Author name: CBCL

Section 17 of SARFAESI and Breach of OTS Agreements: A Legal Conundrum

Leave a Comment / Banking Law /

[By Upanshu Shetty] The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), was enacted to empower financial institutions with a framework to recover non-performing assets without resorting to time-consuming litigation. A key feature of the SARFAESI Act is Section 17, which grants borrowers the right to challenge enforcement actions taken by secured creditors under Section 13(4). Over the years, judicial interpretations of Section 17 have evolved, particularly in the context of One-Time Settlement (OTS) agreements, where borrowers often seek relief when banks revoke settlement offers or enforce security interests after an alleged breach.  While OTS schemes are designed to facilitate amicable resolution between lenders and borrowers, disputes often arise when borrowers fail to comply with the settlement terms, leading banks to cancel OTS agreements and proceed with asset recovery. In such cases, borrowers have sought to invoke Section 17 before the Debts Recovery Tribunal (DRT) to challenge the enforcement of security interests. However, the judiciary has taken a nuanced approach to these cases, weighing the contractual nature of OTS agreements against the statutory framework of SARFAESI. The evolving jurisprudence suggests that while borrowers can approach the DRT to challenge wrongful enforcement, they cannot use Section 17 to seek enforcement of an OTS agreement itself.  The Role and Scope of Section 17 under SARFAESI Section 17 of SARFAESI provides an appellate remedy to any person aggrieved by measures taken under Section 13(4), which empowers secured creditors to take possession of secured assets or manage them in a manner they deem fit. The provision is intended as a safeguard against arbitrary or unlawful enforcement, ensuring that creditors act within the bounds of the law while exercising their rights. In Hindon Forge Private Limited v. State of Uttar Pradesh, the Supreme Court reaffirmed that a borrower can approach the DRT at the stage of the possession notice itself, thereby ensuring a fair opportunity to challenge enforcement proceedings.  However, a fundamental question remains: does Section 17 apply to disputes concerning OTS agreements? Courts have generally held that DRT jurisdiction is limited to reviewing measures taken under Section 13(4) and does not extend to general contractual disputes between banks and borrowers. In Bijnor Urban Co-operative Bank Ltd. v. Meenal Agarwal, the Supreme Court categorically ruled that a borrower cannot claim OTS as a matter of right and that no writ of mandamus can be issued directing a bank to grant such a settlement. This principle suggests that an aggrieved borrower cannot invoke Section 17 solely to enforce an OTS agreement but may do so if the revocation of an OTS results in wrongful enforcement under SARFAESI.  The Enforceability of OTS Agreements and Borrower Rights OTS agreements are contractual arrangements governed by the policies of individual banks and subject to the regulatory framework set by the Reserve Bank of India (RBI). While they provide borrowers an opportunity to settle dues at a reduced amount, they do not confer an absolute right to settlement. Courts have consistently upheld the discretionary nature of OTS schemes, emphasizing that banks must be allowed commercial autonomy in deciding whether to accept or reject a settlement proposal.  In Amrik Singh v. DCB Bank Ltd., the High Court held that once a bank frames an OTS policy in compliance with RBI guidelines, it must act in good faith while considering applications. Arbitrary rejection or revocation of an OTS offer, particularly if the borrower has demonstrated bona fide intent to comply, may invite judicial scrutiny. However, this does not imply that a borrower can force the bank to accept an OTS or claim an automatic extension of time to make payments. In State Bank of India v. Arvindra Electronics Pvt. Ltd., the Supreme Court ruled that borrowers cannot demand an extension of OTS terms as a matter of right, reaffirming the principle that OTS agreements remain subject to mutual agreement rather than legal compulsion.  OTS Breach and the Availability of Remedies Under Section 17 A key legal question arises when a borrower defaults on an OTS agreement, and the bank, consequently, proceeds with SARFAESI enforcement. In such instances, the borrower may attempt to challenge the action under Section 17, arguing that the bank’s revocation of the OTS was unjustified. However, the judiciary has generally restricted the scope of Section 17 to reviewing enforcement measures rather than adjudicating contractual disputes.  The Supertech Realtors Pvt. Ltd. v. Bank of Maharashtra, decision underscores this principle by holding that OTS agreements are purely contractual in nature and that disputes concerning their breach should be adjudicated through civil proceedings rather than writ petitions or SARFAESI appeals. However, there have been exceptions. In Anu Bhalla v. District Magistrate, Pathankot, the High Court exercised its writ jurisdiction to extend the OTS period based on the borrower’s bona fide intent to pay. This ruling highlights the judicial balancing act between upholding contractual obligations and ensuring fairness in lender-borrower relationships.  While the courts have largely maintained that Section 17 does not provide recourse for enforcing OTS agreements, they have recognized limited exceptions where the borrower can demonstrate that the bank acted in bad faith or violated due process. If the revocation of an OTS is arbitrary and is immediately followed by disproportionate enforcement under SARFAESI, the borrower may have grounds to challenge the action before the DRT. However, such challenges must be rooted in procedural violations rather than the mere expectation that an OTS should have been granted.  The Interplay Between Section 17 and Writ Jurisdiction Under Article 226 A significant aspect of this debate is whether borrowers can bypass the limitations of Section 17 by invoking Article 226 of the Constitution. The Supreme Court has consistently discouraged the use of writ jurisdiction in SARFAESI matters, emphasizing that statutory remedies under the Act must be exhausted before approaching the High Courts. In G. Vikram Kumar v. State Bank of Hyderabad, the Court ruled that challenges to e-auction notices must

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GST on License Fess: Unresolved Questions

