Supreme Court rejects HC ruling: No sovereignty for J-K outside Constitution of India

Snubbing the Jammu and Kashmir High Court for asserting the state’s “sovereignty” and “sovereign powers”, the Supreme Court Friday said J&K “has no vestige of sovereignty outside the Constitution of India”. A bench of Justices Kurian Joseph and Rohinton Nariman also rejected the J&K High Court’s view that the J&K Constitution was equal to the Constitution of India.

“It is clear that the state of Jammu & Kashmir has no vestige of sovereignty outside the Constitution of India and its own Constitution, which is subordinate to the Constitution of India… they (residents of state) are governed first by the Constitution of India and also by the Constitution of Jammu & Kashmir,” the bench said, referring to the preamble of the Constitution of J&K, 1957.

The bench called it “disturbing” that various parts of a judgment in appeal by the J&K High Court spoke of the absolute sovereign power of the state. “It is necessary to reiterate that Section 3 of the Constitution of Jammu & Kashmir, which was framed by a Constituent Assembly elected on the basis of universal adult franchise, makes a ringing declaration that the State of Jammu & Kashmir is and shall be an integral part of the Union of India. And this provision is beyond the pale of amendment,” the judges said.

The bench also clarified that J&K residents are “first and foremost” Indian citizens. “It is therefore wholly incorrect to describe it as being sovereign in the sense of its residents constituting a separate and distinct class in themselves. The residents of Jammu & Kashmir, we need to remind the High Court, are first and foremost citizens of India… permanent residents of the state of J&K are citizens of India, and that there is no dual citizenship as is contemplated by some other federal Constitutions in other parts of the world,” it said.

The top court pointed out that it was constrained to observe these because in at least three places, the High Court, in its judgment, “has gone out of its way to refer to a sovereignty which does not exist”.

Underlining that the quasi-federal structure of the Constitution of India continues even with respect to J&K, the bench said: “Article 1 of the Constitution of India and Section 3 of the Jammu & Kashmir Constitution make it clear that India shall be a Union of States, and that the State of Jammu & Kashmir is and shall be an integral part of the Union of India.” It said the J&K Constitution has been made to further define the existing relationship of the state with the Union of India as an integral part thereof.

The court said this while deciding a legal question on whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) will be applicable to J&K or the law was outside the legislative competence of Parliament since its provisions would collide with Section 140 of the Transfer of Property Act of J&K.

SARFAESI Act entitles banks to enforce their security interest outside the court’s process by moving a tribunal to take possession of secured assets of the borrower and sell them outside the court process. The High Court had said that the state has absolute sovereign power to legislate in respect of laws touching the rights of its permanent residents qua their immovable properties.

After the State Bank of India appealed against the High Court order, the J&K government submitted in the Supreme Court that this law encroached upon the property rights of permanent residents of the state and must be read down so that it will not be permissible to sell property belonging to a permanent resident of the state to outsiders. It was also argued that Parliamentary legislation would need concurrence of the J&K government before it could apply to the state under Article 370.

But the Supreme Court bench shot down these arguments, saying SARFAESI Act deals with recovery of debts due to banks and financial institutions, which is relatable to a subject under the Union List and parliamentary legislation did not require concurrence of the state government since the Centre had power to make law on this subject.

“Entries 45 and 95 of List I clothe Parliament with exclusive power to make laws with respect to banking… the Act as a whole would necessarily operate in the state,” the bench said, adding that the SARFAESI Act had itself made a special provision for sale of properties in J&K.

The bench, however, made it clear that any provision of the J&K Transfer of Property Act will have to give way to the central law in case the former is found repugnant. “It is clear that anything that comes in the way of SARFAESI by way of a Jammu & Kashmir law must necessarily give way to the said law,” it said, adding that its judgement had no effect on Article 35A, which confers on permanent residents of J&K special rights and privileges regarding acquisition of immovable property in the state.

Changes in debt recovery laws growth positive

Secured credit is the driving force of the economy and growth of credit creates wealth and generates employment. Recent Amendment Act to change debt recovery laws passed by Parliament proposes certain path-breaking changes in the registration systems as well as in priority to secured credit over taxation dues. This will create an environment conducive to growth of credit not only by banks and financial institutions (FIs) but by all other secured lenders.

