Author name: CBCL

Equilibrizing Discriminatory Effects Of GMTR On Developing Nations Through METR

Taxation Law /

[By Sanskriti Srimali and Dushyant Sharma] The authors are students at Institute of Law, Nirma University. “Never let a serious crisis go to waste.”                                                          –Rahm Emanuel The economic jitters induced by the pandemic are still reeling around the globe. Post pandemic economic recovery has taken the centre stage at a global level. Undoubtedly, governments, around the world, have to be the front-runners to revive the global economy. However, looking at the figures of global debt which now stands at a record $281 trillion, the task of revamping the global economy would not be a cakewalk. The authorities have to search for new avenues to generate revenue or start scrutinizing existing ones to deliver sustainable public finances. Governments throughout the world generate revenue by collecting taxes via corporations as well as individuals therefore tax rates of each jurisdiction play an important role and can be a game-changer in the coming times. Tax avoidance and evasion have been part and parcel of every country. Multinational firms detest paying their fair share of taxation. They’ll do everything they can to take advantage of loopholes and reduce their tax liability. Since the 1990s, the world has seen an explosion of profit shifting to tax havens. Many companies have established offices in countries with low or no tax rates, such as the Cayman Islands, Bermuda, and Bahamas which are also known as tax havens as they provide a 0% tax rate to increase FDI and employment. Countries compete with each other to get the attention of big well-established companies by lowering the tax rate. To put an end to this race to the bottom, the US government came up with a bold proposal: a global minimum tax rate of 21% which was revised to 15%, keeping the idea unchanged. Before going into the details concerning its implementation and how it would fill the empty coffers of the government around the world, it is imperative to understand the origin and proposition of the idea of having a global minimum corporate tax. Each country has the power to decide its tax rate without taking into consideration the interest of others. This notion began to change with the advent of globalization and further through digitization which knows no territorial boundaries. However, the response of the countries was far too slow when compared with the rampant growth of the digital economy. As a result of this, a large chunk of profits earned by MNEs remained untaxed for a good amount of time. The emptied coffers of the governments after the 2008 global financial crisis, forced the G20 and OECD countries to reform the international tax system. In pursuance to it, OECD proposed an action plan to address ‘Base Erosion and Profit Shifting’, containing 15 actions that were approved by G20 nations in Russia in 2013. At the same summit, the OECD recognised that the developing countries have been more hit by the tax abuse of multinationals. However, the plan of actions failed to yield results owing to the lack of coordinated efforts, unilateral actions by the member countries among others. So the OECD came up with BEPS 2.0 blueprint in November 2020. The blueprint emphasised two pillars to overhaul the international tax system which is as follows : Pillar 1 – The proposal aims to introduce a formulaic element to apportion some of MNE’s profit to the jurisdiction where the sales occurred. The scheme mandates the filing of self-assessment by the MNEs. After filing, the home country would engage in calculations and allocations. To effectuate such a proposition, several existing tax treaties would have to be amended. This proposal gives the major bargaining power to a bunch of developed nations which are home to most of the MNEs. Also, in lieu of the meagre tax revenue, the proposal wants the recipient countries to roll back their unilateral action like- Equalization Levy (EQL) in the case of India. Given such roadblocks, a global consensus would be hard to achieve let alone the implementation. Pillar 2– This pillar intends to lay down a certain set of rules to impose a minimum tax rate of 15% on all companies irrespective of where they are headquartered or where they work. So suppose if a company is headquartered in a country that imposes a tax rate of 10% which falls below the proposed rate of 15% then the other country from which the parent company operates would come and take the rest i.e. 5%. This would not only disincentivize the MNE to shift their operations to low tax jurisdictions but will also encourage the low tax jurisdictions to increase their tax rate to the minimum global standard. But is this as good news as it sounds? Unfortunately not! This proposal is plagued by two difficulties first lies in implementation and the other, the major concern, is the distribution of the tax collected among the participating countries. Under the OECD proposal, the G7 countries which account for 10% of the world’s population would gain more than 60% of the additional revenues. The imposition of the Income Inclusion Rule (IIR), which allows the ultimate parent country of the MNEs to impose a top-up tax to achieve minimum effective rate would override other provisions in the blueprint, like UTPR and STTR. They have only been included so that the IIR might not sound unfair to the source country. The use of IIR as the main norm, clearly signifies that a major chunk of the pie would go to MNEs ultimate parent country. The most favourable option that could act as a breakthrough in the current hiatus is the Minimum Effective Tax Rate which is also being endorsed by the World Economic Forum, Tax Justice Network and UN FACTI panel recommendation. This proposal is the modification of GMTR and dispenses with the idea of giving priority to home countries of MNEs over source countries where real activities occur. This proposal works on the following pillars which are described below : Transparency: Under this, the MNEs have to

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Global Minimum Corporate Tax – What Will it Mean for India?

