Case: Asea Brown Boveri Ltd Vs. S Industrial Finance Corporation Of India And Others

The lessor is typically a financial institution and cannot render specialized service in connection with the asset.8. The lease is usually full-pay-out, that is, the single lease repays the cost of the asset together with the interest." 17. In our opinion, financial lease is a transaction current in the commercial world, the primary purpose whereof is the financing of the purchase by the financier. The purchase of assets or equipments or machinery is by the borrower. For all practical purposes, the borrower becomes the owner of the property inasmuch as it is the borrower who chooses the property to be purchased, takes delivery, enjoys the use and occupation of the property, bears the wear and tear, maintains and operates the machinery/ equipment, undertakes indemnity and agrees to bear the risk of loss or damage, if any. He is the one who gets the property insured. He remains liable for payment of taxes and other charges and indemnity. He cannot recover from the lessor, any of the above mentioned expenses. The period of lease extends over and covers the entire life of the property for which it may remain useful divided either into one term or divided into two terms with clause for renewal. In either case, the lease is non-cancellable. 18. All the abovesaid features are available in the transaction entered into by the appellant. In addition, we find that the registration of the 56 cars stood in the name of the appellant from the very beginning and on payment of full amount including termination fee, as agreed upon, nothing more was needed to be done to vest the appellant with ownership and only loan documents were needed to be discharged and cancelled.19. There are certain tax benefits which by styling the transaction like a financial lease become available to the lessor (financer) and the lessee (borrower) both. Accounting standards have been devised consistently with which the entries are made in the accounts so as to satisfy the requirements of tax laws and to avail the best benefits by way of tax planning to both the parties. 20. However, so far as the Act is concerned, we have to go by the provisions of the Act, keeping in view the real nature of the transaction ascertaining the real intention of the contracting parties in the light of the facts and circumstances of a given case. Once a party has been notified under sub-section (2) of Section 3 of the Act then under sub-section (3), notwithstanding anything contained in any other law for the time being in force with effect from the date of notification under sub-Section (2), any property, movable or immovable or both belonging to notified party stands attached simultaneously with the issue of the notification and becomes liable to be dealt with by the custodian in such manner as the Special Court may direct. A person is liable to be notified by reference to transaction in securities between 1.4.1991 and 6.6.1992. Any contract or agreement entered into between 1.4.1991 and 6.6.1992, in relation to any property of the notified party is liable to be cancelled, if found to have been entered into fraudulently or to defeat the provisions of the Act. Analysing the provisions of the Act, it was held in BOI Finance Ltd. vs. Custodian and others (1997) 10 SCC 488, that the custodian under the Act is required to assist in the attachment of the notified persons property and to manage the same thereof. The properties of the notified persons, whether attached or not, do not, at any point of time, vest in him. He is merely a custodian and not a receiver nor is he a final liquidator so as to enjoy control over the properties. In other words, the position of the custodian is the same as that of the notified person himself. We are, therefore, of the opinion that the custodian remains bound by the obligations incurred by the notified party itself, if not incurred fraudulently or to defeat the provisions of the Act. 21. For the purpose of deciding the controversy before us, it is not necessary for us to examine whether the transaction entered into between the appellant and Fairgrowth, the respondent No. 3, would at all attract the applicability of the provisions of the Act in view of sub-section (2) of Section 3 thereof. The learned counsel for the appellant has taken a very fair stand submitting that the appellant is prepared to pay if anything in still found to be due and payable by it but in any case the 56 cars could not have been held liable and directed to be delivered to the custodian. It was a simple case of accounting. If the appellants have cleared all their payments in accordance with the agreement dated 4.12.1990, initially to Fairgrowth and thereafter to the custodian including payment of terminal fee subject to adjustment for security deposit and the interest accrued thereon, then all that had remained to be done was the transfer of ownership on paper which the custodian should have been directed to do, submitted the learned counsel. But, as we have already noticed, the registration of the cars already stands in the name of the appellant. On a scrutiny of the accounts, if in the opinion of the Special Court, nothing had been remained to be paid by the appellant, then it was only a matter of calculation, the difference between the appellants statement of account and the one prepared by the Chartered Accountant at the instance of the custodian being bonafide, the appellant could, at best, have been directed to pay the deficit. But in no case submitted the learned counsel for the appellant, the 56 cars could have been directed to be delivered to the custodian. In spite of having made full payment (bonafide error or dispute as to calculation excepted), direction of delivery of cars to the custodian has caused failure of justice. We find ourselves in agreement with the submission so made.