CBCL, Author at NLIU CBCL - Page 23 of 101

Green Futures: Maximizing Virtual Power Deals in India

[By Ankur Singh] The author is a student of National Law University, Odisha. INTRODUCTION This article delves into the impact of Virtual Power Purchase Agreements (VPPAs) on the adoption of Renewable Energy (RE) and the dynamics of the Indian market. With a growing global emphasis on reducing carbon emissions and transitioning to renewable energy sources, the demand for RE is on the rise. VPPAs play a crucial role in facilitating energy transactions between producers and consumers, primarily businesses, without the need for actual electricity transmission. Unlike traditional contracts, VPPAs establish fixed prices, offering stability amidst market fluctuations. Oversight of VPPAs falls under the purview of both the Central Electricity Regulatory Commission (CERC) and the Securities and Exchange Board of India (SEBI). However, India’s VPPA regulatory framework faces several challenges. This article explores key questions surrounding VPPAs, including the collaboration between SEBI and CERC, the issuance of Renewable Energy Certificates (RECs), and the arbitration of disputes arising from RE-related transactions. It suggests strategic enhancements to regulatory frameworks, advocates for the streamlining of International Renewable Energy Certificate (I-REC) registration procedures, and proposes the integration of VPPA mechanisms under CERC authority with SEBI supervision. By addressing these issues, the article aims to advance international environmental objectives while improving the efficiency and competitiveness of India’s renewable energy sector. It particularly underscores the uncertainty surrounding regulatory jurisdiction between SEBI and CERC, providing insights into financial and physical aspects of VPPA collaboration, REC issuance protocols, and dispute resolution mechanisms. The article seeks to delineate collaboration between SEBI and CERC in VPPAs, encompassing both financial and physical dimensions, and addressing REC issuance processes and dispute resolution mechanisms for RE-related transactions involving both entities. The Role of Virtual Power Purchase Agreements in Renewable Energy Adoption and Market Dynamics The importance of renewable energy versus non-renewable sources is highlighted by rising energy demand and the need to reduce carbon emissions. On the other hand, switching to RE presents difficulties. The emphasis on environmental issues around the world forces nations to lower their carbon footprint, and one simple and efficient way to do this is through the use of renewable electricity. VPPAs facilitate the switch from conventional fossil fuels to renewable energy sources more quickly, despite certain obstacles. A Virtual Power Purchase Agreement is a type of contract in which a generator and a client exchange energy. In essence, it’s a contract in which one party sells electricity to another together with RECs. A Commercial & Industrial (C&I) company interacts with the “seller,” usually the developer or project owner, in a VPPA arrangement, acting as the “buyer” or “off-taker.” PPAs for C&I renewable energy can be classified as either physical or financial, with the latter being referred to as “virtual.” VPPAs do not involve direct energy transfer, in contrast to physical PPAs. Rather, a predetermined price known as the strike price is agreed upon by the client and the electrical provider. The VPPA offers revenue certainty by insuring the power plant against market price fluctuations. If the market price exceeds the strike price, the generator compensates the off-taker for any negative surplus, and vice versa if the strike price surpasses the market price. Crucially, a VPPA doesn’t alter the buyer’s relationship with its utility at the retail level. It’s purely a financial arrangement, with the buyer still fulfilling its electricity load through standard methods. In the energy market, the generator sells brown power which is the energy produced by the fossil fuel industry, and the customer can choose to buy the energy either from the generator or another party in a separate transaction. Instead of providing actual electricity, the generator offers Renewable Energy Certificates (RECs) to customers as evidence of the extra energy produced. This energy industry mechanism seeks to promote the usage of renewable energy sources. Electricity and renewable energy assurance are purchased independently in REC transactions; this is referred to as the “Unbundled Approach.” Under Virtual Power Purchase Agreements (VPPAs), consumers purchase renewable energy certificates (RECs) from renewable energy generators while continuing to get conventional electricity from utility providers. Although the Central Electricity Regulatory Commission (CERC) historically set floor and forbearance prices to safeguard stakeholders’ interests, the market ultimately determines the price of renewable energy certificates. On September 29, 2021, the Ministry of Power (MoP) declared, however, that floor and forbearance limits would no longer apply to REC pricing, which would now be exclusively based on market price. There is now a great deal more VPPAs in India than ever before. Cleantech Solar just signed one, promising to produce 187 GWh of green energy over the course of the project. With this capability, more than 171 kilotons of carbon emissions may be offset. These initiatives help India reach its targets of producing 500 GW of renewable energy by 2030 and reaching net-zero emissions by 2070. Jurisdictional Ambiguities and Unresolved Issues in the Regulation of Virtual Power Purchase Agreements (VPPAs) in India The conflict over the jurisdiction concerning the physical and financial contracts between the SEBI and CERC has been a long-term issue and was first dealt with in the Multi Commodity Exchange of India Limited & Another v. Central Electricity Regulatory Commission & Ors., 2010, where SEBI argued that it had the jurisdiction over forward and the future contracts of all types and thus it should have the jurisdiction over the contracts. Furthermore, they maintained that the forward and future contracts were not even alluded to in the Electricity Act of 2003. The argument suggested that only contracts with immediate delivery fell under the purview of CERC because forward and future contracts were exclusively pecuniary in character. It recommended that the relevant government regulate contracts that are solely financial in nature. On the other hand, CERC contended that the Electricity Act sought to combine the laws that oversee the generation, transmission, distribution, trade, and use of electricity. As a result, CERC affirmed its right to pass laws promoting the expansion of the energy sector, including trade. Through a combined interpretation of Sections 66 and 178(2)(y) of the

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Deregulatory Trust: Unraveling Corporate Autonomy in Whistleblower Policies

