Guaranteed Rental Returns & Property Investment Returns - a Court case for Litigation

Guaranteed rental returns

You did not buy this property to live in. You bought it as an investment

The Developer/Property Manager enticed you to buy the property in consideration of Returns/Income/Profit every month, year or quarterly as the case may be.

Sometimes the property was not even built and hence you relied on the Representations of the Developer/Property Manager to invest into that property.

Together with the Sale and Purchase Agreement, you would have had to sign an Investment Agreement/Management Agreement/Tenancy Agreement which gives the Developer/Property Manager control to manage your property and thus,  giving you Returns to your investment.

The developer then used your purchase price to develop the property

Upon completion of Development, the Developer or property manager then starts the investment module which they, either in the form of a hotel or apartments for rent

Most of these properties had location going for them and hence you were further enticed into the investment.  The location would have been either a seaside or beach front or even the centre of a business triangle.

Your predicament commences at this juncture

Although the investment bring in money for the Developer or Property Manager, that money Does not trickle into your pocket

Whatsoever calculation which was provided for in the Tenancy agreement or the Management Agreement or Returns which were drawn up a percentage from the top or  gross or from the net were never forthcoming.

The developer failed to pay according to what they promised although they continue to receive a lucrative income from your investment!

And then as you gaze over at the greener pasture, you relook  at the Management Agreement or Tenancy Agreement to find out how exactly was the Developer/Property Manager stealing from the your Spoils of Investment

The situation has become more acute now as clearly with the Covid pandemic behind us in the Horizon and it's front of us as well at the horizon, there is little income actually coming in.

Whilst all this, you continue to pay for your financial investment to the bank or money's taken oout from your savings.  You consider and you ponder what to do with this investment

You have to proceed to sue for your Guaranteed Rental Returns including based on those representations which were made to tou you and how the developer had been skimming off the top.

The Difficult Developer runs for Cover under Judicial Management

You have to  proceed to liquidate the Developer/Property Manager and consider what to do with your investment collectively as a whole, together with all the other Investors and Owners

The Rules
1.  Proceed expeditiously and diligently
2. Gather has many owners and other investors as you can
3. Have in mind what you would like to do with the property if you decide to take it back.
4. Have a liquidator who will have something in mind for you to do with the property.
5. Do not let the property go abandoned
6. In that small window you may consider and injunction.
7. All the best

mvkumarvijay@gmail.com
Vijay Kumar
Mas Kumar

#guaranteedrentalreturns
#rentalreturns
#hotelinvestement
#propertyinvestment
#litigation
#courtaction
#rentalincome

Covid Negligence

Criminal Negligence but also Civil Negligence, if the claimant can prove that the perpetrators actions has resulted in consequential damage.  

https://www.nst.com.my/opinion/columnists/2020/08/615084/new-clusters-can-legal-action-be-taken-criminal-negligence

Country Rule of Law Index-Kaufmann

Country Rule of Law Index-Kaufmann et al. Year Afghanistan -1.61 2002 Albania -0.92 2002 Algeria -0.54 2002 Andorra 1.55 2002 Angola -1.56 2002 Antigua and Barbuda 1.02 2002 Argentina -0.73 2002 Armenia -0.44 2002 Australia 1.85 2002 Austria 1.91 2002 Azerbaijan -0.79 2002 Bahamas 1.34 2002 Bahrain 0.92 2002 Bangladesh -0.78 2002 Barbados 1.43 2002 Belarus -1.12 2002 Belgium 1.45 2002 Belize 0.05 2002 Benin -0.42 2002 Bermuda 1.28 2002 Bhutan 0.10 2002 Bolivia -0.60 2002 Bosnia and Herzegovina -0.88 2002 Botswana 0.72 2002 Brazil -0.30 2002 Brunei Darussalam 0.64 2002 Bulgaria 0.05 2002 Burkina Faso -0.55 2002 Burundi -1.49 2002 Cambodia -0.86 2002 Cameroon -1.28 2002 Canada 1.79 2002 Cape Verde 0.19 2002 Cayman Islands 1.55 2002 Central African Republic -0.88 2002 Chad -0.93 2002 Chile 1.30 2002 China -0.22 2002 Colombia -0.75 2002 Comoros -0.84 2002 Congo, Dem. Rep. -1.79 2002 Congo, Republic of the -1.22 2002 Costa Rica 0.67 2002 Cote d'Ivoire -1.21 2002 Croatia 0.11 2002 Cuba -0.94 2002 Cyprus 0.83 2002 Czech Republic 0.74 2002 Denmark 1.97 2002 Djibouti -0.51 2002 Dominica 0.67 2002 Dominican Republic -0.43 2002 East Timor -1.11 2002 Ecuador -0.60 2002 Egypt 0.09 2002 El Salvador -0.46 2002 Equatorial Guinea -1.19 2002 Eritrea -0.51 2002 Estonia 0.80 2002 Ethiopia -0.44 2002 Fiji -0.39 2002 Finland 1.99 2002 France 1.33 2002 French Guiana 1.02 2002 Gabon -0.27 2002 Gambia -0.50 2002 Georgia -1.17 2002 Germany 1.73 2002 Ghana -0.15 2002 Greece 0.79 2002 Grenada 0.28 2002 Guatemala -0.84 2002 Guinea -0.75 2002 Guinea-Bissau -1.00 2002 Guyana -0.43 2002 Haiti -1.76 2002 Honduras -0.79 2002 Hong Kong 1.30 2002 Hungary 0.90 2002 Iceland 2.00 2002 India 0.07 2002 Indonesia -0.80 2002 Iran -0.58 2002 Iraq -1.70 2002 Ireland 1.72 2002 Israel 0.97 2002 Italy 0.82 2002 Jamaica -0.38 2002 Japan 1.41 2002 Jordan 0.33 2002 Kazakhstan -0.90 2002 Kenya -1.04 2002 Kiribati -0.32 2002 Korea, Dem. Rep. -1.00 2002 Korea, Republic of 0.88 2002 Kuwait 0.81 2002 Kyrgyzstan -0.83 2002 Laos -1.05 2002 Latvia 0.46 2002 Lebanon -0.27 2002 Lesotho -0.01 2002 Liberia -1.42 2002 Libya -0.91 2002 Liechtenstein 1.55 2002 Lithuania 0.48 2002 Luxembourg 2.00 2002 Macau 0.75 2002 Macedonia -0.41 2002 Madagascar -0.19 2002 Malawi -0.34 2002 Malaysia 0.58 2002 Maldives 0.44 2002 Mali -0.54 2002 Malta 1.08 2002 Marshall Islands -0.32 2002 Mauritania -0.33 2002 Mauritius 0.89 2002 Mexico -0.22 2002 Micronesia -0.64 2002 Moldova -0.49 2002 Mongolia 0.36 2002 Morocco 0.11 2002 Mozambique -0.65 2002 Myanmar -1.62 2002 Namibia 0.45 2002 Nepal -0.50 2002 Netherlands 1.83 2002 New Zealand 1.91 2002 Nicaragua -0.63 2002 Niger -0.78 2002 Nigeria -1.35 2002 Norway 1.96 2002 Oman 0.83 2002 Pakistan -0.70 2002 Panama 0.00 2002 Papua New Guinea -0.82 2002 Paraguay -1.12 2002 Peru -0.44 2002 Philippines -0.50 2002 Poland 0.65 2002 Portugal 1.30 2002 Puerto Rico 1.15 2002 Qatar 0.84 2002 Romania -0.12 2002 Russian Federation -0.78 2002 Rwanda -1.01 2002 Saint Kitts and Nevis 0.33 2002 Saint Lucia 0.33 2002 Saint Vincent & the Grenadines 0.66 2002 Samoa 0.94 2002 Sao Tome and Principe -0.45 2002 Saudi Arabia 0.44 2002 Senegal -0.20 2002 Seychelles 0.52 2002 Sierra Leone -1.25 2002 Singapore 1.75 2002 Slovak Republic 0.40 2002 Slovenia 1.09 2002 Solomon Islands -0.64 2002 Somalia -2.05 2002 South Africa 0.19 2002 Spain 1.15 2002 Sri Lanka 0.23 2002 Sudan -1.36 2002 Suriname -0.33 2002 Swaziland -0.67 2002 Sweden 1.92 2002 Switzerland 2.03 2002 Syria -0.41 2002 Taiwan 0.95 2002 Tajikistan -1.27 2002 Tanzania -0.49 2002 Thailand 0.30 2002 Togo -0.67 2002 Tonga -0.64 2002 Trinidad and Tobago 0.34 2002 Tunisia 0.27 2002 Turkey 0.00 2002 Turkmenistan -1.16 2002 Uganda -0.84 2002 Ukraine -0.79 2002 United Arab Emirates 0.95 2002 United Kingdom 1.81 2002 United States 1.70 2002 Uruguay 0.56 2002 Uzbekistan -1.16 2002 Vanuatu -0.32 2002 Venezuela -1.04 2002 Viet Nam -0.39 2002 Yemen -1.23 2002 Yugoslavia -0.95 2002 Zambia -0.52 2002 Zimbabwe -1.33 2002

Criminal Defamation, Malice & Public Figures

Defamation is a statement, written or oral (libel or slader respectively) which is published (to a 3rd party) to lower one’s esteem in the estimation of the community/ right thinking members of the society. Criminal Defamation is where the state prosecutes the maker, unlike in civil cases where the victim sues the maker. Its orgin’s and purpose was to predominantly defend “political leaders” or protect the smooth running of “stately functions”. The criminalisation of defamation evinces the state’s/country’s interest in prosecting such act, thus the penal slant to it. Such charges are rare because of the ever expansion of freedom of expression thoughts/laws in many countries. In other word my right to say it outweights your right to retrain me from doing so. There are human rights organisation such as ARTICLE 19 with a specific mandate and focus on the defence and promotion of freedom of expression and freedom of information worldwide – “ We believe that all people have the right to freedom of expression and access to information, and that the full enjoyment of this right is the most potent force to achieve individual freedoms, strengthen democracy, and pre-empt repression, conflict, war and genocide”</em> But surely one’s right of expresions cannot extend to publishing what is untrue, particularly in the case of public figures. Thus, there is the defence of fair comment on a matter of public interest. In the American jurisdiction, there is its equivalent - the public figure doctrine. Publis Figures therefore can rely on this protection. The test is simply one that acknowledges the presence or absence of malice. In the absence of malice such statements must be published knowing it to be false or with reckless disregard to its truth, i.e. the term “actual malice” - New York Times Co. v. Sullivan, 376 U.S. 254 (1964) The primary Defence to Defamation is Justification in the British system or Truth in the American jurisdiction respectively. Other defences of public interest are, firstly Privilege, Absolute and Qualified, the former cannot be sued on in its entirety (e.g. a judge’s judgement, dicta) even with the presence of malice and the latter, statements made furtherence to public interest or duty can only be sued if there is a malicious intent. In English criminal law, mens rea , Latin for guilty mind, was considered in R v. Cunningham (1957) 2 AER 412 (1) an actual intention to do the particular kind of harm that in fact was done; or (2) recklessness as to whether such harm should occur or not (i.e. the accused has foreseen that the particular kind of harm might be done and yet has gone on to take the risk of it). Thus, consider the element of intent in something done recklessly. Therefore, if one makes a statement Recklessly, it could be said that such statement was made maliciously too. In this event, the Defence of Fair Comment, Privilege and Public Figure Doctrine cannot be applicable.... it all falls on the element of malice