In terms of amendments to the SARFAESI Act, the Central Registration System established under the Act is to be extended to all secured lenders who will be able to register any security interest created in favour of the lender over immovable, movable or intangible property belonging to the borrower. The registration system is also to be extended to attachment orders on property issued by any taxation or other authority or by any court. Such registration system when implemented will result in creating a national database of all encumbrances on property rights and all lenders will be in a position to ascertain whether the property offered as security for any loan is already encumbered or under attachment.

One other aspect of the new registration system is that it is not compulsory and secured lenders have the option to register particulars of a property mortgaged, charged or hypothecated to them or any modification or satisfaction of such charge. But one distinct advantage of registration will be that there will be public notice of security created and any dealings with such property shall be subject to registered security interest. Hence, there is adequate incentive to register security interests over any property right for secured lenders. Similarly, enabling provision is made to extend the registration system to all taxation authorities having powers to issue attachment orders.

As far as priority to secured creditors over taxation dues is concerned, all the taxation authorities whether at central, state or local authority level operate on the principle that Crown debts have a priority over all other claims, including claims of secured creditors. Many states have incorporated provisions in tax laws declaring that arrears of tax dues shall have a first charge on the assets of the assessee and, in such cases, banks and FIs as secured creditors rank below the revenue claims. Further, revenue authorities have powers to charge penal interest on delayed tax payments and, in many cases, substantial part of the recoveries made by banks / FIs has to be paid to tax authorities.

Exception to the principle of priority to claims of revenue over secured creditors is provided under insolvency laws. Sections 529 & 529A of the Companies Act, 1956 now incorporated in the Sections 325 & 326 of the Companies Act, 2013 recognise the rights of secured creditors to claim priority over taxation dues subject to priority extended to workmen’s dues on pari passu basis.

Similar priority was recognised under the insolvency laws for individuals and non-corporates. The above principles contained in old insolvency laws have been incorporated in the new Insolvency and Bankruptcy Code, 2016.

Outside the insolvency laws, banks/ FIs have rights of recovery under the SARFAESI Act, 2002 and RDDB & FI Act, 1993. In the absence of any provisions in the above debt recovery laws recognizing priority to secured creditors over taxation dues, the Supreme Court had held that priority given under the state laws shall prevail over debt recovery laws and secured creditors cannot have priority over taxation dues.

Recent amendments to the SARFAESI Act and RDDB & FI Act have totally changed the status of banks/ FIs in the order of priority. Newly inserted Section 26E of the SARAFESI Act and Section 31B of the RDDB & FI Act recognise priority of banks/ FIs as secured creditors over taxation dues. This amendment is also conducive to promote low-cost credit by enhancing availability of secured credit.

Such amendments to debt recovery laws for banks / FIs are related to the legislative powers of Parliament to legislate on ‘banking’, because lending is the principal business activity of banks and speedy recovery of loans is part of the banking laws. The provisions made in the Union law passed pursuant to legislative powers of Parliament shall prevail over the state laws making contrary provision giving priority to state taxation dues under article 254(1) of the Constitution. Hence, the amendments made to the debt recovery laws are constitutionally valid and shall override state laws.

States need to appreciate that secured credit is the engine of growth in the economy. Such priority provided to secured credit will create an environment of growth for low-cost secured credit, which will trigger creation of wealth, generate employment and facilitate overall growth and development in the economy, and better tax collection by states.

http://blogs.economictimes.indiatimes.com/et-commentary/changes-in-debt-recovery-laws-growth-positive/

SARFAESI Act - The Legal Position of the Authorised Officer

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT) was enacted by Government of India to enable banks and financial institutions “to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.” The important aspect of the act is given under Section 13 (1) of the SARFAESI ACT, 2002 which states, “Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without theintervention of court or tribunal, by such creditor in accordance with the provisions of this Act.” Thus the banks and financial institutions have the power to enforce their security interest on a secured asset without the intervention of the court.  Then what is the statutory legal position of the bank or financial institution?

THE SECURITY INTEREST (ENFORCEMENT) RULES, 2002 under section 2(a) states, ““authorised officer” means an officer not less than a chief manager of a public sector bank or equivalent, as specified by the Board of Directors or Board of Trustees of the secured creditor or any other person or authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditors, as the case may be, to exercise the rights of a secured creditor under the act.” As per the aforesaid rule, the bank or financial institution as secured creditor has to appoint an Authorised Officer to exercisethe rights of the secured creditor. In terms of the statement of objects and reasons of the SARFAESI ACT states, “The provisions of the Ordinance would enable the banks and financial institutions to realise long term assets, manage problems of liquidity, assets liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.” In other words, the prime duty of the Authorised Officer is to adopt measures of recovery or reconstruction to recover the amounts advanced to borrowers whose account has been declared as NPA (Non Performing Assets). Further as per the act, he is armed with enormous powers to enable him to recover the dues of non performing accounts or even go for the reconstruction of secured assets. But that does not clarify the legal position of the Authorised Officer.

