Contemporary Issues

[ Himanshu Shembekar ] The author is a 2nd year student of NLU, Odisha Introduction The Department of Industrial Promotion & Policy (DIPP) on 26thDecember, 2018 released a notification revising the policy on the Foreign Direct Investment in e-commerce. The new notification has shocked the big e-retailers like Amazon, Flipkart, etc. This notification has affected the way B2B business activities take place in the e-commerce industry. The new notification has taken effect from 1stFebruary, 2019. Through this post, the author intends to analyze the impact of the new notification of DIPP on the e- commerce industry in India. Provisions of the notification The DIPP has retained the policy of allowing 100% FDI in the E-commerce sector but it imposed new conditions on foreign-owned market places. The following are certain new and important set of rules: “An e-commerce entity cannot have complete control or exercise over the ownership or the control over the inventory. A vendor’s inventory shall be treated to be controlled by an e-commerce marketplace if more than 25% of its purchases are from the marketplace entity or its related companies.” “An entity having equity participation by any e-commerce entity or any of its related company or having control over its inventory by e-commerce market entity or related company, then it shall be not permitted to sell its product on platform run by such marketplace entity.” “E-commerce entity providing marketplace will not be allowed to directly or indirectly influence the sale price of goods and services. Provision of any service to any vendor on certain terms which are not available to other vendors in certain circumstances will be deemed to be unfair and discriminatory.” “E-commerce marketplace entity shall not mandate any seller to sell any product to sell any product exclusively on its platform only.” “The e-commerce companies have to furnish a certificate along with the report of a statutory auditor to the Reserve Bank of India to confirm the compliance of guidelines, by 30thSeptember, every year for the preceding fiscal year.”[i] Necessity for the changes These regulations have come up after the complaints which have been made by the small and medium Indian retailers, accusing the giant e-commerce companies for creating unfair marketplace, as these companies keep control over the inventory through affiliates and exclusive agreements.[ii] In addition to these complaints, the All India Online Vendors Association (AIOVA) had filed a petition to the Competition Commission of India (CCI), accusing that Amazon favored merchants  it partially owns such as the Cloudtail and Appario.[iii] It is a fact that Cloudtail India Pvt Ltd is the biggest retailer of Amazon. Prione Business, which is a joint venture between Amazon Inc. (48% stake) and Infosys co-founder N R Narayana Murthy’s Catamaran Advisors (51% stake), holds 99.99% of the shares of Cloudtail India.[iv] The other retailer is Appario Retail, which is a subsidiary of the Frontizo Business Services. Frontizo Business Services is a joint venture between Amazon India Ltd and Ashok Patni, the co-founder of Patni Computer Systems.Thus, it can be seen that how the big e-commerce companies through their subsidiary companies enter into such agreements which results in their capturing majority of the market share and adversely affecting other businesses. How new rule has impacted the big E-commerce companies? It is not surprising that the new regulations have brought all the big rivals in the e-commerce industry like Flipkart and Amazon together to fight against these new regulations which have threatened their business strategies. Due to the new rules, the e-commerce companies can get impacted in the following way- The affiliate sellers of the big e-commerce companies have to shift 75% of their business to other retailers, to ensure that affiliate sellers are able to continue with their business activity to provide goods and services. The big e-commerce companies have to bring in major changes in their equity structure so as to ensure that they are able to continue business with the sellers. As the big e-commerce companies cannot get the benefit of bulk purchases and selling their goods and services at low prices, this shall result in an end of big discount sales. The new rules also put an end to the flash sales in which the e- commerce companies can exclusively promote or sell their products on their platform. As the e-commerce companies are no longer able to buy majority of inventory through their affiliates, their costs shall increase. History of cases challenging E-commerce companies There have been many cases in which e-commerce companies have been accused of practicing non-competitive market practices. Few of the cases are as follows: Ashish Ahuja v. Snapdeal.com In this case, the complainant had accused Snapdeal and SanDisk of colluding with each other. Snapdeal had imposed a condition that to sell SanDisk products through online platform one must be authorized dealers i.e. must be recognized as an authorized dealer by Snapdeal as well as SanDisk, thus violating section 3 and 4 of the Competition Act, 2002 which provide for anti-competitive agreements and abuse of dominant position.