Liquidator kept out of SFCs claims

A weekly selection of key court orders

The Supreme Court last week ruled that the official liquidator of a wound-up company cannot exercise any power to adjudicate and determine the claims of statutory corporations when the company judge has permitted them to stand outside the liquidation proceedings. The corporations are secured creditors and they can pursue their claims under Section 29 of the State Financial Corporations (SFC) Act on a priority basis. The only limitation is that the dues of the workers also get priority along with secured creditors. The court clarified this position in its judgment, Laxmi Fibres Ltd vs Andhra Pradesh Industrial Development Corporation. The corporation had seized the assets of the failed firm and sold them to the highest bidders, invoking the Companies Act. The firm moved the high court claiming that the corporation must follow the decision of the liquidator. The single judge accepted the argument. But a division bench overruled it. Therefore, the firm moved the Supreme Court. Dismissing the appeal, the apex court stated that when the company judge had allowed the corporation to stand outside the liquidation proceedings and permitted to proceed according to the SFC Act, the liquidator cannot claim any right to decide the issue of secured creditors. "They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors," the judgment said.

Re-auction ordered due to illegalities
The Supreme Court last week set aside the auction of a company which was taken over by an official liquidator and ordered him to conduct auction once again after a fresh valuation and fixing the reserve bid. He shall recover possession from the earlier auction buyer. The court did so because the auction was not properly conducted in the case, Tech Invest India vs Assam Power and Electricals. Tech Invest had taken a loan of Rs 6 lakh from Assam Power. The latter alleged that the borrower company failed to repay it and tried to sell its assets. Therefore the high court appointed an official liquidator who ordered auction. The company moved the Uttaranchal High Court alleging that the auction of its property worth Rs 7 crore was being conducted without reserve price, following just one public notice. The high court rejected the objection and the assets were sold for Rs 45.45 lakh. The sale was confirmed. On appeal, the Supreme Court set aside the high court order as the company was not heard on merits. There was illegality and irregularity in the auction. Therefore, "the entire process is vitiated. Further, the company judge also failed to exercise his judicial discretion to see that the properties are sold at a reasonable price."

Capital gains benefit for advance payments

A company which sells its assets in an urban area and invests the money in a non-urban area has a period of three years, not one, to avoid capital gains tax. Moreover, the advances given for purchase of land in the new area will entitle it to get the exemption, though it may not have actually completed the sale formalities. The Supreme Court stated so last week in its judgment, Fibre Boards Ltd vs CIT. In this case, the firm sold its industrial unit in Thane and moved to a village in Pune district. The capital gains were utilised to pay advances to various persons in the deal. The income tax authorities demanded capital gains tax on the ground that there was no actual purchase and the advances given will not entitle the firm to get exemption from the tax provision under Section 54G of the Income Tax Act as there was no 'utilisation'. The Bombay high court upheld the view of the tax authorities. However, the firm's appeal was allowed and the high court view was set aside by the Supreme Court. The judgment said: "Advances paid for the purpose of purchase and/or acquisition of assets would certainly amount to utilisation of the capital gains made by him for the purpose of purchasing and/or acquiring the assets."

Industrial distiller loses appeal
The Supreme Court last week dismissed the appeal of Kalyan Chemicals and upheld the levy of an "administrative fee" at the rate of 50 paise per bulk litre or any other rate as may be fixed by the Andhra Pradesh Government from time to time on industrial alcohol obtained from a distillery. The distilling company, which manufactures Ethyl Acetate, the basic raw material for which is industrial alcohol, argued that state government had no legislative competence to levy privilege fees or any other fees in respect of alcoholic liquors which are not meant or fit for human consumption. The high court, and now the Supreme Court in appeal, rejected the view and stated that regulatory fees intended to prevent the conversion of alcoholic liquor for industrial use to that for human consumption is legal.

Customs duty confirmed on web press
The Supreme Court dismissed the appeal of DR Enterprises which imported a web printing machine under the open general allowance and sought 35 per cent as concessional rate under a 1980 notification. The customs authorities maintained that the benefit is given only for those machines which have a capacity of 30,000 copies an hour. The importer claimed that it has a capacity of 36,000 but the authorities contested it. The Bombay High Court found that the capacity was 25,000. The Supreme Court stated that the firm could not prove that its capacity was high enough to entitle it to the concessional rate.

Novartis, Oriental 'hand in glove'
The National Consumer Commission last week imposed damages on Novartis India Ltd and Oriental Insurance Company for "playing a game as hand in gloves with each other, causing unnecessary harassment and deprivation of vital medical treatment" to Rasula Begum. Both have been held liable for deficiency in service and Novartis appeal was dismissed with costs. Rasula Begum was suffering from Macular Degeneration (AMD) with visual disorder and was required to take Lucentis injection from Norvartis India. The expenses of treatment were covered under the insurance policy issued by the Oriental Insurance Co. The complainant took four injections, whereas, the cost of fourth dose, amounting to Rs 71,412, was repudiated, leading to a consumer complaint. The district forum in Kolkata and the state commission allowed the petition and imposed compensation. Novartis appealed to the national commission. The insurer also contested the order alleging that the woman did not go for monthly medical follow-up. The commission stated that it was surprising Oriental raised such "flimsy ground". Its conditions are "unconscionable". The follow-up is not under patients' control. It completely depends upon doctor's availability and therefore a few days' delay could be ignored.