CORPORATE LAW

Accused: Preponderance of Probability

In a criminal trial, accused is presumed to be innocent until proved guilty beyond reasonable doubt. The Latin maxim, ‘Ei incumbit probatio qui dicit, non qui negat’ signify that the burden of proof is on prosecution, who asserts, not on accused, who denies.

In case of Woolmington vs. The Director of Public Prosecutions, [1935] AC 462, [1935] UKHL 1, the House of Lords reiterated following:

“Throughout the web of the English Criminal Law one golden thread is always to be seen, that it is the duty of the prosecution to prove the prisoner’s guilt subject to what I have already said as to the defence of insanity and subject also to any statutory exception. If, at the end of and on the whole of the case, there is a reasonable doubt, created by the evidence given by either the prosecution or the prisoner, as to whether the prisoner killed the deceased with a malicious intention, the prosecution has not made out the case and the prisoner is entitled to an acquittal.”

 In King Emperor vs U. Damapala, (37) 24 A.I.R. 1937 Rang. 83, Full Bench of Rangoon High Court laid a proposition and answered it in following manner:

“The main proposition may be laid down simply as follows: in all criminal’ cases where there is a reasonable doubt as to the guilt of an accused person at the close of the whole of the evidence the accused is entitled to be acquitted?”

“Put shortly, the test is not ’whether the accused has proved beyond all reasonable doubt that he comes within any exception to the Indian Penal Code, but whether in setting up his defence he has established a reasonable doubt in the case for “the prosecution and has thereby earned his right to an acquittal.”

In Dahyabhai Chhaganbhai Thakker vs State of Gujarat, Criminal Appeal No. 58 of 1962, the Supreme Court stated following:

“The doctrine of burden of proof in the context of the plea of insanity may be stated in the following propositions:

(1) The prosecution must prove beyond reasonable doubt that the accused had committed the offence with the requisite mens rea, and the burden of proving that always rests on the prosecution from the beginning to the end of the trial.

(2) There is a rebuttable presumption that the accused was not insane, when he committed the crime, in the sense laid down by s. 84 of the Indian Penal Code: the accused may rebut it by placing before the court all the relevant evidence-oral, documentary or circumstantial, but the burden of proof upon him is no higher than that rests upon a party to civil proceedings.

(3) Even if the accused was not able to establish conclusively that he was, insane at the time he committed the offence, the evidence placed before the court by the accused or by the prosecution may raise a reasonable doubt in the mind of the court as regards one or more of the ingredients of the offence, including mens rea of the accused and in that case the court would be entitled to acquit the accused on the ground that the general burden of proof resting on the prosecution was not discharged.”

In case of Harbhajan Singh vs State of Punjab, Criminal Appeal No. 53 of 1951 following was stated by the Supreme Court:

“Where an accused person is called upon to prove that his case falls under an Exception, law treats the onus as discharged if the accused person succeeds “in proving a preponderance of probability.” As soon as the preponderance of probability is proved, the burden shifts to the prosecution which has still to discharge its original onus. It must be remembered that basically, the original onus never shifts and the prosecution has at all stages of the case, to prove the guilt of the accused beyond a reasonable doubt. As Phipson has observed, when the burden of an issue is upon the accused, he is not, in general, called on to prove it beyond a reasonable doubt or in default to incur a verdict of guilty; it is sufficient if he succeeds in proving a preponderance of probability, for then the burden is shifted to the prosecution which has still to discharge its original onus that never shifts, i.e., that of establishing, on the whole case, guilt beyond a reasonable doubt.”

In Rabindra Kumar Dey vs State of Orissa, Criminal Appeal No. 193 of 1971 following was held by the Supreme Court:

On a consideration of the evidence and the circumstances we are satisfied that the appellant has been able to prove that the explanation given by him was both probable and reasonable judged by the standard of the preponderance of probabilities This being the position, it was for the prosecution to prove affirmatively in what manner the amount was misappropriated after it had been transferred from the custody of the appellant to the custody of the Nazir. Such proof is wholly lacking in this case. As the accused has given a reasonable explanation, the High Court was in error in drawing an adverse inference against him to the effect that he had misappropriated the money.” 

In case of Partap vs The State Of U.P, Criminal Appeal No.- 120 of 1971, the Supreme Court stated following qua two full bench decision of Allahabad High Court (i) Parbhoo And Ors. vs Emperor, AIR 1941 All 402 (ii) Rishi Kesh Singh And Ors. vs The State, AIR 1970 All 51:

“The findings of the Trial Court on the defence version indicate that a question of law arise here which seems to have troubled several High Courts. It gave rise to two Full Bench decisions of the Allahahad High Court, the first in Parbhoo v. Emperor,(l) and the second in Rishi Kesh Singh & ors. v. the State(‘). It does not seem to have been considered in the same form by this Court. I think this is an appropriate case in which this Court could consider and decide it, and, it is because this aspect of the case was ignored by the Trial Court as well as the High Court that I consider this to be a fit case for a reconsideration of evidence and interference by this Court under Article 136 or the Constitution.”

The following was held in Partap vs The State Of U.P, Criminal Appeal No.- 120 of 1971:

“In the light of the above discussion, the conclusion is inescapable that the appellant had succeeded in establishing by a preponderance of probability, that the deceased was within a striking distance, poised for imminent attack on the appellant with a spear, when the latter fired the fatal gunshot. In such a situation, the appellant had reasonable and immediate apprehension that he would suffer death or grievous hurt if he did not fire at the deceased. Thus, the death was, in all probability, caused by the appellant in the exercise of his right of private defence.  

In Vijayee Singh and ors vs State of Uttar Pradesh, Criminal Appeal No. 375-77 of 1987, the Supreme Court reiterated following:

“The accused may also show on the basis of the material a preponderance of probability in favour of his plea. If there are absolutely no circumstances at all in favour of the existence of such an exception then the rest of the enquiry does not arise in spite of a mere plea being raised. But if the accused succeeds in creating a reasonable doubt or shows preponderance of probability in favour of his plea, the obligation on his part under Section 105 gets discharged and he would be entitled to an acquittal.” 

In Satya Narain Yadav vs Gajanand, Criminal Appeal No. 305 of 2001, the Supreme Court stated following:

51. The concepts of probability, and the degrees of it, cannot obviously be expressed in terms of units to be mathematically enumerated as to how many of such units constitute proof beyond reasonable doubt. There is an unmistakable subjective element in the evaluation of the degrees of probability and the quantum of proof. Forensic probability must, in the last analysis, rest on a robust common sense and, ultimately, on the trained intuitions of the Judge. While the protection given by the criminal process to the accused persons is not to be eroded, at the same time, uninformed legitimization of trivialities would make a mockery of administration of criminal justice. This position was illuminatingly stated by Venkatachaliah, J. (as His Lordship then was) in State of U.P. v. Krishna Gopal (1988 (4) SCC 302).”