Employment Law / CBCL

[By Neeraj Kumar] The author is a student of WBNUJS, Kolkata. Introduction The idea of blowing the whistle has its meaning on a spectrum, ranging from hero to snitch to martyr to traitor. Assuming, it is noble to attempt save lives and livelihood, the illegal consequences must be eliminated. However, this comes with a need to balance interests within employment law. The same has always been stringent regarding maintenance of confidentiality of information obtained in the course of employment through duty of fidelity or express obligation in the employment contract. Over time, this obligation has developed a defense of public interest in jurisdictions such as United Kingdom (‘UK’), commonly referred to as ‘protected disclosures’ so as to create the required balance. Whistleblowing is defined as the reporting by employees or former employees of illegal, irregular, dangerous or unethical practices by employers. The first Indian but ineffective attempt of the legislature narrowly defines it as any person to report an act of corruption, willful misuse of power or discretion, or a criminal offence by a public servant. Despite the already limited scope of this definition in the Whistleblower Protection Act, 2014 (‘the Act’), the same could not come into force due to national security concerns like sensitive military data leaks, and legislature sought to amend and expand the exceptions. The history of whistleblower regulations and the initial efforts by the US prompted a remark that don’t put your head up, because it will get blown off. Foreign jurisdictions have sought to avoid this ethical fatality by navigating technicalities to achieve their goals. However, India lags behind despite several setbacks. One infamous instance is the murder of whistleblower Satyendra Dubey in the NHAI scam case. This murder, among others, brought the foreign debates of anonymity and protection from retaliation. In light of this, this article analyses the current regime of whistleblower protection in India. The article then attempts to further the present regime in the Private Sector followed by a succinct discussion on plausibility of labour law to further and streamline the protection or employer retaliation. Inroads in the corporate sector After tacit public outcry, in conjunction with that of the Supreme Court ‘(SC)’ in the Satyendra Dubey case and several committees, the government established the Central Vigilance Commission ‘(CVC)’ to act upon complaints. This body exhibited numerous imperfections in its core structure and functioning, including an extremely narrow jurisdiction limited to PSUs and Central officials. However, these attempts failed to safeguard and thus promote whistleblowing, primarily due to opposition by large corporates in India. Nevertheless, several attempts have been made to expand the scope of Whistleblower regime, i.e., the CVC, Companies Act, 2013 and the SEBI LODR, 2015. However, the scope of these stretches only to listed companies. Even with regard to listed companies, this practice is mostly self-driven and has given leeway to companies to exclude vital features of any whistleblower policy. For instance, organizations like CPRI, Bangalore only allow permanent employees to raise complaints; thus, excluding most of their workforce. Inclusion of Private Sector It is argued that the private sector be included in whistleblower protection regime since unethical practices are beyond the listing agreement or public sector. As early as in 2007, the ARC recommendations boldly proposed inclusion of private sector in whistleblower protection regime. One bold move, borne out of lack of action to preclude banking related scams, was the issuance of a circular by RBI titled “Protected Disclosures Scheme for private and foreign banks operating India”. The same was formulated in effect of CVC as the authority to receive complaints. This was the first instance of coverage of any private sector organization even before the SEBI LODR brought listed companies within its ambit. What then primarily guides the whistleblower regime in Indian corporate sector is LODR, 2015 read with Section 177 of the Companies Act. Initially, it was suggestive in nature, however, an amendment later on mandated the vigil mechanism to be set up by all the listed companies. The clause requires the mechanism to be effective but there exists no streamlined authority/body to ensure the same, thus allowing the companies to shape their whistleblower policies as it suits their interests. However, there is nothing to keep checks and balances on these internal policies except a requirement to report details of any disclosures in annual corporate governance report of the company. Even internationally, G20 Anti-Corruption action plan, while citing the 2009 OECD recommendations, calls for ensuring protections in private sector. In its analysis of protections in G20 countries, it highlights the different paths taken for same end goal. For instance, as specified in the action plan, Canada does not make any distinction at all, covering both the sectors.1 Additionally, Germany has specifically used its labour law regime to further whistleblowing and crafted good faith as a protection from dismissal. With this, let us delve into interaction of Indian Labour law with the whistleblowing and retaliation associated with it. Indian Labour Law: Navigating the Limits The inadequacy evident in the preceding sections, prompts considerating whether the labor law regime provides any form of protection—albeit limited to livelihood if not life. The current regime does not inherently safeguard whistleblowers. However, at its core, labor law is grounded in the protection of workers against unfair treatment. Otto Kahn Freund articulates that the primary goal of labor law is to rectify the inherent inequality of bargaining power within the employment relationship. This power imbalance permits employers to dictate the terms of employment contracts, offering jobs on a “take it or leave it” basis. Such an imbalance is a contractual flaw that overlooks the socio-economic realities of societal relations. Hugh Collins further asserts that acknowledging wealth inequalities necessitates sociological intervention in the traditional freedom of contract. With this objective in mind, labor law legislations globally aim to shield workers from ‘victimization’ and ‘unfair dismissal.’ In India, the validity of dismissal is explored under Schedule V of the Industrial Disputes Act, 1947 (ID Act). Clauses 5(a) and (b) of the

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Right to claim set-off in CIRP: A Shift in the Landscape

