The article is written by Pranay Bhattacharya, Maharashtra National Law University, Aurangabad.

The Companies (Amendment) Act, 2017 as well a recent ordinance promulgated on 2nd November 2018 saw landmark amendments and changes in the old provisions of the previous Companies Act, 2013. If you are interested in company law, you need to keep up with these. The actual number of amendments are higher, but I am collating the most impactful ones over here for a quick read.

Here are some of the key provisions amended in the Act through the 2017 amendment act which would have a broad effect on the corporate governance in India:

• Incorporation of Company (Section 5): Under the new amendment Act, in case the number of members falls below 2 in case of private company and 7 in case of public company and they continue to carry on the business for a period of 6 months or more; then the existing members would be liable for the whole debts of the company and can be sued for any default made thereon.

• Registered Office(Section 6): The company can register its office from the date of commencement or any changes required to be made in a previously registered office  can be made within 30 days under the new amendments Act (previously 15 days under the Companies Act,2013)

• Signing of Documents (Section 7): Any documents/ file which requires authentication can be signed by the company employees (authorized by the Board of Directors) on behalf of the company under the new amendments Act.

• ·Prospectus of the Company (Section 8): The new amendment states that the rules and regulations to be mentioned in the prospectus must be made according to the SEBI guidelines and not the Companies Act.

• Debentures and Issue of Shares (Section 12): As per the new RBI Act, 1934 or the Banking Regulation (Act), 1949 if any debt restructuring scheme or any debt is converted to shares, the company can sell those shares at a discounted price to its creditors.

• Declaration of Profits and Payment of Dividends (Section 32): Under the new amendment the company is exempted to declare notional and unrealized gain, changes /revaluation of assets, liability on assets etc. while making profit declaration and payment of dividends.

• Reports of Subsidiary (ies) (Section 38): Audited/ unaudited reports of the foreign subsidiary (ies) can be placed in the same audit report of the holding company. No separate audit report is required under the new amendment.

• Meetings of the Board (Section 56): Under the new amendment Act, the directors can participate in the key managerial decisions of the company by video-conferences and audio visuals, provided that sufficient quorum of board of directors are physically present.

• Granting Loans by Directors (Section 61): Now, the directors have power to approve and credit loans to any person, by the approval of a special resolution passed in the general assembly meeting, provided that the loans to be utilised for the “Principal Business Activity” (of the borrower)

• Managerial Remuneration (Section 67): The directors of the company are now allowed to receive “managerial remunerations” as per the recommendations made by the shareholders of the company (earlier it was as per Central governments norms and was capped at 11% of the net profits of the firm).

• Annual General Meeting (Section 26): The new amendment allows the unlisted companies to hold their meeting at any place in the country with the consent of all the members. But, the provision remains same for other companies; it is to be conducted either in the headquarters or any registered office. So, the new amendment gave more freedom to unlisted companies.

• Rights to Auditors (Section 40): The new amendment removed the provision of annual ratification of the auditors once they are appointed by the company for a period of 5 years.

• Repealing restrictions on Insider Trading (Section 64, 65): The directors can now deal in company securities and do insider trading of securities, as per the Securities Act, 1933

• Issue of Sweat Equity (Section 13): The new amendments also allow the companies to issue sweat equities within a period of one year from the date of commencement of the company.

After the last round of amendments made in the old provision by the new Companies Act, 2017, the Ministry of Corporate Affairs on 2nd November passed Companies (Amendment) Ordinance, 2018 to further amend the Act. Therefore, the Ministry of Corporate Affairs through the ordinance notified the companies to comply. Some of the major reforms made through the ordinance are:

• Commencement of the Business: The company cannot commence its business by any borrowing power, provided:

a) A declaration made by the directors of the company within 180 days from the date of commencement that every subscriber has paid the value of the shares;

b) The registered office of the company has been verified by the Registrar of Companies within 30 days of commencement

In case of the aforesaid default, the company will be liable to pay a sum of Rs 50,000 and the officers to a sum of Rs 1000 each day (not exceeding Rs 1 lakh). In addition to this the registrar has the option to remove the name of the company in such a case.

• De-clogging the National Company Law Tribunal (NCLT): The Central Government delegated NCLTs jurisdiction to the registrar of companies and the regional director (up to Rs/- 25 lakhs) for speedy trial of the corporate disputes.

Further, the foreign companies have the right to decide any financial year by getting an approval from the Central Government. Similarly, in case of conversion of public company to private company, approval of central government is required. Earlier, this authority was under the jurisdiction of NCLTs.

• Powers to Adjudicating Officers: The adjudicating officers will now have the additional powers of rectification of defaults in addition to imposing penalties. This has been done to ensure better administration and governance within the company.

• Double Penalty for Defaults: In case of similar nature of default is made by a member within a period of 3 years, double the amount of penalty will be imposed as compared to the first one.

• New provisions of Punishment to Directors: The ordinance promulgates financial penalty clause (removing imprisonment) in case of fraud, benefitting from the company’s funds, and formation of company for charitable purpose etc. These acts will now be considered as compoundable offences under the jurisdiction of regional directors from Rs/- 5 lakhs to Rs/- 25 lakhs. So, the punishment of imprisonment has been substituted for penalty.

• Declaration of Interest: If any member or director holds more than 25% of beneficial interest from the shares of the company, he/she is required to make a declaration. Failure to comply with it will lead to a fine of 1 lakh to 10 lakh rupees, or imprisonment for 1 year, or both.

• Remuneration of the Directors: The ordinance removes the provision of remuneration of Independent directors but he/she may be entitled to receive commission, reimbursement of expenses made for the company, indemnity and other services including sitting fees.

• Disqualification of Directorship: As per the new ordinance, a person cannot be a director of more than 20 companies, in case of any default contravening the provision will lead to termination of directorship.

• Fulfilling Corporate Social Responsibility (CSR) Obligations: As per the new ordinance, the companies have a duty to fulfill their Corporate Social Responsibility in compliance with the provisions of the Act and in case of failure, reasons have to be presented to the Board. Further the companies are required to open an “Unspent CSR Account” and deposit unutilized funds of that financial year towards fulfilling their CSR obligations.

CONCLUSION

The Amendment Acts are advancement towards a new model of futuristic Companies Act by removing uncertainties and inefficiencies of the old enactment. It has likewise adjusted the ineffective provisions of the Companies Act, 2013 in conformity to Security Act and RBI guidelines in the new Act. Therefore, we welcome this new model for advancement of corporate governance.

To learn more about Companies Act, Corporate Governance and SEBI Regulations with its practical application, click here.

The post 23 Most Important Recent Amendments (since 2017) to the Companies Act, 2013 appeared first on iPleaders.

This article is written by Raghvendra Pratap Singh, a graduate of ILS Law College, Pune and an advocate practising in Supreme Court of India extensively dealing with complex international and domestic arbitration matters. This article has significant inputs from Ramanuj Mukherjee, CEO, LawSikho.

Globalisation of business is a reality of today’s world. International contracts, bilateral and multilateral agreements between various countries are a clear testament to the fact that there are cross-border business and trade development. International trade has been a significant contributor of global GDP as is also evidenced from the report titled Global Flows in Digital Age by McKinsey Global Institute published in 2014 according to which international trade of goods and services and finance constituted 36% of global GDP in 2014.

India has also been an active participant in the globalisation of business. In fact, India is one of the greatest beneficiaries and driver of globalisation of trade and business.

As Indian lawyers, this opens up multifarious avenues for us to act outside our domestic jurisdiction. International business and trade bring with it numerous opportunities for international contract drafting, negotiations, transaction management, compliances, enforcement, advisory and also dealing between states, from intergovernmental agreements, treaties, notices and other documents with legal implications of various nature. However, most of all, globalisation has opened up avenues for international lawyers to actively participate in dispute resolution.

Unfortunately, very few Indian lawyers and law firms have been able to take advantage of this. International law firms from London and Singapore tend to handle a major chunk of international legal work involving India. For this reason, over the last couple of decades, India qualified lawyers or those with experience of practicing in India has been sought after in all big international law firms. Most big law firms in USA, UK, Singapore or Dubai tend of have an India desk or India work specific team.

With rising importance of India in global economic order and India becoming a top investment destination, as well as increased investment by Indian entrepreneurs in other countries have led to a greater demand for lawyers with Indian experience across the world.

However, arbitration is probably the one area of law that is most open to Indian lawyers, and an area that is intensely desired by Indian lawyers. Just get this, even Indian litigation royalty like Harish Salve spends a lot of time abroad, especially London, every year, working on international arbitrations.

If it is good enough for Salve, I am sure it will have its appeals as far as you are concerned.

Opportunity for Indian lawyers in International Arbitration

Although India is an attractive destination for investment and trade, the inability of Indian judicial system to provide speedy resolution to disputes and efficient contract enforcement has been a thorn on the side of investors and entrepreneurs alike. International businesses are dissuaded from coming to India due to its pathetic civil justice system where a simple matter of contract enforcement can languish in court for decades.

However, businesses and investors are increasingly opting for arbitration as a method of dispute resolution to bypass courts. Also, due to bilateral investment treaties and rising foreign investment, there are also investment arbitrations happening fairly regularly. Frequently, the seat of such arbitration is outside India, in places such as Singapore, Dubai, Hong Kong and London being staple choice.

Interestingly, there are Indian companies, from technology to finance, which have begun to make inroads in foreign companies. Good example will be Ola, Oyo, Zomato, POsist etc. Even companies providing services from India to foreign companies or selling products to foreigners are entering into international arbitration agreements, or into contracts that have dispute resolution clauses requiring disputes to be resolved by international arbitration.

This is providing an opportunity for Indian arbitration lawyers with good skills to work internationally. In fact, there is a massive market for such work, while there are only few lawyers qualified to do such work! This opportunity is only going to expand in the years to come.

In what capacity one may work in international arbitration?

Arbitration as a mode of dispute resolution can be of two forms:

1. Commercial arbitration.
2. Investment Arbitration

Commercial arbitration involves private parties whereas investment arbitration requires at least one party to be the Government or ’State’.

Arbitrator

It is possible to work as arbitrator also, but usually, such honour is reserved for the most well-known jurists. You can get there with time if success and reputation is on your side.

Apprentice with arbitration lawyers

You are more likely to work as a lawyer arguing before arbitrators in international arbitration, or simply assisting more well-known lawyers with research, drafting, and briefing. Busy lawyers who are working on a lot of matters at once need great juniors who can give an amazing briefing. That’s how as a young arbitration lawyer you can cut your teeth.

Work in dispute resolution team of law firms

International law firms are on the lookout for arbitration lawyers who not only understand the Indian law but also those who can provide them with an insight into the culture as well as local aspects of the matter. There are also plenty of Indian law firms representing clients in tons of international arbitration. Sometimes they are just looking for lawyers who can help to enforce an arbitral award in another country.

Arbitration Institutions

In addition, with the widespread acceptance of institutional arbitration, various international arbitration centres like the LCIA, ICC, SIAC are offering various opportunities for Indian arbitration lawyers. Most of the time, you will be working on assisting arbitrators, or you may work in the registry or that secretariat.

How can I bag these international opportunities?

Opt for an arbitration LLM

The most important factor for any young individual looking for an international opportunity could be an education from that jurisdiction. The most common path is to get an LLM from a well known foreign University. This is a good place to start, especially if you manage to get into an arbitration related LLM program.

In such programs, you will come across a lot of arbitrators and arbitration lawyers who can open doors for you. This also provides comfort to the potential recruiters that one would have a relevant understanding of the laws and skills not only local but also from an international perspective.

Build a genuine interest and track record

It’s hard to get a job, or even a seat in LLM if you wake up one day and say you are very interested in arbitration. A lot of young people claim that they are very interested in arbitration but have nothing to show that demonstrate that interest. Let’s say you are applying for a scholarship. I have two people between whom I have to decide. You have decent grades, good co-curricular, a couple of years of work experience in IP but no specific experience in arbitration. There is another person who has written 14 articles on arbitration, has been volunteering to edit a blog related to arbitration for last 4 years, participated in an well known international arbitration moot (though did not win anything), has co-authored two papers with well known arbitration practitioners and have done all internships since 3rd year of law school in the field of arbitration. However, you have no work experience and you are not in the top 20% of your class.

Who should I choose? If your CV demonstrates a distinct interest held over a long period of time and initiatives like these, you will automatically be selected for the most coveted things. Not only LLM seats and scholarships but even jobs.

It’s hard to fake genuine interest. If you are genuinely interested in something your track record will show that. Take care of this and you are halfway there!

You need to start early to build such track record.

Take advantage of international arbitration moots

There are some very well known international arbitration moots. Most well known will be Vis Vienna and Hong Kong. There are tons of others in every country, especially Europe. Opt for the ones which are well attended by the international arbitration community. These are fantastic places to find mentors, score internships and build a network.

Apprentice with an arbitration lawyer

Honestly speaking, arbitration law itself may not be that much to learn, but practice of arbitration is huge. There is a lot to learn. You will probably not learn even 2% of what you need to know in law school. Please find a practitioner of arbitration, if not international arbitration, and work for them for free while you are still a student. Or even afterwards, because the chance of landing a paid job is less. However, people find it hard to say no to a person not looking for money but just wanting to learn in exchange of free labour.

I would totally do it because it is really, really hard to learn otherwise.

Remember that I am not talking about usual internships that last for a month or two. Apprentice with a lawyer for at least 6 months or preferably a year if you want to learn anything worthwhile.

Extra courses

There are tons of courses on arbitration out there. You can pursue any of them, will be probably helpful. But particularly look out for courses that will teach you drafting, strategizing your case, procedural aspects especially through mock arbitrations, and can help you to network with the international arbitration community.

Write articles, blog posts and publish

The easiest way to build credibility when you are a law student or a young lawyer is to write articles of high quality and publish. Remember that writing articles for law journals would not only be hard but these journals usually take a lot of time (months) to publish. You want to publish frequently and regularly on different topics. For this purpose, publishing in a blog may be better.  

Also when you write in blogs, it is much easier to get more visibility and have more people read what you are writing. This helps you to build a bigger professional network and a wider audience for your articles leading to more recognition and more opportunities, therefore. Prioritize blogging.

Finally…

Most important tips for an aspiring arbitration lawyer that I can offer are – start early, be flexible, find a niche, keep an open mind and persevere. Success will follow!

Note from LawSikho: If you are interested in a career in arbitration, then check out LawSikho’s Executive Certificate Course in Arbitration: Strategy, Procedure and Drafting, this is one-of-a-kind of course on successful completion of the course, you will be able to handle arbitration proceedings for your client or your business, carry our related work and be at ease with procedural and strategic aspects of arbitration. Even if you plan to become an arbitrator, doing this course will prepare you for what you are going to face ahead. The course will provide you with live sessions, feedback, coaching from trainer to help you improve the quality of the work that you produce. Most of the high performing students get a recommendation to top law firms for jobs and internships.

We are also giving you 30 days to decide if you want to claim refunds after enrolling in the course. Check out the refund policy for details.

If you’re confused and haven’t made up your mind about the courses, you can immediately get the free material for the courses here.

To enrol for the course click here.

For any of queries, please email us at support@lawsikho.com

Get in touch with us for any queries at 011-39595032.

The post International Opportunities for Indian Arbitration Lawyers appeared first on iPleaders.

Written by Saanvi Singla , pursuing  Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions)   as part of his coursework.  Saanvi is a 5th year Law student at UILS, Panjab University and pursuing B.A. LLB (Hons.).

In any corporate transaction that is involved in acquiring any business or a stake in a business, it is the duty of the acquirer to conduct a proper due diligence of the target company’s assets and liabilities, in order to determine whether that business is worth being acquired in the long term and to analize any form of risks to the business. The acquirer must weigh the extent of the value of the assets, liabilities and potential risks that could be associated with the transaction and finally negotiate a fair prize for the transaction.

Intellectual property (IP) due diligence has become an integral part of the process of legal due diligence process.  Most times a huge amount is at stake with in respect of intangible assets of the target business, particularly in these times. So, the main task of IP due diligence is to investigate the intellectual intangible assets of a business, checking any valid or invalid IPRs subsisting therein and the scope of their protection, understanding the risks involved and in turn, assessing their current potential value.

The Volkswagen-Rolls Royce deal: An eyeopener

Ignoring crucial aspects of any type of intellectual property during the process of due diligence can actually cost a buyer / investor a ton of money. The Volkswagen-Rolls Royce deal of 1998 is the perfect example in this regard. Volkswagen at that time was quite interested in acquiring Rolls Royce and thus owning the automobile brands of Rolls Royce and Bentley. So, Volkswagen acquired Rolls Royce Motor Cars Ltd for a sum of $790 million. The irony of the whole acquisition deal was that till the end of the transaction, Volkswagen had no idea that it had merely acquired the right to the factory, facilities and right to make and sell the respective cars only for a period of 5 years along with the rights to use the marks of Bentley and Rolls Royce. They had in no way acquired the ownership over the name and brand Rolls Royce. In reality, the brand Rolls Royce was actually owned by its parent company with the name Rolls Royce Plc, and the parent company was mostly interested in granting license and further transferring the ownership to the competing group, BMW. After 5 years from the period of the so-called acquisition, BMW in the end became the exclusive right holder of brand of Rolls Royce and also acquired the rights to manufacture Rolls Royce vehicles. By not being vigilant and careful about assessing the true state of IPR ownership relating to Rolls Royce, Volkswagen had to pay a superfluous amount of money for the return it received from the abovementioned deal. This case has proved to be one of the best examples to show how undermining the importance of IP due diligence during any commercial transaction can lead to unprecedented and completely avoidable losses to the buyers / investors.

Points for Maximum Diligence

IP due diligence is an integral part of any M&A transaction in today’s world and is an essential in transactions such as project finance, joint ventures, investment (PE / VC) transactions, issuance of new stocks and securities etc. In spite of there being different sets of requirements for investigation, analysis, and valuation of various target companies, the below mentioned are the general requirements in an IP due diligence exercise for mostly all corporate transactions these days.

Identification of relevant ‘protected’ and ‘protectable’ subject matters under IP laws

The first and most basic action would be to comprehend the essential nature of target’s business and to properly identify all the intangible subject matters that are relevant to the business and will be the main subject matter of the investment or acquisition. The said subject matters could easily be ‘protected’ by registration of Trademarks, Copyrights, or Patents as applicable. The target must have taken some appropriate measures to guard its subject matters or products under the given IP laws. The target company may not have identified the subject matters that need protection. It is for precisely this reason that the first step in any case of IP due diligence is proper identification of protected and protectable subject matter.

If the given business is technology / product / software based, its new products, technologies, designs, unique business methods, and the like will be its principal IP-protectable subject matter. The same will later give rise to design rights, patent rights, trade secrets and/or copyrights as its important IP apart from the trademarks.

Analysis of IP rights over the subject matter (status check)

Once all the subjects have been identified, the next logical step is to check if all the specific IP rights that have been registered in favour of the target or are required to be registered by it. It is not only imperative to identify all the relevant IP-protectable subjects, but it is essential to identify whether such subjects meet the requirements for protection the under IP laws.

For the protection of know-how of a particular product, information and ideas, there are absolutely no statutory laws in India that govern, protect and regulate the same. The principles to protect the same have only been formulated under the common law (only through judicial pronouncements). Hence, appropriate steps should be taken to protect any type of significant business information, methods, pricing formulas and customer information, as trade secrets and confidential information should be concealed by way of non-disclosure and confidentiality agreements.

Check for applicable territory and terms (validity check)

Most of the IP rights are only valid for limited period and territories. One has to individually protect their IPs in all its areas of operation with the exception of copyright. According to the Berne Convention for the Protection of Literary and Artistic Works, if the copyright of any subject matter is protected in one of the countries that is a part of the Berne Union, then the same copyright shall also valid in the other member countries. Hence, it is also imperative to examine the particular territories in which the relevant IP rights are applicable or protected. If the target has operations in various countries, but it’s important IPs have not been protected and/or registered in all those jurisdictions, the same could become a major issue in the future for the prospective buyer / investor. In the process of IP due diligence process, the validity and the terms of validity should be checked.

Check for the origin of IP rights creation (ownership check)

This is one of the most important aspects of any IP due diligence: Determination of the Ownership. If the target is not the owner of a particular IP asset then it cannot transfer any title, rights and interests in the same to the investor.

When there are numerous associated parties, like a parent company, foreign associate companies, subsidiaries, etc., it is quite possible in this scenario that the IP is actually in the name of the associated units and the target merely possesses the right to utilize the same. Many a times, the companies that hold the IP rights are separately incorporated by corporate groups. In this case the specific IP holding companies own all IP rights and further grants limited rights to use to its associate companies, wherever deemed necessary, for utilizing the IP rights it owns.

Unless the complete ownership of relevant IP rights is completely transferred to the target before the transaction, the returns to the buyer / investor so far as they relate to the full utilization of the same, will indeed be at stake.

Third-party’s claims on the IP rights involved (claim check)

Any type of third-party claims or interests with respect to the relevant IP of the target is required to be checked out. This is primarily done to determine whether any third party has any kinds of rights or interests over the relevant IP. So, scrutiny of all joint venture agreements, license and franchise agreements, memorandum of understandings, distributorship contracts, etc., should be carefully done to determine if any exclusive rights have been granted in relation to relevant IP.

Due diligence in Intellectual Property is a tedious and tricky process. But as the saying goes-Better be safe (Diligent) than sorry.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

The post FIVE POINTS TO NOTE ABOUT CONDUCTING DUE DILIGENCE OF INTELLECTUAL PROPERTY OF INVESTEE appeared first on iPleaders.

This article is written by Krishnendra Joshi, a student of Dream Job BootCamp, a programme run by Lawsikho, with inputs from Abhyuday Agarwal, COO, iPleaders.

2018 is being cited as a blockbuster year in terms of M&A activity in India. Deals amounting to more than 104.5 billion took place during the year. (see here). Industry experts have further estimated that deals will cross the 100 billion mark in 2019. Seeing such astronomical figures, law students, young lawyers are bound to get fascinated.

Being an M&A lawyer is definitely cool – you get cited in newspapers, LegallyIndia and get recognized in global legal practice magazines.  

An M&A lawyer is expected to possess industry awareness along with legal acumen, an ability to negotiate persuasively with the parties and excellent drafting skills.

However, nobody is a born M&A lawyer. The skills to be successful are acquired and fine-tuned over time.

Before you can get down to acquiring those skills, let us inquire into the question, what is the work that M&A lawyers do?

Structuring the deal

There are a number of options available in choosing a vehicle to give effect to the takeover, such as whether to acquire a target company directly or indirectly through a subsidiary incorporated in a tax haven like Mauritius or Cayman Islands, or whether to acquire shares of the target, specific assets or the entire business of the target company is a structuring decision. These structuring decisions are guided by tax planning, corporate and other regulatory considerations. The method to be used for financing the acquisition is also important from a structuring perspective. Which structure to use for an M&A transaction, how to draft the necessary agreements for each structure is dealt with in great detail in the Lawsikho Diploma in M&A, Institutional Finance and Investment Laws.

Drafting, modifying and negotiation of transaction documents

1. Shareholders Agreements
2. Share Purchase Agreements
3. Share Subscription Agreements
4. Third party consent letters

This is explained in detail below.