 A mere plausible explanation is not expected from the accused and it must be more than a plausible explanation by way of rebuttal evidence. In other words, the defence raised by way of rebuttal evidence must be probable and capable of being accepted by the Court.

Rajni Sinha

Advocate Bombay High Court

7738080174

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CORPORATE LAW

Survivorship Vs Intestate Succession

The Hindu Succession Act, 1956 came into force on 17th June, 1956. The section 4 of the Hindu Succession Act, 1956 reads as follows:

         “4. Over-riding effect of Act. —

(1) Save as otherwise expressly provided in this Act, —

(a) any text, rule or interpretation of Hindu law or any custom or usage as part of that law in force immediately before the commencement of this Act shall cease to have effect with respect to any matter for which provision is made in this Act;

(b) any other law in force immediately before the commencement of this Act shall cease to apply to Hindus in so far as it is inconsistent with any of the provisions contained in this Act.”

Thus, any text, rule or interpretation of Hindus law including customs and usage ceased to have effect if same is contrary to the Hindu Succession Act, 1956. Past case law including few cited below has been rendered ineffective if its interpretation is contrary to provision of the Hindu Succession Act, 1956. However, few of cases is cited below to give reader a flavor of classical cases:

In case of Girja Bai vs Sadashiv Dhundiraj, (1916) 18 BOMLR 621, the privy council held following:

“Partition does not give him (a coparcener) a title or create a title in him; it only enables him to obtain what is his own in a definite and specific form for purposes of disposition independent of the wishes of his former co- sharers.”

In case of Suraj Narain and another vs. Iqbal Narain and others, (1913) ILR 35 All 80, following was held:

“10. The principle applicable to cases of separation from the joint undivided family has been clearly enunciated by this Board in Rewun Persad v. Mussumat Radha Beebyi (1846) 4 M.I.A. 137 and the well-known case of Appovier v. Rama Subba Aiyani (1866) 11 M.I.A. 75. What may amount to a separation or what conduct on the part of some of the members may lead to disruption of the joint undivided family and convert a joint tenancy into a tenancy in common must depend on the facts of each case. A definite and unambiguous indication by one member of intention to separate himself and. to enjoy his share in severalty may amount to separation. But to have that effect the intention must be unequivocal and clearly expressed. In the present case that element appears to their Lordships to be wholly wanting. “

In case of Soundararajan vs. T.R.M.A.R.R.M. Arunachalam Chetty, (1916) ILR 39 Mad 159, cited various Hindu text for arriving at following decision:

“In the result, I would give the following answer to the reference, namely, that a member of a joint Hindu family becomes separated from the other members by the fact of suing them for partition and by the unequivocal declaration made in the plaint in that suit when such unequivocal declaration has been clearly expressed to the other coparcener or coparceners through the Court or otherwise. “

The section 6 of the Hindu Succession Act, 1956 provides for devolution of interest in the coparcenary property. Section 8 lays down the general rules of succession that the property of a male dying intestate devolves according to the provisions of the Chapter as specified in Clause (1) of the Schedule. In the Schedule appended to the Act, natural sons and daughters are placed as Class I heirs. Section 19 of the Act provides that in the event of succession by two or more heirs, they will take the property per capita and not per stirpes, as also tenants-in-common and not as joint tenants. The “Explanation Clause” to subsection 3 of section 6 provides following:

“Explanation. —For the purposes of this sub-section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.”

This explanation provides for legal fiction with regard to deemed partition immediately before the death of deceased coparcener. In case of Gurupad Khandappa Magdum vs Hirabai Khandappa Magdum and Ors, 1978 SCR (3) 761, following was held by Supreme Court:

“Explanation 1 to section 6 resorts to   the simple expedient, undoubtedly fictional, that the interest of a Hindu Mitakshara coparcener “shall be deemed to be “the share in the property that would have been allotted to him if a partition of that property had taken place immediately before his death. What is therefore required to be assumed is that a partition had in fact taken place  between the deceased and his coparceners immediately before his death. That assumption, once made, is irrevocable. In other words, the assumption having been made once for the purpose of ascertaining the share of the deceased in the coparcenary property, one cannot go back on that assumption and ascertain the share of the heirs without reference to it. The assumption which the statute requires to be made that a partition had in fact taken place must permeate the entire process of ascertainment of the ultimate share of the heirs, through     all its stages. To make the assumption at the initial stage for the limited purpose of ascertaining the share of the deceased and then to ignore it for calculating the quantum of the share of the heirs is truly to permit one’s imagination to boggle.”

In State of Maharashtra vs Narayan Rao Sham Rao Deshmukh & Ors, 1985 SCR (3) 358, following was stated by the Supreme Court, while distinguishing it from Gurupad Khandappa Magdum vs Hirabai Khandappa Magdum and Ors:

“A legal fiction should no doubt ordinarily be carried to its logical end to carry out the purposes for which it is enacted but it cannot be carried beyond that. It is no doubt true that the right of a female heir to the interest inherited by her in the family property gets fixed on the death of a male member under section 6 of the Act but she cannot be treated as having ceased to be a member of the family without her volition as otherwise it will lead to strange results which could not have been in the contemplation of Parliament when it enacted that provision and which might also not be in the interest of such female heirs. “

In Uttam vs Saubhag Singh & Ors, Civil Appeal No.2360 of 2016, the Supreme Court laid following guidelines with regard to to joint family property governed by the Mitakshara School, prior to the amendment of 2005 :        

“(i) When a male Hindu dies after the commencement of the Hindu Succession Act, 1956, having at the time of his death an interest in Mitakshara coparcenary property, his interest in the property will devolve by survivorship upon the surviving members of the coparcenary (vide Section 6).

(ii) To proposition (i), an exception is contained in Section 30 Explanation of the Act, making it clear that notwithstanding anything contained in the Act, the interest of a male Hindu in Mitakshara coparcenary property is property that can be disposed of by him by will or other testamentary disposition. 

(iii) A second exception engrafted on proposition (i) is contained in the proviso to Section 6, which states that if such a male Hindu had died leaving behind a female relative specified in Class I of the Schedule or a male relative specified in that Class who claims through such female relative surviving him, then the interest of the deceased in the coparcenary property would devolve by testamentary or intestate succession, and not by survivorship. 