Leave a Comment / Taxation Law /

[By Lovish J Goyal] The author is a student of NALSAR University of Law, Hyderabad.   Introduction Electricity Regulatory Commission(s) (‘ERC’) are instrumental in shaping India’s electricity sector. They are established under various statutes to regulate the electricity sector in their jurisdictions. These statutory bodies are responsible for granting licenses and determining tariffs to ensure an uninterrupted and reliable electricity supply. ERC are also vested with quasi-judicial powers, which enable them to regulate the industry effectively.  However, the license fees collected by ERC on the grant of licenses have recently become a contentious issue due to Goods and Services Tax (‘GST’) authorities seeking to levy GST on such collections. A landmark development occurred when the Delhi High Court quashed the levy of GST on license fees collected by the Central Electricity Regulatory Commission (‘CERC’) and the Delhi Electricity Regulatory Commission (‘DERC’). Similar legal challenges are pending in various other High Courts. The legal questions about the problem become relevant in light of similar activities undertaken by similar statutory bodies. Different industries have various regulatory authorities regulating them, ranging from Pollution Control Boards to Education Boards through issuing licenses and collecting fees. There have been instances wherein GST has been levied on license fees collected by different statutory authorities. Thus, the answer to this question would have broad ramifications across industries. This makes it imperative to have a clear law laid down on this issue. The Delhi High Court judgment becomes vital in light of the significance of the subject matter of the case.   Judicial Development The Delhi High Court, in the case of CERC v. Additional Director DGGI (‘Additional Director’), quashed the demand for GST, which was confirmed by the GST Department. The court based its decision on the finding that the ERC perform quasi-judicial functions. The court relied on the judgment of PTC India v. CERC (‘PTC’) to borrow the principle that the licensing function of CERC is a quasi-judicial function. Schedule III under the CGST Act provides that services by any court or tribunal established under any law for the time being in force shall not be treated as a supply. This makes the activities of any court or tribunal exempt from the levy of GST. It further held that these commissions primarily execute their statutory mandate and, therefore, should not be subjected to GST.   Furthermore, the court went into the contention of whether services rendered by these bodies are in furtherance of any business. An act has to be in furtherance of a business in order to make it exigible to GST. The court held that the power to regulate could not be considered akin to trade, commerce, manufacture, profession, and other activities enumerated in Section 2(17)(a), which defines “business.” Further, it holds that CERC is not akin to local authorities, Central Government, or State Government. Section 2(17)(i) makes any activity or transaction undertaken by the Central Government, a State Government, or any local authority as a public authority also constitute a business. Based on the aforementioned considerations, the High Court held that the licensing activities of CERC cannot be made exigible to GST. However, several questions remained unanswered during the course of this case.  The Unaddressed Questions Whether granting licenses is a quasi-judicial function? The court heavily relied on PTC to conclude that granting licenses is a quasi-judicial function performed by CERC without going into a critical examination of the underlying issues. However, the court failed to appreciate the context in which the decision in PTC was based. The case pertained to whether regulations framed by CERC to regulate the electricity industry can be challenged before the Appellate Tribunal for Electricity. In this context, the Apex Court in PTC held that framing of regulations cannot be challenged as it is a regulatory function;i however, granting a license is not a regulatory function but a quasi-judicial function and thus can be challenged. However, this judgment was in an administrative law context. It was, therefore, on the High Court in the case of Additional Director to determine whether a quasi-judicial authority for the purposes of administrative principles would also automatically become a quasi-judicial authority for taxation purposes. The High Court, rather than delving into this question, uncritically followed the law laid down in PTC.   A similar conundrum exists in the context of arbitration tribunals as well. In the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML, the Apex Court considered an arbitration tribunal to be a quasi-judicial tribunal while arriving at the further conclusion of determining the legality of a Unilateral Arbitrator Appointment Clause. The case considered whether such clauses would allow impartial decision making on account of arbitration tribunals being quasi-judicial bodies. However, CBIC, vide Circular No. 193/03/2016 had already clarified that service tax was to be liable for services provided by an arbitral tribunal. Whereas Section 65B(44)(c) of the Finance Act 1994 also provided an exception to fees collected by courts or tribunals, still service tax used to be levied on the fees collected by the arbitration tribunals similar to the exception provided in CGST Act. Moreover, various arbitration centres across the country still charge GST on the arbitration fees collected by them.  The situation becomes similar as much as classification of CERC and arbitration tribunals into quasi-judicial body is concerned. However, both these entities differ in the way they are treated under taxation laws after the decision in the case of Additional Director..This takes us back to the same question: can a quasi-judicial authority for administrative law purposes also be considered one for taxation purposes? Answering it becomes more imperative in light of the broad application of this legal question.  The purpose of quasi-judicial bodies in administrative laws is to extend the principles of natural justice to the decision-making of these bodies. This has been recurrently stated by the Apex Court in landmark cases such as the Province of Bombay v. Khushaldas Advani and AERA v. Delhi International Airport. However, the purpose of determining quasi-judicial bodies for taxation purposes is

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Beyond The Exit: Status Of The Global Tax Deal and India’s Strategy