Taxation Law /

[By Prerna Mayea and Harshal Sareen] The authors are students at the Institute of Law, Nirma University. Many events have been witnessed recently, such as the G7 nation’s approval and the United States’ proposal for Global Minimum Corporate Tax Rate [“GMCTR”] which shows that a global movement towards a comprehensive overhaul of the global tax system has gained traction. In a study by the Tax Justice Network, countries lose $475 billion to tax havens and $245 billion owing to corporate tax avoidance. Due to the upheaval caused by the Covid-19 pandemic, the economies of some countries are on the brink of depression. The countries across the globe have suffered a loss of $79.69 billion. The US has therefore proposed a worldwide minimum tax rate of 15%. Introduction  GMCTR implies a global minimum tax rate that corporations across the world must pay, regardless of the country they are based. This initiative can be considered as a global response to ensure that tax is paid by the corporations where they operate since multinational corporations often tend to show reluctance while paying taxes on their earned profits. In order to do so, corporations exploit the loopholes in the taxation laws and opt for a worldwide practice known as Base Erosion and Profit Shifting (BEPS), where large corporations incorporate themselves in lower-tax countries like the Cayman Islands and Ireland (tax havens) to avoid high tax in the countries where they operate. As a consequence, it deprives a country of its revenue from taxes. Consequently, the taxation regime needed to be revised in light of such problems. Therefore, to counter this tax avoidance and reinvigorate the battered economy GMCTR has gained attention recently. This can be a much-awaited decision since it would fix up the loopholes pertaining to cross-border taxations and restore economic stability to a pandemic-ravaged world. Therefore, with the prospect of introducing GMCTR it is imperative to analyse its impact upon the Indian Taxation system. In this post, the authors seek to discuss the opportunities as well as the issues that India might face with the introduction of GMCTR. Indian Taxation Scenario Before delving into the implementation of GMCTR, it is important to take note of the present taxation scenario in the country. Like other developing and developed nations, India is also not immune to the tax losses arising on account of companies exploiting the loopholes in the taxation laws. Tax losses in India have been estimated at over $10 million. This problem was also realized by the Indian government and it took bold steps to curb the problem of tax evasion. In 2016, the government introduced an equalization levy to tax the income of multinational e-commerce companies engaging in regular transactions with companies in India, irrespective of their place of permanent establishment. It also implemented the General Anti-Avoidance Rule (GAAR) in 2017 to keep a check on transactions aimed at avoiding tax. India has also proactively engaged with several countries in the Double Taxation Avoidance Agreement (DTAA), provided under Section 90 of the Income Tax Act 1961, with a focus to provide relief on dual incidence of taxation on the same declared asset in two different nations. Relief from double taxation has also been provided to non-resident Indians on income accrued through foreign retirement benefits accounts in the federal budget 2021. Implementation of the GMCTR can be seen as a positive step to further reduce any tax evasions in the country. It will also provide India a strong footing in the G20 summit scheduled in July 2021, to renegotiate its DTAA which has not been signed by several countries for years. Impact on Foreign Direct Investment  Various multinational corporations invest in different countries which leads to the generation of employment opportunities and efficient utilization of national resources. In order to attract these businesses, a country uses its sovereign power to regulate corporate taxes in order to attract global corporations. Therefore, in September 2019, India had reformed the corporate tax rates by slashing it down to 22% (for existing companies not seeking exemption) and 25% (for existing companies not receiving exemptions), and 15% for newly incorporated companies. This was done to give a boost to the crippling economy and attract new investments in the country. Further, the corporate tax was also much lower in other countries like 25% in Vietnam, 17% in Singapore and 25% in China. By reducing its rate, India was also now in a position to give competitive position to attract foreign investors. The move yielded positive results and India witnessed the highest inflow of Foreign Direct Investment (FDI) in the financial year 2020-21, amounting to $81.72 billion. On a positive note, India’s tax rate for domestic companies was fixed at 22% (plus 10% surcharge and 4% cess) by the insertion of Section 115 BAA, Income Tax Act, 1961, thus being higher than the global minimum corporate tax rate, India can continue to attract FDI. Further, it has been argued that apart from lower tax rates, India also provides a conducive environment for foreign investments due to good quality of labour at competitive rates, several relaxations and incentives, vast growing internal market and private sector as well as technological and innovation capabilities. Therefore, it can continue to attract FDI without any significant adverse impact. However, it is feared that with the introduction of a GMCTR, investment opportunities for developing and under-developed countries will be eroded to a great extent. With severe economic disparities around the globe, the introduction of GMCTR will mean that countries that choose to offer low corporate tax rates will lose their competitive edge against giant global economies. Implementation Challenges  Since every coin has two sides, the introduction of GMCTR along with the opportunities also poses several challenges. It is very likely that GMCTR would pose several implementation challenges in India. The foremost challenge is getting the majority of nations on board. Further, with the implementation of GMCTR, if the government revenues are impacted negatively, it will create a barrier in providing necessary social services and

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Priority in Enforcement of Security Interest by a Secured Creditor