(iv) In order to determine the share of the Hindu male coparcener who is governed by Section 6 proviso, a partition is effected by operation of law immediately before his death. In this partition, all the coparceners and the male Hindu’s widow get a share in the joint family property. 

(v) On the application of Section 8 of the Act, either by reason of the death of a male Hindu leaving self-acquired property or by the application of Section 6 proviso, such property would devolve only by intestacy and not survivorship.

(vi) On a conjoint reading of Sections 4, 8 and 19 of the Act, after joint family property has been distributed in accordance with section 8 on principles of intestacy, the joint family property ceases to be joint family property in the hands of the various persons who have succeeded to it as they hold the property as tenants in common and not as joint tenants.

In G.Sekar vs Geetha & Ors, Civil Appeal No. 2535 of 2009, the Supreme Court emphasized following:

“20. We may in the aforementioned backdrop notice the relevant portion of the Statement of Objects and Reasons of the 2005 Act, which reads as under: 

“3. It is proposed to remove the discrimination as contained in section 6 of the Hindu Succession Act, 1956 by giving equal rights to daughters in the Hindu Mitakshara coparcenary property as the sons have. Section 23 of the Act disentitles a female heir to ask for partition in respect of a dwelling house wholly occupied by a joint family until the male heirs choose to divide their respective shares therein. It is also proposed to omit the same section so as to remove the disability on female heirs contained in that section.”

21. It is, therefore, evident that the Parliament intended to achieve the goal of removal of discrimination not only as contained in Section 6 of the Act but also conferring an absolute right in a female heir to ask for a partition in a dwelling house wholly occupied by a joint family as provided for in terms of Section 23 of the Act. “

In case of Prakash & Ors. Vs Phulavati & Ors, Civil Appeal No.7217 Of 2013, the Supreme Court stated following with regard to birth of daughter for the purpose of the Hindu succession (Amendment) Act, 2005:

23. Accordingly, we hold that the rights under the amendment are applicable to living daughters of living coparceners as on 9th September, 2005 irrespective of when such daughters are born. Disposition or alienation including partitions which may have taken place before 20th December, 2004 as per law applicable prior to the said date will remain unaffected. Any transaction of partition effected thereafter will be governed by the Explanation.

Thus, above decision of the Supreme Court overruled, Vaishali Satish Ganorkar & Anr vs Mr. Satish Keshaorao Ganorkar & Anr, AIR 2012, BOM 101, where the Bombay High Court held that the amendment will not apply unless the daughter is born after the 2005 Amendment.

Rajni Sinha,

Advocate Bombay High Court,

7738080174

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CORPORATE LAW

Caveatable Interest: Succession

In case of grant of probate, an application for grant of probate is to be filed in terms of Sections 275 and 276 of the Indian Succession Act, 1925. Particulars stated in the said provisions are to be furnished by the applicant. The petition for grant of probate is to be signed and verified. Citations in terms of Section 283 (1)(c) are to be issued calling upon all such persons who claim to have any interest in the estate of the deceased. Citations are issued in order to enable such persons to see the proceedings before the grant of probate and if necessary to oppose the same. Such persons to whom citations have been issued whether general or special, may file a caveat.

All proceedings are required to be taken only upon service of notice to the caveator(s). Section 286 uses the word “contention” to mean appearance of any one in person, or by his recognized agent, or by a pleader duly appointed to act on his behalf, to oppose the proceeding. In the contentious cases the procedures which are required to be adopted are specified in Section 295. Neither under section 284 nor under Section 295 of the Indian Succession Act, 1925 a caveator is required to show any interest in the estate of the deceased, whether the same would mean that anybody and everybody who intends to oppose the grant of probate would be entitled to lodge caveat is issue, whether any person can be said to have caveatable interest in the probate proceedings.

It is no more res integra that probate court does not decide any question of title or of the existence of the property itself during probate proceedings. Thus, any interest due to dispute in title of property cannot be said to have “caveatable interest” in probate proceeding. The probate court is only concerned with genuineness of the testator will.

In Basanti Devi vs. Raviprakash Ramprasad Jaiswal, Appeal (civil) 4896 of 2007, supreme court, following is stated:

“21. The Probate Court, indisputably, exercises a limited jurisdiction. It is not concerned with the question of title. But if the probate has been granted subject to compliance of the provisions of the Act, an application for revocation would also lie.”

In probate proceeding, the law governing the intestate succession must also be kept in mind. The right of the reversioner or even the doctrine of ‘spes successonis’ will have no application for determining the issue in a case of probate proceeding.

The section 284 of the Indian Succession Act, 1925 provides for lodging of caveats against the grant of probate or administration before district judge or district delegate. The question regarding “caveatable interest” within the meaning of the Indian Succession Act, 1925 (1925 Act) vis-a-vis the Rules framed by the Calcutta High Court in the year 1940 has been dealt in detail in case of Krishna Kumar Birla vs Rajendra Singh Lodha & Ors, in Civil Appeal No.-2277 of 2008 by supreme court of India and following was stated:

“103. We may notice that in Jagdish Prasad Tulshian vs. Yasheen Jain  [AIR 2007 Calcutta 218], the Calcutta High Court held:

20. In the case of Elizabeth Antony v. Michel Charles John Crown Lengera reported in 1990 (3) SCC 333 : (AIR 1990 SC 1576), the Supreme Court was dealing with an application for revocation of grant of a Probate and in the said case a party sought to establish a caveatable interest on the basis of a Will though the said Will or the copy thereof was not filed before the Court. In such a case, the Supreme Court was of the view that it was not expedient to reopen the matter. In the said case, the Supreme Court, however, held that for the purpose of revocation of a grant within the scope of Section 263 of the Indian Succession Act, the absence of caveatable interest does not stand in the way. In the case before us, we are not concerned with a case of revocation of grant. Therefore, the principle laid down in the said decision, cannot have any application to the case before us. Moreover, in that case, even the copy of the purported Will was not produced.”

What would be the cavetable interest would, thus, depend upon the fact situation obtaining in each case. No hard and fast rule, as such, can be laid down. We have merely made attempts to lay down certain broad legal principles.”

