[No.191]

Supreme Court

• Federal Bank Ltd. and Ors Vs. State of Kerala and Ors.

In the present case, by the Kerala Finance Act, 1998, Clause (g) was inserted in Section 2(viii) by which the definition of the word ‘dealer’ was expanded to cover a bank or a financial institution which, whether in the course of its business or not, sells any gold or other valuables pledged with it to secure any loan, for the realization of such loan amount. After the amendment, the Department called upon the Bank to furnish details of the turnover relating to the gold auction sale and to pay tax. The Bank refused to file its return on the ground that there was no sale of ornaments pledged to the bank and that the position of the bank remained unaltered even after introduction of Clause (g). The Bank filed a petition in the High Court challenging the validity of Section 2(viii)(g) of the 1963 Act. The Single Judge upheld the demand notices leaving the question of legislative competence open to challenge. On appeal, the Division Bench held that Section 2(viii)(g) was intra vires the Constitution of India and did not infringe Articles 14 and 19 of the Constitution, dismissed the writ appeals. Hence, the present appeal. Whether banks to be considered as ‘dealers’ under Section 2(viii) read with Explanation I. Whether ‘sale’ of pledged ornaments taxable under the Act when the transaction did not take place in the course of banking business in terms of Section 2(xxi)? Held, banks are statutorily required to show the sale of pledged goods as assets in their balance sheets. Banks are not acting as agents of borrowers /pledgers while selling the pledged goods. Sale done by Banks in exercise of the statutory power under Banking Regulation Act and dealing in non-banking assets is deemed to be a banking business under the said Act. Definition of ‘sale’ is to done on the basis of Central Sales Tax Act and not Sale of Goods Act. The same being very wide in scope covers sale of pledged goods by Bank. Enforcement of charge/pledge is done by Bank by way of sale of the pledged goods for a consideration. Hence, ‘sale’ of pledged ornaments to fall within the course of banking business and taxable under Section 2(viii)(g). Impugned orders are therefore, upheld. Appeals dismissed.

• Madhumilan Syntex Ltd. and Ors Vs. Union of India (UOI) and Anr

Appellant No. 1, a Public Limited Company, submitted its returns. On verification, it was found that though an amount was deducted by the Company as TDS, it was not credited by the Company in the account of the Central Government as required by Sections 194C and 200 of the Income Tax Act, 1961 read with Rule 30 of the Income Tax Rules, 1962. Later on, the amount of TDS was credited belatedly by the Company with interest. Income Tax Officer issued a notice to the Appellants alleging that the Appellants had committed an offence punishable under Section 278B. A show-cause notice was issued, wherein it was expressly stated that the Directors were considered to be Principal Officers under Section 2(35). The Appellant took the plea of ‘reasonable cause’ for non-payment of amount within the prescribed period. The Commissioner granted sanction to prosecute the Appellant-Company as well as the Directors of the Company. A complaint was filed against the Appellants, wherein it was stated that the Appellants were considered as Principal Officers. The Appellants filed applications under Section 245 of the Code of Criminal Procedure, 1973 for discharge from the case contending that they had not committed any offence and the provisions of the Act had no application to the case. The Trial Court rejected the prayer of the Appellants. Revision petition filed by the Appellants was rejected by the First Additional Sessions Judge. The Appellants moved the High Court, but the petition was summarily rejected. Hence, the present appeal. Whether criminal proceedings could be initiated against the Appellant-company and its directors for late payment of TDS? Held, failure on Company’s part to fulfill the statutory obligation of paying TDS is a punishable offence under the Income Tax Act. Prosecution against a Company and its Directors in default of tax payment is envisaged under the Act. Liability of juristic or legal person envisaged in the principle of ‘Corporate criminal responsibility’ is recognized by various Apex Court decisions. The fact of directors being ‘principal officers’ is a question to be decided at the stage of trial. To initiate the proceedings averments against officers are required and same is duly made in the present case. Therefore, sanction to prosecute Directors and initiation of criminal proceedings thereto is neither illegal nor unlawful. Appeal is dismissed.

High Courts

Delhi

• Narain Singh and Ors Vs. B.S.N.L. and Ors.