Insolvency Law / CBCL

[By Manisha Soni] The author is a student of Gujarat National Law University. Introduction Recently, the Supreme Court of India, in the judgment of Bharti Airtel Ltd. vs Vijaykumar V. Iyer, solidified the position of the National Company Law Appellate Tribunal (NCLAT) that the arrears can not be set off when a Corporate Debtor is going through Corporate Insolvency Resolution Proceedings (CIRP), under the Insolvency and Bankruptcy Code, 2016 (IBC). This provided a crucial clarification of the prevailing legal intricacies and upheld the legislative purpose of the code. Through this article, the author aims to simplify the wisdom inherent in the judgment, considering the legislative intent and the potential ramifications of permitting set-offs in the CIRP. The author proposes that set-offs are not inherently contradictory to insolvency law and can be accommodated within the framework of the IBC. Factual matrix Airtel entities were engaged in spectrum trading agreements with Aircel entities to seek the right to use spectrum. Aircel entities faced demands from DoT for bank guarantees related to license and spectrum usage dues. Upon request, Airtel agreed to furnish these guarantees on Aircel’s behalf, deducting the same from consideration payable under spectrum transfer agreements. However, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) declared DoT’s demand untenable; and the bank guarantees were asked to be returned. In the meanwhile CIRP was initiated against Aircel entities. Airtel entities, having paid for Aircel entities, submitted a claim to set-off, asserting it as the net amount owed by Aircel entities for operational charges. Adjudication of such claims of Airtel for set-off during CIRP against Aircel created the challenge for insolvency legislation. The Resolution Professional (RP) asked Airtel to pay Rs. 112 crores to Aircel, who was undergoing CIRP. This was objected to by Airtel entities in NCLT Mumbai. The Adjudicating Authority in Mumbai initially allowed Airtel entities the right to set off. However, the NCLAT overturned this decision, contending that such a set-off is antithetical to the objective of insolvency legislation. Analysis of the Judgment In common language, the term ‘Set-off’ is an instrument that cancels mutual financial obligations between two parties by allowing one party to reduce the amount it owes to a second party by the amount the second party owes. Arguments by Airtel Since the United Kingdom’s Insolvency legislation has served as a model for IBC law in India, the Airtel representative relied on Insolvency set-off provisions in the UK. ‘Insolvency set-off’ applies when demands are between the same parties, even when several distinct transactions exist between them. The pre-requisites of set-off u/s 323 of the UK Insolvency Act 1986, to claim set-off is when mutual credit and debt arise from ‘mutual dealings’ between the parties prior to the commencement of the bankruptcy. Airtel relied on the UK legislation and the case of HC of Kerela, where the judges allowed set-off and held even different, independent, transactions between parties as ‘mutual dealings’ under the Kerela Insolvency Act, 1955. Airtel argued that the concept of set-off was permissible in India pre-IBC. Section 529 of the Companies Act 1956 and section 325 (now omitted) of the Companies Act 2013 did allow for set-off. Section 44 of the Provincial Insolvency Act 1920, contingent on certain conditions, permitted creditors’ right against the corporate debtors to set-off. Order VIII Rule 6 of the Code of Civil Procedure, 1908, of India provides statutory set-off. To claim set-off under this rule, the amount should be ascertained. After the advent of IBC in insolvency legislation, set-offs started to derive legitimacy under section 173 of IBC, where set-offs are allowed in partnership and individual bankruptcies. Apart from that, regulation 29 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016 provides for set-off on account of mutual dealings. SC Judgment The SC held that the nature of corporate debtors changes after the commencement of CIRP. Hence, any claim for set-off cannot be raised after CIRP. The Hon’ble Court rejected the applicability of set-off provisions of CPC in CIRP due to the presence of section 238 of IBC, which states that provisions of IBC override all other laws. Regulation 29 of the Liquidation Regulations provides for mutual dealing and set-off but does not apply to Part II of the IBC, which deals with CIRP. The court, however, permitted contractual set-off if the date of such set-off was before the CIRP was initiated. A contractual set-off is a mutual agreement to permit set-off and adjustment. The CIRP does not preclude it. Set-offs are contrary to the common law doctrine of pari passu and anti-deprivation. Though the doctrine of pari passu is not explicitly mentioned in the IBC, an interpretation of the existence of the doctrine can be drawn from section 53 r/w section 52 of the IBC, as these provisions provide for the hierarchy of creditors during the distribution of value arising out of liquidation. This arrangement gives primacy to an operational creditor over a financial creditor should the operational creditor’s claim of set-off be permitted. Due to the set-off, the liquidation estate’s value gets depleted, consequently affecting the dividend distribution among the rest of the creditors. The doctrine of anti-deprivation discourages this. This doctrine enumerates that a creditor can not obtain a better position than the law explicitly provides during bankruptcy. SC applied the essence of both doctrines in this matter. The provisions related to CIRP do not provide for insolvency set-off, and the court refuses to extend it through implication. Unlike contractual set-off, Insolvency set-off is not self-executing in nature. The creditor who wants to exercise set-off can do so from the assets excluded from the liquidation estate to the extent of the set-off value, u/s 36(4) of IBC. Such creditors are often given preferred status in assets statutorily excluded from the liquidation estate. No new rights are created due to the rejection of rights to claim set-off, and the moratorium will be operative on the corporate debtor’s assets. Author’s remarks Set-off is a globally recognised and widely practised concept. Set-off should not be

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Navigating Innovation and Compliance: Analysing RBI’s New Draft Regulations for Fintech’s

