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SSRana Newsletter 2022 Issue 15

June 2, 2022

Time Limit for Filing of Written Statement under Code of Civil Procedure not Mandatory- Supreme Court

supreme-court-imgIn a recent case, the Hon’ble Supreme Court has reiterated that the time limit for filing of the written statement under Order VIII Rule 1 of Code of Civil Procedure, 1908 is not mandatory if it is not a Commercial Suit under the Commercial Courts Act, 2015.

Supreme Court issues Guidelines on Maintenance- India

budgetThe Hon’ble Supreme Court in a landmark judgment, while framing the guidelines, also set out a comprehensive format for the Affidavit for Disclosure of Assets and Liabilities of each party, which each party is required to file in maintenance cases.

Liability of Corporate Debtors- India

insolvency=graphThe liability of corporate debtor is limited to the extent of assets of the company under the structure of a limited liability company but if the corporate debtor has guaranteed loans or any other type of debt outside this umbrella and in a personal capacity then they can be held personally liable for such debts.

Recording of Charges under the Companies Act- India

Hnet-imgSection 77 of the Companies Act, prescribes that every company creating a charge to register the same with the Registrar of Companies. Such a charge may be within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise.


Time Limit for Filing of Written Statement under Code of Civil Procedure not Mandatory- Supreme Court

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By Nihit Nagpal and Anuj Jhawar

Introduction

The Hon’ble Supreme Court vide its order dated May 09, 2022 in Bharat Kalra Vs Raj Kishan Chabra[1] has reiterated that the time limit for filing of the written statement under Order VIII Rule 1 of Code of Civil Procedure, 1908 is not mandatory if it is not a Commercial Suit under the Commercial Courts Act, 2015.

Brief facts of the case

A suit for grant of injunction had been filed by the Plaintiff, however the written statement by the Defendant had not been filed within time and the Trial Court had refused to condone the delay (of 193 days). The Hon’ble Delhi High Court had upheld the Trial Court order refusing to condone the delay in filing of the written statement on the ground that there was “no plausible explanation and coherent reason” explaining the delay in filing the written statement.

Time-limit for filing written statement under Order VIII Rule 1 of Code of Civil Procedure is not mandatory

The Hon’ble Supreme Court observed that the suit for injunction filed by Plaintiff in the instant case is not one which is governed by the Commercial Courts Act, 2015. Therefore, the time limit for filing the written statement under Order VIII Rule 1 of Code of Civil Procedure, 1908 is not mandatory in view of the judgment of the Hon’ble Supreme Court in Kailash V. Nankhu & Ors.[2] wherein it had been held that the purpose of providing the time schedule for filing the written statement under Order VIII, Rule 1 of Code of Civil Procedure, 1908 is to expedite and not to scuttle the hearing. The provision spells out a disability on the defendant; it does not impose an embargo on the power of the Court to extend the time. Though, the language of the Proviso to Rule 1 of Order VIII of the Code of Civil Procedure, 1908 is couched in negative form, it does not specify any penal consequences flowing from the non- compliance. The provision being in the domain of procedural law, it must be held to be directory and not mandatory. The power of the Court to extend time for filing the Written Statement beyond the time schedule provided by Order VIII, Rule 1 of the Code of Civil Procedure, 1908 is not completely taken away. Though Order VIII, Rule 1 of the Code of Civil Procedure, 1908 is a part of procedural law and hence directory, keeping in view the need for expeditious trial of civil causes which had persuaded Parliament to enact the provision in its present form, it has been held that ordinarily the time schedule contained in the provision is to be followed as a rule and departure therefrom would only be by way of exception. A prayer for extension of time made by the Defendant shall not be granted just as a matter of routine and merely for asking, more so when the period of 90 days has expired. Extension of time may be allowed by way of an exception, for reasons to be assigned by the Defendant, and also be placed on record in writing, howsoever briefly, by the Court upon being satisfied. Extension of time may be allowed if it is needed to be given for circumstances which are exceptional, occasioned by reasons beyond the control of the Defendant, and grave injustice being likely to be caused to the Defendant if the time is not extended. Costs may be imposed and affidavit or documents in support of the grounds pleaded by the Defendant for extension of time may be demanded, depending on the facts and circumstances of a given case.

