Cheque cases to fake licences: Key court orders of the previous week | Business Standard Column

Presumption of debt in cheque cases

According to the Negotiable Instruments Act, once a cheque has been signed and issued in favour of the holder, it is presumed that it was issued in discharge of a debt or liability. But if the cheque bounces for want of sufficient fund in the account, the person who signed it can escape consequences only if he can prove that it was not issued to fulfil some debt or liability but was for some other purpose like security for a loan. However, there was a difference of opinion on this point between the Madras High Court and the courts below. The high court took the view that the person accused of issuing the bounced cheque can escape punishment if he can merely raise a doubt in the mind of the judges about the nature of the transaction. In this case, T P Murugan vs Bojan, the trial courts convicted the drawer of the cheques but the high court acquitted him as he was successful in raising a doubt regarding the circumstances in which the cheques were issued. On appeal, the Supreme Court quashed the high court judgment. The cheques were issued when certain persons were inducted into a tea company to infuse capital but later resigned as directors. They were not returned the shares in the company. The Supreme Court examined the facts and decided that the cheques were issued towards discharging a legally enforceable debt. The drawer was not able to prove that it was for some other purpose like security.

IBC prevails over tax laws

The Supreme Court has reiterated that the Insolvency and Bankruptcy Code will prevail over the Income Tax Act and other statutes. The court stated so in its order in the appeal of the Commissioner of Income Tax against the judgment of the Delhi High Court in the dispute involving Monnet Ispat Energy Ltd. While upholding the high court judgment, it said that Section 238 of the Code made it clear that it would override anything inconsistent in any other enactment. It further clarified that income tax dues do not take precedence even over secured creditors who are private persons.

Personal guarantors lose protection

The Supreme Court ruled last week that lender banks can sell off assets of personal guarantors even during the corporate resolution proceedings under the Insolvency and Bankruptcy Code. The court stated so in the judgment, State Bank of India vs V Ramakrishnan while setting aside the order of the National Company Law Appellate Tribunal (NCALT) which granted protection to personal guarantors, who are generally promoters, under Section 14 of the Code. The judgment said that the NCLAT took a broad interpretation of the Section while holding that it would bar proceedings or actions against sureties. Referring to the Insolvency Law Committee report, the court stated that the assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties.

Advantage assessee in tax matters

A constitution Bench of the Supreme Court noted that there is an “unsatisfactory state of law” regarding the interpretation of exemption notifications in tax matters. One set of judgments ruled that when there is ambiguity in the language of the notifications, the benefit should go to the assessee. Another stream of judgments took the other view that the benefit should be given to the revenue authorities. The new judgment, Commissioner of Customs vs Dilip Kumar, settled the issue in favour of the authorities. The judgment clarified that when the words in the statute are ambiguous, the benefit should go to the assessee. This is because “the state cannot at their whims and fancies burden the citizens without authority of law”. On the other hand, exemption notifications should be interpreted strictly. When there is ambiguity, the benefit cannot be claimed by the assessee; it must be interpreted by courts in favour of the revenue authorities. The constitution Bench answered the reference to it in the present case when the customs department denied a concessional rate to certain imports maintaining that they contained chemical ingredients for animal feed and not animal feed.

Fake licence absolves insurer

The Supreme Court last week emphasised that if the owner of a motor vehicle knowingly appoints a driver with a fake licence, the insurance company will not be liable to pay compensation in case of an accident. But the mere fact that the licence was fake would not absolve the insurer. The court restated the law in the judgment, Ram Chandra vs Rajaram. The Motor Accident Claims Tribunal had let off Oriental Insurance as the licence was found to be fake and asked the owner to pay the compensation. The owner appealed to the Allahabad High Court arguing that he was not aware of the genuineness of the licence and the insurer can be absolved only if the owner was aware of the fake licence and still did not take corrective action. The high court did not respond to this issue but dismissed the appeal. The owner moved the Supreme Court which remitted the matter to the high court to answer the question raised by the owner.

Independent arbitration if MCI Council fails

The Bombay High Court held that the Micro and Small Enterprises Facilitation Council has the power to act as conciliator as well as arbitrator. But once it fails in conciliation, it cannot act as arbitrator; the dispute must go before an independent body for arbitration. The high court was deciding a dispute between Gujarat State Petronet Ltd and an engineering company which was successful in a tender for developing a firefighting system. Differences arose over the completion of work, its quality and payment. The contracting firm moved the council invoking the provisions of the Micro, Small and Medium Enterprises Development Act. The council first tried conciliation but failed. Then it decided to become the arbitrator. This was challenged in the high court by Gujarat Petronet arguing that there was an arbitration clause in the agreement and moreover, once the council tried conciliation and failed, it could not become an arbitrator. The high court ruled that even if there is a provision for independent arbitration in the agreement, the council will have jurisdiction to arbitrate the dispute. However, once it fails it cannot be the arbitrator. The court ordered that the dispute, in this case, shall be referred to “any independent or centre providing for alternative dispute resolution services.”

via Cheque cases to fake licences: Key court orders of the previous week | Business Standard Column

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