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Deal value threshold for combinations

Leave a Comment / Competition Law, Guest Posts / cbclseconduser

[By Viplav Agrawal] The author is an Associate at AP & Partners. Introduction to the combination thresholds Competition law governs the combination which has the potential to hamper the competition in a relevant market. The combination, as per the Competition Act, 2002 (“the Act”), is referred to as the acquisition of one or more enterprises or merger or amalgamation of enterprises. The combinations taking place are subject to certain thresholds prescribed under the Act. It means that if the combinations taking place are beyond the thresholds, the entities involved will have to take approval from the Competition Commission of India (“CCI”) by way of giving notice. If the entities do not take approval from the CCI, they are subsequently subject to competition law proceedings and penalties. The thresholds are of two types, turnover and asset. These thresholds are in place to categorize certain companies which can have possible appreciable adverse effects on the market on combinations. The Act also provided for the de minimis exemption, wherein a transaction is exempt from the notification requirement under the Act if the target company has assets less than Rs. 350 core or a turnover of less than Rs. 1000 crore. Earlier it was till 28 March 2022 but with a recent notification dated 16 March 2022 by MCA, the exemption is extended till 28 March 2027. On account of multiple mergers and acquisitions happening between the tech companies, an enforcement gap from CCI has arisen despite the thresholds above in place. As the internet became a medium to transact and reduced the requirement of assets, the companies are becoming dominant in the market without heavy investments in the assets and focusing on data collection. Due to the presence of non-price factors in the entity i.e., data and other similar factors, there were certain combinations that did not require the approval of CCI as they were not crossing the threshold. Yet, they had potential adverse effects on the market. On the consideration of such mergers, competition authorities are likely to bring deal value threshold for the combinations. Some countries have given a clear intention to address the potential adverse effects emerging from evolving tech-driven business models. Based on the prospective change that Indian legislators may bring, the author highlights the incidents where the deal value could have been considered for scrutiny by CCI. The author also highlights the Indian legislator’s inclination to consider the deal-value threshold and how two foreign countries have applied the deal value in their competition laws. Lastly, the author analyses the deal value threshold and makes few suggestions for the policy formation. The incident leading to the consideration of the deal-value threshold WhatsApp/Facebook merger was the spark of the controversy when the existing threshold failed to look at the combination from the competition law lens. WhatsApp’s turnover was less than the asset/turnover thresholds under the Indian Competition Law. At the time of the merger, the thresholds were Rs. 750 crores in assets or Rs. 2,250 crores in turnover. The following concerns were found even though it did not match the threshold: Reduction in competitive constraint. Since both Facebook and WhatsApp were heavy competitors in terms of instant messaging apps, their merger led to reduction in the competitive constraints in the market Increase user base. As both the apps had a large user base of consumers, it could significantly harm consumer interests. Higher entry barrier to market. By 2014, WhatsApp had already created high entry barriers for its competitor in the Indian mobile-messaging market. It was giving tough competition to mobile apps like Line and Hike as they had lesser active users in the market. Thus, the combination of Facebook and WhatsApp makes the barriers to enter into the market even higher as both of them are unpaid mobile-messaging apps. The other deals significant deals which escaped CCI scrutiny are Zomato’s acquisition of Uber Eats in 2020, Flipkart’s acquisition of Jabong.com through its subsidiary Myntra in 2016, and Ola Cab’s acquisition of TaxiForSure in 2015. These deals were significant because the entities involved were tech aggregators with dominance in the e-commerce sector where the deal value was of at least USD 70 million or more than at least Rs. 550 crores. This could be an important deal for CCI to scrutinize as the entities acquired were innovative tech aggregators which were already giving competition to the acquirers in the online food ordering, online shopping, and app-based cab services. Findings of competition law review committee The combination thresholds involve only assets and turnover under section 5 of the Act. After consulting with various experts, the Competition Law Review Committee (“CLC”) which was set up by the Government of India in 2018, made wide-ranging sets of recommendations with the objective of aligning India’s antitrust enforcement regime with the new age of the market. A recommendation on the merger threshold was allowing the Government to introduce alternate mergers and acquisitions thresholds, such as ‘deal value thresholds’. The above recommendation is reflected in the Competition (Amendment) Bill, 2020 which proposes to allow the central government to introduce other criteria for merger threshold, such as deal value, market share or other criteria to be notified. The government, thus, by way of notification can set a particular deal value as the threshold under Section 5 of the Act. Some of the countries have already set the deal value in their threshold limit for the combinations to notify the competition authorities. Countries applying the deal-value threshold The countries that have applied the deal-value threshold in their competition laws are Austria and Germany. Austria in its competition law prescribes the following threshold for the deal value: Transaction value exceeds EUR 200 million Combined aggregate turnover exceeds EUR 300 million worldwide and EUR 15 million in Austria Target company as significant domestic activities Germany, on the other hand, prescribes the following thresholds: Transaction value exceeds EUR 400 million Combined aggregate turnover exceeds EUR 500 million worldwide and EUR 25 million in Germany. As a result, the entities acquired at a high

