CBCL, Author at NLIU CBCL

Post-regulatory private sector employments and their corporate governance implications

Leave a Comment / CBCL - LSPR Series, Kaizen / CBCL

[By Rohan Kohli] This Blog is part of a series of posts as a collaboration titled “KAIZEN” between the Centre for Business and Commercial Laws (CBCL), NLIU Bhopal and Law School Policy Review (LSPR). To view this blog on LSPR, please click here. Rohan Kohli is the Co-Convenor of CBCL and a 5th Year B.A. LL.B. Student at NLIU, Bhopal. The corporate governance discourse in India today has moved rapidly, especially with contemporary developments in the form of Kotak Committee Report, [1] but still lags in several aspects vis-à-vis more mature financial jurisdictions. While our precocious model of economic development[2] has been instrumental in addressing governance issues such as equitable board composition,[3] or more recent niche issues such as separating key managerial positions,[4] there is still a glaring absence on understanding of certain nuanced issues. One such nuanced issue is the recent trend of regulators taking up post-retirement private sector employments. In the past year, there have been a constant influx of regulatory and government companies’ seniors in the corporate sector, from former SBI Chairman Arundhati Bhattacharya [5] to former SEBI Chairman U K Sinha.[6] In the more distant past, this trend was also visible in several instances – from ex – SBI senior management [7] to ex – RBI Governor.[8] The trend of their preferred destinations being corporate law firms also is extremely intriguing. Ordinarily such practices may seem in the usual course of events, there carry a number of ethically and morally problematic implications, the legal issue in which is insider trading. Indian laws on the subject [9] have been largely successful in preventing major embarrassment to the corporate sector in the recent times, due to a combination of reasons such as effective corporate compliance and harsh legal implications including financial and penal consequences.[10] Similarly, while the ethical implications of post-retirement political appointments such as Governors [11] is well recognised and even frowned upon in the mainstream media discourse, this does not translate into recognising similar examples in the corporate space. The official line that corporates take while appointing such ex-regulators is that they are sought for their decades of experience in the field, their unique insight developed due to such extensive experience and use these insights to leverage the corporate’s interests in the market. While these are valid considerations and their insights are valuable for any corporate, the devil is in the details. While the PIT Regulations provide a clear demarcation to using these insightsin the form of price-sensitive information, they do not provide an absolute bar to such appointments. In all probability the biggest selling factor of these ex-regulators provide is insight in what manner will regulatory authorities react and respond to contentious issues, be it approving or disallowing mergers, or macro-level policy inputs into future regulatory trends. At the same time, these ex-regulators also give firms opportunity to leverage their soft power, which in latent forms could be utilising their familiarity with current regulators (as in most cases the current regulator would be the ex-regulator’s junior and in most instances would have worked closely together till recent times), to more patent forms where firms use this familiarity to influence regulator’s decisions and engage in seriously problematic crony capitalism. The government currently has a policy of mandating a one-year long (in most institutions) cooling-off period during which they eschew any private appointments. However, as the above analogy shows this period hardly serves its purpose given their juniors or peers will be in their erstwhile jobs at the time they accept appointment in the private sector. Further, the current examples of Mrs. Bhattacharya, Mr. Sinha shown earlier that occurred as soon as their cooling-off period lapsed, reducing this into a mere formality. A solution to this is making the cooling-off period in sync with the term of the previous office (i.e. the cooling off period for SEBI Chairman will be 5 years, beginning from the day of retirement). This might serve as a reasonable control and ensure that by the time the ex-regulators assume private employment, their peers and juniors might no longer in office to negate chances of influencing the regulator’s actions. In more advanced markets such as USA, there is a greater mainstream understanding of the inter-corporate-regulator appointments, but that recognition does not necessarily translate into eschewing such practices. While India has seen examples of ex-regulators and government companies’ management taking up private employment, the former, i.e. corporate head taking up regulatory jobs is almost unheard of, until very recently.[12] USA has seen plenty of examples for each, from Alan Greenspan in the former[13] to Henry Paulson in the latter.[14] Their impact in deregulating the financial and banking sector has been so immense that its role in the sub-prime crisis was the subject of a widely acclaimed documentary – Inside Job. The US story in this regard also goes down to corporate-regulator appointments translating into impacting the entire discipline of economics at the world level, ably documented in Inside Joband in other media.[15] Given that our regulators are more hawkish than US and other jurisdictions, especially given ours is a developing economy, we are in a much better position to prevent such corporate governance issues at a very nascent stage itself. Apart from the solution regarding cooling-off period offered above, comprehensive conflict-disclosure compliances should prevent any major future situations that US had to go through. SEBI’s current conflict-disclosure model for public-company directorships has proved to be a successful model so far in capital markets, and can surely be extended to other markets and even post-regulatory appointments that is the subject of this blog. India is hardly at a stage that the US was in 2008, or is currently, with complex corporate governance issues such as detailed above. However, that does not mean that we negate those examples. Rectifying such issues will only happen after we start recognizing them. [1] Report of the Committee on Corporate Governance, October 5, 2017. See, https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. [2] Subramaniam, Arvind, “Of Counsel: The Challenges of the Modi – Jaitley Economy”, Penguin Viking, December 2018.

