Sunday, March 11, 2007

COMPANY CASES (CC) HIGHLIGHTS - ISSUE DATED 2-3-2007 Volume 136 Part 1




F Where shares sold and proceeds in deposit with BIFR by an order of High Court against restraint order by BIFR and AAIFR, appeal becomes infructuous : Morgan Securities and Credit P. Ltd. v. Modi Rubber Ltd. p. 113

F Arbitration award : Scope of judicial interference : Morgan Securities and Credit P. Ltd. v. Modi Rubber Ltd. p. 113

F BIFR whether empowered to direct sale of the assets of sick industrial company at the stage of enquiry : Morgan Securities and Credit P. Ltd. v. Modi Rubber Ltd. p. 113


F Provision disqualifying director of company which is unable to pay its unsecured deposit-holders or redeem its debentures is valid : Saurashtra Cement Ltd. v. Union of India (Guj) p. 1

F Where investigation reveals manipulations by financiers through key operators applying for shares through benami dematerialised accounts and after allotment selling them on day of listing or thereafter, order of SEBI freezing dematerialised accounts and prohibiting persons involved from accessing market till further directions proper : Rajan Vasudevbhai Dapki v. Securities and Exchange Board of India (Guj) p. 20

F SEBI has power to suspend trading or prohibit any person from accessing securities market pending investigation : Rajan Vasudevbhai Dapki v. Securities and Exchange Board of India (Guj) p. 20

F SEBI being an expert body, court will not interfere in the discretion exercised by an expert on the subject : Rajan Vasudevbhai Dapki v. Securities and Exchange Board of India (Guj) p. 20

F Creditor holding arbitration award in its favour does not enjoy higher status : Modi Rubber Ltd. v. Board for Industrial and Financial reconstruction (Delhi) p. 107



F Petition u/s 397/398 maintainable on failure to discharge obligations under family settlement : Nagin M. Doshi v. Echjay Forgings P. Ltd. p. 75

F Where suit for implementation of family settlement pending, petition u/s 397/398 to be stayed till disposal of suit : Nagin M. Doshi v. Echjay Forgings P. Ltd. p. 75

F Where process for striking off name of company from register not complete, company to register transmission of shares and rectify register : Gummadi Aruna v. Gummadi Constructions Ltd. p. 81

F Transfer of shares in accordance with memorandum of understanding and with knowledge of petitioner cannot be set aside : ICICI Venture Funds Management Co. Ltd. v. SOFIL Information Systems P. Ltd. p. 84

F CLB to relegate parties to civil suit where complicated questions of law or facts involved : ICICI Venture Funds Management Co. Ltd. v. SOFIL Information Systems P. Ltd. p. 84

F Private arrangement between two shareholders contrary to articles not binding on company or members : ICICI Venture Funds Management Co. Ltd. v. SOFIL Information Systems P. Ltd. p. 84



F ICAI seeks review of audit limit of PSB branches

Faced with the prospect of loss of assignments, the auditing community is seeking a review of RBI's recent decision to waive statutory audits for public sector bank branches that lend below Rs. 5 crore annually. Hitherto, the audit waiver was applicable only for branches with total advances of Rs. 1 crore and below.

The communique on the revision in limits have been sent directly to the PSBs, sources familiar with the development said. "We will approach the Reserve Bank of India and the Government for review of this move," President of the Institute of Chartered Accountants of India (ICAI) said.

ICAI's professional development committee Chairperson, said that the Institute would now work closely with the RBI and the Government to see how best the members' interests could be protected. Sources, however, maintained that 80-85 per cent. of the banking system would still come under statutory audit even after the latest revision in the limit. [ Source : Business Line, February 24, 2007 ]

F CBEC to include service tax in Electronic Accounting System

The Central Board of Excise and Customs has decided to include service tax in Electronic Accounting System in Excise and Service Tax (EASIEST), from March 1. EASIEST is operational in Chennai as a pilot project since 2005 and has now been extended to other parts of the country. Earlier, only excise challans were covered under the system. "The accounting procedure for service tax will be similar to that for excise till further instructions," said an RBI notification. [ Source : Business Line, February 23, 2007 ]

F Microfinance sector Bill approved

The Union Cabinet gave its approval for enactment of legislation for the development and regulation of the microfinance sector. For this purpose, the Government plans to introduce the Micro Financial Sector (Development and Regulation) Bill 2007 in the forthcoming Budget session of Parliament.