INTERPRETATION OF TAX LAWS

INTERPRETATION OF TAX LAWS 72 FREQUENTLY ASKED QUESTIONS Research Team : K. Shivaram, S. S. Shetty, Arati Vissanji, Premchandra Tripati and Ajay Singh Advocates I. GENERAL RULES Q.1 What is ‘Interpretation of law’. Ans. According to Salmond ‘Interpretation or Construction’ means “the process by which the Courts seek to ascertain the meaning of the legislature through the medium of authoritative forms in which it is expressed.”. The main body of the law is to be found in statutes, together with the relevant statutory instruments and in case law as enunciated by Judges in the Courts. But the Judges not only have the duty of declaring the law, they are also frequently called upon to settle disputes as to the meaning of words or clauses in a statute. Statutes are normally drafted by legal experts who are experts in the particular branch of law of which the statute was to be a part. Although such persons are skilled in the law, due to the volume of legislation the statutes are often obscure and cryptic and we find courts and lawyers are busy in unfolding the meaning of ambiguous words and expressions in a statute. The age old process of application of the enacted law has led to formulation of certain rules of interpretation or construction. Q.2 What are the basic rules of Interpretation governing the taxing statutes in general? Ans. Rules of interpretation or canon of interpretation The first and the most elementary rule of construction is that it is to be assumed that the words and phrases of legislation are used in their technical meaning if they have acquired one, or otherwise in their ordinary meaning, and the second is that the phrases and sentences are to be construed according to the rules of grammar. The rule of construction is “to intend the legislature to have meant what they have actually expressed”. The object of all interpretation is to discover the intention of Parliament but the intention of Parliament must be deduced from the language used, for it is well accepted that the beliefs and assumptions of those who frame Acts of Parliament cannot make the law. When Parliament enacts law, the law must be understood with reference to the language used in the provision construed in the light of the scheme of the Act and object of the statute and the provisions therein. Where the plain literal expression of the statutory provision produces a manifestly unjust result, which could never have been intended by the legislature, the Court can modify the language to achieve the intention of the legislature and produce a rational construction. A) Literal rule If the language of the statute is clear and unambiguous, words must be understood in their plain meaning. The wordings of the Act must be construed according to its literal and grammatical meaning, whatever the result may be. There is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. ICAI vs. Price Waterhouse, (1997) 90 Comp. Case 113, 140, 141 (SC) State of West Bengal vs. Scene Seven P. Ltd. AIR 2000 SC 3089, 3094 Harbajan Singh vs. Press Council of India (2002) 3 SCC 722, 727 B) Intention of Legislature The intention of the legislature assimilates two aspects: a) In one aspect it carries the concept of “meaning’, i.e. what the words mean. b) In another aspect, it conveys, the concept of purpose and object or the reason and spirit pervading through the statute. The dominant purpose of construction of any statutory provision is to ascertain the intention of the legislature and the primary role is to ascertain the same by reference to the language used. The Supreme Court in Doypack Systems Pvt. Ltd. vs. UOI [1998 (2) SCC 299] laid down : “It has to be reiterated that the object of interpretation of a statute is to discover the intention of Parliament as expressed in the Act. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whole and in its context that intention, and therefore, the meaning of the statute, is primarily to be sought in the words used in the statute itself, which must, if they are plain and unambiguous be applied as they stand”. The object of all interpretation is to discover the intention of Parliament, but the intention of Parliament must be deduced from the language used.” “It is settled law that the expression used in a taxing statue would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention. It is equally settled law that, if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention.” CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC) Keshavji Ravji & Co. vs. CIT (1990) 183 ITR 1 (SC) K.P. Varghese vs. ITO (1981) 131 ITR 597 (SC) C) The mischief rule of interpretation (Heydon’s rule) A statute is to be construed so as to suppress the mischief in the law and advance the remedy. This was set out in Heydon’s case (1584) 3 Co. Rep. 7a. Under this rule the judge will look at the Act to see what was its purpose and what mischief in the common law it was designed to prevent. Broadly speaking, the rule means that where a statute has been passed to remedy a weakness in the law, the interpretation which will correct that weakness is the one to be adopted. CIT vs. Shahzada Nand & Sons. (1966 ) 60 ITR 392 (SC) Classic Builders & Developers vs. UOI (2001) 251 ITR 492, 497 (MP) Reckitt Colman of India Ltd. vs. ACIT (2001) 252 ITR 550 ( Cal .) D) Strict construction of penal law Remedial statutes are known as welfare, beneficial or social justice oriented legislations. Penal statutes, on the other hand, are those which provide for penalties for contravention of the law and are directed against the offender in relation to the state by making him liable to imprisonment, fine, forfeiture or other penalty. A remedial statute receives a liberal construction, whereas a penal statute is strictly construed. In case of remedial statutes the doubt is resolved in favour of the class of persons for whose benefit the statute is enacted; whereas in case of penal statutes the doubt is resolved in favour of the alleged offender. The principle applied in constructing a penal act is that if, in construing the relevant provisions, “there appears any reasonable doubt or ambiguity”, it will be resolved in favour of the person who would be liable to the penalty. If there are two reasonable constructions we must give the more lenient one. The court must always see that the person to be penalised comes fairly and squarely within the plain words of the enactment. It is not enough that what he has done comes substantially within the mischief aimed at by the statute. “The subject is not to be taxed without clear words for that purpose …..” CIT vs. Provident Inv. Co. Ltd. (1954) 32 ITR 190 (SC) J.K. Steel Ltd. vs. UOI AIR 1970 SC 1173 CIT vs. Indo Oceanic Shipping Co. Ltd. (2001) 247 ITR 247 (Bom) Hansraj & Sons vs. State of J & K (2002) 6 SCC 227, 237-39 E) The Golden Rule : Purposive interpretation This rule is to some extent an extension of the literal rule and under it the words of a statute will as far as possible be construed according to their ordinary, plain, and natural meaning, unless this leads to an absurd result. It is used by the courts where a statutory provision is capable of more than one literal meaning and leads the judge to select the one which avoids absurdity, or where a study of the statute as a whole reveals that the conclusion reached by applying the literal rule is contrary to the intention of Parliament. A construction which would defeat the very object of the legislature should be avoided. Keshavji Ravji & Co. vs. CIT (1990) 183 ITR 1 (SC) CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC) Vikrant Tyres Ltd vs. ITO (2001) 247 ITR 821, 826 (SC) F) Ejusdem generis rule Under this rule where general words follow particular words the general words are construed as being limited to persons or things within the class outlined by particular words. The words used together should be understood as deriving colour and sense from each other. They should be read together as one. The rule of ejusdem generis is to be applied “with caution” and “not pushed too far”. It may not be interpreted too narrowly or unnecessarily if broad based genus could be found so as to avoid cutting down words to dwarf size. — U.P. State Electricity Board vs. Hari Shanker Jain AIR 1979 SC 65 — Rohit Pulp & Paper Mills Ltd. vs. Collector of Central Excise AIR 1991 SC 754 G) Expressio unius est exclusio alterius The expression of the thing implies the exclusion of another. Q.3. What are the principles of natural justice? Ans. Principles of natural justice are soul of an administration of justice and needs to be adhered to in order to make the order just and fair. Natural justice is an important concept in administrative law. The doctrine of natural justice is a facet of fair play in action and if a statutory provision can be read consistent with the principles of natural justice, the court must and can do so as the legislature is presumed to intend to act in consonance with those principles. a) Nemo debet essejudex in propria causa No man shall be a judge in his own cause or the deciding authority must be impartial and without bias; and b) Audi alteram partem Hear the other side, or both the sides must be heard or no man should be condemned unheard or that there must be fairness on the part of the deciding authority. The above principle got acceptance in India by The Supreme Court in the case of A.K. Kraipak vs. UOI AIR 1970 SC 150 and Maneka Gandhi vs. UOI AIR 1978 SC 597. Q.4. Whether order passed in violation of principles of natural justice is void ab-initio? Ans. Any order made in violation of principles of natural justice is void and a nullity. Shreeram Durga Prasad [RB vs. Settlement Commission (1989) 176 ITR 169 (SC)] Nawaabkhan vs. State of Gujarat AIR 1974 SC 1471 “….. Any decision which is unfair and arbitrary fall foul of the principles of Article 14 of the Constitution of India which envelops within itself the requirement of fairness which, in turn, in these days is a requirement of the principles of natural justice. …” CWT vs. Jagdish Prasad Choudhary (1995) 211 ITR 472 ( Patna ) [F.B.] The principles of natural justice are so fundamental that it is not to be construed as a mere formality. Where the materials relied upon are not enclosed in a show cause notice, there is no sufficient opportunity. Appropriate Authority vs. Vijay Kumar Sharma (2001) 249 ITR 554 (SC) The right is so fundamental that the failure to observe the principles of natural justice cannot be made good in appeal. Lack of opportunity before the Assessing Officer cannot be rectified by the appellate authority by giving such opportunity. Tin Box Co. vs. CIT (2001) 249 ITR 216 (SC) Q.5 Whether irregularity in exercise of jurisdiction will render the order void. Ans. Jurisdiction is a matter, which is at the root of any valid proceedings. Valid service of a valid notice within time is the foundation of a valid assessment (a) Jurisdiction is not a matter of consent as held in the case of Sarita Jain vs. CIT (2003) 261 IR 499 (Del.) (b) Service of Notice is not a mere procedural requirement Upadhyaya (RK) vs. Shanabhai P. Patel (1987) 166 ITR 163 (SC) (c) Need for proper sanction prior to filing a prosecution case is a matter of jurisdiction Bohra (SA) ITO vs. Krishna Construction Co. (1998) 230 ITR 708 (Guj) (d) In CIT vs. Bharat Kumar Modi (2000) 246 ITR 693 (Bom). The court held that an irregularity in the exercise of jurisdiction cannot result in annulment of the entire assessment proceedings. The appellate authorities were justified in setting aside the assessment. Q.6. What is the theory of form and substance? Ans: In revenue matters, what is material is the substance of the transaction and not the form. The doctrine of substance over the form was cited with approval by House of Lords in the following cases: (a) Secretary of State in Council of India vs. Scobel (1903) 4 TC 618 (HL) (b) Duke of Westminster vs. IRC (1936) 19 TC 490 (HL) (c) IRC vs. Wesleyan General Assurance (1940) 30 TC 11 (HL) (d) Sir Kikabhai Premchand vs. CIT (1953) 24 ITR 506 (SC) (e) CIT vs. Kharwar (DM) (1969) 72 ITR 603 (SC) (f) Panipat Woollen & General Milks Co. Ltd. (1976) 103 ITR 66 (SC) Q.7 When two interpretations are possible, how should the court interpret the provision? Ans. Where a provision in a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted. CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192(SC). Chartered Housing Bhomka Finance Corpn vs. Appropriate Authority (2001) 250 ITR 1, 18 (Kar) CIT vs. A.J. Abraham Anthraper (2004) 268 ITR 417, 432 (Ker) Kapti Comm. Agency vs. State of U.P. (2004) 134 STC 436 448 452 (All) Q.8 What is the meaning of Doctrine of Territorial Nexus. Ans. Article 245(1) of the Constitution States “Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India and the legislature of a State may make laws for the whole or any part of the State. Article 245(2) states. No Law made by the Parliament shall be deemed to be invalid on the ground that it would have extra – territorial operation.”. Thus it makes clear that extra-territorial operation will not make a Parliamentary law invalid. State vs. Narayandas AIR 1958 Bom 68(FB). AIR 1955 SC 661 at 750. II. EXEMPTION – DEDUCTION Q.9 What is the general rule for interpretation of provisions relating to exemptions ? Ans. Provisions for deduction, exemption and relief should be interpreted liberally, reasonably and in favour of the assessee. CIT vs. South Arcot District Co-operative Marketing Society Ltd. (1989) 176 ITR 117 (SC), CIT vs. U.P. Co-operative Federation Ltd. (1989) 176 ITR 435 (SC), Bajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188 (SC) IV. PENALTIES Q.10 How to interpret the penalty provisions Ans. The rule of strict construction applies to penal provisions. Bhagwati Trading Co. vs. CIT (1977) 109 ITR 353 Ganesh Properties P. Ltd. vs. CIT (1993) 202 ITR 434 ( Cal ) In penal statutes if two possible and reasonable interpretation are possible the court must lean towards the construction which exempts the subject from penalty rather than one which imposes the penalty. B.K. Agarwal vs. State of Orissa AIR 1966 (SC) 2531 CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) V. OTHER ACTS, RULES, OPINIONS Q.11 Whether interpretation given in different statutes of direct taxes is applicable to other Acts? Ans. Where there are different statutes in pari materia though made at different times, they will be taken and construed together as one system and explanatory to one another. This principle applies with greater force in case of taxing statutes like Income-Tax, Gift Tax, Wealth Tax which bear intimate connection with one another (Verghese vs. CIT (1981) 131 ITR 597; C.I.T. vs. Ranga Pai (1975) 100 ITR 413) (Ker). Accordingly it has been held that rules of valuation prescribed under one Act have to be applied to valuation issues under other Acts (1983) 141 ITR 802 (Bom) and (1974) 96 ITR 87 (Mys) and (1985) 155 ITR 637. CWT vs. Imperial Tobacco Co. of India Ltd. (1966) 61 ITR 461 (SC) State of Assam vs. D. P. Barua (1970) 75 ITR 18 (SC). All Kerala C.A. Associations vs. Union of India (2002) 258 ITR 679 (Ker.) Nasiruddin vs. Sita Ram Agarwal (2003) 2 SCC 577, 585 Commissioners of Customs vs. Indian Oil Corpn. Ltd. (2004) 267 ITR 272, 277-78 (SC) But this principle need not apply to read special provisions of one Act into the provisions of another and vice versa ITO vs. Varghese K.P. (1973) 91 ITR 49 (Ker)(FB) Q.12. Whether opinion of Law minister is binding on Court? Ans. In Builders Association vs. Union of India (1994) 209 ITR 877 (SC) the court held that the opinion of law minister and reply of minister in Parliament regarding a taxing provision cannot be treated as binding on the Court. Q.13 Whether the reports of Select Committees, will be binding while interpreting the taxing statutes ? Ans. Reports of Commissions or