Conclusion

In view of the Kailash V. Nankhu & Ors.  judgement, the Hon’ble Supreme Court held that delay in filing of the written statement can very well be compensated with costs, but denying the benefit of filing of the written statement absolutely, is unreasonable.

[1] CIVIL APPEAL NO.3788 OF 2022 (@ SLP(C) No.63 of 2022)

[2]  (2005) 4 SCC 480

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Supreme Court issues Guidelines on Maintenance- India

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By Lucy Rana and Devika Mehra

With the ever evolving laws in maintenance, it was imperative for appropriate guidelines to be framed addressing addressing the need for uniformity, consistency, procedural fairness, and time efficiency in disposal of maintenance applications in matrimonial disputes. The Hon’ble Supreme Court in Ranjesh vs Neha[1] while framing the guidelines, also set out a comprehensive format for the Affidavit for Disclosure of Assets and Liabilities of each party, which each party is required to file in maintenance cases.

Supreme Court’s Guidelines on Maintenance

The guidelines of the Hon’ble Supreme Court have been divided under the heads as defined herein below:

  1. The issue of overlapping jurisdiction

It was observed by the Hon’ble Supreme Court that differing verdicts on the issue of overlapping jurisdiction, which occurs due to the simultaneous effect and implementation of different statutes wherein maintenance may be claimed, have been passed by various High Courts across India. Certain High Courts, such as the Madhya Pradesh High Court and the Calcutta High Court, observed that each proceeding, wherein maintenance has been claimed under different statutes, could not be set off against each other since each proceeding is different and independent from the other. On the contrary, the High Courts of Delhi and Bombay have observed that adjustment or set-off is a must in case of parallel proceedings of maintenance. Hence, to settle this contradiction for good, the Supreme Court passed the following directions on the issue of overlapping jurisdiction:

  1. In case of sequential claims made towards maintenance by a party under different statutes, the concerned Courts should consider to adjust or set-off the amount awarded to the concerned Party under one proceeding whilst the Court determines any further amount of maintenance to be awarded, as prayed for before itself;
  2. The concerned applicant must reveal and disclose, as a mandatory process, all past proceedings and orders passed in the said proceedings, whilst proceeding with a subsequent matter; and
  3. Where any modification of the order under previous proceeding is required, the Court that passed the said order must be proceeded before for such modification

 

  1. Interim Maintenance : How to be paid?

Despite there being a mandate to dispose of proceedings for interim maintenance in a time bound manner, the Hon’ble Supreme Court observed that such matters remained pending for endless years due to repeated adjournments having been sought by the parties, thereby taking more time than required at the interim stage itself, which defeated the very object of this legislation.

It was further observed that no proper mechanism and format was being followed by Courts for determining the quantum of maintenance, and that it was being decided on insufficient material, incorrect and ambiguous details disclosed, and with important information being suppressed by the parties. Hence, the following directions were laid down by the Hon’ble Court in this regard:

  1. Every effort towards settlement of these issues must be made before deciding of this matter by the Court on merits, and in this regard, each Court must have a professional marriage counsellor available.
  2. Both parties must file an Affidavit of Disclosure in all maintenance proceedings, and the affidavit must be filed by both parties simultaneously to avoid giving unwarranted advantage to one party over the other[2];
  3. In case the Opposite Party seeks to submit a reply to the Affidavit of Disclosure of Assets and Liabilities of the other Party, it must do so within a maximum period of four weeks, and the Court ought not grant more than two opportunities in this regard. Where the Opposite Party still fails to file the affidavit, the Court may consider deciding the application of the applicant for maintenance on the basis of the affidavit filed by the Applicant.
  4. On the basis of the information provided by the parties in their respective affidavits, and on the basis of the pleadings filed by both parties, the Courts should asses the amount to be awarded towards maintenance, and if the Courts require any further information from the parties, it may pass necessary orders in this regard.
  5. If during the pendency of the proceedings, there is a change in the financial status of either party, or there is a change in the relevant circumstances, the party may submit an amended / supplementary affidavit which would be considered by the Court at the time of final determination.
  6. The Courts must make an endeavour to decide the interim applications within a maximum period of four to six months of the Affidavit of Disclosure of Assets and Liabilities has been filed.
  7. These directions can be modified by the concerned Court, if the circumstances of a particular case require so. It is left to the judicial discretion of the concerned Court to take necessary action in this regard.

