JOURNAL AUGUST 2019

GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
supplied the copies of documents demanded
Important Judgment/Decisions: from the authorities. The Ld. Sr. Counsel for
the appellant submitted that though the appellant
One Important decision of the Gujarat Value has replied show cause notice no. 2 and 3
Added Tax Tribunal in case of Pre-deposit for exhaustively with the support of facts, figures
the admission of the appeal as decided by the and judicial decisions, the Assessing Authority
First Appellate Authority: has totally ignored the said replies and has not
discussed and given reasons for rejecting those
Recently the Appellate Authority demands 20% to replies and has passed non-speaking orders.
25% of the total demand as Pre-deposit while The Ld. Sr. Counsel for the appellant submitted
admitting the first appeal, however, they are not that had the replies were discussed and
considered normally the facts of the case and always considered on merits, the demand raised in both
asked for 20% to 25% pre-deposit. Sometimes it the orders would have been almost Nil. He had
may adversely affect the business of the dealers in submitted that the first appellate authority has
case of high pitch additions. Therefore one also without considering prima facie case and
important decision is cited to-day for the benefit of without considering the legality and validity of
the readers. the assessment order, illegally insisted for
payment of pre-deposit of 25% of the total
[i] In case of M/s. Vishnu Pouch Packaging Pvt. demand. He has, in his support, cited the
Ltd. v. The State of Gujarat. following decisions of the Hon. Supreme Court
and various High Courts.
Facts:
[1] M/s. Krishna Trading Co. v. Addl.
The appellant is a company engaged in the Director General of Foreign Trade, 2016
manufacturing of Pan Masala and its registered (336) E.L.T. 449(Guj) dated 02.03.2016.
under the GVAT Act and CST Act. The place
of business was searched by the department [2] M/s. Kemtech International Pvt. Ltd. v.
and the total demand raised was of Rs. Commissioner of Customs (I&G) 2013
42,90,03,490/- under GVAT Act and Rs. (292) E.L.T. 321 (S.C) dated 09.11.2012.
4,44,37,264/- under CST Act.
[3] M/s. Kothari Filaments & Another v.
The first Appellate Authority directed to pay Commissioner of Customs (Port) (2009)
25% of the total demand which was very high 2 SCC 192 dated 16.12.2008.
looking to the merits of the case. The Hon
GVAT Tribunal has given the direction to pay [4] Nagarjuna Construction Co. Ltd. v. Govt.
only Rs. 25,00,000/-. of Andhra Pradesh & Ors (2008) 16 SCC
276 dated 20.10.2008.
Held:
[5] Commissioner of Sales Tax, UP v. M/s.
On 08.11.2017, during the preliminary hearing R.P. Dixit Saghidar (2001) 9 SCC 324
the Ld. Senior Counsel for the appellant had dated 03.03.2000.
submitted that the orders of both the lower
authorities are non-speaking orders. The
appellant was, despite several reminders, not

Ahmedabad Chartered Accountants Journal August, 2019 305

GST and VAT - Judgements and Updates containing Page 18 Pages on 08.11.2017. He
submitted that, thus, since orders of both the
[6] M/s. Vadilal Gases Ltd. v. Union of India authorities are non-speaking orders and are
2016 (332) E.L.T. 625 (Guj) dated passed without providing the copies of
24.09.2015. documents relied on in the show cause notices,
they are passed in complete violation of
[7] M/s. Ambalkal Sarabhai Enterprise Ltd. principles of natural justice and therefore, they
v. Sales Tax Officer-1 Class-, City Circle are required to be quashed and set aside and
& Ors (2006) 145 STC 523 (Guj) dated remanded to the adjudicating authority without
13.01.2006 any order for pre-deposit for fresh adjudication
on merits.
[8] Commissioner of Service Tax, Delhi v.
M/s. World Vision, 2011 (24) STR 650 The Ld. Special Counsel appearing on behalf
(Del) dated 18.10.2010. of, the respondent on 20.06.2018, had
submitted that the appellant has not complied
[9] Assistant Commercial Tax Officer v. M/ with the direction of the First Appellate
s. Kansai Nerolac Paint Ltd. (2010) 30 Authority and has not deposited the amount of
VST 254 (SC) dated 15.04.2010. 25% of total demand and that, therefore, the
First Appellate Authority has, after giving
[10] Asst. Commissioner, Commercial Tax several opportunities of hearing, dismissed both
Department, Works Contract and the appeals summarily on 11.07.2017. She
Leasing, Kota v. Shukla & Bros. (2010) further submitted that the appellant was served
30 VST 114 (SC) dated 15.04.2010. four show cause notices and the appellant has
also replied these notices in detail and,
[11] M/s. Steel Authority of India Ltd. v. Sales therefore, it cannot be said that the orders were
Tax Officer (2008) 16 VST 181 (SC) passed without following the principles of
dated 10.07.2008. natural justice. She further submitted that the
assessment orders were passed on 22.03.2017
[12] M/s. The Siemens Engineering & after taking into consideration all the replies
Manufacturing Co. of India v. The Union made by the appellant. She further submitted
of India and Anr (1976) 2 SSC 981 dated that a copy of brief note prepared by the
30.04.1976 department internally on the submission of the
appellant and the remarks thereon of the
[13] M/s. Travancore Rayon Ltd. v. Union of authority is annexed as Annexure R1 with the
India (1969) 3 SCC 868 dated 28.10.1969 written submission produced by the appellant
on 20.06.2018. She further submitted that in
[14] M/s. Ravi Gupta v. Commissioner Sales catena of judgments rendered by the Hon. High
Tax (2009) 22 VST 529 (SC). Court of Gujarat as well as by the Hon. Apex
Court, it is held that once the First Appellate
[15] M/s. Asha Rubber Industries v. Collector Authority dismissed the first appeal on the
of Central Excise, Bangalore, 1988 (34) ground of non- payment of pre-deposit, it is
ELT 528 (Karn) not open for the Tribunal to hear and decide
the second appeal on merits and that the
[16] M/s. Rungta Sons (P) Ltd. v. Collector of Tribunal should decide the quantum of pre-
Customs, Visakhapatnam 1986 (23) ELT deposit and remand the matter back to the First
14 (Cal.) AppellateAuthority for fresh hearing on merits.

[17] M/s. World Vision, 2011 (24) STR 650
(Del).

[18] M/s. 20th Century Finance Corporation
Ltd. v. State of Maharashtra, Civil Appeal
No. 4500 of 1989 dated 09.05.2000 (SC)

The Ld. Sr. Counsel had also submitted a bunch
of supporting documentary evidences

306 Ahmedabad Chartered Accountants Journal August, 2019

She has in her support cited the following GST and VAT - Judgements and Updates
decisions.
quantum of pre-deposit, must take into
[1] Commr. of C. Ex. Chandigarh v. consideration the prima facie case and the
Smithkline Beecham Co. Health C. 2003 legality and validity of the order passed by the
ECR 10 SC, 2003 (157) ELT 497 SC subordinate office. The First Appellate
dated 05.09.2003. Authority is, while exercising the discretion u/
s. 73(4) of the GVAT Act, is required to
[2] State of Gujarat v. Tudor India Ltd. Tax consider prima facie merits of the submissions
Appeal No. 711 of 2013 dated of both the parties as well as legality and
30.08.2013. validity of the order passed by the subordinate
authority, before deciding the quantum of pre-
[3] Tax Appeal No. 688 of 2013 with Civil deposit amount. It appears that in the present
Application No. 422 of 2013 Anilkumar case, the first appellate authority has
v. State of Gujarat dated 30.01.2014. mechanically, without considering the prima
facie merits of the case and without considering
[4] Tax Appeal No. 839 of 2017 with Tax the legality and validity of the order of the
Appeal No.837 of 2017 in OJCA No. 738 assessing authority, determined the quantum of
of 2017 and 739 of 2017, State of Gujarat pre-deposit. The assessing Authority who is
v. Hitarth Corporation dated 15.02.2018. also a quasi-judicial authority, raising a demand
of crores of rupees in this case, says in the
[5] Tax Appeal No. 78 of 2014 with Civil assessment order in one line that the tax liability
Application No. 63 of 2014 M/s. Shaktiraj is fixed after considering the submissions made
Metal (P) Ltd. v. State of Gujarat dated by the appellant but what was the submission
21.03.2014. of the appellant before him and why that
submission was rejected is not discussed in the
The Ld. Special Counsel , submitted that order. There is also no mention of the
therefore, the Tribunal should determine a documents demanded by the appellant and why
reasonable amount of pre-deposit and remand they were not provided to the appellant.
the case top the first Appellate Authority.
Order:
The Hon. Tribunal has considered rival
submissions and also gone through the contents These appeals are allowed and stay against
of the orders passed by the lower authorities. recovery proceeding is granted and both the
The Tribunal has also considered the written appeals are remanded to the First Appellate
submissions produced and the decisions of the Authority on condition of appellant depositing
Hon. Apex Court and the Hon. High Courts Rs. 25.00 Lakhs for both the appeals towards
cited before the Tribunal by both the parties. pre-deposit within a month from to-day i.e. 6th
Since the first appellate authority has dismissed day of September, 2018. The First Appellate
the appeals summarily on the ground of non- Authority shall pass fresh orders on merits and
payment of pre-deposit, the limited issue before in accordance with law preferably within two
us is determination of pre-deposit amount for months from the date of receipt of the order in
admission of the appeals. So, we will not go his office. Stay against recovery proceeding
into the merits of the case. However, at the same shall continue till the final disposal of the first
time, considering the settled legal position as appeals.
pronounced by the Hon. Apex Court and the
Hon. High Courts in a catena of cases, some hhh
of which are cited by the appellant as above, a
quasi-judicial authority, while determining the

Ahmedabad Chartered Accountants Journal August, 2019 307

Corporate
Law Update

CA. Naveen Mandovara
[email protected]

1. The Companies (Amendment) Act, 2019:

The provisions of this Act, except sections 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14,
sections 20 and 21, section 31, sections 33, 34 and 35, sections 37 and 38 shall be deemed to have
come into force on the 2nd day of November, 2018.