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Validity of Recovery Actions against Guarantor Post Assignment of Debt

Leave a Comment / Guest Posts, Insolvency Law / cbclseconduser

[By Arjun Makuny] The author is an Insolvency and restructuring lawyer. Introduction The rights of creditors have been severely weakened due to a recent order of the Debts Recovery Tribunal at Ahmedabad (DRT) in State Bank of India v. Prashant Ruia.[i] The DRT ruled that a creditor cannot sue the guarantor if the principal debt is assigned by the creditor for consideration. Further, it was also held that a creditor cannot choose to reserve its rights against the guarantor during the assignment of the principal debt. In this background, the author argues on the validity of creditors’ recovery actions vis-à-vis guarantors notwithstanding any waiver of rights as against the principal borrower. The author believes that any hindrance to such a course of action of creditors has the potential to cause huge ramifications in contemporary business transactions. Facts in brief The consortium of lenders led by the State Bank of India had filed an Original Application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 before the DRT against Mr. Prashant S. Ruia and other guarantors for recovery of sums due to the consortium. During the pendency of the Original Application, the principal borrower (Essar Steel India Limited) was admitted into Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. Subsequently, the resolution plan proposed by ArcelorMittal India Private Limited (ArcelorMittal) was approved by the National Company Law Tribunal, Ahmedabad, and thereafter by the Supreme Court. Accordingly, the principal borrower was acquired by ArcelorMittal. The resolution plan provided that all debts payable by the principal borrower shall be assigned to a third-party assignee and the creditors would receive consideration for such assignment of debt. However, the resolution plan explicitly provided that the guarantees that have been created in respect of the debt would not be assigned and would continue to be retained by the creditors. Prashant S. Ruia filed an Interim Application to dismiss the Original Application as against him on the ground that no debt as defined under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 exists in law due to the assignment of debt. Decision Upon examining the terms of the resolution plan and the assignment deed, the DRT observed that the assignment of debt had discharged the principal debtor of its repayment obligations and the net result of such an assignment is that the debt is totally extinguished leaving nothing to be recovered from the guarantors. The DRT proceeded on the line of thought that if the creditors have nothing to recover from the principal borrower, the guarantors stand discharged of their obligations despite the clause in the Assignment Deed that specifically provides that the guarantees have been retained and not assigned. The DRT also placed emphasis on the clause in the resolution plan which stated that the payments made to the creditors as consideration for the assignment of debt will be a full and final settlement of the entire outstanding dues. In view thereof, the DRT proceeded to conclude that the debt due from the principal borrower stood discharged. The DRT held that a subsisting underlying “debt” due from the principal borrower is a precondition for creditors to proceed against the guarantors and since in the present facts and circumstances, there is no subsisting underlying debt due from the principal borrower, the creditors are precluded to invoke the guarantees in respect of the assigned debt. The need for reconsideration Pollock & Mulla’s book has recognized the right of a creditor to proceed against the guarantor, even in situations where the principal debtor stood discharged, if the creditor has reserved its rights to proceed against the guarantor in such situations: “Sometimes agreements described as guarantee may contain clauses which preserve the liability of the guarantor, even where the principal debtor has either never been liable (viz. contract is ultra vires the company as the principal debtor is a minor), or has ceased to be liable to the creditor.”[ii] The question of enforcing remedies against the guarantor notwithstanding a waiver of rights as against the principal borrower is not something that has come up for judicial consideration for the first time. Indian Courts have previously recognized that, if the creditor, while giving up its claim against the principal debtor, expressly reserves his remedies against the surety, or generally his securities and remedies against the persons other than the principal debtor, the surety is not discharged, irrespective of whether the creditor has done so with or without his consent or knowledge.[iii] Pertinently, Indian Courts have also recognized the legal validity of an agreement that provides for the release of a principal debtor, while simultaneously reserving the creditor’s rights of recourse against the surety: “Where the principal has entered into a deed of arrangement containing a release, subject to the reservation of the creditor’s rights of recourse against the surety, the latter has no right to raise objection.”[iv] The principle in English law that discharge of principal debtor will not affect the right of suit against sureties where there is a reservation to proceed against them, is applicable in India, and it is consistent with the terms of the scheme of the Indian Contract Act, 1872.[v] The rationale behind this principle is that a nominal release of the debtor, subject to a reservation of securities, is not a release destroying the debt, but operates only as a covenant not to sue the principal-debtor, who remains, however, liable to indemnify the surety. The surety’s right to indemnity against the principal debtor is a necessary result of such a reservation.[vi] It has to be understood that if a creditor agrees to discharge a principal debtor, it would be a breach of

