Benefits of Registration of Charges with Registrar of Companies

The benefit of registration of charge is ‘two fold’. First of all registration protects the rights of charge holders and otherwise charge may be declared void in the event of a winding up. Another important benefit is the constructive notice declared under Section 126 of the Act. In Bank of Baroda v Official Liquidator of Alpic Finance Limited (under Liquidation), [2009] 149 Comp Cas 1 (Bom) the Bombay High Court decided an interesting issue about validity of sale deeds in favour of third parties when there was a valid registered charge in favour the Bank. The High Court found that the sale had taken place without verifying the records and the purchasers have not acted diligently and have not acted prudently by investigating title to the property. By summoning the records from RoC, the High Court found that the mortgage in favour of the Bank had been duly registered. The High Court held that by virtue of Section 126 of the Act, the purchasers are deemed to have notice of the mortgage and therefore they cannot be considered as bonafide purchasers. The high court further added that Section 125 is not limited in its scope only to a direct purchaser from the company; if such a view is accepted, it would leave the door open to frauds. The easiest thing to do then would be for the company to sell the property to a purchaser and to have that purchaser in turn sell the same to another purchaser and so on. The entire purpose of Section 125 could thus easily be defeated.

The Bombay High Court further held that a purchaser is bound to make all reasonable enquiries as to the title of his vendor. This would necessarily involve his ascertaining the title of his vendors' vendor and so on. Once it is obvious that the title of the property vested at some stage in a company, any prudent purchaser must enquire whether the company itself had the authority and power to sell the property. If the company had created a mortgage in respect of the property in favour of a third party and such mortgage or charge is registered under Section 125 the effect of Section 126 would operate even on subsequent purchasers.

Official Search and Registration are very important things in trademarks protection

Registration affords better protection. Non-registration does not disentitle the proprietor of a trademark from initiating a legal action [which suits are popularly known as ‘passing off’ suits] against an unscrupulous trader / user. Delay does not defeat justice provided there are valid reasons explaining the delay. The proprietor of a trademark, whether the mark is registered or unregistered, should be vigilant and he must constantly check in the market if any other person uses a mark which is similar or deceptively similar so that an appropriate legal action against the unscrupulous trader / user could be initiated.

Before applying a trademark, it is better to do a pre-adoption / pre-application search. Search does not mean a mere ‘google’ search or any other similar search. Such searches may add value. However the search that is must is an official search of the records at the trademarks registry under the Trademarks Act, 1999 so as to be sure that the mark proposed to be used in trade is not identical or similar or deceptively similar to any other mark already registered / in queue for registration. Trademark search is a country specific national search. Thus such searches must be carried out in such countries as may be necessary. Such searches help to verify the existence of similar or resembling marks. Official search will not offer any help to find out well known unregistered marks if proprietors of such marks have not even applied for registration.

Company Secretary and Law: Companies cannot be imprisoned; however courts may...

Company Secretary and Law: Companies cannot be imprisoned; however courts may...: "Recently Supreme Court held as follows in Iridium India Telecom Ltd. Vs. Motorola Incorporated and Ors. [2010] 160 Comp Cas 147 (SC) “Men..."

Companies cannot be imprisoned; however courts may levy fine!

Recently Supreme Court held as follows in Iridium India Telecom Ltd. Vs. Motorola Incorporated and Ors. [2010] 160 Comp Cas 147 (SC)

“Mens rea is attributed to corporations on principle of “alter ego” of the company — company/corporation cannot escape liability for criminal offence, merely because punishment prescribed is that of imprisonment and fine.”Lawmakers have to be careful while drafting a legislation in relation to offences by companies. If the law intends to punish a company which is a legal person, the penal clause should be carefully drafted to provide fine rather than casually saying imprisonment and fine.

Background - first Velliappa and Then Standard Chartered Bank:

If such care had been taken there would not have been decisions such as The Assistant Commissioner, Assessment-II, Bangalore and Ors v Velliappa Textiles Ltd. and Ors. AIR 2004 SC 86 in which it was held that where the offence entails imprisonment and fine, a corporation cannot be punshed with fine only because a court cannot bifurcate the punishment when law intends both punsihments to be awarded. This decision was reversed by a Constitution Bench of SC dated 05/05/2005 in Standard Chartered Bank and Ors. v Directorate of Enforcement and Ors AIR 2005 SC 2622. In this case, the majority held that there could be no objection to a company being prosecuted for penal offences under the Foreign Exchange Regulation Act, 1973 and the fact that a sentence of imprisonment and fine has to be imposed and no imprisonment can be imposed on a company or an incorporated body, would not make Section 56 of the FERA inapplicable.

Before the Consitution Bench in the case of Standard Chartered Bank the argument of Iridium India Telecom Ltd.- (the petitioner in Special Leave Petition (Criminal) No. 4995 of 2003), was as follows:

"The statute mandates ('A + B'); if A is impossible, then A=0. Then, the statutory mandate would be only (Zero + B), which is really equal to 'B' (presumably 'A' = imprisonment and 'B' = fine). There is no warrant for the assumption that the value of 'A' reduces to zero merely because it is impossible in case of a corporate offender. It could very well be that 'A' is indeterminate. In that case, the mathematical logic would break down (Indeterminate + B) = Indeterminate, which is exactly what has been held by Velliappa, namely, that the statute would become unworkable in the case of a juristic person. Ergo, it cannot apply to a juristic person for all the reasons adumbrated by the majority in Velliappa. "

Company Secretary and Law: Transfer of Industrial Undertaking through a schem...

Company Secretary and Law: Transfer of Industrial Undertaking through a schem...: "If a scheme of arrangement is introduced in respect of a third party acquisition for transfer of the entire undertaking, in which the s..."

Transfer of Industrial Undertaking through a scheme of arrangement!

If a scheme of arrangement is introduced in respect of a third party acquisition for transfer of the entire undertaking, in which the shareholders of transferor company receive cash consideration from transferee  company, will the receipt in the hands of shareholders suffer more tax than what would have been tax liability if the transfer had been organized through a voluntary winding up! What about the transfer being regarded in the first place as a slump sale? Oh See the issues ! 

Company Secretary and Law: class action suits are going to be a reality

Company Secretary and Law: class action suits are going to be a reality: "Companies Bill 2009 which seeks to replace the present company law is going to bring a new class of suits; class action suits! Clause 216 is..."