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The salient features of the new scheme are:
- The securities in which a person resident outside India is allowed to invest under Schedule 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA. 20/2000-RB dated 3rd May 2000 shall be eligible securities for issue of Depository Receipts in terms of DR Scheme 2014;
- A person will be eligible to issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts as provided in DR Scheme 2014.
- The aggregate of eligible securities which may be issued or transferred to foreign depositories, along with eligible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible securities under the extant FEMA regulations, as amended from time to time.
- The eligible securities shall not be issued to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue of such securities to domestic investors under FEMA, 1999.
- It is to be noted that if the issuance of the depository receipts adds to the capital of a company, the issue of shares and utilisation of the proceeds shall have to comply with the relevant conditions laid down in the Regulations framed and Directions issued under FEMA, 1999.
- The domestic custodian shall report the issue/ transfer of sponsored/unsponsored depository receipts as per DR Scheme 2014 in ‘Form DRR’ as given in Annex within 30 days of close of the issue/program.
Reserve Bank has since amended the Principal Regulations through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014 notified vide Notification No. FEMA.330/2014-RB dated December 15,2014.
For more details refer the said notification on RBI website available at: http://rbidocs.rbi.org.in/rdocs/ notification/PDFs/FEMA330NT120115F.pdf
- Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000-Remittance of Salary
Notification No. FEMA. 328/2014-RB dated December 3,
2014 and A.P. (DIR Series) Circular No. 62 dated Januarm 22,2014
Reserve Bank has been receiving queries whetheifl remittance of salary outside India can be affectecfl for employees on deputation to a group company in India and for employees of Limited Liability Partnership. The extant instructions have been reviewed and it is decided that the facility available to employee of a company under Regulation 7(8) of Notification No. FEMA 10 shall also be available to an employee who is deputed to a group company in India. Further, the term ‘company’ will henceforth also include ‘Limited Liability Partnership’ as defined in the LLP Act, 2008. The same has been amended by RBI vide Notification No. FEMA 328/2014-RB dated 3rd December 2014.
For more details refer the said notification on RBI website available at: http://rbidocs.rbi.org.in/rdocs/ notification/PDFs/328FEMA120115.pdf
- Export and Import of Indian Currency Notification No. FEMA.331/RB-2014 dated December 16, 2014 and A.P. (DIR Series) Circular No. 63 dated January22,2014
With a view to mitigate hardships of individuals visiting from India to Nepal or Bhutan, it has been decided that an individual may carry currency! notes of Reserve Bank of India of denominations I above ^100/- i.e currency notes of ?500/- and/ or ? 1,000/- denominations, subject to limit of ?25,000/-. Necessary amendments to FEMA Notification No. 6 have been made by Reserve Bank vide Notification No. FEMA.331/RB-2014 dated! December 16,2014.
- External Commercial Borrowings-Simplification of Procedure
- R (DIR Series) Circular No. 64 dated January23,2014
As a measure of simplification to existing procedure for rescheduling/restructuring of ECBs and in supersession to provisions relating to powers being delegated to Authorised dealers to deal with cases related to change in draw-down and repayment of schedules of ECBs, it has been decided to delegate to AD banks some more powers to allow:
- Changes or modification in draw down and repayment schedules of the ECB whether associated with change in the average maturity period or not and/or with changes (increase/ decrease) in the all in cost.
Reduction in the amount of ECB along with any changes in draw down and repayment schedules, average maturity period and all in cost.
- Increase in all in cost, irrespective of number of occasions.
If the lender is an overseas branch/subsidiary of an India bank the changes shall be subject to the applicable prudential norms.