Leave a Comment / Taxation Law /

[By Khushbu Mathuria] The author is a student of Rajiv Gandhi National University of Law, Patiala.   Introduction With the incoming of the Trump administration, the US has withdrawn from the Global Tax Deal via a presidential memorandum issued on January 20, 2025. The memorandum states that the Global Tax deal (“The Deal”) signed in 2021 under the Biden administration has no force or effect in the US. It further stated that the US shall take “protective measures” against countries who are in non-compliance with any tax treaty with the US or in compliance with any extraterritorial tax rules that disproportionately affect American companies. As nations are adjusting to the sudden political shift, the future of the tax deal necessitates navigation of both domestic and international interest amidst the rising tensions and trade conflicts. The article delves into how this withdrawal not only disrupts the progress made so far but also prompts various countries to reconsider their commitment to the deal and to reinstate unilateral measures, in response to the perceived inequalities..   OECD’s Two-Pillar Approach to Global Tax The Global Tax Deal is a multilateral agreement, signed by over 137 countries on October 8, 2021,to bring a global shift in the traditional approach of the taxation system and to further the aim of Base Erosion and Profit Shifting (“BEPS”) via a two-pillar approach. This two-pronged solution aimed to prevent a race to the bottom in corporate tax rates. However, despite this concerted attempt, after almost three years, the deal is thrown off course in the midst of a political maelstrom. The Deal has two Pillars:  The Pillar One undertakes reallocation of taxing rights for market jurisdiction over the excess profits underscored by Multinational Enterprises (“MNEs”) and large companies. The implementation of Pillar One involves the application of Amount A and Amount B. Amount A compliance involves a set of rules applicable to MNEs with a global revenue over USD 20 billion and total profits exceeding 10% of their global revenue subject to certain exclusions, reallocating 25% of the excess profit to market jurisdictions. Amount B on the other hand is a three-step analysis to price baseline marketing and distribution activities to further simplify the application of arm’s length principle via delivering a pricing matrix.   Pillar Two of the framework, introduces a framework for a global minimum tax of 15% for MNEs groups with the annual revenue higher than € 750 million. The underlying intent is to ensure that all streams of income within such MNE groups, regardless of the jurisdiction, either source or resident are taxed at the minimum rate of 15%. In this respect, OECD through the course of 2022 released draft provisions for the Pillar Two Global Base Erosion Rules (“GloBE Rules”), a commentary, and a set of illustrative examples to clarify the working of the rules.   The GloBE rules include the Income Inclusion Rule (“IIR”), which imposes a Qualified Domestic Minimum Top-up Tax on a main enterprise or the parent entity of an MNE group for income earned by its subsidiaries and Permanent Establishments (“PE”), that are taxed below a 15% minimum effective tax rate (“ETR”) in source jurisdictions. The taxing right under the IIR is offered first to the jurisdiction of the ultimate parent entity and, if unexercised by it, shifts to the jurisdiction of the next downstream entity. The Under-taxed profit rule complements the IIR by denying deductions or requiring adjustments if the top-up tax is not applied to low-taxed constituent entities. A de minimis threshold excludes jurisdictions with turnover below €10 million and profits below €1 million, and investment funds and Real Estate Investment Trusts are outside the scope of GloBE. These rules require integration into domestic tax systems for effective implementation.  The third rule, i.e., the Subject to Tax Rule (“STTR”) is a treaty-based provision that applies to related-party payments, such as interest and royalties, when they are not subject to a combined 9% ETR across both the resident and source jurisdictions. Unlike the GloBE rules, the STTR prioritizes the taxation rights of the market jurisdiction. Additionally, the IIR functions as a complimentary measure under Pillar Two enabling market jurisdictions to tax payments that might otherwise go untaxed in both the source and recipient jurisdictions.  Unilateral Measures, Trade Tensions and Global Hurdles in Implementation The two-pillar framework was introduced as a multilateral solution for taxation of MNEs who derived profits in countries without having a PE. While the OECD was attempting to formulate a global solution, prior to 2021, when the global consensus was not in sight, countries had already started taking independent measures by implementing what we refer to as a Digital Service Tax (“DST”).  Indian for Instance, implemented a 2% Equalization levy (“EL”) in 2020, on companies who had a significant economic presence. As a result of the DST and EL, which the US claimed, disproportionately targeted US based companies, the USTR initiated investigations under Section 301 of the Trade Act of 1974 and started imposing retaliatory tariffs on imports from Austria, France, Italy, Spain, Turkey, United Kingdom, and India.   However, in 2021 pursuant to the ongoing discussions of the OECD framework, the US under the Biden Administration suspended such proceedings for 180 days. Subsequently, in October 2021, 136 IF members reached an agreement on the two-pillar approach and issued a joint statement under which Austria, France, Italy, Spain, the United Kingdom and the US compromised to take back DSTs and other relevant unilateral measures. Pursuant to the Joint statement, Ministry of Finance, India issued a Statement (“MoF Statement”) that excess EL paid by MNEs will be available as a credit for set off against their corporate liability determined under Pillar One. This transitional approach came in the backdrop of dropping off of retaliatory measures by the US. Following this, in 2024, India completely did away with the 2% EL. As a consensus, most countries with DSTs agreed to a moratorium pursuant to the negotiations of Pillar One.   Despite their efforts, the OECD’s Pillar One framework faces criticism from experts

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Unveiling the Truth – The Tussle Between Google and CCI