Banking Law / CBCL

[By Siddh Sanghavi] The author is a student of National Law University Odisha. Introduction On January 15, 2024, the Reserve Bank of India released the draft regulation outlining a framework for self-regulatory organisations in the fintech industry. These self-regulatory organisations have been named SRO-FT. As per the RBI’s outlined framework, a Self-Regulatory Organization for Fintech (SRO-FT) will be a non-profit entity established under section 8 of the Companies Act of 2013 and will have to fulfil certain requirements and comply with governance standards to gain recognition by the RBI. This idea of having a self-regulatory organisation for the Fintech industry is not something that is new and can be traced back to the Report of the Working Group on Fintech and Digital Banking released by the RBI in 2018, where the idea of a self-regulatory organisation for the Fintech industry was first proposed. This blog analyses the Reserve Bank of India’s (RBI) draft regulations on establishing Self-Regulatory Organizations (SROs) for the Fintech industry in India. It discusses the need for regulation, why self-regulation is currently the best approach, and how the RBI’s steps will bridge the gap between regulators and the industry. It also highlights potential issues with the draft regulations and suggests improvements. Need for regulation As per the Report of the Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps fintech lending entities in India are of two types: 1) Those which the RBI regulates by granting them NBFC licenses. And 2) those that are currently unregulated. The new draft framework is aimed at regulating the second category of Fintechs. One of the main functions of the Fintech sector is that it provides solutions to the already regulated entities in the form of an outsourced information technology provider as well as providing lending services such as KYC (Know Your Customer) tasks. This involves fintech’s amassing a large amount of sensitive financial data, and therefore ensuring robust cyber security measures becomes extremely important. By the nature of its functions itself, it is understandable why it is important to regulate this sector. If not regulated, it may pose significant risks towards consumers’ data privacy and cyber-security in the banking system. It is proposed that these SRO-FTs will help develop codes of conduct, ensuring all the members follow the basic industry standards and meet the expectations of the RBI. Why self-regulation will be the best route. Section 45I(f)(iii) of the RBI Act 1934, allows the RBI with the approval of the Central Government to notify any class of companies as an NBFC (Non-banking financial company). Through this section, RBI has the power to notify fintech entities that are involved in the process of lending as NBFCs. Since NBFCs are already regulated by the RBI, this notification of classifying Fintech companies as NBFCs would have allowed RBI to bring them under the same regulation. However, RBI has in its press release stated that it prefers the approach of self-regulation as it will help get a balanced approach between innovation and meeting regulatory requirements. Further, the RBI in its draft omnibus stated that “Self-Regulatory Organisations (SROs) enhance the effectiveness of regulations by drawing upon the technical expertise of practitioners and also aid in framing/fine-tuning regulatory policies by providing inputs on technical & practical aspects, nuances and trade-offs involved.” As stated by the RBI in its draft omnibus it may not be prudent to bring Fintech’s under the same regulation as an NBFC, there has to be industry-specific regulation and till the time RBI doesn’t come up with regulations specifically dealing with Fintech self-regulation will be the best route. Further, this approach of self-regulation taken by the RBI is appropriate since the Fintech industry in India is poised for growth, innovation and investments and burdening it with mandatory and excessive regulations may not be the right move currently and is something that can be considered in the future. Success of Self-Regulatory Organisations across sectors. The concept of a self-regulatory body is not new in India; it has also been effectively used in the past to close the gap between the regulated and the regulators without requiring excessive regulation. The most famous example is the Association of Mutual Funds India (AMFI). The AMFI has acted as a link between SEBI/ RBI and the Mutual fund ecosystem. AMFI has also worked to set standards for “best practices” which then become the status quo of the industry and is followed by all in the eco-system. The AMFI has also been recognised by the SEBI and now also acts as the licensing body for all Mutual funds in the industry. Other examples of successful self-regulatory organisations include the Indian Bank’s Association (IBA), and the Foreign Exchange Dealers Association of India (FEDAI), they have also been successful in collaborating with regulators in the past and ensuring compliance and upholding ethical standards. The RBI by providing a framework for Self- Regulatory organisations for the Fintech Industry aims to achieve a similar purpose. An SRO-FT will act as an interface between the industry and the RBI. The Key ingredients of success: Recognition by the RBI and active participation. According to the new draft guidelines for an entity to be recognised by the RBI it must receive a letter of recognition from the RBI. From the examples mentioned above, the system of self-regulatory organisations can only work smoothly and truly act as a representative of the industry it needs to gain recognition from the regulator. Since the SRO acts as a representative of the entire industry, recognition from the RBI will grant them legitimacy. Further, recognition by the RBI will automatically increase participation and membership of an SRO. As mentioned above Fintech entities are usually service providers to the already regulated entities, therefore accreditation by an RBI recognised entity (SRO) will increase trust and marketability of the fintech entity. This is also one of the important reasons why a Fintech entity would be motivated to voluntarily subject itself to regulations and supervision by an SRO-FT. Therefore

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Supplier Secrecy, Buyer Company’s Woes: The Chronicles of Delayed Payments under the MSMED Act