(Emphasis Supplied)

In Jagjit Singh & Ors vs Pamela Manmohan Singh, Civil Appeal No. 8031 of 2001 by supreme court, following was held:

“13. It is thus evident that apparently conflicting views have been expressed by coordinate Benches of this Court on the interpretation of the expression “caveatable interest”. In Krishna Kumar Birla’s case, the Bench did not approve the judgments of Calcutta High Court in Bhobosoonduri Dabee’s case and Madras High Court in G. Jayakumar’s case wherein it was held that any person having some interest in the estate of the deceased can come forward and oppose the grant of probate. As against this, in G. Gopal’s case, the dictum that a person who is having a slight interest in the estate of the testator is entitled to file caveat and contest the grant of probate has been reiterated. This being the position, we feel that the issue deserves to be considered and decided by a larger Bench.” 

This matter was itself dismissed as withdrawn on 27th March, 2015 after Interlocutory Application(I.A.) for clarification/modification of judgement. Be as it may, in case of Krishna Kumar Birla’s case itself both cases have been duly dissected and examined in para 75 to 78.

In case of Yash Vardhan Mall vs Tejash Doshi, Civil Appeal No. 19635-19636 of 2017, the Supreme Court set aside order of high court of Calcutta in case of existence of two successive will on following point:

On a detailed scrutiny of the affidavit filed in support of the caveat, we are satisfied that the Division Bench went wrong in not permitting the Appellant to contest the proceeding of probate of the Will dated 22.04.2013, especially after holding that he has a caveatable interest. It is relevant to mention that the petition filed by the Appellant for grant of probate of the Will dated 01.03.2013 was rejected by the District Judge, Alipore on the ground that the application for probate of the Will dated 22.04.2013 was pending and that the Appellant had lodged a caveat in that proceeding. It was further held in the said order passed by the District Judge on 17.04.2017 that the Appellant will have sufficient opportunity to prove his allegations against the Respondent in the said proceeding.”  

Under Hindu Succession Act, 1956 there is no possibility of any person other than heirs to derive a remote interest in the estate of the deceased not being legatee also, the decisions of various High Courts to the effect that the reversioner and/or distant relatives would have a caveatable interest are no longer good law.

Rajni Sinha,

Advocate Bombay High Court,

7738080174

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CORPORATE LAW

SINGLE EYE WITNESS: CORROBORATION OF TESTIMONY

Testimony of sole eye witness is seldom considered as credible. Inordinate delay in filing FIR, interested and related sole eye witness compels the court to look for corroboration. However, the section 134 of the Evidence Act, 1872 provides for no particular number of witnesses in any case be required for the proof of any fact.

In Vadivelu Thevar vs the State of Madras, Criminal Appeal No. 24 & 25 of 1957, the Supreme Court laid following principle with regard to evidence of single witness:

“On a consideration of the relevant authorities and the provisions of the Indian Evidence Act, the following propositions may be safely stated as firmly established: 

(1) As a general rule, a court can and may act on the testimony of a single witness though uncorroborated. One credible witness outweighs the testimony of a number of other witnesses of indifferent character.

(2) Unless corroboration is insisted upon by statute, courts should not insist on corroboration except in cases where the nature of the testimony of       the single witness itself requires as a rule of prudence, that corroboration should be insisted upon, for example in the case of a child witness, or of a witness whose evidence is that of an accomplice or of an analogous character.

(3) Whether corroboration of the testimony of a single witness is or is not necessary, must depend upon facts and circumstances of each case and no general rule can be laid down in a matter like this and much depends upon the judicial discretion of the Judge before whom the case comes.

In view of these considerations, we have no hesitation in holding that the contention that in a murder case, the court should insist upon plurality of witnesses, is much too broadly stated. Section 134 of the Indian Evidence Act has categorically laid it down that ” no particular number of witnesses shall in any case be required for the proof of any fact.”

In Shivaji Sahebrao Bobade & Anr vs State Of Maharashtra, Criminal Appeal No. 26 of 1970, the Supreme Court stated following:

“Even if the case against the accused hangs on the evidence of a single eye-witness it may be enough to sustain the conviction given sterling testimony of a competent, honest man, although as a rule of prudence courts call for corroboration. It is a platitude to say that witnesses have to be weighed and not counted since quality matters more than quantity in human affairs.”

(Emphasis Supplied)

In Ramji Surjya & Another vs State of Maharashtra, Criminal Appeal No.429 of 1980, the Supreme Court held following:

“There is no doubt that even where there is only a sole eye witness of a crime, a conviction may be recorded against the accused concerned provided the Court which hears such witness regards him as honest and truthful. But prudence requires that some corroboration should be sought from the other prosecution evidence in support of the testimony of a solitary witness particularly where such witness also happens to be closely related to the deceased and the accused are those against whom some motive or ill will is suggested. Now in the instant case a careful analysis of the evidence relating to the inordinate delay involved in the giving of the first information to the police and the other inherent inconsistencies in the evidence of the sole eye witness i.e. Surjabai (P. W.2) shows that her evidence cannot be considered as sufficient to find the accused guilty. The first information (Exh. P. 10) itself appears to be one prepared after some deliberation. The role attributed to Gumba (P.W.5), the former Police Patil in the prosecution evidence compels the Court to look for corroboration from the other prosecution evidence before accepting the evidence of Surjabai (P.W. 2).” 

In Anil Phukan vs State of Assam, Criminal Appeal No. 757 of 1985, the Supreme Court held following:

“This case primarily hinges on the testimony of a single    eye witness Ajoy PW3. Indeed, conviction can be based on the testimony of a single eye-witness and there is no rule of law or evidence which says to the contrary provided the sole witness passes the test of reliability. So long as the single eye-witness is a wholly reliable witness the courts have no difficulty in basing conviction on his testimony alone. However, where the single eye-witness is not found to be a wholly reliable witness, in the sense that there are some circumstances which may show that he could have an interest in the prosecution, then, the courts generally insist upon some independent corroboration of his testimony, in material particulars, before recording conviction. It is only when the courts find that the single eyewitness is a wholly unreliable witness that his testimony is discarded in toto and no amount of corroboration can cure that defect. It is in the light of these settled principles that we shall examine the testimony of PW3 Ajoy.”

