Omissions not fatal to bid: SC

The Supreme Court last week set aside the judgment of the Calcutta High Court in a tender dispute and ruled that disqualification of Rashmi Metaliks Ltd by the Kolkata Metropolitan Development Authority on the ground of the company having failed to submit its latest income tax return along with its bid was not sufficient reason for disregarding its offer. The authority was, therefore, directed to "proceed further in the matter on this predication." In this case, one of the conditions for the bid was that the latest tax return should be filed along with the application. This was not done by the company. The high court held that it was an essential condition and hence, the bidder was rightly disqualified. The appeal of the firm was allowed by the Supreme Court stating that the condition was not an essential term of the 'notice inviting tender' and the financial bid of the company was substantially lower than others'. The Supreme Court examined the income tax returns filed later and found that for the Assessment Year 2011-2012, the gross income of the company was Rs 15,34,05,627, although, for the succeeding Assessment Year 2012-2013, the income tax was nilL, but substantial tax had been deposited. "We think that the income tax return would have assumed the character of an essential term if one of the qualifications was either the gross income or the net income on which tax was attracted. In many cases, this is a salutary stipulation, since it is indicative of the commercial standing and reliability of the tendering entity," the judgment said, and added: "This feature being absent, we think that the filing of the latest tax return was a collateral term. Accordingly, the tendering authority ought to have brought this discrepancy to the notice of the company and if even thereafter no rectification had been carried out, the position may have been appreciably different.

Company can't stop flat mortgage
The right to occupy a flat is a species of right to property and the flat can be mortgaged to avail of a loan for the flat owner's benefit, the Supreme Court stated last week while dismissing the appeal of Hill Properties Ltd against the attachment of a Malabar Hill flat at the instance of a petition by Union Bank of India before the Debt Recovery Tribunal. A shareholder of the building company mortgaged the flat, which was attached under the Securitisation Act. The company challenged it. Dismissing its appeal, the court stated: "We find that neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners' benefit. A legal bar on the saleability or transferability of such a species of interest, in our view, will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability," the court said while upholding the view of the Bombay High Court. The company had argued that the occupier had permission only to use the flat owned by it and the rest of the substantial rights belonged to the company. A shareholder could not mortgage the flat without the permission of the company which was in violation of the articles of association of the company, it was argued by the company. The Supreme Court rejected this line of argument. It said: "It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, society or the company. So far as a builder is concerned, the flat owner should pay the price of the flat. So far as the society or company in which the flat owner is a member, he is bound by the laws or articles of association of the company, but the species of his right over the flat is exclusively that of his. That right is always transferable and heritable."

Sugar mill land take-over proper

The Supreme Court last week set aside the judgment of the Allahabad High Court, which had ordered the Uttar Pradesh government to return land earlier owned by Lakshmi Sugar and Oil Mills Ltd to the company. Since several sugar mills were running losses, the state government had acquired them after passing the UP Sugar Undertakings (Acquisition) Act. The State Sugar Corporation was set up to revive the sick units to protect cane growers. Lakshmi Mill challenged the take-over of its land stating that its land in Hardoi was agricultural, and therefore exempted from acquisition. The high court accepted the argument and asked the government to return the land to the mill. The government appealed to the Supreme Court. It held that the land was used for industrial purposes, not agricultural. This was evident as the land had been treated as industrial for purposes of the Land Ceiling Act. "It is difficult to see how the same land could be treated to be held or occupied for cultivation, for the Sugar Undertakings (Acquisition) Act," the judgment said.

Blacklisting of bidder upheld
The Delhi High Court last week upheld the decision of the central government to blacklist a company in all business dealings with it as its executives had tried to influence the decision makers in a bid for bullet-proof jackets."The representative of the firm had no business to engage in conversation with Sanjay Baniwal, who was an officer involved in the evaluation process," the high court stated while dismissing the writ petition of the firm, Anjani Technoplast Ltd vs Union of India. The judgment noted from the narration of facts that the company representatives tried "outright flattery" by describing him as an upright and bold officer who could bring reforms. Then messages were also sent indicating that the officer was about to be transferred from his post. The judgment stated that all these certainly amounted to "a malpractice which a tenderer was not expected to adopt, more so when a decision had been taken that no bidder would contact any officer concerned with technical evaluation of the product and the said decision was accepted by all the tenderers without any reservation."

Tax liability on share acquisition
The Bombay High Court held last week that investment made in the shares of a private limited company for purposes of acquiring control over the business conducted by it, cannot be said to be stock­in­trade and is capital asset. In this case, Accra Investment (P) Ltd, an investment company, sold shares of Millennium Alcobev Ltd, an unlisted company, to two of its shareholders, namely, M/s. Scottish & Newcastle and United Breviaries Ltd. Accra then claimed benefit of deduction of the entire capital gains as they were invested in specified bonds. The assessing officer determined that the amounts earned on sale of shares by the assessee company would be taxable under the head profit and gains of business and not under the head capital gains. The income tax tribunal decided against the company and ruled that the company had purchased the shares of Millennium Alcobev with the object of trading in them and not to hold as capital asset. The high court reversed that view and accepted that of the assessee company.