• Drafting each of these documents is not taught in LLB or CS course, but are very difficult to learn. You need an exposure to:
  • commercial intent of an investor (expressed through certain technical clauses in each contract or document),
  • connected legal framework, which typically involves multiple laws and those who are new to this work find it confusing and difficult initially and
  • certain aspects of contract drafting.

Irrespective of whether you are a lawyer, a working professional who has acquired a law or CS degree or a student, these aspects are not taught in mainstream courses or diplomas in universities or in certificate programs. However, acquiring these skills immediately enhances employability and value creation in your existing career, if you deal with such aspects. That is the reason the Lawsikho Diploma in M&A, Institutional Finance and Investment Laws was specifically designed to teach these aspects.    

Securing necessary regulatory approvals for the transaction

Prepare documentation for and apply for necessary approvals from CCI/ SEBI/ sectoral regulator/ regulator notified under Consolidated FDI Policy (for any sectors under approval route)

Working on Draft Letter of Offer and Detailed Public Statement (DPS) (in case of listed companies)

An M&A lawyer runs the acquisition deal. He works in as per a tight activity schedule. First of all, A Draft Letter of Offer detailing Terms & Conditions of the offer is prepared after a detailed public statement is issued by the acquirer in consultation with the Merchant Banker and a lawyer. One of the unique features of the takeover code is the determination of the best possible offer price to safeguard against arbitrary price discovery. Lawyers advise on the relevant criteria to facilitate the offer price and size of the issue.

The lawyer verifies that the draft letter of offer is prepared in line with the letter of intent. The level of deviation determines the scope for negotiation. He has to ensure that it is not misleading and has all the material disclosures so that it invites a minimum level of scrutiny from SEBI. Lawyers also advise the acquirer on depositing the purchase consideration for the transaction in an Escrow A/C maintained with a scheduled bank as per the requirement of reg 17 of SEBI (SAST, 2011). Likewise, a lawyer is expected to prepare well reasoned legal opinions and clarifications with regard to procedural and substantive provisions of the SEBI (SAST) for the client. The queries can range from advising clients on the events that trigger the requirement of a mandatory open offer to guiding on them on the exemptions available to disclosures mandated under the regulations.

An M&A lawyer needs to be well-conversant with the Takeover Code and should also be able to draft various acquisition-related documents such as the letter of offer and detailed public statement.

To start with, you can get a sense of these documents as they are available online for free on the SEBI website. We teach how to extract and draft such documents in detail in the Lawsikho Diploma in M&A, Institutional Finance and Investment Laws, which also covers PE and VC transactions, see here.

Advisory Work

There is a lot of advisory work before, during and after an M&A transaction, all of which is billed by law firms. This can relate to the Takeover Code, FDI Policy, provisions of the Companies Act, licenses, approvals or some other aspects. It can also be triggered if the company is trying to undertake a specific corporate action.

An examples of advisory work is the question whether the Takeover Code is triggered in a given situation when promoter shareholding increases after the company has undertaken a buyback of its shares from the open market. An M&A lawyer is often flooded with such questions requiring him to advise the client with the correct interpretation of the Takeover Code.

Advisory work may be followed by some regulatory work, such as working on an exemption application before the Takeover Panel of SEBI.

Which are the key laws and regulations you need to develop expertise in to perform such work proficiently?

The most important laws are SEBI and RBI regulations, FDI Policy and Companies Act. A lawyer’s role becomes significant especially in situations where other corporate and security laws are applicable in conjunction with the Takeover Code. For example, in cross-border transactions, compliances with FEMA regulations and FDI policy is also applicable. In such cases, the regulatory oversight also increases as RBI also comes into the picture along with SEBI. The nature of the transaction-enabling acquisition, of a target company, is bound to bring in some legal and business issues. For example, Is there a safeguard prohibiting the acquirer company to alienate its assets through its directors once the takeover offer is accepted by the target company? Can a director of the acquiring company become a director of the target company before and after completion of the takeover? In such cases, the lawyer performs the advisory functions of guiding the client about its obligations, structuring the deal and the sequence of actions and performing various compliances under the law.

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Which are the documents that are required to be drafted?

Shareholders agreements

There is a lot of brainstorming required to draft the clauses of a shareholders agreement. These are not simple contracts and require knowledge of technical concepts which are specific to the venture capital, private equity and the M&A industry.

For example:

• How will you ensure that the rights attached to ownership of existing shareholders are not diluted when new securities are to be issued in an acquisition?
• Can you differentiate between cases where a ROFR clause is required and cases where a inserting a shotgun clause would suffice/is the need of the hour?
• What rights will you insert in a contract to enable a minority shareholder (investor) to compel a majority shareholder to sell?

Share purchase agreements

A share purchase agreement is involved when existing shares of the target company are purchased by the acquiring company from an existing shareholder. The document only governs the aspect of purchase, consideration and representations and warranties in connection with a particular transaction.

Share swaps are less common in comparison to the cash purchase of shares. When the purchase is in the nature of share swaps, a clause stipulating the share exchange ratio is a specific requirement with regard to this agreement. A lawyer must pay due regard that the share exchange ratio and that the mode of payment is defined unambiguously. Appropriate valuation certificates may be required to be obtained under provisions of Consolidated FDI Policy or SEBI Takeover Code, as applicable. A few examples of practical considerations while drafting a SSA can be as follows:

• Structuring a transaction keeping stamp duty (being a state subject) implications in mind.
• Dealing with any asset or shares as the case may be, that is required to be transferred separately.
• Any asset cover insurance policies available.
• Reviewing any disclosure requirements or vendor protection clauses with regard to obtaining relevant representations & Warranties.
• Should a purchaser opt for an acquisition of assets in cases where specific warranties cannot be obtained?
• Ongoing litigations of the seller company has an impact on negotiating the purchase consideration too.

Share subscription agreement

It must be made clear that an SSA is different from a term sheet. Lawyers help in advising and negotiating an SSA after a thorough due diligence of the target company. Many startup enthusiasts belonging to engineering and finance backgrounds don’t know the difference between a term sheet and SSA. In such a scenario a lawyer’s role becomes important to guide and ensure that an SSA is not merely a copy-paste job lifted from a term sheet. A lawyer’s role is draft an SSA keeping objectivity and clarity in mind. A vague description of issued share capital or ambiguity in detailing the representation and warranty clauses can make the enforcement of rights and obligations between the parties not only difficult but at the mercy of the court. Hence a lawyer’s role is to iron out the loose ends striking a balance between the interests of both the parties.

Lawsikho’s Diploma in M&A, Institutional Finance and Investment Laws contains drafting exercises where you have an opportunity to draft each of the above agreements based on a mock situation, and obtain feedback from faculty. See the sample drafting exercise to draft a shareholders agreement here. You can find a sample exercise and an evaluated solution here.    

Other agreements

The scope of drafting work also includes drafting and negotiating employment contracts post the completion of the takeover. Besides these, amending the incorporation documents pursuant to changes affected by the takeover also requires legal help. The stamp duty is levied at different rates in different states, so documents are drafted and vetted accordingly.

Notices and Third Party Consent letters

Many target companies are subject to agreements with third parties. Examples include leases, loan agreements, customer contracts, assignment contracts, distributorship agreement and more. When contractual restrictions cannot be avoided through negotiation and deal structuring, the parties must obtain written consents from third parties who have rights that would be triggered by a deal. However, counterparties may leverage their power of giving consent to extract additional value from the requesting party, which can impede the transaction itself or add to costs.

Liasoning and communication between different stakeholders

Lawyers involved in the takeover process also coordinate with other stakeholders and regulatory authorities to make statutory submissions, disclosures,  finalize documents, seek representations and to obtain necessary permissions. For example, if an Indian entity is planning a takeover on the lines of TATA-JAGUAR deal, it will involve coordinating with a number of regulatory authorities like RBI, SEBI, MCA, CBDT, along with regulatory authorities of the foreign country too.

How can you start building your skill sets to perform such work?

You must begin with the end in mind. For example, when you prepare for an entrance test, you always start with past years’ question papers. Similarly, if you want to become an M&A lawyer, you need to begin by knowing about each kind of work performed by M&A lawyers. You must then work backwards on learning how to perform each kind of work, step by step. This is easier said than done.  

You can use the following strategies:

• Ask your seniors – This, however, will be limited by the senior’s own experience and the time available with them to teach you. Every senior is not an expert teacher. Further, to extracting the best from a teacher often involves asking the right questions – which puts the responsibility back on you. As someone said, knowing the questions you need to ask is critical to get the job done. This is also the hard task.
• Guest lectures or a credit course in your university
• Ask your faculty – if they have not practised themselves (which is most likely the case, they will refer you to a course or ask you to pursue an internship).
• Save your time reinventing the wheel pursue a course from a trusted provider, read more about Lawsikho’s Diploma in M&A, Institutional Finance and Investment Laws. The reason we emphasize on this strategy is simple:
• • You can’t save guest lectures on your phone and access them at your convenience. There is an over-reliance on note-taking. You will never be able to revisit in original form anything that you have missed while taking notes. In real life, you learn on the go, and can revisit and understand study materials and videos much better upon subsequent readings.

• • Subject matter expertise plus teaching experience is superior to subject matter expertise alone. There is a reason parents send children to school even though they may know the subject matter well – they are not experts to teach.

• • In a guest lecture the pool of industry experts available is limited; Lawsikho’s online courses have a huge panel of experts who constantly contributing their insights to the courses. The panel is expanding over time and leads to an expansion of the scope and horizons of the courses. This is an unmistakable advantage, possible only through the use of online technology.   

• • There is a reason guest lectures are called ‘guest lectures’ – you get a sneak peek of the real deal, but you do not always have time to go into a comprehensive deep dive of all the concepts involved. At best, you may look deeply into a handful of concepts.  

The post What is a lawyer’s work with respect to the Takeover Code in M&A transactions? appeared first on iPleaders.

This article is written by Abhyuday Agarwal, COO, iPleaders.

Only some people search for gold. Why? Because gold is not available everywhere. It is a scarce resource. Identification of the possible locations where you may find gold itself requires a lot of resources and technology, and then you need the resources and technology to reach the mine, extract the ore, and then to purify it. I have not even arrived at the distribution and sales aspect of it.

Now, consider for a moment, if everyone could search for gold, what would happen? There would be a scramble, and the gold may not be enough for everyone.

In the real world, resources are finite, and so there is a fight for access to resources.

It is the same with respect to your search for knowledge and skills. That is why you have a few lakh people competing for a few hundred or thousand seats in civil services, IITs and IIMs. In fact, many people do not even know the connection between the knowledge tested in these exams with the skills and knowledge required to perform well as civil servants, engineers or managers. There is also not enough evidence to say that such a high level of competition is healthy or not.

India is a country which has a huge scarcity of resources, but scarcity is not necessarily great for people. In fact, it can reduce access to the resource (e.g. wealth, education, etc.). Australia and West Indies have had minuscule populations but world-beater cricket teams for the longest time, in comparison to India.  

For sure, the level of competition restricts access to top quality education. Competition is the necessary evil which arises when resources (e.g. jobs, education, etc.) are exhaustible. However, there is no point of artificially creating competition.

In the modern economy, why must access to knowledge and skills be restricted? Why should we prevent more people from benefiting from technological advancement, access top-notch training and carve out their own career paths?   

Well, that was the reason that Lawsikho courses provide top quality learning – it does not matter whether you are from a top national law school or not, or whether you are a corporate lawyer or not – anyone who is completed Class XII, understands English and is interested in a subject covered by a Lawsikho course. You do not have to give an entrance test.

Of course, for administrative reasons, we limit the batch size to 25 seats, but you can join in the next batch if the current batch is full. For those who don’t want to miss out, you can always start early.

One of these days I spoke to a student who has graduated from a reputed national law university. He had taken a contract drafting course and a due diligence from us, and he said that he found these two courses more useful than the knowledge gained in his 5-year study of law. He had paid a total of INR 11,000 (yes, it is eleven thousand) in comparison to a minimum amount of INR 7 – 10 lakhs spent on tuition fees in a national law school over 5 years (without adding any living costs.

Guess what? The level of learning now available in Lawsikho Diploma and Executive Certificate Courses has gone many notches up – that is because we have substantially innovated over and above what we offered. In addition to top quality content, Lawsikho Diploma courses and Executive Certificate courses now offer weekly classes with practice exercises containing real-life simulations.

Many people said Lawsikho courses are expensive, but I am slightly surprised by this. I think whether something is expensive is not a question of price, but of value offered in comparison to the price. If you look at the value offered by these courses, it exceeds many times the price.

It is a reason to celebrate that courses which teach you skills necessary for taking your career to the next level are available at a cost which is cheaper than Class X or Class XII private tuitions, which your parents may have paid for, or a gym subscription, which many of you yourselves may have taken.

You can even try it for yourself to see if there is a difference in your skills after pursuing a course. Unlike a gym or an IIT-JEE coaching institute, we do not offer merely one trial class. In fact, you can study a course for an entire month. if you study the course, attend all classes and perform all exercises for 1 month and still do not find value, you can claim a refund (see our refund policy).   

Just like you, I (and the experts) live in the real world. We are here to make a difference to the state of legal education and impart skills which make a remarkable difference in your career, but this by no means is charity. There is a cost for us, to do work which makes a difference, to build systems and processes. This is professional work of top quality. We’ll not be able to survive in this world. We have not renounced the material world.  

How do you know that you can trust us?

We are not a university but we have been in the industry since 2012. We have been operating single-mindedly with the vision to make legal education accessible. iPleaders blog has been operational, growing and accessible for free since 2010.

Here are a few articles explaining how and when we launched, our life story and background, vision and philosophy for legal education, how we developed ourselves to be able to deliver results to customers and our personal interviews (going as far back as 2012):

Ramanuj Mukherjee, CEO, iPleaders

• Profile- Mr. Ramanuj Mukherjee, CEO, Co-Founder, iPleaders
• A letter to you: How I transformed my life and my abilities
• Life is empty and meaningless, you can give it any meaning
• A way for cheap and swift justice in India| Ramanuj Mukherjee| TedxIIMRanchi  

Abhyuday Agarwal, COO, iPleaders

• Keep trying new things and test them fast to find out what works and what doesn’t
• The demise of blackberry: How to impress foreign firms & recruiters with commercial awareness
• Are you barely surviving law school? Learn how a mentor can help you ace it.

Product Walkthroughs:

• Get a feel of how you will learn online on our Online Learning Management Platform (see here)
• How to participate in Live Classes and make the most of weekly simulation exercises and submit your assignments – see the Assignment Portal at work
• What happens at iPleaders Club, our online mentorship system created in 2015, provided for free to Lawsikho Diploma students. You can also see some videos where students have explained what they have learned
• Amazing write-ups published by students of Lawsikho courses
  • All you need to know about CCI Dawn Raids
  • 10 types of contracts drafted by intellectual property lawyers
  • Process of insolvency resolution under IBC (Insolvency and bankruptcy Code)

Still have questions? Call us on +91 11 3959 5032 or write to info@lawsikho.com if you have any questions. Feel free to ask a question that comes up, even if you do not exactly know how it is relevant.

It is not necessary for you to take up a course, but for those of you who have decided what your next goal in your career is and you think a course might be helpful, you should reach out. If you want to decide what is the connection of law with your career, still reach out.

Enrolling in our courses is not the end, but the beginning of a career where you use legal skills to grow.

For those of you who are clear you want to enrol, here is a walkthrough of the enrolment process.

The post Is scarcity really good? appeared first on iPleaders.

In this article, Aditya Swarup Singh of Maharashtra National Law University, Nagpur discusses Christian Louboutin Sas. Vs. Nakul Bajaj & Ors. – Examining the liability of an e-commerce as an “intermediary” of IP rights.

Introduction

On November 2, 2018, the Delhi High Court delivered a landmark judgment in the case of Christian Louboutin v. Nakul Bajaj and Ors.1 and also tried to clarify the responsibilities and liabilities of an e-commerce as an intermediatory of IP rights for trademark infringement. This judgment has somehow tried to clarify but in some parts has also complicated the intermediary liability in the case of trademark infringement. Although, this judgment is important and significant as this is the first time the Indian Court has pronounced any judgment related to the trademark infringement by any e-commerce platform.

Background

In the aforesaid case, the defendant was operating a website in the name of www.darvey.com  and was offering for sale of different opulence products including luxury shoes in the brand name of “Christian Louboutin”. In the argument presented by the plaintiff, Christian Louboutin SAS, they claimed that the defendant’s website gives an impression to their visitors that it is affiliated, sponsored, or in some manner been approved by the plaintiff for the selling of plaintiff’s luxury products through their website. Therefore, it was claimed by the plaintiff that there is an infringement of the trademark rights of the plaintiff and also the cessation of the opulence and richly status enjoyed by the plaintiff on its products which is being displayed by the website.

During trials, it was claimed by the defendants that the website is merely an intermediary as it is being used merely for booking of such products and not for selling directly through its online platform and it only books orders on the behalf of the registered seller who uses these online booking to sell their goods and also these goods are being displayed on their platform  on the behalf of those sellers only and they are entitled to protection under section 79 of the IT Act, 2000.2

Basically, both the parties disputed over the genuineness of the goods sold by them. As no goods were sold till the date of the judgment through that website so there was no issue for determination so only issue to be decided by the court was whether the alleged defendant was protected under the section 79 of the IT Act, 2000.

The court’s analysis and decree over this matter

As early stated, the only question before the honorable bench was to determine the protection of the defendant under section 79 of the IT Act, 2000. So the court basically examined the term  “intermediary” provided under section 2(w) of the IT Act, 2000 and in which condition and circumstances an e-commerce platform will be applicable for protection under the section 79 of the IT Act, 2008.

The high court directly examined the defendant’s website and found that the website takes the full responsibility for the authenticity and originality of the products and it is checked by their commission and after the authenticity of the product is established, they facilitate the final procedure of purchasing and sourcing of the product from the third party and finally arranges the product for the transportation of the goods. It was found by the court that the invoices were raised directly by the supplier without any type of intervention from the website, and all type of guarantees and authenticity is provided by them only.

The court, keeping all these factors in consideration, discusses the principal of intermediary liability in the jurisdictions of European Union, United States and then finally in India.

Click Here

Intermediary liability for trademark infringement in the EU and US

The judgment delivered by the Court of Justice of the European Union in the case of L’oreal v eBay International AG (“L’oreal”)3nand the judgment of Federal Court of US in the case of Tiffany (NJ) Inc. v. eBay Inc. (“Tiffany”)4 were basically taken as a reference as both the case deals firmly with the  liability of an e-commerce platform for the liability regarding the display and online sale of infringing or counterfeit goods through their portal.

The Court of Justice delivered that the alleged e-commerce platform has not used any trademark for its own commercial communication but has merely enabled the third parties to display their goods for sale and therefore is not liable for displaying third parties and customer’s post.

But the Federal Court adopted a different and strict approach and said that a service provider must have more knowledge about their service provider. Some deep knowledge of the particular things which may infringe anyone’s right is very important and significant in these type of cases. Therefore, the e-commerce platform will not be held liable until it possesses all the actual knowledge of the specific facts about the infringements of anyone’s right.

Liability of the online marketplace in India

In the following case, the court after analyzing the judgment pronounced by different courts comes to the conclusion that the alleged defendant, in this case, is more than an intermediary. The court decision was based on the fact that the alleged website first identifies, and thus promotes the third parties to sell their product and in some sense, it can be said that they have full control over the products being sold through their platform. The Court additionally takes note of that lead of intermediary, in neglecting to watch ‘due diligence’ concerning IPR, could add up to ‘planning, supporting, abetting or inciting’ unlawful direct would preclude it from the protected harbor exception, according to Section 79(3)(a).

The court also clearly stated that any type of active participation by e-commerce would exempt their right provided under section 79 of the IT Act. the bench also referred to the “Intermediaries Guidelines” which was brought in the year 2011, under section 79(3)(b) talks about the due diligence which must be observed by them from displaying the content from the third party as these must not violate anyone’s IPR rights.

At long last, the Court looks at whether there has, actually, been an utilization of the offended party’s trademark in a way that would establish encroachment. The Court puts together its examination with respect to Sections 2(2)(c), 101 and 102 of the Trademark Act, which identifies with the implications of utilizing, applying and distorting a check, individually. The Court expresses that, regarding applying and misrepresenting a check, the next may establish encroachment, whenever connected to a fake item (yet not a certifiable item). The Court takes note of that submitting any of these exercises would add up to ‘planning, supporting, abetting or instigating’ the unlawful demonstration, examined under Section 79(3)(b), and uproot any protected harbor accessible to a commercial center. Illustratively, and with regards to darveys.com, the Court takes note of that the utilization of the check in a receipt, showing ads containing the stamp, encasing the merchandise with its own bundling and moving them onwards, would all comprise adulteration and encroachment under Section 29 of the Trademark Act and subsequently establish help, abetment or prompting under Section 79 of the IT Act. the court also took the reference of Kapil Wadhwa v Samsung Eletronics5 in which the use of meta-tags by the defendant was said to be infringement.

Final decision

Considering all above, the court held that the respondent was not an intermediary qualified for assurance under Section 79, and would be at risk for encroachment whenever demonstrated that the products it was moving are fake. In any case, without such confirmation, the Court proclaimed rather than the respondent uncover the subtleties of its providers, and will not transfer any items bearing the offended party’s stamp without their simultaneousness. In addition, the Court requested that the litigant must execute a framework whereby after being advised of any fake item by the offended party, the respondent must find out the realness of the item with the dealer, and analyze the proof to check whether it must be expelled. At long last, the Court requested that the middle person must require its merchants to respect the guarantees and assurances given by the offended party, and should likewise evacuate all meta-labels containing the offended party’s check.

The role of E-commerce as intermediaries

In the Louboutin case, the Honorable High Court of Delhi saw that the litigant had an enrollment expense to submit a request for merchandise on the Website, ensured legitimacy that the items acquired and sold were from the global boutiques and extravagance stores, transportation to clients would be simply after quality checking.

The Court opined that the protected harbor arrangements for mediators under section 79 of the Act aren’t supreme. A functioning investment by the intermediary is to be inspected and in the event that there is a functioning cooperation, the ring of assurance or exclusion conceded to the go-betweens would not have any significant bearing.

In the Louboutin case, the Delhi High Court held that the litigant had not sold the offended party’s items on its Website, however, the Website did publicize and advance the offended party’s image and items. The Court did not order any damages to the plaintiff for harms/interpretation of records.

The Court gave the accompanying headings to the litigant on the exercises of running the Website as a mediator in order to:

• reveal the total subtleties of every one of its merchants, their addresses and contact subtleties on its site
• get an authentication from its dealers that the merchandise are certifiable
• If the vendors are not situated in India, preceding transferring an item bearing the offended party’s imprints, it will inform the offended party and acquire simultaneousness before offering the said items available to be purchased on its stage
• If the dealers are situated in India, it will go into a legitimate assertion, under which it will get ensure as to genuineness and genuinity of the items as likewise accommodate results of infringement of the equivalent
• Upon being told by the offended party of any fake item being sold on its stage, it will advise the vendor and if the merchant can’t give any proof that the item is real, it will bring down the said posting and tell the offended party of the equivalent, according to the Intermediary Guidelines 2011
• It will likewise look for an assurance from the dealers that the item has not been disabled in any way and that every one of the guarantees and certifications of the offended party is material and will be respected by the merchant. Results of any merchants who can’t give such a certification would not be, will not be offered on the litigant’s stage
• All meta-labels comprising of the offended party’s imprints will be evacuated with prompt impact.