Inquiry Committees preceding the introduction of a Bill have also been referred to for similar purpose, i.e. either as evidence of historical facts or of surrounding circumstances or of mischief or evil intended to be remedied. For example, reference was made to the Indian States Finance Enquiry Committee Reports in A. Thangal Kunju Musaliar vs. Venkatachalam Potti, AIR 1956 SC 246; 29 ITR 349 (S.C.); to the Income-tax Enquiry Report, in CIT vs. Sodra Devi (1957) 32 ITR 615 (S.C.) (AIR 1957 SC 832); to the Press Commission’s Reports, in Express Newspaper (Pvt) Ltd. vs. Union of India (AIR 1958 SC 578) and to the report of a committee appointed to bring about changes in Company Law resulting in the passing of amending Act No. 65 of 1960 in Madanlal Fakirchand Dudhediya vs. S. Changdeo Sugar Mills Ltd. (AIR 1962 SC 1543). And, reference to the report of the Expert Committee on Financial Provisions was made in Union of India vs. Harbhajan Singh Dhillon (1972 83 ITR 582 (S.C.); AIR 1972 SC 1061. In Gopalan’s case, reference was made to the report of the Drafting Committee of the Constituent Assembly in interpreting Article 21 of the Constitution. In India , reports of Select Committees or their chairmen can be studied to ascertain the meaning of an ambiguous provision. [S.P. Gupta vs. Union of India AIR 1982 SC 149 (para 313)]. Reports of the committee which preceded the enactment of the legislation, reports of Joint Parliamentary Committee, report of a commission set up for collecting information leading to the enactment are permissible aids to construction (R.S. Nayak vs. A.R. Antulay, (1984) 2 SCC 183). The question in CIT vs. P.K. Noorjahan (1997) 11 SCC 198; (1999) 237 ITR 570 (S.C.), was whether the word ‘may’ in section 69 of the Income Tax Act can be read as ‘shall’. The Supreme Court of India pointed out that in the Bill introduced in Parliament, the word ‘shall’ had been used, but during the consideration of the Bill and on the recommendation of the Select Committee, the word was substituted by the word ‘may’. It was held this clearly indicates the legislative intent and hence the word cannot be read as ‘shall’. Report of Commissions & Committees — taken into Consideration Haldiram Bhujiwala and another vs. Anandkumar Deepak Kumar & Anr. (2000) 3 SCC 250 Rosy and Another vs. State of Kerala and others. (2000) 2 SCC 230 Reports of a joint parliamentary committee, report of a commission set up for collecting information leading to the enactment are permissible external aids to construction. Nayak (RS) vs. Antulay (AR) AIR 1984 SC 684 Against – Asst. CIT vs. Velliappa Textiles Ltd (2003) 263 ITR 550, 560 (SC) Dissenting M.V. Javali vs. Mahajan Borwell (1998) 230 ITR 1 (SC) Q.14 Whether parliamentary debate can be considered for interpretation of taxing statute.?. Ans. In cases of ambiguity, the legislative debate ,which resulted in coming in to existence of the provision can be looked in to . S.P.Gupta vs. Union of India AIR 1982 SC 149. (para 313.) CIT vs. Mahindra & Mahindra Ltd (1983) 144 ITR225 1 (SC). Q.15. Whether the Finance Ministers Speech is relevant for interpretation a provision. Ans. In J.B. Boda &CO;vs. CBDT (1997) 223 ITR 271 (SC), the court held that the Finance Ministers speech is relevant for interpretation a provision. In Allied Motors (P)Ltd vs. CIT (1977) 224 ITR 677 (SC). ,the court held that the budget speech of the Finance minister and memorandum explaining the Finance Bill as also the Dept. circular showing the departmental understanding are relevant in construing the provision. Q.16. Whether budget speech of finance minister and memorandum explaining the provision, are relevant for interpretation? Ans. In Allied Motors (P) Ltd vs. CIT (1997) 224 ITR 677(SC), the court held that, finance ministers, speech, memorandum explaining the provisions are relevant in construing the provision. In Kumar J.C. Sinh Eileen AIR 1955 SC 515, the court held that the statement of object and reasons of an enactment cannot be used to ascertain true meaning and effect of statutory provision, but it can certainly be seen for limited purpose of understanding the background, antecedent state of affairs object of legislation. CIT vs. D’costa Brother (1963) 49 ITR 1 (Bom). CIT vs. Mahindra & Mahindra Ltd. (1983) 144 ITR 225(SC) Finance Minister’s Speech before Parliament can be relied on to throw light on object & purpose of provisions. Kerala State ID Corpn Lt d. vs. CIT 259 ITR 51 (SC) (2003) Sound-N-Music (BR) vs. Bhardwaj (OP) 1988 173 ITR 433 (Bom) Narisamha Rao (PV) vs. State CBI AIR, 1998 (SC) 2120 Q.17 What is the relevance of a meaning given in dictionaries and text books for interpretation? Ans. When a word is not defined in the statute a dictionary is often useful in ascertaining its meaning. Courts usually rely on standard dictionaries, such as Webster’s or the Oxford Dictionary. CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC) Q.18 When are the provisions of the General Clauses Act applicable to interpretation of taxing statutes. Ans. The General Clauses Act has been enacted to avoid superfluity and repetition of language in various enactments. The object of this Act is to shorten the language of Central Acts, to provide as far as possible, for uniformity of expression in the Central Acts, by giving definition of series of terms in common use, to state explicitly certain convenient rules for the construction and interpretation of the Central Acts, and to guard against slips and oversights by importing into every Act certain common form clauses, which otherwise ought to be inserted expressly in every Central Act. In other words, the General Clauses Act is a part of every Central Act and has to be read into each Act unless specifically excluded. Even in cases where the provisions of the Act do not apply, courts in the country have applied its principles keeping in mind the inconvenience that is likely to arise otherwise, particularly when the provisions made in the Act are based upon the principles of equity, justice and good conscience. State of Punj vs. Harnek Singh (2002) 3 SCC 481, 490 Q.19 When there are two special statutes, both containing non obstante clauses, which will prevail. Ans. Statute latter in time shall prevail. Maruti Udyog Ltd vs. Ram Lal (2005) 2 Supreme Court Cases 638. VI. PRECEDENTS Q.20. Whether circulars issued by CBDT are binding on the tax authority? Section 119 (1) of the Income-tax Act, 1961 specifically empower the CBDT to issue general instructions for the general administration of the Act and such instructions issued are binding on the officers of the Department. The only exception is that such instructions shall not be issued in a particular case nor shall it interfere with the exercise of judicial powers by the appellate authorities. As circulars of CBDT are binding on the authorities and if in spite of his attention being drawn to it, if an authority refuses to follow it, such orders could be set aside by the Appellate Authorities on the sole ground that the ITO was bound to follow the circular. In Navneetlal Zaveri vs. AAC (1965) (56 ITR 198) (SC) the Supreme Court laid down that the circulars are binding on the authorities, and they are bound to follow them. In both Navneetlal Zaveri and Ellerman Lines Ltd.’s case (1971) (82 ITR 913), even though the circulars were not strictly according to law, still the Supreme Court held that such circulars were binding. Contrary observations were made in State Bank of Travancore’s case (1986) (158 ITR 102). The contrary observations of Madras High Court have not been approved by the Supreme Court in UCO Bank vs. CIT (1999) 237 ITR 889 (SC). It has also been held that circulars bind the Department but not the assessee. It is open to an assessee to challenge its correctness before the Appellate Authorities. Commissioner of Custom vs. IOC Ltd. (2004) 267 ITR 272, 277 (SC) K. P. Verghesse vs. CIT (1981) 131 ITR 597 (SC) A Circular which does not specifically state that it is issued under sec. 119 has still to be treated as one so issued as held in UOI vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) Q.21 What is the binding effect of withdrawal of circular in the middle of the accounting year? If a circular was operative at the beginning of the relevant assessment year, its subsequent withdrawal has to be ignored, and for that relevant year the circulars should be given effect to [CIT vs. Edwards (1979) 119 ITR 335 (Ker) FB]. Unit Trust of India vs. Unny (PK) (2001) 249 ITR 612 (Bom) Q.22 Whether notification can Act retrospective.?. Ans. A notification cannot operate with retrospective effect, unless the statute expressly permits it. Cannaore Spg & Wvg Mills vs. Collector 1978 ELT 375 SC.. Q.23 Whether the decision of other High Courts are binding? Ans. In interpreting an all India statute, the decisions of other High Courts should ordinarily be followed, for sake of uniformity. Flexoplast Abrasive Ltd vs. Union of India 1980 ELT 513 (Bom). Ramanlal Amarnath (Agency) LTD vs. CIT (1973) 91 ITR 250 (Bom). UOI vs. Kamlakshi Finance Corpn Ltd. AIR 1992 SC 711, 712 CIT vs. G.M. Mittal Stainless Steel P. Ltd. (2003) 263 ITR 255, 258 (SC) Q.24 Whether English and American decisions are binding on Indian Courts ? Ans. In India we have adopted the common law system which pre vails in England , the United States , Australia etc and not the civil law system which prevails in continental Europe . Hence English and American decisions can be referred to, and on analogous provisions, fundamental concepts, and general principles unaffected by the specialities of the English or American tax statutes, such decisions are useful guides. (Nown Estates (P) Ltd. vs. CIT AIR 1977 SC 153 (para 6). The decisions relating to specific provisions are of little use, since the Indian tax laws are not in pari materia with those in foreign coun tries. (CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (SC) (117). Decision of the Privy Council rendered before 1950 would be binding upon the High Courts of India, unless, of course, there is a decisions to the contrary by the Supreme Court. Salzgitter Industries Bav GMBH vs. CIT (1990) 184 ITR 7 (Bom) Any decision of the House of lords (in UK ) likewise, only has persuasive values is entitled to respect CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) Q.25 What is the relevance of Opinions expressed by courts of other countries. Ans. Generally, opinions expressed by the courts of the countries of United States, Canada or Australia are not helpful in construing the collocation of legislative heads in the constitution of India, although they may be some relevance in determining the true character of particular legislation. (2005) 139 STC 537 (SC). Q.26 What are the general principles of precedent? Ans. In CIT vs. B. R. Constructions (1993) 202 ITR 222 (AP) (FB), the AP High Court has discussed in detail the general principles regarding the binding nature of precedent which reads: The effect of a binding precedent in India is that the decisions of the Supreme Court are binding on all the Courts. Article 141 of the Constitution embodies the rule of precedents. All the subordinate Courts are bound by the j udgements of the High Courts. A single Judge of a High Court is bound by the judgement of another single Judge and a fortiori judgements of Benches consisting of more Judges than one. So also, a Division Bench of a High Court is bound by the judgement of another Division Bench or a Full Bench. A single Judge or Benches of High Courts can not differ from the earlier judgements of co-ordinate jurisdiction merely because they hold a different view on the question of law for the reason that certainty and uniformity in the administration of justice is of paramount importance. But if the earlier judgement is erroneous or adherence to the rule of precedents results in manifest injustice, differing from an earlier judgement will be permissible. When a Division Bench differs from the judgement of another Division Bench, it has to refer the case to a Full Bench. A Single Judge cannot differ from a decision of a Division Bench except when that decision or a judgement relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. It may be noticed that a precedent will not be binding (i) if it is reversed or overruled by a higher Court; (ii) when it is affirmed or reversed on a different ground; (iii) when it is inconsistent with the earlier decisions of the same rank (iv) when it is subsilentio; and (v) when it is rendered per incuriam. A judgement can be said to be per incuriam if it is rendered in ignorance of the provisions of a statute or a rule having statutory force or a binding authority. But if the provision of the Act was noticed and considered before the conclusion was arrived at, merely on the ground that it has erroneously reached the conclusion, the judgement cannot be ignored as being per incuriam. The rule of per incuriam is of limited application.” A judgement can be said to be per incuriam if it is rendered in ignorance of the provisions of a statute or a rule having statutory force or a binding authority. But if the provision of the Act was noticed and considered before the conclusion was arrived at, merely on the ground that it has erroneously reached the conclusion, the judgement cannot be ignored as being per incuriam. The rule of per incuriam is of limited application. In Union of India vs. Raghubir Singh (1989) 178 ITR 548 (551-57) (SC), the Apex Court held that, the doctrine of binding precedent has merit of promoting certainty and consistency in judicial decisions and enables an organic development of law, besides providing assurance to an individual as to the consequence of transactions, forming part of his daily affairs. In Union of India vs. Dhanwanti Devi (1998) 6 SCC 44, 51-52, the Hon’ble Supreme Court held that a decision is an authority for what it decides. The essence of a decision is its ratio. The principle on which a question has been decided is alone binding precedent. Director of Income Tax vs. Paper Product Ltd. ( Del ) 257 ITR 1 (2002) Y.S.C. Babu vs. Charmanand Managing Director, Syndicate Bank (AP) 253 ITR 1 (2002) Agarwal Warehousing & Leasing Lt d. vs. CIT (MP) 257 ITR 235 (2002) Sayaji Iron & Engg. Co. vs. CIT (Guj) 253 ITR 749 (2002) Goodyear India Ltd. vs. State at Haryana (SC) 188 ITR 402 (1991) Baba Parasu Kaikadi vs. Babu (2004) 1 SCC 681 Q.27 What is Ratio decidendi? A decision is only an authority for what it actually decides and not for what may logically follow from it. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi [UOI vs. Dhanwanti Devi (1996) 6 SCC 44, 51-52] A case is a precedent and binding for what it explicitly decides and no more. The ratio decidendi is the underlying principle, namely, the general reason or the general ground upon which the decision is based on the test of abstract from the specific peculiarities of the particular case which gives rise to the decision. In the course of delivering a judgement the judge may make observations which are not relevant to the issue before the court. These observations may not strictly be relevant to the issue involved or may not be relevant for deciding the issue in question. These observations are known as ‘obiter dicta’. It is easy to describe what is ratio decidendi. But it is very difficult to trace the ratio in a judgement. Several tests are suggested for the purpose of deducing a ratio in a judgement. One of the tests which is supposed to be fairly workable is the test of reversal. As per this test one has to identify the proposition of law put forward in a judgement, reverse it and then see if the reversal would have altered the actual decision. If it alters the decision, then the proposition is the ratio of the decision; on other hand if the reversal does not affect the decision, then the proposition is not the ratio of the decision. In other words, the ratio is the general rule without which the case would have been decided otherwise. This test however is not helpful when no proposition of law is given in support of the decision, nor it is very helpful where a court gives several reasons for its decision logically in such cases it may follow that the first reason is ratio and other reasons are obiter. Where a case has been argued on several points, the judge may decide on one of the propositions of law and merely indicate his views on the remaining points. The proposition of law which was material to decide the case shall constitute ratio. However, where the judge declares that he is deciding the case on more than one ground, then each proposition on which he bases his decision will qualify as a ratio. Thus, to be the ratio decidendi amongst others the minimum requirements are: (1) that the matter was directly in issue; (2) that the issue needs to have been decided; and (3) the matter has been decided by giving reasons [Industrial Credit & Investment Corporation of India Ltd. vs. Dahanesh D. Ruparelia (2000) 99 Comp. Case 181, 185 (Bom). UOI vs. Chajju Ram (2003) 5 SCC 568, 576 Q.28 To what extent would a judgment of the Supreme Court constitute a binding precedent? Ans. Article 141 of the Constitution of India provides that the law declared by the Supreme Court shall be binding on all courts within the territory of India . Thus the law as interpreted by the Supreme Court is binding on all Courts and Tribunals in India CGT vs. Aluminium Corporation of India Ltd. (1972) 85 ITR 167, 172 (SC). The decision of the Supreme Court in taxation matters amounts to a declaration of law as contemplated by Article 141 of the Constitution of India. Karamchand Premchand Pvt. Ltd. vs. CIT (1975) 101 ITR 46, 52 (Guj.). The High Court cannot ignore a decision of Supreme Court on the ground that the relevant provision was not brought to the notice of the Supreme Court, Badlachandas Mathurdas Lukhani Municipal Committee AIR 1970 SC 1002. Tata Iron & Steel Co. Ltd. vs. D.V. Bapat ITO (1975) 101 ITR 292, 327 (Bom). The Tribunal is bound to follow the principle of law laid down by the Supreme Court. It is not open to the Tribunal to say that the Supreme Court decision was not relevant simply because, it was not under the statute under which the Tribunal is working. Bhavnagar University vs. Palitana Sugar Mill Pvt. Ltd. AIR 2003 SC 511. Ratio is Binding AIR 2002 SC 1598, AIR 2002 SC 834. CIT vs. Vallabhdas Vithaldas & Others (2002) 253 ITR 543 (Guj.) The view expressed by the Supreme Court is an authority on the subject provided the facts and situation is identical. The Supreme Court in State of West Bengal vs. Kesoram Industries Ltd. (2004) 266 I.T.R. 721 (SC) corrected inadvertent error in India cement Ltd. vs. State of Tamil Nadu (1990) 1 SCC 12 on the aspect of ‘Royalty is not tax after 14 years.’ Deys Medical Stores Ltd. vs. Commissioner of Trade Tax (2004) 134 SC 1, 8, 9 (All) U.P. Pollution Board and others vs. Kaneria Industrial Limited & others 259 ITR 321 (SC) Delhi Administration vs. Manoharlal (2002) 7 SCC 222, 227 Q.29 Whether rejection of SLP can be considered as an order of Supreme Court? What is the binding effect? Ans. A mere dismissal of SLP does not mean that the judgement of the High Court stands affirmed by the Supreme Court. The effect of a dismissal is that no appeal was permitted and not that an appeal against the said judgement was dismissed by the Supreme Court affirming the view of the High Court. J. K. Charitable Trust vs. WTO (1996) 222 ITR 523 (All.) Rejection of SLP does not mean that the judgement of High Court has been approved by the Supreme Court on merit. CIT vs. Quality (1997) 224 ITR 77 (Pat.) Smt. Tej Kumari vs. CIT (2001) 247 ITR 210 ( Patna ) (FB) V.M. Salgaonkar vs. CIT (2004) 243 ITR 383 (SC) Kunhayammed vs. State of Kerala (2000) 245 ITR 360 (SC) Q.30 Whether appeal dismissed by the Supreme Court is binding on the Tribunal though the order may not be speaking? Ans. Where a decision of the Supreme Court is virtually a non speaking order which does not set out the facts or the reason for the conclusion or direction given, it cannot be treated as a binding precedent. Government of India vs. Workmen of State Trading Corporation (1997) 11 SCC 641. State of Manipur vs. Thinjujam Brojen Muti AIR 1996 SC 2124. Ajith Kumar Rath vs. State of Orissa AIR 2000 SC 85. Kanhayamal vs. State of Kerala (2000) 245 ITR 360 (SC) Q.31 Whether a judgement of the Supreme Court is retrospective or prospective? Ans. Law is settled by the Supreme Court. Law laid down by Supreme Court is the law in existence since its enactment. It is retrospective in operation. Such law is from inception unless and until spelt as prospective by the Supreme Court. All Courts, Tribunals, authorities and citizens are bound to follow the diction laid by the Supreme Court or else shall be liable to contempt. M. A. Murthy vs. State of Karnataka and Others (2003) 264 ITR 1 (SC), Kil Kotagiri Tea and Coffee Estate Co. Ltd. vs. ITAT (1988) 174 ITR 579 (Ker.) CESC Ltd. vs. Dy. CIT (2004) 270 ITR 383, 387 ( Cal .) Q.32 When there are two judgements of the Supreme Court, which are contrary to each other, which judgement should the Tribunal follow? Is obiter dicta of the Supreme Court binding on the Tribunal? Ans. Article 141 of the Constitution prescribes that judgements of the Supreme Court are binding on all Courts and based on the rule of precedent the latest judgement is to be followed as that is the last word spoken by the Apex Court . The Supreme Court sits in Division Bench of two or three Judges. In Jawed Ahmad‘s case the Supreme Court observed that it may be inappropriate for a Division Bench of three Judges to purport to overrule the decision of Division Bench of two judges, although it may be otherwise where a Full Bench or a Constitution Bench does so. Obiter dicta of the Supreme Court is binding on the Tribunal. The Full Bench of the Andhra Pradesh High Court in Ushodaya Enterprises Ltd. vs. Commissioner of Commercial Taxes (1993) 111 STC 711 observed “ In a case of conflict arising from the decisions of co-equal Benches of the Supreme Court, the High Court is free to disregard the decision which is based on an obvious mistake of fact or the one which purports to follow the ratio of an earlier decision though such ratio is found to be non-existent. The High Court can legitimately decline to follow such decision and follow the earlier decision which is backed by reasoning – whether it is accepted to the High Court or not, and which is free from an such apparent flaw. The later decision need not be automatically followed despite the fact that it rests on a conclusion based on an erroneous impression that an earlier decision took a particular view which in fact it has not taken.” In our view the same principle may be followed by the Tribunal. Delhi Development Authority vs. Ashok Kumar Behal, (2002) 7 SCC 135, 141 Divisional Controller vs. Mohadeva Shetty, AIR 2003 SC 4172, 4178 Q.33 What is the binding nature of the decision of High Courts? Ans. As per the doctrine of precedent, all lower courts, Tribunals and authorities exercising judicial or quasi-judicial functions are bound by the decisions of the High Court within whose territorial jurisdiction these courts, Tribunals and authorities function. In CIT vs. Kantilal Nathuchand (1964) 53 ITR 420 (Guj.), the Court doubted, but followed for the sake of uniformity among the High Courts the judgement of another High Court in the matter of interpretation of the Income-tax Act. Also refer CIT vs. Chimanlal J. Dalal & Co. (1965) 57 ITR 285 (Bom). Tribunals functioning within the jurisdiction of a particular High Court are bound to follow the decision of the jurisdiction High Court — State of AP vs. Commercial Tax Officer (1988) 169 ITR 564 (AP); Air Conditioning Specialists Pvt. Ltd. vs. Union of India (1996) 221 ITR 739 (Guj). The Assessing Officer is bound to follow the decision of Supreme Court as also the decision of High Court of the State within whose jurisdiction he is functioning — K. Subramanian, ITO vs. Siemens India Ltd. (1985) 156 ITR 11 (Bom). The order of the Tribunal not applying the decision of jurisdictional High Court was held to be erroneous — Shri Mahabir Industries vs. CIT (1996) 220 ITR 459 (Guwahati). Not following the decision of the High Court within whose jurisdiction the ITO acts, would tantamount to committing contempt of that court — Siemens India Ltd. vs. K. Subramaniam (ITO) (1983) 143 ITR 120 (Bom.). The decision of a High Court does not have binding force outside the State. Dr. T. P. Kapadia vs. CIT (1973) 87 ITR 511 (Mys.). CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom.), Geoffrey Manners & Co. Ltd. vs. CIT (1996) 221 ITR 695 (Bom.), CIT vs. Vardhman Spinning (1997) 226 ITR 296 (P&H), N. R. Paper and Board Ltd. & Others vs. DCIT (1998) 234 ITR 733 (Guj.). No reference can be made on a question of law which is settled by a decision of the jurisdictional High Court. CIT vs. HIM Containers Ltd. (1995) 216 ITR 674 (Guwahati) Kiersentec vs. CIT 11 Taxman 70 (Bom.) (1982), CIT vs. G.M. Mittal Stainless Steel P. Ltd. (2003) 263 ITR 255, 258 (SC) , R.D. Joshi & Co. vs. CIT (2001) 251 ITR 332 (MP), Nicco Corpn. Ltd. vs CIT (2001) 251 ITR 791 (Cal.) The decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside the territorial jurisdiction. The fact that there is only one decision of any one High Court on a particular point or that of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or any other subordinate courts or Tribunals outside their jurisdiction. That status is reserved only for the decisions of the Supreme Court, which are binding on all courts in the country by virtue of Article 141 of the Constitution. Consolidated Pneumatic Tool Co. (India) Ltd. vs. CIT (1994) 209 ITR 277, 282 (Bom), Universal Ferro & Allied Chemicals Ltd. vs. P.G.K. Warrier (1983) 143 ITR 959 (Bom.). In CIT vs. G. Dalabhai & Co. (1997) 226 ITR 922 (Guj), it was observed “Before parting with the case, we notice with anguish the language used by the Income Tax Officer in his assessment order saying that ‘With due respect to the decision of the Gujarat High Court, I do not follow the same’. The Income Tax Officer in not following the decision of the Gujarat High Court within whose supervisory territory he was functioning, is far from satisfactory, that is the least we can say. The minimum decorum of the system of hierarchy that Tribunals in the administration of justice and their Judicial subordination to the High Court of the territory in which they function requires that they restrain in the use of proper expression while following or not following the decision of the High Court”. Agrawal Werehousing and Leasing Ltd. vs. CIT (2002) 257 ITR 235 (MP) Q.34 When there are two judgements of the jurisdictional High Court, which are contrary to each other and the latter judgement is delivered without referring to the earlier judgement, which judgement should the Tribunal follow? Ans. It is clear that when there are conflicting judgements of the jurisdictional High Court, normally the latter judgement would prevail provided it has referred to the earlier decision and distinguished the same. However, if the earlier judgement is not referred to at all, and there are two conflicting judgements, it is open to the Tribunal to follow that judgement, the reasoning of which appeals to the Tribunal. Since both the jurisdictional High Court judgement are binding the Tribunal has to prefer one or the other judgment and in such a case it can prefer either of the two judgments. Amarsingh Yadav vs. Santi Devi AIR (1987) Patna 191 and CIT vs. Madhukant M. Mehta (1981) 132 ITR 159 (Guj). Yogiraj Charity Trust vs. CIT (1984) 149 ITR 7, 17, ( Del ). Q.35 When there are two judgements of the jurisdictional High Court which are contrary to each other which will be binding on Income Tax Appellate Tribunal? Ans. The later judgement shall be of binding on the Tribunal. When there are conflictory decisions of Courts of Co-ordinate Jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decision. CIT vs. Thomas Electricity Suppliers Ltd. (1994) 206 ITR 737 (Bom.) (738). Q.36 What is the precedent value of orders passed by different Benches of Tribunal? Ans. A decision of a Division Bench and Third Member Bench is binding on the Single Member Bench. A decision of a Special Bench is binding on all the Benches of the Tribunal. A decision of the Special Bench can be distinguished or disregarded if there is any contrary view of the jurisdictional High Court or of the Supreme Court. A co-ordinate Bench should follow the view of another co-ordinate Bench or else refer the matter to a larger Bench through the President. S. I. Roopal and Others vs. Government through Chief Secretary, Delhi & Others AIR 2000 SC 594, Union of India vs. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC), Pradip Chandra Parija vs. Pramod Chandra Patniak (2002) 254 ITR 99 (SC), Agrawal Warehousing and Leasing Ltd. vs. CIT (2002) 257 ITR 235 (MP), CIT vs. L. G. Ramamurthi & Others (1977) 110 ITR 453 (Mad.), Export House vs. ITO (1985) 23 TTJ 285 (Amritsar), Chandulal Venichand vs. ITO (1991) 38 ITD 138 (Ahd.) Q.37 Whether one Bench of the Tribunal is bound to follow the order of another Bench? Ans. For the sake of uniformity, one Bench of the Tribunal is bound to follow the view expressed by another Bench of the Tribunal unless the earlier view is per-incurium — CIT vs. L. G. Ramamurthi (1977) 110 ITR 453 (Mad), CIT vs. S. Devaraj (1969) 73 ITR 1 (Mad). Modu Timblo (Individual) vs. CIT (1994) 206 ITR 647(Bom.) – Union of India vs. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC), Pradip Chandra Parija vs. Pramod Chandra Patnaik (2002) 254 ITR 99 (SC), Agrawal Warehousing & Leasing Ltd. vs. CIT (2002) 257 ITR 235 (M.P.), The Bench should not come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal. Where a Bench wants to differ from an earlier Bench decision, the matter should be referred to a larger Bench on a request made to the President — CIT vs. Goodlass Nerolac Paints Ltd.. (1991) 188 ITR 1 (5) (Bom). Sayaji Iron and Engineering Co. vs. CIT (2002) 253 ITR 749 (Guj.), Sis Ram Sharma & Co. vs. ITO (1988) 25 ITD 410 (Delhi) (TM), Subarna Plantation & Trading Co. Ltd. vs. ITO (1989) 28 ITD 177 (Cal.), Longwalia Poultry Farm vs. Dy. CIT (1998) 67 ITD 45 (Chan.) (TM), Birumal Gaurishankar Jain vs. Income Tax Settlement Commission (1992) 195 ITR 792 (ITSC) (SB), Union of India vs. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722, 726, 727 (SC), Sub. Inspector Rooplal & Another vs. Lt. Governor, New Delhi & Others (2000) 1 SCC 644, 654 (SC), Dy. CIT vs. Reliance Industries Ltd. (2004) 88 ITD 273 (Mum) (SB). Q.38 Whether the decision of Tribunal is binding on lower authorities? Ans. Judicial discipline demands that authorities subordinate to the Tribunal accept as binding the decisions of the Tribunal. In Khalid Automobiles vs. Union of India (1995) 4 SCC (Suppl.) 