Like any other property rights, intellectual property rights allow their creator or owners to benefit from their own work and investment made. Upon registration of Intellectual Property, the owners are allotted with the exclusive rights over same. The owner or say, the IP-holder can assign or license the intellectual property to a third party for either and receive royalties in return. In this article, we are specifically speaking of an assignment in case of trademarks.

Trademark Assignment

Transfer of ownership and rights over the Trademark to any other person or entity is known as Trademark Assignment in legal terms. An assignment can also be partial which is commonly known as licensing. Further, it is assignable with or without the goodwill of the business either in respect of all goods or services or a part thereof. A trademark is usually assigned by the execution of an agreement between the parties known as the Trademark Assignment Agreement. The most important requirement for a valid assignment agreement is that it must show intention the part of the assignor to transfer complete or partial ownership of the mark.

Although the assignment is an agreement between two or more parties, there are certain cases prescribed wherein the restriction to the assignment is provided.

• The assignment creates exclusive rights for more than one person with respect to the same goods or services.
  For example; if you assign trademark to X for providing services related to health care and also to Y who is providing services and manufacturing goods related to health care, such assignment would not be permitted as it is creating exclusive rights for more than one person.
• If the assigned marks are used simultaneously by different individuals in different parts of the country then the assignment is not permitted as it would deceive or cause confusion.

Types of Trademark Assignment in India

Multiple types of Trademark assignment are accepted in India. Based on the need and requirement, the parties would fall under the specific type, and accordingly, the Assignment Agreement would be drafted.

Complete assignment

In this case, all the rights that are vested in the registered trademark are assigned to a third party. The assignee then enjoys all the rights that the original trademark owner had. The assignee would then be the sole owner of the trademark having rights to assign, trade, and market it and also to stop others from using it without authorisation.

Partial Assignment

In this type of assignment, the transfer of ownership is restricted only to certain products/services as decided by the parties and expressed in the Trademark Assignment Agreement. For example, if the owner of a trademark named “owa” mentions in the assignment agreement that the assignee can use the assigned trademark for only food products that are suitable for human consumption only. Then he cannot use the mark for any other goods/ services except food products for human consumption.

Now, both, the complete and partial assignment can be made with the assignment of goodwill or without goodwill.

Assignment with goodwill

When an assignment is made with goodwill, the rights and value associated with the trademark are given for using the mark for the products and services already being sold by the assignor.

For example, X, the owner of “owa”, owns trademark for manufacturing and selling of shoes, can assign the trademark along with giving the assignee the right to use the said trademark for the same product and activity for manufacturing and selling of shoes.

Assignment without goodwill

Here, the assignor can restrict the assignee’s rights for the product already used by him. This means that assignor & assignee both can use the same trademark but in distinct goods or services.

For example, if the owner of the trademark “owa” uses it for manufacturing and selling of shoes and decides to assign it without the goodwill, it means that the assignee can use the trademark “owa” for any other product the trademark covers but other than the shoes.

Benefits of Assignment of Trademark

Find out your trademark’s monetary value

• When you invest your money, time, and work after a brand, you must seek the returns, too. In addition to product values, the TM owner can also encash the brand value through assignment, which is only recorded on a piece of paper.
• With the assignment process, the brand is valued and the consideration in terms of royalty or otherwise is received by the owner.
• To note one, the Ahmedabad-based brand, Havmor Ice Cream has transferred the partial rights over to Lotte Confectionery for INR 1020 Crore.

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Security for both – The Assignor and The Assignee

With the assignment process, the Trademark Assignment Agreement is executed by both parties. It creates a valid proof that is admissible in the court of law in case of any dispute. The assigned mark is published in the trademark journal by the registry and all the clauses of the assignment agreement are scrutinized adequately to avoid any hurdles in the future.

Benefit from an already established brand

For the assignee, purchasing a pre-recognised brand would certainly be a benefit in terms of market base. Further, the assignee would be exempted from investing a lot of money, time and labour in the creation and marketing of the brand. And certainly, assignee need not pass from the months-long registration process, if the concerned mark is already registered.

Expansion of business

Licensing is also one of the assignment types, whereby the assignor, as well as the assignee, has the right to associate the brand with their respective business. Therefore, the combined efforts of all would increase the value. Further, with the partial assignment, the assignor can expand the business by inviting more vendors to contribute to brand building. In the case of Havmor, the chairperson also believed that the Lotte Confectionery (assignor) is the right brand to take the company to next level.

Conclusion

Assignment of brands may open vistas of opportunities with proper strategies. The concept of assignment involves a degree of planning for the future of the involved parties and the brand in question. The development of a brand, its propagation, and its use, all lies in the hands of the proprietor that makes the assignment an effective method to manage the same. Assignment helps in keeping the brand alive that avails many benefits to the assignee and the assignor as well.

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This article is written by Pragya Mishra.

Introduction                                                        

According to the dictionary meaning, indemnity is protection against possible damage or loss, especially a promise of payment, or the money paid if there is such damage or loss.[1] It is a security against, or compensation for loss, etc.[2]  This is where a claim for indemnity arises, in such a case there are two persons one who agrees or promises for the reimbursement or incurring the loss such a person can be called as “indemnifier”, and the other person to whom such a loss has been caused is the “indemnity holder” or “indemnified”. This is how in such cases the loss gradually shifts from one person to another person.

What is indemnity?                                                       

The claim for indemnity or indemnification arises when a party (indemnifier) promises to protect another party (indemnity holder) from any kind of loss, cost, expense, damage or any other legal consequences caused by the conduct of the indemnifier or any third party. Initially the basic importance of indemnity clause is to shift the liability, in whole or in part, from one party to another party. Section 124 of the Indian Contract Act,1872, lays down that the claim of indemnity arises when a person agrees or gives assurance to another person to save him from any kind of loss that has been caused to him by any action of the person who is promising or action of any other person who may not be a party to the contract. Here it is very clear from the above definition that the provision of indemnification arises only when a prior promise is made to save a party from the loss. The question of reimbursement arises only when there was an anticipation of loss and in that context a promise was made to incur the loss.

Under the following section the main criterion which usually gives rise to indemnity is “any action or conduct of the indemnifier or any other person or let’s say the third party who may not be a party to the contract due to which the loss or any damage that has been caused to the indemnity holder”. Section 124 of the Act it only covers those cases where the loss or damage that has been caused by the action or conduct of the promisor himself or any third party. It is very clear that it does not include any such cases where human conduct is absent.

