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CASE STUDY   BYKUSHAL MANSUKHANI – 30 VIKRAMADITYA MURALIDHARAN- 37 SUVEER MALHOTRA- 28 SHARAN SANIL  – 43 ANTRIKSH BAJAJ- 5

 

 

CONTENTS 1)  RESERVE BANK OF INDIA VS PEERLESS GENERAL RESERVE FINANANCE AND INVESTMENT COMPANY   FACTS OF THE CASE



       



LAWS INVOLVED



ARGUMENTS PRESENTED BY BOTH THE PARTIES



FINAL DECISION OF THE COURT



APPLICATION OF THE CASE IN DAILY LIFE

2)  United India Insurance Co. Ltd. United India United Insurance Co. Ltd. Vs. Pushpalaya Printers   FACTS OF THE CASE   LAWS INVOLVED   ARGUMENTS PRESENTED BY BOTH THE PARTIES

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  FINAL DECISION OF THE COURT   APPLICATION OF THE CASE IN DAILY LIFE

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RESERVE BANK OF INDIA VS V S PEERLESS GENERAL FINANANCE AND INVESTMENT COMPANY

FACTS OF THE CASE :  

The Social Welfare Scheme Fund is in excess of the total liability of the company towards the certificate holders.

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The company has been retaining in the fund amounts forfeited on surrender of certificates and liabilities already provided thereon on accrual basis. Amounts in respect of unclaimed matured certificates continue to remain in the fund even after maturity. Amounts in respect of lapsed certificates also continue to remain in the fund.

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The generous distribution of commission among the agents out of the first year's subscription and the class of investors tapped by such agents have resulted in large scale dropouts by the investors after the first year.

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There was large scale lapsation of certificates varying between 34.26 per cent, and 59.71 per cent., during the first three years, the forfeiture range.

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While checking the income accounting for the previous year relevant to the assessment year 1985-86, it was found that the assessee has been furnishing incorrect computation of income on the basis of wrong assumption and inflated generalisation as under :

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(i) The provision for refund of subscription at a fixed percentage of the first year's subscription was in respect of pure contingent liability. The quantification of such liability was on the basis of flawed fl awed actuarial certificate.

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(ii) The provision of interest and bonus accrued at a fixed percentage of the balance in the Social Welfare Scheme Fund on accrual basis was incorrect even on actuarial basis,

which the assessee was supposed to be following.   On a check of the abovementioned facts of the accounting of income and expenditure, it emerged that income exceeding Rs. 50,000 has escaped assessment in the following f ollowing respects as a result of inadequate and incorrect statements, misleading actuarial certificate, wrong basis of calculation and suppression of relevant facts    

Income from forfeiture of lapsed certificates. Profit under Section 41(1) of the Income-tax Act as a result of cessation of liability already claimed as 'interest and bonus accrued.'

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Deduction claimed under the head, 'Provision for refund of subscription' on the strength of wrong actuarial advice. 3

 

 

LAWS INVOLVED  

Income-tax Act, 1961

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Reserve Bank of India Act, 1934

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Indian Companies Act, 1913

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Life Insurance Corporation Act, 1956

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Banking Regulation Act, 1949

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Companies (Amendment) Act, 1974

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Companies Act, 1956

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Prize Chits and Money Circulation Schemes (Banning) Act, 1978

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Banking Act, 1987

 ARGUMENTS PRESENTED PRESENTED BY BOTH PARTIE PARTIES S  

In this context, Chinnappa Reddy J. (who delivered the main judgment) has referred to the mushroom growth of financial and investment companies offering staggeringly high rates of interest to depositors leading the court to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings and had said : It does not require much imagination to realise the adventurous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While on the one hand these schemes encourage two vices affecting public economy, the desire to make quick and easy money and the habit of excessive and wasteful consumer spending, on the other hand the investors who generally belong to the gullible and less affluent classes have no security whatsoever. Action appears imperative.