The Supreme Court has deliberated on this issue in many other cases.  Few of them is tabulated below to appreciate this issue in toto:

 

Supreme Court Decision

Single Eye-Witness Reason for confirmation/reversal of conviction by Supreme Court Remarks
Kartik Malhar vs State of Bihar, Appeal (Crl.)- 1363 of 1995 PW2- Fulmani, wife of deceased Two of the alleged eye- witnesses had turned hostile, her statement was fully corroborated by other circumstances of the case including the medical evidence. Confirmation of lower courts conviction.
Lallu Manjhi & Anr vs State of Jharkhand, Appeal (Crl.)- 15 of 2002 PW9- Mannu The version of the incident given by the sole eyewitness who is also an interested witness on account of his relationship with the deceased and being inimically disposed against the accused persons is highly exaggerated and not fully corroborated by medical evidence. Acquittal of accused and reversal of successive conviction by lower courts.
Sunil Kumar vs State Govt. of NCT Of Delhi, Appeal (Crl.)- 263 of 2003 PW5- Rajesh The evidence of PW5 alone was sufficient to fix the guilt of the accused persons. Merely because of the fact that there were some minor omissions, which are but natural, considering the fact that the examination in court took place years after the occurrence the evidence does not become suspect. Confirmation of lower courts conviction.
Namdeo vs State of Maharashtra, Appeal (Crl.) – 914 of 2006 PW6- Sopan The testimony of PW6- Sopan appeared to be trustworthy and reliable. Confirmation of lower courts conviction
Kunju @ Balachandran vs State of Tamil Nadu, Appeal (Crl.)-112 of 2008 PW2- Siva The testimony of sole eyewitness cannot be described as wholly reliable. Confirmation of lower court conviction
Kuna@Sanjay Behera vs State of Odisha, Criminal Appeal No.- 677 of 2010 PW1-Niranjan    Behera

The evidence of PW1, as a witness of incident of murder, as projected by him is wholly unacceptable being fraught with improbabilities, doubts and oddities inconceivable with normal human conduct or behaviour and, thus cannot be acted upon as the basis of conviction.

Acquittal of accused and reversal of successive conviction by lower courts.

 

It can be appreciated that credible reliance on testimony of sole eye witness depends on facts and circumstances of the case and it cannot be generalised as rule.

Rajni Sinha

Advocate Bombay High Court

7738080174

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CORPORATE LAW

Limitation in Insolvency & Bankruptcy Proceeding: Period & Defence

In case of Neelkanth Township and Construction Pvt. Ltd. Vs Urban Infrastructure Trustees Ltd. (44/2017) dated 11th August, 2017, the National Company Law Appellate Tribunal (NCLAT) held following:

  1. The next ground taken on behalf of the appellant is that the claim of respondent is barred by limitation, as the Debentures were matured between the year 2011-2013 is not based on Law. There is nothing on the record that Limitation Act, 1963 is applicable to I and B Code. Learned Counsel for the appellants also failed to lay hand on any of the provision of I and B Code to suggest that the Law of Limitation Act, 1963 is applicable. The I and B Code, 2016 is not an act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. If there is any debt which includes interest and there is default of debts and having continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted.

Earlier the National Company Law Tribunal (NCLT), Mumbai branch in instant case of Urban Infrastructure Trustees Ltd. Vs Neelkanth Township and Construction Pvt. Ltd. (69/I&BP/NCLT/MAH/2017) dated 21st April, 2017 held following:

         Point No. 3: Whether the debt is time barred or not

  1. The corporate debtor counsel argued because this three debenture certificates were due for redemption as far as 2011, 2012 and 2013, since this application is filed in the year 2017, this claim is ex-facie time barred, hence this Tribunal ought not entertain or proceed with or decide the same. He further submits that the purported acknowledgement by the corporate debtor in the Annual Returns is subject to the qualification contained in the Directors report, which clarified to the Notes on Account contained in the auditor’s report. Since the said acknowledgement being qualified by the Director’s report, it can’t be treated as an admission for extension of limitation basing on section 18 of the Limitation act.
  2. Looking at the argument of the corporate debtor counsel, it is clear that it is not the case that the debentures certificates have not been issued. It is also not the case that admission of default is not present in the financial statements. The only twist that is given to that admission is that it is in dispute. As to this point it need not be newly propound to say that the admission appearing gin the financial statement of the company is an acknowledgement covered by section 18 of the limitation act, an acknowledgement need not be given to the financial creditor stating that debt is owed to them………………………..

The NCLT has overruled the objection of limitation by corporate debtor on the ground of acknowledgement within the spirit and meaning of section 18 of the Limitation Act, 1963. However, per contra the NCLAT has ruled out the play of the Limitation Act, 1963 in  the Insolvency and Bankruptcy Code, 2016 per se. The section 60(6) and 179 (3) of the Insolvency and Bankruptcy Code, 2016 lays down following :

60……..

(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.

179……

 (3) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application in the name and on behalf of a debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.

The Section 60(6) and 179 (3) of the Insolvency and Bankruptcy Code, 2016 with regard to exclusion of moratorium period from period of limitation have identical provision for subject matter covered their in. Thus, there cannot be any dispute regarding play of “period of limitation” under the Insolvency and Bankruptcy Code, 2016. There are provisions in the Insolvency and Bankruptcy Code, 2016, which prescribes for “period of limitation” for the prescribed procedure as this code itself is based on principle of “TIME IS ESSENCE” .However, The Insolvency and Bankruptcy Code, 2016 neither restricts the play of the Limitation Act, 1963 nor prohibits it.

The objective of the Limitation Act, 1963 is stated in following words:

An Act to consolidate and amend the law for the limitation of suits and other proceedings and for purposes connected therewith.

The Limitation Act, 1963 is not only applicable to suit but to other proceedings also. The Part II of Schedule to the Limitation Act, 1963 states following:

“     

PART II—OTHER APPLICATION 

Description of suit Period of limitation Time from which                  period begins to run 
137. Any other application for which no period of limitation is provided elsewhere in this Division Three years                      When the right to apply accrues

The the Insolvency and Bankruptcy Code, 2016, do not provide for “period of limitation” as stated above, hence the provision of the Limitation Act, 1963 automatic comes into play read with Part II of the Schedule to this act even if it’s not covered under Part I to the Schedule covering various type of suit including various type of suit for recovery of money (Sr. No. 19-26).

In case of Black Pearl Hotels Pvt. Ltd. Vs. Planet M Retail Ltd, (91 of 2017), the NCLAT , while accepting the play of the Limitation Act, 1963, specially article 137 has held following:

“12. Insolvency and Bankruptcy Code, 2016 has come into force with effect from 1st December, 2016. Therefore, the right to apply under I&B Code accrues only on or after 1st December, 2016 and not before the said date (1st December, 2016). As the right to apply under section 9 of I&B Code accrued to appellant since 1st December, 2016, the application filed much prior to three years, the said application cannot be held to be barred by limitation.”