Company Law / CBCL

[By Rajan Thakkar & Manasvi Verma] The authors are students of Gujarat National Law University, Gandhinagar. Introduction Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 imposes a liability on the buyer companies to make the payment to their suppliers within the period mentioned under Section 15[i] of the Act and upon failure of the same, according to Section 16[ii] of the Act, the buyer company is required to pay compound interest with monthly rests on the due amount at three times the bank rate notified by the Reserve Bank of India. However, certain obscurities have surfaced in cases when the buyer company is unaware of the MSME status of the seller and when the supplier fails to raise any claims for the outstanding amount leaving the buyer unaware of the outstanding dues. These ambiguities can leave companies financially drained as a result of supplier oversight. This article analyses the shortcomings of the current regime for delayed payments and presents somewhat of a rough pathway for the companies to safeguard themselves from unforeseen consequences of such situations. Legislative Intent: Ensuring timely Payment to Suppliers To understand the implications of these provisions in such situations, it is important to first examine the intent behind the concerned provisions. The legislative intent at the time of the passing of the act was to make improvements in the Interest Act 1993[iii] and to incorporate its provision in MSMED Act 2006; replacing and improving the then existing 1993 Act. One of the changes that was made was that the maximum period for payment by agreement was reduced (from 120 days to 45 days) in comparison to the Interest Act. It was evident that the legislature wanted to make moves to mandate the buyer companies to make timely payments for goods and services provided by micro and small enterprise suppliers. Such additions were made in Section 15 and the penalty for the default was provided under Section 16. Section 15 mandates that in no case, the agreement for the period of payment can exceed the statutory period. It reads,“…..the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing…..in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days….”. . According to Section 16, the buyer will be liable to pay the compound interest notwithstanding any agreement or any law in force upon a failure to make the payment as mandated under Section 15 of the Act. To simplify this, both the sections are standing glued to each other, and if section 15 falls, so will section 16, and the Hon’ble Supreme Court has also observed in the case of Silpi Industries v. Kerala SRTC[iv] that the MSMED Act is a special legislation and would have an overriding effect over any other statute in force at the time. Therefore, no forces of other statutes or any agreements between the buyer company and the supplier can save the buyer company from this strict liability. This liability often comes as a surprise to the buyer companies due to some lacunas that are left out. No duty of the seller to raise a claim for outstanding dues. There is no default duty of the supplier to raise any claims or send any notices before the right u/s 16 of the actuates. Against this backdrop, the buyers might want to explore avenues to restrict their liability u/s 16 by agreements by requiring the suppliers to raise claims regarding outstanding amounts. However, no such option is left open to the buyer companies under the act since the statutory mandate is to make the payment in the period mentioned under section 15 and upon failure, “notwithstanding any agreement or any other law” in the time being, the interest under section 16 will kick in. No Duty of the seller to Notify the buyer company about the Supplier status. The act doesn’t mandate that the seller is required to notify the buyer companies about their supplier status. Liability can be imposed u/s 15 and 16 merely if the seller company is a supplier under the definition of Section 2(n) of the MSMED Act[v]and therefore, irrespective of the disclosure made by the supplier regarding its status, the liability of the buyer company may arise. To give a practical example of how this problem can materialize, let’s say a buyer company agrees with a vendor at a time when the vendor doesn’t have a supplier status under the MSMED Act and the period for payment for the goods/services exceeds the period described under the section 15. On a later date, the vendor acquires a supplier status under the act and keeps supplying the goods/services to the buyer company under the pre-existing contract without notifying the buyer company about the change in status. Upon default or after the lapse of the statutory period u/s 15, the buyer company might be caught with surprise for having to pay exorbitant statutory dues and finding that the existing contract has been rendered infructuous. Accompanying Liabilities of the Buyer Company upon Non Compliance with the Disclosure Requirements Thus far, we have explored how unforeseen financial burden can be placed on the buyer company in the form of interest rate in cases wherein the buyer company is either aloof of any outstanding dues or the supplier status of the seller. However, the repercussions of this aloofness are far reaching and not confined to the compound interest u/s 16 of the MSMED Act. The buyer company and its executives can have to bear additional penalties upon non disclosure of such unknown/undemanded outstanding payments. The repercussions of such a strict disclosure requirement can be understood by referring to the relevant provisions of the MSMED Act r/w the penalising provision of the Companies Act 2013. Under Section 22 of the MSMED Act[vi], it is mandatory for a buyer company, who engages in the acquisition of goods or procurement of services from a supplier to undergo an

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The Conundrum of the Legal Standing of Nominees of Deceased Shareholders in the Context of Succession: Shakti Yezdani v. Jayanand Jayant Salgaonkar

Company Law / CBCL

[By Devanshi Shukla] The author is a student of MNLU Aurangabad. Introduction Nomination as a process involves selecting another person as a legal nominee or representative by a person during his lifetime in respect of specific assets or properties. In the recent case of Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors, the Supreme Court offered clarification on the status of nominees as nominated under Section 109A of the erstwhile Companies Act, 1956 (‘Act’) in the context of succession laws. The Court emphasized that nomination under the Act should not be viewed as an alternative method of succession. This blog seeks to delve into a comprehensive analysis of the judgment and explore its current implications. Facts Jayant Shivram Salgaonkar (‘testator’) had executed a will for the devolution of his properties upon his legal heirs. In addition to the properties mentioned in the will, he had fixed deposits (‘FDs’) and mutual funds (‘MFs’) for which he had made nominations. Following his demise, the legal heirs filed a suit for the administration of his properties. The nominees contested this arguing that the FDs and MFs absolutely vested in them, citing their nomination under the Act. A single judge of the Bombay High Court rejected the contentions put forth by the nominees stating that the appointed nominee retains ownership of the shares/securities in a fiduciary role and is responsible for addressing any claims within the framework of succession law. On appeal, the Division Bench held that the view taken in Harsha Nitin Kokate v. The Saraswat Co-operative Bank Limited and Others was per incuriam and made it clear that nominees were not entitled to the absolute ownership of the properties. Subsequently, the appellants filed an appeal in the Supreme Court. Issues at hand The Supreme Court deliberated on the following issues: What is the aim behind the introduction of provisions concerning ‘nomination’ into the Act? What is the understanding of the concept of ‘nomination’ under the Act and in relation to the law of succession? What are the consequences of the term ‘vest’ and the non-obstante clause as employed in Section 109A of the Act and under Bye-Law 9.11.1 of The Depositories Act, 1996? Observations made by the Court Object behind the introduction of Section 109A under the Act The Court observed that the Companies Act, 1956 was introduced to deal with the “incorporation, regulation and winding up of corporations”. Additionally, the primary intent behind introducing Section 109A and 109B by the Amendment of 1999 was to provide momentum to investment in the corporate sector and not to deal with succession. The provision of nomination was introduced to lessen the burden of legal heirs and also to foster a wholesome environment for corporate investment in the country. The Court held that there was lack of any material to show that the Amendment intended to provide absolute ownership of the property to the nominee. Concept of ‘nomination’ under the Companies Act, 1956 and its connection to the law of succession The Court referred to the concept of ‘nomination’ as enumerated by various courts under varied legislations (such as the Government Savings Certificate Act, 1959). It was asserted that due to the lack of a universally accepted definition and interpretation regarding the rights and ownership of a nominee concerning the relevant property, the Court would rely on the commonly understood meanings. The Court acknowledged that the Act does not envision a “statutory testament” that supersedes the laws of succession. It does not concern itself with the laws of succession. Nomination under the Act is not put through the same strict requirements as those applicable to the creation and validity of a will under succession laws. Implications of the term ‘vest’ and the non-obstante clause as used under Section 109A of the Companies Act, 1956 and Bye-Law 9.11.1 of The Depositories Act, 1996 The Court held that the term ‘vest’ can have multiple meanings according to the context in which the word has been used in a provision or legislation and mere usage of the term does not give absolute entitlement over the subject matter. Similarly, it was acknowledged that the non- obstante clause also is to be understood in the context of the object and scheme of the legislation under consideration. Further, the Court stated that the term ‘vest’ has to be understood in line with Section 211 of the Indian Succession Act, 1925. Under Section 211, ‘vest’ does not entitle the administrator or executor with ownership but only entitles him to hold the property until it is distributed among the legal heirs. Section 109A of the erstwhile Act was said to address the vesting of shares or debentures from a holder to their nominee in the event of the holder’s death.. The non-obstante clause temporarily vests securities unto a nominee, to the exclusion of others to help the company in discharging its liability regarding various claims put forth by the successors of the deceased shareholders until the successors have resolved matters and are ready for the transfer of the securities. Bye-law 9.11.1 under the Depositories Act, 1996 also provides for nomination by shareholders. Similar to Section 109A, the term ‘vesting’ here is used only in a limited context. The non-obstante clause has only been included here to facilitate the depository to handle the securities in the event of the demise of the shareholder. Analysis & Conclusion The judgement plays a crucial role in delineating the rights of the nominees as nominated under Section 109A of the Act. The Supreme Court has effectively negated the view held by it in Aruna Oswal v. Pankaj Oswal & Ors. wherein it was stated that the non-obstante clause employed under Section 72(3) of the Companies Act, 2013 which is pari materia to Section 109A makes the vesting of shares unto the nominee absolute. The legal stance taken by the Apex Court aligns the rights of the nominee with those of the heirs in their respective situations, offering a method to facilitate the seamless

