SC lifts corporate veil on share deals

The Supreme Court lifted the corporate veil and upheld the cancellation of plot for an information technology campus because a Singapore company, the allottee, transferred the plot to a Dubai company without approval. In this case, Estate Officer, UT Chandigarh vs Esys Information Technologies Ltd, the plot was allotted for running an institution. However, the Singapore firm transferred its shares to a Dubai firm, Esys Global Holdings. There was another disputed transfer of shares to a Chennai firm. The estate officer asked the allottee company about the share transactions and nature of the business. He did not get a satisfactory answer. Therefore, he threatened to take back the land. The company moved the high court. It stayed the take-over. On appeal, the Supreme Court set aside the high court order. It stated that the company had concealed facts about the share transfers and not come to the court with "clean hands". There was a sale, not mere transfer of shares. The judgement emphasised that courts are entitled to "lift the mask of corporate veil when it is used for perpetrating fraud or for evasion of tax. Corporate veil can also be lifted where promoters act in furtherance of their dishonest and fraudulent design."

Arbitration clause must be followed

When the arbitration clause in an agreement specifies the place of arbitration and the law applicable, it should be followed, the Supreme Court stated while dismissing the appeal case, Ashapura Minechem Ltd vs Eitzen Bulk A/S. The dispute arose out of the Contract of Affreightment Eitzen of Denmark entered into with Ashapura of Mumbai as charterers for shipment of bauxite from India to China. Disputes having arisen, the arbitrator in London held that Ashapura was guilty and awarded Eitzen Bulk $36,306,104-plus interest. The Indian firm moved Gujarat courts against the verdict without success as Eitzen insisted that Indian courts had no jurisdiction. However, a division bench of the Gujarat high court held in favour of the Mumbai firm. The dispute was also before the Bombay high court which ordered enforcement of the award. Meanwhile, the foreign firm got decrees in its favour from courts in the Netherlands, England and New York, all of them ruling that the award was enforceable in India. Both parties approached the Supreme Court. It ruled that the Bombay High Court was right and the Gujarat High Court wrong.

Penalty for violation of labour laws

The Supreme Court has imposed a fine on Growth Shop of Tata Steel Ltd in Jharkhand for violating various provisions of the Factories Act and rules. The allegations were that the management took overtime service from contract labourers without providing them overtime slips, they were not given leave book, and in the canteen there was no partition for women workers, doors and windows were not fly-proof, there was no rate card nor hot water to clean dishes. Cases were filed against the manager and others concerned. They moved the high court which refused to quash the criminal proceedings. They appealed to the Supreme Court. It gave a chance to rectify the defects as they were "apparently trivial". The accused persons returned stating that the defects have been cured. Then the question arose whether that was enough and whether they should be punished under Section 92 of the Act. They argued that they had no criminal intent and therefore should be exonerated. The state government contended that the violations should not be considered "trivial". The Supreme Court ruled that though there was no criminal intent, still labour law was violated. It imposed Rs 50,000 as punishment.

Club seeks sales tax exemption for food

A tricky question over sales tax on food and drinks served in a club to its permanent members has arisen in the Supreme Court and a division bench has referred it to a larger bench. The West Bengal government demanded ST from permanent members of Calcutta Club Ltd. The company objected, stating that as permanent members, they constituted the club, they are not "buying" anything, the suppliers and consumers are the same, and the items are bought from the market by the club as their agent. This view was accepted by the tribunal and the Calcutta high court. The government appealed, arguing that after an amendment to Article 366 of the Constitution defining sale and purchase of goods, the transaction was exigible to tax. The interpretation of Article 366(29A) in this case, West Bengal vs Calcutta Club, will affect clubs all over the country.

Pack must show consumer care address

The Delhi High Court has dismissed the plea of Standard Fireworks Ltd of Sivakasi, Tamil Nadu, seeking to quash its prosecution by the Delhi government for not printing the consumer care number on a package of 'Thunder Bomb' sold in the capital. The manufacturers argued that the metrology rules mandated only the printing of their address, but not the consumer care number. The high court rejected the defence pointing out that Rule 6(2) of the Legal Metrology (Packaged Commodities) Rules clearly provided for mentioning of the name, address, telephone number, e-mail address of the office which can be contacted in case of any consumer complaint.

Industrial plot allotment cancelled

The Bombay High Court has passed a series of orders on a writ petition alleging illegal allotment of plots by Maharashtra Industrial Development Corporation and conversion of the plots with the connivance of officials in Ahmednagar. The Minister of Industries excused the illegalities by allowing regularisation of the plots by paying additional interest. When inquiries were held into the scam, files went missing. The court directed the managing director to conduct probe against the erring officers for "unauthorisedly and illegally carving out plots from open spaces and amenity areas, allotting the plots by entertaining individual applications, failing to take action against the allottees for unlawfully subletting or transferring the plots to third persons and also for carrying out construction by encroaching upon the marginal open spaces." The permission to members of the Association of Ahmednagar Manufacturers Association to allow construction was withdrawn. The court also sought quarterly action taken reports to monitor the compliance of its orders.