Tanmay PatnaikPartner
Raj ChhedaCounsel
Eisha SinghAssociate
Key Developments
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Supreme Court holds legal heirs not liable for personal contractual obligations of the deceased
The Supreme Court of India clarified the responsibility of legal heirs and representatives towards the contractual obligations and liabilities of a deceased individual. The Court ruled that legal heirs and representatives are liable only for the monetary obligations of the deceased up to the value of the estate they inherit.1 They are not personally liable for fulfilling obligations that required the specific skills or expertise of the deceased.
In this case, the deceased developer had entered into a development agreement but failed to satisfactorily meet construction milestones and payment obligations. He died during the pendency of proceedings and his legal heirs were made parties to the appeal proceedings. The Court noted that under Section 37 of the Indian Contract Act, 1872, when personal considerations or specific skills are the basis of a contract, the obligations come to an end on the death of either party unless there is an express or implied stipulation to the contrary. Duties or obligations which are personal in nature cannot be transmitted from a person who had to personally discharge those duties to his legal representatives on his demise. A contract of service is also personal to the promisor.
Accordingly, the Court held that while the legal heirs of the deceased developer were liable to the extent of outstanding financial obligations, they could not be compelled to perform the construction and development related obligations, which were premised on the specific expertise of the deceased developer and were intended to be performed by him personally.
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United States government proposes to increase reporting burden on beneficiaries of foreign trusts and gifts
The United States (US) Treasury and Internal Revenue Service (IRS) proposed regulations to enhance the reporting requirements of US persons for transactions involving foreign trusts and the receipt of foreign gifts (Proposed Regulations).2 The Proposed Regulations aim to broaden the IRS' oversight, particularly targeting payments to US persons made in the form of loans from foreign trusts.
The Proposed Regulations include rules for both direct and indirect loans from foreign non-grantor trusts to US persons. These loans will be treated as 'deemed distributions' and be subject to US taxation in certain instances. These include:
- loans made by any person related to a foreign trust to a US grantor or US beneficiary of such trust; and
- loans made by any person guaranteed by a foreign trust.
Loans that satisfy the criteria specified for 'qualified obligations', such as being in writing, having a short term of five years or less, involving cash payments in US dollars, etc., are exempted from these rules. If a foreign grantor or beneficiary of a loan becomes a US person within two years of receiving the loan, the outstanding loan amount will be deemed as taxable distribution received by them, and be subject to US taxation, unless it is a 'qualified obligation'.
The Proposed Regulations also tighten the reporting requirements for US persons who receive gifts, bequests, or distributions above the reportable threshold (i.e., USD 100,000) from a foreign person or trust. While identifying the foreign donor/lender is currently not mandatory, the new regime will require such information (i.e., name and address of the donor/lender) to be reported. Failure to report would attract penalty of 5% of the reportable amount for each month for which the failure to report persists, up to a maximum of 25%.
US persons who are parties to foreign trusts, or individuals involved in any trusts outside the US and planning to migrate to the US, must carefully assess the implications of the Proposed Regulations to avoid potential tax liabilities and penalties.
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National Company Law Tribunal permits a private trustee company to convert to company limited by guarantee
In a significant move, the National Company Law Tribunal, Bengaluru Bench (NCLT) allowed Azim Premji Trustee Company Private Limited (Premji Trustee Company) to convert from a company limited by shares (CLS) to a company limited by guarantee (CLG) through a scheme of arrangement (Scheme).3 This order sets a precedent for private trustee companies (PTC) and other companies that may require such conversion in the absence of specific regulations governing the same.
The Premji Trustee Company contended that a CLG structure is better suited for acting as trustee of philanthropic trusts as it ensures no property rights are created while fulfilling fiduciary duties. However, the Registrar of Companies and the Regional Director opposed the conversion citing a lack of specific rules governing the conversion of a CLS to a CLG. On the other hand, the Premji Trustee Company argued that the lack of rules cannot prohibit the conversion as Section 18 of the Companies Act, 2013 (Companies Act) allows a registered company to convert from any class of company to another class. The NCLT approved the conversion noting that the mere absence of specific rules cannot prohibit the conversion when the Companies Act allows it. This decision is significant for structuring PTCs in managing philanthropic and private trusts.
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Bombay High Court holds that applications to waive cooling-period in divorce proceedings must not be rejected mechanically
The Bombay High Court recently waived the mandatory six-month cooling-off period under Section 13B(2) of the Hindu Marriage Act, 1955 for a couple seeking a mutual divorce after several unsuccessful reconciliation efforts.4 This cooling-off period is intended to allow parties time to reconcile before finalising the divorce and usually courts cannot pass a decree of divorce before such cooling-off period is over. However, in view of evolving social dynamics, the Bombay High Court held that family courts must not reject such applications mechanically. This ruling also affirms a similar stance taken by the Allahabad High Court.5
The Bombay High Court referred to the Supreme Court's ruling in Amardeep Singh v Harveen Kaur, which allows for waiving this period if reconciliation attempts have failed and extending it would only prolong suffering. The High Court emphasised a realistic approach when considering waiver applications, recognising that mutual agreement to divorce shows no potential for reconciliation and courts must alleviate prolonged litigation stress.
[1]Vinayak Purshottam Dube (deceased) v Jayashree Padamkar Bhat & Ors., [2024] 3 SCR 127: 2024 INSC 159
[2]Available at: 2024-09434.pdf (govinfo.gov)
[3]C.P. (CAA) No. 51/BB/2022 (Second Motion)
[4]Sneha Akshay Garg and Akshay Sunil Garg v Nil, Writ Petition No. 9369 of 2024
[5]Vijay Agarwal v Smt. Suchita Bansal, First Appeal No. 362 of 2016