[v] The Commission after enquiry held that the condition that SanDisk products sold through online portals must be bought through authorized dealers is no way an abusive conduct. This decision was within the scope of the company to protect its sanctity of its distributive channel.[vi]It was considered as a normal practice of business. M/s Mohit Manglani & Others Versus M/S Flipkart Pvt Ltd In this case, the publisher of Chetan Bhagat’s new book ‘Half Girlfriend’, Rupa publication had entered into an exclusive sale agreement with Flipkart, thus granting Flipkart exclusive right to sell the book. It was claimed by the competitors that this led to unfair trade practices as the consumer is given no choice. Flipkart had the 100% market share for the product for which it had exclusive dealing rights, therefore leading to dominance. In this matter CCI stated that an arrangement between manufacturer and an e-portal did not create any barrier for the new entries. Rather, it stated that with the emergence of the new e- commerce companies,

[Aditi Jaiswal]   Aditi is a 3rd year student Dr. Ram Manohar Lohiya National Law University, Lucknow What is Corporate Social Responsibility? United Nations Industrial Development Organisation (UNIDO) defines Corporate Social Responsibility (hereinafter “CSR”) as, “A management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.” It is a concept where Companies strive to strike a balance between the financial, social and environmental imperatives, while addressing the expectations of the stakeholdersThe nature of CSR is such that it is not static in nature, rather is ever evolving.[2] With a view to keep the local players at par with the global standards, India became the first country to mandate and quantify CSR expenditure under the Companies Act, 2013.[3] Schedule VII of the Companies Act, 2013 lays down the list of CSR activities and suggests that communities should be kept at the focal point, but the draft rules suggest that the CSR needs to go beyond the concept of philanthropy.[4] Data – a Significant Corporate Asset The present day world can, without a shred of doubt, be called the digital age. The devices like mobile phones, wearable devices and personal computers, with their apps, social media, e-commerce platforms etc. have penetrated our lives and produce large amount of data.[5] Such data today has become a vital corporate asset which proves beneficial in a variety of ways, from identifying potential customers, improving customer services, predicting sale trends to recognizing patterns and reasons leading to performance breakdown in a company. A Pricewater Cooperhouse research points out that the total intangible assets comprise, on an average, some 75% of companies’ value.[6] Rearranging CSR endeavours The Digital India initiative was introduced in 2014 with a vision to transform the nation into a digitally empowered society. But till date, the Government hasn’t come up with a robust regime for data protection. Considering this, the data privacy protection becomes, important as the companies are heavily relying on the personal data of individuals for multifarious purposes and in lack of any law or regulation protecting such data, the Companies owe an ethical obligation to improve the data privacy protection by framing policies. The Indian Companies venturing in the global arena, need to rearrange their Corporate Social Responsibility endeavours and include data protection of their stakeholders in the list. Data privacy protection would majorly be covered under the domain of the social dimension of the Triple Bottom Line approach on which the Stakeholder model of CSR works. Social variable of the Triple Bottom line approach focuses on the social dimensions of the community and includes measurements of education, equity and access to social resources, health and well-being, quality of life, and social capital.[7] In the present times, data privacy protection is also one of the significant societal dimensions, as privacy and autonomy of an individual cannot be overlooked due to unregulated and arbitrary use of data, particularly after the Puttaswami judgement, in which the Supreme Court has recognized the informational privacy as an important facet of the Right to Privacy.[8] Consequences of data breach As already discussed, data plays a very vital role in identification and targeting of the particular consumer group. However, the data collected includes different forms of information which may include habits, financial details, personal details etc. Here it becomes necessary to point out that the effects of any data breach can be multi-faceted. On one hand, a single incident of data breach can harm the consumers psychologically, socially or economically, depending on the type of information leaked. Certain information may be central to the identity of an individual, like their sexuality, etc., which if revealed would affect the person psychologically. Disclosure of some kind of sensitive information, many a times, results in the stereotyping and pre-judging of an individual or lowering his reputation, which affects his social life negatively.