Invalidation of the state re-registration and invalidation of the purchase and sale agreement for 100% of the authorized capital of the Partnership
On April 12, 2022, the Judicial Board for Civil Cases of the Supreme Court of the Republic of Kazakhstan, consisting of: Chairman - Chairman of the Board K., judges Zh., K., having considered with the participation of a representative of the republican state institution "State Revenue Department of the State Revenue Department of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan" (hereinafter referred to as the Tax Authority, Institution) A.E., a representative of the republican state institution "Department of Justice of the Ministry of Justice of the Republic of Kazakhstan" (hereinafter - Department) A.R., representative of M.S.– A.A.,
in an open court hearing via mobile videoconference, a civil case was filed by the Institution against the Limited Liability Partnership "A" (hereinafter referred to as the Partnership, LLP), the Department, M.S., the limited liability company "Scientific and Production Association "R" (hereinafter referred to as the Company), K.A.:
-on the invalidation of the state re-registration of the Partnership dated August 4, 2017;
- on invalidation of the purchase and sale agreement for 100% of the authorized capital of the Partnership dated July 31, 2017 (hereinafter referred to as the Agreement),
received at the request of the Institution for a review of the ruling of the specialized interdistrict economic court dated April 30, 2021, the ruling of the judicial board for civil cases of the regional court dated June 24, 2021,
The institution filed a lawsuit against the Partnership, Department, M.S., Society, K.A. with the above-mentioned requirements.
By the ruling of the specialized interdistrict economic court of April 30, 2021, which was left unchanged by the ruling of the judicial board for civil cases of the regional court of June 24, 2021, the proceedings were terminated.
In the petition, the Institution, pointing to significant violations of the norms of substantive and procedural law committed by local courts, asks to cancel judicial acts and send the case for consideration on the merits to the court of first instance.
In the response to the petition, the Department indicates that the state re-registration of the Partnership was carried out without violations by the registering authority, leaving the final decision on the case to the discretion of the court.
After hearing the explanations of the representative of the Tax Authority who supported the arguments of the petition, the representative of the Department who left the resolution of the petition to the discretion of the court, the objections of the representative of M.S. - A.A., having examined the materials of the civil case and discussed the arguments of the petition, the judicial board comes to the following.
In accordance with part 5 of Article 438 of the Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the CPC), the grounds for cassation review of judicial acts that have entered into force are significant violations of substantive and procedural law that led to the issuance of an illegal judicial act.
Such violations were committed by local courts during the consideration of the case.
The court found that the Partnership was registered with the republican state institution "State Revenue Department for the Kazybek bi district of Karaganda city". Type of activity - wholesale trade of machinery for mining and civil engineering.
On July 31, 2017, the Company, M.S. and K.A. concluded a contested Purchase and Sale Agreement for 100% of the share of the authorized capital of the LLP.
Due to the change in the membership, the state re-registration of the Partnership was carried out by order of the Department dated August 4, 2017. The sole participant and the head of K.A., legal address: the city of S., T street, house 8, apartment 1.
The Partnership has not executed Tax notification No. 451 dated June 25, 2020 on the elimination of violations identified by state revenue authorities based on the results of desk control of transactions dated April 28, 2017, May 31, 2017, June 30, 2017, the amount of violations amounted to KZT 116,159,293.
The tax authority filed this lawsuit with the court, stating that K.A. did not have a will to acquire a 100% share of the authorized capital of the LLP. The partnership was re-registered not for carrying out entrepreneurial activities, but for the purpose of evading tax obligations.
The Court of first instance, with whose legal position the appeals board agreed, terminated the proceedings based on the fact that the filing of a claim by an interested person has the purpose of restoring the violated right. In this case, the person who applied for protection of the right or interest must prove that his right or interest was indeed violated by the unlawful behavior of the defendant, as well as prove that the chosen method of protecting the violated right will lead to its restoration. The right to choose a specific way to protect the violated right belongs to the plaintiff.
The tax authority does not raise the issue of liquidation of a legal entity before the court. The method of protection in the form of challenging a change of legal address is not provided for by tax legislation.
