DaTa SECURITY anD COMPLIanCE€¦ · While RERA was enacted by the Centre on March 25, 2016, in order to establish a Real Estate Regulatory Authority for regulation and promotion

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Interpretational Issues In IBC

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How Far

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The Maharashtra government published its draft rules on the Real Estate (Regulation and Development) Act, 2016 (RERA) on December 8, 2016, inviting suggestions and objections till

December 23, later extending the date till December 31, after which they came into effect.

While RERA was enacted by the Centre on March 25, 2016, in order to establish a Real Estate Regulatory Authority for regulation and promotion of the real estate sector while protecting consumer interest among other objectives, the Maharashtra government’s draft rules on RERA have come under criticism for diluting the very purpose of the main act and favoring errant builders.

One of the reasons the draft rules have come under fire is that they allow developers not to disclose ongoing projects, whereas RERA made it binding on developers to register each housing project with the housing authority. Secondly, unlike the central law, the draft rules exempt from registration buildings constructed separately for old residents in redevelopment projects. Thirdly, they mandate ten times the fee stipulated by RERA for consumers to register complaints, while substantially reducing registration fees for developers. Fourthly, they allow developers up to two months from the date of receiving an OC or giving possession to minimum 60% flat owners for forming cooperative housing societies. Fifthly, they permit builders to take 30% of the total amount of the flat before executing the sale deed unlike the central law which allows builders to take only 10% at the time of executing the sale agreement. Last but not least, they allow developers to cancel the sale deed simply by giving seven days’ email notice in the event consumers default on even one installment.

While the jury is still not out on whether the Maharashtra government’s draft rules on RERA indeed lack the transparency sought to be brought by the central law and continue to keep flat buyers in the dark on several crucial aspects of real estate projects, it would do well for house buyers to tread with caution unless they want developers to walk away from their responsibilities towards consumers of real estate.

The June edition of Legal Era carries an in-depth feature on RERA among other interesting reads. Do read it and certainly do give us your feedback. As always, we value it!

June 2017 | LegaL era | www.LegaLeraonLine.com

Open Bar

Aakriti Raizada SharmaFounder & Managing Editor

Draft Rules DilutingMahaRashtRa

RERa?

• CorporateGovernanceInThe21stCentury

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Director Dr. Reddy's

Laboratories

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June 2017ContentsZoom In Let’s Uphold28 32

03 Open Bar

10 Readers’ Notes

12 World @ Glance

16 Nation @ Glance

20 Top Stories

24 Within the Circle

58 Highlights

62 Policy Update

64 Legal Precepts

68 Fun 'n' Frolic

70 Mind-Boggling

RegulaRs

Take on Board36

The role of independent directors is considered pivotal to the company’s growth and effective management in today’s day and time

INDEPENDENTDIRECTORS IBC

INSOlvENCyMSME

AND

Since the majority of MSMEs facing insolvency are more likely to liquidate and not go into reorganization/restructuring (by virtue of their size), frameworks should not only focus on reorganization/restructuring, but also on expeditious liquidation mechanisms

Data Security anD complianceHow Far

Would you Go?How should companies go about

ensuring that their compliance set-up and security are adequate as far as

their own and customers’ confidential and business data and involvement of

third parties is concerned.

www.legaleraonline.com | legal era | June 2017

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T IS

MIGH

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BY THE PEOPLE. FOR THE PEOPLE. OF THE PEOPLE.

A look at the impact of UK severing ties with the EU on trade, foreign direct investment, various sectors of the British economy, and in general the future of British citizens

GCs will need to increasingly focus on HR strategies and HR lawyers will have to be more proactive, responsive, accessible, business-oriented and innovative

If potentially contentious issues are governed by predictable rules and effective dispute resolution mechanisms, there is far greater possibility of avoiding litigation or arbitration and achieving reasonable, cost-efficient results

52 Insights

InterpretatIonal Issues In IBC

In Focus40

FROM A MULTI-JURISDICTIONAL PERSPECTIVERESOLUTION DISPUTE RESOLUTION DISPUTE

What Does

Portend For The UK

Giving GCs Sleepless Nights? Evolving HR law

Answers to these will contribute to the jurisprudence relating to corporate insolvency in India

44 Insights

Outlook48

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Fraud and Business: Fraud Cannot be Ignored!

Understanding Corporate Culture

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Understanding the Psychology of Fraud and

Corrupt Conduct

Fraud, Extradition and the

International Dimension

The Internal Fraud Investigation

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World @ Glance12


United States of America

JUDGE CICCONETTI PASSES YET ANOTHER UNIQUE JUDGEMENT Monday, May 8, 2017

Recently, the Municipal Judge in Painesville, Michael Cicconetti, who is famous for creative justice, again passed a unique judgment, this time on a couple who was caught having sex in a public park.

Cicconetti ordered that the couple would have to clean the whole park, including all the used condoms. Apart from

this, they were also made to put out an advertisement in the local newspaper apologizing to the whole city and to everyone who had caught them in the act. Cicconetti, a 66-year-old judge, has been re-elected every time since 1994 because of his popular sentences.

Cicconetti often allows the convicts to choose their own punishments - the choice is usually between prison and one of his innovative sentences. For almost 21 years, this charismatic judge has practiced something he calls “creative justice,” where Cicconetti gives unexpected but fitting punishments to those found guilty. According to Cicconetti, 90% of people who have been at the receiving end of his “creative justice” have not been arrested again.

One of Cicconetti’s popular judgments was for a 26-year-old Ohio housewife, Michelle Murray, who left 35 kittens alone in a forest in winter. Not only did she pay a fine but also, had to spend a night in the woods in the middle of November, that too without food, water, or a tent.

LegaL Updates From across the gLobe

On May 3, the Financial Oversight and Management Board for Puerto Rico announced that they had moved to place the US territory into federal bankruptcy court, making it the largest entity of the US government to ever seek refuge from creditors in courts. The Board filed for bankruptcy protection for the territory following the expiration of provisions that had shielded it from litigation.

Board Chairman José Carrión said that the filing was made to “provide a method for the Commonwealth and its instrumentalities to achieve fiscal responsibility and access to capital markets.”

The filing comes under Article 3 of PROMESA, a special law passed in 2016, to allow Puerto Rico to manage its significant debt. The territory created a fiscal plan to address its debt and begin negotiations with many of its debt holders, but the board said that the filing was necessary as several other creditors started filing lawsuits against it earlier. According to the PROMESA bill, the Government of Puerto Rico, with

BIGGEST EVER MUNICIPAL BANKRUPTCY FILED IN THE US BY PUERTO RICO

the Board’s support, pursued voluntary negotiations and mediation in an effort to arrive at consensual agreements with its creditors. However, the expiration on May 1 of the stay against litigation provided by PROMESA makes the government vulnerable to lawsuits by its creditors. The voluntary filing under Title III would preclude those lawsuits while allowing the possibility of consensual negotiations to continue.

Thursday, May 4, 2017

InternatIonal 13


TRUMP RELAxES PROHIBITION ON TAx-ExEMPT RELIGIOUS GROUPS ENGAGING IN POLITICAL SPEECHMonday, May 8, 2017

On May 5, US President Donald Trump signed an executive order relaxing enforcement of rules prohibiting tax-exempt religious groups from engaging in certain kinds of political speech. An existing federal law called the Johnson Amendment prohibits tax-exempt religious organizations

from campaigning for particular candidates. Trump said that the federal government has “used the power of the state as a weapon against people of faith.” “No one should be censoring sermons or targeting pastors,” Trump said to applause. “You are now in a position where you can say what you want to say ... We are giving the churches their voices back.” But interpreting what crosses the line between advocating for certain policies, which is allowed, and advocating for certain candidates, which is not, is determined by the IRS.

Trump’s order instructs the IRS to interpret the law in a way more permissive to religious organizations. It also instructs regulatory agencies to consider exempting employers who object to the use of contraceptives from parts of a federal law that requires employers to provide contraceptive coverage for their employees.

On April 29, US President Donald Trump signed an executive order directing the Commerce Department and the US Trade Representative to review all US trade agreements and membership of the World Trade Organization (WTO) to determine the cause of US trade deficit. The order suggests

a comprehensive review of whether previous free trade agreements and membership of the WTO has brought expected benefits. The order comes three days after Trump announced that he would not order a withdrawal from the North American Free Trade Agreement (NAFTA, an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America, but would rather renegotiate terms with Canada and Mexico. Secretary of Commerce Wilbur Ross responded to the order, and stated that an analysis of NAFTA will be a significant part of the required study.

TRUMP ORDERS REVIEw OF US TRADE AGREEMENTS TO ASCERTAIN REASON FOR DEFICITWednesday, May 03, 2017

On May 6, Tennessee Governor Bill Haslam signed SB 1085 into law, which mandates that undefined laws be given their natural and ordinary meaning. Dubbed the “natural and ordinary meaning” law, it requires that “undefined words be given their natural and ordinary meaning, without forced or subtle construction that would limit or extend the meaning of the language, except when a contrary intention is clearly manifest.” Some rights groups, like the Human Rights Campaign have raised concerns that this new law could create conflicts with LGBT protections and gay marriage provisions. In this regard, Haslam stated that “Using a word’s ordinary meaning is a well-established principle of statutory construction. While I understand the concerns raised about this bill, the Obergefell decision is the law of the land, and this legislation does not change a principle relied upon by the courts for more than a century, mitigating the substantive impact of this legislation. Because of that I have signed HB 1111/SB 1085 into law.”

TENNESSEE GOVERNOR MANDATES UNDEFINED LAwS BE GIVEN NATURAL, ORDINARY MEANINGMonday, May 8, 2017

World @ Glance14


Asia

On May 1, advocacy group Human Rights Watch (HRW) said that it has found new evidence that the Syrian government used chemical weapons in at least four recent attacks targeting civilians. According to HRW, locals and activists in Khan Sheikhoun identified at least 92 people

The Saudi government announced a 90-day amnesty period for all residence violators. This led to thousands of undocumented overseas Indian workers in Saudi Arabia returning to India, including Indians who traveled there illegally and who overstayed their visas.

The 90-day grace period began on April 29. During this period, expats will be allowed to leave the country without paying any fine or facing any penalty linked to violating Saudi residency law, labor system, and border security. The applicants would have to pay the flight cost. All concerned agencies and departments were instructed by Prince Mohammad to ease departure of all foreigners who wished to leave. Mansoor Al Turki, spokesperson for the interior ministry, said, any foreigner breaking residency and work laws and regulations would be able to leave the country without paying any fine or being subject to legal action.

In this regard, Anil Nautiyal, Counselor (Community Welfare) at the Indian Embassy in Riyadh, said, “The Saudi Arabian government had set up an exclusive center in Riyadh for Indian nationals who want to exit the country. The Indian embassy had appealed to all Indians staying in Saudi Arabia illegally to take advantage of the amnesty which, unlike a similar offer in 2013 that was restricted to Riyadh and Jeddah, is available in 21 locations across the kingdom.”

HRw SAYS SYRIAN GOVT. USED CHEMICAL wEAPONS IN AT LEAST FOUR RECENT ATTACKS

SAUDI GOVERNMENT ANNOUNCES 90-DAY AMNESTY PERIOD FOR RESIDENCE VIOLATORS

Wednesday, May 03, 2017


who likely died from chemical exposure. The group also named three pieces of additional evidence to support the finding that the government has been committing crimes against humanity. The evidence includes: (1) Government warplanes appear to have dropped bombs with nerve agents on at least four occasions since December 12, including in Khan Sheikhoun; (2) The government’s use of helicopter-dropped chlorine-filled munitions has become more systematic; and (3) Government or pro-government ground-forces have started using improvised ground-launched munitions containing chlorine.

HRW called for the UN Security Council to “immediately adopt a resolution calling on all parties to the Syrian conflict to fully cooperate” with OPCW investigators and “facilitate their unimpeded access to locations of chemical attacks.”

Whereas, the Syrian government refused to fully cooperate with investigations concerning chemical weapons.

Nautiyal added, “The majority of applications we received were from blue-collar workers wanting to return to India. The numbers are fewer than during the 2103 amnesty period, but many families who overstayed now want to use the scheme to return. Volunteers are assisting embassy officials through the entire process. We have put up tents in the embassy and consulate for the Indians who have applied to fly back to India.” Turki clarified that violators will also be able to return later to work legally in Saudi Arabia since he would not go through the fingerprinting process usually applied to deportees who would not be allowed back into the kingdom. They will be able to return to the kingdom on the condition of pursuing legal methods to gain entry.

InternatIonal 15


DISCLAIMER: It may be noted that the Legal Era edition publishes select news pieces collated from various sources, based not necessarily on their timeliness and topicality but their interest to you.

Read more: http://www.legaleraonline.com/detail-page/?newsname =200000-people-hit-by-massive-cyber-attack-in-150-countries-says-europol

On April 27, Egyptian President Abdel Fattah el-Sisi ratified a law that will allow him to appoint head judges in the country’s highest courts. The amended law, which was ratified when published in the official gazette , allows el-Sisi to choose one of three potential judges nominated by each

EGYPT PREz ALLOwS HIMSELF TO APPOINT HEAD JUDGES IN THE HIGHEST COURTS

court to be the head of that court. Earlier, leadership passed to the most senior member of the court, and the president was expected to sign off on the leadership role in a process that was largely ceremonial. El-Sisi and supporters of the change insist that the move is necessary to strengthen his administration’s authority as they tackle issues such as terrorism, but members of the Egyptian judiciary have resisted the change. On April 26, the chairman of the Judges Club, a group with over 9,000 members of the judiciary in Egypt, issued a unified statement condemning the amendments. The statement was a response to the passing of the amendment in parliament, a vote that was contested by some officials who feel the change is an unconstitutional violation of the separation of powers. The majority argued that the change is constitutional, and narrowly tailored to allow the judiciary to remain independent.

Saturday, April 29, 2017

Egypt

GLOBAL CYBER ATTACK HITS OVER 200,000 VICTIMS IN OVER 150 COUNTRIESMonday, May 15, 2017

On May 14, the European Union Agency for Law Enforcement Cooperation (Europol) said that an unprecedented global cyber attack has hit more than 200,000 victims in more than 150 countries. Europol also warned that the situation could escalate when people returned to work.

An international manhunt was well underway for plotters behind what was being described as the world’s biggest-ever computer ransom assault. The indiscriminate attack, which began on May 12, struck banks, hospitals and government agencies in more than 150 countries, exploiting known vulnerabilities in old Microsoft computer operating systems.

US package delivery giant FedEx, European car factories, Spanish telecom giant Telefonica, Britain’s health service and Germany’s Deutsche Bahn rail network were among those hit. Rob Wainwright, Europol Executive Director said that the situation could worsen on May 15, as workers return to their offices after the weekend and log on. “We’ve never seen anything like this,” the head of the European Union’s policing agency said, calling its reach “unprecedented”.

“Many of those victims will be businesses, including large corporations. We’re in the face of an escalating threat. I’m worried about how the numbers will continue to grow when people go to work and turn on their machines.” Images appear on victims’ screens demanding payment of $300 (275 euros) in the virtual currency Bitcoin, saying: “Oops, your files have been encrypted!”

Europe

NatioN @ GlaNce16


Admissions to 2017-18 lAw courses not subject to bci ApprovAl

In April, a bench of Chief Justice Manjula Chellur and Justice GS Kulkarni of the Bombay High Court held that admissions to law courses for 2017-18 would not be subject to the Bar Council of India’s approval. This order stems from a case wherein a petition was filed by students of the SNDT


University in Mumbai, Maharashtra, questioning the power of the BCI to approve law colleges and challenging the body’s role in legal education itself.

The final two requests in the petition are as follows:

“iii) Direct BCI not to collect any fees, including inspection fees, from law colleges, and if at all to be recovered, then the appropriate government be directed to pay the same, and

iv) BCI be directed not to have any direct/indirect control in the functioning of law colleges, and prevent them from sending resolutions to law colleges every now and then.”

In general, the petitioners contended that although the BCI can lay down the standards of legal education, it has absolutely no power to grant approval nor does it have the power to take action if these standards are not met.

Bombay High Court

HigH Court & tribunal news around tHe nation

In April, the Uttarakhand High Court Justice UC Dhyani quashed criminal proceedings against the owner of a truck transporting cow hide.

In 2012, under Sections 5, 6 and 11 of the Uttarakhand Protection of Cow Progeny Act, 2007, the applicant was charged, and was facing criminal proceedings before the Judicial Magistrate, Rudrapur.

Represented by Advocate Dr Kartikey Gupta, the accused sought an application under Section 482 Cr.PC. before the judge, to quash criminal proceedings against her, and also the charge sheet filed five years ago.