653, the Court held that an order of the Tribunal was binding on the assessing officer and the first appellate authority and that failure to follow the same may constitute contempt of Tribunal’s order. See Rajendra Mills Ltd. vs. Jt. CIT (1971) 28 STC 483 (Mad.), Serethil Raja Metal vs. CTO (1990) 79 STC 38 (Mad.) and Union of India vs. Kamlakshi Finance Corporation Ltd. AIR 1992 SCC 711, 712 (SC). In Voest Alpine Ind. GmbH vs. ITO (2000) 246 ITR 745, (749) (Cal.), the Court condemned the action of assessing officer in making an assessment contrary to the decision of the Tribunal which had become final. Also see Bank of Baroda vs. H. C. Shrivatsava & Another (2002) 256 ITR 385 (390) (Bom.), Asstt. CCE vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC), Govindram Seksaria Charity Trust vs. ITO (1987) 168 ITR 387 (MP), Agarwal Warehousing & Leasing Ltd. vs. CIT (2002) 257 ITR 235 (MP), C. D. Thandani ITO vs. Universal Ferro & Allied Chemicals Ltd. (1988) 172 ITR 30 (Bom.) Q.39 Is CIT(A) bound to follow the decision of the Tribunal? Ans. Yes. CIT(A) being subordinate to the Tribunal is bound to follow the view of the Tribunal. Agrawal Warehousing and Leasing Ltd. vs. CIT (2002) 257 ITR 235 (MP) Q.40 When there is a special bench decision and after the decision of Special Bench a High Court other than jurisdictional High Court has taken a contrary view whether Tribunal has to follow Special Bench or High Court. Ans. High Court decision does not extend beyond its territorial jurisdiction. CIT vs. Thana Electricity Supply Ltd 206 ITR 727 (Bom) Q.41 Whether Third member decision is binding on division bench. Ans. Third member decision is a decision of full bench because Three Judges have applied their mind. P.C. Puri vs. CIT (1985) 151 ITR 584 ( Del ) Q.42 When there are two orders of Tribunal, which one has to be followed. Ans. Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. CIT vs. Thana Electricity Supply Ltd (1994) 206 ITR 727 (Bom) Q.43 When there are two orders of tribunal one of Mumbai Bench against the assessee and the other of Ahmedabad Bench in favour of assessee, which order is binding on the Mumbai Bench. Ans. If the Ahmedabad Tribunal decided the matter in favour of assessee, after considering the Mumbai Tribunal. The order of Ahmedabad Tribunal required to be followed or otherwise? The matter may be referred to special Bench. CIT vs. L.G. Ramamurthi & Others (1977) 110 ITR 453 (Mad), Pradeep Chandra Parija and others vs. Pramod Chandra Patnaik & Others. (2002) 254 ITR 99 (SC) VII. DOUBLE TAXATION AGREEMENTS CONVENTION Q.44. What is the binding effect of treaties? Ans. liberal interpretation of the agreement and the treaty will override t he provisions of domestic law has been accepted by the Apex Court . Circular No. 333, dated 2-4-1982 (1982) 137 ITR ( St. ) 1 Provisions of treaty will prevail over provisions of I. T. Act. UOI vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) Q.45. What is the binding effect of types of international instruments, such as, Convention, Protocol, Agreement, Arrangement, Declaration? Ans. International conventions cannot override express provisions of statute. Peoples union for civil Liberties v Union of India (2005) AIR 2419(SC) VIII. GENERAL Q.46 When orders passed by the taxing authorities are neither speaking nor reasoned, can it be challenged? Ans. An order should be speaking, should contain detailed recording of evidence for and against, explanation of both sides, arguments raised by both sides and the reasons for arriving at a particular view. A reasoned and speaking order is bedrock of justice whether or not an appeal or revision lies against it. The Supreme Court in Siemens Engineering & Manufacturing Co. vs. UOI, AIR 1976 SC 1785 stated:— “It is now well settled law that where an authority makes an order in exercise of a quasi judicial function, it must record its reasons in support of the order it makes and the order must be supported by reasons. The Supreme Court in S. N. Mukherjee vs. UOI, AIR 1990 (SC). The Supreme Court in State of West Bengal vs. Atul Krishna Shaw, 1990 SC 2205 stated “giving of reasons is an essential element of administration of justice. A right to reason is, therefore, an indispensable part of sound system of judicial review. Reasoned decision is not only for the purpose of showing that the citizen is receiving justice but also a valid discipline for the Tribunal itself. Therefore, statement of reasons is one of the essentials of justice.” It stated that the order should be a speaking order. The Supreme Court in Kishan Lal vs. UOI observed that even though in section 220(2A) of the IT Act, it is not stated that any reasons are to be recorded in the order deciding such an application, it is implicit in the said provision that whenever such an application is filed the same should be decided by a speaking order. The principles of natural justice in this regard would be clearly applicable. A decision which is taken by the authority under section 220 (2A) can be subjected to judicial review, by filing a petition under Article 226 of the Constitution. This being so and where the decision of the application may have repercussion with regard to the amount on interest which an assessee is required to pay, it would be imperative that some reasons are given by the authority while disposing of the application. The matter was restored to the file of the Chief Commissioner to decide in accordance with law. Anusayaben A. Doshi vs. JCIT (2002) 256 ITR 685, 686 (Bom) UOI vs. GTC Inds. Ltd. (2003) 5 SCC 106, 112 Q.47 High Court deciding the case without considering the Judgement of Supreme Court, which judgement, the tribunal has to follow Ans. Article 41 of the Constitution of India - ‘The Law declared by the SC shall be binding on all courts – within the territory of India ’. Once there is pronouncement of the highest court of land, same is binding on all courts tribunals and all authorities in view of this article. Tribunal must follow the decision of Supreme Court. Q.48 Can revenue take conflicting stands? Ans. The revenue cannot take conflicting stands. It has got the assistance of technical persons and should be consistent. It cannot discriminate between the assessees. Seshasayee Paper and Boards Ltd. vs. CIT (2003) 260 ITR 419 (Mad.), Union of India vs. Kaumudini Narayan Dalal (2001) 249 ITR 219 (SC), Berger Painters vs. CIT (2004) 266 ITR 99 (SC), Union of India vs. Satish Panalal Shah (2001) 249 ITR 221 (SC). Q.49 What is the rule of interpretation of documents/ agreements? Ans. It is the duty of Court to interpret a document of contract as was understood between the parties. The terms of the contract have to be construed strictly without attending the nature of the contract as it may affect the interest of parties adversely (2005) 123 Companies Cases 663 (SC) Polymat India Ltd. and others vs. National Insurance Co. Ltd. Q.50 How to interpret the delay in filing of appeal? Ans. The Supreme Court in Collector of Land Acquisition vs. Mrs. Katiji & Others (1987) 167 ITR 471, has held that the Court should have a pragmatic and liberal approach. The Hon’ble Supreme Court in N. Balakrishnan vs. M. Krishnamurthy (1998) 7 SCC 123 condoned delay of 883 days and has observed that condonation of delay is a matter of discretion of the court. Section 5 of the Limitation Act does not provide discretion only in the cases of delay within a certain limit. The only criterion is the acceptability of explanation irrespective of the length of delay. The primary function of the court, being the adjudication of the disputes between the parties and to advance substantial justice, it is not enough to turn down the plea of the litigant and to shut the door against him for some lapse on his part which has caused the delay. If theaost consideration to the suitor. The Supreme Court in Vedabai vs. Shantaram Baburao Patil & another (2002) 125 S.T.C. 375 observed that the Court has to exercise its discretion, keeping in mind that the principle of advancing justice is of prime importance and the expression “sufficient cause” should receive a liberal construction. The approach of Courts should be pragmatic so as to impart substantial justice and substantial Justice. Collector land acquisition vs. MST, Katiji and Others (1987) 167 ITR 471 (SC) Q.51 Whether mistake of Lawyer or Accountant Ans. Wrong legal advice given or other mistake made by the assessee’s lawyer or chartered accountant may constitute good reason or sufficient cause for condoning delay in filing an appeal or an application or a writ or for not imposing penalty, or for setting aside an ex parte order passed on non appearance of a party. Ordinarily, a case should not be dismissed for failure of the lawyer to appear at the hearing. Concord of India Ins. Co. Ltd Vs. Nirmaladevi & Ors (1979) 118 ITR 507 (SC); Manoj Ahuja and Anr. vs. IAC (1984) 150 ITR 696 (P & H); IAC vs. Kedarnath Jhunjhunwala (1981) 133 ITR 746, 755 (Pat); Arun S. Meher vs. M.A. Twigg (1984) 153 ITR 131 (Bom); Avtar Krishandas vs. CIT (1979) 133 ITR 338 (Del);CIT vs. Khemraj Ramshmichand (1976) 114 ITR 75 (MP); Subhkaran & Sons vs. N.A. Kazi (1984) 152 ITR 231 (Bom); Kwality Restaurant & Ice Cream Co. vs. CIT (1984) 158 ITR 188 (Del); CIT vs. India Capacitors Ltd (1987) 180 ITR 641 (Cal); Ganesh, Dass Ram Gopal vs. IAC (1982) 142 ITR 101 (Allah) Q.52 How to interpret sections dealing with procedure? Ans. There is no vested right in procedure or as to cost. Enactments dealing with this subject apply to pending action, unless a contrary intention is expressed or clearly implied. The Hon’ble Supreme Court the case of Shreenath vs. Rajesh (AIR 1998 SC 1827) noted as under: “In interpreting any procedural law, where more than one interpretation is possible, the one which curtails the procedure without eluding justice is to be adopted. The procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. “ K.M. Sharma vs. ITO (2002) 254 ITR 772, 779 - 80 (SC) Haresh Dayaram Thakur vs. State of Maharashtra (2000) 6 SCC 179, 187 Q.53 How to interpret sections dealing with limitation? Ans. Limitation law has to be liberally construed (Collector Land Acquisition vs. Mst. Katiji (1987) 167 ITR 471 (SC); Premchand Bansal & Sons vs. ITO (1999) 237 ITR 65 (Del), Seshammal (R) vs. ITO (1999) 237 ITR 185 (Mad.), Concord of India Insurance Co. Ltd. vs. Nirmala Devi (1979) 118 ITR 507 (SC) followed in Avtar Krishnan Das vs. CIT (1982) 133 ITR 338 (Del.) In CST vs. Auraiya Chamber of Commerce, (1987) 167 ITR 458 (SC); the Supreme Court directed admission of delayed claim for refund on the ground that “in interpreting relevant procedural provisions, fairness and justice should be the approach, and even in fiscal statute, equity should prevail wherever language permits”. Q.54 When AO followed the order of Tribunal can CIT, review the order of AO, on the ground that, there is contrary judgement of Courts ? Ans. An order passed by ITO following the decision of the tribunal can not be held to be erroneous & prejudicial of the interest of the revenue. Kiran Agencies vs. ITO (1983) 15 TTJ 460 (Nag) Indures (P) Ltd. vs. IAC (1991) 38 ITD 635 Del. Q. 55 Whether finding of settlement Commission is binding on tribunal. Ans. Settlement Commission is a Tribunal and not court The Finding given by the Tribunal is not binding on the Income Tax Appellate Tribunal Similarly the order of the Income tax Appellate Tribunal will not have binding effect on the Settlement Commission. Order of Settlement Commission and Tribunal will have persuasive value. CIT vs. B.N. Bhattacharya (1979) 118 ITR 461 (SC). VII. LEGAL MAXIMS - PRINCIPLES Q.56 . Whether interpretation of penal provisions should be construed strictly? Ans. The penal provisions must be construed strictly. CIT vs. Sundaram Iyengar & Sons (P) Ltd (1975) 101 ITR 764 (SC) ITO vs. Kaysons India (2000) 246 ITR 489 (P & H) However the penal provision giving benefit to a assessee such as section 273A has to be construed liberally. Handa (RP) vs. ITO (1992) 198 ITR 54 (P & H) Q.57 What is the binding effect of orders of authority for advance rulings? Ans. The Act has made the ruling binding in the case of one transaction only and the parties involved in that case in respect of that transaction. For other transactions and for other parties the ruling will be of persuasive nature. Advance ruling are judgments in personam and not in rem. Cyril Engg. Pereira , In re (1999) 239 ITR 650 ( AAR ) Union of India vs. Azadi Bachao Andolan (2003) 263 ITR 706 at 742(SC) In Dy. CIT vs. Biston Consulting Group Pvt. Ltd. (2005) 93 TTJ 293 (Bom.), the Tribunal held that the Ruling of given by the Authority for Advance Rulings are not certainly not binding precedents on the Tribunal. Q.58. How to interpret statutes relating to appeals? Ans. A right of appeal is the creation of the statute and an assessee has a right of appeal only if there is a statutory provision for it CIT vs. Ashok Engg. (1992) 194 IRR 645 (SC). But a provision for appeal should be liberally construed and should be read in a reasonable and practical manner CIT vs. T.V. Sundaram (1999) 236 ITR 524 (Mad.). It is always desirable not to place, a restricted meaning to such a provision and take away the right of appeal provided to a party. DCIT vs. Shanthabaram (2003) 260 ITR 156 (Kar.) Q.59. What is the rule for lifting the corporate veil? Ans. A company is a legal personality entirely distinct from it’s members and a company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But, in certain exceptional cases, the court is entitled to lift the corporate veil and to pay regard to the economic realities behind the legal facade. (Jindal (MD) vs. CIT (1987) 164 ITR 28 ( Cal ). The doctrine of lifting of corporate veil has been invoked in the following cases ; (a) where a corporate entity is attempted to use for fraudulent purpose PNB Finance Ltd. vs. Shital Prasad Jain (1983) 54 Comp Case 66 (Del.) (b) To willfully disobey the courts order Jyoti Ltd vs. Kanwalji Kaur Bhasin (1987) 62 Comp Cases 626 (Del.) (c) To frustrate sales tax or capital gains tax liability – Trackways (P) Ltd. vs. CST (1981) 47 STC 407 (MP), Wood Polymer Ltd. In re (1977) 109 ITR 177 Guj. To deprive workman of the legitimate bonus – Workmen of Associated Rubber Inds. Ltd. vs. Associated Rubber Inds. Ltd. (1986) 157 ITR 77 (SC) Q.60 How to interprete the law relating to Refunds. Ans. Provisions giving refund must be interpreted liberally in favour of the assessee Calcutta Electric Supply Corporation (Indian) Ltd. vs. ITO (1992) 197 ITR 563 (Cal.) Q.61 In case of two contradictory decisions, which decision to be followed ? Ans. If there are two apparently contradictory decisions, decision of larger bench to be followed. CIT vs. Sundaram Industries Ltd (2002) 253 ITR 396 (Mad), Siemens India Ltd. vs. State of Maharashtra (1986) 62 STC 40, 50 (Bom) N.C. Dhoundial vs. Union of India (2004) 2 SCC 579, 587 Q.62 What is the principle of Resjudicata The principle is that the cause of action cannot survive, if it is covered by an earlier judgment. It literally means a matter already decided. The strict doctrine of resjudicata is not applicable to tax matters. The reason being each assessment year being independent of others all issues relevant to a particular assessment year could be considered and decided, irrespective of the fact that the same issues arose in the earlier years. However questions of fundamental nature or questions relating to assessment which do not vary every year but depends on the nature of the property or questions on which the rights of parties to be taxed are based, principle of res-judicata to that extent would apply to tax matter. Further, principle of finality to a decision and rule of consistency does apply to income tax proceedings. Kotak Mahindra Fin. Ltd. vs. Dy. CIT (2004) 265 ITR 114, 149 (Bom) Ashok Leyland Ltd. vs. State of T.N. (2004) 3 SCC 1, 144. Q. 63 What is the Rule of Estoppel Estoppel is a rule of equity which forbids truth being pleaded or a representation, on the faith of which another has acted to his detriment, being retracted Nirmala L. Mehta vs. CIT (2004) 269 ITR 1, 11 (Bom) B.L. Sreedhan vs. K.M. Munireddy (2003) 2 SCC 355, 366 CIT vs. Bhattachargee (BN) (1979) 118 ITR 461 (SC ) UOI vs. Anglo Afghan Agencies Ltd. AIR 1968 (SC) 718 The principle of estoppel strictly does not apply to income tax proceedings (CIT vs. VMRP Firm (1965) 56 ITR 67 (S.C.). But rules similar to the rule of estoppel may be applicable under certain circumstances. In any case there cannot be estoppel against a statute. The principle of promissory estoppel was considered in detail by the Supreme Court in Motilal Padampat Sugar Mills case (1979) 118 ITR 326 (SC)