It is apparent that such a conclusion of NCLAT is not just and proper as it will lead to revival of all time barred case leading to clogging of justice system in I & B Code, 2016. The “right to apply accrues” when the difference arises or differences arise, as the case may be between the parties subject to section 18 of the Limitation Act, 1963. The words ‘when the right to sue accrues’ have been construed to mean when the cause of action arises. It is common law that such “right to apply” cannot be construed to be the date of enactment of new law. The existing cause of action cannot be revived by the enactment of new law like the I & B Code, 2016. In such a scenario the Limitation Act, 1963 will be rendered otiose.

The act like the Customs Act, 1962 and the Central Excise Act, 1944 provides for “period of limitation” under its various provision for recovery by government or refund to the assesse. Even in such self-contained law regarding “period of Limitation” the provision of the Limitation Act, 1963 was applied in case of abortive period at tribunal level. In case of M.P. Steel Corporation vs Commissioner of Central Excise (CIVIL APPEAL NO.4367 OF 2004), Supreme court has held following:

  1. The present case stands on a slightly different footing. The abortive appeal had been filed against orders passed in March- April, 1992. The present appeal was filed under Section 128, which Section continues on the statute book till date. Before its amendment in 2001, it provided a maximum period of 180 days within which an appeal could be filed……………………..On the principles contained in Section 14 of the Limitation Act the time taken in prosecuting an abortive proceeding would have to be excluded as the appellant was prosecuting bona fide with due diligence the appeal before CEGAT which was allowed in its favour by CEGAT on 23.6.1998. ……….

 

Thus, the doctrine that the Limitation Act, 1963 only applies to court cases and not to tribunal cases has been decided in contradiction of this doctrine on sound footing and considering various provision of the Limitation Act, 1963 including section 14 of this act.

M/s Neelkanth Township and construction Pvt. Ltd. had approached the Supreme Court  against the order of the NCLAT in  Neelkanth Township and Construction Pvt. Ltd. Vs Urban Infrastructure Trustees Ltd. (44/2017) dated 11th August, 2017 , the Supreme Court vide order dated 23rd August, 2017 has upheld the order of the NCLAT.  However, it still appears that the NCLAT decision regarding non-applicability of the Limitation Act, 1963 to the Insolvency and Bankruptcy Code, 2016, will not hold water in long run. The apex court will revisit this non applicability the Limitation Act, 1963 to the Insolvency and Bankruptcy Code, 2016 if faced with this specific issue.

The NCLT and NCLAT is creature of CHAPTER XXVII of the Companies Act, 2013. The section 433 of the Companies Act, 2013 provides for following:

433. Limitation.— The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be

The Limitation Act, 1963 as law exist today shall be applicable to  the Insolvency and Bankruptcy Code, 2016  by virtue of NCLT and NCLAT being creature of the Companies Act, 2013 due to irrevocable fact that  the NCLAT and NCLT cannot violate section 433 of the the Companies Act, 2013. A similar opinion was held by NCLT, Principal Bench, New Delhi incase of M/s Deem Roll-Tech Limited Vs. M/s R. L. Steel & Energy Ltd. 

In case of Union Of India And Anr vs Kirloskar Pneumatic  Company Limited (1996 SCC (4) 453), the Supreme Court held following:

“……………………In particular, the Customs authorities who are the creatures of the Customs Act, cannot be directed to ignore or act contrary to Section 27, whether before or after amendment. May be the High Court or a Civil Court is not bound by the said provisions but the authorities under the Act are. Nor can there be any question of the High Court clothing the authorities with its power under Article 226 or the power of a civil court. ………………….”

EXISTENCE OF DISPUTE:

The Supreme Court in case of Mobilox Innovations Private Limited vs Kirusa Software Private Limited (CIVIL APPEAL NO. 9405 OF 2017) has held following:

45. Going by the aforesaid test of “existence of a dispute”, it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.

The section 5 (6) of the Insolvency and Bankruptcy Code, 2016 is set in as follows:

“5. Definitions. In this Part unless the context otherwise requires,-

(6) “dispute” includes a suit or arbitration proceedings relating to—

(a) the existence or the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;”

The definition of “Dispute”  under the Code is inclusive definition and covers all “Existing Dispute” between “Operational Creditor” and “Corporate Debtor” hence all sort of existing and plausible contentions and not spurious, frivolous or vexatious dispute shall be covered by this definition.

Rajni Sinha
Advocate High Court,
Mobile No. 7738080174.

 

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CORPORATE LAW

CLASS ACTION SUIT-INDIAN CONTEXT

The Indian civil law does not provide for class action case against the entity in case of recovery of damages or other relief as strictly available in UK and USA.

The Order I Rule 8 as set in the Civil Procedure Code, 1908, which appear to have some semblance of codification of the class action suit or representative suit reads as follows:

  1. One person may sue or defend on behalf of all in same interest. –

(1) Where there are numerous persons having the same interest in one suit, —

(a) one or more of such persons may, with the permission of the court, sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested;

(b) the court may direct that one or more of such persons may sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested.

(2) The court shall, in every case where a permission or direction is given under sub-rule (1), at the plaintiff’s expense, give notice of the institution of the suit to all persons so interested, either by personal service, or, where, by reason of the number of persons or any other cause, such service is not reasonably practicable, by public advertisement, as the court in each case may direct.

(3) Any person on whose behalf, or for whose benefit, a suit is instituted, or defended, under sub-rule (1), may apply to the court to be made a party to such suit.

(4) No part of the claim in any such suit shall be abandoned under sub-rule (1), and no such suit shall be withdrawn under sub-rule (3) of rule 1 of Order XXIII, and no agreement, compromise or satisfaction shall be recorded in any such suit under rule 3 of that Order, unless the court has given, at the plaintiff’s expenses notice to all persons so interested in the manner specified in sub-rule (2).

(5) Where any person suing or defending in any such suit does not proceed with due diligence in the suit or defence, the court may substitute in his place any other person having the same interest in the suit.
(6) A decree passed in a suit under this rule shall be binding on all persons on whose behalf, or for whose benefit, the suit is instituted, or defended, as the case may be.

Explanation: For the purpose of determining whether the persons who sue or are sued, or defend, have the same interest in one suit, it is not necessary to establish that such persons have the same cause of action as the persons on whose behalf, or for whose benefit, they sue or are sued, or defend the suit, as the case may be. 