Section 13(4) of SARFAESI ACT elaborates the recourse that the bank or the financial institution can take under sub section (a) to (d) of section 13(4) of the said Act which means that the Authorised Officer has the authority to take any one or more of the actions as envisaged under section 13(4) (a) to (d) of SARFAESI ACT. But, before enforcing the power vested with him, the Authorised Officer has to fulfill his obligation of considering the representation or objection made by the borrower as per section 13(3 A) of SARFAESI ACT and examine whether the same is acceptable or tenable and has to follow the rules as per section 3 A (a) (b) and (c) as the case may be of The Security Interest (Enforcement) Rules, 2002.

The Security Interest (Enforcement) Rules, 2002 stipulates under Rule 3A (a), “After issue of demand notice under sub-section (2) of section 13, if the borrower makes any representation or raises any objection to the notice, the Authorised Officer shall consider such representation or objection and examine whether the same is acceptable or tenable” and Rule 3 A (b) stipulates  “If on examining the representation made or objection raised by the borrower, thesecured creditor is satisfied that there is a need to make changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within 7 days (later amended to 15 days) from the date of receipt of the representation or objection.” As per the aforesaid Rule it is not clear whether the Authorised Officer or the Secured Creditor who is to examine and determine whether the representation made and objections raised by the borrower are tenable or unacceptable.

Section 13(3 A) of SARFAESI ACT says, “ If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, thesecured creditor shall consider such representation or objection and if thesecured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week (Amended to 15 days) of such representation or objection the reasons for non acceptance of the representation or objection to the borrower:” As per this section it is the secured creditor who has to give his reply whether the representation made or objections raised is tenable or unacceptable. Hence there is a distinct ambiguity and distortion as to who is authorised to examine the representation made and objections raised by the borrower.

Rule 3 A (b) of The Security Interest (Enforcement) Rules, 2002 stipulates “If on examining the representation made or objection raised by the borrower, thesecured creditor is satisfied that there is a need to make changes or modifications in the demand notice, he shall modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed necessary, within 7 days (later amended to 15 days) from the date of receipt of the representation or objection.” In the absence of any definition as to what constitute “such other suitable orders”, can it be construed that it includes rehabilitation of the unit or restructuring of the debt or any other action to be initiated by the bank or financial institution to give relief to take the account out of its status as NPA?

The aggrieved borrower does not have any recourse to legal remedies till the issue of possession notice to the defaulted borrower. Under section 17 only he has a right to appeal to DRT as per the said Act. Till such time it is the power of the Authorised Officer that pervades since section 34 of the SARFAESI ACT states, “Civil court no to have jurisdiction”. Taking into account the prevailing attitude of the banks and financial institutions acting ruthlessly and flouting many of the provisions of SARFAESI Act and RBI guidelines which are mandatory to recover their debt under SARFAESI ACT, Supreme Court of India observed during the delivery of their judgment in the matter of Mardia Chemicals case as follows, “71. Arguments have been advanced as to how far principles of lender's liability are applicable. Whatever be the position, however, it cannot be denied that the financial institutions namely, the lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies / institutions are not to ignore performance of their part of the obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American courts, in view of the facts and circumstances and the terms of the contract and other details relating to those matter, that may or may not strictly apply, nonetheless even in absence of any such decisions or legislation, it is incumbent upon such financial institutions to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely borrowers and assume all drastic powers for speedier recovery of NPAs.  Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defense deficiencies on the part of the banks and financial institutions.” But the truth coming out of the present practice of the Authorised Officers is that the aforesaid observations of Supreme Court of India is completely being overlooked and without extending any fair treatment they as a ritual reject the representations and objections submitted by the borrowers without any application of their minds rendering the borrowers remediless and wronged.  This is because the legal position of the Authorised Officer is not defined anywhere in the SARAESI ACT.

