attorney cannot claim an independent capacity in the proceedings. When the principal B signed compromise petition, in the law it amounts to implied revocation of power of attorney in favour of D vide illustration to section 207 of the Indian Contract Act. The principal B is not bound to consult his attorney D before signing a compromise petition.

Question 9.
Write notes on the following; Principles governing the construction of a power of attorney.
Or
Comment on the following; A power of attorney must be strictly construed.
Answer:
Principles governing the construction of a power of attorney: A power of attorney can be construed by applying principles of construction.
Following are the principles governing the construction of a power of attorney:

The operative part of the deed is controlled by the recitals.
Where an authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the performance of the particular acts.
The general words do not confer general powers but are limited to the purpose for which the authority is given and are construed

Question 10.
“Registration of a Power of Attorney is not compulsory”. Comment.
Answer:
As per Section 4 of the Powers-of-Attorney Act, 1882, if a party wishes to get its power of attorney registered it may be deposited in the High Court or District Court within the local limits of whose jurisdiction the instrument is with an affidavit verifying its execution, and a copy may be presented at the office and stamped as the certified copy and it will then be sufficient evidence of the contents of the deed.

Therefore, a bare reading of Section 4 makes it clear that registration of a power of attorney is not compulsory however, if a party wishes to get it registered, it may do so in terms of Section 4 of the Powers-of-Attorney Act, 1882.

As per Section 17(b) of the Indian Registration Act, 1908, non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property requires compulsory registration.

Therefore, according the aforesaid section registration of power of y attorney becomes compulsory under certain cases such as; a power which authorises the donee to recover rents of immovable property belonging to the donor for the donee’s own benefit is an assignment.

Judicial precedents on registration of power of attorney:

Indra Bibi v. Jain Sirdar, (1908) I.L.R. 35 Cal. 845, 848:
“A power of attorney which creates a charge on the immovable property referred to therein in favour of the donee of the power requires registration
Kochuvareed v. Mariappa AIR 1954 T.C. 10, 17:
“A general power of attorney, even though it deals with immovable property, need not be registered since it does not come under Section 17”.

Question 11.
ABC Corporation (Pvt.) Ltd. incorporated under the Companies Act, 2013 purchased a five-room double-storey flat In XYZ Locality of Chennai for providing company accommodation to Its Company Secretary on the first floor and company guest house on the ground floor. For facilitating its registration, the Chairman-cum CEO (CCEO), executed the following special power of attorney:
“By this power of attorney, IXXX, Chairman of the ABC Corporation Ltd, Do hereby appoint and authorize CD, MBA, LLB and ACS – to be my agent and attorney for the purpose of executing registration of our company flat address: (XXXY, XYZ locality of Chennai) purchased by us for 80 Lakh only from KLNBuilders (Pvt.) Ltd, on this ………………… day of September 2014.
To: Alt concerned authorities.
Sd/-
XXX
CCEO”
Upon presentment, the Sub-Register, Chennai refused its bearer, CD to allow him to complete the registration procedure, holding the Power of Attorney to be void. Answer the following:
(i) Is the Sub-Registrar’s refusal legally tenable?
(ii) If not, in what form or manner should the power of attorney be framed?
(iii) How is it to be executed?
(iv) Will it make any difference if the CCEO is a married woman aged 45 years?
Answer:
(i) The due execution of documents is important to create legal binding documents. When a document is to be registered with the Registrar, the execution must be strictly complied with.

A power of attorney executed for the purpose of a specific act is called a “special power of attorney”.
Applicability of Section 22(2) of the Companies Act, 2013, makes it clear that a company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.

A deed signed by such an attorney on behalf of the company and under his seal shall bind the company.
Thus the refusal by Sub-Registrar is legally tenable as the special power of attorney is not in the prescribed manner.

(ii) A Deed of Special power-of-attorney to be filled with the Sub-Registrar, to authorise the Company Secretary to execute registration of flat is as follows:-

By This Power Of Attorney I XXX, the Chairman of the ABC Corporation (Pvt.) Ltd. having registered office at ……………… do hereby appoint CD, S/o ……….. R/o……… as my attorney for me and on my behalf to:-

Appear for and represent me before the Sub-Registrar of ………… as many times as may be necessary.
Present before the Sub-Registrar for registration the ………… deed dated ……. made between…
Do any act, deed or thing as may be necessary to complete the registration of the said deed in the manner required by law and.
Give proper receipt and discharge, when it has been returned to him after being duly registered.