Comment

No doubt, this decision is a big step in determining the immediatry’s liability and their protection under section 79 of the IT Act. this decision will surely be protecting the rights of the trademark of the true owner by imposing an obligation on the intermediary e-commerce platforms to exercise due diligence and to take appropriate step regarding the identification of the genuine products to make use of the benefit provided to them under the IT Act, 2000.

Endnotes

1. CS(COMM) 344/2018.
2.  According to this section, an intermediary is not liable to any third party for anything done by them in providing the link or hosted by them.
3.  C-324/09
4.  600 F.3d 93 (2d Cir.2010)
5.  FAO(OS) 93/12.

The post Christian Louboutin Sas. Vs. Nakul Bajaj & Ors. – Examining the liability of an e-commerce as an “intermediary” of IP rights appeared first on iPleaders.

Written by Vatsal Dhar , pursuing  Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution offered by  Lawsikho as part of his coursework.  Vatsal is a Legal Professional and a graduate in BBA LLB from Symbiosis Law School, Noida.

KYC i.e. Know Your Customer is a very popular term used in the business sphere. It is a term related to the process of customer identification in which an individual is said to enter into a transaction by opening an account with a financial entity. The entire process of KYC is concerned with gathering certain information from and about the end user, validating, verifying the same information and ensuring that the personal details are fair, genuine and true in every manner. Such verification can be done before entering into a transaction or during any time between the operations of the business.

The rise of KYC policies has been emergent very lately while expanding and becoming very important globally as well. KYC policies have now evolved into an important combat tool against illegal or malafide transactions in the financial sector. KYC helps the companies in protecting themselves by ensuring compliance and maintaining appropriate business standards with legitimate entities. It also helps in protecting the individuals who might otherwise be harmed by financial crime. In recent times, various banking institutions, corporate houses, organizations, credit agency, and insurance companies have become big supporters in adopting the KYC policy as it helps them in verifying their client’s real identity. Also, it helps them in identifying and tackling the issue of money laundering, bribery, concealment of money, terrorist financing and corruption related practices at a much earlier stage than expected.

A customer, individual or an investor can get their respective KYC done through submission of relevant government identity cards and supporting documents such as Permanent Driving License, Aadhar Card, valid Passport, Permanent Account Number (PAN), Voter ID Card, Ration Card, Photo ID, NREGA Card etc. It can also be done through address proof (the property owned by the individual) or by property tax, municipal receipts or in-person verification by self-attesting the same.

There are generally two types of KYC which govern individuals and segregate between them:

In the first type of KYC, it is prescribed by the Central KYC registry (CKYC). It basically includes all the basic and uniform KYC details of the individual or investor as and is said to be used by all registered financial intermediaries.

The second type of KYC comprises of all other additional KYC information as may be sought separately by the financial intermediaries such as a Mutual Fund, stockbroker, depository participant opening the investor’s account.

Procedure/ How does it work

Most financial corporations and institutions initiate their KYC procedures by simply collecting and gathering information about their customers by using electronic identity verification also known as a “Customer Identification Program”. Certain personal information such as name, social security numbers (SSN), PAN no., Aadhar card no., date of birth, address (both permanent and current) can be very useful when determining whether or not an individual had been involved in a financial crime previously or not.

After the data has been collected, it is then compared to different lists of individuals with a criminal record or involved in any kind of corruption practices, names present on sanctions list, Politically Exposed Person (PEP) suspected of being involved with a crime, or at a high risk of partaking in bribery or money laundering.

The bank then measures the risk involving the ratio of the client and how likely they are to become involved in corrupt or illegal activity in near future. Once this calculation has been made, the banks can analyze what the client’s account condition might look like in future going as per current records. All the client’s account activity can be managed and monitored consistently by the bank in case it finds anything to be suspicious or out of place.

Many a time, banks also may compare clients with a similar background, location, job profile, field of expertise and salary. It helps them in analyzing better and comparing people as most of them would have a similar statement record from the other if not exact.

How to check the KYC Status?

One can easily check the KYC status by logging into the website of the following financial services companies with whom their funds are tied up with.

1. CDSL Ventures Ltd. CVL – https://www.cvlkra.com/
2. NSE (DotEx International) – https://www.nsekra.com/
3. NSDL Database Management Ltd (NDML) – https://kra.ndml.in/
4. CAMS – https://camskra.com/Home.aspx
5. Karvy – https://www.karvykra.com/‎

What are CKYC Norms?

We now know that Know Your Customer (KYC) is one-time exercise while dealing in securities markets. Central KYC (CKYC) is an initiative by the government to bring all financial sector entities under one single roof. Once a customer has undergone KYC through a SEBI registered intermediary then it is not bound to undergo the same process again and again while approaching another intermediary for its financial services.

To add to the above, the KYC records of the clients are stored, managed and safeguarded in digital form by Central KYC Registry (CKYCR) also known as CERSAI (Central Registry for Securitization Asset Reconstruction and Security Interest of India), an entity substantially owned and controlled by central government. Central KYC Registry is a centralized repository or a register filled with KYC records of customers in the financial sector with uniform KYC norms. Its main objective is to reduce the burden of producing KYC documents each time and getting the same verified every time when the customer creates a new relationship with a financial entity.

Who can get access to CKYC?

The Central KYC application can be accessed by authorized institutions or other notified institutions under the Prevention of Money Laundering Act, 2002 (PMLA) or rules framed by the Government of India (GOI) or any Regulator (RBI, SEBI or IRDA).

Features of CKYC registry

1. Acts as a unique KYC identifier linked with independent ID proofs.
2. Ensures that the data and documents are stored in a digitally secured electronic format.
3. Helps in reducing Substantial cost by avoiding multiplicity of registration and data upkeep.
4. Provides secure and advanced user authentication mechanisms for system access.
5. ID authentication with issuing authorities like Aadhar/PAN etc.
6. Holds regulatory reports to monitor compliance.

Who needs to comply?

The KYC compliance is mandatory for all individuals and citizens under the Prevention of Money Laundering Act, 2002 (PMLA) inclusive of the rules framed thereunder, read along with the SEBI Master Circular guidelines on Anti Money Laundering (AML) and circular on Combating the Financing of Terrorism (CFT) and duties and obligations of Securities Market Intermediaries.

As of now, all investors who wish to make a lump sum investment of fifty thousand (Rs. 50,000) or more have to be KYC Compliant first. Such compliance will also apply to the other mode of investment that is Systematic Investment Plan (SIP) concerned with Mutual Funds which implies that each installment of value greater than or equal to Rs.50, 000 would have to be KYC Compliant.

The following is the list of personnel who need to be KYC compliant before initiating any transaction with the financial institution:

Joint Holders

It may include all active members of the account to be individually KYC compliant before they can invest together in any Mutual Fund. Therefore, all holders need to be KYC compliant and copies of each holder’s KYC Acknowledgement would be then attached to the investment application form

Minors

In case the investor in the picture is a minor or is a person who has not attained majority till date then, the Guardian of minor should be a KYC compliant personnel and should ensure attachment of their KYC Acknowledgement while investing in the name of the minor. However the minor in order to be able to transact further in his own capacity should apply for KYC compliance in his own capacity and intimate the concerned Mutual Fund(s) after attaining majority,

Power of Attorney (PoA) Holder

The KYC compliance is mandatory for both the issuer (i.e. Investor) and the holder (i.e. Attorney) of PoA. Both have to ensure that they are KYC compliant in their independent capacity and must attach their respective KYC Acknowledgements while investing.

Financiers

The financiers who are concerned with providing financial support to the ones in need shall also ensure that they are KYC compliant at the time of Lien Marking.

In case of death of the unit holder

In case of any unforeseen circumstances where the unitholder who is also the sole applicant cease to exist, then the claimant should submit his KYC Acknowledgement along with the other relevant documents to effect the transmission in his favor and get all the remaining.

How do customers benefit?

The following are some of the benefits the CKYC customers shall be entitled to:

It will help in eliminating the repetitive process of KYC registration, again and again, saving financial advisor and financial product manufacturer from completing the KYC process in one go.

It will save them a huge amount of time filling up multiple KYC forms and provide countless self-attested documents.

It will help in convincing clients to invest in a mutual fund, security scheme or a fixed deposit as the action required would be simpler due to the reduction of a barrier.

Customers would also get access to their personal records on CKYC registry and can ask to make updates to their existing records if necessary.

Aadhar Judgement’s say on KYC

The recent Aadhar ruling held that there is no need to link the 12 digits biometric code to with mobile numbers and bank accounts. In this, the Supreme Court struck down Section 57 of the Aadhaar Act that which provided that private companies could ask consumers for Aadhaar details for identification purposes. It is further ruled that the telecom service providers will have to delink the aadhar verification code from mobile numbers so those who had linked their mobile number with Aadhaar may have to provide another identity proof. The ruling also had an impact on the new small finance banks that used Aadhaar to complete the mandatory KYC process for new customers in a quick and cost-efficient way. This is now a time consuming and cost bearing process for both the sectors as well as the consumers. Which initially took 30 minutes, could now take more than a week for completion of the KYC norms.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

The post What Are CKYC Norms, Who Needs To Comply, How Does It Work And How Do Customers Benefit? appeared first on iPleaders.

This article is written by Ramanuj Mukherjee, CEO, iPleaders. The article discusses the 9 biggest challenges you will face when you begin to intern as a law student.

You think that an internship is a place to learn

Imagine you get up on a stage thinking that it is a place for rehearsal when everyone has come to watch you perform. You will embarrass yourself. And you will be ignored and forgotten.

That’s what happens to the people who mistakenly think that they are going to an internship to learn things.

Sorry, that’s what you go to college for. Internships are not for learning. It’s a place to perform and demonstrate your knowledge and skills.

You go to internship to perform, to help the lawyers/contribute to the organizations and make their lives easier and to demonstrate how amazing you are so that they want to hire you, or at least agree to refer you to someone else if they can’t afford you.

Losers go to internships expecting they will find someone who will be kind enough to teach them something. The truth is that you have to teach yourself. The lawyers hardly have time to train their full-time juniors, they hardly have time to train you.

However, if you are amazing and you are already helping them so much that they didn’t even expect, and if they are very impressed by you, they may even make an effort to teach you a few things.

To achieve that, you need to prepare extensively. The well-prepared wins.

What happened in your last internship? Did you benefit in any lasting way? Did you prepare or did you just showed up unprepared hoping that someone will show you the ropes?

In the past, even a decade back, even showing up at a law firm without preparation used to be enough. In any case, only a few students from very few institutions used to intern back then. With very tough competition caused by every law student trying to secure internships, realities have changed.

How are you going to prepare for your next internship? You should give this a cold, hard thought.

You have no idea about what work your seniors are doing

Most law students have no idea about what work lawyers actually do. For example, you find yourself in an M&A team of a big law firm. What work are they doing? How can you help them? What skills will be useful?

Or let’s say you are assisting a lawyer in arbitration proceedings. Do you know what are different stages of arbitration? Are you familiar with the evidence collection process? Do you know how to draft documents that are required in arbitration?

Knowing these things can be of immense advantage. You can make a meaningful contribution. You will know your way around the place. And you will most probably make a mark so that you are called back for another internship, or given an opportunity to sit for the PPO interview.

When you have made a meaningful contribution and your partner/boss knows it, you can ask them to mentor you or guide you and even refer you to other firms. They have friends in other firms and they will gladly refer a high performer.

But will they consider you to be a high performer? What do you have to do to qualify as one?

Not being taken seriously

Law students hate it, but they are often treated like a kid in law firms and chambers. Most of them are not taken seriously and therefore not given any serious work. They are sometimes given files to read! Or told to attend court just to see what is going on in the court.

All of these are useful. You can learn a lot from reading old files and sitting and listening to what is going in a courtroom.

But is that why you go for an internship?

Will you be given any real work, will you be given any opportunity to prove yourself, will you get to work on something that challenges your intellect?

Maybe not. Most interns are never taken seriously. The idea is: let them sit in the office for a month, we can’t give them any real work. Better to do it ourselves.

This happens because too many lawyers had bad experiences with interns who wasted their time. Because they did not come prepared and expected the lawyers to teach them, handhold them and pander to them.

It’s not going to happen. Lawyers are far too busy to give more than 15 mins of their time to you in a day.

If you are not taken seriously, how will you get a job? You need to prove yourself early in the internship to be cut of a different cloth.

You need to deliver results and show eagerness to do more work to be taken seriously. You need to have some prior knowledge and already developed skills to earn the respect from lawyers. Only that can prevent you from getting slotted with the majority of clueless masses that turn up for the internship.

Only being given grunt work that is of no importance

All the grunt work in the office that nobody else wants to do always gets pushed towards the intern. So expect a lot of boring, repetitive and non-intellectual work.

No one is going to ask you to draft agreements or negotiate deals or prepare closing arguments in your internship. You may be asked to do some research for due diligence. Or you may be given proofreading work. You may be asked to index some documents, or fix formatting.

Many interns lose interest and do a shoddy job due to boring and non-glamorous nature of the work. Then they are quickly slotted as useless and avoided by all the associates.

They leave office early. The few hours they spend in the office is then spent watching YouTube videos, swiping on tinder and reading forwards on WhatsApp. Of course, they never get callbacks or PPOs.

If you don’t want that fate, do every mundane work that comes your way like it’s the most amazing and interesting work that ever existed.

When I did my first corporate law internship back in 2008 in Bangalore, I remember being super excited about any and every work I got. Footnoting? Sure I will do it! Formatting? I will kill it, and you will love it. Proofreading? Sure, I will make sure not a punctuation is missed. I did all such mundane work with extreme enthusiasm and dedication.

Result? Soon the associates considered me highly reliable. They started to give me research work. By the time I left that internship every associate knew me. They used to call me Mr Google because I came back with research super fast. If one could not find a case law, they will ask me just to be double sure.

Soon several of the associates took a liking to me. They would even drop me back to my accommodation in their car at the end of the day.

Imagine having that reputation. I was asked if I would like to come back for another internship. I wasn’t interested in interning in Bangalore again, so I did not take it.

Some of those lawyers are still connected to me, on my LinkedIn. I have met them later and had professional relationships with them. Some of them helped me to build practical online legal courses.

That would not be the case if I didn’t have that crazy enthusiasm for every small work that came my way.

No clue about how to proceed with work

OK, let’s assume for a moment that you were given some good work. Could be researched. Or asked to draft a note.

Would you be able to do it?

Let’s say they told you to find the position of RBI on whether cryptocurrency companies operating abroad can run advertisements online targeting Indian public. Is it legal? Is it an offence?

Where should you start looking? Textbooks? RBI website? Case laws? Just do a google search?

Most people do not know how to carry out such research and find the answers.

Most law students are not really familiar with standards of legal research. Most people only know how to do academic research at best. What’s worst, you are probably used to ‘gassing’ or ‘faffing’.

It’s a terrible habit. Successful lawyers do not have time to put up with shallow research. You need to be precise, on the point, and exactly right. There cannot be any ambiguity. There cannot be any doubt. All angles have to be perfectly covered

To write or research like this, it is necessary to have prior experience. You are unlikely to be able to do such work one fine morning unless you have been trained for it, under the guidance of a lawyer who knows how it works.

This is why I recommend blogging frequently. It helps you to improve this skill or research as well as precise communication in the medium of writing. In our premium courses, every student is expected to write one article every month. I would have preferred once every week, but most people would find it too much.

But then, most people will find the salary of top law firm lawyers too much too! You need to make yourself one of the best. So practice writing on interesting legal questions and issues frequently. Publish so that you can get feedback.

You will probably overestimate or underestimate your abilities

When I started interning, I used to massively overestimate my abilities and importance. It was a big mistake. I should have been more humble and eager to learn. I should have prepared harder.

I got away with it, but I know there have been missed opportunities. I probably stepped over boundaries many times and offended people.

Similarly, underestimating oneself during an internship and therefore not taking initiative is also an epidemic.

You are there, at the doorstep of opportunity. It’s not about you, your ego or what college you come from.

Can you make some contribution to the firm? What can you do so that people will remember you even after you left? Think about it.

You do not know how to network

Internship is a great place to network. You meet not only your seniors but your co-interns, who are all going to be lawyers in the future of varying degree of success. Each of them can contribute to your career in one way or the others. Are you going to be able to establish real, long-lasting, trust-based mutually beneficial connections?

Stay in touch with the people you meet at internship. That includes lawyers as well as co-interns.

You have very little time

Most people do very short-term internships. After a month, when you have begun to know the people, they have begun to like you and rely on you, you have begun to get a hang of things, you leave. The end. Finito.

The worst problem ever.

This is why I highly recommend rolling internships. Can you somehow go after college hours to a law firm and spend 4-5 hours working for free/ as an apprentice? If you can, that would be the biggest favour you can do to your career at this stage.

How good is this? Imagine this: I would say it is more useful to do a running internship at a law firm (it will benefit you more in your career) than topping your class in law college and being a gold medalist through and through.

There was a senior of mine at NUJS, who was at the very bottom of his class. He failed many times in various papers. He was not supposed to get through to a good law firm.

But here is the smart thing he did. From his 4th year, he continuously interned at erstwhile AMSS Kolkata office. He was the first in his batch to get a PPO, from AMSS, in a year marked by recession and poor job market.

That year many toppers struggled to get any good law firm job. It was probably the worst year of recruitment in NUJS history ever, following the sub-prime recession. But not this guy! All thanks to continuously interning at the same firm.

Think it from the firms perspective. Who will you hire? A new guy, although topper in class, not tried and tested, will require a lot of training to get started. During that training period, he will draw a full salary.

Alternatively, a person with perhaps bad academic record, but amazing loyalty, who has come and helped in the office for the last 10-12 months, learned work one step at a time, is now comfortable with and familiar to all the associates, familiar with various policies and standard of work at the firm and has shown promise of sticking on.

I would hire the 2nd guy in a heartbeat.

For many people, it’s not possible to do a rolling internship due to distance, restrictions of college hostel etc. In that case, try to extend your internship as much as you can if you find yourself liking a workplace and wanting to work there long term.

All the best.

If you need our help in preparation for your next corporate law internship, provided you want to land that PPO, we have an amazing course that prepares you through and through. We call it Ace your internship.

Also, I will highly recommend that you do this M&A, institutional finance and investment laws course. It covers the work that general corporate, M&A, Private Equity, Venture Capital and Banking teams do in law firms. Knowing these things will skyrocket your chance of impressing the people that matter in your next internship.

If your ambitions are not so specific to being a deal lawyer, or if you still have time before you start serious law firm internships at big law firms, I would highly recommend this contract drafting course. I can guarantee it would do wonders to your career if you study it properly.

Also, we are currently offering 1-month money back guarantee. If you start doing the course, do all the assignments and attend all the classes (online) for 30 days and still don’t like it, you can claim 100% of your money back in next 15 days! Check out the refund policy.

The post 9 Biggest challenges you will face when you begin to intern as a law student appeared first on iPleaders.

In this article, Aravind Prasanna discusses about the detailed analysis of  Early Neutral Evaluation.

Introduction

Early neutral evaluation is a preliminary assessment of facts, evidence, or legal merits.[1] Early neutral evaluation is a non-binding Dispute Resolution Method. Most individuals resort to including ENE clause in their contractual agreements along with the arbitration clause to get their case valued pre-trial.[2] “Neutral evaluation” (also known as “early neutral evaluation”, or “ENE”, and sometimes simply called “case evaluation”) can actually be many different things. Just as there are many different ‘styles’ of mediation (directive or non-directive; caucus or non-caucus; evaluative or facilitative; etc.), and just as there are many forms of arbitration (binding or non-binding; high/low; baseball; and so on), so too there are many different things that happen under the general rubric of “neutral evaluation”.[3] Its purpose is to facilitate further negotiations or to give the parties an idea of what to expect upon litigation of the dispute. In this form of ADR, a neutral third party hears a summary of both parties’ positions and then renders an opinion.[4]

Origin and Development

Since 1985, the federal court for the Northern District of California has operated an experimental program in the expedited dispute resolution, Early Neutral Evaluation (ENE).[5] It is similar to the state court’s judicial arbitration program in that the neutrals are pro bono volunteers, the process is free to the litigants, and the process usually only takes a few hours.[6] But it has significant differences too. The most prominent difference is that it is done early on in the litigation before much discovery is done.[7] The developers of ENE were motivated by the desire of the judges of the Northern District to make litigation less expensive and burdensome for clients. They thought that this could best be accomplished by getting a neutral party to intervene in the early stages of the litigation process and to inject a dose of “intellectual discipline, common sense, and more direct communication.”[8] Courts use ENE for a wide variety of civil disputes, “including contract, product liability, labor and employment, and personal injury cases”.[9] ENE has been used in divorce cases in a number of states. The application of ENE to child custody and parenting time cases–has proven successful in helping parties to reach agreements early in the marriage dissolution process.[10] The first ENE in a children case reportedly took place in July 2014[11], and so important prior to the launch of the Arbitration Children Scheme. That ENE was apparently very similar to arbitration in terms of the process, although outside the framework of any formal scheme rules. It took place by agreement between the parties during the course of court proceedings that were adjourned in order for that purpose. It addressed issues about the division of the children’s school holidays, information about third party carers of the children and the arrangements for handovers between periods of time spent with each parent.

ENE – How it works?

