Articles

HOW TO THINK LIKE LAWYERS

  • HOW TO THINK LIKE LAWYERS
  • My goal is not to make you a lawyer, but I want to help you understand how you can communicate with lawyers more efficiently.
  • It's often said that we, lawyers think differently. What does that mean when people say that lawyers think differently? Well, a big part of what it means is that lawyers rely on different tools for thinking about legal questions than non-lawyers. Non-lawyers tend to approach legal issues by asking simply, does it make sense? So they rely a lot on common sense but lawyers not only rely on common sense, but first and predominantly, lawyers ask, well what legal authorities say about this legal question. So, lawyers tend to start thinking by recalling the laws or guidelines of the regulatory authority. That is, a major difference of how lawyers reach on conclusion on any legal question is by recalling laws of the controlling authority, whether that's be the statute, or a regulation, and if the law is clear, that gets you a long way towards an answer to the legal question.
  • If it's not, then you have to take into account a variety of other considerations. So lawyers, for instance, might think about the purpose of the statute, or the intent behind it.
  1. What was the common law?
  2. What did legislators intended when they passed the statute?
  3. What problem was legislator trying to resolve?
  4. Where there's been litigation in the past related to it?
  5. When courts considered this issue or a similar issue in the past, what did they say about this issue?
  6. How did court interpret the language of the statute?
  7. What do the precedents say?

 

  • And then lawyers also take into considerations for a good policy and justice? And that is what most non-lawyers fail to consider. But, it's not the first consideration for a lawyer. Lawyers tend to start with other things, context, purpose, precedent. So often when people say that lawyers think differently, they're just saying lawyers use different tools than the non-lawyers on legal issues.

 

  • HOW TO READ DOCUMENTS LIKE LAWYERS
  • READ EVERYTHING: Lawyers are some of the few people who actually read everything given in document put in front of them.  And for good reason: once executed, you will be held accountable for each and every word in that legal document before signing. And you will be amazed when you actually take out time to read it all.
  • DEFINE EVERYTHING: If there are terms that not defined properly like, Reasonable Time or Effort, One needs to ask for particular number which limits them like Date, Number etc.
  • QUESTION EVERYTHING: There is nothing like stupid questions, if you fail to understand any Paragraph, Line, Phrase or Word, ask for its meaning because at the end of the day you will be held accountable for every word you consented to by signing.
  • CHECK EVERYTHING: Work won’t complete by just reading the document; one also needs to read also the supporting or referred documents, Schedules and Annexure because they are equally important as the document itself.

Lastly always take into account the worst case scenario because legal documents are always drafted for times when things are not going well.

Disclaimer:  Information contained above is for general information purposes only and no liability express or implied is assumed by the Author or the firm he is associated with.  The Author, Sagar Bansal is an Associate lawyer with Veda Legal, Advocates & Solicitors and views expressed are personal. 

 

 

Insolvency Professional Agency

INSOLVENCY PROFESSIONAL AGENCY

What is an Insolvency professional agency?

Under section 3(20) of Insolvency and Bankruptcy Code, 2016 Insolvency Professional Agency is defined as a person who is registered with the Insolvency and Bankruptcy Board of India under section 201 of the code.

An Insolvency professional agency is a company registered with Insolvency and Bankruptcy Board of India to perform various following functions-

1.   Enroll Insolvency Professionals as it's a member if all the conditions set out in by laws laid down by the agency have been fulfilled on making the payment of the membership fees.

2.   Protect the interests and rights of all Insolvency Professionals enrolled with it.

3.   Enact standards of professional conduct to be observed by its members.

4.   Regulate and evaluate the performances of its members.

5.   Cancel or suspend the memberships of Insolvency Professionals upon the violation of any of the bye-law set by the Agency.

6.   Address the concerns of the consumers against the Insolvency Professionals enrolled as it's members.

7.   Come out with the list of members enrolled with it along with the evaluation of the performance of functions of the Agency.

8.   Publish such other information as specified by the board.  

 According to section 199 of Insolvency and Bankruptcy code, 2016 no person is empowered to perform as Insolvency Professional Agency or issue the registration certificate to any insolvency professional as it's member unless the Insolvency Professional Agency has obtained the registration certificate for the Insolvency and Bankruptcy Board of India.

Sections 200 of the Act transcribes certain principles to be regarded by the Insolvency and Bankruptcy Board of India while granting registration to any Insolvency Professionals as the members of Agency-

Promote professional and ethical conduct of the Insolvency Professionals.

Regulate and upgrade the professional development of insolvency professionals.

Elevate the services of fit Insolvency Professionals to feed to the requirements of creditors, debtors and such other persons as may be specified.

Provide protection to the interest of debtors, creditors, and such other persons as may be specified.

Elevate the services of Insolvency professional agencies to provide efficacy in the Insolvency Resolution and Bankruptcy process under this code.       

 

Eligibility

Companies registered under section 8 of the Companies Act, 2013 are entitled to registration as Insolvency Professional Agency only when following conditions are fulfilled-

According to section 205 of the code, the company should have written bye-laws and the standard structure for governance in accordance with the Insolvency and Bankruptcy Board of India regulations after obtaining the approval of the board.

The company has been instituted with the means to perform the functions of an Insolvency Professional Agency.

The company’s minimum net worth is ten crore rupees.

