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5 Simple Budgeting Habits Everyone Should Practice

As an accountant, you probably recognize how important it is to have a budget and save money for unexpected expenses. Unfortunately, most of our clients don’t understand how easy it can be to create and manage a budget with the tools we have available at our disposal. It’s not only important to know how much money you spend, but where the money goes. Once you have a grasp on your finances, it’s easy to plug the leaks and start saving towards a goal.

Let’s take a look a some simple budgeting habits that both you and your clients can start practicing today.
Keep Track of Spending
One important budgeting habit is to keep track of what you spend and where you spend it. There are several budgeting tools available online that you can at no cost use to keep track of finances. If you own a smartphone or tablet, services like Mint and Toshl have mobile apps you can take with you on the go. This makes it easy to enter what you spend in real time. Some services even connect directly with your financial accounts to keep track of spending automatically.
Use Cash
One easy way to rein in spending is to use cash. Withdraw cash once a week, or twice a month, and don’t spend any more than what you take out on unnecessary expenses. Using cash makes it easy to see where you’re spending your money and how much you have left in your weekly or monthly budget.
You can still use debit and credit cards to pay your monthly bills and other recurring expenses, but use cash for the rest. It’ll make it that much easier to cut your spending when you know exactly how much you have left.

Use cash whenever possible so you can keep track of what you’ve spent and how much you have left.

Save Automatically
If your employer offers the option, set up your paycheck to automatically deposit a portion into your checking and savings account each time you get paid. If you have a budget set up, you’ll know exactly what percentage of your paycheck you need in your checking account, while the rest can be deposited directly into savings without even having to think about it. Don’t touch the savings account unless it’s absolutely necessary. If you have an unexpected expense or lose your job, you’ll have some money put away to help you get back on your feet.
Pay Your Bills
If you have the option, always pay your bills online. Set up automatic payments and direct debits to avoid late fees on your credit cards and car payments. If you already have a budget set up, you should know exactly what you spend on monthly recurring bills, and automatic payments will come in handy so you don’t have to remember to pay when they’re due.
If you send payments through the mail, you risk that they’ll be received past the due date or get lost in the mail. If you absolutely have to pay a bill through the mail, ensure you leave plenty of time between when you send the check and when the bill is due.

Put a percentage of each paycheck into your savings account automatically.
Don’t Spend More Than You Earn
Don’t use credit or loans to make big purchases unless it is absolutely necessary. If there is something you’d like to buy, or a vacation you want to take, start putting money away. If you start spending more than you earn, it’s easy to get carried away and you’ll end up with more debt than you’ll know what to do with. The point of having a budget is to pay down your debt and save money for the future. Create long- and short-term goals for major expenses, and save up until you have the cash needed.
Following these five simple budgeting habits can help you control your spending, allow you to see where your money is going, and let you start saving for the future. Set both short- and long-term goals for your finances, and stick to your budget as often as possible.
Brian Flax is a freelance writer based out of the Washington, D.C., area. He is experienced in a variety of topics including finance, education, and Internet technology.
Image courtesy of Castillo Dominici / FreeDigitalPhotos.net
Image courtesy of Stuart Miles / FreeDigitalPhotos.net

 

VAT on sale of Flats Post SC judgment in the case Of Larsen & Tourbo Ltd. and K. Raheja’s Case

 NOTE ON JUDGEMENT OF LARSEN & TOURBO LTD. VS. STATE OF KARNATKA IN RELATION TO THE LAW LAID DOWN IN THE K. RAHEJA’S CASE ON THE ISSUE OF VAT ON FLATS BY THE HON’BLE SUPREME COURT OF INDIA.

As per the judgment delivered by the Hon’ble Supreme Court of India in the case of Larsen & Tourbo Limited the transactions of construction activity for prospective buyers are subject to VAT as these are covered under the category of works contract but still there are certain restrictions for the states while levying the tax on certain transactions pertaining to works contract as per the judgment of Hon’ble Supreme Court Of India delivered in the case of State of Jharkhand & Others VS. Voltas Ltd. & Gannon Dunkerley & Co. VS. State of Rajasthan, Rule 15 & law laid down on the issue of interstate purchase will definitely come to the rescue of builders while determining the tax liability as it will support in reducing the tax liability. Here it is worth while to discuss that agreement between parties will play vital role in determining taxability under the VAT.

Hon’able Supreme Court of India has upheld the view taken in K Raheja Case on the issue of Flats where agreements entered into between developer & prospective purchasers are subject to VAT but if the agreement is entered into after the unit is already constructed then there would be no works contract and simultaneously if the agreement is entered prior to the construction then it amounts to works contract while delivering the judgment in the case of Larsen & Tourbo Limited vs. State of Karnataka. Beside this Court has held that in case there is termination for a particular unit and the same is not resold but retained by the developer there would be no works contract, it was also held that the definition of works contract :

“works contract” includes any agreement for carrying out, for cash, deferred payment or other valuable consideration, building ,construction, manufacturing, processing, fabrication, erection, installation, fitting out, improvement, modification, repairs or commissioning of any movable or immovable property;

States are not competent to levy tax on transfer of goods in works contract in the course of Interstate trade :

That the law is well settled by now. Inter–State purchase of goods meant for use in the execution of works contract cannot be subjected to levy tax under the Punjab Value Added Tax Act, 2005. The Hon’ble Supreme Court of India in the case of Gannon Dunkerley & Co. vs. State of Rajasthan reported as (1993) 88 S.T.C. 204 at page 231 has held as under:–

“it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce under Section 3 of the Central Sales Tax Act or an outside sale under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act. So also it is not permissible for the State Legislature to impose a tax on goods declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in Section 15 of the Central Sales Tax Act.

The Hon’ble Supreme Court of India further held that:–

The location of the situs of the sale in sales tax legislation of the State, would, therefore, have no bearing or the chargeability of tax on sales in the course of inter-State trade or commerce since they fall outside the field of legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation.”

Further the Hon’ble Gauhati High Court in the case of Projects and Services Centre vs. State of Tripura reported as (1991) 82 S.T.C. 89 (Gau) has held as under:–

“In view of the aforesaid decisions of the Supreme Court it is clear that the sale in the instant case was an inter–State sale. The fact that the use of the materials was made in a works contract in the State of Tripura did not in any way affect the inter–State nature of the transaction. Evidently, the decisions of the Superintendent of Taxes holding the sale in the instant case as intra–State sale on the ground that the property therein passed to the buyer in the State of Tripura goes counter to the law laid down by the Supreme Court. As indicated above, the place of delivery or the place where the property in the goods passes is not material for determining whether the sale was an inter–State sale.”

Similar view has been taken by the Hon’ble Allahabad High Court in the case of Commissioner, Trade Tax vs. Indus Food Products and Equipments Limited reported as (2009) 34 PHT 25 (All.), wherein the following has been held:–

“Where the property and goods brought from outside the State can be ascertained and amount representing the sale value of goods covered by Section 3, 4 and 5 of Central Sales Tax Act, 1956 can be separated from the cost of fabrication and transfer of goods, the State does not have the authority to levy trade tax on such goods. Section 3F charges tax on the right to use any goods or goods involved in the execution of works contract in the State of UP. The goods brought from outside the State and covered by Section 3, 4 and 5 of the Central Sales Tax Act, 1956 would not be subject to tax, even if they are included in the execution of the works contract. The fact the nature of the works contract provided for transfer of the property and the goods after they were fabricated and the trial run was complete, would by itself not amount transfer of the fabricated goods, in the State of UP.”

In the above judgment earlier judgment of the Division bench of the Allahabad High Court in the case of Santosh and Co., New Delhi vs. CST reported as 1999 NTN (Vol. 15) 604 stands relied upon.

It may be added that the definition of the term “sale” under the Central Sales Tax Act, 1956 was also substituted vide Finance Act, 2002 w.e.f. 11.05.2002 by deeming fiction transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract is included in the definition of the term “sale”. This further supports the above view.

Important Rules under the Punjab Value Added Tax Rules, 2005 in relation to Works Contract:

Rule 15. Determination of taxable turnover by a person.—

(1) To determine the taxable turnover of sales, a person, shall deduct from his gross turnover of sales, the following :-

(a) turnover of sales of goods, declared tax free under section 16 of the Act;

(b) turnover of sales of goods, made outside the State or in the course of inter-state trade or commerce or in the course of import of goods into or export of goods out of the territory of India under section 84 of the Act;

(c) turnover of goods, sent on consignment basis or branch transfers;

(d) amount, charged separately as interest in the case of a hire-purchase transaction or any system of payment by installments;

(e) amount, allowed as cash discount and trade discount, provided such discount is in accordance with the regular trade practice;

(f) sale price of taxable goods where such sale was cancelled:

Provided that the deduction shall be claimed only, if the person is in possession of all copies of VAT invoice or Retail invoice.

(g) sale price, in respect of any goods , returned within a period of six months:

Provided that a taxable person shall claim the deduction only on the basis of debit note, issued by the purchaser for the goods returned; and

(h) a sum, to be calculated by applying a tax fraction in case, gross turnover includes retail sales.

(2) The deduction referred to in clauses (e), (f) and (g) of sub-rule (1), shall be claimed in the tax period in which the event occurs:

Provided that if the turnover of the period is less than the claim, then the balance of such deduction, shall be claimed in the immediate subsequent period.

(3) The provisions of clauses (a) to (g) of sub-rule (1), shall also apply for determination of taxable turnover of purchases for levy of purchase tax under sections 19 and 20 of the Act.

(4) The value of the goods, involved in the execution of a works contract, shall be determined by taking into account the value of the entire works contract by deducting there-from the components of payment, made towards labour and services, including ─

(a) labour charges for execution of the works;

(b) amount paid to a sub-contractor for labour and services;

(c) charges for planning, designing and architect’s fees;

(d) charges for obtaining for hire, machinery and tools used for the execution of the works contract;

(e) cost of consumables, such as, water, electricity and fuel, used in the execution of the works contract, the property, which is not transferred in the course of execution of a works contract;

(f) cost of establishment of the contractor to the extent, it is relatable to the supply of labour and services;

(g) other similar expenses relatable to supply of labour and services and;

(h) profit earned by the contractor to the extent, it is relatable to the supply of labour and services.

(5) The amounts deductible under sub clauses (c) to (h) of sub rule (4), shall be determined in the light of the facts of a particular case on the basis of the material produced by the contractor.

Rule 46. Liability of persons in case of works contract.–(1) A person entering into a contract with a contractor or a contractor entering into a contract with a sub-contractor for transfer of property in goods in execution of a works contract, shall furnish to the commissioner or the designated officer, particulars of such contract in Form VAT-25 within a period of thirty days from the date of entering into such contract.

(2) A person entering into a contract with a contractor or a contractor entering into a contract with a sub-contractor for transfer of property in goods for execution of a works contract, who is also liable for deduction of tax, shall within a period of thirty days of accruing his liability to deduct the tax, make an application, complete in all respects to the designated officer in Form VAT-26, for allotment of tax deduction number. The designated officer shall allot tax deduction number to the person concerned within a period of seven days from the receipt of the application.

(3) The tax deducted under the Act, shall be deposited by the person deducting the tax through a challan in Form “VAT-2” in the appropriate Government Treasury within a period of fifteen days from the close of each month.

A monthly statement of the deposits made under sub-rule (3), shall be furnished by the persons concerned in Form “VAT-27” along with the proof of payment within a period of fifteen days after the date of deposit.

CIRCUMSCRIBING LAW:

In a Judgment by the apex court in the case of Raheja Corporation , the owner of the flats were engaged in the business of constructing residential apartments and/ or commercial complexes and for this purpose, they entered into agreements of sale with the intended purchasers. It was held that even an owner of the property also might also be said to be carrying on a works contract if he enters into the agreement to construct. However if the agreement is entered into after the unit is already constructed, then there will no works contract. But so long as the agreement is entered into before the construction is complete, it would be works contract.

Raheja, Development Corporation vs. State Of karnatka, 2005 NTN, (Vol. 27) 243; 2005 (5) SCC 162

The appellant , which carried on the business of real estate development and allied contacts, entered into development agreements with owners of lands. It got the plans sanctioned and after approval constructed residential apartments and/or commercial complexes. In most cases before construction it entered into agreements with the intending purchasers The agreement providing that on completion of the construction the residential apartments or commercial complexes would be handed over to the purchasers, who would get an undivided interest in the land also. The Appellant was entitled to terminate the agreement & dispose of the unit if beach was committed by the purchaser. The owners of the land would transfer the ownership of land directly to society which was being formed under the Karnatka ownership Flats ( Regulation of Promotion of Construction, Sale, management &transfer) Act, 1974. The question was whether the appellant was a dealer & liable to pay turnover tax under the Karnataka Sale Tax Act, 1957, In relation to the Construction contracts with the purchasers as “Works Contracts”.

The Hon’ble Supreme Court held that under section 2(1)(v-i) of the Karnatka Sales Tax Act, the definition of works contract was very wide and was not restricted to works contracts as commonly under stood, viz, a contract to do some work on behalf of someone else. It also included any agreement for carrying out either for cash or for deferred payment or for any other valuable consideration, the building and construction of any movable or immovable property. The definition took with in its ambit any type of agreement where in the construction of building took place either for cash or deferred payment or valuable consideration.

Therefore even if the appellant was owner to the extent that it had entered into agreement to carry out construction activity on behalf of someone else for cash, deferred payment or other valuable consideration. It would be carrying out a works contracts. For the purpose of considering whether the agreement amounted to works contract or not the provisions of Karnataka Ownership Flats ( Regulation of Promotion of Constructions, Sales, Management and transfer ) Act, 1974, would have no relevance.

The appellant was undertaking to build for the prospective purchaser on payment of price in various installments set out in the agreements. Though the appellant was not the owner it claimed a lien on the property it had the right to terminate the agreement and to dispose of the unit if a breach was committed by the purchaser. So long as there was no termination the construction was for and on behalf of purchaser and therefore the agreement remained a works contract within the meaning of terms as defined in the act, So long as the agreement was entered into before the construction was complete , it would be a works contract. However if the agreement was entered into after the flat or unit was already constructed, there would be no works contract.