It is a confidential process in which a neutral third party, who is an expert in the subject matter of the dispute, hears abbreviated arguments on the claims, defenses and expected court outcomes from each party.[12] The neutral then issue a non-binding opinion of the likely outcome of disputed issues or the likely court resolution.[13] An ENE session is intended to occur relatively early in the pretrial period-so litigants can use it to reduce the disproportion between litigation transaction costs and case value and to craft the most critically focused and efficient case development plan possible.[14] It usually involves the parties agreeing to employ a senior lawyer or appropriate expert to evaluate the case and to provide an opinion in relation to a specific question or on the outcome generally, which may be after considering oral or written arguments, evidence and submissions.[15] Sometimes neutrals state their views by means of written opinions or recommendations.[16] The parties may agree to be bound by the evaluation and so for it to be determinative. Participation typically is voluntary,[17] although in many jurisdictions parties can be ordered to take part.[18] The term “ENE” has been used to describe the process of giving an expert (non-determinative) opinion, whilst “expert determination” has been the description used for a process that may be identical but which produces an outcome that the parties agree will be determinative and binding upon them.[19] Evaluation sessions are confidential.[20] In order for an evaluation to be enforceable, it needs to be recorded in a consent order and approved by the court. There is no mechanism in place to appeal an evaluation, nor is it clear what a court will do if one party considers the decision to be wrong.[21] As may be seen, courts use early neutral evaluation to correct counsel’s mistaken evaluations of their cases and to find ways of getting to the decisive issues quickly.[22]

Advantages and Difficulties

The primary benefit of the ENE process is that it is relatively quick and, if successful, can avoid extensive litigation. A neutral assessment of the parties’ claims can spur a resolution–by leading the parties to re-evaluate their own cases and revise their settlement proposals–or can narrow the dispute.[23] Generally, ENE works best early in a dispute when neutral guidance about the strengths and weaknesses of a position may facilitate a resolution. In some cases, however, ENE may be more productive after there has been some discovery to develop the issues more fully. Commercial disputes are appropriate for ENE if the parties respect the views of a well-regarded neutral. ENE is also appropriate in disputes involving a specialized field of law or complex or technical issues. Parties can benefit from ENE when they cannot afford delay or when they want to promote a continuing.[24] This process lends itself well to an application in patent litigation and misappropriation of trade secret cases. Generally, this process would work in any dispute involving complex or proprietary technology and having counts based on multiple principles of law. The neutral expert may assist in reducing the number of counts, thus enabling the parties to focus on the few key issues. In this manner, discovery and resources may be concentrated on the critical issues, and the parties can work through to a meaningful settlement.[25]

Nevertheless, difficulties can result if one of the parties lacks confidence in the neutral or does not accept the evaluation. Even if the parties accept the evaluation, they are sometimes left to negotiate a resolution based on that evaluation without assistance from a facilitator. Furthermore, it may be difficult to maintain the confidentiality of the process or the evaluation in particular.[26] ENE may not be appropriate in cases involving serious credibility disputes, cases where the parties have not yet exchanged critical evidence, and cases raising issues with no legal precedent or unresolved public policy questions.[27]

Difference from other ADR methods

In case of ENE, the evaluator acts as a neutral person to assess the strengths and weaknesses of each of the parties and discusses the same with the parties jointly or in caucuses, so that the parties are aware of the independent evaluation of the merits of their case. ENE is, thus, distinct from-mediation being explicitly evaluative in nature and normally requires the expertise in the subject matter. It also focuses on the procedure of law as opposed to the interest of parties and it is not a process of discussion towards a negotiated settlement.[28] The process of ENE is, however, distinct from arbitration as there is no testimony or oath or examination and such neutral evaluation is not recorded. The process is confidential and cannot be used by any of the parties against the other. There is no award or result filed. It is really a judgment by the neutral evaluator on the basis of material on record -without the judgment is binding and in a Case of non-acceptance, the matter is referred back to the Court without disclosure of reasons as in the case of a mediation.[29]

Position in United Kingdom

It has, however, been relatively under-developed and under-utilized in England and Wales, outside of proceedings in the Technology and Construction Court and the Commercial Court. The former makes provision for it in paras 7.5.1-7.5.4 of the Technology and Construction Court Guide, which notes that it may be carried out by the court with the consent of the parties[30]. The Admiralty and Commercial Court Guide, paras G2.1-G2.5, contains similar provisions.[31] There are three plausible reasons for this lack of use. First, there is a general assumption that its use depends upon party consent. Secondly, the lack of clarity regarding the basis on which a court could, either with or without party consent, direct an ENE hearing to take place. Thirdly, an under-appreciation, outside the TCC and Commercial Court, by the judiciary and legal profession of its merits, and particular its utility as a means to promote settlement.

In terms of the first and second issue, neither the TCC Guide nor the Admiralty and Commercial Court Guide assists. Both support the view that party consent is necessary. Neither provides any jurisprudential basis for the court’s power to carry it out. They are, as explained by the Court of Appeal in Bovale v Secretary of State for Communities and Local Government[32] simply descriptive. They are neither rules nor practice directions. Previous editions of the, then, Commercial Court Guide could, however, arguably have provided a basis for the power to carry out ENE in commercial claims. The Guide’s provisions were to be followed except where they were in conflict with Rules of the Supreme Court. (It is notable that neither Practice Direction has been revoked.)[33] The Practice Directions could thus have been the source of the Commercial Court’s jurisdiction to order ENE.

In Seals v Williams[34]., Norris J considered the question of the court’s power to order ENE. At paras 4 – 6 he, rightly, concluded that the wide jurisdiction provided by r.3.1(2)(m), which specifies that the court can make any order, in addition to those particularised in r.3.1, to manage cases and further the overriding objective, provided such power. He further stated that the question of the Civil Procedure Rules’ vires in this area arose from the court’s inherent jurisdiction. One consequence of this was, as an aspect of the court’s inherent jurisdiction, the power to order ENE and for a judge to conduct it was part of the judicial function and did not depend upon party consent. The first two issues were thus put at rest.  In terms of the third issue, Briggs L.J.,[35] tackled it in respect of Chancery proceedings[36]. The Review recommended the development of judge-led ENE as an option to be available in Chancery proceedings.[37] Wider consideration of its utility and applicable to other proceedings had however continued to be absent until the most recent CPR amendments. The Civil Procedure (Amendment No.4) Rules 2015, from 1 October 2015, codifies Norris J.’s statement from Seal. It amends r.3.1(2)(m) to make explicit reference to the power to order an ENE. The power to do so is not constrained by the need to secure party consent.

Position in India

Section 89 of the Civil Procedure Code, 1908 includes provisions for referring the parties to ENE. It reads:

(1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the court may reformulate the terms of a possible settlement and refer the same for— (a) arbitration; (b) conciliation; (c) judicial settlement including settlement through Lok Adalat; or (d) mediation.

In Bawa Masala Company v Bawa Masala Pvt Ltd[38] the Delhi High Court referred the parties to early neutral evaluation, thus introducing the concept to India. It forms a part of the recent trend in the Delhi High Court of encouraging ADR in intellectual property disputes forward by leap and bounds. The matter had earlier been referred for mediation as there were a number of interlinked disputes pending before the trial court.[39] Although the two officials of the Delhi High Court Mediation and Conciliation Centre who had been appointed as mediators in the matter had successfully resolved all the other disputes, the instant suit had not been settled. In view of this, the counsel for both parties suggested that another attempt for amicable resolution through the ADR mechanism be made and instead of mediation, the endeavor should now be through the process of Early Neutral Evaluation (ENE).[40] Hon’ble Mr. Justice Sanjay Kishan Kaul describes ENE in the words of Robert A. Goodin as “Early neutral evaluation is a technique used in American litigation to provide early focus to complex commercial litigation, and based on that focus, to provide a basis for sensible case management or offer resolution of the entire case, in the very early stages”.[41] While referring the parties to ENE, he observed:

“ENE is, thus, a different form of alternative dispute resolution and I see no reason why this process cannot be resorted to towards the object of a negotiated settlement in pursuance to Section 89 of the Code of Civil Procedure, 1908 especially when the parties volunteer for the same. The provisions of the said section inter alia provide for Alternative Dispute Resolution Mechanism, which inter alia includes mediation. ENE also broadly follows the same process as a mediation, though the concept is not a negotiated settlement, but a neutral assessment.”

Conclusion

Neutral Evaluation may assist in de-personalizing an issue by giving clients an opportunity for catharsis, thus removing a sometime major obstacle to productive settlement discussions. It can also assist in tempering unrealistic expectations of the outcome.[42] The neutral evaluator’s objective and impartial assessment serves as a “reality check” for the parties and their lawyers, bringing frivolous matters to an end or fundamentally altering their expectations. It brings to the negotiation table serious and realistic offers (or dismissal of claims) that may eventually result in an early settlement.[43]Used as a gatekeeper for other dispute resolution processes, Neutral Evaluation can diminish the risk of not choosing the DR process that is best suited for a particular dispute. Neutral Evaluation provides the parties with the possibility of exploring all the appropriate DR options after the dispute has arisen without restricting any party in advance to any inappropriate option. It is a safe harbour within which parties who might not otherwise be amenable to DR can ponder the possibilities.[44] To that extent, the Indian judiciary should incline themselves to adopt ENE to resolve the disputes at the early stage, given the gradual emergence of ADR within the country.

[1] Defining alternative dispute resolution—Early neutral evaluation, Corporate Counsel’s Guide to Alternative Dispute Resolution in the Employment Context, (December 2017)

[2] Early Neutral Evaluation, India-International Law Firm Available at :http://iilf.co.in/lawfirm/ (Last accessed on 12.01.18)

[3] Neutral Evaluation: An ADR Technique Whose Time Has Come, FindLaw, Available at: http://corporate.findlaw.com/litigation-disputes/neutral-evaluation-an-adr-technique-whose-time-has-come.html (Last accessed on 12.01.18)

[4] Supra note 1

[5] David I. Levine, Northern District Of California Adopts Early Neutral Evaluation To Expedite Dispute Resolution, 72 Judicature 235

[6] Supra note 3

[7] Id

[8] Brazil, Kahn, Newman & Gold, Early neutral evaluation, 69 Judicature 279 (1986)

[9] Yvonne Pearson et. al., Early Neutral Evaluations: Applications To Custody And Parenting Time Cases Program Development And Implementation In Hennepin County, Minnesota, 44 Fam. Ct. Rev. 672

[10] Id.

[11] Alex Verdan QC, Harry Nosworthy, Deborah Eaton QC and Katherine Kelsey, “Early Neutral Interventions in private law children disputes: the way forward?”, Family Law, http://www.familylaw.co.uk/news_and_comment/early-neutral-evaluations-in-private-law-children-disputes-the-way-forward#.WACNZSRVe-c (Last accessed on 12.01.18)

[12] Supra note 1

[13] Id.

[14] In re Prohibition Against Disclosing ENE Communications to Settlement Judges, 494 F. Supp.2d 1097 (N.D. Cal. 2007).

[15] Alison Bull, Putting your children first, P.C.B. 2016, 6, 253-259

[16] Supra note 12

[17] D. Me. Local R. 83.11; W.D. Mich. Local R. (ENE); D. Mont. Local R. 16.6.

[18] Lewis-Miller v. Ross, 710 N.W.2d 565 (Minn. 2006); United States v. $57,790.00 in U.S. Currency, 263 F. Supp.2d 1239 (S.D. Cal. 2003);

[19] Id.

[20] In re Prohibition Against Disclosing ENE Communications to Settlement Judges, 494 F. Supp. 2d 1097 (N.D. Cal. 2007); W.D. Mich. Local R. (ENE); D. Mont. Local R. 16.6; Ga. Alt. Dispute Res. Rule VII.

[21] Supra note 1

[22] ADR strategies—Early neutral evaluation, Chapter 9. Steering Cases Toward Early Resolution, Litigation Management Handbook § 9:25

[23] Richard A. Rosen, EARLY NEUTRAL EVALUATION, Settlement Agreements in Commercial Disputes: Negotiating, Drafting and Enforcement, 2018-1 Supplement

[24] Id.

[25] Howard C. Anawalt, Dispute resolution methods—Negotiation and other generally applicable techniques—Early neutral evaluation, IP Strategy: Complete Intell. Prop. Planning § 5:33 92017)

[26] See EEOC v. Sears Roebuck & Co., No. C-89-0928, 1989 U.S. Dist. LEXIS 14298, at *9-10 (N.D. Cal. Aug. 21, 1989)

[27] Supra note 9

[28] Bawa Masala Company v Bawa Masalaa Pvt Ltd  AIR 2007 Delhi 284

[29] Id.

[30] Civil Procedure 2015 Vol.2 para.2C-42

[31] Civil Procedure 2015 Vol.2 para.2A-102

[32] Bovale v Secretary of State for Communities and Local Government [2009] EWCA Civ 171, [2009] 1 W.L.R. 2774

[33] Practice Direction (Commercial Court: Practice Guide) [1994] 1 W.L.R. 1270; ractice Direction (Guide to Commercial Court Practice: Fourth Edition ) [1997] C.L.C. 1538

[34] Seals v Williams [2015] EWHC 1829 (Ch), 15 May 2015, ChD, unrep

[35] Chancery Modernisation Review: Final Report (2013)

[36] Id. see paras 5.23-5.30

[37] Id. see para.16.19

[38] Bawa Masala Company v Bawa Masalaa Pvt Ltd  AIR 2007 Delhi 284

[39] Shwetasree Majumder, Delhi High Court ruling on Early Neutral Evaluation, De-Coding Indian Intellectual Property Law, SpicyIp (September 6, 2007) Available at: https://spicyip.com/2007/09/delhi-high-court-ruling-on-early.html (Last accessed on 14.01.18)

[40] Id.

[41] Supra note 35

[42] Christine E. Hart, Alternative Dispute Resolution Practice Manual, North York: CCH Canadian Ltd., 1996, p. 4498

[43] Erika S. Fine; Elizabeth S. Plapinger, ADR and the Courts: A manual for Judges and Lawyers, (CPR Legal Program), New York: Butterworth Legal Publishers, 1987, (Summary) p. 163.

[44] Theodore H. Hellmuth, “Commentary – Using Neutral Evaluation As a Gatekeeper Dispute Resolution Process”, in Alternatives to the High Costs of Litigation, New York: CPR Institute for Dispute Resolution, Vol. 13, No8, (August) 1995, p. 99.

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Written by Ashutosh Mishra while pursuing the Diploma in Entrepreneurship Administration And Business Laws from NUJS, Kolkata.

INTRODUCTION

Limited Liability Partnership (hereinafter referred to as “LLP”) is a combination of partnership as well as a company. It is a form of partnership in which all or some partners have limited liability. Every partner is liable only for his/her acts and to the extent of capital/investment made by them, no liability of any one partner will be the liability of the co-partners. No joint-liability of partners is there due to any acts by them amounting to wrongful business decisions or professional misconduct. An LLP is a body corporate and has a separate legal entity as well as it enjoys the perpetual succession which is akin to the benefits a Company enjoys. It can continue its existence irrespective of changes in partners. The minimum number of requirement for starting an LLP is at least two partners, out of which one needs to be an Indian resident, whereas there is no maximum cap for the same.

LLPs are governed by a separate legislation which is the Limited Liability Partnership Act, 2008 as well as the rules drafted by the Central Government for the functioning of the LLP. Though the term partnership comes in an LLP Indian Partnership Act, 1932 has no applicability on an LLP and the agreements entered into between the partners regulate the working of an LLP. “LLPs are one of the most preferred business structures for service sector and for small and medium enterprises. The concept of LLP exists in the U.S.A., U.K., Canada, Japan, France, Singapore, etc.”[1] The need for an LLP was felt in India after the idea emerged from the reports of Dr. J.J. Irani Committee, Mr. Naresh Chandra Committees they envisioned that LLP would increase the global competition and enable the participation of small enterprises and joint ventures.

LLP can be for a particular venture, if stated in the LLP Agreement and can be limited by time as per their venture. The entity may file for the strike off of the name with the Registrar of Companies (ROC) from the Register after the limitation period of the venture gets over.

LLP provides an effective alternate corporate business vehicle, it gives the benefits of ‘limited liability’ similar to a company along with the flexibility as of a partnership firm with minimum compliances and maximum benefits.[2] The contractual agreements (if any) between the partners are applicable for the smooth functioning of an LLP which can be related to the partnership deed, in case of no LLP Agreement, the terms of Schedule I of LLP Act, 2008 will be applied.

The researcher would be dealing with the grounds for the strike off of the name of the LLP by the Registrar of Companies (ROC) with in-depth analysis of the necessary compliances to be followed for maintaining the smooth functioning of an LLP. The importance of various forms that need to be filed by LLPs and the remedy for an LLP if its name has been struck-off by the ROC.

GROUNDS FOR STRIKING OFF OF LLPs

In the matter of striking off of LLPs, Section 75 of the LLP Act, 2008 read along with Rule 37(1) of LLP Rules, 2009 states that a Registrar of Companies (ROC) has the power to strike off of the name of a defunct LLP. If the Registrar is under the impression that there is a reasonable cause for striking off the name and the entity was inoperative for 2 years or more as well as has not convened itself to the provisions and compliances specified under the above mentioned Act and Rules with the contemporary amendments related to the functioning of an LLP. [3]

The name of an LLP can be struck-off from the Register of the ROC, the Registrar shall send a notice to the LLP for striking off the name. LLP has a time period of thirty (30) days from the date of the notice of the ROC, to give such LLP an opportunity of being heard and present the relevant evidence to support their stand for not striking off their name. During the phase of the notice sent by the ROC till the cessation of the time period of 30 days, the status of that LLP is “Under Process of Strike off.”

1. Annual Compliances: The annual compliances needs to be followed by the LLPs for the smooth functioning of the entity. An LLP is required to maintain certain books of accounts for each year of business with certain form filings which are mandatory to be made.
2. Statement of Account and Solvency (Annual Filing)- Statement of Account of an LLP needs to be filed annually, certificate by a designated partner or the authorised representative stating that the Statement of Account & Solvency and Statement of Assets & Liabilities stating that the information provided is verified and has found it to be true and fair in his/her capacity.

Form 8 under LLP Act needs to be filed and is known as annual filing stating the statement of account.[4] The form needs to be filed within 7 months before the end of the financial year with the prescribed format and within the stipulated time-period for heeding to the purposes of the LLP. The liability of the partner who wilfully makes a false statement or manipulates the books of account can be penalized with up to 2 years of imprisonment and a monetary fine ranging from 1 lakh to 5 lakhs.

1. Annual Return- Form 11 under the LLP Act includes an annual return to be filed by an LLP within 60 days from the cessation of the financial year. The return needs to be filed electronically through the portal each year with the Ministry of Corporate Affairs (MCA) to maintain the compliance and avoid the penalty.

Annual Filing and Annual Return are the documents that are made available at the ROC for public inspection. LLPs account statement and profit figures need to be in the public domain. Thereby, with the LLP being inoperative for 2 years or more, the Roc can strike off the name as the main essence of LLP is lost if its account statements are not made public.

2. Non-functioning: If the Registrar has reasonable cause to believe that the LLPs are defunct or inoperative for 2 years or more, the Registrar can take suo-moto action for striking off the name of the LLPs.[5] It is a discretionary power provided to the Roc by the Central Government. The reasonable causes could be the inefficiency, non-compliances, etc.

In Sukhbir Saran Bhatnagar v. Registrar of Companies[6], the Court held that “the Registrar has the power to strike off a defunct company with a reasonable cause that the entity is not in operation.”

3. Voluntary Striking off: The recent amendment of Limited Liability Partnership (Amendment) Rules, 2017 inserted a provision for the voluntary striking off of the name of the LLP by the LLP itself by making an application to the Registrar. Form 24 needs to be filed to the ROC under Rule 37(1) (b) and 37(1A) of LLP Rules, 2017. Under the voluntary striking off, the LLP needs to disclose nil assets and nil liabilities in the statement of account with the acknowledgment copy of the latest Income tax return, a copy of the limited liability partnership agreement when entered into and an affidavit signed by the designated partners, jointly or severally.
4. Non-compliance to LLP Provisions: The compliances for maintaining the running of an LLP needs to be followed. An LLP should remain au courant with the legal provisions, amendments, government circulars, etc. related to the LLP.

The unawareness of the partner(s) regarding the filing of forms 8 and 11 and various other compliances are the grounds for the striking off of LLP. The reason behind this unawareness is the partner(s) considering the LLP in pari materia with the partnership firms which only file their Income Tax Return. Whereas in the case of an LLP, apart from the Income Tax Return filing, they have to file forms 8 and 11 which disclose the Annual return of the LLP and statement of Accounts & Solvency. Thereby, the acts of the LLPs are not absolved and amounts to ‘Ignorantia Juris Non-Excusat’ which means that ignorance of the law is no excuse. It is the responsibility of the LLPs to abide by the specific act and rules maintaining the LLP, the non-compliance with the provisions will amount to a penalty in the form of striking off of the name of the LLPs.[7]

WHAT TO DO IF AN LLP IS STRIKED-OFF

When a notice is sent to the LLP for strike off, the status of the LLP enlisted changes to “Under Process of Strike Off”. To enable the status of the LLP active again, the LLP is required to take appropriate action to the ROC within 30 days from the date of the notice. The entity should provide evidence and facts to the ROC stating the reason for not striking off the name of the LLP. The Registrar gives an opportunity to the LLP for presenting their reasons along with evidence to take their stand or substantiate their reasons.

The partners or the LLP itself can make a representation as to why they have failed to fulfill the provisions laid down for a given period along with copies of the relevant documents stating the reason for not striking off the name. If the LLP was operational then by presenting the books of accounts it can be supported. If it was non-operational then the reason why the existence of such should continue. Professionals should be consulted depending upon the type of business an LLP is into to initiate appropriate actions.[8]

Any person or stakeholder can object the proposed strike off by the ROC by sending a notice within one month from the date of the notice. The objection can not only be raised by the partners or the LLP but by the creditors or stakeholders who are under the impression that the LLP was functional or have some interest in the LLP.[9] The contentions by the creditors should be supported by valid documents and moreover, it could be any person related to the LLP who feels that loss would be incurred to them, can raise an objection on the notice of the Roc.

In the case of Vijayawada Chamber of Commerce and Industry v. Registrar of Non-Trading Companies[10], the ROC called for the strike off of the name of the Company. The company was actually functioning, only its returns to be filed were delayed. The striking off was later set aside.

As in the above-mentioned case, it is clearly evident that the striking off could lead to the loss of goodwill of the company and could involve a lot of time in the process of restoration of the LLP after getting struck off.

MINISTRY OF CORPORATE AFFAIRS VIGILANT ACTION ON LLPs

The recent matter of striking off of 1171 LLPs under Section 75 of LLP Act, 2008 read along with Rule 37(1) of LLP Rules, 2009 by Roc of NCT of Delhi and Haryana depicts the severity of the matter involved.[11] The constant compulsion from the government to streamline the entities and to make it think that the legal compliances in the acts relevant to the LLP are not voluntary in nature. The action taken by the Roc clearly indicates the provisions laid down to be followed to enjoy the perpetual succession. The entities running their businesses should abide by the day to day and annual compliances.

The action of the Roc is clearly evident that the compliances need to be followed by the LLPs. The LLPs were struck-off due to being inoperative or defunct for 2 years or more.

CONCLUSION

With the enormous numbers of fictitious LLPs coming into the global market for availing the benefits of a separate legal entity and of limited liability along with various tax benefits, the ROCs along with the Ministry of Corporate Affairs is becoming vigil in eliminating the bogus ones which they seem to be defunct for 2 years or more. The Registrar can send a notice for striking off of the name of the LLP if he/she has a reasonable cause to believe that the LLP was inoperative or has not abided by the compliances to be followed.

The suo-moto power of the ROC in striking off of the name of the LLPs could be unreasonable, arbitrary and be violative of Article 14 of the Constitution of India.[12] In certain cases with the mere belief of the Registrar that the LLP was inoperative could amount to the striking off of the name of the LLP. The decision can later be challenged by the LLP but for that duration the company’s time, money and goodwill can go away. The creditors and stakeholder’s nemesis lies with the ROC. Though the creditors and stakeholders can file an appeal against the decision of the ROC within 30 days from the date of the notice it is a time-consuming process.

There needs to be a proper listing of the reasons for the striking off of an LLP, publicly. One of the main essentials of an LLP is that the books of accounts, annual returns shall be public in nature and therefore, specific grounds for striking off of LLP should be mentioned and not just the ‘reasonable ground’ as the ROC finds out, with the reasons being publicly displayed after thorough information as received by the ROC. If the ROCs contentions are negated then it will amount to the loss of goodwill and business of the company and therefore, the public mention of the specific grounds for striking off is necessary.