Before the court, Dr Gupta submitted that no case had been made out against his client under the aforementioned Sections of the Act. Section 5 prohibits possession, transport or sale of beef and beef products, whereas Section 6 makes the transport of cow progeny outside the state without a permit punishable by law.

Under Section 11, a person found to be guilty under Section 5 can face imprisonment of up to ten years, and a fine of up to `10,000. Those found guilty of violating the Section can face up to three years in jail, along with a fine

of up to `2,500. In this regard, the court approved Dr. Gupta’s submissions, and quashed the pending criminal proceedings at the admission stage.

Judge ruled that “Foundation of criminal offense is, therefore, not laid against the present applicant, who has been implicated only because she is a recorded owner of the truck by which the alleged hides were being transported.”

But, the court granted the respondent state government the liberty to place on record any material which shows that possession of cow hides is punishable under the Act.

criminAl proceedings AgAinst truck owner trAnsporting cow hide quAshedTuesday, May 2, 2017

Uttarakhand High Court

national 17


centre, delhi govt. Asked to inform court About meAsures to prevent AttAcks on govt. doctors

On May 3, a bench of Acting Chief Justice Gita Mittal and Justice Anu Malhotra of the Delhi High Court ordered the Centre and Delhi government to inform the court about measures being taken to prevent attacks on government doctors by patients and their family members.

The bench passed the order after taking suo motu cognizance of a report published in a newspaper stating that doctors in public hospitals were being subjected to extreme violence. According to the report, one in two doctors in public hospitals faces violence, both verbal and physical, and thus, AIIMS Resident Doctors’ Association decided to train its doctors in taekwondo to protect themselves.

The court thus said, “Violence from either side cannot be allowed.” The court then said that doctors in public hospitals are grossly overworked and that they have to take life-saving decisions in the most difficult working conditions. In this regard, notices have been issued by the


court to the Ministry of Health and Family Welfare of the central and Delhi governments and the Indian Medical Association. The court has sought a status report regarding the security provided at public hospitals. The report has to be submitted within 10 days.

Also, the court sought details regarding the capacity of these public hospitals, number of doctors, and number of patients per day.

On May 8, the Delhi High Court sought a response from cab aggregators Uber and Ola on whether their drivers would fall under the category of employees/workmen so as to be eligible for receiving benefits under labor laws.

Also, Justice Sanjeev Sachdeva issued notice to the Centre and the Delhi government ANI Technologies, which provides cab services under the name of Ola, and sought their responses by August 10 on the issue raised by the Delhi Commercial Driver Union. The court was hearing a petition filed by the Delhi Commercial Driver Union, which claims to represent around 1.5 lakh drivers operating in the national capital region, has alleged that the two companies were

decision pending whether olA, uber drivers Are employeesThursday, May 11, 2017

not treating them as employees and instead “exploiting” them. According to the claimed, the drivers were being exploited with regard to their pay and service conditions and were also being denied benefits like compensation in case of accidents or deaths while on duty, under labor laws.

The petition states that the drivers fall under the definition of ‘workman’ under Section 2(s) of the Industrial Disputes Act, as an employee-employer relationship exists between them and the companies. The constantly changing service conditions of the drivers is also one of the grounds in the petition.

Advocates for the petitioner Akash Vajpai and Shoumendu Mukherji also submitted that this issue has gained relevance especially in light of recent foreign judgments in the US and UK which held such drivers to be employees of Uber. Also, stated that protests against the policies of such companies are being held not just in India but also worldwide.

The Central Government said that a Bill amending the Motor Vehicles Act for regulation of cab aggregators like Ola and Uber has been passed by the Lok Sabha. On the other hand, the Delhi government said that no representation has been made to it by the drivers highlighting their grievances.

Delhi High Court

NatioN @ GlaNce18


The petition was filed by Haryana’s Sonepat resident Aas Mohammad in the Punjab and Haryana High Court seeking a criminal proceeding against singer Sonu Nigam’s tweets. The petitioner claimed that Nigam’s tweet violated the Muslim community’s fundamental rights to manage their religious affairs.However, the court rejected the petition against the singer on the grounds that azaan is an integral part of Islamic worship and not loudspeakers.The observation was made by the single-judge bench comprising of justice MMS Bedi, referring to various judgment, the judge termed the petition as a cheap attempt to gain publicity. “A fair interpretation of the words used by respondent no. 4 (Nigam) clearly indicates that the word ‘gundagardi’ in tweet no. 4 is not addressed in the context of azaan but the use of loudspeakers and amplifiers,” said

petition AgAinst singer sonu nigAm’s tweet rejected sAying it wAs not meAnt to insult Any religionWednesday, May 03, 2017

the court. The judge further said that neither the tweet nor the way it was worded, was meant to insult any religion or religious practices, and no religion prescribes blaring prayers through sound amplifiers.

Recently, the Single Judge Bench of Justice Rajiv Sahai of the Delhi High Court passed an order allowing the plaintiffs to serve the summons on one of the defendants through Whatsapp, text message and email.

The bench allowed the use of social network in the matter of Tata Sons Ltd. and Ors. vs. John Doe(s) and Ors.

Judge said that “The plaintiffs are permitted to serve the defendant No.9 Ashok Kumar Agarwal by text message as well as through Whatsapp as well as by email and to file affidavit of service.”

The court was hearing a case filed by Tata Sons alleging that 35 unidentified email ids were being used since December, 2015 to circulate “unwarranted, defamatory and baseless

now summons cAn be served viA whAtsApp, text messAges And emAilFriday, May 5, 2017

allegations questioning the integrity and educational qualification” of one of its officials. Three internet service providers (ISPs) were also made parties to the suit.

Therefore, the court sought a permanent injunction against the circulation of such content, demanding that all such email ids be blocked.

Court’s orders issued in December 2016, had compelled the ISPs to reveal under a sealed cover identities of 35 anonymous email addresses from which the derogatory material was disseminated.

While three of the defendants were served at their respective addresses, summons to the fourth respondent were served via Whatsapp, email and text message, after service of summons could not be completed at his available address.

Lately, several judicial bodies of the country have been in the news for using unconventional methods for service of summons, particularly when the defendants are hard to catch.

Read more: http://www.legaleraonline.com/detail-page/? newsname=delhi-hc-allows-service-of-summons-through-whatsapp-text-message-and-email

Punjab and Haryana High Court

Delhi High Court

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DISCLAIMER: It may be noted that the Legal Era edition publishes select news pieces collated from various sources, based not necessarily on their timeliness and topicality but their interest to its readers.

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Allahabad High Court Madras High Court

On April 28, the Allahabad High Court has transferred almost 400 judges from their current place of posting - nearly half of them of the Additional District and Sessions Judge rank, in a major reshuffle in the lower judiciary in Uttar Pradesh.

According to the notifications issued by the High Court’s Registrar General, Dinesh Kumar Singh, the transferred judicial officers include 199 Additional District Judges posted in regular courts and another 8 additional District judges posted in Fast Track Courts.

Further, it includes 118 judges and Additional judges of Small Causes courts, Civil judges, Chief Judicial Magistrates and Chief Metropolitan Magistrates.

Another 43 judges Civil judges, Judicial Magistrates and Metropolitan Magistrates have also been transferred.

The Judges have been asked to hand over charge at their present place of posting on May 08, 2017. In order to ensure that there is no lobbying for stay of transfers or change the order of this notification, the notification mentions that “no representation shall be moved by the officer until he / she has joined at the transferred place.”

On May 2, Justice N. Kirubakaran of the Madras High Court imposed `1 crore each as costs on the Tamil Nadu government and the Medical Council of India (MCI) for not following the laws relating to seat-sharing.The court directed the state government to appropriate 50% of postgraduate medical seats in respect of each specialty from non-Governmental medical institutions in the state - excluding the minority institutions - as state quota and give admission on the basis of NEET merit list through centralized counseling by the State.The court said that “Exemplary cost has been imposed only to make authorities follow the laws, especially when they are discharging public functions. Any negligence/default would affect many meritorious students and their valuable right to education as guaranteed by the Constitution. Cost is imposed only to deter the authorities as well as the institutions discharging public functions from violating the rule of law. Unless every procedure is put in place and a well-oiled mechanism is made operational, all stakeholders and beneficiaries will be put to unnecessary hardship which has to be avoided.”

mAjor reshuffle in up lower judiciAry

tn govt., mci to beAr ` 1 crore eAch As cost for not following seAt-shAring lAwsTuesday, May 2, 2017


Top STorieS20


Death Penalty In raPe anD murDer case uPhelDThursday, May 4, 2017

A bench of Justices Dipak Misra, Rohinton Nariman, and UU Lalit of the Supreme Court awarded death penalty to one Vasanta Sampat Dupare accused of raping and murdering a four-year-old child after luring her with chocolates.

After being convinced that the act was so “barbaric” that it deserved death, the bench dismissed Dupare’s petition demanding life sentence and confirmed the death penalty even as it noted that courts must take care not to disregard the “balance-sheet” theory of aggravating and mitigating circumstances as laid out in the Macchi Singh case.

All three courts, i.e., the Trial Court, High Court, and Supreme Court, affirmed the guilt of the accused

and sentenced Dupare to death owing to the sheer grievousness of the crime. However, the accused decided to knock the doors of the top court for the last time and thus filed a review petition.

While the SC bench rejected the submission that the case did not fall in the rarest of the rare category outright, it did agree to hear the aggravating and mitigating circumstances.

Even as Senior Advocate Anup Bhambani, advocate for the petitioner, contended that the petitioner was doing his best to equip himself with education and that there was a possibility of his reform and rehabilitation, it seemed that the submissions were not enough to sway the bench.

The bench discussed at length the aggravating circumstances weighed against the mitigating circumstances but eventually decided that the former were too many to ignore.

The SC concluded that “We have given anxious consideration to the material on record but find that the aggravating circumstances, namely, the extreme depravity and the barbaric manner in which the crime was committed and the fact that the victim was a helpless girl of four years, clearly outweigh the mitigating circumstances now brought on record.”

On May 1, a Bench of Chief Justice J S Khehar, D Y Chandrachud and Sanjay Kishan Kaul of the Supreme Court imposed a cost of `25 lakh on NGO “Suraz India Trust” (public spirited organization) for filing frivolous petitions. Also, the court barred the NGO’s director Rajiv Dahiya from “urging a cause in public interest” across any court in India.

The court was hearing a PIL filed by Rajiv Dahiya. The Bench was antagonized at the petitioners’ obvious defiance of

nGO fIneD `25 lakh fOr frIvOlOus PetItIOn

their previous order granting Dahiya one week’s time to file a written response. But, Dahiya remained insistent on assisting the court orally.

The Bench mentioned that all 64 PILs filed by the petitioner had been dismissed as being devoid of merit.

The petitioner had written to the registry, inquiring on whose directions the summary of his antecedents in court were furnished. However, the bench found the insinuations “disturbing.”

CJI Khehar said that “64 litigations you have filed… all have been dismissed? How can you do this?”

In this regard, the apex court gave Dahiya the same option it had given him on an earlier occasion: Suraz India Trust would cease to file any further petitions. Further, the bench noted that the court’s time had been wasted indiscriminately, and it needed to stop this habit of wasting public time. So, the bench directed that the petitioner be barred from filing PILs across India, and asked it to deposit a cost of 25 lakh rupees with the Supreme Court Registry.

Tuesday, May 2, 2017

Top STorieS 21


sPecIal sunDay sIttInG tO hear sInGhanIa’s PrOPerty DIsPuteTuesday, May 2, 2017

On April 30, a Bench of Justices Dipak Misra and AM Khanwilkar of the Supreme Court held a special sitting to hear a property dispute between members of the Singhania family, an industrial house spread across different cities in India. The dispute relates to the ownership of a Juhu bungalow in Mumbai.

The court was hearing the case with a slew of Senior Advocates appearing in the matter. According to the order, Senior Advocates Kapil Sibal, P Chidambaram, Shyam Divan and Dinyar Madon appeared for various parties.

The bench directed the petitioner, Gautam Singhania, to hand over the property i.e. Kamala Cottage, Property No. 6 at Juhu, Mumbai to the Respondent No.1 (Hari Shankar Singhania) by 6th May, 2017, subject to a deposit of `20 crore by the respondents before the Registry of the Supreme Court.

The bench stated that “Having heard learned counsel for the parties, it is directed that the petitioner shall hand over the property i.e. Kamala Cottage, Property No. 6 at Juhu, Mumbai (property at Sl. No. 5) to the respondent Nos. 1 to 6 by 6th May, 2017, subject to deposit of a sum of `20,00,00,000/- (Rupees twenty crores only) by the said respondents before the Registry of this Court on or before

4 May, 2017.” Further, the bench ordered that “In the event the amount is deposited, the Advocate-on-Record for the respondents shall intimate it to the Advocate-on-Record for the petitioner. The purpose of this intimation is that the petitioner shall hand over the possession of the property as mentioned hereinabove on or before 6th May, 2017, which is not later than forty-eight hours. When we say the petitioner, it means that the possession of the property shall be handed over and anyone who tries to create obstruction, shall be liable for contempt of this Court.”

verIfIcatIOn Of lawyers tO be cOmPleteD In eIGht weeksMonday, April 17, 2017

if they failed to complete the verification process within eight weeks.

The court is taking a tough stand against the universities for not complying with its earlier order and the bench was seemingly miffed at how many times the elections have been delayed.

Justice Nariman stated that “You tell us why we should hear you in the first place. You were supposed to hold elections in December 2014. And you have dragged it until now.”

Also, Justice Nariman remarked that “Vice Chancellor must face contempt. That’s the only way they’ll understand.”

The bench then dictated the order in which it set out specific dates for completion of the verification and election process.

In March 2017, SC directed law universities not to charge any fees for verification of lawyers. This, after it was found that that universities were demanding `200 to `2000 per person for verification of lawyers under the BCI (Certificate of Practice) Rules.

A Bench of Justices Pinaki Chandra Ghose and Rohinton Nariman of the Supreme Court directed that the process of verification of lawyers be completed within eight weeks. The bench further directed that Bar Council Elections for Delhi will be conducted by August 31.

To ensure effective implementation of the order, the bench also directed Vice Chancellors of law schools to remain personally present in court to face contempt proceedings,

Top STorieS22


Pm mODI launches sc’s new websIteThursday, May 11, 2017

On May 10, Prime Minister Narendra Modi launched a new website of the Supreme Court of India at Vigyan Bhavan, in the presence of Chief Justice of India Justice JS Khehar, along with Union Law Minister Ravi Shankar Prasad and other Supreme Court judges.

The new website will feature the Integrated Case Management Information System (ICMIS), which will make filing of cases digital. The digital filing will be a big improvement over the existing e-filing.

With digital filing, the litigant will be required to file just the grounds of appeal to the SC and the system will automatically retrieve other documents pertaining to the case from the concerned high court.

This would effectively mean doing away with bulky paperbooks, as large annexures, judgments, etc. would now be retrieved electronically and the parties would not be required to file the same in hard copy in the top court.

Besides, the parties to the case will be updated regularly about the status of the case, court fees needed for filing, delays, etc.

The new filing facility is expected to be active when the court re-opens after the summer vacation. The launch of ICMIS is the first big step in the journey towards a paperless court. “I believe, as a system, it will ensure transparency, provide easy access to case information, and help in

reducing the time in filing pleadings. Every part of the filing process will now be monitored, there will be timelines,” said Chief Justice Khehar.

All records of a particular case at various stages at the district court or high court will be integrated with the system to offer the complete record in digital form. In future, linking of information on jail inmates and under-trials may be integrated into the system.

Lauding the advent of technology, Modi said that “The software or hardware has never been a problem. It is the mindset that is a problem. Only when we try to truly embrace technology, its benefits can percolate further.”

fOrmer kInG Of GOOD tImes fOunD GuIlty Of cOntemPt, DIrecteD tO aPPear befOre sc On July 10

that Mallya had disobeyed court orders by making “vague and unclear disclosure of his assets” by transferring a $40 million payment from Diageo Plc. to his children and by ignoring summons to appear in court.

Justices A.K. Goel and U.U. Lalit ruled that “We give him an opportunity to be present in court personally while deciding on the quantum of punishment.” Contempt of court is an offence punishable with maximum imprisonment of six months or a fine of up to `2,000 or both. SBI moved a contempt petition against Mallya in July 2016.

“The apex court is right in holding Mallya for contempt. This is exactly what happens when directions of the court are not followed,” said J.N. Gupta, co-founder and managing director of Stakeholders Empowerment Services, a proxy advisory firm. “Considering that the court is yet to decide on the sentence, Mallya has the option of complying with the directions and disclosing his assets for a lenient sentence. If the lack of compliance continues, then the court can direct his arrest.”


