Author name: CBCL

Mediation in India- Challenges, Recommendations and Relevance in Post COVID Scenario

Contemporary Issues /

[By Krishnanunni U and Kessia E. Kuriakose] The authors are students at the NALSAR University of Law, Hyderabad. Introduction The outbreak of the COVID-19 pandemic has led to a sudden surge in the number of commercial disputes across the world. Most corporates have been inundated with unprecedented challenges arising out of delayed performance of contracts. At this juncture, the amicable restructuring of contracts to accommodate contemporary realities becomes ever pertinent. Hence, mediation being quicker and efficient than conventional modes of dispute resolution will automatically become the preferred option for businesses to tackle the predicament posed by COVID-19. Further, mediation will help in fostering relations by settling disputes amicably. In India, COVID-19 has brought about various developments that have set the stage for propelling mediation to the forefront. For example, insolvency proceedings have been terminated for a year and RERA has extended the timeline for completing projects by including COVID-19 as one of the force majeure conditions. Litigating disputes connected to COVID-19 will consume time, money, and effort. Mediation being cheap, quick, and confidential would be the most feasible solution to tackle the conundrum. However, blindly accepting mediation as the solution can have serious repercussions. Mediation in India is marred with a lot of problems, lack of legal sanctity being the primary concern. In this article, we seek to identify and provide recommendations to resolve the challenges faced by mediation in India by carefully analyzing the existing legal framework around mediation.  Existing Legal Provisions Mediation in India is primarily governed by two legislative acts viz. the Code of Civil Procedure, 1908 (“CPC”) and the Arbitration and Conciliation Act, 1996 (“ACA”). Section 89 of the CPC (added by way of amendment in 1996) gave courts the power to direct disputes to various ADR mechanisms including mediation for their settlement. Part II of the Civil Procedure – ADR Rules 2003 clearly defines the process of Mediation and specifies certain rules related to mediation (Mediation Rules). Further, Part III of ACA governs conciliation proceedings that courts have interpreted to be synonymous with the mediation process. In addition to that, several legislations like the Companies Act, 2013, and Commercial Courts Act, 2015 provide for mediation, but these rarely opt for dispute resolution. Hence, it is very apparent that laws governing mediation in India are in a rudimentary stage with no standardized process in place. Recently, the government has taken affirmative actions for promoting mediation but the absence of an overarching legislation will continuously pose impediments for the growth of mediation in India. Initial efforts to strengthen mediation can be traced back to 1988 where the 129th Law Commission Report recommended ‘Urban Legislation Mediation’ as an alternative to adjudication. Afterward, the judgment in Salem Bar Association v. Union of India held that all disputes coming to court need not necessarily be resolved by the courts and alternative dispute resolution mechanisms should be actively engaged. This prompted an amendment to the CPC and Section 89 was incorporated. Another major development was an amendment to the Commercial Courts Act, wherein Section 12A was introduced in 2018. This made it mandatory for parties to conduct mediation before instituting a commercial dispute. The constitution of the “The Mediation and Conciliation Project Committee” entrusted with discussing policy matters related to mediation has given further impetus to the development of mediation. In 2019, India signed the United Nations Convention on Mediation (the Singapore Convention), which made international commercial mediation agreements enforceable in India. However, the qualms regarding enforcement can be fully dismissed only when a new law concerning mediation is enacted. Challenges and Recommendations 1) Lack of Codification– In January 2020, the apex court in MR Krishna Murthi v. New India Assurance Co. Ltd pointed out the urgent need for enacting a uniform legislation for mediation in India. In furtherance to this, the court set up a committee to come up with a draft legislation that will help in conferring legal sanctity to disputes settled by mediation. A uniform statute governing mediation is the need of the hour. Such legislation should ideally aim at making mediation a mandatory exercise before approaching courts or arbitral tribunals. This would help in altering the current status of mediation from being a particular form of dispute resolution to the mandatory first stage of dispute resolution. A statute governing mediation will also address the enforceability concerns plaguing mediation in India. Even in the landmark Ayodhya case, the Supreme Court had initially directed the parties to mediation. However, the lack of a binding factor has deterred parties from acknowledging mediation, thereby vitiating mediation proceedings in India. An overarching legislation would confer legal sanctity and provide procedural guidance to parties. Just like how the ACA revolutionized the arbitration culture in India, a mediation specific law can instill confidence in parties to resolve their disputes through mediation. 2) Apprehension towards mediation & Lack of Awareness – Mediation has never garnered sufficient reception among the legal fraternity. In order to popularize mediation as a dispute resolution mechanism, training sessions and seminars should be conducted to familiarize judges with the benefits of mediation. This will help in creating a conducive environment for the growth of mediation in India. Further, public awareness related to mediation should also be increased.  A coordinated approach by the Judiciary and the Executive can help in disseminating information regarding the benefits of mediation to the public. Lawyers should also be encouraged to advise mediation to their clients. 3) Infrastructural Concerns and Quality Control– Improved emphasis on mediation will directly increase the workload on mediation centers which lack administrative strength. This can lead to the languishing of cases that go against the basic tenet of mediation i.e. fast resolution of disputes. To tackle this, the practice of mediation should be professionalized in India. People should be incentivized to become full-time mediators. The recent proposal of the Bar Council of India to compulsorily include mediation in the legal curriculum will definitely assist law students in taking up a career in mediation. Further, it is pertinent to supplement the growth of

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Calculation Of Interest In CGST: A Relief for the Tax Payers?