[1]  Hitender Mehta, Limited Liability Partnerships Law and Practice (Wolters Kluwer 3) (2016)

[2] Why your Startup should be an LLP The Economic Times, https://economictimes.indiatimes.com/small-biz/legal/why-your-startup-should-be-an-llp/articleshow/47440287.cms (last visited Jul 28, 2018)

[3] Striking Off The Name Of A Defunct LLP –New Requirements In Terms Of The Limited Liability Partnership (Amendment) Rules, 2017 – Corporate/Commercial Foreign Direct Investment In Turkey – International Law – Turkey, http://www.mondaq.com/india/x/600140/Corporate Commercial Law/Striking Off The Name Of A Defunct LLP New Requirements In Terms Of The Limited Liability Partnership Amendment Rules 2017 (last visited Jul 28, 2018)

[4] Is your LLP placed in “Notice of Striking off? Why & what to do? TaxGuru, https://taxguru.in/corporate-law/llp-notice-striking.html (last visited Jul 28, 2018)

[5] Avtar Singh, Company law (Eastern Book Co.) (2009)

[6] Sukhbir Saran Bhatnagar v. Registrar of Companies, (1972) 42 Comp Cas. 408 (Del)

[7] Navin Kumar Agarwal v. Commissioner of Income Tax, (2015) 278 CTR 206

[8] RoC proposed strike off of LLPs: Read the remedies availableGet Expert Legal Services Online for Startups in India, https://www.legalwiz.in/blogs/roc-proposed-strike-off-of-llps-read-the-remedies-available/ (last visited Jul 27, 2018)

[9] Staff Publication Vinod Kothari Consultants, http://vinodkothari.com/blog/hundreds-of-llps-may-be-vanishing-soon/ (last visited Jul 27, 2018)

[10] Vijaywada Chamber of Commerce and Industry v. Registrar of Non-Trading Companies, (2004) 122 Comp Cas 796 (AP)

[11] Ministry of Corporate Affairs, In the matter of striking off of LLPs under Section 75 of LLP Act, 2008 read with Rule 37 of LLP Rules, 2009 (REGISTRAR OF COMPANIES, NCT OF DELHI & HARYANA) (2018)

[12] Anwar Ali Sarkar v. State of West Bengal, AIR 1952 Cal 150

The post What to do if an LLP is striked off? What are the grounds for striking off? appeared first on iPleaders.

This article is written by Teresa Dhar. This article discusses the Supreme Court verdict on Sabarimala case in favor of lifting the restriction of women from entering the Sabarimala shrine.

INTRODUCTION

In a country where serpentine rituals have been indispensable to the ideas of faith and religion, the Supreme Court verdict on Sabarimala come as a blow to the devotees of Lord Ayyappa, both male and female. On 28^th September 2018, the Apex Court ruled in favor of lifting the restriction on women of age group 10-50 years from entering the Sabarimala shrine. The let-down by the SC is great – it has pronounced a judgment fraught with ignorance and fallacy. India has been known for its diverse faiths and beliefs and with a single judgment, not only has the judiciary struck at the essence of our secular nature but has also shown us that overzealous attempts to bring gender-parity and end such bigotry mayn’t be always warranted.

BACKGROUND AND CONTENTIONS

To end a centuries-old discriminatory practice and based on an event where, after a South Indian actress, Jaymala had visited the shrine, a purification ritual was held,ⁱ the petitioners filed this writ petition. The petitioner’s side primarily argued that the ban on entry of women wasn’t a quintessential ritual in practicing this faith. This kind of ban was discriminatory as it didn’t allow women of menstruating age i.e, 10-50 years to enter the shrine – hence, violative of Art.14 of the Indian Constitution.ⁱⁱ They contended that State can make laws under Art.25(2)(b) with respect to not only social but also religious aspects.ⁱⁱⁱ It was also argued that the temple cannot act as an independent religious denomination as it was managed by the Travancore Devaswom Board which is publicly-funded and hence, can’t claim any rights under Art.25 nor can it practice gender-based discrimination in violation of Art.14 and 15 of the Constitution.^iv The petitioner kept harping upon the fact that the idea of menstruating women being considered “impure” was being used as a ground for untouchability prohibited under Art.17 of the Constitution.

On the other hand, respondents pointed out the historical origins resulting in the ban of entry, stating that the practice was based on “bonafide beliefs”.^v The respondent went on to explain that Lord Ayyappa is no misogyny, but a ‘Naishthik Brahmacharya’ or a celibate by nature. To keep away from temptation, women of menstruating age aren’t allowed and the latter, out of respect for the penance taken by Lord Ayyappa, is more than happy to oblige. The ban is defended as intrinsic to the faith involved around Sabarimala, practiced by the all Ayyappa Swamis and it isn’t justified for a secular judge to question the irrationality of the faith if it is harmless. Condemning the petition as an attack on Hindu beliefs and the temple’s repute, the counsels also maintained that the rights of the State as per Article 25(2) don’t apply to religious institutions and constitutional morality can’t prevail over societal and religious morality. It has been pointed out that women physiologically can’t undergo the 41 days penance, which is fundamental to the pilgrimage, due their menstruation cycle.^vi The respondent repeatedly stressed the fact that there was no sexism at play. The deity being a juristic person and having his own legal rights was entitled to stay an eternal celibate and the condition of banning entry of women of a certain age-group was inherent to his nature of penance and the same was protected by the Right to privacy under Art.21.^vii

JUDGMENT

By a 4:1 majority, the SC ruled in favor of lifting the ban on entry of women any age-group. Ironically, the only judge to dissent is the lone woman judge, Indu Malhotra. In the concurring judgments of CJI Mishra, J.Khanwilkar, J.Chandrachud, and J.Nariman, Rule 3(b) of the Kerala Hindu Places of Public Worship (Authorization of Entry) Rules,1965 – the provision that forbade the entry of women of 10-50 year age-group were struck down. It was considered ultra vires of the Rules, 1965 and was inconsistent with Art.25 (1) which allowed Hindu women to practice their religion.^viii They maintained that the devotees failed to establish themselves as a “separate religious denomination” as they didn’t have a “common religious tenets peculiar to themselves” which they must consider beneficial for their spiritual health.^ixCiting the case of Shirur Mutt,^x the judgment stated that prohibiting women from entering the temple didn’t constitute as “essential religious practice” protected under Art.25(1) as it didn’t have any scriptural backing and contrary to the right of exclusion.^xi J. Chandrachud asserts that religion can’t overpower women’s right to worship – “To treat women as children of lesser God is to blink at Constitutional morality” and physiological factors shouldn’t be a ground to practice untouchability nor deny women their right to worship.^xii

However, judgment from J. Malhotra bluntly expressed that the petition shouldn’t have been entertained in the first place as none of the petitioners were devotees of Lord Ayyappa, none of their fundamental rights have been violated. This argument forms a crux of the judgment as it isn’t expected that an alien to a faith understand the sentiments behind it. She asserts that rationality needn’t be brought into religion and what constitutes an essential religious practice is for the religious community to decide. She agreed to the fact that Aiyyapa devotees form a distinct section with identifiable characteristics and form a separate denomination.^xiii She pointed out the verdict will have a bearing on other places of worship and what with India having a pluralistic society and secular polity strewn with diverse religion and faith, Constitutional morality can’t prevail over the reasoning behind the tenets of a religion.^xiv J.Malhotra maintained that the belief in the manifestation of the deity in form of a Naishtik Brahmachari is a fundamental right protected by Article 25(1) of the Constitution and imposing the court’s morality on religious faiths would distress one’s freedom to practice the faith.^xv

AN ERRONEOUS JUDGMENT AND THE WAY AHEAD

Amusingly, in a judgment intended to smash patriarchal notions and bridge any gender-disparity, the judiciary with its hyper-activism has only managed to antagonize both male and female devotees of Lord Ayyappa. Perhaps, they weren’t aware of the #ReadyToWait movement, where female devotees of Ayyappa declared that they were ready to wait until they turned 50 years before they visit the shrine. This is done out of respect for Malikapurathamma who is worshipped in a nearby temple. As the popular legend goes, Ayyappa had defeated a demon woman in a battle, who later turned out to be a very beautiful woman. She fell in love with Ayyappa and coaxed him to marry her. However, he refused to do so initially as he had prayers of devotees to answer but on her persistence, he agreed to marry her the day kanni-swamis(new devotees) stop coming to him with prayers. While she went in wait for him, Ayyappa out of respect for her didn’t receive women of the age of reproductive capabilities.^xvi

Nowhere is it implied that Ayyappa was a misogynist or considered menstruation impure. If that is so, then girls below 10 years and women above 50 years who menstruate wouldn’t have been allowed. In fact, men and women from all religion, rich or poor, can pray in harmony in that shrine and in other Ayyappa temples, women of all ages are allowed. In temples of other deities, often men or women aren’t allowed as the faith dictates-shouldn’t those also be questioned? Importantly, the ramifications of the judgment must be considered. As J.Malhotra puts, it would lead us to challenge other crucial rituals. What if the court declared that reading the Namaz five times a day isn’t necessary or that Jains must eat meat? In trying to modernize religion and defining abstract concepts of faith and rituals, the judiciary is overstepping its limits to inflict constitutional morality on religion. When no social evil, like sati, is being practiced, then why should the petitioners, who aren’t even devotees of Ayyappa nor aggrieved parties, file a PIL related to it? This brings us to J.Malhotra’s judgment where she correctly propounds that allowing interlopers to file PILs in the religious matter would give leeway for disaster, especially for religious minorities. It is as good as allowing a Buddhist to challenge rituals of a Christian and hence, such petitions shouldn’t be entertained in the first place.

Interestingly, three out of five petitioners later realized that they were wrong to file this case and didn’t have a clear understanding of the facts of the case.^xvii Based on a lone event, they were in a hurry to see that justice was meted out, realizing their blunder of angering the female devotees. The judiciary on its part failed to provide relief to anyone. However, SC has decided to hear 49 review petitions opposing the verdict on January 22, 2019, although it hasn’t ordered any stay on its September 28 verdict.^xviii

Hopefully, this time judiciary should introspect on whether it is right to act like a busybody in matters as subjective as religion and faith. Even if a certain ritual is not palatable to the law, it is not for Law to decide to do away with it but the practitioners of such ritual. As long as it is not opposed to public health and isn’t as abhorrent and destructive as Sati, the court will do well to not induct rationality into faith. As Swami Vivekananda wisely comments, “Do not try to disturb the faith of any man. If you can give him something better, get hold of a man where he stands and give him a push upwards; do so, but do not destroy what he has”- maybe the judiciary could learn that when it comes to matters of faith, abstract concepts of equality, transformative reforms in religion, gender-disparity are best sidelined, especially when lakhs of female devotees of Ayyappa have taken a vow that they wouldn’t enter the temple before turning 50; that they were ready to wait.

The post Reasons Why Sabrimala Verdict is Flawed appeared first on iPleaders.

This article is written by Rohan Bishayee, practising corporate lawyer in the ASEAN with DFDL, Legal and Tax Services.

Mergers and acquisitions (“M&A”) and corporate restructuring is one of the most prevalent corporate finance activities of the twenty-first century. We often read about M&A transactions where smaller corporations consolidate and merge to form a larger corporation or get acquired by larger corporations.

While academically, in law school, we have a rough idea of what an M&A is and the theoretical framework of an M&A, the practical aspects of how a transaction is structured is not discussed in law school.

This article briefs the process of an M&A  deal, gives insights on clauses of a share purchase agreement and enumerates closing obligations which must be satisfied before getting through the deal.

Due-diligence phase

Once an M&A deal has been proposed, and the target is willing to negotiate a deal with the buyer, the first activity which the buyer conducts on the target is a due diligence. The due diligence on the target is conducted to ascertain the risks associated with the business and to check if the target has complied with legal, financial, accounting and technical compliances.

Before making a commitment to the transaction, the buyer ensures what it is buying and the obligations it is assuming. To be more particular, the buyer seeks information on the nature and extent of the target’s existing and contingent liabilities, general corporate matters which include the charter or constitution document of the corporation, material contractual hazards, employment or management issues, governmental regulations and filings, environmental issues (if any), insurances, litigation and insolvency risks, intellectual property related issues and other specific issues related to the business vertical. This is true especially if the target is a private company and has not been subject to a scrutiny of securities commissions, public markets and there is not much information on the company available from public sources.

The due diligence report gives an actual reflection of the position of the target and makes the buyer ascertain the potential risks of the transaction and leverages his purchase consideration.

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Share purchase phase

The buyer ascertains the potential risks of the transaction, negotiates and leverages with the target to structure a deal. The transfer of shares and an acquisition process enters into a formal agreement between the parties upon execution of a share purchase agreement. The share purchase agreement is a legal deal reflected through enabling provisions of the deed or agreement to give effect to the share transfer from the target to the buyer. The main purpose of a share purchase agreement is to effect the change in control of the acquired company’s business.

Some of the most important clauses in a share purchase agreement are the following:

• Purpose of the agreement including the share sale clause which definitively sets out the number and the percentage of shares that are going to be transferred.
• The sale price which is the purchase price to be paid by the buyer as consideration for the acquisition of the shares.  
• Undertakings, covenants and declarations which are a set of statements and assertions made by the seller guaranteeing the status and representation of the corporation whose shares are being sold. The inaccuracy and/or falsity of such statements ensues a corresponding obligation on the target to compensate for damages and/or losses caused to the buyer.
• Defaulting circumstances and liability regime which establishes the compensatory amounts due in the event of a possible breach.
• Closing obligations of the respective parties which must be met for the sale and purchase deal to be executed and respective sale shares to be transferred upon signing.
• Warranties, to secure compliance of obligations which are reflected in the agreement such as price retention or granting of bank guarantee.
• Miscellaneous clauses on confidentiality, statutory notifications, notices, assignments, waivers, partial disabilities, governing law, dispute resolution among others.

Signing and Closing phase

Post satisfactory completion of the due diligence phase, the share purchase agreement is executed by the parties; commonly referred to as ‘signing’. However, the finalization of the transaction does not materialize as there is no effective transfer of shares or the ownership of shares in favour of the buyer.

The foremost reason for this is because in most occasions the parties to the transaction agree to give effect to the transaction subject to a series of conditions which must be satisfied or achieved within a specific time frame before the closing of the deal. These would include conditions such as amendments to constitution documents which restrict share transfer, obtaining necessary corporate authorizations to enter into the transaction, prior approval and related administrative authorizations necessary for share transfer, the satisfaction of debts or pending obligations of the target, favourable resolutions passed in favour of share transfer, etc. Therefore, in operation of law, the signing resembles more of an ‘agreement to sell’ or a ‘promise to purchase’, subject to the satisfaction and achievement of the signing obligations and obligatory conditions.

Upon satisfactory fulfilment of conditions stipulated in the agreement, the agreement gains legal perspective and commences legal operation. Subject to jurisdictional qualifications and practices, the parties to the agreement appear before a public notary to restate their consent to the terms and conditions as specified in the agreement. Thereafter, payment of purchase price or sale share consideration takes place and there is a legal transfer and delivery (legal or constructive) of the sale shares takes place. This transfer fulfils and effectively transmits ownership over the sale shares to the buyer or acquirer and is termed as ‘closing’. This share transfer is reflected in a public document which serves for the purposes of evidencing the aforementioned transaction.

While signing is the consummation of execution of the agreement whereby the parties to the transaction give their due consent by affixing signatures, closing is the consummation or fulfilment of all obligatory conditions by the respective parties to ensure terms and conditions of the agreement are met and the legal transaction is completed.

Academically, the signing and closing may take place in the same time, however, in practice, there are very few situations where a deal would have no complexity and no condition to be taken care of by either party prior to the acquisition.

Note from LawSikho: If you are interested in a career in Mergers and Acquisition, then check out LawSikho’s Diploma course in M&A, Institutional Finance and Investment Law , this is one-of-a-kind of course on successful completion of the course, you will be able to understand different methods to accomplish an M&A, investment or banking transactions, strategically select an optimal method as per the situation, execute it and handle issues on the way. The course will provide you with live sessions, feedback, coaching from trainer to help you improve the quality of the work that you produce. Most of the high performing students get a recommendation to top law firms for jobs and internships.

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This article is written by Maanvi Jain of ILS Pune.

Introduction

The name of the case itself arouses curiosity as to why the name of the parties has been not disclosed.

The judges are not bound to disclose the name of the victims in certain situations. For Example-  Judges are not bound to disclose the name of rape victims under Section 228-A of Indian Penal Code, 1860.

Section- 34 of the HIV and AIDS(Prevention and Control) Act,2017 which came into force after this case has inscribed this rule of keeping parties name anonymous. The parties should request the court to replace their name with a pseudonym and the court is under an obligation to do a speedy trial ‘in camera’. People are restrained from publishing matter that will disclose the identity of the person.

However, this section prevents the name of only HIV patients from being disclosed. In the present case, it is to be noted that the court has not even disclosed the name of the Hospital in order to prevent its image in the market from getting tarnished.

The Relevance of the Judgement

The case is a landmark judgment that discusses two issues in detail –

• Whether the doctors can carve out an exception and disclose their patient’s confidential information in certain situations.
• Whether the spouse of an HIV patient has the right to know about his/her HIV AID status.

Doctor’s Duty to Disclose Patient’s Confidential Information and under which Circumstances.

This question has to be dealt with by considering two aspects.

• Right to confidentiality
• Right to privacy

The facts of the case

A man was supposed to marry his fianceé but it was called off since he was diagnosed as an HIV positive patient and his doctor disclosed this fact to his fianceé. The man contended that the respondent hospital and doctor had breached their duty under medical ethics by disclosing the information.

Right of Confidentiality

The judgment has very well described the distinction between an ethical duty and a legal code.The court started with the origin of the ethical duty of not disclosing the patient’s confidential information with how it has now been incorporated as a legal rule.

The right not to disclose a patient’s information has its sources from the Greek Hippocratic oath which has been enshrined in the Code of Medical Ethics formed by The Medical Council of India with the previous sanction of the Central Government under Section- 22A read with Section-33(m) of the Indian Medical Council (Amendment Act) 1964.

The code carves out an exception that doctor can disclose information for the public interest.

Hence, relying on Code of Medical Ethics as an exception to the rule of confidentiality, the court held that in certain cases where specific people might be endangered if the information is not disclosed, the doctor can disclose the information.

Right to Privacy

Right to privacy means ‘right to be let alone’. The right to privacy is an extended right of right to life and personal liberty under Article 21 of the constitution read along with the Directive Principles of State Policy.

The main difference between the right to privacy and the right to confidentiality is that the latter is available only against a person to whom you have disclosed such information and is more of a duty whereas the right to privacy is a right in rem.

The court pointed out that the right to privacy may even arise from commercial relationships like doctor-patient. This relationship will be harmed if the doctor reveals such information that affects the patient’s ‘right to be left alone’.

Hence, it can be concluded that both the rights- Right to Privacy and Right to Confidentiality are not absolute.

Right that Prevails when there is a Conflict between Two Fundamental Rights

The counsel for the plaintiff argued that the plaintiff has a right to marry but the court said that right is not an absolute right but comes along with a duty to disclose information that would affect the other spouse.

In the present judgment, the court has discussed how every right comes with a duty barring certain rights which the court mentioned.

The judgment deals with the conflict between two fundamental rights-

• Right to privacy as an extension to right to life
• Right of the fianceé to a healthy life as enshrined under Article 21.

The court favored the right which was more towards public interest. The fianceé’s right to life should be protected over the Right to Privacy of HIV patient.

The court, hence, held that the doctor had done no wrong in disclosing the HIV positive status to the fianceé.

The Right of Marriage cannot be Suspended

The court did not stop at deciding on patient’s Right to Privacy but unnecessarily went beyond to decide his right to marriage.

The controversial aspect of the judgment was the fact that the court held that the ‘right to marry’ will be ‘suspended’ for the HIV AIDS patients until they are cured.

The judge’s counter to the appellant’s counsel’s argument that every man has a right to marry seems justified. They asserted that every right comes with a duty and hence it is the appellant’s not only moral but legal duty to inform his fianceé of his HIV AIDS status.

However, the reason behind this seems incommensurate. The court has relied on the various divorce provisions where the grounds of divorce include a venereal disease in a communicable form1. The fact that it is one of the grounds for divorce shows that every spouse has a right to health and life and hence this provision extends to even before marriage and the person suffering from such kinds of communicable diseases, cannot marry until that person is cured.

Whether Silence on the Part of Appellant amounts to a Crime under Section-269 and Section-270 of IPC?

Another question raised was whether the appellant could be charged under Section-269 and Section-270 of IPC which talks about unlawfully, negligently or maliciously spreading of a disease.

The court’s holding, that, appellant would have committed this crime if he had remained silent about his HIV status and married his fianceé and the doctor would have been participant criminis if he hadn’t disclosed the information to appellant’s fianceé, seems flawed.

The court here has equated the appellant’s silence to him being negligent by not fulfilling his duty of disclosing the information that would vitiate his spouse’s consent to marriage. The court’s reasoning seems to be based on two things-

• Negligence arises where there is a duty to take care and that duty has been breached.
• Consent to marriage should not be vitiated by fraud or misrepresentation.

Mr. X vs. Hospital Z overruled by Mr. X vs. Hospital Z

This judgment later went for clarification2 where the Supreme Court held that the judges had erred in their judgment by deciding on the matters which were irrelevant to the case.

The judgment holds good as far as the disclosure by the doctor and the right of fianceé to know are concerned.

The court upheld the decision on these two matters and disregarded the Judge’s decision on everything else.

Conclusion Derived from the Judgement

Hence, what can be understood from the judgment is that the HIV AIDS patient’s right to marriage is not suspended. They can marry with the informed consent of the other spouse.

Disclosure Of Information by Hospital amounts to Deficiency in Service

Another surprising facet of the case was that in the clarification judgment, the court has mentioned section-2 of Consumer Protection Act, 1986, which talks of ‘deficiency in service’. Though the court has not discussed this in the present judgment, it arises curiosity as to whether ‘disclosure of information’ would amount to a ‘deficiency in service’ of the hospital.

Deficiency is defined under the Act.

“Deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature, and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service;

Here, the question is whether the doctor and hospital’s manner of performance of service could be said to be inadequate.

Whether disclosure of confidential information extends to ‘deficiency in service’ or it comes separately as ‘violation of legal duty’ is to be considered.

Both these things rest on the doctor-patient relationship which is a commercial relationship.

Service- As per the Consumer Protection Act, ‘service’ is anything for consideration and since the doctor-patient relationship is commercial, it is a service provided by a doctor to a patient under the act.3

Legal Duty- The legal duty also rests on confidentiality which arises from the doctor-patient commercial relationship.

Both arise from the same source and violation of one may be considered a violation of the other since both affect the same source.

The Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention And Control) Act, 2017

The act was formed by our Parliament to fulfill its commitment under the Declaration of Commitment to The Human Immunodeficiency Virus And Acquired Immune Deficiency Syndrome (2001).

Section 9 of the act lays down an exception to the concept of “informed consent” as mentioned under Section- 8(2)(d).

“Informed consent”4 as differentiated from consent means consent to a specific intervention which has been laid down in the guidelines without coercion, fraud, mistake or misrepresentation by the person himself and his representative.

The act also defines “capacity to consent”5.

A person has the capacity to consent under the act if he can understand the consequences of his actions and hence make an informed decision about it.

It is hence subjective and gives a very wide ambit.

Section- 8(2)(d) talks about not compelling a person to disclose his HIV status. It is to be revealed with his informed consent.

However,  informed consent of a person to disclose his HIV status is not needed under section 9 which allows doctors or in the terms of the act “healthcare providers to the limit of physician and counselors” to inform the partner of the person about his HIV status in certain cases which have been mentioned below:

• The doctor reasonably believes that the partner is at risk of transmission of HIV.
• The HIV person has already been counseled to inform his partner.
• The doctor is satisfied that the HIV person is not going to inform his partner.
• The doctor has informed the HIV person that he is going to tell the person’s partner.