The High Court of Madras in their judgment delivered on 10th August 2010 in the case of Sheeba Philominal Merlin vs. The Repco Bank Limited (W.P.No.15272 of 2009) observed, “As per the Act, the first step would be to issue notice U/s. 13(2) by the authorised officer who is deemed to be armed with a money decree which attained finality. By the statute the authorised officer, is clothed with powers of trial court and execution court and the code of Civil Procedure which governs the civil proceedings is no more necessary. To put it otherwise, by the Special Act, the authorised officer acts like a Civil Court with powers hitherto exercised by it.”    If it is so, then the Authorised Officer has to adjudicate on the notice issued by the secured creditor u/s 13(2) of SARFAESI ACT and representation and objections submitted by the borrower to the notice after hearing both the sides duly presenting their cases before him as is being followed in a court of law in which case DRT becomes the reviewing authority. But in practice, the authorised Officer being the employee of the bank and financial institution is adjudicating his own bank’s or FI’s case and without applying his mind on the representation and objections and without giving an opportunity to the borrower to present his case and to be heard, simply rejects his submission as matter of routine and as a ritual and thus contravening the Principles of Natural justice as stated under section 22 (1) of RDDB & FI Act, 1993.

Principles of Natural Justice available under Constitutional protection operate in areas not covered by any rule or law; they do not supplant the law but only supplement it. The following are the two important basic Principles of Natural Justice.

(i) No one can be a judge in his own cause (‘Nemo debet essa judex in propria cause’).

(ii) Hear the other side. (Audi Alteram Partem.).

Considering the aforesaid background, the factual position prevailing with regard to invoking SARFAESI ACT by bank and financial institution is that they blatantly violate the Principles of Natural Justice.

“Fundamental justice is a legal term that signifies a dynamic concept of fairness underlying the administration of justice and its operation, whereas principles of fundamental justice are specific legal principles that command "significant societal consensus" as "fundamental to the way in which the legal system ought fairly to operate." These principles may stipulate basic procedural rights afforded to anyone facing an adjudicative process or procedure that affects fundamental rights and freedoms, and certain substantive standards related to the rule of law that regulate the actions of the state. The degree of protection dictated by these standards and procedural rights vary in accordance with the precise context, involving a contextual analysis of the affected person's interests. In other words, the more a person's rights or interests are adversely affected, the more procedural or substantive protections must be afforded to that person in order to respect the principles of fundamental justice. A legislative or administrative framework that respects the principles of fundamental justice, as such, must be fundamentally fair to the person affected, but does not necessarily have to strike the ‘right balance’ between individual and societal interests in general.”

In view of what has been stated above, unless the legal position and powers of Authorised Officer is clearly defined without any ambiguity and his responsibility and accountability are clearly established, he is bound to misuse and abuse his authority with impunity as is being practiced now. Besides, as long as he is an employee of the bank and financial institution, he is bound to be partial and the Principles of Natural Justice will be the casualty and the aggrieved borrower will never get justice from the Authorized Officer. As it is, the representation and objections being submitted by the borrower to the Authorised Officer is nothing but a futile exercise and a ritual having no meaning and is a mere  waste of time. Hence it is imperative that the Authorised Officer shall be a knowledgeable person well versed in law and practice of banking and a person without bias and neutral who shall be pragmatic and practical to find effective solutions to the problems faced by both the bank and financial institution and the borrower so that he can uphold justice, equity and good conscience. Otherwise, power without responsibility and accountability corrupts and absolute power corrupts absolutely.    

http://www.lawyersclubindia.com/articles/SARFAESI-Act-The-Legal-Position-of-the-Authorised-Officer-6126.asp#.VAMkHHKSzG4

Way to protect sick industrial undertaking

The alternative legal route to meet the above objectives i.e. revival/rehabilitation of the sick units or the liquidation of the company are incidental to industrialisation. Time has come that an institutional network and procedures must be evolved for the revival/rehabilitation of sick and potentially sick industries. In Bangladesh we do not have similar act as are in vogue in India, Pakistan and other SAARC countries. Since there exists multiplicity of laws which resulted in delays and as a consequences the desired assistance whether financial or otherwise could not reach the sick unit in time. Because the major problem was lack of coordination amongst the different agencies involved in the rehabilitation process of the unit. This created sufficient grounds to enact a suitable legislation in 'public-interest' to provide for:

Timely detection of sickness.