Taxation Law /

[By Shubham Gupta and Jayesh Advani] The authors are students at the National Law University, Odisha. Introduction Section 50(1) of the Central Goods and Service Tax (CSGT) Act, 2017, imposes interest on the tax liability occurred in accordance with the provisions of the CGST Act on the person who fails to pay the whole tax or any part of the tax, in the prescribed time. The interest is added to the original tax liability until the period the whole tax liability is settled by the defaulter. The interest rate notified by the government on the defaulted amount is 18 %. Although Section 50(2) provided for the method of calculation of interest, the Act was silent on the question of whether the interest has to be calculated on the gross amount of tax liability or the net amount. For instance, assume the Gross amount of tax that is not paid to be Rs. 1,00,000 and the amount of Input Tax Credit (ITC) to be 60,000. The question of law was whether the interest should be charged on Rs. 1,00,000 or on the Net amount which is calculated by deducting the ITC from the Gross amount i.e. Rs. 40,000. To solve this dilemma, the Central Board of Indirect Taxes has given effect to Section 100 of the Finance Act, 2019 from 1st September 2020 to amend Section 50 of the CGST Act. According to the Amendment, the interest is applied to the net amount i.e. Rs. 40,000 which is calculated by deducting the ITC from the gross tax liability. The inserted proviso to Section 50(1) has explicitly mandated to pay the interest in accordance with Section 39 of the CGST Act. However, in situations where initially no tax is paid by the defaulter and he is paying tax only after the notice is served, under Section 73 or 74 of the CGST, the interest is to be calculated on the gross amount. Exception to the Proviso There seems to be a major issue with the provision that has been added to Section 50 of the Act. It mentions two exceptional scenarios in which the benefit will not be available. The bare text uses the words “except where such return is furnished after the commencement of any proceedings under Section 73 or Section 74 in respect of the said period…”. The use of these words implies that when Section 73 and Section 74 come into play, the interest will be calculated on the gross liability. Both these Sections talk about the procedure that is followed to determine the tax liability in cases when the “tax is not paid, or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized”. The difference lies in the applicability conditions of both sections. Section 74 is attracted specifically when an element of fraud, wilful misstatement, or suppression of facts is present with an intention to evade tax. On the other hand, Section 73 is attracted in the case where the events occur for any other reason than the ones covered in Section 74. It is pertinent to note here, that both these Sections determine the amount of penalty which shall be applied on such person chargeable with tax. When these sections specifically mention certain percentages of tax liability to be imposed as a penalty in different situations, then why an additional penalty is being imposed by charging an additional interest under the veil of these exceptions? In the author’s view, the reason for charging the interest on gross liability, even in these exceptional scenarios is unfounded. Moreover, charging a higher interest in these cases makes the ‘interest’ punitive in nature. This goes contrary to the judgments delivered by the courts. One of the initial cases in this regard is M/s Pratibha Processors v. Union of India. In this case, the Supreme Court held that interest is compensatory in nature and should be payable only when the cenvat (now known as ITC) is actually utilized. It has been repeatedly adjudicated by the Supreme Court that “interest is a mere accessory to the principal and if the principle is not payable, consequently, no interest is payable”. The approach of the courts has remained the same in the post GST era as well. In the case of State of Karnataka v. Karnataka Pawn Brokers Association, the Supreme Court sustained the approach adopted in the Pratibha Processors’ case. This issue was further discussed in the latest case of Reflex Industries v. Sherisha Technologies dated 6 January 2020. In this case, the Madras High Court articulated the purpose of imposing the interest on the default amount and elaborated why in all scenarios the interest must be calculated only on the net amount. The court also held that the purpose of imposing interest is to compensate the state, for the loss of funds; they were entitled to receive. The interest imposed is in no sense a punishment. Hence, in a scenario where the interest is calculated on the gross amount, it will lead to the enrichment of the state, which is contradictory to the very purpose of this provision. These judicial decisions suggest that different treatment of the cases where proceedings related to Section 73 and Section 74 has commenced is not a correct approach. The amount of ITC had been effectively paid to the department, thus, reducing the amount of principal that is payable. Considering the fact that interest is only an accessory to the principle, the amount of ITC shall always be deducted to charge interest. The same should be the case when proceedings are commenced under Section 73 and Section 74. Moreover, if interest is charged on the gross value in these cases, then it would not be compensatory in nature. Instead, it would turn into a method of penalizing and punishing the person chargeable with tax.   The Unfilled Gap The above-mentioned judgments highlight the fact that the concerned amendment is a mere articulation and addition to the approach of the judiciary. It is brought into force to remove the

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A Tale Of Divergent Interpretations: Revisiting What Constitutes “International Commercial Arbitration”?