The only exception is given to a woman where there is a reason to believe that if her partner is told, she would be subjected to violence or abandoned by him or there might be some negative effect on the mental or physical health of the woman, her children, her relatives or someone close to her.

The legislators have made the last line of the exception very vague and wide. The effect on “mental” health even of a “relative” seems too far-fetched.

We would first have to interpret whether the definition of “relative to a protected person” given under Section-2(u) of the Act applies even to this section.

A bare reading of the provision would show that the woman under section-9 who is suffering from HIV AIDS  falls under the definition of “protected person” and hence relative under this section falls within the meaning of Section-2(u).

This somewhat restricts the scope of this exception.

Example- Take a situation where the woman claims that disclosing the HIV status to her fiance would cause shock to his mother (comes under the definition of relative) and hence her HIV status should not be disclosed to him. This could be an excuse not to disclose her HIV status before marriage. Hence this section should be interpreted with caution by the court.

The lacuna however in this section as well as the case is the fact that HIV victim gets ostracized by the society.

In the case of Mr. X vs Hospital Z, the doctor told X’s fianceé about the patient’s HIV status to protect her. However, she spread the news which leads to the appellant getting ostracized by society. Therefore, there needs to be a provision in Section-9 which puts a legal duty or restraint on the spouse who is informed of his/her spouse’s HIV status to not spread the news which can harm the reputation and lead to the victim getting ostracized by the society.

Conclusion

This case’s relevance is evident from the fact that its ruling has been incorporated as a provision in the HIV and AIDS (Prevention and Control) Act, 20176. Further rulings of the present provision would help throw light on the different interpretations of the case and help unfold the questions left unanswered.

Endnotes

1. Section 13(1)(v) of the Hindu Marriage Act, 1955; Section 2 of the Dissolution of Muslim Marriage Act, 1939; Section 32 of Parsi Marriage and Divorce Act, 1936;  Section 10 of Indian Divorce Act, 1869; Section 27 of the Special Marriage Act,1954.
2.  X vs. Hospital Z  (10.12.2002 – SC) : MANU/SC/1121/2002
3.   Medical services come under the purview of the Consumer Act-  Indian Medical Association v. V.P. Santh (1995)
4.  Section- 2(n)
5.  Section-2(b)
6.   Section-9 of the HIV and AIDS(Prevention and Control) Act, 2017

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In this article, Maanvi Jain of ILS Pune discusses life in a corporate law firm.

Introduction

Corporate Law Firms are prevalent in India for a long time such as Khaitan since 1911, and Amarchand & Mangaldas since 1917. However only after NLSIU was established in 1986 by the efforts of Karnataka government and the Bar Council of India and other National Law Universities later, that students were acquainted with this new option of working in a law firm. Litigation and Judicial services were the main courier options in front of law students before that. However, after liberalization and globalization in the 1980s, many legal issues arose and therefore, more corporate law firms were established.

In comparison to litigation, it seems like a normal desk job with better pay and less risk.  But it has its own pros and cons.

Life as an Intern in a Corporate Law Firm

First Day as an Intern

Most of us who have worked as an intern in a Tier- 1 corporate law firm, know of the nervousness of the first day of entering that big building. Usually, an intern is made to wait in a room to receive the basic instructions. By the time a person from Human Resource department comes, who is usually the one to introduce the interns to the firm, you look at the other nervous interns and get acquainted with them. The HR gives the basic instructions on the rules and guidelines of the firm like the timings to enter and leave, the way to issue library books, the measures for the safety of women employees, transport facilities etc. Some firms even provide a brief about itself – it’s organizational structure- whether a partnership or LLP, the fields in which it specializes, it’s founders etc. However, the interns are most taken aback when they are provided with some additional documents besides the internship worksheet like the confidentiality agreement and the disclosure of assets agreement.

The main purpose of the confidentiality agreement is to not disclose information provided by the firm to the interns during their course of internship which is valuable to the firm and of commercial interest. It sometimes comes as a clause within the Non-Disclosure agreement.

The Disclosure of Assets agreement is incomprehensible at first glance. It has columns to list all your holdings as well as your relatives’ holdings like shares and other assets in any company. The purpose of this agreement is to stop a person from misusing information for his benefit. The corporation wants to know in which companies you hold assets so that if you are provided with that information of this company, you may not use it your advantage or disclose it to your relatives. There is a separate agreement to disclose your relatives’ assets in a company.

Number of Hours per Day is Noted

Some corporate firms provide you with a biometric identity card which automatically records your time of entering and leaving the firm. At other firms, you are either supposed to fill your time of entering or leaving the firm or send a mail to your teammates at the time you enter and leave.

Seating Arrangements of the Interns

The interns are then taken to their sitting places which might be a cramped up intern room in the basement or some corner room. Very few firms give interns a place next to their teams. In most firms, interns are not allowed to use their personal laptops and are given an office computer as well as a username and password to access the Microsoft Outlook (most common software used by the firms). In some firms, you require the associate’s ID to open confidential documents. Interns are prohibited from taking files home to work.

Type of Work given to an Intern

An intern is provided with a team guide who he/she can approach for work or any other issue. Work given to interns in corporate firms usually includes due-diligence, proof-reading and researching on case laws.

Assessment of the Intern’s Work

As an intern, you are required to maintain a worksheet and update it with your daily work. At the end of your internship, your team goes through your worksheet, approves it and signs it. They assess your work and provide a feedback to the HR whether to call you back for an assessment internship or give you a pre-placement offer. The potential of an intern is usually seen from how long he can sit and till how much late in the night he can work and not by his quality of work. The interns already get an experience of the hectic life of the corporate firm.

Privileges as an intern

As an intern, you get to experience the work life of the firm. However, you also get to go to the firm’s canteen, have as mean teas, coffee and lattes from the coffee machine for free, have innumerable sutta breaks and bond with associates over that. If an intern is made to work for extra hours in the night, most firms pay for your dinner and you can order from whichever place you want. They also provide you with transport facilities especially for girls when it’s late in the night.

But the best part about interning at these law firms is you get to strengthen your networking skills while you are in college which might help you in the future.

Also, you get a first-hand experience and training in all the work you would be getting as an associate without the pressure of boss and competition which the newly recruited associates have on them.

Life as an Associate in a Corporate Law Firm

Incentives of Joining a Corporate Law Firm

Most of the associates in a tier-1 corporate firm have a starting package of Rs.5 lakhs to Rs.18 lakhs1. They also get additional bonuses. They are paid for their traveling expenses due to office work. Some firms have tied up with cab agencies like Uber who have an additional payment option besides Paytm and cash, where the name of the firm is provided and by clicking on that the fare of the cab is cut directly from the firm’s account.

Working Hours

Corporate firms tend to have normal working hours like any other private office starting from    10 am-7 pm. But the competition to exceed, to get better projects and the strict deadlines that have to be met act as an invisible pressure on the associates and they have to sit for extra hours every day after the usual timings. Sitting late is so normal nowadays, that if you leave early you are looked at with questioning eyes. Also, there is no overtime pay for the extra hours you sit. This is because they have not asked you to stay but you choose to sit for the extra hours.

However, there are some associates who have to sit back the entire night in the firm to meet last moment deadlines and still work the entire next day in the office. Associates are to consider this as their responsibility and do it voluntarily.

Competition within the Firm and the Criteria for Assessment of an Associate’s Work

The competition within the firm is high. Nowadays, the Human Resource (HR) Department has an Employee performance evaluation system that can be used for salary reviews and promotional considerations. Besides, the recommendation of the boss, the working hours, the cooperation and other things are taken into consideration. The associates have to not only be in the good books of their employees but also of the HR department. Nowadays, there are separate organizations that the HR department can tie up with who have an organized employee performance evaluation system which can be used by the HR to grade employees and evaluate them.

Hence, these create competition, however, it is not very healthy. Many associates can’t bear the pressure and go into depression. Also, it is detrimental for the firm since they do not have an inspirational and happy workforce which indirectly affects the quality and the quantity of the work that they do.

Hierarchy inside the Law Firm

The firms have also organized the sitting structures of their employees differently. Partners in usually all the firms get to sit in the cabin.

In some firms, new recruits are made to sit together, then junior associates at one side and senior associates at the other side. This creates a hierarchical structure and a feeling of competitiveness. It helps in certain cases, where there is an age gap between senior and junior associates and hence when people of same age group sit together, it is more easier for them to bond.

In certain other law firms, the whole team consisting of new recruits, junior and senior associates sit together and near the partner’s office. This helps the team to bond and work more efficiently.

Work-life balance

The assessment of a person’s work is assessed differently in different firms. In some firms, they give you the work and the deadline and it is upon you how you complete it. However, in some firms, they assess you by how much extra hours you sit back in the office after the normal hours. Many associates find it difficult to maintain the work-life balance. They cannot take out time for personal life. Even if they try, they fear the competition and the loss of the work. Work is given to an associate on the basis of his capabilities and the amount of hard work he does. Hence, work becomes a burden and many people try avoiding it or wishing for the weekend.

In most of the firms, Saturdays are working and if you have a deadline to meet or a demanding client, you would have to jeopardize your Sunday free time to work.

Recreational Activities for the Associates

There are parties also organized by each team once a month or so, to cheer up the associates and create an informal and friendly environment once in a while. There are music, drinks and the opportunity to show off the glamorous dresses and the dance moves.

Office romance is not promoted in some firms and one of the conditions in the form signed before joining includes not dating a colleague. This is done because it gets difficult for the HR to deal with the sexual harassment charges.

Some firms along with the Bar Council of India organize sports league like the Mumbai Masters Cup cricket tournament organized by Economic Laws Practise (ELP) in January 2018 and won by Khaitan.2 This not only provides recreational opportunity to the employees of the firm but also provides networking ground for the peers in the industry and this, in turn, helps build
the camaraderie within the legal fraternity.

No Ventilation in the law firms

All the law firms now have centrally controlled air conditioners. Most law firms do not have windows near the desks of people. The rooms of partners only have windows which are always covered by shutters. Nobody realizes how the day passes when it turns from morning to night. It’s hard to expect working culture and smart offices like Google’s3 from a law firm. However, having more windows with fresh air coming in, refreshes a person after continuously looking at the screen for a long time.

Is there a Way Out?

The hectic schedule, the destruction of life-work imbalance are things which one does not look forward to. Many associates who are burdened with the work, lose hope and leave. They don’t quit their courier or their job, but that want to regain their life. Some associates feel that their growth after a certain stage in the firm has stopped and hence leave the office.

The students of Stanford Law School in the United States of America have started a new organization called the Building a Better Legal Profession (BBLP). They use data from the National Association for Legal Career Professionals (NALP) and create a system of report cards and rankings of law firms. This acts as a way of encouraging workplace reform at these companies. They expanded and have more than 1400 members in different states of the United States with the help of media attention like The Wall Street Journal and New York Times. The students can see the different criteria on which each law firm is ranked and how much they have scored in that field. On the basis of this, students can choose which law firm they will like to work and reject those law firms with bad rankings during their placements. This will promote firms wanting to hire good law graduates from top law schools to have workplace reform so that the top graduates do not reject their college.

It’s a good initiative taken by the law students in the United States.

To get more information about them, their criteria of rankings, their reports you can check their official website and blog4.

This is something which India needs, a kind of students union to pressurize these law firms to improve their work environment similar in some ways as to how trade unions pressurize their employers. But instead of going on a strike we would rank them.

Conclusion

The future of corporate law seems bright. Reforms are required and will come along with time.

Endnotes

1.https://www.livemint.com/Companies/vU1NSyLeitWFe3UioxPPvL/Salary-wars-brew-among-top-law-firms.html

2.http://elplaw.in/wp-content/uploads/2018/08/Khaitan-beats-hattrickers-ELP-at-its-own-Mumbai-Masters-Cup-cricket-tournament-to-pick-up-trophy-%E2%80%A2-CAM-SAM-make-semis-Legally-India-News-for-Lawyers.pdf

3.https://www.forbes.com/sites/forbestechcouncil/2018/02/08/13-reasons-google-deserves-its-best-company-culture-award/

4.  https://web.archive.org/web/20071031044916/http://betterlegalprofession.org/

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This article is written by Maanvi Jain of ILS Pune.

Capital Gain

Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit is considered as income and hence charged to tax in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term.

Capital Asset

A capital asset has been defined under Section-2(14) of the Income Tax Act.

It includes-

(a) property of any kind held by an assessee, whether or not connected with his business or profession.

Some examples of capital assets are land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry.

Certain Things are Not Considered Capital Asset

There are certain things which are not considered as capital assets.

• Any stock, consumables or raw material, held for the purpose of business or profession
• Personal goods such as clothes and furniture held for personal use
• Agricultural land in rural India
• 6½% gold bonds (1977) or 7% gold bonds (1980) or national defense gold bonds (1980) issued by the central government
• Special bearer bonds (1991)
• Gold deposit bond issued under the gold deposit scheme (1999)

Long Term Capital Gain

Section-29A and Section-29B of the Income Tax Act, 1961 define the long-term capital asset and long-term capital gain respectively.

• “Long-term capital asset” means a capital asset which is not a short-term capital asset.
• “Long-term capital gain” means capital gain arising from the transfer of a long-term capital asset.

Long-Term Capital Assets

An asset which is held for not more than 36 months or less is a short-term capital asset.    This criteria of 36 months have been reduced to 24 months in the case of immovable property like land, building, and house property, from the financial year(FY) 2017-18. However, there is no change for movable property such as jewelry, debt-oriented mutual funds etc.                                                                                                                      Hence, an asset that is held for more than 36 months is a long-term capital asset.

Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is).                                                                                     The list of such short-term capital assets is given below.              

• Equity or preference shares in a company listed on a recognized stock exchange in India
• Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
• Units of UTI, whether quoted or not
• Units of an equity oriented mutual fund, whether quoted or not
• Zero coupon bonds, whether quoted or noWhen the above-listed assets are held for a period of more than 12 months, they are considered as a long-term capital asset.  

Calculation of Long-Term Capital Gains

Start with the full value of consideration

Deduct the following from full value consideration:

• Expenditure incurred wholly and exclusively in connection with such transfer
• Indexed cost of acquisition
• Indexed cost of the improvement
• From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F, and 54B

This amount is a long-term capital gain.

The terms mentioned herein are defined as under :

• Full value consideration – The consideration received or to be received by the seller in exchange for his assets, which he has transferred. Capital gains are chargeable to tax in the year of transfer, even if no consideration has been received.
• Cost of acquisition-The value for which the capital asset was acquired by the seller.
• Cost of improvement – Expenses incurred to make improvements to the capital asset by the seller.

Indexed Cost of Acquisition/Improvement

Cost of acquisition and improvement is indexed by applying CII (cost inflation index). It is done to adjust for inflation over the years. This increases one’s cost base and lowers the capital gains.

Indexed cost is calculated as:

Inflation-indexed cost price is = Actual/Original price *(CII for the year of sale/CII for year of purchase).

Illustration:

For an asset purchased in 2002 for Rs. 10,000 and sold in 2014, the inflation-indexed cost price will be calculated as:

(Rs 10,000 *(240 / 105)) = Rs 22,857(Approx.)

Given that CCI for 2002 is 105 and CCI for 2014 is 2401. The list for revised CCI is given on the government website of Income Tax of India.

Change in Long-Term Capital Assets after Budget, 2018

Applicability of Long-Term Capital Gain

The new long-term capital gains (LTCG) tax regime will be applicable to individuals selling these three things:

• equity or
• equity mutual fund (MF) units or
• even units of a business trust.

Section-10(38) of the Income Tax Act, 1960 lays down an exception and exempts tax on the transfer of long-term capital assets of equity shares, equity-oriented mutual funds and unit of business trust in certain situations.

Consequences of the New Tax Regime

From henceforth, both the security transfer tax as well as the Long-Term Capital Gain will apply. Hence, the investor will have to pay two taxes.

Rules for Calculation of Long-Term Capital Gain

The following are the rules for the calculation of LTCG :

• Purchase and sale before 31/1/2018– Exempt under Section 10(38)
• Purchase before 31/1/2018 and sale after 31/1/2018 but before 1/4/2018- Exempt under Section 10(38)
• Purchase before 31/1/2018 and sale on or after 1/4/2018 – LTCG will be applicable but not on gains accrued before 31/01/2018 (the cost of acquisition or the fair market value whichever is higher is taken from 31/01/2018 for the calculation of LTCG).
• Purchase after 31/1/2018 and sale on or after 1/4/2018- LTCG will be applicable.

A Method of Determining the Cost of Acquisition (“COA”)

Cost of Acquisition of such investments has been specifically laid down according to which the cost of acquisition of such investments shall be deemed to be the higher of these two costs:

• Cost of acquisition before 31/01/2018 or
• The fair market value on 31/01/2018.

Capital Gain/ Loss = Sale Price – Revised Cost of  Acquisition on 31.1.2018.

In this way, the capital gain will be less, and the tax levied will also be less.

Illustrations that explain how Long-Term Capital Gain is to be calculated

These are certain illustrations that help to understand the calculation of  LTCG.2

• When an acquisition (CA) is done before 31st January 2018 at a value less than the fair market value (FMV) on 31st January 2018 and is sold (S.P) on 1st April 2018 at a higher prize than acquisition prize and fair market value, then  

S.P- FMV= LTCG  

• When an acquisition(CA) is done before 31st January 2018 at a value less than the fair market value(FMV) on 31st January 2018 and S.P on 1st April 2018 is also lower than fair market value, then

FMV=S.P

S.P- S.P= 0 = LTCG

• When an acquisition(CA) is done before 31/01/2018 at a value more than the fair market value(FMV) on 31st January 2018 and is sold(S.P) on 1st April 2018 at a higher price than acquisition price, then  

S.P- CA = LTCG

Further, the FMV would be the highest price quoted on the recognized stock exchange on 31 January 2018. In case there is no trading of the said asset in such stock exchange, the highest price on a day immediately preceding 31 January 2018 shall be considered to be the FMV.

Exemption Under the Said Rule

• The new LTCG tax of 10% would be levied only on LTCG of an individual exceeding Rs 1 lakh in one fiscal. For example, if an individual’s LTCG is Rs 1,30,000 in the Financial year (FY) 2018-19 from these two instruments then only Rs 30,000 will face the new LTCG tax.
• When a property is received on inheritance or as a gift, it is not taxable for the receiver.

When the capital from the property is used to purchase or construct another house3.

• The assessee ( an individual or HUF but not a company or firm) is exempted when he buys a residential property and not a commercial property.

It is irrelevant whether he resides there or not.

• The house should be bought before one year or after two years of transfer of the original asset. If more than one house has been bought exemption will be towards only one house. Flats in the same building will be considered one house if treated as one residential unit4. The date of taking possession is considered for the above clause and not the date of registration of title deed.5
• The house should be constructed within three years of transferring the original asset. The date of commencement of construction is irrelevant provided it is completed within the stipulated period.6
• If the amount of capital gain is more than the cost of ‘new asset’: Capital gain charged to tax = Capital gain – Cost of ‘new asset’. Such capital gain is charged under section 45 in the previous year of transfer of the ‘original asset’.
  • If the amount of capital gain is not more than the cost of ‘new asset’: Capital gain charged to tax = Nil. (this method of calculation is also applicable to S-54B)
• An exemption granted under this section is withdrawn when the ‘new asset’ is transferred within 3 years of its purchase or construction.
  • Capital gain charged to tax = Capital gain on transfer of ‘new asset’.
  • Cost of acquisition – For this purpose, cost of acquisition of ‘new asset’ = Actual cost of acquisition of ‘new asset’ – Capital gain exempted earlier under this section.

Tax exempted when capital gain used to purchase agricultural land.7

• The asset (long term or short term asset) transferred by an individual assessee (not a HUF, firm or company) should be an urban land (not rural as not within the meaning of “capital asset” under S-2(14)) which was being used by assessee or his parents for agricultural purposes for a period of 2 years immediately preceding the date of its transfer.
• The ‘new asset’ can either be rural or urban agricultural land provided it is acquired within two years of the transfer of the ‘original asset’.
• The amount of capital gain arising on transfer of ‘original asset’ to the extent it is not utilized by the assessee for the purchase of ‘new asset’ before the due date of furnishing return of income under section 139(1), should be deposited before the due date of filing return under section 139(1).

Account – The deposit should be made in the Deposit Account in any branch (not being a rural branch) of a public sector bank in accordance with the Capital Gains Accounts Scheme, 19888.

The amount deposited within the specified time limits and conditions is deemed to be utilized for acquiring ‘new asset’. Therefore, in such a case the cost of ‘new asset’ = Amount already utilized for acquiring ‘new asset’ + Amount deemed to be so utilized under the scheme. Thus, capital gain chargeable to tax is computed as above after taking such adjusted cost of ‘new asset’.

When the deposit is not utilized within the prescribed time limit, capital gain charged to tax = Amount not so utilized. Such capital gain is charged under section 45 for the previous year in which the period of two years from the date of transfer of ‘original asset’ expires. In such a case, the assessee is entitled to withdraw the deposit in accordance with the scheme.

(This provision is also applicable to Section-54)

Capital gains which arise from the transfer by way of compulsory acquisition (the power of government to acquire any rights in the private property of an individual) under any law may be exempted from tax.

The capital asset (long term or short term) may be any land or building used by an assessee for business or industrial undertaking for at least two years previous to the transfer.

The capital gains to be exempted from tax should be utilized for purchasing any land or building or rights in any land or building for the purpose of (a) shifting or re-establishing the said undertaking, or (b) setting up another industrial undertaking. It should be constructed within three years from the date of transfer.

Advantages Of The New Regime Under Budget, 2018

• The higher of the two- Cost of Acquisition or Fair market value is taken. Hence the amount of capital gain is less and hence the tax levied will also be less.

• • A person selling after 31st January 2018, only the actual gains after 31st January 2018 will be taxed.
• The government can compensate the less GST collected by collecting these taxes.
• Long-term Capital Loss (LTCL) – Long-term capital loss arising from the transfer made on or after 1st April 2018 will be allowed to be set-off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off against any other long-term capital gains and unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains.

Disadvantages of the new regime under Budget,2018

• Both the Security Transfer Taxes and the Long Term Capital Gain are levied deterring the domestic as well as foreign investors from investing.
• The benefit of indexation of the cost of acquisition for calculating the new tax regime will no longer be applicable
• The property inherited is not taxed is a misconception. When the inheritor or the receiver of this gift of property, sell it, capital gains on the sale are taxable for the inheritor. The capital gain may either be long term or short term depending on whether the house was held for 36 years or more. The calculation of the long-term capital asset will be done by taking the cost of acquisition paid by the owner. It may be your father or your grandfather from whom he also inherited the property. The cost of acquisition can either be that or the fair market value on 31st January 2018 whichever is higher.
• Long-term capital loss (LTCL) –  As the exemption from long-term capital gains under clause (38) of section 10 will be available for the transfer made between 1st February 2018 and 31st March 2018, the long-term capital loss arising during this period will not be allowed to be set off or carried forward.