The company has a paid-up share capital of five crore rupees.

The company along with the directors, promoters, and members, having 10 percent of its share in the company, are fit and proper to function under this code.

The company should not be under the control of any person residing outside India or any person who is a person residing outside India is not holding more than 49 percent of company’s share capital.

The company should not be a subsidiary company established through more than one layer of a body corporate.

 

Procedure of Registration

Section 201 of the code deals with the registration procedure of Insolvency Professional Agency which states that-

1.   Each application for the registration shall be submitted to the Board in such form and manner, containing all the particulars as required to be stated along with the prescribed fees as specified under this code.

2.   The application shall be made in form A of schedule of Insolvency and Bankruptcy Board of India regulations.

3.   Following particulars must be submitted-

a.   The resolution stating that the director has the authority to file an application regarding same.

b.   Copy of Bye-laws of the company.

c.   Copies of memorandum and articles of association.

d.   If the applicant company is under the control of promoters or person holding more than 10 percent shares in the company then the application must consist of -

1.   Name, an address of registered office and principal place of business.

2.   Details of the person in control of the company.

3.   The statement stating that memorandum and articles of association along with the bye-laws is inconsistency with the Insolvency and Bankruptcy Board of India resolutions, 2016.

4.   Particulars of a board of directors of the applicant company.

5.   Bye-laws which are expressly mentioned, not the part of model bye-laws laid down by the Insolvency and Bankruptcy Board of India, should be numbered exclusively.

6.   Particulars of the person/persons possessing more than 10 percent of the share capital of the applicant.

7.   Specific detail of the infrastructure including the number of offices and IT computers and other computer facilities etc.

                

Grant/Rejection of Registration of application-

1.   The board shall acknowledge every application within 7 days of its receipt.

2.   If the board is satisfied that application meets all the requirements set under this code, the board shall grant the certificate of registration to the applicant.

3.   The board may grant the certificate of registration subjected to such terms and conditions as it may deem fit.

4.   The board if not satisfied with the application can reject the application only after providing the opportunity of being heard to the applicant.

5.   The order, whether granting or rejecting, the certification shall be communicated by the board within 15 days of the making of the order.

 

Model bye-laws to be adopted by Insolvency Professional Agencies

Under section 196(2) of the code Insolvency and Bankruptcy Board of India has laid down certain model bye-laws which could be adopted by the Insolvency Professional Agencies-

1.   Minimum level of professional competence required of the members of Insolvency Professional Agencies

2.   Benchmark for Professional and ethical conduct to be adopted by the members.

3.   Eligibility for enrollment as members.

4.   Criteria for granting the registration.

5.   Establishment of a regulatory body for internal regulation and management of the agency upon the terms set by the board.

6.   Specification of the groups or classes of persons to whom the agency shall provide its services at concessional prices or free of cost.

7.   Minimum details required to be filled by the person along with the form and time for submitting the form.

8.   Predetermine the grounds upon which penalties may be levied upon the members.

9.   Setting up a transparent mechanism to redress the grievances or complaints against the members of the agencies.

10. A process to be adopted for enrollment of persons.

11. Fix the number of fees and the way to collect the same.

12. The manner for the administration of the examination for enrollment of members.

13. Evaluation of the performance the members as well as insolvency professional agencies.

14. Other obligations to be fulfilled by the members.

15. The manner in which the proceedings shall take place against the members and imposition of penalties upon the members.

16. Proper utilization of the amount submitted as a fine imposed upon the members.

17. Insolvency professional Agencies can lay down certain additional bye-laws along with those part of model laws.

Note: views expressed herein the article by the author are his personal views.

An Insight into Tussle between Cyrus Mistry Vs Ratan Tata

An Insight into Tussle between Cyrus Mistry Vs Ratan Tata

Tata Sons-Cyrus Mistry feud origin

On October 24, 2016; Tata Sons decide to replace Mr. Cyrus Mistry as Chairman of Tata Group. Eminent Chairman Ratan Tata to be the interim chairman of the Tata Group for 4 months. Presently, Natarajan Chandrasekaran is the Chairman of Tata Group.

Tata Sons-Cyrus Mistry – The Case

  • Mistry family’s allegations:-

Mismanagement at Tata Sons and oppression of minority shareholders—Mr. Cyrus Mistry alleged that Mr. Ratan Tata abused the powers vested in him as the erstwhile chairman of the Tata group in terms of the various businesses entered into which includes Nano car project, acquisition of Corus, Tata Teleservices, Air Asia, dealings C. Sivasankaran and M Pallonji & Co.

  • Corporate governance breakdown and excessive interference by Tata Trusts

Mr. Ratan Tata and other trustees, acting as “shadow directors”, have been controlling Tata Sons as a “super-board” with trustee-nominated directors accustomed to act under the instructions of Tata Trusts, which hold 66% in Tata Sons. The trustees sought to micro manage the governance of Tata Sons.

  • Illegal removal of the executive chairman

The executive chairman was removed without any notice or explanation.

  • Abuse of articles of association

The article of associations of Tata Sons, whose aim was to have a governance framework to protect the firm’s interests, have been converted into a regime enabling the control of Tata Sons by Mr. Ratan Tata and Mr. Noshir Soonawala, trustees of the Tata Trusts.

