Brief case: SC for tough steps against wilful defaulters

SC for tough steps against wilful defaulters

The Supreme Court has stated that “it has become a general scenario that persons who earn money with the help of hefty loans are not making payment of dues…The time has come when they have to be dealt with sternly and with an iron hand so as to make them pay public dues”. The court lamented the situation in the case of an educational trust which took a loan of Rs 75 crore more than 10 years ago and due to non-payment the amount with interest had swelled to Rs 480 crore.  In this judgment, Maharaji Educational Trust vs Hudco, the payment was delayed because of proceedings initiated by the trust in the Delhi Debt Recovery Tribunal, arbitration, a vain attempt by Hudco to invoke the securitisation (Sarfaesi) Act, appeal to the Delhi High Court and finally the Supreme Court. The trust runs medical colleges, a dental college and a 700-bed hospital. It has 3,000 students and 700 staff members. Declaring the trust a wilful defaulter, the judgment said: “In spite of running institutions which have been set up by the money lent to them, they are not making payment of dues. Consequently, they will have no right to run the institutions in such a dishonest manner. The increase of non-performing assets in banks is one of the offshoots of such murky deals. It is shocking that despite having means, earning profits they are not interested in making payment.” The court then passed peremptory orders directing the trust to start repaying the dues from June. 

Ponzi firm’s assets can be attached 

The Supreme Court (SC) has upheld the power of the Tamil Nadu government under the state’s Protection of Interests of Depositors (In Financial Establishments) Act to order interim attachment of the immovable assets of financial establishments which defraud investors after taking money from them assuring high returns. The SC quashed the order of the Madras High Court which held a contrary view in the judgment, State vs K S Palanichamy. The high court had set aside the government decision to attach the immovable properties of the partners of Global Capital Trading Services. The government took the step on the basis of a complaint of cheating filed in 2010, alleging that the Madurai-based firm had accepted huge sums from people promising them high interest, but returned only part of the investment and some partners were absconding. As the high court did not allow the attachment proceedings, the government successfully appealed to the Supreme Court.

Website for fake luxury goods 

The Delhi High Court last week restrained an Indian firm from using its website to sell counterfeit products of Louis Vuitton on the complaint of the French company. According to the complaint, the Indian firm was violating its trademark and copyright in their lifestyle luxury goods, causing losses. The website offered an 80 per cent discount on counterfeit goods which were priced up to Rs 59,000. The firm also passed off spurious items as genuine products of Mont Blanc, Hermes, Cartier and Burberry, it was alleged. The high court, while passing a permanent injunction in the case, Louis Vuitton vs Gaurav Bhatia, stated it could not award damages for the loss suffered by the French company as there was no evidence regarding the actual loss. 

Reopening of assessment quashed 

Once an assessment of income tax has been made and accepted by an officer, it cannot be reopened later by his successor who has a different interpretation on the liability. The Delhi High Court stated so while dismissing the appeal case, Director of International Taxation vs Rolls Royce Industrial Power India. The company has a “permanent establishment” in India under the Double Taxation Avoidance Agreement and the UK-based company was assessed accordingly between 1998 and 2002. However, when it applied in 2004 for nil tax deduction at source, the request was rejected. The Director of IT also proposed to reopen the earlier assessments, arguing that payments received by the foreign company pursuant to the operations and maintenance agreements should be treated as fees for technical services. The dispute over whether these receipts were taxable either as business income or as fee for technical services went up to the IT Appellate Tribunal, which ruled in favour of the company. The high court dismissed the appeal of the revenue department stating the reopening was not based on any fresh material. 

Bank takes back seat in auction

When a mortgaged property is being auctioned due to non-payment of a loan advanced by a bank, the first charge on the amount received will be tax due to the government, and not the claim of the bank which advanced the loan. The lender-bank may participate in the auction to fetch a better price. But the bank will get only what is left after the government’s dues. This rule was reiterated by the Himachal Pradesh High Court in the case, HP State Cooperative Bank vs State of HP. In this case, the government attached the property of the borrower to get the excise dues. The bank moved the district court to claim its dues. The petition was rejected. On appeal, the high court upheld the ruling of the court below and rejected the claim of priority by the bank. 

Financier has free hand in repossession 

If the hire purchase agreement does not provide for notice before taking possession of the vehicle, the lender is not obliged to issue notice and can repossess the vehicle immediately. In hire purchase agreements, it is the financier who is the owner of the vehicle and the person who takes the loan retains the vehicle only as a trustee. Therefore, taking possession of the vehicle on the ground of non-payment of instalments is a legal right of the financier, the Calcutta High Court stated in the case, IndusInd Bank vs Kanchan Ghosh. In this case, a person took a loan to buy a truck but she did not pay instalments. When the vehicle was repossessed, she moved the district consumer forum. It asked the bank to return the vehicle to her and pay compensation. On appeal, the high court quashed the order, holding the forum below wrong. It accepted the argument of the bank that the person who complained was not even a consumer as she had earlier taken loans for two trucks. A person who takes loans for commercial activities has no right to move the consumer forum as that person is not a consumer according to the definition in the Consumer Protection Act. However, a person who takes a loan for self-employment is a consumer.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel