OCTOBER - 2010

• Accident: Murder: The Jharkhand High Court has very clearly stated, with rigorous analysis that accidents leading death, with an intention to commit murder shall disqualify all legal heirs from an award of compensation, both under the Workmen's Compensation Act (now Employees Compensation Act) and the Motor Vehicles Act by differentiating the meanings of "murder" and "accident". Dhela Rani v. Sri Deepak Prasad, (Jharkhand High Court) (DB).

• Acquittal: When an appeal is filed under s.378 of Code of Criminal Procedure, 1973 against acquittal by the Trial Court, scope of powers of appellate court stated as follows: (a) Review the evidence which resulted in acquittal, (b) Review the conclusion of trial court on facts & law, (c) Marshal entire evidence & give cogent reasons while setting aside the acquittal, (d) An order of acquittal can be interfered only when there are 'compelling & substantial' reasons, (e) Acquittal could be reversed only when the findings are palpably wrong, manifestly erroneous or demonstrably unsustainable. Sidhartha Vashisht v. State (NCT of Delhi), (Supreme Court).

• Constitutional validity of law: Firstly, validity of law is required to be adjudicated on the basis of provisions & tests and not on the basis of affidavits of officers of the State government. Secondly, legislature in its competence can frame laws which would render a judicial decision ineffective. Goa Glass Fibre Limited v. State of Goa, (Supreme Court).

• First Investigation Report: Telephone messages: Such messages which only intent the police to reach the scene of offence cannot be construed as FIR under s.154 of Code of Criminal procedure, 1973 unless the same are not vague & cryptic. Sidhartha Vashisht v. State (NCT of Delhi) (Supreme Court).

• Gratuity: In a landmark judgment it has been held that the Family Planning Association of India falls under the ambit of Payment of Gratuity Act, 1972, wherein the appropriate government is the State government, and accordingly, employees' of the Association are entitled for payment of gratuity. Family Planning Association of India v. ALC & Chintabai Shriwas [represented by Chandak Chambers] (HC of MP).

• Office of Governor: Doctrine of pleasure: Considering the Constitutional framework, the said doctrine in its absolute unrestricted application does not exist in India. However, Constitution of India provides for three different types of tenures: (a) Holding of office during please of President/Governor, eg., Ministers, Governor, Attorney/Advocate General; (b) Holding of office during please of President/Governor, subject to restrictions, eg., all holders of civil posts [Article 310 + 311]; (c) Those who hold office for specified terms with immunity against removal except by way of impeachment, eg., Supreme/High Court judges, Comptroller & Auditor General of India, Election Commissioners. In this context held that a Governor cannot be removed from office on the ground that (a) He is out of sync with the Central government or (b) Central government has lost confidence in him. BP Singhal v. Union of India, (Supreme Court) (5J).

• Parliamentary privileges: Doctrine of Lapse: Ordinarily the legislative business does not survive with the dissolution of the House, however, with the exception of doctrine of lapse. The said doctrine could be invoked when the successor House chooses to take a pending motion or any other order of business of the dissolved House. Amarinder Singh v. Special Committee, Punjab Vidhan Sabha, (Supreme Court) (5J).

• Parliamentary privileges: Expulsion: When resolution is passed directing expulsion from the House on alleged criminal misconduct, then it could be invoked only when it results in obstruction of ordinary legislative functions under Article 105 or 194 of Constitution of India. Else, the proper course is to invoke the mechanism under the criminal law & procedure. Amarinder Singh v. Special Committee, Punjab Vidhan Sabha, (Supreme Court) (5J).

• Taxation: Income Tax Act, 1961: Penalties: Even when reassessed returned income is loss/nil, then also penalty u/s.271 would be leviable as the object is to penalise the assessee for (a) Concealing particulars of income & (b) Furnishing inadequate particulars of such income. Joint Commissioner of Income Tax v. Saheli Leasing & Industries, (Supreme Court) (3J).

• Transfer of Non-Performing Assets/Loans between banks without concurrence of borrowers: The case involved a transfer of NPAs (relating to the borrower, APS Star Industries Ltd.) from ICICI Bank to Kotak Mahindra Bank. The borrower was in liquidation. When the assignee Kotak Mahindra Bank sought before the Company Court to substitute its name as lender, the borrower objected on several grounds (including improper payment of stamp duty). The Company Court refused to recognize the assignee on account of improper presentation of the document of transfer. On appeal, a Division Bench of the Gujarat High Court upheld the Company Court's decision, but on a different ground, i.e. that the assignment of debts by banks is not an activity permissible under the Banking Regulation Act, 1949 (BR Act).

On further appeal, the Supreme Court considered two issues:

I) Whether inter se transfer of debts between banks is an activity permissible under the Banking Regulation Act?

Answer: The Supreme Court examined in detail the scheme and provisions of the BR Act and concluded that assignment of NPAs is within the purview of a bank's permitted business activity as:

• The Reserve Bank of India (RBI) can lay down parameters enabling banking companies to expand its business;
• Apart from accepting deposits and lending, the BR Act leaves ample scope for banks to venture into new businesses being subject to the control of RBI;
• Section 6(1)(n) of the BR Act "enables a banking company to do all things that are incidental or conducive to promotion or advancement of the business of the company";
• The Guidelines on Purchase/Sale of Non-Performing Financial Assets dated 13 July 2005 issued by the RBI allow banks to deal inter se in NPAs, which makes the activity a bona fide business. After going into the rationale for declaring a loan as an NPA, the court goes on to hold that the Guidelines "have been issued as a "restructuring measure" in order to avoid setbacks in the banking system".

II) Whether the assignee bank (Kotak Mahindra) is entitled to substitution in place of the original lender / assignor (ICICI Bank) in proceedings relating to liquidation of the borrower company?

Answer: The Supreme Court distinguished between the transfer of (i) mere rights, which can be effected without concurrence of the borrower, and (ii) obligations, which requires a novation of the contract (thereby necessitating concurrence of the borrower) and thus held that:

• In the instant case, it was found that the assignor is only transferring the rights under contract (which represent its assets);
• There is no transfer of obligations of the assignor towards the assignee, as they continue to be borne by the assignor;
• Hence the deed of assignment transferring the NPAs from ICICI Bank to Kotak Mahindra Bank is not unsustainable in law.

In addition, the court also held that the provisions of the SARFAESI Act, 2002 are not applicable to the case because that relates to a transfer of financial assets from banks to specific types of financial vehicles (such as securitization companies and asset reconstruction companies). ICICI Bank Limited v. Official Liquidator, APS Star Industries Ltd., (Supreme Court).

Archive >>