Under Indian Law                                                            

Previously under Indian law, the definition of Section 124 of the Indian Contract Act, 1872, it included only those cases of indemnification where the loss or damage has been caused by the action or very conduct of the promisor himself or any other third party from which the claim of indemnity arises. Any promise to compensate for a loss that has not been caused by the human conduct was not covered under the purview of the section of indemnity. The section did not cover the contract of insurance. But later on The Law Commission of India in its 13th Report in the year 1958, recommended to amend Section 124 of the Act and accordingly Section 124 was amended to include all the cases of loss or damage that may or may not have been caused by the action of any person. Promise to indemnify must be implied as well.

Under English Law                                                         

Basically under English common Law the word “indemnity” includes all such cases to rescue or to save the indemnified from a loss or damage that may or may not depend upon the conduct of human or the event may be fire or any kind of accident. So contract of insurance is included under the indemnity law though excluding the contract of life insurance.

A contract of life insurance cannot be termed as contract of indemnity as, for instance, a contract of insurance at the event of death a certain person or on the event of expiry of a specified time period may provide a certain amount of money may provide a certain amount of money even if the assured is still alive. In such a case the question of loss or damage suffered by the person does not arise. Again the life of a person cannot be valued unlike any property even if certain amount of money is payable at the event of the death of a person. These reasons exclude the contract of life insurance from the purview of “indemnity”.

Rights of the indemnity holder when an indemnity clause is inserted in a commercial contract

When a suit is instituted against the indemnity holder or the indemnified, he may be compelled to pay damages, and incurred costs, etc. While in a similar way he can bring an action against the indemnifier to compensate for the damages and costs, etc. paid by the indemnity holder himself, if the indemnifier has agreed in such a case for reimbursement or indemnification. Section 125 of the Indian Contract Act lays down the provision regarding the rights of the indemnity holder-

If a promise has been made in a contract of indemnity to save an indemnified from a loss or any damage by the indemnifier and the promise made by the indemnifier is within the scope of his own authority then the indemnity holder is entitled to recover from the indemnifier the following-

• All such damages which the indemnity holder may be compelled to pay in a suit in respect of any matter provided that the promise applies to the following matter;
• All costs which the indemnity holder may be compelled to pay in any such suit which he has brought without contravening any orders of the indemnifier and acted as  a prudent man in the absence of any such contract of indemnity, or he was authorized by the indemnifier to bring or defend such a suit;
• All sums which the indemnity holder may have paid in a case of any compromise of any such suit, if the compromise was not contrary to the orders of the indemnifier and is one in which the promise would be prudent to be made in the absence of any such contract of indemnity, or if the indemnity holder was authorized by the indemnifier to compromise the suit.

Importance of indemnity clause in a commercial contract

An indemnity is slightly different in commercial contract than in common law. Indemnity clause is the commonly used elements in the commercial contracts. The purpose of inserting the indemnity clause in a contract is to shift or allocate the risk, or cost from one party to another. More precisely it can said business transaction between the two parties by obligating one party to pay the expenses incurred by the other party under certain circumstances.

As from the above definition and explanation of indemnity it is very clear that one party agrees to indemnify (often hold harmless & defend) the other party. To indemnify someone is to absorb the losses caused to that party. The real significance of an indemnity clause is to protect the indemnified party against the third party lawsuits.

Indemnity clause often sets out a list of what actions a party is insured against, for example:

• All lawsuits, actions or proceedings, demands, damages and liabilities.
• All claims, liabilities, losses, expenses and damages arising from a contract.
• Loss, damage, injury or accidental death from any cause to property or person occasioned or contributed to any of your acts, omissions, neglect or breach or default.

Scope of Indemnity

In commercial Contracts the indemnity clauses are drafted in a wide manner in order to include the third parties by whose conduct, action or negligence any loss or anticipated circumstances might occur, which are beyond the ordinary circumstances of breach actionable under common law. In certain special cases or circumstances the indemnity clauses might apply even when no breach of contract has occurred. Indemnities in such cases extend into unintended obligations which the common law might not impose otherwise.

Can an indemnity holder seek indemnity before he has suffered any actual loss?

It has always been a controversial point, regarding whether the indemnity holder can seek indemnity before he has suffered any actual loss in this context.

Under English common law, no action can be brought against the indemnifier for reimbursement until the indemnity holder has actually suffered any loss. This provision creates a great hardship for the indemnity holder as in some situations he might not be in a position to meet the claim or the damages from his own pocket. In those cases relief was provided by the Court of Equity. The Court of Equity evolved the rules as a result now the indemnity holder can seek indemnity from the indemnifier in respect of the obligation against which the indemnity has been promised.

In India, there have been different views among various High Courts regarding whether or not the indemnifier can be compelled to indemnify before the indemnity holder has suffered any loss. According to Nagpur High Court [3], a person cannot be indemnified before he has actually suffered any loss. The High Courts of Bombay [4], Calcutta [5], Madras [6], Patna [7], and Allahabad [8] have expressed a different view, and they are of the opinion that the indemnity holder can seek indemnity before he has suffered any actual loss.             

Drafting of the indemnity clause

While drafting an indemnity provision in a contract the following points must be considered-

• Who is the indemnity-holder and who is the indemnifier?
• Whether or not there is any need for indemnity at all or the indemnity provides greater protection for the breach of contract than would normally be available for the breach of contract under the common law? If not, indemnity is not needed.
• An indemnifier must limit the amount of indemnities that is given while entering into a contract. An express obligation must be imposed so as to minimize the loss, and the duration of time in which the claim can be brought must be limited.
• An indemnity-holder should make sure that the indemnity clause must never be drafted in a wide manner as it risks the effect of achieving the desired claims and might even exclude some anticipated liabilities,
• Indemnity for breach of contract and breach of negligence must be considered in addition to the common law rights.
• In the event of breach of contract, the effect of indemnity should be-

1. The breach will also give rise to other remedies under the contract (termination, liquidated damages or rights to payment)
2. The breach will allow the indemnified party to be entitled to a payment, compensation or reimbursement.

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Conclusion

Generally the indemnity clauses arise out of commercial negotiations and seek to protect specific commercial risks. Indemnity clauses are sometimes reasonable for the contract’s terms or even essential for parties to carry out an agreement. Indemnity clauses must negotiated properly before putting it into a contract. Serious consequences can arise due to a poorly negotiated indemnity clause. Ambiguity in the drafting of an indemnity clause presents a risk that the indemnity will not be held to cover losses, which they expected it to cover. It is very important to draft the indemnity clauses properly and precisely. They are reasonably important as it shifts the loss from one party to another which might have been caused due to the negligence of the former.

References

[1]  Cambridge University Press. Retrieved from Cambridge Dictionary: https://dictionary.cambridge.org/dictionary/english/indemnity

[2] Retrieved from Chambers New English Dictionary

[3]  Ranganath Vs. Pachusao and others (NAGPUR JUDICIAL COMMISSIONER’S COURT March 7, 1935).

