(Case Snippets and Case Studies)

 May 2020 
Content
President PART A – CASE SNIPPETS

 Ashish Garg Company Law 2

Securities Laws 8
Direct Tax Laws 14
Vice President Indirect Tax Laws 22
Environment Laws 28
 Nagendra D. Rao Arbitration Act 29
Foreign Contribution & Regulation 30
Constitution of India 31
Right to Information Act 32
Competition Act 33
Editorial Team
Insolvency & Bankruptcy Code 34
 Alka Kapoor Labour Laws 36
Cyber Laws 38
Joint Secretary (SG) Laws relating to Consumer Protection 40

PART B – CASE STUDIES

 Lakshmi Arun
CG Power and Industrial Solution Ltd. - 42
Joint Director Corporate Governance Failure?
PACL Collective Investment Scheme – Case 60
Directorate of Academics Study

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 Part A
Case Snippets

CASE SNIPPETS | MAY 2020 1

Case Snippets

COMPANY LAW

1. 18.03.2020 Mona Aggarwal and Ors. (Appellant) vs. The National

Ghaziabad Engg. Company Ltd. and Ors. Company Law
(Respondent) Appellate Tribunal
(NCLAT)
(Company Appeal (AT) No. 320 of 2019)

Section 248 of the Companies Act, 2013 in no manner will affect the powers of the
Tribunal to wind up a company the name of which has been struck off from the register
of companies.

The National Company Law Appellate Tribunal (NCLAT), New Delhi held that from sub-section
(8) of Section 248 of the Companies Act, 2013, it is clear that Section 248 in no manner will
affect the powers of the Tribunal to wind up the company, the name of which has been struck
off from the register of companies. Therefore, even after removal of the name of the company
from the register of companies, the NCLT can proceed with the petition for winding up under
Section 271 of the Companies Act, 2013.

2. 03.03.2020 Sunita Palta & Ors. (Petitioners) vs. M/s The Delhi High Court
Kit Marketing Pvt. Ltd. (Respondent)
(CRL. M.C. 1410/2018)

The Non-Executive Directors of a company are exempted from Cheque Dishonour

Proceedings under Section 138 of The Negotiable Instruments Act, 1881.

The Delhi High Court has held that the petitioners are neither the Managing Directors nor the
Authorized Signatories of the accused company. A perusal of the complaint filed under Section
138 r/w Sections 141/142 of The Negotiable Instruments Act, 1881 filed by the complainant
shows that except for the general allegation stating that the petitioners were responsible for
control and management of day to day affairs of the accused company, no specific role has
been attributed to the petitioners. To fasten the criminal liability under The Negotiable
Instruments Act, 1881, the above generalised averment without any specific details as to how
and in what manner, the petitioners were responsible for the control and management of
affairs of the company, is not enough.

The impugned order with respect to summoning the present petitioners for the offence under
Section 138 of The Negotiable Instruments Act, 1881, is thus quashed.

2 MAY 2020 | CASE SNIPPETS

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3. 4.02.2020 Vijay Pal Garg & Ors. (Appellants) vs. The National
Pooja Bahry (Liquidator in the matter of Company Law
Gee Ispat Private Limited) (Respondent) Appellate Tribunal
(NCLAT)
(Company Appeal (AT) Insolvency No.
949 of 2019)

The term ‘Adjudicating Authority’, as defined in Section 5(1) of IBC cannot come within
the ambit of court as defined in Section 2(29) of the Companies Act, 2013.
The National Company Law Appellate Tribunal (NCLAT), New Delhi held that the term
‘Adjudicating Authority’, as defined in Section 5(1) of IBC cannot come within the ambit of
court as defined in Section 2(29) of the Companies Act, 2013. Thus, keeping in mind a prime
fact that the Tribunal/Adjudicating Authority is guided by the Principles of Natural justice and
is to follow the procedure prescribed u/s 213(b) of the Companies Act, 2013 comes to an
‘irresistible’ and inescapable conclusion that the Adjudicating Authorities (Tribunal) in law is
not empowered to order an investigation directly to be carried out by the Central Government.
It was observed that an Adjudicating Authority (Tribunal), as a competent / appropriate
authority in terms of Section 213 of the Companies Act, 2013 has an option to issue notice in
regard to the charges / allegations levelled against the promoters and others (including the
Appellants) of course after following the due procedure enshrined under Section 213 of the
Companies Act, 2013. In case, an ex facie / prima facie case is made out, then, the Tribunal is
empowered to refer the matter to the Central Government for an investigation by the
inspectors and upon such investigation, if any action is required to be taken and if the Central
Government subjectively opines that the subject matter in issue needs an investigation,
through the Serious Fraud Investigation Office, it may proceed in accordance with the law.

4. 29.01.2020 Bank of Baroda (Appellant) vs. Aban The National

Offshore Limited (Respondent) Company Law
Appellate Tribunal
(Company Appeal (AT) No. 35 of 2019)
(NCLAT)

Remedies available for Preference shareholders in relation to redemption of

preference shares
The National Company Law Appellate Tribunal (NCLAT), New Delhi held that intention of the
legislature while promulgating Section 55 of the Companies Act, 2013 was to compulsorily
provide for redemption of preference shares by doing away with the issue of irredeemable
preference shares. Therefore, even though there is no specific provision stipulated under the
Companies Act, 2013 through which relief can be sought by preference shareholders in case
of non-redemption by the company or consequent non-filing of petition under Section 55 of
the said Act, the intention of the legislature being clear and absolute, Tribunal’s inherent
power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).

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Alternatively, preference shareholders coming within the definition of ‘member(s)’ under

Section 2(55) read with Section 88 of the Companies Act, 2013, may file a petition under
Section 245 of the said Act, as a class action suit, being aggrieved by the conduct of affairs of
the company. Thereby, it was held that preference shareholders are not remediless and for
redemption of preference shares, they can file an application under Section 55(3) of the
Companies Act, 2013 or alternatively they may also file application under Section 245 of the
Companies Act, 2013 as a class action suit and the NCLT while exercising the inherent power
viz. Rule 11 of NCLT Rules, 2016 can pass appropriate order.

5. 20.12.2019 Joint Commissioner of Income Tax (OSD), The National

Circle (3)(3)-1, Mumbai and Income Tax Company Law
Officer, Ward 3(3)-1, Mumbai Appellate Tribunal
(Appellants) vs. Reliance Jio Infocomm (NCLAT)
Ltd. & Ors. and M/s Reliance Jio Infratel
Pvt. Ltd & Ors. (Respondents)
(Company Appeal (AT) Nos. 113 and 114
of 2019)

Mere fact that a Scheme of Arrangement may result in reduction of tax liability does not
furnish a basis for challenging the validity of the same.

The National Company Law Appellate Tribunal (NCLAT), New Delhi, held that without going
to the record and without placing any evidence or substantiating the allegation of avoidance
of tax by appearing before the Tribunal, it was not open to the income tax department to hold
that the composite scheme of arrangement amongst the petitioner companies and their
respective shareholders and creditors is giving undue favour to the shareholders of the
company and also the overall scheme of arrangement results into tax avoidance. The NCLAT
observed that mere fact that a scheme may result in reduction of tax liability does not furnish
a basis for challenging the validity of the same.

The Income Tax Department, which sought for liberty, while accepted by the Petitioner
Companies (Respondents herein) and the NCLT, Ahmedabad bench while approving the
Composite Scheme of Arrangement has granted liberty. Such liberty to the Income Tax
Department to enquire into the matter, if any part of the Composite Scheme of Arrangement
amounts to tax avoidance or is against the provisions of the Income Tax and is to let it take
appropriate steps if so required.

Thus, NCLAT upheld the decision of NCLT, Ahmedabad bench and in view of the liberty given
to the Income Tax Department decided not to interfere with the Scheme of Arrangement as
approved by the Tribunal and dismissed the appeals filed.

4 MAY 2020 | CASE SNIPPETS

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6. 04.12.2019 Regional Director, Southern Region, MCA The National
and Registrar of Companies, Company Law
Chennai (Appellants) vs. Real Image LLP Appellate Tribunal
and Ors. (Respondents) (NCLAT)
(Company Appeal (AT) No. 352 of 2018)

If an Indian Limited Liability Partnership (‘LLP’) is proposed to be merged into an

Indian company then firstly, the LLP has to apply for registration under Section 366 of
the Companies Act, 2013.
The National Company Law Appellate Tribunal (NCLAT), New Delhi held that, it is apparent
that as per Section 232 of the Companies Act, 2013, a company or companies can be merged
or amalgamated into another company or companies. The Companies Act, 2013 has taken care
of merger of LLP into company. In this regard Section 366 of the Companies Act, 2013 provides
that for the purpose of Part I of Chapter XXI the word company includes any partnership firm,
limited liability partnership, cooperative society, society or any other business entity which
can apply for registration under this part. It means that under this part LLP will be treated as
company and it can apply for registration and once the LLP is registered as company then the
company can be merged in another company as per Section 232 of the Companies Act, 2013.
NCLAT further observed that the provisions of Act 2013 as a whole in reference of conversion
of Indian LLP into Indian company there is no ambiguity or absurdity or anomalous results
which could not have been intended by the legislature. The principal of casus omissus cannot
be supplied by the Court except in the case of clear necessity and when reason for it is found
in the four corners of the statute itself. There is no such occasion to apply the principal of casus
omissus.
The NCLAT set aside the order of the NCLT, Chennai bench, which is allowing the merger of an
Indian LLP with an Indian company without such registration.

7. 04.12.2019 Registrar of Companies, Kerala The National

(Appellant) vs. Ayoli Abdulla Company Law
(Respondent) Appellate Tribunal
(NCLAT)
(Company Appeal (AT) No.145 of 2019)

NCLT per se has no power to waive the filing fee & additional fee.
The National Company Law Appellate Tribunal (NCLAT), New Delhi set aside the order passed
by the NCLT, Chennai Bench to the extent of waival of additional fee for filing of Balance Sheet
and Annual Return and held that NCLT per se has no power to waive the filing fee & additional
fee.
The Registrar of Companies, Kerala is directed to charge minimum additional fee. The
Respondent is directed to file all the pending statutory returns viz., Balance Sheet and Annual
Return with filing fee and additional fee within a period of 30 days from the date of receipt of
this order and RoC, Kerala is directed to accept the same with minimum additional fee.

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8. 14.11.2019 Oswal Greentech Ltd. and Ors (Appellant) The National

vs. Pankaj Oswal and Ors. (Respondent) Company Law
Appellate Tribunal
(Company Appeal (AT) Nos. 410,411 and
(NCLAT)
412 of 2018)

Right arising out of an instrument does not vest with nominee automatically on the
death of the original holder of the instrument.

The National Company Law Appellate Tribunal (NCLAT), New Delhi dismissed the appeals
filed by the Appellants and held that application filed under Sections 241, 242 & 244 of the
Companies Act, 2013 was maintainable at the instance of Mr. Pankaj Oswal (1st Respondent)
otherwise also, in view of the matter that his claim relating to the shares of Late Mr. Abhey
Kumar Oswal which is pending in a suit before the Court of Competent Jurisdiction, this is a fit
case for waiver under sub-section(4) of Section 244 of the Companies Act, 2013 and for that
the application under Sections 241, 242 should be heard on merit.

NCLAT observed that the right arising out of an instrument does not vest with nominee
automatically on the death of the original holder of the instrument. Nominee does not mean
that the amount or the share belongs to the nominee. On the death of the holder of the
instrument, the amount/share vests with the legal heirs, the nominee merely holds the
amount/share herein till the matter of vesting is decided in favour of the legal heirs.

9. 6.11.2019 M/s J.R. Diamonds Pvt. Ltd. (Vinod The National

Tarachand Agrawal (Liquidator of the Company Law
company)) (Appellant) vs. Registrar of Tribunal,
Companies, Gujarat (Respondent) Ahmedabad Bench
(Co. Appeal No. 53/252(3) / NCLT / AHM/
2019)

The name of the company should not be struck off, if there is some pending litigation by
or against the company

The National Company Law Tribunal, Ahmedabad Bench set aside ROC order of striking off the
name of the company and held that name of the company should not be struck off, if there is
some pending litigation by or against the company and directed the Registrar of Companies,
Gujarat to restore the name of the company in statutory register of companies but subject to
compliance of prescribed conditions.

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10. 24.10.2019 Jindal Steel and Power Limited The National
(Appellant) vs. Arun Kumar Jagatramka Company Law
and Ors. (Respondents) Appellate Tribunal
(NCLAT)
Company Appeal (AT) No. 221 of 2018

During the Liquidation proceeding under Insolvency and Bankruptcy Code, 2016 (IBC),
a petition under Section 230 to 232 of the Companies Act, 2013 is maintainable.
The issue raised is this case was whether in a liquidation proceeding under Insolvency and
Bankruptcy Code, 2016 (IBC), the Scheme for Compromise and Arrangement can be made in
terms of Sections 230 to 232 of the Companies Act, 2013 and if so permissible, whether the
Promoter is eligible to file an application for Compromise and Arrangement, while he is
ineligible under Section 29A of IBC to submit a Resolution Plan.
The National Company Law Appellate Tribunal (NCLAT), New Delhi held that during the
liquidation process, step required to be taken for its revival and continuance of the 'Corporate
Debtor' by protecting the 'Corporate Debtor' from its management and from a death by
liquidation. During a Liquidation proceeding under IBC, a petition under Section 230 to 232 of
the Companies Act, 2013 is maintainable.
NCLAT further, stated that even during the period of Liquidation, for the purpose of Section
230 to 232 of the Companies Act, 2013, the ‘Corporate Debtor’ is to be saved from its own
management, meaning thereby the Promoters, who are ineligible under Section 29A of IBC,
are not entitled to file application for Compromise and Arrangement in their favour under
Section 230 to 232 of the Companies Act, 2013. Proviso to Section 35(f) of IBC prohibits the
Liquidator to sell the immovable and movable property or actionable claims of the ‘Corporate
Debtor’ in Liquidation to any person who is not eligible to be a Resolution Applicant
Promoter, if ineligible under Section 29A of IBC cannot make an application for Compromise
and Arrangement for taking back the immovable and movable property or actionable claims
of the ‘Corporate Debtor’.
NCLAT thus, set aside the order passed by the NCLT, Kolkata bench and remitted the case to
Liquidator/Adjudicating Authority to proceed in accordance with the judgement.

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SECURITIES LAW

1. 04.03.2020 Picture house Media Ltd. (Appellant) vs. Securities Appellate

Bombay Stock Exchange Ltd. Tribunal
(Respondent)

Penalty imposed for non-compliance of SEBI LODR Regulations on delay appointment

of women director
The provisions of the LODR regulations require that every listed company should have a
women director. The appellant hereby is a public listed company and one women director
resigned and consequently the post became vacant which was require to be filled up by
another woman under the LODR Regulations. Since there was a delay in appointing a woman
director of the company, the penalty was imposed by BSE under LODR Regulations. The
appellant has filed the appeal against the order passed by BSE imposing a penalty of
Rs.7,59,920/- for violation of Regulations 17(1) and 19(1) and 19(2) of SEBI LODR
Regulations, 2015. In the light of default committed by the appellant SAT did not find any error
in the impugned order and dismissed the appeal.

2. 21.02.2020 Pacific Finstock Ltd. (Appellant) vs. BSE Securities Appellate

Ltd. (Respondent) Tribunal

For Listing of a security, the Listing norms as on date of Application filed alone is
required to be considerd but status of the directors/ promoters of the company are
required to be considered on the date of the passing of the order on the listing
application.
The appellant filed listing application to BSE Limited on July 29, 2017. In the meanwhile, the
promoters/ directors of the appellant company were debarred from accessing the securities
market vide SEBI's order dated September 28, 2019. This fact was brought to the notice of the
appellant and sought clarification as to how the company is required to comply with the
requirements for direct listing of its securities. The promoters/ Directors of the appellant
company were debarred from accessing the securities market therefore the direct listing
requirements norms had not been complied with and accordingly the listing application was
rejected by BSE Ltd. The listing norms that was in force on the date when the listing application
was filed was alone required to be considered. Subsequent norms or amended norms or
regulations are not required to be considered. However, the status of the directors/ promoters
of the company are required to be considered on the date of the passing of the order on the
listing application. If on the date when the listing application was being considered the
promoters/ directors of the company committed default and thereby incurred a debarment
from accessing the securities market then it was imperative upon the authority to consider
such debarment while considering the listing application. In the instant case, the debarment
was in direct conflict when the norms stipulated for considering the listing agreement. The

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said listing requirements norms were not rectified and consequently the BSE had no option
but to reject the listing application. SAT dismissed the appeal.

3. 24.12.2019 Star India Market Research (Appellant) Securities Appellate

vs. SEBI (Respondent) Tribunal

Penalty imposed by SEBI on violating SEBI (Investment Advisor) Regulations, 2013,

further reduced by SAT keeping in view the financial capability of appellant
SEBI imposed a penalty of Rs. 40 lakh on a SEBI registered Investment Advisor on violation of
Regulation 15, 16 and 17 with Schedule III of the SEBI (Investment Advisor) Regulations, 2013.
The main alleged violations against the appellant are (i) Offering products without considering
the risk profile of the clients (ii) Offering high net-worth individual (HNIs) services to
unsuitable clients (iii) Receiving payments in advance for future services (iv) Charging high
and unreasonable fee from clients. Appellant filed appeal to SAT and appeal was partly
allowed. Though it is admitted fact that the appellant has committed certain violations
however SAT finds that the penalty imposed was too harsh and disproportionate. The
appellant is a small investment advisor with a profit of about Rs. 30 lakh in a year and with a
small amount of net worth. The penalty therefore is reduced from Rs. 40 lakh to Rs. 20 lakh.