Larsen and Tourbo Limited & Another vs. State of Karnataka & Another 2003 NTN ( Vol. 22) 153; 17 VST 460 (SC):

The Law laid down by the Hon’ble Supreme Court in K. Raheajs’ case was a subject matter of challenge before the Hon’ble Supreme Court in the case of Larsen & Tourbo & another. The Hon’ble Supreme Court while delivering the judgment on 19.08.2008 in the Larsen & Tourbo case observed that Be that as it may, apart from the disputes in hand ,the point which we have to examine is whether the ratio of judgment of the division bench in the case of Raheja Development Corporation ( Supra ) as enunciated in Para 20, is correct. If the development agreement is not a works contract could the department rely on the second contract, which is Tripartite agreement and the interpret it to be a works contracts, as defined under 1957 act. Lastly could it be said that petitioner company “ was the contractor for prospective flat purchaser. Under the definition of terms of “works contracts” as quoted above the contractor must have undertaken the works of construction for and on behalf of the contractor for cash, deferred or any other valuable consideration, According to the department , development agreement is not works contract but the Tripartite agreement is works contract which, prima facie, appears to be fallacious. There is no allegation that the Tripartite agreement is sham or “bogus.”

In view of aforesaid findings, the K. Rahejas’ case was referred to the larger bench of Supreme Court.

In case of Raheja, The developer had entered into a development agreement with the owners of the land. They got the plan sanctioned and entered into contract with the intended purchasers. The agreement provided that on completion of construction of residential apartments, it would be handed over to purchaser who would get the undivided share in land also. It is relevant to consider that a developer is principal contractor on behalf of customer or the prospective buyer , as such , if the developers enters into a construction agreement with the prospective buyer prior to completion of construction; the result would be developer to treated as works contractor and liable to tax being dealer.

Where as in cases, if the developer enters into an “Agreement for Sale” Or executes sale deed after construction is complete- it can be contended that such sale is sale of immovable property not liable to tax under the tax. The ratio laid down in case of K raheja is also not applicable in the cases where builder does not under take any construction work for behalf of prospective allottee / buyers. till such time sale deed is not executed, the lien, right, title and interest including the ownership and possession in the construction so made remain with the builder. There may not be work Contract, in cases where land itself belongs to builders or has been purchased from development authorities. At this Juncture it is pertinent to point out that payment schedule will not be alter the transaction provided the lien, right, title, interest including ownership & possession in the construction so made remain with the builder till execution of sale deed.

Various instances come to my knowledge where the builders have got themselves registered under the UPVAT act and purchased VAT goods on its own account against the tax invoice on which ITC is available and subsequently filed monthly returns. It is also noted that mere seeking / obtaining registration will not make builder liable to tax under work contract, provided that he has not claimed ITC. If the ITC is claimed then certainly he will with in ambit of work contract.

Assotech reality Pvt Ltd vs State of UP 2007 NTN ( Vol 34) 67; 2007 UPTC 797 ( ALL).

The Hon’ble Allahabad high Court in The Assotech case has made an endeavour to set at rest the controversy arouse at K Rahejas case. The hon’ble court held that:-

The agreement provided that K. Raheja Development corporation, as developer on its own behalf and as a developer of such person, would construct the flats as such ultimately belongs to such person. K. Raheja development corporation were constructing the unit for and on behalf of the person who had agreed to purchase the flats. In the present case we find that petitioner is constructing the flats/ apartments not for and on behalf of prospective allottees but otherwise. The payment schedule would not alter the transactions. The right, title, interest in the construction continue to remain with the petitioner. In other words they are not subjected to tax under the act and the action of imposing tax on such constructions treating them to a works contacts. Is wholly without jurisdiction. We are therefore of the considered opinion that the impugned orders dated 24.03.2006 and 29.05.2006 passed by the Assistant Commissioner, trade Tax, Sector-1, Noida, respondent No. 2 insofar as they relate to imposition of tax on construction of apartments/ houses/ flats and other construction in question, are wholly without jurisdiction and they cannot be sustained and are hereby set aside.”

In the nutshell, in Assotech case the court observed in the K. Raheja case the appellant were constructing the unit for and on behalf of the person who had agreed to purchase the flats. Where as in Assotech case the petitioner is constructing the flats/ apartments not for and on behalf of prospective allottee but otherwise. The payment schedule would not alter the transaction. The right title, interest in the construction continue in remain with the petitioner, it cannot be said that constructions were undertaken for and on behalf of prospective allottees and therefore the constructions in questions undertaken by petitioner would not fall under clause (m) of section 2 read with section 3F of the act, and outside the purview of the provisions of the Act,. Agreement where in Land & buildings are conveyed to purchaser on payment of stamp duty were deemed to transfer of immovable properties and not liable to tax.

Aggrieved against the aforesaid judgment, the state of UP filed a SLP before the Hon’ble Supreme Court, regulate the matter to to appellate authorities on the following grounds that the appellant ought to have filed a first appeal. The tribunal on 11.06.2010 allowed the appeal of Assotech Ltd. While allowing the appeal Tribunal observed that Appellant Assotech has constructed flats on his own behalf of land purchased by them. No part of land has been transferred to the prospective buyers. The right, title, interest in the constructions continue to remain with Assotech.

Against the order of the Tribunal the department preferred a commercial tax revision before the Hon’ble Allahabad high Court. The hon’ble court vide order dated 20.09.2012 confirmed that order passed by the Tribunal dated 11.06.2010 thus setting at rest the controversy arose out of judgment of K. Raheja.

Even otherwise, The construction of apartments & sale thereof to the buyers on the basis of advertisements of invitation to purchase particular flats constructed by the construction company do not fall in the definition of sale as provided u/s 2(aa) of he act, where in the word GOODS is used, whether the flat is goods & if it is not goods but immovable property, the provision of U.P. Act would not be applicable.

Section 2 (h) of U.PVAT Act define the dealer which include buying, selling & supplying the goods but when the flat is not “GOODS” and the construction company does not sell flats as goods, it do not all in the definition of Dealer:

Thirdly Section 2(au) of the act, defines works contract and it is applicable on those cases where the construction of any immovable property on behalf of third person as per contract is undertaken, only in those case it would be works contract liable to tax. Since in case of Construction Company not undertaking construction activity on behalf of the third person or on the basis of tripartite agreement, rather the flats are constructed in the owned land of construction company, purchased in his name from the development authority and got the map sanctioned as per layout plan & park, community center is constructed for general utility which is not sold to anybody, it do not fall in the category of works contract

Fourthly, the flats are sold as per the terms & conditions of allotment letter & till the entire installment is being paid by the purchaser and the registered sale deed is executed after paying the stamp duty , both on value of land & value of super structure, the lien continues with he construction company/ builder.

In case of Ashwani Kumar Tripathi VS. State Of UP reported in 2005 (4) AWC 3270 where in the division bench of this court was held that as per section 54 & 55 of Transfer of Property act, It is apparent that the terms & conditions under self financing schemes are merely contract of sale without possession and not the sale with possession as such. Section 55 (1)(d) of T.P. Act makes it clear that the seller is bound on payment of land without or without super structure of flat price, to execute a conveyance deed after stamp duty as per provision of stamp act.

In view of the discuss it is apparent that the transaction between the builder & buyer is that sale of immovable property and the property in land as well as the super structure always remain with the builder until the execution of sale deed after paying the stamp duty, only then it will be the transfer of immovable property and there could be no sale of any immovable property.

In the case of State Of Andhra Pradesh vs. Kone Elevators ( India) Ltd., 2005 NTN (Vol. 27) 5; (140 STC 22) (SC) while reversing the decision of Andhra Pradesh high Court in State Of A.P. Vs. Kone Elevators (India) Ltd. (1999) 115 STC 96 is very relevant. The Supreme Court In Kone’s Case observed that there is no standard formula by which one can distinguish a “Contract of sale” from a “Works Contact”. In a “Contract OF Sale” the main object is the transfer of property and the delivery of possession of the property, where as the main object in a “contract for work“ is not the transfer of property but is one for work & labour. In Judging Whether ( lie contract is for a “sale” or for “Work & Labour”, in the essence of the contractor the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of trade provides a guide in the deciding whether the transaction is a “sale”

Or “works contract”. Essentially, the question is of interpretation of the “Contract”

Some what synonymous to sales tax laws, the service tax department also attempted to levy the service tax on works contract, but the Tribunal held In the case of Daelim Industrial Company Ltd vs. CE(1994-2006) STT 438 that such levy is not tenable. Even the revenue filed appeal before apex court too was dismissed. To overcome the situation, the finance Act, 2007 has sought to levy the tax on service element in the specified contracts. The effects of the works contract service was such that if the specified contract is work contract on which sale tax is payable, the service will be taxable under works contract service, if the contract is a simple service contract (i.e. either no material is involved or even if some material is involved and sale tax is not payable), the service tax will oh under respective heads of taxable service. Works Contract service for all purposes must satisfy twin condition i.e. there must be transfer of property in goods involved in the execution of work contract of specified works contracts; secondly such transfer is leviable to tax as sale of goods.

In Tax Appeal No. 1550 of 210 dated 22nd April 2011 in the case of Commissioner Of service Tax Vs. Sujal developers. The Gujrat high Court upheld the view of the Tribunal where the respondent assessee was developer who had developed housing complexes for future sale. The bench held & Observed as under:

“from the statutory provision, circulars as well as clarifications issued by the board referred to here in above. It appears that for being chargeable to tax under section 65(105)(zzzh) of the act is that a person concerned should render service to another person in relation to construction of complex. Thus the basic requirement for falling with in the ambit of said provision is that there has to be a service provider and a service receiver. In the present case as noticed earlier, the land on which the residential complex has been constructed belongs to the society. The society has entered into a development agreement with the respondent. Under the agreement between the society and the respondent developer, the work of construction & development of the housing project has been entrusted to the respondent, The respondent developer has agreed to develop the said land by attending the construction and development work and to complete the scheme duly & diligently on the terms & conditions contained in the agreement. Under the agreement, the developer is required to carry out every necessary act to complete the construction & development of the project directly or indirectly, includes preparation and approval of plans, getting the buildings constructed directly or by sub contracting and/ or purchase of material, hiring labour, arrangement of finance, marketing and advertising the project, enroll members , collect money etc. the respondent is permitted to use the property in question for the purpose mentioned in the agreement. The respondent is entitled to construction and/or arranges to construct the building as per the plan & specifications prepared by the Architects. Thus as per the agreements, the respondent developer is entitled to make construction of land in question, enroll members as well as collect amount towards the unit allotted to such members. The finances for the purpose of development are arranged by the respondent developer. In the circumstances, from the development agreement, it does not appear that respondent developer is a contractor who is executing the construction work on behalf of the society. Here the developer is using its own finances and developing the land in question & selling the property constructed there on to the members of the society. Thus in the light of clarifications issued by the board viz when it is only after the completion of construction. In such a case any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed, would be in the nature of self service and consequently, would not attract service tax. “

In case of Magnus Construction (P) Ltd vs. Union of India 2008 (STT) 9 GAU, it has been held that when title of flats passes to the customers only on execution of sale deed and its registration; payment made by the prospective buyer in installment is against the consideration of sale, it is not construction on behalf of prospective buyers & hence not liable to service tax.

THE CONCLUSION:

In nutshell it can be safely concluded that even if the activity of construction of flats where agreements entered into between developers & prospective purchasers are subject to VAT but still while determining the liability the deductions will reduced the tax liability, beside this while constructing flats there is an involvement of huge quantity of goods which was utilized but still the same is outside the ambit of taxability as the same was not transferred to the buyer like stairs, lift, common area, parks, boundary wall etc., so if we evaluate cautiously then certainly tax liability will reduced.

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Authored by
J S BEDI Advocate
Email ID: bediadvocate@yahoo.co.in
Contact Number: 98140-66336

 

FAQ on Real Time Gross Settlement (RTGS) System

Q1. What is RTGS System?

Ans. The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). ‘Real Time’ means the processing of instructions at the time they are received rather than at some later time; ‘Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

Q2. How RTGS is different from National Electronics Funds Transfer System (NEFT)?

Ans. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches. [There are twelve settlements from 8 am to 7 pm on week days and six settlements from 8 am to 1 pm on Saturdays.] Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

Q3. Is there any minimum / maximum amount stipulation for RTGS transactions?

Ans. The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ` 2 lakh. There is no upper ceiling for RTGS transactions.

Q4. What is the time taken for effecting funds transfer from one account to another under RTGS?

Ans. Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary’s account within two hours of receiving the funds transfer message.

Q5. Would the remitting customer receive an acknowledgement of money credited to the beneficiary’s account?

Ans. The remitting bank receives a message from the Reserve Bank that money has been credited to the receiving bank. Based on this the remitting bank can advise the remitting customer through SMS that money has been credited to the receiving bank.

Q6. Would the remitting customer get back the money if it is not credited to the beneficiary’s account? When?

Ans. Yes. Funds, received by a RTGS member for the credit to a beneficiary customer’s account, will be returned to the originating RTGS member within two hours of the receipt of the payment at the PI of the recipient bank or before the end of the RTGS Business day, whichever is earlier, if it is not possible to credit the funds to the beneficiary customer’s account for any reason e.g. account does not exist, account frozen, etc. Once the money is received back by the remitting bank, the original debit entry in the customer’s account is reversed.

Q7. Till what time RTGS service window is available?

Ans. The RTGS service window for customer’s transactions is available to banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 14:00 hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow may vary depending on the customer timings of the bank branches.

Q8. What about Processing Charges / Service Charges for RTGS transactions?

Ans With a view to rationalize the service charges levied by banks for offering funds transfer through RTGS system, a broad framework has been mandated as under:

a) Inward transactions – Free, no charge to be levied.

b) Outward transactions – Rs.  2 lakh to Rs.  5 lakh – not exceeding Rs. 30 per transaction;
Above Rs. 5 lakh – not exceeding Rs. 55 per transaction.

Q9. What is the essential information that the remitting customer would have to furnish to a bank for the remittance to be effected?

Ans. The remitting customer has to furnish the following information to a bank for initiating a RTGS remittance:

1. Amount to be remitted
2. Remitting customer’s account number which is to be debited
3. Name of the beneficiary bank and branch
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC Number of the receiving branch

Q10. How would one know the IFSC code of the receiving branch?

Ans. The beneficiary customer can obtain the IFSC code from his bank branch. The IFSC code is also available on the cheque leaf. The list of IFSCs is also available on the RBI website (http://rbidocs.rbi.org.in/rdocs/RTGS/DOCs/RTGEB0112.xls). This code number and bank branch details can be communicated by the beneficiary to the remitting customer.

Q11. Do all bank branches in India provide RTGS service?

Ans. No. All the bank branches in India are not RTGS enabled. Presently, there are more than 100000 RTGS enabled bank branches. The list of such branches is available on RBI website at: http://rbidocs.rbi.org.in/rdocs/RTGS/DOCs/RTGEB0112.xls

Q12. Is there any way that a remitting customer can track the remittance transaction?