[4] Gajanan Moreshwar Parelkar vs Moreshwar Madan Mantri (Bombay High     Court April 1, 1942).

[5] Prafulla Kumar v. Gopee Ballabh Sen (Calcutta High Court 1944).

[6] Ramaligna v. Unnamolai, 791 (Madras High Court).

[7] Chunni Bai v. Nathu Bai, 655 (Patna High Court).

[8] Abdul Majeed v. Abdul Rashid, 598 (Allahabad High Court 1936).

This article is written by Akansha Singh.

Undoubtedly, the year of 2017 has been a landmark year in the history of Supreme Court of India. The year saw being pronounced some important judgments by the Supreme Court such as judgements on triple talaq, right to privacy which kept it in the headlines of newspapers throughout the year. This article summarises the 15 most important judgements of the Hon’ble court.

Right To Privacy Now a Fundamental Right Under Article 21 of Indian Constitution

In the case of Justice K.S. Puttaswamy v. Union of India, 2012, a Constitutional bench of Nine-Judge of the Supreme Court declared that the Right to Privacy is a Fundamental Right. In an unanimous decision, the bench held that right to privacy is an intrinsic part of right to life and personal liberty envisaged under Article 21 of the Constitution of India. This case overruled the observations which were held in the case of MP Sharma and Kharak Singh that held that the right to privacy is not protected by the Constitution of India.

Triple Talaq Is Unconstitutional And Against The Shariat

In a landmark judgement, Supreme Court of India declared in the case Shayara Bano v. Union of India and others that the practice of Triple Talaq is unconstitutional by a 3:2 majority. While Justices Nariman and Lalit held that instant Triple Talaq is unconstitutional and violative of Article 14 (Right to Equality), Justice Joseph struck down the practice on the ground that it goes against Shariat and the basic tenets of the Quran. Thus, in totality, the judges opined that “Triple Talaq is not a basic and integral part of Islam” as Quranic procedure works on the rationale that the termination of marriage must not happen in a state of sudden provocation, rage or whims. In fact, it demands time and patience by delaying the divorce in the hope of a union between the individuals. Further, it is against principles of equality, international human rights law. The court also observed that the practice of instantaneous Triple Talaq is unconstitutional, derogatory and discriminatory for women.

Seeking Vote In The Name of Religion Is Not Permissible

A seven-judge constitution bench of the Supreme Court held in the case of  Abhiram Singh v. C.D. Commachen that asking for votes in elections in the name of religion, caste or community will amount to corrupt practice and election of a candidate who indulged in such practice can be set aside. The bench headed by Chief Justice T.S. Thakur passed the ruling by a 4:3 majority and observed that such practices are against the secular ethos of Indian Constitution. The bench also examined the Section 123(3) of the Representation of Peoples Act and observed that “Election is a secular exercise and therefore a process should be followed….the relationship between man and god is an individual choice and state should keep this in mind”. Thus, seeking votes in the name of religion, caste by emotionally influencing the common man is an unconstitutional practice and it should be stopped.

Aadhaar Link With Income Tax Returns Is Valid

The Hon’ble Supreme Court, in the case of Binoy Viswam v. Union of India & Ors. upheld the constitutional validity of Section 139AA of Income Tax Act which made it mandatory for people to link  IT returns with their Aadhaar Number. Further, the Court said that the provision is also subject to the outcome of final verdict of the validity of Aadhaar case which is yet to come. Further, the Bench also clarified that those who don’t have Aadhaar Card can also file their IT returns. Thus, the court held that Section 139AA of Income Tax Act is a valid but it is not compulsorily  required for filing IT returns.

Sex With Minor Wife Is Rape

In the case of Independent Thought v. Union of India, a two-Judge Bench of Supreme Court of India,  held that sexual intercourse with a minor wife is rape as in toto,  having sex with minor is rape. The bench examined the issue that whether  sexual intercourse between a man and his minor wife amounts to rape or not?

The two judge bench ruled that sexual intercourse with a girl below 18 years of age is rape regardless of whether she is wife or not. Further the bench Clarified that Section 198(6) of the CrPC will be applicable with regard to this issue and cognizance can be taken only in accordance with the provisions of Section 198(6) of the Code,1860. The court  also observed that the exception of section 376(2) of Indian Penal Code,1860 creates an unnecessary distinction between a married girl child and an unmarried girl child and this artificial distinction is violative to the provisions of Article 15(3) and Article 21(3) of the Constitution and our commitments in international convention.

Re-Promulgation of Ordinances is against the spirit of Constitutionalism

In another landmark judgement named  Krishna Kumar Singh v. State of Bihar, a seven judge Constitutional bench of the Supreme Court held that “re-promulgation of ordinances by executive is a fraud on the Constitution and a subversion of democratic legislative processes”. The court further said that Ordinances promulgated under Article 123 and Article 213 are subject to judicial review. The court has full power to check the validity of an ordinance. Further, the bench with regard to the question of placing the Ordinance before the Legislature, held that the requirement is mandatory under Indian Constitution.

Death Penalty confirmed for all the convicts of Mukesh and Anrs. Vs NCT Delhi (Nirbhaya Case)

In a long-awaited justice for Nirbhaya, the Supreme Court of India finally upheld the death penalty awarded by the Trial Court to all culprits of Nirbhaya case. In a heart-touching judgement, the Court said that “it sounds like a story from a different world where humanity is treated with irreverence”. Thus, The three-Judge Bench dismissed the Appeals filed by the convicts and confirmed the capital punishment. Read the Judgment here.

Women are free to guide their love life

Withholding the dignity of a woman, a bench of three-Judge Bench of Supreme Court held that women have right to reject or love someone under Article 21 of Indian Constitution. This observation was made in the case of Pawan Kumar v. State of Himachal Pradesh, 2017 , where a man was sentenced to 7 years by the Himachal Pradesh High Court for teasing and compelling a girl to take extreme step of committing suicide. The court not only dismissed the appeal but also observed that “in a civilised society, male chauvinism has no room and this egoism must succumb to law. The obnoxious act of eve-teasing affected justice and the rights of a woman. It has to be kept in mind that she has a right to life and entitled to love according to her choice and this legal right should be recognized in the society. It has to be socially respected. No one can force a woman to love without her choice. She has the absolute right to reject”.

Relaxation of the six months cooling off period in Divorce cases

In Amardeep Singh vs Harveen Kaur, the Supreme Court held that the period of six months is not mandatory for divorce with mutual consent. Section 13B(2) of Hindu Marriage Act, 1955 stipulates to wait for a minimum period of six months in order to get a decree of divorce in the case of parties who are seeking divorce with mutual consent. The court while analyzing the section said that the provision is to save parties from a hurried decision and to give time to consider their divorce application. However, if parties are not willing to cohabit for six months and both of them are mutually asking for divorce then the period of six months can be waived and parties are not further obliged to wait for a period of six months.