And I, XXX, do hereby agree and declare that all acts, deeds and things done, executed or performed by the said CD shall be valid and binding | on me to all intents and purposes as if done by me personally which I undertake to ratify and confirm whenever required.
Signed, sealed and delivered
S/d
Witnesses.

S/d
XXX
Chairman of the ABC Corporation Ltd.

(iii) Following are the key points on Execution of power of Attorney:
A power of attorney can be executed by any person, who can enter into a contract i.e.
(a) person of sound mind.
(b) A power of attorney can be executed only in favour of a major.

Agent Principal relationship:
While functioning as an attorney the done is acting as an agent | of the donor i.e. the executor of the power of attorney, who is the j principal. Thus, in such cases there is relationship of agent and principal and such relationship can be entered into by majors and not by minors.

Section 2 of the Power of Attorney Act, 1882 provides that signature of the agent will be deemed to be the signature of the principal.

Company being an artificial person can act through agents i.e. its officers. Powers are delegated by companies to the agents through Board resolutions of through powers of attorney.

(iv) Effect of the power of attorney of a married woman:
CCEO being a married woman aged 45 will not make any difference as the power of attorney is executed in the capacity of Chairman-cum- CEO of the Company ABC Corporation Ltd. (Pvt.) Ltd. and not in the capacity of individual.
Further, even if the same would have been executed in individual capacity there would have been no effect by virtue of Section 5 of the Powers-of-Attorney Act, 1882.

Question 12.
B has filed a title suit against A in the Court of City Civil Judge (S.D) as a long-cause suit pending its hearing, B executed a power of attorney in favour of D. B signed a compromise deed with A. D’ challenged the compromise as it was entered info without information him or obtaining his consent and so it prejudiced his right. Would D’ succeed? Cite case law.
Answer:
Revocation and renunciation of an authority is governed by the Indian Contract Act, 1872. As per Section 207 of Indian Contract Act 1872:-
“Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively.”
Illustration: A empowers B to let A’s house. Afterwards, A lets it himself. This is an implied revocation of B’s authority.

Judicial precedent:
In the case of Deb Ratan Biswas & Other v. Anand Moyi Devi & Other AIR 2011 SC page 1653 Supreme Court held that:-
“It is well settled that even after execution of a power of attorney the principal can act independently and does not have to take the consent of attorney. The attorney is after all only agent of the principal Even after executing a power of attorney the principal can act on his own”.

Conclusion: In the present case ‘B’ is principal and ‘D’ is attorney. D being an attorney cannot claim an independent capacity in the proceedings. When the principal B signed compromise petition, in the law it amounts to implied revocation of power of attorney in favour of D. The principal B is not bound to consult his attorney D before singing a compromise petition.

Question 13.
Excellent Corporation Ltd. incorporated under the Companies Act, 2013 purchased an independent house comprising two floor in Gurgaon in the state of Haryana for a sum of 3.5Crores for providing company accommodation to Dinesh, Company Secretary on the first floor and it was decided that the company shall have its guest house at ground floor.
For facilitating its registration Mrs. Kiran, Chairman-cum-Managing Director executed the following special power of attorney.
“By this power of attorney I, Kiran, Chairman of Excellent Corporation Ltd. do hereby appoint and authorize Dinesh to be my agent and authorize for the purposes of executing registration of the property purchased by the company from Antarctic Builders Ltd. on this 15th day of September 2015 for and on behalf of Excellent Corporation Ltd.”
On presentation of this document the Registrar refused to complete the registration procedure stating that the power of attorney is void. In light of the above answer the following:
(i) Is the action of the registrar legally tenable? State reasons.
(ii) Draft a power of attorney as you would have been the secretary.
(iii) Property registration charges are 8 % for a man and 6 % for a woman. Will you advise that the power of attorney fie executed in favour of Mrs. Kiran to derive this benefit?
Answer:
(i) The due execution of documents is important to create legal binding documents. When a document is to be registered with the Registrar, the execution must be strictly comply with.

As per Section 22(2) of the Companies Act, 2013, a company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.

A deed signed by such an attorney on behalf of the company and under his seal shall bind the company.
Thus the refusal by Registrar is legally tenable as the specific power of attorney is not in the prescribed manner.