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Is the Remedy of Substituted Performance truly a Novel Remedy?

Leave a Comment / Contract Law, Guest Posts / cbclseconduser

[By Aman Sadiwala] The author is an associate at Rashmikant and Partners. The contract enforcement mechanism of India has been subject to criticism for being inefficient. This was reflected in the World Bank’s Ease of Doing Business Report 2016 where India ranked 130th overall and 178th on contract enforcement (out of 189 countries).[1] This spurred the Government of India to constitute an Expert Committee to propose reforms to the Specific Relief Act, 1963 (“SRA”). The report of the Expert Committee (“Report”) resulted in the Specific Relief (Amendment) Act, 2018 (“2018 Amendment”). Prior to 2018, the default remedy for the breach of contract was that of damages, which was governed by Sections 73 to 75 of the Indian Contract Act 1872 (“ICA”), with specific performance being the discretionary remedy.[2] The 2018 Amendment changed the position of law by giving primacy to specific performance over damages. It also introduced substituted performance as a remedy.[3] Post the 2018 Amendment, Section 20 of the SRA provides for substituted performance whereby the promisee, on the breach, has the option to obtain performance by a third party or its own agency and recover the costs and expenses of the same from the breaching promisor,[4] subject to certain conditions.[5] The promisee cannot claim the relief of specific performance after getting the contract performed through substituted performance.[6] In this piece, the author argues that while the remedy of substituted performance is not truly a novel remedy, it does go beyond what was permissible under Sections 73 to 75 of the ICA in terms of making it easier for the promisee to recover the expenses and costs associated with the substituted performance. While there are some advantages that a remedy like substituted performance has – like securing the expectation interests of parties (which damages might also secure), faster implementation of contractual terms and solidifying the claim that the promisee has, is this remedy one that did not exist before the 2018 Amendment? The possibility of obtaining substituted performance and recovering the cost for it was possible even in the pre-2018 Amendment paradigm through Section 73 of the ICA. It states that a party suffering from a breach of contract can claim “compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach”.[7] This involves compensation for the “cost of cure” which is provided for in illustrations (f), (k), and (l) to Section 73.[8] Illustrations are parts of the section and help in elucidating its underlying principle.[9] Therefore, one can conclude with relative certainty that Section 73 of the ICA does, in a way, provide for compensation for substituted performance. Even Section 41 of the ICA talks about the “effect of accepting performance from third person” whereby the promisee cannot then enforce the performance as against the promisor.[10] There are other instances where compensation for substituted performance was awarded. One situation relates to when the contractual framework allows the promisee to get the performance from a third party and recover the costs from the promisor.[11] This includes contracts with a “risk and cost” clause which allows the promisee to engage a third party to obtain performance and get compensated to that extent by the promisor.[12] One must look at the Report to see why a specific amendment was added when substituted performance as a remedy existed in the pre-2018 Amendment regime as well. The Report assumes that in cases of breach of contract, a promisee will aim to complete its business and resort to substitutes if available.[13] It goes on to state that this must be encouraged as it allows the promisee to complete its task (and fulfill the expectation interest) while leaving open the option to claim compensation in case of a substantial loss.[14] The Report opines how the option of substituted performance can nearly achieve the same result as actual specific performance.[15] It recognizes how other jurisdictions[16] have allowed for substituted performance while Indian law does not provide for compensation for substituted performance as a substantive right.[17] The explicit provision of substituted performance as a substantive right has important implications. Section 73 of the ICA provides that “[s]uch compensation is not to be given for any remote and indirect loss or damage”.[18] The award of compensation under Section 73 is governed by the principles of causation, foreseeability, and mitigation;[19] while Section 20 of the SRA does away with these factors by using the phrase “recover the expenses and other costs actually incurred, spent or suffered by him”.[20] This change was brought with the view that while a claim under Section 73 of the ICA might not give the promisee the entire extent of the amount it has spent on substituted performance, Section 20 of the SRA would do so.[21] It was also believed that this standard would give the promisee the benefit of having its contract fulfilled at the earliest, while also pushing the promisor itself to perform the contract.[22] At the same time, the Expert Committee recognized that this situation might place a heavy burden on the promisor, especially when a promisee abuses its rights.[23] It provided for safeguards in the form of prior notice to the other party,[24] and providing proof of breach of contract,[25] the costs and expenses incurred in the suit,[26] and reasonability of the amount claimed.[27] In the opinion of the author, the threshold of the safeguards was significantly weakened when the Expert Committee also proposed that the amount claimed in the notice to the other party ought to be deemed reasonable if it had been actually spent or suffered.[28] While the provision for notice has been retained by the legislature,[29] the other safeguards especially the one pertaining to the reasonableness of the amount claimed do not find mention in the 2018 Amendment. This issue has also been flagged by Professor Nilima Bhadbhade, who was a member of the Expert Committee.[30] This had led to a scenario where it is significantly easier for the promisee to recover the expenses and costs associated