Ans It would depend on the arrangement between the remitting customer and the remitting bank. Some banks with internet banking facility provide this service. Once the funds are credited to the account of the beneficiary bank, the remitting customer gets a confirmation from his bank either by an e-mail or SMS. Customer may also contact RTGS / NEFT Customer Facilitation Centres of the banks, for tracking a transaction.

Q13. Whom do I can contact, in case of non-credit or delay in credit to the beneficiary account?

Ans Contact your bank / branch. If the issue is not resolved satisfactorily, complaint may be lodged to the Customer Service Department of RBI at -

The Chief General Manager
Reserve Bank of India
Customer Service Department
1st Floor, Amar Building, Fort
Mumbai – 400 001

Q14. How can a remitting customer know whether the bank branch of the beneficiary accepts remittance through RTGS?

Ans. For a funds transfer to go through RTGS, both the sending bank branch and the receiving bank branch would have to be RTGS enabled. The lists are readily available at all RTGS enabled branches. Besides, the information is available at RBI website (http://rbidocs.rbi.org.in/rdocs/RTGS/DOCs/RTGEB0112.xls). Considering that more than 100000 branches at more than 20,000 cities / towns / taluka places are covered under the RTGS system, getting this information would not be difficult.

 

FAQ on Home Loan with EMI Calculator

1. For what purposes can I seek a first time home loan?

You can generally seek a first time home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for a second house. Please remember to seek specific clarifications on the above-mentioned issues from your commercial bank.

2. How will your bank decide your home loan eligibility?

Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse’s income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.

3. What is an EMI?

You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. (For understanding how EMI is calculated, please see annex).

4. What documents are generally sought for a loan approval?

In addition to all legal documents relating to the house being bought,  banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application.

Do not be in a hurry to seal the deal quickly.

Please do discuss and seek more information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some banks insist on submission of Life Insurance Policies of the borrower / guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the bank’s scheme carefully and seek clarifications.

5. What are the different interest rate options offered by banks?

Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts.

Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you.

Determinants of floating rate:

The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower.

Also, sometimes banks make some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increased (and EMI kept constant).

Some lenders also base their floating rates on their Benchmark Prime Lending Rates (BPLR). You should ask what index will be used for setting the floating rate, how it has generally fluctuated in the past, and where it is published/disclosed. However, the past fluctuation of any index is not a guarantee for its future behavior.

Flexibility in EMI:

Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by.

Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money.

6. What is monthly reducing balances method?

Borrowers benefit more from a loan that’s calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.

7. How does tenure affect cost of loan?

The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.

8. What is an amortization schedule?

This is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero.

9. What is pre-EMI interest?

Sometimes loan is disbursed in installments, depending on the stages of completion of the housing project.  Pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.

However, many banks offer a special facility whereby customers can choose the installments they wish to pay for under construction properties till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment. The customer benefits by starting EMI payment earlier and hence repays the loan faster. Please check with your banker whether this facility is available before availing of the loan.

10. What security will you have to provide?

The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.

Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).

11. What precautions do you need to take if you are purchasing a property that is not a newly built one?

Ensure that the documents being provided to you are not colour photocopies. Check the internet for other modus operandi to fraud and ensure clear title to the asset. Seek advice only from authentic sources such as your bank.

Get the no encumbrance certificate to find the true title holder and if it is mortgaged to any financier. Obtain all tax papers to ensure that all documents are up to date.

12. What should be your strategy in dealing with the banks?

Give yourself comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.

a) Obtain information from several banks

Home loans are available from mainly two types of lenders–commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.

Find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.

The following is some important information that you will require.

i) Rates

Ask your lender about its current home loan interest rates and whether the rate is fixed or floating.  Remember that when interest rates in the economy go up so does the floating rates and hence the monthly re-payment.

If the rate quoted is a floating rate, ask how your rate and loan payment will vary, including the extent to which your loan payment will be reduced when rates go down by a certain percentage. Ask your lender to what index your floating home loan is referenced / linked and the periodicity of updation of that index. Also ask your bank whether the index is internal or external and how and where it is published.

Ask about the loan’s annual percentage rates (APR). The APR takes into account not only the interest rate but also fees and certain other charges that you may be required to pay, expressed as a yearly rate. Banks are obliged to reveal the APR if requested for by the customer.

ii) Reset Clause

Check the reset clause, especially in the case of fixed interest rate loan as the rates will not be fixed throughout the tenure of the loan.

iii) Spread/Mark up

Check if the margin in the case of the floating rate is fixed or variable. The rate of interest you have to pay will vary accordingly.

iv) Fees

A home loan often requires payment of various fees, such as loan origination or processing charges, administrative charges, documentation, late payment, changing the loan tenure, switching to different loan package during the loan tenure, restructuring of loan, changing from fixed to floating interest rate loan and vice versa, legal fee, technical inspection fee, recurring annual service fee, document retrieval charges and pre-payment charges, if you want to prepay the loan. Every lender should be able to give you an estimate of its fees. Many of these fees are negotiable / can be waived also.

Ask what each fee includes. Sometimes several components are lumped into one fee. Ask for an explanation of any fee you do not understand. Also, remember that most of these fees are perhaps negotiable! Do negotiate with your bank before agreeing to a particular fee. See how the all inclusive rate compares with the all inclusive rates offered by other banks. While planning your finances, don’t forget to include the costs of stamp duty and registration.

v) Down Payments / Margin

Some lenders require 20/30 percent of the home’s purchase price as a down payment from you. However, many lenders also offer loans that require less than 20/30 percent down payment, sometimes as little as 5 percent .Ask about the lender’s requirements for a down payment and also negotiate with him to reduce the down payments.

b) Obtain the best deal

Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure that the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees. Ask for clarification in case you do not understand any particular term. All banks are obliged to explain the most important terms and conditions of the home loan in detail.

Once you are satisfied with the terms you have negotiated, please do obtain a written offer letter from the lender and keep a copy with you. Read the offer letter carefully before signing.

13. Can you repay your loan ahead of schedule? Is pre-payment of loan allowed?

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds – if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan.

14. What are Switch over charges/ balances transfer charges?

When other banks reduce the interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fees which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount.

Keep up-dating yourself on various changes in the home loan market. Visit the branch, discuss with the officials to get the best out of any changes in the home loan scenario.

15.  Do you get a tax benefit on the loan?

Yes. Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs. 1,50,000 /- per annum. Moreover, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs. 1,00,000 /- per annum.

16. What are the minimum standards that banks are required to follow when they sell you a home loan?

1. At the time of sourcing the loan, banks are required to provide information about the interest rate applicable, the fees / charges and any other matter which affects your interest and the same are usually furnished in the product brochure of the banks. Complete transparency is mandatory.
2. The banks will supply you authenticated copies of all the loan documents executed by you at their cost along with a copy each of all enclosures quoted in the loan document on request.

A bank cannot reject your loan application without furnishing valid reason(s) for the same.

17. What do you do if you have a grievance?

If you have a complaint against only scheduled bank on any of the above grounds, you can lodge a complaint with the bank concerned in writing in a specific complaint register provided at the branches as per the recommendation of the Goiporia Committee or on a sheet of paper. Ask for a receipt of your complaint. The details of the official receiving your complaint may be specifically sought. If the bank fails to respond within 30 days, you can lodge a complaint with the Banking Ombudsman. (Please note that complaints pending in any other judicial forum will not be entertained by the Banking Ombudsman). No fee is levied by the office of the Banking Ombudsman for resolving the customer’s complaint. A unique complaint identification number will be given to you for tracking purpose. (A list of the Banking Ombudsmen along with their contact details is provided on the RBI website).

Complaints are to be addressed to the Banking Ombudsman within whose jurisdiction the branch or office of the bank complained against is located. Complaints can be lodged simply by writing on a plain paper or online at www.bankingombudsman.rbi.org.in or by sending an email to the Banking Ombudsman. Complaint forms are available at all bank branches also.

Complaint can also be lodged by your authorised representative (other than a lawyer) or by a consumer association / forum acting on your behalf.

If you are not happy with the decision of the Banking Ombudsman, you can appeal to the Appellate Authority in the Reserve Bank of India.

REVERSE MORTGAGE LOAN

18. What is reverse mortgage loan? What is my eligibility and how I will get back the title deeds?

The scheme of reverse mortgage has been introduced recently for the benefit of senior citizens owning a house but having inadequate income to meet their needs. Some important features of reverse mortgage are:

• A homeowner who is above 60 years of age is eligible for reverse mortgage loan. It allows him to turn the equity in his home into one lump sum or periodic payments mutually agreed by the borrower and the banker.
• The property should be clear from encumbrances and should have clear title of the borrower.
• NO REPAYMENT is required as long as the borrower lives, Borrower should pay all taxes relating to the house and maintain the property as his primary residence.
• The amount of loan is based on several factors: borrower’s age, value of the property, current interest rates and the specific plan chosen. Generally speaking, the higher the age, higher the value of the home, the more money is available.
• The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property.
• Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age.
• The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out.
• On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs.
• As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. Where the borrower lives longer than 15 years, periodic payments will not be made by lender. However, the borrower can continue to occupy.
• From FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax.

Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet.

Important – This part is fine printed to help you practice reading the fine print. The loan agreement documentation runs into nearly 50 pages and its language is complex. If you thought everyone signs the same agreements with the bank, where is the need to read? You are not taking an informed decision. If you thought somebody would have pointed this to me if there was any problem, then maybe they did but you could not read or listen to it. Think again! Borrowers’ and lenders’ rights may not be expressed clearly in a transparent manner in all the loan agreements. The home loan agreement may not be provided to you in advance so that this could be read and understood before you sign the agreement. Every method may be used to delay handing over a copy to the borrower in sufficient time. Some areas you may focus are a) check the “reset clause” incorporated by some banks in their home loan agreements that allows them to change the interest rate in the future, even on fixed rate loans. Banks may set their reset clauses for 3 or 2 year intervals.  They say a lender cannot have an agreement that a fixed rate is set for the entire tenure of 15 to 20 years as this will cause an asset-liability mismatch. Talk to your bank. b) Please seek clarifications on the term “exceptional circumstances” (if stated in the loan agreement) under which loan rates can be unilaterally changed by your bank. c) A common person thinks that default ideally means non-payment of one or more loan installments. In some loan documentation it can include divorce and death (in individual case) and even involvement in civil litigation or criminal offence. d) Does the loan agreement say that disbursement of the loan may be made directly to the builder or developer and in the case of a ready-built property to the vendor thereof and/or in such other manner as may be decided solely by bank? It is the borrower whose original property papers are retained with the bank, so why disburse to the builder. Possession of property has been  delayed in some cases when the cheque was issued in the name of the builder and the builder refused to pay delay penalty to the borrower e) Does the agreement enable assignment of your loan to a third party?  You take into account reputation and credibility of the bank before entering into a loan agreement with it. Are you comfortable with third party takes over or should you also be allowed to move your home loan from one bank to another in that case? Look for ambiguous clauses and discuss with the banker. Some agreements say changes in employment etc. have to be informed well in advance without quantifying the term “well in advance”. f) In one case the loan documentation says “issuance of pre-approval letter should not be construed as a commitment by the bank to grant the housing loan and processing fees is not re-fundable even if the home loan is not processed”. This is never ending it seems. The above are only indicative instances of what has been observed / reported/ indicated by various sources. However, our main objective was to get you into the habit of reading the fine print. If you have read this, you would have understood the importance of reading fine print in any document and we have achieved our objective. I only wish I could have made the print smaller as in the real cases.

Download EMI Calculator in Excel Format

 

Penalty for Offences by Officers of Company under Companies Act, 2013

Dr. Sanjiv Agarwal

Position prior to Finance Act, 2013 (Prior to 10.05.2013)

None of the provisions provided for personal penalty on partners / proprietor of the firm. However, section 77 talks of any person but such expression ‘any person’ does not imply more than one person or ‘firm as well as partner’ for the same offence. If it is meant to be such, it may result in double penalty or even more.

In certain cases, Department sought to impose personal penalty on the partners u/s 77 of the Finance Act, 1994 (as amended) which has not been specifically provided in the statutory provisions. The SCN levied penalty u/s 77 on the firm and separate penalty on partners u/s 77 is over and above the penalties proposed to be levied u/s 76, 77 and 78.

Judicial Pronouncements

In such cases, the assessee should rely on the following judicial pronouncements to defend levy of personal penalty –

In B. C. Sharma v. Commissioner of Central Excise, Jaipur (2000) 122 ELT 158 (Cestat), where firm was imposed a penalty of ? 2 lakhs, it was held that when penalty has been imposed on the partnership firm, a separate penalty cannot be merited on the partner.

In Kamal deep Marketing Pvt. Ltd. v. Commissioner of Central Excise, Indore (2004) 165 ELT 206 (Cestat, Delhi), where it was held that personal penalty on partners / proprietor in addition to that on the firm was not Imposable.

In Harish Dye. & Ptg. Works v. Commissioner of Central Excise & Customs, Surat-1 (2001) 138 ELT 772 (Cestat, Mumbai), it was held that partnership firm assessee being a partnership firm is not different from its partners and that separate penalty cannot imposed on the partner.

In Commissioner of Central Excise, Mumbai v. Metal Press India (2009) 246 ELT 303 (Cestat, Mumbai), it was held that partnership firm and its partners cannot be penalized simultaneously.

In Vinod Kumar Gupta v. CCE (2013) 287 ELT 54 (Punjab & Haryana), it was held that proprietorship firm or proprietor or partner could not be treated as two different legal entities, hence second penalty on proprietor or partner would amount to imposition of penalty twice over, which could not be sustained in the eye of law.[Case relied upon Tarak Nath Sen v. UOI- AIR 1975 Calcutta 337].

In Ashish Kumar Agarwal v. CCE, Ahmedabad (2012) 284 ELT 529 (Cestat, Ahmedabad), in absence of any duty liability on main company ,it was held that provisions of Section 112 and 117 of Customs Act, 1962 for imposition of penalties on directors was not invocable. However, in Shri Krishna Urja Projects v. CCE (Meerut-I) (2013) 288 ELT 257 (Cestat, Delhi), it was held that personal penalty can be imposed on director who is actively involved in company’s day to day activities.

In CCE & C, BBSRI v. Pentagon Steel Pvt. Ltd. (2013) 288 ELT 271 (Cestat, Calcutta), it was held that no penalty is imposable on the managing director in absence of any evidence of his direct or indirect involvement.

Thus, personal penalty cannot be levied on partners / proprietors in case of service tax defaults.

Position w.e.f. 10.05.2013

Finance Act, 2013 has inserted a new section 78A to provide for penalty for offences by director etc of a company w.e.f. 10.05.2013.

