Author name: CBCL

Confronting Disability Discrimination in Insurance: Saurabh Shukla V. Max/Niva Bupa and Beyond

Banking Law /

[By Saiyam Shah] The author is a student of Auro University.   Introduction Insurance, particularly health and life insurance, plays a pivotal role in alleviating stress for most individuals and families, assisting them in coping with unforeseen and unfortunate circumstances. People with disabilities (PWD), especially those with congenital disabilities, are often denied access to health and life insurance policies solely based on their disabilities, without any proper risk analysis or objective justifications. Testimonials of the PWD, who were denied insurance or were not given the amount they were entitled to when required on inconsequential grounds are many. Though the judicial intervention has provided some relief, the attitude of the Insurance Regulatory and Development Authority of India (IRDAI) was not impressive until the intervention of the Delhi High Court.. This article delves into the recent developments concerning discrimination against PWD in insurance-related matters and highlights what IRDAI can learn from the practices of the Australian Human Rights Commission (AHRC) to curb instances of discrimination. The initial section highlights the importance of health and life insurance and sheds light on the direct and indirect discrimination faced by PWD. Subsequently, it briefs about the provisions pertaining to discrimination. In the next part, it delves into two significant decisions by the Delhi High Court on the issue of discrimination and concludes by addressing recent developments and advocating for IRDAI to consider issuing binding circulars or non-binding guidelines akin to those adopted by the AHRC to take substantial steps towards reducing instances of discrimination and fostering a fair and inclusive insurance environment for all. Importance of insurance for the PWD As it is for every individual, health and life insurance are essential for PWD to mitigate accidents and other such uncertain events. As noted by Thomas Weston in the context of the UK, but also applicable generally, the PWD (1) are less likely to be employed by the private sector, (2) their income may be lower than their counterparts, and (3) specific needs for assistive equipment, care, and therapy add to their daily cost burden. Therefore, it becomes all the more necessary for them to have health insurance to financially deal with the uncertain events requiring immediate payment of a large amount. Direct and indirect discrimination Often, PWD are denied health or life insurance solely based on their disability without conducting an objective assessment of the risk factors and considering the possibility of providing a policy with a higher premium and non-standard terms. The PWD are discriminated against by: (1) denying to provide the insurance policy, (2) providing the policy with non-standard terms and/or a higher premium and (3) not paying the legitimate insured amount when required on inconsequential grounds. The discrimination is also visible in instances involving family insurance plans. The legal provisions Section 3 of the Rights of Persons with Disabilities Act (RPWD Act) prohibits any kind of discrimination based on disability unless one satisfies that the same act or omission is a proportionate means of achieving a legitimate aim. Section 24(k) of the Act mandates the appropriate government to make a comprehensive insurance scheme for the PWD, and 26 mandates it to make insurance schemes for employees with disabilities. However, the customised insurance policies, customer service, and range of options available in the private sector make it imperative to ensure that they are available to everyone, including PWD. India has ratified the UN Convention on the Rights of Persons with Disabilities, article 3 of which obligates the states to abide by the principles of non-discrimination and full and effective participation and inclusion in society. Article 25(e) of the CRPD obligates the states to prohibit discrimination against PWD in the provision of health and life insurance where such insurance is permitted by national law. Due to the lack of express provision addressing this issue, the litigants seek relief U/A 14 and 21 of the Constitution against such practices. Protection in foreign jurisdictions The Australian Disability Discrimination Act (ADDA) allows discrimination in life and health insurance only if (i) it (1) is based upon actuarial or statistical data and (2) is reasonable having regard to the matter of the data and other relevant factors; or (ii) if the same is not available and cannot be reasonably obtained, the discrimination is reasonable having regard to any other relevant factors. The US’s Affordable Care Act prohibits insurance companies from not providing insurance to people with pre-existing conditions. Other countries or states, that have some express provision against such discrimination include Hong Kong, Japan, Spain, the UK, Portugal etc. Judiciary on disability discrimination Are PWD more prone to accidental risks? In Vikas Gupta v. Union of India (2012), the petitioner filed a PIL against the discrimination in premium as well as the maximum amount ensured in the Postal Life Insurance Policy for government employees. The respondent defended their actions on the ground that PWD are more prone to accidental risks. As rightly countered by the petitioner, (1) there is no such empirical data to support such a general statement, and (2) living with a disability and suffering from a disease are not synonymous. Can a class be excluded on the ground of the contractual relation The bench referred to LIC v. Consumer Education & Research Centre and observed that though insurance is a contract between the insurer and the insured, the conditions prohibiting a class from entering into such a contract are unconstitutional. The LIC had distinguished the persons working in government, semi- government and reputed commercial firms from those living in vast rural and urban areas engaged in unorganized or self-employed sectors and denied insurance policy to the latter. The court struck down the classification as violative of Article 14 of the Constitution. The bench, applying the same case, held that charging a higher premium and discriminating on the basis of the disability is unconstitutional. Saurabh Shukla v. Max/Niva Bupa Health Insurance & Co.; IRDAI’s failure as a sectoral regulator Regulations ; a paper tiger IRDAI’s 2016 Health Insurance Regulations, Para 8(b) and (C), used

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Arbitrability of Insolvency Disputes – Harmonising the Conflicting Theories of Harm

