Contemporary Issues

[By Subodh Asthana and Madhur Bhatt] The authors are students at Hidayatullah National Law University. The definition of a “Consumer” under section 2(7) of the Consumer Protection Act (“Consumer Act”) 2019 seeks to exclude any transaction consummated for “commercial purpose” with an exception afforded to the purchase of goods for self-employment. Conversely, Section 2(1)(d) of the Consumer Act 1986 after the Amendment Act of 2002 did provide an exception of Self Employment to any person engaging in buying goods and services. The authors in the first section of this blog would argue that such exclusion of services from the exception of self-employment in the Consumer Act 2019 is devoid of any reasonable classification by the Legislature. Furthermore, in the second section of this piece, the authors would critically analyse the recent judgment of the Supreme Court (“SC”) in Shrikant G. Mantri v. Punjab National Bank (“PNB Case”). Although the SC in this case did consider buying of goods and hiring of services at the same pedestal but fallaciously held the impugned transaction for the hiring of services between the Appellant and the Respondent as a Business to Business (“B2B”) transaction, thereby ignoring the established precedents on the exception of commercial purpose under the statutory provisions of the erstwhile act (Consumer Act 1986). Making a Case against Unreasonable Exclusion Although the SC in the PNB Case applied the wrong reasoning except for the observation of treating purchase of services and goods at the same pedestal. This exclusion in the Consumer Act 2019 is clearly in clear contravention of the 2002 Amendment. It is pertinent to note that through this amendment, the legislature widened the scope of the “self-employment” exception by including hiring of services as well. Thus, the exclusion of services from the self-employment exception in the Consumer Act 2019 is devoid of any reasonable classification particularly when the Legislature did not explain its intention for such ostracism. Moreover, given the outburst of the service sector including the E-Commerce space in the contemporary era where the businesses and traders engage at a higher bandwidth sometimes at a personal level. The exclusion of these services from the self-use exception would leave a major chunk of traders without any remedy under the Consumer Act. It is pertinent to note that the legislature intended to only exclude the commercial transactions that are usually done at a large scale by the Corporations. The rigours of the same cannot be attracted to the traders carrying out the business for self-employment. The SC in the case of Internet and  Mobile  Association of India   v. Reserve Bank of India (“RBI Case”) held that no business can thrive without availing of any service by the service sector. It is not the submission of the authors that all B2B transactions must be excluded but when the SC itself has demarcated the boundaries of commercial transactions, then such exclusion by the Parliament seems baffling. Even in Australia, certain protections for businesses have been conferred under the Australian Consumer Law when buying goods or services for personal consumption. The same practice is prevalent in other common law countries as well. Therefore, we assert that hiring of such services must be included in the self-employment exception as the service sector provide a lifeline for any business, trade or profession. The Parliament must take the necessary steps to fill out the void through an amendment. In the following section, the authors would be highlighting the anomaly created by the SC in the PNB Case by giving a narrower connotation to the term “self-employment”. The Decision in the PNB Case In the present matter, the Appellant was engaged as a stockbroker. The petition was filed by the appellant before the SC alleging deficiency of services on the part of the Respondent-Bank under the Consumer Act. However, the bank objected to the maintainability of the petition by stating that the Appellant being a stockbroker is not a consumer under the provision of the Act and had availed the services of the bank for the commercial purpose. The SC in the instant matter took a hysterical view of the dispute and held that the services of the bank were availed by the Appellants to increase their business profits and therefore labelled the impugned arrangement as a B2B transaction for carrying out commercial objectives. We would be arguing that the Division Bench of SC completely disregarded the exception of “Self-Employment” and principles envisaged by the court in established precedents in the following segments of this piece thereto. Myopic View of the Dispute: The Scuffle Begins We assert that the judgement in the PNB Case suffers from the patently fallacious view taken by the SC in interpreting the exception of self-use (inclusion of goods and services). Now given the similar treatment of goods and services, as observed by the SC in the PNB