(ii) Deed of Specific Power of Attorney to be presented to execute registration of property is as follows:-
By This Power Of Attorney I Kiran, Chairman of Excellent Corporation Limited do hereby appoint Mr. Dinesh company secretary of the Company, my attorney for me and on my behalf to:-

Appear for and represent me before the Registrar of Gurgaon, Haryana of all times as may be necessary.
Present for Registration the Title Deed dated ….day of and to do any Act, deed or thing as may be necessary to complete the registration of the said deed in the manner provided by law and when it has been returned to him after being duly registered, to give proper receipt and discharge for the same.

I Kiran the Chairman of Excellent Corporation Limited, do hereby agree and declare that all acts, deeds and things done, executed or performed by the said Mr. Dinesh shall be valid and binding on me to all intents and purposes as if done by me personally which I undertake to ratify and confirm whenever required.
Signed, sealed and delivered
S/d

Witness.

S/d
Kiran,
Chairman of Excellent Corporation Limited

(iii) Chairman being a female will not make any difference as the property is to be registered in the name of the Company.
If the property would have to be registered in the personal capacity of Mrs. Kiran the benefit could have been in the terms of savings in stamp duty.
As far as issue of power of Attorney is concerned there is no distinction between man and woman.

Question 14.
Francis, aged 38 years, son of Anthony, Max house, Kunoor, Mysore, now residing at house No. 418, Bapu Bazar, New Delhi, is the Chief Administrative Officer of Standard Medical Laboratories, New Delhi. For the management of his properties at Mysore, he wants to empower Mr. Robert, aged 40 years, son of Josef, a businessman, residing at Mary house, Kunoor, Mysore. Draft a General Power of Attorney (GPA).
Answer:
Known All Men by these presents that I, Francis, aged 38(thirty-eight) year, S/o Anthony, R/o House No. 418, Bapu Bazar, New Delhi, here j by nominate, constitute and appoint Mr. Robert aged 40(forty years), S/o
Joseph, Businessman, R/o Mary House, Kunoor, Mysore District, Karnataka State as my true & lawful attorney for me, in my name, and on my behalf to do, execute and perform all or any of the following acts, deeds and things in relation to my property situated at Mysore:-
1. To manage, control, supervise, cultivate and develop ALL THAT PROP¬ERTY belong to me, and especially and fully described in the schedule A hereunder.

2. To enter into the said properties, to inspect the same, and to avail or exercise and rights or remedies vested in me.

3. To let out the shop or part thereof, described as the second item to the Schedule A hereunder on monthly tenancy basis, and to realize the rent thereof and to accept surrender of such lease.

4. To demand, sue from recover and receive and give proper receipts and discharge for all money, debts, rents, profits and securities belong to me.

5. To give notice to tenants and the occupiers of my properties to quite, or to repair any damage or to abate, any nuisance or to remedy and breach of covenants or contract.

6. To appear for and represent me in any Court of Tribunal or Registration Offices and to do all such acts as may be necessary, and to appoint and engage any advocate whenever my said attorney deem it necessary and proper.

7. To compromise, compound or withdraw cases.

8. To invest all surplus money in such manner and upon such security as my said attorney may deem fit and proper:
Provided that the said attorney shall not have power to make alienation of my properties except with my express written consent on the behalf:

Provided that the said attorney shall maintain a true, complete, correct and faithful account of all income and expenditure which shall be rendered to me every month.

And I do hereby agree and undertake to ratify and confirm all acts, deeds and things lawfully and bona fide done, executed and performed by my said attorney as if I was personally present despite the absence of my special power in that behalf.

Schedule
(Description of the Property)

I undertake to ratify and confirm whenever required.
Signed, sealed and delivered
S/d S/d
Witnesses AB

Question 15.
Draft the following Documents; Power of Attorney to present Documents for Registration of any immovable property.
Answer:
BY THIS POWER OF ATTORNEY I, AB S/o…. R/o…., do hereby appoint CD, S/o……….. R/o……… as my attorney for me and on my behalf to:-

Appear for and represent me before the sub-registrar of ………….. of all times as may be necessary.
Present before him for registration the ………… deed dated the ………….. day of made between …………. to admit the execution of the said deed by me.
To do any act, deed or thing as may be necessary to complete the registration of the said deed in the manner required by law.
Give proper receipt and discharge when the document has been returned to him after being duly registered.