[9] Leakage of an individual’s social security numbers or financial details can lead to a huge economic loss for him. On the other hand, companies may lose out trust which people have in them, leading to the existing as well as probable customers switching to another company or service provider. Corporate integrity is ensured by maintaining the brand value and goodwill. A company’s goodwill by breaching the promises of data care, both explicit and implicit, gets contaminated not only in the minds of the consumers, but also the partners, shareholders and all the other stakeholders. This leads to a decrease in the value of its investments in brand identity building by eroding the commercial trust. Attenuation in the goodwill of a Company would diminish the value of a Company’s assets, in turn distressing the Company, thus financially harming the employers, partners, shareholders and other stakeholders at large. According to a study in 2016, 25 percent of the leaders of the largest global companies consider the most serious impact that a cyberattack can have on their organization is the loss of reputation among their customers.[10] Skeptics may argue that keeping in mind the present scenario, investment in privacy protection is nonessential and would lead to swelling of costs of the Company in India. But this criticism comes due to a lack of a proper understanding of the long term negative effects when the privacy of the stakeholders is breached. A Company may face severe consequences, by ignoring the Data Privacy Protection Principles, especially if such a breach leads to a severe privacy violation of a consumer, or some other abuse of confidentiality, then the expenses involved in covering fines, court fees, advocates’ fees, settlement costs, paying damages and other working out other mechanisms further diminish the capital of a Company.[11] Above that, these days the databases of personally identifiable information are becoming a lucrative target for the cybercriminals who use this data for identity theft and even extortion rackets, where they can easily blackmail the Companies to pay the ransom otherwise they would leak the data.[12] These cybercriminals may even threaten with attacks from zombie drones, which could disrupt operations of

The Judicial Debate on Discharge of Surety. [Debanga Goswami] The author is a 4th year student of B.A.LLB (Hons.) of NUJS, Kolkata. Introduction According to Section 126 of the Indian Contract Act, 1872, (hereinafter referred to as “the Act”) a surety is a person who provides a guarantee in a contract of guarantee.[1] The same section defines a contract of guarantee as a contract to “perform the promise, or discharge the liability of a third person in case of his default”.[2] A contract of guarantee consists of three parties- the creditor, the principal debtor (hereinafter referred to as the “PD”) and the surety, (or the guarantor) and there is a privity of contract between all of them.[3] The liability of the surety is co-extensive with that of the PD.[4] Since a surety guarantees the performance of the obligations of a third party, the laws related to him are interpreted by the Court in his favour. The legislature has made provisions to discharge the surety in circumstances under which it would be inequitable to hold him responsible for the failure of the PD. Here, the author is making an attempt to critically examine the judicial debate pertaining to the circumstances which lead to the discharge of the surety. Issue 1 The Rule Any variance made in the terms of the contract between the PD and the creditor, without the consent of the surety, discharges him as to the transactions subsequent to the variance.[5] But, Section 133 only applies to the concept of continuing guarantee, which is clear from the phrase ‘transactions subsequent to the variance’, present in the provision.[6] This implies that the surety would be liable only for the transactions that are precedent to the variance in the contract between the creditor and the PD, without his consent.[7] He would be discharged for all the subsequent transactions.[8] The Debate Section 133 is based on the premise that the surety can’t be bound to do something which he hasn’t contracted to.[9] The Indian courts have interpreted this section to mean that in order for the surety to be discharged, the variance has to be a substantial one.[10] The test to ascertain substantial variance is that whether the variance materially affects the position of the surety or not.[11] But, the courts have not been able to reach at a uniform opinion pertaining to a peculiar situation. The situation arises when the variance is of a beneficial nature for the surety. In an English case[12], it was ruled that the though the surety was not prejudiced by the variance, yet he stood discharged. The same was reiterated in an Indian case.