Appellants, prior government employees, opted for permanent absorption with respondent-company, BSNL. Appellants were in possession of official accommodation that had been allotted to them while they were government employees. Respondent BSNL then started deducting tax at source in terms by adding 10 per cent to taxable salary of appellants as “perquisite” as appellants were in possession of official accommodation. Same was contested by appellant employees in a writ petition on ground that deduction of tax at source by virtue of amendment to the Income Tax Rules, 1962 in 2001 is contrary to law and against the principle of promissory estoppel. However, learned Single Judge dismissed writ petition holding that tax deducted at source is being made by virtue of amendment to the Income Tax Rules, 1962 in 2001 and therefore writ petition had no merit. Hence, present appeal. Whether deduction of tax at source by respondent is contrary to principle of promissory estoppel? Held, no assurance was given to appellants that tax at source in accordance with law will not be deducted. In fact no such assurance could have been given. Every employer be it Government, Public Sector Undertakings or private company has to comply with statutory provisions relating to deduction of tax at source. Deduction of tax at source is done as per provisions of Income Tax Act and relevant Rules. Income Tax Act and Rules are modified from time to time and by Finance Act, which is passed every year, Income Tax Act and Rules change form time to time and do not remain static. Therefore, contention of appellants that because of principle of promissory estoppel, respondent BSNL should be restrained from deducting tax at source as per applicable Rules is liable to be rejected. It is well settled that principle of promissory estoppel does not apply to statutory enactments and mandatory provisions stipulated in Statutes. Therefore, appeal is dismissed.

• Mahesh Kumar and Ors Vs. Directorate of Education and Ors

Petitioners are pharmacy students of respondent No. 3 college. Respondent No. 3, college, admitted students and conducted sessional examinations without obtaining prior requisite sanction or affiliations. Respondent No. 3, college, was thereafter granted affiliation by respondent No. 1, Deemed University. However, UGC issued notification that “Deemed Universities” cannot grant affiliation to study centres situated outside their campuses. Respondent No.3-college then applied to respondent No. 2, Pharmacy Council, for approval of respondent No. 1, Deemed University, to conduct examination of petitioner students. Same was however rejected by respondent No. 1 Pharmacy Council on ground that requisite conditions stipulated by Pharmacy Act have not been complied by respondent No. 3 college. Hence, present petition. Whether petitioners who are students of an unaffiliated institution who have not undergone a “course of study” can be allowed to appear in examinations? Held, it is no more res integra that candidates of institutions, not affiliated cannot be allowed to appear in examination conducted by Universities. Students of unapproved institution are not eligible for registration as pharmacist to practice profession. Thus college which sought approval of D pharma course was required to apply to Respondent No. 2 for necessary approval along with no objection certificate from an examining authority which examining authority in turn should have been approved by Respondent No. 2 under Section 12(2) of Pharmacy Act, 1948. Respondent No. 1 granted no objection certificate to Respondent No. 3 despite fact that it did not have necessary approval of Respondent No. 2 under provision of pharmacy act, thus it was not an approved examining authority. Mere grant of no objection certificate is not sufficient. It has to be seen whether it is a competent examining authority under Pharmacy Act. Students should have, before taking admission made necessary inquiries and merely because they have undergone alleged “course of study” which is denied by respondent No. 2 and have also taken up practical examination and that there career will be affected if direction to conduct examination is not granted to them, Court cannot issue such writs of mandamus to respondent No. 2 to violate its own rules and regulations. Therefore, petitioners are not entitled for any of the relief in the facts and circumstances of these cases. Petition is dismissed.

Madras

• K. Ramu Vs. Adyar Ananda Bhavan Muthulakshmi Bhavan

Plaintiffs developed a process to make low glycemic sweets using fructose instead of sugar and said process allegedly prevents browning of sweets due to maillard reaction and caramelization. Thereafter, Plaintiffs were granted product patent on sweets as well as process patent for said process. Plaintiffs alleged that Defendants were infringing their patent rights by manufacturing and marketing sweets made of fructose using process developed by them. Hence, present suit was filed for permanent injunction restraining Defendants from infringing Plaintiff's process patent and product patent by making or selling products made with patented process and also from making or selling sweets made with fructose by violating registered product patent. Held, plaintiff discharged the initial responsibility by proving that they were protected by certificate issued by authorities under Patents Act 1970. Section 48 of Patents Act, 1970 provides that a patent granted under the said Act shall confer upon patentee exclusive right to prevent third parties from act of making, using, selling or importing that product in India if subject matter of patent is a product. Similarly if subject matter of patent is a process, patentee has exclusive right to prevent third parties from the act of using the process for sale, selling for those purpose the product obtained directly by that process in India. Therefore, Plaintiff having obtained patent for both process and product under Patent Act, 1970 has got statutory right to prevent third parties from infringing those rights. As Plaintiff established a prima facie case its statutory right and the injury that would be caused to him. Plaintiff was entitled to an order of injunction in both the above applications. Application is allowed.