4. 17.03.2020 Susheel Somani & Ors. (Appellant) vs. Securities Appellate

SEBI (Respondent) Tribunal

Penalty imposed by SEBI on violating SAST Regulations, further reduced by SAT

considering it a technical breach
Aggrieved by the order of the Adjudicating Officer of the respondent SEBI dated December 27,
2017 imposing a penalty of Rs. 15 lacs for violation of provisions of public announcement of
an open offer under Regulation 3(2) read with Regulation 13(1) of the SEBI (SAST)
Regulations, 2011, the present appeal is preferred.
The appellants contended before the AO that there was no violation of Regulation 3(2) read
with Regulation 13(1) of the SAST Regulations, 2011 since the transfer was inter se between
the promoters, the same was exempted from making a public announcement as provided by
Regulation 10 of the SAST Regulations.
As regard the exemption, the AO found that while Regulation 10 of the SAST Regulations
provides for making disclosures to the stock exchanges and to the company within a period of
two working days. In the present case, the appellants made the disclosures on 7th day as
against the provisions of Regulation 29(3).
[Reg. 29(3) - the disclosures are required to be made within two working days]
Thus, technically the appellants were not exempted from making public announcement and,
thus, are in violation of the relevant regulations. The AO has observed that as the condition of
making disclosures within two working days is not fulfilled, the act was not fit for grant of
exemption. In the circumstances, the penalty was imposed. The appellants made the
disclosures though belatedly after five days as required by Regulation 29 of the SAST
Regulations.

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Thus, it was a technical breach and, therefore, AO instead of imposing a penalty of Rs. 15 lacs,
imposed a penalty of Rs. 5 lacs which would have been just and sufficient. The appeal was
partly allowed.

5. 27.02.2020 Mr. Sandeep Chatterjee (Appellant) Securities Appellate

vs. SEBI (Respondent) Tribunal

Inordinate delay in appeal to Tribunal not allowed

The appellant were directed jointly and severally to refund the money collected through the
issue of non-convertible redeemable secured debentures to the allottees along with interest at
the rate of 15% per annum and were further restrained from associating themselves with any
listed public company for a period of four years or till the date of refund of money to the
allottees. Further, there is a delay of 1181 days in filing the appeal to the tribunal in as much
as the appeal was filed on February 6, 2020.
Accordingly, an application of condonation of delay has also been filed by the appellant. The
Application for condonation of the delay is rejected on account of inordinate delay in
approaching the Tribunal, as a result of which the appeal is also dismissed.

6. 25.02.2020 Zenith Highrise Infracon Ltd., Mr. Securities Appellate

Katyal banerjee (Appellant) vs. SEBI Tribunal
(Respondent)

Once allotment is made to less than fifty allottees by way of private allotment the first
proviso to Section 67(3) clearly makes it a private issue and not a public issue.
The appellant company raised its capital in the financial year 2012-2013 by allotment of
Redeemable Preferential Shares (“RPS”) of Rs. 100 each through private placement, that is, to
friends and relatives of the members/ directors and raised an amount of Rs. 43,04,000 from
47 allottees. A list of the allottees was filed before the Registrar of Companies (ROC). Three
allottees made complaints to SEBI in respect of issue of RPS with regard to non-inclusion of
their names in the list submitted before the RoC. On enquiry of the SEBI it was observed that
the company had raised an amount of Rs. 43,04,000 from 52 allottees whereas the RoC record
showed allotment of RPS to 49 persons. Based on this discrepancy SEBI found that the RPS
was made to 50 persons in violation of Section 67(3) of the Companies Act, 1956 and
consequently the WTM directed the company and its directors to refund the monies collected
through RPS along with interest at the rate of 15% per annum and further restrained the
directors from associating them with any listed company which would operate from the date
of completion of refund to the investors. The appellants being aggrieved by the order of the
WTD of SEBI have filed the appeal. The appeal is allowed on the finding that no evidence has
come forward to show that the company had made a public offer other than these 49 persons.
Once allotment is made to less than fifty allottees by way of private allotment the first proviso
to Section 67(3) clearly makes it a private issue and not a public issue. Consequently, there is
no violation of the provisions of the Companies Act, 2013. Thus, the order of the WTM cannot
be sustained and is quashed. The appeals are allowed.
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7. 12.02.2020 Shruti Vora (Appellant) vs. SEBI Securities Appellate
Respondent) Tribunal

No duty cast upon the Adjudicating Officer to disclose or provide all the documents
which are not relied upon while issuing Show Cause Notice
Appellant (Shruti Vohra) requested to the respondent (SEBI) to be allowed for the full
inspection of other documents obtained during the investigation of the appellant and copies
be supplied thereof. According to appellant, the inspection of the documents was only confined
to the show cause notice and documents relied upon in the show cause notice. The core issue
is whether the appellant is entitled for inspection and for supply of all the documents in
possession of the adjudicating authority including those documents upon which no reliance
has been placed by the Adjudicating Officer (AO) of the SEBI in the show cause notice. SAT
observed that Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry
and Imposing Penalties by 9 Adjudicating Officer) Rules, 1995 does not provide any specific
provision requiring the AO to supply copies of any documents along with the show cause
notice nor requires the AO to furnish any list of documents upon which reliance has been
placed by it. However, the principles of natural justice and doctrine of fair play requires the
AO to supply the documents upon which reliance has been placed at the stage of show cause
notice. Hence, there is no duty cast upon the AO to disclose or provide all the documents in his
possession especially when such documents are not being relied upon.

8. 07.09.2017 Mega Resources Ltd. (Appellant) vs. SEBI Securities Appellate

(Respondent) Tribunal

Ignorance of law will not excuse the appellant to escape the liability of violating the law
The Appellant, Mega Resources Limited, is aggrieved by the order dated 13.08.2014 passed by
the Adjudicating Officer, SEBI imposing a penalty of Rs. 2,00,000/- under Section 15A(b) of the
SEBI Act and Rs. 50,00,000/- under Section 15 H(ii) of the SEBI Act for failure on the part of
the appellant to comply with the provisions of Regulation 7(1) read with Regulation 7(2) and
Regulation 11(1) read with Regulation 14(1) of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.
The appellant has admitted that pursuant to the acquisition of 25000 equity shares through
off-market transactions the shareholding of the Promoters/Promoter Group of the Company
had increased from 50.46% to 60.46% of the Target Company. This triggered Regulation 11(1)
of the erstwhile SAST Regulations along with the requirement of submission of certain
disclosures under Regulation 7(1) and 7(2) of the erstwhile Regulations. It is admitted by the
appellant that the non compliance with the disclosure requirements in respect of acquisition
of shares and failure to make an open offer to the shareholders of the Company was due to lack
of awareness of the erstwhile regulations on the part of the Appellant and purely unintentional
and without any mala fide intentions. However, it is trite law that ignorance of law will not
excuse the appellant to escape the liability of violating the law nor ever absolve the wrongdoer
of his crime or misconduct.
Further, the appellant contended that in the matter of imposition of penalty, the Section
15(H)(ii) of the SEBI Act, 1992 was amended dated October 29, 2002 and the penalty for non-

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disclosure of acquisition of shares and takeovers was enhanced from a maximum of Rs. Five
Lakh to Rs. Twenty Five crore. It is argued that since the violation in Appeal was committed in
February, 2001, the appellant would be governed by the erstwhile provisions of Section
15H(ii) of the SEBI Act, which existed on the date of violation in question.

Judgement : It is true that the maximum monetary penalty imposable for non disclosure of
acquisition of shares and takeovers under the erstwhile SEBI Act on the date of violation by
the Appellant was Rs. Five Lakh and by the amendment dated October 29, 2002 it is up to Rs.
Twenty Five Crore or three times of the amount of profits made out of such failure, whichever
is higher. However, the moot point in this connection to be noted is that as on October 29, 2002
the obligation to make disclosure and public announcement under Regulations 7(1) read with
7(2) and 11(1) read with 14(1) continued. Therefore, because the violation was continued
even after October 29, 2002, the appellant has been rightly imposed penalty under the
amended provisions of Section 15H(ii) of the SEBI Act. Since the punishment imposable now
for such non-disclosure and public announcement is up to Rs. Twenty Five Crore, SAT finds
that the penalty of Rs. Fifty Lakh is just and reasonable and not disproportionate.
The contention of the appellant in this regard is, therefore, liable to be turned down. Therefore,
in the peculiarity of the facts and circumstances of the case and, in particular, the continuity of
the obligation to make disclosure and public announcement, the penalty of Rs. Fifty Lakh is
upheld and the appeal is dismissed.

9. 16.03.2020 G P Shah Investment Private Limited Securities Appellate

& Ors. (Appellant) vs. SEBI Tribunal
(Respondent)

The present appeal has been filed against the order of the Adjudicating Officer, SEBI dated
March 13, 2019 imposing a penalty of 5 crores to be paid by the appellants jointly and
severally, under Section 15H (ii) of the SEBI Act, 1992 for violation of Regulation 3(2) of the
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (“SAST Regulations,
2011” for convenience).
This Tribunal held that the date on which the appellants acquired the shares triggered the
provisions of Regulation 3(2) of the SAST Regulations, 2011 and consequently incurred an
obligation to make a combined public announcement of an open offer for acquiring the shares
of the target company.
Judgement : SAT finds that no relief can be granted to the appellants as AO granted several
opportunities but the appellants chose not to appear or file any reply. In the light of the
aforesaid, SAT are of the opinion that sufficient opportunity was given to the appellants to
contest the matter which they failed to do so. Thus, remanding the matter back to the AO in
the given circumstances does not arise. With regard to the quantum of penalty, SAT finds that
the order of the Whole Time Member (WTM) directing the appellants to make a public
announcement was issued as far back as on July 08, 2013 which after 7 years has not as yet
been complied with. Considering the aforesaid and the admitted violations, SAT did not find
any error in the imposition of penalty imposed by the AO though, under Section 15HB a
maximum penalty of Rs. 25 crores or three times the amount of profits could have been
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imposed. In view of the aforesaid, SAT do not find any merit in the appeal and the same is
dismissed with no order as to costs.

10. 01.12.2014 Vidharbha Industries Ltd. Securities Appellate

(Appellant) vs. SEBI (Respondent) Tribunal

Penalty under Section 15HB of SEBI Act, 1992 for not obtaining SCORES authentication
Appellant is aggrieved by the order passed by Adjudicating Officer (AO), SEBI on August 28,
2014. By that order the penalty of 2 lakh rupees was imposed on the appellant under Section
15HB of the SEBI Act, 1992 on ground that appellant had failed to comply with the
requirements specified in SEBI circular dated April 17, 2013 for SCORES authentication.
Relevant facts are that SEBI had introduced an online electronic system for resolution of
investors grievances i.e., SCORES in the year 2011. For the purpose of accessing the complaints
of the investors against the companies as uploaded in the SCORES, listed companies were
required to log in to SCORES system electronically through a company specific user id and
password to be provided by SEBI.
Where a listed company fails to obtain SCORES authentication within the time stipulated by
SEBI, then it amounts to violating the directions of SEBI and in such a case penalty is imposable
under Section 15HB of SEBI Act which shall not be less than one lakh rupees but which may
extend to one crore rupees.
Thus, in the present case, the AO had imposed penalty of Rs. 2 Lac which cannot be said to be
arbitrary, excessive or unreasonable. Accordingly, the appeal was dismissed with no order as
to costs.

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DIRECT TAX LAWS

1. 16.03.2020 Auto Fuel Centre (Appellant) vs. ITAT Kolkata Bench

JCIT (Respondents)

Whether the repayment of loan in cash in contravention of the provisions of section

269T of the Income Tax Act 1961 will attracts Penalty u/s 271E of the Income Tax Act,
1961?"

The assessee filed its return of income for the A.Y. 2013-14 on 19-09-2013 disclosing total
income of Rs. 1,79,515. An assessment u/s 143(3) of Income Tax Act, 2016 (I.T. Act, 1961) has
been made on 21/03/2016 on a total income of Rs. 2,72,280. The assessing officer noticed that
the assessee had repaid cash loan of Rs. 1,40,000 and 4,40,000 in aggregate to loan creditors
Sri Bijay Guha and Sri Samarendra Sinha Babu respectively, on different dates.

The assessing officer observed that total repayment of loan in cash to the tune of Rs. 5,80,000
(Rs. 1,40,000 + and 4,40,000) was made by assessee during A.Y. 2013-14 which is in
contravention of the provisions of section 269T of the I.T. Act, 1961,which attracts Penalty u/s
271E of the I.T. Act, 1961. Therefore, AO issued notice to the assessee u/s 271E of the I.T. Act
1961.

The assessee replied that entire round of transactions took place within the relatives and
friends of the family and he had made repayment of the money to the persons who were in
dire need of funds on those days, in order to enable them to carry on their business. Further,
the transactions of repayment of loan in question in the instant case are genuine and bona fide,
therefore the penal proceedings u/s 271E of the I.T. Act, 1961 should not be initiated.

However, the assessing officer rejected the contention of the assessee and imposed the penalty
of Rs. 5,80,000 u/s 271E of the I.T. Act 1961 for violation of provisions of section 269T of the
I.T. Act 1961.

Judgement : The Income Tax Appellate Tribunal (ITAT) head that the provisions of section
271E of the Income Tax Act, 1961 lays down conditions for imposition of penalty for
repayments of loans and deposits in cash, where the amount exceeds Rs. 20,000 in violation of
section 269SS of the Act. Considering the fact that this provision is brought in for identification
of source for repayment, there should not be any levy of penalty where the persons are
otherwise properly identified and the transactions are genuine, because there can be no
attempt to evade tax, where the identities of the persons dealt with are known. In the instant
case, the repayment of advances from regular parties are identifiable and the assessee has
explained the circumstances in which it was constrained to make the repayment of the loans
in question in cash. That being so, the penalty imposed in the sum of Rs. 5,80,000 on repayment
of advances from two persons should be deleted, hence the penalty of Rs. 5,80,000 is deleted.

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2. 15.12.2017 Justice K.S. Puttaswamy (RETD.) Supreme Court of
(Appellant) vs. Union of India India
(Respondents)

Whether linking of Aadhaar number with PAN u/s 139AA of the Income Tax Act, 1961
were not examined in the context of privacy rights enshrined in Article 21 of the
Constitution.
The Finance Act, 2017 inserted a new section 139AA in the Income-Tax Act, 1961. With effect
from July 1, 2017 this provision requires every eligible person to link the Aadhaar no. with
PAN and quote the Aadhaar number in the Income-Tax Return (ITR). If any person does not
possess the Aadhaar Number but he has applied for the Aadhaar card then he has to quote
Enrolment ID of such Aadhaar application in the ITR.
Judgement: The Supreme Court had already upheld the validity of Section 139AA of the
Income Tax Act, 1961 by repelling the contention raised on Articles 14 and 19 of the
Constitution of India in the case of Binoy Viswam v. Union of India [2017]. However, Section
139AA of the Income Tax Act, 1961 was not examined in the context of privacy rights
enshrined in Article 21 of the Constitution. The Supreme Court in the case of K S Puttaswamy
v. Union of India writ petition (civil) no 494 of 2012 held that, though privacy is a fundamental
right, yet it is not an absolute right and is subject to certain limitations. The following are the
triple tests which need to be satisfied for judging the permissible limits for invasion of privacy
while testing the validity of any legislation:
a) Existence of a law
b) Legitimate State interest
c) Test of Proportionality
The first requirement stands satisfied as section 139AA of the Income Tax Act, 1961 is a
statutory provision and, therefore, there is a backing of law. Insofar as requirement of
‘legitimate State interest’ is concerned, Section 139AA of the Income Tax Act, 1961 seeks to
safeguard the following interest:
“To prevent income tax evasion by requiring, through an amendment to the Income Tax Act,
that the Aadhaar number be linked with the PAN.”
Regarding the aspect of proportionality, there was specific discussion on that aspect in
BinoyViswam’s case (supra) as well. Therefore, the provision of Section 139AA of the Income
Tax Act, 1961 has successfully met the triple test of right to privacy.

3. 06.06.2018 MasterCard Asia Pacific Pte. Ltd. AAR RULING

Whether MasterCard shall have a Permanent Establishment (PE) in India and its fees
for processing card payments taxable as business income?
The Applicant, MasterCard Asia Pacific, is a Singaporean company engaged in processing of
electronic payments. Customers are provided with a MasterCard Interface Processor (MIP)
that connects to MasterCard's Network and processing centres. Indian subsidiary owns and
maintains MlPs placed at Customers' locations in India. The applicant approached the
Authority for Advance Ruling (AAR) to decide if it had a PE in India.

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RULING : The Authority for Advance Rulings held that MasterCard has a PE in India under
provisions of Article 5 of India-Singapore Double Tax Avoidance Agreement (DTAA) in respect
of services rendered with regard to use of a global network and infrastructure to process card
payment for Customers in India. It was held that the applicant has fixed place PE, service PE
and dependent agency PE in India.
The applicant was held to have a PE in India because the MIPs in India play a crucial role while
facilitating the authorization of payment. AAR concluded that the preliminary verification of
payment request and transmission of data, which is crucial to authorization, happens in India
through MIP. These initial verification and validation of details are important and are crucial
functions in the context of overall functions performed by the applicant to facilitate
authorization. These functions cannot be called preparatory or auxiliary in nature.

4. 03.04.2018 Godaddy.com LLC (Appellant) v. ACIT ITAT

(Respondents)

Whether Domain registration fee received by 'GoDaddy' is taxable as royalty?

The assessee-co. was engaged as accredited domain name registrar authorized by Internet
Corporation for Assigned Names and Numbers. The assessee had income from domain
registration fees which was claimed to be not taxable in India. However, the Assessing Officer
assessed the same as royalty, which was confirmed by the Dispute Resolution Panel (DRP).
The aggrieved-assessee filed the instant appeal before the ITAT. It was submitted by assessee
that it merely facilitated getting domain registered in the name of the customer who paid for
availing of such services. Hence, the receipt in respect of domain name registration was not in
the nature of royalty under Explanation 2 to section 9 of the Income Tax Act, 1961.
Judgement: The ITAT ruled in favour of revenue on basis of a judgment delivered by the Apex
Court in the case of Satyam Infoway Ltd. v. Siffynet Solutions (P.) Ltd. AIR 2004 SC 3540. In the
instant case, the Supreme Court held that the domain name is a valuable commercial right and
has all the characteristics of a trademark and, accordingly, domain names are subject to legal
norms applicable to trademarks.
Thus, the rendering of services for domain registration was equivalent to rendering of services
in connection with the use of an intangible property which was similar to trademark.
Therefore, charges received by the assessee for said services in respect of domain name was
royalty as per Explanation 2 to section 9(1)(vi) of the Income Tax Act, 1961.