It has also been decided to delegate powers to the designated AD Category I banks to permit changes in the name of the lender of ECB after satisfying themselves with the bonahdes of the transactions and ensuring that the ECB continues to be in compliance with applicable guidelines. Further, the AD Category-I banks may also allow the cases requiring transfer of the ECB from one company to another on account of re-organisation at the borrower’s level in the form of merger/ demerger/amalgamation/acquisition duly as per the applicable laws/rules after satisfying themselves that the company acquiring the ECB is an eligible borrower and ECB continues to be in compliance with applicable guidelines
For more details refer the said circular on RBI website at: http://rbidocs.rbi.org.in/rdocs/ Notification/PDFs/64APDIRECB01015.pdf
- Foreign Direct Investment-Pharmaceuticals Sector Notification No. FEMA334/2015-RB dated January 9, 2015 and A.P. (DIR Series) Circular No. 70 dated February 02,2015
The extant FDI Policy for Pharmaceutical sector has been reviewed and it has now been decided with immediate effect that there would be a special carve out for medical devices which was earlier given the same treatment as pharmaceutical sector. Reserve Bank has amended the regulations vide Notification No. FEMA.334/2015-RB dated January 09,2015.
- Foreign Investment in India by Foreign Portfolio Investors
- P. (DIR Series) Circular No. 71 dated February03,2015 As per A.P. (DIR Series) Circular No. 13 dated July 23, 2014 all future investment in government securities by registered Foreign Portfolio Investors (FPIs) was required to be made in government
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bonds with a minimum residual maturity of three years. Further Reserve Bank in its Sixth Bi-Monthly Monetary Policy Statement 2014-15, issued on February 03, 2015 had announced that henceforth all future investments by FPIs in debt market in India will be required to be made with minimum residual maturity of three years.
Accordingly, all future investments by an FPI within the limit for investment in corporate bonds shall be required to be made in corporate bonds with a minimum residual maturity of three years. Further, all future investments against the limits vacated when the current investment runs off either through sale or redemption, shall be required to be made in corporate bonds with a minimum residual maturity of three years.
FPIs shall not be allowed to make any further investment in liquid and money market mutual fund schemes. There will, however, be no lock-inperiod and FPIs shall be set free to sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors.
- Foreign Investment in India by Foreign Portfolio Investors
i A. P. (DIR Series) Circular No. 72 dated February05,2015 Registered Foreign Portfolio Investors (FPIs) were allowed to purchase on repatriation basis Government Securities and non-convertible debentures (NCDs)/bonds issued by an Indian company subject to terms and conditions as mentioned therein and limits prescribed by Reserve Bank. Further Reserve Bank in its Sixth Bi-Monthly Monetary Policy Statement 2014-15, issued on February 03, 2015 announced that reinvestment of coupons in government securities will be enabled even when the existing limits are fully utilised.
Accordingly, FPIs shall be permitted to invest in government securities, the coupons received on their existing investments in government securities. These investments shall be kept outside the applicable limit (currently USD 30 billion) for investments by FPIs in government securities.
- Foreign Investment in India by Foreign Portfolio Investors
- P. (DIR Series) Circular No. 73 dated February06,2015 In context to announcement made by Reserve Bank in its Sixth Bi-Monthly Monetary Policy Statement 2014-15 issued in February 03, 2015 for all future investments by registered Foreign Portfolio Investors (FPIs) in debt market in India will
70 I THE CHARTERED ACCOUNTANT I MARCH 2015
be required to be made with a minimum residual maturity of three years. In this context Reserve Bank has been receiving queries about the applicability of the aforesaid provisions. The queries and clarifications given by Reserve Bank are as under:
- Query: The applicability of the directions to investment by FPIs in Commercial Papers (CPs) Clarification: In terms of the aforesaid directions, any fresh investments shall be permitted in any type of debt instrument in India with a minimum residual maturity of three years. Accordingly, FPIs shall not be allowed to make any further investment in CPs.
- Query: The applicability of these guidelines on debt instruments having maturity of three years and over but with optionality clause of less than three years.
Clarification: FPIs shall not be allowed to make any further investments in debt instruments having minimum initial/residual maturity of three years wit optionality clause exercisable within three years.
- Query: The applicability of these guidelines on amortised debt instruments having average maturity of three years and above.
Clarification: FPIs shali be permitted to invest in amortised debt instruments provided the duration of the instrument is three years and above.
Any arrangement that negates any of the above shall not be in conformity with the provisions of the A.P. (DIR Series) Circular No. 71 dated February 03, 2015.
