Gulmohar Ltd., a company registered under Indian law owns a factory

Calcutta, wherein it manufactures jute products. By a notification of the State Govemment;issued during October, 1996, due to a strike and lock-out, it was declared a relief undertaking. After four months, in February, 1997, the lock-out was lifted. However, during the said period the company’s directors defaulted in payment of Provident Fund (PF) and other ancillary dues. During the month of December, 1997, the Regional PF Commissioner initiated criminal proceedings against the company and its directors under the Employees PF and Miscellaneous Provisions Act, 1952, for default and delay in payment of PF dues.

Immediately the directors of the company applied to the High Court for relief under Section 633 of the Companies Act, 1956, praying for relief from liability under the PF law. The petition is now pending before a single judge. The company and its directors desire to know from you, as to the tenability of their claim for relief at the High Court, and as to whether they would be excused and exonerated by the High Court, in respect of the contraventions committed under the PF law.

Briefly discuss the law on the subject and state whether the petition filed by the

directors would be admitted or not under the Companies Act.

(b) Explain the meaning and significance of “public examination” by the court

under the Companies Act, 1956. fC.A. (Final) Nov., 1998J

.9L1h5. (a) The crux of the matter involved in the above case, is whether the word “any proceeding” against an officer of a company, would mean only a proceeding under the Companies Act or any Criminal proceeding under any other law. The provisions of the Companies Act, define” officer” and” officer in default” but there is no definition for the word “proceeding”. In the present case, the proceeding has not resulted from or has not been brought about as a consequence of default, refusal, contravention, non-compliance or failure under the Companies Act, 1956, but has come about as a result of certain acts and omissions committed by the directors of the company Gulmohar Ltd. under the Employees PF and Misc. Provisions Act, 1952. The Court has powers under Section 633 to grant relief only to a director/officer of a company, and not to the company. But the significance of the words “in any proceeding”’-mployed in Section 633 (1) require to be understood. I

The facts of the case bear resemblance to those which came up before their Lordships of the Supreme Court in Rabindra Chamaria and others Vs. Registrar of Companies, West Bengal and others, 1992 (73) Compo Cas. 257 (SC).

Going by the tenor of section 633 and the Supreme Court ruling the directors of Gulmohar Ltd., cannot avail of relief under Section 633 of the Companies Act, 1956 and their petition is not likely to succeed. It is liable to be dismissed

What are the provisions of the Companies Act, 1956, relating to entering into contracts by agents of a company, in which the company is the undisclose

Section 416 of the Act provides that every person being the manager or other agent of a public company or of a private company which is a subsidiary of a public company, which enters into a contract for or on behalf of the company in which contract the company is an undisclosed principal, shall at the time of entering into the contract:

(a) make a memorandum in writing of the terms of the contract; and

(b) specify therein the person with whom it is entered into.

It is further provided that every such person, who enters into a contract, shall

forthwith:

(a) ‘deliver the memorandum to the company;

Corporate Laws & Secretarial Practice

(b) send copies thereof to each of the directors; and

(c) such memorandum shall be filed in the office of the company and laid before

the Board of Directors t its next meeting.

It is also provided that if default is made in complying with the requirements of the above provision, the contract shall at the option of the company, be voidable as against the company, and the person who enters into the contract, or every officer in default, as the case may be, shall be punishable with a fine which may extend to two

thousand rupees

State the provisions relating to professional immunity to legal advisers and

Companies AFt, 1956 postulates professional immunity for legal advisers/ counsels and bankeJ;S.-‘Phis section is similar to a string of provisions that one would find in the Indian Evidence Act, 1872, which envisages immunity to advocates and counsels for communications made in the course of discharging professional duties to a client, except that it would not apply where there is an intent to further a criminal purpose.

Section 251 of the Act lays down that nothing contained in the provisions of Sections 234 to 250 (relating to power of Registrar to call for information, seizure of documents by’the Registrar, investigation, inspector’s power to call for documents and evidence, seizure of documents, etc.) shall require the disclosure, to the Central Government, the CLB, Registrar or Inspector appointed by the Central Government, by a counselor banker, of any privileged communication made to him in that capacity, except as respects the name and address of his client (in the case O

ounsel) and the information other than such company, body corporate or person the case of a banker).