Per contra, the Rule 23 as set in the Federal Rule of Civil Procedure of USA with regard to class actions reads as follows:

Rule 23. Class Actions

(a) PREREQUISITES. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

 

(b) TYPES OF CLASS ACTIONS. A class action may be maintained if Rule 23(a) is satisfied and if:

(1) prosecuting separate actions by or against individual class members would create a risk of:

(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or

(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;

(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or

(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members’ interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

                  ……………………………………………

The Order I, Rule 8 of the CPC, 1908 appears to be rudimentary in apposition to Rule 23 of the Federal Rule of Civil Procedure of USA. Further, the section 9 as set in the Civil Procedure Code, 1908 reads as follows:

  1. Courts to try all civil suits unless barred.-The Courts shall (subject to the provisions herein contained) have jurisdiction to try all Suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.

Explanation 1.—As suit in which the right to property or to an office is contested is a suit of a civil nature, notwithstanding that such right may depend entirely on the decision of questions as to religious rites or ceremonies.

Explanation Il—For the purposes of this section, it is immaterial whether or not any fees are attached to the office referred to in Explanation I or whether or not such office is attached to a particular place.

Thus, any Indian Act, Rule and Regulations etc. which expressly or impliedly bars action under the CPC, 1908 cannot be taken as representative suit or class action suit vide Order I, Rule 8 of the CPC, 1908.

In case of Kesha Appliances P. Ltd. And Ors. vs Royal Holdings Services Ltd. And Ors the Hon’ble Bombay High Court (2006 (1) BomCR 545) held following:

  1. I am of the opinion that on plain and simple reading of section 15Y and 20Aof the Act all the cases arising out of the breach and Take Over Regulation must fall within the exclusive domain of SEBI and cannot be complained in the court of Law by virtue of express bar contained under section v of the SEBI Act. I am also of the further opinion that there is no doubt that there is a common law right in a share holder to apply for rectification of the share register even though it is not his own share in respect of which he is seeking rectification but still the said right if it flows from the provisions of Take Over Regulations then undoubtedly it would fall within the exclusive Jurisdiction of SEBI and not within the Jurisdiction of this court in view of the express bar contained under the aforesaid statue. I am of the further opinion that the enactment of the amendment of Take Over Regulation of Amending provisions of SEBI (Substantial Acquisition of Shares and Take Over) Second Amendment (Regulation 2002) w.e.f. 9.9.2002 by providing for the remedy under sub clause (c) and (d) of the Regulation 44 the board has been empowered to give effective relief of Rectification of Share Register by declaring cancellation of the Allotment and / or by directing the company not to give an effect to the transfer if they are found to be in contrary to the Take Over Regulation.

“       

Per contra, the ex CJI A. M. Ahmadi in his declaration as witness citing the provision of Order I Rule 8 of the CPC, 1908 in case of M/s Satyam Computer Services, Ltd. before United States District Court Southern District of New York has declared following while representing M/s J. Sagar Associates in support of the motion of PWC:

  1. Therefore, the procedural Law in India would accommodate the plaintiffs having a common interest to sue in a single suit under Indian Law after obtaining the permission of the court. This requirement of permission is for the court to be satisfied that the carriage of proceedings is in right hands that can be trusted to protect the interest of the class they seek to represent. A judgment entered in such a representative action binds the members of the class as res judicata. The same appellate/review procedure that applies to an individual lawsuit applies to a judgement issued in a representative action.

         “

The Memorandum of Law submitted before United States District Court Southern District of New York  by the Defendant, Pricewaterhouse Coopers Private Limited  and Ors in Support of their Motion to Dismiss the Consolidated Class Action  as forum non conveniens extensively quotes from ex CJI,  Ahmadi declaration. The said Memorandum of Law quotes  following:

While the Second Circuit has held that the absence of a U.S.-style class action mechanism does not render an alternative forum inadequate, see Aguinda v. Texaco, Inc., 303 F.3d 470, 478 (2d Cir. 2002), India in fact has a class action procedure. A person who was injured by relying upon a defendant’s fraudulent statements may initiate a class action lawsuit on behalf of all those similarly situated with the permission of the Indian court. See Ahmadi Decl. ¶¶ 20-24 (citing Civil Procedure Code, 1908, Order I, Rule 8 (attached to the Declaration of Fraser L. Hunter, Jr. (“Hunter Decl.”) as Exhibit 1)); Declaration of Arvind P. Datar in Support of Mot. to Dismiss by Def. Satyam Computer Services Ltd. (“Datar Decl.”) ¶¶ 25-27, 29. The court will grant permission to proceed as a “class” provided that (1) the parties are “numerous,” (2) have the “same interest” in the litigation, (3) notice of the class action is given to persons sharing the same interest in the litigation as prescribed by Indian law. See Ahmadi Decl. ¶¶ 20- 21; Datar Decl. ¶¶ 26-27. As in the U.S., the outcome of the class action is binding on all class members. See Ahmadi Decl. ¶ 22; Datar Decl. ¶ 29.

 

Mr Sandeep Parekh visiting professor of law at the IIM Ahmedabad has declared the following in case of class action against M/s Satyam Computer Services, Ltd.  Before United States District Court Southern District of New York:

III. SUMMARY OF CONCLUSIONS

  1. To summarise the conclusions explained in detail below:
  2. Private parties have no right to sue to recover damages resulting from the Satyam fraud under Indian statutory or common law because the Indian civil courts have no power to hear disputes where, as in this case, SEBI is empowered to act (discussed at Section IV, paras. 12 to 23 infira);
  3. Satyam investors will not be able to use the representative action procedure to recover damages because Indian law bars their substantive claims in civil court and the representative action is only a procedural mechanism that cannot create any substantive rights (discussed at Section V, paras. 24 to 29 infra);

It is in this background the specific provision in form of Section 245 under the Companies Act, 2016 has been enacted to enable class action by shareholders in case of defraud by the company.

The Section 12 of the Consumer Protection Act, 1986 reads as follows:

  1. Manner in which complaint shall be made. —

(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by—

(a) the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided;

(b) any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;

(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or

(d) the Central or the State Government, as the case may be, either in its individual capacity or as a representative of interests of the consumers in general.

 …………………………..

The section 12 (c) of the said consumer act provides for class action with the permission of the District Forum. However, the section 12 (d) of the act enables the Central or the State government to act as parens patriae or as representative of the consumers in general. The Central government has filed as representative of consumer in general, in case of Union of India vs Nestle India Limited before the National Consumer Disputed Redressal Commission (CC No.-870 0f 2015) alleging that the “Maggi noodles” manufactured and sold by Nestle India Ltd are defective goods, as they contain excess quantity of lead and also contain MSG which is a health hazard and is not permissible.