Section Effect of the amendment

2(41) First & Vesting of powers with Central Government instead of National Company Law
Second proviso Tribunal:

Where a company or body corporate, which is a holding company or a subsidiary or
associate company of a company incorporated outside India and is required to follow
a different financial year for consolidation of its accounts outside India, the Central
Government may, on an application made by that company or body corporate in such
form and manner as may be prescribed, allow any period as its financial year, whether
or not that period is a year:Provided also that a company or body corporate, existing
on the commencement of this Act, shall, within a period of two years from such
commencement, align its financial year as per the provisions of this clause;

10A In case of non filing of declaration by a company (within 180 days from the date of
incorporation) having share capital before it commences its business or exercises
borrowing power, the company shall be liable to a penalty of fifty thousand rupees
and every officer who is in default shall be liable to a penalty of one thousand rupees
for each day during which such default continues but not exceeding an amount of one
lakh rupees

12(9) If the Registrar has reasonable cause to believe that the company is not carrying on
any business or operations, he may cause a physical verification of the registered
office of the company in such manner as may be prescribed and if any default is found
to be made in complying with the requirements of sub-section (1), he may without
prejudice to the provisions of sub-section (8), initiate action for the removal of the
name of the company from the register of companies under Chapter XVIII

14(1) Second Powers for approving the conversion of a public company into a private company

Proviso have been vested to the Central Government instead of National Company Law

Tribunal.

26 (4), (5), (6) The requirement of registration of prospectus with the Registrar of Companies has

and (7) been done away with. Now the prospectus is required to be filed with the Registrar of

Companies.

308 Ahmedabad Chartered Accountants Journal August, 2019

Corporate Law Update

29 (1)(b) The term ‘public’has been omitted and now the securities of class or classes of unlisted
and (1A) companies prescribed by the Central Government shall be held or transferred only in
35 dematerialised form in the manner laid down in the Depositories Act, 1996 and the
53(3) regulations made thereunder.
64(2)
77(1) First & Now, the Registration of Prospectus with the Registrar’is replaced by ‘Filing of copy
Second of Prospectus with the Registrar of Companies.
provisos
In case of non-compliance of the provisions of section 53 in the matter of issue of
86(2) shares at a discount, the company and any officer in default being shall be liable to a
87 penalty, instead of being punishable with fine or imprisonment or with both.

Failure/delay in filing notice for alteration of share capital shall result in the company
and any officer in default being liable to a penalty, instead of being punishable with
fine.

The Registrar may, on an application by the company, allow such registration to be
made:
on payment of such additional fees as may be prescribed.

a) in case of charges created before within a period of three hundred days
the commencement of the Companies of such creation
(Amendment) Act, 2019

b) in case of charges created on or after within a period of sixty days of such
the commencement of the Companies creation
(Amendment) Act, 2019

if the registration is not made within the period specified,

a) in clause (a), the registration of the on payment of such additional fees as
charge shall be made within six may be prescribed and different fees may
months from the date of be prescribed for different classes of
commencement of the Companies companies
(Amendment) Act, 2019

b) in clause (b), the Registrar may, on an after payment of such ad valorem fees
application, allow such registration to as may be prescribed
be made within a further period of
sixty days

In case of registration of charges, if any person wilfully furnishes any false or incorrect
information or knowingly suppresses any material information, required to be registered
in accordance with the provisions of section 77, he shall be liable for action under
section 447.

The Central Government on being satisfied that-

(a) the omission to give intimation to the Registrar of the payment or satisfaction of a
charge, within the time required under this Chapter; or

(b) the omission or misstatement of any particulars, in any filing previously made to
the Registrar with respect to any charge or modification thereof or with respect to

Ahmedabad Chartered Accountants Journal August, 2019 309

Corporate Law Update

90(4A) any memorandum of satisfaction or other entry made in pursuance of section 82
92(5) or section 83.

102(5) was accidental or due to inadvertence or some other sufficient cause or it is not of a
nature to prejudice the position of creditors or shareholders of the company, it may, on
105(3) the application of the company or any person interested and on such terms and
117(2) conditions as it deems just and expedient, direct that the time for the giving of intimation
121(3) of payment or satisfaction shall be extended or, as the case may require, that the omission
132(1A) or misstatement shall be rectified.”
132 (3A)
132 (3B) Every company shall take necessary steps to identify an individual who is a significant
132(4C)(B) beneficial owner in relation to the company and require him to comply with the
provisions of this section.

If a Company defaults in filing annual return, before the expiry of the period specified
therein, such company and its every officer who is in default shall be liable to a penalty
of fifty thousand rupees and in case of continuing failure, with a further penalty of one
hundred rupees for each day after the first during which such failure continues, subject
to a maximum of five lakh rupees.

If any default is made in the requirement of attachment of a statement of special business
in a notice calling for general meeting, every promoter, director, manager or other key
managerial personnel of the company who is in default shall be liable to a penalty of
fifty thousand rupees or five times the amount of benefit accruing to the promoter,
director, manager or other key managerial personnel or any of his relatives, whichever
is higher.

In case of default in providing a declaration regarding appointment of proxy in a
notice calling for general meeting, shall result in every officer in default being liable to
a penalty of five thousand rupees.

In case of default in filing certain resolutions or agreements in the specified period, the
company and every officer in default including liquidator of a company, if any, being
liable to a penalty.

In case of default in filing Report on AGM by public listed company before the expiry
of the specified period, such company and every officer in default being liable to a
penalty.

The National Financial Reporting Authority shall perform its functions through such
divisions as may be prescribed.

Each division of the National Financial ReportingAuthority shall be presided over by
the Chairperson or a full-time Member authorised by the Chairperson.

There shall be an executive body of the National Financial Reporting Authority
consisting of the Chairperson and full-time Members of such Authority for efficient
discharge of its functions under sub-section (2) [other than clause (a)] and sub-section
(4).

Debarring the member or the firm from-

310 Ahmedabad Chartered Accountants Journal August, 2019

135(5) Corporate Law Update
135(6)
I. being appointed as an auditor or internal auditor or undertaking any audit in respect
137(3) of financial statements or internal audit of the functions and activities of any
140(3) company or body corporate; or

II. performing any valuation as provided under section 247,

for a minimum period of six months or such higher period not exceeding ten years as
may be determined by the National Financial Reporting Authority.

If a company fails to spend such amount, the Board shall, in its report made under
clause (o) of sub-section (3) of section 134, specify the reasons for not spending the
amount and, unless the unspent amount relates to any ongoing project referred to in
sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII,
within a period of six months of the expiry of the financial year.

- In case the unspent amount does not relate to any ongoing project, unspent amounts
to be transferred to a Fund specified under Schedule VII within a period of six
months of the expiry of the financial year.

- In case the unspent amount relates to any ongoing project subject to fulfilling of
prescribed conditions, unspent amounts to be transferred by the company within a
period of thirty days from the end of the financial year to a special account to be
opened by the company in that behalf for that financial year in any scheduled bank
to be called the Unspent Corporate Social Responsibility Account.

- Such amount shall be spent by the company in pursuance of its obligation towards
the Corporate Social Responsibility Policy within a period of three financial years
from the date of such transfer, failing which, the company shall transfer the same to
a Fund specified in Schedule VII, within a period of thirty days from the date of
completion of the third financial year.

- In case of any contravention, the company shall be punishable with fine which
shall not be less than Rs. 50,000 but which may extend to Rs. 25 lakh and every
officer of such company who is in default shall be punishable with imprisonment
for a term which may extend to 3 years or with fine which shall not be less than Rs.
50,000 but which may extend to Rs. 5 lakh, or with both.

- The Central Government may give such general or special directions to a company
or class of companies as it considers necessary to ensure compliance of provisions
of this section and such company or class of companies shall comply with such
directions.

Non compliance in filing financial statements, the company being liable to a penalty
and the managing director and the Chief Financial Officer of the company, if any,
and, in the absence of the managing director and the Chief Financial Officer, any
other director who is charged by the board of directors with the responsibility of
complying with the provisions of Section 137, and, in the absence of any such director,
all the directors of the company, being liable to a penalty of one lakh rupees subject to
a maximum of five lakh rupees.

If the auditor defaults in filing statement after resignation, he or it shall be liable to a
penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor,

Ahmedabad Chartered Accountants Journal August, 2019 311

Corporate Law Update

157(2) whichever is less, and in case of continuing failure, with a further penalty of five
hundred rupees for each day after the first during which such failure continues, subject
159 to a maximum of five lakh rupees.