Endnotes

1. Refer here for the revised list of CII- https://www.incometaxindia.gov.in/charts%20%20tables/cost-inflation-index.htm
2. https://www.incometaxindia.gov.in/Lists/Latest%20News/Attachments/216/FAQ-on-LTCG.pdf
3. Section-54 of the ITA,1960.
4. Addl. Commissioner of Income Tax, Delhi-II vs. Vidya Prakash Talwar (30.04.1981 – DELHI): MANU/DE/0082/1981.
5. Commissioner of Income Tax vs. Shahzada Begum (21.03.1988 – APHC): MANU/AP/0061/1988.
6. Commissioner of Income Tax vs. J.R. Subramanya Bhat (09.06.1986 – KARHC): MANU/KA/0053/1986.
7. Section-54B of the ITA,1960.
8.  {GSR No. 724(E), dated 22nd June 1988}.

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This article is written by Abhyuday Agarwal, COO, iPleaders.

Many people have asked me about whether the All India Bar Examination is easy or difficult. Since the All India Bar Examination is an open book exam, most tend to think that it is easy. But I have personally spoken to many people who have failed the exam once. Before we talk about any preparation for the exam, we need to understand what is the difficulty level of the exam and whether it has increased or decreased over the past few years. While we have focussed a lot on why people fail (Top 5 reasons why people fail the All India Bar Exam) or the preparation strategy (How to build confidence for AIBE: Last minute tips), I have not addressed question of what exactly is the difficulty level of the All India Bar Examination and whether over the years it has become easier, or more difficult to crack. We will address that here and then look at some useful preparation strategies.  

Scope of questions asked

All India Bar Examination was erroneously presumed to be an easy exam, but that is slowly disappearing. Until December 2013, the syllabus was prescribed and the books to study from were also prescribed. After December 2013, study materials were not prescribed anymore, but there was a huge focus on bare act based questions. After that, subsequent editions also started focussing on landmark cases from certain subjects such as constitutional law, administrative law and others. Over time, these questions have also increased in frequency. If you see the 12th AIBE question paper, you will also notice certain other types of questions (explained below) emerging and increasing in frequency.

Fortunately, approximately 70 – 75 percent of the question paper is capable of being tackled if you have a sound understanding of the bare acts. Many people rely on this and only carry the bare acts, without advance preparation and practice on how to use them. However, don’t fall for the last minute trap going by this.

Are Bare Act-based questions easy?

First, let us clear out the misconception that bare act-based questions must be easy because the exam is an open book examination. Not all questions which are based on bare acts are easy. It is only when the question mentions the statute or the provision number that the question becomes easy to answer. In fact, you are fortunate if bare act-based questions are made easy. You should be grateful, because these questions are being capable of made much more difficult.

If the paper setters decide, they can make bare act based questions very tricky and not provide any clue in the question or the options of the MCQ about any statute or its provisions. In those situations, you can struggle to find the answer unless you are reasonably familiar with all applicable statutes. Many people even resort to guesswork, though we strongly advise against it. In the All India Bar Examination, make sure you are clear that you have attempted 45 – 50 questions correctly. The only way to make sure of this is to verify the answers from your carry-in materials at the time that you attempt these questions.

Next, we cannot afford to assume that there will be a predominant focus on Bare Act-based questions in the future. We have seen the question paper evolve over the past few years. It may be useful to prepare, so that a change in the paper pattern does not ruin your chances of cracking the exam.

Is the difficulty level of the All India Bar Examination increasing or decreasing?

The All India Bar Examination is gradually evolving and we are seeing patterns in how the difficulty level is evolving. For one, the difficulty level never reduces. It always goes a notch up. We are seeing this increase manifest in multiple ways, and have explained this below with reference to the AIBE 12 question paper available here.

#1 – Increase in case-law based questions

Take a look at the following questions

What did you notice? It is impossible to cram details about so many cases or read them in full at this point. Case summaries will also not work, as they will be unwieldy. You will need an effective case list, which are provided in BarHacker Hacksheets for subjects which have a lot of case-laws.  

#2 – Emergence of historical or knowledge-based questions

These questions are from Set-A of the XIIth All India Bar Examination (question paper and solution available on the official site here)

What did you note? These questions require knowledge of certain trivia or historical facts.

#3 – Bare Act-based questions are indirect

Consider this question:

It appears to be a knowledge-based question, or a question based on the Specific Relief Act,  but has its answer directly mentioned in the Limitation Act.

Similarly, consider the following question, which emerges from the Code of Criminal Procedure

These questions require you to identify the bare act involved and refer to the relevant section to find the answer. I suggest that even if you know the answer, specifically open your bare act and verify that it is correct. Do not leave anything to chance, as you need to clearly score upwards of 45 or 50 marks.  

#4 – Emergence of concept-based questions

Concept-based questions are a new question type and are gradually increasing in number. Concept-based questions require real preparation. You cannot just cram your way through them or expect to answer the last minute by going through your study materials.

As you may have noticed, solving these questions requires understanding of certain concepts. Additional knowledge-related aspects may be required to crack the question. Thus, it is important for you to relevant basic concepts in every subject.   

How can you prepare for such a question paper?

Amongst the above categories of questions, you cannot rule out the possibility of a concept-based, a historical or knowledge based or a case law based question that you do not know the answer to.

However, by building a proper strategy, you can be fully confident that you can correctly attempt all Bare Act based questions and score highly. Fortunately, so far there has been sufficient focus on Bare Act based questions to ensure this.  

Further, going armed with powerful Hacksheets (case lists and flowcharts), reading of study materials and sufficient practice maximizes your chances of getting even knowledge-based and concept-based questions right. Let us break this down in further detail.   

Create a preparation strategy

1. Focus on the most important subjects and prioritize study. Your goal is to cover maximum
   • Cover subjects which carry the maximum marks first, that is, Indian Penal Code, Civil Procedure Code, Code of Criminal Procedure, Indian Evidence Act, Constitutional Law, Law of Contract, Specifical Relief, Property Laws, Negotiable Instruments Act.

• • Amongst subjects which carry the maximum marks, prepare subjects which have the smallest bare act/ least scope first, and then move to subjects which have more detailed sub-categories. For example, Indian Penal Code and Evidence Act have the maximum ratio of marks to volume, that is, they carry the most marks in comparison to the scope of the subject. In comparison, contracts is huge, as it covers Negotiable Instruments Act, Transfer of Property Act and Specific Relief Act, in addition to Indian Contract Act.  

• • Prepare case lists (or print out BarHacker Hacksheets) for subjects that carry lesser marks but have a huge number of cases, such as Constitutional Law, Public Interest Litigation and Professional Misconduct.

• • Leave out subjects which carry the least marks in comparison to their scope. If a subject carries only 2, 3 or 4 marks, but has a huge scope, you can leave it out. For example, Intellectual Property Law, Company Law, Cyber Law, Administrative Law and Environmental Law (though environmental law-related questions can also come in the Constitutional Law or Public Interest Litigation Head).

2. Get your carry-in materials in order

• Identify all the Bare Acts pertaining to each subject in the All India Bar Examination syllabus and buy them from a book publisher (purchasing physical copies is better than using online versions)
• Print Bare Acts for the subjects in the All India Bar Examination syllabus
• Print all the Hacksheets (if you are a BarHacker crash course subscriber)

Systematic study

Systematic study of the appropriate materials in accordance with the preparation strategy is critical, especially if you have a short amount of time to prepare. As per our estimate, a sound study of the BarHacker Crash Course (including taking some mocks) will take you about 50 – 60 hours. If you do it on your own it will take much longer, because you will have to put in a lot of additional time to plan out the study materials and study them. BarHacker study  materials are written in a very simple manner and the sequence is streamlined.

BarHacker supports such study as brief training materials on all the important subjects are provided to give you a conceptual understanding of various concepts. These are much shorter than the textbooks or any guides that you may have studied in college.

If you study on your own, you face the risk of losing focus and getting exhausted. Many people just leave it to chance. However, this can be the root cause of failure. Is your time, confidence and focus not even INR 4500, which is the tuition for BarHacker? Well, I leave that up to you.  

Next, as you get familiar with bare acts, use Hacksheets to answer different kinds of questions, you will be able to answer many concept-based questions as your brain will naturally start drawing the connections between different parts of the Bare Acts and how they are linked.  You will even be able to answer case law based questions, as BarHacker Hacksheets (available in the Crash Course only) contain lists of landmark cases on various important subjects.

Some people love BarHacker study materials for their brevity and clarity and ask me if they should carry them to the examination hall. I ask them to carry only the Hacksheets, and strongly advise them against carrying our concept-based materials, as you do not have the time to read or learn any concepts in the examination hall. That is a time you are expected to be on fire, finding answers to all the questions, not learn new concepts.   

A lot of practice

Learning systematically does not mean you go back to all your LLB textbooks. That will take you months to prepare. You need to practice through a variety of mock tests and quizzes. The BarHacker Crash Course is designed to give you this practice – with every subject you have a quiz to understand whether you have understood the concepts and can browse through relevant bare acts and Hacksheets to find answers. These Hacksheets can be printed and taken to the examination hall. After you cover the study materials and quizzes for the subjects, you can start practising the mock tests in the BarHacker crash course. There are 13 mock tests for practice in that course, including past years’ question papers, which are fed into the system.

While you might think that past years’ papers are already available online, but note there is a big difference between taking a look at the question papers and the solutions from the All India Bar Examination website alone and solving those papers under timed examination conditions online. If you follow the former strategy, you will only have a sense of what questions are asked, but you will not have any idea about your level of preparation. Further, knowing the answers to those questions (which you can access form the official All India Bar Examination website) will not indicate your level of preparation. However, if you perform the latter strategy of taking timed mock tests as per  the format of the real paper (including attempting past years’ question papers), you will get valuable insights on your level of preparation.

For example, if you consistently secure 70% or above in 6 or more mocks, you know that you are well-prepared. If you get 40 – 50%, you know that you are on the borderline. So don’t ignore this aspect of you preparation.

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Written by Arun Mehta, pursuing Certificate Course in Electricity and Renewable Energy Laws offered by Lawsikho as part of his coursework.  Arun works as a Specialist in Scheduling and Forecasting at Rewa Ultra Mega Solar Limited, Bhopal. Additionally, he has a MBA degree in Power Management.

What is Captive Generation?

A Captive Generating Plant is a power plant set up by any person, cooperative society or an association of persons (including companies) for generating electricity primarily for their own use. A generation plant is considered captive only if more than 51% of its electricity generated is used by the owner(s) for their own consumption and the minimum aggregate ownership (or individual ownership as the case may be) of the captive generating plant is at least 26%. Thus, in case there are multiple owners of a captive plant (also called group captive), they should satisfy the above requirement of a minimum of 51% energy consumption from the captive and collective ownership of at least 26%.

Why Captive Generation?

Electricity is one of the major inputs for any industry and industries require a consistent and reliable supply of electricity. For some industries, the quality of electricity (in terms of harmonics, voltage, and other technical parameters) is quite important. Further, reliable and quality supply at reasonable costs is another important factor for industries. Sometimes, these requirements cannot be aptly fulfilled by the state utilities. In such cases, going for captive power is the more feasible option. Captive power reduces dependability on the grid, reduces the cost of electricity which is an input to production processes and surplus electricity can also be sold to the grid, thus bringing in multiple benefits. Captive power plants have not only benefited the owners, but also the electricity utilities by supplying extra power when there has been a deficit in the power supply.

Types of Captive Generation

Captive power plants can be classified on the basis of various parameters. A typical classification is shown in the figure below.

Different types of industries have different choices on the type of captive plant they choose to set up. For instance, heavy industries such as steel, aluminium and smelting industries which are energy intensive, generally set up coal-based power plants. Sugar industries typically setup bagasse based plants in order to optimally utilize the waste product from their factories. Diesel generators are widely used by a variety of industries, including commercial facilities such as malls, office complexes, and hospitals. Diesel generators are also used for supplying peak power and backup power. Several industries are also using cogeneration plants in which the waste heat from the boiler is effectively utilized in heating applications, one example of such industry is Arvind Mills which is a textile industry.
Renewable energy, especially wind and solar are becoming the most sought-after technologies for setting up captive projects. With RE, there are other associated benefits given by Central and State Governments which have made them an attractive option for investors. For instance, several textile manufacturers setup captive wind power plants under Ministry of Textile’s Technology Upgradation Fund Scheme, wherein they were provided a capital subsidy for setting up the captive plants.
For solar rooftop systems, the capital subsidy of 30% on benchmark or project cost (whichever is lower) is provided by MNRE. Further, states have their own capital subsidy for the rooftop systems. Apart from the subsidies, easier financing, concessional import duties, excise duties and tax holidays are also provided for grid-connected solar systems. Another benefit being provided to the solar rooftop systems is net-metering, in which a bidirectional energy meter is installed at the user end and the surplus energy generated can be fed into the grid resulting in further saving on costs.

Benefits of Captive Generation

For energy-intensive industries, captive power provides a cheaper option than power from discoms, since the discoms charge additional surcharges and cross-subsidies from industries. The Electricity Act of 2003 is an enabler for a captive generation. Section 9(2) gives the right to open access to the captive generator and Sections 38, 39 and 42 provide that open access cross-subsidies and surcharge are not applicable to captive projects. Thus, this can be huge savings for the industries for which power is a major cost input.
Captive power is also beneficial for the grid, especially in a power deficit scenario. The government has encouraged captive power generation to address the situation of power deficit which has considerably reduced.
Captive power can also be used when there is no power supply from the distribution utilities. Hence, in case of load shedding, backup diesel generators can be used to supply captive power.
For captive generators based on renewable sources, other benefits are also available such as Renewable Energy Certificates, discounted wheeling and banking charges, net metering and carbon credits under the CDM Mechanism.

Key factors for consideration while setting up Captive Generation Plant

While deciding to go for setting up a captive generation plant for a factory, the following aspects should be considered:

Type of load

The type of load depends on the purpose for which the industry is being set up. Heavy load intensive industries such as steel and aluminium have larger power requirements and already have access to coal. Coal-based thermal captive plants are used for such industries. Sugar factories typically use biomass or bagasse as fuel as it is the end product of sugar manufacturing process. Cogeneration is another technology which can be used if steam is also required in the industrial processes apart from electricity. An example of such industry is the textile industry in which the waste heat from a steam boiler can be used for further industrial processes. Diesel generators are another popular option used by several industries with lesser load requirements. Diesel generators have the advantage of being able to operate without any auxiliary power supply and are very reliable as standalone power sources, however, the fuel, i.e. diesel is often expensive and polluting.

Recently, renewable sources of energy such as wind, solar and biomass are also being used as captive sources by many industries. Though the efficacy of such captive plants for energy-intensive processes may be questionable due to the variability of the power supply, many less intensive industries including food industries, textile, and commercial offices etc. can benefit from captive renewable energy. Now, even heavy power usage industries such as Delhi Metro are buying solar power. Innovative contracting or bundling of renewable power with conventional power can facilitate the supply of power from renewable sources even to energy-intensive industries.

Land requirement

Land requirement for setting up a power project varies from technology to technology, hence land availability is a critical parameter in deciding the type of captive project. Land requirements for various types of power plants are tabulated below:

Financing

Typical financing options for captive plants include self-financing, loans and financing by equipment contractors. For smaller plants, self-financing is the preferred option as depreciation on assets can be used in saving taxes. The goal for the financing of captive plants differs from the Independent Power Producers in the sense that the key objective is to lower the cost of generation and not higher rates of return9. In certain cases, the financing is done by the equipment supplier companies, who do turnkey contracts (i.e. complete commissioning of the plant) and supply power to the captive consumer at negotiated rates.
Tariff determination while supplying to a licensee: If some part of power from the captive plant is being supplied to a distribution licensee then the tariff is determined by the appropriate committee as per Section 62 (a) of the Electricity Act, 2003 or tariff may be determined competitively as per Section 63 of Electricity Act, 2003 1.

Connectivity /Open Access

The captive plant owner has to apply for connectivity to the grid to discom, STU or CTU as the case may be. For connectivity, the captive owner has to comply with the rules and regulations of CTU/STU and adhere to the grid codes prescribed by the Central/State Regulatory Commissions.

Charges to be paid for open access

Open access charges are the charges payable by the open access consumers to entities such as discoms or transmission licensees for access to their network. These charges do not include the generation tariff which is payable to the generator or supplier. Industrial consumers who use the grid for consumption of power from their captive plants have to pay the open access charges. However, unlike the usual industrial consumers, who are supplied power by the distribution licensee, the captive consumers save on cross-subsidy charges and additional surcharges levied by distribution licensee. The open access charges levied on a captive consumer are as follows16:

Wheeling Charge

Charges applicable for transmitting the power through discom’s network. Typically, the open access consumer is connected to the discom network at 33 kV or below. Hence, if both captive generation plant and load are connected to the same discom network of 33 kV or below, wheeling charges would be payable by the captive consumer. The wheeling charges are determined by the State Regulatory Commission in their tariff order.

Wheeling losses

These are the technical losses of the distribution network of 33 kV or below. The losses are determined by the State Regulatory Commission and apportioned to the open access to consumers on the basis of their energy draw.

State Transmission Utility (STU) charges

The STU grid usually operates at 66 kV, 132 kV or sometimes 220 kV voltages. In case the power from the captive generator flows through the state grid, STU charges are leviable to the captive consumer. These charges are also determined by the State Regulatory Commission.

STU losses

Similar to wheeling losses, STU losses are the losses of the state grid, which are approved by the State Regulatory Commission.

PoC charges and losses

These are charges and losses incurred if the power is being transmitted through the interstate grid. Charges and losses for the national grid are determined through a point of connection method. These charges are specified on a monthly basis by CERC and the losses are specified on a weekly basis.

Banking charges

Banking charges are payable by captive consumers who use the banking facility. Typically, in banking arrangements, the surplus energy generated by a captive user is used by the distribution licensee and the same amount of energy can be used by the captive user at a later time when the energy generation from the captive plant is insufficient. The distribution licensees charge for banking facility. Many states have given waiver in banking facility for renewable energy projects.

Concerns in a captive generation

Clearances and approvals

Clearances and approvals may be required by the captive generator. The major approvals required are environmental clearance and safety clearance from the Electrical Inspector.

Environmental Clearance

Environmental compliance by captive plants is a key issue since there are no set mandates for environmental clearance. Thermal plants are quite polluting and cause air, water, and land pollution. Non-compliance in terms of emissions and effluent disposal can lead to exacerbation of environmental problems. However, clearance from the environmental agencies such as MoEF, CPCB, and SPCB can result in higher costs and delays.

Electrical Inspector approval

For the safety of men and material, Electricity Act 2003 under Section 53, provides measures for a safety inspection by Electrical Inspector under the State or Central Government. Adherence to the rules, regulations and safety measures specified by the Electrical Inspectorate must be complied with for getting clearance from the Electrical Inspector.

Fuel availability

Fuel availability could be an issue for captive plants, especially if they do not have firm contracts or captive mines for sourcing coal, or have space constraints for fuel storage9. Price hikes in domestic or imported fuel prices could also impact the cost of electricity generated by the captive plant.

Efficiency

Captive plants may have low efficiency due to smaller size9 and domestic coal. Due to such inefficiency, there could be fuel scarcity in the country if captive plants become mainstream sources of power.

Human Resources

Captive power plants may lack skilled and trained manpower for the day to day operations of the power plant9. Employing skilled personnel can add extra costs to the tariff of electricity procured from such plants.

Conclusion

While captive generation certainly has benefits, careful consideration of the various factors such as technology, fuel, nature of load and cost to benefits need to be assessed for evaluation and selection of power procurement option. Captive generation can also play a supplementary role in supplying power to the grid and alleviating power shortages in the country.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

The post All That You Must Know About Captive Generation Plant appeared first on iPleaders.

Written by Jelena Marijanović, pursuing  Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions)  offered by  Lawsikho as part of her coursework.  Jelena is a practicing lawyer working on debt management and banking in Montenegro, Europe.

As a diploma course, it tends to provide a practical insight for solving a problem relating to the subject matter by providing real life or hypothetical situations where the student has to, based on the concept and previous judgements, solves these situations. Here, in this situation,  a company, Savdhaan insurance brokers limited having its registered office in Mumbai is looking to receive foreign direct investments from InsureWel Inc. having its registered office in New York. Its share capital consists of INR 2 crores consisting of 20 lacs equity shares.

What is the sectoral cap to which InsureWel will be the subject for investment in Savdhaan?

When the foreign investor is interested to invest in an Indian company, it is important to examine all the issues related to particular sector/activity the investee company is involved in. Is investor allowed to invest in that industry at all? If he is allowed, can he invest without limit or there are certain restrictions? The sectoral cap is the limit which represents the maximum shareholding percent foreign investor can acquire through FDI. In some cases, the sectoral cap is set in a way that it marks the point starting from which the government approval is needed, e.g. in brownfield pharmaceutical sector 100% FDI is allowed, but up to 74% under the automatic route, and above 74% under the approval route. However, in other cases sectoral cap is restrictive, which means that it marks the limit above which the FDI is prohibited. Detailed provisions on FDI guidelines can be found in Consolidated FDI Policy from August 28, 2017.
In this case, the foreign investor is interested to invest in an Indian company, which, according to its name, is operating in the insurance sector. Aforementioned FDI Policy contains detailed provisions on insurance sector investments under point 5.2.22. According to it, an investment in the insurance sector has a sectoral cap of 49%, meaning that a foreign direct investment up to 49% is allowed through automatic route, without government approval. Above this limit, an investment in this sector is prohibited. In terms of this particular investment, it means that investee can automatically issue 49% of its shares to the investor, but larger shareholding percentage than this cannot be acquired or held through FDI.

How to determine the price at which the shares can be issued?

In case the investee’s shares are issued to the investor under the FDI policy, the price is determined differently depending on whether the investee company is listed or unlisted. If the investee company is listed, the share price is determined in accordance with the SEBI guidelines. If the investee company is unlisted, as it is the case with Savdhaan, share price is determined by a SEBI registered Category I Merchant Banker or a Chartered Accountant, and it shall represent a fair valuation of shares which is made based on internationally accepted pricing methodologies on arm’s length basis (same as it would be on open market).

How exactly should they receive the amount of investment? Which formalities are required to be completed for receiving the investment amount?

The consideration received through investment shall be remitted into India through normal banking channels, and the receiving bank must be an Authorised Dealer Category I Bank. The receiving bank must check the transaction through KYC (know your customer) process. In case that two different banks are handling the transfer transaction and receiving the consideration, KYC check shall be done by receiving bank, while the KYC report and FC-TRS form are submitted by the customer to the bank which is handling the transfer transaction.
The receiving bank further issues a document which serves as a proof of foreign transfer to India called FIRC – Foreign Inward Remittance Certificate. This document is issued to investee company, which through the Authorised Dealer Bank should report details of such transfer to Regional Office of the RBI. The report is submitted in a prescribed form, with a copy of FIRC and KYC report. This report shall be acknowledged by the Office of RBI by an identification number which is given to reported amount.

What is the compliance required after allotment of shares?

Within 30 days deadline from the day the shares are issued, the investee company must file the FC- GPR form through its authorized dealer, and signed by its managing director or company secretary. This submission must also contain:
– a certificate of compliance provided by company’s full time or practicing secretary,
– certificate issued by Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the investor,
– the report of receipt of consideration
It is important to mention that under the currently applicable Consolidated FDI Policy, FDI in insurance sector shall be subject to compliance with Insurance Act from 1938, as well as the condition that companies from this sector which are receiving FDI shall obtain necessary license/approval from the Insurance Regulatory and Development Authority for undertaking insurance and related activities.