And I, the said AB, do hereby agree and declare that all acts, deeds and things done, executed or performed by the said, CD shall.be valid and binding on me to all intents and purposes as if done by me personally which I undertake to ratify and confirm whenever required.
Signed, sealed and delivered.
S/d. S/d
Witnesses AB

Question 16.
Draft a Power of Attorney authorizing Mr. X to sign for a permanent injunction to be filed before Civil Court.
Answer:

Before The Ld. District Judge, Saket Court,
New Delhi Civil Jurisdiction
Cs(Os) No ………….. /2020

In The Matter Of:
X,
S/o…….
R/o……

PLAINTIFF

VERSUS

Y,
S/o…
R/o…

DEFENDANT

By This Power Of Attorney, I, ‘Y’, defendant, in the above suit, do hereby nominate, constitute and appoint, Advocate Mr. ‘M’, as my attorney for me, in my name and on my behalf to:-

Appear, act and plead in the said case, to make or present Permanent Injunction to the court.
Do all other lawful acts, deeds and things in connection with the case as effectually as could do the same, if I were personally present.
Engage and appoint any other advocate or advocates whenever my said advocate thinks proper to do so.

Provided, however, that, if any part of the advocate’s fee remains unpaid before the first hearing of the case or if any hearing of the case be fixed beyond the limits of this town, then and in such an event my said advocate shall not be bound to appear before the court.

Provided that if the case be dismissed by default, or if it be proceeded ex parte, the said advocate shall not be held responsible for the same except in case of gross negligence, willful default.
And all whatever my said advocate shall lawfully do, I do hereby agree to and shall in future ratify and confirm.
Signed, sealed and delivered
S/d
Witnesses

S/d
AB

Question 17.
Explain the following; Two types of Hire Purchase Agreements.
Answer:
The following are the types of Hire Purchase Agreement:-

Type 1

When the owner is unwilling to look to the purchaser of goods to recover the balance of the price, and the financier who pays the balance, undertakes the recovery. In this form, goods are purchased by the financier the dealer, and the financier obtains a hire-purchase agreement from the customer under which the latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price.

Type 2

In this form of transactions, goods are purchased by the customer, who in consideration of executing a hire-purchase agreement and allied documents remains in possession of the goods, subject to liability to pay the amount paid by the financier on his behalf to the owner or dealer, and the financier obtains a hire-purchase agreement which gives him a license to seize the goods in the event of failure by the customer to abide by the conditions of the hire-purchase agreement.

Question 18.
Comment on the following statement; Registration and payment of stamp duty on a deed of hire-purchase is compulsory.
Answer:
Stamp Duty on hire purchase deed:
There is no article governing hire purchase agreement in Schedule I to the Indian Stamp Act, 1899. Such an agreement would, therefore, fall under the general Article 5 regarding agreements in general. There¬fore, a deed of hire-purchase is liable to stamp duty as an agreement under Article 5 of the Indian Stamp Act, 1899.

Registration of hire-purchase deed:
According to Section 18(d) of Registration Act, 1908, registration is optional for an instrument other than Will, which purport or operate to create, declare, assign, limit or extinguish any right, title or interest to or in movable property. Therefore, A hire purchase agreement or a hire agreement does not require compulsory registration under the Registration Act, 1908 as it relates to movable property.

Question 19.
Draft the following Documents; Hire-Purchase Agreement.
Answer:
This Agreement Of Hire Purchase made on 3rd day of June 2019 between AB, S/o…. R/o…. (hereinafter called the “Owner” which expression shall include the successors and assigns where the context so admits) of the ONE PART.

AND

CD, S/o…. R/o…. (hereinafter called the “Hirer” which expression shall include the successors and assigns where the context so admits) of the OTHER PART.

Whereas, the owner is engaged in the business of manufacturing and has agreed to let to the hirer
And Whereas the hirer has agreed to take on hire the said goods more particularly described in the Schedule A hereto for the term of five years from the date of execution of this agreement.

Now This Deed Witnesseth As Under:
1. Hire: The hirer shall pay to the owner on the execution of this agreement the sum of ₹ ……………….. the hire for the first month and on the first day of every calendar month or year during the hiring the sum of ₹ ………………. by way of hire for the said goods, as specified in Schedule-B hereto.