- Export of Goods and Services-Delay in utilization of
advance received for Exports
- P. (DIR Series) Circular No. 74 dated February09,2015
In terms of Notification No. FEMA.23/RB-2000 dated May 3, 2000 as amended from time to time and other circulars, an exporter receiving an advance payment for exports from a buyer outside India shall be under an obligation to ensure that the shipment of goods is made within stipulated period from the date of receipt of advance payment.
As it is observed that there is substantial increase in number and amount of advances received against exports remaining outstanding beyond stipulated period on account on non-performance of such exports, AD Banks are advised to efficiently follow up with the concerned exporters to ensure that export performance (shipments in case of export of goods) are completed within stipulated period of time.
Legal Update t
Further AD category-I banks should exercise proper due diligence and ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Doubtful cases as also instances of chronic defaulters may be referred to Directorate of Enforcement (DoE) for further investigation. A quarterly statement indicating details of such cases (as per Annex) may be forwarded to the concerned Regional Offices of RBI within 21 days from the end of each quarter.
- Liberalised Remittance Scheme (LRS) – Enhancement of limits
Sixth Bi-Monthly Monetary Policy Statement 2014-15 dated February 03,2015
The limit of LRS was enhanced to USD 125,000 in June 2014 by Reserve Bank without end use restrictions, except for prohibited foreign exchange transactions such as margin trading, lotteries etc.
On a review of the external sector outlook and as a further exercise in macro-prudential management, it has been decided to enhance the said limit under the LRS to USD 250,000 per person per year. Furthermore, in order to ensure ease of
transactions, it has also been decided in consultation with the Government that all the facilities for release of exchange/remittances for current account transactions available to resident individuals under Schedule III to Foreign Exchange Management (Current Account Transactions) Rules 2000, as amended from time to time, shall also be subsumed under this limit.
- Import of Goods in India
- P. (DIR Series) Circular No. 76 dated February 12,2015
In terms of A.R (DIR Series) Circular No. 82 dated February 2012, application by persons, firms and companies for making payments, exceeding USD 5000 or its equivalent towards imports in India is required to be made in Form A-l.
With a view to liberalise and simplify the procedure, it has been decided to dispense with the requirement of submitting request in Form A-l to AD Banks for making payments towards imports into India. However, AD Banks may need to obtain all the requisite details from the importers and satisfy itself about the bonafides of the transaction before effecting the remittance.
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Foreign Direct Investment-Reporting under FDI
Scheme on the e-biz platform
- P. (DIR Series) Circular No. 77 dated February 12,2015
With a view to promote the ease of reporting of transactions under foreign direct investment (FDI), the Reserve Bank of India, under the aegis of the e-Biz project of Government of India has enabled the filing of following returns with the reserve Bank of India viz.
- Advance Remittance Form (ARF)-used by companies to report the inflow of FDI to RBI; and
- Form FC-GPR-which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor against the above mentioned FDI inflow.
The design of the reporting platform enables the customer to login into the e-Biz portal, download the reporting forms (ARF and FCGPR), complete and then upload the same onto the portal using their digitally signed certificates. The Authorised Dealer Banks (ADs) will be required to download the completed Forms, verify the contents from the available documents, if necessary by calling for additional information from the customer and then upload the same for RBI to process and allot the Unique Identification Number (UIN). It has been decided that the ARF and FCGPR services of RBI will be operational on the e-Biz platform from February 19, 2015. The user manual for the two services is given in the Circular.
It may be noted for the present, the online reporting is an additional facility to the Indian companies to undertake their ARF and FC-GPR reporting and the manual system as prescribed in terms if A.P. (DIR Series) Circular No. 102 dated February 11,2014 would continue till further notice.