Press Information Bureau

• Banking Industry to Continue as a Public Utility Service

PIB Dated 17.04.2007: The Government has notified vide the present press release that Banking Industry will continue to be a public utility service for another six months from April 17, 2007 in public interest. The industry was declared a public utility service under the Industrial Disputes Act, 1947 for six months with effect from October 17, 2006. The employees in this industry, as a result, would therefore be required to give notice to their employer six weeks in advance of proceeding on strike so that conciliatory proceedings could be started. During the conciliatory proceedings and seven days after their completion, the employees cannot go on strike.

• Guidelines for publication of Facsimile Editions of Foreign Newspapers

PIB Dated 17.04.2007: Vide the present press release the government notifies that the guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile editions of foreign newspapers have been partially amended. As per the amended Clause 4(iv) pertaining to basic conditions/obligations of the guidelines, "the entity shall be liable to intimate the names and details of any foreigners/NRIs proposed to be employed/engaged in the entity either as consultant (or in any other capacity) for more than 60 days in a year, or, as regular employees. The entity shall be liable to dispense with the services of such persons if not found security cleared subsequently."

RBI

Press Relase

• Reserve Bank Cancels Certificate of Registration of SCL Finance Limited

Press Release No. 2006-2007/1372 Dated 09.04.2007: The Reserve Bank of India vide the present press release notifies that, under powers conferred upon it by virtue of section 45-IA (6) of Reserve Bank of India Act, 1934 it has cancelled the certificate of registration granted to SCL Finance Limited having its registered office at G-2, Concorde Apartments, 6-3-658, Somajiguda, Hyderabad on March 13, 2007 for carrying on the business of a non-banking financial institution as the company has opted to exit from the business of a non-banking financial institution. Following cancellation of registration certificate, SCL Finance Limited, cannot transact the business of a non-banking financial institution. Section 45-IA (6) of the Reserve Bank of India Act, 1934, confers powers on the Reserve Bank to cancel the registration certificate of non-banking financial company.

SEBI

Press Release

• SEBI permits BSE and NSE to launch Trading Platform for Corporate Bonds

Press Release No. PR No.138/2007 Dated 13.04.2007: Securities and Exchange Board of India (SEBI) had issued circulars authorizing Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE) to set up and maintain corporate bond reporting platforms to capture all information related to trading in corporate bonds as accurately and as close to execution as possible. Continuing with the process of implementing the Union Budget proposals for developing an exchange traded market for Corporate Bonds, SEBI has issued the present circular permitting BSE and NSE to have in place corporate bond trading platforms to enable efficient price discovery and reliable clearing and settlement in a gradual manner. Accordingly, the trade matching platform shall be order driven with essential features of OTC market. BSE and NSE would make use of their existing infrastructure, with necessary modifications to set up the said platform with effect from July 01, 2007. The trade matching platform would be available to members of the respective stock exchanges. With the introduction of the trading platform, orders executed through trading platforms of either BSE or NSE may not be reported again on the reporting platforms. At the option of the participants, they may also continue to trade Over the Counter, but would continue to be reported on the reporting platforms. In the initial phase, the trades would be settled bilaterally between trading parties. They may, at their option, use services of stock exchanges for clearing and settlement.