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Classification of Creditors: Constitutional Validity of the Insolvency and Bankruptcy Code, 2016

Depositing A Post-Dated Cheque During Moratorium

1 Comment / Banking Law, Insolvency Law / CBCL

[ Vatsal Patel ] The author is a 3rd year student of Nirma University. Introduction The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as“Act”) augmented by its 2018 Amendment Act[1](hereinafter referred to as“Amended Act”) has received wide-spread positive response from different sides of corporate sector.[2]The bringing in of the Act resulted in immediate shifting form a debtor-in-control regime to a creditor-in-control regime and is buttressed by a stipulated time period of 180/270 days for the completion process which is adhered to strictly by the National Company Law Tribunals (hereinafter referred to as“NCLTs”) all across the country. The moratorium period stipulated under Sec. 14 is one of the prominent feature of this act which restricts the continuation of the mentioned proceedings against the corporate debtor in case of an admission and subsequently, commencement of the Corporate Insolvency Resolution Process (hereinafter referred to as“CIRP”). Moreover, it has already been established that the moratorium does not apply to all proceedings in light of the NCLAT judgement in the case of Canara Bankv. Decan Chronicle Holding,[3]which noted the absence of the word “all” in Section 14 of the Act. The moratorium as prescribed for by Sec. 14, inter-alia, provides for prohibiting: “…(1)(c). any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its propertyincluding any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” It would be pertinent to note that by virtue of Section 3(31) of the Act, a “security interest” would include a claim to property. Moreover, the term “property” as defined under Sec. 3(27) would include money. Therefore, the question that arises for consideration in this article is whether a cheque, more specifically, a post-dated cheque, the date of beginning of which falls within the stipulated moratorium period could be deposited during the moratorium period or would it be against the moratorium? In terms of an Example – Consider that A (Operational Creditor) contracted with B (Corporate Debtor) on 01.01.2019 for the supply of goods/services. For the same, cheques were issued by B to A dated 02.07.19 (first cheque), 02.07.20, 02.07.21 and 02.07.22. All these cheques were delivered on 01.01.2019 to the Operational Creditor. Subsequently, CIRP was initiated against the Corporate Debtor and moratorium was granted between 01.07.19 to 01.10.19. Therefore, the question that arises is whether A can encash the first cheque in the instant case? The answer to the aforementioned question could be related to the proposition of law which governs the date of payment of a cheque i.e. if the date of payment by cheque is the date on which the cheque is delivered then the payment has already happened and therefore, there is no bar to encashment via cheque and vice-versa. Supreme Court On Delivery Of Cheque The First Casethat comes for consideration is CIT, Bombayv. Ogale Glass Works Ltd.,[4] wherein the Supreme Court while dealing with a cheque which was not subsequently dishonoured held that the cheque would be considered to be payed on the date of its delivery. However, had the cheque been dishonoured, the same would not be the case. In the words of Supreme Court: “…The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.”[5] The same position of law was supported by a three-judge bench of the Supreme Court in the case of K. Saraswathyv. P.S.S. Somasundaram Chettiar.[6] The Second Casethat comes for consideration is the case of Jiwanlal Achariyav. Rameshwarlal Agarwalla,[7]wherein themajority of the three-judge bench of the Supreme Court distinguished between a conditional and an unconditional payment while dealing with Section 20 of the Limitation Act, 1908. It was held that an ordinary cheque amounted to an unconditional payment if the cheque was subsequently honoured.[8]However, the court also considered a post-dated cheque to be a conditional payment for which the date of payment would not be the date of delivery but the date on which it was dated to begin. The case also distinguished from Ogale’sCase,[9]by stating that the issue before that court was not specifically in relation to a post-dated cheque and as such the court was not bound by that case. However, it is pertinent to note that the minority opinion by Justice R. S. Bachawat did not distinguish Ogale’scase from the instant case and as such held that Ogale’scase applied even to a post-dated cheque.[10]Thus, according to the minority opinion, even payment by a post-dated cheque related back to the date of delivery of the cheque in terms of payment. One would expect that the courts would rely on the aforementioned two cases for the payment in terms of delivery all types of cheque i.e. ante-dated, date of the delivery and post-dated. However, the Supreme Court has deviated from its established position of law. The Third Casethat arises for our consideration is the recent case of Director of Income Tax, New Delhiv. Raunaq Education Foundation,[11]wherein the Supreme Court dealt with an issue pertaining to a cheque which was delivered on 31.03.2002 and dated 22.04.2002. The court herein again relied on Ogale’s Case.[12]However, in doing so it did not distinguish between an ordinary cheque and a post-dated cheque and the payment of a post-dated cheque was also considered to be completed on the date of the delivery of the cheque. Conclusion Thus, on perusal of the aforementioned judgements it can be distinctly observed that the position of law in terms of the ordinary cheques is clear i.e. the date of delivery of cheque is the date of payment via cheque if the cheque is subsequently honoured. However, as far as post-dated cheques are concerned,