For detailed instructions please refer the said circular available on RBI website at: http:// rbidocs.rbi.org.in/rdocs/Notification/PDFs/ APDIRFDI0215.pdf (Matter on Corporate Laws has been contributed by CA. Rahul Joglekar)
- Amendment to Companies (Accounts) Rules 2014 MCA has amended the Companies (Accounts)
Rules, 2014. New sub-rule has been inserted to1 provide for Form AOC-5 pursuant to Sec.l28(lM of the Companies Act 2013 dealing with place of maintenance of books of accounts. Certain| relaxations have also been provided in respect or consolidation of financial statements for the year commencing on 01.04.2014 only. For a complete] text of this notification, please refer the link: http://] www.mca.gov.in/Ministry/pdf/Amendment I Rules_2015_19012015.pdf [Notification No. GSR(E) Dated 16th January 2015/
- Amendment to Companies (Appointment and Qualification of Directors) Amendment Rules-2014. MCA has amended the Companies (Appointment] and Qualification of Directors) Amendment] Rules, 2014. A new Provision has been inserted] providing that any company that has filed form DIR-12 with the Registrar under Rule 15, a Foreign] Director of such company resigning from his office] may authorise in writing a practising Chartered! Accountant or cost Accountant in practice or] Company Secretary in practice or any Resident] Director of the company to sign Form DIR-11 and file the same on his behalf to the Registrar intimating the reasons for resignation. For a complete] text of this notification, please refer the link:] http://www.mca.gov.in/Ministry/pdf/Amendmentlpdf
[Notifications No. GSR(E) Dated 19th January 2015/1
- Amendment to Companies (Corporate Social Responsibility Policy) Amendment Rules, 2014
MCA has amended the Companies (Corporate] Social Responsibility Policy) Amendment Rules,] 2014. As per the notification, the Ministry has j widened the list of entities through which companies] can undertake CSR activities by substituting die words “established by the company or its holding] or subsidiary or associate company under Section 8 of the Act or otherwise” with “established under ] Section 8 of the Act by the Company, either singly] or along with its holding or subsidiary company] or associate company, or along with any other company or holding or subsidiary or associate of such other company, or otherwise”. For a complete] text of this notification, please refer the link: http://| www.mca.gov.in/Ministry/pdf/Amendment_] Rules_2015_20012015.pdf [Notification No. GSR(E) Dated 19th January 2015/]
72 THE CHARTERED ACCOUNTANT MARCH 2015 www.icai.aid
- SEBI (Prohibition of Insider Trading) Regulations, 2015
SEBI has notified the regulations related to prohibition of insider trading in companies. These regulations contain various aspects like definition of connected person, insider, unpublished price sensitive information etc. It also provides for aspects like communication or procurement of unpublished price sensitive information, Trading Plans by an insider, disclosures by certain persons, Code of Fair Disclosure etc. For a complete text of the notification please refer the link: http://www.sebi.gov.in/cms/ sebi_data/attachdocs/1421319519608.pdf
[Notification No. LAD-NRO/GN/2014-15/21/85 dated 15th January 2015]
- Interest Subvention Scheme 2014-2015 As per the budget announcement for FY 2014-2015, the interest subvention scheme has been formulated by RBI. This scheme deals with providing interest cost subsidy to farmers from the loans availed
by them from Public Sector and Private Sector Scheduled Commercial Banks. Various conditions have been prescribed for the Banks to claim the interest subvention from RBI. Detailed terms are available in the circular at the link http://rbi.org.in/ scripts/NotificationUser.aspx?Id=9502&Mode=0 [Circular No. FSD.BC.48/05.04.02/2014-15 dated
21st January 2015]
- interest rate on advances Based on the recommendations of the Working Group on pricing of Credit constituted by RBI, certain additional guidelines on Base Rate have been prescribed and Banks are advised to adhere to these guidelines. The guidelines deal mainly with computation of base rate, quarterly review of base rate and its methodology, calculation of spread etc. For a complete text of the circular, please refer the link: http://rbi.org.in/scripts/NotificationUser. aspx?Id=9499&Mode=0
[Circular DBR.Dir.BC.No.63/13.03.00/2014-15 dated 19th January 2015] ■
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Legal Update Legal Decisions
LD/63/43 GVK Industries Ltd. & Anr vs.
The Income Tax Officer & Anr. February 18,2015 (SC) Section 9 of Income-tax Act,
1961-Income-Deemed to accrue or arise in India
Where for setting up a power project, assessee- company engaged non-resident company which had specialised knowledge of preparing financial scheme and to tie up with financial institution for required loans, and due to said non-resident’s service assessee company availed loans from Indian and US financial institution, success fees paid to said non-resident would be treated as fees for technical services liable to TDS
The appellant had intended and desired to utilise expert services of qualified and experience professional who could prepare a scheme for raising requisite finances and tie-up loans for the power projects. As the company did not find any professional in India, it had approached the consultant non-resident company (NRC) located in Switzerland, who offered their services.