5. 10.08.2018 Sachin R. Tendulkar (Appellant) v. DCIT ITAT Mumbai

(Respondents) Bench

Whether assessee entitled to vacancy allowance if he failed to find tenant for vacant flat?
The Assessee owned two properties in Pune – Flat S and Flat T. Flat T was let out, however,
Flat S was vacant for the whole year as suitable tenant couldn’t be found. He claimed that the
said flat had remained vacant throughout the year despite his reasonable effort to let out the
same. In this regard, he submitted three letters written to the builder. In first letter, he thanked
the builder for identifying the tenant for the flat at Flat T and also requested to identify tenant

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for Flat S. Subsequently, the assessee had written second letter and after that third letter being
reminders for identifying the tenant to let out Flat S.
Therefore, he claimed vacancy allowance under Section 23(1)(c) for Flat S and declared nil
income. During the course of assessment proceedings, the Assessing Officer made additions
for the notional rental income from Flat S, which was also upheld by the CIT(A).
Judgement : The ITAT held in favour of assessee when same builder had helped the assessee
to find tenant for another flat, it couldn’t be said that these letters to the same builder to help
him identify one more tenant, to be considered as fake, defied logic. Therefore, if a property
was held with an intention to let out in the relevant year coupled with efforts made for letting
it out, the same would fall within the purview of section 23(1)(c) of the Income tax Act, 1961.

6. 19.02.2020 Ananda Social and Educational Trust Supreme Court of

(Appellant) vs. The Commissioner of Income India
Tax (Respondents)

Whether High Court erred in holding that newly registered Trust was entitled for
registration under Section 12AA of Income Tax Act, 1961 Act on basis of its objects,
without any activity having been undertaken?
The Trust was formed as a society and it applied for registration. No activities had been
undertaken by the Respondent Trust before the application was made. The Commissioner
rejected the application on the sole ground that since no activities have been undertaken by
the Trust, it was not possible to register it, presumably because it was not possible to be
satisfied about whether the activities of the Trust are genuine. The Income Tax Appellate
Tribunal reversed the orders of the Commissioner. The Revenue Department approached the
High Court by way of filing an appeal. The High Court upheld the order of the Tribunal and
came to the conclusion that in case of a newly registered trust even though there were no
activities, it was possible to consider whether the Trust could be registered under Section
12AA of the Act.
Judgement : The purpose of Section 12AA of the Act is to enable registration only of such trust
or institution whose objects and activities are genuine. In other words, the Commissioner is
bound to satisfy himself that the objects of the Trust are genuine and that its activities are in
furtherance of the objects of the Trust that is equally genuine.
Since Section 12AA pertains to the registration of the Trust and not to assess of what a Trust
had actually done, the term activities in the provision includes proposed activities. That was
to say, a Commissioner was bound to consider whether the objects of the Trust were genuinely
charitable in nature and whether the activities which the Trust proposed to carry on were
genuine in the sense that they were in line with the objects of the Trust. In contrast, the
position would be different where the Commissioner proposes to cancel the registration of a
Trust under Sub-section (3) of Section 12AA of the Act. There the Commissioner would be
bound to record the finding that an activity or activities actually carried on by the Trust were
not genuine being not in accordance with the objects of the Trust. Similarly, the situation
would be different where the Trust has before applying for registration found to have
undertaken activities contrary to the objects of the Trust.
Therefore the view of the High Court in the impugned judgment was correct and liable to be
upheld.

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7. 05.03.2020 Commissioner of Income Tax, Udaipur (Appellant) Supreme

vs. Chetak Enterprises Pvt. Ltd. (Respondents) Court of India

Whether Assessee-Company qualified for deduction under Section 80-IA of Income Tax
Act, 1961 in case of Firm was converted into private limited company.
The erstwhile partnership firm entered into an agreement with the Government of Rajasthan
for construction of road and collection of road/toll tax. The construction of road was
completed by the said firm and the same was inaugurated. The firm was converted into a
private limited company. On conversion of the firm into company, an intimation was given to
the Chief Engineer (Roads). The said authority noted the change and cancelled the registration
of the firm and granted a fresh registration code to the Assessee-Company. The road was
inaugurated and the Assessee-Company started collecting toll tax. For the relevant assessment
year, the Assessee-Company claimed deduction under Section 80-IA of the Income Tax Act,
1961. The assessing officer declined that claim of the Assessee-Company, which decision was
reversed by the Commissioner. The Income Tax Appellate Tribunal confirmed the decision of
the first appellate authority. As a result, the Department preferred an appeal before the High
Court. The High Court held that Respondent/Assessee-Company qualified for the deduction
under Section 80-IA of Act.
Judgement : For the purpose of considering compliance of Clause (a) of Section 80-IA(4)(i),
the Assessee must be an enterprise carrying on business of developing, maintaining and
operating or developing, maintaining and operating any infrastructure facility, which
enterprise was owned by a company registered in India. That stipulation was fulfilled in the
present case, as the registered firm was converted into a company under Part IX of the
Companies Act, which was before the commencement of Assessment Year. For the assessment
year under consideration, the activity undertaken by the Assessee was only maintaining and
operating or developing, maintaining and operating the infrastructure facility, in as much as,
the construction of the road was completed and the same was inaugurated, whereafter toll tax
was being collected by the Assessee-Company.
As regards Clause (b) of Section 80-IA(4)(i), the requirement predicated is that the Assessee
must have entered into an agreement with the Central Government or a State Government or
a local authority or any other statutory body for developing, maintaining and operating or
developing, maintaining and operating a new infrastructure facility. In the present case, the
agreement was initially executed between the erstwhile partnership firm and the State
Government, but with clear understanding that as and when the partnership firm was
converted into a company, the name of the company in the agreement so executed be recorded
recognising the change. Notably, the agreement itself mentions that the erstwhile partnership
firm as party to the agreement was meant to include its successors and assignee. Further, the
State Government had granted sanction to the company and the original agreement entered
into with the firm automatically stood converted in favour of the Assessee-Company, which
came into existence being the successor of the erstwhile partnership firm. Thus understood,
even the stipulation in Clause (b) of Section 80-IA(4)(i) was fulfilled by the Assessee-Company.
Since these were the only two issues which weighed with the assessing officer to deny
deduction to the Assessee-Company as claimed under Section 80-IA of the Income Tax Act
1961, the first appellate authority was justified in reversing the view taken by the assessing
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officer. For the same reason, the Tribunal, as well as, the High Court had justly affirmed the
view taken by the first appellate authority, holding that the Respondent/Assessee-Company
qualified for the deduction under Section 80-IA being an enterprise carrying on the stated
business pertaining to infrastructure facility and owned by a Company registered in India on
the basis of the agreement executed with the State Government to which the
Respondent/Assessee-Company had succeeded in law after conversion of the partnership firm
into a company.

8. 04.03.2020 Cognizant Technology Solutions India Pvt. Supreme Court of

Limited (Appellant) vs. Dy Commissioner of India
Income Tax, Large Tax Payer Unit-1
(Respondents)

Whether communication by department was in the nature of determination of the

liability?
The Appellant was engaged in the business of development of computer software and related
services. The Appellant approached the High Court with a Scheme of Arrangement and
Compromise to buy-back its shares. The High Court sanctioned the Scheme in Company
Petition, pursuant to which the Appellant purchased shares from its four shareholders and
made a remittance. Thereafter, the Appellant made statutory filing under Form 15 CA after
obtaining requisite certificate from a Chartered Accountant in Form 15CB furnishing details of
remittances made to non-residents. A letter was received by the Appellant from the Deputy
Commissioner of Income Tax in connection with non-payment of tax on the remittances made
to the non-residents. Later, a communication was addressed by the Department to the
Appellant that the payments made to the shareholders, under purchase of shares through the
scheme of arrangements and compromise, was a dividend within the meaning of Section
2(22)(d) and 2(22)(a) of the Income Tax Act, 1961, requiring to remit the taxes in to the
government account under Section 115-O of the Income Tax Act 1961. Further, since the
company had failed to remit the taxes within the stipulated period, the company was deemed
to be an Assessee in default, under Section 115-Q of the Act. Therefore the Assessee Company
was required to remit the taxes. An application was preferred by the Appellant before the
Authority for Advance Ruling (AAR) under Section 245Q of the Income Tax Act, 1961 seeking
a ruling on the issue whether the Appellant was liable to pay tax on buy-back of its shares
under Section 115QA or Section 115-O Income Tax Act, 1961 or any other provision of the Act.
The Appellant challenged the communication by filing Writ Petition in the High Court
submitting inter alia that while the issue was pending before the AAR under Section 245Q of
the Income Tax Act, 1961, in view of the bar provided under Section 245RR of the Income Tax
Act, 1961, the matter could not have been considered. The Single Judge dismissed the Writ
Petition as not being maintainable and relegated the Appellant to avail the remedy before the
Appellate Authority under the Act. The Single Judge did not find any merit in the contention
that the shares purchased pursuant to the order of the Company Court could not be treated as
dividend. The Appellant, being aggrieved, challenged the aforesaid view by filing Writ Appeal
before the Division Bench which was dismissed.
Judgement : On the issue whether communication by department was in the nature of
determination of the liability, both the Counsels were heard at considerable length, at the end
of which it was agreed by the Department, that the communication could be treated as a show
cause notice and the Department be permitted to conclude the issue within a reasonable time,
CASE SNIPPETS | MAY 2020 19
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provided the interim order passed by the Single Judge of the High Court was continued. The
course suggested by the Counsel for the Department was acceptable to the Counsel for the
Appellant.
It was, therefore, suggested that the Appellant may file an affidavit of undertaking to withdraw
the proceedings initiated by it before the AAR and the Department may also file an appropriate
affidavit stating that it was willing to treat the communication as a show cause notice. An
appropriate affidavit of undertaking to withdraw the proceedings initiated before the AAR had
since then been filed by the Appellant.

9. 25.01.2018 Dhananjay Kumar Singh (Appellant) vs. High Court (Patna)

Assistant Commissioner of Income Tax
(Respondents)

Whether the order passed by the Assessing Officer hastily without considering the
documents and other materials on record is valid?
The Assessing Officer passes an order in a haste to meet the time limit for passing the
assessment order without considering the relevant documents or information produced by
the assesse before him/her.
Judgements : The Hon'ble High Court held that it is a cardinal principle of law that if relevant
materials and objections are produced before a quasi-judicial authority, the quasi-judicial
authority is duty-bound, under law to advert to consider the same, discuss them and then
reject it by recording reasons. Therefore, the Hon'ble Court remanded the matter back holding
the order as perverse based on his ipse dixit (assertion without proof) and in violation to the
principles of natural justice.
Therefore, the Assessing Officer is duty bound to consider all the submissions made before
him.

10. 12.03.2018 ITO (Appellant) vs. Venkatesh Premises Supreme Court of

Co-Operative Society Ltd. (Respondents) India

Whether certain receipts by co-operative societies, from its members i.e. non-
occupancy charges, transfer charges, common amenity fund charges and certain other
charges, are exempt from income tax based on the doctrine of mutuality.
Judgement : The Hon'ble Apex Court held that the income of a co-operative society from
business is taxable under Section 2(24)(vii) Income Tax Act, 1961 and will stand excluded
from the principle of mutuality. The essence of the principle of mutuality lies in the
commonality of the contributors and the participants who are also the beneficiaries. The
contributors to the common fund must be entitled to participate in the surplus and the
participators in the surplus are contributors to the common fund. The law envisages a
complete identity between the contributors and the participants in this sense. The principle
postulates that what is returned is contributed by a member. Any surplus in the common fund
shall therefore not constitute income but will only be an increase in the common fund meant
to meet sudden eventualities. A common feature of mutual organizations in general can be
stated to be that the participants usually do not have property rights to their share in the
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common fund, nor can they sell their share. Cessation from membership would result in the
loss of right to participate without receiving a financial benefit from the cessation of the
membership. It was finally held that the surplus, if any, from the business was not shared by
the members but was used for providing better facilities to the members and therefore, not
taxable.
The doctrine of mutuality is premised on the theory that a person cannot make a profit from
himself. An amount received from oneself, therefore, cannot be regarded as income and
taxable.
Therefore, amount of surplus which is to be used for the common benefit of members cannot
be taxable due to the Principal of Mutuality.
Source:
1. Taxmann
2. Manupatra

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INDIRECT TAX LAWS

1. 21.04.2020 Mahadeo Construction Co. (Appellant) vs. Jharkhand High Court

Union of India (Respondents)

Interest liability cannot be recovered under section 79 of CGST Act, 2017 without
initiation of adjudication proceeding in the event assess disputes the computation or
very leviability of interest/issuance of Show Cause Notice.
The issues involved in the present writ application were, namely—
(i) Whether interest liability under Section 50 of the Central Goods and Services Tax Act,
2017 (‘CGST Act’) can be determined without initiating any adjudication process
either u/s 73 or 74 of the CGST Act in the event of an assessee raising dispute towards
liability of interest?
(ii) Whether garnishee recovery proceedings u/s 79 of the CGST Act can be initiated for
recovery of interest u/s 50 of the said Act without initiation and completion of the
adjudication proceedings under the Act?
Judgement : The honorable Jharkhand High Court held that interest liability under section 50
of the CGST Act, 2017 is although automatic, but it’s computation and demand can be raised
only after initiation of Adjudication proceedings under Section 73 or 74 of the CGST Act, 2017
in case the assessee disputes the demand of interest.
Garnishee proceedings under Section 79 of the CGST Act, 2017 cannot be initiated for recovery
of interest without adjudicating the liability of interest, when the same is admittedly disputed
by the assessee.

2. 09.04.2020 Choe Jae Won (Appellant) vs. Principal Madras High Court
Secretary to the Government
(Respondents)

High Court refuses release of Korean Nationals arrested for GST non-payment.
Choe Jae Won came up with the present Writ Petitions seeking to release them from the Special
Camp at Tiruchirapalli and allow them to stay at Belchem 804, Hiranandini Post, Oragadam,
Kancheepuram, due to the prevailing pandemic, based on their representations dated 2. March
2020.
Finding justification in the plea made by the learned Government Pleader and considering the
fact that, several Non-Bailable Warrants have already been issued to the Petitioners and that,
there is every possibility of the Petitioners fleeing away from the clutches of Law, the Court
while declining the relief sought by the Petitioners, without prejudice to the rights of the
parties in the pending Habeas Corpus Petitions, directs the learned Additional Chief
Metropolitan Magistrate (Economic Offences-I), Egmore, Chennai to take up the case in
C.C.No.1 of 2020, after normalcy is restored post COVID-19 lockdown, and proceed with the

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same on a day-to-day basis, without adjourning it beyond ten working days at any point of
time.
Judgement : High Court refused release of Korean Nationals arrested for GST non-payment.
The High Court of Madras had denied the bail application of two Korean Nationals who were
alleged of not settling the GST collection to the government. The court feared that they might
intend flight risk without the payment of GST collection.

3. 17.03.2020 Assistant Commissioner of State Tax National Anti-

(Appellant) vs. N. Rai Delights LLP Profiteering
(Respondents) Authority (NAA)

Anti-profiteering provisions to apply in cases where commensurate benefits are not

passed in respect of each supply at invoice level
Where a respondent supplier has not passed on the benefit of tax rate reduction by way of a
commensurate reduction in prices on each of his supplies at the level of each invoice, anti-
profiteering provisions will apply. Increase or decrease in cost of supplier due to royalty,
advertisement costs etc. has no relevance in so far as the provisions of anti-profiteering are
concerned.
Judgement : National Anti-Profiteering Authority (NAA) found ‘subway Franchisee’ guilty of
Profiteering for Non-Passing of GST Rate Reduction Benefit and Hiking Food Price.
Confirming the penalty on the restaurant, the NAA held that “It has been revealed from the
DGAP‘s Report that the Input Tax Credit (ITC) which was available to the Respondent during
the period July 2017 to October 2017 is 6.32% of the net taxable turnover of restaurant
services supplied during the same period. With effect from 15.11.2017, when the GST rate on
restaurant service was reduced from 18% to 5%, the ITC was not available to the Respondent.
It has been found that the Respondent had increased the base prices of different items by more
than 6.32% i.e. by more than what was required to offset the impact of denial of ITC, supplied
as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and
on comparison of pre and post GST rate reduction prices of the items sold in respect of items
sold.”
Accordingly, the quantum of profiteering has been computed as Rs. 1,49,896/- as per the
DGAP's Report.
Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule
133 (3) (a).
Respondent has committed an offence and therefore is liable for the imposition of penalty
under the provisions of the Section 171 (3A).

4. 13.03.2020 State Tax of officer (Appellant) vs. M/s National Anti-

Bonne Sante (Respondents) Profiteering
Authority (NAA)

Benefit of Tax Reduction includes both Base Price and Tax amount.
The Respondent has further contended that the Directorate General of Anti-profitteering
(DGAP), while calculating the profiteered amount, was wrongly added a 5% notional amount
without explaining any reasons and hence, the profiteered amount be reduced appropriately.
CASE SNIPPETS | MAY 2020 23
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Judgement : NAA held that Benefit of Tax Reduction includes both Base Price and Tax amount.
Section 171(1) of CGST Act, 2017 “Any reduction in rate of tax on any supply of goods or services
or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in
prices.” Thus, the legal requirement as per the above provisions was abundantly clear that in
the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate
reduction in the prices of the goods or services being supplied by a registered person and the
final price being charged for each supply had to be reduced commensurately with the extent
of the benefit and there was no other legally tenable mode of passing on such benefit of rate
reduction or ITC to the recipients/consumers.

5. 22.01.2020 Vimal Raj (Appellant) vs. State Tax Kerala High Court
Officer (Respondents)

Assessment order passed under GST after death was invalid.

Validity of order passed against a deceased – Section 93 of CGST Act, 2017 not followed –
service of Show cause Notice. Assessment order passed under GST after death was invalid.
Assessee was already dead as on the date of assessment order and therefore, the assessment
orders is a nullity and no other issues are decided by this Court and such other issues are left
open. Legal representatives or legal heirs of the said deceased assessee would be given
reasonable opportunity of being heard.
Judgement : It appears that the respondent does not raise any serious dispute as to the factual
assertion made by the petitioner that the assessee concerned (who appears to be the paternal
grandfather of the petitioner herein) is said to be one of the legal hairs of the deceased assessee
as the petitioner’s father who is the son of the assessee has died as early as on 27.03.2018 as
evident from Ext.P3 death certificate issued by the Registrar of Births and Deaths, which is
much before the rendering of the impugned Ext.P3 series of the assessment orders issued in
March 2019 – Since, that appears to be the undisputed position, it is only to be held that Ext.P3
series of assessment orders rendered as late as in March, 2019 has been passed as against an
assessee who is already dead by then and therefore, the impugned assessment orders is a
nullity in the eye of law.
The 1strespondent will be at liberty to take fresh action in the said assessment proceedings,
after ascertaining from the competent Revenue Officials as to who all are the legal
representatives or legal heirs of the said deceased assessee and then the respondent will be at
liberty to render reasonable opportunity of being heard to such legal representatives and then
finalise the assessment proceedings in the manner known to law.
Petition disposed off.