Case; the principles and interpretation to the same were simply overlooked by the Court in the PNB case and therefore we would be applying the same principles established in previous precedents to supplement our case. Recently, a division bench of the SC in the case of Sunil Kohli and Ors. v. Purearth Infrastructure Ltd. held that “if the commercial exploitation of goods is being done by the purchaser of the goods himself for the exclusive purpose of earning his livelihood employing self-employment”, such a purchaser would come within the ambit of the Act and would be considered as a consumer under the Act. Although it is evident from the above proposition that the SC and parliament have carved out an exception for self-employment in the ambit of consumer purpose and therefore every transaction carried out for the motive of the profit cannot be labelled as a B2B transaction. The SC in Cheema Engineering vs Rajan Singh (“Cheema Engineering Case”) r/w Laxmi  Engineering Works vs. P.S.G. Industrial Institute, held that the test of self-employment is a matter of evidence that can be claimed by a person who is acting individually for offering personal services. Hence, if

[Priyanshi Jain and Nehal Misra] The authors are students of Institute of Law, Nirma University.   Introduction Elon Musk, governing the tech fiefdom, has recently signed a deal to buy Twitter. The deal has been closed at $44 billion.  Since the finalization of deal a contrasting relationship has been developed between the tech mogul and Twitter. To begin with, he has criticized Twitter’s board over past performances and has even trolled its CEO and lawyers, it is evident that musk is trying to veto the deal in every possible way. Initially, Elon sent an unsolicited offer to acquire Twitter. Pursuant to this, Twitter’s board came up with one of the strongest combative strategies known as the ‘‘poison pill’’. However, the board of Twitter, in a complete reversal of its initial hesitation, has now accepted the bid.  The question which remains unvoiced is how the board of the target company, in one fell swoop accepted the bid while giving little regard, if any, to the interests of the stakeholders other than shareholders which includes employees, creditors, and the community at large. The American corporate governance regime has mainly been shareholders-oriented and thus revolved around maximizing the shareholders’ value. However, in recent years, this doctrine has faced feuds as the focal point of this doctrine is the shareholders, even at the expense of each and every other stakeholder. But the broad spectrum other than that of shareholders also have an intrinsic value and their interest cannot be neglected under the guise of shareholders’ supremacy. That said, the deal may benefit the shareholders as the target board has placed its reliance on value certainty and financing but the fate of Twitter’s other stakeholders is still riddled with ambiguity. In this post, we will examine how the stakeholders’ are not protected in the Twitter’s deal. Firstly, we will unwrap the factors that have significantly contributed to neglecting stakeholders’ interests. Secondly, we will state the possible recourse which could have been adopted along with a few recommendations. A Premier on Shortcomings of the Musk-Twitter Deal Elon Musk’s takeover of Twitter is all the rage. However, whether Musk’s takeover is, in reality, as tempting as he claims it is, is yet to be analyzed. While the board of Twitter assures the protection and promotion of the existing shareholders, the interests of the other stakeholders in the company remain neglected. Employees: The takeover of Twitter has fiercely impacted the employees. While Twitter’s current CEO, Parag Aggarwal, insists that there would be no layoffs, Musk is rumored to be cutting positions to increase Twitter’s profitability. During negotiations with banks, the Tesla CEO reportedly stated that after he takes over, he intends to slash employment at Twitter to boost the company’s bottom line. According to sources close to the company, Musk might not make any decisions on employee cutbacks until he takes control of Twitter. The Community at large: There was no mention of Twitter’s other stakeholders- users and employees, or its critical role in public discourse. Acquiring a media house is rarely about the well-being of the community but a marketing tool for the company. Twitter is no different and often used as a publicity branch. Additionally, musk’s tweets are known for disrupting the normal functioning of the market. The fluctuations observed in the case of Bitcoins, Dogecoin, etc. are evident of how markets can be move. Hence, if the Tech mogul acquires Twitter, then it will surely have a devastating effect on the community at large. The interests of the community will stand neglected due to the compromised position of the global platform in the buy-out of Twitter. Elon Musk, in a press release, supported free speech. While Musk’s actions have not always