Alasan Penghakiman No: S4-22-669-2005

Alasan Penghakiman No: S4-22-669-2005 DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR (BAHAGIAN SIVIL) GUAMAN NO : S4-22-669-2005 ANTARA MARIA TUNKU SABRI … PLAINTIF DAN DATO’ WAN JOHARI WAN HUSSIN … DEFENDAN ALASAN PENGHAKIMAN OLEH YANG ARIF PESURUHJAYA KEHAKIMAN DATO’ TENGKU MAIMUN BINTI TUAN MAT Alasan Penghakiman No: S4-22-669-2005 2 Encl 22 is an appeal by the plaintiff against the decision of the learned Deputy Registrar in allowing the defendant’s application to strike out the plaintiff’s claim under O18 r 19(1) (a), (b), (c) or (d) of the Rules of the High Court 1980. The plaintiff’s claim against the defendant filed in court on 3.8.2004 is for the sum of RM5,500,000.00 pursuant to a settlement agreement dated 10.3.2004 (the settlement agreement) which was entered into between the plaintiff and the defendant for the purposes of settling the breach of promise by the defendant to marry the plaintiff. On 9.9.2004 the plaintiff filed an application for summary judgment under O 14 for the amount of RM5,500,000.00 which application has not been heard. Vide the statement of defence dated 9.9.2004 the defendant pleaded inter alia that:- “5. Defendan juga menafikan pada masa yang material, Defendan berhutang apa-apa jumlah wang dengan Plaintif dan meletakkan beban bukti yang kukuh ke atas Plaintif untuk membuktikannya kepada Mahkamah yang mulia ini. Alasan Penghakiman No: S4-22-669-2005 3 7. Secara alternatif, Defendan menyatakan bahawa Perjanjian tersebut adalah tidak sah di sisi undang-undang dan/atau terbatal dan/atau tidak boleh diterimapakai di dalam Mahkamah yang Mulia ini kerana terdapat unsur-unsur paksaan dan ugutan daripada Plaintif. 9. Defendan dengan ini menyatakan bahawa tuntutan Plaintif adalah suatu penyalahgunaan proses Mahkamah kerana ianya adalah suatu yang remeh dan/atau membuang masa Mahkamah yang mulia ini.” On 11.5.2006 the defendant filed an application under O 18 r 19(1) (a) (b) (c) or (d) to strike out the plaintiff’s claim on the ground that the matter is within the exclusive jurisdiction of the Syariah Court. The application was allowed by the learned Deputy Registrar, hence the appeal. In opposing the O 18 r 19 application the plaintiff raised the following issues:- 1. the lack of jurisdiction of the civil court was not pleaded by the defendant; 2. there was inordinate and unexplained delay in making the application; Alasan Penghakiman No: S4-22-669-2005 4 3. the plaintiff’s claim is based on a breach of civil contract and has no relevance to the syariah law. On the first issue, learned counsel for the plaintiff in his written submission relied on the case of Lian Ann Lorry Transport & Forwarding Sdn Bhd v Govindasamy [1982] 2 MLJ 232 wherein at page 236 Salleh Abas F.J said:- “Before we conclude this judgment we must deal with the submission of counsel for the appellants on the second ground of appeal. It was submitted to us that the learned trial judge erred in law in failing to hold that the question as to whether the respondent was an employee within the meaning of the Act ought to be decided by the Social Security Appellate Board and not by a Civil Court. From the review of the records it is clear that the issue of the Civil Court’s lack of jurisdiction was never pleaded and that it was raised for the first time only at the last stage of the trial. No application was made by the appellants to amend the defence, nor did they take any action to have the hearing adjourned so that the question on employee could be referred to the Board for its decision. Thus we are of the view that the learned trial judge was right in not taking counsel’s submission on this issue into consideration as it was made without a basis in that it was not supported by their own pleadings.” Alasan Penghakiman No: S4-22-669-2005 5 Learned counsel for the plaintiff argued that on this ground alone, the application to strike out should be dismissed with costs. It is my view that the defendant’s failure to plead lack of jurisdiction does not render the O 18 r 19 application liable to be dismissed. This is unlike the case of Lian Ann Lorry Transport supra, where the issue was taken up during submission at the trial stage thereby giving rise to an element of surprise to the opponent. The plaintiff had also argued that since the defendant had not filed a conditional appearance, the application under O 18 r 19 is defective and ought to be dismissed. I hold that the filing of unconditional appearance by the defendant does not preclude the defendant from filing an application under O 18 r 19, as conditional appearance is necessary for the filing of an application to set aside the writ or service of the writ under O 12 r 7, which is not the case here. As regards the second issue, the learned counsel for the plaintiff contended that an application to strike out a pleading should be made promptly and as a rule before the close of pleadings. In support thereof counsel cited inter alia the case of Thiruchelvasegaram Alasan Penghakiman No: S4-22-669-2005 6 Manickavasegar v Mahadevi Nadchatiram [2001] 3 CLJ 743 where it was held that the amendment to O 34 r 2 of the RHC would appear to indicate that all applications to strike out under this rule, must without exception, be made before the close of the pleadings. This is because the plaintiff shall, not later than 14 days after the close of the pleadings file a notice for the pre-trial case management. In the instant case, given the fact that the plaintiff has not caused to be issued from the Registry a notice requiring the parties to attend the pre-trial case management, I do not consider that there is inordinate delay by the defendant in applying to strike out the plaintiff’s claim. The third issue concerns the plaintiff’s claim. Learned counsel for the plaintiff contended that the plaintiff’s claim is founded on the breach of the settlement agreement dated 10.3.2004 and has nothing to do with betrothal or breach of promise to marry. The High Court, argued learned counsel, has the exclusive jurisdiction to hear the plaintiff’s claim for enforcing the said settlement agreement. There is no denial that the plaintiff’s claim is founded on the settlement agreement but there can also be no denial that the settlement agreement arose out of the defendant’s breach of promise to marry the Alasan Penghakiman No: S4-22-669-2005 7 plaintiff. Hence the plaintiff’s claim could not be totally detached from the defendant’s breach of promise to marry. Given the fact that both the plaintiff and the defendant are Muslims and the plaintiff, a married woman at the time the agreement was entered into, could the defendant be said to breach the promise when the plaintiff at the material time remains married and would be in no position to marry the defendant? Could the plaintiff be in breach herself? Clearly the main issue for determination should this matter proceed to trial is whether the settlement agreement could be enforced by the plaintiff given the circumstances and whether it would be against Islamic law in view of s 14(1) of the Islamic Law (Federal Territories) Act 1984 (Act 303) which provides:- “No woman shall, during the subsistence of her marriage to a man, be married to any other man.” S 46 of the Administration of Islamic Law (Federal Territories) Act 1993 (Act 505) provides:- “(1) A Syariah High Court shall have jurisdiction throughout the Federal Territories and shall be presided over by a Syariah Judge. Alasan Penghakiman No: S4-22-669-2005 8 (2) A Syariah High Court shall – (b) in its civil jurisdiction, hear and determine all actions and proceedings in which all the parties are Muslims and which relate to – (i) betrothal, marriage, ruju’, divorce, nullity of marriage (fasakh), nusyuz, or judicial separation (faraq) or other matters relating to the relationship between husband and wife;” S 15 of Act 303 provides:- “If any person has, either orally or in writing, and either personally or through an intermediary, entered into a betrothal in accordance with Hukum Syara’, and subsequently refuses without lawful reason to marry the other party, the other party being willing to marry, the party in default shall be liable to return the betrothal gifts, if any, or the value thereof and to pay whatever moneys have been expended in good faith by or for the other party in preparation for the marriage, and the same may be recovered by action in the Court.” To betroth is to promise to marry (see the Concise Oxford Dictionary Ninth Edition). Thus the plaintiff’s claim under the settlement agreement which arose from the defendant’s breach of Alasan Penghakiman No: S4-22-669-2005 9 promise to marry is intertwined with the issue of betrothal and betrothal is a matter within the jurisdiction of the Syariah Court. In respect of the Syariah Court of the Federal Territories, learned counsel for the plaintiff has submitted that it is not constitutionally constituted until and unless the Constitution is amended to include the Syariah Courts in Part IX of the Federal Constitution. For want of Syariah Courts being included in the Judiciary of the Federation, learned counsel further submitted that Act 303 and Act 505 stand null and void. In response, learned counsel for the defendant refers to the case of Mohamed Habibullah Mahmood v Faridah bt Dato Talib [1992] 2 MLJ 793 which states that the validity of a State law can only be questioned in a separate proceeding under Article 4(3) of the Federal Constitution. I totally agree that it is not open for the plaintiff to raise the issue of the validity of Acts 303 and 505 here. In Mohamed Habibullah Mahmood v Faridah bt Dato Talib, supra, Mohd Azmi SCJ said at page 809:- “With effect from 10 June 1988, the new exclusion cl (1A) was introduced by the Constitution (Amendment) Act 1988 which expressly excludes the jurisdiction of the High Court in Malaya and the High Court in Alasan Penghakiman No: S4-22-669-2005 10 Borneo in respect of any matter within the jurisdiction of the Syariah Court. By such exclusion, the intention of the new cl (1A) is clearly to confer exclusive jurisdiction to the Syariah Courts to adjudicate on any matter which has been lawfully vested by law within the jurisdiction of the Syariah Court. In short, any jurisdiction lawfully vested in the Syariah Court is now exclusively within the jurisdiction of that court. Whether the vesting of such jurisdiction is valid is of course another matter which can be challenged under art 4(3). Since s 45(3)(b) Administration of Muslim Law Enactment 1952 confers jurisdiction on the Kuala Lumpur Syariah Court to hear and determine all actions and proceedings which relate to marriage or divorce in which all the parties profess the Muslim religion, the High Court’s specific jurisdiction under s 24 of the Courts of Judicature Act 1964 on the subject matter of divorce and matrimonial causes and matters relating thereto are excluded by virtue of art 121 (1A). The principle of interpretation of statutes demands that a general provision cannot override a specific one, and as such the High Court cannot invoke its general civil jurisdiction under 23 to revive a specific jurisdiction under s 24 which has been excluded by the Constitution.” In Dato’ Menteri Othman bin Baginda & Anor v Dato Ombi Syed Alwi bin Syed Idrus [1981] 1 MLJ 29 the appellants after filing their defence applied for an order that the statement of claim be struck Alasan Penghakiman No: S4-22-669-2005 11 off on the ground that the court has no jurisdiction because the dispute involved a question of the adat laws and the constitution of luak Jelebu. On appeal to the Federal Court, Raja Azlan Shah Ag L.P (as His Royal Highness then was) in allowing the appeal said at page 33:- “It is open to the courts in this country to refuse a remedy on forum non conveniens. This doctrine is that a court may decline to exercise jurisdiction on the ground that another body would be more appropriate.” Based on the foregoing and on the authority of Mohamed Habibullah, supra and Dato Menteri Othman Baginda, supra, the appeal by the plaintiff in encl 22 is dismissed with costs. (DATO’ TENGKU MAIMUN BINTI TUAN MAT) PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA BAHAGIAN SIVIL KUALA LUMPUR Dated 24th June 2007