• Parking of Funds by Mutual Funds in Short Term Deposits of Scheduled Commercial Banks - Pending deployment

Press Release No. PR No.139/2007 Dated 16.04.2007: SEBI vide the present press release notifies that vide circular No. SEBI/IMD/CIR No. 1/91171/07 dated April 16, 2007 it has stipulated guidelines for parking of funds by mutual funds in short term deposits of scheduled commercial banks - pending deployment. Important features of the circular are: 'Short term' for such parking shall be treated as a period not exceeding 91 days; No mutual fund scheme shall park more than 15% of the net assets in short term deposit(s) of all the scheduled commercial banks put together. However, it may be raised to 20% with prior approval of the trustees. Also, parking of funds in short term deposits of associate and sponsor scheduled commercial banks together shall not exceed 20% of total deployment by the mutual fund in short term deposits; No mutual fund scheme shall park more than 10% of the net assets in short term deposit(s), with any one scheduled commercial bank including its subsidiaries and the asset management company shall not be permitted to charge investment management and advisory fees for parking of funds in short term deposits of scheduled commercial banks in case of liquid and debt oriented schemes.

Cases

• Action Tapes, Inc., a Texas corporation, doing business as Great Notions, Vs. Kelly Mattson, doing business as Kelly J's New Home Sewing Center

Plaintiff-appellants has assembled a portfolio of graphic embroidery designs which it embeds on disk-like memory cards that enable computer-run sewing machines to stitch the embedded design on fabric and apparel. Defendant is the owner of a sewing machine supplies store in northern Minnesota. Plaintiff-appellant filed suit alleging willful copyright infringement by defendant on ground that Defendant has repeatedly violated the Rental Amendments Act by renting plaintiff’s memory cards to her customers without plaintiff’s permission. Upon trial, District Court granted summary judgment in favor of Defendant, holding that plaintiff’s memory cards contain only data and not computer programs. Hence, present appeal. Plaintiff argued that even though it failed to apply for registration of computer program copyrights before commencing this infringement suit, its visual arts registrations suffice to satisfy the § 411(a) requirement that a copyright be registered before an infringement suit is commenced. Held, we disagree with contention of plaintiffs that its visual arts registrations suffice to satisfy the § 411(a) requirement that a copyright be registered before an infringement suit is commenced. Plaintiff seeks the benefit of a statute that confers extra protection on the owners of a limited category of copyrights. A computer program copyright protects the instructions that cause a computer “to bring about a certain result,” here, the stitching of a design by a computerized sewing machine. A visual arts copyright protects the result, here, the original design embedded in the memory card and then stitched on the fabric. The Rental Amendments Act protects the owners of computer program copyrights from competition from customer leasing, but not the owners of copyrights in the design results. Therefore, Ruling of Trial Court is affirmed.

• United States Of America Vs. Jorge Adalberto Mungia-Portillo

Defendant-Appellant pleaded guilty to illegal re-entry after deportation in violation of 8 U.S.C. § 1326(a). Defendant was previously convicted for aggravated assault in State of Tennessee in 1992 and so considering the prior conviction to be a crime of violence, his pre-sentence investigation report (“PSR”) containing base offense level was added to sixteen levels under the United States Sentencing Guidelines (“U.S.S.G.”) § 2L1.2 by the trial court and his sentencing range was held to be between forty-one and fifty-one months. Defendant filed an objection to the PSR, challenging the enhancement under § 2L1.2(b)(1)(A) on ground that the Tennessee assault statute permitted a conviction for aggravated assault based on reckless conduct and it need not necessarily qualify to be a crime of violence. However, the district court overruled the objection and sentenced Defendant to forty-six months imprisonment. Hence, present appeal. Held, contention of defendant is rejected. A prior statute of conviction need not perfectly correlate with the Model Penal Code; “minor differences” are acceptable. The California Penal Code provision is sufficiently similar to the generic contemporary definition of aggravated assault to qualify categorically as an enumerated crime of violence. As a result, the fact that the Tennessee statute defines “reckless” differently than the Model Penal Code is not fatal, and this difference in definition is therefore sufficiently minor. We infer that a defendant’s mental state in committing an aggravated assault, whether exhibiting “depraved heart” recklessness or “mere” recklessness, is not dispositive of whether the aggravated assault falls within or outside the plain, ordinary meaning of the enumerated offense of aggravated assault. What is more significant than the manner in which Tennessee defines “reckless” is that its aggravated assault statute includes the two most common aggravating factors, the causation of serious bodily injury and the use of a deadly weapon. With these considerations, the difference in definition of “reckless” between the Tennessee statute and the Model Penal Code does not remove the Tennessee statute from the family of offenses commonly known as ‘aggravated assault’. Therefore, the Tennessee statute falls within the ordinary, contemporary, and common meaning of aggravated assault and therefore, defendant’s prior conviction qualifies as a crime of violence. Judgement of trial court is therefore, affirmed.