On May 9, the Supreme Court held UB Group chairman Vijay Mallya guilty of contempt of court, and asked him to appear before the court on 10 July when it will decide on his prison sentence.

The court was hearing a plea filed by a consortium of creditors led by the State Bank of India (SBI) which argued

Top STorieS 23



suO mOtO PIl On central selectIOn mechanIsm fOr subOrDInate JuDIcIary

suGGestIOns InvIteD frOm all hc bar assOcIatIOns fOr senIOr aDvOcates’ DesIGnatIOn


The Supreme Court has registered a suo moto Public Interest Litigation petition concerning a central selection mechanism for subordinate judiciary.

The matter is listed before a Bench comprising Chief Justice of India, JS Khehar and Justices AK Goel and AM Khanwilkar.

While details of how the court would go about this suo moto PIL remain to be seen, the step comes at a time when the demand for All India Judicial Services has been gaining momentum in the last few years.

Former Additional Solicitor General (ASG) and Senior Counsel, Indira Jaising, had filed an application challenging the process of designation of Senior Advocates in the Supreme Court.

Jaising’s request stated that “(c) Direct Respondent No. 1 i.e. Secretary General of this Hon’ble Court to place on the website of this Hon’ble Court the fact of the pendency of this petition and informing accredited bar associations of the High Court that they may intervene with their suggestions if any in the matter of designation of Senior Advocates(s) under Section 16(2) of the Advocates Act 1961 within a given timeframe.”

In this regard, SC has put out a notice on its website asking the accredited Bar Associations of all the High Courts to intervene with suggestions in the matter of designation of Senior Advocates.

On May 2, the court directed the Secretary General to put out the notice, inviting Bar Associations of all High Courts to intervene in the matter. The notice stated that “You

In October 2016, the Centre had pitched the idea of having a common entrance exam for the subordinate judiciary. The subject was once again discussed by the Law Ministry in a meeting in January 2017.

The Law Commission had recommended the formation of AIJS in its 116th Report released back in 1986. In fact, the Supreme Court had, in 1992, ruled that the recommendations of the Law Commission “be examined expeditiously and implemented as early as possible” by the Centre.

Recently, in a PIL filed in the Delhi high court by Ashwini Upadhyay, it came to light that the Centre and the judiciary had been in a deadlock over the issue. The Law Ministry’s response in the PIL stated that no progress had been made since the topic was discussed at the Joint Conference of Chief Ministers and Chief Justices of the High Court held in April 2015.

Also, the Law Ministry stated that some states and high courts were not in favor of the AIJS altogether, while others recommended changes to the Centre’s proposal.

With the registration of the PIL by Supreme Court, the matter has once again been revived.

are, hereby, informed that you may intervene with your suggestions, if any, in the matter of designation of Senior Advocate(s) under Section 16(2) of the Advocates Act, 1961, in terms of the order dated 02.05.2017”.

The matter is now listed for final disposal on July 20 before a larger bench.

Within the CirCle24


Videocon d2H Merges WitH disH tVShardul Amarchand Mangaldas & Co acted as Legal Counsel to Videocon d2h Limited (VDL) in the transaction involving merger of Videocon d2h Limited into Dish TV India Limited (DTIL).

It is the first consolidation in the direct-to-home broadcasting sector, resulting in one of the largest direct-to-home cable operators in India. This deal represents one of the few examples of an amalgamation of an entity with a competitor.

The General Corporate Team and Competition Law Practices of Shardul Amarchand Mangaldas advised Videocon d2H on all aspects of the transaction.

The M&A team was led by Gunjan Shah, Partner; and included Arjun Ghose, Partner; Shruti Kanodia, Partner; Manjari Tyagi, Partner; Anuj Trivedi, Principal Associate; Mukul Aggarwal, Senior Associate; Aditya Kumar, Associate; and Shivankar Sharma, Associate.

The Competition Law team was led by Shweta Shroff Chopra, Partner; and Aparna Mehra, Partner; and included Rohan Arora, Principal Consultant; Toshit Shandilya, Associate; and Neetu Ahlawat, Associate.

DTIL’s equity shares are listed on the BSE Limited and the National Stock Exchange of India Limited while VDL’s American depositary shares (ADS) are listed on the NASDAQ Stock Market. The transaction involves a delisting and deregistration of VDL’s ADS from the NASDAQ Stock Market and issuance of listed GDRs by DTIL to such ADS holders (unless they elect to receive equity shares of DTIL instead).

SAM & Co’s Competition Law team provided Videocon d2h legal and strategic advice in relation to preparing and

filing a joint Notification Form II and all related submissions with the Competition Commission of India (CCI) along with DTIL. The transaction is noteworthy as this was the first time the CCI has assessed a merger in the DTH sector and the proposed combination would result in creation of the largest DTH service provider in India.

The CCI examined various aspects relating to the scope of the relevant product market and third party comments on the transaction.

The CCI cleared the Proposed Combination in Phase I of its review process.

Other advisors to the transaction were Luthra & Luthra Law Offices acted for DTIL. Shearman and Sterling acted as international counsel for both VDL and DTIL.

The deal was signed on November 11, 2016. The closure of the deal is not ascertainable as the proposed transaction is subject to approvals, including from the Securities and Exchange Board of India, the Hon’ble High Court of Mumbai and the Ministry of Information and Broadcasting.

True North (formerly known as India Value Fund Advisors Pvt. Ltd) - a private equity and venture capital firm specializing in growth and buyout and industry consolidation

trUe nortH AcQUires controLLing stAKe in HFFc transactions in mid-sized middle-market companies - acquired a controlling stake in Home First Finance Company Private Limited (HFFC) - a housing finance company headquartered in Mumbai engaged in providing affordable housing loans to low- and middle-income groups.

The acquisition valuing about USD 100 million was achieved via secondary sale from a few of the existing shareholders and fresh issuance of shares. Bessemer Venture Partners (“BVP”), one of the earlier investors in HFFC, continued as a shareholder in HFFC.

Nishith Desai Associates acted as counsel to BVP and advised them on tax and legal aspects of the transaction, including negotiations and deal documentation.

Deal Corner 25


Shardul Amarchand Mangaldas & Co has acted as the legal counsel to the Book Running Lead Managers as to Indian law in relation to the Initial Public Offering (IPO) of S Chand And Company Limited (S Chand).

S Chand is a leading Indian education content company, delivering content, solutions and services across the education lifecycle throughout the kindergarten, secondary education, higher education and early learning segments.

The Capital Markets Practice of Shardul Amarchand Mangaldas & Co was led by Mr. Prashant Gupta, Partner, National Practice Head - Capital Markets; and included Sayantan Dutta, Partner; Serena Upadhyay, Senior Associate; Devi Prasad Patel, Associate; and S. Nagashayana, Associate.

sHArdUL AMArcHAnd MAngALdAs & co AdVises in reLAtion to `729 crore iPo oF s cHAnd And coMPAny

As a part of the IPO transaction, up to 10,873,982 equity shares of S Chand were offered, including 4,850,746 equity shares being offered through a fresh issue by the company and 6,023,236 equity shares being offered by certain shareholders of S Chand (including an offer for sale of 4,814,736 equity shares by Everstone Capital Partners II LLC).

The Parties involved in the transaction were JM Financial Institutional Securities Limited, Axis Capital Limited, Credit Suisse Securities (India) Private Limited (collectively, the ‘Book Running Lead Managers’ or ‘BRLMs’), Everstone Capital Partners II LLC and certain other selling shareholders in the Offer.

Other advisors involved in the transaction were as follows:

Book Running Lead Managers: JM Financial Institutional Securities Limited, Axis Capital Limited and Credit Suisse Securities (India) Private Limited acted as the Book Running Lead Managers to the Offer.

AZB & Partners has also acted as the legal counsel to S Chand as to Indian law, while Clyde & Co has acted as the legal counsel to the BRLMs as to international law.

The Prospectus was registered with the Registrar of Companies, National Capital Territory of New Delhi and Haryana on May 2, 2017.

Tata Sons has announced the appointment of Shuva Mundal as the Group General Counsel. Mundal, who will join the company from July, has been associated with top legal firms of the country. The announcement has been made following the appointment of Saurabh Agrawal as group Chief Financial Officer (CFO) of the holding company.

Vasani had been associated with Tata Sons as Group General Counsel for the last 17 years.

The company stated that Mundal now intends to move to more strategic and advisory role. So he will now continue with the group as legal adviser to the chairman’s office.

Mandal, who has more than 17 years of experience as a legal professional, is a graduate of the National Law School, Bangalore. During his career, Mandal has been actively involved in deal structuring, advising on securities law and development of legal strategy for corporations.

N Chandrasekaran, Chairman of Tata Sons said, “Mandal brings wide-ranging legal experience and energy into this important role as the Group General Counsel. His time

sHUVA MUndAL BecoMes groUP generAL coUnseL oF tAtA sons sUcceeding BHArAt VAsAni

spent at India’s top legal firms has given him a ringside view of different legal strategies and his long experience of working with multiple Tata companies in the past will hold him in good stead in his new role.”

Mandal said,” It has always been an enriching and learning experience working with the Tata group as an advisor, and now I look forward to playing a bigger role under the guidance of Chandrasekaran and his new team.”

Shuva MundalBharat Vasani

Within the CirCle26


Cyril Amarchand Mangaldas (CAM) acted as legal counsel to Strides Shasun Limited (SSL) and SSL Pharma Sciences Limited (SSL Pharma) on a composite scheme of arrangement (Scheme) between SSL, SSL Pharma and SeQuent Scientific Limited (SeQuent) for (i) the demerger of SSL’s commodity active pharmaceutical ingredients business into SSL Pharma on a going concern basis, in consideration for shares to be issued by SSL Pharma to shareholders of SSL; and (ii) demerger of the human health active pharmaceutical ingredients business of SeQuent into SSL Pharma on a going concern basis, in consideration for shares to be issued by SSL Pharma to shareholders of SeQuent.

The transaction is subject to customary conditions precedent and applicable regulatory approvals, including the approval of the Competition Commission of India and the Mumbai bench of the National Company Law Tribunal.

This is one of the first transactions under circular no. CFD/DIL3/CIR/2017/21 dated March 10, 2017 issued by the Securities and Exchange Board of India (SEBI Scheme Circular), wherein shares of the resulting company, SSL Pharma, are proposed to be listed on the BSE Limited and National Stock Exchange of India Limited in terms of the SEBI Scheme Circular.

Shardul Amarchand Mangaldas & Co acted as the legal advisor to NewsCorp in the transaction involving acquisition by Elara Technologies Pte. Ltd. (the Singapore-based parent entity operating Proptiger.com and Makaan.com portals through its Indian subsidiaries) of majority shareholding in Locon Solutions Private Limited (which operates Housing.com portal), coupled with an investment of USD 50 mn by

coMPosite scHeMe oF ArrAngeMent BetWeen ssL, ssL PHArMA And seQUent scientiFic Ltd.

eLArA tecHnoLogies AcQUires MAjority sHAreHoLding in Locon soLUtions

The Cyril Amarchand Mangaldas team that advised Strides Shasun Limited and SSL Pharma Sciences Limited was led by Bangalore-based partners Nivedita Rao and Arjun Lall with legal due diligence and listing done by Bangalore- based partner, Reuben George Chacko.

Mumbai-based partner Bharat Budholia advised on competition law aspects whereas Mumbai-based partner Sharad Mathkar advised on the litigation aspects of the transaction. The boards of directors of SSL, SSL Pharma and Sequent approved the Scheme on March 23, 2017 and the closing of the transaction will occur after receipt of relevant regulatory approvals.

Australia’s REA Group and USD 5 mn by Softbank into Elara.

PropTiger.com and Housing.com are two of India’s leading online real estate service providers, and will together become India’s largest online real estate services company.

The General Corporate Practice of Shardul Amarchand Mangaldas advised on all aspects of the transaction, including the structuring, negotiations, drafting and finalization of transaction documents.

The transaction team was led by Mr. Shuva Mandal, Partner, National Practice Head, General Corporate, M&A & Private Equity; and included Aayush Kapoor, Principal Associate; Sayak Maity, Principal Associate – Designate; and Vasundhara Garg, Senior Associate.

Aspart of the transaction, Elara has acquired majority shareholding in Locon, along with affiliates of REA Group Limited and Softbank Group Corp investing US$50 million and US$5 million, respectively, into Elara.

The deal was signed on January 10, 2017.

Deal Corner 27


yes BAnK in `4,906 crore QiP

Shardul Amarchand Mangaldas & Co (SAM & Co) acted as the domestic legal counsel to YES BANK as to Indian law in relation to the Qualified Institutions Placement (QIP) of its equity shares. The `4,906 Cr. issue was the largest ever private sector QIP from India in rupee terms, and was the largest QIP on BSE and NSE for the year 2016-17.

The Capital Markets Team of Shardul Amarchand Mangaldas was led by Prashant Gupta, Partner, National Practice Head - Capital Markets; and included Monal Mukherjee, Partner; Mathew Thomas, Senior Associate; Shruti Sarkar, Associate;

and Oishika Dasgupta, Associate. They were assisted by Sagarnil Banerjee, Senior Associate Designate; Ishita Kashyap, Associate; and Monic Pipalia, Associate.

As a part of the transaction, QIP of equity shares of face value of ̀ 10 each by YES BANK was executed under Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (the “SEBI ICDR Regulations”) and Section 42 of the Companies Act, 2013 and the rules made thereunder. The Issue opened on March 23, 2017 and closed on March 29, 2017. The Equity Shares were allotted on March 31, 2017. The Preliminary Placement Document was filed with BSE Limited and National Stock Exchange of India Limited on March 23, 2017 and the Placement Document was filed with the Stock Exchanges on March 29, 2017.

Other advisors to the transaction were Luthra & Luthra Law Offices (acted as the domestic legal counsel to the BRLMs as to Indian law), and Allen & Overy (acted as the international legal counsel to the BRLMs as to U.S. Law).

and Michael Sturrock, supported by Hong Kong counsel Louis Rabinowitz and Singapore associates Kelly Teoh and Jalpit Amin.

Latham & Watkins, the global law firm, advised MakeMyTrip Limited on a $330 million equity financing from certain existing and new investors.

In 2010, Latham had advised MakeMyTrip on its Nasdaq listing, and follow-on offerings in 2011 and 2014. Morgan Stanley India Company Pvt. Ltd., acted as the sole placement agent in connection with the financing.

Proceeds from the transactions will be used to fund business expansion, strategic investments, technology and product development, marketing and promotions, working capital and general corporate purposes. The Latham & Watkins team was led by Singapore partners Rajiv Gupta

LAtHAM & WAtKins AdVises MAKeMytriP on $330 MiLLion eQUity FinAncing FroM certAin existing, neW inVestors

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INDEPENDENTDIRECTORS

The origins of the concept of independent directors can be traced to the United Kingdom and United States of America. In the United States of America, in the second half of the 20th century, listed companies

were encouraged to have at least two ‘outside directors’ on their boards. This was primarily to introduce objectivity to the decision-making process, provide a solution to management-shareholder conflicts, and improve performance of the company. However, corporate scandals like Enron and Worldcom, featuring management transgressions like poor reporting standards, ignorance of high risk issues, unsanctioned loans and guarantees, accounting loopholes, etc. prompted amendments to the listing rules of key stock exchanges like NYSE and NASDAQ.1 These changes also found legislative backing with the enactment of the Sarbanes Oxley Act of 2002, which provided for listed company audit committee independence requirements and responsibilities.

The role of independent directors is considered

pivotal to the company’s growth and effective

management in today’s day and time

The role of independent directors is considered

pivotal to the company’s growth and effective

management in today’s day and time

PartnerShardul Amarchand Mangaldas & Co

Rudra Pandey


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Similarly, following a series of corporate scandals in the United Kingdom, the Cadbury Committee was established in May 1991 by the London Stock Exchange, the Financial Reporting Council and the accountancy profession. The reason for its creation was the significant fall in investor confidence in the accountability of listed companies, which had been triggered, in part, by the Maxwell scandal and the collapse of the Polly Peck consortium and the Bank of Credit.2 The central elements of the Cadbury Report code provided for (i) a clear division of responsibilities, i.e. a separation of the chairman of the board from the chief executive, or a strong independent voice on the board; (ii) the board comprising of a majority of outside directors; (iii) remuneration committees comprising of a majority of non-executive directors; and (iv) the appointment of an audit committee by the board, including at least three non-executive directors. These provisions were given statutory authority by amendments to the London Stock Exchange, whereby listed companies had to “comply or explain”, i.e. elucidate the extent of their compliance to the code and explain any deviance from its provisions.3

Developments in IndiaIn India, the origin of independent directors can be traced to recommendations made by the Kumara Mangalam Birla Committee (1999), Naresh Chandra Committee (2002), and Narayana Murthy Committee (2003). Pursuant to these recommendations, the concept of independent director was introduced for the first time by the Securities and Exchange Board of India (“SEBI”) in Clause 49 of the listing agreement, requiring listed entities to appoint independent directors on their board.