Arbitration Law /

[By Hitoishi Sarkar and Animesh Bordoloi] Hitoishi is a student at Gujarat National Law University and Animesh is an Assistant Lecturer at Jindal Global Law School. On 20th July 2020, the Rajasthan High Court in a rather interesting decision held that if the nationality of both the parties is Indian, then even a foreign seated arbitration will not qualify as an International Commercial Arbitration pursuant to Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’). The decision is significant as the court carved out a third type of arbitration which is foreign seated and enforceable as a foreign award while still not qualifying as an International Commercial Arbitration. In this post, we seek to analyze the dicey interpretation of the term “international commercial arbitration” by Indian courts while also contrasting the same with the UNCITRAL Model Law on International Commercial Arbitration. The latter part of this post deals with the implication of such a restrictive interpretation of the term from the standpoint of party autonomy. Factual Matrix An application under Section 9 of the Arbitration Act had been preferred by the applicant inter-alia praying that the respondent be restrained from invoking bank guarantee of rupees five crores, which it had furnished pursuant to the contract executed with the Respondent. The Respondent argued that the application was liable to be dismissed for want of jurisdiction, as the jurisdiction to hear the application under Section 9 of the Arbitration Act lies with the Principal Civil Court at Udaipur and not with the High Court. However, the applicant urged that considering the fact that the seat of arbitration was Singapore, the arbitration in question must be treated as an International Commercial Arbitration and as a necessary fall out of such finding, the application under Section 9 of the Arbitration Act be also held maintainable before the High Court and not before the Principal Civil Court. The Court held that an arbitration to be termed or treated as an International Commercial Arbitration, the agreement has to have at least one foreign party or a company whose nationality is other than that of India. The glaring discord with the Model Law Article 1(3) of the UNCITRAL Model Law on International Commercial Arbitration provides that an arbitration is “international” if the place of arbitration is situated outside the State in which the parties have their places of business. Thus, the central criterion relied upon by the Model Law is the internationality of dispute while defining an international arbitration. It is pertinent to note here that while drafting the Model Law, the Working Group also faced the same dilemma as divergent views were expressed as to whether “an arbitration should qualify as international if parties that have their places of business in the same State have chosen a seat outside their place of business.” However, the Working Group ruled in favor of party autonomy and thereby retained the aforementioned provision. Thus, the Rajasthan High Court’s decision in Barminco Indian Underground v.Hindustan Zinc Limited wherein it ruled that “if the nationality of both the parties is Indian, then even a foreign seated arbitration will not qualify as an International Commercial Arbitration” runs contrary to the approach of the Model Law and thereby is a step back from the standpoint of party autonomy. Analyzing the ambiguity surrounding the “Place of Business.” A relevant defense taken by the Petitioner in Barminco was that the Applicant is a part of the Barminco Group of companies with operations in Australia, Asia, and Africa. The rationale for such an argument was that section 2(1) (f) (iii) of the Arbitration Act construes an arbitration to be an “international arbitration” if the management or control of one of the parties is outside India. However, the Indian interpretation has pointed to an approach where even though a company is foreign-controlled if the place of incorporation in India, it is the latter that is used as the determining factor.  Interestingly, the Law Commission in its 246th Report which had initially proposed to delete the word ‘company’ from section 2(1)(f) (iii) re-enforced the ‘place of incorporation’ principle for determining the residence of a company thereby also concurring with the position of law laid down by the Supreme Court in TDM Infrastructure Private Limited v. UE Development India Private Limited and thus missed an opportunity to further the case of party autonomy.  Moreover, the international understanding of the issue has also been divergent. Unlike the Indian position which puts stress on ‘place of incorporation’, some jurisdictions focus on ‘place of business’, the interpretation of which has been left to the national legislations. While some countries such as Austria have adopted a more lenient approach by qualifying it as any location from which parties can independently participate in economic transactions, others such as Russia have adopted a narrower one. Irrespective of such varied interpretations, however, the primary debate boils down to where the Indian approach stands when compared to the Model Law, which is clear in its position that if one of the parties’ place of business is abroad, the arbitration ‘is’ international whereas Indian Courts have relied extensively on the “place of incorporation” principle while determining the nationality of parties pursuant to Section 2 of the Arbitration Act. International Commercial Arbitration: Decluttering the Indian understanding The Indian position on whether two Indian parties can choose a foreign seat for arbitration has caused much uncertainty. Although the judgments in Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd. and subsequently in GMR Energy Limited v. Doosan Power Systems India, the High Courts inclined towards the position that it is permitted for Indian parties to choose a foreign seat. The Bombay High Court in Addhar Mercantile Private Limited v. Shree JagdambaAdrico Exports Pvt. relied on TDM Infrastructure to disregard the validity of arbitration clauses when two Indian parties had chosen a foreign seat. While High Courts do not have a binding precedent over other High Courts, such contradictory opinion reflects the need for the Supreme Court

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Monsanto Decision: Fresh Recourse to Jurisdictional Conflicts in Indian Competition Law?