The Parliamentary Affairs Minister said that the legislation would provide a legal framework for the entities engaged in microfinance and facilitate an environment for development of micro finance services in the country with greater transparency, effective management and better governance. This would facilitate the flow of micro finance services to the unbanked population of the country, he said. [ Source : Business Line, February 23, 2007 ]

F RBI bars NBFCs from real estate speculation

After making it difficult for banks to lend to real estate, the Reserve Bank of India (RBI) has placed restrictions on finance companies investing in real estate. On February 22, 2007, RBI issued new norms for finance companies that bar them from speculating in property and enable RBI to monitor their capital market exposure on a monthly basis.

The guidelines seek to distinguish asset finance companies and loan and investment companies among deposit-taking NBFCs. The new norms state that no finance company, which is accepting public deposits, can invest more than 10 per cent. of its networth in land or property except for its own use. At the same time, investment in unquoted shares of a company that is not a subsidiary has to be limited to 10 per cent. of networth. Loan and investment companies are, however, allowed to invest up to 20 per cent. of their networth in unquoted shares. Existing guidelines require asset finance companies to ensure that 60 per cent. of their loans go to lease and hire-purchase of machinery. Several finance companies have been using the balance 40 per cent. to fund real estate sector. If a finance company acquires land or property or unquoted shares in exchange of its bad loans, these assets have to be disposed off by the NBFC within three years.

Finance companies and Residuary Non-Banking Finance Companies (RNBFCs) with total assets of Rs. 100 crore and above, according to the previous audited balance sheet, will have to submit a monthly return on their exposure to capital market within seven days of the expiry of the month to RBI. [ Source : Financial Express, February 24, 2007 ]

F Finance Minister to introduce road map for GST

The Finance Minister is likely to spell out a legal framework to phase out central sales tax (CST) and introduce a road map for goods and service tax (GST) in Budget 2007-08, with the Cabinet approving the modalities.

To facilitate this, a Taxation Laws (Amendment) Bill, 2007 would be introduced in the coming session of Parliament he added. The phase-out process will include both monetary and non-monetary measures and amend the Central Sales Tax Act, 1956 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The move would mark the beginning of significant tax reform measures, which was critical to the success of value-added tax and for introduction of the GST in future. The Cabinet has also approved a compensation package for States on account of an expected revenue loss due to the phase-out. [ Source : Financial Express, February 24, 2007 ]

F RBI issues norms for doorstep banking

Banking services will now be available at the doorstep. Individual customers can have cash and other bank instruments picked up from their home or office while only demand drafts will be delivered. Corporate customers can additionally have cash delivered against cheque received at the bank's counter.

The Reserve Bank of India issued guidelines for banks on "Doorstep Banking" allowing banks to either deploy their employees or hire agents to extend these services.

The new guidelines allow banks to extend cash delivery services to corporate clients, public sector units and departments of Central and State Governments against the receipt of cheque at the branch, and not based on telephonic requests. Individual customers cannot, however, avail of this facility.

According to the guidelines, banks have been asked to acknowledge cash collection by issuing receipts and ensuring that it is credited to the customer's account on the same day or the next working day. The charges for these services would have to be prominently indicated on brochures.

Banks will now have to prepare their own schemes based on the guidelines with the approval of their board. The central bank has also asked banks to appoint a Grievance Redressal Machinery for redressing complaints about services rendered by its "agents". The name and the telephone number of the designated officer should be made available to the customers on the bank's website.

Banks have been asked to educate their "agents" about the incidence of circulation of forged notes, particularly of high denominations. [ Source : Business Line, February 22, 2007 ]

F Sensitive FDI will be scrutinised by FEMA

The Government is planning a series of amendments to the Foreign Exchange Management Act (FEMA) in order to address security concerns related to foreign investment. A new law is also being drafted to block FDI in sensitive sectors and sensitive areas of the country.

A committee of secretaries (CoS) headed by Cabinet secretary has asked the National Security Council (NSC) to recommend amendments to FEMA and draft the proposed legislation. A decision to this effect was taken by CoS on February 6. The committee has also said RBI and FIPB should be drafted to check misuse of FDI by anti-national forces.

According to Government sources, the council will draft the proposed law in consultation with the Law Ministry, Department of Industrial Policy and Promotion and Department of Economic Affairs. NSC has also been urged to work out a mechanism listing the standard procedures that will be followed to screen FDI whenever doubts arise.

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