With the advent of time, however, the Indian corporate world was shocked by the Satyam scandal, which involved the manipulation of the company’s accounts, amongst other malpractices. Pricewaterhouse Coopers, the independent auditor of Satyam, was fined for not following the code of conduct and accounting standards in the performance of its duties. Immediately after the Satyam scandal in 2009, more than 500 independent directors across various Indian companies resigned due to issues relating to transparency in corporate governance and their consequent liabilities due to fraudulent activities of the companies appointing them.

Subsequently, an order of SEBI in 2011 may have added to the fear in the minds of independent directors. In the said order, three independent directors of Pyramid Saimara Theater Limited were restrained from discharging their

duties as directors in any listed company for three years because they had erred in preventing false and misleading accounting disclosures by the company. SEBI, while reiterating the ‘duty of care’ test, refused to accept that directors could not be held responsible for the day-to-day affairs of the company. However, the Ministry of Corporate Affairs (“Ministry”) in a circular in 2011 clarified that penal actions against non-executive directors could only be maintained if the Registrar of Companies (“Registrar”) concluded that the directors had failed to act diligently, and were ‘officers in default’ under the erstwhile Companies Act, 1956. A prosecution against them could not succeed if the violation had occurred without their knowledge or consent. The said circular conferred discretion on the Registrar to confirm and verify the aforesaid factors before issuing a notice to non-executive directors.

The committee constituted by the Ministry to revamp the Companies Act, 1956, was of the view that given the responsibility of the board to balance various interests, the presence of independent directors on the board of a company was critical for improving corporate governance. It also maintained that independent directors would bring an element of objectivity to the board process, working to the benefit of general interests of the company and those of the minority and smaller shareholders. Accordingly, the requirement of independent directors was proposed by means of the Companies Bill, 2009 (“Bill”). The Bill

1 Seil Kim and April Klein, “Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?” (January 2017), available at <http://www.darden.virginia.edu/uploadedFiles/Darden_Web/Content/Faculty_Research/Seminars_and_Conferences/Did%20the%201999%20NYSE%20and%20NASDAQ%20Listing%20Standard%20Changes%20on%20Audit%20COmpositi....pdf>, last viewed on May 12, 2017. 2 Anonymous, “The Cadbury Report”, the University of Cambridge (Judge Business School), available at <http://cadbury.cjbs.archios.info/report>, last viewed on May 12, 2017; see also Ranjan R., “Role of Independent Directors in Corporate Governance”, Indian Academy of Law and Management, available at<http://www.ialm.academy/role-independent-directors-corporate-governance/>, last viewed on May 12, 2017; see also Donald C. Clarke, “Three Concepts of the Independent Director”, George Washington University School of Law, 32 Del. J. Corp. L. 73 (2007), available at <http://scholarship.law.gwu.edu/cgi/viewcontent.cgi?article=1045&context=faculty_publications>, last viewed on May 12, 2017. 3 Anonymous, “The Cadbury Report”,the University of Cambridge (Judge Business School), available at <http://cadbury.cjbs.archios.info/report>, last viewed on May 12, 2017. 4 The Companies Bill, 2009, available at <http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Bill_2009_24Aug2009.pdf>, p. 68, last viewed on May 12, 2017

1956, was of the view that given the responsibility of the board

to balance various interests, the presence of independent directors

on the board of a company was critical to improving corporate

governance

Companies aCt

the committee constituted by the ministry to revamp the

,


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Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

provided for independent directors to be appointed on the boards of companies along with attributes determining independence.4

Independent directors under the Companies Act, 2013 (“Act”) and SEBI regimeThese proposals were incorporated in the Act, which mandates the appointment of independent directors by all public listed entities and certain prescribed classes of public companies. A concomitant obligation on listed entities is captured under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”). The number of independent directors mandated thereunder ranges from a minimum of 1/3rd to 1/2 of the board, based on the board constitution. The Act (along with the Listing Regulations) prescribes the pre-requisites of being an independent director.

An independent director is a director other than a managing director, a whole time director or nominee director who, amongst others, is a person of integrity and possesses relevant expertise and experience; is not or was not a promoter of the listed entity, or its holding, subsidiary or associate company; is not related to the promoters or directors of the company, its holding, subsidiary or associate company; and has had no pecuniary relationship with the company or its promoters or directors during the immediately preceding two financial years. An independent director must possess appropriate skills, experience and knowledge in fields like finance, law, management, corporate governance, etc., related to the company’s business. An independent director is also required to be a part of various committees of the board, such as the nomination and remuneration committee, audit committee and corporate

social responsibility committee. Independent director must comply with the code of conduct for independent directors provided in Schedule IV of the Act, which lays down guidelines for their professional conduct. These revolve largely around protecting the interests of the company, its shareholders and employees, reporting concerns about any violations, etc., maintaining their own ‘independence’ and objectivity at all times, and assisting the company in implementing the best corporate governance practices.

In today’s context, independent directors are involved in the review of, among others, the performance of the (i) management; (ii) board; (iii) non-independent directors; and (iv) chairperson of the company (taking into account the views of executive and non-executive directors). Importantly, the Act limits the liability of an independent director to such acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent and connivance or where he had not acted diligently.

ConclusionThe aforementioned developments have made it evident that the role of the independent director is considered pivotal to the company’s growth and effective management. While the legislature has indeed taken steps in a positive direction, the determining factors in making this exercise a successful one will be (i) the company’s role in satisfying itself of the capabilities and independence of its independent directors; (ii) the role of the independent directors in scrutinizing the affairs of the company with a keen eye, and continually ensuring their own independence; and finally (iii) functions of the board being guided by honesty, frequent introspection and integrity. Only when these steps are implemented in congruence with each other can high standards of corporate governance be truly achieved.

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IBCInsolvenCyMsMe

And

Since the majority of MSMEs facing insolvency are more likely to liquidate and not go into reorganization/restructuring (by virtue of their size), frameworks should not only focus on reorganization/restructuring, but also on expeditious liquidation mechanisms

The government is in the process of finalizing regulations for fast-track resolution under the Insolvency and Bankruptcy Code 2016 (IBC). The draft regulations placed in the public domain propose that the fast-track process of insolvency

resolution under IBC comprising 90 days will be available to small companies with paid-up capital not exceeding INR 50 lakh or such higher amount as may be prescribed not exceeding INR 5 crore; or with turnover not exceeding INR 2 crore or such higher amount as may be prescribed but not exceeding INR 20 crore. A holding company or a subsidiary company will not be able to avail the benefits of the fast-track process. The benefits of fast-track will also be available to start-ups up to five years from the date of incorporation if their turnover does not exceed INR 20 crore in any financial year, and they are working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

While making the fast-track resolution process available to small companies and start-ups is a welcome move, the Indian micro, small and medium enterprises (MSMEs) sector will not benefit from these regulations. While the IBC and fast track regulations apply only to limited liability companies and limited liability partnerships, over 97 per cent Indian MSMEs are proprietorships or partnerships. Proprietorship is the most commonly adopted ownership structure (94.5 per cent of all MSMEs), primarily because this structure requires lower legal overheads. The other ownership structures adopted by enterprises include partnership and cooperative (1.2 per cent), private and public limited company (0.8 per cent) and other forms (3.5 per cent). Mature small, medium and new knowledge-based enterprises in the sector are mostly structured as private limited or public limited companies. But that number is nearly insignificant. In 2009-10, the Indian MSME sector was estimated to include 29.8 million enterprises, out of which 28 million are unregistered and only 1.8 million registered.

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MSMEs form the foundation of the Indian economy. They represent the majority of businesses and are key drivers of employment, economic growth, and entrepreneurship. The MSME sector is an important pillar of the Indian economy as it contributes greatly to growth of the Indian economy with a vast network of around 30 million units, creating employment for about 70 million, manufacturing more than 6,000 products, contributing about 45% to manufacturing output and about 40% of exports, directly and indirectly. This sector assumes even greater importance now as the country moves towards a faster and inclusive growth agenda. Moreover, it is the MSME sector, which can help realize the target of proposed Indian National Manufacturing Policy of raising the share of the manufacturing sector in GDP from around 16% at present to 25% by the end of 2022.

MSMEs vary in size and nature. The term “MSME” encompasses a wide-ranging spectrum of businesses. Most MSMEs fall into the “micro” category, which usually includes sole proprietorships and single-employee businesses. Small enterprises may have more than one owner and multiple employees but may have an informal business structure. Firms at the other end – labeled as “medium” enterprises – may be starkly different from their micro and small counterparts and have hundreds of employees. Yet they may not be corporatized. MSMEs, for a variety of reasons, forgo formal registration of their enterprise and operate without limited liability. This practice is seen around the world, but it is particularly common in developing economies. However, for many entrepreneurs and shareholders, the difference between an informal and formal corporate structure is limited – in many cases, MSME lenders require personal guarantees to secure loans, meaning the main advantage of a limited liability corporate structure is significantly reduced.

Although MSMEs contribute significantly to overall economy of the country, they face certain disadvantages,

Managing Partner & Head - Insolvency, Secured Transactions & Corporate Law Practice

Kesar Dass B & Associates

Sumant Batra

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some of the credit-related issues being: availability of adequate and timely credit; high cost of credit; collateral requirements; access to equity capital; and rehabilitation of distressed enterprises. MSMEs are exposed to acute difficulty of weathering macroeconomic and financial shocks. Furthermore, they may lack the sophistication or knowledge to properly address complex processes with limited resources. The combination of challenges that MSMEs face makes them prone to insolvency. Just as there are large numbers of MSMEs, there are large numbers of MSME insolvencies. But MSME insolvencies cannot be treated on par with corporate resolution. There remains a question of whether broad parameters for corporate insolvency systems, as reflected in international standards, can effectively respond to the needs of MSMEs. Nor do they typically fall under the rules of insolvency of natural persons.

MSME insolvency faces unique challenges and issues. Complex insolvency systems deter MSMEs from resorting to formal procedures to tackle financial distress. Unsophisticated MSMEs struggle to understand this complexity; thus discouraging timely use of insolvency by MSMEs. Creditors have few incentives to deal with MSME debtors through legal processes. Creditor passivity often arises when creditors weigh the amount they estimate they will receive from participating in the insolvency process against the amount of time and money this effort requires. If the costs outweigh the return, then creditors make the rational decision to not get involved. Secured creditors typically focus on enforcement of security at the first sign of financial distress and thus efficiencies may be lost. MSME debtors may lack good records and reliable financial information. This makes it harder to assess the viability of the MSME debtor and erodes creditor trust in the MSME debtor and the effectiveness of insolvency processes. Post-insolvency financing is hardly available. MSMEs rely on family and friends for help. MSMEs often lack the resources to cover the costs and fees for a formal insolvency procedure. MSMEs are often financed with a mixture of corporate debt and personal debt taken on by the entrepreneur (including potentially personal guarantees being granted). The failure of the MSME may thus have severe consequences for the entrepreneur and his/her family including social stigma.

Prior to entering an insolvency proceeding, many MSMEs are disadvantaged because they lack the sophistication to identify and react to financial distress. This may result in MSMEs waiting too long before initiating the insolvency process. This problem is particularly acute for MSMEs given the limited incentives they have for starting a complex and burdensome proceeding, often without an effective business rescue framework, as is the case in many of the insolvency processes around the world. Also, the social barriers and reputational stigma associated with the insolvency system may discourage MSME representatives from resorting to formal insolvency proceedings.

The insolvency process itself can be difficult for MSMEs. Of particular concern is the complexity and length of typical

insolvency processes. Smaller MSMEs may lack funds to cover the expenses of an insolvency process or fail to generate an expectation for unsecured creditors to receive any returns. Therefore, while insolvency laws require that creditors prove their claims, monitor the company either individually or via a creditors’ committee, vote on restructuring proposals, etc., there are very limited incentives for creditors to actively participate in the process. Finally, as mentioned earlier, MSMEs usually have more acute issues in obtaining finance during restructuring even if it is viable.

Another particular issue that arises for MSME insolvency is the overlap and conflicts between regimes for insolvency of businesses and regimes for insolvency of natural persons. Whereas one of the main purposes of a business insolvency regime is to ensure the orderly resolution of debt and distribution of value to creditors whenever the business is unviable (frequently involving the dissolution of the debtor company), the purpose of a personal insolvency regime is to couple, and also balance the distribution of value to creditors with a basis for the debtor to continue his/her economic life (since, once the insolvency process for a natural person is concluded, the debtor will usually still be in existence). The nature of many MSMEs, particularly micro-businesses, is such that a clear distinction between the business and the persons operating it does not always exist and it is not clear which insolvency regime (business or personal) is better suited to apply to MSMEs. A MSME may be incorporated as a corporate entity or unincorporated; from a legal standpoint, this has several consequences for the limitation of liability and applicability of a personal or corporate insolvency law regime to the business, depending on each country’s legislation.

Countries have adopted different approaches toward the issue of MSME insolvency. Many countries treat MSME insolvency with the same general procedures applicable to large corporations or conversely, natural persons. Some other countries have tried to address the needs of MSME insolvency by tailoring their insolvency laws. They have done this by shortening timelines for MSMEs, or eliminating certain formalities from “standard” insolvency law. Other countries have implemented tailored procedures that are specific to MSMEs, or provided some degree of procedural unification for personal guarantors and companies undergoing connected insolvencies. What these country experiences show is that there are typically two ways in which MSME insolvency is being addressed – either by making slight modifications or allowing exemptions from certain requirements to the existing provisions in the insolvency legislation, or by drafting entirely new provisions that target MSMEs, such as in the cases of Japan and Korea.

Effective insolvency regimes, if properly implemented, may mitigate many of the challenges facing MSMEs. They are amongst the most powerful engines of growth of the Indian economy. MSMEs are also effective vehicles for employment generation. India’s cities have been experiencing the burden

Let’s UphoLd 35



of a consistently growing population, comprising an ever-increasing proportion of migrants in search of employment and livelihood. City infrastructure is already stretched, and policy makers are seeking solutions to mitigate issues arising from migrant population growth. Rural MSMEs and those based outside of large cities, offer a viable alternative for employment to local labor, hence presenting an opportunity for people to participate in productive, non-farm activities, without needing to migrate to urban areas. With adequate financial and non-financial resources, as well as capacity building, the MSME sector can grow and contribute to economic development considerably higher than it is doing currently. It is important to support them by providing a simpler mechanism for their resolution and liquidation in the event of distress. Having an efficient, expeditious insolvency system in place that rescues MSMEs or swiftly reallocates their productive assets to more efficient activities is paramount.

However, this does not suggest that a separate law is needed for them. A separate set of regulations to deal with insolvency of MSMEs is needed. In its Report on the Treatment of MSME Insolvency released recently, the World Bank recommends that due to the lack of sophistication on the part of MSMEs, they need out-of-court assistance such as mediation, debt counseling, financial education, or the appointment of a trustee. Since the majority of MSMEs facing insolvency are more likely to liquidate and not go into reorganization/restructuring (by virtue of their size), frameworks should not only focus on reorganization/restructuring, but also on expeditious liquidation mechanisms. The Indian government should develop regulations that are at the intersection of personal insolvency frameworks and corporate insolvency.

or swiftly reallocates their

productive assets to more

efficient activities is paramount

InsolvencyHaving an efficient, expeditious

Systemin place that

rescues MSMEs

Take on Board

How should companies go about ensuring that their compliance set-up and security are adequate as far as their own and customers’ confidential and business data and

involvement of third parties is concerned.

Data Security anD compliance

36


How Far Would you Go?

Cloud will increasingly be the default option for software deployment. The same is true for custom software, which is increasingly being designed

for some variation of public or private cloud.

Are you aware that 90% of top companies face or have faced data theft in some way or the other and that also involves public sector and defense set-ups. To add to the figures, at least 75% of small and medium-sized companies know that their confidential data is at risk. However, do they have proper measures to control it? The other factor is almost 92% of the companies are involved with cloud and almost all data is stored as SaaS (Software as a Service) wherein companies are finding it difficult to manage the contractual risk involved? How has the practice changed in industries over the past decade or so? Advances in technology mean that data can be transferred quickly and stored indefinitely, including potential third parties accessing your system. The whole digitalization, in addition to bringing business efficiencies and convenience for users, however, changes to global data flows have also elevated the risks to privacy and confidentiality. The cost to the company can be enormous for such data theft going into millions of $s and then the penalties associated for non-compliance, including those of the regulators.