  • Violation of insider trading norms

Law violations by Tata and Noshir Soonawala , a trustee for procuring unpublished price sensitive information from listed Tata companies.

  • Tata Son’s response

Issues raised are nothing but a ruse by Mr. Cyrus Mistry. This is merely to publicly express his displeasure at the loss of his office as the executive chairman of Tata Sons. It is an attempt to besmirch the reputation of the Tata group.

  • Mistry’s removal not illegal

Mr. Cyrus Mistry’s removal was resolved upon by a majority of the directors (seven out of nine directors who voted in favour of Mistry’s removal as the executive chairman).

  • Mistry was well acquainted with the affairs of Tata Sons and the Tata group

This was much before Mistry became the executive chairman in December 2012. He was part of the board’s deliberations in respect of several decisions which he is now attempting to call into question.

  • Why now?

Mistry is seeking to justify the inexplicable delay by the petitioner in availing judicial remedies. He did not take the requisite step to address the alleged mismanagement and oppression nor did he bring it to the notice of the board of Tata Sons. He rose from slumber to voice this grievance only after he was removed.

  • Allegations levelled against Ratan Tata misconceived

All decisions at Tata Sons and Tata companies have been taken by the relevant management teams. In his own draft presentation Mistry had proposed an active and consistent engagement with the trusts and the trust nominee directors.

  • No special treatment to C. Sivasankaran

The allegations with respect to the instances of dealings with C. Sivasankaran, chairman of the Siva group, are not relevant to the present proceedings for alleged oppression of the petitioners and alleged mismanagement of the affairs of Tata Sons. There is absolutely nothing on record to suggest that these transactions involved a degree of undue favour or special treatment at the behest of Tata group companies.

  • Flawed business decision do not tantamount to acts of oppression

Assuming but without conceding that these business decisions were in fact flawed and imprudent, such transactions do not tantamount to acts of oppression or mismanagement as is the settled legal position.

NCLT-NCLAT Ruling Timeline

  • December 20, 2016- Mistry firms move NCLT alleging oppression of minority rights at Tata Sons.
  • December 22, 2016- NCLT refuses interim relief to Mistry, demands proof of oppression of minority rights at Tata Sons.
  • January 11, 2017- Mistry files contempt of court petition, says Tata Sons cannot remove him from Board.
  • January 18, 2017- NCLT dismisses Mistry’s petition on contempt of court.
  • The NCLT dismissed the contempt petition filed by two Mistry family firms against Tata Sons Ltd over a shareholder meeting (EGM) called on February 06,2017  by the latter to remove Cyrus Mistry from the board. The tribunal opined that Tata Sons' action didn't amount to contempt of court.
  • And further asked the Mistry family firms to file an affidavit to support an earlier petition they filed alleging mismanagement and oppression of minority shareholders by the Tata group holding company.
  • February 02, 2017 – Mistry moves NCLAT to protect Board seat.
  • February 03, 2017- NCLAT rejects petition, but rules to hear case maintainability first.
  • March 06, 2017 – NCLT rules Mistry petition not maintainable.

The grounds on which the petition was dismissed:-

Provisions of the Companies Act, 2013

  • SECTION 241 and 242 deal with prevention of oppression and mismanagement by the majority on the minority shareholders.
  • According to section 244 (1) (a), to seek relief under sections 241 and 242, the petitioner(s) need to comprise “not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company.”

 

  • Section 244 (1) (b) gives NCLT the power to grant a waiver, of the 10% threshold requirement cannot be mandatory.

 

Cyrus Mistry Shareholding in Tata Group

  • According to Cyrus Mistry group – Mistry group holds 18.4% of total shares (Preference Shares + Equity Shares) in Tata Sons (the holding company of the Tata Group) and meet the eligibility criteria as per Section 244 of the Companies Act, 2013.
  • According to Tata Sons – As per Tata Sons, Cyrus Investments and Sterling Investment Corporation, Mistry’s family investment arm via which he has filed the petition, are just two of the 51 members of the company and hold just 2.17% of its paid-up share capital, their petition is not maintainable on either of the counts. It has alleged that although the two Mistry firms hold 18.4% of the ordinary shares of the company, they hold just 2.17% of the issued share capital when even preference shares are considered.

 

Note: views expressed herein the article by the author are her personal views.

 

 

 

Evaluating Whether Corporate Policies (Private Policies) are Enforceable as Contracts

Evaluating Whether Corporate Policies (Private Policies) are Enforceable as Contracts.

INTRODUCTION

In Privacy law a privacy policy is defined as a legal document that discloses some or all of the ways a party gathers, uses, discloses, and manages a customer or client’s data. The main purpose of Privacy policy is protecting a customer’s or client’s data. The customer’s personal information can be anything that is to be used to identify that individual, it is not limited to his/her name but includes named too. In addition to this date of birth, marital status, contact information, Id issue, medical history etc. are contained in the privacy policy.[1] In case of business it is often a party's policy on how it collects, stores, and releases personal information it collects. It informs the client what specific information is collected, and whether it is kept confidential, shared with partners, or sold to other firms or enterprises.[2]  However, the exact contents of privacy policy will depend upon the applicable law and may needaddress requirements across geographical boundaries and legal jurisdictions. Most countries have their own legislation and guidelines of who is covered, what information can be collected, and what it can be used for.

Section 43A of Information Technology, 2000 was amended and provides that compensation is to be granted in case a corporate body is negligent in dealing or handling or implementing reasonable security practices and procedures and thereby causes wrongful loss or wrongful gain to any person. 

WHETHER PRIVACY POLICY, ENFORCEABLE AS CONTRACTS

It is difficult to evaluate that whether Privacy policies could be enforceable as contracts or not. Also, the law surrounding the contractual nature of privacy policies remains unsettled. Questions came before the courts that whether these are merely broad company policies or enforceable contracts?

To this some courts have held that general statements like privacy policies are unilateral corporate statements that are not sufficiently definite to form a contract. Others have found privacy policies can form a contract, particularly when parties claiming a breach have alleged that they read and subsequently relied on the policy prior to transacting business with the site operator.[3]

Regardless, any successful claim for breach of contract requires a showing of compensable loss arising out of the alleged breach, beyond a generalized claim of loss of privacy.

In Smith v. Trusted Universal Standards in Electronics Transactions Inc  [4] the plaintiff alleged that his Internet service provider failed to adhere to its privacy policy by failing to explain fully why his communications were blocked for spam-related violations.

The Court in this case held that the plaintiff seemed to have alleged that the privacy policy provisions allegedly violated were part of his agreement with his ISP and that he relied on them.However, the court dismissed the plaintiff's contract claims, with leave to amend, because the plaintiff failed to plead any loss stemming from the alleged breach.

Similarly, in Cherny v. Emigrant Bank[5] the court ruled that the disclosure of an e-mail address allegedly in contravention of the defendant's privacy policy that resulted in the plaintiff's receipt of spam, but no other misuse, could not form a cognizable breach of contract action because of a lack of recoverable damages.

 


[1] McCormick, Michelle. "New Privacy Legislation." Beyond Numbers 427 (2003): 10-. ProQuest.Web. 27 Oct. 2011

[2]Webfinance, Inc (2011). "Privacy Policy".Retrieved 23 October 2011.

[3] Meyer v. Christie,  2007 WL 3120695 (D. Kan. Oct. 24, 2007).

[4]2010 WL 1799456 (D. N.J. May 4, 2010),

[5]604 F.Supp.2d 605 (S.D.N.Y. 2009)

 

Note: views expressed herein the article by the author are her personal views.

Features of New Trade Mark Rules, 2017

Features of New Trade Mark Rules, 2017

The New Trade Mark Rules, 2017 have been notified by the Ministry of Commerce and Industry [Department of Industrial Policy and Promotion] and have come into effect from 06th March, 2017. These rules shall replace the erstwhile ‘Trade Mark Rules 2002’, will streamline and simplify the processing of Trade Mark applications. 

The overall intention is to simplify the whole trademark registration process and make it hassle-free and quick. It would in turn is expected to expedite the overall process of trademark administration which had been taking longer time more than the expected time.

E-filing and addition of email as an important part of address can be seen as an effort to further promote digitization which is one of the prime objectives of the Government of India.

Some of the noteworthy features of the new rules are as follows:-

  • Startups means an entity, incorporated or registered in India, not prior to five years, with annual turnover not exceeding INR 25,00,00,000 in any preceding financial year and working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. However, if any entity formed by splitting up, or reconstruction, of a business already in existence, it will not be considered as a startup and also, an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration. A Startup needs to obtain certification from the Inter-Ministerial Board.
  • Small Enterprises are the enterprise engaged in the manufacture or production of goods, where the investment in plant and machinery does not exceed the limit of INR 10,00,00,000 and in case of an enterprise engaged in providing or rendering of services, where the investment in equipment is not more than the limit of INR 5,00,00,000.
  • Sound Marks

Prior to the Trademark Rules 2017, the practicality of registering sound marks was quite difficult. While applicants would file applications to record sound marks by representing them graphically [the notes] or by spelling out the tune, but now the amended Rules has introduced the facility for the registration of a Sound mark.  In the Trademark Application for a Sound mark, the Mark will be required to submit in the MP3 format not exceeding 30 seconds’ length along with a graphical representation of the sound notations.

  • Expedited Processing of Trademark Application

Earlier, only the examination of an application could be expedited. Several applicants who ended up the fee to expedite the process would have an examination report issued in weeks but would have to wait for the rest of the process to take place serially based on the applications. The amended Rules now provide for the expedited process at each step. Request for expedited processing of application may be made for the registration of a trademark in Form TM-M mentioning the reason for expedited examination and on payment of fee which is 5 times the Application filing fees. Ordinarily, the application will be examined in 3 months from the date of Application, the response of examination report, advertisement of mark, opposition, if filed and hearing, if required to be scheduled will be considered early. Also, only e-filing of expedited processing of application is allowed.

  • Renewal

Application for Renewal of registration of a trademark may be filed within one year before the expiration of the registration of the trademark under FORM TM-R with the prescribed fee. Earlier, the Application for renewal could be filed only six months prior to the expiration of the trademark. It must be filed under Rule 25 [3] and 25 [4] for each class. For such applications, the trademark restoration and renewal fee should be Rs. 18,000/- for e-filing and Rs. 25,000/- for physical filing.