Competition Law /

[By Yavipriya Gupta] The author is a student at Hidayatullah National Law University. Introduction The competition landscape in India is governed primarily under the Competition Act, 2002 (the Act), with the Competition Commission of India (CCI) holding the exclusive jurisdiction to adjudicate upon anti-competitive conduct of business entities, while certain sector-specific regulators bear the responsibility to regulate competition within their respective sectors. Although the authorities share a common objective of protecting and promoting competitive conduct in the market, there lies a significant difference in the approach adopted by the two. This has often led to several jurisdictional conflicts between the two bodies, clearly heralding the need for judicial intervention to resolve this tussle. On 20 May 2020, the Delhi High Court in Monsanto Holdings Pvt. Ltd. v. Competition Commission of India (Monsanto) decided on one such jurisdictional conflict while examining the applicability of the Supreme Court (SC) judgment in CCI v Bharti Airtel and Others. (Bharti Airtel) to the dispute. It held that a Controller of Patents (Controller) under the Patents Act 1970 (Patents Act) is not a sectoral regulator and hence, cannot exercise jurisdiction in a manner similar to Telecom Regulatory Authority of India (TRAI), as in the Bharti Airtel case. While there exists a multitude of sectoral regulators that often cross path with the CCI, this article seeks to analyze the jurisdictional conflict in the light of Monsanto and its interpretation of the Bharti Airtel case concerning a dispute between the TRAI and the CCI while also exploring the impact of the decision on the jurisdictional tussle between IPR authorities and the CCI. Monsanto Case Factual Context The matter stems from an order passed by the CCI under section 26(1) of the Act in a dispute relating to the trait fee charged by Monsanto Holdings and its allies as well as the other terms and conditions imposed by it upon the licensees for using their technology to manufacture Bt. Cotton Seeds. The CCI passed an order holding that Monsanto maintains a dominant position in the concerned relevant market and has prima facie abused it, thereby violating section 4 of the Act. The aforesaid order was challenged by Monsanto before the Delhi High Court, primarily on the ground that CCI does not entail jurisdiction to examine the issues raised before it as they relate to the exercise of rights granted under the Patents Act and hence must first be examined by the Controller. While an earlier decision of the Court in Telefonaktiebolaget L.M. Ericsson v Competition Commission of India & Another (Ericsson) clarified that jurisdiction of the CCI in such an issue is not excluded, Monsanto argued against its application stating that the position of the Controller in the instant case, is similar to the TRAI as the Controller also exercises powers to regulate the grant of patents and exercise of rights under the Patents Act. SC in its decision in Bharti Airtel had observed that the CCI could exercise its jurisdiction only after the TRAI had returned the findings based on which any order could be passed by the CCI. Commensurate with the same, it was contended that SC’s decision essentially overrules Ericsson and without effective findings returned by the Controller, the CCI’s jurisdiction remains ousted. The Decision of the Court The court, while repudiating the contentions furthered by Monsanto, upheld the position established in Ericsson. It was observed that the expertise of TRAI in the field of telecommunications is materially different from the expertise that a Controller bears in regard to the grant of patents and exercise of patent rights. Besides, SC’s decision in Bharti Airtel maintains that the CCI has been entrusted with a function to deal with certain specific kinds of anti-competitive conduct and to that extent, its function is distinct from that of TRAI. Hence, it cannot be construed to mean that the jurisdiction of the CCI was ousted by virtue of the telecom industry being regulated by a statutory body. Bharti Airtel’s Application- A Test for Sectoral Regulators Before reaching its final decision in the case, the Court took an in-depth view into whether SC’s decision in Bharti Airtel effectively overrules Ericsson, and thus addressed one critical issue that remained hitherto overlooked. Due to the lack of a definite meaning of the term sectoral regulators, there has been a lot of ambiguity in resolving jurisdictional conflicts involving such regulators that might not necessarily be sector-specific, viz. the Controller of Patents in the instant case. The court attempted to resolve the aforementioned ambiguity following an analysis of the role of the controller of patents and that of the TRAI, thereby laying down a standard to be met in order to be considered a sectoral regulator. Role of the Controller of Patents It is pertinent to note that in the case of Bharti Airtel, the subject matter of dispute was the non-provisioning of Points of Interconnection (POIs) in the telecom industry, observing which the court in Monsanto held that the subject matter of the disputes therein fell essentially within the domain of TRAI, adding that the same cannot be stated for the Controller in the present case. Despite performing several functions similar to TRAI, the Controller’s role as a regulator was observed to be substantially different due to the absence of a specific industry being regulated by the latter. In the author’s opinion, a bare perusal of section 140 read with Chapter XVI of the Patents Act may although prima facie indicate that the Controller has an authority to determine whether a term included in a license issued by any party is restrictive or not, a closer analysis suggests that the act does not confer such authority upon the Controller. Hence, such disputes are likely to be decided by a civil court, further indicating the non-uniformity in the functions performed by the Controller and the TRAI. Functions Performed by TRAI The court affirmed that the TRAI performed two distinct kinds of functions. The first is essentially recommendatory in nature while the rest of the

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Prepending the ‘Social’ to Social Stock Exchange: a Trump-Card for the Society

Capital Markets and Securities Law /

[By Jaskaran Singh Saluja and Khushi Sethia] The authors are students at the Institute of Law, Nirma University. Introduction The advent of The Working Group Report on the Social Stock Exchange (Report) is a gamechanger for restructuring the capital inflow of the social sector in the country. The Report got published on 1st June 2020. However, the idea of a Social Stock Exchange (SSE) was first proposed during the budget speech of 2019, wherein the Finance Minister Nirmala Sitharaman highlighted the need to strengthen the social enterprises by way of SSE under the aegis of the Securities and Exchange Board of India (SEBI). SSE is a fundraising structure following the principle of additionality. The organizations in each sector can be bifurcated into for-profit enterprises (FPEs) and non-profit organizations (NPOs). SSE is expected to provide a separate closed-ended fund structure under the current stock exchange. Pre-determined norms screens entities into FPEs and NPOs. SSE acts as an intermediary allowing the flow of capital from institutional investors to NPOs and FPEs by way of the market instrument. The investment funds are directed towards a social cause consequent to which outcome funders will payout following the social impact created by the entities. Such a mechanism of SSE will untangle the snag of capital-shortage, usually faced by the social enterprises in carrying out the activities for the betterment of societies. Thus, SSE will count as a trump-card for society. I.Financial Instruments & Its Operations a. For Non-Profit Organisations (NPO Zero-Coupon Zero-Principal Bonds: – Zero-coupon zero-principal bonds are capital raising instruments that remain active for a term equivalent to the span of the project and ends by writing-off the investee’s account by funds availed for the project. These bonds are appropriate for the investors, hoping to make any social impact without expecting back the principal funds. Mutual Funds: – An asset management company will act as an intermediary that accumulates capital from different individual and institutional investors. The gains produced by their investments will get directed towards financing the tasks of NPOs, working for social outcomes, in the form of grants. Lastly, the intermediary will restore the principal amount invested by the investors and offer certain tax-exemptions Social Impact Bond (SIB): – In SIB structure, an intermediary interposes between NPOs, investors, outcome funders, and independent evaluators. The intermediary unlocks the capital from investors and contractually connects it with NPOs. Further, only after observing the successful accomplishment of the outcome-metrics through evaluators, the outcome funders repay the principal amount and returns to the investors, or else, they withdraw their liability. Pay-For-Success: – In this apparatus, the outcome funders repay the principal amount and returns to the lending partners through the intermediaries, only after the successful completion of the set outcomes. However, if the set results will not get achieved, then the risk of economic loss will be dealt with by the lending partners. Moreover, the Pay-For-Success model is almost identical to the SIB model. The key difference discerned in this model is that the intermediary raises capital from the lending partners and through grants. Even the Report proposes that the SSE should lay down an aid fund for recovering the pandemic situations of COVID-19. It can be set-up in the mock-up of Pay-For-Success or SIBs or even through Zero Coupon Zero Bonds for CSR spenders, philanthropic donors, and various investors. Social Venture Funds (SVFs): – The umbrella of SEBI’s Alternative Investment Funds (AIFs) covers the instruments like SVFs. These SVFs already exist in the financial market by SEBI for FPEs, although it also acts as grants-in and grants-out apparatus for NPOs and other charitable enterprises. b. For For-Profit Enterprises (FPEs) Equity Issuance: – For FPEs, the issuing of equity through SSE will be the significant source of unlocking the funds from investors, subject to minimum reporting standards. It is akin to SEBI’s Innovators Growth Platform (IGP), which provides a separate locus for start-ups with its listing preconditions. Social Venture Funds (SVFs): – FPEs already deal with SVFs for its funding, with no social impact reporting. However, in SSE, these FPEs are subject to minimum reporting standards while raising funds through the channel of SVFs and other AIFs.   II. A Setout to Revamp the CSR The Report proposes to get rid of the requisite enrolment of Section 8 enterprises for Corporate Social Responsibility (CSR) commitment under the draft of CSR Policy Amendment Rules, 2020. However, in SSE, the listing of  NPOs on the SSE or the existence of recipient NPOs in the SSE catalog will be adequate for setting up the validity of transactions. The CSR capital must be permitted to pile-up in an escrow account for three years. Further, if the CSR funders observe that the NPO has achieved its outcome, then they unlock the CSR capital from the escrow account and repay the partial amount to the interim funding partner for recovering the latter’s cost for executing the program. The residual amount in the escrow account will get transferred to the NPOs in the form of accelerator grants. If the CSR funders feel that the NPOs have not accomplished the social outcomes, then following the same, the said account will get liquidated, and the CSR capital will get utilized under Schedule VII of the Companies Act, like PM’s Relief Fund, etc. Moreover, the SEBI board prescribes that the Ministry of Corporate Affairs (MCA) should be permitted to approve the dealings of CSR capital between companies with surplus CSR funds and those who have a scarcity of CSR funds. Even the expenses incurred by various companies for capacity strengthening of SSE will also be considered as CSR handouts by altering Schedule VII of the Companies Act. III. Make A Killing Via Taxation Policy The Working Group (WG) has proposed to allow various tax-benefits to every player who will be part of the SSE transactions. The Committee believes that such tax-benefits will act as a spur for all the players. The Report commends for the same as follows: – The WG has suggested allowing donors