Leave a Comment / Competition Law /

[By Sakshi Tiwari & Liesha Mishra] The authors are students of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction The Competition Commission of India has initiated an investigation into Google over alleged anti-competitive practices in India’s burgeoning gaming sector stemming from complaints over its monopolistic behaviour. The investigation stems from the complaint filed by the real money gaming app WinZO, which alleges that Google is abusing its dominant position by favouring Daily Fantasy Sports (“DFS”) and Rummy applications with a competitive edge while excluding other Real Money Gaming Platforms (“RMG”).   Despite all these applications belonging to the same category of skill based real money games, where there are monetary stakes and a degree of player skill determines outcomes, Google’s policy selectively permits only DFS and Rummy on its Play Store while restricting other RMG applications. This selective classification creates an artificial divide within the same category, granting DFS and Rummy a direct market advantage over other RMG apps that also involve real money transactions and rely on skill rather than luck.    Google’s policy lacks transparency in defining why only DFS and Rummy qualify for inclusion while excluding other skill-based games. This arbitrary distinction distorts fair competition, limits consumer choice, and is now under scrutiny by the Competition Commission of India.  In recent years, India’s online gaming industry has witnessed a surge in users driven by the increasing affordability of smartphones and a growing youth population. In 2023, India had 568 million gamers which accounts for the second largest gamer use base trailing only China. By amending the IT Rules 2021, the government seeks to regulate all online games and provide compliance regulations for online gaming intermediaries offering RMGs. The Supreme Court of India has clarified that when success hinges more on skill than it does on chance in a game, such a game will not be constituted as gambling.   The relevance of this distinction lies in its legal validation that establishes a basis for differentiating skill-based games from gambling. Games like DFS and Rummy are legally recognised as skill based and yet Google’s policy does not reflect the same. By restricting other apps, it creates an inconsistency between legal recognition and market access, raising concerns about fairness and transparency. Google’s Play Store Policies: A Double-Edged Sword Google’s policies, which are enforced through its ecosystem of platforms such as Play Store, Google Pay, and Google Ads, have been criticised for restricting market access and favouring specific online games, thereby distorting the competitive landscape. These concerns have been highlighted in Google’s pilot program which granted exclusive Play Store hosting rights to DFS and Rummy applications.   In this scenario, other RMGs, including WinZO users have to opt for sideloading which is a download method directly from the internet, for apps outside of the Google Play Store, reducing exposure and coverage. Given that Google Play Store holds a hegemonic position in downloading and using apps, it deeply impairs the capabilities of other competing apps to gain higher exposure. Thereby, apps like DFS and Rummy push other RMGapplications to the periphery by leveraging their access to a vast user base.    While the reasoning behind introducing this pilot program has been framed as an exploratory measure to foster a secure platform for RMGs, its execution has revealed a glaring imbalance. The selective inclusion of only two games while leaving out the rest from the pilot program raises serious questions about the objectivity of Google’s gatekeeping practices.    Adding to this complexity is Google’s ad policy since 2019, which allows advertisement policy for DFS and Rummy applications, while simultaneously citing regulatory uncertainty to justify excluding other RMGs. This contradiction brings to light a policy that is both supportive and restrictive by giving certain apps the means to grow while restricting others.   Google’s Alleged Abuse Of Dominance The complaints against Google highlight concerns about its conduct in markets where it already holds a dominant position. The CCI in Google Android case has found Google to be dominant in both the licensable Operating System (OS) market for smart mobile devices in India and the licensable OS market on the device with app stores.   Building on this precedent, WinZO has alleged that Google’s conduct is discriminatory and imposes unfair conditions by creating a two-tier market grating selected apps superior visibility while marginalising the others thereby violating Sections 4(2)(a)(i), 4(2)(b)(i), and 4(2)(c) of the Competition Act, 2002.    Google’s previous penalties for anti-competitive practices in the Android case, further strengthen concerns that it is leveraging its dominance in the gaming industry by selectively favouring certain apps while restricting others without clear justification. This issue raises broader questions about platform neutrality, fair competition, and consumer choice in India’s growing digital economy.  Payment Systems: Restrictive Practices And Monetization Control To download WinZO, sideloading may work as an alternative to Play Store but this creates additional burden on users. Google warnings during sideloading, ostensibly designed as a security measure, often discourages users by emphasising risks such as malware infections. This situation is further worsened by Google’s approach to transaction-related warnings. While payment warnings by Google Pay have been installed under regulatory compliances, such warnings are absent in the case of DFS or Rummy applications.    There has been a strong dependency created by Google on its ecosystem making it nearly impossible for app developers to compete outside the realm of its platforms. All of this necessitated the investigation by CCI to unveil the potential effects of the combination of practices that Google has undertaken in this case.    How Does Advertising Affect Markets? In the order released by the CCI, WinZO has claimed that Google’s Pilot Program to allow downloads for only DFS and Rummy could cause market distortions and has also contended the unfairness of Google’s Ad Policy which currently permits only these two applications to run ads. Google’s Play Store policies were in news in the year 2022 after CCI’s imposition of monetary penalty in light of its anti-competitive practices. Thus, while there is enough possibility for Google Play Store to make the headlines again, the ad

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Rule 86A of the CGST Act: Safeguarding ITC or Overstepping Boundaries?

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[By Runit Rathore & Amal Shukla] The authors are students of Hidayatullah National Law University, Raipur.   INTRODUCTION  “Rule 86A of the Central Goods and Services Tax Rules (CGST Rules), 2017 is not a machinery provision for recovery of tax or dues under the Central Goods and Services Tax Act” (CGST Act). Rule 86A of the CGST Rules grants the Commissioner or any other officer authorized by him, not below the rank of Assistant Commissioner, to block utilization of Input Tax Credit (ITC) upon the satisfaction of specific conditions stipulated under the said rule. It was inserted through the Central Goods and Services Tax (Ninth Amendment) Rules, 2019.   Rule 86A of the CGST Rules was inserted with the aim to curb the increasing fake invoicing incidents to avail ITC. Section 74 of the CGST Act also deals with the problem of counterfeit invoicing and it aims to address and deter efforts by taxpayers to evade taxes, claim excessive input tax credits, or secure unwarranted tax refunds through fraudulent actions, intentional misrepresentation, or suppression of facts. Under Rule 86A of the CGST Rules, a taxpayer’s ledger can be blocked even prior to the conclusion of proceedings under Section 74 of the CGST Act.   The provision of Rule 86A was added to give powers to the authorities to curb the menace of fake invoicing and abuse of ITC. However, the provision with benevolent aims ended up giving excessive and arbitrary powers to the authorities. This article critically examines the potential for abuse of the power conferred by Rule 86A of the CGST Rules and how it violates the principles of natural justice. It further delves into the concept of borrowed satisfaction and addresses the issue of negative blocking. Finally, it evaluates the wider implications of Rule 86A on the interests of the Assessee.  ABUSE OF AUTHORITY: DARK SIDE OF RULE 86A   Rule 86A of the CGST Rules gives overreaching powers to the authorities as it allows them to block Electronic Credit Ledger (ECL) on the basis of their subjective discretion or voluntary satisfaction, without requiring objective evidence or prior notice to the assessee. Further, the text of Rule 86A does not provide for any checks and balances against the use of this power. Unlike Section 73 and 74 of CGST Act, the text of Rule 86A does not provide an opportunity for the assessee to present his case against the blocking of electronic ledger. The text of Rule 86A is such that it remains subject to discretionary abuse by the authorities. It is a sound rule of interpretation that a statute should be so construed as to prevent mischief and to advance the remedy according to the true intention of the makers. Since its inception, Rule 86A of the CGST Rules has been susceptible to misuse in several ways, including blocking input tax credit based on borrowed satisfaction, freezing the ECL without affording the assessee an opportunity to be heard, and imposing negative blocking.  JUDGEMENT ON BORROWED SATISFACTION:  The issue of borrowed satisfaction arises when an officer, as provided under Rule 86A of the CGST Rules, blocks the electronic ledger of an assessee who is relying on the satisfaction of another officer or an officer having command over him. For the application of Rule 86A, the officer must have reason to believe which must be formed based on his own inquiry and satisfaction and not on satisfaction borrowed from any other officer. In this context, it is necessary to refer to Circular No. CBEC-20/16/05/2021-GST/1552 (hereafter Circular) dated 02.11.2021, wherein it has been stated that for blocking of ledger under Rule 86A the CGST Rules the concerned officer has to apply his mind and consider all necessary facts including the nature of fraud. Nevertheless, tax  officers have acted arbitrarily and blocked accounts either being compelled by superior officers or relating to the satisfaction of another officer. The Karnataka High Court, addressing the issue of borrowed satisfaction in the case of K-9 Enterprises v. The State of Karnataka has stated that it is incumbent upon the officer (as referred in Rule 86A) to arrive at his own satisfaction by proper application of mind. Again, the Rajasthan High Court in a Sumetco Alloys v. Deputy Commissioner (Sumetco Alloys), held that the blocking of the ITC ledger should be kept in abeyance as it was based on borrowed satisfaction.  BLOCKING WITHOUT DUE PROCESS: A BREACH OF JUSTICE  Rule 86A of the CGST Rules also departs from the natural law principle of Audi Alteram Partem (let the other side be heard) and does not provide any opportunity for the assessee to present his case against blocking of his ITC ledger. Although the text of Rule 86A does not explicitly provide for a chance to be heard before blocking the ITC ledger, nevertheless it shall remain subject to principles of natural justice. Furthermore, as provided in the Circular, blocking as contemplated under Rule 86A cannot be arbitrary and has to be based on reason to believe formed by application of mind. Nevertheless, the income tax authorities have violated  the principles of natural justice and have blocked the assessee’s ITC ledgers without granting them an opportunity to be heard. Further in Sumetco Alloys, where the ECL was blocked under Rule 86A without hearing the assessee, the court  observed that blocking of electronic ledger without giving notice to the assessee and hearing was in violation of principles of natural justice. Further it was held that, even though the rule does not expressly incorporate the principles of natural justice, competent authority is obliged to hear the affected person.  EXCEEDING LIMITS BY NEGATIVE BLOCKING   Rule 86A of the CGST Rules has two aspects i.e. Positive Blocking and Negative Blocking. Positive Blocking refers to the restriction imposed by tax authorities on the ECL of a taxpayer, preventing the utilization of a specific amount of ITC suspected to be fraudulently availed. On the other hand, Negative blocking under Rule 86A refers to a situation where the authorities block an amount in the taxpayer’s