  • Applicant’s Affidavit will be required to claim the ‘use’

Earlier, it was Examiner’s discretion to call for Affidavit claiming the use of a particular mark. However, the new Rules have made it mandatory for the Applicant to file an Affidavit along with the supporting evidence to claim use of the mark. So, if an application is to be filed claiming usage in India, an affidavit with evidence of use has to be submitted along with the application.

  • Electronic Service of Document

The New Rules provides for electronic service of documents including all applications, notices, and statements, papers having representations or any other document, which means the Registry may send an official communication through email and it will amount to service of such document on Applicant/Opponent / Agent provided the email has been sent to the id given.

There was an issue regarding the service of examination reports as applicants often used to claim that they never received the reports, which even resulted in trademark registry abandoning 1,67,781 marks.

The new rules even go a step further in the case of opposition proceedings where an applicant can file a counter statement if they see the notice of opposition merely uploaded on the Registry website.

Therefore, these are the changes that have come about through the new Rules.

Revised Fee Schedule as per the New Trademark Rules, 2017:-

I. Expedited Process of Trademark Registration

A. For Individuals and Sole Proprietor Rs. 20,000/-

B. For all other entities Rs. 40,000/-

II. Trademark Fee for Opposition or Rectification

Fee for Notice of Opposition Under Section 21[1], 64,66 or 73 or application for rectification of register under section 47 to 57, 68,77 or application under rule 99, 103, 140 the fee is Rs. 2700/- for E-Filing and Rs. 3,000/- for Physical Filing.

III. Trademark Fee for Renewal of Existing Trademark

Rs. 9,000/- for E-Filing and Rs. 10,000 and for Physical Filing.

IV. Trademark Fee for Restoration and Renewal

The Application for restoration and renewal fee would be Rs. 18,000/- for E-filing and Rs. 20,000/- for Physical filing.

V. Trademark Fee for Search Certificate

Fee for issue of Search Certificate is Rs. 9,000/- for E-Filing and Rs. 10,000/- for Physical Filing. In case of expedited issue of Search Certificate, the fee would be Rs. 30,000/- for E-Filing.

 

Note: views expressed herein the article by the author are his personal views.

The Insolvency and Bankruptcy Code 2016- An Overview

The Insolvency and Bankruptcy Code, 2016: An Overview

Introduction

The Insolvency and Bankruptcy Code, which was recently passed by the Parliament not only paves the way for much needed reforms but also focuses on the Creditor driven insolvency resolution. The Act consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner . One of the key features of this act is the establishment of an Insolvency and Bankruptcy Board of India.

At present, there are multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The current legal and institutional framework does not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system. Recognizing that reforms in the bankruptcy and insolvency regime are critical for improving the business environment and alleviating distressed credit markets, the Government introduced the Insolvency and Bankruptcy Code Bill in November 2015, drafted by a specially constituted 'Bankruptcy Law Reforms Committee' (BLRC) under the Ministry of Finance.

FRAMEWORK OF CODE:

  • Insolvency and Bankruptcy Board of India (“Board”): The Board will be set up as the regulator under the Code.
  • Insolvency Professionals: The code proposes to regulate insolvency professionals and insolvency professional agencies. Under the oversight of the Board, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role. Three sets of Resolution Professionals are sought to be appointed – Interim Resolution Professional, Final Resolution Professional and Liquidator.
  • Insolvency Information Utilities: The Code proposes for information utilities which would collect, collate, authenticate and disseminate financial information from listed companies as well as financial and operational creditors of companies.
  •  Insolvency Adjudicating Authority: The adjudicating authority will exercise jurisdiction over cases by or against the debtor.
     

The Corporate Insolvency Resolution Process (Chapter II of the Insolvency and Bankruptcy Code, 2016)

  1. Application on default: Any financial or operational creditor(s) can apply for Insolvency on default of debt or interest payment.
  2. Appointment of Insolvency Professional (IPs) : Insolvency Professionals to be appointed by the regulator and approved by the creditor committee, IPs will take over the running of the company. From the date of appointment of IP, power of Board of Directors to be suspended and vested in the IP, IP shall have immunity from criminal prosecution and any other liability for anything done in good faith.
  3. Moratorium Period: Adjudication authority will declare moratorium period during which no action can be taken against the company or the assets of the company. Key focus will be running the company on going concern basis. A resolution plan would have to be prepared and approved by the committee of creditors. The moratorium period is anything between 180-270 days.
  4. Credit Committee: A credit Committee of Creditors will be constituted. Related party to be excluded from committee. Each Creditor shall vote in accordance to voting share assigned if 75% of creditor approve the resolution.

Liquidation Process (Chapter III of the Insolvency and Bankruptcy Code, 2016)

  1. Initiation: Failure to approve resolution plan within specified days will cause initiation of liquidation. Debtor can also opt for voluntary liquidation by a special resolution in a general meeting.
  2. Liquidation: The IP may act as a liquidator and exercise powers of the Board of Directors. The liquidator shall form an estate of the assets and consolidate, verify, admit and determine value of creditor claims.

Challenges in implementation

The NCLT will face the biggest challenge in the process of transitioning existing cases to the IBC i.e. The code. The NCLT currently has 11 benches with 16 judicial members and seven technical members among them. Its mandate includes hearing cases earlier dealt with by the Company Law Board (CLB) under the Companies Act 2013, in addition to cases under the IBC. As of March 2015, there were around 4,200 pending CLB cases. All of these will now be transferred to the NCLT. In addition, the CLB receives around 4,000 new cases every year. Now these will have to be dealt with by NCLT.