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India’s Offshore Listing Regime – Examining The Regulatory Architecture

Capital Markets and Securities Law /

[By Pratyush Hari and Meghana Gudluru] Pratyush is a student at Jindal Global Law School and Meghana is a student at Symbiosis Law School, Pune. On 4th March 2020, the Union Cabinet announced that it approved an amendment to the Companies Act, 2013 (“the Act”) which would allow Indian companies to list on foreign stock exchanges. Soon after, the Companies (Amendment) Bill, 2020 was introduced in the Lok Sabha seeking to amend, inter alia Section 23 of the Act, which would allow for offshore listing by Indian companies. Currently, the only way Indian companies can access foreign equity markets is through the American Depository Receipt (ADR) and Global Depository Receipt (GDR) regimes.  Indian companies can also list their debt securities on foreign stock exchanges through ‘masala bonds’ (Rupee denominated bonds), foreign currency convertible bonds (FCCB), and foreign currency exchangeable bonds (FCEB). Allowing direct offshore listing has been perceived to be a move that opens new doors of opportunity for Indian companies seeking to access global capital. However, certain aspects need to be considered in light of the regulatory changes surrounding the novel offshore listing framework. This post seeks to understand the background of the offshore listing framework and shed light on certain nuances of the framework that need further consideration. SEBI Expert Committee Report Recognizing the benefit behind Indian companies accessing global capital, the Securities and Exchange Board of India (“SEBI”) constituted an expert committee in 2018 to assess the viability of offshore listing for Indian companies. Additionally, the expert committee considered the listing of companies incorporated outside India on Indian stock exchanges. In December 2018, the expert committee released a report (“Report”) that delved into the economic implications of allowing offshore listing by Indian companies along with changes required to existing regulation. Some of the major takeaways from the Report are discussed below. Permissible Jurisdictions   The Report states that in the interest of security, offshore listing by Indian companies will only be allowed on certain pre-determined stock exchanges (“Permissible Jurisdictions”). The Permissible Jurisdiction must be a member of the Board of International Organization of Securities Commissions (“IOSCO”), whose securities market regulator is either a signatory to the IOSCO’s multilateral memorandum of understanding or shares a relationship with SEBI for information sharing arrangements[i]. Moreover, the Permissible Jurisdiction must be a member of the Financial Action Task Force. The Report emphasizes on stringent eligibility criteria for Permissible Jurisdictions. Presumably, to avoid potential misuse of this framework for illegal transactions like round-tripping of funds. The list of Permissible Jurisdictions in the Report under Annexure C includes NASDAQ, New York Stock Exchange, London Stock Exchange, and Shanghai Stock Exchange, amongst others. Changes to the Foreign Exchange Regime At present, the foreign exchange regime does not consider the listing of equity shares by an Indian company on a foreign stock exchange. The Report contemplates changes to the erstwhile ‘FEMA 20R’ which was subsequently superseded by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”). Amongst these changes, the Report suggests the addition of ‘Part B’ to Schedule 1 of FEMA 20R, addressing the purchase of equity shares of an Indian company listed on a foreign stock exchange by a person resident outside India. The equity shares of Indian companies listed abroad will, however, continue to be subjected to the Indian foreign exchange regime namely compliance with sectoral caps, entry routes, prohibited sectors, etc. Companies Act & SEBI Compliance According to the Report, Chapter III of the Act about prospectus and allotment of securities should not apply to the listing of equity shares of Indian companies on foreign stock exchanges. Certain listing obligations like the issuance of a prospectus are broadly similar across most Permissible Jurisdictions. Indian companies directly listing abroad are likely to be subject to the listing obligations of that Permissible Jurisdiction. Consequently, subjecting these Indian companies to Chapter III of the Act may prove to be redundant. This seems to be the underlying objective behind rendering Chapter III inapplicable to companies directly listing abroad. Additionally, Indian companies directly listing in Permissible Jurisdictions will not be subject to the rules and regulations laid down by SEBI. Such companies, however, will be bound by the listing framework of the Permissible Jurisdiction itself. On the other hand, listed Indian companies seeking to cross-list (list in India and abroad) will be bound by the listing framework in the Permissible Jurisdiction in addition to SEBI rules and regulations. Key Considerations The Report has addressed primary issues that arise while contemplating offshore listing such as regulatory changes, Permissible Jurisdictions, taxation etc. However, a regulatory change of such proportion is bound to uncover facets of the law that need further deliberation. Some of these legal aspects that need further thought are briefly discussed below. Access to Indian Investors  Resident Indian investors are bound by a cap on investments in overseas assets which will include equities of Indian companies listed abroad. Under RBI’s Liberalised Remittance Scheme (“LRS”), Indian residents are only allowed to remit $250,000 annually towards a foreign capital or current account transaction. While Indian residents would be subjected to the annual LRS cap, foreign investors are not subject to these monetary limits. They are however subject to restrictions on sectoral caps, entry routes, and prohibited sectors as prescribed by the NDI Rules. The difference in investment thresholds between Indian and foreign investors indicates a lopsided playing field. The situation gives rise to the peculiar problem wherein Indian investors are barred from investing more than the LRS limit in a company incorporated and headquartered in India. RBI will have to intervene and clarify its stance on the issue in order to curb this irregularity. Presumably, this LRS cap will have to be done away in order to increase access to these equities for Indian investors[ii]. Uniformity of Shareholder Rights For Indian companies seeking to cross-list their shares, it must be ensured that their equities represent the same rights entitlement to all shareholders, regardless of the jurisdiction. While Indian regulations do permit the issuance of shares with