Contemporary Issues, Insolvency Law /

[By Arya Mittal & Naman Keswani] The authors are students at the Hidayatullah National Law University.  Recently, the Hon’ble Supreme Court of India gave its judgement in the case of India Resurgence Arc Private Limited v. M/s Amit Metaliks Limited & Anr. wherein it held that a dissenting secured financial creditor cannot claim a priority over other creditors based on the security interest held by it. The legal provision in question was Section 30(4) of the Insolvency and Bankruptcy Code, 2016 [“the Code”] which was amended in 2019. The current post seeks to analyse the case in light of the provisions of the Code with regards to the priority of the share of a secured creditor. Facts of the Case India Resurgence Arc Private Limited (“India Resurgence Arc”) is the assignee of rights, title, and interest of Religare Finvest Limited, a secured creditor of the corporate debtor VSP Udyog Private Limited. The resolution plan for the corporate debtor was approved by 95.35% of the creditors, with India Resurgence Arc holding its dissenting opinion. It was of the view that it only received one-sixth of the amount of security interest held by it and it would be more beneficial if the corporate debtor was liquidated since, in that case, it could have enforced its security. The resolution plan was approved by the National Company Law Tribunal, Kolkata and it held the resolution plan to be compliant with all legal requirements provided in the Code. However, India Resurgence Arc appealed to the National Company Law Appellate Tribunal (“NCLAT”) under Section 61(3) of the Code, contending that the approved plan contravened the provisions of the Code but the Appellate Authority dismissed the appeal. Hence, an appeal was preferred before the Supreme Court under Section 62 of the Code. Critical Analysis Priority-based on Security Interest The main contention of India Resurgence Arc was based on the amendment to sub-section 4 of Section 30 of the Code which provided to consider, “the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor”. India Resurgence Arc failed to consider that the provision uses the word ‘may’ which leaves it to the discretion and commercial wisdom of the Committee of Creditors (CoC) to consider if such priority should be given to any of the financial creditors. Thus, in the event of not being given any priority, a financial creditor cannot challenge it as a contravention of the law. To substantiate further, the resolution plan approved by CoC is valid in the eyes of law if requirements of Section 30 of the Code are fulfilled. The Supreme Court has also agreed with the same in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors. (“Essar Steel”) wherein it observed that the amendment “only amplified the considerations for CoC” and was not meant to give any undue advantage to any one of the similarly situated class of creditors. Furthermore, the contention of the India Resurgence Arc for enforcement of entire security interest in its favour was also negated. The Court referred to Essar Steel, wherein it clarified that the amendment has been beneficial for operational and unsecured financial creditors who were now entitled to receive a minimum amount since prior to the amendment, the dissenting operational and unsecured financial creditors could be crammed down by the secured financial creditors. However, post-amendment, this is not possible since their interest is now secured. As regards the secured financial creditors, the proposition remains the same and a higher amount could contend only if it is not fair and equitable to such creditor. Therefore, a creditor can only claim a minimum amount that should be paid to it and cannot contend for a higher amount based on the security interest held by it. Addressing the contention of India Resurgence Arc to liquidate the corporate debtor,  the Court referred to the judgement of Jaypee Kensington Boulevard Apartments Welfare Association and Ors. v. NBCC (India) Ltd. and Ors. wherein the Supreme Court has held that a financial creditor can enforce the security interest but only to the extent which is receivable by it. The Court also clarified that enforcement to such an extent would satisfy its debts and would not contravene any of the provisions of the Code. It held that it was never intended by the legislature that a creditor having a security interest, be entitled to enforce the entire security interest but rather a proportionate part receivable by it. If any creditor is allowed to do the former, it will lead to inequality and be unjust to other secured creditors. Requirements of Law India Resurgence Arc preferred an appeal under Section 61(3) of the Code on the ground that “the approved resolution plan was in contravention of provisions of the Code”. It contended that the plan was not fair and equitable since it allowed for payment of nearly just one-sixth of the amount of the total security interest held by it. Explanation 1 to Section 30(2) of the Code states that the distribution should be fair and equitable to the creditors. The Court was of the view that the contention had no substance since all the secured creditors within that class had been provided with the same proportionate percentage share as India Resurgence Arc. Since it was provided with the same proportionate share as other creditors, it cannot raise an issue of unfair and inequitable treatment. If such an approach (as India Resurgence Arc) is adopted, then the creditors will be motivated to liquidate the company, as the appellant in the present case, which would defeat the objective of the Code. The same was also held in Essar Steel. In Swiss Ribbons Pvt. Ltd. v. Union of India, the Supreme Court very well emphasised that the objective of the Code is to revive the corporate debtor and

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Crystallisation of limitation period on Competition cases