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6. 14.02.2020 Nodal Officer (Appellant) vs. GST Council Gujarat High Court
(Respondents)

Filing of GST TRAN-1 allowed which cannot be filed despite efforts due to Technical
Glitches
The respondents herein had tried to upload form GST TRAN-1, but it could not be filed on
account of technical glitches in terms of poor network connectivity and other technical
difficulties at common portal. Under the circumstances, this Court has gone into the question
that in such circumstances what would be the remedy if a person who tries to follow Rule 117
of the CGST Rules, 2017 but, without there being any fault on his side he could not upload the
form due to technical glitches. This Court had directed the applicants herein – original
respondents to permit the respondents herein – original petitioners to allow filing declaration
form in GST TRAN-1 and GST TRAN-2, so as to enable them to claim transitional credit of the
eligible duties in respect of the inputs held in stock on the appointed day in terms of Section
140(3) of the GST Act.

7. 13.09.2019 Kamlesh Suvalal Soni (Appellant) vs. State Gujarat High Court
of Gujarat (Respondents)

GST defaulter can be released on conditional bail on bond with sureties.

In the given case, the applicant was facing charges under Sections 132(1)(b) and 132(1)(c) of
the Central Goods and Services Tax Act, 2017, for which maximum sentence is of five years.
Hence the applicant wanted to apply for regular bail. The applicant was ready and willing to
file an undertaking to the effect that he shall not transfer or alienate or in any manner create
third party rights over those immovable properties which belong to him and shall also supply
the details of all the immovable properties belonging to the applicant to the Directorate
General of GST Intelligence, Zonal Unit, Ahmedabad.
Judgement: Considering the offence as alleged in the FIR and also considering the nature of
allegations made in the FIR, High Court was of the opinion that this is a fit case to exercise the
discretion to enlarge the applicant on bail. Hence, the application is allowed and the applicant
is ordered to be released on bail.

8. 6.11.2019 Maturu Panchakshari (Appellant) vs. Andhra Pradesh High

Assistant Commissioner of State Tax Court
(Respondents)

Manual Filing of Tran – 1 allowed or open GST portal even after expiry date because the
appellant faced technical glitches with GST portal
The GST regime which came into effect from 01.07.2017 repealed a host of indirect taxes
which were previously in force. Section 140 of SGST Act provides for transfer of the amount of
Value Added Tax Credit carried forward under the APVAT Act, 2005 to the GST regime.
Rule 117 of the SGST Rules prescribed a period of 90 days from the appointed day to file Form
GST TRAN-1 mentioning the amount of transitional Input Tax Credit claimed by the
registered person. The Form GST TRAN-1 is to be filed electronically on the common portal
within the time fixed in the Rule initially or extended by notifications.
CASE SNIPPETS | MAY 2020 25
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The prescribed period of 90 days from the appointed day expired on 29.09.2017 and
thereafter, it was being extended from time to time. The claim of the petitioner was that
initially, it tried to upload the details of the VAT credit in Form TRAN-1 on 27.12.2017 but the
same could not be uploaded due to some technical errors. As the time fixed for filing the GST
TRAN-1 electronically expired, the petitioner approached the authorities to submit the
application manually but the authorities have not taken any action on the same.
This Writ Petition is disposed of directing the respondents to either open the portal to enable
the petitioner to again file the Form GST TRAN-1 electronically or in the alternative, accept the
Form GST TRAN-1 presented manually, on or before 31.12.2019. It is needless to say that the
petitioner’s claim shall be processed in accordance with law.

9. 28.03.2018 In re R. K. Gupta, Partner M/s Deepak & Co. Authority for Advance
Ruling Delhi

Supply of food and beverages in trains to be considered as supply of ‘Goods’

The applicant has entered into agreements with IRCTC/Indian Railways, for supply of food and
beverages (packed/ MRP/ cooked) to the passengers of Rajdhani Trains as also Mail/ Express
Trains. Pursuant to these agreements, the applicant is engaged in supplying of food on board
the trains to the passengers travelling on these trains vide the menu approved by the Indian
Railways/ IRCTC. Likewise, the applicant is also engaged in supply of food items to
passengers/ public through food plaza/ food stall on the railway station.
Judgement
 In the case of supply of food and beverages (cooked/ MRP/ packed), at defined menu
and tariff, by the applicant to IRCTC/ passengers on behalf of IRCTC, on board the
Rajdhani/ Duronto Express trains, the service charges are covered under Service Code
(Tariff) 996335 in Group 99633 of heading 9963 of Annexure/ Scheme of Classification
of Services as “catering services in train”. The same are covered under S. No. 7 (ix)
of Notification No. 11/2017 — Central Tax (Rate) dated 28.06.2017 as amended
vide Notification No. 46/2017 — Central Tax (Rate) dated 14.11.2017 and parallel
Notifications of IGST and Delhi GST. A train is a mode of transport and hence cannot be
called as a restaurant, eating joint, mess or canteen etc. and hence catering services
provided on-board a train are not covered under S. No. 7 (i) of the said Notifications as
claimed by the applicant. The supply of goods i.e. food, bottled water etc. shall be
charged to GST on value of goods (excluding the service charges) at applicable rates as
pure supply of goods, as the same have no element of service. The supply of newspaper
is separately invoiced and hence it shall be at `Nil” GST under S. No. 120 of Notification
No. 2/2017 — Central Tax (Rate) dated 28.06.2017 and parallel Notifications of
IGST and Delhi GST.
 In the case of supply of food and beverages (cooked/ MRP/ packed) on board the Mail/
express trains by the applicant directly to the passengers as per the menu/ rates fixed
by IRCTC/ Railways does not have any element of service and hence the same shall be
considered as pure supply of goods and GST shall be charged on individual items at
their respective applicable rates. The benefit of S. No. 7 of Notification No. 11/2017 —
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Central Tax (Rate) dated 28.06.2017 vide Notification No. 46/2017 — Central Tax
(Rate) dated 14.11.2017; amendment made in Notification No. 8/2017- Integrated
Tax (Rate) dated 28.06.2017 vide Notification No. 48/2017 — Central Tax (Rate)
dated 14.11.17; amendment made in Notification No. 11/2017 — State Tax (Rate)
dated 30.06.2017 vide Notification No. 46/2017 — State Tax (Rate) dated 28.11.17 are
not admissible to the applicant.
 The supply of food and beverages (cooked/ MRP/ packed) by the applicant to the
passengers/ general public at the rates fixed by the Indian Railways/ IRCTC at food
stalls at Railway platforms does not have any element of service and hence the same
shall be considered as pure supply of goods and GST shall be charged on individual
items at their respective applicable rates. The mere heating/ cooling of beverages or
similar other services are incidental and minimal required to supply of goods and such
supply cannot be called composite supply. The benefit of S. No. 7 of Notification No.
11/2017 — Central Tax (Rate) dated 28.06.2017 vide Notification No. 46/2017 —
Central Tax (Rate) dated 14.11.2017; amendment made in Notification No.
8/2017- Integrated Tax (Rate) dated 28.06.2017 vide Notification No. 48/2017 —
Central Tax (Rate) dated 14.11.17; amendment made in Notification No. 11/2017 —
State Tax (Rate) dated 30.06.2017 vide Notification No. 46/2017 — State Tax (Rate)
dated 28.11.17 are not admissible to the applicant.
 For the supply of food (Cooked/ MRP/ Packed) in food plaza, the relevant document
pertaining to details of items supplied, pricing detains, extent of services provided are
not submitted. Hence, no ruling can be given in respect of supply from Food Plaza on
the Railway Platform

10. 21.08.2018 In re M/s Coffee Day Global Ltd Authority for Advance
Ruling Karnataka

Supply of Goods by Cafe Coffee Day to SEZ units will not be treated as Zero rated supply
The applicant, Café Coffee Day, was engaged in supply of non-alcoholic beverages to SEZ units
using coffee vending machines. It contended that all supplies to SEZ, without any distinction,
to be treated as zero-rated supplies. The applicant was of the view that the supplies made by
CCD to the SEZ units are in the nature of zero rated supplies, notwithstanding fact that they
are not used for authorized operations.
Judgement: The Authority for Advance Ruling observed that IGST ACT provides same
meaning to SEZ which is assigned to it in the Special Economic Zones Act, 2005. SEZ Act also
provides that the operations to be carried out in the Special Economic Zone and also in the
units located therein have to be in accordance with the authorization to be given by the Central
Government. It is also observed by the AAR that the rule relating to refund under GST Act
stipulates that the supply, in respect of which tax has been paid and refund is sought, shall be
necessarily for authorized operations. Therefore, it is decided that the supply of non-alcoholic
beverages/ingredients, to SEZ units using coffee vending machines by the applicant, would not
qualify as zero rated supply.
Source:
3. TaxGuru
4. Manupatra

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ENVIRONMENT LAWS

1. 08.05.2020 Gas Leak at LG Polymers Chemical Plant in National Green

RR Venkatapuram Village Visakhapatnam Tribunal, Principal
in Andhra Pradesh, Original Application Bench
No. 73/2020,

Vishakhapatnam Gas Leak: National Green Tribunal directs LG Polymers India Pvt.,
Limited to forthwith deposit an initial amount of Rs. 50 Crore, with the District
Magistrate, Vishakhapatnam.

National Green Tribunal, Principal Bench noted that Styrene gas is a hazardous chemical as
defined under Rule 2(e) read with Entry 583 of Schedule I to the Manufacture, Storage and
Import of Hazardous Chemical Rules, 1989. The Rules require on-site and off-site Emergency
Plans to ensure prevention of damage. There appears to be failure to comply with the said
Rules and other statutory provisions. Leakage of hazardous gas at such a scale adversely
affecting public health and environment, clearly attracts the principle of ‘Strict Liability’
against the enterprise engaged in hazardous or inherently dangerous industry. Such an entity
is liable to restore the damage caused under the Environment Law, apart from other statutory
liability. The statutory authorities responsible for authorizing and regulating such activities
may also be accountable for their lapses, if any, in dealing with the matter. It is also necessary
to ensure that all necessary steps are taken to prevent recurrence of such an incident. Without
prejudice to any other proceedings, this Tribunal has to perform its statutory obligation of
providing relief and compensation to the victims of “environmental damage”, as statutorily
enacted, and restitution of damaged property and environment. With a view to deal with the
issue, it is necessary to ascertain the facts relating to the extent of damage, extent of failure
and consider remedial measures. The affected parties have to be given the opportunity of
being heard.
Having regard to the prima facie material regarding the extent of damage to life, public health
and environment, we direct LG Polymers India Pvt., Limited to forthwith deposit an initial
amount of Rs. 50 Crore, with the District Magistrate, Vishakhapatnam, which will abide by
further orders of this Tribunal. The amount is being fixed having regard to the financial worth
of the company and the extent of the damage caused.

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ARBITRATION ACT

1. 12.05.2020 Spentex Industries vs. Quinn Emanuel High Court of Delhi

Urquhart & Sullivan

According to Sections 44 & 45 Arbitration Act, relationship of a foreign law firm and a
client is in 'commercial in nature'.

Essentially, the defendant has initiated arbitration proceedings for his outstanding fees. The
defendant being a law firm was advising and acting for the plaintiff subsidiary. It was to be
paid for the services as agreed upon. It cannot be urged that such an agreement was completely
bereft of elements of commerce. The claim of the law firm is that the plaintiff have defaulted
in paying its professional charges and other aspects. The claim does not relate to professional
issues. As the proceedings are substantially for recovery of money, the same would
tantamount to a commercial relationship as per section 45 of the Arbitration Act. Hence,
the plea of the learned counsel for the plaintiff that section 44 and 45 of the act are not
attracted is a plea without merits.

2. 20.04.2020 GTPL Hathway Ltd. vs. Strategic High Court of Gujarat

Markering Pvt. Ltd. R/Special Civil
Application No. 4524 of 2019.

In order passed during arbitration proceedings by the Arbitration Tribunal cannot

be challenged under Articles 226 and 227 of the Constitution of India

In view of aforesaid settled legal proposition , considering the policy, object and the
provisions of the Act, 1996, an order passed during arbitration proceedings by the Arbitration
Tribunal cannot be challenged under Articles 226 and 227 of the Constitution of India as
the Act, 1996 is a special act and a self-contained code dealing with arbitration. Therefore,
the impugned order of the Arbitration Tribunal deciding the preliminary objection raised by
the petitioner cannot be challenged under Article 226 or 227 of the Constitution of India.

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FOREIGN CONTRIBUTION & REGULATION

1. 06.03.2020 Indian Social Action Forum (INSAF) vs. Supreme Court of India
Union of India in Civil Appeal No.1510
of 2020 (Arising out of SLP (C)
No.33928 of 2011)

Only those organisations which are actively involved in politics or associated with
political parties can be declared as organisations of a political nature under Foreign
Contributions (Regulation) Act, 2010 & Rules made thereunder.

The object sought to be achieved by the Act is to ensure that Parliamentary institutions,
political associations and academic and other voluntary organisations as well as individuals
working in the important areas of national life should function in a manner consistent with the
values of a sovereign democratic republic without being influenced by foreign contributions
or foreign hospitality. The long title of the Act makes it clear that the regulation of acceptance
and utilisation of foreign contribution is for the purpose of protecting national interest.
Candidates for election and political parties or office bearers of political parties are barred
from accepting any foreign contribution. The legislative intent is also to prohibit
organisations of a political nature from receiving foreign contributions. It is clear that
preventing foreign contribution into the political arena is the object sought to be achieved by
the Act. Prevention of foreign contributions routed through voluntary organisations which are
not connected to party politics is the reason behind introduction of Section 3 (1) (f) and Section
5 of the Act. The Central Government is required to take into account the activities, ideology
or the programme of the organisation including the association of the organisation with
activities of any political party before declaring an organisation as an organisation of political
nature not being a political party. Guidelines that are prescribed by the Rules indicate that
only those organisations which are actively involved in politics or associated with political
parties can be declared as organisations of a political nature. The question that falls for our
consideration is whether the guidelines in Rule 3 suffer from vagueness and ambiguity and
whether they can be stated to be conferring uncanalised power on the executive. According
to Rule 3 (i) an organisation having avowed political objectives in its memorandum of
association or bye laws is an organisation of a political nature. As the intention of the
legislature is to prohibit foreign funds in active politics, an Association with avowed political
objectives (i.e. to play a role in active politics or party politics) cannot be permitted access to
foreign funds. There is no ambiguity in the provision and hence, cannot be termed as vague.
Therefore, we find no substance in the contention of the Appellant that Rule 3 (i) is ultra vires
the Act.

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CONSTITUTION OF INDIA

1. 04.03.2020 Internet and Mobile Association of India Supreme Court of India

vs. Reserve Bank of India Writ Petition
(Civil) No. 528 of 2018

RBI Circular on Cryptocurrency set aside by the Supreme Court of India on the ground
of Proportionality Test

But nevertheless, the measure taken by RBI should pass the test of proportionality, since the
impugned Circular has almost wiped the VC exchanges out of the industrial map of the country,
thereby infringing Article 19(1) (g). On the question of proportionality, the learned Counsel
for the petitioners relies upon the four-pronged test summed up in the opinion of the majority
in Modern Dental College and Research Centre v. State of Madhya Pradesh (2016) 7 SCC 353.
These four tests are (i) that the measure is designated for a proper purpose (ii) that the
measures are rationally connected to the fulfilment of the purpose (iii) that there are no
alternative less invasive measures and (iv) that there is a proper relation between the
importance of achieving the aim and the importance of limiting the right. The court in the said
case held that a mere ritualistic incantation of “money laundering” or “black money” does not
satisfy the first test and that alternative methods should have been explored.

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RIGHT TO INFORMATION ACT

1. 04.03.2020 Chief Information Commissioner vs. Supreme Court of India

High Court of Gujarat and another
Civil Appeal No(S). 1966-1967 of
2020 (Arising out of SLP(C) No.5840
of 2015)

The non-obstante clause of the RTI Act does not mean an implied repeal of the High
Court Rules and Orders framed the Constitution of India

The non-obstante clause of the RTI Act does not mean an implied repeal of the High Court
Rules and Orders framed under Article 225 of the Constitution of India; but only has an
overriding effect in case of inconsistency. A special enactment or rule cannot be held to be
overridden by a later general enactment simply because the latter opens up with a non-
obstante clause, unless there is clear inconsistency between the two legislations.

32 MAY 2020 | CASE SNIPPETS

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COMPETITION ACT

1. 11.05.2020 Directorate of State Lotteries, Competition Commission of

West Bengal vs. West Bengal India
Lottery Stockists Syndicate Pvt.
Ltd.

Only primary, inalienable and non-delegable functions of a constitutional government

have been held to qualify for exemption within the meaning of ‘sovereign functions’ of
the government under section 2(h) of the Competition Act, 2002.

Regulation, sale and distribution of lottery tickets, by no stretch of arguments, can be taken as
an activity relatable to sovereign functions of a Government. The question as to what
constitutes ‘sovereign’ or ‘non-sovereign’ function is well-settled and the courts have taken a
very narrow view of the term ‘sovereign function’ by confining the same to strict constitutional
functions of the three wings of the State. Welfare activities, commercial activities and economic
activities have been kept outside the purview of the term ‘sovereign functions’. Resultantly,
only primary, inalienable and non-delegable functions of a constitutional government have
been held to qualify for exemption within the meaning of ‘sovereign functions’ of the
government under section 2(h) of the Act. Welfare, commercial and economic activities,
therefore, are not covered within the meaning of ‘sovereign functions’ and the State, while
discharging such functions is as much amenable to the jurisdiction of competition regulator as
any other private entity discharging such functions (Union of India v. Competition Commission
of India & Ors., W.P.(C) 993/2012 decided on 23.02.2012).