aligned with his thoughts, it is evident that Americans are willing to trust him. Musk’s detractors, on the other hand, are concerned that the billionaire’s control of the platform will silence their voices, given that he has frequently blocked opponents from his account. Although propagation of free speech is quite appealing, boundless freedom at the stake of hate speech, violent threats, or misinformation seems insignificant. Shareholders: The Tesla shareholders are an overlooked group in the enthusiasm around Musk’s Twitter takeover. Tesla shareholders seem to be stuck in a war zone devoid of any ammunition. They have no say in the Twitter deal, and it’s safe to assume that the Musk fan club, which includes the company’s non-executive directors, will remain silent. Tesla’s shares dropped 12% when Musk purchased Twitter, wiping out $126 billion in market capitalization. Meanwhile, according to Fortune, Musk issued a blanket personal guarantee on the entire $12.5 billion loans secured by his Tesla shares. This demarcates that the interests of the shareholders of Tesla have been compromised at the price of Musk’s ambition. While Musk refuses to back down from taking over Twitter, Tesla’s shareholders’ lack of trust in its executive poses a great concern for the company’s future. Easiest Expedient that could have been adopted Having stated all the above, the deal is dampening the interests of all the stakeholders. In that regard, the best possible recourse which could have been adopted is as follows: First, it is a well-established fact that when employees are doing good, then the corporation as a whole is rewarded. Employees have a fiduciary duty towards their employer, but employers are not bound by any such duty towards their employees. Similarly, corporations have an obligation towards shareholders, but such an obligation is not extended to employees. This contrasting relationship is often disputed before the Delaware Court of Chancery. In the case of Unocal vs Mesa Petroleum, the interest of the stakeholders (employees) has been placed in pari passu with that of the shareholders. However, the recent Twitter debacle justifies the contention that corporations have not exercised fiduciary duties toward their employees. Therefore, in this regard, a few recommendations are, firstly, productivity gains should be shared amongst employees and shareholders equally and, secondly, a mechanism for wealth maximization of employees as well as shareholders should be in place. Second, studies have shown that there is a need for a significant change in a corporation’s approach. A paradigm shift from short-term vision goals to long-term business and societal goals

[By Medha Nagpal & Anushka Agarwal]  The authors are students at the Jindal Global Law School.  The quest to privatize Air India has come to an end with its takeover by Talace Private Limited, a wholly owned subsidiary of Tata Sons (“Talace”) after years of unsuccessful attempts. The third and final attempt to disinvest the national carrier airline was completed with the sale of 100% equity shares of Air India and Air India Express in addition to a 50% stake in Air India and Singapore airport terminal services (“AISATS”) on January 27, 2022. Out of the total debt of INR 61,560 crore attached to the loss-making airline, Talace will take over the amount of INR 15,300 crore while the rest will be allocated to Air India Assets Holding Ltd. (“AIAHL”), a special purpose vehicle created as per the disinvestment plan. This article aims to briefly discuss the umpteen number of unsuccessful efforts made by the government while analysing potential implications of this acquisition by Talace on the aviation industry, as well as taxpayers, amongst other stakeholders. Background The first effort to sell stakes in the airline began in 2001 when the NDA led cabinet aimed to sell 60% of its shares due to losses driven by competing low-cost carriers and poor hospitality. This attempt, however, was not a success and had to be withdrawn within two years. As per the 2013 report by the Centre for Aviation, the airline suffered from “low productivity, high costs, poor staff morale, significant unresolved human resource issues and an unviable business model” making it more pertinent than ever, to privatize. The second initiative to divest that took place in the year 2017-18 also failed due to the government’s proposal to retain a minority stake of 26%, while at the same time requiring the acquirer to take charge of a larger portion of the carrier’s debts. This combination of partial control and high debts did not bode well with the prospective bidders looking to make substantial changes in the working of the airline while towards profitability in a highly competitive market. The latest attempt which involves Talace has been predicted to be a successful one for various reasons, one of which being that the government has completely parted away with the control in the airline and has given the acquirer the flexibility to