Whether the death of the deceased arising out of or in the course of employment per se can found an action in tort.

MALAYSIA IN THE HIGH COURT IN SABAH AND SARAWAK AT KUCHING CIVIL APPEAL NO.12A-5-2010-II
ASEN ANAK TAPENG (m) (WNKP No.41050-13-5229)
Vs
JAMES ANAK BAENG (m)
HEADMASTER
THE GOVERNMENT OF MALAYSIA

BEFORE THE HONOURABLE JUDICIAL COMMISSIONER Y.A. PUAN RHODZARIAH BT. BUJANG

JUDGMENT
Mr. Jusong ak Asen was a teacher at SK Kuala Bok, Baram. He was originally from Kampung Sebobok, Bau. Mr. Jusong ak Asen 25 met with a fatal self-accident on 23.12.2005 at a place called Pijiru, somewhere between Bau town and his home. At that material time, Mr. Jusong ak Asen was riding his motorcycle with his own brother riding pillion, on the way back from Kuching town after collecting an order of T-shirts from a shop there, World Sport. These T-shirts were 30 meant for the students and teachers of his school and he had earlier in a school meeting volunteered to place the order and collect the T- shirts from the said shop as he would be going home for the year end
school break.

AND
Now, his father, Mr. Asen ak Tapeng as the administrator of his estate has sued the owner of the motorcycle as the 1st defendant and the Headmaster of the school and the Government of Malaysia as the 2nd and 3rd defendants, respectively. His action against the 1st
defendant was based on the fact that the owner, knowing about the defects in the motorcycle had failed to inform the deceased of the same. As against the 2nd and 3rd defendants, it was premised on the fact that the accident happened in the course of his employment as he was returning from fetching the T-shirts and the weight of the
same had caused him to lose control of his motorcycle. The 2nd defendant, alleged Mr. Asen ak Tapeng was vicariously liable for the negligence of the 1st defendant. Only the 2nd and 3rd defendants filed their defence to the action and after a full trial, the learned Sessions Court Judge dismissed the said claim. The appeal against the
dismissal of the said claim is the subject matter of this judgment.
The judgment of the learned Sessions Court Judge In summary, the learned Sessions Court Judge rejected the claim because the accident did not happen during the course of Mr. 20 Jusong ak Asen’s employment and that the principle of volenti non fit injuria applies in that the purchase and carrying of the T-shirts that day was volunteered by Mr. Jusong ak Asen and it was on a vehicle which was not authorized by the 2nd and 3rd defendants. On the non- authorized used of the vehicle, he relied on the case authority of 25 Mary Colete John v South-East Asia Insurance Bhd [2004] 7 CLJ 314.

In his judgment he also mentioned the chemist evidence, adduced by the 2nd and 3rd defendants who confirmed that Mr. Jusong ak Asen had alcohol in his blood but the chemist was not able to confirm if that level of alcohol had affected his ability to ride. The
learned Sessions Court Judge, however did not appear to consider this evidence as one of the grounds for dismissing the claim.In the appeal before me, counsel for Mr. Asen ak Tapeng, Mr. Patrick Anek Uren did submit on this evidence as showing that the 10 deceased consumption of alcohol prior to his death was not the cause of the accident.

Whilst I am in agreement with him that there is no direct evidence to say that the deceased’s intoxication was the cause of the 15 accident, but, in my view, such a conclusion is irresistible because the deceased was driving with an alcohol level way above the prescribed limit under the Road Transport Act 1987 (“the RTA 1987”). That limit was 80 milligrammes per 100 millilitres of blood whereas that of the deceased’s blood was 227 milligrammes – almost three 20 times the permissible level. The law has a reason for setting that limit and in its wisdom knows how much alcohol a driver should consume to make him a safe driver. That prescribed limit could not have been set by legislature without any scientific basis. At thrice the amount deemed safe by the law, the probable inference that the court is 25 entitled to make is that the deceased was intoxicated when the accident occurred and it being a self-accident, one could only
conclude that his own inebriety had caused the same.

Mr. Patrick Anek Uren has attempted in his submission to persuade me not to accept the chemist’s evidence because he said she analysed the deceased blood sample five (5) days after it was taken and there was no preservative added to it to prevent its
5 denegeneration. With respect, I am unable to agree with him because she has explained in her evidence very clearly on the reliability of the sample given to her and gave three reasons which appear at page 74 of the notes of proceedings why this was so. This was what she said:

On Mr. Patrick Anek Uren’s contention that the 2nd and 3rd defendants are liable because the accident happened in the course of the deceased’s employment, I am of the view that such a contention is misplaced in the facts of this case because firstly, the fact that an accident happened in the course of an employment is only pertinent

The blood specimen was in good condition at the time I received. There was no sign that it has started to decompose. The blood specimens were in fact sent to laboratory for analysis, if I not mistaken just 4 days after it was taken.
The reported alcohol content is so much higher than the prescribed limits. This indicated the actual alcohol content would still be above the prescribed limits even if preservative has been added.” (emphasis added)
in a claim for workman compensation and it per se does not find a liability under the tort of negligence. Secondly, the fact of employment is only relevant when vicarious liability is pleaded against the employer but that is in a situation where the employee of such an employer is found to have been negligent against the
plaintiff. Thus, if the doctrine of vicarious liability is to be applied in this case against the 3rd defendant, it must be shown that the 2nd defendant had in some ways breached his duty of care towards the deceased which led to his death or was contributory towards it. That is the very foundation of an act upon which a tort of negligence is based as established in Donoghue v Stevenson (1932) AC 562. Very clearly no such duty had been breached in this case because at the time of the accident, the Head Master had done absolutely nothing to cause or contribute to the accident.
The case of Mary Colete John (supra) submitted by Mr. Patrick Anek Uren is distinguishable on both the facts and the law. In that case whether the plaintiff was injured in the course of her employment is a relevant consideration because she was suing the insurance company of her alleged employer to enforce the judgment she had obtained against the said employer under section 96 of the 15 RTA 1987. It was an issue before the court because of section 91 of the RTA 1987 which provides in the proviso thereof that the insurance policy under Part IV of the Act is not required to cover liability in respect of death or bodily injury sustained by a person
20
‘arising out of and in the course of his employment’.
Thus, Mr. Patrick Anek Uren’s reliance on Mary Colete John’s case (supra) is plainly wrong and the learned Sessions Court Judge, by allowing himself to be dragged into the issue of whether the deceased was travelling in the course of his employment, had
25 needlessly entangled himself in the same error. He was right however when he concluded that the defence of volenti non fit injuria applied to the deceased because when the accident happened he
6
[CA-12A-5-2010-II]
was doing something which he had volunteered to do in the first place. It was of course unfortunate that such a terrible tragedy had befallen this young man who had just been teaching for a year after graduating from a teaching institute and no one would, but praised,
5 his readiness to assist in the purchase of the T-shirts for his colleagues and the students of this school. It cannot be denied that the T-shirts would have cost so much cheaper here in Kuching than in that rather remote and rural part of Sarawak where the school is located and for his noble intention and on humanitarian grounds,
10 though I dismiss the appeal, I would not order cost against the appellant.
Sgd.
15 (Y.A. PUAN RHODZARIAH BT. BUJANG) Judicial Commissioner

AMENDMENTS TO THE COMPANIES ACT 1965 (as at 2009)

http://www.ssm.com.my/acts/CA2007_FAQs250209.pdf

FREQUENTLY ASKED QUESTIONS (FAQs) ON THE RECENT AMENDMENTS TO THE COMPANIES ACT 1965
Q1: Who are required to disclose an interest in a contract or a proposed contract with a company and to whom should the disclosure be made?
A1: Every director of a company who is interested in a contract or proposed contract (whether directly or indirectly) with the company is required to disclose the nature of his interest at a board meeting. In the event the director’s spouse or child holds any interest in such contract or proposed contract, the director is deemed to have interest and is required to disclose (as soon as practicable after the relevant facts have come to his knowledge). The scope of child of a director includes adopted child and stepchild.