Insolvency Law /

[By Mayannk Sharma] The author is a student of Jindal Global Law School, Sonipat.   Introduction The objective of commencing an insolvency proceeding against a Corporate Debtor is to collate all pending claims against the Corporate Debtor, and institute in rem proceedings against the same. Arbitration on the other hand intends to institute in personam proceedings between the parties. Similarly, Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC”) imposes a moratorium against all pending proceedings against the Corporate Debtor, which includes pending arbitration proceedings as well. This is further complicated by Section 238 (non-obstante clause) of the IBC which overrides any other legislation the IBC comes in conflict with (including the Arbitration Act). Against the backdrop of these competing approaches to dispute settlement, two schools of thought emerge. Should arbitrable disputes continue alongside the Corporate Insolvency Resolution Process (hereinafter “CIRP”) with a view to harmonise proceedings under both the laws; or should arbitration proceedings cease with immediate effect upon the commencement of the CIRP giving absolute authority to insolvency proceedings. I answer this question by relying upon the core and non-core distinction of disputes as followed in the American insolvency regime and how a similar approach is ultimately beneficial for parties to an arbitration. Delineating the emerging pro-arbitration trend in insolvency disputes Over the past few years, the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) have been increasingly trying to harmonise insolvency and arbitration proceedings. The earliest known position on this conundrum was laid down in the landmark Booz Allen case, according to which insolvency matters were absolutely non-arbitrable. About two decades later, in Indus Biotech Private Limited v. Kotak India Venture there was a material shift in the Court’s practices towards arbitrability of insolvency disputes. Essentially, the Court held that the validity of a Section 8 application under the Arbitration Act would not stand dismissed merely upon filing an application for the commencement of the CIRP. In the author’s opinion, the Apex Court theorised an ex-ante and ex-post test towards determining the status of a Section 8 Application under the Arbitration Act where, if the Adjudicating Authority is of the view that there does not exist a default on behalf of the (possible) Corporate Debtor then the pending Arbitration Application does not cease to exist since the dispute remains in personam. Whereas, upon admission, the arbitration proceedings are halted since the dispute now becomes in rem and hence subject to the moratorium period. Similarly, in March 2022, the Apex Court went a step further to harmonise the conflicting jurisprudence by allowing contingent claims[i] to be pursued in an arbitral tribunal pursuant to the completion of the CIRP process. Contingent claims have been habitually written off by the Resolution Professional with a normative value of INR 1/- citing their “inability to estimate a contingent claim’s value” which is a clear abuse of the clean slate theory. By juxtaposing earlier developments, it becomes apparent that Courts have, of late, been deviating from this settled practice. Similarly, the Apex Court in Fourth Dimension allowed the aggrieved creditors to pursue operational dues worth Rs 2400 Crores before an arbitral tribunal which were earlier written off as ‘nil’ by the Resolution Professional during the CIRP in furtherance of its previous (mal)practices. This is a positive development for both the fields of Law since it would now be permissible for contingent creditors to pursue their claims before an arbitral tribunal despite the conclusion of the CIRP process, which were earlier written off by the Resolution Professional to the detriment of such creditors. Similarly, with the newfound clarity on foreign-seated arbitrations in India against the backdrop of PASL Wind Solutions Private Ltd. v. GE Power Conversion India Pvt. Ltd, the Supreme Court has opened avenues for creative solutions to arbitrate insolvency disputes. At present, the IBC does not envisage a cross-border application. It essentially means that the Code’s ability to centralise disputes revolving around foreign creditors or debtors is severely truncated since core concepts such as the moratorium period would no longer apply to such a foreign seated entity (or entities). Prior to PASL Wind Solutions, the only remedy that parties to a foreign seated Arbitration had in view of enforcing an arbitral award was to submit their claim to the Resolution Professional. However, IBC proceedings did not, at the time, consider such an award as valid proof of a ‘debt’, which, as per Indus Biotech is the sine qua non of initiating the CIRP proceedings and paramount for determining whether a dispute exists in rem or in personam. To that effect, with the Supreme Court’s pronouncement in PASL Wind Solutions, domestic parties have the liberty to choose a foreign seat of arbitration and pursue their claims accordingly. From a cursory understanding, it is evident that this does not ipso facto render such a ‘foreign award’ as invalid, rather, basis the recognition and enforcement of the award upon the two-fold test laid down in Section 48 of the Arbitration Act. Harmonising Arbitration and Insolvency Disputes – An International Viewpoint The United States has been widely acclaimed as a global arbitration and restructuring hub. The substance of practices adopted by the United States vest in segregating disputes that are exclusive to either insolvency or arbitration proceedings and letting the appropriate judicial fora take its course. For example, it would be apt to look at the practice of distinguishing between ‘core’ and ‘non-core’ proceedings that has been adopted by courts in the United States which is a much more refined approach towards arbitrability of insolvency matters. The American jurisprudence on the subject matter (particularly the U.S. Bankruptcy Code) proposes a non-exhaustive list of ‘core’ and ‘non-core’ proceedings, where insolvency courts would have jurisdiction over the former and arbitration would govern the proceedings in the latter case. To put it simply, the fundamental distinction between ‘core’ and ‘non-core’ proceedings is the degree of relativity that a claim enjoys vis-à-vis the bankruptcy filing. It can be said that a non-core

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India’s Digital Tax Odyssey: Charting a Course in the Intangible Economy