Permanent Maintenance:

  1. The Parties can lead evidence, oral or documentary, before the Court to enable the court to fix permanent maintenance payable to the spouse. The duration of the marriage of the Parties, however, must be taken into consideration for determining the permanent maintenance payable.
  2. There must be made provisions relating to the grant of expenses for the marriage of the children while determining the maintenance payable (where the custody is with the wife). However, these expenses should be determined by taking into account the financial position of the husband and the family customs. However, if there are any investments or trust funds made in favour of the children by the spouse or either of the grandparents, this will be taken into consideration while deciding the final child support quantum.

 

  1. Criteria for determining the quantum of maintenance

The Hon’ble Court, while determining the amount of maintenance to be awarded, stated that there is no standard formula that can be followed for such determination, and held that a careful and just balance must be maintained between all factors while awarding reasonable and realistic maintenance. The maintenance amount should neither be so high that it becomes unbearable for the Respondent to pay, nor should it be so nominal that the Applicant’s needs are not sufficed.

In addition to the above, the Hon’ble Court laid down the following factors to be considered for determining the quantum of maintenance:

  1. The status of the parties;
  2. Reasonable needs of the wife and dependant children;
  3. Whether the applicant is educated and professional qualified;
  4. Whether the applicant has any independent source of income
  5. Whether the income is sufficient to enable the applicant to maintain the same standard of living as she was accustomed to in her matrimonial home;
  6. Whether the applicant was employed prior to her marriage;
  7. Whether she was working during the subsistence of marriage;
  8. Whether the wife was required to sacrifice her employment opportunities for nurturing the family, child rearing, and looking after adult members of the family;
  9. Reasonable costs of litigation for a non-working wife;
  10. Age and employment of parties;
  11. Duration of marriage;
  12. Maintenance of minor children;
  13. Serious disability or ill health of a spouse, child / children from marriage or dependant relative who require constant care and recurrent expenditure, would also be relevant consideration while quantifying maintenance.

The aforesaid re not exhaustive factors and the concerned Court can exercise its discretion to consider any other factors which may be necessary to the relevant facts and circumstances of a particular case.

 

  1. Date from which maintenance is to be awarded.

The Court observed that except Section 125(2) CrPC, most statutes were silent on the issue of the date from which maintenance is to be awarded. This has resulted in inconsistencies in the decisions of various courts in this regard. While some Courts held that the maintenance was to be awarded from the date on which the application for maintenance was filed, the other Courts held that such payment should be made from the date of order. Some Courts were also of the view that the payments should be made from the date on which summons were served upon the Respondent.

To settle the above ambiguity, the Hon’ble Supreme Court held that in all maintenance cases, including Section 125 CrPC, maintenance is to be awarded from the date the application was made before the concerned Court. This was done with a view to prevent destitution of dependent spouse.

 

  1. Enforcement / Execution of orders of maintenance

The Hon’ble Court, in order to avoid the object of the social welfare legislation from being defeated due to pendency of the execution of the orders for maintenance, directed than an order or decree granting maintenance may be enforced under Section 28A of the Hindu Marriage Act; Section 20(6) of the Protection of Women from Domestic Violence Act, 2012; Section 128 of CrPC; or under CPC as may be applicable. It was further held that an order for maintenance may be enforced as a money decree of a civil court as provided by the various provisions of the CPC, including provisions for civil detention, attachment of property, etc. more particularly provided in relevant provisions therein.