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Fair Play or Foul Play: An Analysis of the TT Friendly Super League Case

Leave a Comment / Competition Law /

[By Anushka Ajay] The author is a student of National Law Institute University, Bhopal.   INTRODUCTION Competition law has increasingly addressed healthy competition in sports, where various organizations train athletes and regulate sports. The recent Competition Commission of India (hereinafter ‘CCI’) order in In Re: TT Friendly Super League Association v. Table Tennis Federation of India (TTFI) reflects a growing trend of sports federations engaging in monopolistic and anti-competitive practices, including disputes over player participation in tournaments, raising concerns about the balance of power. ANALYSIS Sports organisations as ‘Enterprise’ The first step in applying competition law is determining if the subject is an “enterprise”, a concept explored in Surinder Singh Barmi v. BCCI. In this case, the informant filed a complaint against the BCCI over its handling of IPL franchise, media, and sponsorship rights. During investigation by the CCI, BCCI argued it was not an enterprise, thus outside CCI’s jurisdiction. The CCI ruled that the BCCI qualified as an enterprise under the Competition Act, 2002 due to its commercial activities like media rights sales and ticketing, despite being a non-profit entity. The CCI’s ruling followed European case laws, such as MOTOE v. Elliniko and Meca-Medina, which recognized sports as economic activities subject to competition laws. This was reaffirmed in Dhanraj Pillay v. HI and applied in Hemant Sharma v. AICF, where the AICF was also deemed an enterprise due to its involvement in commercial activities beyond its regulatory functions. Carving out the Relevant Market Relevant market is defined under Section 2(r). The CCI agreed with the Director General’s (hereinafter referred to as DG) market definition, considering table tennis’ unique characteristics, event and player restrictions, and the national oversight by TTFI, with rules enforced by state and district associations, reflecting the competitive pressures faced by the enterprise. It was defined as: ‘Market for organization of table tennis leagues/events/ tournaments in India’- Upstream Market ‘Market for provision of services by the players for table tennis leagues/events/ tournaments in India’- Downstream Market. Dominant Position The Commission recognized the dominance of organizations in India’s table tennis ecosystem, including district associations, state associations, and the national federation- TTFI. TTFI, the apex body, oversees player selection, organizes events, and has authority at all levels, thereby monopoly in regulating the sport. This domination extends to player participation and unsanctioned events. The Commission referenced the European Commission’s 2007 White Paper on sport, noting that sports organizations, structured as pyramids, require autonomy to enforce regulations like integrity standards and broadcasting rights, which can limit economic freedom. Abuse of Dominanace Violation of Section 4(2)(a)(i), 4(2)(b)(i) and 4(2)(c) of the Act- Abuse of dominant position. The Informant claimed that The Suburban Table Tennis Association (TSTTA) General Secretary posted a WhatsApp message restricting players, coaches, clubs, and academies from joining non-affiliated organizations, with penalties for non-compliance. Despite receiving a petition and legal notice, TSTTA continued these practices. The Commission upheld the DG’s findings that TSTTA violated Section 4(2)(c). The DG found Clauses 22(d) and 22(e) of the MSTTA Constitution anti-competitive. Clause 22(d) restricts unauthorized tournaments, and Clause 22(e) allows preventing harmful actions. A WhatsApp message advising against participating in an “unofficial” tournament violated Sections 4(2)(c), 4(2)(a)(i), and 4(2)(b)(i) of the Act. The Commission agreed, but excluded Clause 22(e) stating that it is necessary to uphold sports integrity. The CCI found that clauses in TTFI’s MoA are restrictive, unfair, and anti-competitive. They prevent the organization of unauthorized tournaments and prohibit player participation in unaffiliated events. This limits player opportunities, creates barriers for independent organizers, and stifles competition, violating Sections 4(2)(a)(i), 4(2)(b)(i), and 4(2)(c) of the Competition Act. The CCI partially agreed with the argument that TTFI issued a notice to clarify misrepresentation. However, TTFI went beyond clarification, actively discouraging participation and restricting affiliated state associations from organizing the GSL event without prior approval. The CCI concluded that TTFI’s actions violated violate Sections 4(2)(a)(i), 4(2)(b)(i), and 4(2)(c) of the Competition Act. Violation of Section 3(1) read with Section 3(4) of the Act- Anti- competitive agreements. The DG found a vertical relationship between TSTTA and its players, similar to the AICF-chess player relationship in the Hemant Sharma case. CCI in Hemant Sharma case observed that there exists a vertical relationship between AICF and chess players as AICF buys their services for organisation of chess events AICF is the consumer of services of chess players for the organisation of any chess event. This tantamount to a vertical relationship as AICF and the chess players are at different stages of the supply chain. Similarly, The WhatsApp advisory by TTFI created barriers to market entry and hindered competition, violating Section 3(4) of the Competition Act. CCI agreed with the DG’s conclusion about the vertical relationship between TTSTA and players. It found the advisory restrictive, creating entry barriers and foreclosing competition, thus violating Sections 3(4)(c) and 3(4)(d) of the Act. The Order The Commission found that the OPs violated competition law, including anti-competitive agreements and abuse of dominance. While violations were established, the Commission opted against a monetary penalty due to the OPs’ corrective actions, such as withdrawing anti-competitive clauses and issuing clarifications. However, a cease-and-desist order was issued with a stern warning of aggravated penalties for future violations. DIFFRENTIATING BETWEEN REGULATORY AND ECONOMIC ROLES The CCI has frequently examined the distinction between regulatory and economic roles of sports organizations, starting with the Dhanraj Pillai v. HI. It highlighted the variety of relationships in the sports sector, such as federations selling media, sponsorship, and franchise rights. It also emphasized that viewers and sports federations themselves are key consumers, shaping the relevant market. Competition concerns often arise in sports due to the clash between federations’ regulatory and economic functions. While a hierarchical structure is common in sports, overly restrictive rules governing players and events can hinder economic activity. These restrictions, though potentially justifiable for development of integrity, violates competition law if unwarranted. Moreover, the dual role of sports bodies as both regulators and organizers can create conflicts of interest, potentially leading them to suppress competition to safeguard their own

