TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Tribunal rules transaction not a loan, penalties overturned, directors not liable.</h1> <h3>M/s Hindustan Lever Ltd. & Ors., Shri V. Vaghul, Shri A.S. Ganguly, Shri A.L. Mudliar, Shri C.J. Mahimkar Versus The Special Director Directorate of Enforcement, Mumbai</h3> M/s Hindustan Lever Ltd. & Ors., Shri V. Vaghul, Shri A.S. Ganguly, Shri A.L. Mudliar, Shri C.J. Mahimkar Versus The Special Director Directorate of ... Issues Involved:1. Whether the appellants contravened Section 26(7)(i) and 26(7)(ii) of FERA 1973.2. Whether the transaction in question was a 'loan' or 'advance.'3. Applicability of Section 26(7) of FERA to the transaction between two corporate entities.4. Liability of the directors under Section 68 of FERA.Detailed Analysis:1. Contravention of Section 26(7)(i) and 26(7)(ii) of FERA 1973:The appellants were penalized for allegedly violating Section 26(7)(i) and 26(7)(ii) of FERA 1973, which prohibit lending or depositing money with a firm or company having more than 40% non-resident interest without RBI's permission. The respondent argued that M/s. Hindustan Lever Ltd. (HLL) received advances from Lipton India Ltd. (LIL) without RBI's approval, constituting a violation.2. Nature of the Transaction - Loan or Advance:The appellants contended that the amount of Rs. 1038.44 lakhs transferred from LIL to HLL was an advance for meeting the operational expenses of manufacturing Vanaspati on behalf of LIL. They argued that the transaction was not a loan, as there was no absolute promise to repay the amount. The entry in the annual accounts and balance sheet of LIL described the amount under 'Loans and Advances,' with an explanatory note clarifying it as an advance for operational expenses.3. Applicability of Section 26(7) of FERA:The tribunal examined whether Section 26(7) of FERA applies to transactions between two corporate entities. The definition of 'person resident in India' under Section 2(p) of FERA was scrutinized. It was concluded that this definition pertains to individuals and not corporate entities. Therefore, the transaction between LIL and HLL, both corporate entities, does not fall under the purview of Section 26(7).4. Liability of Directors under Section 68 of FERA:The tribunal also addressed the penalties imposed on the directors of HLL. It was noted that specific factual averments regarding the directors' involvement and responsibility in the transaction were absent. The tribunal referenced several Supreme Court decisions, emphasizing that vicarious liability of directors cannot be presumed without specific allegations and evidence. Consequently, the penalties imposed on the directors were deemed unsustainable.Conclusion:The tribunal concluded that the transaction between LIL and HLL was an advance for operational expenses and not a loan. Since both entities are corporate bodies, Section 26(7) of FERA does not apply. Additionally, the penalties imposed on the directors were set aside due to the lack of specific allegations and evidence of their involvement. The appeals were allowed, and the penalties imposed by the Special Director were set aside. The appellants were entitled to receive the pre-deposit amount from the respondent within two months.
TaxTMI 