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Shri Salve has submitted that the object underlying the enactment of G Section 45-K   (which is part of Chapter III B) is to regulate the conditions on which 45-K deposits may be accepted by non-banking companies or institutions and to prevent malpractices and with that end in view very wide powers have been conferred on the Bank to give directions Under Section 45-K(3)  45-K(3)   of the Act. The submission of Shri Salve is that in Peerless II this Court has upheld the directions contained in Paragraphs 6 and 12 of the 1987 Directions and that the directions that are contained in Paragraph 4A are designed to prevent the evasion of the directions contained in Paragraphs 6 and 12 and to make them effective and that the power to issue directions contained in Paragraphs 6 and 12 would necessarily encompass the power to issue directions to ensure that they are not avoided by contrivances or devices which essentially involve a change in nomenclature. Shri Salve has further submitted that the expression 'deposit' as defined in Clause (bb) of Section 45-I  45-I   has been defined in very wide terms to include, receipt of money by way of deposit or loan or in any other form and since the said definition is contained in an enabling statute, it would be inapposite to construe the words used in the said definition in a restrictive sense particularly, when there are provisions expressly excluding a number of items which would otherwise the definition clearlysense indicates that the legislature intended to fall usewithin the expression in which its widest as including receipts which may be revenue in nature. Shri Save has also contended that the words "in respect of any matters or connected with the receipt of deposits" in Section 45-K(3)  45-K(3)  are of very wide amplitude and they cannot be restricted by the words which follow these words.

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During the course of his submissions Shri Chaterjee laid emphasis on the good record of performance of Peerless and has pointed out that this has also been noticed by this Court in the earlier judgments in Peerless I and Peerless II. Shri Chatterjee has submitted that having regard to the said record, the Bank should grant exemption to Peerless from complying with the directions contained in Paragraph 4A. Shri has saidreport claimofof Peerless conducted about its performance and hasSalve invited ourdisputed attentionthe to the Inspection Under Section 45-N  45-N  of the Act with respect to the financial position of the company as on March 31, 1993, which refers to violation of various provisions of 1987 Directions. Shri Chaterjee has, however, disputed the correctness of the observations that have been made in the said report. We do not propose to go into this question. It is matter which has to be examined by the banking in the light of the explanation that is offered by Peerless for the violations referred to in the Inspection Report, The question as to whether exemption should be granted to Peerless under Paragraph 19 of the 1987 Directions, is a matter for the Bank to consider and we do not wish to say anything in that regard.

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FINAL DECISION OF THE COURT

It cannot be denied that residuary non-banking companies, like Peerless, play a useful role in the economy by mobilising savings by tapping that section of the people which the commercial banks are not able to tap. But at the same time, it cannot be ignored that there should be adequate protection for the funds entrusted to them by depositors and for that purpose it is necessary that the working of these companies should be closely monitored and supervised and adequate provisions should be made for enforcement of regulatory provisions that are made for the protections of the interest of the depositors. Since the Bank is required to discharge multifarious functions, it would not be in a position to devote the requisite amount of attention in the matter of monitoring and supervising the functions of these companies. The Union Government may, therefore, consider whether it would be advisable to create a separate instrumentality which may be entrusted with the task of supervision and enforcement of the provisions regulating the functioning of these companies. The Union Government may also consider whether the existing provisions need to be further strengthened so as to give greater protection to the interests of the depositors. We find that in England the Banking Act, 1987 contains provisions for Deposits protection Scheme for the Protection of the depositors. It may be considered whether provisions on similar lines could be introduced here. It was declared that the business carried on by the Peerless did not come within the mischief of the Prize Chits Banning Act.

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 APPLICATION OF THE THE CASE IN DAILY LIFE  

All-India Peerless Employees' Union (AIPEU) has requested the Reserve Bank of India (RBI) to allow Peerless General Finance & Investment Company to resume its residuary non-banking company (RNBC) business till an alternative business model is developed, AIPEU said in a memorandum submitted to the RBI Deputy Governor Anand Sinha.