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Substituted performance: A new perspective in Specific Relief (Amendment) Act, 2018

Leave a Comment / Contemporary Issues, Contract Law / CBCL

[ Sayak Banerjee ] The author is a 2nd year student of NLU, Jodhpur. The Specific Relief (Amendment) Act, 2018( the Act), published in the official gazette on 1stAugust, 2018 amends the Principal Act, the Specific Relief Act, 1963. The Act came with multitude of changes relating to the enforcement of contracts in India. The said Act was passed without discussing the importance of its impact in both Houses of Parliament, disregarding the scope of this Amendment impacting not only contractual obligations of businesses but also of common people. The Amendment was passed without taking the opinions of other stakeholders, judges, advocates, businessmen, alike. With the amendment coming hastily, the objective sought to be achieved was preventing any hindrances to infrastructure projects. It can also be seen as a genuine effort by India to climb the ranks in World Bank’s Ease of Doing Business Index. But in achieving the said objectives, the Parliament forgot that the Act applicable to everyone personally also. The most important change has been brought in Chapter II of the Specific Relief Act, 1963, dealing with specific enforcement of contracts. Within the Chapter, the Act has introduced the concept of ‘substituted performance.’[[i]] This essentially means that on breach of contract, the party who has been affected by such breach, has the option of substituted performance through third parties or by his own agency, the cost of which is to be borne by the defaulting party. This cost cannot burden the party who has been affected by such breach gives a 30 day notice obligating the defaulting party to fulfil the obligations of the contract. If there is failure on part of the defaulting party to perform after receiving the said notice, then the affected party has the option of substituted performance. It needs to be noted that if the party exercises the option of substituted performance he forfeits the right to sue for specific performance, though the parties are not precluded from obtaining compensation from the defaulting party. Section 11 of the Act has removed the discretion of court by replacing “may, in the discretion of the court, be enforced” with “shall be enforced by the court,” thereby making specific performance a statutory remedy, subjected to preclusion due to the limited grounds mentioned in the statute.[ii] Prior to the amendment, Section 14 allowed specific performance wherein compensation was not provided as adequate relief. The amendment has done away with this requirement, ensuring the generality of specific performance as a remedy in the statute. One of the grounds mentioned now in Section 14, is substituted performance. In addition, specific performance is precluded from being granted as a relief to a person, if substituted performance has been availed, notwithstanding, that Section 20(3) already provided for preclusion to avail specific performance when substituted performance has been availed. A conundrum therefore, arises on considering substituted performance as option available to the parties, on one hand, the Court is implicitly enforcing the contract through substituted performance. And on the other hand, the substituted performance as a ground for contracts cannot be specifically enforced in Sections 14 and 16. This shows redundancy on the part of the lawmakers, but the main question remains unanswered whether substituted performance is equivalent to enforcing the contract, because if that is not the case, then why is the option under Section 20 available to the parties. A cross-jurisdictional analysis reveals that UK gives third parties the right to enforce contractual terms, and availability of specific performance as a remedy.[[iii]] The concept of substituted performance as specific performance was introduced in UK through the case of Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd., wherein in place of defaulting performance bonds, Court directed the defaulting party to deposit a sum of money as substituted performance.[[iv]] In Canada, as per Article 1602 of the Quebec Civil Code, a promisee can avail the right of substituted performance provided the promisor is notified, allowing the promisee to get the contract performed at the expense of the promisor.[[v]] When we consider contractual remedies, damages do not help in mitigating the losses that arise from expenses that are indirectly incurred in getting the contract performed. Moreover, injunctions are a way by which the status quo is protected, but specific performance in the form of substituted performance helps in bringing the changed relationship between the parties that was originally intended to be brought, and allows the aggrieved party to restore to the position it would have been in had the breach not occurred. Therefore, it is the most effective alternative to the event of breach, in comparison to injunctions and compensations. [[i]]Specific Relief (Amendment) Act, 1963 No. 18 of 2018, s 20. [[ii]]Specific Relief (Amendment) Act, 1963 No.18 of 2018, s 11. [[iii]]Contracts (Rights of Third Parties) Act 1999, s 1(5). [[iv]]Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd. [2013] EWHC 4110 (TCC). [[v]]Civil Code of Quebec CCQ-1991, Article 1602, Chapter VI.