Cyber security, IP theft, breaches of network and computers, are huge concerns of all companies. There are two kinds of companies; ones that have had a cyber security problem and ones that have a problem but don’t know

Take on Board 37


Director, Contract Delivery (GBS) American Express

Anupam Sharan

of its existence. The cost to company can be enormous - the study done by PWC, the order of millions as cost to company due to cyber theft.

Which are the departments to be involved or communicated with on such security issues - this is not just an IT problem, and most companies get the IT specialist to get the firewall tightened up, enable encryption, change the password, but if you talk about valuable information of your company including valuable technical information, products and services, business know-how, customer information, finances, HR, IT and physical security, etc.

Why the threat of breachesInformation goes digital and sits on various kinds of platforms with access available to all kinds of people. The workforce becomes more mobile with business partners all over the world, so the possibility of data theft increases. Who is trying to steal information?

• Hackers appointed by special statesfor information on country secrets, confidential nation data, etc;

• Competitorswhotrytogainvital insideinformation on how the business of similar companies is conducted, including business know-how and financial details;

• Employeeswhofortheirowngainwouldgive information to fellow colleagues, or may be due to grudges, or in case of changing job, will take sensitive information with them;


Take on Board38


• Know beneficiaries like people whom you think arethe security wall; however, in real terms, they are the breakers and transferors.

70% of breaches that have occurred, have taken place through someone you know, an employee, hacker, or someone who does not know what to share or not share on social media, or someone leaving the company without a proper handover or what information is to be disclosed to a third party. A very common live example happened in an IT company where the company had appointed a third party to do a CSR survey for all employees annually. The virus entered when one of the employees did not use the secure system to do the survey and this virus spread to all target computers, where hackers stole vital employee details like PII etc. In a scenario when your supplier has access to your system (through invoices, e-bills, etc.), it makes much sense to have a policy and regulation for the supplier as well and this should be documented in the contract.

Steps taken by govt. for data securityStatutory and regulatory compliance, for example PCIDSS standards.

Management system • Enterprise risk management should be implemented

which includes anti-bribery, regulatory compliance, and other protections. The need for cyber security must be communicated to employees. Risk involved to protect data

What should be the system in place to control• Screeningandcorrectmanagement

• Policiesandproceduresatparforemployeesandthirdparties, including contractors

• Inter-departmentalignment

• Riskassessmentandgovernance–riskinvolved,ratingsof low, medium and high risk and remediation of those risks

• Thirdpartyexposure–monitoringthemthroughregulardue diligence, both pre- and post-contract

Audits and regular training such as sending phishing emails to employees and making sure they do not fall prey to such emails; in the event they do, regular training needs to be imparted.Changesintechnology,updatesandupgrades–Keeping up with new technology and improving internalsystems to keep up to speed with changes

How do companies deal with data protection in their contracts?Traditionally, we say that a contract is where we make sure all is covered and if something goes wrong, we fix the contract, but what about due diligence, risk management

• NDAandconfidentialityrightattheRFPstage;

• PrivacyPolicy;

• Test the cloud first – Checklist (Infrastructure/Data/Regulatory Requirement)

• Negotiate with the provider on LOL, Indemnity, andConfidentiality

• RighttoAudit

• Duediligence

• Risk management identify {prioritize what you wantto protect - (public, internal, restricted, secret), access (reputational risk, what is the cost to the company, businessloss)andmanage(stepstomanage–contractclauses,policies,trainings)}–reputationalrisk

• Corporatepoliciesyouwantyourthirdpartytocomplywith including supplier’s supplier (sub-contracting)

• Variouswaysofhowtodisclosecompanyinformationincluding restricted and strictly confidential information as compared to that which is public information

• Contractualhandovertooperationalteam(trainingandpost contractual risks)

In today’s competitive age, data-driven decision-making is both vital and often misunderstood. Business leaders are keen to improve the use of data and analytics technology to truly drive transformation and disruption throughout their organization, but there is still a great deal to learn abouthow todo so efficiently and effectively.Executivesand their teams need the right data, the right data strategy, and a means of translating that into effective decisions and, ultimately, stakeholder influence.

Summary• Address data security and trade secrets/IP protection

rights up at the negotiation stage and captured in the contract

• Approach should be holistic, not just as a one-timeproject, fixes and updated should be recurring based on changes in law and regulatory requirements

• Have a coreRisk Center of Excellence (COE) team forany data breach and its remediation for breaches - both internal and for third parties

• Complywithlocallawsandrequirementsinsyncwithcompany polices and sharing of data especially by employees on social networking sites (not everyone is a designated spokesperson of the company)

• Integrate cross functional departments for improvedturnaround time and knowledge sharing

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In Focus

Answers to these will contribute to the jurisprudence relating to corporate insolvency in India

InterpretatIonal Issues In IBC

40


In Focus 41


The Insolvency and Bankruptcy Code, 2016 (“IBC”) brings a tectonic shift in jurisprudence relating to corporate insolvency. Given this sudden shift, both lenders and debtors are

struggling to understand the implication of IBC for them. Unlike the erstwhile law, IBC provides for a two-stage process to deal with corporate insolvency. In stage I, the corporate undergoes a corporate insolvency resolution process (“CIRP”) during which, the committee of the corporate’s financial

creditors (“CoC”) attempts to resolve insolvency of the corporate. If the CIRP fails, the corporate enters stage II for its mandatory liquidation. Stage I must precede stage II.

Stage I can be initiated by a financial creditor, an operational creditor, or the corporate itself, on occurrence of a ‘payment default’ by the corporate, by filing an application before the relevant National Company Law Tribunal (“NCLT”). Since December 2016 (when the IBC provisions relating to corporate insolvency were notified), multiple applications have been filed under the IBC for initiation of CIRP and many interesting questions of interpretation have come up in these applications. This article discusses some such key

interpretational issues.

Definition of financial creditor and operational creditorTo trigger CIRP, a creditor must either be an operational or financial creditor of the corporate. Terms ‘financial creditor’ and ‘operational creditor’ have been defined in the IBC and are being currently debated before the National Company Law Appellate Tribunal (“NCLAT”) in several appeal cases.

In one appeal case, the issue is whether the applicants, who had booked flats with AMR Infrastructures Ltd. (“AMR”), and who were promised monthly ‘assured returns’ by AMR (until possession) are financial creditors of AMR. ‘Financial creditor’ is a person to whom a financial debt is owed and the term ‘financial debt’ has been defined in the IBC to mean “a debt along with interest, if any, which is disbursed against the consideration for the time value of money and

Partner Chandhiok & Associates, Advocates and Solicitors

pooja Mahajan

In Focus42


includes…”. The NCLT, Delhi (where the CIRP application was filed) discussed the meaning of financial debt, especially the term ‘time value of money’ in detail and held that the amount paid by applicants was for purchase of property (and not as consideration for the time value of money) and therefore, ‘assured returns’ do not fall within the definition of financial debt1.

Interestingly, in other appeal cases (three of which are also against AMR), the issue was whether the applicants, who were claiming refund of advances given for booking units, on account of delay in giving possession are operational creditors of the real estate companies. In a series of cases2, NCLT, Delhi held that ‘operational debt’ (as defined in the IBC) does not include debt other than a financial debt and is confined to only four categories, viz. goods, services, employment and government dues. NCLT held that since the advances were sought to be recovered on account of delay in possession (and the debt did not arise on account of these four categories), the applicants are not operational creditors of the companies.

As per the aforesaid cases, claim for refund of advance/deposit and assured returns promised by the builder may not qualify either as a financial or an operational debt. It would be interesting to see if the NCLTs take the same interpretation where refunds are demanded for other kinds of advances or for security deposits (subject of course to refund conditions being met). Admittedly, in certain cases, claims for such refund will qualify as a debt. It is unlikely that the Legislature intentionally left out certain kinds of debts from the IBC. Therefore, these cases demonstrate the inherent limitation in the way financial and operational debt is defined in the IBC. While straightforward cases of financial debt (such as a loan) would pose no problem, the answer is not clear where complex financial instruments and transactions are involved, for example, debt instruments with equity linked returns. Similarly, if operational debt is limited to only four categories of claims, certain kinds of debts may not fall in any specific bucket. It may now be up to the judiciary to fill the lacunae in definitions of financial and operational debt and extend the same to all kinds of debt.

1 Nikhil Mehta (HUF) & Ors. v. M/s AMR Infrastructures Ltd., C.P No. (ISB)-03(PB)/2017. 2 Col. Vinod Awasthy v. AMR Infrastructures Ltd., C.P. No. (IB)-10(PB)/2017, Mukesh Kumar & Anr. v. AMR Infrastructures Ltd, C.P No. (IB)-30(PB)/2017, SajiveKanwar v. AMR Infrastructure, C.P No. 06/2017, Pawan Dubey v. J.B.K. Developers Pvt. Ltd., C.P. No. (IB)-19(PB)/2017, Mr. Satish Mittal v. Ozone Builders & Developers Pvt. Ltd., C.P No. (IB)-66(PB)/2017. 3 Kirusa Software Private Limited v. Mobilox Innovations Private Limited, Company Appeal (AT) (Ins) No. 6 of 2017. 4 JK Jute Mills Company Ltd. v Surendra Trading Company, Company Appeals (AT) (Ins) No. 9 of 2017

(such as a loan) would pose no problem, the answer is not clear, where complex financial instruments and transactions

are involved

Financial Debt

While straightforward cases of

In Focus 43



The disputed interpretation of disputeWhile a financial creditor can trigger CIRP by filing a CIRP application on occurrence of a payment default, an operational creditor has to jump through more hoops to initiate CIRP. In case of payment default, an operational creditor must first send a demand notice to the corporate and if the corporate issues a ‘notice of dispute’, NCLT has to reject the operational creditor’s application. If neither a notice of dispute is issued nor is there any record of dispute with an information utility, then, subject to the application of the operational creditor being complete, the NCLT has to mandatorily admit the CIRP application of the financial creditor.

One of the most interesting issues that has come up before NCLTs is the meaning of ‘dispute’ in the notice of dispute. The reason – inelegant drafting of Section 8 (2) (dealing with issuance of notice of dispute) and the term ‘dispute’ – which seems to suggest that a dispute is valid only if a suit or an arbitration proceeding is pending before receipt of demand notice by the corporate. Now, the moot question is whether it is really the legislative intention that in the absence of such suit or arbitration proceedings, non-payment of operational debt is enough to start CIRP of a corporate, even if the debt is otherwise disputed?

Different NCLTs are taking different views, some holding that a dispute means a dispute pending in a suit or an arbitration before receipt of the demand notice and some other opining that a dispute means any dispute raised in a notice of dispute. Some of these cases went up in appeal to NCLAT and NCLAT came up with an order recently3, giving its view on the issue, and raising even more interpretational questions. While on the one hand, NCLAT held that the definition of ‘dispute’ is inclusive and the term ‘dispute’ cannot be limited to a pending suit or arbitration, on the other hand, NCLAT also held that the corporate debtor must have taken some action on the dispute under any Act or law before receipt of the demand notice. The NCLAT has thus shifted the onus on the corporate debtors to proactively take some action on the dispute before receipt of the demand notice under the Code (rather than the creditor taking an action for recovering its dues). There are unanswered questions – such as what happens if the corporate debtor had no occasion to dispute the demand prior to receipt of the demand notice? Or what if the corporate debtor did not take any action on the dispute since he wanted to preserve ongoing commercial relationship with his vendor?

Timelines under the IBCThe success of the IBC hinges on events taking place in a time-bound manner. Towards this, the IBC prescribes timelines for admission/rejection of CIRP applications (fourteen days), rectification of defects in CIRP application

(seven days), and most importantly, for completion of CIRP (one hundred and eighty days, extendable to further ninety days in certain cases).

In a recent decision4, NCLAT opined on these timelines and held that the fourteen days’ time period given to it for admission/rejection of CIRP application is directory in nature. On the other hand, the seven days’ timeline given to the applicant for rectification of defects and the time period for completion of CIRP is mandatory. This means that if CIRP is not completed within the one hundred and eighty days’ period (if not extended) or two hundred and seventy days (if extended), the corporate must be liquidated.

We see some challenges in adherence to these timelines. Since the CIRP is driven by CoC (and overseen by an Insolvency Resolution Professional (‘IP”)), the timeline is completely dependent on how the CoC and IPs perform. The first challenge would be formation of CoC itself. Under the IBC, the interim IP is required to collate all creditor claims and form CoC. This is included within the one hundred and eighty days’ timeline and pre-supposes easy availability of complete and accurate data about the corporate from information utilities (i.e. firms registered under IBC which will stand ready to receive and deliver financial information about a corporate). However, registration and development of information utilities will take some time and till an information-rich environment is created, the formation of CoC itself would take time, especially where claims and positions of creditors are disputed or uncertain.

The second challenge would be inefficiencies that are inherent in the decision-making process involving large number of creditors, especially where public sector banks are involved. In the context of CDRs/JLFs, we have seen delays on account of lack of co-ordination among banks in taking decisions and approving restructuring plans. These issues are also going to arise during CIRP. And then the question is why should the corporate be mandatorily liquidated due to delays caused by the lenders themselves, in coming to a decision about a resolution plan.

ConclusionWhile the IBC is indeed very ambitious and bold in its scope and intent, as more and more CIRP applications are filed, one can expect a torrent of new and interesting interpretational questions around the IBC, answers to which shall contribute to the jurisprudence relating to corporate insolvency in India.

InsIghts44


Senior PartnerHammurabi & Solomon, Advocates and Corporate Law Advisors, New Delhi

A clear and unambiguous contract/agreement document is the foundation for minimization of conflicts and disputes. In fact, drafting of the contract/agreement is the first foundation step for “dispute management”. In that regard,

the dispute resolution clause usually incorporates the process of amicable negotiation/settlement before setting the “dispute resolution” process in motion. If potentially contentious issues are governed by predictable rules and effective dispute resolution mechanisms, there is a far greater possibility of avoiding litigation or arbitration, and achieving reasonable and cost-efficient results.

A, a company incorporated under German law, enters into a Master Umbrella Agreement with B, a company incorporated

Shweta Bharti

InsIghts

FROM A MULTI-JURISDICTIONAL PERSPECTIVERESOLUTION DISPUTE

45


RESOLUTION DISPUTE

under Indian law, and C, a company incorporated under US law. The transaction also includes entering into various supplementary Agreements between A, B and C in which they govern the German documents by German Law, US documents by New York law, and Indian transaction documents by Indian law, with the courts of Chennai having jurisdiction in the event of a dispute. Evidently there are complex manifold transactions, and thus arises the need for a well-constructed, enforceable Dispute Resolution Clause. A contract or agreement entered into between parties in relation to a transaction, reflects intention of the parties towards discharging their respective obligations for enabling respective parties claim their respective consideration agreed upon under the contract.

If potentially contentious issues are governed by predictable rules and effective dispute resolution mechanisms, there is far greater possibility of avoiding litigation or arbitration and achieving reasonable, cost-efficient results

InsIghts46


In the event of any conflict of interest between the parties in the matter of discharge of respective obligations or in relation to consideration being looked for by them, the parties may devise ways to manage their dispute, which may either be provided for in the contract or which the parties may agree upon subsequently towards mutual settlement of their interest and thereby manage their conflict of interests. However, in cases where parties fail to reach a point of settlement of their mutual interest and thereby fail to manage their conflicts, their disputes then look towards necessity of resolution by seeking involvement of a third party. Therefore, precisely it is the unmanaged or rather mismanaged disputes which look for a resolution process.

