|
 We
have filed a recovery suit against a company indebted to us under
a supply agreement. We propose to assign our rights and obligations
under the supply agreement to a third party. Can we assign our rights
and obligations and can the assignee continue to prosecute the suit?
As a rule, obligations under a contract cannot
be assigned except with the consent of the promisee. On the other
hand, rights under a contract are assignable unless the contract
is personal in nature, or if the rights are incapable of assignment
under the terms of the contract or under law. Agreements usually
provide that no assignment of rights and obligations under the agreement
will be valid unless prior written consent of the other party is
obtained. The agreement may also provide that prior written consent
of the other party is not required in case assignment is to an affiliate
or related third party. The assignment of your rights and obligations
will therefore need to be in terms of the supply agreement. After
the assignment, the assignee can file an application for an order
of substitution to enable the assignee to continue prosecuting the
suit against the company. As trial of an action cannot be arrested
by reason of assignment or devolution of interest, the court would
normally pass an order of substitution on such terms as it may think
just.
We are a public company with a provision
in our articles of association authorising our board of directors
to issue non-voting equity shares. Can our company issue such shares?
Your company may not be able to issue non-voting
equity shares as section 87 of the Companies Act, 1956, gives every
shareholder a right to vote on every resolution placed before the
company in proportion to the shareholding of such shareholder. However,
your company can, if authorised by its articles of association,
issue equity shares with disproportionate voting rights in terms
of Section 86 as amended by the Companies (Amendment) Act, 2000,
and in accordance with the Companies (Issue of Share Capital with
Differential Voting Rights) Rules, 2001. Shares with differential
rights are distinguished from shares with no voting rights. Voting
rights have to be maintained for all shares though they may be disproportionate.
Your company can issue shares with disproportionate voting rights
if it has (i) distributable profits for three preceding financial
years; (ii) filed its annual accounts and annual returns for three
preceding financial years; (iii) obtained approval of its shareholders
in a general meeting for increasing the share capital to accommodate
the issue of such shares; (iv) repaid any deposits or interest thereon,
and redeemed any debentures and paid dividend on due dates; (v)
not been convicted of any offence under the Securities and Exchange
Board of India Act, 1992, the Securities Contracts (Regulation)
Act, 1956, and the Foreign Exchange Management Act, 1999; and (vi)
met all investors' grievances.
We are a holding company with downstream
investments in other companies. We do not have any business operations
of our own. Will dividends received from our downstream investments
be subject to tax?
As your company does not have any business
operations of its own, there may be income tax implications with
respect to dividends received from your downstream investments.
In terms of Section 115-jb of the Income Tax Act, 1961, if the tax
liability on your company's total income is less than 7.5 per cent
of its book profits, your company may be subject to a minimum alternate
tax (mat) of 8.475 per cent (7.5 per cent plus 0.975 per cent surcharge)
of its book profits. As your company is not an operating company,
the book profits of your company (comprising primarily of dividends
from its downstream investments) would exceed 7.5 per cent of its
taxable profits (which would be virtually nil due to tax exemption
available on dividends). Presently, credit in respect of mat payable
under Section 115-jb of the Income Tax Act, 1961, is not available.
|