The obligation of the NRC was to: (i) Develop comprehensive financial model to tie-up the rupee and foreign currency loan requirements of the project, (ii) Assist expert credit agencies worldwide and obtain commercial bank support on the most competitive terms, (iii) Assist the appellant company in loan negotiations and documentation with the lenders.
The Supreme Court held as follows:
The expressions managerial, technical or consultancy service are not defined in the Act. The general and common usage of the said words has to be understood at common parlance.
The present case is related to the expression “consultancy services”. The word ‘consultation’ has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It means a meeting in which a party consults or confers and eventually it results in human interaction that leads to rendering of advice. As the factual matrix in the case at hand, would exposit the NRC had acted as a
consultant. It had the skill, acumen and knowledge in the specialised field i.e. preparation of a scheme for required finances and to tie-up required loans. The nature of service referred by the NRC, can be said with certainty would come within the ambit and sweep of the term ‘consultancy service’ and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head ‘fee for technical service! Once the tax is payable paid the grant of ‘No Objection Certificate’ was not legally permissible.
Note: Judgment & Order of the High Court, upheld.
LD/63/44 Expro Gulf Ltd.
Union of India January22,2015 (Uttarakhand) Section 94A of the Income-tax Act, 1961 read with Article 226 of the Constitution of India- Notified Jurisdictional Area Notification by Central Government dated 1.11.2013 declaring “Cyprus” as Notified Jurisdictional Area under section 94A was just and proper; Writ Court should not ordinarily proceed to look into as to whether information sought by the Indian Authorities was ever declined by Government of Cyprus; satisfaction recorded by Indian Authorities for issuing such notification was not to be disbelieved without any evidence
LD/63/45 Neo Trust vs.
Income-tax Officer January 16,2015 (GUJ)
Section 164 of the Income-tax Act, 1961- Charge of tax where share of beneficiaries unknown
Option will be available to the Assessing Officer to resort to the provisions of section 164 in the event the beneficiary of the first level trust are discretionary trust to the extent of their respective shares, but such analogy or the mode would not be available by connecting the beneficiary of second level trust with third level trust even if they are discretionary trust or the shares of the beneficiaries are uncertain and such aspect may arise for consideration only if there is separate
Legal Update <
assessment of the tmstees of second level trust or third level trust
The Appellate Tribunal held that where some or all beneficiaries of the Trust are discretionary Trust, to the extent of share of beneficiary as discretionary Trust, the tax can be charged at the maximum marginal rate under Section 164 and not under Section 161.
The Gujarat High Court held as follows:
The Scheme of the Trust Act shows that the creation of the Trust is recognised and the provisions made for rights and liabilities of the Trustees and also of the beneficiaries show that there is a jural relation for enforcement of such rights and liabilities between the Trustees of any Trust and the beneficiaries of a Trust. The breach of trust by the Trustees in respect of any properties of the Trust can be enforced by the beneficiaries against the Trustees.
For the purpose of the tax, the Income-tax Act provides for assessment in representative capacity, but the representative capacity of the Trustees of the First Level Trust is to represent the beneficial interest of the beneficiary of its Trust, it cannot reach to the Third Level Trust or the beneficiaries of the Third Level Trust. Had the option been not available under Section 164 to the Assessing Officer, possibly the beneficiaries of Second Level Trust could also not be considered, but as such option is expressly made available under Section 164 of the Act, that may be read and interpreted for the purpose of tax under the Act, the Assessing Officer may be in a position to find out the status of the beneficiaries of the First Level Trust and while finding out the status of the beneficiaries of the First Level Trust, he may look upon the taxable liability of the beneficiaries of Second Level Trust, who are the beneficiaries of First Level Trust and if the tax payable is higher, while making assessment of the First Level Trust, option may be resorted to under Section 164 of the Act to that extent only, but such cannot be permitted again to reach to the Third Level Trust and to find out the taxable liability of the beneficiaries of the Third Level Trust.