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Swiss Ribbon Pvt. Ltd. V. Union of India : The IBC Case

Counterclaims: A Need in Stockholm Chamber of Commerce

Leave a Comment / Arbitration Law / CBCL

[Srijan Srivastava] The author is a 3rd year student of NLU, Jodhpur. Introduction “Counterclaims: An indispensible component of Investment Arbitration”. Counterclaims are the claims that are made by the respondent which retaliate the primary claims as put forth by the claimant. It basically lays down the defence of respondent by asserting a separate cause of action taken out by the claimants. It not only defends the respondent, it also attacks the claimant for their actions. The reason for allowing a counter-claim to be included as part of an existing case is not because it assists in disposition of the principal claim but, rather, to assist in the disposition of two autonomous claims.[i]The counterclaim is allowed to become a part of an existing case ‘in order to ensure better administration of justice, given the specific nature of the claims in question’ and ‘to achieve a procedural economy whilst enabling the Court to have an overview of the respective claims of the parties and to decide them more consistently’. Counterclaims in various tribunals ICSID Convention The ICSID convention categorically talks about rules of filling counterclaims in arbitration procedures. It says that, the tribunal shall if requested determine any counterclaims arising directly out of the subject matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.[ii] If we dissect this provision we will see that this provision sets out certain conditions to be complied with in order to file a counterclaim. First, the counterclaim must fall within the consent of the parties to a dispute. Second, there must be a close factual and legal connection between a counterclaim and the primary claim. This is also known as the close connection test. Finally, the counterclaim must fulfil the requirements as given under Article 25 of the Convention. This is to see that the counterclaim fits within the jurisdiction of the Centre, i.e. the counterclaim must directly arise out of an investment. The ICSID Additional Facility Rules under Article 47 permits the filing of the counterclaims. They just mandate that the counterclaim should fall within the arbitration agreement of the parties. Apart from the condition of consent, they do not pose further restrictions for the filing of counterclaims, leaving it to the consideration of arbitral tribunals whether they fall within their jurisdiction. UNCITRAL Convention UNCITRAL Convention talks about the twin requirements of any counterclaims to be admissible before the tribunal. The Arbitration rules require that the counterclaims should arise “out of the same contract.”[iii]This section when narrowed down is considered as “inappropriate to arbitration arising under international treaties.”[iv]In cases where an investment contract is absent between an investor and a host state, the Arbitration Rules has certain loophole with regard to treaty violations ad as the language of the arbitration rules were discarded by the tribunals. However the UNCITRAL working group on Arbitration and Conciliation proposed to modify the provision that will fill this loophole. The group allowed counterclaim that were substantially connected or arose out of the initial claim as put forth by the investor or claimant. After the abovementioned modification, the provision was replaced by Article 21(3) of the UNCITRAL Arbitration Rules, 2010. This provision includes a description of counterclaims in the state’s response to the notice of arbitration provided that the arbitral tribunal has a jurisdiction over it. Therefore UNCITRAL in a way give express permission of admissibility of counterclaims. International Court of Justice The ICJ Statute does not directly address the issue of the respondent filing a counterclaim against the applicant. Article 80 of the Rules, however, it provides that the Court may entertain such a counterclaim in certain circumstances, as a part of the incidental proceedings of an existing case. The Court has focused on the other language of Article 80(1) of the Rules, which provides that the Court may entertain a counterclaim ‘only if’ two requirements are met: First, when the counterclaim ‘comes within the jurisdiction of the Court’. Second, when the counterclaim is ‘directly connected with the subject matter of the claim of the other party’. The Court has characterized these two requirements both as requirements on the ‘admissibility of a counter-claim as such’, explaining that admissibility ‘in this context must be understood broadly to encompass both the jurisdictional requirement and the direct-connection requirement’.[v] Absence of provisions regarding counterclaims in SCC Arbitration Rules Despite the growing popularity of investment arbitration for the settlement of disputes between investors and host states that are governed by Stockholm Chamber of Commerce, provisions governing counterclaims are not well defined in the SCC arbitration rules. The rules only lay down general framework regarding filling of counterclaims. A provision of SCC Arbitration Rules says that counterclaims shall be outlined in Respondent’s answer to Claimant’s request for arbitration.[vi]The rules are silent when it comes to any other conditions such as the parties consent or the close connection test between the claim and the counterclaim. However the tribunal in the case of Amto v. Ukraine explained that the jurisdiction of the counterclaims depends on the terms of the dispute resolution provisions of the treaty, the nature of the counterclaim, and the relationship of the counterclaims with the claims in the arbitration.[vii] The tribunal, therefore, confirmed uniform application of these requirements, irrespective of the nature of the rules governing the dispute settlement procedure. Impact and Consequences The recent UNCTAD statistics shows that there are over 800 known treaty-based investor-state arbitrations, yet counterclaims were filed and effectively addressed in less than 30 of them.[viii]This is clear enough to indicate why the host states are at certain disadvantage. They do not get adequate opportunity to adopt a more offensive tactics against investors is the language of IIAs that determines whether counterclaims can be heard or not. Arbitral tribunal has a vital role in smooth functioning of the disputes that arise. They have to lay down the procedures through which any dispute can be amicably resolved. They have to lay down certain guidelines