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Corporate Board Gender Diversity in the Shadow of the Controlling Shareholder

Leave a Comment / Company Law, Contemporary Issues, Guest Posts / CBCL

[By Dr. Akshaya Kamalnath] The author completed her graduation from NALSAR University of Law, Hyderabad, and her post-graduation from New York University (NYU). The author is currently a lecturer at Auckland University of Technology, Law School, New Zealand. Dr. Kamalnath runs a blog named The Hitchhiker’s Guide to Corporate Governance which can be accessed here. In an article co-authored with Professor Annick Masselot, I examined corporate board diversity in the Indian context. In this blog post, I will introduce some of the arguments in the article and build on them with ideas from other articles. India introduced a mandatory quota that requires companies to have at least one woman director on their board of directors in 2013. Since then, India’s market regulator, Securities Exchange Board of India (SEBI) has required listed companies to have at least one woman director who is also an independent director. In terms of numbers, the percentage of women on boards rose from 5.5% in 2010 to 12. 7% in 2017. But do these numbers have the potential to improve corporate governance? Corporate board gender diversity has been canvassed for two reasons – business benefits and gender equality. The most convincing reason for board gender diversity to yield better results seems to be that diverse boards are more effective monitors of management. In other words, the corporate governance case is the most convincing aspect of the business case. Drawing from the analogy of independent directors who are meant to improve corporate governance, we focused (in the article) on the effectiveness of board gender diversity as a corporate governance measure in India. Since controlling shareholders influence board nominations, independent directors in India are not likely to be effective monitors. Some reputed directors have also pointed out that even where independent directors take their monitoring role seriously, the problem is that management does not share adequate information with them. While this is also a problem in countries like the US, the concentrated ownership model makes information flow even more challenging. Could gender diversity be one way in which the structure of the independent director institution is enhanced? Studies in various countries have shown that gender diversity does indeed enhance board functioning in terms of board processes. There could be gains even beyond just enhanced board processes. A recent news article reported Biocon’s Biocon, Kiran Mazumdar-Shaw recounting her experience on a company board which was dealing with a sexual harassment complaint lodged by an employee: “The men on the board, she says, described the complaint as “silly”, “rubbish” or “an exaggeration”. Mazumdar-Shaw says it took her, a woman director, to object to this “flippant” approach, put her foot (down)”. Despite Mazumdar-Shaw’s story having a happy ending, it is not easy for a single board member to change the board culture or even quality of decisions. We have to rein in our expectations in terms of what can be achieved by one woman director on the board. The controller dominated firm structures means that we cannot expect too much from independent directors, let alone a single women director. Further, the mandatory law means that in many cases, companies are merely appointing women directors to comply with the law rather than to enhance board processes and governance. Such a lack of genuine motivation to improve governance would impose a burden on the incoming women directors in terms of having to deal with an unwelcoming board. Ultimately, solutions to improve corporate governance, including board culture, should go beyond a requirement for companies to appoint one woman independent director.