Taxation Law /

[By Trilok Choudhary & Arya Tiwari] The authors are students of Gujarat National Law University.   INTRODUCTION Digitization has transformed the business landscape, blurring the boundaries between physical and virtual realms. As businesses navigate this digital frontier, so must tax policies evolve to ensure a fair and equitable taxation framework that captures value in an increasingly intangible economy. TAXATION UNDER OECD MODEL CONVENTION The challenge of taxation initially arose from how to tax foreign corporations. While India could tax domestic entities, complexities emerged with foreign companies operating internationally. The core issue was the risk of double taxation. Each nation holds the right to tax its residents, but this posed questions about where foreign enterprises’ profits should be taxed. This led to a conflict between the company’s incorporation state (resident state) and the state where profits were generated (source state). The OECD Model Convention’s Article 7 introduced the “permanent establishment” concept, a fixed business location in the source country. Foreign companies were primarily taxed by their resident state, but if they had a permanent establishment in the source state, that state could also tax them. Article 7(2) clarified permissible taxation, treating permanent establishments as separate entities. For example, let’s take a hypothetical situation involving a company, say Rico, and its establishment in different states were seen as distinct entities for tax purposes. Transactions between them involved theoretical compensations, like managerial services or licensing fees, determined through a process called benchmarking. The source state could then tax Rico based on these hypothetical payments. Despite attempts, the issue of double taxation persisted, as both source and resident states had tax authority. Article 23 resolved this with the Exemption Method (taxing remaining income after source state tax) and the Credit Method (taxing entire income but crediting back the source state tax). Article 10 extended source state authority to tax passive incomes, imposing conditions on dividends. The foreign company must hold 25%+ shares in the permanent establishment for 365+ days and qualify as the “Beneficial owner” of dividends. This ensures funds are genuinely for its use, and merely as a conduit. Source states can tax dividends (up to 5%) and interest (up to 10%). The “Beneficial owner” concept prevents non-treaty states from exploiting reduced tax rates for entities in treaty states. How exactly do you tax digital entities that have only a digital presence within the market and no permanent establishment (The Digital Challenge)?  This is perhaps the biggest challenge in the arena of international taxation in recent time and in this regard on July 11, 2023, 138 members of the OECD/G20 Inclusive Framework on BEPS agreed upon an outcome statement to address taxation challenges stemming from the digital transformation of global economies. This need was heightened by Multinational Enterprises (MNEs) exploiting tax discrepancies to shift earnings to low or no-tax areas, weakening the tax base of many nations. This exploitation, coupled with the ability of businesses to operate in areas without a tangible presence, challenged traditional tax norms based on “permanent establishments.” Consequently, the framework aims to promote fairness, tackle intricate tax avoidance tactics, establish a standardized global tax landscape, avoid double taxation, and amplify transparency. The solution comprises two main pillars. Pillar 1 focuses on Profit Allocation and Nexus, moving beyond the older notion limited to Permanent Establishment. It introduces taxation rights for nations with significant user/consumer bases, even if a business doesn’t have a tangible presence there. For MNEs surpassing a turnover of USD 20 Billion and a profitability above 10%, taxes are based on revenues from that specific jurisdiction. However, this might lead to additional tax levies. To counter this, the GloBE regulations mandate that MNEs contribute at least 15% tax on earnings from every jurisdiction.  These rules complement current corporate tax norms; if taxes on revenue in a jurisdiction meet the minimum tax requirement, no extra tax is levied. Furthermore, Pillar 2‘s 15% minimum tax levy addresses under-taxation by tax havens. For instance, if State S taxes a company at only 9%, the home state can impose an additional top up tax of 6%, guaranteeing the minimum tax threshold, addressing concerns related to patent boxes, thin-capitalization, and transfer pricing. INDIAN EQUILISATION LEVY India initially chose not to directly adopt the OECD BEPS recommendations. Instead, in 2016, it implemented its unique tax measure, known as the Equalization Levy, set at a 6% rate. This levy applied to specific services, primarily targeting online advertising services received by Indian resident businesses or non-residents with a permanent establishment in India, from non-resident service providers. This was referred to as Equalization Levy 1.0. In 2020, India further expanded the Equalization Levy’s scope through an amendment, introducing a new 2% levy on e-commerce supplies or services. This updated version is often referred to as Equalization Levy 2.0, it encompasses all e-commerce operators, regardless of their Indian residency status. An e-commerce operator, in this context, refers to a non-resident entity that owns, manages, or operates a digital platform facilitating online sales of goods or service provision. Under this framework, such operators are subject to a 2% charge on the total consideration received or expected. However, this levy does not apply to entities possessing a permanent establishment within India, provided the e-commerce activity is directly associated with that establishment. The following scenarios such as digital entities already subject to the existing 6% equalization levy, transactions with an annual consideration value under INR 2 crores are likewise excluded from this levy. However, the Equalization Levy was not without its shortcomings. The broadly phrased provisions in the levy introduce both interpretational and practical challenges. For instance, the levy stipulates that individuals providing services utilizing an Indian IP address can be subject to taxation. However, this raises a quandary when dealing with non-Indian residents using Indian IPs for transactions with service providers outside India. This ambiguity sparks concerns about the levy’s extrajudicial reach. Moreover, it’s unclear if the levy targets the total sales of goods or just the commission charges by e-commerce platforms. This distinction is significant, particularly for entities like

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RBI Guidelines on Compromise Settlements: Demystifying the Stakeholders’ Concerns