164(1)(i) If any company fails to furnish the Director Identification Number under sub-section
165(6) (1), such company shall be liable to a penalty of twenty-five thousand rupees and in
case of continuing failure, with a further penalty of one hundred rupees for each day
191(5) after the first during which such failure continues, subject to a maximum of one lakh
197(7) rupees, and every officer of the company who is in default shall be liable to a penalty
197(15) of not less than twenty-five thousand rupees and in case of continuing failure, with a
(Substituted) further penalty of one hundred rupees for each day after the first during which such
203(5) failure continues, subject to a maximum of one lakh rupees.
(Substituted)
If any individual or director of a company makes any default in complying with any
212(8) of the provisions of section 152, section 155 and section 156, such individual or
212(9) director of the company shall be liable to a penalty which may extend to fifty thousand
rupees and where the default is a continuing one, with a further penalty which may
extend to five hundred rupees for each day after the first during which such default
continues.

The following clause shall be inserted, namely:-”(i) he has not complied with the
provisions of sub-section (1) of section 165.”

For the portion beginning with the words “punishable with fine” and ending with
the words “contravention continues”, the words “liable to a penalty of five thousand
rupees for each day after the first during which such contravention continues”
shall be substituted.

If a director of the company makes any default in complying with the provisions of
this section, such director shall be liable to a penalty of one lakh rupees”

Omitted.

If any person makes any default in complying with the provisions of this section, he
shall be liable to a penalty of one lakh rupees and where any default has been made by
a company, the company shall be liable to a penalty of five lakh rupees.

If any company makes any default in complying with the provisions of this section,
such company shall be liable to a penalty of five lakh rupees and every director and
key managerial personnel of the company who is in default shall be liable to a penalty
of fifty thousand rupees and where the default is a continuing one, with a further
penalty of one thousand rupees for each day after the first during which such default
continues but not exceeding five lakh rupees.

For the words “If the Director, Additional Director or Assistant Director”, the
words “If any officer not below the rank of Assistant Director” shall be substituted

For the portion beginning with the words “The Director” and ending with the
word, brackets and figure “sub-section (8)”, the words, brackets and figure “The
officer authorised under sub-section (8) shall, immediately after arrest of such
person under such sub-section” shall be substituted.

312 Ahmedabad Chartered Accountants Journal August, 2019

Corporate Law Update

212(10) (i) for the words “Judicial Magistrate”, the words “Special Court or Judicial
Magistrate” shall be substituted;

(ii)in the proviso, for the words “Magistrate’s court”, the words “Special Court or
Magistrate’s court” shall be substituted;

212(14A) Where the report under sub-section (11) or sub-section (12) states that fraud has taken
(Inserted) place in a company and due to such fraud any director, key managerial personnel,
other officer of the company or any other person or entity, has taken undue advantage
or benefit, whether in the form of any asset, property or cash or in any other manner,
the Central Government may file an application before the Tribunal for appropriate
orders with regard to disgorgement of such asset, property or cash and also for holding
such director, key managerial personnel, other officer or any other person liable
personally without any limitation of liability.

238(3) For the words “punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees”, the words “liable to
a penalty of one lakh rupees” shall be substituted.

241(2) Proviso “Provided that the applications under this sub-section, in respect of such company or

(Inserted) class of companies, as may be prescribed, shall be made before the Principal Bench of

the Tribunal which shall be dealt with by such Bench.

241(3), (4), & Central Government may initiate a case against such person and refer the same to the
(5) (Inserted) Tribunal with a request that the Tribunal may inquire into the case and record a decision
as to whether or not such person is a fit and proper person to hold the office of director
or any other office connected with the conduct and management of any company.

242(4A) “(4A) At the conclusion of the hearing of the case in respect of sub-section (3) of
(Inserted) section 241, the Tribunal shall record its decision stating therein specifically as to
whether or not the respondent is a fit and proper person to hold the office of director
or any other office connected with the conduct and management of any company.

243(1A) The person who is not a fit and proper person pursuant to sub-section (4A) of section
(Inserted) 242 shall not hold the office of a director or any other office connected with the
conduct and management of the affairs of any company for a period of five years
from the date of the said decision:Provided that the Central Government may, with
the leave of the Tribunal, permit such person to hold any such office before the expiry
of the said period of five years.

248(1) (d) & “(d) the subscribers to the memorandum have not paid the subscription which they
(e) (Inserted) had undertaken to pay at the time of incorporation of a company and a declaration to
this effect has not been filed within one hundred and eighty days of its incorporation
under sub-section (1) of section 10A; or(e) the company is not carrying on any business
or operations, as revealed after the physical verification carried out under sub-section
(9) of section 12.”

441(1)(b) For the words “does not exceed five lakh rupees”, the words “does not exceed
twenty-five lakh rupees” shall be substituted.

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Corporate Law Update

441(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any
offence which is punishable under this Act with imprisonment only or with
imprisonment and also with fine shall not be compoundable.

446B For the portion beginning with the words “punishable with fine” and ending with the
words “specified in such sections”, the words “liable to a penalty which shall not
be more than one-half of the penalty specified in such sections” shall be substituted.

447 In the second proviso, for the words “twenty lakh rupees”, the words “fifty lakh
rupees” shall be substituted.

454 (3) “(3) The adjudicating officer may, by an order-
(Substituted) (a) impose the penalty on the company, the officer who is in default, or any other

person, as the case may be, stating therein any non-compliance or default under
the relevant provisions of this Act; and

(b)direct such company, or officer who is in default, or any other person, as the case
may be, to rectify the default, wherever he considers fit.”;

454 (4) For the words “such company and the officer who is in default”, the words “such
company, the officer who is in default or any other person” shall be substituted.

454 (8)(i) For the words “does not pay the penalty imposed by the adjudicating officer or
the Regional Director”, the words, brackets and figures “fails to comply with the
order made under sub-section (3) or sub-section (7), as the case may be,” shall be
substituted.

454 (8)(ii) (i) for the words “Where an officer of a company”, the words “Where an officer of a
company or any other person” shall be substituted;

(ii)for the words “does not pay the penalty”, the words, brackets and figures “fails to
comply with the order made under sub-section (3) or sub-section (7), as the case
may be,” shall be substituted;

454A (Inserted) Where a company or an officer of a company or any other person having already
been subjected to penalty for default under any provisions of this Act, again commits
such default within a period of three years from the date of order imposing such
penalty passed by the adjudicating officer or the Regional Director, as the case may
be, it or he shall be liable for the second or subsequent defaults for an amount equal to
twice the amount of penalty provided for such default under the relevant provisions of
this Act.

hhh

314 Ahmedabad Chartered Accountants Journal August, 2019

Allied Laws Adv. Ankit Talsania

Corner [email protected]

The Insolvency and Bankruptcy Code, 2016. limited functions, it could operate effectively
through natural persons constituting its civil
Recently two members of the National Company service and they were found adequate to
Law Tribunal, Mumbai bench in the case of Harsh discharge governmental functions, which
Pinge vs. Hindustan Antibiotics Limited reported were of traditional vintage. But as the tasks
in 108 taxmann.com 142 took a different view with of the Government multiplied with the
regard to the situation as to whether the Corporate advent of the welfare State, it began to be
Insolvency Resolution Process can be set in motion increasingly felt that the framework of civil
against the Corporate Debtor being a Government service was not sufficient to handle the new
Company for alleged default. tasks which were often of specialised and
highly technical character. The inadequacy
A. Questions arose for consideration : of the civil service to deal with these new
problems came to be realised and it became
(i) Whether CIRP can be initiated against a necessary to force a new instrumentality or
Govt. Company which is an instrumentality administrative device for handling these new
of the state as covered by many judgments problems. It was in these circumstances and
of the Hon’ble Apex Court under Article with a view to supplying this administrative
12 of the Constitution of India; need that the public corporation came into
being as the third arm of the Government.
(ii) Whether the IBC is an answer for the As early as 1819 the Supreme Court of the
Petitioner and whether the admission of the United States in Mac Cullough v. Maryland
Petition serves the objective for which the 4 Wheat 315 held that the Congress has
IBC is enacted; power to charter corporations as incidental
to or in aid of governmental functions and,
(iii) Whether the preamble of the Constitution as pointed out by Mathew, J., in Sukhdev
of India which includes the word v. Bhagat Ram (supra) such federal
“socialistic” has any bearing on this corporations would ex-hypothesis be
petition and; agencies of the Government. In Great
Britain too, the policy of public
(iv) Whether the admission of the Petition administration through separate
defeats the public purpose. corporations was gradually evolved and the
conduct of basic industries through giant
B. Findings of the Hon’ble Judicial Member : corporations has now become a permanent
feature of public life. So far as India is
10. The concept of instrumentality of state has concerned, the genesis of the emergence,
been very elaborately explained in the of corporations as instrumentalities or
judgment of the Hon’ble Apex Court titled agencies of Government is to be found in
as R.D. Shetty v. International Airport the Government of India Resolution on
Authority of India (AIR 1979 SC 1628) Industrial Policy dated 6th April, 1948
in the following lines: where it was stated inter alia that
“management of State enterprises will as a
“13.Now, it is obvious that the Government
which represents the executive authority of
the State, may act through the instrumentality
or agency of natural persons or it may
employ the instrumentality or agency of
juridical persons to carry out its functions.
In the early days, when the Government had