Challenging the legality of the concluded transaction is not aimed at ensuring the completeness and timeliness of taxes and payments to the budget.
The violations indicated in the statement of claim are subject to elimination by the Institution independently provided by the methods of tax administration.
However, it is impossible to agree with such conclusions of the courts, as they are based on the incorrect application of substantive and procedural law.
Termination of proceedings in a case is one of the forms of termination of the judicial process without a decision due to the presence of circumstances preventing the consideration of a legal dispute on the merits.
According to subparagraph 1) of Article 277 of the CPC, the court terminates the proceedings in the case if:
- the case is not subject to consideration in civil proceedings.
The basis given in the law is not applicable to the dispute under consideration.
The application of this rule of civil procedure is possible only if the plaintiff does not have the right to appeal to the court, and the protection of the violated rights of the person who appealed to the court is carried out in a different manner from civil proceedings.
Meanwhile, the method chosen by the Institution for the protection of civil rights is directly provided for by law and can only be implemented by filing a claim in civil proceedings.
Paragraph 1 of Article 13 of the Constitution of the Republic of Kazakhstan guarantees the right of everyone to defend their rights, freedoms and legitimate interests in all ways that do not contradict the law.
One of these methods is to invalidate the transaction and challenge the state re-registration of the legal entity based on the transaction.
In order to ensure the completeness of tax receipts to the budget, the tax authorities have the right to file these claims. This right is granted to them by subparagraph 10) of paragraph 1 of Article 19 of the Code of the Republic of Kazakhstan "On Taxes and Other Mandatory Payments to the Budget" (hereinafter referred to as the Tax Code) and is provided for in Part 1 of Article 55 of the CPC.
Paragraph 14 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan "On Judicial practice of applying Tax Legislation" dated June 29, 2017 No. 4 clarified that in cases of challenging the re-registration of a legal entity due to a change in the composition of participants, courts should take into account the provisions of article 14 of the Law on State Registration of Legal Entities.
This norm stipulates that for the state re-registration of business partnerships on the basis of a change in the membership, a document confirming the alienation (assignment) of the right of the retiring member of the business partnership to a share in the property (authorized capital) of the partnership or its part in accordance with the legislative acts of the Republic of Kazakhstan and constituent documents is submitted.
When an individual is a party to such an agreement, it is subject to notarization.
When considering cases, the courts need to find out whether such transactions have been challenged in court. Whether these transactions are disputed or void by virtue of a direct indication of the law.
The claim filed by the Tax Authority is motivated by the fact that during the pre-trial investigation of a criminal case initiated by the Department of Economic Investigations in the Karaganda region under part 3 of Article 216 of the Criminal Code of the Republic of Kazakhstan, the sole head and participant of K.A. LLP testified that he had re-registered the Partnership in his name for a monetary reward. In fact, he did not carry out business activities, including did not conclude contracts, did not form the authorized capital, did not have a seal, constituent and accounting documents.
In such circumstances, the board comes to the conclusion that the arguments of the petition are justified. The local courts violated the rules of procedural law, which led to restrictions on the Tax Authority's rights to unhindered access to justice. These violations are significant because they led to the illegal termination of the proceedings, which entails the cancellation of the contested judicial acts and the referral of the civil case for a new hearing on the merits to the court of first instance.
In a new trial, the court should create conditions for the parties to exercise equal opportunities to defend their position.
Collectively and comprehensively examine and evaluate the evidence available in the case file and presented by the parties, give them an appropriate legal assessment; determine the circumstances relevant to the proper resolution of the case; apply the law applicable to the disputed legal relationship, and as a result make a lawful and reasonable decision that meets the requirements of the civil procedure law.
Guided by subparagraph 5) of part 2 of Article 451 of the CPC, the judicial board DECIDED:
The ruling of the specialized interdistrict Economic court of April 30, 2021, and the ruling of the judicial board for civil cases of the regional court of June 24, 2021 on this case should be canceled.
To send the civil case for a new hearing in a different composition of the court to a specialized interdistrict economic court.
To satisfy the petition of the republican state institution "State Revenue Department of the State Revenue Department of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan".
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