A Bench comprising Justices A.K. Goel and U.U. Lalit held that:

“We are of the view that the period mentioned in Section 13B (2) is not mandatory but directory; it will be open to the court to exercise its discretion in the facts and circumstances of each case where there is no possibility of parties resuming cohabitation and there are chances of alternative rehabilitation”.

Directions To Prevent Misuse of Section 498A of the Indian Penal Code

In another landmark Judgement, in the case of Rajesh Sharma & Ors. v. State of U.P., the apex court provided guidelines to prevent misuse of Section 498A of Indian Penal Code, 1860. The purpose behind  inserting the section 498A in IPC was to save women from domestic violence. But in the recent years, the country saw gross violation of this section and therefore the apex court has to come up with some guidelines in order to stop misuse of the Section 498A of Indian Penal Code.

A two-Judge Bench comprising of Justices AK Goel and UU Lalit, observed that “Section 498A was inserted in the statute with the laudable object of punishing cruelty at the hands of husband or his relatives against a wife particularly when such cruelty had potential to result in suicide or murder of a woman. But not to abuse it.” Read directions in the Judgement_

WhatsApp Conversation Cannot Be Considered As a Document Under The Evidence Act, 1872

The Delhi High Court took a strict view in the case of National Lawyers Campaign for Judicial Transparency and Reforms & Ors. v. Union of India & Ors , wherein a petition was filed on the basis of information available on the WhatsApp, seeking to  issue a direction to the State of Arunachal Pradesh and its Police Officials to register an FIR based on allegations contained in the alleged suicide note of Arunachal Pradesh’s late Chief Minister, Kalikho Pul. The Court dismissing the petition, held that any available information on WhatsApp does not qualify as document under the Evidence Act, 1872. Thus Whatsapp conversation will not be considered as document under the Evidence Act, 1872.

Guidelines For Prison Reforms

A two-Judge Bench of the Supreme Court comprising Justices Madan Lokur and Dipak Gupta  issued directions on prison reforms while hearing a Writ Petition (Civil) NO.406/2013, IN Re- Inhuman Conditions In 1382 Prisons. The bench said that prisoners, like all human beings, deserve to be treated with dignity. In this case, the court considered the statistics provided by National Crime Records Bureau and National Human Rights Commission of suicides that occur in prisons and its increasing number. The court realized that there is a need to improve the conditions of prisons across the country. Further the court observed, “What is practiced in our prisons is the theory of retribution and deterrence and the ground situation emphasizes this, while our criminal justice system believes in reformation and rehabilitation and that is why handcuffing and solitary confinement.” Read the guidelines here

Guidelines To Reduce Road Accident

The Supreme Court issued guidelines in a writ petition S.Rajaseekaran vs Union Of India And Ors. to reduce the number of deaths that occur as a result of road accidents. The Bench noted that the number of deaths due to road accidents is over 100,000 in a year, which means almost one death every three minutes. The court also stated the compensation awarded for deaths and other motor accident claims crosses over hundreds of crores of rupees. Thus, the apex court provided some guidelines to reduce the number of road accidents. Read the guidelines here

Deadline To Make Public Services More Accessible For Visually Disabled People

In a significant judgement, the Supreme Court issued some important directives and set deadlines while disposing of a petition filed by a visually disabled Gurgaon resident Rajive Raturi in a civil writ petition no. 243 of 2005 seeking proper and adequate access for visually disabled persons to public places. The Bench comprising Justice A.K. and Justice Ashok Bhushan directed that 50% of all Government buildings of the national capital and all State capitals be made fully accessible by December, 2018.

Every Author Has a Fundamental Right To Speak Out Ideas Freely and Express Their Thoughts Adequately

Once again preserving the Article 19(1)a, the Bench of Chief Justice Dipak Misra, alongwith  Justices A M Khanwilkar and Dr.DY Chandrachud, dismissed a petition in the case of K.L.N.V. Veeranjaneyulu v. Union of India & Ors which asked for a ban on the book ‘Samajika Smugglurlu Komatollu’  written by Professor Kancha Ilaiah. Upholding the Author’s fundamental right to free speech, the Court held,  “Any request for banning a book of the present nature has to be strictly scrutinized because every author or writer has a fundamental right to speak out ideas freely and express thoughts adequately. Curtailment of an individual writer/author’s right to freedom of speech and expression should never be lightly viewed”.

References

• http://www.livelaw.in/

• https://www.scconline.com/

• https://indiankanoon.org

• https://www.scconline.com/webedition.aspx

• https://www.manupatrafast.com/

• www.vakilno1.com/uncategorized/annual-newsletter-landmark-judgments-of-2017.html

• http://www.clatpathshala.com/home/

This article is written by Agam H Maloo.

Too many organization rely on the safety net of a corporate social responsibility report. It’s not enough.

–Katherine Garrett-Cox, CBE CEO of Alliance Trust.

Abstract

Corporate Governance deals with relations to board, management and shareholders of a corporate body. Good Governance is the foundation upon which  environment of trust, transparency and accountability is built. With regards to the same, the author attempts to explain the relationship of corporate governance with the implications of new Report by the Kotak Committee under the chairmanship of Uday Kotak on the Corporate Governance with salient amendments in SEBI Regulations. The author through this article attempts to critically examine the salient amendments inserted in the  SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018.SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 The amendments made into the provisions of financial results, fees to statutory auditors and credential of auditors, resignation of auditor, Audit Qualification, Statutory Auditor to undertake Limited Review, Independent Directors and the committee this time introduced a new  provision regarding women empowerment and accordingly SEBI inserted the mandatory clause for the appointment of one Women Independent Director. This article also explains the evolving concept of reporting called Triple Bottom line for economic prosperity and sustainability and how it depends upon the efficient innovations and quality of the management as well as an organisations’ adherence to the principles of good corporate governance. This article also criticizes the US trial of Bernard “Bernie” Lawrence Madoff  investment scandal which is a major case of stock and securities fraud discovered in 2008 for the enforcement of legal principle laid down in the case.