Competition Law /

[By Avik Sarkar]  The author is a student at K.L.E. Society’s Law College, Bengaluru. The Competition Commission of India has time and proved through its revolutionary judgements that they are the real guardian for consumers and small market players by saving them from harrowingly oppressive policies of the big market players. And on this occasion in the case Neha Gupta v Tata Motors the commission has demystified the limitation aspect with regards to filing complaints before the competition commission of India. The question of applicability of limitation period with regards to competition matters has always been a contentious one  Introduction The Competition Act, 2002 is prevalently known to maintain equipoise in the market with a target to protect consumers at the macro level and protect small and medium businesses from the abuse of dominant position and anti-competitive practices by the large enterprises. It has a standardized gambit using which it keeps the dominant players in the market in check. As this act is still in the embryonic stage of its development, we generally see many judgements devolved regarding competition matters. And with each judgement, it is demystifying various conundrums pertaining to contentious questions of the act. In a recent case in the matter of Neha Gupta v. Tata Motors, the Competition Commission (hereinafter referred to as CCI) of India demystified its standpoint regarding the applicability of the limitation period in competition matters. The CCI had held that it doesn’t impose any limitation period for filing any complaint. This piece holistically analyses the same. Factual matrix The informant Neha Gupta was the owner of the business Varanasi Auto Sales Pvt Ltd (hereinafter referred to as VASPL) which was an authorised dealer of Tata Motors. It was mainly dealers of commercial vehicles, spare parts, etc. The dealership agreement between the two was signed in the year 2011 and had ended in the year 2017. Neha Gupta had filed a complaint against Tata Motors accusing them of having imposed unfair terms in their dealership deed thereby amounting to an abuse of dominant position (Section 4 of Competition Act, 2002). And simultaneously, Tata Motors had also indulged in a tie-in arrangement with their financial institution name Tata Capital and Tata Motor Finance. This was done in order to maintain their market share which amounted to indulging in anti-competitive practices (Section 3 of Competition Act, 2002). In broad terms, the clauses imposed by Tata Motors were subverting the position of the dealers. A similar allegation was levelled against Tata Motors by another dealer named M/s Kanchan Motors (the dealership agreement signed between the two was in the year 2016 and ended in 2021). Against all the allegations by its dealers, Tata Motors had raised several issues one of them being delay on the part of the informant in bringing up the matter to the commission. Analysis In rem issue Pertaining to the concern of delay in the present matter CCI stated that under Competition Act,2002 there is no limitation period to file a complaint. It can be said that the investigation conducted by CCI are in-rem in nature and are not in-personam disputes. There might be situations when a lis might prima facie come across as an in-personam dispute, but the issue raised might be contentious in nature and may contribute to future market distortions. And in such situations, it becomes important to make the public aware of the market distortions. Merely because the informant doesn’t suffer any direct losses or is not personally aggrieved will not vitiate the in-rem nature of the information. Therefore, any person can file information under the Competition Act, 2002 with regards to abuse of dominant position and anti-competitive practices. The same was held in the case of In Re: XYZ and Indian Oil Corporation which stated that authority orders are in rem and not in-personam. Anti-trust authorities deal with market situations that are dynamic in nature and are evolving with time. With innovations happening all around the globe the anti-trust authorities have to keep themselves updated and armour themselves with each and every available weapon to tackle unforeseen and unprecedented situations. Therefore, it would be grossly erroneous to apply a limitation period while attempting to tackle such unforeseen situations. And as per the Act, the CCI is empowered to carry out inquisitional functions in public interests. Therefore, application principles of the limitation period in inquiry-based institutions would be grossly iniquitous. The above dictum of the commission has brought the Indian perspective in parity with the European antitrust law which imposes no limitation on the investigation by the commission. This dictum will surely give a lot of relief to the authority in terms of carrying out an investigation with not much intervention and can thereby deliver a diligent and biased free report on any issue. Locus Standi demystification The proceedings before the commission are inquisitional and in-rem in nature therefore the locus standi is not a sine qua non for filing information. The issue relating to the locus of the informant under the Act was further clarified in the case of  Samir Agrawal v. Competition Commission of India where it was stated that “when the CCI performs inquisitorial, as opposed to adjudicatory functions, the doors of approaching the CCI and the appellate authority, i.e., the NCLAT, must be kept wide open in the public interest, so as to subserve the high public purpose of the Act..”.Thus, questioning the locus of the informant is totally infructuous On the contrary, it should not be mistaken that the absence of a limitation period may lead to any kind of frivolous information’s being filed. Therefore, CCI shall diligently examine reasons for delayed filings and based on the same it accepts or reject complaints. Any kind of impropriety will lead to the dismissal of the complaint and lead to the imposition of penalties envisaged under section 45 of the Act. But, the process of examining the propriety of information shall vary from situation to situation. This process helps in eliminating frivolous complaints and wastage of public resources and be prevented. The main aim is to detest market players from practices that can have an appreciable adverse effect on

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The Case of “Amateur” Baseball Federation of India: Analysis Through Competition Lens

Competition Law, Contemporary Issues, Sports Law /

[By Pranav Tomar & Umang Chaturvedi]  The authors are students at the Rajiv Gandhi National University of Law, Patiala.  Introduction The commercialization of sports has strongly affected the landscape of sports federations in India. Now, these associations/federations act not only as regulators of domestic sports or facilitators to sportspersons but also add value to business houses. Recent trends prove that these Government-recognized federations are frequently found in conflict while fulfilling their duties due to the unparalleled power that they possess as entities. Hence, a check on such powers is of utmost importance, which can only be ensured through the law of the land. In consideration of such checks and balances, provisions of the Competition Act, 2002 (‘Act’) prove to be helpful in India. Recently, the Competition Commission of India (‘Commission’) in an information filed by the Confederation of Professional Baseball Softball Clubs (‘CPBSC’) held the Amateur Baseball Federation of India (‘ABFI’) in contravention of Section 4 of the Act (abuse of dominant position). In this piece, the authors analyse the acts of ABFI through the lens of precedents and the Indian competition law regime and will attempt to provide solutions to sports-related competition law violations. Facts of the Amateur Baseball Federation’s case CPBSC was a not-for-profit organization that worked for the development of baseball and softball privately, whereas ABFI was a National Sports Federation affiliated to the Sports Ministry that acted as the national regulator of baseball. ABFI was also affiliated with international baseball regulators and was officially entrusted with the duty of promoting the sport through various means. The matter stems from the act of CPBSC where it intended to organize an intra-club national Championship in February 2021 to provide a platform to young players. However, ABFI through its regulatory powers issued a letter dated 7th January 2021 that prohibited State affiliates from acknowledging private bodies and further threatened the interested players with disciplinary action if they participate in any unrecognized league. In fright, the registered clubs revoked their participation from the Championship which caused losses to organizers, i.e. CPBSC. Simultaneously, ABFI scheduled its flagship National Championship amidst the second wave of pandemic in late March 2021 and notified through a communication dated 1st March 2021. Eventually, the aforementioned communication turned out to be malafide considering that it was released after CPBSC finalized the dates of its private Championship and ABFI deliberately scheduled it on similar dates only to cause hindrance to CPBSC. ABFIs Championship was an event of utmost importance to all players as it gave them a chance to be considered for representing India in future. Hence, such acts caused chaos amongst the players and state bodies which forced them to choose ABFIs league only by not participating in another opportunity which was offered by CPBSC. ABFI case vis-à-vis precedents To tackle abuse of dominant position information, the foremost question the Commission faces is whether the organization is an enterprise? The commercial role of sports organizations forces them to comply with the definition of “enterprise” as provided under Section 2(h) of the Act. It was noted in Surinder Singh Barmi v. BCCI (‘Barmi’) that the definition of an enterprise is “wide enough to include any economic activity by an entity”. However, in ABFI’s case, the Commission went a step ahead and noted that even a non-commercial economic activity shall be subjected to the scrutiny of the Act. To do so, it used the “functional approach”, which has been relied upon in various Indian cases but primarily finds its mention in MOTOE v. Elliniko Dimosio. The approach suggests that every function shall be assessed separately as a federation may act as an enterprise when it is carrying one activity and not when carrying any other. In MOTOE, the Grand Chamber of the European Court of Justice stated that the economic activity having any connection with a sports-related act i.e. essential function does not restrict such entity from being scrutinized as an enterprise that in Indian parlance is defined under Section 2(h) of the Act. Further, the procedural set-up of the Act suggests that when the Commission adjudicates upon abuse of dominant position, a three-fold process is followed – Delineation of the relevant market in which enterprise exists Section 2(s) of the Act defines the “relevant market” for appropriate adjudication and determining the scope of the investigation. The relevant geographic market from Barmi to ABFI has always remained the same, in essence, India. It is the delineation of the product market that was presented through different approaches – (i) Consumer & multitude relationship approach (which states that federations have multiple functions to discharge with regards to other enterprises and consumers) in Dhanraj Pillay & Others v. M/s Hockey India (‘Pillay’); and (ii) the principle of substitutability (of sport & of services provided by one governing body) in Ministry of Youth Affairs and Sports v. Athletics Federation of India (‘AFI’). Based on the above-mentioned principles, the relevant market in ABFIs case was delineated as “market for organization of baseball leagues/events/ tournaments in India” because (i) no other sport can replace baseball; and (ii) no other regulatory body provides the necessary services. Establishing the dominance of enterprise within its relevant market The term “pyramid structure” finds utmost importance when determining the dominance of a sports organization. It refers to the organizational structure of sports entities which is modelled to fulfil governance loopholes. For instance, the Basketball Federation of India is the regulator and facilitator of basketball in India and has been recognized by another bigger regulator at the international level i.e. Fédération Internationale de Basketball. The same stands true with BCCI and ICC in the context of cricket. The pyramid structure has been noted in various cases in India like Barmi and Pillay. Although the pyramid is a monopolistic structure in itself, it ensures uniformity of sports globally. However, such structure makes these organizations the de facto authority coupled with factors like unilateral decisions, malafide bans on respective athletes, disapproval to local leagues, etc. further establishing their dominance before the