The Hon’ble Court also cautioned the Courts that the option of striking off the defence of the respondent, in case of non-payment of maintenance, should be exercised as a last resort and in cases where the conduct of the defaulting party was found to be willful and contumacious. It further provided that contempt proceedings for willful disobedience could also be initiated before the appropriate Court.

 

  1. Affidavit of Disclosure

The Hon’ble Supreme Court, with assistance from a few Senior Advocates as amicus curiae and from the National Legal Services Authority, formulated a comprehensive format in which the format is to be filed. The affidavit was carefully drafted recognising India’s vastly divergent demographic profile comprising of metropolitan cities, urban, rural, tribal areas, etc., the Court observed and acknowledged that the Affidavit to be filed by parties of urban areas would be entirely different from one filed by rural or tribal areas. The formats are attached with the judgment as Enclosure I, II, and III.

The affidavit requires parties to disclose their assets, liabilities, income, and other personal information. The affidavit is mandatory to be filed by both parties in all maintenance proceedings.

 

Conclusion:

The above guidelines have been framed with the intention to streamline the process of granting maintenance to the spouse. The Hon’ble Court’s specific attention and regard to the economic condition of the different sectors of the Country is worthy of praise, as it has sought to strike a balance between the rights, obligations, and interest of the parties.

[1] Criminal Appeal No. 730 of 2020 arising out of SLP (Cri) No. 9503 of 2018). The said case arose out of an application for interim maintenance filed in a petition under section 125 of the Code of Criminal Procedure (“CrPC”)

[2] Originally stated in Kusum Sharma vs Mahinder Kumar Sharma [August 6, 2020] by the Hon’ble Delhi High Court

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Liability of Corporate Debtors- India

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By Rupin Chopra and Apalka Bareja

Who is a corporate debtor?

A corporate debtor refers to a company, a limited liability partnership or any person who owes a debt to its creditors. Under the Insolvency and Bankruptcy code[1], a corporate debtor is liable to the financial and operational creditors for the payment of such debt.

What types of creditors are there with respect to a corporate debtor?

A financial creditor is someone to whom a financial debt is owed by the corporate debtor for example any amount borrowed by the corporate debtor against the payment of interest would be included in financial debt and so will things like amount of liability under a hire or lease purchase contract or amount raised against the issue of notes, bonds, stocks, etc.

An operational creditor is someone to whom an operational debt is owned. For example, payment for goods and services that the creditor might have supplied to the corporate debtor or even any dues arising under any law that is in force and payable to the Governmental authorities.

Insolvency and Bankruptcy proceedings

If the corporate debtor is not able to repay the debt owed to the creditors, then the creditors can file a petition for the initiation of the process of insolvency and liquidation of the corporate debtors under the Insolvency and Bankruptcy Code. But the provisions stipulate that such amount which the corporate debtor is liable to pay to the creditors must not be less than 1 crore if a petition for the process of insolvency and liquidation has to be filed. If the debt satisfies the condition of a minimum of 1 crore rupees, then either the creditor or even the corporate debtor can file an application for bankruptcy before the National Company Law Tribunal[2].

Liability of the corporate debtor and the personal guarantor

The liability of the corporate debtor is however limited to the extent of the assets of the company under the structure of a limited liability company but if the corporate debtor has guaranteed loans or any other type of debt outside this umbrella and in a personal capacity then they can be held personally liable for such debts. Most times the directors of a company give personal guarantee for a loan they take from financial creditors or goods they acquire on credit from operational creditors.

In these cases, the loan has been given to the company but the personal guarantee that the loan will be paid off has been provided by the directors. Now this is where Section 128[3] comes into play because it provides that the liability of a guarantor is co-extensive with that of the principal debtor. Therefore, it poses a question about whether the liability of the personal guarantor of corporate debtor is also extinguished after the insolvency and bankruptcy proceedings have taken place. What will happen if the amount is not fully recovered and will the personal guarantor be liable to pay the remaining amount that has not yet been recovered by the creditors.