Due to the ever-increasing backlog of cases and the duty to implement the new statute, the Insolvency and Bankruptcy Board will have to face grievances in a manner which can fast track the existing system. The procedures and the common practices under it also need to develop independently from the case law which is in the present Insolvency and Bankruptcy Regime.

Conclusion

The Code sets out certain provisions to amend the existing laws to avoid litigation in the future however a clear provision needs to be introduced to explicitly state the existing laws being repealed by the introduction of this legislation so that there is no confusion and the same is implemented smoothly.

 

Note: views expressed herein the article by the author are her personal views.

 

 

 

Corporate Insolvency Resolution Process

CORPORATE INSOLVENCY RESOLUTION PROCESS                                                                                                     

At present, there are number of laws in the country which are overlapping in one way or the other particularly dealing with insolvency and financial drawbacks of companies. To deal with the bankruptcy and insolvency regime and alleviate distress in the credit market, ‘the Insolvency and Bankruptcy Code, 2016’ was enacted by the Government which is a major development intheeconomic reforms for India, and its effects shall be witnessed in the times to come. Ithas replaced overa dozen laws and ifits implementationis carried out in a precise manner, Indian economy would witness a definite surge and improvement in the recovery of bad debts.

A corporate insolvency regime identifies the signs of insolvency and then initiates the processquickly. Corporate Insolvency Resolution Process is for the corporate persons and is contained in Sections 6 - 32 of the Code 2016, wherein the corporate debtors commit default with respect to the debt of Rs 1 Lakh or more. The primary onus to initiate a resolution process lies with the corporate debtor, and creditor may pursue a separate action for recovery, security enforcement and debt restructuring. It is a process wherein financial creditors assess whether the debtor’s business is in a state to continue and its option to rescue from the same.

As per the provisions laid down in the Code, where the default is committed by the corporate debtor, there are three persons who can initiate the proceedings; a) A financial creditor (by itself or jointly with other financial creditors) or, b) An operational creditor or, c) The corporate debtor through Corporate applicant i.e. corporate debtor itself; or an authorized member, partner of corporate debtor; or a person who has control and supervision over the financial affairs of the corporate debtor). Sec. 4 of the Code states that a financial creditor may file an application itself or jointly against a corporate debtorbefore the National Company Law Tribunal (NCLT), showing them the proof of default and praying for an Interim Insolvency Resolution Professional to be appointed. Upon receipt of such application, the NCLT is obliged to ascertain the existence of default from the records so maintained by the Information Utilities or on the basis of other evidence furnished by the creditor.

Under Sec. 6 of the Code, an operational creditor may file an application against the corporate debtor for initiating the corporate insolvency resolution process but first serve a demand notice along with a proof of default, giving the debtor 10 days to dispute the claim. The corporate applicant or the debtor is also empowered under Sec. 7 to initiate the proceedings against a corporate debtor before NCLT. Further, the authority may reject or accept the application within 14 days. The Interim Resolution Professional is appointed whose term shall not exceed 30 days from the date ofappointment and a public announcement is made stating all the required information under sec. 15 of the Code. In the meantime, after admission of the application, NCLT shall declare a moratorium which is the most significant feature of the code, through which many activities as mentioned under sec. 14 can be dealt with. The Professional constitutes a committee of creditors where a memorandum of information is prepared. Thus, a plan is formulated and examined by the resolution professional, and which is further to be approved by the committee of creditors and the adjudication authority (NCLT). The whole process is to be completed within 180 days of the date of default and can be extended for a period of 90 days for once and no further.

The whole process is practical, time bound and beneficial for all stakeholders of the company. The Code has provided for a fast-track insolvency resolution process in respect of corporate debtors, qualification to be notified by the Government.It is a viable and effective tool to curb out the ongoing problems. Each and every step in the way shall be mindful and thoughtful for an overall progress. Thus, for an effective implementation of the Code, the government and the Board should adopt a vibrant approach in removing the hurdles of the credit market.

 

Note: views expressed herein the article by the author are her personal views.

Insolvency and Bankruptcy Code- Fresh Start Process

INSOLVENCY & BANKRUPTCY CODE- FRESH START PROCESS

GENERAL OVERVIEW

Insolvency is a financial state of a person when they are unable to pay off their debts while Bankruptcy is a legal process which helps in resolving the process of Insolvency.  The difference is that, insolvency is a state of affairs, which triggers the legal process of bankruptcy. The domestic banking industry of Indian economy has been striving to endure with an overturn of poor loans which has been a stressful situations ever since. In such situation there has to be certain provisions which would supersede the matters pertaining to Insolvency and Bankruptcy. The prevailing laws guiding insolvency includes Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 neither of which provides insolvency resolution process i.e. a fresh start to the persons declared as bankrupt. Negotiating the Insolvency for companies includes Companies Act, 2013, Sick Industrial Companies Act, 1985 Recovery of Debt Due to Banks and Financial Institutions Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Hence, there is turmoil of jurisdiction over the insolvency and bankruptcy process. In such a situation, an Act has been passed by the Parliament to overcome and aim at focusing on the concerns of domestic as well as foreign creditors by securing the bankruptcy process.