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The ‘Reit’ Measures To ‘Invit’ Better Regulatory Practices: Key Take-Aways For India

Capital Markets and Securities Law /

 [By Shaivi Nihal Shah & Palash Moolchandani] The authors are students at the National Law University Odisha. Introduction Infrastructure Investment Funds (“InvITs”) and Real Estate Investment Trusts (“REITs”), collectively referred to as ‘business trusts’, have recently witnessed increased popularity in the country. Over the past few months, Indigrid, an Indian InvIT (“I-InvIT”), put out a Rs. 1284 crore – rights issue and Brookfield India, an Indian REIT (“I-REIT”), listed a Rs. 3800 crore – public issue, showcasing the growing traction of business trusts. Some of the reasons investors find such trusts attractive are the tax benefits offered and the mandatory requirement to pay out 90% of distributable cash flows on a semi-annual basis. Recently, the government has made significant efforts to promote these trusts and make them more accessible to retail investors. For instance, in 2019, the Security and Exchange Board of India (“SEBI”) notified certain amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014 whereby a number of positive changes to the existing regime were introduced. In February 2021, the Finance Minister of India, Ms Nirmala Sitharaman, while releasing the Budget 2021-22, announced that business trusts would be exempted from Tax Deducted at Source, and advance tax payments would only be needed to be made when the amount of dividend income was announced. Notably, business trusts were also permitted to raise debt funds from foreign portfolio investors to reduce the liquidity crunch. However, despite the impetus given to business trusts by the government, India is still in a fairly nascent position as only 15 InvITs and 4 REITs are registered with the SEBI. This article attempts to analyse the regulatory framework of more mature business trust regimes and determine the key takeaways that India can replicate. Structure of Business Trusts In essence, business trusts can be considered to be collective investment schemes formulated as trusts. They are multi-tiered and comprise sponsors, trustees, investment managers and project managers. Certain requirements have been laid down by the SEBI to determine the eligibility of individuals and entities to qualify for these positions. The factors for eligibility are based on assets owned, net-worth and the relevant work experience. In terms of tiers, the sponsor acts as the anchor and creator of the trust. The sponsor then appoints the trustee, who is expected to oversee the work of the project manager and the investment manager. The investment manager typically supervises, manages and makes decisions regarding the investments and divestments of these trusts, and guarantees their activities. The duties of the project manager are to manage the assets of the trust and ensure that the projects undertaken by it are concluded in a timely manner. Deconstructing the Best Practices from Other Jurisdictions: Key Takeaways for India            I.         Investment in foreign assets All mature business trust regulatory jurisdictions do not restrict investments in foreign assets. Jurisdictions like Singapore have benefitted greatly from this and have experienced exponential growth in the last decade. In fact, its last 10 REIT IPOs have 100% of their assets outside Singapore while 80% of all the REITs in the country have investments in foreign assets. This is a clear indication of its transformation into an international hub for REIT listings. I-REITs/I-InvITs should also be allowed to invest in offshore assets as this would help them diversify their portfolio and explore different avenues of generating income. Further, the recent addition of institutional investors like mutual funds and insurance intermediaries as ‘strategic investors’ will ensure less shortage of funds for investments in foreign assets. This would also lead to higher investments from foreign and non-resident holders, as was observed in the case of Singapore. However, introducing such a provision should come with a caveat. Permitting investments in foreign assets can take attention away from Indian projects, contravening the very objective of introducing business trusts in India- to revive the cash strapped real estate and infrastructure sectors. Therefore, it is suggested that there should be a maximum limit on investment in foreign assets.         II.         Minimum Subscription Size SEBI has recently amended the minimum allotment and trading lot requirements for publicly issued business trusts. The minimum subscription for I-InvITs has now been reduced to 1 lakh from 10 lakhs and for I-REITs to 50,000 from 1 Lakh. However, in order to attract a larger base of retail investors, there is a need to further dilute the amount under this threshold or completely do away with it. The SEBI should take a cue from advanced jurisdictions like the United States (“US”), Australia, the United Kingdom, Germany, etc., who do not follow the principle of minimum subscription threshold.       III.         Internally Managed v. Externally Managed The question of whether business trusts should be managed internally or externally has always been proffered to regulators around the world. The US-REIT market, which is the largest in the world, predominantly follows an internal management system, whereas in the Asia Pacific region, apart from Australia, REITs are mostly externally managed. The latter has historically faced challenges regarding fee structures and conflicts of interest between the external management and the unitholders of the REIT. Thus, while an external manager offers better expertise, resources, personnel and influence than an internal manager, it is extremely difficult to align the interests of the manager with that of unitholders. To counter these challenges, countries have adopted strong corporate governance requirements to ensure better market discipline and accountability of business trust managers to the unitholders. For instance, the Monetary Authority of Singapore’s (“MAS”) Licensing Guidelines require licensed management companies registered on the Singapore Exchange to mandatorily conform to the country’s Code of Corporate Governance. In India, in order to prevent any unscrupulous activities by trust managers, a minimum of 50% of the managing company’s governing board must be independent directors who are not directors on the board of another business trust. However, the regulations do not envisage the responsibilities and explicit liabilities of independent directors of such companies. In this regard, a cue can be