2. Option to purchase: The hirer shall at any time during the hiring have the option of purchasing the said goods for ₹ ……………. and in that event the hirer shall receive credit for all sums previously paid by him under the preceding clause.

3. Hirer’s covenants: During the hiring tenure the hirer will:

Not sell, pledge, hypothecate, charge or in any manner encumber the goods or part with possession of the said goods or any of 2 them.
Not without the consent in writing of the owner, remove the p said goods or any part thereof from the premises of the hirer at ……………. and shall keep the owner informed forthwith of any charge in address or shift of place.
Will not lend or transfer the goods to any other person without the previous sanction in writing of the owner.
Will keep the goods in good order and condition and will, on the expiry of years or earlier termination of this agreement, return the same to owner in the same condition.
Pay all taxes, fees, duties, fines, registration charges, other expenses, payable in respect of the assets – when the same shall become due.
Permit the owner or his authorised agent or nominee at all reasonable times to inspect and examine the condition of the said goods.
Shall keep the goods insured against all losses or damage by fire, tempest or theft upto the value of ₹ with an Insurance Company to be approved by the owner and shall punctually pay all premiums.
The hirer shall indemnify the owner against claims by third parties arising by accident caused by user of the asset until the determination of this agreement.

4. Change in address: The hirer shall forthwith intimate the owners any change of address of the hirer and of the address of the premises where the asset is kept.

5. Default clause: If the hirer shall make default in the punctual payment in full, of the said monthly hire or in the observance or performance of any of the provisions of this agreement, on his part to be observed and performed the hiring shall immediately be determined.

6. Owner to make possession: On the determination of the hiring, the owner may without notice or demand retake possession of the said goods.

7. Option to terminate hiring: The hirer may terminate this agreement at any time by returning the said goods at the owner’s place of business.

8. Rights of damages not affected: If the hiring is terminated by the hirer under clause 7 such termination shall not prejudice the owner’s right to recover the hire upon the date of such termination nor his right to H recover damages for any prior breach of this-agreement by the hirer.

9. Compensation for depreciation: At the termination of this agreement either at the instance of the hirer or the owner, the hirer shall pay to the owner by way of compensation for depreciation of the said article such sum as with the amount previously paid for hire shall make up a sum equal to not less than one half of total amount payable under the agreement.

10. Any time or other indulgence granted by the owner shall not prejudice or affect his strict rights under this agreement.

Schedule A
Description of Assets

1. Name.
2. Accession No.
3. Mark/Trade Name.
4. Year of Manufacture.
5. Type of Machine.
6. No. of Machine
7. Other descriptions: ……………………………
8. Accessories affixed to the asset: ……………………………

Schedule B

The amounts payable under this Agreement are as under:
Due Date Amount(₹)

…………………

In Witness Whereof the parties hereunto have set and subscribed their hands the day, month and year hereinbefore mentioned and bind themselves their heirs, successors and administrators and assigns.
Witness: 1. Signature of Hirer
Witness: 2. Signature of Owner

Question 20.
In the light of judicial pronouncement discuss the following; The family settlement must be a bona fide one.
Answer:
As defined by Halsbury’s Laws of England/A family arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour.”

In the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807 the Supreme Court has laid down the following essentials of a family settlement in a concrete form:
1. The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.

2. The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.

3. The family arrangement maybe even oral in which case no registration is necessary.

4. Registration of a family settlement is necessary only if the terms of the family arrangement are reduced into writing. A memorandum of family settlement recording the terms of an already existing oral settlement does not require registration.

5. The members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement.

6. Even in bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable, the family arrangement is final and binding on the parties to the settlement.

In the case of CITV. R. Pottnammal (1987) 164 ITR 706 (Mad), the Court has held that:
“Even if a party to the settlement had no title but, under the arrangement, the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same. ”

Question 21.
In the light of judicial pronouncements discuss the following; A family arrangement can be enforced in a court of I&w:
Answer:
Following are key points on family arrangements:-
Objective of family settlement:
The object of a family arrangement is to protect the family from long drawn litigation and solidarity/unity of the family and to avoid hatred and bad blood between the various members of the family.

Enforce ability of family settlement:
According to the Supreme Court, a family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of few is undoubtedly a milestone in the administration of social justice.