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Conundrum of Intermediary Liability in Light of Consumer Protection (E-Commerce) Rules

Contemporary Issues /

[By Megha Shaw and Mrunal Mhetras] The authors are students at the WB National University of Juridical Sciences (NUJS), Kolkata. The government of India has recently replaced the old Consumer Protection Act, 1986 with the new Consumer Protection Act, 2019 ( “CPA” ) that came into effect from 20th July 2020. Accordingly, the Ministry of Consumer Affairs, Food and Public Distribution introduced the  Consumer Protection (E-commerce) Rules, 2020 ( “Rules” ) on 23rd July 2020. These legal developments took place during a period of increasing reliance on E-commerce entities caused by the pandemic. The new Rules aim to protect the rights and interests of consumers in the digital age in order to curb unfair trade practices of the e-commerce entities. This post seeks to, firstly, shed light on the significant changes brought upon by these Rules; secondly, discuss the dilemma of exemption of liability of marketplace E-commerce entities under the Information Technology Act, 2000 ( “IT Act” ) , and lastly, the impact of these Rules on the prior settled position of law. Highlights of Consumer Protection (E-Commerce) Rules Scope and Applicability  The CPA 2019 extends the scope of consumer protection to e-commerce businesses and online services as such changes were necessary to expand the realm of consumer protection to digital consumers. The new E-commerce Rules apply to all goods and services bought or sold digitally, all models of E-commerce, all forms of E-commerce retail, and all foreign entities selling to Indian consumers.[1] These rules are expressly made applicable to online service providers as well. Hence it is clear that it also includes service providers such as cab-hailing or sharing companies, event management or ticket vending platforms, food delivery companies, content streaming platforms, etc. Thus, it thoroughly encompasses goods as well as services available online. Obligations of Platforms The Rules have imposed certain duties and liabilities on the marketplace E-commerce entities and some of such key duties and liabilities are discussed below- Consumer Grievances- The Rules introduce a time-bound grievance redressal mechanism and impose a duty on E-commerce entities to appoint a grievance redressal officer to ensure that complaints are acknowledged within forty-eight hours and redressal is provided within one month of the date of receipt of the complaint. Information Disclosure- The Rules make it mandatory for E-commerce companies to provide details of the sellers and any other information required by the consumers to make informed choices. They need to take an undertaking from their sellers, ensuring that they display accurate information about their goods and services. They are also required to reveal the country of origin for the goods sold on their platform. However, the rules lack clarity on how the country of origin of a good is to be determined, especially for goods assembled from different countries, repackaged goods, or goods manufactured in one country, under license, by another company in a different country. Ranking and Differential Treatment Disclosure- The Rules make it incumbent on marketplace e-commerce entities to explain the main parameters used to decide the ranking of goods or sellers. The relative significance of such parameters should also be made available to the public. They are further required to disclose any differential treatment given to any of their sellers. This compliance requirement is aimed at those E-commerce entities which directly indulge in product targeting by providing differential treatment to certain companies by displaying them in top search results. This disclosure requirement aims to bring about greater transparency.  Pricing, Consent, and Cancellations- The Rules specify that the platforms are prohibited from engaging in any unfair trade practices and from manipulating the price of goods or services sold on these E-commerce entities. The Rules also mandate that E-commerce entities can record consent for purchase by a consumer only when it is expressed explicitly through affirmative action. Thus, the practice of automatic deduction of charges from the consumers without their affirmative consent has to be done away with. E-commerce entities are also restricted from imposing cancellation charges on consumers unless they are willing to bear similar charges on unilateral cancellations made by them. However, it is pertinent to note that the Rules are applicable from the date of their notification, so there is no window for compliance to these Rules given to E-commerce entities. And, in case of any violation of these Rules, penal provisions of the CPA are applicable.[2] The Conundrum of Exemption of Liability of Marketplace E-commerce Entities While these rules impose substantial obligations on E-commerce entities, the liability on non-compliance of these obligations by E-commerce entities remains a grey area. Even though liabilities are created by the E-commerce rules under the CPA, there remains uncertainty due to the exemption of liability provided to the intermediaries under section 79 of the IT Act.  Applicability of IT Act on Marketplace E-Commerce Entities Section 79 (1) of the IT Act provides an exemption from liability to intermediaries for any third party information posted by them. This provision is applicable notwithstanding any other law except for Sections 79 (2) and 79 (3) of the IT Act. As per section 2 (w) of the IT Act, an online marketplace is included in the definition of an intermediary. Under the Rules, a marketplace E-commerce entity is defined as “an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers”. So it is clear that the definition of a marketplace E-commerce entity fits into the ambit of the ‘online marketplace’ which is defined as an intermediary under the IT Act. The Conundrum of Intermediary Liability  In addition to this, Rule 5 of the E-commerce Rules allows the marketplace E-commerce entity to avail the exemption from liability under section 79 of the IT Act, if they comply with sections 79 (2) and 79 (3) of the IT Act.[3] However, in contrast, Rule 8 states that in case of any violation of the e-commerce Rules, provisions of the CPA will apply. Therefore, there is some uncertainty as to whether the marketplace e-commerce entity