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Boardroom Gender Diversity: Are Mandatory Quotas Effective In India?

Company Law, Contemporary Issues /

[By Swetha Somu]   The author is a student at Gujarat National Law University.  INTRODUCTION “Women Hold Up Half the Sky.”- Mao Zedong Analogous to this article is the proclamation made by Mao Zedong– to bring out women from domestic work to the professional field. Even today, if you walk inside a boardroom, it’s most likely that you’ll see more men like the Ambanis and Elon Musks than women like Kiran Mazumdar and Indra Nooyi. Through the lens of the law, the initial step was to empower women in corporate settings by imparting gender diversity in boardrooms. This article dives deep into the present scenarios in Indian companies and analyses the drawbacks and deficiencies of the mandatory quotas by discussing various other mandatory quotas imposed by countries around the world. The article seeks to bridge the gap in law so that the intention of the legislators, which is- diversity and inclusivity, is truly achieved. THE START: NORWEGIAN QUOTA The first-ever mandatory quota (40% for women in all listed companies) was legislated by the Scandinavian country- Norway, way back in the year 2006. The percentages jumped from 6% in 2002 to 40% in 2008 after its implementation. Although the percentage change pronounces the success of the law, various researchers have recorded negative effects and adverse changes in companies that had to comply with the quota. Shortly after the quota’s implementation, many companies had delisted from the stock exchange to avoid appointing a woman director. Some companies reduced their board size to easily comply with the quota and the women appointed were mostly for non-executive positions hence there was still no strong decision-making authority. Another research found that although the representation of women increased it didn’t mean many individual women in numbers rather the same woman being appointed in different boards. This is known as the “golden skirt” phenomenon. At the same time, researchers noted that more companies in Norway registered themselves in the UK and not their home country, hence pointing out that they were circumventing the regulations. Countries like France, Italy, and Germany followed Norway’s footsteps in implementing gender quotas in the boardroom. INDIA Since the patriarchal notions in the society are also seen to prevail inside the four walls of Indian boardrooms, the need for breaking this glass ceiling was acknowledged. A hindrance to women’s advancement is the existing gender stereotypes which diminish the scope of taking up high-positions in their professional lives. Hence to tackle this, the government introduced the Companies Act, 2013 in which under Section 149(1)(b) of Chapter XI makes it mandatory for the companies (listed companies, public companies with a minimum paid-up share capital of Rs.100 crores or minimum turnover of 300 crores) to appoint at least one woman director in their boardroom which failing to do so will attract penalties. This is known as a ‘hard quota’ where not following the quota will attract strict punishments unlike ‘soft quota’ which merely is a recommendation which if not followed, the company will only face warnings and negative reports. The second proviso to sub-section (1) Section 149 was inserted to increase the participation of women in key decision-making roles inching closer to the women empowerment goal that India wishes to achieve under the United Nation’s 5th Sustainable Development Goal of Gender equality by empowering women through strong enforcement of various policies and laws like this. After the implementation of the Companies Act, 2013 many companies started to comply with the mandatory quota as per the law. Subsequently, in 2015, the Securities and Exchange Board of India (SEBI) made all its top-500 NSE-listed companies compulsorily appoint at least one independent woman to their board by the year 2019, and the same for the top 1000 NSE-listed companies by the year 2020. According to the research article from the All India Management Association, out of the top NIFTY 500 companies in 2013, 303 of these firms did not have a single woman director on their board- which is roughly 60.6% of the companies that need to comply with the new quota immediately. Across these 303 firms, 82.8% had appointed one woman as one of their board of directors and 13.6% had appointed more than one woman in their boardroom going an extra mile! These huge percentages certainly seem to be promising and good going until we consider the scenario of efficiency after the appointment of the so-called women-in-power. Flaws and failures Though it was an overall success, there were some unpredicted drawbacks to the mandatory quota that India saw. Firstly, the imposed quota prompted ‘tokenism’ where companies appoint a woman director from their own family for the sake of complying with the law and to avoid the penalties. The NSE reported that 1667 of 1723 listed companies had fulfilled the mandatory quota but 425 of the complying companies appointed a woman from their family or promoters’ group. Illustration: Reliance Industries Limited has only one woman director (non-executive)- Mrs Nita Ambani, the CEO of the CEO, Mr Mukesh Ambani. Another company is JSW Steels, which has appointed Mrs Savitri Devi Jindal, the wife of the founder of Jindal Organization. The Raymond Group has appointed Mrs Nawaz Modi Singhania (non-executive director) who is the wife of the chairman. Secondly, there is a lack of skilled women willing to take up challenging positions, such as board members, making it hard for the companies to appoint and retain women at that position. This resulted in India being at the bottom of the table according to Egon Zehnder’s 2020 Global Board Diversity Tracker. Only 17% of the women held senior positions in companies and only 11% in leadership roles. Thirdly, the quota fails to meet what is known as the ‘critical mass’. With the minimum requirement of one woman on the board, the underrepresented gender does not have enough representation nor could make any substantial contribution to the boardroom discussions. A single woman on a boardroom meeting is likely to have a lower voice and is often neglected as it takes at least three