[13] Here, the creditor and the PD contracted to reduce the mortgage amount. The Court discharged the surety by stating that in such cases, the surety is the sole judge to decide whether he wants to continue with the contract or not. However, in another Indian case[14] the debt amount was decreased from Rs. 25,000 to Rs. 20,000 through a variance in the terms of the contract. But, the Court held that the change was unsubstantial and was for the benefit of the surety. Hence, he was not discharged. The guarantee of the protection of the assets of the creditor is crucial for the commercial world to thrive. Thus, the author opines that the surety should be discharged by the courts only in cases where there is a material alteration which goes against his interests. Issue 2 The Rule Section 134 inter alia states that the surety is discharged by any act or omission of the creditor, the legal consequence of which is the discharge of the PD.[15] The omission of the creditor, the legal consequence of which is the discharge of the PD also includes failure to sue PD within the limitation period. The Debate The issue on which courts have differed is that whether failure of the creditor to sue the PD within the limitation period discharges the surety or not. The judges who believe that the surety is discharged in such a situation have a three-pronged argument. First, liability of the surety is co-extensive with that of the PD[16] and thus his discharge should lead to the discharge of the surety. Second, the liability of the surety being a secondary one, when the PD with a primary obligation is discharged, then there is no reason to hold the surety liable.[17] Third, discharge of the PD and consequent lack of a debt on his part can be used by him as a defense to not indemnify the surety after the surety fulfills his contractual obligations.[18]Viewing the same from PD’s perspective, if he remains liable to indemnify the surety even after he is discharged from his liability towards the creditor, then the effect would be to render his discharge of little or no consequence.[19] But, courts have also come up with a counter view. When Section 134 is read along with Section 137 of the Act, the phrase ‘mere forbearance’[20] implies that except express contracts, the surety is not discharged. The Madras High Court has made a distinction between barring of the remedy and complete extinction of the debt.[21]It said that when the suit of the creditor becomes time-barred against the PD, his remedy against the latter is gone. It means that he cannot approach the Court to get an order for the PD to repay his debt. But, it doesn’t mean that his right over the debt is non-existent. The debt as well as his right over it are very much existent. So, after the surety had paid off the debt to the creditor, he can get indemnified by the PD. [22] This was re-affirmed in the case of Mahant v U Ba Yi.[23] The author also supports the above-mentioned line of reasoning. Even after the suit gets time-barred against the PD, the debt and the creditor’s right over it are not extinguished. Thus, the surety should be directed to pay the creditor and later get indemnified by the PD. This would also justify the

Financial Resolution and Deposit Insurance Bill, 2017: An Analysis. [Shajal Sarda] The author is a fourth-year student at National Law Institute University, Bhopal. The Financial Resolution and Deposit Insurance Bill, 2017 (hereinafter referred to as the “Bill“) proposed by the government attempts at providing for a comprehensive law for the resolution and restoration of financial/covered service providers who are classified under certain heads of risk to viability with respect to the timely payment of their liabilities. The Bill provides for the establishment of the Resolution Corporation whose general direction and management shall be done by a board which, in consultation with the appropriate regulator, shall lay down the objective criteria to classify covered service providers in terms of their viability into five categories viz. low, moderate, material, imminent and critical.[1] The appropriate regulator, after inspection or otherwise, shall classify the covered service provider under one of the categories mentioned above.[2] Based on the category of the covered service provider with respect to the risk to viability, the covered service provider shall be asked to submit a resolution plan to the resolution corporation and a restoration plan to the appropriate regulator under the Bill.[3] The Bill provides for various methods or combinations thereof that can be adopted for the resolution of the covered service provider under the risk category above moderate.[4] These methods can be transfer of the whole or part of the assets or liability of the service provider to another person under the terms agreed upon by the corporation, merger or amalgamation, creation of a bridge service provider as per section 50 of the Bill, acquisition of the service provider, or bail-in in accordance with section 52 of the Bill.[5] The Resolution Corporation shall replace the present Deposit Insurance and Credit Guarantee Corporation (DICGC), a Reserve Bank of India subsidiary which insures all kinds of deposits with the banks up to an amount of Rs. 1 lakh. Till now, it has been mandatory for the banks to pay an amount as premium to DICGC for the insurance of deposits.