Banking Law /

[By Vaibhav Gautam] The author is a student of NALSAR University of Law.   INTRODUCTION Earlier last month, the Reserve Bank of India released a comprehensive circular (“Circular”), on the compromise settlements and technical write-offs, to provide the lenders with multiple options to recover the maximum possible amount from their distressed assets without delay. The RBI’s primary objective behind this move appears to ensure greater transparency in the process of resolving distressed assets. However, this circular can also be seen as an attempt to widen the applicability of the compromise settlements as envisaged under the Prudential Framework for Resolution of Stressed Assets, 2019, (“Prudential Framework”). At the same time, the circular has stirred controversy and invited criticism from several stakeholders, such as major bank unions, like, All India Bank Officer’s Confederation (AIBOC), and All India Bank Employees Association (AIBEA), which are representative of around 6 lakh bank employees. There is a genuine concern among bank unions that a willful defaulter’s refusal to pay the owed amount might potentially lead to a loss of the general public’s money and confidence in the banks. Through this article, the author aims to analyze the said circular, as envisioned by the RBI and also attempts to demystify some of the concerns that have been associated with the circular. BACKGROUND The term “compromise settlement,” as explained by the RBI, basically means that the Regulated Entities (“REs”), primarily the banks, can enter into a negotiated agreement with the borrowers. The main purpose of such a resolution process is to effectively streamline the resolution process and also to rectify the problems that are caused by the distressed assets, such as huge losses for the lenders, financial instability in the economy, etc. Compromise Settlements resolve this by allowing the lender to recover the maximum possible amount of such distressed assets by reaching a mutually beneficial agreement involving a waiver of claims by the borrower, and a partial waiver of the amount by the banks. This is not the first instance of the RBI introducing such a concept. In 2007, RBI provided for compromise settlements as a valid resolution practice, where the banks were allowed to enter into compromise settlements with the borrowers, contingent on the decision of the management board of the bank. In the present circular, RBI has clarified its position regarding the compromise settlements, however this time they have also taken other REs into account, such as cooperative and local area banks. It has also reiterated the prescriptive cooling period of a minimum of 12 months, where the borrowers can take fresh loans after the said period. Later, on June 20, RBI published FAQs on the circular, where it provided clarification that this process of compromise settlements is not a major overhaul of the current resolution framework but rather it has been in practice for more than 15 years, with the earliest guidelines being released in the year 2007. CONCERNS OF THE STAKEHOLDERS One of the major concerns raised by the stakeholders, particularly bank unions has been that this circular will unduly advantage the defaulters by condoning their fraudulent or default act, thereby, eroding the public’s confidence in the banking system. Furthermore, it might set a dangerous precedent by allowing the defaulters to settle their large defaults by paying a minuscule amount of their original debt. Secondly, bank unions have further argued that these guidelines bring a sudden change into the process of clearing distressed assets from banks’ accounts, and will lead to the reversal of the guidelines that are provided under the Prudential Framework of 2019. Additionally, there is an apprehension that this reversal might entail major implications for the overall economy, such as systemic instability in the financial institutions, adverse market behavior, etc. Lastly, there is a concern that the circular would allow the defaulters to restructure their loan records to keep their reportable Non-Performing Assets (NPA) levels lower than they are, through the process of “evergreening.” This process allows for additional adjustments to be made to the existing debts of the borrowers, to make the repayment more feasible. However, instead of constituting a concrete solution to the recovery of distressed assets, evergreening is a temporary measure and different from compromise settlements. UNRAVELLING THE BANK UNIONS’ CONCERNS The concerns of the bank unions are seemingly contrary to the purpose envisioned by the RBI. These guidelines as provided by the circular impose the liability on the REs, primarily the banks to create and enforce a comprehensive framework that would be contingent on the approval of the management board of the bank. This requirement aligns with the ultimate goal of the circular, i.e., to increase the transparency and accountability between the lenders and the borrowers. The circular also clarifies the position on the minimum cooling period of 12 months. Accordingly, it will be the discretion of the banks to decide the upper limit of the cooling period. And only after that period has ended can the fresh loans be issued to the respective borrower. It is crucial to understand that rather than setting a dangerous precedent, this requirement puts a reasonable and justifiable restriction on the willful defaulter who seeks to get a fresh loan from a bank. The compromise settlements that are undertaken in consonance with these guidelines would be without prejudice to criminal proceedings and other penal matters. Hence, the argument that it unduly advantages the willful defaulters and the fraudsters, is not tenable. With respect to maintaining the integrity of the process, the permission of the board plays an imperative role, as it is provided in the circular, such borrowers might get debarred from issuing a fresh loan for 5 years. It is largely a misplaced concern of the bank unions to assume that the present circular would bring major changes to the process that is provided under the 2019 framework. It is pertinent to note that the Prudential framework deals with the illegibility of the defaulters for restructuring their debts whereas the current circular concerns compromise settlements. So, essentially, they are

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Playing Dirty: Analysing ‘Astroturfing’ and its Defiance of the Antitrust Laws