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Re–Examining the Domestic Tax Scenario in a Pandemic (Part 2)

Leave a Comment / Contemporary Issues, Guest Posts, Taxation Law / CBCL

[By Mohit Gupta] The author is a PhD Researcher at Centre for the Study of Law and Governance, Jawaharlal Nehru University, New Delhi. To read Part 1 of the article, please click here. Now, if one talks about the indirect taxes in the country then there are various types of indirect taxes that were levied by Central Government and various State governments before the introduction of The Goods and Service Tax (GST), which are referred at the beginning of the discussion. However, the GST which came into effect on 1 July 2017, following the passing of The (Constitution 122nd Amendment) Bill, 2014 by the parliament of India, and an amendment to the constitution of India which changed the arrangement of powers of taxation between central and state government, and also subsumed a majority of then-existing centre and state-level taxes[1]. The need to re-examine the GST also stems from the fact that recently it completed three years of its implementation and the voices of unrest related to this tax reform are getting louder[2]. The key rationale for the introduction of GST was that it would broaden the tax base and remove the cascading effects of taxation. However, the realisation of these objectives was constrained by various facts which included; that the GST on a few important products like diesel, petrol, air turbine fuel, natural gas etc. were immediately not included in the scope of the GST at the time of its introduction while goods like alcohol for human consumption was kept out of the purview of the GST. The obvious reason was that GST took away the power to levy taxes like sales tax which are the single largest source of tax revenue for the states and the states were not ready to compromise on their autonomy to levy and collect the taxes on these goods immediately. This then takes to the debate between the apologists and critics of the GST around the issue of Efficiency Considerations with GST vs. Fiscal autonomy of the states. There were various reasons provided to support the efficiency rationale emanating from the implementation of the GST which included its ability to improve the competitiveness of the domestic industry in the international market, creation of a common national market for India, broadening of the tax base by expanding the coverage of economic activities and prevention of leakages from the system (Rao and Mukherjee, 2019). However, what has received less attention is the question that whether or not introducing GST was a desirable choice for a country like India where there are a federal structure and a lot of heterogeneity among states in their tax base. A few studies, at the time of introduction of GST, made a case against the introduction of this tax by pointing out the likely pitfalls of introducing this tax form – that it will significantly undermine the fiscal autonomy of the states in India, efficiency considerations were not the basis of its introduction in various jurisdictions around the world thereby cautioning against any attempt to transplant this form of tax from other jurisdictions and most importantly that it has not been adopted by the largest economy of the world with a federal structure- the United States of America (USA).[3] However, despite these cautions against the efficacy of GST in a country like India, it was adopted with haste in 2017. These concerns around the fiscal autonomy of the states getting compromised with GST have visibly surfaced over time and more cogently in the times of a pandemic. This is in so far as the central government and the state governments have now realised that with the introduction of GST – they are left with very limited or no space to manoeuvre around indirect taxation structure in emergencies like a pandemic; especially the resource-constrained state governments. Hence, when the revenues began to dry up because of the halt in economy induced by pandemic, both central and state governments levied hefty taxes on products which currently don’t attract GST – an increase in excise duty by the central government on petrol and diesel, increase in value-added tax and special cesses by state governments on petrol, diesel and alcohol for human consumption etc.[4] Following this surge in taxes, while one can always debate the case for an excess tax on alcohol because it is a sin good but an increase in taxes on fuel is surely not the desired way of filling the government coffers because the very nature of a regressive tax is to hurt the poor more and likely to push up food inflation as well. Further, the finance ministers of various states have now begun to echo the demand to overhaul the GST regime and finding out ways of increasing the revenue share of states in the GST[5]. Adding to the concerns of the state is also the fact that The Goods and Services Tax (Compensation to States) Act, 2017 that has assured states to protect revenue during the first five years of GST introduction (also known as transition period) is approaching its deadline in June 2022 and given the shortfall in GST collection and uncertainty associated with revenue on account of State Goods and Services Tax (SGST) collection, many states have approached the Fifteenth Finance Commission (FFC) for a possible extension of the GST compensation period by another three years, i.e., up to 2024-25 (Mukherjee 2020) and this was demanded even before the onslaught of the pandemic. The real conundrum here is that the centre may not have the fiscal space to provide the compensation beyond the transition period while states may suffer a major fiscal blow with the withdrawal of the GST compensation after the transition period. At the heart of all these developments lies a twofold problem; one is that from the beginning GST debate abstracted away from the issues of intra-state disparity in its assumption of a uniform tax spread within the state in the projection of its potential gains, ignoring the structural constraints of intra-state

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Re–Examining the Domestic Tax Scenario in a Pandemic (Part 1)

