Scheme That Hurt Investors

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By M J Antony

NEW DELHI: The Supreme Court last week dismissed the appeal of M/s Integrated Finance Co Ltd (IFCL) a non-banking finance company, challenging the Madras High Court judgment which had held that its scheme of compromise with its creditors lacked bonafides and was contrary to public policy. RBI had issued various circulars for regulating NBFCs and those who did not comply with them were barred from accepting deposits from investors.

RBI inspected the books of accounts of the company and found various violations. Therefore, it imposed curbs on the company. Then the company proposed the scheme of compromise which became controversial among the shareholders. When the matter was taken to the high court, it did not approve of the scheme due to violations of the RBI rules.

The Supreme Court upheld the high court decision in its judgment in IFCL vs RBI, observing that “that the scheme has been introduced only with a view to avoid repayment to small depositors.” Further, the scheme violated the rule that every deposit shall be repaid according to the terms of the deposit.

Unlisted shares are securities
Shares of a public limited company, though not listed in the stock exchange, come within the definition of ‘securities’ and therefore the provisions of the Securities Contracts (Regulation) Act will apply to them, the Supreme Court ruled last week, upholding the view of the Calcutta High Court in the case, Bhagwati Developers Ltd vs Peerless General Finance & Investment Co. Bhagwati had lodged transfer deeds in respect of 14,120 shares with Peerless for transfer. However, the latter did not accede to the request on the ground that the transfer violated the Act, which restricted certain contracts. Bhagwati moved the Company Law Board arguing that the shares were not ‘securities’ as Peerless shares have not been listed in any stock exchange and they were not ‘marketable’. The board held that Peerless rightly refused registration of the transfer. It explained that the Act was applicable to a company even though its shares may not be listed on any recognised stock exchange. This principle was upheld by the Supreme Court, while dismissing the appeal of Bhagwati.

Bank manager denied back wages
A bank employee who was convicted for moral turpitude and then acquitted on appeal is not entitled to back wages, the Supreme Court stated last week in the case, State Bank of India vs Mohammed. He was convicted for cruelty to wife and dowry harassment. On appeal, the sessions judge acquitted him for want of adequate evidence. He was discharged on conviction and reinstated after acquittal. He demanded back wages for the intervening period. The bank denied it. He moved the Madras High Court which granted it. Reversing that decision, the Supreme Court explained that during the interim period when he was not employable, he was not entitled to wages according to the Banking Regulations Act. Therefore, the acquittal does not wipe out the legal consequences of his conviction.

MTNL appeal on land dismissed
Curtains fell on a three-decade-old land acquisition for a telegraph office in Mumbai when the Supreme Court dismissed the appeal case, Mahanagar Telephone Nigam Ltd vs state of Maharashtra last week. The court remarked that “after 37 years of initiation of the acquisition proceedings in (1973) and 28 years of the pronouncement of the award by the land acquisition officer, the Nigam filed the writ petition,” the court remarked. Moreover, the Nigam did not come to the court with clean hands, as there was suppression of facts.

Denial of oil dealership upheld
The Supreme Court has dismissed a large number of petitions moved by aspirants of retail outlet ownership of Indian Oil Corporation from different states in the common judgment, Mohd Jamal vs Union of India. They had owned land on highways and they had applied for outlets. However, the policy of the government changed a few times, and they were denied dealership. They argued that they had invested huge amounts on the legitimate expectation that they would get dealership, but that promise was not kept by the government. The Supreme Court rejected the contention as they had not been given any letter of intent according to the earlier policy.

Foreign award enforceable
The Supreme Court has dismissed the appeal of Shri Lal Mahal Ltd in its arbitration dispute with Progetto Grano SPA raising the question whether the award passed by the Board of Appeal of the Grain and Feed Trade Association, London, in favour of the Italian company was enforceable under the Indian Arbitration and Conciliation Act. The dispute was over the quality of wheat exported from India. The foreign buyer alleged that the quality was not what was required. The arbitral tribunal abroad held that there was breach of contract and the buyers were entitled to damages. The buyers moved the Delhi High Court for enforcement of the award. It allowed the enforcement, rejecting the challenge of the sellers. The high court view was upheld by the Supreme Court.

(Business Standard, 21 July 2013)

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