Ahmedabad Chartered Accountants Journal August, 2019 315

Allied Laws Corner to time by Government in respect of policy
matters. So also a corporation incorporated
rule be through the medium of public under law is managed by a board of
corporation under the statutory control of directors or committee of management in
the Central Government who will assume accordance with the provisions of the
such powers as may be necessary to ensure statute under which it is incorporated.
this.” It was in pursuance of the policy When does such a corporation become an
envisaged in this and subsequent resolutions instrumentality or agency of Government?
on Industrial Policy that corporations were Is the holding of the entire share capital of
created by Government for setting up and the Corporation by Government enough
management of public enterprises and or is it necessary that in addition, there
carrying out other public functions. should be a certain amount of direct control
Ordinarily these functions could have been exercised by Government and, if so, what
carried out by Government departmentally should be the nature of such control?
through its service personnel, but the Should the functions which the corporation
instrumentality or agency of the corporations is charged to carry out possess any
was resorted to in these cases having regard particular characteristic or feature, or is the
to the nature of the task to be performed. nature of the functions immaterial?
The corporations acting as instrumentality
or agency of Government would obviously Now, one thing is clear that if the entire share
be subject to the same limitations in the field capital of the corporation is held by
of constitutional and administrative law as Government, it would go a long way
Government itself, though in the eye of the towards indicating that the corporation is an
law, they would be distinct and independent instrumentality or agency of Government.”
legal entities. If Government acting through
its officers is subject to certain constitutional (Emphasis Supplied)
and public law limitations, it must follow a
fortiori that Government acting through the In view of the above findings, I am of the
instrumentality or agency of corporations considered view that the CIRP process
should equally be subject to the same cannot be initiated againstan instrumentality
limitations. But the question is how to of the state. To say these words I have made
determine whether a corporation is acting an attempt to lift the corporate veil of the
as instrumentality or agency of Government. Corporate Debtor to see who is behind the
It is a question not entirely free from same and I found that it is none other than
difficulty. Govt. of India, in the name of President of
India. Initiating CIRP process against the
14. A corporation may be created in one of Corporate Debtor practically amounts to
two ways. It may be either established by initiating CIRP process against the Govt.
statute or incorporated under a law such of India which is impermissible under the
as the CompaniesAct 1956 or the Societies Constitution/Law. The law makers while
Registration Act 1860. Where a enacting the IBC appears to have not
Corporation is wholly controlled by envisaged such a situation otherwise they
Government not only in its policy making would have exempted Govt. Companies
but also in carrying out the functions from the CIRP process as the application of
entrusted to it by the law establishing it or the Code on the said Govt. Companies
by the Charter of its incorporation, there would create a chaos and defeat the very
can be no doubt that it would be an intent for which IBC is brought into
instrumentality or agency of Government. existence. At the same time there is also
But ordinarily where a corporation is another way looking at it and that is, there
established by statute, it is autonomous in is no reason even to expressly exempt the
its working, subject only to a provision, Govt. Companies because it is an
often times made, that it shall be bound by instrumentality of the state and de-horsing
any directions that may be issued from time

316 Ahmedabad Chartered Accountants Journal August, 2019

the corporate character and independent Allied Laws Corner
entity, there is everything to say that the
Govt. Companies are an instrumentality of approach was not very much influenced by these
the state or rather we can say that there an considerations, and treated ita matter of principle
alter ego of the state itself and the result of that all important and nation-building industries
the same is that the IBC cannot interfere with should come under State control. The first
the state owned undertakings. In view of approach is doctrinaire, while the second is
the above the point No.(i)& (ii) are answered pragmatic. The first proceeds on the general
against the Petitioner as the Petitioner can ground that all national wealth and means of
have an alternate remedy in a civil court or producing it should come under national control,
by way of proceeding under Article 226 or whilst the second supports nationalisation only
32 of the Constitution of India in an on grounds of efficiency and increased output.
appropriate forum if so advised. The difference pointed out between the
doctrinaire approach to the problem of socialism
QUESTION (iii)& (iv) and the pragmatic one is very apt and may enable
the courts to lean more and more in favour of
11. It is also important to note that the preamble of nationalisation and State ownership of an
the constitution included the word “socialistic” industry after the addition of the word ‘Socialist
at the time of 42nd Amendment to the in the Preamble of the Constitution. But so long
Constitution. The Hon’ble Apex Court in its as the private ownership of an industry is
judgment titled “Excel Wear and Orsv. Union recognised and governs an overwhelmingly
of India and Ors” said the following: large proportion of our economic structure, is if
possible to say that principles of socialism and
“24.We now proceed to deal with the rival social justice can be pushed to such an extreme
contentions. But before we do so, we may make so as to ignore completely or to a very large
some general observations. Concept of extent the interests of another section of the
socialism or a socialist state has undergone public namely the private owners of the
changes from time to tune from country to undertakings? Most of the industries are owned
country and from thinkers to thinkers. But some by limited companies in which a number of
basic concept still holds the field. shareholders both big and small, holds the share.
There are creditors and depositors and various
In the case ofAkadasi Padhan v. State of Orissa other persons connected with or having dealings
the question for consideration was whether a law with the undertaking. Does socialism go to the
creating a State monopoly is valid under the latter extent of not looking to the interests of all such
part of Article 19(6) which was introduced by persons? In a State owned undertaking the
the (first Amendment) Act, 1951. While Government or the Government Company is the
considering that question, it was pointed out by owner. If they are compelled to close down, they
Gajendragadkar J., as he then was, at page 704: probably may protect the labour by several other
methods at their command, even, sometimes at
With the rise of the philosophy of Socialism, the the cost of the public exchequer. It may not be
doctrine of State ownership has been often always advisable to do so but that is a different
discussed by political and economic thinkers. question. But in a private sector obviously the
Broadly speaking, this discussion discloses a two matters involved in running it are not on the
difference in approach. To the socialist, same footing. One part is the management of
nationalisation or State ownership is a matter of the business done by the owners or their
principle and its justification is the general notion representatives and the other is running the
of social welfare. To the rationalist, business for return to the owner not only for the
nationalisation or State ownership is a matter of purpose of meeting his livelihood or expenses
expediency dominated by considerations of but also for the purpose of the growth of the
economic efficiency and increased output of national economy by formation of more and
production. This latter view supported more capital. Does it stand to reason that by such
nationalisation only when it appeared clear that rigorous provisions like those contained in the
State ownership would be more efficient, more
economical and more productive. The former

Ahmedabad Chartered Accountants Journal August, 2019 317

Allied Laws Corner

impugned sections all these interests should be Bharat Electronics Limited which produces
completely or substantially ignored ? The highly sensitive, military products. If at all a
questions posed are suggestive of the answers.” Petition under IBC is allowed to be maintained
against any of these Companies, very sensitive
(Emphasis Supplied) data or information will be leaked out and the
same would create chaos. Therefore, the
From the above it is clear that irrespective of the constitutional law doesn’t permit any Insolvency
fact whether a company is earning profits or not Petition being maintained against a Government
and has the ability to pay debts or not, the Undertaking owned by the President of India.
survival of the company cannot be put in
jeopardy and in view of the fact that the CIRP 12. Herein it is important to mention that the
process virtually creates a situation where the Respondent is a Government Company as
activities of the company goes into the hands of defined under section 2 (45) of the Companies
a Resolution Professional. Here is a case merely Act, 2013, wherein 100% of its shares are being
because an employee who served the company held by the President of India. Therefore, if
for several years and had grown from the bottom upon filing of an Application under Sections
to the top level not winding his long association 7, 8 and 9, and the same were to be admitted,
with the Company which provided him bread recovery proceedings then would be said to
and butter for so many years, had filed the above have been initiated against the President of
petition just because the undertaking is not India, which cannot be allowed under the
presently in a position to pay his dues? Does it procedure of IBC.
mean that there is some Debt and there is a
Default and the CIRP can be initiated against a 13. The State, we have seen on various occasions,
Government Company which is catering to the has either tried treating Financially Sick
requirements poor people at large by producing Companies or made sure that dues of the all its
medicines at an affordable price? The answer Creditors are duly paid. In a Welfare State like
has to be no. The reason for the same is that the India, allowing Insolvency proceedings against
Govt. Companies though incorporated as a an Agency of the State is like proceeding
corporate entity are not wholly created for the against the state itself and the same will set out
intent of making Crores and Crores of profit by a wrong precedent.
creating huge industrial facilities. The real object
is to serve the public purpose even at the cost of 14. Hence the Petition is dismissed.
incurring losses. The Govt. of India takes the
call at the appropriate time and would make all C. Findings of the Hon’ble Technical Member:
the possible efforts to revive the company and
pay dues to all its employees. Therefore, the I have gone through the order of my Ld.
admission of the petition would defeat the Brother and I respectfully disagree with his
provisions of Constitution of India which is views for the following reasons:
impermissible under Law. The Constitution of
India and its preamble partakes and prevails over 1. The contentions of the Corporate Debtor
the provisions of IBC and hence the Petition referred in para 7 supra cannot come in the
thoroughly fails on the above ground. In view way of admission of the Petition in view of
of the above, the points No. (iii)&(iv) are the fact that debt and default is writ large in
answered against the Petitioner as the the Petition and the Corporate Debtor has
Respondent is a Government Undertaking and not raised any dispute with regard to the
initiating insolvency process against it would be liability. The Hon’ble Supreme Court in the
against public interest.Another important point case of Mobilox Innovations Private
that requires to be seen from another angle is Limited v. Kirusa Software Private Limited
that several important Government Companies, (MANU/SC/1196/2017) held as below:
like, Mazagon Dock Shipbuilders, Bharat
dynamics Limited, Hindustan Aeuronoticals “25. Therefore, the adjudicating authority,
Limited, Bharat Heavy Electricals Limited, and when examining an application Under
Section 9 of the Act will have to determine:

(i) Whether there is an “operational debt” as
defined exceeding Rs. 1 lakh?