Tracing the Origin

From last two decades, norms of corporate governance have evolved with the recommendations of several committees constituted from time to time. Some of the major establishments like National Stock Exchange and the Securities and Exchange Board of India have remarkably revamped the standards of governance prevailing in India. The Confederation of Indian Industry (CII) outlined a series of voluntary recommendations concerning best in class practices of corporate governance in India has released a report named “Desirable Corporate Governance: A Code”. In the year 1999, SEBI created a  committee under Kumar Mangalam Birla committee to promote and raise the standards of good corporate governance. Subsequently, in 2000, the key recommendations given by Birla Committee were accepted and enforced by SEBI which became part of clause 49 of the listing agreement of the stock exchange. In 2002, Naresh Chandra Committee was constituted by the Department of Company Affairs which made recommendations in financial and non-financial disclosures and independent oversight mechanism. Consequently, in the year 2003, SEBI constituted a committee under the chairmanship of Mr. N.R. Narayana Murthy with a view to review the clause 49 and suggest measures to improve the Corporate Governance standards. Later on, under the chairmanship of Dr. J.J. Irani, the Ministry of Corporate Affairs (MCA) constituted an expert committee for offering recommendations on Company Law.

Following from Harshad Mehta Scam to Nirav Modi Scam including the Satyam-Maytas Infra-Maytas Properties scandal especially that has rocked India since 16th December, 2008 are the examples of  massive fraud and to curb it lots of initiatives and actions have been taken by the Ministry of Corporate Affairs and Institute of Chartered Accountants of India by improving the existing norms of governance and ethics within the realm of their jurisdiction. NASSCOM (National Association of Software and Services Company), under the chairmanship of N. R. Narayana Murthy, initiated a committee for corporate ethics and corporate governance which issued its recommendations in 2010.

Later on, new provisions were introduced in the Companies Act, 2013 for improving Governance, Leadership, and Ethics in Indian Companies. These provisions relate to the working and conduct of a company’s leader called Independent Director, measures for securing the independence of the Board, aggrandized role and responsibility of audit committee, self-declaration of interest by the Directors as it was discussed in the case of removal of Cyrus Mistry from Tata, closer regulation and monitoring of related party transactions, proper formalizing of whistle blower policy and empowering shareholders group to file class action suits.

The Kotak Committee which was formed in June, 2017 under the chairmanship of Mr. Uday Kotak submitted its report on October 5th, 2017 detailing several recommendations on corporate governance. After inviting comments on such recommendations from the public and stakeholders, many of the recommendations were accepted by SEBI (some of them with certain modifications) at a meeting held on March 28th, 2018. Some of the accepted recommendations were :

1. Expanding the eligibility criteria for independent directors, disclosures of expertise & skills of directors and reduction in the maximum number of listed entity directorships from 10 to 7 by 2020,
2. Disclosure of utilization of funds from Qualified Institutional Placement/ preferential issue,
3. Enhancing the role of audit committee, nomination and remuneration committee and Risk Management Committee,
4. Disclosure of auditor credentials audit fee, reasons for resignation of auditors etc,
5. Enhanced obligations with reference to subsidiaries and mandatory disclosure of consolidated quarterly results from 2019-20,
6. Enhanced disclosures of related party transactions and related parties to be permitted to vote against such transactions.

Legal Scenario And Enforcement Technique

Mr. Madoff, the promoter of Madoff Company in the US was caught in the financial fraud of $65 billion. The fraud came into light in 2008 and then the trial was conducted and he was prosecuted with charges. Punishment of 150 years of imprisonment was given to him. Considering Mr. Madoff was an aged person, one might wonder about the purpose of such a severe punishment which cannot be fully served by any convict, but such a severe punishment sends two important messages to the society at large:

The investigation and judicial process carries out expeditiously and the verdict will be given within a short period of time so no one can do any such malpractice and get away with it without being indicted,

With this judgement, all those with fraudulent intentions are forewarned to what is in store for them if they defraud the stakeholders/public and erode the trust and confidence they are entrusted with.

If the Indian system gears up to adopt these two principles and effectively can get them in practice, then there would be absolute trust and faith in the legal system of the country which is essential to escalate investment flow to India.

Triple Bottom Line Reporting

In developed economies, the focus has shifted from financial reporting to Financial as well as Social and Environmental reporting recognized as Triple Bottom line Reporting (TBR). With this evolving concept the management, stakeholder and auditors need to learn about this and gear up to play their respective roles. The word Social and Environmental Reporting is not just about Corporate Social Responsibility, it is a very comprehensive concept. One of an integrated concept in it is Corporate Social Responsibility. Measuring financial results are easy for reporting but calibrating contribution to social aspects of the society is challenging. The efficient use of the natural resources depends on the business carried on or off by the established and growing industry and it’s the main concern of good governance. The present generation shall mainly be motivated towards sustainable development but they cannot be allowed to exhaust the natural resources to become successful at the cost of making lives of  future generation disastrous. When TBR emerges in India, the norms of governance will undergo a paradigm shift.

Ethical Governance And Economy

Corporate Sector in India plays a vital role in promoting economic growth of the nation. In 2014, India was ranked 142 among 189 countries in ‘ease of doing business’ list. Later on it moved to 130th rank. It is achieved mainly due to large reforms introduced in the legal field.

Salient Amendments in SEBI (Listing Obligations And Disclosure Requirements) (Amendment) Regulations, 2018

The Securities & Exchange Board of India (SEBI) on 9th May, 2018 issued SEBI (Listing Obligations & Disclosure Requirements) (Amendment) Regulations, 2018 (Amended Regulations) following the report of Kotak Committee on Corporate Governance issued on 5th October, 2017 suggesting amendments to be made in previous SEBI Regulations, 2015. Following are the amended regulations concerning Financial Statements, Audit Committee, Audit & Auditors and Independent Directors –

Financial Results

The following three clauses have been added after clause 33 (3) (f) which deal with Financial results :

“(g) The listed entity shall also submit a part of its standalone and consolidated financial results from the half year and also statements of cash flows for the half year through a note.

(h) The listed entity shall ensure that for the purpose of quarterly financial results, at least 80% of each of the consolidated revenues, assets and profits respectively, shall have been subjected to audit or in case of unaudited results, subjected to limited review.

(i) The listed entity shall disclose in the results of last quarter in financial year, by way of a note, the aggregate effect of material adjustments made in the results of the quarter which pertain to earlier periods.”

Comments

To enhance the level of transparency, submission of quarterly financial results as well as the publication of cash flow Statements half yearly is mandatory for the listed companies by the said amendment. The Company Act doesn’t require submission of Quarterly Financial Results but the Listing Regulations contained detailed provisions for the same.

The inserted clause of audit/ limited review at least 80% of consolidated revenue, assets and profits is to ensure that the underlying subsidiaries are also considered for audit/ limited review.

Earlier, foreign subsidiaries were not subjected to mandatory audit as per the local municipal laws and therefore this condition will be difficult to comply with.

The said amendment at present requires companies to submit the Audited Financial Results of last quarter along with the results of entire financial year. The last quarter results are balancing figures between the audit figures, figures of full financial year and published figures up to the third quarter of the current financial year.