decide the level of debt they wish to take along with the airline. Understanding the nuances and impact of the disinvestment process With the successful completion of the disinvestment, the new owners will have to adhere to the new directions provided on Foreign Direct Investment, according to which, the stake of foreign investments (including that of foreign airlines) in Air India has been capped at 49%, via direct or indirect means. However, Non-Resident Indians who are Indian Nationals are allowed foreign investments under automatic route up to 100% stake as opposed to the 49% earlier. This exception was carved out to make the disinvestment process more attractive than its previous attempts. A press note by the Department for Promotion of Industry and Internal Trade has categorically stated that the “substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in Indian Nationals as stipulated in Aircraft Rules, 1937” which is to mean that while foreign investments are welcome, however, the airline can never be subsumed into a foreign entity. It can be argued that the handover of the loss-making airline to the Tatas who have prior airline management experience is a step in the right direction. At the end of March 2021, Air India’s accumulated losses stood at INR 83,916 crores, an amount which could have been invested in welfare and other economy boosting activities. With the prompt sale of the airline to Talace, further bleeding of taxpayer’s money is being prevented by the government which had been spending INR 20 crore daily to keep it afloat. The takeover, in its essence, highlights the faith reposed by the government in the private sector in addition to furthering the disinvestment goals highlighted in the 2021 budget. Disinvestment of the national carrier had become necessary due to the rate of return on the employed capital was running in negative numbers for years now. Further, in 2020-21, the nation’s widening fiscal deficit standing at 9.5% of the Gross Domestic Product can be financed by disinvestment of such public sector undertakings. In terms of benefits to the Tata Group, the transaction can add value to the company by providing lucrative flying routes which are not accessible to most competitors. It provides them with a push to be a substantial player as the airline offers its bilateral flying rights, hangars and trained personnel allowing the Tatas to undertake operations immediately. The merger of Air Asia with Air India Express would increase their market share to 27% which makes it the second largest in the domestic sector after Indigo which holds a market share of 52%. However, as one may assume scrutiny from the Competition Commission of India (“CCI”), the anti-monopoly watchdog has approved the acquisition. The CCI seems to have given approval as this acquisition does not have an appreciable adverse effect on competition. Furthermore, CCI usually adopts the point of origin/point of destination approach, similarly done in the Jet- Etihad acquisition, to examine airline mergers. In such instances, every combination of point of origin and point of destination is seen as a separate relevant market for the customer. If the CCI were to find competition concerns, it can impose a set of remedies. Though providing formidable benefits, the road ahead for the Tatas is fraught with challenges with many trying to quash this acquisition. Recently, a Public Interest Litigation (“PIL”) was filed by Member of Parliament, namely, Subramanian Swamy, seeking to quash the Air India disinvestment process on the grounds that the bidding process was “arbitrary, corrupt, against public interest and rigged in favor of Tata Group”. Swamy’s contention stated that there existed only one bidder since the second bidder consisted

[By Aarushi Kapoor] The author is a fourth year student at the Hidayatullah National Law University. Introduction The Customs Excise and Service Tax Appellate Tribunal (hereinafter ‘Tribunal’), Bangalore bench, in ICICI Econet and Internet Technology Fund v. Commissioner of Central Tax, has recently confirmed the service tax liability on the expenses incurred by the venture capital fund (hereinafter ‘VCF’), as the consideration received towards the asset management services which are employed for the administration of funds. The VCFs are incorporated as trusts. Such incorporation in the form of the trusts is always a favourable mode of incorporation because of the application of the principle of mutuality. According to this principle, a trust is not separate from its beneficiaries and hence, the activities pursuant to such an institution cannot be taxed. However, this judgment has challenged this long age industrial practice. Pertinent Facts In the present case, ICICI Econet and Internet Technology Fund was a VCF created to make large investments in portfolio companies using the contributions received from a variety of investors. For the management of these contributions, an investment manager or the asset management companies