Section 78A reads as under –

“78A. Where a company has committed any of the following contraventions, namely:—

a)        evasion of service tax; or

b)        issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or

c)        availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or

d)        failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.”.

Section 78 A has been inserted so as to impose penalty, which may extend up to one lakh rupees, on director, manager, secretary or other officer of the company for knowingly involved in the contraventions specified therein.

Salient features of Penalty under section 78A

—  To impose penalty for contraventions / violations by Company

—  Penalty may extend up to Rs. one lakh per official

—  Penalty on any director, manager, secretary  or officer of Company

—  Incharge / responsible to Company for conduct of business of Company

—  If knowingly involved in specified contraventions

—  Penalty may be levied on more than one person for single contravention / offences

Specified Contraventions

—  Evasion of Service Tax

—  Issuance of bill / Invoice / challan without provision of service in violation of rules.

—  Availment and utilization of credit of taxes /duties without actual receipt of services /goods either fully or partially.

—  Failure to pay amount collected as service tax to the credit of Central Government beyond 6 months of the due date

Who is Punishable

Any person who is

• director
• manager
• secretary
• other officer

and who at the time of contravention was in charge of / was responsible to company

• for conduct of business, and
• was knowingly concerned with such contravention.

Thus, section 78A provides for imposition of penalty on director, manager secretary, or other officer of the company, who is in any manner knowingly concerned with specified contraventions.

 

COMPANIES ACT 2013 [Provisions w. e .f. 12-09-2013]

CS Kiran Mukadam,

 1)            Section 19: Subsidiary company not to hold shares in its holding company:-

The company shall not either by itself or through its nominees, holds any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void. The subsidiary company can hold shares as legal representative of deceased member of holding company, as a trustee and the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.

2)            Section 21: Authentication of documents, proceedings and contracts-  Applicable to HHL

Following documents may be signed by any key managerial personnel or an officer of the company duly authorized by the Board in this behalf.

• Document or proceeding requiring authentication by a company; or
•  contracts made by or on behalf of a company

 3)            Section 22: Execution of bills of exchange, etc.-  Applicable to HHL

• The  authorized person shall made, accepted, drawn or endorsed a Bill of Exchange, Hundies, Promissory Notes on behalf of a company if made, accepted, drawn, or endorsed in the name of Company.
• The authorized 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 and have the effect as if it were made under its common seal.

4)            Section 23-Public Offer:

• A public company may issue securities to public through prospectus, a rights issue or a bonus issue.
• The Public Company need to follow SEBI guidelines.
• A private company may issue securities by way of rights issue or bonus issue in accordance with the provisions of this Act.

5)            Section 24:Power of Securities and Exchange Board to regulate issue and transfer of securities:

The SEBI shall make regulation for issue and transfer of securities, non-payment of dividend for listed Companies. The Central Government shall make regulation for issue and transfer of securities, non-payment of dividend for other than listed Companies

6)            Section 25: Document  containing offer of securities for sale to be deemed prospectus:

If a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public, any document by which the offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company.

7)            Section 29: Public offer of securities to be in dematerialized form.

• Every company making public offer  or other class of public companies as may be prescribed shall issue the securities in dematerilised form.
• Any other Company may convert its securities into dematerialised form or issue its securities in physical form in accordance with the provisions of this Act or in dematerialised form in accordance with the Depositories Act.

8)            Section 30: Advertisement  of prospectus-

The Company who shall publish prospectus through advertisemnt shall be necessary to specify therein the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and the names of the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure

9)            Section 31: Shelf prospectus-

Any class or classes of companies, as the Securities and Exchange Board may provide by regulations in this behalf, may file a shelf prospectus  and information memorandum with the Registrar at the time of issue shares to Public

10)         Section 32: Red herring prospectus  -

A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus and file to Registrar.

11)         Section 33: Issue of application forms for securities-

No form of application for the purchase of any of the securities of a company shall be issued unless such form is accompanied by an abridged prospectus.

12)         Section 34: Criminal liability for misstatements in prospectus.-

If a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447.

13)         Section 35: Civil liability for misstatements in prospectus-

The company and every person who (a) is a director of the company at the time of the issue of the prospectus; (b) has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time; (c) is a promoter of the company; (d) has authorised the issue of the prospectus; shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.

14)         Section 36:Punishment for fraudulently inducing persons to invest money:-

Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into (a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting securities; or (b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or (c) any agreement for, or with a view to obtaining credit facilities from any bank or financial institution, shall be liable for action under section 447.

15)         Section 37:Action by affected persons-

A suit may be filed or any other action may be taken under section 34 or section 35 or section 36 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.

16)         Section 38: Punishment for personation for acquisition, etc., of securities-

Any person who (a) makes or abets making of an application in a fictitious name to a company for acquiring, or subscribing for, its securities; or (b) makes or abets making of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities; or (c) otherwise induces directly or indirectly a company to allot, or register any transfer of, securities to him, or to any other person in a fictitious name, shall be liable for action under section 447.

17)         Section 39: Allotment of Securities:-

• Require to receive minimum amount of subscription in case of public offering  before allotment
• Application Money= Minimum 5 % of total nominal amount
• If the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by SEBI the amount received  shall be returned within such time and manner as may be prescribed.

18)         Section 40:Securities to be dealt with in stock exchanges-

• Before public offering, the Company shall make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.
• All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any  purpose other than for adjustment against allotment of securities and for the repayment of monies within the time specified by SEBI

19)         Section 44: Nature of shares or debentures-

            The shares or debentures or other interest of any member in a company shall be movable property  transferable in the manner provided by the articles of the company.

20)         Section 45: Numbering of Shares-

Every share in a company having a share capital shall be distinguished by its distinctive number except shares in demat form.

21)         Section 49 to 51-Call on Shares-

• If any calls for further share capital are made on the shares of a class, such calls shall be made on a uniform basis on all shares falling under that class (Section 49)
• A company may, if so authorised by its articles, accept from any member, the whole or a part of the amount remaining unpaid on any shares held by him, even if no part of that amount has been called up and  A member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him. (Section 50)
• A company may, if so authorised by its articles, pay dividends in proportion to the amount paid-up on each share (Section 51)

22)         Section 57:Punishment for personation  of shareholder.-

If any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment.

23)         Section 58: Refusal for Transfer of Share – Applicable to HHL

• If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the  company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

• If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

• If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.

• The Tribunal after hearing shall direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or  direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

24)         Section 59: Rectification of register of members- Applicable to HHL

• If the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register, is, without sufficient cause, omitted there from, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal.

• The Tribunal may either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to  pay damages, if any, sustained by the party aggrieved.

25)         Section 60- Publication of authorised, subscribed and paid-up capital -Applicable to HHL

• If any notice, advertisement or other official publication, or any business letter, billhead or letter paper of a company contains a statement of the amount of the authorised capital of the company, such notice, advertisement or other official publication, or such letter, billhead or letter paper shall also contain a statement, in an equally prominent position and in equally conspicuous characters, of the amount of the capital which has been subscribed and the amount paid-up.

• In case of default, the company shall be liable to pay a penalty of ten thousand rupees and every officer of the company who is in default shall be liable to pay a penalty of five thousand rupees, for each default.

26)         Section 65-Unlimited company to provide for reserve share capital on conversion into limited company:-

Unlimited Company into Limited Company, the Company shall follow following two conditions In case of conversion

• Increase the nominal amount of its share capital by increasing the nominal amount of each of its shares,
• A specified portion of its uncalled share capital shall not be capable of being called up except in the event and for the purposes of the company being wound up.

27)         Section 69-Transfer to Capital Redemption Reserve:

• The Company shall be transferred to the capital redemption reserve account a sum equal to the nominal value of the shares so purchased under the buyback of share and details of such transfer shall be disclosed in the balance sheet.
• Apply CRR amount only for fully paid bonus shares

28)         Section 70-Prohibition for buy-back:

The Company shall directly or indirectly purchase its own shares or other specified securities through any subsidiary company including its own subsidiary companies or through any investment company or group of investment companies;

29)         Section 86-Punishment for contravention  of Chapter VI [Section 77 to 87]

30)         Section 91- Power to close register of members or debenture holders or other security holders: Applicable to HHL

Max= 45 days aggregate in the year and Max.30 days at one time. Min. Seven days notice before closing.

31)         Section 100- Calling of extraordinary general meeting: Applicable to HHL

• The Board may, whenever it deems fit, call an extraordinary general meeting of the company.
• Request from shareholders- holders who holds more than 1/10 of total paid up capital
• Requisitionists sent its requisition to the registered office of the company.
• The Board does not, within twenty-one days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than forty-five days from the date of receipt of such requisition, the meeting may be called and held by the requisitonists themselves within a period of three months from the date of the requisition.

32)         Section 102-Statement to be annexed to notice- Applicable to HHL

• Ordinary Business at AGM-
  • Øthe consideration of financial statements and the reports of the Board of Directors and auditors;
  • Øthe declaration of any dividend;
  • Øthe appointment of directors in place of those retiring;
  • Øthe appointment of, and the fixing of the remuneration of, the auditors;
  • Other Business other than above in AGM and all business in General meeting other than AGM shall be treated as Special Business.
  • Annex Explanatory statement for every Special Business containing-
    • ØThe nature of concern or interest, financial or otherwise, if any, in respect of each items of (i) every director and the manager, if any; (ii) every other key managerial personnel and their relatives
    • Ømeaning, scope and implications of the items of business for understanding of member and taking the decision
    • ØDetails of affection on shareholding pattern of another company, if any
    • Øthe time and place where such document can be inspected

33)         Section 103-Quorum for meetings- Applicable to HHL

• Minimum Quorum for General Meeting of Public Company-
  • Five members personally present if the number of members as on the date of meeting is not more than one thousand.
  • Fifteen members personally present if the number of members as on the date of meeting is more than one thousand but up to five thousand
  • Thirty members personally present if the number of members as on the date of the meeting exceeds five thousand
  • Minimum Quorum for General Meeting of Private Company is two members personally present.
  • If Quorum is not present within half an hour, the meeting should be adjourned. The adjourned meeting shall be called on same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine. the company shall give not less than three days notice to the members either individually or by publishing an advertisement in the newspapers

34)         Section 104- Chairman of meetings- Applicable to HHL

The members personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands, unless the articles of the company otherwise provide,

35)         Section 105-Proxy- Applicable to HHL

• Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf.
• A proxy shall not have the right to speak at such meeting and shall not be entitled to vote except on a poll.
• In every notice calling a meeting of a company, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy, or, where that is allowed, one or more proxies, to attend and vote instead of himself, and that a proxy need not be a member.
• The instrument appointing a proxy shall (a) be in writing; and (b) be signed by the appointer or his attorney duly authorised in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.
• During the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat to inspect the proxies lodged, at any time during the business hours of the company. Minimum three days notice need to given to the Company.

36)         Section 107- Restriction on voting rights-

The Company shall prohibit voting rights of member in case of unpaid call or lien on share.

37)         Section 108-Voting by show of hands- Applicable to HHL

At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be decided on a show of hands.

38)         Section 111-Circulation of members’ resolution- Applicable to HHL

• On requisition in writing of such number of members, A company shall give notice to members of any resolution which may properly be moved and is intended to be moved at a meeting; and circulate to members any statement with respect to the matters referred to in proposed resolution or business to be dealt with at that meeting.
• A copy of the requisition signed by the requisitionists is deposited at the registered office of the company not less than six weeks before the meeting in the case of a requisition requiring notice of a resolution. Otherwise, not less than two weeks before the meeting.
• Requisitionists is deposited a sum reasonably sufficient to meet the company’s expenses in giving effect this resolution.

39)         Section 112-Representation of President and Governors in meetings.

• The President of India or the Governor of a State, if he is a member of a company, may appoint such person as he thinks fit to act as his representative at any meeting of the company or at any meeting of any class of members of the company.
• Such Member shall be deemed to be a member of such a company and shall be entitled to exercise the same rights and powers, including the right to vote by proxy and postal ballot, as the President or, as the case may be, the Governor could exercise as a member of the company.

40)         Section 113- Representation of corporations at meeting of companies and of creditors- Applicable to HHL

• The Company /body corporate  authorise¸ by resolution of its Board of Directors  any person to act as a representative at any meeting of the company, if the Company is member / creditor of a Company
• Such authorised person shall be entitled to exercise the same rights and powers, including the right to vote by proxy and by postal ballot, on behalf of the body corporate which he represents as that body could exercise if it were an individual member, creditor or holder of debentures of the company.

41)         Section 114- Ordinary and Special Resolution: Applicable to HHL

Ordinary resolution requires 51% majority and Special Resolution requires ¾ majority required for passing the same

42)         Section 116- Resolutions passed at adjourned meeting- Applicable to HHL

If a resolution is passed at an adjourned meeting of the Company or Board of Directors, the resolution shall be treated as having been passed on the date on whichit was in fact passed, and shall not be deemed to have been passed on any earlier date.

43)         Section 127- Punishment for failure to distribute dividends- Applicable to HHL

• Failure to distribute dividend within 30 days from date of declaration , every director shall be liable imprisonment may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues.
• The company shall be liable to pay simple interest at the rate of eighteen per cent. per annum during the period for which such default continues
• Exception to this rule-
• Where the dividend could not be paid by reason of the operation of any law;
• Where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him;
• Where there is a dispute regarding the right to receive the dividend;
• Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or
• Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.

44)         Section 133 : Central Government to prescribe accounting standards- Applicable to HHL

The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting

Authority.

45)         Section 161-Appointment of additional director, alternate director and nominee director-

• The Board of Directors, if  so authorised by its Articles,  have power to appoint additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
• The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months from India. No person shall be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act .[Not effective now]
• The Board, subject to provision of Articles,  may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
• In the case of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, be filled by the Board of Directors at a meeting of the Board.

46)         Section 162-Appointment of directors to be voted individually-

At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. Otherwise, it is void. A motion for approving a person for appointment, or for nominating a person for appointment as a director, shall be treated as a motion for his appointment.

47)         Section 163- Proportional representation for appointment of directors.

The articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation, whether by the single transferable vote or by a system of cumulative voting or otherwise and such appointments may be made once in every three years and casual vacancies of such directors shall be filled through passing a resolution in Board Meeting.

48)         Section 176- Defects in appointment of directors not to invalidate actions taken.

If there was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated, act done before this noticed by a person as a director shall not be deemed to be invalid.

49)         Section 180-Restrictions on powers of Board- Applicable to HHL

The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution-

• To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
• To invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation.
• To borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. In Special resolution, it shall specify the total amount up to which monies may be borrowed by the Board of Directors.
• To remit, or give time for the repayment of, any debt due from a director.