318 Ahmedabad Chartered Accountants Journal August, 2019

(ii) Whether the documentary evidence Allied Laws Corner
furnished with the application shows that
the aforesaid debt is due and payable and “In this Part, unless the context otherwise
has not yet been paid? And requires, “the State’’ includes the
Government and Parliament of India and
(iii) Whether there is existence of a dispute the Government and the Legislature of each
between the parties or the record of the of the States and all local or other authorities
pendency of a suit or arbitration proceeding within the territory of India or under the
filed before the receipt of the demand control of the Government of India.”
notice of the unpaid operational debt in
relation to such dispute? d. under the doctrine of immunity of
instrumentalities of the State, provided
If any one of the aforesaid conditions is lacking, under the constitution of India, the
the application would have to be rejected. properties of Union of India are exempted
even from taxation and other charges.
Apart from the above, the adjudicating authority Applying the same analogy the properties
must follow the mandate of Section 9, as of the Corporate Debtor cannot be
outlined above, and in particular the mandate interfered as provided under the Code.
of Section 9(5) of the Act, and admit or reject
the application, as the case may be, depending e. though it is a Government Company
upon the factors mentioned in Section 9(5) of incorporated under the Companies Act but
the Act.” the status and Statute are different, all
government companies are financed by
2. The Corporate Debtor filed additional reply government, Government Company is
dated 26.03.2019 and raised the following audited by the agencies appointed by the
issues: government etc., the Corporate Debtor is a
state and hence the provisions of the Code
a. on reference under SICA Act a scheme cannot be applied to this Corporate Debtor.
was approved by BIFR for revival of
HindustanAntibiotics Ltd. and the scheme f. the Corporate Debtor is trying to sell the land
is under implementation w.e.f. 01.12.2016. owned by it for payment of unpaid salary
Subsequently the Code came into of employees and the Hon’ble Bombay
operation and the SICA Act was repealed High Court directed the company to sell the
already under the Sick Industrial access land for payment of salary dues and
Companies (Special Provisions) Repeal the same is an assistance by the Central
Act, 2003. Government to dilute the company which
proves that the government has full control
b. the Corporate Debtor is a wholly owned over the authority of the Corporate Debtor.
Government Company through his
Excellency President of India, the g. the extreme step of appointing of Insolvency
government company is quite different and Professional as contemplated in the code is
cannot be compared with the public sector not applicable to Government Companies
undertaking or a private limited company and hence this petition has to be dismissed.
as contemplated under the Code, the
Government of India is ultimate controlling h. the payment of Gratuity Act, Bonus Act,
authority though it is managed by and other Industrial Acts are self contained
Independent Board, etc., and the code and if the Bankruptcy code is allowed
government retains the control by to prevail over those acts, they are required
appointing nominee directors. to be amended and/or scraped.

c. underArticle 12 of the Constitution of India i. Government of India infused funds to the
this Corporate Debtor is a ‘State’ and coming extent of Rs. 100 crores to the Corporate
under the purview of ‘other authorities’ as Debtor to pay the salary arrears of
mentioned inArticle 12 of the Constitution employees which shows that the Central
of India, which is as below: government is looking after its employees
like its children.

Ahmedabad Chartered Accountants Journal August, 2019 319

Allied Laws Corner

j. in spite of all difficulties the Corporate Section 3(8) of the Code provides that
Debtor has paid the dues of the Petitioner,
however if there is any genuine claim by “‘corporate debtor’ means a corporate person
the petitioner the same would be sorted out. who owes a debt to any person;”,

k. the employees of the Corporate Debtor in Section 2(20) of the Companies Act, 2013
case of any dispute or for other issues provides that
always approach the Hon’ble Bombay
High Court for their remedies and this “Company means a company incorporated
petitioner should done the same thing and under this Act or under any previous company
should not have filed this petition. law”

3. Discussion: Section 4 of the Code provides that

a. Article 12 of the Constitution of India “This Part shall apply to matters relating to the
provides as below: insolvency and liquidation of corporate debtors
where the minimum amount of the default is
“12. In this Part, unless the context one lakh rupees: Provided that the Central
otherwise requires, “the State” Government may, by notification, specify the
includes the Government and minimum amount of default of higher value
Parliament of India and the which shall not be more than one crore rupees.”,
Government and the Legislature of
each of the States and all local or other Section 5(20) of the Code provides that
authorities within the territory of India
or under the control of the “operational creditor” means a person to whom
Government of India”. Going by this an operational debt is owed and includes any
Article, it may be said that a writ person to whom such debt has been legally
petition may lie against the Corporate assigned or transferred;
Debtor on the guise of instrumentality
of State. But that doesn’t mean that Section 5(21) of the Code provides that
provisions of the Code are not
applicable to the Corporate Debtor “operational debt” means a claim in respect of
herein. This is a statutory remedy the provision of goods or services including
provided to the creditors under the employment or a debt in respect of the
Code and the creditors have every repayment of dues arising under any law for
right to exercise that statutory right. the time being in force and payable to the
Neither the Constitution of India nor Central Government, any State Government or
the Code excludes the operation of the any local authority;
provisions of the Code in respect of
the Corporate Debtor. Section 9 of the Code provides that

Let us examine the provisions of the Code to (1) After the expiry of the period of ten days
know whether the Corporate Debtor can be from the date of delivery of the notice or invoice
kept out of the purview of the Code. demanding payment under sub-section (1) of
section 8, if the operational creditor does not
Section 3(7) of the Code provides that receive payment from the corporate debtor or
notice of the dispute under sub-section (2) of
“‘corporate person’ means a company as section 8, the operational creditor may file an
defined in clause (20) of section 2 of the application before theAdjudicatingAuthority for
Companies Act, 2013, a limited liability initiating a corporate insolvency resolution
partnership, as defined in clause (n) of sub- process. (2) The application under sub-section
section (1) of section 2 of the Limited Liability (1) shall be filed in such form and manner and
Partnership Act, 2008, or any other person accompanied with such fee as may be
incorporated with limited liability under any prescribed. (3) The operational creditor shall,
law for the time being in force but shall not along with the application furnish— (a) a copy
include any financial service provider;” of the invoice demanding payment or demand
notice delivered by the operational creditor to
the corporate debtor; (b) an affidavit to the effect
that there is no notice given by the corporate

320 Ahmedabad Chartered Accountants Journal August, 2019

debtor relating to a dispute of the unpaid Allied Laws Corner
operational debt; (c) a copy of the certificate from
the financial institutions maintaining accounts An ordinary scanning of the above provisions
of the operational creditor confirming that there clearly reveals that the Corporate Debtor herein,
is no payment of an unpaid operational debt by being a company incorporated under the
the corporate debtor; and (d) such other Companies Act, is a corporate person who
information as may be specified. (4) An owes operational debt to the Petitioner and
operational creditor initiating a corporate hence the petition is maintainable against the
insolvency resolution process under this section, Corporate Debtor under Section 9 of the Code.
may propose a resolution professional to act as It is to be noted that the only exception given
an interim resolution professional. (5) The under Section 3(7) of the Code is for financial
Adjudicating Authority shall, within fourteen sector regulator. The legislature in its wisdom
days of the receipt of the application under sub- has not given any exception or exclusion to
section (2), by an order— (i) admit the the public sector/Government undertakings.
application and communicate such decision to Further the intention of the legislature is very
the operational creditor and the corporate debtor clear that the Government companies also fall
if,— (a) the application made under sub-section within the ambit of the Code. ThisAdjudicating
(2) is complete; (b) there is no repayment of the Authority cannot travel beyond the provision
unpaid operational debt; (c) the invoice or notice of law. Hence, the answer to the question supra
for payment to the corporate debtor has been is a big no.
delivered by the operational creditor; (d) no
notice of dispute has been received by the The contentions of the Corporate Debtor that
operational creditor or there is no record of the payment of gratuity act overrides the
dispute in the information utility; and (e) there is provisions of the Code cannot be accepted in
no disciplinary proceeding pending against any view of the provisions of Section 238 of the
resolution professional proposed under sub- Code, which is a subsequent legislation enacted
section (4), if any. Application for initiation of in the year 2016 when compared to the Payment
corporate insolvency resolution process by of Gratuity Act, 1972. The other contentions
operational creditor. (ii) reject the application and raised as above will not come in the way of
communicate such decision to the operational admission of this Petition. In view of this all the
creditor and the corporate debtor, if— (a) the contentions of the Corporate Debtor stated above
application made under sub-section (2) is from (a) to (k) does not hold water.
incomplete; (b) there has been repayment of the
unpaid operational debt; (c) the creditor has not b. The Ld. Senior Counsel for the Corporate
delivered the invoice or notice for payment to Debtor relied on umpteen number of judgments
the corporate debtor; (d) notice of dispute has to say that writ jurisdiction is amenable against
been received by the operational creditor or there the Corporate Debtor and the same is not an
is a record of dispute in the information utility; issue before this Bench and hence the reliance
or (e) any disciplinary proceeding is pending on those judgments is of not of any assistance
against any proposed resolution professional: to the Corporate Debtor.
Provided that Adjudicating Authority, shall
before rejecting an application under sub-clause c. In the following cases, CIRP Petition was
(a) of clause (ii) give a notice to the applicant to entertained against the Public Sector
rectify the defect in his application within seven undertakings/ Govt. Companies by the
days of the date of receipt of such notice from NCLTs across the country.
the adjudicating Authority. (6) The corporate
insolvency resolution process shall commence i. Kolkata Bench of NCLT, in the case of
from the date of admission of the application “Gulf Oil Lubricants India Ltd. v. Eastern
under sub-section (5) of this section. Coalfields Ltd. (CP (IB) No. 228/KB/
2018)”

ii. Hyderabad Bench of NCLT, in the case
of “Andhra Pradesh Power Generation
Corporation Ltd vs. Southern Power
Distribution Company of Telangana Ltd.
(CP (IB) No. 58/9/HDB/2018)”, in which