CASE SNIPPETS | MAY 2020 33

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INSOLVENCY & BANKRUPTCY CODE

1. 22.05.2019 Allahabad Bank vs. Link

House National Company Law
Industries Limited Appellate Tribunal
Company Appeal (AT) (Insolvency) No. (NCLAT)
1304 of 2019

The Adjudicating Authority cannot direct a forensic audit and engage in a long drawn
pre-admission exercise which will have the effect of defeating the object of the ‘I&B
Code’.
The dictum of law propounded by the Hon’ble Apex Court is loud and clear. The Adjudicating
Authority cannot travel beyond the letter of law and the dictum of the Hon’ble Apex Court. The
satisfaction in regard to occurrence of default has to be drawn by the Adjudicating Authority
either from the records of the information utility or other evidence provided by the ‘Financial
Creditor’. The Adjudicating Authority cannot direct a forensic audit and engage in a long drawn
pre-admission exercise which will have the effect of defeating the object of the ‘I&B Code’. If
the ‘Financial Creditor’ fails to provide evidence as required, the Adjudicating Authority shall
be at liberty to take an appropriate decision. If the application is incomplete, it can return the
same to the ‘Financial Creditor’ for rectifying the defect. This has to be done within 7 days of
the receipt of notice from the Adjudicating Authority. However, the ‘I&B Code’ does not
envisage a pre-admission enquiry in regard to proof of default by directing a forensic audit of
the accounts of the ‘Financial Creditor’, ‘Corporate Debtor’ or any ‘financial institution’. Viewed
thus, the impugned order cannot be supported. Application under Section 75 of the ‘I&B Code’
on behalf of the ‘Corporate Debtors’ cannot be permitted to frustrate the provisions of the ‘I&B
Code’ when the matter is at the stage of admission. Section 75 is a penal provision which
postulates an enquiry and recording of finding in respect of culpability of the Applicant
regarding commission of an offence. The same cannot be allowed to thwart the initiation of
‘Corporate Insolvency Resolution Process’ unless in a given case forgery or falsification of
documents is patent and prima facie established.

2. 05.02.2019 K. Sashidhar vs. Indian Overseas Supreme Court of India

Bank & Ors.

The resolution professional is not required to express his opinion on matters within
the domain of the financial creditor(s), to approve or reject the resolution plan under
Section 30(4) of the I&B Code.

There is no provision in the I&B Code which empowers the adjudicating authority (NCLT)
to oversee the justness of the approach of the dissenting financial creditors in rejecting the
proposed resolution plan or to engage in judicial review thereof. Concededly, the inquiry by
the resolution professional precedes the consideration of the resolution plan by the CoC. The
resolution professional is not required to express his opinion on matters within the
domain of the financial creditor(s), to approve or reject the resolution plan, under Section
34 MAY 2020 | CASE SNIPPETS
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30(4) of the I&B Code. At best, the Adjudicating Authority (NCLT) may cause an enquiry into
the “approved” resolution plan on limited grounds referred to in Section 30(2) read with
Section 31(1) of the I&B Code. It cannot make any other inquiry nor competent to issue any
direction in relation to the exercise of commercial wisdom of the financial creditors be it for
approving, rejecting or abstaining, as the case may be. Even the inquiry before the
Appellate Authority (NCLAT) is limited to the grounds under Section 61(3) of the I&B Code. It
does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed
by financial creditors at the time of voting. To take any other view would enable even the
minority dissenting financial creditors to question the logic or justness of the commercial
opinion expressed by the majority of the financial creditors albeit by requisite percent of
voting share to approve the resolution plan; and in the process authorize the adjudicating
authority to reject the approved resolution plan upon accepting such a challenge. That is not
the scope of jurisdiction vested in the adjudicating authority und er Section 31 of the I&B
Code dealing with approval of the resolution plan.

3. 26.07.2018 Kannan Tiruvengandam vs. M. National Company Law

K. Shah Exports Ltd. & Ors. Appellate Tribunal (NCLAT)

Committee of Creditor (CoC) being an expert body, Adjudicating Authority cannot sit in
appeal over the matters such as eligibility criteria etc. approved by the Committee

National Company Law Appellate Tribunal held that the question of eligibility criteria
regarding requirement of minimum tangible net worth for one or other category of Resolution
Applicants and other criteria are matters which can be dealt with by expert committee like
CoC. Further NCLAT held that the AA has no jurisdiction to sit in appeal over the decision of
expert bodies relating to eligibility criteria till it is not shown that the same is perverse or
against any of the provisions of the Code or existing law’. The appeal was allowed with
direction to the RP and the CoC to complete the process immediately.

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LABOUR LAWS

1. 07.02.2020 Oil and Natural Gas Corporation Supreme Court of India

(Appellant) vs. Krishan Gopal and Ors.
(Respondent)

Upon the completion of two hundred forty days of service in a calendar year, the
workmen have acquired valid statutory right and ought to have been granted the status
of regular employees of the corporation on the ground that the corporation which is an
instrumentality of the State under Article 12 cannot act arbitrarily or unreasonably.

In this matter, High Court directed regularization of workmen without seeking reference
before Industrial Tribunal under Industrial Disputes Act 1947. The Judgment of High Court
had relied upon the decision of this Court in case of PCLU.

The Honorable Supreme Court held, while referring the matter: (i) The decision of the two
judges Bench in PCLU had placed a construction on the provisions of Clause 2(ii) of the
Certified Standing Orders which prima facie did not appear to be correct. Besides, the fact that
the decision in PCLU had not noticed the earlier judgment in Engineering Mazdoor Sangh
which pertained to ONGC's Certified Standing Orders, the principles of law which had been
expounded in PCLU would require to be revisited.

It held that indeed, the decision in PCLU needs to be revisited in order to set the position in
law which it adopts in conformity with the principles emerging from the earlier line of
precedent. Accordingly request the Registry to place the proceedings before the Chief Justice
of India so as to placing this batch of appeals before an appropriate Bench.

2. 10.01.2020 Nandkishore Shravan Ahirrao Supreme Court of India

(Appellant) vs. Kosan Industries (P)
Ltd. (Respondent)

The High Court had no justification to set aside the award of back wages awarded by the
Labour Court which was eminently fair and proper.
Appellant was dismissed from service on charge of causing disruption of work - In pursuance
of reference made under Industrial Disputes Act 1947, Labour Court held that findings in
enquiry were perverse, order of dismissal was harsh and granted reinstatement in service
with back wages for surplus days. The Order of Labour Court was questioned before High
Court - Single Judge of High Court while affirming order of reinstatement, set aside order for
payment of back wages - Appellant then filed Letters Patent Appeal - Division Bench of High
Court dismissed appeal on ground that it was not maintainable - Hence, present appeal -
Whether High Court erred in denying back wages to Appellant.

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Having come to the conclusion that the findings in the disciplinary enquiry was perverse, the
Labour Court observed that it was a matter of record that the workman had been gainfully
employed over a part of the period after dismissal, with another employer. It was in the above
circumstances, that the entire component of back wages was not awarded to the Appellant and
only twenty five percent was awarded. The High Court had no justification to set aside the
award of back wages awarded by the Labour Court which was eminently fair and proper. The
direction of the High Court for deletion of back wages was therefore unsustainable and was
set aside.

3. 17.03.2020 Joint Labour Commissioner And Supreme Court of India

(Appellant) vs. Kesar Lal (Respondent)

As a matter of interpretation, the provisions contained in the Consumer Protection Act

1986 must be construed in a purposive manner
Public authorities such as the appellants who have been constituted under an enactment of
Parliament are entrusted with a solemn duty of providing welfare services to registered
workers. The workers who are registered with the Board make contributions on the basis of
which they are entitled to avail of the services provided in terms of the schemes notified by
the Board. Public accountability is a significant consideration which underlies the provisions
of the Consumer Protection Act 1986.
The evolution of jurisprudence in relation to the enactment reflects the need to ensure a sense
of public accountability by allowing consumers a redressal in the context of the discharge of
non-sovereign functions which are not rendered free of charge. This test is duly met in the
present case.
Consequently, and for the reasons that we have indicated, there is no reason to interfere with
the ultimate decision of the State Commission to award the claim, subject to the modification
of the rate of interest by the order of the National Commission.
Thus, it was decided that as a matter of interpretation, the provisions contained in the
Consumer Protection Act 1986 must be construed in a purposive manner.

CASE SNIPPETS | MAY 2020 37

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CYBER LAWS

1. 15.01.2020 State (Appellant) vs. M. Murugesan and Supreme Court of India

Ors. (Respondent)

The jurisdiction of the Court under Section 439 of the Code is limited to grant or not to
grant bail pending trial
In this matter, the State is aggrieved against an order passed by the High Court of Judicature
at Madras on 24th April, 2019 constituting a Heterogeneous Committee of named persons to
give its recommendations on the reforms that can be brought into practice for reformation,
rehabilitation and re-integration of the convict/accused person to society and best practices
for improving the quality of investigation.
In the appeal before the Honorable Supreme Court find that learned Single Judge has collated
data from the State and made it part of the order after the decision of the bail application as if
the Court had the inherent jurisdiction to pass any order under the guise of improving the
criminal justice system in the State.
The jurisdiction of the Court under Section 439 of the Code is limited to grant or not to grant
bail pending trial. Even though the object of the Hon’ble Judge was laudable but the jurisdiction
exercised was clearly erroneous. The effort made by the Hon’ble Judge may be academically
proper to be presented at an appropriate forum but such directions could not be issued under
the colour of office of the Court. In view of the above, the Apex Court find that order passed by
the High Court on 24th April, 2019 is not sustainable in law and the same is set aside.

2. 10.01.2020 Anuradha Bhasin and Ors. (Appellant) Supreme Court of India

vs. Union of India and Ors
(Respondent)

Repetitive orders under Section 144, Cr.P.C. would be an abuse of power.

Honorable Supreme Court issued the following directions:
a. The Respondent State/competent authorities are directed to publish all orders in force
and any future orders under Section 144, Cr.P.C and for suspension of telecom services,
including internet, to enable the affected persons to challenge it before the High
Court or appropriate forum.
b. We direct the respondent State/competent authorities to review all orders suspending
internet services forthwith.
c. The power under Section 144, Cr.P.C., being remedial as well as preventive, is
exercisable not only where there exists present danger, but also when there is an
apprehension of danger. However, the danger contemplated should be in the nature of
an “emergency” and for the purpose of preventing obstruction and annoyance or injury
to any person lawfully employed.

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d. The power under Section 144, Cr.P.C cannot be used to suppress legitimate expression
of opinion or grievance or exercise of any democratic rights.
e. An order passed under Section 144, Cr.P.C. should state the material facts to enable
judicial review of the same. The power should be exercised in a bona fide and
reasonable manner, and the same should be passed by relying on the material facts,
indicative of application of mind. This will enable judicial scrutiny of the aforesaid
order.
f. While exercising the power under Section 144, Cr.P.C., the Magistrate is duty bound
to balance the rights and restrictions based on the principles of proportionality and
thereafter, apply the least intrusive measure.
g. Repetitive orders under Section 144, Cr.P.C. would be an abuse of power.
h. The Respondent State/competent authorities are directed to review forthwith the need
for continuance of any existing orders passed under Section 144, Cr.P.C in accordance
with law laid down above.

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Case Snippets

LAWS RELATING TO CONSUMER PROTECTION

1. 30.10.2018 Sahara Prime City Ltd. and Ors. National Consumer

(Appellant) vs. Tamil Nadu Consumer Disputes Redressal
Protection Organisation and Ors Commission (NCDRC)
(Respondent)

It was appropriate to refund deposited amount along with interest at rate of 12% PA
In view of Section 12(1)(b) of Consumer Protection Act, 1986, the question was ‘Whether
refund of amount deposited by complainants with an interest at rate of 9% p.a. was valid and
legal. It was Held, Section 12(1)(b) of Act allows a voluntary consumer organization to file
complaint on behalf of consumer.
In none of complaints, Appellants have filed any document to prove that complainant
organization was not authorized by concerned complainant to file complaint on his behalf.
Compensation required to be quantified and it could not be awarded in a continuing manner.
It was appropriate to refund deposited amount along with interest at rate of 12% pa. -
Appellants were directed to refund amount deposited by complainants along with interest at
rate of 12% pa.

2. 19.03.2013 Consumer Education and Research National Consumer

Society and Bileshwar Khand Udyog Disputes Redressal
Khedut Sahakari Mandali Ltd. Commission (NCDRC)
(Appellant) vs. IFFCO-TOKIO General
Insurance Co (Respondent)

Insurance company held liable to pay damages suffered by complainants.

In Consumer Protection Act, 1986 - Sections 2(g), 2(r) and 21 and Deficiency in service was
discussed. Complaint claiming compensation (or loss) caused to stock of molasses by
spontaneous combustion. Claim of complainant supported by report of surveyor. And there
was no other evidence to contrary. Opposite party-insurance company by repudiating claim of
complainants committed deficiency in service.
Insurance company held liable to pay damages suffered by complainants.
No much difference between amount claimed by complainants and surveyor report. Direction
to insurance company to pay complainant No. 2 a sum of Rs. 1,14, 06,950 with interest of 10%
from date of report of surveyor till date of payment--Complaint allowed.

***

40 MAY 2020 | CASE SNIPPETS

 Part B
Case Studies

CASE STUDIES| MAY 2020 41

Case Studies

CG POWER AND INDUSTRIAL SOLUTION LTD - CORPORATE

GOVERNANCE FAILURE ?*

Background
CG Power and Industrial Solution Ltd. is a power company having its registered office at Mumbai.
The shares of the company are listed on Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE). The news of‘ the financial fraud worth thousands of crores detected at CG
Power and Industrial Solutions Ltd.’ was published in the several national newspapers on
August 20, 2019. (The issue was mainly related to the unauthorised transactions and loans
without authorization). The company filed a corporate announcement with BSE and NSE on
August 20, 2019, by which it disclosed the outcome of its board meeting held on August 19,
2019). In the board meeting of the company the operational committee was informed that the
company received a letter from the finance company ‘Aditya Birla Finance Limited’ with regard
to the failure of interest payment by the company, which was not traceable from the financials
of the company. As per Media reports, KKR India Financial services Limited (KKR India) may
have had a role in the unfolding of the events at CG Power, since the private equity investor(KKR)
had debt exposure to the holding company Avantha Holdings (was promoter group of CG
power), which the latter was unable to repay fully. This may be why the relations went downhill
between KKR India and the promoter of CG Power, Gautam Thapar.
Moreover, KKR India had asked for appointment of Narayan Seshadri initially as a consultant
and later as an independent director, who then set up an operations committee and hired Vaish
Associates to investigate certain transactions.
Case Facts
A1: Genesis/Evolution of the scam
Certain assets of the Company were purportedly provided as collateral without due authority
and the Company was made a co–borrower and/or guarantor for enabling ostensibly unrelated
third parties to obtain loans without due authorisation. The moneys so obtained were
immediately and without due authorisation routed out of the Company, either by itself or from
its subsidiaries or ostensibly unrelated parties to certain related parties. These transactions
were prima facie prejudicial to the interests of the Company. These were purportedly carried
out by identified company personnel (both current and past) including certain Non–Executive
Directors, certain KMPs and others identified employees (“CIP”) in breach of the Rules of
Procedure of the Company (“ROP”), and/or without proper information to or authorization of
either the RAC (Risk and Audit Committee) or the Board, and/or in breach of the Companies Act
2013, applicable SEBI Regulations and other applicable laws. (The Company plans to conduct a
detailed forensic investigation to establish wrongdoing, accountability and other residual
implications).

* Case Study written by Rahul Ratna, Assistant Director and reviewed by Dr. Akinchan
Buddhodev Sinha, Assistant Director, The ICSI.
Views expressed in the Article are the sole expression of the Author and may not express the
views of the Institute.
42 MAY 2020 | CASE STUDIES
 The report has cited that fees paid for non-audit services, including tax audit fees, certificate

Case Studies
work, fees for other services and expenses, were usually more than 50 per cent of the total
auditor’s remuneration for any given year.
(As a good corporate governance practice, it should never exceed 30 per cent of the total
auditors’ remuneration).
The total liabilities of the company and the group was understated by approximately ₹1053.54
crores and ₹1608.17 crores respectively as on March 31, 2018 and by ₹ 601.83 crore and ₹
401.83 crore respectively as on April1, 2017. Further, the advances to related and unrelated
parties of the company and the group was understated by approximately Rs.1990.36 crores and
₹ 2806.63 crores respectively as on March 31, 2018 and by ₹ 1479.34 crores and Rs.1331.47
crores respectively as on April1, 2017.
A2: Peak
SEBI sought information on the matter in order to examine as to whether or not there were any
violations of the provisions of securities laws, etc. by the Company and its Directors/Promoters,
during the period 2016–2019. The company on August 26, 2019 submitted to the SEBI a copy of
the preliminary investigation report prepared by M/s Vaish Associates aided by Deloitte,
Chartered Accountants. SEBI sought responses from the chairman of the company (Gautam
Thapar), past Directors (Madhav, Acharya, B. Hariharan) and Chief Finance Officer (V.R.
Venkatesh) on the matter including the Preliminary Investigation Report. Replies from the
above entities were received by SEBI with regard to shareholding pattern of CG Power as on
quarter ended June 30, 2019 and the promoters of the CG Power. The non-promoter
shareholding of the company as on the quarter ended June 30, 2019, the Board of Directors of
the company during the preliminary examination period i.e. for the FY 2016-17, 2017-18, 2018-
19, 2019-20. K.N Neelkant vide an email dated August 30, 2019 to SEBI informed that he stayed
away from the operations of the company during the independent investigation period. V.R
Venkatesh (Chief Financial Officer) was terminated from employment by the company w.e.f.
August 30, 2019. Gautam Thapar was removed as chairman of the company however he
continues as a Non-Executive Director in the company. The share price movement of the
company during the period from January1, 2018 to September 4, 2019 was also provided to the
SEBI.
Findings of the Preliminary Investigation Report
An examination of the Preliminary Investigation Report revealed certain prima facie
irregularities, which are summarized as under:
A. Sale of Nashik property to Blue Garden Estate Private Limited (“Blue Garden”)
a. In 1979, Maharashtra Industries Development Corporation (“MIDC”) had leased a
property it owned in Nashik (“Nashik property”) to CG Power for a lease term of
ninety–five years. As per the terms of the Lease Agreement, CG Power cannot
assign/part with possession of land without the consent of MIDC.
b. In May 2016, CG Power entered into an Assignment Agreement with Blue Garden
for assignment of its lease rights in the Nashik property, for a consideration
amount of ₹264 Crore, without obtaining approval from MIDC. The Assignment
Agreement was executed by Madhav Acharya (Executive Director–Finance) on
behalf of CG Power and Atul Gulatee (Director) for Blue Garden. For payment of
the consideration amount, Blue Garden took a loan of ₹200 Crore from Aditya
CASE STUDIES | MAY 2020 43
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Birla Finance Limited (“ABFL”), which was guaranteed by Avantha Holdings