[6] The Resolution Corporation has been endowed with the same function under the Bill, though the amount of deposit insurance has not been specified, something which the Board is required to do in consultation with the appropriate regulator.[7] Purpose of the Bill The government has time and again attempted to increase the trust of consumers in the credit delivery system and create a business friendly environment. The biggest example is the Insolvency and Bankruptcy Code, 2016, which aims to provide a comprehensive and exhaustive code for the insolvency resolution of corporate entities, partnerships and sole proprietorships. The Code was enacted to provide for a speedy and efficient resolution of the claims of unpaid creditors. Other examples include the opening of Jan Dhan accounts and recapitalisation of banks. Statistical data reveals that, in public sector banks, private sector banks and foreign banks, the gross non-performing assets to total advances ratios stands at 9.39%, 2.90% and 4.26% in the financial year 2016.[8] If the banks are not being paid by their debtors, the former in turn may not be able to perform their obligations; therefore arises the problem of trust in the banking system at large. Further, only secured credit dominates the credit market in the country; therefore, the credit analysis of the business prospects of the firm has shrivelled.[9] Hence, it has become important for the government to introduce comprehensive reforms in the banking system. Accordingly, the present Bill enables resolution of banks- which are on the verge of failure with respect to payment of their obligation- by providing for a framework of resolving the risk of failure of banks to pay their obligations. Concerns over the Bail-In Provision Section 52 of the Bill provides for bail-in as a method for resolution of banks. A bail-in provision may provide for any or a combination of the following: (a) cancelling of the liability of the bank; (b) modification of the form of liability owed by a covered service provider; (c) provision that a contract or service under which a covered service provider has a liability is to be treated as if a specified right has been provided under the contract.[10] The Corporation shall specify the liability or the class of liabilities that may be subject to a bail in. The provisions of this section shall not apply to deposits to the extent they have been insured,[11] and shall not cover any liability owed to workmen including pension.[12] Further, it is to be noted that the definition of deposit in the Bill does not include deposit made by the Government of India or any state government or foreign government, though the provisions may apply to any liability created under a contract with the three above-mentioned entities. Whenever the Corporation invokes a bail-in provision, a report regarding the bail-in stating the need for the bail-in and the consequences of the bail-in must be sent to the Central Government.[13] Further, a copy of such report must be laid before both the Houses of Parliament.[14] The concerns regarding these provisions are that they have created higher risks for the depositors. Previous examples of bail-ins include the bail-in made under the resolution of the Bank of Cyprus in which the depositors had to face a 47.5% haircut in their deposits. ASSOCHAM has raised an argument that deposits such as fixed deposits and saving deposits must not be considered as similar to other liabilities owed by banks because this may reduce the trust of people in the banking system in light of the rising healthcare prices, among other things.[15] On the other hand, an argument in favour of the bail-in provision is that, in the absence of such provision, the government, in order to recapitalise a bank, may use the tax payers’ money, print more notes or borrow money, which will result in inflation and thus a reduction in the interest rates on the deposits.[16] Further, the system created through the Bill is a process-driven system which creates transparency, and bail-in is just one method which may be used for the resolution

The Fugitive Economic Offenders Bill, 2017: The Mallya-Chidambaram Effect. [Param Pandya, Tarika Jain, Margi Pandya] In the wake of the rising non-performing assets crisis, the Indian legal system seems to be grappling with major challenges than before. While turnaround of debt remains a problem, wilful default of debt adds to this menace. As banks and the government are dead beat trying to prosecute Mr. Vijay Mallya for wilful default of loans and Mr. Karti Chidambaram on money laundering charges, they continue to evade law by residing out of India. The Fugitive Economic Offenders Bill, 2017 (the “Bill”) seems to be a knee-jerk reaction which attempts to remedy such regulatory fiascos. The Bill was put in public domain on May 19, 2017 for comments.   