Penalty on investment company

Last Updated: Mon, Mar 18, 2013 04:20 hrs

The Supreme Court last week imposed Rs 50 lakh as exemplary costs while dismissing the appeal of PGF Ltd against the order of the Punjab and Haryana high court for committing investment irregularities. The company floated a scheme in which it sold agricultural land with a promise to develop it by planting trees and assuring the investors high appreciation. The Securities and Exchange Board of India found that the scheme was not according to the rules and demanded information from the company. It moved the high court against the demand without success. In the Supreme Court, it challenged the Sebi's role and validity of its rules. However, the court dismissed the appeal and ordered Sebi, the CBI and the income tax authorities to inquire into the activities of the firm. It indicted the company for "playing hide and seek" before Sebi and the courts. It did not disclose details of development it had done over the years. It also did not furnish the amounts collected from investors. The court further remarked that the company had not approached it with "clean hands" and the whole litigation was "frivolous and vexatious right from its initiation."

More power for liquidator

An official liquidator under the Companies Act protects the interests of creditors and workmen of a failed company and therefore s/he can file an appeal against the acts of a recovery officer under the Recovery of Debts due to Banks and Financial Institutions Act if the interests of those groups are affected. The Supreme Court stated so last week in the judgment, Official Liquidator, UP & Uttarakhand vs Allahabad Bank. This is a safeguard provided by the Debts Act if the recovery officer acts unreasonably or arbitrarily. In this case, the bank was the secured creditor and after the property of the debtor firm was sold in auction, the official liquidator filed objections relating to fixation of reserve price and the manner of conducting it. In the protracted litigation, the jurisdiction of the company court, the status of the purchaser and the roles of the liquidator and the recovery officer were disputed. The court ruled that the liquidator can prefer an appeal before the debt recovery tribunal under such circumstances.

Award without hearing party

A high court should not "convert itself into a court of first appeal" in an arbitration case, the Supreme Court has stated in its judgment, Sachin Gupta vs KS Forge Metal Ltd. In this case, the award was passed without hearing one concerned party. The Delhi high court therefore set aside the award. The Supreme Court upheld that part of the order. However, it criticised the high court judge for making certain remarks against one party. "It was certainly not necessary to examine the dispute so minutely or to make such strong remarks against any one of the parties," the judgment said, and added: "Judges at all levels are required to be restrained and circumspect in use of the language, even when criticising the conduct of a party." In view of the facts of the case, the Supreme Court quashed the whole high court judgment and appointed a retired chief justice of the Delhi high court as the arbitrator in the dispute.

Mineral royalty demand set aside

The Supreme Court last week dismissed the appeal of the Rajasthan government against the judgment of the high court which had quashed the government's demand for additional royalty on lead and zinc extracted by Hindustan Zinc Ltd in Bhilwara, Rajsamand and Udaipur districts. The government argued that the methodology given by the high court would lead to substantial loss to the state. According to it, royalty must be charged on the basis of the metal contained in the ore produced. Even if ore is not physically taken out, royalty will have to be paid on the contents of lead and zinc. The company contended that the negligible metal contained in the rejects cannot be included in the calculation of royalty. The company also appealed against the high court judgment as it was aggrieved by the direction that the royalty has to be recalculated. The Supreme Court dismissed the state's appeal, while allowing the company's appeal.

Nestle wins trademark case

The Delhi high court last week imposed a penalty of Rs 2 lakh on an Indian firm for using Nestle trade mark for its RO water purifying system on a petition moved by Societie des Produits Nestle SA. The Swiss company argued that it was using the trade name Nestle since 1866 for health, nutrition and wellness products. It also sold mineral water with the same name in this country since 2001. It received a query from a customer whether it also produced water purification system, based on a website, nestlemineralro. This led to the petition in the high court, which restrained the Indian company from using the mark as it was violation of the laws. The judgment said: "In India courts are sensitive to the growing menace of infringement and have started granting punitive damages even in cases where due to absence of the defendants exact figures of sales are not available."

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