Limited (Holding Company of CG Power) (“Avantha Holdings”) on behalf of CG
Power. The Nashik property was used as a collateral security for the loan taken by
Blue Garden from ABFL (by way of right of creation of mortgage). The
aforementioned amount was immediately paid to CG Power as an advance
wherein the Company had to pay an interest of 15% per annum on such advance.
CG Power then further advanced said amount to Avantha Holdings (₹145 Crore)
and Acton Global Private Limited (“Acton”) (₹53 Crore) without any interest.
c. The majority shareholder of Avantha Holdings was Gautam Thapar
(approximately 87%) and it also had Gautam Thapar, Ramni Nirula and B.
Hariharan as its Directors at the relevant time. These three individuals were
Directors of CG Power.
d. Blue Garden was incorporated in March 2016 and at the time of execution of the
Assignment Agreement, its shareholders were Acton, Nagendra Sayyaparaju and
Abhishek Kabra (employees of CG Power).
e. Acton was incorporated in March 2016 and at the time of execution of the
Assignment Agreement, its shareholders were Nagendra Sayyaparaju and
Abhishek Kabra (employees of CG Power).
f. The amount so raised by Blue Garden and the onward lending to Avantha
Holdings and Acton were not reflected/recorded in the financial statements of the
Company.
g. The following Directors/employees of CG Power and Acton were involved in the
instant transactions, viz. –
 GautamThapar (erstwhile Chairman of CG Power) – Had executed the
Letter of Awareness (of loan availed by Blue Garden and subsequent
payment to CG Power).
 Madhav Acharya (erstwhile Executive Director of CG Power) – Had
executed various documents on behalf of CG Power.
 Atul Gulatee (erstwhile Global Head of CG Power – Treasury and one of the
first Directors of Blue Garden) – Had executed various documents on
behalf of Blue Garden.
 B. Hariharan (erstwhile Director of CG Power) – Had executed an
Undertaking (collateral security) on behalf of CG Power.
 V. R. Venkatesh (CFO of CG Power) – Had executed a Mortgage (in the event
of default) Undertaking in 2018.
 Nagendra Sayyaparaju (employee of CG Power) – One of the Directors and
initial shareholder of Acton, Holding Company of Blue Garden.
 Abhishek Kabra (Senior Manager – Treasury in CG Power) – One of the
Directors and initial shareholder of Acton.
B. Sale of Kanjurmarg property to Blue Garden
a. CG Power had earlier entered into an Agreement (“Evie Sale Agreement”) to sell a
property it owned in Kanjurmarg (“Kanjurmarg Property”) to Evie Real Estate
44 MAY 2020 | CASE STUDIES
 Private Limited (“Evie”) for a consideration of ₹498 Crore. The Company had

Case Studies
received ₹11 Crore from Evie, as initial consideration. The sale was to be
completed before October 27, 2019. However, even before the aforesaid
transaction could get terminated, CG Power entered into an Memorandum of
Understanding in February 2017 (“MOU”) with Blue Garden for transfer of the
same property for a consideration amount of ₹498 Crore (₹189 Crore to be paid
in advance) with a condition that the MOU will take effect only upon the failure of
the Evie Sale Agreement.
b. For payment of a part of the consideration amount, Blue Garden took a loan of
₹190 Crore from ABFL. When the aforesaid amount was received by Blue Garden
in February 2017, it was immediately paid as an advance by Blue Garden to the
Company in terms of the MOU. CG Power thereafter advanced the money to Acton
(₹192 Crore) without charging any interest. Acton in turn, utilised the
aforementioned amount towards payment against the liability owed by BILT
Graphic Paper Products Limited (“BILT”) to ABFL.
c. At the time of execution of the MOU, there was a charge in the form of negative
lien created in favour of Yes Bank Limited (“Yes Bank”) on the Kanjurmarg
Property. Despite such prior charges, a Power of Attorney was created in favour
of Blue Garden for creation of the mortgage in the case of default under the MOU
by CG Power.
d. No approval was obtained from the Board of CG Power for the execution of the
MOU or transfer of money/advance received therein. The amount of ₹190 Crore
received from Blue Garden and subsequent transfer of ₹192 Crore to Acton were
not disclosed in the Audited Financial Statements of CG Power as the asset was
offset against the liability (i.e. there was third party liability of Blue Garden and
the asset for receivables from Acton). Thus, the financials have been
misrepresented to the aforementioned extent.
e. The following Directors/employees of CG Power and Acton were involved in the
instant transactions, viz. –
 Gautam Thapar – BILT is an Avantha Group Company.
 Madhav Acharya – Had executed various documents on behalf of CG Power
including signing of the MOU.
 Atul Gulatee – Had executed various documents on behalf of Blue Garden
including signing of the MOU.
 V. R. Venkatesh – CFO of CG Power and one of the Directors of Blue Garden
and Acton.
 Nagendra Sayyaparaju – One of the directors of and initial shareholder of
Acton (i.e. holding company of Blue Garden).
 Abhishek Kabra – Senior Manager – Treasury as he was one of the
Directors of and initial shareholder of Acton (i.e. holding company of Blue
Garden).
 Anirudh Chopra – Director of Acton and Blue Garden.

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C. Cheques issued by the Company in favour of Yes Bank Limited

Yes Bank had sanctioned Credit facility amounting to ₹500 Crore to Avantha Holdings
vide a Sanction Letter dated October 25, 2015. CG Power had issued a Comfort Letter
dated November 4, 2015 and had furnished a cheque for ₹210 Crore in favour of Yes Bank
for the aforementioned Credit facility. The Board of CG Power only became aware of the
Comfort Letter when a request was made by Yes Bank in April, 2019, for renewal of the
above mentioned cheque. Avantha Holdings and CG Power were involved in the instant
transaction.
The following Directors/employees of CG Power were involved in the instant
transactions, viz. –
• GautamThapar – Personally represented to Yes Bank that he was the person–in–
charge of CG Power.
• Atul Gulatee – Had signed the cheques issued by CG Power.
• B. Hariharan – Had signed the cheques issued by CG Power.
• V. R. Venkatesh – Had signed the cheques issued by CG Power.
D. €44 million borrowing by CG International Holdings Singapore Pte. Limited (“CG
Singapore”) from Standard Chartered Bank (“Standard Chartered”), which was
guaranteed by a Corporate Guarantee from CG Power.
a. The Board of CG Power had purportedly authorized its overseas subsidiaries (vide
a Resolution dated November 9, 2017) to avail of new fund–based and non–fund
based banking facilities of upto €175 million from banks and financial institutions.
Accordingly, CG Singapore, a wholly owned subsidiary of CG Power, entered into
a Facility Agreement with Standard Chartered in 2017 for availing a term loan of
€ 44 million, the guarantee for which was provided by CG Power. The term loan
was availed to finance the general corporate purposes, including working capital,
of the Borrower Group and any other member of the Group Companies of CG
Power (including by way of inter–company loans). The entire facility was drawn
by CG Singapore on February 14, 2018. On that same day, there was a remittance
instruction provided by CG Singapore for remittance of €44 Million to an overseas
entity by the name of Avantha International Assets B.V. (private investment entity
of Gautam Thapar) (“Avantha International”).
b. The Board of CG Power was not aware of the aforementioned borrowing. Further,
the remittance was contrary to the provisions of the Facility Agreement, which
required the term loan to be used only to finance the general corporate purposes,
etc. of CG Power. Further, the Board of CG Power was also not informed of the
aforementioned deviation. In addition, while the facility from Standard Chartered
was availed at an interest rate of 2.25% + EURIBOR per annum, by CG Singapore,
the advance/remittance to Avantha International was interest free. Avantha
International and CG Singapore were involved in the transaction.
c. The following Directors/employees of CG Power were involved in the instant
transactions, viz. –
46 MAY 2020 | CASE STUDIES
  GautamThapar – Chairman of CG Power. Further, Avantha International is

Case Studies
the private investment entity of GautamThapar.
 B. Hariharan – Had signed the remittance instruction for CG Singapore.
 V. R. Venkatesh – Had signed the remittance instruction for CG Singapore.
E. $40 million foreign currency Term Loan by CG Middle East from IndusInd Bank, India,
which was guaranteed by a Corporate Guarantee from CG IBV
a. CG Middle East FZE (“CG Middle–East”), an indirect wholly owned subsidiary of
CG Power, availed of a Term Loan borrowing from IndusInd Bank, India on the
basis of a Sanction Letter dated October 25, 2017. There is a corporate guarantee
from CG International BV (“CG IBV”), the parent company of CG Middle–East. The
entire facility was drawn down in October 2017 by CG Middle–East but the monies
were received by CG IBV. Once drawn, substantially the whole sum was paid by
CG IBV to the Company (CG Power), which in turn remitted the said monies to CG
Power Solutions Limited (“PSOL”) and which in tum further remitted the said
monies to Solaris Industrial Chemicals Limited (“Solaris”).
b. The Board of CG Power was not aware of the aforementioned borrowing. No
Board resolution was passed by CG Power for the corporate guarantee furnished
to IndusInd Bank. Further, CG Middle–East (V. R. Venkatesh is its sole Director) is
a mainly a sales office and does not have any significant business operations or
employees. CG Middle–East had availed of the credit facility at an interest rate of
4.5% + 3 months LIBOR. However, the amounts were advanced/remitted to
Solaris on an interest free basis.
c. The borrowing of $40 million was not reflected in the financial statements of CG
Middle–East and the provision of guarantee was not reflected in the financial
statements of CG IBV.
d. CG IBV (wholly owned subsidiary of CG Power and CG Singapore), PSOL (wholly
owned subsidiary of CG Power) and Solaris (an entity forming a part of the
Avantha Group and having the same registered officer address as Avantha
Holdings) were involved in the transaction.
e. The following Directors/employees of CG Power were involved in the instant
transactions, viz. –
 GautamThapar – Solaris Industrials Chemicals Limited is an Avantha
Group Company.
 B. Hariharan – Had, without Board authorization, executed the Deed of
Guarantee with IndusInd Bank.
 V. R. Venkatesh – Had, without Board authorization, executed the Facility
Agreement along with Deed of Guarantee with IndusInd Bank.
F. Outstanding advances to Vendors in CG Singapore
a. In accordance with a Services Agreement executed in January 2013 (“Mirabelle
Agreement”), CG Singapore had made certain advances to Mirabelle Trading Pte.
Limited (“Mirabelle”) during the period March 2018–July 2018. The services
provided by Mirabelle in accordance with the Mirabelle Agreement inter alia
included:

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i) Creating new business opportunities for the transformer business and

other businesses of CG Power.
ii) Setting up of JV in Indonesia and all activities connected thereto – The
services were with respect to a joint venture of CG Singapore with a local
utility company in Indonesia. A 51: 49 Joint Venture in Indonesia was
pursued between CG Singapore and a local utilities Company i.e. PT Prima
Layanan Nasional Enjiniring. The JV entity was set up in May 2014 by the
name of PT Crompton Prima Switchgear Indonesia.

iii) Establishing business in Malaysia.

iv) Identifying customers and getting orders, arranging for financing, etc. for
a total fee of $20.15 million.

b. The Mirabelle Agreement was executed on behalf of CG Singapore by Madhav

Acharya, a Director of CG Power but not CG Singapore. No Board Resolution, etc.
authorizing Madhav Acharya to enter into the said Agreement was available. At
the relevant time of executing the Mirabelle Agreement, Mirabelle was a ‘related
party’ of CG Singapore. Mirabelle (an associate Company of Avantha Holdings) had
only one Director and did not possess the requisite expertise or domain
knowledge for rendering services contemplated under the Mirabelle Agreement.
Further, payments made to Mirabelle did not carry any interest. CG Singapore and
Mirabelle were involved in the transaction.

c. The following Directors/employees of CG Power were involved in the instant

transactions, viz. –

 GautamThapar – Mirabelle is an associate Company of Avantha Holdings.

 Madhav Acharya – Had, without Board authorization, executed the
Mirabelle Agreement.

G. Outstanding advances to Vendors in CG Middle East

a. Several advances amounting to approximately €34 million have been identified

by M/s SRBCC & Co. LLP (Auditors of CG Power appointed in September 2018)
(“SRBCC”) in the books of CG Middle–East between the Financial Years FY 2017–
18 and 2018–19, which are outstanding as on date of the Preliminary
Investigation Report.

48 MAY 2020 | CASE STUDIES

 Case Studies
TABLE IX
OUTSTANDING ADVANCES TO VENDORS IN CG MIDDLE EAST

NATURE OF PAYMENT AMOUNT

(IN MILLION EURO)

ADVANCES/PAYMENTS TO VENDORS (CONSUMER 26.50

CONTRACTS) (ITEM 1)

ADVANCES TO GROUP ASSOCIATE COMPANIES (ITEM 2) 0.62

INTEREST ON INDUSIND TERM LOAN (ITEM 3) 1.20

OTHER ADVANCES/ACCOUNTS RECEIVABLES (ITEM 4) 5.60

TOTAL 33.92

b. In relation to Item 1, CG Middle–East appointed various Service Agents in relation

to the certain Customer Contracts (sale/purchase of transformers, etc.) in order
to mitigate the risk of any potential claims. The aggregate value of such Contracts
made with Service Agents is approximately €35 million, which represents in
excess of 45% of the aggregate value of the aforesaid Customer Contracts, which
do not appear to represent a sound and viable business strategy. Further, such
Service Agents did not appear to have any expertise in the service proposed to be
provided by them.
c. As regards Items 2–4, €0.62 million was advanced as an interest free loan by CG
Middle–East to Ballarpur International Holdings BV (wholly owned subsidiary of
Ballarpur Industries Limited, an associate company of Avantha Holdings)
(“Ballarpur International”); €1.2 million was towards interest costs incurred in
relation to the Term loan facility availed by CG Middle–East from IndusInd Bank;
€5.6 million represented balances from debtors which have been written off as
CG Middle–East has not been able to realise the same.
d. No Board resolution was passed by CG Middle–East for the execution of contracts
with Service Agents. Further, no Board approvals were granted in respect of loan
facility provided to Ballarpur International.
e. CG Singapore and Ballarpur International were involved in the transaction. The
following Directors/employees of CG Power were involved in the instant
transactions, viz. –
 GautamThapar – Ballarpur International is an associate Company of
Avantha Holdings.
 V. R. Venkatesh – Had, without Board authorization, executed contracts
with Service Agents.

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H. Outstanding trade receivables aggregating to ₹108 Crore from Identified Customers

a. The Company had entered into Tripartite Agreement on January 1, 2017, with
Identified Suppliers and PSOL (subsidiary of CG Power) for purchase of
commodities. The liability of the Company towards the Identified Suppliers
(Jointly, Mahalaxmi Traders, Swastik Trading Company, Star International,
Kaushal Trading Company, Shri Bala Ji Projects and Shri Sai Sales Projects) owing
to purchase of commodities shall be discharged by PSOL as PSOL owed certain
monies to the Company pursuant to a Loan Agreement dated May 2, 2016. The
inventory appeared to have been sold to the Identified Customers (Jointly, Miriam
International, Sidhi Vinyank Traders and Jain Enterprises) for an aggregate
amount of ₹120 Crore. The Company made a provision to the extent of ₹155.67
Crore towards slow moving and non–moving inventory. Further, the Company
made a provision of ₹12 Crore as liquidated damages out of the aggregate amount
of ₹120 Crore receivables.
b. The Supplier Agreements were executed on the letterhead of each of the Identified
Suppliers, who were all based out of Delhi and also had identical formats in
respect of their letterheads. Necessary documentation to support the purchase
from the Identified Suppliers were not made available and many such Suppliers
did not appear to exist at their addresses as noted from the records of the
Company. The format of the P.O. issued by the Identified Customers and the
description of goods mentioned in the P.O. for each of the Identified Customer is
identical. The Identified Customers did not pay the amounts due as on the
applicable due date(s). Baba Iron, an NBFC, with whom a Debt Servicing
Agreement was signed, did not appear to exist at the address provided by the
Company. The purchases and sales appear dubious and seemed to have been
made with the objective of reducing the outstanding loan availed by PSOL from
the Company. Further, the PSOL Loan Agreement (Loan agreement between CG
Power and PSOL) was executed without the authorizations by the respective
board of directors of the Company or PSOL. PSOL, a wholly owned subsidiary of
CG Power, was involved in the transaction.
c. The following Directors/employees of CG Power were involved in the instant
transactions, viz. –
 Madhav Acharya – Had executed PSOL Loan Agreement without Board
approval. Further, procurement and sale transactions by the Company
were executed at his behest.
 B. Hariharan – Had executed PSOL Loan Agreement without Board
approval.
 V. R. Venkatesh – Had approved payments to be made to the Commercial
Agent (who brought in the identified customers) and had signed the
Journal Voucher whereby the Company made a provision to the extent of
₹155.67 Crore towards slow moving and non–moving inventory, which
was not in accordance with the Rules of Procedure of CG Power.