Competition Law /

[By Tejaswini Kaushal] The author is a student at Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction Scott Stratten, the author and founder of UnMarketing, whistle-blowed Bell Canada’s ‘MyBell Mobile’ App’s dirty little secret back in 2014, initiating one of the most intense discussions on the ethical and antitrust aspects of posting fake reviews, also called ‘Astroturfing.’ Flaunting a suspicious five-star review on the Apple AppStore, these reviews appeared to be written by Bell employees themselves. The reviews praised the App as “awesome” and “excellent,” which sharply contrasted with the one and two-star reviews from other users who labeled the App as “shameful.” While the company thoroughly maintained that this incident was an innocent repercussion of their employees’ overenthusiastic effort to promote the App, it does not undo the harm it must have caused to the principles of market competition. Astroturfing is, unfortunately, more common than consumers might realize. Studies in 2023 estimate that up to 45 percent of all online reviews are falsified. Some companies even offer to create positive fake brand reviews in exchange for a fee. Both consumers and competitors are adversely affected by this deceptive practice since online research and social media now heavily influence purchasing decisions, with people more likely to buy a product if they perceive other consumers’ experiences to be genuinely positive. In a 2023 survey, 93% of users have reported being impacted by online reviews for their buying decisions. With the increasing digitization and the new-age boom of Artificial Intelligence, the prevalence of astroturfing is going nowhere soon, which compels a thorough analysis of its nature and implication on the Indian market. This article analyzes the development and expansion of astroturfing, the universal proliferation of this phenomenon, and the subsequent response by various legislative frameworks, with a particular focus on Canada. Lastly, it will examine the antitrust outlook in light of existing Indian legal jurisprudence and executive actions on astroturfing to address legislative gaps. Astroturfing Defined: a Digital Web of Deception Merriam-Webster defines astroturfing in its original sense: “organized activity that is intended to create a false impression of a widespread, spontaneously arising, grassroots movement in support of or in opposition to something (such as a political policy) but that is in reality initiated and controlled by a concealed group or organization (such as a corporation).” Coined by a United States (US) Senator in 1985, astroturfing involves projecting a fabricated image of naturalness to sway public opinion and achieve virality. Originally practiced in the physical world, astroturfing has now found new life online with the help of digital media and new technologies. The cyber equivalent of astroturfing is popularly enjoying the portmanteau ‘cyberturfing.’ It often employs tactics like fake testimonials, paid social media accounts, and the creation of multiple fake personas to appear genuine. It involves various methods, such as company-employed bloggers posting biased product reviews disguised as unbiased ‘customer opinions,’ creating multiple fake personas (“sockpuppets”) on platforms like Reddit to spread a populist idea for a product, using paid social media accounts to promote specific product brands and engaging in pay-for-play deals with independent bloggers for positive coverage in exchange for incentives. Astroturfing’s emergence has brought concepts like 50 Cent parties, online water armies, and crowdturfing to the forefront. The rise of social media, especially Twitter, has facilitated the proliferation of astroturfing, allowing fake profiles and bots to wield significant influence on forums, social networks, and customer platforms to favor a certain brand or propel a certain product. Its use to alter customer reviews adversely impacts the domestic and international commercial markets. The Expanding Reach of Astroturfing: A Threat to Trust and Competition Astroturfing has become a powerful and efficient strategy for many organizations, thanks to the broader arena provided by the internet. However, this practice significantly impacts consumers’ behavior and organizations’ reputations, undermining authentic opinions and promoting unfair trade practices. On the one hand, organizations risk tarnishing their image and authenticity if caught astroturfing, as seen with instances involving Microsoft and Wal-Mart in the US. Microsoft once planned an astroturfing campaign and enlisted the services of a prominent Public Relations firm to execute it. However, the campaign faced a major setback when confidential documents related to the scheme were leaked to a leading Los Angeles newspaper before it commenced. Similarly, Wal-Mart and their PR firm adopted a similar strategy by creating a blog called ‘Working Families for Wal-Mart’ to counter the negative publicity the company had received on the internet. These cases highlight organizations’ risks and consequences when resorting to deceptive online marketing tactics to shape public opinion. On the other hand, organizations can fall victim to astroturfing when competitors spread false information about them. Astroturfing campaigns often involve spreading defamatory and false content, like fake online reviews. One notable instance is Samsung facing a $350,000 fine in Taiwan for publishing false comments and reviews to promote its products and disparage competitors. Similarly, McDonald’s was penalized in Japan for recruiting 1,000 part-time employees to queue up early, generating buzz for its Quarter Pounder burger launch. It claimed it was for “customer feedback” and “market research.” Recently, proactiveness has been witnessed from online marketplaces, consumer-hosting platforms, and intermediaries. Major companies like Amazon and Google have been actively combating fake reviews and fraudulent practices in court. Amazon proactively blocked over 200,000,000 suspected fake reviews in 2022. As of May 2023, Amazon has taken legal action against 94 fraudsters in the US, China, and Europe, aiming to combat the issue of fake reviews. In June 2023, Amazon filed four new lawsuits against fraudsters attempting to mislead customers and harm selling partners by facilitating fake reviews. The lawsuit entities, namely, Nice Discount, Littlesmm, MangoCity, and Reddit Marketing Pro, were accused of selling and promoting fake reviews to manipulate product listings on Amazon. Such fraudulent activities are primarily driven by an emerging ‘fake review broker’ industry, where brokers approach customers through websites, social media, and encrypted messaging to solicit fake reviews in exchange for money or incentives. Similarly, Google filed a lawsuit

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Fast-Track Mergers in India: Race towards Success or Bumpy Ride?

Mergers & Acquisitions /

[By Himanshu Verma] The author is an Associate Trainee.   Introduction To promote the ease of doing business and processing the scheme of arrangements involving startups, wholly owned subsidiaries, or small companies in a cost-effective and comparatively swift way, India endeavoured to establish a framework that facilitates and expedites the growth of these companies through the implementation of a fast-track merger process, effective from 15th December 2016. Thus, the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 (“Principle Rules”) was introduced. This rule introduced an alternative pathway for select classes of companies to pursue mergers or amalgamations without the intervention of the National Company Law Tribunal (“Tribunal”). However, the fast-track process faced challenges such as delays and uncertainties. In order to overcome the limitations the Ministry of Corporate Affairs (“MCA”) introduced the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023 (“Amendment Rules”) on 15th May 2023. These Amendment Rules officially came into effect on 15th June 2023 (“effective date”). The introduction of specific timelines and deemed approval provisions in the Amendment Rules has brought some improvements. Nevertheless, as we chart this trajectory toward efficient mergers, certain areas are beckoned for further refinement. In this article, the author provides insights concerning the Amendment Rules and engages in a discussion about persisting issues, along with proposing potential approaches to navigate these issues. Necessity of Amendment The M&A landscape in the Indian startup ecosystem experienced a significant milestone in 2021, as a noteworthy 210 deals took place and the momentum continued in the year 2022, with an impressive count of 240 M&A deals. However, the process has not lived up to its fast-tracked designation, and the corporate organizations have shown reluctance to pursue the fast-track merger route due to uncertainty regarding eligibility criteria and delays in obtaining authorization from the Registrar of Companies (“RoC”) or Official Liquidator (“OL”), thus hindering the intended purpose of expediting mergers. Regrettably, it was observed that the reports submitted by the RoC, OL and the Regional Director (“RD”) issuance of confirmation orders took longer than expected, resulting in delays in processing applications. According to MCA 8th annual report, there were 118 pending applications as of 1st April 2021, and 369 applications were received between 1st April 2021 – 31st March 2022, out of which 164 remained pending as of 1st April 2022. Furthermore, as per the annual report 2022-23 on 1st November 2022, 135 applications were pending and 403 applications were received between 1st November 2021 – 31st October 2022, out of which 188 were pending as of 31st October 2022. These statistics highlighted the importance of reevaluating India’s framework for fast-track mergers while acknowledging the challenges that corporations were facing. Amendment Rules: The Current Paradigm To instil greater confidence among companies engaging in fast-track mergers in India, the recent Amendment Rules have introduced specific timelines for government authorities. Previously, in Principle Rules no time limit was prescribed for the RoC and OL to provide any objections or suggestions to the Central Government (“CG”). However, with the introduction of the necessary changes through sub-rule 5, time limits have been established. If the RoC and OL have no objection or suggestion to the proposed scheme, they must approve it within 30 days. In the event, objections are not submitted by the RoC and OL, it shall be deemed that there are no objections, and the RD has to approve the scheme within 15 days after the 30 days have expired, provided that the RD determines the scheme to be in the public or creditor’s best interests. The Amendment Rules have also imposed strict deadlines on the CG under sub-rule 6, if objections/suggestions are received but are not considered sustainable, then the CG has to confirm the scheme within 30 days after the expiration of the initial 30-day period. In the event the CG identifies that the scheme is not in the best interests of the public or creditors, it can file an application before the Tribunal within 60 days of receiving the scheme. Therefore, the imposition of these strict timelines under sub-rules 5 and 6 has effectively addressed the issue of unnecessary delays and brought predictability to the fast-track merger process, as now companies no longer have to endure extended periods of waiting caused by bureaucrats or government officials. Another critical issue was what happens if the CG does not approve the scheme or refer it to the Tribunal within the timeframe specified. Would any member or creditor of the company be able to file an application before the Tribunal in such a case? MCA had given this clarification by introducing the deemed approval provision in the Amendment Rules. This provision provides assurance as well as clarity by specifying that if the CG does not issue a confirmation order within a specified timeframe or refer the scheme to the Tribunal within 60 days of receiving the scheme, it will be deemed that the CG has no objection and will be obliged to issue a confirmation order. This deemed provision also gave a clear understanding of the timeframe within which the merger schemes would be reviewed and decided upon. Issues and Recommendations The introduction of specific timelines has resulted in a smoother and more time-bound process, although the Amendment Rules and current provisions governing fast-track mergers still lack clarity on certain aspects and require further attention. For instance, the settled principle in India that any law altering the rights or obligations of parties should be applied prospectively, companies applying for the fast-track process on or after the effective date will benefit from the new Amendment Rules. Therefore, the author suggests that there should be a committee to clear already pending applications, failure to comply may result in a backlog of pending cases, causing delays in decision-making and imposing an undue burden on the authorities. Another aspect of concern relates to the concept of public interest, while the Companies Act, 2013 (“the Act”) acknowledges the significance of public interest as highlighted in several sections of the Act, including sections 62(4), 129,