50)         Section 181- Company to contribute to bona fide and charitable funds- Applicable to HHL

The Board of Directors of a company may contribute to bona fide charitable and other funds. Prior permission of the company in general meeting shall be required for such contribution in case any amount the aggregate of which, in any financial year, exceed five per cent. of its average net profits for the three immediately preceding financial years.

51)         Section 182-Prohibitions and restrictions regarding political contributions-

• A company, other than a Government company and a company which has been in existence for less than three financial years, may contribute not exceed seven and a half per cent of its average net profits during the three immediately preceding financial years directly or indirectly to any political party.
• Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party to which such amount has been contributed.
• Amount of Contribution includes-
  • Advertisement on behalf or for the advantage of Political Party.
  • A donation or subscription or payment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which can reasonably be regarded as likely to affect public support for a political party

52)         Section 183-Power of Board and other persons to make contributions to national defense fund, etc.-

The Board of Directors of any company or any person or authority exercising the powers of the Board of Directors of a company, or of the company in general meeting, may, contribute such amount as it thinks fit to the National Defense Fund or any other Fund approved by the Central Government for the purpose of national defense. Every company shall disclose in its profits and loss account the total amount during the financial year to which the amount relates.

53)         Section 185 –Loan to Directors

• The Company shall not, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
• A company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
• The section not apply to the giving of any loan to a managing or whole-time director (i) as a part of the conditions of service extended by the company to all its employees; or (ii) pursuant to any scheme approved by the members by a special resolution;

54)         Section 192: Restriction on non-cash transactions involving directors-

• Without prior approval in General Meeting, Company shall not enter into an arrangement by which (a) a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or (b) the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected.
• If the director or connected person is a director of its holding company, approval under this sub-section shall also be required to be obtained by passing a resolution in general meeting of the holding company.
• Resolution contain the particulars of the arrangement along with the value of the assets involved in such  arrangement duly calculated by a registered valuer.

55)         Section 194-Prohibition on forward dealings in securities of company by director or KMP-

Director of a company or any of its key managerial personnel shall not buy in the company, or in its holding, subsidiary or associate company (a) a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or  (b) a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.

56)         Section 202- Compensation for loss of office of managing or whole-time director or manager.

• A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in connection with such loss or retirement. No payment allowed in following situation-
  • Øwhere the director resigns from his office as a result of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate and is appointed as the managing or whole-time director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation
  • Øwhere the director resigns from his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid;
  • Øwhere the office of the director is vacated under sub-section (1) of section 167;
  • Øwhere the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the winding up was due to the negligence or default of the director
  • Øwhere the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary company or holding company thereof;
  • ØWhere the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.
  • Any payment made to a managing or whole-time director or manager shall not exceed the remuneration which he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold office, or where he held the office for a lesser period than three years, during such period.
  • such payment shall not be made to the director in the event of the commencement of the winding up of the company, whether before or at any time within twelve months after, the date on which he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses thereof, are not sufficient to repay to the shareholders the share capital, including the premiums, if any, contributed by them.

57)         Section 379-Application of Act to foreign companies-

If  one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate holds not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company , such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.

58)         Section 382-Display of name, etc., of foreign company-

• Every foreign company shall exhibit on the outside of every office or place where it carries on business in India, the name of the company and the country in which it is incorporated, in letters easily legible in English characters, and also in the characters of the language or one of the languages in general use in the locality in which the office or place is situate

• Every foreign company shall  cause the name of the company and of the country in which the company is incorporated, to be stated in legible English characters in all business letters, billheads and letter paper, and in all notices, and other official publications of the company.

• If the liability of the members of the company is limited, cause notice of that fact (i) to be stated in every such prospectus issued and in all business letters, bill-heads, letter paper, notices, advertisements and other official publications of the company, in legible English characters; and (ii) to be conspicuously exhibited on the outside of every office or place where it carries on business in India, in legible English characters and also in legible characters of the language or one of the languages in general use in the locality in which the office or place is situate.

59)         Section 383-Service on foreign company.

Any process, notice, or other document required to be served on a foreign company shall be deemed to be sufficiently served, if addressed to any person whose name and address have been delivered to the Registrar under section 380 and left at, or sent by post to, the address which has been so delivered to the Registrar or by electronic mode.

60)         Section 386- Interpretation- For CHAPTER XXII,

• the expression “director”, in relation to a foreign company, includes any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act; and
• The expression “place of business” includes a share transfer or registration office.

61)         Section 394- Annual reports on Government companies.

If the Central/ State government is a member of a Government company, the Central Government shall cause an annual report on the working and affairs of that company to be (a) prepared within three months of its annual general meeting before which the comments given by the Comptroller and Auditor-General of India and the audit report is placed under the proviso to sub-section (6) of section 143; and (b) as soon as may be after such preparation, laid before both Houses of Parliament/ State Legislature  together with a copy of the audit report and comments upon or supplement to the audit report, made by the Comptroller and Auditor-General of India.

62)         Section 405-Power of Central Government to direct companies to furnish information or statistics-

The Central Government may, by order, require companies generally, or any class of companies, or any company, to furnish such information or statistics with regard totheir or its constitution or working, and within such time, as may be specified in the order.

63)         Section 407-National Company Law Tribunal and Appellate Tribunal- Definition

64)         Section 408-Constitution of National Company Law Tribunal-

The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.

65)         Section 409- Qualification of President and Members of Tribunal.

66)         Section 410-Constitution of Appellate Tribunal-

67)         Section 411-Qualifications of chairperson and Members of Appellate Tribunal-

68)         Section 412-Selection of Members of Tribunal and Appellate Tribunal

69)         Section 413- Term of office of President, chairperson and other Members.

70)         Section 414-Salary,Allowances and other terms and conditions of service of Members.

71)         Section 439-Offences to be non cognizable-

• 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 of the company, or of a person authorised by the Central Government in that behalf
• The court may take cognizance of offences relating to issue and transfer of securities and non-payment of dividend, on a complaint in writing, by a person authorised by the Securities and Exchange Board of India:

72)         Section 443-Power of Central Government to appoint company prosecutors.

73)         Section 444- Appeal against acquittal.

74)         Section 445-Compensation for accusation without reasonable cause.

75)         Section 446-Application of fines.

76)         Section 447-Punishment for fraud.

Any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten 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 three times the amount involved in the fraud.

77)         Section 448-Punishment for false statement

78)         Section 449-Punishment for false evidence.

If any person intentionally gives false evidence (a) upon any examination on oath or solemn affirmation, authorised under this Act; or (b) in any affidavit, deposition or solemn affirmation, in or about the winding up of any company under this Act, or otherwise in or about any matter arising under this Act, he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to seven years and with fine which may extend to ten lakh rupees.

79)         Section 450-Punishment where no specific penalty or punishment is provided-

The company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues in case contravention of provision of the act and no penalty or punishment is provided elsewhere

80)         Section 451-Punishment in case of repeated default-

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.

81)         Section 452-Punishment for wrongful withholding of property.

82)         Section 453-Punishment for improper use of “Limited” or “Private Limited”-

If any person or persons trade or carry on business under any name or title, of which the word “Limited” or the words “Private Limited” or any contraction or imitation thereof is or are the last word or words, that person or each of those persons shall, unless duly incorporated with limited liability, or unless duly incorporated as a private company with limited liability, as the case may be, punishable with fine which shall not be less than five hundred rupees but may extend to two thousand rupees for every day for which that name or title has been used.

83)         Section 456-Protection of action taken in good faith.

No suit, prosecution or other legal proceeding shall lie against the Government or any officer of the Government or any other person in respect of anything which is in good faith done or intended to be done in pursuance of this Act or of any rules or orders made thereunder, or in respect of the publication by or under the authority of the Government or such officer, of any report, paper or proceedings.

84)         Section 457-Nondisclosure of Information in certain cases.

The Registrar, any officer of the Government or any other person shall not be compelled to disclose to any court, Tribunal or other authority, the source from where he got any information.

85)         Section 458-Delegation by Central Government of its powers and functions.

The Central Government may, by notification, and subject to such conditions, limitations and restrictions as may be specified therein, delegate any of its powers or functions under this Act other than the power to make rules to such authority or officer.

86)         Section459- Powers of Central Government or Tribunal to accord approval, etc., subject to conditions and to prescribe fees on applications-

The Central Government or the Tribunal is required or authorised by any provision of this Act (a) to accord approval, sanction, consent, confirmation or recognition to, or in relation to, any matter; or (b) to give any direction in relation to any matter; or (c) to grant any exemption in relation to any matter.

every application which may be, or is required to be, made to the Central Government or the Tribunal under any provision of this Act shall be accompanied by such fees as may be prescribed:

87)         Section 460-Condonation of delay in certain cases.

If any application required to be made to the Central Government / ROC under any provision of this Act in respect of any matter is not made within the time specified therein, that Government may, for reasons to be recorded in writing, condone the delay.

88)         Section 461-Annual report by Central Government.

89)         Section 462-Power to exempt class or classes of companies from provisions of this Act.

90)         Section 463-Power of court to grant relief in certain cases.

91)         Section 467-Power of Central Government to amend Schedules.

92)         Section 468-Powers of Central Government to make rules relating to winding up.

93)         Section 469-Power of Central Government to make rules.

94)         Section 470-Power to remove difficulties.

 

Govt limits benefit of Incremental Export Incentivisation Scheme

Notification No:   44 (RE-2013)/2009-2014

New Delhi, the 25^th  September, 2013

Subject: Amendment in Chapter 3 of Foreign Trade Policy

S.O.(E) In exercise of the powers conferred by Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with Para 2.1 of the Foreign Trade Policy, 2009-2014, the Central Government hereby makes the following amendments in the Foreign Trade Policy (FTP) 2009-14 with immediate effect: 

2.        The following sub-paragraphs (i) & (ii) are added below paragraph 3.14.4.(c) as under:

“(i)  Benefit of Incremental Export Incentivisation Scheme  for the last quarter of 2012-13 will be limited to 25% growth or Incremental growth of Rs. 10 crores in value, whichever is less.

(ii) Claims in excess of this value will be subjected to greater scrutiny by Regional Authority.

Effect of this Notification:  Few amendments have been made in Notification No. 27 dated 28.12.2012 for claiming benefit of Incremental Export Incentivisation Scheme.

 (Anup K. Pujari)

Director General of Foreign Trade

E-mail: dgft@nic.in

[Issued from File No. 01/61/188/AM 13/PC 3]

 

Companies Act, 2013 – Effects on Wholly Owned Indian Subsidiary of A Public Limited Company Incorporated Outside India

With the enactment of Companies Act 2013 (CA, 2013) the existing Companies Act, 1956 (CA, 1956) will be replaced. Through the Ministry of Companies Affairs (MCA) notification dated 12.09.2013, 98 sections in CA, 2013 have been notified with immediate effect.

One of the important sections which are notified is:

CA, 1956 – section 4- “Meaning of Holding Company and subsidiary”-

Sub-section (7)- A Private Company, being a subsidiary of a body Corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of the Act, shall be deemed for the purposes of this Act to be subsidiary of a public company if the entire share capital in that company is not held by that body corporate whether along or together with one or more other bodies corporate incorporated outside India.

It implies that if the entire (100%) shareholding of a Indian private company is held by a public limited company incorporated outside India together with the other foreign company (ies), if any, then it will be treated as private company according to Indian companies laws.

HAS BEEN REPLACED WITH

CA, 2013 - section 2(71)- “Public Company” means a company which-

a)      Is not a private company.

b)      Has a minimum paid up share capital of 5 lakh rupees or such higher paid up capital, as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of the Act even where such subsidiary company continues to be a private company in its articles.

Through section 4(7), if a company in India being 100% subsidiary of a Public Company incorporated outside, was availing privilege of being a Private company in context of Indian Companies Law, which has been lifted/ removed from CA, 2013. Thus Indian Company, now being deemed public company (refer section 2(71) above) will have to comply with additional sections in CA, 2013 in future which are already notified through notification dt 12.09.2013, as follows:

Further, there are few important sections which are applicable to every company and are used in day to day operations are as follows:

1. Section 180 – Restriction on Power of Board corresponding to section 293 in CA, 1956.

This sections implies that the Company (private & public both) will have to obtain the shareholders approval by passing a special resolution in its general meeting if the borrowing limit of the company exceeds the paid up share capital plus free reserves.

2. Section 185 – Loan to directors corresponding to section 295 in CA, 1956.

No company, whether public or private can give any loan or provide any security or guarantee in connection with a loan to a director or any other person in whom he is interested*, except as provided below.

Company can give loan to its Managing director/ Whole Time director without approval of shareholders where the loan is given as a part of the condition of service extended by the Company to all its employees or where loan is approved by way of passing the special resolution.

*interested director means-

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director.

(b)any firm in which any such director or relative is a partner.

(c) any private company of which any director is a director or member.

(d) any body corporate at a general meeting of which not less than 25% of the voting power is exercised or controlled by any such director, or by two or more such directors, togehter

(e)any body corporate, board of director, MD or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Consequence:Further, if any loan/ guarantee/ security provided in contravention to this section, the copany shall be punishable with fine which shall not be less than 5.00 lakhs to 25.00 lakhs and the director or other person to whom such loan/ guarantee/ security is provided, shall be punishable with imprisonment upto 6 months or with fine 5.00 to 25.00 lakhs.

3. Section 192 – Restriction on non- cash transactions involving Directors. New Provision

A company shall not enter into any arrangement by which a director of the company or of its Holding company or any person connected with him can acquire assets for the consideration other than cash.

Where the Director or connected person is a director of its holding company, then resolution from Holding Company will also be required.

The notice for approval in general meeting under this section in both the company and its Holding company shall include particulars of the arrangement alongwith the asset value calculated by the Registered valuer.

———–

Author- CS Prerna Jain

Csprernajain@gmail.com

 

US Rules in Favour of India in Countervailing Duty Investigation on Frozen Shrimp exports from India

The United States International Trade Commission (USITC) determined that the US industry is neither materially injured nor threatened with material injury by reason of imports of frozen warm water shrimp from India, China, Ecuador, Malaysia, and Vietnam. USITC voted 4-2 against imposition of countervailing duty (CVD) against India and other six countries. As a result of the USITC`s negative determinations, US Commerce will not issue countervailing duty orders on imports of these products from India, China, Ecuador, Malaysia, and Vietnam. The final decision of USITC brings great relief to Indian shrimp industry and its exports.