Provisions Regarding Dissolution of Defunct Companies

According to Section 462 (1) of the Companies Act, 1956 read with Rule 298 of the Companies (Court) Rules, the Official Liquidator is required to file the accounts of Mis. Imprudent Engineering Company Ltd. with the Court, twice a year, one made up to 31?t March and the second up to 30^th September, within 3 months of closing the accounts. The accounts should be drawn up in Form No. 144 of the Rules. Further, according to Rule 302, the accounts should be audited by a Chartered Accountant appointed by the Court or if the Court so directs by the Examiner of the Local Fund Accounts of the State concerned. A copy of the accounts so filed by the Official Liquidator with the Court is open to inspection by any creditor, contributory or any

person interested. .

Where the winding-up is not concluded within one year after commencement, the Official Liquidator is required within 2 months after the expiry of the year and thereafter until the winding-up is concluded, once every year to file his statement in the prescribed Form No. 148 (Rule 311) in Court. A copy thereof shall also be filed with the Registrar (Rule 511).

P. 5. Reckless Constructions Ltd. has gone into liquidation because of the inability of the company to pay its debts. During the course of winding up a proposal was put forward by the previous management to revive the working of the company through a scheme of arrangement between the company and its creditors. As per the Scheme, all the creditors have to forego fifty per cent of their dues. Some of the creditors and shareholders have vioced their opposition to the said Scheme. The company approaches you for advice. Discuss the steps that have to be taken by the company in

this regard. fC.A. (Final) May, 2001J

‘.9l.ns. As per the provisions contained in Section 517 of the Companies Act, 1956 M/ s. Reckless Constructions Ltd.

Procedure for Winding-up of Unregistered Company

The legal provisions and procedure relating to compulsory winding-up by Court will also apply in the case of winding-up of an unregistered company. In addition to that, the following provisions shall also be applicable:

(i) Contributories. In the event of an unregistered company being wound-up, everyn

shall be deemed to be a contributory, who is liable to pay, or contribute to the payment of

(a) any debt or liability of the company; or

(b) any sum for the adjustment of the rights of the members among themselves; or (c) the costs, charges and expenses of winding-up the company.

Every contributory shall be liable to contribute to the assets of the company all sums due from him in respect of any liability to payor contribute as aforesaid:

In the event of the death or insolvency of any contributory, the legal representative or official assignee of the contributory shall be liable [Section 585].

(ii) Stay of Proceedings. The same provisions as are applicable to stay of suit or legal proceedings against a ‘company’ at any time after the presentation of the petition and before making of the winding-up order, shall also apply to suits and proceedings against a contributory of the unregistered company, provided the application for stay is by a creditor [Section 586].

(iii) Suit or Proceedings. After an order has been made for winding-up of an unregistered company, no suit or proceedings can be proceeded with or commenced against the company without the leave of the Court [Section 587].

(iv) Direction of the Court as to Properties. If an unregistered company has no power to sue and be sued in a common name, the Court may by the winding-up order or by any subsequent order direct that all or any part of the property, movable or immovable, belonging to the company or held by trustees, shall vest in the Official Liquidator by his official name. Thereupon, the property or part thereof specified in the order shall vest in the Official Liquidator [Section 588].

The Official Liquidator may, after giving such indemnity as the Court may direct, bring or defend in his name any suit or legal proceeding relating to that property, or which it is necessary to bring or defend for the purpose of effectually winding-up the company and recovering its property [Section 588(2)].

(b) Meaning of a Defunct Company

A defunct company means a company which never commenced business or which is not carrying on business and has either no assets or has such assets as shall not be sufficient to meet the costs of liquidation. A company is, however, not considered defunct if the cessation of business is due to the conduct of winding-up [Re, Outlay Assurance Society”]. Also, the mere fact tl;1at the number of shareholders of a company are reduced below the statutory minimum does not render it defunct [Surjan Das Vs. Chaboa Cotton Co.”].

The policy which is followed with regard to weeding out the defunct companies is that where it appears from the latest available balance sheet of a defunct company that it has adequate realisable assets, steps are taken to take the company into compulsory liquidation. It is only where the latest available balance sheet shows that the company has no assets or has such assets as would not be sufficient to meet the costs of liquidation, steps are taken to strike their names off the register under Section 560t.