News

• Supreme Court upholds federal regulation of national bank mortgage lending

The US Supreme Court handed down decisions in three cases including Watters v. Wachovia Bank, where the Court held that the National Bank Act and regulations promulgated by the Office of the Comptroller of the Currency preempt state laws regulating mortgage lending by national banks and their operating subsidiaries, affirming the Sixth Circuit's decision in the case. In Global Crossing v. Metrophones, the Court held that Sections 201(b) and 207 of the Communications Act create a private right of action allowing a provider of payphone services to sue a long distance carrier for allegedly violating regulations governing compensation for coinless payphone calls. Metrophones sued Global Crossing, a long distance carrier, arguing that Global Crossing violated Federal Communications Commission (FCC) regulations by failing to compensate Metrophones for coinless payphone calls, a practice determined by the FCC to be "unjust and unreasonable." The Court upheld the Ninth Circuit's decision in the case, which also held that that Metrophones could pursue the lawsuit. The Supreme Court determined that the FCC's "unreasonable practice" determination was lawful, and that the language of relevant Communications Act provisions allow a party injured by violations of Section 201(b) to bring a federal action for damages. Finally, in Zuni Public School District No. 89 v. Dept. of Education, the Court held that the US Department of Education properly applied an equalization public school funding formula in determining that New Mexico "equalized expenditures" for public school districts and could therefore offset federal Impact Aid funding by reducing state aid to individual school districts. The Court determined that the Department of Education is permitted by statute to refer to the the number of students in a school district as well as the amount of per-student expenditure in a school district when determining whether a state "equalizes expenditures" among public school districts.

• Former Poland president can be charged for 1981 martial law declaration

The Polish National Remembrance Institute ruled that former Polish President Wojciech Jaruzelski and eight former officials can be charged with "Communist crimes" for imposing martial law in Poland in 1981. The former President already faces charges of organizing crimes of a military nature and depriving individuals of freedom in connection with the 1981 decree. About 100 people are said to have died as a result martial law, which also involved the arrests of reformist Solidarity movement leaders and the detentions of some 10,000 others in internment camps. The former President has argued that his decision to impose martial law was necessary to maintain order and prevent Russian intervention in Poland along the lines of what happened in reformist Czechoslovakia in 1968. The prosecutions are part of a plan for "moral renewal" pushed by current Polish President and his brother, current Prime Minister. The plan, which has purged police and military intelligence agencies and requires civil servants to disclose whether they served as police informants prior to 1989, has caused divisions among Polish society.

• House Judiciary Committee may grant immunity to former Gonzales aide

The US House Judiciary Committee will consider a resolution granting immunity to Monica M. Goodling, a former special counsel to the US Attorney General, in exchange for her testimony concerning last year's firing of eight US Attorneys, according to a prepared statement read by committee chairman Rep. John Conyers. If two-thirds of the committee agree to the resolution, an application would be submitted to the federal district court for a grant of immunity. The former special counsel told the committee that she would not speak to the committee about her role in the firings and stated through her lawyer that she would seek protection under her Fifth Amendment right against self-incrimination if the committee issued her a subpoena.

• Maryland not challenging Wal-Mart health care preemption ruling

Maryland Attorney General stated that State of Maryland will not challenge a decision by the US Court of Appeals for the Fourth Circuit holding that the federal Employee Retirement Income Security Act (ERISA) pre-empts the Maryland Fair Share Health Care Fund Act. The act was part of a state attempt to force Wal-Mart to contribute more for employee health care. In a 2-1 ruling in January, the court upheld a district court ruling which determined that the Maryland law violates ERISA by not allowing Wal-Mart to create a uniform employee health benefit program nationwide. Maryland is now planning to look to other states as models, such as Massachusetts. The Massachusetts health care plan includes a private insurance exchange and requires that businesses help pay for the system. The Maryland law would have required companies with more than 10,000 employees to spend at least eight percent on employee health care, or pay the difference of that amount into the state Medicaid fund. The Retail Industry Leaders Association (RILA), of which Wal-Mart is a member, filed a challenge to the health care law last year, arguing that the law is preempted by the federal ERISA, and that the law violates the equal protection clause of the constitution.