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Illuminating the Shadows in India’s Dark Pattern Guidelines: A Flawed Regulatory Attempt

Contemporary Issues / CBCL

[By Akhil Raj & Ekta Gupta] The authors are students of National Law University Odisha. INTRODUCTION If a person frequently purchases airline tickets online, they have probably encountered websites that use the phrase “I will stay unsecured” in the event that the buyer declines insurance coverage. This is a classic example of how dark patterns function to nudge people into making forced choices thereby generating commercial gains for the sellers, advertisers, or any such platform. According to data revealed by the Advertising Standards Council of India (ASCI), 29% of the advertisements they processed between 2021 and 2022 were influencers’ covert advertisements, indicating a kind of dark pattern. Hence, in a virtuous endeavor to regulate the e-marketplace and to rein in the use of dark patterns, the Central Consumer Protection Authority (CCPA) introduced the ‘Guidelines for Prevention and Regulation of Dark Patterns, 2023’ (The Dark Patterns Guidelines). The Dark Patterns Guidelines pique interest owing to its admirable aims and purpose but this blog strives to go beyond the fine print and unveil the limitations in terms of its applicability, stringency, and obscure provisions. NOTABLE ASPECTS OF THE GUIDELINES The Dark Patterns Guidelines representing an important attempt to regulate deceptive interfaces and protect ‘users’, define dark patterns as manipulative digital design practices that are used to deceive users to influence their decisions and choices. Such devious practices shall amount to misleading advertisement, unfair trade practice, or violation of consumer rights. In other words, it states that engaging in any dark pattern practice for commercial gain that impairs user choice amounts to an unfair trade practice or misleading ad under consumer protection law. The applicability of the Dark Patterns Guidelines extends to all platforms, advertisers, and sellers and it unequivocally forbids any person from indulging in the practice of dark patterns. The Dark Patterns Guidelines provides illustrations of specific dark pattern practices. For instance, online travel sites may use ‘false urgency’ tactics like claiming “only 1 room left!” to pressure users to make quick purchases. Food delivery apps can engage in ‘basket sneaking’ by automatically adding a small donation amount during checkout without consent. Platforms can use ‘confirm shaming’ by displaying messages like “No thanks, I want to stay uninformed” when users try to reject newsletter signups, guilting them into accepting. ‘Nagging’ tactics can be seen when education sites relentlessly prompt users to share emails or accept cookies to access services, persistently disrupting the experience. These demonstrate how various dark pattern techniques exploit users through deceptive design elements on online platforms. Although, these specific dark patterns have been recognized but the definitions and the interpretation of their functionality as mentioned in the Guidelines are not legally binding and may change from case-to-case basis RECONCILING INCONSISTENCIES AND GAPS WITH EXISTING LAWS: E-market platforms and consumer data are the prime focus of the Guidelines and these aspects also fall within the scope of other statutes including the Information Technology Act, 2000 (IT Act), the Digital Personal Data Protection Act, 2023 (DPDP Act), and the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisement, 2022 (Advertisement Guidelines). To begin with, the wide definition provided for ‘platforms’ in the Dark Patterns Guidelines brings within its ambit, all sorts of platforms which are an online interface in the form of any software, making such platforms liable for any dark patterns that they indulge in. This implies that even intermediaries which can also be an online-market place fall within the scope of the definition. However, the inconsistency is that Section 79 of the IT Act extends safeguard to an intermediary from any information or data from third parties, presented in any way, that they provide access to or store on their platforms. Further, the Dark Patterns Guidelines prohibits the practices where the user is forced to enter some personal details (for example, email Id and contact information) in order to avail of the services offered by the platform. However, it overlaps with the DPDP Act which is quite particular about the requirement of explicit consent of the person to whom such data relates. Before the Dark Patterns Guidelines, the Advertisement Guidelines defined non-misleading and valid ads, banning false and dishonest ads. This intent and objective intersects with the Dark Patterns Guidelines. The CCPA did not consider the prospect of amendments in the existing Advertisement Guidelines or the existence of other coinciding legislations before the release of the Dark Patterns Guidelines leading to an ambiguity in its implementation. The Dark Patterns Guidelines specify that the provisions under the guideline should not be interpreted to be in derogation of any other law which has been regulating dark patterns. But, even the existence of coinciding legislations would amount to confusion. In this case, the regulatory authorities could issue clarifications in the form of FAQs or notifications and should adopt a phased implementation in order to avoid market disruption. SUBSTANTIAL SHORTCOMINGS Despite having noble intentions behind the introduction of the Dark Patterns Guidelines, the dearth of appropriate provisions in its substantive part makes its effective execution challenging. For instance, in case of violation of the Dark Pattern Guidelines, it does not allude to the forum to be approached in that case. Albeit, when the draft was released, it stated that in case of any violation, the provisions of the Consumer Protection Act, 2019 (CPA), shall apply. By removing this provision, the CCPA left the Dark Patterns Guidelines toothless. Additionally, the absence of specific penalties for the contravention of the Dark Patterns Guidelines strips away the enforcement authority. Since, in a general scenario, corporate entities in the form of e-commerce platforms indulge in such practices, thereby demanding the existence of penal provisions. Although, the exact amount of the compensation to be awarded would depend on the facts and circumstances of each case, levying a specific penalty can be the way forward. For instance, penalizing the alleged entity to disgorge a certain percentage of its average turnover in the last preceding years and increasing it for the repeat offenders. The non-existence