Landmark Judgements with respect to liability in corporate affairs pertaining to corporate debtors and personal guarantor/ surety

The Judiciary has been of conflicting opinion at times. For example, a bench of the Punjab and Haryana High Court in Shri Kundanmal Dabriwala v. Haryana Financial Corporation & Anr.[4] relied on Section 135[5] which provides that a contract between the principal debtor and the creditors by which the creditors agree to compounds with the principal debtors discharges the surety from any liability. Let’s say an agreement has been reached upon by the creditors after initiation of the insolvency and bankruptcy proceeding but the companies assets are not capable of fulfilling the entire claim of the creditors and the liability has been scaled down to recover a portion of the claim then in this case as the liability of the surety is co-extensive with that of the principal debtor then the surety’s liability will also be scaled down or extinguished in whole or in part in accordance with the reduction or extinguishing of the liability of the principal or corporate debtor. This was also the opinion of the Hon’ble court in the above-mentioned case.

But a dissenting opinion was presented by a bench of Calcutta High court in the case of Gouri Shankar Jain v. Punjab National Bank[6] in which the court was of the opinion that “the secured financial creditor receiving payment of a part of its claim on full and final settlement basis in terms of resolution plan approved by NCLT does not extinguish the liability of surety of corporate debtor”[7]. This point of concern was finally settled by the court in a recent judgement of Lalit Kumar Jain v. Union of India & Ors.[8] where the Supreme Court held that the approval of a resolution plan by the very fact of the initiation of the insolvency and bankruptcy proceedings does not discharge a personal guarantor of a corporate debtor of their liability. There the creditors can claim the amount that is owed to them by the corporate debtor from the personal guarantor in a personal capacity as well according to the procedure laid down by law. Therefore, the director of the company who might have given personal guarantee for the fulfilment of a loan will be liable for the debts that the company owes to the creditors be it financial or operational in nature.

Conclusion

Therefore, the liability of the corporate debtor is not co-extensive with that of the surety and is not limited to the corporate debtor himself. Insolvency and bankruptcy triggered and conducted by the operation and interference of the law does not absolves neither the corporate debtor nor the personal guarantor from their liability because that liability arises out of a separate and independent contract which they might have entered into in a personal capacity. The objective of the Insolvency and Bankruptcy Code is not to help the debtors escape from their liability and the judgement of the court in Lalit Kumar’s[9] case ensures that personal guarantors do not escape their liability by paying off the debt of their creditors in part of their claim on full and final settlement basis under the terms of the resolution plan approved by the NCLT.

[1] https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf

[2] Notification date 24th March 2020 by the Ministry of Corporate Affairs https://ibbi.gov.in//uploads/legalframwork/48bf32150f5d6b30477b74f652964edc.pdf

[3] The Indian Contract Act, §128, Act of Parliament, 1872

[4] Civil Writ Petition No.2713 of 2009 (O&M)

[5] The Indian Contract Act, §128, Act of Parliament, 1872

[6] W.P. No. 10147 (W) of 2019

[7] supra note 6

[8] LL 2021 SC 257

[9] supra note 8

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Recording of Charges under the Companies Act- India

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By Rupin Chopra and Apalka Bareja

Most companies depend on borrowed funds for their capital requirements. Unlike equity, debts allow companies to decrease their tax liabilities, they are a cheaper source of financing than equity and allow retaining profits within the business.

These borrowed funds often take the form of ‘secured loans’, i.e. where the company pledges an asset as collateral for guarantee of payment to the lender. However, there have been numerous instances where the same collateral was provided for multiple loans – essentially defeating the purpose of the loan, as the collateral no longer covers the loan amount.

To provide more security to lending institutions and ensure that the collateral being offered is not already encumbered, the Companies Act, 2013 (the Act) envisions registration of charges.