It may be recalled that Commerce Secretary Shri S R Rao had expressed optimism about the favourable final outcome in the CVD investigation, at the time of inauguration of 2nd phase of Aquatic Quarantine Facility (AQF) at Chennai on 9th January 2013. He has also said that The Marine Product Export Development Authority (MPEDA), the nodal agency for promotion of seafood exports from India will be handling the case.
It all started with, when the Coalition of Gulf Shrimp Industries filed a petition on behalf of its 28 member companies on 28th Decemeber 2012. COGSI claims that subsidies provided by Government of India to the Indian shrimp Industry provide an unfair advantage for Indian shrimp exports to the US, resulting in Indian exporters to sell their products at lower prices. On behalf of Government of India, Ms. Leena Nair, Chairman, MPEDA had consultations with the USDOC on the subject matter and had meeting with USITC on January 14, 2013. Chairman, MPEDA also attended the conference /USITC hearing in connection with the investigation.
US Department of Commerce (USDOC) had issued a questionnaire for the Government of India on 14 February, 2013, and selected two major shrimp exporters from India as mandatory respondents. Based on the replies received from all relevant organizations, the response of Government of India to the questionnaires was filed by MPEDA. Two more supplementary questionnaires were also replied.
On 28th May 2013, the US Department of Commerce preliminarily determined that countervailable subsidies are being provided to producers and exporters of certain frozen Warm water shrimp (frozen shrimp) from India. USDOC has preliminarily determined a cash deposit rate of 5.91% for exports made from India. The preliminary determinations were favourable for exports from countries like Ecuador, Indonesia. In order to verify the records submitted by the mandatory respondents, USDOC officials have visited India for verification of subsidy details submitted by Government of India and mandatory respondents.
On 13th August 2013, US Department of Commerce announced its affirmative final determinations in Countervailing Duty investigations of imports of certain frozen warm water shrimp from Ecuador, India, Malaysia, China, Vietnam and negative final determination for Indonesia & Thailand. Exporters from India have been assigned a subsidy rate of 10.84%. In preliminary determination, Ecuador was excluded from CVD, however in final determination higher CVD rate was assigned.
As some of the alleged schemes in India were terminated during the period of investigation, USDOC has finally determined a cash deposit rate of 5.85% for exports made from India. Final results on CVD for Vietnam (4.52%), China (18.16%) & Malaysia (54.5%), Ecuador (11.68%) were also announced. Indonesia and Thailand got de minimis (0%) subsidy rate in final CVD determinations. The final determinations were favourable for exports from countries like Thailand and Indonesia and these countries escaped from countervailing duties.
Due to the CVD cash deposit rate (5.85%) and present level of antidumping duty (3.49%), Indian Shrimp exports to USA would have been costlier than any of its closest competitors. More over if countervailing duty was imposed, it would have helped Thailand and Indonesia to monopolise the US shrimp market and market access of Indian shrimp would have been affected. Due to positive final CVD determinations, USDOC instructed to US Customs and border protection to order cash deposits equal to the final subsidy rates if the USITC issues final positive injury determinations. Thailand and Indonesia was excluded from CVD in final determination.
But the ruling by USITC, which is the last step in this investigation came in favour of India and six other countries which negates the USDOC’s decision. USITC today determined that the US industry is neither materially injured nor threatened with material injury by reason of imports of frozen warm water shrimp from India and four other countries. Due to this none of the seven countries including India need not pay duties for their shrimp exports to US. Chairman MPEDA said that USITC’s ruling will bring a great relief to Indian shrimp industry and shrimp exporters in India. She also stressed importance of the efforts taken in the process of investigation by Govt of India, specifically commerce Secretary Shri S R Rao, MPEDA and Seafood Exporters Association of India (SEAI) for getting a favourable ruling from USITC.

 

Occupancy Right In Flat Is Equal To Ownership: SC

Hill Properties Ltd. Vs. Union Bank of India and others (Supreme Court)-

Most of the flat owners purchase the flat by availing of loan from various banking institutions by mortgaging their rights over the purchased flat. By purchasing the flat, the purchaser, over and above his species of right over the flat, will also have undivided interest in the common areas and facilities, in the percentage as prescribed. Flat owners will also have the right to use the common areas and facilities in accordance with the purpose for which they are intended. It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, Society or the Company. So far as a builder is concerned, the flat owner should pay the price of the flat. So far as the Society or Company in which the flat owner is a member, he is bound by the laws or Articles of Association of the Company, but the species of his right over the flat is exclusively that of his. That right is always transferable and heritable. Of course, they will have charge over the flat if any amount is due to them upon the flat.
We find that neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners’ benefit. A legal bar on the saleability or transferability of such a species of interest, in our view, will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability and consequently we find no error with the warrant of attachment issued by the DRT on the flat in question.

We may reiterate that the appellant will certainly have the right of pre-emption, but not at any value lesser than the market value of the suit flat at the time of the sale. Various directions already given by the High Court, therefore, will stand.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7939 OF 2013
(Arising out of SLP(C) No.14563 of 2012)

Hill Properties Ltd.

Versus

Union Bank of India and others

J U  D G M E N T

K.S. RADHAKRISHNAN, J.

1. Leave granted.

2. We are in this case concerned with the saleability of Flat No.23, Building No.2, Hill Park Estate, A.G. Bell Road, Malabar Hill, Mumbai – 400 006, which is under attachment in the execution proceedings before the Debt Recovery Tribunal (DRT), Mumbai.

3. Union Bank of India, Respondent No.1 herein, had advanced some financial assistance to the second respondent sometimes in the year 1992. Respondent Nos.3 and 4 stood as personal guarantors for repayment of the dues of Respondent No.2. Respondent No.5, being an associate company of Respondent No.2, mortgaged the aforementioned flat in favour of the Union Bank of India to secure repayment of the dues of Respondent No.2. For realization of the payment of the amount, proceedings were initiated under the Securitization Act before the DRT, Mumbai, and the flat in question was attached under the warrant of attachment on 23rd August, 2005.

4. The Hill Properties Ltd., Appellant herein, preferred Suit No.1627 of 2007 before the High Court of Judicature at Bombay (Ordinary Original Jurisdiction), to release the flat in question from attachment. Notice of Motion was taken out for injunction restraining the Bank and others from taking any steps in furtherance of warrant of attachment or transferring the suit property to third parties. Learned Single Judge rejected the Appellant’s Notice of Motion seeking to release the flat from attachment by its order dated 25th January, 2012, giving liberty to the Appellant to make its offer to purchase the suit flat at a price determined by the Valuer or the price determined by the Auditor of the Company, whichever is higher. Aggrieved by the order, the Appellant preferred Appeal (L) No.185 of 2012 before the Division Bench of the Bombay High Court contending that Respondent No.5, being only a shareholder of the Company, has only a right to occupy the flat and has no right to mortgage the same to the Bank without permission of the Company. Further, it was pointed out that Respondent No.5 is only holding “A” equity share (bearing Share Certificate No.45) in the Appellant Company. By virtue of Articles of Association of the Company, Respondent No.5 was only permitted to use and occupy the flat owned by the Appellant Company and, therefore, the same is not liable to be attached and sold.

5. The Application was resisted by Respondent No.9 contending that the right to occupy the suit flat is the valuable right and value in the share of the Company is nothing but the value of the flat and the same could be transferred for consideration. The flat was, therefore, rightly mortgaged to the Bank and the learned Single Judge was justified in rejecting the claim of the Appellant.

6. The Division Bench of the Bombay High Court found no illegality in the order passed by the learned Single Judge and dismissed the Appeal, so also the Notice of Motion. Various safeguards incorporated by the learned Single Judge were reiterated. Aggrieved of the said order, this appeal has been preferred.

7. Shri Shyam Divan, learned senior counsel appearing for the Appellant, submitted that Respondent No.5 is only a shareholder of the Appellant Company and hence only permitted to use and occupy one of the flats owned by the Company and all the rights, title and interest in respect of the flat in question exclusively vest in the Company. Learned senior counsel submitted that Respondent No.5 could not have mortgaged the suit flat without the permission of the Company which is in violation of the provisions of the Articles of Association of the Company. Learned senior counsel referred to the Articles of Association of the Company and submitted that Respondent No.5 being a shareholder, is bound by the provisions of Articles of Association of the Company. Learned senior counsel placed reliance on the judgments of this Court in Bacha F. Guzdar, Bombay Vs. Commissioner of Income Tax, Bombay, (1955) 1 SCR 876, and Vodafone International Holdings B.V. Vs. Union of India & Anr., (2012) 6 SCC 613, Learned senior counsel also submitted that the ratio laid down by this Court in Ramesh Himatlal Shah Vs. Harsukh Jadhavji Joshi, (1975) 2 SCC 105, is not applicable to the case on hand, since in that case this Court was dealing with the interest of a member in an immovable property of a Cooperative Society governed by the provisions of the Maharashtra Cooperative Societies Act, 1960, which is inapplicable in the case of right of a shareholder in a limited liability company registered under the Indian Companies Act, 1956.

8. Shri U.U. Lalit, learned senior counsel appearing for the Respondents, on the other hand, submitted that the principle laid down in Ramesh Himatlal Shah’s case (supra), will clearly apply to the facts of this case. Learned senior counsel submitted that the question as to whether the flat belongs to a member of a Cooperative Society or a shareholder of a Company makes no difference, since the right, title and interest and the right to occupy is the species of property, which has the stamp of transferability. Learned senior counsel submitted that in the absence of any clear and unambiguous legal provisions to the contrary, such species of rights can always be transferred and there is no illegality in mortgaging the property to the Bank, as security for the loan transaction. Learned senior counsel submitted that the High Court has rightly rejected the suit as well as the Notice of Motion and the same calls for no interference by this Court.

DISCUSSION

9. The Appellant claims to be the owner of the property known as Flat No.23, Building No.2, Hill Park Estate, A.G. Bell Road, Malabar Hill, Mumbai – 400 006. Respondent No.5 is the shareholder of the Appellant Company holding one “A” equity share. Flat No.23 was allotted to Respondent No.5 who was holding the Share Certificate No.45. Respondent No.5 created an equitable mortgage to secure dues of Respondent No.2 to the Union Bank of India by depositing Share Certificate No.45. Union Bank of India filed Suit No.1079 of 1993 for recovery of the dues and also for enforcement of the security. The suit was later transferred to the DRT, Mumbai, and was numbered as OA No.245 of 2001. The DRT, Mumbai, later passed an order of attachment in respect of the flat in question. The question arose as to whether the property which was mortgaged to the Bank and the right of Respondent No.5 upon it could be attached and sold in execution of a decree.

10. We are of the view that the right, title, interest over a flat conveyed is a species of property, whether that right has been accrued under the provisions of the Articles of Association of a Company or through the bye-laws of a Cooperative Society. The people in this country, especially in urban cities and towns are now accustomed to flat culture, especially due to paucity of land. Multi-storeyed flats are being constructed and sold by Companies registered under the Companies Act as well as the Cooperative Societies registered under the Registration of Cooperative Societies Act, etc. Flats are being purchased by people by either becoming members of the Cooperative Society or shareholders of the Company and the flat owners have an independent right as well as the collective right over the flat complex. Flat owners’ right to dispose of its flat is also well recognized, and one can sell, donate, leave by will or let out or hypothecate his right. These rights are even statutorily recognized by many State Legislatures by enacting Apartment Ownership Acts. Such a legislation exists in the State of Maharashtra as well.

11. Most of the flat owners purchase the flat by availing of loan from various banking institutions by mortgaging their rights over the purchased flat. By purchasing the flat, the purchaser, over and above his species of right over the flat, will also have undivided interest in the common areas and facilities, in the percentage as prescribed. Flat owners will also have the right to use the common areas and facilities in accordance with the purpose for which they are intended. It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, Society or the Company. So far as a builder is concerned, the flat owner should pay the price of the flat. So far as the Society or Company in which the flat owner is a member, he is bound by the laws or Articles of Association of the Company, but the species of his right over the flat is exclusively that of his. That right is always transferable and heritable. Of course, they will have charge over the flat if any amount is due to them upon the flat.

12. In Ramesh Himatlal Shah’s case (supra), this Court has clearly delineated the legal principle which is as follows :-

“20. Multi-storeyed ownership flats on cooperative basis in cities and big towns have come to stay because of dire necessity and are in the process of rapid expansion for manifold reasons. Some of these are: ever growing needs of an urban community necessitating its accommodation in proximity to cities and towns, lack of availability of land in urban areas, rise in price of building material, restrictions under various rent legislations, disincentive generated by tax laws and other laws for embarking upon housing construction on individual basis, security of possession depending upon fulfilment of the conditions of membership of a society which are none too irksome. In absence of clear and unambiguous legal provisions to the contrary, it will not be in public interest nor in the interest of commerce to impose a ban on saleability of these flats by a tortuous process of reasoning. The prohibition, if intended by the legislature, must be in express terms. We have failed to find one.”

13. Reference may also be made to another judgment of this Court in DLF Qutub Enclave Complex Educational Charitable Trust Vs. State of Haryana, (2003) 5 SCC 622, wherein this Court held that the right of transfer of land indisputably is incidental to the right of ownership and such a right can be curtailed or taken away only by reason of a Statute. In our view, the Articles of Association of a Company have no force of a Statute and that the right of Respondent No.5 to mortgage could not have been restricted by the Articles of Association.

14. We find that neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners’ benefit. A legal bar on the saleability or transferability of such a species of interest, in our view, will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability and consequently we find no error with the warrant of attachment issued by the DRT on the flat in question.

15. We may reiterate that the appellant will certainly have the right of pre-emption, but not at any value lesser than the market value of the suit flat at the time of the sale. Various directions already given by the High Court, therefore, will stand.

16. The appeal is, therefore, dismissed and the amount, if any, deposited by the Appellant be refunded to him. There will, however, be no order as to costs.