Even if such principle is considered, it would be to the extent of beneficiaries of first level trust to be independently taxed or for considering the tax liability, beneficiary of second level trust may be considered, but it would not be for the beneficiary’s beneficiary to the extent of reaching beneficiaries of the third level trust as sought to be canvassed.
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The option is available to the Assessing Officer as observed earlier to tax the trustees or to the
|beneficiaries who receive the share in the trust property.|
|However, the option will be available to the assessing officer to resort to the provisions of section 164 in the event the beneficiary of the first level trust are discretionary trust to the extent of their respective shares, but such analogy or the mode would not be available by connecting the beneficiary of second level trust with third level trust even if they are discretionary trust or the shares of the beneficiaries are uncertain and such aspect may arise for consideration only if there is separate assessment of the trustees of second level trust or third level trust.|
|The Supreme Court held as follows:
After insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be
LD/63/47 Pooja Ravinder Devidasani vs.
State of Maharashtra December 17,2014 (SC) Section 138, read with section 141, of the Negotiable Instruments Act,
1881-Dishonour of cheque for insufficiency, etc., of funds in the account Where trade finance facility was extended by finance Company to default Company during six months period in 2008, against which cheques were issued by Company which stood dishonored, much before that in 2005 appellant resigned from the Board of Directors, continuation of criminal proceedings against appellant under Section 138, read with Section 141 would be a pure abuse of process of law and it has to be interdicted at the threshold
The respondent 2- finance Company had extended trade finance facility to the company in which the appellant was earlier a Director. Several cheques issued by company, in discharge of its liability towards part payment, stood dishonoured for insufficient funds. Respondent 2- finance
|The Appellate Tribunal has substantially erred in law in holding that since some or all beneficiaries of the Trust are discretionary Trust, to the extent of share of beneficiary as discretionary Trust, the tax can be charged at the maximum marginal rate under Section 164 and not under Section 161.|
|bifurcated into two: one for “sale of goods” and other for “services”, thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause 29-A of Article 366, die State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject- matter into the State List, the State Legislature has the competency to legislate over the subject.
Keeping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have “goods” component exigible to sales tax is constitutionally valid.
Note: Judgment of the Karnataka High Court, set aside.
LD/63/46 State of Karnataka vs.
PRO Lab & Ors. January 30,2015 (SC) Entry 25 of Schedule VI, of the Karnataka Sales Tax Act, 1957-Processing and supplying of photographs, photo prints and photo negatives
Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have “goods” component exigible to sales tax is constitutionally valid
Entry 25 of Schedule VI provides for levy of tax for processing and supply of photographs, photo prints and photo negatives. The constitutional validity of this Entry was challenged on the grounds that (i) the State Legislature does not have any power to impose tax on “services” and (ii) the retrospective effect given to the said Entry was violative of Article 265 of the Constitution being confiscatory in nature. The High Court held this Entry Constitutionally invalid.
Company filed complaints under the N.I. Act against the appellant ex-director and others for dishonor of cheques issued by the company. The Metropolitan Magistrate, took cognisance of the complaints and issued process against the accused (appellant) for the offence punishable under section 138.
The Supreme Court held as follows:
For making a Director of a Company liable for the offences committed by the Company under Section 141 of the N. I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.
Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefor. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. By
verbatim reproducing the wording of the Section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedings initiated against such person under Section 141 of the N.I. Act.
In the entire complaint, neither the role of the appellant in the affairs of the Company was explained nor in what manner the appellant is responsible for the conduct of business of the Company, was explained. From the record it appears that the trade finance facility was extended by the Respondent No. 2 to the default Company during the period from 13th April, 2008 to 14th October, 2008, against which the Cheques were issued by the Company which stood dishonored. Much before that on 17th December, 2005 the appellant resigned from the Board of Directors. Hence, we have no hesitation to hold that continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the N. I. Act is a pure abuse of process of law and it has to be interdicted at the threshold.
Note: Judgment of the Bombay High Court, set aside. ■
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THE CHARTERED ACCOUNTANT MARCH 2015 75