Tuesday, 28 August 2012


Students of Business Management frequently question the inclusion of Business Laws or Legal Aspects of Business. The answer lies in the fact that as a businessman, one should be aware of some legal principles that will help him avoid conflict with the persons whom he comes into business contact. 

The following landmark judgements were delivered in the past three years. They have an impact on your business and more significantly on your financial dealings. 

P. V. Suresh vs. Insurance Ombudsman, Kerala High Court, 16.02.2012
(an insurer has to prove fraud to reject a claim)
Lady dies of cervical cancer – insured by husband – she failed to mention auyurvedic treatment for rheumatoid arthritis while buying the policy – claim rejected by Insurance Company – Court upheld the claim - Court held that the insurer must prove the policyholder’s statements were fraudulent and involved suppression of material fact.

Impact: Insurance company cannot get away by simply listing ‘suppression of fact’ as reason for rejecting the claim. It has to prove that the information supposedly hidden by the policyholder was material, that is, had a direct bearing to the case and there was an element of fraud involved.

Suraj Lamps & Industries vs State of Haryana, Supreme Court, 11.10. 2011
(no property sale on general power of attorney)

Property could be lawfully transferred only through a registered sale deed – every property sale has to be duly registered.

Impact: Sale Agreement(SA)/General Power of Attorney(GPA)/will transactions, where a purchaser pays the full price, but instead of getting a deed of conveyance gets a SA/GPA/WILL as a mode of transfer, either at the instance of the vendor or at his own instance are history. A registered deed of conveyance translates to a safer deal because records prove the sale even if you lose the documents or it is destroyed. Helps prevent forgeries & fraud. Benefits to the government as it will help prevent evasion of income tax, stamp duty & registrations, and circulation of black money.

Ganga Kushan's appeal, Supreme Court, May 2012
(Guarantor liable to repay loan if debtor defaults)
Ganga Kishun, who had stood as a guarantor to a bank loan, raised by one Ganga Prasad, who had died without clearing it. Ganga Kishun had come to the apex court against the Uttar Pradesh government's decision to recover the loan arrears from him after the death of principal debtor Ganga Prasad.
While dismissing Ganga Kishun's appeal, the apex court, however, faulted the government's decision to auction Ganga Kishun's entire stretch of land for Rs 25,000 to recover an arrear worth Rs 8,500 only and not confining the auction to only 1/3rd of the land which could have fetched the arrears.
Impact: Provoke people into thinking twice before becoming a guarantor for a bank loan.

United India Insurance Company vs Laxmamma, Supreme Court, 17 April 2012
(insurer has to pay if a policy is cancelled after an accident)
United India Assurance collected the premium cheque and issued the policy. The cheque got dishonoured and there was an accident resulting in death of the relative of the respondent. The insurance company cancelled the policy after the date of the accident citing cheque bounce as the reason of cancellation. The Supreme Court did not want the respondent to suffer in this case and ruled in favour of the claimant.

Impact: Judgement takes care of the lacuna, wherein a mishap occurs before the policyholder is informed about the cancellation of a policy.

Shivappa Malappa Isapure vs Ganpat Malappa Isapure, Bombay High Court, 28.01.2010. (ancestral family property cannot be gifted)
Mr Mallappa Isapure had two wives. In 1959 he divided his ancestral property located in Miraj between the children of his two wives. The second wife Chandrabai claimed that in 1941, her husband had gifted to her a portion of the property out of love and that gifted portion is in the possession of the first wife's sons.
The sons contested the claim, saying that as it is a joint family property, it cannot be gifted.

Impact: Applies only to HUF’s & other religions do not necessarily recognise the system of joint property.

Harsha Nitin Kokate vs Saraswat Co-op Bank & others, Bombay High Court, 20.04.2010 (nominee, not heir, inherits shares)
In 2008, Harsha filed a petition in the court seeking permission to sell her deceased husband’s shares, for which her nephew was the nominee. Nithin Kokate died in July 2007 and made his nephew the nominee in July 2006 for the shares held in the demat account of the depository participant cell of the bank. The court held that the wife has no right over the shares as the provisions of the Companies Act mandated that the nominee inherit them.

Impact: Provisions of the Companies Act override the legality of the will. As per Sec 109 A of the Companies Act, the nominee legally inherits the shares after the death of the original shareholder even if the latter has been named someone else in the will

C. Venkatachalam vs Ajithkumar C. Shah, Supreme Court, 29.10.2011
(non-lawyers can appear before consumer courts)
Appeal by the Bar Council of India against a 2002 Bombay High Court judgment – Earlier a District forum had upheld two tour operators demand that non-advocates should not be allowed to represent consumers.
Impact: A welcome move as it will simplify procedures and promote easy access for members of the public to consumer forums. One of the reasons for this decision is that the small amount of compensation granted in consumer disputes may not make it economically viable for appellants to factor in the heavy cost of legal representation.

Noel Dominic Periera vs Pamela Ethel Kuhn & others, Bombay High Court, 29.09.2010. (only blood relations can be heirs)
One of the defendants, who was a  claimant to the property of Late Merlyn Loretta Patton was the stepson of Merlyn’s brother Derrick – related to Derrick’s second wife by blood, not to his stepfather or Merlyn.
Impact: If there is no will, the law of succession takes over and the deceased’s property is divided accordingly. Indian Succession Act does not make a distinction between heirs related by half blood and full blood. The Hindu Succession Act states that heirs by full blood shall be preferred.

Sayar Kumari vs State of Orissa & others, Delhi High Court, 9.10.2009
(video recording of a will is legal)
Probate of will – Sayar Kumari’s husband’s grandmother’s will – contested by her father-in-law – court goes through the physical copies of the will, as well as a video recording of the execution – process of signing the will and getting it attested by two witnesses

Impact: Makes the execution of the will fool proof to an extent. Eliminates to a large extent the questions of genuineness or the capacity of the testator to make the will. A mere recitation of the document’s contents is not accepted.

(Adapted from the ET dated August 20th, 2012)

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