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Analysis: SEBI (Settlement Proceedings) Regulations, 2018

Leave a Comment / Capital Markets and Securities Law / CBCL

[ Debayan Gangopadhyay ] The author is a 3rd year student of ILS, Law College. Introduction Settlement Proceedings in relation to violation of provisions in securities laws have been conducted under a mechanism by the Securities Exchange Board of India (“SEBI”) since 2007. The last legislation on settlement proceedings was stipulated by SEBI in 2014[i]. The said regulations apart from giving SEBI other powers of initiating proceedings on its own, also gave it the power to initiate settlement proceedings. However, to quantify the number of settlement cases more, a committee was set up by SEBI as the Justice Anil Dave Committee (“Committee”). The committee submitted its report in December, 2017 pursuant to which the SEBI notified the SEBI (Settlement Proceedings) Regulations, 2018 (“Settlement Regulations”) on 30thNovember, 2018 which are effective since 1stJanuary, 2019. The Settlement Regulations are the first piece of legislation in securities laws in India solely created for the purpose of regulating settlements in cases. These regulations provide for new scope in different factors of settlement proceedings and if implemented properly, is quite beneficial for the entire procedure. This article will discuss and review certain key highlights of the Settlement Regulations which provide for wider scope and sophisticated methods in settlement proceedings. “Securities Laws” and “Specified Proceedings” re-defined Securities Laws under the previous SEBI regulations on settlement proceedings[ii]had only given scope to the SEBI Contract (Regulations) Act, 1956 and Depositories Act, 1996. These regulations widen the scope by defining “Securities Laws” as: “securities laws” means the Act, the Securities Contract (Regulations) Act, 1956 (42 of 1956), the Depositories Act,1996 (22 of 1996), the relevant provisions of any other law to the extent it is administered by the Board and the relevant rules and regulations made thereunder;[iii] By adding “any other law”, the Settlement Regulations provide for the inclusion of other laws as well in relation to securities laws. There is an explicit recommendation of the Committee in the draft Settlement Regulations to include the contravention of the provisions of any other law (such as Companies Act, 2013) to the extent it is administered by the Board within the definition of ‘securities laws’ in the regulations, in order to settle any matter under the securities laws.[iv]This clause has widely increased the ambit of applicable laws to these regulations. Further, “specified proceedings” in the Settlement Regulations have been defined as: “specified proceedings” means the proceedings that may be initiated by the Board or have been initiated and are pending before the Board or any other forum, for the violation of securities laws, under Section 11, Section 11B, Section 11D, sub-Section (3) of Section 12 or Section 15-I of the Act or Section 12A or Section 23-I of the Securities Contracts (Regulation)Act, 1956 or Section 19 or Section 19H of the Depositories Act, 1996, as the case may be;[v] The definition provides for scope to cases which are pending before the SEBI Board or any other forum which is an effective tool to quantify settlement proceedings. The scope of pending cases has been re-iterated in further regulations of the Settlement Regulations. The Settlement Regulations have further introduced a new term called “settlement schemes”. SEBI shall specify the procedure and terms of settlement of specified proceedings under a settlement scheme for any class of persons involved in respect of any similar defaults specified. A settlement order issued under such a settlement scheme shall deemed to be a settlement order under the regulations.