Background To state that the existing legal framework to deal with high value multi-jurisdictional economic offences is inadequate would be an understatement. The RBI Master Circular on Wilful Defaulters (July 01, 2015) provides for barring a wilful defaulter from (a) raising any loans from banks, financial institutions and non-banking companies; and (b) floating a new venture. The other remedies available to banks and financial institutions are contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debt due to Banks and Financial Institutions Act, 1993 which are time consuming since they involve prolonged litigation. Moreover, even though the Insolvency and Bankruptcy Code, 2016  aims to provide for a speedy bankruptcy process, the National Company Law Appellate Tribunal  by holding that the timelines prescribed in Sections 7, 9 and 10 of the Code are directory in nature[1] has reduced its effectiveness to an extent. Further, liquidation/ bankruptcy process is not a sufficient deterrent in case of high value economic offences. The provisions of civil law in India do not address the issue of high value multi-jurisdictional fugitive economic offenders whereas the process prescribed under the Code of Criminal Procedure, 1973 is time consuming and hence inefficient. The Explanatory Note appended to the Bill states that fleeing of economic offenders leads to several “deleterious” consequences such as (a) hampering investigation in criminal matters; (b) wasting the precious time of the court; (c) undermining the rule of law; and (d) cases which involve non-payment of bank loans cause strain on the banking system. The Bill aims to deter fugitive economic offenders by providing for confiscation of all properties of a wilful defaulter prior to conviction. Key Features (1) Definition of Fugitive Economic Offenders The Bill defines a “Fugitive Economic Offender” as any individual against whom a warrant for arrest in relation to a scheduled offence[2] has been issued by any court in India who (a) leaves or has left India so as to avoid criminal prosecution; or (b) refuses to return to India to face criminal prosecution. Further, in order to ensure that the courts are not overburdened with such cases, only such cases where the total value involved is INR 100 crores or more shall be within the purview of the Bill. This is a higher threshold and must be reduced. (2) Applicability The provisions of the Bill shall apply to any individual who is, or becomes, a Fugitive Economic Offender on or after the date of coming into force of this law. It may be argued that the Bill (when becomes law) will be an ex post facto law i.e. it will impose penalties retroactively.[3] It may appear that such a provision shall the violate Article 20(1) of the Constitution of India. In case this line of argument is upheld by the court, by application of doctrine of severability, the remainder of the Bill may survive as good law which means that those individuals who fall within the definition of a “Fugitive Economic Offender” on the date of enactment of the Bill may be excluded from penalties under the Bill. [4]   (3) Process The Director[5] or any authorised officer shall make an application to the Special Court[6] for declaring an individual as a Fugitive Economic Offender. The Director or any authorised officer may pass an order attaching the properties as described in the application. Such attachment shall be valid for a period of 180 days from the date of the order. The Special Court shall serve notice and call upon the said individual to present himself before the Special Court within a stipulated time period. The Special Court may terminate such proceedings if the said individual appears in person within the specified time. However, the prescribed time may be provided by the Special Court if the individual seeks to be represented by a counsel. If the Special Court concludes that the individual is a Fugitive Economic Offender, the Special Court is required to record the reasons in writing. (4) Penalty Upon an individual being declared as a Fugitive Economic Offender, the Special Court shall pass an order confiscating all the properties which are enlisted in the application or as determined by the Special Court. From the date of such order, all rights and title in respect to such confiscated property shall vest with the Central Government, free from all encumbrances. Further, a Fugitive Economic Offender may, at the discretion of the court, be disentitled to file or defend a civil claim. If such Fugitive Economic Offender is a promoter or a key managerial personnel or a majority shareholder of a company, such company may also be disentitled to file or defend a civil claim. (5) Non-conviction-based Asset Confiscation Under the Prevention of Money Laundering Act, 2002 (“PMLA”), confiscation of the assets of the offender can only be resorted post conviction which is not an expeditious remedy. Hence, to address this, the Bill adopts a non-conviction based asset confiscation (“NCBAC”) approach as envisaged in the United Nation’s Convention against Corruption (2003), which was ratified by India in 2011. The NCBAC approach is based on the principle that “crime does not pay” i.e. those who commit unlawful activity should not be allowed to profit from their crimes.