Elements of dispute resolution in multi-jurisdictional perspective In a multi-jurisdictional perspective, the parties involved are required to be alert to many aspects of dispute resolution. A few such aspects are as follows:

a. Jurisdiction: Parties belonging to two different jurisdictions in a contract may mutually settle for a neutral jurisdiction in order to avoid raising allegations of partiality on the part of the dispute resolving process.

b. Ad hoc v institutional mechanism of dispute resolution: Parties may tend to instill more faith in the institutional resolution process than ad-hoc process, and in that perspective, they may look towards a jurisdiction having credible institutional mechanism of dispute resolution process. Further, depending upon the process of institution being cost-effective, the parties

may choose an institution suitable to their transaction, jurisdiction, etc.

c. Cost of dispute resolution: This is an important factor for consideration. At first glance, the institutional resolution process may appear to be costlier than the ad-hoc system of dispute resolution. However, experience over a period of time has shown that the institutional resolution process is more cost-effective and efficient than the ad-hoc process, when seen from the perspective of time consumption, quality of resolution, sustainability of resolution, etc.

d. Prevailing law: Choosing the applicable law, while entering into a contract, is of wide implication. The choice of law would be on two counts, (i) law applicable to merits of the dispute and (ii) law applicable to the process of dispute resolution, i.e. substantive law and procedural law. In this regard, parties need be vigilant as to the law which secures their interests in a proper manner. Absence of a contract spelling out the applicable law, will invite other methods of ascertaining such applicable laws, which may prolong the resolution process.

e. Seat v Venue of Arbitration: In the perspective of arbitration being chosen as the mode of dispute resolution, the “seat” of arbitration has special significance, as settled by a plethora of judicial pronouncements. The nexus between the “seat” or the “place” of arbitration vis-à-vis procedural law i.e. the lex arbitri is well settled by judicial pronouncements. Supreme Court has in Enercon (India) Ltd. v Enercon Gmbh taken note of observation of Court of Appeal in England as made in the case A v B [38] to the effect that

“…..an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy……as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration.”

It stands categorically settled that “venue” of arbitration must not be confused with the “seat” of arbitration. While “venue” may be more than one places where arbitration proceedings may be held having regard to the convenience for such proceedings, the “seat” of arbitration is the one which is the epicenter of the arbitration. The laws prevailing at the “seat” of arbitration are the ones which will apply to the proceedings being conducted at a “venue” even away from such “seat”.

f. Preliminary relief / emergency arbitrator: With respect to availing immediate interim relief securing the

Associate PartnerHammurabi & Solomon, Advocates and Corporate Law Advisors, New Delhi

Jyoti Kumar Chaudhary

1 Lord Justice Burrough was the Third British Justice of the Court of Common Pleas in May 1816. He retired in January 1830. Richardson vs. Mellish (1824-34) All E.R. 258 was one of the Judgments delivered by him, which touched upon the issue of “Public Policy”. 2 Lord Justice Denning was an English lawyer and Judge who has been called “the greatest judge of the century” and “probably the greatest English judge of modern times”. Called to the bar in 1923 as a barrister he became a King’s Counsel in 1938 and became a judge in Enderyby Town Football Club Ltd. v. Football Association Ltd., [1971] Ch. 591, 606 was one of the Judgments he delivered on the issue of “Public Policy”, taking a progressive and positive view on the said issue.

InsIghts 47



subject matter of arbitration, the parties may look up for some measure of securing their interest in the subject matter of dispute. Availability of relevant mechanism with the institution being looked upon by the parties, for providing such immediate relief, would become very significant. At the same time, the implementation of such interim relief requires the parties to be vigilant about availability of effective lawful mechanism in the chosen jurisdiction, for enforcement of such interim relief.

g. Choice of language: Chosen language rules across every process of the dispute resolution, i.e. orders in the proceedings, presentation of written pleadings/testimonies, leading of oral depositions, leading of oral arguments, etc. as the rules governing the resolution process may provide for. Depending upon comfort of the chosen language, for presenting the case of the parties in the best manner, the choice of language may be opted for by the parties. Availability of equipped resources with the institution dealing in the chosen language, is also a factor, the parties need be vigilant about.

h. Deposition / oral testimony: The facility enabling parties to lead oral testimony would demand cost. It is why, dispute resolution institutions across the globe favor a document-only arbitration, while avoiding requirement of oral testimonies or leading of oral arguments. This in turn shortens the time consumed and the cost involved in the process of dispute resolution. Rules of dispute resolution institutions may often provide for additional cost for leading of oral testimonies inter-alia for making proper arrangement of recording of testimonies, cross-examination, leading arguments, etc. Parties need to be vigilant about cost-effective facilities in that regard, while choosing the institution.

i. Document discovery: The law relating to “discovery of documents” has varied implications across various jurisdictions. While there are jurisdictions where parties may not be required to produce any document adverse to it, there are other jurisdiction where parties may be

required to produce such documents and non-production thereof invites adverse inference against such party. This apart, the dispute resolution institutions dealing with international commercial disputes have adopted strict regulations for use of discovery, to check adverse consequences as well as abuse of such process.

j. Public policy: The issue of “public policy” has attracted much debate, and jurists across the globe have concurred that the concept of “public policy” is incapable of precise definition. While Lord Justice Burrough1 in Richardson vs. Mellish (1824-34) All E.R. 258 gave “public policy” the impression of “a high and unruly horse”, however, Lord Denning2, in Enderyby Town Football Club Ltd. v. Football Association Ltd., [1971] Ch. 591, 606, observed that “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles.”

Further, in the context of a multi-jurisdictional approach, “public policy” may be understood in the sense that parties in a jurisdiction may be free to contract to those out of jurisdiction, however, at the time of enforcement of award in the said jurisdiction, the courts of that jurisdiction will check that the award is not opposed to any law of that jurisdiction. In such context, one must be concerned as to how much faith of litigants, the judiciary of the given jurisdiction enjoys. Further, time involved in disposal of judicial proceedings in such jurisdiction would remain a key factor for parties to consider in this regard.

k. Dispute resolution clause: Drafting of the contract/agreement is the first foundation step for “dispute management”. In that regard, the dispute resolution clause usually incorporates the process of amicable negotiation/settlement before setting the “dispute resolution” process in motion; i.e. the clause governing resolution/management of dispute between parties, stipulate muti-tier approach, whereby parties are initially required to resort to an amicable recourse to resolution by negotiation or discussion at one or more level, within stipulated time at each level. In case the dispute remains unresolved despite efforts being put at each level of negotiation/discussion, recourse is then taken to approaching the dispute resolution forum/institution, i.e. court process or arbitration.

So far the “dispute resolution” clause is concerned, it has been experienced over the years that much resources and time of the litigating parties has gone only into interpretation of uncertain terms in the “dispute resolution” clause, be it on the aspect of existence of arbitration agreement, jurisdiction or the like. It is, therefore, essential to account for such uncertainties at the time of framing of the foundation document itself. Accordingly, the “dispute resolution” clause needs to clearly identify the jurisdiction, dispute resolution forum, applicable laws, applicable language, seat of dispute resolution, and the like.

is the first foundation step for“dispute management”

contract/agreement

drafting of the

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Giving GCs Sleepless Nights?

48


GCs will need to increasingly focus on HR strategies and HR lawyers will have to be more proactive, responsive, accessible, business-

oriented and innovative

Evolving HR Law

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India stands on the cusp of a new HR law era. The government has proposed replacing several major national labor legislations with four codes - codes on wages, industrial relations, social security & welfare, and safety & working conditions.

With globalization, the labor market in India has undergone tremendous changes; however, labor laws have failed to keep pace. Presently, labor laws in India are a hotchpotch of almost 140 legislations (besides all rules, regulations, orders, and circulars issued under each of these legislations) at the national & state levels. Several of these laws were enacted during or prior to India’s independence, and were meant for the industrial sector. While this may feel like a paradise for us HR lawyers, it is not conducive to commerce or growth. In fact, it is unfortunate that while labor laws in India were designed to promote progress, they have ended

up becoming a stumbling block. The rise of the informal (unorganized) sector, is the fallout.

The government’s vision and effort to rationalize and consolidate the plethora of labor laws, is commendable. It may direct us towards a utopian economy. The proposed codes will make it easier for employers to comply with the law and for authorities to regulate it. They will also eliminate the confusion caused by differences in definitions and applicability provisions. Lesser number of laws to comply with along with better implementation, should help position India as a business-friendly destination and increase its rankings in the World Bank’s Ease of Doing Business survey.

Care must be taken to ensure that the codes strike a balance between making labor laws business-friendly while not compromising workers’ welfare and safety. The codes should

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focus on fostering employment, increasing productivity and reducing unemployment, rather than simply being a consolidation of current laws - else the medicine may be worse than the disease! Ensuring this balance in our political economy will continue to remain a challenge for the government.

While employers and employees in India, and the international community closely track these changes to the legal landscape, we discuss select HR law issues that, in our experience, GCs must focus on:

1. Sexual harassment allegations: The Supreme Court’s judgment in the case of Vishaka vs. State of Rajasthan (1997) is considered a landmark ruling on employers’ obligations in relation to sexual harassment. The Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013, has helped increase awareness and bolstered confidence among female employees to report incidents of sexual harassment. The media has also helped the cause by actively reporting these allegations, especially those involving founders and senior management.

News reports of the organization’s inability to prevent or redress sexual harassment at the workplace, leads to serious reputational risks - all the good work and culture built over the years could be jeopardized. Therefore, GCs must ensure that a culture of gender sensitivity and zero tolerance is instilled in their organizations, and help drive this message from the top. The sexual harassment policy and processes should be simple and easy to understand, and complaints must be dealt with quickly and with the utmost confidentiality. Training to sensitize employees (and the ICC) on sexual harassment must be conducted regularly. Further, adequate safety and security of female employees must be ensured while at work and travel during the graveyard shift.

India still has a long way to go in terms of sexual harassment law. In the recent case of Doyle v. Zochem Inc. (2017 ONCA 130), the Ontario (Canada) court awarded three types of damages against the employer

for terminating an employee for raising a complaint of sexual harassment - normal damages for wrongful dismissal, moral damages and damages for the employer’s violation of human rights. While this jurisprudence in India is still developing, GCs should help build an anti-harassment culture by ensuring that the first part of the law on ‘prevention’ is comprehensively complied with.

2. Confidentiality breaches and employee fraud: GCs are aware that extensive use of technology, flexible working arrangements, bring your own device culture, and increased job mobility, have resulted in increased instances of confidentiality breaches and employee fraud. Further, certain job functions might lead employees to inevitably disclose proprietary information to new employers.

While confidentiality clauses in employment contracts are fairly generic, it is advisable to ensure that such clauses are comprehensively drafted and that the obligations persist in perpetuity post-employment. Since prevention is better than cure, especially in such matters, it is advisable to restrict physical access, require authorization, monitor systems’ usage, etc. GCs may also do well to set up robust processes, including confidential and anonymous ethics hotlines and whistle-blowing channels (in the absence of a codified law), to help detect such incidents.

Employees should be reminded of their confidentiality obligations upon separation and an undertaking be obtained, since Indian law does not prevent the departing employee from joining a competitor or working on a project for the same client.

3. Disparagement on social media: Employees have started resorting to venting their ire on

social media even before utilizing their employers’ grievance redressal mechanism. Organizations today face tremendous reputational risks from misinformed social media crusaders.

Therefore, it is imperative that GCs issue clear guidelines on employees’ social media use that include the do’s & don’ts, while representing the organization in an official capacity or when using its name. Exit documentation should mention the employee’s obligation not to disparage or defame the organization. While the

Leader-HR Law Nishith Desai Associates, Mumbai

Vikram Shroff

Associate-HR Law Nishith Desai Associates, Bangalore

Nishanth Ravindran

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Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.

Indian Penal Code may treat defamation as a criminal offense, in a country where there are millions of active social media users, damage is usually done in a few minutes.

4. Dealing with trade unions: The relationship between employers and trade unions in India remains cordial and peaceful, barring a few (one-off) incidents. In the services sector, there has not been any significant trade union activity. GCs in these sectors have not had the need to deal with trade unions as yet; however, that may soon change.

In May 2016, the Tamil Nadu labor authorities clarified that employees of IT & ITeS organizations can form trade union to seek redressal of their grievances. Previously, employees in these sectors never felt the need to unionize or bargain collectively. In the event of an economic downturn, employees may quickly unionize themselves and institute class action suits for unfair labor practices, unlawful termination, wage and hour claims, social security (provident fund) contributions, discrimination, misclassification, contract labor permanency, etc.

GCs should ensure that their organizations have a robust and responsive grievance redressal mechanism to help employees resolve their concerns. As part of the management, GCs should help foster a culture of transparency and an inclusive approach to potentially fend off trade union activity.

5. (Never-ending) compliances and increasing penalties: Most labor laws require the employer to maintain numerous registers, display information, file forms, etc. Considerable efforts have been made by the government to rationalize these compliances and to allow employers to maintain files electronically, including by way of the recent Ease of Compliance to Maintain Registers under various Labor Laws Rules, 2017. But more needs to be done since certain non-compliances could trigger criminal implications - hopefully, the labor codes will help resolve this problem.

In addition to providing 26 weeks of maternity leave, the Maternity Benefit Act, 1961 requires the employer to provide for crèche facilities. Maternity leave has now been extended to adopting mothers and commissioning mothers. The Rights of Persons with Disabilities Act, 2016 currently only requires a private employer to implement an equal opportunities policy.

Monetary penalties for non-compliances continue to increase. For example, the Employees’ Compensation Act, 1923 has recently increased the penalty to ̀ 50,000, which amount may be extended to ̀ 100,000. The Sexual Harassment Act goes a step further by canceling the business license or registration in case of repeat non-compliance.

Given the increased vigilance by labor enforcement authorities, compliance remains a major cause of worry for GCs. Directors and CEOs can be held responsible for non-compliance of labor laws. The Companies Act, 2013 requires the Board of Directors to certify compliance. GCs must implement appropriate systems and use compliance checklists and experts. They should conduct compliance audits including of their third-party contractors and staffing services agencies for their contract laborers.

6. Robotics at the workplace: The ‘job killer’ robots are coming, whether or not they will be regulated or taxed! Industrialization 4.0, consisting of self-learning software, advanced analytics, algorithms, cloud computing, 3D printers, drones and of the Internet of things, will render several repetitive tasks redundant, especially in labor intensive countries like India. Technology is displacing jobs everywhere - even we lawyers are at risk. While we continue to search for what humans can do that robots cannot, the pace with which the transformation may occur will leave many unprepared.

GCs will need to help embrace technology and anticipate re-skilling needs and potential layoffs. Given that in industrial establishments, over 100 (or 300 in certain states) workmen require government permission for lay-offs and closure, it remains a challenge in India.

The dynamics of functioning in this evolving HR landscape will require GCs to increasingly focus on HR legal strategies. It will require us HR lawyers to be more proactive, responsive, accessible, business-oriented, research-focused and innovative. And with those robots around, we may never work alone!

As part of the management, GCs

should help foster a culture of transparency

and an inclusive approach to potentially

fend off trade union activity

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What Does


A look at the impact of UK severing ties with the EU on trade, foreign direct investment, various sectors of the British economy, and in general the future of British citizens

Portend For The UK

Litigation Assistant Kennedys LLP, London

Anamitra Mukhopadhyay

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There was much anticipation and anxiety in the air as the Prime Minister of the United Kingdom (UK), Theresa May, triggered Article 50 on 29 March 2017. This meant that the UK has two years to complete formal negotiations

with the rest of the member states of the European Union (EU) and finally make preparations to depart from the 60-year-old collaboration.

The UK’s exit from the EU has been far from a smooth journey. With Brexit causing major political divisions, the matter was finally taken to the Supreme Court and it was left to the Supreme Court to determine whether the UK government requires parliamentary approval to initiate Brexit. Following the Supreme Court’s decision on 24 January 2017 that the government cannot trigger Article 50 without parliament’s authorization, the Houses of Common and Lords finally voted in favor of the Brexit Bill, allowing May to trigger Article 50 of the European Union Treaty.

From the chain of events seen so far, it is evident that the UK’s decision to leave the EU has resulted in political, economic and social upheaval. This article analyzes the potential implications of Brexit on future trade relations, various industry sectors, and the future of EU citizens currently residing in the UK. The article ultimately aims to explore the consequences of leaving behind a 60-year-old relationship which appears to be the biggest de-merger ever to have taken place globally.

Trade impact - worst or otherwiseFollowing the UK’s decision to depart from the EU, one question has gripped the entire nation: what will become of EU-UK trade relations? Currently, the UK is part of the single market which allows UK-based firms to sell their goods to EU customers without having to pay additional taxes. Similarly, being part of the single market also ensures that UK companies are able to import from the EU tariff-free. Brexit brought about looming uncertainty in relation to the UK’s position in the single market. May later clarified the position by stating that the UK will pull out of the single market. In light of this, the Government has to ensure that it creates a suitable deal which will cause minimal disruption across various industry sectors and continue to draw in foreign investment. Below are some of the trade options that the UK may have post-Brexit:

o UK-EU deal – a possibility

The EU is the largest export and import partner for the UK and hence one might think that the Government would want to ensure that this partnership continues post-Brexit. Although May has ruled out the single market, the UK may strive to strike a free trade agreement with the EU which will ensure that the UK is exempt from paying additional tariffs, taxes or quotas on goods and services,

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when trading with the EU. Free trade deals differ from the single market in the sense that there may be exceptions. For instance, certain industries may be exempt from this agreement and other goods may not be covered. Moreover, imported goods would have to comply with the law of the country they were being sold to.