Can the dividend on shares invested by the foreign investor be repatriated?

In case there is no lock-in, net dividends can be repatriated through automatic route, without restriction, after dividend distribution tax (DDT) is deducted at its current rate, with applicable surcharge, if any. Since the dividend is to be paid to foreign investor by the Indian investee, the dividends do not create the obligation to withhold tax but are rather taxed in the country where the dividends are being received (in this case the US). There is a number of bilateral Double Tax Avoidance Agreements which exempt foreign-source income from taxation. Also, it is important to examine if the tax of capital gains can be applied in any of the countries.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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In this article, Shamika Vaidya discusses the application of competition laws in mergers and acquisitions transactions.

Introduction

Competition boosts growth in the market and benefits the consumer through price control and rise in the quality and choice of services. Simultaneously, companies can indulge in malpractices by forming cartels to control the prices or quality. Article 102 of the Treaty on the functioning of the European Union states that the abuse of power by the undertakings in the dominant positions shall be prohibited. There are more than 130 systems of competition in the world and at least 110 of them include the merger control regulations. The global reach of competition is evident by the creation of a virtual organization, International Competition Network. This clearly reflects the belief that the evolution of competition law is beneficial to consumer welfare.

What is competition?

As discussed by the Commission in the FAQ’s, in common parlance, competition in the market means sellers striving independently for buyers’ patronage to maximize profit (or other business objectives). Unfair competition practices are indulgence in practices like (1) Barrier creation to entry (2) Allocation of markets (3) Discriminatory Pricing (4) Collusive Price Fixing (5) Predatory Pricing (6) Deliberate reduction in output to increase the price.

Competition Laws, Policies and Adjudicating Authority

In India, The Competition Law consists of The Competition Act along with the following regulations –

1.CCI(Procedure in regard to the transaction of business relating to combinations) Regulations, 2011( Combination Regulations)  (See link here).

2. CCI (General) Regulations, 2009
3. CCI (Manner of Recovery of Monetary Penalty) Regulations, 2011
4. CCI (Lesser Penalty) Regulations
5. CCI (Meeting for the transaction for business)

Competition policies are helpful in improving the competitiveness of enterprises, bridging the gap between industrial and trade policies and promoting convergence which helps to boost the competition like relaxed FDI policies or liberalized trade policies.

Memorandums of CCI

CCI had signed MOU’s with competition authorities of other countries like 1) Competition Bureau, Canada 2) Federal Antimonopoly Services, Russia for cooperation in the field of competition. This extensively helps the commission to get hold of the companies incorporated or functioning outside India creating an appreciable adverse effect on the competition (AAEC) (See the list here).  

Authorities

The Adjudicating Authority for the Competition Laws is the Competition Commission of India (CCI). Vide a notification the Central Government had set up Competition Appellate Tribunal in 2009, however later the National Company Law Appellate Tribunal (NCLAT) was declared to be the appellate body. The appeals are further taken to the Supreme Court of India.   

Competition laws are concerned with the practices –

• Anti-competitive agreements
• Abusive Behavior
• Merger
• Public restriction of competition.

Before we step into the application of CCI in M&A let us see the two examples mentioned below –

Two examples of CCI indulgence

• The Competition Commission of India was recently in the news for imposing a whopping fine of Rs. 6,300 crores on the cement companies and industry body Cement Manufacturers Association for their indulgence in cartelization. The Builders Association of India filed a petition against 11 leading cement companies as there was a deliberate act intended to have a shortage of cement in the market   The NCLAT upheld the decision by the commission, however, the SC ordered a stay on the fine imposition and asked to deposit 10% of the amount.
• The second such instance was when the CCI slammed Google with a fine of $20 million for abuse of its power, the plea filed by CUTS and matrimony.com. The released press link is attached(See Link Here ). However, the NCLAT stayed the imposition and ordered to deposit 10% of the penalty amount.

From the above examples, the hierarchy of the appeals is clear as well as the indulgence of CCI whenever necessary.

M&A Transactions

M&A transactions involve restructuring of the companies both internally and externally, which allows them to operate efficiently making use of the synergies however one cannot deny of the possibility of the merged combination having an adverse effect on the competition. Therefore, an approval from the Competition Commission is essential along with approvals from various other authorities.

Section 6 of the Competition Act states that combinations adversely affecting or likely to affect the competition in the Indian market are deemed to be void. Further, S.6(2) also mentions that no combination can come to effect unless two hundred and ten days have passed from the day notice is passed to the commission or pursuant to the order passed by the commission.

Exemptions

Banking companies under S. 45 of the Banking Regulations,1949 are exempted by a notification from the Ministry of Corporate Affairs in August 2017 for a period of ten years. (See notification here)

Ministry of Corporate Affairs also vide a notification exempted Central Public Sector Enterprises (CPSE) operating in the Gas and Oil sector under the Petroleum Act, 1934  for a period of 5 years (See notification here)

The Ministry vide a notification also exempted Groups that exercise Voting Rights less than 50% in other enterprises from the provisions of S.5 of the Act for a period of five years. (See notification here)

The purpose for ex-ante regulations

Ex-post regulations relate to those regulations which post the happening of event whereas Ex-ante regulations relate to those regulations which are before the happening of the event. The anti-competitive agreements and abuse of dominance are enforced ex-post, while M&As are to be regulated ex-ante. Even before the companies merge and form a new entity, it is prevented from creating future however the purpose of competition laws is not just prevention but also maintaining competitive markets. However, an investigation into the conduct of dominant firms are cumbersome, complex and lengthy and the authorities may lack resources to police every alleged infringement.

Theories of competitive harm

1. Unilateral effects 2)Coordinated effects 3) Vertical Effects 4) Conglomerate effect.

Suo-moto

1. 18 gives the commission power to suo moto initiate an inquiry if it is of the view that any combination has an adverse effect on the competition. The commission can also get into arrangements with agencies of foreign countries with prior approval of Central Government.  

Filing the notice

Reg. 9 states that if the combination is an acquisition is with or without the consent of the target company then the notice is to be filed by the acquirer. In the case of an amalgamation or merger, the same is filed by both the parties jointly.

Inquiry

When the companies fail to send the notice to the authority as per the requirement of (S.)  then according to the Regulation 8 of the Combination Regulations an inquiry is initiated by the commission to check the adverse effect of the combination if any. The commission can with regards to Reg.8(2) ask the parties of the proposed combination file notice in the requisite form.

Investigation

Section 29 explains the procedure of investigating by the Commission, notices are sent to the concerned parties for them to state the reasons as to why the combinations have no AAEC. Similarly, the commission can invite the affected parties and ask them to file written objections.

Show cause notice

The commission can issue a show cause notice if it is of the view that the combination, whose parties have applied for the approval has an adverse effect on the competition.

Report

The commission may call for a report from the Director-General and invite the affected people with written objections.  

Landmark cases

Thomas Cook Vs. Sterling Holidays  ( CRNo. C-2014/02/153)

CCI imposed a penalty of 1 crore on three entities during a merger was proposed between two entities namely-

(1) Thomas Cook (India) Limited (TCIL) (2) Sterling Holidays Resort (India) Limited(SHRIL)  (3) Thomas Cook Insurance Services (Private ) Limited (TCISIL)

Scheme of Amalgamation and Arrangement

TCISIL was a subsidiary of TCIL the following was the scheme that was proposed between the parties –

The resort and time business of SHRIL was initially proposed to be demerged from the company and later transfer to TCISIL in lieu, the shareholders of SHRIL were to receive equity shares from TCIL as per the decided ratio. The residual business of SHRIL was to be amalgamated into TCIL in lieu of equity shares of TCIL to the shareholders of SHRIL.

The issue

In accordance with the proposed scheme, the parties entered into the Subscription Agreement and Share Purchase Agreement. Later, an Open offer had to be made in accordance with the SEBI guidelines. According to the Competition Commission, the market purchases were consummated before issuing a notice to it. Therefore, the parties had failed to adhere to Section 6(2) of the Act where they failed to issue a notice and make disclosures before getting into a combination to the commission

Show Cause Notice

A show cause notice was issued to the parties in accordance to Regulation 48 of CCI (General) Regulations, 2009 along with 41A of the Competition Act to show cause in writing as to why a penalty should not be imposed, within fifteen days from the date of the receipt. In the Show cause notice, the commission demanded a clarification as to (1) Why SHRIL had to purchase TCIL and its subsidiary when SHRIL business was going to emerge and amalgamate with TCIL.

The parties in their replied presented a logic as below-

1) That the market purchases were not the part of the transaction and there is no mentioning of the same in any of the agreement, an approval is not necessary from the commission from the same.

2)The approval of the Market Purchases happened through separate Board Resolutions

However, not convinced by the reply the commission was of the view that the two transactions were interconnected and not independent and replied as below –

1) That the time of market purchases was almost simultaneous as that of entering into SPA and SA and it was difficult not to believe that the whole transactions are part of a composite transaction by the act of the parties.

Order

Section 43A mentions the penalty that could extend to 1 percent of the turnover or the assets of the combination. In this case, the commission was of the view that although the disclosures were made pursuant there was no effort to conceal any information, therefore, it wasn’t a severe breach and imposed a fine of 1 crore on the parties.(See complete order)

Other cases

Similarly, the CCI had also penalized companies where they failed to comply with the regulations.

• Tesco Overseas Investment Limited (TOIL) and Trent Hypermarket Limited (THL)

The CCI passed an order giving a green light to the proposed combination. However, a   fine was imposed for not notifying in accordance with Regulation 5 of the Combination Regulations, which mentions of giving a notice within thirty days of execution of any agreement or other documents for acquisition. According to the commission, the Merger control provisions are triggered within 30 days of filing application seeking approval from the Government authorities like DIPP and FIPB (in this case). There was a delay of 73 days by TOIL and therefore under Section 43A, it attracted penalty. The Section mentions the penalty value to be 1 percent of the total value of transactions, however, taking into consideration the voluntary filing by the company the penalty was reduced to 30 million INR.

Therefore, although the Commission approves the proposed combination it can impose a penalty on non-compliances, making proceedings under S.43A independent to the evaluation. (View the full judgment here).   

• Ultra Tech Cement and Jaiprakash Associates Limited

There was a proposed combination related to business and asset transfer of two cement plants. A fine of Rs. 10,00,000/- was imposed by the commission for the failure to send a notice under Section 6(2)

Extraterritorial Jurisdiction

1. 32 of the Act empowers the CCI with extraterritorial jurisdiction, that is the power to inquiry in cases where the combination has taken place out of India, any of the party to the agreement is outside India, anti-competitive agreement is entered outside India, party to combination is outside India or any enterprise abusing the dominant position is outside India

1) Any party outside India looking forward to merging or acquire an Indian Company.

2)  International businesses having the objectives of eliminating local competition by forming cartels and other unfair practices

Temasek Holdings an investment arm of Singapore Government and its two subsidiaries in India have imposed a penalty of Rs. 50 lakh by the CCI for delayed submission during its proposed acquisition of shares from the DBS group. (View complete Judgement here)

Conclusion

There are several norms relaxed like-

• Companies with assets less than of Rs. 350 crore or revenue of Rs. 1,000 crore going ahead with M&A were exempted from seeking approval of the commission.  
• CCI had penalized dozens of companies for not filing the notice within 30 days and later issued a notification relaxing the norm(See notification here)

Competition law is evolving with time and through ex-ante and ex-post regulations keeping a check on the M&A transactions as to whether they are creating AAEC.

Sources

• Competition Law Eighth Edition by Richard Whish & David Bailey published by Oxford University Press
• https://www.livemint.com/Opinion/hjwUWOw6j0UFH1lgopIPbI/The-role-of-competition-policy-for-development.html
• https://www.cci.gov.in/sites/default/files/whats_newdocument/FAQ%27s_Combinations.pdf
• https://www.cci.gov.in/notification/111

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In this article, Shamika Vaidya discusses how delisting of shares impacts the shareholders.

Introduction

A Public company grows and carries out its business utilizing public shareholding capital. Equity shareholder is at the bottom of the pyramid and takes up high risk. The primary reason to take up this risk is that the listed companies provide them the opportunity of easy exits, as the shares can be sold in the secondary market. Listed companies have a lot of compliances and the market regulations are strict enough to facilitate safeguarding shareholders’ interests against unfair practices. Whenever a company initiates corporate privatization then the shareholders can be in a vulnerable position and their interests can be at stake since the available market in the form of a stock exchange is taken away.   

Delisting and types

Delisting of securities means that the stock of the company will no longer be traded on the stock exchanges and the company will be a private company. The delisting procedure is governed by the SEBI (Delisting of Equity Shares) Regulation,2009.  

Compulsory Delisting

Non-compliance and omission to any of the regulations as set in the listing agreement can get the company delisted as a penal measure. Rule 21A of the Securities Contract Regulation Act along with Securities Contract (Regulation) Rules, 1957 lists down the reasons for a company to be compulsorily delisted:

• If the company has incurred losses for three consecutive years and has a negative worth.
• If the trading of the company has been suspended for over 6 months.
• If the shares are traded infrequently for the last 3 years.
• The company director(s) or promoter(s) have been convicted for not less than 3 years due to failure in complying with regulations of the Depositories Act, SEBI Act, and the company has incurred a loss of not less than Rupees 1 crore.

Voluntary Delisting

Whenever the delisting is initiated by the company by following a due procedure than it is voluntary delisting. Reasons for delisting could be as follows:

• It is possible that the company is about to be taken over by an acquirer who is likely to hold a higher stake than permissible by the minimum public shareholding norms. In such a case, it will be taken private, since the acquirer would prefer to have flexibility in the operations and also do away with the payment of a listing fee to the stock exchanges.
• In the initial liberalization phase, the FDI policies prevented 100% foreign ownership however subsequent opening of 100% FDI in sectors, preference was given to holding wholly owned subsidiary in India and therefore MNCs’ started de-listing.1
• Many companies may find it difficult to comply with the regulations for the listed companies and may get themselves delisted.

Not delisted from all stock exchanges

Where a company is listed in multiple stock exchanges it can also de-list itself from any one of the stock exchange and continue to trade its shares on the others. In such a case there is no exit opportunity given to the shareholders as the shares continue to be traded at other stock exchanges, however, the stock exchanges where the shares are traded need to be recognized with nationwide trading terminals like the National Stock Exchange and Bombay Stock Exchange.

Indian Depository Receipts

Regulation 80(1) of the Listing Obligation and Disclosure Requirements mentions that IDR can be delisted however a fair and reasonable treatment have to be given to the shareholders and comply with SEBI guidelines.

Resolutions from shareholders

Out of the many other compliances the company has to obtain, regulation 8(b) requires a prior approval of the shareholders by special resolution through postal ballot, the number of shareholders for the delisted company should be double the number of shareholders against it. This makes sure that only when the majority of the shareholders are in favor of the delisting then it can be initiated.

Impact of Voluntary Delisting

Regulation 4(5) states that the acquirer or promoter group should not employ any scheme or engage in any scheme or transaction to defraud the shareholders in connection to the exit opportunities.  

Since the shares will be delisted, the shareholders have to be given an exit opportunity in terms of Regulation 5. For this purpose, a price has to be arrived at in accordance with regulation 14 and the shareholders will surrender their shares in return for this price.

Regulation 17(a) of the Delisting Regulation requires that the promoter must be holding 90% of the total issued shares post the buy-back of shares against the delisting offer.

Now, if the share price arrived at is too low, enough shareholders will not surrender their shares so that the post buyback holding of the promoter amounts to 90%. In such case, Regulation 16 mentions that the promoter is not under any obligation to accept the price determined by the reverse book building process and he can release the money deposited by shareholders and close the account. However, in that case, he will not be able to proceed with the delisting.

The shareholders didn’t find the value arrived through the valuation to be satisfactory with regards to investment and opportunity cost and on soliciting views of stakeholders and Primary Market Advisory Committee later the Reverse Book Building Pricing (RBBP) a method to discover the price was introduced which ensures investors’ participation.It is a like goodbye bid. The company has to appoint a Merchant Banker and the floor price has to be detailed to the shareholders who can bid, the tender price being equal to or more than the floor price. The final offer can be decided after the offer period is closed for the buyback of shares. However, according to the notification issued by SEBI, the promoter may be able to proceed with the delisting by giving a competing offer instead of rejecting and making the whole process futile. It must be noted that the competing offer must be lucrative enough for the shareholders to surrender their shares.

In the case of Ricoh India an arm of Ricoh Asia Pacific Pvt Ltd, it had offered a price of Rs. 120 per share, as it looked forward to delisting itself from the stock exchange as its holding company looked forward to buying 26.4% stakes in its arm from the public shareholding. The maximum number of shares for successful delisting offer was tendered to Rs. 225 per share. This was rejected by the promoters and therefore was not successful in delisting itself from the stock 2exchanges 3

AstraZeneca Pharma Limited planned to go private and therefore announced a delisting which was approved by the shareholders however was pending for approval from two stock exchanges. A year before the announcement the company announced an Offer for Sale and was subscribed by six Foreign Institutional Investor, all of the end users being related, at a price far low than the previous day closing. For the resolution to be passed for the delisting all the shareholders with the FII approved it and there was the possibility of concerted action. SEBI stepped in and ordered a close scrutiny into the matter. The company failed to delist itself twice prior. A plea was filed by two minority stakeholders in the High Court demanding a stay on the delisting process.

The term oppression and mismanagement are not defined by the Companies Act, the shareholders can file an application in NCLT under S.241 of the Companies Act,if they are of the opinion that there is manipulation in the floor price or any other process that is against their interest  the tribunal has the power to pass an order under S.242

The Companies( Prevention of Oppression and Mismanagement)Rules,2016 mentions the process and the form to be filed and the manner of filing it.   

Not just India but shareholders across the globe raised an objection when they were discontented with voluntary delisting, below are few of them –

1)Protests by the shareholders in the UK when Vedanta had announced its decision of getting delisted from New York Stock Exchange.

2) Vard Holdings delisting from Singapore Stock Exchange

3) 7up’s delisting from the Nigeria Stock Exchange.

Cadbury delisted in 2005 with successful buying 90% stake, however around 8419 minority stakeholders holding around 2.4% stake opposed the price that was being offered and took it ahead to the High Court. The price offered by the company was 1340 Rs per share which was then increased to 1743Rs but didn’t help in placating the agitation of the shareholders who demanded the price per share be 2500 and valuation be done by the (DCF) Discounted Cash Flow method, the Bombay High Court asked the company to pay 2014.50 per share.

There is a possibility of the share prices going up after the announcement of the delisting as the exit prices provided to the shareholders is high in most of the cases. In case of Patni Computer System that is a subsidiary of iGate Corporation, there was a hike of whopping 22% in the price of shares of the company. However, it is not always necessary that the shares may go up. In case of Mahindra Satyam, the shares dropped down to 24% after it announced to delist from New York Stock Exchange.4

The following is certain concerns raised by the shareholders before SEBI-

1. There is a possibility of shareholders forming groups and bidding exorbitantly. Price can also be influenced by the new shareholders who buy them from the secondary market.
2. In order to get the prices to lower the promoter may divest stake prior to the delisting to known people who can influence price by bidding less.
3. The only floor price is indicated and the recommendation set forth was providing of the price band
4. Reverse Book Building Mechanism is only used in India, no other company uses this method of valuation.
5. Book Value is higher in some instances and the same is not considered by the Reverse Book Building Mechanic
6. Arbitrageurs/speculators can influence the price discovery by bidding at unrealistic prices. (See link here)

The company can take advantage of the depressed markets where the stocks go down and try to have a raw deal with the equity stockholders who are desperate an exit. The company take advantage of the undervaluation and with the lower valuation buyback the shares. (See link here)

Essar oil created a history in corporate privatization after a failed attempt to delist the company. The price discovered through the reverse book building process was Rs. 262 per share which is 80% higher than the floor price that was Rs. 146 per share. However, the shareholders expressed disappointment as the approval from them was obtained before the Rosneft deal, where a considerable stake would have been sold to them and would have triggered the Open offer.5

Impact of compulsory de-listing on the shareholders.

Practically all the research studies in the developed markets have pointed out that the market prices in “going private” transactions are an imperfect proxy for arriving at the fair value of the stock6

Around 4,200 companies have been announced by SEBI to delist compulsorily due to non-compliance.    

Regulation 23 of the delisting regulation says that in a company that has to be compulsory delisted, an independent valuer has to be appointed who evaluates and determines a fair value of the delisted shares, the promoters are obliged to acquire the shares from the shareholders at the price determine, unlike voluntary delisting. However, the shareholders can retain their shareholdings if they have a hope of company getting relisted and can be a part of the company and keep receiving dividends and annual statements, or sometimes even the company negotiates with the shareholders.

SEBI has directed that when a company is compulsorily delisted then the company and the company’s fair value is positive then it should not transfer equity shares of the promoters and the corporate benefits like dividends, bonus shares should be frozen unless exit option is provided to public shareholders. Promoters and whole-time directors are who fail to provide an exit to the shareholders would be barred from raising investment or taking up board positions.

Shareholders of the company having stressed assets

Many listed companies are going through the insolvency proceedings, SEBI amended the Delisting Norms stating that the delisting procedure will not apply to the companies pursuant to the resolution plan under the Insolvency and Bankruptcy Code. The price will be in accordance with the procedure laid down in the resolution plan. However, the shareholders shall not get the exit price less than the liquidation value with regards to the priority as mentioned in Section 53 of IBC and is decided by the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations,2016.

The notification also stated that the public shareholders will receive the same exit price that has been given to the promoters or any other class of the shareholders. However, this also means that if the promoters are not getting anything the shareholder shall also not.7  

Conclusion

Some shareholders take the delisting in a negative way due to lack of knowledge on the valuation while it is taken as a golden opportunity by other shareholders as the exit price is higher. It may be possible for companies to manipulate the prices, however, SEBI interferes wherever needed and there is a constant effort to bring the best provisions through recommendations, new notifications, and amendments.

Endnotes

1.  Investment Banking Concepts, Analyses and Cases 3rd Edition by Pratap Giri S

2.https://www.livemint.com/Money/t921XeJQfYiKRBK6yRYmYK/AstraZeneca-delisting-plan-faces-opposition.html   Last updated on July 14 11.48 IST AstraZeneca delisting plan faces opposition

3.https://www.business-standard.com/article/markets/ricoh-india-tanks-20-on-failed-delisting-offer-114061700327_1.html Last Updated on June 17, 2014, 11:28 IST Ricoh India Tanks 20% on failed delisting offer

4.https://economictimes.indiatimes.com/tender-or-hold-what-to-do-when-a-stock-delists/articleshow/10968157.cms  Last Updated: Dec05 2011IST Tender or Hold? What to do when a stock delists

5.https://www.thehindubusinessline.com/companies/essar-oil-creates-history-with-largest-delisting-offers-26280-share/article8045096.ece Dec 30, 2015, Essar oil creates history with the highest delisting of Rs. 262.80/share

6.  https://www.thehindubusinessline.com/iw/2002/08/18/stories/2002081800390700.htm Delisting: What is a fair price
7.  https://www.bloombergquint.com/insolvency/insolvent-companies-sebi-makes-way-for-easier-delisting  Last Updated: June 05 2018 Insolvent Companies: Sebi makes the way easier delisting

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