……………………J. (K.S. Radhakrishnan)

……………………J. (A.K. Sikri)

New Delhi,

 

Cost Audit as per Companies Act, 2013

The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country.
This article contains the description of some provisions related to cost audit as per companies Act, 2013.
When cost audit is required:-Central government may direct to conduct cost audit in respect of companies engaged in the production of such goods or providing such services and have a net worth or turnover as may be prescribed.
Note: If company is regulated by any special act then central government can direct to conduct cost audit only after consulting with regulatory body constituted under special act.
Appointment of cost auditor:-Cost auditor shall be appointed by board whereas remuneration of cost auditor shall be determined by members.
Who can be appointed as cost auditor:-Cost audit shall be done by cost accountant in practice.
Qualifications, disqualifications, rights and duties of cost auditor:-Cost auditor shall have same qualifications, disqualifications, rights and duties as that of a company auditor. Further, it is the duty of cost auditor to comply with cost auditing standards and to submit his report to BOD.
Duty of company:-After receiving the cost audit report, company shall furnish full information and explanations on every reservations or qualifications to CG within 30 days of receipt of cost audit report. If CG requires any further information then it is the duty of company to furnish such information within given time.
Punishment for contravention in case of company:-If company contravenes any of the above mentioned provisions then company shall be punishable with fine of Rs. 25,000 to Rs. 5, 00,000 and officers of company shall be liable for fine of Rs. 10,000 to Rs. 1, 00,000 or imprisonment for a term which may extend to 1 year.
Punishment for contravention in case of cost auditor-If Cost auditor contravenes any of the above mentioned provisions unknowingly then he shall be punishable with fine of Rs. 25,000 to Rs. 5, 00,000. Whereas, he contravenes any of the above mentioned provisions knowingly then he shall be punishable with fine of Rs. 1,00,000 to Rs. 25,00,000 along with imprisonment for a term which may extend to 1 year. Further, he shall be liable to refund the remuneration and pay damages to company.
(Author -Abhilash Singh -
(EMAIL ID-abhilash.singh96@sify.com)

 

F form under CST Act can cover transactions of a period more than one month

Calcutta High Court in Cipla Limited vs Deputy Commissioner, Commercial Tax reported as VSTI 2013 Vol. 17 B-509 has held that There is nothing in Rule 12(5) of CST (R&T) Rules which could be construed to vitiate a declaration form i.e “F” form on a ground that such declaration form covered transactions for a period of more than a month.

The High Court in nut shell held that one F form can cover transactions of more than one month also, as Rule 12(5) of CST (R&T) Rules 1957, uses the word “may” and not “shall” while prescribing the periodicity of F forms.

Statutory Provisions: Rule 12(5) of the CST (R&T) Rules, 1957 provides the time period for the F Forms. The first proviso to Rule 12(5) runs as under:

“PROVIDED THAT a single declaration in F forms may cover transfer of goods, by a dealer, to any other place of his business or to his agent or principal as the case may be, effected during a period of one calendar month.”

It is notable here that the above proviso uses the word “may” and not “shall”, which has been interpreted in the said judgement in the way that Rule 12(5) nowhere poses a restriction that a single declaration in F form cannot cover transactions of branch transfers of more than one calendar month.

Facts of the case: In the abovesaid case the claim of the petitioner regarding inter-state branch transfer u/s 6A of the CST Act, 1956 was disallowed on the ground that the F forms were not received on monthly basis but on quarterly basis.

The lower authority concluded that  F forms produced by the petitioner before it, covered transaction of stock transfer for more than one month in violation of Rule 12(5) of the CST (R&T) Rules, 1957, hence benefit of section 6A was denied.

Verdict of High Court: On a writ petition, the High Court held as under:

“It appears that the Additional Commissioner, Commercial Taxes, West Bengal has misconstrued Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957 which provides that the declaration referred to in sub-section (1) of Section 6A of the Central Sales Tax Act, 1956 shall be in form F. The proviso to Rule 12(5) provides that a single declaration might cover transfer of goods, by a dealer, to any other place of business, or agent, or principal as the case may be, effected during a period of one calendar month. There is nothing in the rules which can be construed to vitiate a declaration form only on the ground that it covers transactions exceeding a period of over one month. The assessment has apparently been revised suo moto and ex parte on a misconception of rule 12(5) of the Rules. The impugned order is, thus, set aside and quashed.”

Thus from the above Judgement it is clear that one F form if cover transactions of branch transfer of a period of more than one month, it cannot be held as invalid form, as the words mentioned in Rule 12(5) is “may”.

This judgement should also apply to C forms: It is pertinent to mention here that 2nd proviso to the Rule 12(1) which talks about the periodicity of C forms, also uses the word “may”, which means that the above said judgement should also mutatis mutandis apply to the periodicity of C forms. The said proviso runs as under:

“Provided further that a single declaration may cover all transactions of sale which takes place in a quarter of a financial year between the same two dealers.”

Thus it is clear from the above proviso that it is not mandatory that C forms should only cover inter-state transactions of sale between two dealers, taken place in a quarter.

If the declaration in C forms cover transactions of more than a quarter in a financial year, that is to say, if a single declaration in C form cover transactions of sale of say 6 months,  the same cannot be rejected on this sole ground.

————
Amit Bajaj Advocate,
Bajaj & Bajaj Advocates,
128, Sangam complex,
Milap chowk, Jalandhar Cty (Punjab)
Email: amit@amitbajajadvocate.com,
M +919815243335

 

Companies Act, 2013 : Provisions related to Audit & Auditors

The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country.

This article contains the description of some provisions related to audit and auditors which have been modified in companies Act, 2013.

1). Appointment of first auditor in case of every company except govt. company or company owned/ controlled by CG/SG/CG and SG [139(6)]:-

Appointment of first auditor shall be made by board within 30 days of registration of company. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 90 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

2). Appointment of first auditor in case of govt. company or company owned/ controlled by CG/SG/CG and SG139(7):-

Appointment of first auditor shall be made by CAG within 60 days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within 30 days. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

3). Appointment of Subsequent Auditor in case of every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG[139(1)]:-

Appointment of auditor shall be made by members at First AGM and every subsequent 6th AGM. Company shall intimate the auditor about appointment. After intimating, company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with  the registrar about the appointment within 15 Days of the meeting.

Note: The Auditor shall hold office for a period of 5 Years.

Note: Company can ratify such appointment at any AGM falling between 5 years from such appointment.

4). Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of such class [139(2)]:-

If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company.

Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company

Note: Audit firm having common partner to the old audit firm of the company will not be eligible for appointment.

Note: Any existing listed company is required to comply with the above mentioned provisions within 3 years from the commencement of this act.

6). Appointment of Subsequent Auditor in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [139(5)]:-

Appointment of auditor shall be made by CAG within 180 days from the commencement of financial year. The Auditor shall hold office for a till the conclusion of AGM.

7). Appointment of auditor in Casual Vacancy in every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(i)] :-

If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its meeting within 3 months from the date of recommendation of the Board.

Whereas casual vacancy is arising by other than resignation then vacancy shall be filled the Board within 30 days.

8). Appointment of auditor in Casual Vacancy in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(ii)]:-

Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within given time then BOD shall fill the vacancy within 30 days.

9). Rotation of Auditors [ 139(3)]:-

• Member can rotate auditing partner and his team for any interval
• Audit can be conducted by 1 or more auditor

10). Audit Committee [177] and Role Audit Committee in appointment of auditors[139(1 1)]:-

Every Listed Company shall form Audit Committee consisting of minimum 3 directors. Whereas, Majority of directors should be independent and ability to read & understand financial statement

Role: Appointment, remuneration and term of appointment of auditor shall be made after considering the recommendations of the Audit Committee

Note: Committee existing before commencement of this act shall be reconstitute within 1 year of commencement in accordance of above mentioned provisions

11). Duty of auditor when he or it resign [140(2)]:-

Auditor is required to file a statement specifying the reasons and fact of resignation within 30 days of resignation with ROC and company or CAG in case of Govt. Companies. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 50,000- Rs. 500,000.

12). Duty of Company in case of representation received from auditor [140(4)]:-

Company is required to send a copy of the representation to every member and if copy of representation is not sent then a copy shall be filed with registrar.

13). Role of Tribunal in case auditor found guilty of fraud [140(5)]:

Tribunal may by itself or on application by CG/any concerned person order to change the auditor. And if the application is made by CG then tribunal shall pass an order within 15 days of application. In case of final order is passed then the auditor shall not be appointed for a period of five years in any other company and be further liable for monetary as well as penal punishment.

14). Eligibility LLP’s as auditors [141(2):

LLP’s can be appointed as auditors of company but only chartered accountant partners are authorized to act and sign on behalf of firm.

15). Disqualifications of Auditors [141(3)]:

I. If any partner of the person holding interest or security in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company

II. If any relative of the person holding interest or security whose face value exceeds Rs. 1000 or such sum as may be prescribed in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company. Note: Relative means member of HUF, Husband and wife or related with person as may be prescribed

III. If any relative of the person is a director or employee of director or key managerial personnel

Note: Director means a director appointed to board of the company. Note: Key managerial personnel means CEO/MD/Manager, CS, WTD, CFO and such other officer as may be prescribed

IV. Limit of indebt or guarantee is not mentioned and specified that any amount which may be prescribed

V. If person or firm has business relationship with in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company or associate company

VI. Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services Note: consulting and specialized services means-

a) accounting and book keeping services;

b) internal audit;

c) design and implementation of any financial information system;

d) actuarial services;

e) investment advisory services;

f) investment banking services;

g) rendering of outsourced financial services;

h) management services; and

i) any other kind of services as may be prescribed

VII. Any person convicted by court of offence involving fraud and 10 years has not elapsed from the date of such conviction
VIII. Person holding appointment as auditor of more than 20 companies.
IX. Person in full time employment

16). Remuneration of Auditors [142(1)]:-

Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board.

17). Power of Auditor [143(1) Proviso]:-

Auditor of holding company has the right of access to the records of all subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries.

18). Duties of Auditor [143(9),(12),(13),(15) and 146]:-

i. Every auditor need to comply with auditing standard [143(9)].

ii. Auditor shall report the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty[143(12) & (13)]

iii. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)].

iv. Auditor has to attend general meeting unless exempted by the company [146].

19). Auditor not to render certain services [144]:-

Auditor cannot provide following services to the company, its holding company or its subsidiaries, or associate company:

i. Accounting and book keeping service; Internal audit;

ii. Design and implementation of any financial information system;

iii. Actuarial services;

iv. Investment advisory services;

v. Investment banking services;

vi. Rendering of outsourced financial services;

vii. Management services; and

viii. Any other kind of consultancy services.

Note: If auditor is providing such services before the commencement of this act then he has to comply with the above mentioned provision before the closure of the first financial year after the date of such commencement.

CONCLUSION: Companies act 2013 has bring many new amendments which are required in current scenario.

Disclaimer: This write up is intended to initiate academic debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts.
(Author -Abhilash Singh -
(EMAIL ID-abhilash.singh96@sify.com)

 

Penalties & Punishment for contravention of provisions of Real Estate (Regulation and Development) Bill, 2013

The Real Estate (Regulation and Development) Bill, 2013, introduced in the Rajya Sabha on14^th August 2013  provides for a speedy and specialized adjudication mechanism to settle disputes between the promoter, buyer and real estate agents, thereby de-clogging the civil courts and consumer forums, from disputes in the real estate sector.

The Bill provides for adjudication of disputes by an adjudicating officer, to be appointed by the Authority not below the rank of Joint Secretary to the State Government, to adjudge the compensation to be paid under sections 12 (Obligations of promoter regarding veracity of advertisement or prospectus), 14 (Adherence to approved plans and project specifications by promoter) and 16 (Return of amount and compensation) of the Bill.

Also the Bill provides that in case any person whose complaint in respect of matters covered under sections 12, 14 and section 16 is pending before the Consumer Disputes Redressal Forum or the Consumer Disputes Redressal Commission or the National Consumer Redressal Commission, established under section 9 of the Consumer Protection Act, 1986, on or before the commencement of this Act, he may, with the permission of such Forum or Commission, withdraw the complaint pending before it and file an application before the adjudicating officer under this Bill.

The adjudicating officer while adjudging the quantum of compensation or interest is required to have due regard to (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused as a result of the default; (c) the repetitive nature of the default.

For disputes under any other provision of the Bill, the matter is to be referred to the Regulatory Authority for determination, which has powers to impose penalty or interest for contraventions.

The Bill specifies the penalties to be paid, for contravention of the provisions of the Act and the penalties to be paid for non-compliance of the directions of Regulatory Authority or the Appellate Tribunal, by the promoter or the real estate agent or the allottee as the case may be.

The specific provisions  are as follows:

Contravention by the Promoter:

Punishment for non-registration under section 3:

Sec 51. (1) If any promoter contravenes the provisions of section 3, he shall be liable to a penalty which may extend up to ten percent of the estimated cost of the real estate project
as determined by the Authority.

(2) If any promoter does not comply with the orders, decisions or directions issued under sub-section (1) or continues to violate the provisions of section 3, he shall be punishable with imprisonment for a term which may extend up to three years or with fine which may extend to a further ten percent of the estimated cost of the real estate project, or with both.

Penalty for contravention of section 4:

Sec 52. If any promoter knowingly provides false information or contravenes the provisions of section 4, he shall be liable to a penalty which may extend up to five percent of the estimated cost of the real estate project, as determined by the Authority.

Penalty for contravention of other provisions of this Act:

Sec 53. If any promoter contravenes any other provisions of this Act, other than that provided under section 3 or section 4, or the rules or the regulations made thereunder, he shall be liable to a penalty which may extend up to five percent of the estimated cost of the real estate project as determined by the Authority.

Penalty for willful failure to comply with orders of Authority by promoter:

Sec 55. If any promoter, who willfully fails to comply with, or contravenes any of the orders or directions of the Authority, he shall be liable to a penalty for every day during which such default continues, which may cumulatively extend up to five percent of the estimated cost of the real estate project as determined by the Authority.

Penalty for willful failure to comply with orders of Appellate Tribunal by promoter:

Sec 56. If any promoter, who willfully fails to comply with, or contravenes any of the orders, decisions or directions of the Appellate Tribunal, he shall be liable to a penalty for every day during which such default continues, which may cumulatively extend up to ten percent of the estimated cost of the real estate project as determined by the Appellate Tribunal.

Contravention by the Real Estate Agent:

Penalty for non-registration and contravention under sections 9 and 10:

Sec 54. If any real estate agent willfully fails to comply with or contravenes the provisions
of section 9 or section 10, he shall be liable to a penalty of ten thousand rupees for every day during which such default continues, which may cumulatively extend up to five percent of the cost of plot, apartment or building, as the case may be, of the real estate project, for which the sale or purchase has been facilitated as determined by the Authority.

Contravention by the Allottee:

Penalty for willful failure to comply with orders of Authority by allottee:

Sec 57. If any allottee, who willfully fails to comply with, or contravenes any of the orders, decisions or directions of the Authority he shall be liable to a penalty for the period during which such default continues, which may cumulatively extend up to five percent of the plot, apartment or building cost, as the case may be, as determined by the Authority.

Penalty for willful failure to comply with orders of Appellate Tribunal by allottee:

Sec 58. If any allottee, who willfully fails to comply with, or contravenes any of the orders or directions of the Appellate Tribunal, as the case may be, he shall be liable to a penalty for the period during which such default continues, which may cumulatively extend up to ten percent of the plot, apartment or building cost, as the case may be, as determined by the Appellate Tribunal.