50 MAY 2020 | CASE STUDIES

 I. ₹229 Crore paid to CG Power Solutions Limited (“CG Power Solutions”)

Case Studies
a. Avantha Holdings and CG Power had entered into a Brand License and Brand
Support Agreement dated January 25, 2010 for granting CG Power the right to use
‘Avantha’ brand owned by Avantha Holdings for the consideration mentioned
therein. Thereafter, Avantha Holdings and CG Power entered into various
amendment agreements to record the revised terms and conditions for the use of
‘Avantha’ brand (collectively, “Old Royalty Agreement”). The last royalty payment
made by CG Power to Avantha Holdings for using the ‘Avantha’ brand was on
August 31, 2018.
b. Thereafter, Avantha Holdings and CG Power entered into Avantha Brand Usage
Agreement dated February 13, 2019 (“New Royalty Agreement”) which
superseded and replaced the earlier Old Royalty Agreement and monetized 50%
of the royalty payable by CG Power to Avantha Holdings of ₹411.20 Crore from
October 1, 2018 in perpetuity and the balance 50% of the annual royalty
payments would be payable by CG Power on its annual consolidated net operating
revenue to Avantha Holdings. While the New Royalty Agreement was executed
between Avantha Holdings and CG Power, it is understood that Avantha Holdings
and CG Power were still in talks to revise the terms pertaining to consideration
payable by CG Power to Avantha Holdings.
c. PSOL had taken loans from CG Power and had in turn had made certain advances
to Avantha Holdings, which stood at ₹778 Crore as on November 13, 2018. The
amounts were however, not repaid by Avantha Holdings to PSOL.
Towards repayment of these advances, Avantha Holdings addressed a letter dated
September 28, 2018 to CG Power (“Avantha Holdings Letter”) wherein Avantha
Holdings proposed to make a deposit of ₹229 Crore (“Deposit Amount”) with CG
Power subject to the following:
 CG Power placing the Deposit Amount in a fixed deposit;
 Royalty being paid by CG Power to Avantha Holdings on or before March
20, 2019;
 The amount of royalty to be paid by CG Power to Avantha Holdings shall
be appropriated out of the Deposit Amount towards part repayment of
earlier advances by CG Power/ PSOL to Avantha Holdings;
 Royalty being paid to a specific bank account of Solaris maintained with
IndusInd Bank, Barakhamba Road Branch, New Delhi;
 If royalty is not paid on or before March 20, 2019, the Deposit Amount to
be refunded by CG Power.
d. PSOL received a payment of ₹294 Crore from Avantha Holdings on September 29,
2018 and transferred the entire sum to CG Power on the same day. Subsequently,
CG Power created 5 fixed deposits with IndusInd Bank aggregating to ₹229 Crore
and the balance ₹65 Crore out of ₹294 Crore was utilized by CG Power. As stated
above, Avantha Holdings and CG Power entered into New Royalty Agreement on
February 13, 2019. However, Avantha Holdings and CG Power were still in talks
to revise the terms pertaining to consideration payable by CG Power to Avantha
Holdings. Since, Avantha Holdings and CG Power could not reach a consensus on

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the payment terms prior to March 20, 2019, CG Power did not pay royalty to
Avantha Holdings as contemplated under the Avantha Holdings Letter.
e. On account of non–compliance of the agreed terms of the Avantha Holdings Letter,
CG Power transferred ₹235.83 Crore (Deposit Amount + interest) to PSOL on
March 28, 2019 which in turn was transferred by PSOL to AHL the same day.
f. The Board of CG Power was not aware of Avantha Holdings’ letter or the terms
and conditions proposed therein. The instant transaction appeared to have been
carried out in order to reduce Avantha Holdings’ liability with respect to the CG
Power and CG Power Group. Avantha Holdings and PSOL were involved in the
transaction.
g. The following Directors/employees of CG Power were involved in the instant
transactions, viz. –
 V. R. Venkatesh – Had purportedly informed the Board of CG Power of
Avantha Holdings’ letter along with the understanding to reduce the
debts between the companies. However, the same was not recorded in
the minutes of the Board Meeting.
From the above it was clear that the Chairman along with certain directors,
employees of CG power and related entities, had perpetrated certain
irregularities, which inter alia included:
i. The use of certain assets of the Company as collateral including being Co–
Borrower and/or Guarantor for enabling third parties to obtain loans
without due authorisation from the Board of CG Power.
ii. Routing transactions through subsidiaries, Promoter–affiliated Companies
and other connected parties for the ultimate benefit of companies related
to Promoter Group.
iii. Inappropriate netting–off the liabilities with the receivables from different
entities.
iv. The use of different accounting heads for concealing payments made by CG
Power.
v. Interest free advances to Promoter–affiliated Companies.
vi. Entering into dubious transactions for reducing the liability of the
Promoter–affiliated Companies towards CG Power/Group Companies.
In addition to the above, the following is also noted from the Audit Report of the
Company for the Financial Year ended March 31, 2019.
i. Certain unauthorized/unapproved banking transactions in the nature of
loans (unauthorized transactions/ loans) taken from banks / financial
institutions (lenders)/a connected party aggregating to ₹635 Crore were
not disclosed in the Standalone Financial Results of prior years/periods by
off-setting against certain related and unrelated party balances. Further, as
explained by the management, interest expenses of ₹90.93 Crore which
52 MAY 2020 | CASE STUDIES
 were serviced by the Company in relation to these unauthorized loans

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were accounted under different heads in the Standalone Statement of
Profit and Loss and were mis–represented in the financial statements/
results of prior years/periods.
ii. The nature of certain transactions entered into by the Company with the
related and unrelated parties aggregating to ₹635 Crore and which were
not disclosed in the financial statements of prior years, by off–setting such
transactions against certain undisclosed borrowings and have now been
recorded and reinstated in the respective prior years / periods. The
Company also has loans including interest receivables and advances
recoverable from related and unrelated parties, as reinstated on March 31,
2019, aggregating to ₹2,439.94 Crore for which further interest income
aggregating to ₹337.61 is currently not recorded as at March 31, 2019.
iii. The bank balances were overstated and advances receivable from related
parties were understated by ₹400 Crore and ₹300 Crore as at March 31,
2018 and April 1, 2017 respectively, which have now been restated by the
Company.
iv. The Company has written back in the Standalone Financial Results certain
amounts which were previously expensed off. These amounts were
presented as amounts charged off in relation to inventories/trade
advances/unbilled dues from customers/ loans given to related, unrelated
parties and connected parties aggregating to ₹634.40 Crore. As informed
by the management, these amounts were written off in the prior
years/periods were misrepresented to the Board of Directors and were
wrongly grouped in the financial statements / results of prior years/
periods under various heads, instead of related and unrelated party
balances being written off.
v. Certain trade receivables balances amounting to ₹120 Crore against which
provision for doubtful trade receivable of ₹108 Crore was made in the
current year and ₹12 Crore was made in the prior years/periods. The
underlying sale transactions and recording of provisions were found to be
suspicious in nature and not in the normal course of business of the
company.
vi. Based on the interim response received from the Board of Directors of the
Company, SEBI filed its preliminary response to the Central Government
reporting the suspected fraudulent transactions and balances. On further
independent investigation by the Board of Directors, SEBI are informed,
that these transactions appear to be fraudulently accounted as trade
receivables instead of being accounted as advances to related parties. The
Board of Directors have reinstated opening balances in prior
years/periods.
vii. The management has not accounted contractual royalty expense
amounting to ₹27.88 Crore for the six months period ended March 31,
2019.

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viii. The Company has entered into various transactions with certain identified
group companies (termed as connected parties) wherein some of the
Company’s employees own beneficial ownership in such connected parties
and further certain senior management personnel of the Company are
directors of these connected parties. The Company has not identified these
connected parties as related parties and has not yet completed its
assessment to determine the nature of its relationship with these
connected parties.
ix. SEBI had sent independent balance confirmations to banks/financial
institutions for borrowings, bank balance and certain trade receivables
selected on sample basis. SEBI have not received responses to request for
such balance confirmations towards borrowings of ₹263.09 Crore, bank
balances of ₹3.13 Crore and trade receivables of ₹1,035.43 Crore and
confirmation from banks/financial institutions in respect of the details of
securities, lien, collaterals, guarantees, etc.
x. Note 10 in the Standalone Financial Results indicates that (a) the Company
has incurred net losses during the current and previous years; (b) the
Company’s current liabilities exceeded its current assets as at the balance
sheet date; (c) the Company has the short term outstanding borrowings
repayable over next 12 months aggregating to ₹1,411.55 Crore; and (d)
pending outcome of investigation initiated, the management has not
concluded on the recoverability of loans and advances from related and
unrelated parties.
Receivables for CG Power and its Subsidiaries
A. The Company in its filing made to the Stock Exchanges on August 20, 2019, has inter alia
stated in its Notes to consolidated management compiled financial information that an
amount of ₹2,935.84 Crore is receivable balance for the CG Power Group from various
Promoter Affiliate Companies and connected parties and ₹326.30 Crore is the
advances/loan payable by the CG Power Group to its related/connected parties.
B. The Company vide an e–mail dated September 16, 2019, has provided to SEBI the break–
up of receivables and advances to related and connected parties. Thus from the
disclosures made by the Company, an amount of ₹2185.93 Crore is receivable balances
for the CG Power Group from various Promoter Affiliate Companies and connected
parties and ₹326.30 Crore is the advances/loan payable by the CG Power Group to its
related/connected parties.
A3 : Management Action
On August 29, 2019 Mr. Gautam Thapar were removed as the chairman of the board by the
company. On August 30, 2019 Mr. V. R. Venkatesh were removed as the chief financial officer of
the company by the board. Mr. Ashish Kumar Guha was appointed as the chairman of the board
of directors of the company on September 25, 2019. BSE Limited appointed MSA Probe
Consulting Private Limited for conducting a detailed forensic audit of the accounts of the
company from the financial year 2015-16 onwards. Ms. Sikha Kapadia, company secretary and
compliance officer resigned from the services of the company on 2 November, 2019 and her
54 MAY 2020 | CASE STUDIES
 resignation became effective from 31 December, 2019. The company appointed Mr. Nimesh

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Shah as the company secretary and compliance officer with effect from 1 January, 2020 who also
resigned and ceased to be company secretary and compliance officer of the company w.e.f.
31January, 2020. The company appointed Mr. Ravi Rajagopal, EVP & Global Head – Legal,
Governance & Risk as compliance officer of the company w.e.f. February 1, 2020. The company
moved an application on 24 January, 2020 to the central government for removal of M/s K K
Maheshwar & Co. one of the Joint Statutory Auditors of the company since the company has
come across certain unexplained payments made to the firm, M/s KKM resigned as Joint
Statutory Auditors of the company on 25 January, 2020. The company appointed Mr. Alen Ferns
as the company secretary w.e.f. March 18, 2020.
A4 : SEBI passed an Interim Order on September 17, 2019
(https://www.sebi.gov.in/enforcement/orders/sep-2019/order-in-the-matter-of-cg-power-and-
industrial-solutions-limited_44269.html)
SEBI noted that an examination of the Preliminary Investigation Report along with a
consideration of the Audit Report prima facie indicate a serious misstatement of accounts and
diversion of funds from a listed Company and/or its subsidiaries/associates, which are in
violation of the provisions of the SEBI Act_____, PFUTP Regulations 2003 and the LODR
Regulations. Accordingly, SEBI find that:
I. Gautam Thapar, V. R. Venkatesh, Madhav Acharya, B. Hariharan along with the Promoter
Company and entities related/connected with the Company, viz. Avantha Holdings
Limited, Acton Global Private Limited and Solaris Industrial Chemicals Limited have
prima facie violated Sections 12A(a), (b) and (c) of the SEBI Act____________ and
Regulations 3(b), (c) and (d), 4(1) and 4(2)(f) and (r) of the PFUTP Regulations, 2003.
II. Gautam Thapar, Madhav Acharya and B. Hariharan have prima facie violated Regulations
4(2)(f)(i)–(ii), 4(2)(f)(iii)(3) and (6) of the LODR Regulations 2015.
III. Gautam Thapar, Madhav Acharya and B. Hariharan have prima facie violated Regulation
26(3) of the LODR Regulations 2015 on account of having violated the provisions of the
Code of Conduct for employees of CG Power.
IV. V. R. Venkatesh has prima facie violated Regulation 4(2)(f)(i)(2) and Regulation 26(3) of
the LODR Regulations 2015.
V. V. R. Venkatesh and Madhav Acharya have prima facie violated Regulation 33(2)(a) of the
LODR Regulations 2015.
Decision
SEBI passed the following interim order:
(i) Notices no. 2–5 i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan
are restrained from accessing the securities market and are further prohibited from
buying, selling or otherwise dealing in securities in any manner whatsoever, either
directly or indirectly, till further orders.
(ii) Notices no. 2–5 are restrained from being associated with any intermediary registered
with SEBI or any listed entity or its material unlisted subsidiary, till further orders.
(iii) The concerned stock exchanges are permitted to allow the aforementioned
persons/entities at paragraph 6.1(i) to square off their existing open positions in the
CASE STUDIES | MAY 2020 55
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Futures and Options segment, if any, immediately. The aforementioned

persons/entities shall not be allowed to take fresh positions or increase their open
positions or execute trades. Further, the concerned stock exchanges shall ensure that
no fresh positions are created for the aforementioned persons/entities.
(iv) Notices no. 6–8 i.e. Avantha Holdings Limited, Acton Global Private Limited and Solaris
Industrial Chemicals Limited are directed to retain funds/other assets to the extent of
receivables shown as outstanding to CG Power and Industrial Solutions Limited, as per
Table X at paragraph 4.4. B. To the extent of their liability, the aforesaid Notices are
restrained from disposing, selling or alienating, in any other manner, their assets or
divert funds, till further orders.
(v) Notice no. 1 i.e. CG Power and Industrial Solutions Limited is directed to take all
necessary steps to recover the amounts due to the Company, which were extended,
either directly or indirectly, to the Notices/entities mentioned at paragraph 5.5 A.
along with due interest expeditiously and take necessary action, including legal
actions, to safeguard the interest of the investors of the Company.
(vi) BSE shall appoint an independent Auditor/Audit Firm for conducting a detailed
forensic audit of the books of accounts of CG Power from the Financial Year 2015–16
onwards till date. The expenses for the aforementioned forensic audit shall be borne
by the Company. The independent Auditor/Audit Firm so appointed shall verify inter
alia the following –
a. Manipulation of Books of Accounts;
b. Misrepresentation including of financials and/or business operations;
c. Wrongful diversion/siphoning of company funds;
d. Any other related matter.
(vii) Notices no. 1–8 shall extend necessary co–operation to the independent Auditor/Audit
Firms appointed as per this Order and shall furnish all information/documents sought
from them from time to time.
(viii) The independent Auditor/Audit Firm so appointed as per this Order shall submit a
Report to SEBI within six months from the date of this Order.
In his defence, Thapar has alleged that Vaish Associates did not contact either him or the
company’s senior management. Thapar has said that he was not given any opportunity to
present his version of the facts. Deposing before regulators, Thapar is understood to have also
alleged CG Power has cut off all access to vital documents that could help prepare his defence.
The Securities Appellate Tribunal has since ordered CG Power to provide all necessary
documents to Thapar to present his side of things.
The corporate affairs ministry on Monday i.e. 25.11.2019 moved the National Company Law
Tribunal (NCLT) seeking to reopen and restate the financial statements of CG Power & Industrial
Solutions Ltd. under Section 130 of the Companies Act_______ for financial years 2015 to 2019.
Alleging financial irregularities, the CG Power board had on August 30 in a mid-night drama
removed the company promoter Gautam Thapar as the non-executive chairman and Ashish
Kumar Guha was appointed as the new non-executive chairman. According to the annual report
56 MAY 2020 | CASE STUDIES
 of the company the company declassify Gautam Thapar as the promoter as any association with

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him will be prejudicial to the interest of the company.
The NCLT directed the ministry to issue notices to market regulator Securities and Exchange
Board of India, the income tax department and Gautam Thapar to file reply within a week and
also asked the ministry to file the rejoinder a week later. The tribunal has posted the matter for
more hearing to Dec. 16.
As per the news published in several national newspaper on 16.12.2019 The National Company
Law Tribunal (NCLT) has rubbished the findings made by law firm Vaish Associates and said
that the books of fraud hit CG Power should not be opened as the case is under investigation.
In the hearing, the Mumbai Bench of the tribunal ruled that the Vaish report cannot be trusted
as the company was appointed by CG Power and therefore not independent. Further, the
accounts cannot be opened as per Vaish report due to the fact that SEBI has already appointed
an agency which should be allowed to conclude its work.
As per the news published in several national news paper on 10.01.2020, The Mumbai bench of
NCLT has thrown out the findings made by law firm Vaish Associates on former CG Power
Chairman Gautam Thapar, citing them as “bogus”.
Justice Rajesh Sharma and B P Mohan ruled that the tribunal will not rely upon any report but
only an independent audit. There is no question of Vaish report being termed as independent as
it was commissioned by the company Board, the bench noted. What this means is that the
investigation has to be independent and not on the behest of the company.
Thapar and others have claimed that SEBI’s order was based on the findings of the Vaish
Associates report, which was commissioned by the company Board and is biased, heavily
disclaimed and designed to manipulate the CG share price and oust (Thapar) as Chairman.
The Mumbai NCLT on Thursday i.e. 23.01.2019 reserved its order on a plea from the corporate
affairs ministry to appoint an independent auditor to restate the accounts of CG Power &
Industrial Solution.
A5: SEBI Confirmatory Order dated March 11, 2020
(https://www.sebi.gov.in/enforcement/orders/mar-2020/confirmatory-order-in-the-matter-of-
cg-power-and-industrial-solutions-limited_46281.html)
Subsequent to the Interim Order, Notices no. 2–6 (Gautam Thapar, V. R. Venkatesh, Madhav
Acharya, B. Hariharan, Avantha Holdings Limited) had filed an Appeal before the Hon’ble
Securities Appellate Tribunal (“SAT”) (Gautam Thapar and Others vs. SEBI and CG Power and
Industrial Solutions Limited, Appeal No. 413 of 2019), challenging the Interim Order. The
Hon’ble SAT vide an Order dated October 1, 2019, had inter alia observed:
SEBI after considering the Preliminary Investigation Report given by the Company and further
considering the Audit Report, prima facie found that there was a serious misstatement of
accounts and diversion of funds from the Company and its subsidiaries in violation of the SEBI
Act, SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market)
Regulations, 2003 (“PFUTP Regulations” for convenience) and the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 (“LODR Regulations, 2015” for convenience). SEBI
upon examining the evidence, prima facie found that the appellants had perpetrated certain
irregularities which included:

CASE STUDIES | MAY 2020 57

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(i) The use of certain assets of the Company as collateral including being Co–Borrower
and/or Guarantor for enabling third parties to obtain loans without due authorisation
from the Board of CG Power.
(ii) Routing transactions through subsidiaries, Promoter–affiliated Companies and other
connected parties for the ultimate benefit of companies related to Promoter Group.
(iii) Inappropriate netting–off the liabilities with the receivables from different entities
(iv) The use of different accounting heads for concealing payments made by CG Power.
(v) Interest free advances to Promoter–affiliated Companies.
(vi) Entering into dubious transactions for reducing the liability of the Promoter affiliated
Companies towards CG Power / Group Companies.
We therefore, find no merit in the appeal and is dismissed with the following directions:
a) The appellants shall file a reply before the WTM of SEBI on or before October 15, 2019.
In the event the appellants want further time then appropriate application will be filed
before the WTM of SEBI which will be considered and appropriate orders would be
passed.
b) In the event any document is required by the appellants either from Company or from
SEBI, a formal request to that effect shall be made by the appellants which document(s)
shall be supplied in accordance with law within three working days.
c) Upon receipt of the reply, SEBI will grant an opportunity of hearing to the appellants and
after considering their submissions pass a Confirmatory Order within a period of four
weeks from the date when the hearing is concluded.
Accordingly the SEBI provided the notices reasonable opportunities of submitting
replies/informations and opportunity for personal hearing were also provided.
Directions
G. Mahalingam, Whole Time Member of SEBI passed the following directions:
I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(1), 11(4)
and 11B of the SEBI Act, hereby dispose of the replies/submissions made by the Notices no. 1–
6 and 8 in accordance with the following directions:
(i) Notices no. 2–5 i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan
are restrained from accessing the securities market and are further prohibited from
buying, selling or otherwise dealing in securities in any manner whatsoever, either
directly or indirectly, till further orders. The aforementioned Notices shall however, be
permitted to liquidate upto 25% of the value of the securities held by them as on the date
of the Interim Order.
(ii) Notices no. 2–5 i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan
are restrained from being associated with any intermediary registered with SEBI or any
listed entity or its material unlisted subsidiary, in any manner whatsoever, till further
orders.