The Supreme Court has generally taken a broad view of the matter and leaned heavily in favour of upholding any such arrangement. In the case of Lakshmi Perumallu v. Krishnavenamma AIR 1965 SC 825:1965(1) SCR 261 SC has held:-
“A family arrangement, which is for the benefit of the family, can be enforced in a court of law. But before the court would do so, it must be shown that there was an occasion for effecting a family arrangement and that it was acted upon. ”

Question 22.
Draft the following Document (Assume facts if necessary); Family Settlement Deed.
Answer:
This Deed Of Family Arrangement is executed on 3rd day of June 2019 between Mr. A, S/o MN aged years, R/o (hereinafter called as the “first party”).

AND

Mr. B, S/o XM aged years, R/o (hereinafter called as the “second party”).

Whereas the first party has started and carried out the business and undertaking described in Schedule ‘A’ by his own initiative and efforts with his own capital and funds.

And Whereas the second party, who is son of the pre-deceased son of the first party and residing with him under the care and parentage of the first party and assisting him in conduct of the aforesaid business for which he was being paid share in profit.

And Whereas the second party thus having contributed his labour and skill for the development of the business rendered valuable services for the same and rendered himself entitled for an equal share in the said business.

Now, This Deed Witnesseth As Follows:

That the parties have agreed to distribute the business and the prop¬erties of the business amongst each other in an equal proportion.
It is hereby decided and declared that the first party hereinafter shall hold, own and possess as full and absolute owner of the properties described in Schedule ‘B’.
It is hereby decided and declared that the second party hereinafter shall hold, own and possess as full and absolute owner of the properties described in Schedule ‘C.
That no party shall have any demand or claim on any account whatsoever on the share of other parties.
The business and properties have been distributed amongst the parties to this deed absolutely.

In Witness Whereof the parties to this deed have put and subscribed their respective hands in presence of witnesses on the date above mentioned.
Witness 1 First Party
Witness 2 Second Party

Drafting, Pleadings and Appearances Notes

CS Professional Secretarial Audit, Compliance Management and Due Diligence ICSI Study Material Notes Important Questions

December 28, 2022

Secretarial Audit, Compliance Management and Due Diligence ICSI Study Material for June 2020-2021 New & Old Syllabus

Secretarial Audit Compliance Management and Due Diligence Notes

CS Professional Secretarial Audit Compliance Management and Due Diligence ICSI Study Material for June December 2020-2021 New & Old Syllabus

CS Professional Secretarial Audit Compliance Management and Due Diligence Question Paper

CS Professional Secretarial Audit Compliance Management and Due Diligence Chapter Wise Weightage

Chapter Name	2019		2020
Chapter Name	June	December	December
1. Compliance Framework	5	5	10
2. Compliances	15	5	5
3. Documentation and Maintenance of Records	5	5	15
4. Search and Status Report	10	–	5
5. KYC	10	10	10
6. Signing and Certification	10	15	5
7. Segment-wise Role of Company Secretaries	5	10	10
8. Audits	–	5	–
9. Secretarial Audit	11	–	10
10. Internal Audit	5	5	10
11. Concepts and Principles of other Audits	10	16	10
12. Audit Engagement	3	5	8
13. Audit Principles and Techniques	10	8	5
14. Audit Process and Documentation	–	–	3
15. Forming an Opinion and Reporting	–	3	3
16. Secretarial Audit – Fraud Detection and Reporting	8	2.5	–
17. Quality Review	–	3	10
18. Values, Ethics and Professional Conduct	5	2.5	3
19. Due Diligence I	5	30	5
20. Due Diligence II	3	5	8

Resolution Strategies – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Resolution Strategies – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
Global Finance Bank Ltd. has extended ₹ 100 crore to GEO Ltd. against mortgage of 50 acres of landed property with building. GEO Ltd. is being liquidated. Global Finance Bank Ltd. seeks to realize the mortgaged property given as security. Advise Global Finance Bank Ltd. about realizing its security.
Answer:
Part II of the Insolvency and Bankruptcy Code, 2016 lays down the law relating to liquidation process for corporate persons.

Firstly, an attempt is made to resolve the insolvency of the Corporate Debtor through the Corporate Insolvency Resolution Process. The Liquidation provisions come into effect if the attempts to resolve corporate insolvency fail. The IBBI (Liquidation Process) Regulations, 2016 deals with realization of security interest by a secured creditor.