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The State as a Party to Insolvency Proceedings: Diluting Rainbow Papers

Insolvency Law /

[By Rohan Srivastava & Priyanshu Mishra] The authors are students of National Law School of India University, Bengaluru.   Introduction In 2022, the Supreme Court in the case of State Tax Officer v Rainbow Papers, (hereinafter “Rainbow Papers”) held that Security Interests, which are placed at the second highest priority under the Insolvency and Bankruptcy Code (IBC) waterfall mechanism (contained in Section 53) may be created by operation of statutes. The controversial verdict has since then attracted a lot of criticism for undoing the economic and creditor-friendly rationale of the IBC. Recently, in the case of Paschimanchal Vidyut Vitran Nigam Ltd(PVVNL) v Raman Ispat Private Limited and Ors, (hereinafter “Paschimanchal Vidyut”) the Supreme Court has attempted to limit the applicability of the Rainbow Papers verdict by confining it to its own peculiar sets of facts. This has been commented upon as essentially “quarantining” the ratio of Rainbow Papers from future applicability. This piece shall delve into the reasoning in Paschimanchal Vidyut to highlight how it deviates from Rainbow Papers and can be seen as a part of the judicial trend of diluting the applicability of the Rainbow Papers verdict. In doing so, this post shall also attempt to shed light on the current applicability of Rainbow Papers, in light of various contradictory verdicts given by the courts on the meaning of “statutory dues” etc and also highlight the lack of uniformity in the jurisprudence. The Verdict in Paschimanchal Vidyut In Paschimanchal Vidyut, the appellant, PVVNL had entered into an agreement with Raman Ipsat for the supply of electricity. Clause 5 of the said agreement provided that “any outstanding dues shall be a charge on the assets of the company”. Reliance was placed on such wording by PVVNL to attach the property of Raman Ipsat upon non-payment of dues for recovery under regulations framed under the Electricity Act, 2003. The said attachment was challenged by the respondent claiming that it interfered with the liquidation proceedings that were ongoing against Raman Ipsat under the IBC, after failure of the resolution process. The NCLT set aside the impugned attachment order as it interfered with the Liquidation proceedings and declared that the assets of the company would be distributed according to the waterfall mechanism contained in the IBC. The NCLAT also endorsed the NCLT’s holding and held that PVVNL had to recover its dues under the IBC as a secured operational creditor within the waterfall mechanism. In the Supreme Court, PVVNL had argued that it was entitled to recover its dues under the Electricity Act and the mechanism provided in regulations framed under it by virtue of it being a special law and having non-obstante clauses. Alternatively, it had also argued, that in light of the Rainbow Papers verdict, the electricity dues were “secured interests” and the same had also been held by the impugned NCLT and NCLAT orders. In opposition, the Liquidator had argued that the IBC, having already provided a different section for government dues, does not view the government as a secured creditor under the waterfall mechanism and the said dues were covered under Section 53(1)(e) as an amount owed to the government. The Supreme Court firstly affirmed the overriding nature of the IBC over the Electricity Act and clarified that PVVNL cannot seek recovery under the Electricity Act but only under the IBC’s waterfall mechanism. On the second question, the SC clarified that PVVNL will be a secured creditor under the waterfall mechanism. This post shall focus on the reasoning used by the court in arriving at its second conclusion. Contrasting Rainbow Papers and Paschimanchal Vidyut In distinguishing the State as a “Secured Creditor” from “amount due to the government” under 53(1)(e), the court alludes to the wording of 53(1)(e) which makes a reference to the consolidated fund. The Court reasons that the liquidator’s argument that the electricity dues were an amount due to the government under 53(1)(e) is unfounded as it is a due owed to a corporation created by statute which has a separate juristic entity. The Court uses a functional test and concludes that PVVNL’s functions were something which could be performed by private entities as well and was not a governmental function. While the reasoning in Rainbow Papers and the Court’s reasoning, in this case, both arrive at the same conclusion, the Supreme Court explicitly negates the applicability of Rainbow Papers. The approach in the current case is one which defines State very narrowly, with reference to the consolidated fund and Article 165 of the Constitution, having defined the state narrowly and excluded statutory corporations from its ambit, the court then evaluates the nature of the dues as to whether they are secured or not. Contrary to this, the Rainbow Papers’ decision does not allude to 53(1)(e) to exclude “State” but directly jumps to the evaluation of the nature of interest, regardless of whether the dues come under 53(1)(e) or not. Such an approach is more textually fitting to the scheme of the IBC given that the code’s preamble along with its provisions has sought a different treatment of government dues. Having a two-stage enquiry as laid down by the court in this case by first applying the definition of State to the party and only if the question is answered in the negative, then going to the question of secured interest, is thus more appropriate than broadly giving the status of the secured creditor to the statutory first charge. Being a coordinate bench, however, the Supreme Court could not overrule Rainbow Papers but instead distinguished it on the ground that Rainbow Papers was not in the context of liquidation, hence was not binding in the given case and must be confined to its factual matrix. This distinction however stands on flimsy grounds as the court did not provide any principled arguments as to why Rainbow papers’ verdict shall not apply to liquidation proceedings and be limited to the CIRP. This can be seen as a part of the broader judicial course-correction trend which has