was appointed to analyse the investments received in the form of contributions and decide the future course of actions in the form of investment and disinvestment. The contributories were referred to as unit holders. It is imperative to mention that in the present case, the asset management companies in addition to providing advisory services also contributed to the fund and hence, were entitled to the payments which included a payment equal to the capital invested plus a promised rate of return like the other unit holders. Issues which required consideration This return on investment paid to the asset management companies in this instance was much more than the quantum of the investment made by them. It is here, where the bone of contention appeared. The main question before the tribunal was whether the enhanced amount being paid to the asset management companies comprised of the operating expenses and carried interest in addition to the legitimate return of investment. It was to this question, that the tribunal actually answered in affirmative by concluding that payments included payments of carried interests being made to the asset management companies in the disguise of return on investment, and hence this amount attracted the service tax liability in the hands of asset management companies. Critical Analysis: An Insights into the Implications After having discussed the background of the issue at hand, it now becomes essential to discuss the implications that this decision is likely to have on the equity industry. VCF is no longer a trust The structure of the trust is based on the principle of mutuality. According to this doctrine, whenever there is an oneness of the contributors to the fund and the recipients from the fund and the fund has been constituted for the convenience and common benefits of the members backed by the impossibility that the contributors derive profit from such contributions, mutuality comes into play. As an implied conclusion, it follows that a person cannot make profit out of himself. Hence, this profit cannot be regarded as income and hence, it is not taxable. However, accordingly to the decision of the Tribunal, the VCFs which were traditionally incorporated as trusts, have been denied to continue applying doctrine of mutuality. Accordingly to the reasoning of the Tribunal, the VCFs breached the principles of mutuality by breaking the closed circuit within which only the trust and the beneficiaries used to interact. In contravention, the VCFs made an attempt to engage in pure commercial operations in order to provide a favourable return to the contributories. In other words, it could be said that the contributions received from the contributories were invested in the portfolio companies and arrangements were created in a manner to ensure that a profitable return at the end is distributed. This resulted in the collapse of the closed circuit within which the doctrine of mutuality operated. The tribunal instead warned that the structure of the VCF fund was a mere façade. The aim of such a foul play was to provide every opportunity and fortune to the investment management companies to avoid taxation. The intent was somehow to benefit themselves through earning performance fees in the form of carried interests. Fails to analyze the other factors One of the most critical analyses of the judgment rendered by the tribunal is the fact that the order is very case specific. It is important to keep in mind that while making a judgment that is likely to have an impact on the entire private equity industry, a holistic consideration of the facts and circumstances in required. However, the judgment fails to analyse the status quo on such considerations. For instance, the detailed list of payments which the VCFs are legally entitled to make to the asset management companies as a consideration for the services rendered. The Chapter 10 of the Master Circular on Mutual Funds explains list of fees, charges and expenses which can be ideally charged by the collective investment schemes pursuant to the regulations and approval of SEBI. However, under the same guidelines, there is a prohibition on the collective investment schemes like VCFs to charge the expenses related to the payment of performance or management fees to the investment management companies. So as a necessary corollary, it can be deduced that the logical reasoning of the tribunal is backed by the SEBI regulations and circulars.[1] However, what needs to be determined is the fact that whether the enhanced payment made to the asset management companies by the VCFs comprised of the lawful payments or the prohibited performance fees. The tribunal has failed to take into account the balance sheets of the VCFs and contractual arrangements between the VCFs and the asset management companies. Detrimental for Private Equity and Management Industry The above decision of the tribunal is likely to have a very detrimental impact on the private equity Industry especially in India.