Ahmedabad Chartered Accountants Journal August, 2019 321

Allied Laws Corner occurrence of default and third the existence
of dispute and nothing more. When these
the Government Company filed this are looked into the petition deserves
petition against the Government Company. admission. There is no question of testing
(In fact this case has travelled up to the the constitutional validity of any provision
Hon’ble Supreme Court). of the Code by this Adjudicating Authority
in the given circumstance and the same will
iii. It is to be noted that the Hon’ble NCLAT be beyond the jurisdiction of this Tribunal.
by an order dated 29.05.2019 approved the
liquidation order passed by the New Delhi e. It is to be noted that the Government of India,
Bench of NCLAT in the case of on 09.11.2015 vide notification No. 16(25)/
“Hindustan Paper Corporation Officers & 2004-Fin., had abolished the Board for
SupervisorAssociation &Ors. v. Hindustan Reconstruction of Public Sector Enterprises
Paper Corporation Ltd. &Ors (Company (BRPSE) which was established in December
Appeal (AT) (Insolvency) No. 585 of 2004 as an advisory body to advise the
2019)”, wherein the Corporate Debtor is a Government on the strategies, measures and
public sector undertaking/ Govt. Company. schemes related to strengthening, modernizing,
reviving and restructuring of public sector
iv. The Hon’ble NCLAT in the case of enterprises. In view of this development, now
“Industrial Services v. Burn Standard there is no mechanism to deal with the
Company Ltd. &Anr. (Company Appeal restructuring or resolving the financial issues
(AT) (Insolvency) No. 141 of 2018)” set faced by Public Sector Undertakings and the
aside the order of closure of the Company application of the Code to this Corporate Debtor
and the order of retrenchment dated 6th is in the best interest of the Corporate Debtor.
March, 2018 and remitted back the matter
to NCLT, Kolkata for fresh consideration f. If the contentions raised by the Ld. Senior
in accordance with law. Here also the Counsel on behalf of the Corporate Debtor is
Corporate Debtor is a public sector/ accepted, it tantamount to the situation where
Government undertaking. Hence there is the Public Sector Companies can borrow money
no rhyme or reason to exclude the public left, right and centre or create liabilities and the
sector/Government undertaking. creditors have to be left in lurch compelling them
to approach the civil courts or the writ court for
d. The Adjudicating Authority under the Code getting relief, where the system is already
is given a limited power to decide whether suffering from docket explosion, which will
the Corporate Debtor is liable to pay the ultimately hurt the economic interest of the nation
debt and defaulted in making the same. and the ease of doing business.
When the debt and default is proved the
petition has to be admitted. The Corporate g. The code is a major economic reform
Debtor neither denied liability nor the undertaken by the Government to overcome
default nor raised any dispute. The the bottleneck in the economic development
documents produced by the Petitioner of the country and the present situation is
clearly prove that the Corporate Debtor that the economic activity awaits at the
defaulted in making the payment of doorsteps of the NCLTs, and hence the
retirement benefits to the Petitioner. The spirit of the Code shall not be spoiled by
Hon’ble Supreme Court has already upheld diluting and tinkering the Code.
the Constitutional Validity of the Code in
entirety in the case of “Swiss Ribbon Private 4. In view of the above discussion, the Petition
Limited and Anr. v Union of India and Anr. is admitted.
(2019 4 SCC 17)”. This Adjudicating
Authority is mandated only to look into hhh
three things before admitting a petition
under Section 9, first debt, second

322 Ahmedabad Chartered Accountants Journal August, 2019

From CA. Pamil H. Shah
Published [email protected]
Accounts
on a straight-line basis, from the date that they are
Ind. AS -38 Intangible Assets - available for use. The estimated useful life of an
Annual Report 2018-19 identifiable intangible asset is based on a number
of factors including the effects of obsolescence,
Indostar demand, competition and other economic factors
(such as the stability of the industry and known
2.3 (vi) (d).Recognition and measurement technological advances) and the level of
maintenance expenditures required to obtain the
An intangible asset is recognised only when its cost expected future cash flows from the asset.
can be measured reliably and it is probable that the
expected future economic benefits that are Alkem Laboratories Limited
attributable to it will flow to the Company. Intangible
assets acquired separately are measured on initial 2A. (2.3) (i) Recognition and measurement
recognition at cost. Following initial recognition,
intangible assets are carried at cost less accumulated Research and development:
amortization. The cost of intangible assets acquired
in a business combination is their fair value as at Expenditure on research activities is recognised in
the date of acquisition. profit or loss as incurred. Development expenditure
is capitalised only if the expenditure can be
Amortization measured reliably, the product or process is
technically and commercially feasible, future
Intangible assets are amortized using the straight economic benefits are probable and the Company
line method over a period of 3 years, which is the intends to and has sufficient resources to complete
management’s estimate of its useful life. The development and to use or sell the asset. Otherwise,
amortization period and the amortization method it is recognised in profit or loss as incurred.
are reviewed at least as at each financial year end. Subsequent to initial recognition, development
If the expected useful life of the asset is significantly expenditure is measured at cost less accumulated
different from previous estimates, the amortization amortisation and any accumulated impairment
period is changed accordingly. losses.

Gains or losses arising from the retirement or Other intangible assets:
disposal of an intangible asset are determined as
the difference between the net disposal proceeds Other intangible assets, such as computer software
and the carrying amount of the asset and recognised and trademarks and patents, that are acquired by
as income or expense in the Statement of Profit and the Company and have finite useful lives are
Loss. measured at cost less accumulated amortisation and
any accumulated impairment losses.
NMDC Limited
ii) Subsequent expenditure
1.2 (vi) Intangible Assets:
Subsequent expenditure is capitalised only when it
Intangible assets are stated at cost less accumulated increases the future economic benefits embodied
amortization and impairment. Intangible assets are in the specific asset to which it relates. All other
amortized over their respective estimated useful lives

Ahmedabad Chartered Accountants Journal August, 2019 323

From Published Accounts

expenditure, including expenditure on internally reporting period. The amortization expense on
generated goodwill and brands, is recognised in Intangible Assets with finite lives is recognized in
Statement of profit and loss as incurred. the Statement of Profit & Loss. The Company
amortizes intangible assets over their estimated
iii) Amortization useful lives using the straight line method. The
estimated useful life is as follows: Software 6Years
Amortization is calculated to write off the cost of IntangibleAssets with indefinite useful lives are not
intangible assets less their estimated residual values amortized, but are tested for impairment annually,
using the straight-line method over their estimated either individually or at the cash-generating unit
useful lives, and is generally recognised in level. The assessment of indefinite life is reviewed
Statement if profit and loss. The amortisation period annually to determine whether the indefinite life
and the amortisation method for finite-life intangible continues to be supportable. If not, the change in
assets is reviewed at each financial year end and useful life from indefinite to finite is made on a
adjusted prospectively, if appropriate. prospective basis.

The estimated useful lives for current and Gains or losses arising from derecognition of an
comparative periods are as follows: intangible asset are measured as the difference
between the net disposal proceeds and the carrying
Intangible Assets Useful Life amount of the asset and are recognized in the
Statement of Profit & Loss when the asset is
Computer Software 3 Years to 6 Years derecognized.

Trade Marks & Patents 5 Years BGR Energy Systems Limited

VRL Logistics Limited B.(xi)(a) Recognition & Measurement

1. (e) Intangible assets are stated at acquisition cost, Intangible assets are stated at cost, less accumulated
net of accumulated amortisation and accumulated amortisation and impairment losses, if any.
impairment losses, if any. Gains or losses arising
from the retirement or disposal of an intangible asset b) Transition to Ind AS
are determined as the difference between the net
disposal proceeds and the carrying amount of the On transition to Ind AS, the Company has decided
asset and recognised as income or expense in the to continue with the carrying value of all its
Statement of Profit and Loss. Intangible asset recognised as at April 1, 2015,
measured as per previous GAAP and use that
Manaksia Limited carrying amount as the deemed cost of such
Intangible asset.
2.(v).Intangible Assets acquired separately are
measured on initial recognisation at cost. Intangible c) Subsequent Recognition
Assets acquired in a business combination is valued
at their fair value at the date of acquisition. Expenditure is capitalised only if it increases the
Following initial recognition, intangible assets are future economic benefits embodied in the related
carried at cost less accumulated amortization and specific asset. All other expenditure is recognised
accumulated impairment losses, if any. in profit or loss as incurred.