[vi] Also, the terms of settlement may include monetary or non-monetary terms or a combination of the two. This is given under Chapter IV of the Settlement Regulations.[vii]Non-monetary terms may include suspension or cessation of business activities for a specified period, disgorgement on account of the action or inaction of the applicant, exit from the management of the company, submit to enhanced internal audit and reporting requirements, locking – in securities, etc.[viii] Confidentiality The Settlement Regulations provide for the scope of seeking confidentiality on the proceedings before the SEBI Board. The Committee recommendations in the draft regulations provide for a chapter similar to the practices of securities regulators globally and that provided in the Competition Commission of India (Lesser Penalty) Regulations, 2009 for “settlement with confidentiality” to any person that provides material assistance to the Board in its fact-finding process and proceedings.[ix]The said provisions are given under Chapter IX of the Settlement Regulations. These lay down the factors essential to the entitlement of confidentiality and the procedure thereof. As observed time and again, most of the provisions in SEBI have been adopted from US laws. The insertion of provisions dealing with confidentiality have been adopted though an understanding from the US Securities Exchange Commission and the Competition Commission of India. According to the regulations, such privilege of confidentiality shall be provided to such applicants who agree to provide “substantial assistance in the investigation, inspection, inquiry or audit, to be initiated or ongoing, against any other person in respect of a violation of securities laws”. However, the application herein shall be considered only in cases prior to or pending investigation, inspection, inquiry or audit.[x] Limiting the scope of settlement proceedings There are provisions in the new Settlement Regulations which deny settlement proceedings to certain categories of individuals under Chapter III which talks about the scope of settlement proceedings. Regulation 5 (2) lays down factors affecting which an alleged default will not come under the scope: (2) The Board may not settle any specified proceeding, if it is of the opinion that the alleged default, – has market wide impact, caused losses to a large number of investors, or iii. affected the integrity of the market.[xi] Similar restriction is provided for where the applicant is a wilful defaulter, a fugitive economic offender or has defaulted in payment of any fees due or penalty imposed under securities laws.[xii]The earlier regulations provided that breach of laws governing insider trading, fraudulent and unfair trade practices shall not be considered for settlement. However, in the Settlement Regulations, the scope of the settlement has been limited to

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The Companies (Amendment) Ordinance 2018