Expeditious determination by body of experts of the preventive, ameliorative, remedial and other measures which would need to be adopted with respect to such sick and potentially sick industries.

Enforcement of the measures considered appropriate:

The government of India and the Reserve Bank of India have initiated a number of measures to keep the sickness under control. The Reserve Bank of India had been issuing direction to various commercial banks the guidelines over the past as follows: 

The banks have been asked to adopt an approach of single window for lending under Consortium arrangements both for the sick and weak units in respect of the disbursements of working capital and the term-loans (Rehabilational term-loans).

They have been asked to tone-up their organisational machinery to detect the sickness in time so that there is possibility of revival of the unit.

SEBI has been set up in 1992 to protect the interest of the investors and promote the development of the capital market in India. It will serve dual purpose. It would help entrepreneurs to raise desired capital from the public and also infuse confidence in the investors.

In August 1991, the Government issued a directive to all the Stock Exchanges to ensure transparency in the transaction of the securities for the benefit of investing public and stricter regulations in the specified group of shares, timely settlement of the transactions and broad-basing the governing bodies of the Stock Exchanges.

Revised guidelines for good and bad delivery of shares have been issued by SEBI. 

The listing agreement has been modified to provide for greater disclosure for the investor's protection and to provide half yearly results.

A scheme has been worked out by the Stock Exchanges for the purpose of market makers. 

All the restrictions on interest rates on public sector bonds other than, tax-free bonds were removed in august 1991. it was felt that the interest rates should be governed by the market forces but the companies are required to take credit rating before floating such instruments. The ratings would be optional for the public sector bonds and NCD's upto Rs. 5 crores for private placements and convertible debentures into equity shares within 18 months of allotment.

In respect of units of industrial groups becoming sick, banks have been asked to impress upon the group to come forward with concrete proposals to assist the units where the sickness is on account of internal factors. In such cases infusion of additional resources should be insisted upon by the healthy units of group.

It was re-emphasized that the banks will also participate in the rehabilitation package. This has been made a mandatory requirement.

If on account of any reason the bank is not able to 'discount' its debt within the RBI laid parameters the bank will be required to take up its share. If any member bank is not able to take up its share the bank's consortium would reserve the right to refer the repayment of dues to it under the package.

The Indian parliament, therefore, enacted the Sick Industrial Companies (Special Provisions) Act, 1985. This piece of legislation marks the beginning of a new era in resolving the industrial sickness by providing remedial measures for sick companies as well as for potentially viable sick companies.

To come with the definition of the term "industrial company" it is necessary that the company shall have 50 or more workers are engaged where the company could not establish that 50 or more workers are engaged it would not be an 'industrial company" within the meaning of the Act.

However where a reference has been made to BIFR and subsequently the number of employees has fallen below 50, the reference cannot be struck down on the ground that the sick company is not longer an 'industrial company'.

Sickness as per Act prior to Amendment Act, 1993.

Prior to the amendments made by the Sick Industrial Companies (Special Provisions) Amendment Act, 1993 (w.e.f. 1-2-1994) a unit could be declared sick:

if it was registered for 7 years.

If it had accumulated losses which were equal to the net worth of the company, and ;

If it had incurred cash losses during the financial year in which the reference to Board was made and the year proceeding the financial year. Thus the occurrence of cash loss i.e. loss after deducting depreciation had to be for 2 years.

Suggestions for enactment:

A. The long-term success of Bangladesh economic reform process depends upon sustained growth in industrial out put and investment. Without this there cannot be a genuinely competitive industrial base from where we can launch an export drive to systematically reduce its debt service obligations over time.

The focus should now be on rapid industrial sector reform. This is not just eliminating licensing other barriers to entry. It requires giving signals to potential entrepreneurs about the scope for operational flexibility in the choice of out put, of markets and in the use of labour and capital industrial restructuring involves commercially reorganising ailing but economically viable companies facilitating the withdrawal of unviable ones. It is obvious that the presence of various barriers to industrial and cooperate restructuring serve no economic goal. There are mainly two reasons for restructuring. First, except for occasional scale effects there is no basic difference in economic, commercial and legal principles between reorganizing the affairs of a private sector firms and a public sector company. The distinction lies in political will particularly the ability to create a consensus that shapes and will. Secondly, industrial sickness and the need for restructuring, reorganisation and strategic withdrawal of financial penalty clauses will help ensure GDP growth and unemployment reduction.