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Affirmative or Negative: Evaluating Resolution Professional’s role as a Public Servant

Insolvency Law / CBCL

[By Rahul Pandey] The author is a student of West Bengal National University of Juridical Sciences. Introduction Based on a plain reading of provisions of the IBC, 2016, it would not be wrong to assume that the Resolution Professional (“RP”) is supposed to act as the backbone of the entire insolvency resolution process. He is envisaged as an impartial party that acts in the best interest of all involved and upholds the highest standards of professional and moral integrity. However, in the unfortunate situation wherein he is alleged to indulge in mala-fide practices that threaten the whole regime of trust-building the code is supposed to stand for, his position remains unclear. Should he be treated as a “Public Servant” performing a duty that is public in nature under the Prevention of Corruption Act, 1988 (“PC Act”)? Or would it be a better fit to exclude him from the purview of the strict standards of prosecution of said public servants to ensure that the constant threat of being faced with these provisions does not act as a barrier for him in the performance of his duties? This piece shall aim to address this concern and provide a balanced view in light of conflicting judgments delivered in recent months by the Hon’ble High Courts of Jharkhand and Delhi as the matter lies pending before the Hon’ble Supreme Court of India. The PC Act and its expanded Horizon of Public Servants Aimed at curbing the evil of corruption across all levels of society, the PC Act provided a wide-ranging definition of the term ‘public servant’ in light of the changing economic order to ensure that its provisions not only apply to those working for the government directly but also those that perform any duty that may be ‘public’ in nature. A common misconception that arises is that RPs are covered under the term ‘liquidator’ as given by Section 2 (c)(v) of the PC Act and Section 21 of the IPC that define Public Servants. However, the same would be a fallacious conclusion as the liquidators mentioned in these provisions refer to those appointed under S.502 of the old Companies Act, 1956, who were directly appointed by the High Court and drew their pay directly from the government. On the contrary, RPs under the IBC are appointed by the Committee of Creditors (CoC) in coordination with the NCLT under S.22 of the IBC and draw their fee on the basis of assets realised or as deemed appropriate CoC based on their commercial wisdom. Nature of Appointment In regard to the nature of appointment of the RP as to bring him within the fold of Section 2 (c)(viii) of the PC Act, conflicting opinions have emerged. The Delhi High Court in its judgement in Arun Mohan v. CBI, 2023 SCC OnLine Del 8080 has emphasised that while only the Interim RP initially is appointed directly by the NCLT, the final Resolution Professional who oversees the CIRP till its conclusion is appointed by the CoC and not the NCLT. The Jharkhand High Court, on the other hand, in its judgement in Sanjay Kumar Agarwal v. CBI, 2023 SCC OnLine Jhar 394, has held that while the direct role of the NCLT is limited to the appointment of the Interim RP under S.16, IBC, the appointment of the final RP under S.22, IBC, the decision of the CoC has to be communicated to the NCLT. Even in the case of replacement of the RP by the CoC under S.27 (3) and (4), IBC, the committee of creditors shall forward the name of the insolvency professional proposed by them to the adjudicating authority which will forward it to the Board for its confirmation. In light of all these factors, the court has opined that it would be incorrect to conclude that the adjudicating body doesn’t play an active role in the appointment of the RP. The position taken by the Jharkhand HC is in line with previous decisions of the NCLAT wherein the position of the RPs has been held to be equivalent to that of an officer of the court for the purpose of contempt and thus the nature of the appointment of the RP can be said to be completely within the scope of public nature. Involvement of Public Duty in role of RP As has been held by the Supreme Court, the character of “public duty” as performed is the prime factor in determining if the said office was that of a “Public Servant” for the purpose of the operation of the PC Act. The words “Public Duty” can have a very wide range of interpretation. This is somewhat in line with the vision of the introduction of the PC Act which sought to leave open the scope of bringing within its fold offices that gain public function as the dynamics and the functioning of the state machinery changes. In holding that the RP is not a public servant, the Delhi HC has placed reliance on a paragraph in the SC’s judgement in Ramesh Gelli V. CBI where it has been observed that when an office may hold elements of public duty, without the element of ‘public character’, it may not be considered as that of a public servant. To justify this view, the court has gone on to hold that – “IP metamorphosizes from an IRP to an RP and thereafter as a Liquidator (as the case may be), and due to such metamorphosis, it would be prudent not to characterize the duties, even if assumed to be “public”, as in the nature of “public character”.” However, it is respectfully submitted that the change in nature of duties from IRP to RP and to liquidator is not enough to justify that the office of the RP as a whole does not hold an essential public nature. While it may be true that the judgments in Swiss Ribbons and Arcelor Mittal describe the role of the RP as a mere facilitator, his neutrality,

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Limitation under Section 61 of the IBC: End of the Interpretation Saga?