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Third-party Security Beneficiaries under the Insolvency and Bankruptcy Code

Insolvency Law /

[By Akshay Dhekane] The author is a student of National Law University, Delhi.   INTRODUCTION Professor Roy Goode has succinctly put the importance of security in banking as “vast sums of money which might not otherwise be dispensed are lent in reliance on real security over all kinds of asset, including land, goods and receivables”. However, the complexity of raising finance increases when third-party security beneficiaries are involved. A third-party security is an arrangement where the creditors receive security to secure the debt of a borrower from a third-party (generally a parent or subsidiary company). When dealing with these beneficiaries, one of the most contentious matters that arises is the determination of the status of third-party security beneficiaries. For this reason, this article will examine key cases, particularly focusing on the recent Supreme Court decision in M/S Vistra ITCL (India) Ltd & Ors. v Mr. Dinkar Venkatasubramanian & Anr (“Vistra ITCL”). The article explores a way in which third-party security beneficiaries can be treated as financial creditors. For this, it analyzes the current legal framework and expresses the needed alterations by analyzing the definition of financial debt under Section 5(8) of the IBC. Two approaches had emerged regarding the treatment of third-party security beneficiaries. The first approach, as taken by the NCLT in SREI Infrastructure Finance Limited v Sterling International Enterprises Limited considered such creditors as financial creditors of the third-party security provider, based on the mortgagor’s liability for repaying the underlying debt. Here, the mortgagor (vide the Transfer of Property Act, 1882) was held to be obligated to repay the mortgage money hence, it was vital to recognize their security interest and treat them as a financial creditor. This approach, however, failed to gain traction and was overruled. The second approach as laid down in Anuj Jain IRP for Jaypee Infratech Limited v Axis Bank Limited (“Anuj Jain”) states that providing security does not qualify as a ‘financial debt’ under Section 5(8) of the Code, and therefore, such creditors should not be categorized as financial creditors vis-à-vis the security provider. This position was reaffirmed by the Supreme Court in Phoenix ARC Pvt. Ltd. v Ketulbhai Ramubhai Patel (“Phoenix ARC”). In Phoenix ARC, the creditor was held to be a secured creditor only against the third-party security provider. However, while treating Phoenix as a secured creditor, the scope of the decision was limited to deciding the claims only. THE SAGA CONTINUES The recent decision of the Supreme Court in Vistra ITCL attempted to tweak the prevailing legal framework by holding Vistra (the third-party security beneficiary) to be a secured creditor and entitled to all the rights and obligations available to a secured creditor. While adjudicating the case, the court decided not to recognize Vistra as a financial creditor, citing the prevailing legal position established in Anuj Jain and Phoenix ARC. In Anuj Jain, the court held that the mortgage in that case did not create a financial debt as the definition of financial debt was interpreted in a narrow manner. In Phoenix ARC, the court held that the “pledge of shares” did not meet the criteria of constituting a “disbursement of any amount against the consideration for the time value of money.” Consequently, the pledge of shares did not fall within the purview of subclause (f) of sub-section (8) of Section 5 of the IBC. SOLVING THE THIRD-PARTY SECURITY CONUNDRUM The jurisprudence that has evolved from these cases (in a broad and abstract manner) establishes that a debt can be classified as a “financial debt” when it is disbursed against the time value of money. The courts have taken the view that the debt so “disbursed” must be towards the corporate debtor. As per Vistra ITCL, even if the corporate debtor was the direct and real beneficiary of the debt, the creditor cannot be treated as a financial creditor considering the lack of an obligation to repay, perform the promise, or discharge the liability of the borrower. The corporate debtor’s liability is distinguished and limited by the fact that it needs to have entered into a contract to perform the promise, or discharge the liability of the borrower in case of their default to make the third-party creditor to be their “financial debtor”. The features of the expressions used in Sections 5(7) and 5(8) of the Code in defining the terms “financial creditor” and “financial debt” should be revisited. A third-party security can be treated as a financial debt under Section 5(8) of the IBC in the following ways: For convenience, the requirements under Section 5(8) of the IBC are divided into three parts. First, it is shown that the term ‘debt’ as used in defining ‘financial debt’ includes third-party security. Second, the argument progresses to explicitly demonstrate the fulfillment of the disbursal requirement. The third part involves assessing whether this disbursement was made ‘against the consideration of the time value of money’. a.     there exists a debt Firstly, it needs to be noted that the definition of financial debt must be construed in an extensive manner. When the words “means and includes” are used together, they become difficult to interpret.[1] When ‘include’ is used in a definition after ‘mean’, it is used to imply a comprehensive explanation of the meaning that must be consistently associated with these words or expressions for the purposes of the Act. In Swiss Ribbons Private Limited v. Union of India (“Swiss Ribbons”) the definition of financial debt was interpreted to be an inclusive one. Further, in Nikhil Mehta & Sons v AMR Infrastructure Limited (“Nikhil Mehta”) to clarify the position of homebuyers/allottees as financial creditors, the definition was read in an extensive manner. The Insolvency Law Committee hereafter the “ILC”) in its 2018 report backed the same viewpoint, deeming this definition inclusive. A collective reading of Section 5(7), Section 5(8), and Section 3(11) of the IBC makes it clear that for someone to become a creditor, there must be a debt owed by any person, or it must be transferred or assigned. So,