B. Sick Industry Definition :

A company which is registered for a period not less than 5 years, whose accumulated losses are equal to the sum of paid up capital and free reserve. Incur cash losses for two consecutive years including the current year and have cumulative losses that wipe out its net worth may fall under this category.

C. Cause of Sickness : Industrial sickness arises out of bad financial structure and/or chronically inefficient use of factors of production and/or poor market positioning. Its out come is the locking up scarce investible fund in sub-optional activities. 

Giving this outcome an appropriate way looking at sickness is to examine the amount of out standing credit locked up in sick industrial units.

D. Preparation of Reorganization Schemes : Financial reconstruction of the sick industrial company provided this is economically flexible and commercially viable. 

Interest on term loans to be reduced.

All penalties e.g penal interest and damages for non-repayment must be waived. 

Unrealized normal interest may be waived to the extent of at least 75% to 50% on case to case basis and the balance interest can be funded or capitalised at a subsidised rate subject to review from time to time. The total interest rate can be 2% higher than financial institutions cost of fund rate in exceptional cases. The normal repayment of funded interest should be 5 to 6 years extendable up to 7 years. 

The irregular component of a firm's cash flow other than unadjusted interest which is funded must be converted in to a working capital. On this subsidized interest may be charged. 

Cash losses of a company consists not only of irregularities in cash credit account but also of non-payment of workers and other statutory dues and over dues to creditors. The latter liabilities are supposed to be shared between the participating banks and the institutions on a 50-50 basis. Anticipating cash losses during the rehabilitation period are to be borne by the financial institutions who are also supposed to provide the margin money for additional working capital.

Additional assistance for working capital is on commercial rates, which may be reduced as per Government decision. The cost of rationalising the creditors is met by financial institutions and banks on a 50-50 basis.

Waiver of compound interest rate on entire amount of working capital and term loan amount. 

Income tax relief for the period of rehabilitation.

On a study of the Business Guide to the Uruguay Round published by International Trade Centre of UNCTAD/WTO and in response to unfair trade practices: rules on the use of countervailing and anti-dumping duties. Bangladesh Government is permitted to levy such anti-dumping duties on such products which are being produced in Bangladesh. 

The GATT rules deal with two types of "unfair" trade practices, which distort conditions of competition. First, the competition may be unfair if the exported goods benefit from subsidies. Second, the conditions of competition may be distorted if the exported goods are dumped in foreign markets.

In common parlance, it is usual to designate all low-cost imports as dumped imports. The Agreement on Anti-dumping Practices (ADP), however, lays down strict criteria for determining when "a product is to be considered as being dumped". In general, a product is considered to be dumped if the export price is less than the price charged for the like product in the exporting country. A product is also considered to be dumped if it is sold for less than its cost of production.

The Agreement on Anti-dumping Practices and on Subsidies and Countervailing Measures (SCM) authorise countries to levy compensatory duties on imports of products that are benefiting from unfair trade practices. However, an importing country can levy countervailing duties on subsidised imports and anti-dumping duties on dumped imports only if it is established on the basis of investigations carried out by it that such imports are causing "material injury" to a domestic industry. Investigations for the imposition of such duties should ordinarily be initiated on the basis of a petition made by or on behalf of an industry, alleging that imports are causing it injury.

The two Agreements lay down similar criteria for determining injury. The producers for carrying out investigations of petitions for the levy of anti-dumping and countervailing duties are likewise similar.

The government of Bangladesh can take safeguarding measures to restrict imports in order to assist the domestic industries, which is being injured by a sudden and sharp increase in import.

Experience shows that the traders who are also importers continue to import similar items which are being produced by the local industries of Bangladesh. These local industries are therefore facing stiff competition from the imported goods dumped in the country.

It is most respectfully suggested to study the following aspects of GATT LAW.

1. The concept of dumping as embodied in GATT Law;

2. The rules and procedures that countries must follow in levying anti-dumping and countervailing duties.

Source: http://nation.ittefaq.com/issues/2008/07/02/news0333.htn

Two options for secured creditor: Supreme Court

A secured creditor has two options when the borrower or the guarantor defaults in repaying the loan. Under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi), the creditor can either take possession of the asset on his own or employ Section 14 and seek the help of the magistrate to get possession. It is not necessary that the first course should be adopted and having failed, the second course should be resorted to.