The useful lives of Intangible Assets are assessed d) Amortisation
as either finite or indefinite.
The Company amortises the intangible assets over
IntangibleAssets with finite lives are amortized over their estimated useful life using Straight-line
the useful economic life and assessed for impairment method, and is included in Depreciation and
whenever there is an indication that the intangible amortisation in the Statement of Profit and Loss.
asset may be impaired. The amortization period and
the amortization method for an IntangibleAsset with
a finite useful life are reviewed at the end of each

324 Ahmedabad Chartered Accountants Journal August, 2019

From Published Accounts

Intangible Assets Estimate of Adequate technical, financial and other resources
Useful Life in years to complete the development and to use or sell the
software are available, and
technical-know-how 6

Software 5 The expenses attributable to the software during its
development can be reliably measured.

Bharat Dynamics Limited d) Directly attributable costs that are capitalized at
part of the software include employee costs and an
12.1 Licenses appropriate portion of relevant overheads.

Separately acquired licenses are shown at historical e) Capitalized development costs are recorded as
cost. They have a finite useful life and are intangible assets and amortized at the point at which
subsequently carried at cost less accumulated the asset is available for use.
amortization and impairment losses.

12.2 Computer software 12.3 Research and development

a) The cost of software (which is not an integral Research expenditure and development expenditure
part of the related hardware) acquired for internal that do not meet the criteria are recognized as an
use and resulting in significant future economic expense as incurred. Development costs previously
benefits, is recognised as an Intangible Asset in the recognized as an expense are not recognized as an
books of accounts when the same is ready for use. asset in a subsequent period.
Intangible Assets that are not yet ready for their
intended use as at the Balance Sheet date are In the event of the Company financed projects
classified as “IntangibleAssets under Development. being foreclosed/abandoned, the expenditure
incurred up to the stage of foreclosure/abandonment
b) Cost associated with maintaining of software is charged of to revenue in the year of foreclosure/
programs are recognised as an expense as incurred. abandonment.

c) Development costs that are directly attributable 12.4 Amortization methods and periods
to the design and testing of identifiable and unique
software products controlled by the company are The Company amortizes intangible assets with a
recognized as intangible assets when the following finite useful life using the straight-line method over
criteria are met: the following periods;

It is technically feasible to complete the software Licences Useful Life/Production
so that it will be available for use
Computer software 3 Years

Management intends to complete the software and
use or sell it

There is an ability to use or sell the software

It can be demonstrated how the software will hhh
generate portable future economic benefits

Ahmedabad Chartered Accountants Journal August, 2019 325

From the

Government

CA. Ashwin H. Shah CA. Kunal A. Shah
[email protected] [email protected]

Goods and Service Tax 2019, 17/2019 and 19/2019 Central Tax
(Rate) , dated 30/09/2019
A. The recommendations of the Council in the
37th GST Council Meeting are as under:- - Grant exemption to dried tamarind and
cups, plates made of leaves, bark and
1) Changes in rates of certain goods viz. flowers of plants.

a. Marine Fuel 0.5% (FO) now taxed @ - Exempts GST on supplies of silver and
5%, platinum by nominated agencies to
registered persons.
b. Wet grinder consisting of stone as grinder
@ 5%, - Exempts supply of goods for specified
projects under Food and Agricultural
c. Woven and non-woven bags and sacks of Organization of the United Nations (FAO).
polyethylene or polypropylene strips or the
like, whether or not laminated, of a kind 3) Changes in Rates of Tax – Service
used for packing of goods @ 12%,
There are changes in rates of certain services
d. Railway wagons, coaches, rolling stock, viz-
parts thereof @ 12%,
a. Hotel accommodation (above Rs. 1,000
e. Caffeinated beverages @ 28%, and not exceeding Rs. 7,500 per day) @
12%,
f. Precious stones (other than diamonds) and
semi-precious stones, whether or not b. Outdoor catering @ 5%
worked or graded but not strung, mounted
or set; ungraded precious stones (other c. Other professional, technical and business
than diamonds) and semi-precious stones, services relating to exploration, mining or
temporarily strung for convenience of drilling of petroleum crude or natural gas
transport @ 0.25%, or both @ 12%

g. Synthetic or reconstructed precious or d. Services by way of job work in relation to
semiprecious stones, whether or not diamonds @ 1.5%,
worked or graded but not strung, mounted
or set; ungraded synthetic or reconstructed e. Services by way of job work in relation to
precious or semiprecious stones, bus body building @ 18%,
temporarily strung for convenience of
transport @ 0.25%. f. All other job work (other than
manufacturing services) @ 12%.
(Notification No. 14/2019, Central Tax
(Rate), dated 30/09/2019) (Notification No. 20/2019, Central Tax
(Rate), dated 30/09/2019)
2) Exemption from Tax – Goods in the
following cases vide Notification No. 15/ 4) Exemptions from Tax- Services vide
Notification No. 21/2019 and 25/2019
Central Tax (Rate) dated 30/09/2019.

326 Ahmedabad Chartered Accountants Journal August, 2019

From the Government

The following services are exempted viz: a. Deferment of time of supply under
Notification No. 4/2018 - CT (R) with
a. Services provided by and to Federation respect to development rights would not
Internationale de Football Association apply to the development rights supplied
(FIFA) and its subsidiaries related to FIFA on or after 1st April, 2019.
U-17 Women’s World Cup 2020, right to
admission to the FIFA U-17 women’s WC b. Lacuna corrected pertaining to payment of
2020, tax under RCM by real estate promoter on
cement from unregistered suppliers.
b. Services by way of storage or warehousing
of cereals, pulses, fruits, nuts and 7) Changes in Place of Supply for R & D
vegetables, spices, copra, sugarcane, Services in Pharma Sector
jaggery, raw vegetable fibers such as
cotton, flax, jute etc., indigo, a. Notifies special place of supply rules for
unmanufactured tobacco, betel leaves, research and development services related
tendu leaves, coffee and tea, to pharmaceutical sector.

c. Services of life insurance provided or (Notification No. 04/2019, Central Tax
agreed to be provided by the Central (Rate), dated 30/09/2019)
Armed Police Forces (under Ministry of
Home Affairs) Group Insurance Funds to Income Tax:
their members under the Group Insurance
Schemes of the concerned Central Armed 1) Higher Depreciation on certain motor cars,
Police Force, Bangla Shasya Bima. motor buses, motor lorries and motor taxis.
(Notification No. 69 /2019/ F.No. 370142/17/
d. Service by way of grant of alcoholic liquor 2019-TPL)
license by State Government would not be
regarded as supply of goods/services. The Central Board of Direct Taxes, hereby,
makes the following rules to further amend
5) Changes in RCM the Income-tax Rules, 1962, namely:

a. Author given an option to discharge tax In the Income-tax Rules, 1962, in the NEW
under forward charge on services of APPENDIX I, in the Table, in PART A relating
transfer/allowing use of copyright relating to TANGIBLE ASSETS, in item III relating
to original literary works. to MACHINERY AND PLANT, -

b. Tax on the services of renting of a motor a. for sub-item (2) and entries relating thereto,
vehicle (which are taxed @ 5%) provided the following shall be substituted, namely:-
by person other than body corporate to a
body corporate shall now be paid under Block of Assets Depreciation
RCM by the recipient body corporate. 1 allowed as
per percentage
c. Tax on the services of lending of securities of written
under Securities Lending Scheme, 1997 of down value
SEBI shall now be paid under RCM by
the borrower. 2

(Notification No. 22/2019, Central Tax “(2) (i) Motor cars, other than 15
(Rate), dated 30/09/2019) those used in a business of
running them on hire, acquired
6) Changes related to Real Estate vide or put to use on or after the 1st
Notification No. 23/2019 and 24/2019 day of April,1990 except those
Central Tax (Rate) dated 30/09/2019. covered under entry(ii);

(ii) Motor cars, other than those 30
used in a business of running
them on hire, acquired on or after

Ahmedabad Chartered Accountants Journal August, 2019 327

From the Government

the 23rd day of August, 2019 post office his account number through which
but before the 1st day of April, he wishes to withdraw cash in excess of rupees
2020 and is put to use before the one crore in the previous year along with his
1st day of April, 2020. Permanent Account Number (PAN) and the
details of the previous year and has certified to
b. in sub-item (3), for paragraph (ii) and entries the banking company or co-operative society
relating thereto, the shall be following or post office that the withdrawal of cash from
substituted, namely:- the account in excess of rupees one crore during
the previous year is for the purpose of making
Block of Assets Depreciation payments to the farmers on account of purchase
1 allowed as of agriculture produce and the banking
per percentage company or co-operative society or post office
of written has ensured that the PAN quoted is correct and
down value the commission agent or trader is registered with
the APMC, and for this purpose necessary
2 evidences have been collected and placed on
record.
“(ii) (a) Motor buses, motor 30
lorries and motor taxis used in 3) Extension of due date for linking of PAN
a business of running them on with Aadhaar from 30.09.2019 to
hire other than those covered 31.12.2019
under entry (b).
(Notification No. 75/2019 [F.No. 225/75/
(b) Motor buses, motor lorries 45 2019-ITA.II])
and motor taxis used in a
business of running them on The Central Government hereby amends the
hire, acquired on or after the notification of the Ministry of Finance
23rd day of August, 2019 but (Department of Revenue) dated 31 st March,
before the 1st day of April, 2020 2019, published in the Gazette of India,
and is put to use before the Extraordinary, Part-II, Section 3, sub-section
1st day of April, 2020. (ii) vide S.O. number 1495(E) dated 01st April,
2019. 2. In the said notification: - (i) in
2) Exemption to commission agents or traders paragraph 1, 30th September, 2019 shall be
operating under APMC under clause (v) of substituted by 31st December, 2019; (ii) in
the proviso to section 194N of the Income paragraph 3, 30.09.2019 shall be substituted
Tax Act, 1961 by 31st December, 2019.