Duty to Register Charges

Section 77 of the Act prescribes every company creating a charge to register the same with the Registrar of Companies. Such a charge may be within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise. The following types of charges are envisaged –

·         Uncalled share capital ·         Calls made but not paid
·         Immovable property or any interest therein ·         Movable property
·         Floating charge ·         Motor Vehicle (Hypothecation)
·         Any property for securing the issue of secured deposits ·         Goodwill
·         Patent ·         Licence under a patent
·         Trade mark ·         Copyright
·         Book debts ·         Ship or any share in a ship
·         Solely of Property situated outside India ·         Others

 

Essentially, all types of charges are required to be registered.

Section 79 further requires the registration in cases where a company acquires any property subject to a charge, and where any modification in the terms or conditions or the extent or operation of any charge registered.

Manner of Registration of Charges

Charges shall be registered under Form CHG – 1 (other than debentures) and Form CHG – 9 (for debentures).

Apart from information regarding the company, the following information is required to be filled for registration –

  • Type of charge
  • Particulars of the property/asset charged
  • Particulars of charge holders
  • Details of the loan –
    • Amount secured
    • Rate of interest
    • Terms of repayment
    • Extent and operation of charge

Time Limit to Register Charges

The charge shall be registered with the Registrar within thirty days of its creation. However, upon application and payment of additional fees, the registration may be made within three hundred days from the creation of the charge. The application for delay shall be supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.

However, if the registration is not made within three hundred days, the Registrar shall not register the same unless the delay is condoned by the Central Government. An application for condonation can be made through Form CHG – 8.

Registration by Charge Holder

In case the company fails to register the charge under Section 77, the same may be applied to be registered by the charge-holder under Section 78 of the Act. The Registrar shall then give a notice to the company to register the charge or show sufficient cause as to why such charge should not be registered. The Registrar may allow registration of such charge within fourteen days after giving notice to the company.

Certificate of Registration

Where a charge is registered with the Registrar under section 77 or section 78, a certificate of registration of such charge is issued under Form No. CHG – 2. As per Rule 6(3) of the Companies (Registration of Charges) Rules, 2014, this certificate shall be the conclusive proof that requirements of Chapter VI of the Act and the rules made thereunder have been complied with.

Reporting Satisfaction of Charges

As per Section 82, companies shall give intimation of the payment or satisfaction in full of any charge that has been registered, under Form No. CHG – 4 within a period of thirty days from the date of such payment or satisfaction.

Upon such reporting, the Registrar shall call upon the charge-holder to show cause within fourteen days as to why the payment or satisfaction should not be recorded. If no cause is shown, the Registrar shall order a memorandum of satisfaction in the register of charges.

The Registrar may make an entry of satisfaction without reporting of the company himself as well, if provided with adequate evidence of the same under Section 83. In such a case, the Registrar shall inform the affected parties within thirty days of making the entry of satisfaction.

Consequences of Non-Registration of Charges

As per Section 77(3) of the Act, no charge created by a company shall be taken into account by a liquidator unless it is registered and a certificate of registration has been issued. Hence, charged assets or undertakings will be treated as unsecured at the time of winding up. Further, a charge is void as against a creditor as well, unless it is registered. Thus, where a subsequent charge is created on an asset and registered, the first charge will not be of any consequence.

Penalties

Under Section 86, companies shall be punishable with a fine not less than 1 lakh rupees but may extend to 10 lakh rupees. Officers in default shall be punishable with imprisonment up to six months with fine up to 1 lakh rupees.

Conclusion

Companies must keep in mind that the process of a loan doesn’t complete when the money is received in the bank, the provisions under Chapter VI of the Companies Act, 2013 are essential and must not be overlooked.

For banks and lending institutions that are interested to check whether a property or asset is already under charge, or to  see existing charges with ROC records to ascertain viability/credibility of the financial proposals of the company, they may visit the Index of Charges page on the Ministry of Corporate Affairs website.


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