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Reviewing the Standard of Liability of Independent Directors

Company Law /

[By Raagini Ramachandran] The author is a student at NALSAR University of Law. Introduction With several scams on the domestic as well as global front, the role of an Independent Director assumes significance so as to serve as a tool of corporate governance by exercising objectivity, impartiality and ensuring shareholder protection in their functioning. On March 2, 2020, the Ministry of Corporate Affairs (‘MCA’) released a circular (‘Circular’) clarifying the standard of liabilities of an Independent Director under the Act. This article reviews the existing standards of liabilities imposed on an Independent Director (‘ID’)  under the Companies Act, 2013 (‘The Act’) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations,2015 (“LODR Regulations”) in the backdrop of this Circular. Companies Act, 2013 The provisions of the Companies Act are applicable to companies incorporated under it. Section 2 (60) of the Act imposes a general liability on an “officer in default” who is liable to pay a penalty or be punished. An “officer in default” is defined as a director who participates in any of the board proceedings and has active knowledge of the default thereby providing his consent or connivance. In SEBI vs. Gaurav Varshney it was held that “liability arises from being in charge of and responsible for the conduct of the company at the time when the offence was committed and not on the basis of merely holding a designation or office in a company.” Thus, liability depends on the role one plays in the affairs of a company and not merely on designation. This sort of a broad interpretation by Courts on the liability of the board of directors is traced to their functional undertaking as opposed to a titular immunity. In Pritha Bag v. SEBI the Hon’ble Securities Appellate Tribunal (“SAT”) differentiated the liability of directors on the basis of those directors who were identified as “officer in default” from the remaining directors of the board. The court interpreted that the former were responsible for those acts of company regarding which liability has been fastened on under S.2 (60) of the Act. The scope of liability under S. 2 (60) is narrowed down by Section 149(12) of the Act which states that liability can be extended to an ID only to the extent of “such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.” It is imperative to break-down the language of this section to comprehend the underlying meaning of it. “Board Processes” The term “broad processes” assumes a centrality in this provision. Yet, there is no statutory definition of this term. The Oxford Handbook on Corporate Governance states that “board process” is understood as the decision-making activities of the board. The interpretation of this term in the Indian context by judgements and orders is “involvement in the decision-making process” as a criteria to hold an ID liable. In an order passed by the SAT, it was held that an ID will be held liable in case of active knowledge of the default attributable through the decision-making process of the board. Section 149 (12) highlights that apart from board process, two crucial factors that ought to be assessed before imposing liability on an ID are:  “consent or connivance and due diligence”   “Consent or Connivance” This term has been interpreted in the SEBI order concerning Amazan Capital Ltd. wherein it was held that the liability of a director is “to be rooted on the conduct of the director in knowingly permitting an omission or commission to take place.” “Diligence” The standard of diligence expected from an ID is to be aware of the actions of the board and take active measures to correct the same. In the SEBI Order concerning Finserve Ltd., it was held that irrespective of whether an ID is not a part of the day-to-day management of the company, the onus lies on them to remain diligent and take “concrete corrective measures with regards to the violation committed by the board.” This position can be traced back to Official Liquidator v. P.A. Tendolkar, wherein the Supreme Court held that “A Director cannot shut his eyes to what must be obvious to everyone who examines the affairs of the Company even superficially”. Thus this jurisprudence lays emphasis on the constructive knowledge of an ID on the affairs of the company, as well as the active efforts he makes to resolve potential defaults. Expansionist Reading by Courts The Courts in several judgements have premised the role of an ID on being an “officer in charge”. In Pooja Ravinder Devidasani v State of Maharashtra, the Supreme Court held that if it is proven that an ID “was at the helm of affairs of the company at the specific time when the decision was taken, he may be made liable.” Such an expansionist reading of the liability of board of director highlights the primacy on the conduct and function of an ID. An order passed by the SEBI states that where “active steps” towards prevention of the default has been made, and board process is used as a “platform to conduct function in a diligent manner”, an ID will not be held liable. In certain cases, the courts impute vicarious liability on a director for the wrongs of the corporation. In Sunil Bharti Mittal v. CBI, the Supreme Court held that the “criminal intention of directors can be attributed to the company on the principle of ‘alter ego’”. Several special legislation such as the Negotiable Instruments Act, 1881 and Prevention of Money Laundering Act, 2002 provides for vicarious liability by stating that “persons in charge of the company” are liable for offences by the company. LODR Regulations as a “narrowing framework” The LODR Regulation is a framework for listed entities. Under regulation 25(5) “An  ID  is  liable,  for omission  or commission  by listed  entities  which  had  occurred  with  his  knowledge,  attributable through processes of board of directors,  and with his consent or connivance or