(Notification No. 70/2019/F. No. 370142/12/ hhh
2019-TPL (Part-1), SO 3427(E) )

The Central Government after consultation
with the Reserve Bank of India, hereby
specifies the commission agent or trader,
operating under Agriculture Produce Market
Committee (APMC), and registered under any
Law relating to Agriculture Produce Market of
the concerned State, who has intimated to the
banking company or co-operative society or

328 Ahmedabad Chartered Accountants Journal August, 2019

New Delhi CA. Aniket Talati

Times [email protected]

E Stamping in Gujarat and related internet issues, the Council at its 386th
Meeting held on 18th and 19th September, 2019
The Gujarat government recently announced that has decided to permit generation of UDIN within
e-stamping facility will now be available at more 30 days in place of 15 days.
centres including CAs, licensed stamp vendors and
notaries. Members may kindly note that this is a one-time
relaxation available on the Certificate / Report /
Members may please note that since this involves Document signed between 20th August, 2019 to
receipt of commission on percentage basis and 31st December, 2019.
is not currently permitted as per Code of Ethics.
I have requested Ethical Standards board (ESB) Further, UDIN so generated has to be communicated
and this matter will be taken up for discussion to “Management” or “Those Charged with
in the next meeting of the Board. I would advise Governance” for disseminating it to the
members to take an informed decision in this stakeholders from their end.
regard based on their CoP status and in
compliance of CA Act, regulations and Code of Important Aspects of Prospective Financial
Ethics and await the decision of ESB/Council Statements and Provisional Balance Sheet
in this regard.
A video covering important aspects of Prospective
E-stamping is a computer version of the stamp paper F/S, CMA Data, Unaudited F/S etc wrt UDIN
to pay stamp duty to the government. The state has https://youtu.be/BnIYX-joMEo
decided to increase the number of vendors who can
provide the facility of e-stamping. At present there Constitution of High Level Independent
are in all 474 e-stamping facilities - branches of Committee
scheduled banks, government banks, post offices
and sub registrars are the only centres where e- A section of the students led by agencies external
stamping facility could be availed. With the decision to the Institute demonstrated outside the ICAI
35 nationalised and private bank branches, 80 co- premises from 23rd September, 2019. In order to
operative bank's branch, 1259 stamp vendors, 5000 empathize the genuine concern, if any, of the
company secretaries, 11,500 chartered students, they were given an opportunity to meet
accountants 3,000 notary licensees and over the officers and council members on 24th
20,000 Common Service Centres (CSC) will get September, 2019 wherein more than ten
permission to provide e-stamping facilities thus representatives including ICAI members, non-
making them recognised authorised collection members and students participated in the
centres for e-stamping. discussions. The representatives of agitators
submitted that their only demand is to allow for
Sale of e-stamps leaves an online trail and the provision of re-checking of answer books in the
documents are registered on the state's Garvi system, Chartered Accountancy examinations.
the state will be able to control and track any cases The representatives were assured that the Institute
of fraud better. will take all necessary measures to protect their
interest within the provisions of the CA Regulations
Extension of time limit of UDIN generation from 1988. continuing. It is also seen that a few answer
15 days to 30 days - One Time Relaxation books have been circulated in social media alleging
errors in evaluation on the part of Institute. These
In response to the various representations received answer books have been checked and from the
from Members at large for inability in generating records of the Institute, it is noticed that none of
UDIN due to floods in many parts of the Country these relate to May 2019 examination as has been
claimed on the social media.

Ahmedabad Chartered Accountants Journal August, 2019 329

New Delhi Times

The Institute of Chartered Accountants of India 4) Since the firms who seek to provide audit
(ICAI) has consequently decided to constitute a services will have to be from the MEF Panel
High Level Independent Committee to look into of ICAI, “Non-CA firms” and Pvt Ltd entities
the Examination processes/ Regulations governing who are not registered will not be able to
CA Examinations including Regulation 39(4) of provide internal audit services. It’s a good
the Chartered Accountants Regulations, 1988 and move since these were unregulated entities who
suggest changes wherever required in the ICAI never applied any standards , SQC or oversight.
Examination System.
Though setting criteria for appointment is always
The Committee would comprise of the following the prerogative of the person appointing ; there are
members: certain anomalies / concerns that come to ones mind
1) Large number of firms registered with ICAI are
Dr. P. C. Jain, Govt. Nominee, Convenor
sole proprietor concerns and the category 4
Justice (CA.) Anil R. Dave, Former Judge, Supreme defined by the authority requires minimum 2
Court of India CAs (either partner or employee). This would
deprive the state of services of large number of
CA. Ved Jain, Past President, ICAI proprietorship firms and should be reconsidered.
2) The categorization based on MEF Categories
CA. Amarjit Chopra, Past President, ICAI May be desirable but the added requirement of
turnover may also render some firms ineligible
CA. (Dr.) Girish Ahuja, Renowned Educationist and not create necessary competition .
Therefore the turnover requirement needs to
The recent protests by CA students has been be harmonized or removed.
addressed by the formation of this committee.
The above is my personal view based on
Membership Fees : Last date extended preliminary study of the circular. While one
appreciates the intent to regulate appointments such
The Council of ICAI has decided to extend the last that merit is the criteria for appointment and not
date for payment of Membership /COP fee for the personal contacts, there are certain anomalies which
year 2019-20 up to 30th November, 2019. need to be reconciled and addressed. I request all
colleagues and friend to share their views on
Gujarat Audit Appointment Criteria Circular [email protected] on the above subject. After wide
spread consultation I shall request PDC of ICAI to
Recently Government of Gujarat has come out with positively represent the concerns of all stakeholders
a Circular for appointment of Auditors. There are ! Going forward the government should be perused
some genuine concerns wrt Sole proprietors being to ensure allotment via empanelment and doing
left out of the ambit and also certain requirements away with tendering so that fair and equitable
of turnover/branches. My preliminary analysis of distribution of work can be ensured.
the same is summarised herewith.
Validity of Peer Review Certificate
1) The circular only applies to audit services. All
other non attest functions like TDS returns, The Peer Review Board at its 59th meeting held
GST returns, compliance work, certification on 23.08.2019, considering the difficulties faced
services, accounting etc are outside the ambit by practice units on the validity of Peer Review
and any CA can continue to provide these Certificate, decided as follows:
services irrespective of his/her category in MEF.
The Peer Review Certificate will henceforth be
2) The circular aims to ensure that work for all effective from the date of submission of final clean
Gujarat Govt owned and promoted report irrespective of date of Peer Review Board
corporation / companies / boards / authorities meeting in which it is approved.
etc is carried out by firms based out of Gujarat
or outside firms with substantial presence in Further, temporary relaxation is being given to such
Gujarat ( 2 branches for 3 years). This is in line Practicing Units to sign listed company reports as
with the state governments objectives as similar required by SEBI / other authorities till 30.09.2019,
provisions are always there in all tenders. whose final clean reports have been received by
the Board.
3) The panel is prepared on the basis of MEF data
of ICAI and therefore firms which are hhh
registered and regulated by ICAI are covered.
It widens the application of MEF Panel and
encourages broad based participation.

330 Ahmedabad Chartered Accountants Journal August, 2019

Association

News

CA. Shivang R. Chokshi CA. Ketan G. Mistry
Hon. Secretary Hon. Secretary

Forthcoming Programmes

Date Day Time Programmes Speakers Venue

07.11.2019 Thursday 6.30 p.m. Diwali Get Together Ratnamani
onwards Party Plot,
Opp.Star Bazar,
Ahmedabad

08.11.2019 Friday 3.30 p.m. 3rd Brain Trust cum CA. Abhay Desai, ATMA Hall,
To Workshop Meeting on Baroda Ashram Raod,
Ahmedabad
7.30 p.m. “”Issues under GST”

Glimpses of events gone by:

2nd Brain Trust Meeting on Issues on Tax Audit Prof. Dev. Committee Meeting “Charitable Trust
& Reporting in Form 3CD by CA Tejas Mehta & Filing of TDS Return awareness Programme”
CA Malay Deliwala ( Dhruva Advisors LLP) on 22nd August, 2019

21st August, 2019

Women’s Empowerment Committee Programme Felicitation Faction on Hon’ble Pramodkumar

on LADIES DAY OUT on 14th September, 2019 Vice President Income Tax Appellate Tribunal on

27th September, 2019 on

hhh

Ahmedabad Chartered Accountants Journal August, 2019 331

332 Ahmedabad Chartered Accountants Journal August, 2019