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Navigating The Essential (Interim) Relief Under the Competition Act, 2002

Competition Law /

[By Saikishan B Rathore] The author is a student at Gujarat National Law University, Gandhinagar.  It is settled law that a statutory body cannot grant interim relief unless such power has been vested by the statute. Section 33 of the Competition Act, 2002 empowers the Competition Commission of India to grant interim relief upon satisfaction that an act in contravention of Section 3(1), Section 4(1) or Section 6 is committed, continues to be committed or is likely to be committed. CCI has issued orders under this section with utmost circumspection. The most recent need arising on 9th March, 2021 as it issued an order granting interim relief to the informants (Fab Hotels and Treebo), restraining the opposite parties (MakeMyTrip and GoIbibo) in Re: Federation of Hotel & Restaurant Associations of India and Anr. v. MakeMyTrip India Pvt. Ltd. and Ors (hereafter “MMT-Go”). The three-fold test: CCI v. SAIL In CCI v. SAIL, the Supreme Court recognized CCI’s jurisdiction to grant interim relief, subject to three conditions. Firstly, CCI ought to record its satisfaction in clear terms than an act of contravention of the stipulated provisions has taken place; Secondly, if it is necessary to issue an order of restraint; Thirdly, if there is every likelihood that the party to the lis would suffer irreparable and irretrievable damage, or there is definite apprehension that it would have an adverse effect on competition in the market. Applying the 3-fold test: Road to MMT-Go As mentioned above, CCI has exercised this power very cautiously in the past. In Financial Software Pvt. Ltd. v. ACI (hereafter “ACI case”), the conduct of ACI in restricting the choice of ACI Banks for availing the services of third parties including the informant for customization and modification of a particular software appeared to be in contravention of section 4 of the Act. Thus, the CCI was compelled to grant interim relief pending enquiry subsequent to the order under Section 26(1). Further, in Fast Track Call Cab Pvt. Ltd. v. ANI Technologies Pvt. Ltd., the CCI found it essential to restrain Ola Cabs from charging way below the average variable cost as it posed an imminent threat to the competition in the market. However, in certain cases, there is no requirement for issuing such orders. For instance, in Re. National Shipowners Association v. ONGC, the informant prayed for a direction to restrain ONGC from taking any action, or threatening to terminate the ‘Charter Hire Agreement’ entered into with the member companies of the Informant till disposal of the inquiry and the matter pending before the CCI. Although the CCI noted a clear threat to competition in the market, it was satisfied with ONGC’s undertaking that it would not invoke the clause to terminate the said agreement and thus, refrained from issuing an order under Section 33. In the recent case of MMT-Go before the CCI, an enquiry was already in progress in furtherance to CCI’s order dated 28-10-2019. However, the properties of the informants were not listed on the website of MMT-Go which was clearly in a dominant position in the relevant market of online franchising services for booking hotels in India. Moreover, as per the order under Section 26(1), it was clear that there existed a confidential commercial agreement between MMT & Oyo that prioritized the listing of Oyo Hotels on the website, thereby, indicating a likelihood to cause an appreciable adverse effect on competition. Further, it was clearly stated by the informants that inquiry has been pending for more than 15 months, and any further delay would eliminate competition in the market with special reference to the informant hotels that have been delisted. Therefore, the CCI rightly responded to the urgent need for interim relief as there is a clear denial of market access which is likely to eliminate competition in the market until there is a final determination. Section 33 & 26(1): The difference in satisfaction As laid by the Supreme Court in CCI v. SAIL at para 117, there is an express obligation on CCI to record satisfaction that there has been a contravention of the provisions mentioned under Section 33. However, this satisfaction is to be understood differently from what is required while expressing a prima facie view in terms of Section 26(1) of the Act. While the former is a definite expression of the satisfaction recorded by the Commission upon due application of mind, the latter is a tentative view at that stage. Whether such ‘definite expression of satisfaction’ amounts to final determination? The order under Section 26(1) is an administrative order. It merely sets in motion the inquiry, and the final determination is subject to the judicial scrutiny of the DG’s report. It is settled that the degree of satisfaction under Section 33 is not merely tentative. Therefore, it is a legitimate concern whether the exercise of such discretion by the CCI would play a major role in the pending enquiry/matter. There cannot be a uniform degree of satisfaction in every case. As noted by the CCI in the MMT-Go case, it completely depends on the evidence and circumstances of each and every case. For instance, in the recent G-Meet case, the CCI did not find any evidence placed by the informant to order an enquiry. On the other hand, in the MMT-Go case, there was enough evidence at the preliminary stage to display a clear denial of market access and foreclosure of competition by the dominant enterprise. Another prominent example is the ACI case. When the order under Section 33 issued by the CCI (mentioned above) was appealed before the Competition Appellate Tribunal in ACI Worldwide Solutions Pvt. Ltd v. Competition Commission of India, the Comp AT refrained from expressing any opinion because it was of the view that confirmation of interim relief or otherwise would itself affect the investigation by the DG which is pending and it is also likely that it may affect the merits of the matter. Instead, it directed expeditious disposal of the matter by giving CCI a time limit