1 Comment / Company Law / CBCL

[ Priya Udita & Kumar Akshay ] Priya and Akshay are 3rd year students from SLS Pune and ILS Law College respectively. Introduction Companies Act, 2013 is an important legislation for regulating the corporate world. It includes the provisions from regulating the incorporation of company till the dissolution or strike off of the company. In the wake of scams, the provisions were made burdensome which hampered with the ease of doing business in India. With the increase in the transaction involving mergers, acquisitions and insolvency, there were volumes of pending cases with NCLT. Thus, the need was felt to amend the prevailing provisions in the act. The ordinance was introduced on 2ndNovember 2018 with the intention to ease the reporting and compliance needed by the companies act, 2013 and promote the ease of doing business in India. The commentary encompasses the changes brought forward by the ordinance under the four headings – (a) Re-categorisation of offences (b) De-clogging of NCLT (c) Tackling shell companies and lastly, (d) In-house adjudication. The authors discuss the amendments at length and compare it with earlier provision. The intent of the authors is to make ordinance easily understandable. Further, the authors discuss the impact of the ordinance and its inherent benefit. The Companies (Amendment) Ordinance, 2018 received the President’s assent on 2ndNovember, 2018[i]and it came into force at once. The ordinance is in consonance with the Government’s approach to ease the business regulation in India and at the same time tighten the regulations for serious offences. The twin objective of the ordinance is Ease of doing business and better corporate compliance. But firstly, we need to understand why this ordinance was needed. Several committees have observed that the Companies Act, 1956 was very lenient with the offences committed by the companies. The penalties were nominal and offences were easily compoundable. Therefore, in the wake of scams, the legislators came up with Companies Act, 2013 which deliberately made the serious offences non-compoundable. However, due to the overprotective intent, the act introduced cumbersome compliances and onerous reporting which made the business in India a hectic job. It was observed by the committees that there was need to re-categorize the offences in order to de-burden the NCLT, and introduction of online platform for e-adjudication or e-proceedings, thus this ordinance. The Ordinance The aims of the ordinance are (a) Re-categorisation of offences (b) De-clogging of NCLT (c) Tackling shell companies and lastly, (d) In-house adjudication. We need to understand the changes according to these four aims. Firstly, re-categorisation of offences was much needed as the NCLT was burdened with cases. Here, the recommendation laid down in Report of Committee on Review of Offences under Companies Act, 2013 was taken into consideration. The committee analysed the heterogeneous nature of offences and recommended that there should be civil penalty framework for procedural or technical defaults. Therefore, the ordinance makes number of changes in the penal provisions. In some of the cases, the imprisonment part has been omitted such as under Section 53 (Prohibition on issue of shares on discount). In civil penalty framework, the adjudicating officer will levy the penalty and the case will be closed. Secondly, with the introduction of Insolvency and Bankruptcy Code, 2016, the NCLT is now burdened with lots of pending cases relating to insolvency along with company law and merger and acquisition cases. Therefore, the ordinance makes certain changes to remove the load from NCLT. The change has been brought under section 2(41) in which the power to change the financial year of the company has now been vested with Central Government. Under section 14 (Alteration of Article), the power to approve the conversion of private company to public company or vice versa has been vested with Central Government. However, any application pending before the commencement of the ordinance will be done by NCLT according to earlier provision. Last but not the least the pecuniary jurisdiction of Regional Director has been increased from 5 Lakhs to 25 Lakhs. Also the provision in relation to permission of Special Court regarding compounding of offences has been omitted (Section 441 (6)). Thirdly, in order to tackle the Shell Companies and to make better compliance, the ordinance makes following changes. A new section 10A has been inserted. Here, the director needs to file an application to Registrar of Companies (‘RoC’) stating that subscribers of the memorandum of association have paid the value of shares taken by them and the application for registered office has been filed with RoC as required under section 12. This application should be filed within 180 days from incorporation of the company. Also, in case of contravention of the provision, the company will be liable to pay Rs. 50,000 and every defaulting officer will pay Rs. 1000 per day till contravention to the maximum amount of One Lakhs. In the case where the director does not file an application within 180 days and where the Registrar has reasons to believe that the company is not carrying the business, he/she can strike off the name of the company from RoC. Another major change is that now the Registrar under Section 12(9) has the power to physically verify the registered office. The ordinance also makes changes under section 77 (Register of charges) of Companies Act, 2013. Earlier, 300 days were given to the companies for creation and modification of charges; however now the time limit of 60 days (30 days normal + 30 days with additional fees) is given. Additional 60 days can be given after the additional ad-valorem fees. However after 120 days, there cannot be any creation or modification of charges. Also the punishment has been enhanced for contravention of this provision. The ordinance adds another ground of disqualification for the Independent Director wherein if the Independent Director accepts more than permissible directorship, he/she can be disqualified. Fourthly, the changes have been done under section 454 regarding the additional power given to the adjudicating officer. Now the adjudication officer can direct rectification of the default in addition to

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Recalling the witness – Understanding the phenomenon of multiple cross examinations in the context of arbitration