Leave a Comment / Contemporary Issues, Guest Posts, Taxation Law / CBCL

[By Mohit Gupta] The author is a Ph.D. Researcher at Centre for the Study of Law and Governance, Jawaharlal Nehru University, New Delhi. There are various types of taxes levied by the government which can broadly be categorized into two categories – Direct and Indirect Taxes. Direct Taxes are those taxes for which the burden and incidence of the tax fall on the same person- that is the tax cannot be shifted by a taxpayer on some else and it includes takes on Income, Wealth, Corporation Tax, etc. On the other hand in the case of Indirect taxes, the burden, and incidence of the tax fall on different entities which imply that tax can be shifted by the taxpayer to someone else and includes central excise duty, Valued Added Tax (VAT), customs duty, Goods and Services Tax (GST), etc. In the case of direct taxes like Income tax there is usually an increase in the percentage of taxes with an increase in intervals of a threshold level of income which is known as ‘progressive rate of taxation; whereas Indirect taxes may have to be paid by customers on commodities which are consumed by rich or poor irrespective of their income levels (like VAT on petrol, diesel or GST on eatables like biscuits, butter, etc.) and thus an increase in indirect tax hurts the poor more compared to the rich making them ‘regressive taxes’. It is important to keep this otherwise obvious distinction in mind regarding the nature of taxes. It is based on this difference and other important factors that we argue that there is an urgent need to re-examine the domestic tax scenario in the country in order to meet the economic challenges posed by the recent Covid-19 pandemic. This is more so because supply bottlenecks notwithstanding, what is a grave problem currently is a demand constrained economy. Thus, there is an urgent need for an expansionary fiscal policy that can revive domestic demand by an increase in government expenditure; more so because there is a near collapse of all other domestic activity following a negligible expenditure by household and private sector (Ghosh, 2020). In these difficult times, an impetus for such a policy can come from raising the tax revenues alongside other measures, especially when the government is reluctant to raise its borrowing (to fund any extra government spending) to adhere to its objective of keeping the fiscal deficit in check. However, it is another matter of concern that the obsession of the government of keeping ‘fiscal deficit to Gross Domestic Product (GDP)’ ratio in check by not increasing government expenditure in times of a pandemic is a flawed economic policy because an attempt to do so by suppressing government expenditure, in turn, will lead to lower GDP which implies a lower denominator value in fiscal deficit to GDP ratio and thus an increase in the overall value of deficit ratio even with similar expenditure (Chandrasekhar and Ghosh, 2020). Be that as it may, let us shift our focus back towards gauging at ways resorted by the government for raising the tax revenues in the present times while struggling to keep the deficit ratio in check. In the present discussion, we shall keep our focus on two of the important taxes of the government and the need to re-examine their levy in times of a pandemic. One of these is a direct tax (Corporation tax) and the other is an indirect tax (GST). In addition to these two taxes being the key contributor to the overall tax revenues of the government, the need for re-assessing and focussing on these two taxes, in particular, emanates from the fact that there have been some key developments around them recently which requires a re-examination which is pointed out in the ensuing discussion. First, if one talks about the direct taxes then taxes on income is the main source of direct taxation in India. The rules for income tax in India are defined by the Income Tax Act, 1961. The rates of taxation for various entities (Individuals, HUFs, Firms, Companies, and Others) laid down in this Act are amended every year through the Finance Act. These rates which are prescribed by law are called the ‘statutory rates of taxation’. These are defined in terms of tax slabs where a percentage of taxation is announced corresponding to a certain threshold income level. However, the income earned by the various assesses is not always subjected to this statutory rate of taxation. The total income that is subjected to taxation is reduced from the original income because of various deductions available as per law. Thus there is a distinction between the statutory rates prescribed by law and what actually the assessee end up paying as taxes because of these deductions. The actual payment of tax as a proportion of the total declared income of the assessee is the ‘effective rate of taxation’ (Bandyopadhyay, 2012; Rao, 2015). Thus to put it simply, the effective tax rate paid by an assessee can be computed as the ratio of tax paid to the total income expressed in percentage terms. The effective rates of taxation by their very construct are thus lower than the statutory rates of taxation. It is important to understand this distinction in the backdrop of the recent changes in the corporate tax rates in India which were announced last year on 20th September 2019 through the Taxation Laws (Amendment) Ordinance 2019 by making amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. This amendment and the corresponding reduction in the corporate taxes were hailed as unprecedented structural reforms in the history of the country which were aimed at reviving a sluggish economy by boosting private investment[1]. After this amendment, the effective rate for existing companies was slashed to 25.17% (including surcharge and cesses) while that for new manufacturing companies (incorporated after 1st October 2019) the effective tax rate was slashed to 17.01% (including surcharge and cesses) subjected to the condition

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