 

Download Companies Act, 2013 and first set of draft Rules in word format

We are attaching chapter-wise Companies Act 2013 and first set of draft Rules (16 chapters) released by MCA on 9.9.2013 in Word format.  Schedules to the Act have been added at the end of respective chapters.  This will help us in studying relevant chapters and copying relevant portion, if required.

Download Chapter-wise Companies Act 2013 in Word Format (Win Rar File)

Download  first set of draft Rules (16 chapters) under Companies Act, 2013 (Win Rar File)

 

Foreign Investment in India – Guidelines for calculation of total foreign investment in Indian companies, transfer of ownership and control of Indian companies and downstream investment by Indian companies

A. P. (DIR Series) Circular No.42

September 12, 2013

To

All Category-I Authorised Dealer Banks

Madam / Sir,

Foreign Investment in India – Guidelines for calculation of total foreign investment in Indian companies, transfer of ownership and control of Indian companies and downstream investment by Indian companies

Attention of Authorised Dealers Category – I (AD Category – I) banks is invited to Para 6 (ii) of Annex to A.P. (DIR Series) Circular No. 1 dated July 04, 2013 as regards downstream investments by an Indian company which is not owned and/or controlled by resident entity/ties.

2. On review of the policy, it has now been decided to amend condition at (d) in the aforesaid para.  The amended condition is given in the Annex.

3. All the other conditions contained in the A.P. (DIR Series) Circular No.1 dated July 04, 2013, shall remain unchanged.

4. AD Category – I banks may bring the contents of the circular to the notice of their customers/constituents concerned.

5. Reserve Bank has since amended the Regulations and notified vide Notification No.FEMA.284/2013-RB dated August 27, 2013 and notified vide G.S.R.596 (E) dated September 06, 2013.

6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(C.D. Srinivasan)
Chief General Manager

---

[Annex to A.P.(DIR Series)
Circular No.42 dated 12.09.2013]

c.f. Annex to A.P.(DIR Series) Circular No. 1 dated July 04, 2013	Earlier Condition	Revised condition
ParaE 6 (ii) (d)	For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This would, however, not preclude downstream operating companies, from raising debt in the domestic market. Downstream investments through internal accruals are permissible by an Indian company engaged only in activity of investing in the capital of another Indian company/ies, subject to the provisions above and as also elaborated below:	For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This would, however, not preclude downstream operating companies, from raising debt in the domestic market. Downstream investments through internal accruals are permissible by an Indian company, subject to the provisions of clause 6(i) and as also elaborated below:

 

Facing difficulty in registering as “Tax professionals” in e-filing portal?

 

KIND ATTENTION- Members facing difficulty in registering themselves as “Tax professionals”  in the e-filing portal
As the members are aware, e-filing of Tax Audit Reports has been made mandatory from the AY 2013-14 onwards vide Notification No. 34/2013 dated 01-05-2013. In order to e-file Tax Audit Report a Chartered Accountant requires to register himself in the e-filing portal as a “Tax professional”.
The Direct Taxes Committee of ICAI has been intimated that issues are being faced by the members in registering themselves in e-filing portal due to mismatch of their Date of Birth and/or name. This mismatch may be on account of various reasons like wrong date of Birth in PAN, wrong date of Birth in ICAI records, different name in the PAN vis-a-vis ICAI records etc.
In order to successfully register in the e-filing portal, members facing such issues are required to get the Date of Birth or name corrected if the same is required, so that there is no mismatch in future. For example, if the date of birth mentioned as per educational records ( noted by ICAI) is not the date of birth mentioned in PAN card, the procedure to change the Date of Birth in PAN card is required to be followed. Also, if the name mentioned in ICAI records is different than members name mentioned in PAN card due to change of name post marriage or punching error etc., the procedure for change of name in ICAI records or PAN card, as the case may be, is required to be followed.
A-   In case of mis-match in name

1. The member can change his name by furnishing an Affidavit duly sworn before 1^st class magistrate/notary public stating the correct name member desires to be recorded by ICAI.

B-   In case of mis-match in date of birth:
1. The date of birth recorded in the ICAI, based on the educational records, will not be changed. In such cases the date of birth mentioned in PAN card needs to be rectified by the member concerned.

2. Pending rectification in the PAN card, the member can furnish the following documents to the Institute:

(a)  Self attested copy of the existing PAN card.

(b)  Self attested copy of application submitted for rectification in PAN card.

(c)  Undertaking by member to furnish the rectified copy of PAN card to the Institute on or before 15^th December, 2013.

3. The documents mentioned in para (2) above are to be submitted to the concerned decentralized office of ICAI, in hard copy or soft copy (digitally signed) to the following respective email ids:

Decentralized office	Email Id
WIRC	wromem@icai.in
SIRC	sromem@icai.in
EIRC	eromem@icai.in
CIRC	cromem@icai.in
NIRC	nromem@icai.in

 Thereafter, the Institute will take on record the PAN of the member and in turn send it to DGIT (Systems).

4. Upon receipt of PAN of the member from the ICAI, the member will be permitted to be registered as “Tax professional” in the e-filing portal. It will take around 5 working days for a member to register himself as Tax Professional after submitting the information to the ICAI.

In case, the member, after giving declaration for filing the rectified PAN with ICAI does not provide a self attested copy of the changed PAN card by 15th December 2013, to ICAI without any reasonable cause, the same may result in unfavorable consequences for giving wrong undertaking in this regard.

PLEASE NOTE: To facilitate smooth e-filing of tax audit reports this facility is available only upto 30^thSeptember, 2013.

 

Download Free e-book on Companies Bill, 2013

CA Rajkumar S. Adukia

Rajya Sabha has passed the much awaited Companies Bill 2013 on 8th August 2013 which was passed by Lok Sabha on 18th December 2012.and amendments to it are passed by lok sabha on 13th august 2013. The Bill is all set to replace the 57 year old Act.
In the Companies Bill 2013, various new provisions have been included (which are not provided for in Companies Act, 1956) for better governance of the companies.
I have written a write-up on the provisions of the Companies Bill 2013 and the law making powers of the Parliament of India in brief for more clarity on this subject.

 

HUF or its karta can not be designated partner in LLP

General Circular No. 13/2013, Dated 29th July,2013

Sub: Whether Hindu Undivided Family (HUF) / its Karta can become partner/Designated Partner (DP) in Limited Liability Partnership (LLP).

Sir,

It has come to the notice of the Ministry that some Hindu Undivided Families (HUFs) / Kartas of such families are applying to become partner/ Designated partner (DP) in LLPs and a question has arisen whether a ‘HUF’ or a karta can be allowed to do so. The matter has been examined in consultation with Ministry of Law.

2. As per section 5 of LLP Act, 2008 only an individual or body corporate may be a partner in a Limited Liability Partnership. A HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008. Therefore, a HUF or its karta can not become designated partner in LLP.

3. This issues with the approval of Secretary, MCA

 F.No. 1/13/2012-CL-V

Yours faithfully

J N Tikku

Joint Director

 

Policy for issue of import licenses of Rough Marble and Travertine Blocks for Financial year 2013-14

Notification No. 37 (RE-2013)/2009-2014 -  Dated: 26^th  August, 2013

Sub.:    Policy for issue of import licenses of Rough Marble and Travertine Blocks for the Financial year 2013-14.

S.O. (E) In exercise of powers conferred under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 as amended, read with paragraph 2.1 of the Foreign Trade Policy, 2009-14, the Central Government hereby makes the following amendments in Schedule-I (Imports) to the ITC (HS) Classifications of Export and Import Items:

2.         Import Licensing Note No. (2) inserted at the end of Chapter 25, will be amended to read as : “Import of rough marble blocks will be subject to conditions laid down in Notification No.37   dated  26^th  August, 2013.”

3.      Conditions for import of marble.

(A) The following Policy provisions will be applicable for import of Rough Marble Blocks and Travertine for the financial year 2013-14. This will supersede earlier Policy /Guidelines for issue of import licenses of Rough Marble Blocks.

(B) Attention is invited to ITC HS Codes 25151100 and 25151210 indicated in Schedule-1 (Imports) of ITC (HS) Classifications of Export and Import Items. As per the provisions contained therein, import of Marble and Travertine – Crude or Roughly trimmed and merely cut, by sawing or otherwise, into blocks of a rectangular (including square) shape is restricted and subject to import licensing procedures.

(C)    The applications for import license for import of rough marble blocks and travertine under the above mentioned ITC HS Codes will be considered in the following manner: -

I. Eligibility of the units will be decided based on the following three criteria:

(a)  Units who have installed marble gangsaw machine (except 100% EOUs and units in SEZ) on or prior to 31.3.2013. The marble gangsaw machine shall be in the name of the applicant only. No gangsaw on “Lease Basis” shall be considered for the purpose of allocation of import entitlement.

(b)    The Units should have been in operation for 5 years on or prior to 31.3.2013.

(c)    All eligible units as per (a) above should have cumulative turnover of atleast Rupees Five crores ( Rs 5 Crores) during the 5 years period i.e financial years 2007-08 to 2011-12 irrespective of whether it is from domestic or foreign sources in respect of processed marble slabs/tiles only.

II.   Floor Price-

Licenses for import of crude or roughly trimmed marble and travertine blocks or merely cut, by sawing or otherwise into blocks of a rectangular (including square) shape shall be subject to a floor price of US$ 325 per Metric Tonne (MT), which shall be endorsed on all licenses.

III. Entitlement:

The total import of Rough Marble and Travertine blocks under ITC HS Codes 25151100 and 25151210 will be subject to a ceiling of 6 lakh MT for the whole of the licensing year, 2013-14. Eligible units will be entitled for an import license on the basis of cumulative turnover ( indigenous or foreign) of atleast Rupees 5 crores of processed marble slabs/tiles only, over the previous five financial years 2007-08 to 2011-12. The quantity so calculated will however be subject to the overall ceiling of 3000 MT for the first gang saw and 1500 MT for every subsequent gang saw.

IV.   Actual User Condition:

All licenses shall be subject to actual user condition. Modalities for submitting hard copies of the applications is attached as Annexure 1 to this notification.

V.      Monthly Return

License holders shall file monthly returns regarding imports made by them, to the concerned Regional Authority of DGFT by the 15^th of each succeeding month in which license is obtained (for example if a license is obtained on 13^th September, the license holder will file monthly return for imports made in September by 15^th of October and for each month thereafter by the 15^th ). This is a mandatory requirement.

VI. Validity of Import licences

Licenses for Import of Marble and Travertine will have a validity upto 30^th September 2014.

4.            Effect of this notification:

Import policy of Rough Marble and Travertine blocks for the year 2013-14 has been notified with a quota of 6 lakh MT and an MIP of US$ 325 per MT .

 (Anup K. Pujari)

Director General of Foreign Trade

E-mail: dgft@nic.in

(Issued from File No. 01/53/162/293/Marble/M-3/AM13/IC)

Annexure-1 to Notification No: 37 (RE-2013)/2009-14 Dated :  26^th  August,2013

Modalities for submitting applications for grant of quota for import of rough marble blocks

1.         Eligible applicants will submit hard copies of their application, in the relevant Aayaat Niryaat Form, along with the documents prescribed therein, to concerned RA for import of rough marble blocks for the financial year 2013-14. RA will then forward the applications to DGFT HQ for scrutiny and allocation of quota. Calendar of events is attached as Annexure 2 to this Notification.

2.         The following conditions would need to be followed and documentary proof submitted to concerned RA alongwith the application for grant of quota :-

(a)                The Marble gangsaw in the Unit should be in the name of the Unit and established on or prior to 31.3.2013, as certified by State Industry Department (District Industry Centre). The gang saw should not be ‘on Lease’ from any other party. The marble gangsaw machine should have linear movement and should have minimum 60 steel blades impregnated with diamond segments and be used only for cutting marble blocks into slabs;

(b)        SSI/SIA Registration Certificate should show the Unit being in operation on or prior to 31.3.2008;

(c)        The list of equipments / capital goods (other than Marble gangsaw) set up by the applicant in the Unit for processing marble slabs / tiles should be prior to 31.3.2008, as per Balance Sheet as on 31.3.2008, duly certified by a Chartered Accountant;

(d)       Income Tax Return for the financial year 2007-08 indicating processing of marble by the Unit duly certified by a Chartered Accountant;

(e)        CA Certificate indicating domestic/foreign sales turnover of marble slabs / tiles of years 2007-08, 2008-09, 2009-10 , 2010-11 and 2011-12; and

(f)        A copy of Chartered Accountant certified statement of accounts, filed along with Balance Sheet to Income Tax authorities for each of the years i.e. 2007-08, 2008-09, 2009-10 , 2010-11 and 2011-12 (in order to prove cumulative turnover from domestic or foreign sources) of marble slabs / tiles of atleast Rs. 5 crore in the last 5 years).

(g)        The sale against Form H and other relevant Forms, job work income earned by any unit sawing marble blocks of third parties into slabs/tiles and the amount of excise duty, service tax and sales tax/VAT paid on such indigenous sales turnover of marble slabs/tiles may also be included for calculating indigenous sales turnover of the applicant. An applicant would need to submit certified copies of VAT/Sales Tax returns filed by the applicant for each of the 5 financial years indicating the indigenous sales turnover of marble slabs/tiles alongwith the income tax returns for the same period. No trading turnover shall be considered.

(h)        With regard to calculation of indigenous sales turnover, it is clarified that the turnover will include the net sales after deducting the sales returns from the gross sales. It is also clarified that the turnover of the applicant only shall be taken into consideration and the turnover of group concerns/ sister concerns/ subsidiaries etc. shall not be counted for calculating the turnover.

(i)         The applicant must not be on DEL (Denied Entities List).

(j)         In case any applicant/ firm is found to have furnished wrong/ false information or made any misrepresentation, then it shall be debarred from the allocation for import of marble and also liable for penal action under the provisions of FTD&R Act 1992,as amended.

3.         The last date for receipt of hard copy of application with complete documents with RA shall be 5^th September, 2013.

Annexure-2 to Notification No: 37 (RE-2013)/2009-14 Dated :  26^th August,2013

CALENDAR OF EVENTS

1.	Notification to be issued on	26th   August, 2013
2	Receipt of Application in RA	Upto 5th September, 2013
3	Forwarding of Applications to DGFT HQ by RA’s	Upto 9th September, 2013
4	Declaration of Allocation	19th September, 2013
5	Issuance of Licences	20th to 25th September, 2013