Service Tax - Valuation - Commission paid by broadcasting agency to the advertising agency not includible in assessable value

Indian Service Tax

Clarifications

Agency Commission

F. No. 341/43/2001-TRU, Date: 18/10/2001

Sub:- Service Tax - Valuation - Commission paid by broadcasting agency to the advertising agency not includible in assessable value

I am directed to say that doubts have been raised as to whether the "value of taxable service" in respect of broadcasting services will include the commission paid by the broadcasting agency to the advertising agency or not. The facts of the case are as follows.

2. In the invoices raised by the broadcasting agency on the advertising agency, the gross amount for the broadcasting services is indicated. From this amount, the commission or discount (usually 15% of the gross amount) given to the advertising agency is deducted and the net amount payable by the advertising agency to the broadcasting agency is indicated. Thus what is "received by the broadcasting agency" for the service rendered is the net amount excluding the commission or discount. In some cases, only the net amount is invoiced to the advertising agency.

3. The matter has been examined by the Board. The value of taxable service is the amount received by the broadcaster for providing the broadcasting service. Therefore, service tax is leviable only on the amount received by the broadcaster for the services rendered. Since the amount received by the broadcaster is net of the commission or discount paid to the advertising agency, service tax will be payable on this amount. However, such abatement towards commission/discount shall be allowed only when the same is clearly indicated in the invoicelbill raised by the broadcasting agency on the advertising agency. It will be relevant to mention here that on the commission/discount received by the advertising agency, service tax is separately leviable under the category of advertising services. In this regard, your attention is invited to Board's circular F. No. 341/43/96-TRU, dated 31-10-96 wherein it was clarified that the commission received by the advertising agency for getting the advertisement published in the print media (i.e. newspaper, periodicals etc.) or the electronic media (Doordarshan, private channels, AIR etc.) will be includible in the value of taxable service under the category of the "advertising service".

Doordarshan and All India Radio

Cir.No. 61/10/2003-ST, Date: 14/7/2003

Sub:- Service Tax on Doordarshan and All India Radio under the category of Broadcasting Services.

I am directed to refer Board's letter of even number dated 27th March 2003, on the above cited subject. In continuation of the referred letter, I am directed to say that the protection was available to Prasar Bharati Corporation (Doordarshan and All India Radio) from payment of the Service Tax on the basis of interpretation of Section 22 of the Prasar Bharati ( Broadcasting Corporation of India) Act, 1990.

The Section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 hax been omitted vide Section 163 of the Finance Act, 2002 with effect from 1st April 2003. In light of the above, I am directed to say that with effect from 1 st April 2003 the protection under Section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 is no longer available to the Prasar Bharati Corporation (Doordarshan and All India Radio) and they are liable to pay the Service Tax as the provider of the Broadcasting Services with effect from 1 st April 2003.

The instructions issued vide the letter dated 27th March, 2003 is modified in above terms and the field formations should be suitably instructed to get all units of Prasar Bharati Corporation registered immediately.

"Broadcasting" has the meaning assigned to it in cl. (c) of S. 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990

Indian Service Tax

Brodcasting Service

Effective Date: 16/07/2001

Authority: Notification No. 4/2001-ST, dt. 9.7.2001. (See at the end of this Chapter).

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003) 10% from 10/9/2004 - Cess 2% of 10% = .2. Total ST = 10.2%.

Definitions

"Broadcasting" has the meaning assigned to it in cl. (c) of S. 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990 and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges on behalf of the said agency or organisation, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner; [Section 65(15)).

"Broadcasting Agency or Organisation"means any agency or organisation engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organisation; [Section 65 (16)).

Taxable service

Taxable service means any service provided, to a client, by a broadcasting agency or organisation in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organisation.

Explanation:-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of signals or beaming thereof through the satellite might have taken place outside India; [Section 65 (105) (zk)).

Value of taxable service:- Gross amount charged from a client.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

  (i) Uplinking agencies like VSNL or other earth stations

  (ii) Cable TV operators

  (iii) Multi-system operators who merely retransmit

  (iv) Commission paid to advertising agency if shown separately

  (v) Cinema halls, studios

  (vi) production of TV serials

Person liable to pay: Broadcasting Agency or Organisation.

Exemption

See Notification No. 8/2001-ST, dt. 09/07/2001.