INSOLVENCY AND BANKRUPTCY CODE, 2016

IBC – Insolvency and Bankruptcy code, 2016 was passed by parliament on 11th May 2016, received Presidential assent and notified in the official gazette on 28th May, 2016. “An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.” – Objective section of the Act. Insolvency and Bankruptcy code, 2016 reassures resolution as means of primary resort for recovery. Time bound resolution of defaults and seamless implementation of liquidation with maximizing asset value is an objective of the Act. With the help of Insolvency resolution process which will help in the formation of Information Utilities, an individual would discharge all his current liabilities in a systematic approach. Now the jurisdiction of Insolvency resolution process will be dealt in Debt Recovery Tribunal i.e. DRT rather than District court. The code has set the framework for bringing in changes in the debt recovery tribunals. It also proposes to use the existing infrastructure of National Company Law tribunals and debt recovery tribunals to address corporate insolvency and individual insolvency, respectively. IBC recreates the regime “Debtor in possession” to “Creditor in control” which resolves the insolvencies in a strict bound manner i.e. evaluation and determination of viability to be completed within 180 days. A key innovation of the Insolvency and Bankruptcy Code is four pillars of institutional infrastructure which include Insolvency Professionals, Information Utilities, Adjudication and The Insolvency and Bankruptcy Board of India.

RESOLUTION PROCESS

Corporate Insolvency Resolution Process (CIRP) - Corporate Insolvency Resolution Process involves four stages which include Application on Default – Appointment of Insolvency Professional (IP) – Moratorium period – Credit committee, failure of which initiates Liquidation process.

  • Application on Default - Any creditor (i.e. financial or operational) can apply for insolvency on default of debt or interest payment.
  • Appointment of Insolvency Professional (IP) – From the date of appointment, the power of board of director’s vests in the Insolvency Professional having immunity for criminal prosecution and be approved by the creditor committee.
  • Moratorium Period - Adjudication authority shall declare moratorium period during which no action can be taken against the company or the assets of the company and a Resolution plan would have to be prepared and approved by the Committee of creditors.
  • Credit committee - A credit committee of creditors will be constituted and each creditor shall vote in accordance to voting share. The resolution plan shall be implemented if 75% of creditors would approve.

Liquidation Process – Failure to approve the resolution process will cause to initiate the Liquidation process. Termination of legal status of the company or winding up of the company is called Liquidation. The shareholders or creditors often lead it and a petition is filled in the court for winding up the organisation. The Insolvency Professional acts as the liquidator at the same time functions as Board of directors. As the liquidation process is limited to companies, it is not necessary that every company which is liquidated is bankrupt.

The Insolvency and Bankruptcy Code is a milestone of legislation providing a major facelift to the existing regime relating to restructuring of insolvency and bankruptcy in India. There are provisions that disqualify anyone declared bankrupt from holding public office, ensuring that politicians and government officials cannot hold any public office if declared bankrupt.

 

Note: views expressed herein the article by the author are her personal views.

Doctrine of Indoor management

Doctrine of Indoor management

The Doctrine of Indoor management, popularly known as the Turquand’s rule initially arose some 150 years ago in the context of the doctrine of constructive notice. The rule of Doctrine of Indoor Management is conflicting to that of the principle of Constructive Notice. The latter seeks to protect the company against outsiders; the former operates to protect outsiders against the company. The rule of constructive notice is confines to the external position of the company and, therefore, it follows that there is no notice as to how the company’s internal machinery is handled by its officers. If the contract is consistent with the public document, the person contracting will not be prejudiced by irregularities that may beset the indoor work of the company.

The Doctrine of Indoor Management lays down that persons dealing with a company having satisfied themselves that the proposed transaction is not in its nature inconsistent with the memorandum and articles, are not bound to inquire the regularity of any internal proceeding. In other words, while persons contracting with a company are presumed to know the provisions of the contents of the memorandum and articles, they are entitled to assume that the provisions of the articles, they are entitled to assume that the officers of the company have observed the provisions of the articles. It is no part of duty of any outsider to see that the company carries out its own internal regulations.

It is important to note that the notice of constructive notice can be invoked by the company and it does not operate against the company. It operates against the person who has failed to inquire but does not operate in his favor. But the doctrine of “indoor management” can be invoked by the person dealing with the company and cannot be invoked by the company.


ORIGIN OF THE DOCTRINE

The rule had its genesis in the case of Royal Bank v Turquand. In this case the directors of the company authorized by the articles to borrow on bonds such sums of money as should from time to time by a special resolution of the Company in a general meeting, be authorized to be borrowed. A bond under the seal of the Company, signed by two directors and the secretary was given by the Directors to the plaintiff to secure the drawings on current account without the authority of any such resolution. Then Turquand sought to bind the Company on the basis of the bond. Thus that question arose whether the company was liable on that bond.

The Court of Exchequer Chamber overruled all objections and held that the bond was binding on the company as Turquand was entitled to assume that the resolution of the company in general meeting had been passed.

The relevant portion of the judgment of Jervis C. J. reads:

“The deed allows the directors to borrow on bond such sums or sums of money as shall from time to time, by a resolution passed at a general meeting of the company, be authorized to be borrowed and the replication shows a resolution passed at a general meeting, authorizing the directors to borrow on bond such sums for such periods and at such rates of interest as they might deem expedient, on accordance with the deed of settlement and Act of Parliament; but resolution does not define the amount to be borrowed.”