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Consent through Gif’s, Emoticons and Emojis : Yes?

Contract Law /

[By Shashwat Lohia & Shreya Saswati] The authors are students of National University of Study and Research in Law, Ranchi & National Law University, Odisha.   Introduction Rapid technological advancements haven’t always made it easy for the law to keep up. A recent judgement of the Canadian Courts (“Canadian Judgement”) has determined that the ‘thumbs-up’ Emoji can be utilised to create a legally binding contract. Allowing this action to be a method of deemed acceptance to a proposal has terrifying implications in the long run. Ambiguity is a result of a multiplicity of meanings followed by misunderstandings arising from such discrepancy strikes at the heart of Contract Law. The presence of consensus ad idem or the ‘meeting of minds’ being an essential element governing the validity of a contract, may inevitably be overlooked with this new mode of acceptance. Of all the essentials of a contract, the intent to accept a proposal through adequate communication via the use of Emojis, Emoticons, and GIFs(“EEG”) is under scrutiny. This lacuna can be resolved through a better study of the intent of parties and their subsequent conduct revolving around consent in their digital contractual agreements. Multiplicity of Meaning Pictorial representations for communication are not new to the world. Ancient Egyptians had mastered communicating via cuneiform using hieroglyphics. In the past decade, due to the growth of technology and the parallel development of social media, there has been an upsurge in non-linguistic communication through the medium of EEGs. The problem arises when language and interpretation come to play. It is in this gap of intention that Emojis carry a multiplicity in the interpretation. The connotation they signify is greatly dependent on the culture of the parties in the conversation, as well as the common parlance and overall tone of a conversation. It is interesting to note the discrepancy arising out of cross-platform and cross-device use of Emojis which inevitably renders many Emojis to be misidentified or show up as ‘unknown’ which leaves the conversation disputed. The Canadian Judgement is not the first (see here and here) development towards a ‘Law on Emojis’. However, it is one of the first to establish that a commonly denoted meaning behind an Emoji would suffice to prove the intent of the parties. Essentials of a Contract, Intent, and the Modern Dilemma The Courts of India have not adequately discussed the law of contracts taking place over mobile phones in the manner it has so evolved. This modern contract is formed with elements of contracts made by fax as well as telephonic conversation being galvanised due to instantaneous communication conducted over text messages. Of the essentials of a modern contract, the formative element which concludes the existence of a contract is acceptance. The courts have derived in multiple cases that so long as a contract is not vague, unreasonable and/or against public policy, it is held valid while considering the illustrative situations under Section 8 of the Contracts Act, 1872. However, a unique type of contract that does not explicitly direct one is the unilateral contract. The communication of assent or acceptance for a contract may mislead either party. However, EEGs used sarcastically or otherwise may not directly imply acceptance, which therefore leads to no consensus ad idem. Thus, the modern dilemma is understanding when there is intent present. The ‘core’ of a contract[i] is formed by the basic, most fundamental aspect of the agreement and is generally then bound by caveats and exceptions to form a commercial contract as we may imagine it to be. These caveats are rendered irrelevant when considering whether the contract was formed or not. When there is an intention, this ‘core’ of the contract is agreed upon and therefore held valid. Implied contracts in the Indian Contract Act, 1872 have been well discussed by the Law Commission of India[ii]. The Commission has emphasized that a contract would also be binding by the beginning of the performance of the offeree, which creates unilateral contracts. The Canadian Judgment and the facts of the case therein support this. Therefore, it would be best to conclude that a contract so formed by EEGs would be a unilateral contract subject to performance with a pre-existing relationship between the individuals. A judgement of the Israeli Courts has followed this rule without directly averring to it. Analysis The Canadian Court’s reasoning behind allowing acceptance by way of the thumbs-up Emoji was based on the premise that consensus ad idem has been reasonably reached from a bystander’s viewpoint upon examining the entire conversation. Thus, implying a requirement for a pre-existing relationship between the parties to form an essential aspect of this modern contract. A contract is deemed voidable if either of the parties hasn’t given free consent or has misinterpreted the terms of the contract. Such informally acknowledged contracts, although convenient, are quite unreasonable in the long run due to a higher chance of misinterpretation by either party and a lack of commercial certainty. A GIF sent by one party with the intention of rejecting the other party’s offer might easily be misinterpreted as acceptance on the other end, rendering the entire contract voidable. Beyond the Law of Contracts Accepting this new form of consent to be valid would open new channels of litigation, both civil and criminal. The provisions of the penal laws (e.g. Criminal Conspiracy) could greatly be misused against people. Any sarcastic use of EEGs can easily be misinterpreted as an agreement to conspire. The essentials of an agreement and that of Criminal Conspiracy are similar, as they both require agreement to do an act or omit a thing via a meeting of minds and an object. The point of distinction is whether the object is lawful or not. Common intention could be easily established in such cases, wrongfully implicating innocent parties who simply replied or reacted to the text, not knowing that they implied assent. At the same time, entirely limiting the laws from accepting such agreements would be wrong, as genuine agreements to conspiring might

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