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Liability of Independent Directors: Addressing the Forgotten Diligence Test

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[By Bhuwan Sarine] The author is a student of National Law School of India University, Bengaluru.   Introduction On 30 April 2024, the Securities and Exchange Board of India (“SEBI”) held the Independent Directors (“IDs”) of Manpasand Beverages Ltd. (“MBL”) liable for not performing their duties diligently.  To provide a brief background, independent directors of a company are directors other than the managing or whole-time directors. They are not involved in the day-to-day operations of the company, and are there to ensure that the company is run in a way so as to protect the interests of the shareholders. Section 149(6) of the Companies Act, 2013 (“the Act”) defines them as having relevant expertise and not sharing any material relationship with the company. The order in Manpasand was pursuant to allegations of financial mismanagement in MBL wherein the IDs had to be diligent in assessing its financial statements. SEBI noted that while the IDs claimed lack of access to MBL’s documents, they did not furnish evidence to establish that they tried to obtain them. In summary, the SEBI applied the diligence test to impose liability on the IDs. The standard for liability of IDs is provided under s. 149(12) of the Act . While Manpasand decided on the diligence test, the SEBI and SAT have used the knowledge test solely in the recent past. This paper uses those case laws to argue that the same is an incomplete interpretation of s. 149(12) and contradictory to the role IDs are supposed to play in the company. To that end, Part I sheds light on the two prongs of s. 149(12), Part II shows the incomplete reading of s. 149(12) of late, Part III explains why the same is erroneous, and the final part concludes. I. The Two Prongs of Independent Directors’ Liability Under the first part of s. 149(12) of the Act, an ID can be held liable if the acts of the company occurred with his knowledge and consent or connivance. The knowledge should be attributable to Board processes. The latter part of the sub-section imposes liability when the ID has not acted diligently. It is to be noted that the knowledge and diligence requirements are joined by ‘or,’ which means that both are separate standards[1] and IDs can be held liable if they fail to meet the threshold of any of them. While knowledge has to be in relation to the board process, diligence is over and above this requirement. To meet the latter, IDs need to be generally vigilant, apply their mind, and try to get the information from sources other than board meetings. The standard of diligence required depends on the facts in question. In OSPL Infradeal Pvt. Ltd., the SEBI held the ID liable for approving loans to entities with negative net worth. It noted that the ID did not exercise caution while approving the loan, and hence due diligence was not met. Here, acting hastily was the reason diligence requirement was not met, and it could not be argued that since the ID was not part of the board meetings, he is not liable. Again, in Madhav Sapre and Ors., SEBI called the IDs to evaluate the records and documents before them independently, and not just to rely on the face value of the information provided in the meetings.[2] Since this was not done, they failed to discharge their role with the diligence required.[3] From these instances, it is clear that diligence requirements are not dependent on board processes. Even if the IDs show that they had no knowledge of the mismanagement going on, they can still be held liable if the circumstances warranted taking proactive measures. In fact, the Bombay HC touched this aspect precisely in Sunny v. State of Maharashtra.[4]  It was pointed out therein that the IDs can be held liable under two situations (first is having knowledge of the acts of omission/commission by the company, and second is failure to act diligently), and both are joined by ‘or,’ implying that liability is attracted if they fail to satisfy either of them.[5] However, recent interpretations have not been in consonance with the wording of the sub-section. They have been prompted by the assumption that knowledge requirement is a sine qua non, in the absence of which due diligence cannot even be assessed. II. Incomplete Reading of S. 149(12) of Late Having set out the components of s. 149(12), this section will examine the approach followed by the SEBI and SAT in the recent past. It is to be noted that even before the enactment of the Companies Act, 2013, the knowledge requirement was treated on a higher standing than the diligence requirement.  In December 2004, an expert committee on company law (composed of experts drawn from trade and industry associations, professional bodies, institutes, chambers of commerce etc.) under the chairmanship of Dr. J. J. Irani was constituted to advise the government on the proposed revisions to the Companies Act, 1956. While the committee’s report elaborated on the modalities of the knowledge test, it did not mention anything related to due diligence. The following cases will illustrate the erroneous interpretation of s. 149(12) of the Act. In MPS Infotechnics Ltd. v. SEBI, the SAT held that since the ID was not involved in the day-to-day affairs of the company’s management, he was not liable. It was premised on the view that the offence happened without the ID’s knowledge. Here, the SAT completely ignored the second standard, failing which IDs could be held liable. Going ahead, the SEBI, in the matter of M/s Global Infratech and Finance Ltd., applied the knowledge test solely. The case related to approval of allotment of preferential shares in a manipulative scheme. It absolved the IDs of liability because there was no evidence of them being involved in the board processes. While the SEBI required executive directors to be careful and diligent, there was no mention of the same expectation from the IDs. In this case, it appeared