With value to the interpretation of statute, in regulation 33(3)(b) the word ‘may’ has been replaced by the word ‘shall’ henceforth, it becomes the mandatory provision and they shall submit quarterly year-to-date consolidated financial results, and the option to opt submission of quarterly/ year-to-date consolidated financial results has been done away.

Fees To Statutory Auditors And Credentials Of Auditors

With respect to appointment/ reappointment of the statutory auditors, Annual General Meeting is required to include the following by a notice in the Explanatory Statement:

a) Proposed fees payable to statutory auditor(s) along with the terms of appointment and in case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor with the rationale for such change.

b) Basis of recommendation for appointment includes the details in relation to and credentials of the statutory auditor(s) proposed to be appointed (Insertion of Clause 5 to regulation 36). 

Comments

The reason behind the introduction of these provisions is to assure that the shareholders make informed decisions on the appointment of statutory auditors of listed companies.

Now, it has been laid down that the proposed fees must be disclosed in the notice and if there is any change in the fees paid to a new auditor as compared to current audit fee, the rationale for the same must be provided.

Critically, it will lead to solicitation/ advertisement which is not in line with the ICAI/ or any of the corporate firm Code of Ethics which prohibits a firm from marketing its credentials whether client wise, industry wise or in any other manner.

Resignation Of Auditor

Insertion of sub-clause 7A to schedule III of the listing regulations –

“In case of resignation of Auditor of the listed company, detailed reasons for resignation given by the said Auditor should be disclosed by the listed entities to the Stock Exchanges as soon as possible but after 24 hours of receipt of such from the Auditor”. 

Comments

According to Section 140(2) of the Companies Act, 2013 the auditor who has resigned from the company shall file within a period of thirty days from the date of resignation a statement in the prescribed form with the company and the Registrar, and also in reference to Companies Act sub-section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, stating the reasons and other facts as may be relevant with regard to his resignation.

Rule 8 of the Companies (Audit & Auditors) Rule, 2014 lays down that when an auditor has resigned from the company, he shall file a statement in form ADT-3.

But in the said amendment, the auditor doesn’t have to disclose the detailed reasons of change/ resignation even though as per the new regulations, in case of change, auditor is deemed to be a material event and disclosure is required to be made to stock exchanges.

If an auditor resigns before the expiry of the term may be a cause for concern. As we discussed above that the listing regulations is mainly concern with the greater transparency and is required by the management, stakeholders and auditors.

The listed entities are required to intimate the stock Exchange within 24 hours of receipt of Resignation of the Auditor.

Audit Qualifications

The Existing Clause BB of Schedule IV (Disclosures in Financial Results) of the Listing Regulations has been substituted by the following.

1. The management shall mandatorily make an estimate which the auditor shall review and report accordingly.
2. Notwithstanding the above, the management may be permitted to not provide estimate on matters like ongoing concerns or sub judice matters, in which case the management shall provide the reasons and the auditor shall review the same and report accordingly.

Comments

The amendments relate to Audit Qualification where the Impact of qualification is not quantifiable.

In the Existing listing Regulations, the Management was required to make an estimate and the auditor was required to review and report accordingly where impact of qualification is not quantifiable.

An amendment has been made to clarify that the management is permitted to not provide estimate on matters like ongoing concerns or sub judice matters in which case the management shall provide the reasons for it and the auditor shall review the same report accordingly.

Enhanced Role Of Audit Committee

The Role of Audit Committee has been enhanced to review the utilisation of loans and/or advances from/investment by the holding company in the subsidiary exceeding Rupees 100 crores or 10% of the asset size of the subsidiary whichever is lower including existing loans/advances/investments existing as on the date of coming into force of this provision (Insertion of a new sub-clause 21 in Part C Clause A of Schedule II of Listing Regulations relating to Corporate Governance).

Comments

This time Uday Kotak Committee on Corporate Governance added extra responsibility on the Audit Committee to review utilization funds of the listed entity infused into unlisted subsidiary including foreign subsidiaries.

The fixed limits are to ensure that the Audit Committee review only such loans and/or advances as significant.

Independent Directors

Changes in Criteria of Independence –

Regulation 16 dealing with Definition of Independence Director has two changes effective from 1st October 2018 which are as follows –

In sub-clause (ii) of clause ‘b’ the words “or members of the promoter group of the listed company have been inserted”.

Consequently, this clause will not be read as “who is or was not a promoter of the listed Company or its holding, subsidiary or associate Company or member of the promoter group of the listed company”.

The following new clause has been added after clause vii.

“who is not a non-independent director of another company on the Board of which any non-independent director of the listed company is an Independent Director”.

Comments

Hence, an Independent Director cannot belong to the promoter Group as well.

Further, the Amendments excludes ‘Board Interlocks’ consequent to common non-independent directors on Boards of listed companies.

Insertion of a New Regulation 17A

“No person shall hold office as a director, including any alternative member in more than 8 listed entities at the same time (of which independent directorships shall not exceed seven) with effect from April 1, 2019 and not more than seven listed entities with effect from April 1, 2020,

Provided that any person who is serving as a whole-time director/ managing director in any listed entity shall serve as an independent director in not more than three listed entities.”

Comments

Critically, the said provision was essentially required through which the director would be able to provide sufficient time to the company to be effective in his role.

Independent Women Director

The Provision inserted in sub-Regulation 1 to Regulation 17 i.e.,

“Provided that the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020.”

And the following Explanation inserted in the same regulation:

“Explanation: the top 500 and 1000 entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year.”

Comments

Companies (Appointment & Qualification of Directors) Rules, 2014 mandate the appointment of at least one Woman Director in a listed company. But such director need not be an Independent Director.

The objective concerning the Amendment is to ensure that the Women Directors are Independent as well. In recent corporate era, many of the women directors are from the family of the promoters/ directors.

Conclusion

There have been fascinating changes in the corporate culture in India and worldwide. The statutes and various regulations have also been modified and perspectives have been reshaped. The Government of India and Indian Judiciary is trying to impose strict and mandatory rules on the corporate entities by which the interest of investors and stakeholders should be preserved and transparency should be maintained.

This article is written by Utkarsh Nigam of New Law College, Bharti Vidyapeeth University, Pune. The author through this article discusses the concept of Proxy Advisory Firms. This article was written by the author while pursuing M.A in Business laws from NUJS.

Introduction

• A proxy advisory firm is a type of market intermediary which provides services to the shareholders of a listed company or of a quoted company in particular. The services provided by these firms in relation to the activities performed by the shareholders are known as proxy advisory services.
• These proxy advisory firms are independent research organisations that are responsible to evaluate the advantages and disadvantages of a corporate action such as mergers, acquisitions, top appointments and CEO pay, on which shareholders are expected to vote in the Annual General Meetings, Extra Ordinary General Meetings or court convened meetings.
• The main functions of these firms are to analyse the corporate actions which are put to vote and give the shareholders detailed and well-researched reports advising them on how should they approach the vote or where should the vote be casted in the particular matter.
• These Proxy advisory firms are basically and in majority of the cases, used by the institutional investors which are charged an amount by these proxy advisory firms and are responsible for providing regular independent voting recommendations on the companies.