58 MAY 2020 | CASE STUDIES

 (iii) Notices no. 2–5i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan

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shall not be allowed to take fresh positions or increase their open positions or execute
trades in the F&O segment, till further orders.
(iv) Notices no. 6–8 i.e. Avantha Holdings Limited, Acton Global Private Limited and Solaris
Industrial Chemicals Limited, are directed to retain funds/other assets to the extent of
receivables shown as outstanding to CG Power and Industrial Solutions Limited, as
mentioned at Table XII of paragraph 30Ai.e₹2185.93 Crore. To the extent of their liability,
the aforesaid Notices are restrained from disposing, selling or alienating, in any other
manner, their assets or divert funds, till further orders. Notice 8 shall however, be
permitted (a) to make payments towards dues to statutory authorities; (b) incur
expenses towards provident fund, pension and gratuity, insurance and similar other
expenses; (c) to make payments/wages to employees/retainer/staff/ security guards,
etc. and (d) to make payments towards legal expenses. Further, Notice 6 shall continue
to abide by the directions issued vide SEBI letter dated October 16, 2019. Additionally,
Notice 6 shall be permitted to make payments towards legal expenses.
(v) Notice no. 1 i.e. CG Power and Industrial Solutions Limited, shall continue to take all
necessary steps to recover the amounts due to the Company, which were extended, either
directly or indirectly, to the Notices/entities mentioned at Table XII of paragraph 30A
along with due interest expeditiously and take necessary action, including legal actions,
to safeguard the interest of the investors of the Company.
Corporate Governance Issues Identified
1. Usage of funds and land assets from the company by promoter-connected entities-
Related Party Transactions
2. Failure of vital governance machinery of Key Managerial Personnel, Independent
Directors, Whistle Blowers, Auditors, NBFC Lenders
3. Questionable role of Promoters and Board of Directors.
References
1. The Hindu Business Line, Newspaper. Accessed from
https://www.thehindu.com/business/cg-power-reports-huge-financial-
fraud/article29184623.ece
2. The Economic Times, Newspaper. Accessed from
https://economictimes.indiatimes.com/industry/energy/power/cg-power-fraud-ex-
cfo-says-nashik-property-not-sold-yet/articleshow/72082190.cms?from=mdr
3. “SEBI passed an Interim Order on September17, 2019”, Accessed from
https://www.sebi.gov.in/enforcement/orders/sep-2019/order-in-the-matter-of-cg-
power-and-industrial-solutions-limited_44269.html)
4. “SEBI Confirmatory Order dated March 11, 2020”. Accessed from
https://www.sebi.gov.in/enforcement/orders/mar-2020/confirmatory-order-in-the-
matter-of-cg-power-and-industrial-solutions-limited_46281.html
5. Website of CG Power and Industrial Solution Limited. Accessed from
http://www.cgglobal.com/

***
CASE STUDIES | MAY 2020 59
Case Studies

PACL COLLECTIVE INVESTMENT SCHEME - CASE STUDY*

Introduction
During the early nineties, several entities had started mushrooming across the country for
operating financial schemes in the market. Such entities apparently undertook plantation
activities on commercial scale through various plans/ schemes and mobilized huge money by
issuing various instruments and offering plans with lucrative rates of return (inconsistent with
the normal rate of return) in such schemes. The funds so mobilized were mis-utilized by such
entities for the purposes not disclosed at the time of inviting the investments.
During the mid-nineties, such entities started defaulting in making payments to their
customers/ investors. This not only caused huge losses to the investors who lost their life
savings to such unscrupulous entities, but also eroded the confidence of the general public in
financial savings. It was noticed that the promoters of such entities had themselves invested a
minimal amount in such ventures and raised a majority of the funds for the plans/ schemes from
ordinary small investors.
Considering the huge risk associated with such schemes, the Government of India felt that it was
necessary to regulate such financial schemes and set up an appropriate regulatory framework
and therefore government amended various laws such as SEBI Act and also framed SEBI
(Collective Investment Schemes) Regulations 1999 (“CIS Regulations”) for regulating such
entities.
PACL Limited (“PACL” or “the company”), was a company
- carrying business related to buying and selling of agricultural land including
development of such land into cultivable land and providing other infrastructure on it.
The transactions of PACL are similar to that of a builder or a developer of property. PACL
was purchasing lands from its own funds prior to inviting allotments for individual plots
of land and is adding value to the land through its development activities. Based on such
land banks customers approach PACL through its agents for the purchase of lands. PACL
had prepared different plans under which these lands were sold wherein the prospective
purchaser would pay the price of the land in one or multiple installments.
- wherein the funds of the investors were pooled and utilized towards the cost of land,
registration expenses, developmental charges and other incidental expenses.
Allegations on PACL
- It had been alleged that PACL was running Collective Investment Scheme (CIS) and was
one of the companies which had failed refund money to investors and to submit the
information/ details with SEBI.

* Case Study written by Puneeta Ahuja, Consultant and reviewed by Mahesh Airan, Assistant
Director, The ICSI.
Views expressed in the Article are the sole expression of the Author and may not express the
views of the Institute.
60 MAY 2020 | CASE STUDIES
 PACL collects the money from customers/ investors against the purported sale of a

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plot/land. The application form and the agreement with its customers contain the clause
that the customer is applying for plot of agricultural land and for development and
maintenance of the same by PACL Customer of PACL makes contribution/ payment with
a view to receive the profits, income and returns on their initial investments.
- PACL and its promoters & directors had mobilized funds from general public by
sponsoring/causing to be sponsored, carrying/causing to be carried, collective
investment schemes, without obtaining registration from SEBI as required under the
provisions of SEBI Act and SEBI (Collective Investment Schemes) Regulations, 1992.
In view of such defaults of PACL as mentioned above, SEBI in its letter dated 4 th March, 1998 had
intimated PACL that it was not eligible to take the benefit under the proviso to Section 12(1B)
of the SEBI Act and therefore could neither launch any new schemes nor continue raising funds
under its existing schemes.
Regulatory provisions related to Collective Investment Schemes and its registration
“Collective Investment Scheme” means any scheme or arrangement which satisfies the
following conditions as specified in Section 11 AA of the SEBI Act:
(i) the contributions, or payments made by the investors, by whatever name called, are
pooled and utilized solely for the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors
with a view to receive profits, income, produce or property, whether movable or
immovable from such scheme or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement,
whether identifiable or not, is managed on behalf of the investors;
(iv) the investors do not have day to day control over the management and operation of the
scheme or arrangement.
Section 12 (1B) of the SEBI Act states that-
“No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any
venture capital funds or collective investment schemes including mutual funds, unless he obtains a
certificate of registration from the SEBI in accordance with the regulations”
With this provision, a ban was imposed on a person carrying on any CIS, unless a certificate of
registration is obtained in accordance with the regulations framed by SEBI.
Proviso to Section 12 (1B) of the SEBI Act states that-
“Provided that any person sponsoring or causing to be sponsored, carrying or causing to be
carried on any venture capital funds or collective investment schemes operating in the securities
market immediately before the commencement of the Securities Laws (Amendment) Act, 1995,
for which no certificate of registration was required prior to such commencement, may continue
to operate till such time regulations are made by SEBI."
Whereas, above proviso provides benefit to the CIS operating in the securities market
immediately before the commencement of the Securities Laws (Amendment) Act, 1995
for which no certificate of registration was required may continue to operate till such
time the SEBI made regulations for the conditions to which certificate of registration is to
be issued and the fees to be paid for certificate of registration.
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Communication between SEBI and PACL : A brief

1. PACL in its letter dated 23rd March, 1998 submitted its reply to the SEBI and challenged
the jurisdiction of SEBI by stating that its transactions are in the nature of sale and
purchase of agricultural land and thus, not fall under the purview of the securities
market.
2. SEBI vide its letter dated November 30, 1999 to PACL, alleged that PACL was operating
CIS, wherein the funds of the investors were pooled and utilized towards the cost of land,
registration expenses, developmental charges and other incidental expenses. Through
the above said letter SEBI advised PACL to comply with and abide by the provisions of
the SEBI CIS Regulations.
3. PACL vide its letter dated December 13, 1999, replied to the letter of SEBI wherein it was
stated that SEBI has no jurisdiction to scrutinize its transactions. According to PACL, it
mainly deals in the sale and purchase of agricultural land and development of the land.
Challenging of SEBI Letters by PACL before the Hon'ble High Court of Judicature for
Rajasthan at Jaipur
PACL then challenged these SEBI letters before the Hon'ble High Court of Judicature for
Rajasthan at Jaipur by filing a Writ Petition, in December 1999, claiming that its scheme does
not fall under the definition of CIS as defined under the SEBI CIS Regulation and SEBI Act.
While the Writ Petition filed before the Hon'ble High Court of Judicature for Rajasthan was
pending, SEBI vide order dated June 24, 2002, held that the schemes floated by PACL fall
squarely within the definition of CIS as defined under Section 11AA of the SEBI Act and required
PACL to comply with the provisions of the SEBI CIS Regulations subject to the directions of the
Hon'ble High Court of Judicature for Rajasthan at Jaipur.
Subsequently, the Hon'ble High Court of Judicature for Rajasthan at Jaipur vide its order dated
November 28, 2003 allowed the Writ Petition filed by PACL. The Hon'ble High Court held that
the schemes of PACL were not CIS as they did not possess the characteristics of a CIS as defined
under Section 11AA of the SEBI Act.
SEBI appeal to Hon’ble Supreme Court
SEBI preferred an appeal before the Hon'ble Supreme Court of India against the said order of
Hon'ble High Court. The Hon'ble Supreme Court of India vide order dated February 26, 2013,
set aside the order of Hon’ble High Court and ordered that:-
- the appellant (SEBI) shall pass fresh orders as regards the business activity of the
respondent Company (PACL) as to whether it falls under the category of CIS or not and
depending upon the ultimate order to be passed it may proceed further in accordance
with law.
- Further, Appellant (SEBI) shall before taking any future action give prior notice to the
respondent Company (PACL).

62 MAY 2020 | CASE STUDIES

 In compliance with the above order/directions of the Hon'ble Supreme Court, SEBI vide

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its order dated 22nd August, 2014, finds that the:-
- business/activities/schemes/plans offered and operated by PACL are Collective Investment
Schemes, satisfying all the ingredients specified under Section 11AA of the Securities and
Exchange Board of India Act, 1992.
- PACL and its directors and promoters to refund the monies, which have been collected in an
unauthorized manner, with promised returns to investors.
Further as per the above order, SEBI has passed the following directions
SEBI’s direction to PACL
 PACL Limited its promoters and directors including Mr. Tarlochan Singh, Mr. Sukhdev
Singh, Mr. Gurmeet Singh and Mr. Subrata Bhattacharya, shall abstain from collecting any
money from investors or launch or carry out any Collective Investment Schemes
including the schemes which have been identified as a Collective Investment Scheme in
this Order.
 PACL Limited, its promoters and directors including Mr. Tarlochan Singh, Mr. Sukhdev
Singh, Mr. Gurmeet Singh and Mr. Subrata Bhattacharya, shall wind up all the existing
Collective Investment Schemes of PACL Limited and refund the monies collected by the
said company under its schemes with returns which are due to its investors as per the
terms of offer within a period of three months from the date of this Order and thereafter,
within a period of fifteen days, submit a winding up and repayment report to SEBI in
accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including
the trail of funds claimed to be refunded, bank account statements indicating refund to
the investors and receipt from the investors acknowledging such refunds.
 PACL Limited and its directors, including Mr. Tarlochan Singh, Mr. Sukhdev Singh, Mr.
Gurmeet Singh and Mr. Subrata Bhattacharya are also directed to immediately submit the
complete and detailed inventory of the assets owned by PACL Limited.
 PACL Limited, its promoters and directors including Mr. Tarlochan Singh, Mr. Sukhdev
Singh, Mr. Gurmeet Singh and Mr. Subrata Bhattacharya, shall not alienate or dispose off
or sell any of the assets of PACL Limited except for the purpose of making refunds to its
investors as directed above.
SEBI’s action in case of non-compliance of above directions
- PACL Limited and its directors, including Mr. Tarlochan Singh, Mr. Sukhdev Singh, Mr.
Gurmeet Singh, Mr. Subrata Bhattacharya, Mr. Anand Gurwant Singh, Mr. Nirmal
Singh Bhangoo, Mr. Uppal Devinder Kumar, Mr. Tyger Joginder and Mr. Gurnam Singh
shall immediately (on expiry of the three months period available for making refunds)
be restrained from accessing the securities market and would further be prohibited
from buying, selling or otherwise dealing in securities market till all the Collective
Investment Schemes of PACL Limited are wound up and all the monies mobilized
through such schemes are refunded to its investors with returns which are due to
them.
- SEBI would make a reference to the State Government/ Local Police to register a civil/
criminal case against PACL Limited, its promoters, directors and its managers/

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persons in-charge of the business and its schemes, for offences of fraud, cheating,
criminal breach of trust and misappropriation of public funds; and
- SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the
process of winding up of the company, PACL Limited.
- SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and
rules and regulations framed thereunder.
Non-compliance by PACL and its repercussions
Subsequently, PACL Ltd. and its promoters & directors failed to refund the money as directed by
above said order of SEBI dated 22 nd August, 2014. In addition to this, PACL Ltd. filed an appeal
to SAT against the said SEBI order. However, SAT dismissed the appeal filed by PACL Ltd. and
directed to refund the money and submit WRR.
As the company had not taken any step towards the refund of the money and filed an appeal
against the above mentioned SAT order before Supreme Court of India. However, Supreme Court
had not granted stay either on SAT or SEBI’s order which implied that PACL Ltd. to refund the
money to the investors collected under its schemes.
The principle amount involved is Rs. 49,100 Crores along with the promised returns, further
interest, all costs, charges and expenses incurred in respect of all the proceedings taken for
recovery of the said sum. Hence, prima facie the due amount seems to be more than Rs. 55,000
Crores.
Recovery Proceedings
Inspite of the directions, PACL Ltd. had not taken any steps to refund money to the
investors. Therefore SEBI had initiated recovery proceedings against PACL Ltd. and its
promoters/ all directors and also against group/associate entities of PACL Ltd.
SEBI during its recovery proceedings attached all bank accounts including lockers and Demat
Accounts/ mutual fund folios, either singly or jointly with any other person or persons and
communicated the same to all the banks, depositories and mutual fund houses.
Hon’ble Supreme Court orders
Further, the Hon’ble Supreme Court vide its order dated 2 nd February, 2016, directed SEBI
to constitute a committee for disposing of the land purchased by PACL Ltd. so that the sale
proceeds can be paid to the investors, who have invested their funds in the company for
purchase of land and Hon’ble Mr. Justice R. M. Lodha, the former Chief Justice of India, would be
the Chairman of the said Committee.
The Hon’ble Supreme Court also directed that a nodal officer shall be appointed who shall be in-
charge of the funds so collected and shall have liaison with the committee and shall also work as
a secretary to the committee.
Further the Hon’ble Supreme Court vide its order dated 25th July, 2016 also directed that;-
“PACL Ltd. and/or its Directors/Promoters/agents/employees/Group and/or associate
companies be restrained from in any manner selling/transferring/alienating any of the
properties wherein PACL has, in any manner, a right/interest situated either within or outside
India.”
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Case Studies
In compliance of the above said order dated 2 nd February, 2016, of the Hon’ble Supreme Court,
a committee was constituted by SEBI on 17th February, 2016 for disposing of the land purchased
by PACL Ltd. so that the sale proceeds can be paid to the investors, who have invested their funds
in the company.
The committee constituted by SEBI had got an advertisement published in newspaper inviting
public at large to submit Expression of Interest (EOI) for sale of PACL Ltd. properties and
vehicles.
In furtherance thereof, the Committee had started remitting refunds to investors after
verification of the claim applications as received from investors. Pursuant to the same, refunds
to investors have been credited to the bank accounts in respect of 1,89,103 applications under
“1st refund process” and 2,77, 544 applications under “2nd refund process” .
The committee recently vide its press release stated that it had initiated the process of
payment to investors and aggregating to Rs 204.85 crores has been effected to 8,31,018
investors, with claims upto Rs. 7,000/- as on 15th April, 2020.
Conclusion
The natural consequences of operating an unauthorised CIS activity would be to immediately
prevent the entity from continuing with such activity and to direct that entity to refund monies
collected under its unauthorised CIS activity with promised returns to its customers. The same
shall be followed in this case also. The entire exercise undertaken by SEBI is for protecting the
customers by ordering that their monies be returned with returns that are promised by PACL
Limited and due to them. Appropriately, penal and coercive action would ensue if the entity fails
to comply with such remedial measures directed by SEBI.

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