Trademark row to ‘financial creditor’ under IBC, here’re key court orders | Business Standard Column

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A selection of key court orders

SC interprets term ‘financial creditor’

Interpreting the definition of “financial creditor” in the Insolvency and Bankruptcy Code, the Supreme Court ruled on February 3 that pledge of shares did not amount to guarantee of disbursement of any amount against consideration. In the judgment, Phoenix Arc Ltd vs Ketulbhai Patel, L&T Financial lent an amount to Doshion Ltd. The latter gave an undertaking to L&T that it would not dispose of its holding in Gondwana Engineers Ltd so long as any amount was payable to L&T. Later, L&T assigned all its rights in the matter to Phoenix. The trouble started when Doshion defaulted and recovery action was launched. Bank of Baroda took the matter for IBC resolution and a resolution professional was appointed. He rejected the claim of Phoenix that it was a financial creditor. The NCLT, the appellate tribunal and the Supreme Court rejected its claim interpreting Section 5(8) of IBC. It rejected the argument of Phoenix that liability of the corporate debtor, who is surety, is co-extensive with that of the debtor and the creditor has full right to pursue his liability against the surety even before the creditor.

Agriculture co-ops free to grant other loans

Co-operative societies registered as “primary agricultural credit societies” can demand deductions for loans granted for non-agricultural purposes. The Supreme Court stated so in a set of appeals by co-ops from Kerala claiming the benefit under Section 80P(2)(a) of the IT Act. The authorities had rejected their plea, and a full bench of the high court had dismissed the co-ops’ petition. They appealed to the SC (Mavilayi Service Cooperative vs CIT). The government contended that loans given for agricultural purposes were negligible; their main business being that of banking. The co-ops argued that since they are registered under the Societies Act, whatever be the classification, they are entitled to the deduction. The Supreme Court accepted this view and said that all the assessees were entitled to the benefit notwithstanding that they may also be giving loans to their members that are not related to agriculture.

Court removes arbitrators in two cases

Choice of arbitrator was the bone of contention in two judgments delivered by the Delhi High Court. In both cases, the arbitrators were terminated and were replaced. In Score Information Technologies vs Gr Infra Projects, the court underlined that unilateral appointment of a sole arbitrator is contrary to law, and the arbitrator appointed by Gr Infra was replaced by a retired high court judge. In the second case, C S Electric Ltd vs Jop Power, one party did not appoint an arbitrator within 30 days according to the agreement and, therefore, its choice was revoked. The choice of the opposite party was also cancelled as it had no power to appoint arbitrator on its own.

IT re-assessment must be objective

“Oversight, inadvertence or mistake of the Assessing Officer or error discovered by him on reconsideration of the same material does not give him power to reopen a concluded income tax assessment,” the full bench of the Karnataka High Court stated in its judgment, Dell India vs CIT. The court, citing Supreme Court judgments, reiterated that while applying Section 147 of the

IT Act (income escaping assessment) for reopening concluded assessment, “reason to believe” mentioned in the clause cannot be based on mere change of opinion of the officer. In this case, the computer company was assessed in 2009-10, but in 2014 notice was issued to it mentioning “reason to believe” that certain income had escaped assessment. Dell contended that it was a mere change of opinion of the officer and not based on tangible material. The full bench, after clarifying the law, left it to the normal bench to decide the merits of the issue in the Dell case.

Trademark row at breakfast table

In a trademark dispute over cornflakes and porridge, the Delhi High Court has ruled that long delay by an affected company to approach the court against an adverse order against it does not mean that the wrong order should continue. The company may have its own reasons for not moving the court to vacate an injunction but it can apply to the court at any reasonable time. The court stated so in its judgment, V R Industries vs Mohan Meakin Ltd, delivered last week. In this case, the row was about the use of “8AM” in the cornflakes and porridge products. VR had obtained an ex parte injunction against Mohan more than seven years ago. The latter was selling “Mohun’s 8AM Cornflakes” and porridge prior to that of VR. Mohan argued that the director of VR was, in fact, its senior executive living in the company’s residential quarters before launching the similar product with the confusing name. The court found that this fact was not disclosed in VR petition and it had not approached the court with “clean hands”. So the injunction was vacated.

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