In the given case, Global Finance Bank Ltd. (secured creditor) shall fulfil the following obligations for recovery of the loan amount:
1. Global Finance Bank Ltd. who seeks to realize its security interest shall intimate the liquidator of the price at which he proposes to realize its secured asset.

2. The liquidator shall inform the Global Finance Bank Ltd. within 21 days of receipt of the intimation, if a person is willing to buy the secured asset before the expiry of 30 days from the date of intimation at a price higher than the price intimated.

3. Where the liquidator informs the Global Finance Bank Ltd. of a person willing to buy the secured asset, Global Finance Bank Ltd. shall sell the asset to such person.

4. If the liquidator does not inform Global Finance Bank Ltd. or the person does not buy the secured asset, Global Finance Bank Ltd. may realize the secured asset in the manner it deems fit, but at least at the price intimated.

5. Where the secured asset is realized under (in) above, Global Fi-nance Bank Ltd. shall bear the cost of identification of the buyer.

6. Where the secured asset is realized under (iv) above, the liquidator shall bear the cost incurred to identify the buyer.

7. The above provisions shall not apply if Global Finance Bank Ltd. enforces its security interest under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Recovery of Debts and Bankruptcy Act, 1993.

Question 2.
The liquidator shall ordinarily sell the assets of the corporate debtor through auction method. Opine whether the liquidator can sell assets by a route other than auction method.
Answer:
Generally, the liquidator shall ordinarily sell the assets of the Corporate Debtor through an auction in the specified manner. Further, the liquidator may sell the assets of the corporate debtor by means of private sale where
(a) the asset is perishable;
(b) the asset is likely to deteriorate in value significantly if not sold im-mediately;
(c) the asset is sold at a price higher than the reserve price of a failed auction; or
(d) the prior permission of the Adjudicating Authority has been obtained for such sale

However, the liquidator shall not sell the assets, without prior permission of the Adjudicating Authority, by way of private sale to:
(a) a related party of the corporate debtor;
(b) his related party; or
(c) any professional appointed by him.

Question 3.
Debt for Equity swaps can be used as a tool not only for Sections 230-231 of the Companies Act, 2013 but for resolution plans formulated under Insolvency and Bankruptcy Code, 2016 – Present your views briefly.
Answer:

In case of Corporate Insolvency Resolution Process (CIRP), one of the resolution strategies is financial restructuring, where there is reorganizing the equity capital and debt capital.
Financial restructuring is undertaken either to recover from financial distress or as part of company’s general financial strategy u/s 230 of the Companies Act, 2013.
Regulation 37 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that a resolution plan shall provide for the measures for maximization of value of assets.
One of the best methods of corporate debt restructuring is debt-equity swap where specified shareholders shall have right to exchange stock for a pre-determined amount of debt in the same company.
In debt-equity swap debt/bonds are exchanged with shares of the company.
However, the resolution plan needs to be placed before Committee of Creditors for approval before the same is placed for sanction by the NCLT.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Committee of Creditors – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Committee of Creditors – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
A resolution plan has been submitted in respect of the company PQR Ltd. and the resolution plan is yet to be confirmed. The committee of creditors resolved to liquidate PQR Ltd. approved by not less than sixty-five percent of the voting share. Can liquidation be ordered?
Answer:

Part II of the Insolvency and Bankruptcy Code, 2016 lays down the law relating to liquidation process for corporate persons.
Firstly, an attempt is made to resolve the insolvency of the Corporate
Debtor through the Corporate Insolvency Resolution Process. The Liquidation provisions come into effect if the attempts to resolve corporate insolvency fails.
Section 33 of the Insolvency and Bankruptcy Code, 2016 a resolution professional may intimate the Adjudicating Authority about the decision of the committee of creditors to liquidate the corporate debtors.
The decision by the committee of creditors shall be approved by not less than 66% of the voting share. On receiving the resolution, the Adjudicating Authority shall pass a liquidation order.
In the given question the approval of the resolution to liquidate PQR Ltd. by the creditors having 65% of the voting share is not sufficient.
The decision of the committee of creditors should be approved by not less than 66% of the voting share. Hence, the liquidation of PQR Ltd. cannot be ordered.

Category: CS Professional

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