Emergence and Need of Proxy Firms

The emergence of proxy advisory firms has grown in recent years and because of the need that has been felt by the shareholders. India has home-grown proxy advisory firms such as Institutional Investor Advisory Services (IiAS), InGovern and Stakeholder Empowerment Services (SES) that provide these services. The need of the proxy advisory firms would not arise on paper because shareholders, in an ideal world, would be interested in the proper running of the company in which they have invested and would hold the management and the board of the company accountable for their actions taken on behalf of the company. The shareholders, in that case, would also attend all the Annual General Meetings and Extra Ordinary General meetings and would cast their votes with their conscience without making any partial decision by indulging in any illegal activity, which would help in the betterment of the company in the coming future. They would also read all the notices and resolutions carefully and would refrain from treating them as junk mail or discard them. But as the reality is very different from the ideal world and what is mentioned on the paper, shareholders are usually interested in heavy dividends, bonuses, free coupons and gifts by the company and are least interested about the voting. Many institutional investors such as mutual funds or insurers often represent the retail investors as proxies in meetings but lag in the energy and time required for digging deep into every corporate event that is held by the company.

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Therefore there arose a need of a person who should be independent and knowledgeable, both at the same time regarding the affairs of the company and the corporate matters which a company plans to undertake by analysing the whole thing in a step by step manner and then give an advice regarding the same. Their views re independent till there is a conflict of interest and they are quite efficient in serving the investors in this regards. For a retail investor also these firms’ decisions are of great help. A retail investor may or may not attend all the Annual General Meetings and Extra Ordinary General meetings of the company which he has a share of, but if the person is vigilant enough, he/she can opt for e-voting for a big corporate action and there the views of these proxy advisory firms are of great help and can be put to use in deciding in favour or against the matter.

Corporate Governance and Proxy Advisory Firms

These proxy advisory firms also perform a good work of regulating the boards and the governance records of the firms they track and pushing institutional investors to take a stand on governance matters. In simple words the proxy advisory firms act as a watchdog over the company for the protection of the interests of the shareholders.

Proxy advisories also do a good job of policing the boards and governance records of the firms they track, and nudging institutional investors to take a stand on governance issues. The proxy advisory firms have started to come up since 2010 and their main agenda is to make a recommendation of the corporate matters relating to various listed companies, which include but not limited to appointment of directors, engaging of auditors, mergers and acquisition, as a result it can be clearly figured out that the management is always under the pressure of the recommendations made by these proxy firms and cannot ignore the presence of small shareholders or retail investors. Some of the main points on why should an investor rely on proxy advisory firms’ are-

1. Proxy advisory firms help in checking the compliance of the corporate governance norms, nonconformity of which can reduce the investor’s wealth
2. The services offered by the proxy advisory firms reduce the operational costs for the institutions as they lack sufficient resources and time to investigate the corporate issues themselves.
3. By engaging positively with the companies, proxy advisory firms help in airing concerns on behalf of investors and take a stance without hampering management access for fund managers and analysts. There could be situations where the institutional investor is managing funds of the corporation where contentious resolutions are placed in front of shareholders.
4. The proxy advisory firms also tend to bring the best practises from around the world.

In consideration of the corporate governance norms the proxy advisory firms have sometimes recommended against the administrations of the company as well, like in the case where proxy advisory firms IiAS and SeS being the advisory firms of the shareholders of Infosys for their informed voting decision suggested in negative to vote for Prof Jeffery S Lehman as independent director of the company. The basis for this advice was the long association of Prof Jeffery S Lehman with the company, thus the advisory firms gave their advice in compliance with the Companies Act, 2013. The proxy advisory firm SeS said in its statement that if the company is of the opinion that Prof Jeffery S Lehman would be beneficial to the company then it should appoint him as a non independent director because in the opinion of the firm directors who are associated with the company for more than ten years cannot be considered as independent. Similarly, InGovern, the first proxy firm of India was appointed by three companies to suggest on the voting decision where the appointment of Independent Director was to take place in the Annual General Meeting. The proxy firm suggested voting against Wipro’s BC Prabhakar as the Independent director, against Shardul Shroff as Independent director of IDFC and against SH Khan as the Independent Director. The firm’s opinion on the matter was that the candidates who were contesting for the position of Independent directors were in a long association with the company and it was almost like a marriage with the company and the appointment of the same persons would violate or would be a non-compliance of Clause 49 of Listing Regulations of SEBI.

Through the above examples, it can be clearly seen that the proxy firms analysed the actual independence of the proposed candidates for the position of Independent directors in the respective companies on behalf of the institutional investors which are not competent to find the actual truth and knowledge about the candidates and the company. Thus proxy advisory firms’ recommendations help in maintaining good corporate governance and also they help the companies to comply with the provisions of law.

Proxy advisory firms, as said earlier are like a watchdog over the corporate matters which a company undertakes and Section 197 of the Companies Act, 2013 is an example of such matter. It states that if a company wants to pay its managerial personnel any amount more than the maximum limit prescribed then the same can only be done through a resolution passed by the shareholders. Usually these resolutions regarding the remunerations of the managerial personnel don’t get rejected and are easily passed because of the fact that the shareholders do not have adequate knowledge in this area but if this opportunity is utilized with a vigilant and cautious manner then they can have a considerable amount of control on the remuneration packages of the personnel. But coming off the proxy advisory firms has brought a drastic change in this matter. As they are responsible for bringing adequate and correct information to the institutional investors for cast of their votes, they are also responsible to bring in light any ill practise being practised by the company and hence helping the investors to take the correct decision which is in favour of growth of the company. In the case of Lavasa, Ajit Gulabchand who was drawing a salary five times in excess of what was sanctioned by the Central government, that too without any approval. He was made to refund the extra amount as his remuneration was checked by a proxy advisory firm who brought into light the fact that at the time when the company was under huge debts the CEO was drawing excessive compensation. Thus proxy advisory firms monitor the companies against excessive remuneration and keep a check that the remuneration of the managerial personnel/s of the company is in line with the performance of the company.