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Chrome Cracked: A Tech Revolution or a Step Backward?

Leave a Comment / Competition Law /

[By Aditya Kashyap & Arnika Dwivedi] The authors are students of Symbiosis Law School, Pune.   Introduction Recently, there has been a pivotal shift toward anti-competitive behavior globally, specifically concerning large technology firms. On November 20, 2024 U.S. Department of Justice (DOJ) proposed various recommendations to address the perceived monopolistic behavior by recommending the overhaul of Google’s structure and business practices including divesting Chrome in a bid to end its monopoly on internet search. In order to guard against the “possible foreclosure” and “the exclusion of future entrants”, the DoJ requires a forced sale of the Chrome browser and a five-year ban from entering the browser market, query-based AI products or advertising technology and prohibition “from owning or acquiring any investment or interest in any search or search text ad rival, search distributor, or rival query-based AI product”. Additionally, pushing Google to allow publishers and creators the facility to block their data from being used to train its artificial intelligence models and requires it to provide rivals with user-side and ad data for 10 years at no cost, on a non-discriminatory basis. The proposals stem from the U.S.A v. Google LLC wherein the court found that Google has unlawfully maintained a monopoly within the general search services and text advertising market. Google has accomplished this by entering into exclusive default distribution agreements with browser developers like Apple that instantly allow it to reply to search queries initiated from the browser that assist Google in obtaining massive amounts of user data and offer tailored advertising to its users resulting in increased advertising revenue which is $ 146 billion in 2021; almost $100 billion more than its rivals. This created a situation where Google faced no competition for the default position and its partners had no alternatives. This dearth of competition along with Google’s strong market position and control over key inputs in the search advertising market, enabled Google to benefit from super-competitive text advertisement costs. Moreover, Google’s Mobile Application Distribution Agreements (MADA) with Android’s Original Equipment Manufacturer (OEMs) grant OEMs access to Google’s proprietary mobile applications without charging any licensing fees. However, Google imposes strict conditions on OEMs in exchange enabling them to pre-install certain Google apps in functional positions on their devices ensuring Google’s dominant and preferential placement on Android smartphones. GAMMA Companies Leading Technological Advancement U.S. has long supported “permissionless innovation”, which permits tech firms to create game-changing technologies like artificial intelligence and the internet with little hindrance. Its position as the forefront of technology has been solidified by this adaptability, which has fueled significant growth, new industries and well-paying jobs. Particularly, GAMMA companies (Google, Amazon, Microsoft, Meta and Apple) are the ones which continue to encourage new technologies encouraging innovation in a variety of industries. While OpenAI and Google’s DeepMind promote AI integration across various applications, Meta’s substantial investment in the metaverse intends to create immersive social, professional, and leisure areas and is investigating blockchain applications such as NFTs, decentralized finance, digital identification solutions and developing AI-driven voice assistants that are essential for the future digital economy. On the other hand, smaller companies face significant barriers to making the kinds of investments that GAMMA companies can make, benefit from economies of scale and access to vast amounts of capital and data that allow them to invest in cutting-edge technologies while distributing the cost over a massive user base which is not possible for smaller companies. Staggering Demonstration of European Union Antagonistically the EU’s antitrust approach is rigorous in its nature and has the potential to suppress innovation as it focuses on general consumer protection issues rather than specific harm-based regulation with imposition of severe penalties and requiring structural reforms. While these actions are intended to safeguard consumers and ensure fair competition, they reflect a negative offshoot of innovation. EU focuses excessively on market dominance, structural interventions and divestitures & overregulation of data & privacy. For instance, the EU’s investigation into Apple’s App Store policies has led to the implementation of costly and resource-draining regulatory changes that can divert resources away from innovation towards compliance. According to the Wall Street Journal, Europe’s sluggish economy, where the Stoxx 600 index and GDP growth have lagged well behind the U.S. as of 2023, is proof that exorbitant supervision has rarely promoted progress.  Metrics like patent filings, startup rates, and unicorn businesses show how Europe’s share of global innovation output has decreased from 25% 15 years ago to 18% today, as noted by Hungarian Minister Balazs Hanko. Europe’s AI policies are criticized for having dystopian influences. The 2022 EU funding delay for 139 companies due to regulatory disputes is an example of how bureaucratic delays further reduce competitiveness. Regrettably, different understandings of the GDPR hindered Meta’s attempts to train AI models on EU public data, denying European users access to the newest technological developments. Adopting the EU’s regulatory framework risks stifling U.S. innovation Given that technology improvement has historically driven American economic growth, adopting the EU’s regulatory approach runs the risk of hurting American innovation. This governmental intrusion in the USA’s ability to compete globally could be harmed by the DOJ’s approach against Google. Rigid enforcement of Google’s data usage and monetization policies would make it more difficult for the US IT sector to contest internationally specifically in nations with laxer regulations. America’s inventive past can be preserved by using an EU model that addresses specific risks rather than hypothetical ones. Public-private partnerships can promote innovation and guarantee consumer protection. In order for the U.S. to establish itself as a leader in the digital economy, trade policies should be conducive to innovation. However, the DoJ’s current stance on Google, which includes contract limits, structural modifications, and data interoperability requirements impedes the competition that propels technological innovation in the US and runs the risk of fragmenting user experience, impeding user convenience and delaying innovation. This could restrict the originality of the market and affect investments in current and future ad technology. Chrome, which for many users is a gateway to the internet and it is a key means of getting Google