Insolvency Law / CBCL

[By Himanshu Gupta & Nandika Seth] The authors are students of NMIMS School of Law, Mumbai. INTRODUCTION The concept of limitation provides a timely framework within which an aggrieved can file a suit, appeal or an application in court. It also empowers courts to dismiss any suit, appeal or application filed after the stipulated period has expired. Therefore, limitation plays a vital role in any proceedings as it can serve as a ground for rejecting a suit even if the plaintiff has a cause of action.  However, a conundrum arises as to which date triggers limitation to commence when the matter is conclusively heard on one day and the order is directly uploaded on the website. The Apex Court for the very first time in Sanjay Pandurang Kalate vs Vistra ITCL India Pvt. Ltd.  (“Vistra ITCL”) answered the aforesaid question. It held that the period to compute limitation to file an appeal under Section 61 of the Insolvency and Bankruptcy Code (“IBC”) from an order of the National Company Law Tribunal (“NCLT”) commences from the date of upload of the order by the Registry. This ruling ensures that the clock of limitation starts clicking once both parties are aware of the content of the order and therefore, they can act accordingly. FACTUAL MATRIX The appeal before the Apex Court arose out of an application filed under Section 62 of the IBC against the judgement of the National Company Law Appellate Tribunal (“NCLAT”). The previous appeal was dismissed by NCLAT on the grounds of limitation. Vistra ITCL applied to initiate a Corporate Insolvency Resolution Process under Section 7 of the IBC against the Corporate Debtor.  NCLT heard the application filed by Vistra ITCL on 17th May 2023, however, no order was pronounced on that day. Though the said order bore the date of 17th May 2023, it was uploaded by the Registry on 30th May 2023.  The Tribunal in the present case dismissed the application of Vistra on the ground that the application was frivolous and lacked authorisation of Board of Directors of the Debtor. The appeal was filed before the NCLAT on 10th July 2023. Through the application for condonation of delay filed by Vistra, they contended to have received the certified copy of the order on June 1, 2023 for which the application was made on May 30, 2023 and therefore, time for computation of limitation should start from the 30th May 2023 since it was on that day, they became aware of the content of the order. The NCLAT held that the appeal was barred by limitation as it was instituted beyond the 45 days limitation period as stipulated under Section 61 of the IBC. It opined that the period of limitation was to be computed from the date the order was pronounced. Therefore, an appeal was filed before the Apex Court challenging the order passed by the NCLAT. OBSERVATIONS OF THE APEX COURT The Apex Court set aside the impugned order of the NCLAT which dismissed the application for condonation of delay filed by Vistra. It held that no substantive order was pronounced on 17th May 2023. Besides, the cause list stipulated that the case was listed for admission and not for pronouncement.  Further, the Court held that the period of limitation should trigger from May 30, 2023, the date when the order was uploaded. The 30 days’ limitation period in accordance to IBC would end on June 29, 2023, hence the appeal was within the condonable period of 15 days. The Court ruled that the limitation for filing an appeal would trigger from the date when the order was uploaded and not the date on which the Bench heard the matter. ANALYSIS The decision in the present case came at the ripe time resolving yet another conundrum in Pandora’s Box of interpreting Section 61 of the IBC wherein the Court clarified the position of law in cases where the matter is conclusively heard but an order is not pronounced. It has been previously settled in the cases of Prowess International Pvt. Ltd vs Action Ispat & Power Pvt. Ltd and V. Nagarajan v. SKS Ispat and Power Limited & Ors. that the period of limitation begins to run from the date of pronouncement of the order. However, there remained a lacuna as to the situations where the Court decides not to pronounce an order on a given date before the parties but makes it available directly on the Court’s website on a different date. Previously, in the case of Pr. Director-General of Income Tax v. Spartek Ceramics India Ltd. it was categorically held that the period of limitation runs from the date when the aggrieved party becomes aware of the order. Contrary to this, in the case of Raiyan Hotels and Resorts Pvt. Ltd. Vs. Unrivalled Projects Pvt. Ltd., NCLAT clarified that the period of limitation under Section 61 of the IBC for filing of an appeal does not commence on the date when the appellant became aware of the content, but it shall commence when the order was pronounced. A harmonious interpretation of these rulings concludes that the only essential to contemplate the period of limitation is the date of pronouncement of the order. In the present case of Vistra ITCL, the NCLT though heard the interlocutory application on 17th May 2023, did not pronounce any order. Vistra became aware of the contents of the order only when it was uploaded on the website, i.e., on 30th May 2023. Hence, the limitation ought to be computed from the latter date which the Supreme Court rightly did. Furthermore, in Embee Software Pvt. Ltd. v. Solicon Pvt. Ltd., a matter similar to the present case at hand, the aggrieved party was unable to file an appeal owing to the late uploading of the order by the Court, summer vacation of the Court and demise of a family member. The NCLAT taking a lenient, liberal, meaningful and purposeful view satisfied with the reasons ascribed for the delay

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Author name: CBCL