This was stated by the Supreme Court last week while allowing the appeals of Standard Chartered Bank and State Bank of India in two appeals against the Madras High Court judgment. The Supreme Court stated that the high court view was wrong and observed: "No doubt that a secured creditor may initially resort to Section 13 and on facing resistance he may still approach the magistrate under Section 14. But it is not mandatory for the creditor to make attempt to obtain possession on his own before approaching the magistrate." The argument that bypassing Section 13 would deprive the borrower of a right to appeal is a misconception of the law, the judgment said.

Lapse of arbitration clause

The Supreme Court ruled last week that an arbitration clause in an agreement lapsed if it was superseded by a later agreement. In a trademark suit between Young Achievers and IMS Learning Resources Ltd over the trademark IMS, the latter moved the Delhi High Court for a permanent injunction restraining infringement of the registered trademark and copyright.

Young Achievers sought arbitration under Section 5 of the Arbitration and Conciliation Act. The high court stated that the arbitration agreement in the original agreement stood superseded by a contract arrived at by mutual consent later. The appeal against that ruling was dismissed by the Supreme Court.

Running unit can't be acquired

The Supreme Court has held that acquisition of a running industrial unit in the land acquisition proceedings cannot be sustained. The court stated so while allowing the appeal case, V K M Kattha Industries vs state of Haryana, against acquisition of the land containing the industrial unit in Sonepat district. The small-scale industry was into tobacco manufacturing. The government issued notification for acquisition of land including the unit in 2005 for developing an industrial estate. The owners moved the high court but it dismissed the petition.

On appeal, the Supreme Court stated that the acquisition of the land including the unit was illegal and quashed the acquisition proceedings with regard to its property. The court stated that "the company itself was running an industry on the date of the notification, therefore, there was no justification in acquiring a running industrial unit for industrialisation of the area". Some other industries in the area, like Natraj Stationery Products, Moja Shoes and Haryana Coir, have been exempted from the acquisition. However, V K M Kattha was not able to participate in the enquiry, leading to the illegality, the court said.

Insurer can't challenge quantum

The Supreme Court has criticised United India Insurance for raising "untenable" grounds to deprive the mother of a road accident victim challenging the award of compensation. In motor vehicle accident claims, the insurer cannot contest the computation of the compensation, except in limited cases. But in this appeal, Josephine James vs United India Insurance, it appealed against the award of the tribunal, alleging that the award of Rs 13 lakh was excessive for the loss of life of a 21-year-old sole earning member of the family. The Delhi High Court then reduced the quantum further from Rs 13 lakh to Rs 4.2 lakh.

The court stated that the high court was also wrong while applying the principles of law in the Motor Vehicles Act and earlier Supreme Court decisions. The high court committed error again while allowing the insurance company to challenge the amount of compensation, which could not be done in this case. "In the absence of permission obtained by the insurance company from the tribunal to assail the defence of the insured, it is not permitted to contest the case on merits," the judgement said. The rate of interest applied at six per cent was also low. The Supreme Court raised it to nine per cent, based on precedents.

'Encumbrances' defined

The Supreme Court, recently, set aside the judgment of the Allahabad High Court and ruled that the buyer of an industrial unit in auction "free from all encumbrances" is not bound to pay the excise duty arrears of the previous owner. The sale deed in this case included a clause which said that "all these statutory liabilities arising out of the land shall be borne by purchaser". The Supreme Court stated that it was only that statutory liability arising out of the land, building and machinery which is to be discharged by the purchaser.

Excise dues are not statutory liabilities that arise from the land. Statutory liabilities arising from the land and building could be in the form of the property tax or other types of cess relating to property, etc. Likewise, statutory liability arising out of the plant and machinery could be sales tax, etc, payable on the said machinery. As far as dues of the central excise are concerned, they were not related to the property, the court said in the case, Rana Industries vs Union of India.

Source: http://www.business-standard.com/article/opinion/sc-two-options-for-secured-creditor-113082500518_1.html

Compensation under SARFAESI Act

1. The Hon’ble Supreme Court in the landmark judgment in ‘Mardia Chemicals’ case, while upholding the constitutional validity of Securitization, Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002 (for brevity the Act) had held that secured creditor has to take higher degree of caution in exercising any of the rights under the Act in view of stringent nature of the provisions of the Act. The Action taken should be bona fide and transparent. Sec.32 of the Act provides for immunity to secured creditor or any of its officers against prosecution or other legal proceedings for bona fide action taken by him under the Act.  Bona fide action means action taken in good faith and in consonance to the provisions of the Act and Security Interest (Enforcement) Rules 2002 (for brevity “the Rules”) framed thereunder. However any negligent or fraudulent act of secured creditor cannot be said to be bona fide act and therefore is not covered by Sec.32 of the Act.