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Parallel Paths or Colliding Tracks? Behavioural Insights into Sectoral Regulatory Dynamics

Leave a Comment / Competition Law /

[By Aastha Singh & Kumari Bhargavi] The authors are students of Symbiosis Law School, Pune.   INTRODUCTION Independent economic or sectoral regulators such as the Telecom Regulatory Authority of India (TRAI), the Securities and Exchange Board of India (SEBI), and the Reserve Bank of India (RBI) were established to oversee specific critical industries in India after economic reforms ushered in a more competitive market structure and a critical departure from government monopolies.  The Competition Commission of India (CCI) is another example of the same. However, it now faces the additional difficulty, brought about by the ever-changing intricacies of an internationalized economy, of negotiating the “turf wars” that occur when the authority of many sectoral regulators overlaps. India’s ever-changing economic landscape, should be examined using a behavioural economics framework, to understand why do “turf wars” happen and further to highlight the necessity for a unified approach to governance. The lens of behavioural economics to answer an antitrust issue is an innovative and emerging one in nature. The use of behavioural economics to the analysis of interactions between sectoral regulators and possible cognitive biases of antitrust authorities has been under-explored, in contrast to its more conventional focus on consumer preferences and welfare implications. This gap presents a unique opportunity to examine how behavioural insights could address conflicts and coordination by shedding light on a probable solution. This article contends to explore how biases, favouritism in practice, and institutional inertia influence the decision-making process in regulatory conflicts. It advocates for a cohesive regulatory strategy and proposes solutions to harmonize the functions of sectoral regulators and the CCI to better manage competition-related issues in India’s dynamic economic environment, by making use of psychological and organisational factors i.e. behavioural economics that cause the regulatory conflicts. TURF WARS AND THE REGULATORY OVERLAPS In India, sectoral laws like the Telecom Regulatory Authority of India Act, the Petroleum and Natural Gas Regulatory Board Act, and the Electricity Act mandate regulators to promote competition but they tend to blur lines between ex-ante regulation and ex-post competition evaluation. This overlap leads to legislative or jurisdictional disputes with the CCI. While the principle of “leges posteriores priores contrarias abrogant” suggests that newer, sector-specific statutes should override older competition laws, the Competition Act’s Section 60 provides for a “non-obstante” clause, giving it precedence, however as per Section 62, the Competition Act and other statues should be harmoniously construed. The CCI has asserted its jurisdiction over all economic aspects, even in cases where sectoral laws might seem to take precedence. Subsequently, Section 21, and Section 21A of the Act, which include an arrangement for discussions between the CCI and other sectoral regulators, aim to partially resolve this issue. Consultations under these provisions are not, however, required or legally obligatory. One of the primary goals of both the competition agencies and other sectoral regulators is economic regulation which is inclusive of controlling market monopoly and protection consumer interests, however jurisdictional conflicts become problematic in the first place because, when two bodies spend time, effort, and resources on the same disagreement, the biggest impact is duplication. Second, CCI penalties can be far higher than regulator penalties, making it unclear for potential investors. Existing gamers can benefit from lack of clarity by forum shopping. Thus, CCI and sector-specific regulator jurisdiction must be clarified. The turf war pertaining to jurisdictional issues was first observed in the case of Star India v. Sea T.V. Network, wherein the apex court held that despite the fact that the case concerns “monopoly and restrictive trade” the MRTP Commission (now CCI) does not have jurisdiction that violates the TRAI Act. In the case of CCI v. Bharti Airtel Ltd., the Supreme Court resolved the long-running competition for dominance between the cross-regulator, CCI, and the sector-specific regulator, TRAI. The court said that the CCI is not a sector-based organisation; rather, its jurisdiction extends beyond sectoral boundaries to encompass all industries. However, a different stance taken by the Delhi High Court held in Telefonaktiebolaget LM Ericsson v. CCI that the Competition Act is an addition to all other Acts and does not supersede them. The Delhi High Court did not uphold the Ericsson ruling in Monsanto Holdings Pvt. Ltd. v. CCI, holding that the CCI has jurisdiction over cases involving the infringement of patent rights. Therefore, the CCI will evaluate how the rights are exercised or behaved, not the content of those rights, which is the purview of the expert body. BEHAVIOURAL ECONOMICS AND THE REGULATORY DECISION-MAKING PROCESS Behavioural Economics is a branch of economics that underpins neoclassical economics with insights from psychology, and in turn, contributes to behavioural sciences by its economics perspective and the abundant experimental practice it has developed. It explores how cognitive biases emerging from heuristics—mental and emotional shortcuts to form opinions, often influence regulatory decision-making, especially in scenarios where sectoral regulators have repeated interactions with incumbent players. This repeated engagement can lead to the development of implicit preferences or institutional inertia, which may manifest as decisions that disproportionately favour established entities. Such biases can hinder the objectives of fostering competition and innovation, thereby conflicting with the broader mandate of competition authorities like the CCI. In the telecom sector, a potential example, TRAI could uphold incumbents’ high prices as essential for financial stability, despite data indicating that these practices impede competition, demonstrating confirmation bias in regulatory conflicts. But CCI, which is supposed to make sure the market is fair, could see the same tariffs as anti-competitive measures used to keep new competitors out. As seen in cases like, this disagreement arises because different regulators are looking for evidence that backs up their own agendas. Reliance Jio and the Incumbent Operators, highlights the need for greater coordination between sector-specific and competition regulators. Favouritism in Practice: Decisions made by TRAI have often been seen as biased in favour of long-standing telecom companies, which has led to criticism of the agency. Regulating mechanisms are frequently skewed in favour of these incumbents because of their vast networks and established relationships. Disparate license terms,

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