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. A perusal of the detailed order passed by the Special Court shows that the Special Court shows that the Special Court refused to treat the transaction between the appellant and Fairgrowth as one of lease finance and instead treated it to be a transaction of lease only i.e. the appellant holding 56 cars as lessee of Fairgrowth. The principal reason which prevailed according to the Special Court is that in its application, the appellant had stated the transaction to be of lease and not of lease finance. Thus the Special Court has rigidly applied the rules of pleadings but a perusal of the order shows that there has been no effort to scrutinize and interpret the documents evidencing the transaction so as to determine the real nature thereof.A perusal of the detailed order passed by the Special Court shows that the Special Court shows that the Special Court refused to treat the transaction between the appellant and Fairgrowth as one of lease finance and instead treated it to be a transaction of lease only i.e. the appellant holding 56 cars as lessee of Fairgrowth. The principal reason which prevailed according to the Special Court is that in its application, the appellant had stated the transaction to be of lease and not of lease finance. Thus the Special Court has rigidly applied the rules of pleadings but a perusal of the order shows that there has been no effort to scrutinize and interpret the documents evidencing the transaction so as to determine the real nature thereof.All the abovesaid features are available in the transaction entered into by the appellant. In addition, we find that the registration of the 56 cars stood in the name of the appellant from the very beginning and on payment of full amount including termination fee, as agreed upon, nothing more was needed to be done to vest the appellant with ownership and only loan documents were needed to be discharged and cancelled.19. There are certain tax benefits which by styling the transaction like a financial lease become available to the lessor (financer) and the lessee (borrower) both. Accounting standards have been devised consistently with which the entries are made in the accounts so as to satisfy the requirements of tax laws and to avail the best benefits by way of tax planning to both the parties.l the abovesaid features are available in the transaction entered into by the appellant. In addition, we find that the registration of the 56 cars stood in the name of the appellant from the very beginning and on payment of full amount including termination fee, as agreed upon, nothing more was needed to be done to vest the appellant with ownership and only loan documents were needed to be discharged and cancelled.19. There are certain tax benefits which by styling the transaction like a financial lease become available to the lessor (financer) and the lessee (borrower) both. Accounting standards have been devised consistently with which the entries are made in the accounts so as to satisfy the requirements of tax laws and to avail the best benefits by way of tax planning to both the parties.For the purpose of deciding the controversy before us, it is not necessary for us to examine whether the transaction entered into between the appellant and Fairgrowth, the respondent No. 3, would at all attract the applicability of the provisions of the Act in view of(2) of Section 3 thereof. The learned counsel for the appellant has taken a very fair stand submitting that the appellant is prepared to pay if anything in still found to be due and payable by it but in any case the 56 cars could not have been held liable and directed to be delivered to the custodian. It was a simple case of accounting. If the appellants have cleared all their payments in accordance with the agreement dated 4.12.1990, initially to Fairgrowth and thereafter to the custodian including payment of terminal fee subject to adjustment for security deposit and the interest accrued thereon, then all that had remained to be done was the transfer of ownership on paper which the custodian should have been directed to do, submitted the learned counsel. But, as we have already noticed, the registration of the cars already stands in the name of the appellant. On a scrutiny of the accounts, if in the opinion of the Special Court, nothing had been remained to be paid by the appellant, then it was only a matter of calculation, the difference between the appellants statement of account and the one prepared by the Chartered Accountant at the instance of the custodian being bonafide, the appellant could, at best, have been directed to pay the deficit. But in no case submitted the learned counsel for the appellant, the 56 cars could have been directed to be delivered to the custodian. In spite of having made full payment (bonafide error or dispute as to calculation excepted), direction of delivery of cars to the custodian has caused failure of justice. We find ourselves in agreement with the submission so made.