Conclusion

The gist of the rule is that persons dealing with limited liability companies are not bound to enquire into their indoor management and will not be affected by irregularities of which they had no notice. The rule enunciated in Turquand has been applied in many cases subsequently and generally in order to protect the interests of the party transacting with the Directors if the Company. Applying the rule, now it cannot be argued that a person having dealings with a Company is deemed to have notice of who the true Directors are, and this being shown by public documents i.e. the registers of the directors required to be maintained by the company and the notices of charges.

 

Note: views expressed herein the article by the author are her personal views.

1488894391-RAVALI_REDDY_.PDF

Whether Right to Strike is a Fundamental Right

Strike is a cessation of work by the employees for any length of time under a common understanding to put pressure on an employer to accept their demands. Strike is a powerful weapon in the armory of workmen. It is available when there is a dispute between employer and employee. Skilful use of this weapon may help the workmen to force the employer to accept their demands. Strike is a weapon that disempowered to fight in oppressive cases when no constructive option is left. It is the last resort taken out of exasperation. It is a weapon that provides an opportunity for collective bargaining.

The  Right to Strike is a hotly debated topic in India today. The courts through various decisions (Supreme Courts, High Courts as well as others) have set out their stance on the issue.

It was the landmark decision  of the Supreme Court in the case of T.K. Rangarajan v. Government of Tamil Nadu and Others[1] where it was held that the government employees have no moral, fundamental or statutory right to strike.

Prior to this ,in the year 1961 ,  Supreme Court in the case of Kameshwar Prasad v. State of Bihar[2] that even a very liberal interpretation of Article 19 (1) (c) could not lead to the conclusion that the trade unions have a guaranteed fundamental right to strike.

In All India Bank Employees’ Association v. National Industrial Tribunal[3] it was contended that the right to form an association guaranteed by Article 19 (1) (c) of the Constitution, also carried with it the concomitant right to strike for otherwise the right to form association would be rendered illusory. The Supreme Court rejected this construction of the Constitution: “to read each guaranteed right as involving the concomitant right necessary to achieve the object which might be supposed to underlie the grant of each of such rights, for such a construction would, by ever expanding circles in the shape of rights concomitant to concomitant right and so on, lead to an almost grotesque result.”

The Article 19 of the Indian Constitution recognizes the Right to Protest  peacefully as a fundamental right .However, the Right to Strike has been held to be only a legal right..

 


[1] SLP (C) No.12224 of 2003

[2] 1962 AIR 1166, 1962 SCR Supl. (3) 369

[3] 1962 AIR 171, 1962 SCR (3) 269

1479386256-Right to Strike.pdf

CSR Expenditure: Deductible issues under Income Tax Act

CSR Expenditure: Deductible issues under Income Tax Act

Background:
India is the first country in the world where the voluntary guidelines for CSR has embedded into a statutory legislation. The debate started after implementing the Section 135 of the Companies Act, 2013 with effect from April 1, 2014, whether the CSR expenditure so mandated to be
incurred by every eligible company would be considered as an expense for the purpose of Income Tax Act, 1961. In other words, an urgency was felt to incorporate amendments in the Income Tax Act,1961 allowing CSR expenditure in correspondence with the related amendment in Section 135 of the Companies Act, 2013. As the excitement over the tax benefit among the corporates impounded because of the expectation from the new government was very high to
see “Acche Din Aa Gaya Hain”. Before July 10, 2014, Industry was hoping that the government would clear the confusion over CSR expenditure and propose a new clause in the Finance Bill 2014, which would allow as deduction under section 37 of the Income tax Act,1961. But the recent amendment in the Finance Act, 2014 has defeated the real purpose of bringing CSR related provision in the Companies Act, 2013. A great setback to Industry as the CSR spending will not be allowed as tax deductible expenditure.

1479385678-CSR- Deductible issues.pdf

GST: THE ISSUES, CONCERNS AND IMPACT

GST: THE ISSUES, CONCERNS AND IMPACT

Background:

For nearly last one decade, we have been discussing much about the marriage between the Centre and State through the implementation of the long awaited Goods and Services tax (GST).

The uncertainty about the date of marriage remains a big question as the recent conclusion of the second leg of the budget session expired on May 13, 2016. The single biggest tax reform since
Independence, encompassing both goods and services, has been creating a buzz amongst all stakeholders and is to be implemented by the Centre, 29 States and 2 Union Territories. GST is going to be a game changer in a large and complex federal system through a constitutional amendment which would potentially affect 2-2.5 million tax entities in India. The implementation of GST would help in reducing the cascading effect of taxes on the cost of goods and services by creating a common market and marshalling the latest technology to use in modern global tax history. It will have an impact on business operations, tax structure, tax incidence, tax computation, supply chain management, credit utilisation and compliance system etc., leading to a complete overhaul of the current indirect tax system.

GST is a multi-stage destination based consumption tax instead of the present system of origin based tax levied at multiple stages of production and distribution of goods and services, with taxes on inputs credit against taxes on output. It is essentially a value added tax on goods and services on each stage of the supply chain. GST aims to simplify the current indirect tax regime by bringing central and state levies under a single head, with uniform tax rates across goods and
services.

1479384520-Article on GST _Final_.pdf