The CPC, 1908 need to be amended in line with the USA Federal Rule 23 of Civil Procedure to provide for strict and transparent class action against defaulting entity.

Rajni Sinha,

Advocate, Bombay High Court

7738080174

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CORPORATE LAW

FOREIGN ARBITRATION AWARD-FEMA

The Share Holder Agreement (SHA) between Indian entity and foreign entity in majority of cases of transfer of share to foreign entity provides for exit option for foreign investor, which may ex facie violate provision of FEMA, 1999. The foreign arbitration award requires remission of money to an entity outside India, it ex facie appear that RBI’s power under the FEMA, 1999 cannot be negated.

In Srm Exploration Pvt. Ltd. vs N & S & N Consultants S.R.O. , 2012, the Hon’ble Delhi High Court held following:

  1. We have perused the provisions of FEMA, 1999 Section 3 thereof prohibits dealing in or transferring of any foreign exchange save as otherwise provided therein or under the Rules & Regulations framed thereunder without general or special permission of RBI. We are unable to find any provision therein voiding the transactions in contravention thereof. We may mention that the predecessor legislation to FEMA namely FERA 1973 vide Section 47 prohibited entering into any contract or agreement directly or indirectly evading or avoiding any operation of the said Act or any provision thereof. However, Sub Section (3) thereof also provided that such prohibition shall not prevent legal proceedings being brought in India for recovery of a sum which apart from the provision of FERA would be due. However, the legislature while re-enacting the law on the subject has chosen to do away with such a provision. We are of the view that the same shows a legislative intent to not void the transaction even if in violation of the said Act. Thus, we are of the opinion that the plea of the appellant Company in this regard is without any force.

The RBI Circular No.-86 dated 9th January, 2014 issued under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 states following with regard to exit option of Foreign Investor:

………………………………………

  1. b) After the lock-in period, as applicable above, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as under:

(i) In case of a listed company, the non-resident investor shall be eligible to exit at the market price prevailing at the recognised stock exchanges;

(ii) In case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. Any agreement permitting return linked to equity as above shall not be treated as violation of FDI policy/FEMA Regulations.

………………………………..

In terms of above circular optionality clauses granting assured returns on FDI appears to be prohibited. It is doubtful whether the said circular would be applicable to cases where a foreign investor founds its claim in breach of contract. Plainly, if an investment is made on representations which are breached, the investor would be entitled to its remedies including in damages.

 The RBI Circular No.-4 dated 15th July, 2014 issued under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 amended certain provision of The RBI Circular No.-86 dated 9th January, 2014 with regard to exit option of Foreign Investor:

“                                                                                                  Annex 2

c.f. Annex to
A.P.(DIR Series) Circular No. 86 dated January 9, 2014

Earlier condition

Revised condition

Para 2(b)

(ii) In case of unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares of the investee company at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet. Any agreement permitting return linked to equity as above shall not be treated as violation of FDI policy/FEMA Regulations.

Note: For the above purpose, RoE shall mean Profit After Tax / Net Worth; Net Worth would include all free reserves and paid up capital.

(iii) Investments in Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPS) of an investee company may be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit, subject to lock-in period requirement, as applicable.

(ii) In case of an unlisted company, the non-resident investor shall be eligible to exit from the investment in equity shares, Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPS) of the investee company at a price not exceeding that arrived at as per any internationally accepted pricing methodology on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreements and shall exit at the fair price computed as above at the time of exit, subject to lock-in period requirement, as applicable.


All the above provision of RBI under FEMA relates to the transfer of shares per se from foreign investor back to the Indian entity if same is under put option. However, in majority of SHA such transfer of share back to Indian Entity is under damages clause in case of breach of agreement. It is a fair commitment of Indian investee in the SHA in relation to an investment and a downside protection of an investment of foreign investor, rather than an assured return or exit price.

It can be appreciated, the transfer of share back to Indian investee through damages clause of SHA and its award through foreign arbitration appear to be intentional to bypass the RBI guidelines for assured exit price. This circumstances appear to violate common rule i.e. the rule which prohibits one to accomplish indirectly, what the law forbids doing directly.

In Venture Global Engineering v. Satyam Computer Services Ltd., the Hon’ble Supreme Court went by the shareholders’ agreement (SHA) which expressly provided that the laws in force in India including the Companies Act would apply. This was held to be in the nature of a non-obstante clause which “would override the entirety of the agreement including sub-section (b) which deals with the settlement of the dispute by arbitration.

In recent judgment of Hon’ble Delhi High Court in case of NTT DOCOMO INC vs Tata Sons Limited, it was held that:

  1. As far as the Award itself is concerned, the interpretation placed by the AT on the clauses of the SHA was consistent with the intention of the contracting parties and not opposed to any provision of Indian law. There is nothing in the SHA as interpreted by the Award that renders it void or voidable under the ICA or opposed to either the public policy of India or the fundamental policy of Indian law. The AT’s interpretation of the various provisions of the FEMA and the regulations thereunder have also not been shown to be improbable or perverse. What was invested by Docomo was US $ 2.5 billion and what it will receive in terms of the Award is only 50% of that amount. The Court finds that no ground under Section 48 of the Act is attracted to deny the enforcement of the Award.

In another recent judgment of Hon’ble Delhi High Court in case of Cruz City 1 Mauritius Holdings vs Unitech Limited it was held that:

  1. The reliance placed by Unitech on the RBI circulars dated 09.01.2014 and 14.07.2014 is also misplaced. In terms of RBI’s circular dated 09.01.2014 optionality clauses granting assured returns on FDI are proscribed. However, it is doubtful whether the said circular would be applicable to cases where a foreign investor founds its claim in breach of contract. Plainly, if an investment is made on representations which are breached, the investor would be entitled to its remedies including in damages. The aforesaid circulars proscribe assured return instruments brought in India under the guise of equity. However, in the present case, Cruz City is only seeking to enforce its obligations against Burley, an overseas entity.
  2. Even if it is accepted that the Keepwell Agreement was designed to induce Cruz City to make investments by offering assured returns, Unitech cannot escape its liability to Cruz City. Cruz City had invested in Kerrush on the assurances held out by Unitech and notwithstanding that Unitech may be liable to be proceeded against for violation of provisions of FEMA, the enforcement of the Award cannot be declined

 

The obvious parting comment can be that foreign arbitral award cannot be contested on the ground of FEMA, 1999 violation if the SHA do not stipulate same and the payment back to investor for transfer of share is set as damages under the SHA.

Rajni Sinha

Advocate, Bombay High Court

7738080174

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