Q2: Whatisthedutyofthecompanysecretarywithregardtothedisclosuremadeunder subsection 131(7A)?
A2: The company secretary is required to inform the board members on the requirements of subsection 131(7A). In addition, the company secretary is also required to record the declaration, if made by the director, in the minutes of the board meeting.
Q3: Whatistheeffectonthecontractorproposedcontractifitisenteredbyacompany without such disclosure being made by a director of the company in accordance with subsection 131(7B)?
Subsection 131(7A)

A3: If there is a failure to disclose an interest in a contract or proposed contract, the company has a right to declare the contract or proposed contract voidable except if the contract entered is in favour of a bona fide purchaser for value and without actual notice of the non-compliance of section 131(7A).

Q4: Is there any safeguard to protect the interest of a third party contracting with the company?
A4: The company cannot declare the contract in contravention of subsection 131(7A) voidable if a third party’s right is affected. The third party must fulfill the following requirements: (a) that the contract was entered with a valuable consideration; and
(b) the third party has no knowledge of the contravention.

Q5: What are the prohibitions of a director who is interested in a contract or proposed contract with a company?
A5: A director who is interested in a contract or a proposed contract is prohibited from taking part in the discussion or voting of the said contract or proposed contract at the board meeting. However, the director’s attendance is counted for the purpose of meeting the quorum of the board meeting. The parameter of the director’s interest is regulated by section 131 [refer Q1, A1 earlier].

Q6: Are the prohibitions stated under subsection 131A(1) applicable to all transactions by all companies?
A6: No. Subsection 131A(1) is not applicable to- (i) a private company unless it is a subsidiary of a public company.
(ii) a private company wholly owned by a public company for contracts entered between them.
Section 131A
(iii) a private company wholly owned by a public company for contracts entered into with another wholly owned subsidiary of the same holding company.
(iv) a contract of indemnity against potential loss suffered by a director pursuant to him becoming a surety for the company.
(v) a contract or proposed contract between a public company/private company which is a subsidiary of a public company with another company where the interest of the director is confined to:
(a) him being a director of the company and holding shares not more than the value required to qualify him for directorship; or
(b) him holding an interest of not more than 5% of the company’s paid up capital.
Notwithstanding the exceptions above, if a company adopts Article 81 of Table A of the Fourth Schedule, which states that “a director shall not vote in respect of any contract or a proposed contract...”, then the director is required to abstain from voting pursuant to the company’s Articles of Association because it has adopted a more stringent requirements than section 131A.
How has the new amendment to subsection 132C(1) address the ambiguity in relation to disposal by directors’ of company’s undertaking or property?

A7: Theamendmentremovesthesubjectivetestrequiredbyacompanytodetermineon whether or not the transactions would ‘materially or adversely affect its financial position’ should they be carried out. Instead, a company can now rely on the requisite thresholds to determine whether or not a transaction is of ‘substantial value’ or ‘substantial portion’. For public listed companies, the definitions of ‘substantial value’ or ‘substantial portion’ should refer to Bursa Malaysia’s listing requirements. For non-public listed companies, ‘substantial portion’ or ‘substantial value’ is triggered upon the occurrence of the highest of the following:
(a) the value of the undertaking or property is more than 25% of the company’s
(b) the net profit pursuant to the transaction is more than 25% of the total net
profit of the company; or
(c) the value of the undertaking or property is more than 25% of the company’s
issued share capital.
What are the fundamental differences between the old section 132E and the new section 132E?
The fundamental differences are: Apart from directors, the new section 132E also applies to substantial
shareholders of a company or its holding company or persons connected with them.
In the event a transaction envisaged by subsection 132E(1) is to be carried out, the new provision requires prior approval from the shareholders before the transactions could be carried out. Mere ratification from the shareholders is not sufficient to regularize such transaction entered.
The new provision also requires the directors or substantial shareholders or persons connected with them to abstain from voting on the proposed arrangement or transactions.
With the deletion of section 132G, what is the protection accorded to companies against asset shuffling by unscrupulous directors or shareholders?
Companies are still protected against asset shuffling by unscrupulous directors or shareholders through the amendments of sections 132C and 132E. These sections provide safeguards with regard to any transactions or arrangements to be entered into between a company and its directors or shareholders through the mechanism of disclosure and approval by the general meeting.
Section 132G

Section 131B
Q10: A10:
Q11:
A11:
Q12:
What is the rationale for the introduction of section 131B?
Thenewsection131Baccordsastatutoryrecognitiononthefunctionsoftheboard of directors on the management of the affairs of a company. The new provision clarifies the functions and powers of the board of directors in which the board of directors is empowered to manage, direct and supervise the management of the business and the affairs of the company. The statutory empowerment is in line with the recommendation of the High Level Finance Committee on Corporate Governance. Although the board of directors is bestowed with all the powers necessary to manage the business and affairs of the company, such powers are still subject to other provisions of the Companies Act 1965 and the company’s memorandum and articles of association.
What are the major differences between the old provision and the new subsection 132(1)?
The original provision does not require that a director owes a duty to act in the best interest of the company although it does require a director to act honestly and use reasonable diligence in the performance of his duties. The new section provides that a director of a company must exercise his powers for a proper purpose and in good faith in the best interest of the company. In the discharge of his duties, a director may face a situation whereby he has acted honestly, but such an act may not be in the best interest of the company. The amendment serves to clarify situations where a director may claim to have acted honestly though such an act was not in the best interest of the company. The new provision has clarified that acting in the best interest of the company is the paramount duty of a director when discharging its duties to the company.
What is the standard of care, skill and diligence that a director must exercise in
Subsection 132(1)
Subsection 132(1A)

A12:
discharging their duties under the new subsection 132(1A)?
The new subsection 132(1A) introduces an objective standard of duty of care, skill and diligence expected of directors in discharging their duties. Subsection 132(1A) comprises two limbs: (a) The first limb sets out the minimum standard care, skill and diligence as
would reasonably be exercised and expected by all directors; and
(b) The second limb sets out a higher standard duty of care skill and diligence where a director possesses additional knowledge, skill and experience.
While the first limb applies to all directors, the application of the second limb depends on whether a particular director possesses any additional or special knowledge, skill and experience. Consequently, a director possessing special knowledge or is an expert on a given subject matter carries more responsibility in discharging his duty of care, skill and diligence.
Subsection 132(1B)
Q13: What is the rationale for the introduction of the ‘business judgement’ rule?
A13:
Q14:
The business judgement rule (BJR) was introduced to address concerns arising from the making of business decision which often involved risk-taking. In commercial transactions, directors are often faced with situations where they have to exercise their powers by making decisions which sometimes are detrimental to the company. The inclusion of the BJR strikes a balance between legitimate risk- taking which should be protected by this rule and negligent decisions taken without proper and informed assessments of potential risks. This rule may operate as a defense to directors in making any decision involving the company provided that such a decision fulfills all the requirements under the BJR.
What decisions or judgments qualifies as due exercise of business judgements under subsection 132(1B) pursuant to the director carrying out his functions under subsection 132(1A)?

A14:
Q15:
Due exercise of business judgments by a director is achieved through fulfilling the following prerequisites: (a) the business judgement must be made in good faith for a proper purpose;
(b) the director does not have a material personal interest in the subject matter of the business judgment;
(c) the director is well informed about the subject matter of the business judgement to the extent that he believes to be appropriate under the circumstances; and
(d) the director reasonably believes that the business judgement is made in the best interest of the company.
Who are the persons that a director may rely on for information, advice, opinion, report, financial statements or data in exercising his duties as a director?
Subsection 132(1C)
A15: Thefollowingarethepersonsonwhomadirectormayrelyforinformation,advice, opinion, report etc. in exercising his duties as a director: (a) an officer of the company whom he reasonably believes to be reliable and
competent in the subject matter;
(b) professionals or experts retained by the company due to their skills and expertise in the subject matter;
(c) another director in relation to matters within that director’s authority; and
(d) any committee of directors on which he did not serve in relation to matters within the committee’s authority.
Q16: Can a director who made a business decision by relying on the information provided by professionals or expert under subsection 132(1C) be exonerated from any
Subsection 132(1D)

A16:
Q17: A17:
Q18:
A18:
Q19:
A19:
liability if the company suffers loss resulting from such a decision?
Although subsection 132(1C) allows a director to rely on the advice or information provided by any professional or expert in the exercise of his duties, he still has a duty to make an independent assessment of the information or advice given to him in the light of his knowledge and understanding of the structure and operation of the company. Reliance on the information or advice made in good faith alone is not sufficient to exonerate a director from liability.
What is the rationale for the introduction of subsection 132(1E)?
The introduction of subsection 132(1E) is intended to lay at rest the dilemma of a nominee director in the event of a situation where he may have to choose between acting in the best interests of the company where he serves as a director and the interest of his nominator. Subsection 132(1E) clarifies that in the case of a conflict between the exercise of the nominee director’s duty to the company and following the instructions of his nominator, his duty to act in the best interest of the company prevails.
What will be the position of a nominee director who has signed a contract of service with his nominator before 15 August 2007 whereby he is required to act in the best interest of his nominator?
With the operation of the new amendment which came into force on the 15 August 2007, the nominee director is mandated to act in the best interest of the company.
Can directors delegate any of their power to others? If they can, to whom shall the powers be delegated?
The new subsection 132(1F) allows directors to delegate any of their power to any
Subsection 132(1E)
Subsection 132 (1F)

Subsection 132(1G)
Q20:
A20:
committee of the board, director, officer, employer, experts or other persons. In addition, it is also expressly stated in the subsection that directors who have delegated their powers are still responsible for the actions of the delegatee as if such powers had been exercised by the directors themselves.
Could there a situation where the directors who have delegated their powers may not be held responsible for the actions of their delegatee?
Directors may not be held liable for the actions of their delegatee if they believe on reasonable ground that: (a) the delegatee would exercise the power delegated in conformity with the
duties imposed onto the director and provisions of the memorandum and articles of association; and
(b) the delegatee was reliable and competent in relation to the power delegated.
In a nutshell, in order for a director to invoke subsection 132(1G) to exonerate himself from any liability, it is not sufficient for directors to prove that they have delegated their powers in good faith. Such director must also conduct proper inquiry as to the reliability and competency of the delegatee with regards to the powers delegated.
Subsection 132(2)
Q21: Whataregeneralprohibitionsimposedagainstadirectororofficerofacompany?
A21:
Subsection 132(2) identifies five (5) general prohibitions imposed against a director or officer of a company namely: (a) use of company’s property;
(b) use of information acquired by virtue of his position as a director or officer of the company;

(c) (d) (e)
use of position as director or officer; use of corporate opportunity; or engaging in a competing business with the company.
Such director or officer is prohibited from gaining directly or indirectly, either for himself or any other person, or cause detriment to the company in furtherance to the said prohibitions. Nevertheless, a company may pass a resolution to allow a director to accord certain benefits such as the use of a company’s car or house.
As a matter of prudence, a director should always disclose and seek approval from the shareholders in the event of any potential breach of section 132(2).
Q22: Section167Arequiresthedirectorstoputinplaceasystemofinternalcontrolina company. Does this requirement apply to all companies?
Section 167A
A22:
Section 167A imposes a duty on a public company or a subsidiary of a public company to establish a system of internal control within the company for the purpose of providing a reasonable assurance that assets of the company are properly safeguarded against loss or any unauthorized disposition. It is also meant to enable transactions of a company’s assets are properly accounted for.
Section 172A
Q23: Is a retiring auditor required to comply with section 172A?
A23:
Section 172A requires an auditor to notify the Registrar in the event he ceases to hold office in a company in the following circumstances:
(i) when he is removed by the company under section 172(4); or (ii) when he intends to resign and gives notice to the directors of the company
pursuant to section 172(15).

Section 174
Q24:
In both circumstances, the auditor must send a copy of his written representation or the explanation of the notice of his resignation to the Registrar within seven days of the submission of his written representation or notice of resignation, whichever is applicable.
Section 172A does not apply in the case of an auditor who does not seek reappointment at an annual general meeting of a company, or where he is not reelected at the annual general meeting.
Are auditors expected to know all serious offences involving fraud and dishonesty in discharging their duties pursuant to section 174(8A)?
A24: A serious offence involving fraud or dishonesty (serious offence) is defined under section 174(8C)(b) as any offence that is punishable by imprisonment for a term that is not less than two years; or the value of the assets derived or likely to be derived or any loss suffered by the company, member or debenture holder from the commission of such offence exceeds RM250,000.00 and include offences under sections 364, 364A, 366 and 368 of the Companies Act 1965.
As section 174(8C)(b) already provides a general guide on the definition of “serious offence involving fraud or dishonesty” and covers a wide parameter of serious offences as provided by other written laws, SSM does not intend to prescribe an exhaustive list of such offences.
Further, as the laws regulating companies differ according to their specific industry, auditors of a company should be aware of the specific laws that the company is subject to. It follows that if an auditor is of the opinion that a serious offence has been committed against the company by its officers; he has a duty to report the commission of the offence to the Registrar.
Corporate Development & Policy Division Updated 26 August 2009