 

2. Sec.32 of the Act reads thus:  “No suit, prosecution or other legal proceedings shall lie against any secured creditor or any of his officers or manager exercising any of the rights of the secured creditor or borrower for anything done or omitted to be done in good faith under this Act”.

 

3. An authority clothed with statutory power cannot seek excuse for negligent acts as the borrower may suffer irreparable loss which cannot be compensated even in terms of money. Where something has gone seriously wrong, it is both inconvenience and distress. Distress includes embarrassment, anxiety, disappointment and loss of expectation. The degree of distress involved can vary widely which can be little more than a relatively minor annoyance. Distress and inconvenience often go hand in hand. Inconvenience includes incurring of any unwarranted expenditure of time and money to protect against wrongful action. Pain and suffering are considered as more extreme forms of distress and inconvenience. Compensation is meant to make good the loss by awarding damages to the party who suffered distress in an illegal action. These damages are meant specifically to compensate a person against negligent action or a deliberate act, of a statutory duty.

 

4. For that reason, Sec.19 is embodied in the Act as a safe guard against such harsh and unsavoury action. Perhaps for this reason, the Hon’ble Supreme Court in ‘Mardia Chemicals’ case also observed that there is no need for framing another law for fixing “Lender’s liability”. Sec.19 of the Act is extracted and reproduced hereunder:

 

“19. Right of borrower to receive compensation and costs in certain cases: If the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the concerned borrowers, such borrower shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18B.”

 

5.  Sec.19 creates a statutory right in favour of borrower to receive compensation provided the following two conditions are fulfilled:

 

i). if DRT/Dist.Court/DRAT/High Court under Secs.17/17A/18/18A  holds that possession of secured assets by the secured creditor is not in accordance with the provisions of the Act and the Rules made thereunder and

 

ii). directs the secured creditor to return the secured assets to the concerned borrowers.

 

6. The theory of damages is that a compensation is given in satisfaction for the injury sustained, in terms of money for reparation of the damages suffered which one would not have sustained but for the wrong done by the other party.Section 73 of the Contract Act is the general law governing all cases, resulting in loss or damage to the party who suffered damages.

 

7. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured by the same rule for breach of a contract. The word ‘Compensation’ is usually used interalia with ‘damages’, however the word ‘Compensation’ denotes a sum of money payable to a person on account of the loss or damage caused to him by the breach of a statutory duty. The damages on the other hand, mean the estimate of some loss and injury actually sustained. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured, by the same rule as damages are measured in action for a breach of contract.

 

8. The compensation is given only when actual loss or injury is suffered by the Claimant. The fundamental principle of law of damages is that the person injured shall have fair and just compensation commensurate with loss sustained in consequence of anything done wrong. “Punitive or exemplary damages” also can be awarded by DRT where a respondent acted in a reckless or violent manner.

 

9. Entitlement of compensation and costs may be decided by DRT/Dist.Court/DRAT/High Court under Secs.17/17A/18/18A. This Section does not impose any mandatory duty to DRT to award compensation in each and every case. This is obvious from the word “may” appearing in the language of the section. Therefore it is advisable that, borrower seeks for this relief specifically and invariably in the Sec.17 application itself and produce evidence or rely on evidence to prove the damages suffered. There is no need to file any separate application under Sec.19 of the Act. It is settled law that if no relief is claimed, the authority has no power to grant relief.

 

10.  Sec.19 of the Act is ambiguous as to whether this right is available to aggrieved person (eg. third party or bona fide tenant) also or not. In many cases third parties also face crucial position at the time of forceful / physical dispossession under Sec.14 of the Act. Of course the aggrieved persons are entitled to costs of the application under Sec.17 of the Act but entitlement to compensation is not obvious from the reading of the Section. DRT has no power as it cannot supplement law in this regard as a legislator (casus omissus= When a statute or an instrument of writing undertakes to foresee and to provide for certain contingencies, and through mistake, or some other cause, a case remains to be provided for, it is said to be a casus omissus)

Source: Lawyersclub