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Default Behaviour in Consumers – A Competitive Threat

Competition Law /

[By Pragya Dixit] The author is a student at ILS Law College, Pune.   The Competition Commission of India (CCI) in an Order dated 09.11.2020, directed an investigation against Google and its affiliates on information filed alleging violation of Section 4 of the Competition Act, 2002 (Act). The Commission ordered the aforementioned investigation in relation to three allegations leveled against Google. Amongst those three allegations, one allegation involved the issue of “pre-installation of Google Pay on Android resulting in a ‘status – quo bias’ in consumers”. This article aims to discuss how status quo bias, alternatively known as ‘default behavior in consumers’ is a problem in the competition arena and has a deeply negative impact on market competition and consumers’ interest. The allegations made by the informant in the case against Google stated that by pre-installation of Google Pay as a default payment option in Android phones at the time of initial set – up results in a status – quo bias which is detrimental to the interest of other players in the market, as it places Google Pay in the users’ devices, making it a default option already available to them. The default nature in phones drives users to make use of google pay instead of going for other alternatives present in the payment markets. It results in denial of market access to various other competitors in the same market and ultimately gains Google a significant competitive advantage over the other players, which is a contravention of Section 4(2) of the Act. Another issue similar to this had also arisen quite recently in a case before the CCI, wherein several allegations were raised in a complaint against WhatsApp and its parent company Facebook. The said complaint raised objections that WhatsApp is abusing its dominant market position in the “market of internet-based messaging apps through smartphones” by creating its own United Payments Interface (UPI) payments system i.e., ‘WhatsApp Pay’ within its messaging platform. It was visible in the WhatsApp case that by doing so, it facilitates the pre-installation of WhatsApp pay in mobile phones, which would ultimately make it more amenable to users than other options available. The CCI instead of dealing with it chose not to recognize it in the WhatsApp case. However, the same issue has arisen again in a much clearer manner before the Competition watchdog and by issuing an investigation this time CCI has taken a step in the right direction. What is the problem of Status Quo Bias or Default behavior in consumers? The default behavior in consumers was a very less discussed issue in the Competition arena until recently, wherein the Competition and Markets Authority (CMA) of the UK in its market study on Online Platforms and Digital Advertising tried to explain the issue and the associated threats. The study explained that “the default behavior in consumers while using applications and information providing websites, is something which has been encouraged by the transformation in the ways of interacting and acquiring information.” In today’s high-tech world we can all access almost every information available on a particular subject just with a single click. Online platforms are loaded with so much information that focusing on what information is relevant and what not has become a herculean task for a consumer. Adjacent to this, the availability of information in such an easy manner has made all of us impatient and has resultantly reduced our tolerance for delay. This behavioral change in the digital environment forms the backbone of the ever-increasing default behavior in the customers. To summarize it in a one-line we can say that “Default behavior on the part of consumers is a propensity to avoid wasting time by accepting the default option presented to them”. Though it sounds like that it is the best option available for a consumer, because it looks like a way by which a consumer can select the options which are more favorable to him and can get rid of the unnecessary and extraneous information, resultantly saving his time and cost. However, CMA in its guidelines while analyzing this behavior rejected this belief. It stated that the default behavior of consumers plays an enormous role in shaping the competition in social and search media. A consumer’s choice in the selection of various applications such as ‘what search engine to use is highly influenced by default options available to him. A consumer is more likely to make use of applications that are easily accessible and directly available to him on his device.  However, when consumers start using these apps on a regular basis, the power of these platforms to influence consumer choices increase manifolds. As most of these apps in one way or another are engaged in collecting consumer data. This data helps them in providing better and personalized services which ultimately helps them in creating control over their users. This control exercised over users ultimately binds them to these applications which automatically creates hurdles for the other players in gaining users and increasing their market reach. This is the sole reason why these big firms and platform owners pay extreme importance to devise ways of achieving the status of default in users’ devices. For example:- In 2019, Google paid 1.2 Billion Pounds to different parties in the UK alone, in order to appear as the default feature on their devices. This exercise helps giant companies to increase their profits. The bone of contention lies in the fact that consumers are now habituated and are not willing to shift because they are provided with what seems to them the most economical, efficient, and easy way to fulfill their needs. However, they do not realize that this exercise on the contrary is blocking their ways towards other and perhaps better available alternatives. It not only acts as a detriment to the consumers but it also harms other players in the market as their user base is being blocked, leading them to enormous losses and ultimately wiping them off the market. How does

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