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The Dilemma Of Acknowledgment Of Debt Through Balance Sheet: An Unending Saga

Insolvency Law /

[By Vishesh Jain and Sahiba Vyas] The authors are students at National Law University, Odisha. Introduction The 89th Law Commission Report subserves that no one should live under the menace of a plausible action for an indefinite period. When the Insolvency and Bankruptcy Code, 2016 (IBC) was instituted, there was no explicit provision regarding the application of Limitation Act, 1963 until the Hon’ble Supreme Court (SC) ascertained the applicability of limitation period for filing of an application under IBC. The Apex Court, in the matter of Innoventive Industries Ltd. vs. ICICI Bank Limited (2018), adjudged that, “a debt may not be due if it is not payable in law or in fact”. Thus, Section 238A was inserted into IBC which states that, “The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or Appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Appellate Tribunal, as the case may be.” The interpretation of the same has become misty after the National Company Law Appellate Tribunal (NCLAT) and the National Company Law Tribunal (NCLT) have given contradictory judgements on the same question of law. The authors through this post comment on the differing views of the adjudicating authorities and try to establish a conclusion to encounter the disparate views with the help of foreign jurisprudence. NCLAT & NCLT at Odds The whole conundrum started when recently in the case of Syndicate Bank v. Bothra Metals and Alloys Limited, NCLT held that an application under Section 7 of IBC  is not barred by limitation. The case dealt with a Company Petition filed under Section 7 of IBC by Syndicate Bank (Financial Creditor), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Bothra Metals and Alloys Limited (Corporate Debtor). The Corporate Debtor (CD) failed to pay the principal and interest of the loan availed by the Financial Creditor (FC). The CD raised the contention that the present application of the FC is barred by limitation but the Tribunal, held that “an acknowledgement in the Balance Sheet of the company satisfies the requirements of Section 18 of the Limitation Act, 1963, leading to a fresh period of limitation commencing from each such acknowledgement.” The contradictory views on the impugned issue can be observed from various rulings of NCLAT. In 2019 in case of Gautam Sinha vs. UV Asset Reconstruction Company Limited, the Tribunal ruled that though a default in the form of NPA is reflected in the Balance Sheet, it was not an acknowledgement of the debt by the Corporate Debtor and the default was time-barred for filing of an application under Section 7 of the IBC. Further, in February 2020 in the case of Sh. G Eswara Rao vs. Stressed Assets Stabilisation Fund, the Appellate Tribunal reaffirmed the same rationale and stated that under Section 92(4) of the Companies Act, 2013, the filing of Balance Sheet/annual return is mandatory notwithstanding which penal action might be initiated under Section 92(5) and 92(6) of the same Act. Thus, the filling of Balance Sheet/ Annual Return cannot be considered as a ground for acknowledgement of debt under Section 18 of the Limitation Act, 1963. In March 2020 again in case of V. Padmakumar v. Stressed Assets Stabilisation Fund, the AA relied on the same contradictory premise as stated in above-mentioned cases. In this case an application was filed under Section 7 of IBC by M/s. Stressed Assets Stabilization Fund (SASF) for initiation of CIRP against M/s. Uthara Fashion Knitwear Limited. A five-judge bench of NCLAT, with a ratio of 4:1, favoured barring limitation to file an application under Section 7 of IBC. The impugned case discussed the legal perspectives with regards to the acknowledgement of the debt using Recovery Certificate reflected in the Balance Sheet. The one dissenting opinion of Justice Cheema, in this case, favoured the acknowledgement of debt through the Balance Sheet. While deciding the case, the Adjudicating Authority (AA) relied on the judgement delivered by the Apex Court in the case of Jignesh Shah and another v. Union of India and another, where the Hon’ble court cited the prima facie objectives of IBC i.e. an insolvency proceeding is a proceeding ‘in rem’ and not a recovery proceeding; thus, a winding-up petition must trigger the date of default and not on the day of acknowledgement of debt. Thus, the contradictory views adopted by various Adjudicating Authorities have left the interpretation of the provision in a lurch. Acknowledgement of Debt and Foreign Jurisprudence Under the English Law, Atlantic and Pacific Fibre Importing and Manufacturing Co. Ltd is considered as one of the first cases on the acknowledgement of debt and Balance Sheet conundrum wherein the court opined that recording debenture debt in the Balance Sheet of the company is sufficient acknowledgement of debenture debt. The next most notable and celebrated decision on the Balance Sheet conundrum was rendered in Jones v. Bellgrone Properties, wherein the Court of Appeals held that once the chartered accountant and directors of a company sign the Balance Sheet, it constitutes as an acknowledgement of debt within the meaning of applicable limitation statue. The current legal position in English Law can be derived from the decision of Gee & Co.(Woolwich) Ltd., where the Court observed that there is no requirement in English law that debt must be due at the time when it is acknowledged. The Court further held that when the director duly signs the Balance Sheet, then it can be efficiently considered as acknowledgement of debt and the cause of action for the same is deemed to have accrued on the date of signing of the Balance Sheet by the director. This has also been upheld by the Court in the case of Overmark Smith Warden Ltd. If we look upon Australian Jurisprudence, the Courts have settled the position in the case of Stage Club v. Miller Hotels wherein it was held that the signed Balance Sheet is enough to constitute an acknowledgement for the debt for Statute

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