Head of Account

SI. Code SCCD Minor-head 004400141 Broadcasting Service 00440164 Sub-head 00440014101 Tax Collection 00440165 112 Sub-head 00440014102 Other Receipts 00440166 117 Sub-head 00440014103 Deduct Refunds 00440167 114

Main text of Departmental Circular/TN

[Ministry's FNo. B.II/I/2000-TRU dated 9/7/2001 - Annexure V]

1. As per Section 65(13), 1994, "Broadcasting" has been defined to have the meaning assigned to it in clause (c) of Section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990. As per this definition "Broadcasting" means the dissemination of any form of communication like sign, signals, writing, pictures, images and sound of all kind by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations and all is grammatical variations and cognate expressions shall be construed accordingly. The taxable service is any service provided to a client, by a broadcasting agency or organisation in relation to broadcasting, in any manner.

2. The service covers both radio broadcasting and television broadcasting. While radio .broadcasting is done by the All India Radio or any private radio channel, television broadcasting is done by Doordarshan, Indian TV Channels and Foreign TV channels. The broadcasting may be of advertisements, serials/ programmes or live events. The client is the person who wants an advertisement to be broadcast or the sponsor of a serial or programme or event who wants the serial or programme or event to be broadcast. The service provider, that is, broadcasting agency or organisation is the AIR, Doordarshan, other Indian TV Channels and foreign TV channels who broadcast the programme in India.

3. Broadcasting is done either terrestrially or through satellite links. Most of the private TV channels are using satellite links for broadcasting their programmes. The uplinking of the programme to the satellite is done through VSNL or other earth stations located in India or through other agencies located abroad. The up-linking agencies are not broadcasting agencies and are not li~ble to service tax in respect of such service. The signals beamed by satellite are received either by Multi System Operators (MSO) or directly by cable operators. In the latter case the cable operator further retransmits the signals to the public (viewers). However, in the case of MSO, they first retransmit signals to the cable operator who in turn retransmits the same to the viewers. The cable TV operator who merely retransmits the programme is not a broadcasting agency or organisation with respect to such retransmitted programmes. The MSO also is not a broadcasting agency to the extent he merely retransmits signals. However in case the MSO operates a local cable channel such as Spectranet, Siticable, Incable Sumangali, etc., and broadcasts a programme or serial or advertisement on his own, he would be liable to pay service tax on the amount he charges for the service rendered to his clients in relation to broadcasting of such programmes. It may be noted that there may be instances when cable TV operators themselves undertake to broadcast advertisements. Cable television operators have, however, been exempted from the levy of service tax vide notification No. 8/2001-ST.

4. Broadcasting service is provided by selling time slots. In the case of advertisements, service charges are recovered based on the duration and frequency of advertisement and the time slot (prime time, non-prime time etc.) provided for the advertisement. In the case of serials/programmes/ events, service charges are made on the basis of factors such as duration, time slot, etc. However, some free commercial time is provided to the sponsor, which he can sell the same to others. In the case of broadcasting service, the advertisement charges or the sponsorship charges received by the broadcasting agency or organisation are the consideration for the services rendered and service tax is payable on these charges.

5. In case of foreign satellite TV channels, their head office may be located outside India. However, they have their branch offices or subsidiary companies located in India. In some cases, they have appointed agents. These branch offices/subsidiary companies/agents act on behalf of these channels, selling time slots and recovering service charges and remitting the same to their head office/holding company/principals as the case may be. In such cases, these branch offices/subsidiary companies/agents are rendering the service in relation to broadcasting and therefore, they are liable to pay the service tax and comply with all other procedural formalities relating to service tax.

6. In the case of AIR and Doordarshan, the billing for the service rendered is done by the Regional Stations of AIR or Regional Doordarshan Kendras. These Regional Offices will have to be, therefore, registered for payment of service tax and for complying with other procedural formalities.

7. A doubt has been raised whether Prasar Bharati (AIR and Doordarshan) is liable to pay service tax since under Section 22 of the Prasar Bharati Act 1990, they are exempt from any income tax or any other tax in respect of any income, profit or gains, accruing or arising out of the Fund of the corporation or any amount received by them. In this regard, it is clarified that the said Section 22 applies only in respect of taxes on income or profit or gains. The exemption is only in respect of direct tax and not in respect of indirect tax. As such the argument that AIR or Doordarshan are not liable to pay service tax is not correct.