However, the negotiations in this regard may be slow and complex. There is a level of animosity between the UK and EU given the circumstances in which the UK has exited from the Union. Immigration played a major role in the referendum with the free movement of people falling under negative scrutiny. Recently, the EU considered excluding the UK from talks regarding its trade policies following warnings that Britain will become a competitor for striking trade deals post-Brexit. This is a clear example of the animosity between the EU and the UK and hence striking a deal may be a slow and cumbersome process.

o World Trade Organization – a friend or foe for Britain post-Brexit

Britain may face a tough time when it comes to negotiating a deal with the EU. In the absence of a deal between the UK and EU, the UK will be required to follow World Trade Organization (WTO) rules. Under WTO rules, each member must adhere to the ‘most favored nation’ principle which includes charging the same tariffs to all other WTO members. The only exceptions to this principle are that countries can choose to enter into free trade agreements such as the EU or EFTA and can choose to give favored market access to developing countries. The UK is a current member of WTO and does not need to reapply once it leaves the EU. However, presently the UK operates in the WTO under the EU’s set of ‘schedules’. These schedules comprise a list of commitments that set the terms of the EU’s tariffs, its quotas and its limits on subsidies. Once the UK exits from the EU, it will need to agree its own set of schedules at the WTO. The UK would also face the EU Common External Tariff as EU exporters would simultaneously face tariffs adopted by the UK.

While many believe that cutting the cord from the EU will allow the UK to display so called ‘’Sovereignty’’, the Government has displayed a desire to replicate the existing trade regime as far as possible. With regard to tariffs in particular, copying and pasting the current structure may be fairly straightforward. The EU’s schedules contain ‘ceiling’ for tariffs on a range of goods, such as 10% on cars. Once the UK has copied across these tariff ceilings, it could apply lower (but not higher) tariff rates in the future. This approach could be seen as an approach which would ensure stability. Furthermore, under the WTO rules, the EU will be prevented from imposing unfair and punitive tariffs on UK exports and the UK may be able to secure access to the EU’s markets in this regard.

However, the copying and pasting approach may not apply to all aspects of the schedule. For instance, there are some areas, notably on quotas and subsidy limits, where the UK

must reach an agreement on what share of the EU figure it takes. Potentially this could lead to a three-way negotiation between the UK, the EU and other WTO members. While the talks may allow the Government to display autonomy and ensure that the best interest of its citizens are met, one has to take into account the difficult relationship between the UK and the EU, and the impact this may have during the course of the negotation as well as the prospect of negotiating with 164 other countries.

o Looking elsewhere for investment – colonial past helps?

With the divorce from the EU fast becoming a reality, it is natural for the UK to be looking for other trade allies. The US would be top of the list as industry sectors such as the UK financial services are vast and well-known to American firms. Moreover, President Trump has been a strong advocate of Brexit and seems keen to continue “the special relationship.” However, a UK-US focused trade agreement may not be as attractive for many, given Trump’s unpredictable demeanor. Trump’s motto of ‘keeping America first’ may threaten to undermine the UK’s interest. For instance, there is fear that the US may demand greater access for cheap American farm product imports which would undercut farmers in Conservative held constituencies. There is further fear that any deal might require the UK to accept the US regulatory structure. There have also been suggestions of the NHS being open to US businesses which will no doubt be an unpopular incentive for many people. Thus when it comes to negotiating deals with the US, May may face a tough challenge in holding her ground and striking a deal in the best interest of the UK.

Recently, the Chancellor of the Exchequer, Philip Hammond, visited India along with Mark Carney, the Governor of the Bank of England, in an attempt to “bang the drum for British business”. The UK prides itself for its historical links with India and hopes that this will ensure India becoming an important trading partner post-Brexit. Government officials were particularly keen to promote British financial technology abroad which has a growing consumptive market in India. There has been a notable collaboration between the UK and India. For instance, British firm Standard Chartered, which employs over 18,000 people in India, recently sponsored a new Chevening Scholarship program between the two countries which will feature eight top Indian leaders of the future attending an intensive course in financial services in London this year. Additionally, a move encouraging investment from the city of London into India’s energy sector has also been set into motion through a UK-India sub-fund of India’s National Investment and Infrastructure Fund. With a core investment of £120 million from each government, the objective is to raise £500 million for Indian infrastructure projects. While these examples highlight a start of a strong partnership between the two nations, immigration will continue to be an important factor when it comes to securing any future deals. Indian Prime Minister Narendra Modi had made it

InsIghts 55


clear during May’s last visit to India that the UK would have to relax its rules on immigration and make it easier for Indian nationals to work and study in the UK. It will be interesting to observe whether May will relax the rules, and the potential impact on UK-India relationship should May refuse to ease the rules.

Impact on foreign direct investmentWith the position on post-Brexit trade deals still unclear, there is a certain cause for anxiety and apprehension among businesses. On top of that, the value of the pound has declined, hitting investor confidence.

However, has Brexit caused as much damage as emphasized by “pro-remain with the EU” groups? Statistics show that following Brexit, the GDP increased by 0.7%, up from 0.6%. Moreover, investor confidence may not decline despite previous scaremongering. A reason for this could be put down to the weak value of the pound post-Brexit being a blessing to multinational companies as their profits are often calculated in dollars. Hence, these companies may experience higher profits should the strength of the pound continue to remain weak. It will be interesting to see if there is a rise in the number of foreign businesses operating in the UK as they strive to take advantage of the weak pound. However, as the talks between the UK and the EU progresses, businesses are likely to pay close attention to factors such as migration, customs and tariffs.

Business sentiments – positive or negativeIt is not inaccurate to suggest that most businesses would ideally like to be part of the single market. After all, this type of trade deal eliminates tariffs, quotas or taxes on trade, and also encompasses free movement of goods, services, capital and people. Furthermore, the single market strives to ensure unified rules for packaging, health and safety standards, which makes it convenient for companies to conduct business throughout EU. Hence, it is hardly surprising that businesses that trade throughout the EU are alarmed at the Prime Minister’s plans for the UK leaving the single market and potentially the customs union. Unless a new trade deal is put in place, UK companies face tariffs on imports and exports with the EU, tighter custom checks and restrictions in recruiting talent from different EU countries. In the event that the UK is no longer part of the EU’s General Data Protection Regulation framework, companies who want access to both UK and the single market will be required to monitor standard setting. As the UK ceases to

have access to the single market, there may be calls for the restructuring of contracts with compliance responsibilities facing changes as well. Investors may be reluctant to invest in the UK due to the uncertainty surrounding it which may increase the risk across all businesses and future business deals. After all, the UK was seen as a gateway for foreign companies to gain access to the single market which made it an attractive market for many investors.

It may be useful to briefly explore the impact of Brexit on various industry sectors which form the backbone of the British economy and assess any potential risks facing these industries.

o Automotive industry

This industry which has been identified as a “priority industry” by many is worth approximately £19 billion to the UK economy and employs nearly 800,000 workers. The EU is the largest trading partner of the automotive industry and hence, it ideally requires unrestricted access to the single market. The biggest concern for automotive production is how potential tariffs, custom charges, and other barriers between the UK and the EU single market could change the dynamics for an industry that relies on an integrated global supply chain and cross-border trade in both components and final products.

New tariffs, customs charges, and other barriers between the UK and the EU single market may impact on costs and profitability. Moreover, modern car production is built around just-in-time manufacturing (JIT) which keeps inventory at low levels and brings in new parts at the precise point at which they are needed. However, border delays could jeopardize the operations which may occur once the UK leaves the single market.

o Financial servicesThis industry is worth approximately £120 billion to the UK economy, and employs nearly 1.1 million workers. Similar to the automotive industry, the financial services industry would also like access to a free trade deal with the EU as EU legislations give fundamental underpinning to Capital Markets, Securitization and bank lending. UK-based firms may risk losing essential passporting rights when selling services to the EU. A widely quoted report suggested that up to 75,000 financial jobs could be lost in the event of the UK leaving the single market with HSBC, Goldman Sachs, and the UBS planning to move jobs out of the UK, although others have committed to new offices in London. Moreover, it could become more expensive and difficult for security issuers in the UK to offer securities around Europe.

It is not inaccurate to suggest that most

would ideally like to be part of the

Single Market

Businesses

InsIghts56


Moreover, May’s fierce anti-immigration reputation as Home Secretary may not provide much optimism for the EU citizens currently residing in the UK. It is essential that the Government provides a clear outline of the steps taken to ensure that the rights of the EU citizens are protected post-Brexit.

UK as a whole post-Brexit?At present, it is difficult to ascertain the precise effect of Brexit on the future of the UK economy. The depreciating value of the pound may attract short-term investment; however, it is difficult to predict whether this will continue in the future. Once the talks between the Government and the EU commence, investors shall be in a better position to gain clarity with regards to the UK’s position on trade deals as well as on the issue of immigration. Investors seek clarity and stability, and hence it should be the aim of the Government to provide a clear picture.

On top of the economic chaos created by Brexit, there is also much political instability. May’s decision to call for a surprising snap General Election on 8 June 2017 is an example of the political turmoil caused by Brexit. Each of the political parties have their own views surrounding Brexit deals with the Conservatives favoring a tough negotiation (hard Brexit), Labour opting for middle ground (soft Brexit) and Liberal Democrats remaining anti-Brexit. Therefore, the outcome of the election will lead the direction of the talks.

o Food, drink and farmingThis industry is worth nearly £92 billion to the UK economy, and employs nearly 1 million workers. Food production is one the UK’s largest manufacturing sector, with food and drink manufacturers claiming the industry to be bigger than the car and aerospace sectors combined. A recent survey from Morrisons showed that only 52% of food consumed in the UK derives from British farmers. Hence it is not in the interest of the manufacturers to pay any tariffs when UK produce is sold in the EU and on import of ingredients that cannot be grown in the UK.

If the UK loses access to the single market, agriculture as a sector stands to be effected to a great extent. More than 50% of farm income derives from EU subsidies. According to the Consultancy Agra Europe, nearly 90% of farmers may go out of business if the government is unable to find alternative sources to the EU subsidies.

o Oil and gasWhile the UK is in the EU, it is part of the Energy Union Strategy project whose aim is to integrate the energy market throughout the EU and coordinate energy supply between the different member states. With security of energy supply being a key concern, as the UK severs its ties with the EU, and with declining North Sea production, the UK Government may seek to promote the development of domestic shale oil and shale gas resources. The successful development of shale oil and shale gas reserves in the UK will largely rest on two key issues: economic viability and concerns of the public regarding its safety. The Government will have a tough job assuring citizens that this alternative energy source is a safe and sustainable option.

EU citizens post-Brexit?A Dutch woman was recently informed by the Home Office to “prepare to leave” after 24 years of residing in the UK. This highlights the stress and anxiety felt by 3.5 million EU citizens currently living in the UK, with many others facing fears of their employment being terminated, bank accounts being closed, and rental agreements being revoked if their rights to reside in the UK are not guaranteed. Businesses also face fear as under the EU rules, they were able to hire overseas workers without much inconvenience.


The stress and anxiety felt by 3.5 million EU citizens currently living in the UK, with many others facing fears of their employment being terminated, bank accounts being closed, and rental agreements being revoked if their rights to reside in the UK are not guaranteed


"THE JOURNEY OF INSOLVENCY BANKRUPTCY CODE: THE FOOTPRINT HITHERTO"

2017: THE YEAR OF INSOLVENCY INDUSTRYOrganising Committee

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PRESIDENT AMENDS CENTRAL GOVERNMENT ACCOUNT

The Controller General of Accounts in the Department of Expenditure of the Ministry of Finance issued notification on “Central Government Account (Receipts and Payments) Amendment Rules, 2017,” which further amends the “Central Government Account (Receipts and Payments) Rules, 1983.” The amended version will be in effect from the date of its publication in the Official Gazette.The notification provides the following details:In exercise of the powers conferred by clause (1) of Article 283 of the Constitution, the President hereby makes the following amendments to the “Central Government Account (Receipts and Payments) Rules, 1983”:

(i) In rule 33,

(a) for clause (xa), the following clause shall be substituted:

‘(xa) When payment is desired by different modes of payments, i.e., payment advice/Cheque/Demand Draft/ Postal Order/ Money Order/ Cash, etc., separate bills shall be prepared by the DDOs and the following shall be clearly indicated on the top of the bills:

“Payment by (*)”

(*payment advice or Cheque or Demand Draft or Postal Order or Money Order or Cash)’;

(ii) In rule 44,

(a) in sub-rule (3), for clause (i), the following clause shall be substituted:

“(i) All payments to government servants, including salary payments, shall be made by electronically signed payment advices for direct credit to their bank accounts, subject to availability of banking facilities. A one-time relaxation may be granted for payment by other recognized modes in cases of hardship where the reasons are duly approved by competent authority”;

(b) Clause (iii) shall be omitted.

NET OWNED FUND FOR ASSET RECONSTRUCTION COMPANIES

Owned Fund (NOF) for Asset Reconstruction Companies (ARCs) shall be minimum `100 crores on an ongoing basis with effect from the date of this Notification.

All ARCs that are already registered with the RBI having less than `100 crore NOF shall achieve the prescribed minimum NOF level latest by March 31, 2019, and the same should be duly certified by Statutory Auditors.

Statement on Developmental and Regulatory Policies - April 06, 2017ARCs: Raising the minimum level of NOF - While the earlier provision in the SARFAESI Act, 2002 of a minimum of `2 crores of “owned funds” was amended in 2016 as `2 crores of “NOFs,” the cap on the owned fund of 15% of financial assets was removed. In view of the enhanced role of ARCs and greater cash-based transactions, it is proposed to stipulate a minimum NOF of `100 crores for ARCs.

Notification DNBR (PD-ARC) No. 05 /ED(SS)-2017 dated April 28, 2017In exercise of the powers conferred by Section 3(1)(b) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the Reserve Bank of India (RBI) hereby specifies that the Net

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IRDA MAKES INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

In exercise of the powers conferred by Section 114A of the Insurance Act, 1938 (4 of 1938), as amended from time to time, Sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), and Sections 42D and 42E of Insurance Act, 1938, as amended from time to time, the Authority (Insurance Regulatory and Development Authority of India [IRDAI]) in consultation with the Insurance Advisory Committee hereby makes the “Insurance Regulatory and Development Authority of India (Insurance Web Aggregators) Regulations, 2017.”

These Regulations shall come into effect on the date of their publication in the Official Gazette. These Regulations supersede the “Insurance Regulatory and Development Authority (Web Aggregators) Regulations, 2013” with effect from date of Gazette Notification.

Notably, the objective of the Insurance Web Aggregator Regulations is to supervise and monitor Web Aggregator as an insurance intermediary who maintains a website for providing interface to insurance prospects for price comparison and information of products of different insurers and other related matters.

The notification provides details on the following:

Registration of Insurance Web Aggregator: Eligibility criteria for certificate of registration of the Insurance Web Aggregator, Application seeking grant of certificate of registration, Application to conform to the requirement, Furnishing of information, clarification and personal representation, Consideration of application for Insurance Web Aggregator, Requirements of Capital and net-worth, Procedure for grant of certificate of registration, Conditions for grant of certificate of registration, Validity of certificate of registration, and Rejection of application.

Renewal of Registration of Insurance Web Aggregator: Renewal of Registration of Insurance Web Aggregator, Procedure where renewal of registration is not granted, Effect of refusal to renew certificate of registration, Issue of duplicate certificate of registration.

Corporate Governance Issues pertaining to Insurance Web Aggregator: Board Approved Policy for comparison and distribution of insurance products, Professional indemnity insurance, Change in name of an Insurance Web Aggregator, Arrangements with insurers for distribution of products, Conflict of

interest, Maintenance of books of account, records, etc., Disclosures to the Authority, Action against a person acting as an Insurance Web Aggregator without a valid registration.

Role and responsibilities of the Authorised Verifier: Authorised Verifier.

Activities undertaken and functions performed by Insurance Web Aggregators: Display of product comparisons on Insurance Web Aggregator website, Transmission of leads by Insurance Web Aggregator to the Insurers, Sale of Insurance Online by Insurance Web Aggregators, Sale of Insurance by telemarketing mode and other distance marketing activities of an Insurance Web Aggregator.

Remuneration: Remuneration to the Insurance Web Aggregator.

Conduct of business of Insurance Web Aggregators: Duties and Functions of Insurance Web Aggregator, Conduct of business of Insurance Web Aggregator.