1 Comment / Arbitration Law / CBCL

[ Gibran Naushad & Susanah Naushad ] Gibran Naushad is an Associate at S&R Associates, New Delhi and Susanah Naushad is an Associate at Khaitan & Co., New Delhi. Introduction It is often said that cross-examinations can make or break a trial, a testimony to the importance of the process in the overall scheme of adjudication. There are, however, different ways in which one could approach cross-examination, depending on the nature of the case and the eventual result desired. Given the importance of cross-examinations in trial, situations are bound to arise where a party might want to conduct such examination again owing to its dissatisfaction with the previous cross-examination, amongst other factors. Such multiple cross-examinations are, however, a tricky terrain, and it is not in all cases that such repetition would be allowed. This is particularly true in the context of arbitrations, where the parties would have to primarily depend on the provisions of the Code of Civil Procedure, 1908 to carry out such a process. The authors, through this post, try and explain the practical dimensions of cross examination and the options available to parties in case they are dissatisfied with a cross-examination already conducted. Case laws dealing with the subject would be looked at and an attempt would be made to understand the restrictions imposed on the parties to correct their mistakes or lapses by repeating a process that is germane to any trial. Understanding The Practice Of Cross-Examination Cross examination is one of the most vital constituents of trial. It becomes highly important to question the adversary on crucial facts relating to the matter to establish their falsehood or truthfulness, thereby establishing the credibility of such facts and claims to be taken up during the final arguments in the matter. There is no straightjacket formula for conducting cross-examination. The strategy and method could differ with different counsels. Additionally, the facts and circumstances of different cases along with the eventual result sought to be achieved would require different approaches to be adopted. Certain counsels prefer to attack the witnesses on each and every fact, thereby posing straight questions to such witnesses and subsequently changing the orientation of such questions with each answer so as to direct the witness to their preferred answer. This ensures that the inability of the witnesses to answer correctly and comfortably the questions posed to them on certain facts and claims could be used against them at the time of making the final arguments in the matter. The other approach, however, is a more subtle approach wherein instead of questions, the counsel puts across certain suggestions which follow questions. The suggestions are meant to point towards the insufficiency in the answers to the questions. An example of such a suggestion could be – ‘I put it to you that you are lying about the illegal termination of the contract with Party X’. The aim behind putting such suggestions is to create an adverse inference against the party at the time of final arguments. Therefore, while the former approach is a head-on approach where the answers themselves bring out the adverse inference, the latter approach is a more nuanced approach where the counsel realizes that it would not be possible to extract such answers and it would be better to suggest adverse inferences. In view of the fact that there is no fixed approach for conducting cross-examinations, there is a possibility that post the completion of the cross-examination; a party might feel that it wants to cross-examine its adversary again. The reasons for this could vary, from strategic lapses by the counsel to new facts coming on record which merit putting up the person on stand yet again. However, conducting such cross-examination for the second time is an uncertain proposition, particularly in the context of arbitration, and such strategy might not fly past the arbitrator in most cases. The Arbitration and Conciliation Act, 1996 (the “Act”) does not contain specific provisions for examination of the witnesses. However, Section 19 of the Act does stipulate that the parties are free to choose a procedure for the conduct of the arbitral proceedings.[1] Additionally, in case such procedure has not been agreed upon by the parties, the arbitral tribunal could conduct the proceedings in the manner it deems appropriate.[2] The Act stipulates that the arbitral tribunal would not be bound by the Code of Civil Procedure, 1908 (the “Code”).[3]However, the Bombay High Court decision of Maharashtra State Electricity Board v. Datar Switchgear Limited[4] becomes important in this context. The Bombay High Court, while dealing with Section 19(1) of the Act clearly stated that Section 19(1) of the Act contained words of amplitude and not of restriction.[5] Therefore, though the arbitral tribunal is not bound by the Code, it could draw sustenance from the fundamental principles underlying the Code.[6] Order XVIII Rule 17 is one such provision from where sustenance can be drawn. The provision stipulates that the Court could at any stage of the suit recall a witness who has been examined and put such questions to the witness as the Court thinks fit. Therefore, if the Court is satisfied that there are grounds that exist for the recalling of the witness, cross-examination can be conducted on such witness again. Order XVIII, Rule 17: Discretionary But Limited Scope of Recall Order XVIII, Rule 17 is clearly a provision of the Code which could be used for recalling witnesses in arbitration proceedings. Though the provision stipulates that the Court can recall the witness on its own if it feels the need to do so, the parties could also make applications to invoke this provision and request the Court for such recalling. It has been held by the Punjab and Haryana High Court in the case of Om Prakash v. Sarupa[7] that the court could not only use Order XVIII, Rule 17 of the Code to recall a witness on its own but could also use this provision on an application made by the defendants. Similar views have been held by the

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Author name: CBCL