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Peerless General Finance and Investment I nvestment Company's RNBC was stopped in April 2011.

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United India Insurance Co. Ltd. United India Insurance Co. Ltd. Vs. Pushpalaya Printers

FACTS OF THE CASE :  

The respondent filed a complaint before the District Consumer Disputes Redressal Forum (District Forum) under Section 12 of the Consumer Protection Act, 1986 (for brevity 'the Act') praying for settlement of an insurance claim at Rs. 7 5,000/- along with interest at the rate of 18% per annum.

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The appellant repudiated the claim on the ground that damage caused to the building and printing press of the respondent was not covered by Clause 5 of the insurance policy.

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Claim for damage to building and printing press caused byimpact of bulldozer operating by side of building

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Whether covered by Clause 5 of insurance policy?--Held, yes Clause 5 speaks of impact by any rail/road vehicle or animal.

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Cannot be confined to forcible contact alone

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Close drive of bulldozer is tantamount to impact

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Interpretation placed by State Commission and National Commission on word impact

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Word impact must be construed against insurer

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If the appellant company wanted to exclude any damage or destruction caused on account of driving of vehicle on the road close to the building, it could have expressly excluded.

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The insured possibly did not understand and expect that the destruction and damage to the building and machinery is confined only to the direct collusion by vehicle moving on the road to the building or machinery.

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In the ordinary course, the question of a vehicle directly dashing the building or the machinery inside the building does not arise.

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LAWS INVOLVED:  

CONSUMER PROTECTION ACT, 1986

 ARGUMENTS OF THE CASE CASE : the appellant contested the claim by filing written objection contending that the damage caused due to vibration from the operation of bulldozer was not an incident of impact by any road vehicle, as per Clause 5 of the insurance policy for risk, and so the complaint was not maintainable. it was admitted by the Opposite Party that in connection with a road construction with the help of a bulldozer near the complainant's printing press in question there was damage to that building. And, both parties agreed that it all depends upon the interpretation of the term (5) of the Insurance Policy." it is clear that the appellant did not dispute as to damage caused to the building and machinery of the respondent on account of the bulldozer driven close to the building on the road for the purpose of road construction and that both the parties agreed that the sustainability of the claim depended upon the interpretation of Clause 5 of the insurance policy. The District Forum took a narrow view that the word "impact" contained in Clause 5 of the insurance policy covered risk of only contingent impact of a road vehicle forcibly coming in contact with another. It held that the damage caused to the building and machinery in the instant case was not due to such forcible contact but it was due to the consequential effect of vibration on account of operating of a bulldozer by the side of the respondent's printing press building and as such it was not covered by Clause 5 of the insurance policy; thus, there being no deficiency of service on the part of the appellant the complaint filed by the respondent was not maintainable.

FINAL DECISION OF THE COURT Under the circumstances they found no merit in the appeal. Consequently iitt is dismissed. No costs 

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 APPLICATION OF THE CASE CASE IN DAILY L LIFE IFE  

In no event, except as provided for in the Sue and Labour Expense Clause and Collision Liability Clause herein, shall the Underwriters liability arising from any one accident or occurrence exceed the amount insured hereunder as set forth in Clause 3 in respect res pect of the items subject to claim in such accident or occurrence.

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In respect of the property insured hereunder Underwriters shall not be liable for more than their proportion of the cost of repairing or replacing the property damaged or lost with materials of like kind and quality to a condition equal to but not superior to or more extensive than its condition prior to the loss; nevertheless in respect of the hull of the drilling be covered hereunder all costs of repair and replacement for which Underwriters may be liable shall be on the basis of new for old with no deduction for depreciation.

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In no event shall Underwriters be liable for any increased cost of repair or construction by reason of law, ordinance, regulation, permit or licence regulating construction or repair.

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