Procedure for Disciplinary Proceedings against the Insurance Web Aggregator: Procedure for Disciplinary Proceedings against the Insurance Web Aggregator.

Miscellaneous: Action against the Insurance Web Aggregator, Penal Provision, Action against the Insurer, Power of Authority to Inspect, Power of the Authority to issue clarifications, Voluntary Surrender of Certificate of registration, Certification of Compliance, Repeal and Savings, General.

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CENTRE ISSUES “REMOVAL OF LICENSING REqUIREMENTS, STOCK LIMITS AND MOVEMENT RESTRICTIONS ON SPECIFIED FOODSTUFFS (AMENDMENT) ORDER, 2017”

CENTRE MAKES RULES TO AMEND “INDIAN TELEGRAPH RIGHT OF WAY RULES, 2016” TO “INDIAN TELEGRAPH RIGHT OF WAY (AMENDMENT) RULES, 2017”

The Department of Consumer Affairs of the Ministry of Consumer Affairs, Food and Public Distribution issued notification on the “Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs (Amendment) Order, 2017,” which amends the “Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs Order, 2016.” The amended Order came into effect on April 29, 2017.

The notification provides the following details:

In exercise of the powers conferred by Section 3 of the “Essential Commodities Act, 1955 (10 of 1955),” the central government hereby makes the following order to amend the “Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs Order, 2016”:

In the “Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs Order, 2016,” in clause 3, in sub-clause (2), for item (ii), the following item shall be substituted:

“(ii) sugar, for a period up to 28th October, 2017;”.

The Department of Telecommunications of the Ministry of Communications released a notification regarding the amendment of “Indian Telegraph Right of Way Rules, 2016.” The amended version is called the “Indian Telegraph Right of Way (Amendment) Rules, 2017.” The amended version shall come into effect on the date of its publication in the Official Gazette.


In exercise of the powers conferred by sub-section (1) and clause (e) of sub-section (2) of Section 7 read with Sections 10, 12, and 15 of the “Indian Telegraph Act, 1885 (13 of 1885),” the central government hereby makes the following rules to amend the “Indian Telegraph Right of Way Rules, 2016”:

In the “Indian Telegraph Right of Way Rules, 2016,” in chapter V relating to Dispute Resolution, in rule 14, in sub-rule (2), the phrase “within a period of sixty days from the date of coming into force of these rules” shall be omitted.

CENTRE MAKES RULES TO AMEND “PASSPORTS ACT, 1967 (15 OF 1967)” TO “PASSPORT (AMENDMENT) RULES, 2017”

The Ministry of External Affairs released a notification regarding the amendment of the “Passports Act, 1967 (15 of 1967).” The amended version is called the “Passport

(Amendment) Rules, 2017.” The amended version shall come into effect on the date of its publication in the Official Gazette. The notification provides the following details:In exercise of the powers conferred by Section 24 of the Passports Act, 1967 (15 of 1967), the central government hereby makes the following rules further to amend the Passport Rules, 1980:In the Passport Rules, 1980 (hereinafter referred to as the said rules), in Schedule III, in Section V, in Annexure ‘H’, the following “Note” shall be inserted:“Note: The Prior Intimation Letter (under this Annexure) shall be accepted by the Passport Authority for processing the passport application if the same bears the signature and seal of the employer of the applicant acknowledging its receipt.”

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MINISTRY OF LABOR & EMPLOYMENT RELEASES NOTIFICATION ON EMPLOYEES’ PF

RBI GIVES FINAL LICENSE TO DISHA MICROFIN TO SET UP A SMALL FINANCE BANK

Provident Funds (Fifth Amendment) Scheme, 2017,” which further amends the “Employees’ Provident Funds Scheme, 1952.” It shall come into effect on the date of its publication in the Official Gazette.

In the Employees’ Provident Funds Scheme, 1952 (hereinafter referred to as the said Scheme), in paragraph 68J,

(a) sub-paragraph (2) shall be omitted;

(b) proviso to sub-paragraph (3) shall be omitted;

(c) for sub-paragraph (6), the following sub-paragraph shall be substituted:

“(6) No advance shall be granted to the member under sub-paragraph (1) or sub-paragraph (3) unless he produces a self-declaration to that effect.”

In the said Scheme, in paragraph 68N, for sub-paragraph (2), the following sub-paragraph shall be substituted:

“(2) No advance shall be paid to the member under sub-paragraph (1) unless he produces a self-declaration to that effect.”

bank, valid for 18 months, subject to meeting conditions laid out by the regulator.

As part of the restructuring process for transitioning to the small finance bank, Disha Microfin had completed the process of acquiring the business of Future Financial Services, another Fincare group company, in October 2016.

In March 2017, Fincare Business Services, the promoter company of the small finance bank, had closed a ̀ 550-crore equity transaction with marquee investors such as True North, TA Associates, Tata Opportunities Fund, SIDBI and Leapfrog Investments.

The Ministry of Labour & Employment released a notification on the “Employees’ Provident Funds (Fifth Amendment) Scheme, 2017.”


In exercise of the powers conferred by Section 5 read with sub-section (1) of Section 7 of “Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952),” the central government hereby makes the “Employees’

Disha Microfin, a part of inclusion platform Fincare, received final license from the Reserve Bank of India (RBI) to set up a small finance bank. The small finance bank will be called Fincare Small Finance Bank, which is targeting a loan book of `20,000 crore over the next five years. It will commence operations in July.

The bank will continue to focus on priority sectors and retail segments, and will additionally offer products such as gold loans and affordable housing loans. Rajeev Yadav, CEO of Fincare platform, said, “The small finance bank license will enable us to expand our product basket to include liabilities products, higher ticket loans to micro and small enterprises, as well as gold and affordable housing loans.”

Yadav added, “We will commence banking operations in July this year, with bank branches in our existing states of operation. We are targeting a loan book of `20,000 crore over the next five years.”

Fincare platform provides microfinance loans, micro-enterprise loans and bank partnership loans to emerging consumers at the base of the pyramid, through its group companies. Disha Microfin received an in-principle approval from RBI in September 2015 to convert to a small finance

Policy UPdate62


Sharing note Ban ProceSS will Be Detrimental to inDia’S economic intereStS: rBiIn November 2016, Prime Minister Narendra Modi had announced demonetization `500 and `1,000 notes. Six months have passed since but RBI has declined to share details of the note ban process, saying it will be detrimental to the country’s economic interests.

Replying to a RTI query, the central bank said that disclosing such details may impede future economic or fiscal policies of the Government of India.

A PTI correspondent filed a RTI application in which he asked RBI to provide a copy of the minutes of the meetings held in its office during which the decision to demonetize `500 and `1,000 notes was taken. It was also asked to share a copy of the correspondence made with the Prime Minister’s Office (PMO) and the Finance Ministry on the demonetization issue.

In this regard, RBI said that “The information sought in the query carries sensitive background information including opinions, data, studies/surveys etc. made prior to the completion of the process of withdrawal of legal tender character of `500 and `1,000 notes. Disclosure of such information would be detrimental to the economic interest of the country from the viewpoint of the objectives sought to be achieved by such decision.” RBI further added that “It is also likely to impede future economic or fiscal policies of the Government of India. Therefore, the disclosure of

The Reserve Bank of India (RBI) and banks concerned will sit and draw up a list of about 40 top defaulters for resolving the issue of mounting non-performing assets (NPAs) after the central bank has been empowered by the ordinance promulgated.

Finance Minister Arun Jaitley said that “RBI along with banks will make a list. RBI has been empowered to direct

information qualifies for exemption under section 8 (1) (a) of the Right to Information (RTI) Act.

The section bars sharing of information which would “prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the state, relation with foreign state or lead to incitement of an offense.”

Also, the RBI said that no part of the record (sought by the applicant) can be provided as contemplated in section 10 of the transparency law. The section allows access to that part of the record which can reasonably be severed from any part that contains exempt information.

banks to initiate insolvency process and set up committees in relation to Joint Lenders’ Forum (JLF). If 10 banks sit together and say, this is the manner in which we will resolve and the oversight committee approves it.” Maintaining that it was a new experiment being tried for resolution of bad loans, the minister acknowledged that this was one area that they had not been able to tackle, so an attempt had to be made. “This mechanism can work more effectively,” said the Finmin.

Further, Jaitley said that the problem was of the top 20-30-40 accounts, “Either these people bring in joint venture partners or bring in new management. In the commercial world, decisions become commercially viable. These are independent decisions,” he said. In the context of public sector banks, the senior management is deterred that the decisions which are commercially viable, tomorrow the accountability norms are unrealistic. “Officials have been hauled up. Today insolvency mechanism is there,” Jaitley said.

rBi, BankS to Draw UP liSt of toP 40 DefaUlterS to reSolve nPas ProBlem

Policy UPdate 63


tn toPS SoUthern StateS in revenUe Deficit: rBi

caBinet clearS orDinance to amenD Banking regUlation act, emPowering rBi to effectively Deal with nPas

rBi DirectS BankS to oPerate atm networkS only after machineS get winDowS UPDateThe RBI has directed banks to operate their ATM networks only after machines receive a Windows update to protect them from a malware that is impacting systems across the world. The directive was in response to the WannaCry ransomware that took down computer systems across the world locking up critical data and demanding bitcoins as ransom for its release. ATM machines are seen as being vulnerable since almost all of them run on Windows software. Also, over 60% of the 2.25 lakh ATMs in the country run on the outdated Windows XP.

However, Microsoft issued a statement that “it has developed and released a special update for Windows XP although this particular version of its operating system is no longer serviced by the company.” Public sector bank officials said that “RBI has asked banks to update specific Windows patches on ATMs urgently and not operate ATM

machines unless updates are in place.” Banks have passed on the directive to their management service providers.

Whereas, ATM operators, said that “there is no threat to customer data on money.” The objective of ransomware is to shut down critical information in networks and prevent access to this data.

According to the Reserve Bank of India (RBI), Tamil Nadu, widely known for providing a number of freebies, tops the list of southern States in revenue deficit.

On May 12, RBI released an annual report, “State Finances: A study of budgets of 2016-17” which stated that “for the year 2016-17, the projected revenue deficit of Tamil Nadu was `158.5 billion”.

According to the 2017-18 budget tabled in the Tamil Nadu Assembly in March, the revised estimate of revenue deficit for 2016-17 was `154.59 billion. For 2017, the budget estimate of revenue deficit is `159.3 billion. But, the RBI report was prepared on the basis of data of budget estimates presented at the time of submission of budgets of State governments in 2016. Kerala follows Tamil Nadu in the parameter of revenue deficit, which represents excess of revenue expenditure over revenue receipts. Its budget estimate of revenue deficit was `130.7 billion for 2016-17.

On May 3, the Union Cabinet approved the promulgation of an ordinance to amend the Banking Regulation Act to empower the Reserve Bank of India (RBI) to more effectively deal with the non-performing asset (NPA) crisis facing public-sector banks. Reportedly, the ordinance will empower the RBI to issue direction to banks to effectively resolve bad loans. The amended law will also empower the RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts as a lot of discretion will be involved in the process.

The ordinance has been sent to the President for approval.

According to Finance Minister Arun Jaitley, the Cabinet has taken important decisions with regard to the banking sector. Jaitley said, “There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as the approval comes, details will be shared.”

LegaL PrecePtsM

AXIM

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Peculiar Risk Doctrinea doctrine that renders an employer (as a general contractor) liable for injury caused by an independent contractor if the employer failed to take reasonable precautions against a risk particular

Pecuniaryconsisting of, measured in, or relating to money [damages]

Pen Register[perhaps from the original use of a pen to mark the dots or dashes used in counting the numbers dialled] : a device that registers the numbers dialed from a telephone compare wiretap NOTE: A court...

Penal1: of, relating to, or being punishment [sanctions] 2: making one (as an offender) punishable [a offense]; also: criminal 3: used as a place of confinement and punishment [a institution]

Penal Actionan action by the state or a private party that is for the purpose of imposing a statutorily prescribed penalty on one who violates a law and that is punitive rather than remedial in nature

Penal Codea code of laws concerning crimes and their punishments

Penal Law1: a law prescribing a penalty (as a fine or imprisonment) for one who violates it 2: penal code

Penal Statutepenal law; esp: a law that calls for a penalty as opposed to one providing for a remedy for a wronged party

Penal Suma sum to be paid as a penalty esp. under the terms of a bond

Penaltypl: -ties 1: a punishment that is imposed on a wrongdoer by statute or judicial decision 2: a pecuniary sum that by agreement is to be paid by a party who fails to fulfill an obligation to another...

Penalty Clausea clause (as in a contract) that calls for a penalty to be paid or suffered by a party under specified terms (as in the event of a breach) and that is usually unenforceable

Pendto be pending [the action s as to the third party]

Pendencythe quality, state, or period of being pendent [the of the contract renewal]

Pendent[Middle French pendant suspended, present participle of pendre to hang, ultimately from Latin pendre] 1: remaining undetermined: pending [a suit] 2: of, relating to, or being the basis of...

Pendente Lite[New Latin]: during the suit: while litigation continues [awarded joint legal custody of the child pendente lite] [pendente lite child support]

Pending1: during the time of 2: while awaiting: in the time preceding [held in escrow the outcome of the suit] [free trial]

Penitentiarypl: -ries: a state or federal prison for the punishment and reformation of convicted felons compare house of correction, house of detention, jail, lockup

Penologya branch of criminology dealing with prison management and the treatment of offenders penological adj ...

Pensionmoney paid under given conditions to a person following retirement or to surviving dependents see also defined benefit plan, defined contribution plan

Penumbrapl: -bras 1: an area within which distinction or resolution is difficult or uncertain [the public-private ] 2: an extension of protection, reach, application, or consideration; esp: a body of...

Peonagelabor in a condition of servitude to extinguish a debt [the holding of any person to service or labor under the system known as is abolished and forever prohibited "U.S. Code"]

Peras stated by used to indicate the author of an opinion with which the majority of judges concur

Per Annum[Medieval Latin]: in or for each year [interest of six percent per annum]

Per Capita[Medieval Latin, by heads] 1: equally to each individual [all property to pass to the descendants per capita] used of a method of distributing an esp. intestate estate compare per stirpes

Mind-Boggling SolutionsCrossword Sudoku

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Fun ‘n’ Frolic68


Fun ‘n’ Frolic 69


Mind-Boggling70

May 2017 | LegaL era | www.LegaLeraonLine.coM

For answers to the Crossword & Sudoku puzzle, turn to Legal Precepts section on page no. 64

Legal Crossword

Nitaa Jaggi

Sudoku

ACROSS1. Company investor who only shares the

profits and losses (6)

4. Undertaking (10)

8. Lawyers representing individuals charged with criminal conduct (7,8)

10. Settle on, as terms (5,2)

12. Lady’s escort (9)

14. Equals (4)

16. Kind of imprisonment for a serious crime (4)

17. Warning colour (3)

19. Second person (3)

21. Other self (5,3)

22. Come back before the court (8)

23. Romanian currency (3)

24. Agreement (3)

25. Argument (4)

26. Extreme trouble (4)

29. Foreign Exchange Management Act (4)

30. Unusual order (4)

32. Proclaim (7)

35. ‘The necessary changes’ in Latin (7,8)

37. Conventional image (10)

38. Prison breakout (6)

DOWN2. Untruth (3)

3. Female relative (5)

4. Fifty-fifty chances of winning a case (4)

5. Legal right (5)

6. Leased (6)

7. Surveilling devices (3,7)

8. Venetian magistrate (4)

9. Situation beyond control (3,2,4)

11. Copyread (6)

13. Bribe (6)

15. Be suspicious (5,1,3)

16. One who prowls (6)

18. Hat for a U.N. peacekeeper (4,6)

20. Petition (6)

27. Legal case (6)

28. Indian Act of 1959 to curb illegal weap-ons and violence (4)

31. Uncertain venture (5)

33. Flogging rods used for punishment (5)

34. Dictum (4)

36. Information Technology Authority (3)

7 86 4 2 7 17 5 4 3 6

2 8 95 9 7 1 2

4 9 82 3 8 7 1

9 8 6 4 31 5

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RNI Number: MAHENG/2011/46887. Postal Reg. No: MCN/304/2017-2019. Posted at Mumbai Patrika Channel Sorting Office GPO, Mumbai 400001 on 8th of every month Date of Publication 5th of every month. WPP License No: MR/Tech/WPP/148/North/2017 (License to post without prepayment)

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DaTa SECURITY anD COMPLIanCE€¦ · While RERA was enacted by the Centre on March 25, 2016, in order to establish a Real Estate Regulatory Authority for regulation and promotion