The protection of the interests of the shareholders is generally and majorly governed by the audit committee. Section 139 to 148 of the Companies Act, 2013 deals with audit and audit committees. The proxy advisory firms have played a major role in raising their concerns against the appointment of the auditors and regarding their independence. The proxy advisory services provided by these firms help the domestic institutional investors as well as the foreign institutional investors regarding the selection of auditors by framing the pints on which the voting decisions are to be decided so that in future cases like Satyam are avoided and there is minimal chance of a major corporate fraud. In 2015 the proxy advisory firm SeS advised ITC to vote against the ratification of the appointment of Delloite Haskins & Sells as its statutory auditor. The firm stated that as the proposed auditor and the leaving auditor share the same network the proposed firm cannot be appointed as the statutory auditor of the company as it is prohibited under Rule 6(3) (ii) of the Companies (Audit & Auditor) Rules, 2014 and also this ratification would be a non-compliance Section 139(2) of the Companies Act, 2013. These proxy advisory firms are not only responsible for the corporate matters which take place in ordinary course of business of the company but also play an important role in corporate matters like merger, acquisitions and corporate restructuring where there is chance of fading of the shareholding of the investors.

The practise of compliance of the governance norms by these proxy advisory firms creates a culture in the market for the same. By criticizing the non-compliance of the governance policies by a company the proxy advisory firms spread a message to the general public and in the securities market about the company and the mistakes, thus helping other to learn from the mistakes and creating knowledge about the company as well. The recommendations made by the proxy firms act as a stimulant to both the retail and the institutional investors as it reveals all the details regarding the corporate matter which is under consideration for shareholders’ approval. There hasn’t been any study in India which shows a positive or negative impact of the recommendations but a study conducted by Bethel, and Gillan in 2002 on the status of U.S proxy advisory firm shows that a negative recommendation from ISS (U.S Based) on the proposal of the management can persuade 13.6 % and 20.6 % of the vote. Another study done by Cai, Garner, and Walking in 2009 shows that a negative ISS recommendation can sway up to 19 % of the votes. Survey conducted by National Association of Securities Dealers Automated Quotations and the Stanford Rock Centre for Corporate Governance, finds that 70% of executive officers and directors account that their compensation programs affected by the recommendations and the guidelines of the proxy advisory firms.

Statutory Recognition in India

The proxy advisory firms are defined under regulation 2(i) (p) of the SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014 which were issued by the Securities and Exchange Board of India. These regulations talk about the eligibility norms, registrations, and management of conflict of interest, disclosure requirements and other aspects. Regulation 23 deals with the specific disclosures to be made by the proxy advisory firms. The idea of SEBI is to regulate these market intermediaries so as to set up the best practise in market. For this the Securities and Exchange Board Of India has also covered regulation regarding the conflict of interest where the proxy advisors are part of both end of the transaction that is at one end they act for the shareholders of the company and at the other end they are acting for the founders of the company. Thus this situation will create biasness against the party who pays less to the firms, thus SEBI came up with rules and regulations for research analysts and investment advisors with an intention to curb the practise of using the loopholes in the existing regime at that time which may have led to insider trading.

Issues with Proxy Advisory Firms

Though the concept of Proxy advisory firm is new in India and is not in that much practise but issues regarding it have been developing continuously. Some of these issues are-

1. A situation where the advisory firm is at both end of the transaction, as discussed above and this would create an act of biasness and would result in hampering of the interest of the party who pays less. But this problem has now been overcome in India through the SEBI (Research Analyst) Regulations, 2014 which has brought with it stringent laws and has tried to overcome the chances of conflict of interest.
2. Concerns have been raised regarding the methodology used by these advisory firms for conducting the research on the given corporate matters and then afterwards giving their opinion regarding it. These firms have ordinary research procedure and tools which puts a question on the accuracy of results and for the same they have been widely criticized.
3. The next concern is regarding the accountability of these proxy firms. There may arise a situation where the recommendation given by the proxy firm leads to huge loss to the investors, then who will be accountable for the same is a matter of great concern and stringent regulations are needed in this aspect.
4. The next concern is the issue of transparency which is a major concern because on the recommendations of these proxy firms the investors are pursued to vote on a matter, thus whether a proxy advisory firm is or has been unbiased in giving its decision has to be examined carefully.

The business or the concept of these proxy advisory firms might be a new concept in India but the same along with the concept of Investment advisory firms have been regulated by the Securities Exchange Commission (SEC) and it also proposed a new bill in 2016 dealing with the reforms of proxy advisory services. The new bill provides the right to review by the corporation before the proxy advisory firm gives any advice to the investors. Also it has a provision which states that in case where the right of an investor is being infringed, the investor has the option of approaching to the court.

Conclusion

The concept of proxy advisory services is a new concept in the country and is in a rapid growth and a conclusion can be made based on the cases discussed above that although the concept has not been so popular till now, the Indian proxy advisory firms are handling the interests of the investors by giving them the best recommendation on their voting decisions. It can be seen in the cases of stand taken by proxy advisory firms in the Cyrus-Ratan face-off or in the Max promoters awarding themselves a non-compete fee in the merger deal with HDFC Standard Life and bringing to light numerous other corporate shenanigans are useful and of interest to all stakeholders. The shareholders now have a helping hand and can now become more active. The concept and the practise of corporate governance is also growing at a rapid pace and is not merely on paper. The proxy advisory firms in India have also been efficient till now in keeping up with the existing laws and also towards global corporate governance compliance. There is always the other side of a coin, thus is the case with the proxy advisory firms. The regulator of the market in the respective countries should bring in some standard procedures and regulations which these firms should be made to comply with keeping in mind the stringency which should not hamper their working. The stringency should be such that these firms or organisations should not become just a profit earning entity and move away from their main objectives. The recommendations given by these firms are based on predictions and research done by them on the company and the corporate issue involved thus it would not be fair to expect a 100% result from them. In India, SEBI has come up with the regulations regarding the research analysts and the investment advisors which till now have been covering all the issues relating to the regulation of the proxy advisory firms. Till now the overall examination of the work of the proxy advisory firms have shown that the recommendations given by these firms have led to compliance with the relevant laws prevailing in the country and also with the corporate governance norms as well. If these firms work in the best interest of their clients there is a good chance that the companies will have a better rate of compliance with the governing norms and the investors will also hugely benefit from the same.

Walking down the hallowed doorways, into the plush offices of my dream law firm, I felt I had arrived. Is it not the end game for most law students, to be a part of the big law firms? And to have done it right off the bat? It has to be one of the most exhilarating moments in my life.

A year later, I had moved to an in-house job. My big law dream was short-lived. The crazy hours, the piles of files, the long billable hours and conferences, made me burn out from both the ends. In an attempt to salvage the situation, I thought of moving to the 9-5 job. But the reality of in-house job was an eye-opener. The work of a corporate lawyer is not a piece of cake. In the initial years you go through the grind and hope to get used to it.

The life of an in-house lawyer is not much different from the lawyers at the law firm, except probably in the structure and nature of work. The in-house lawyers have to report and communicate to the management, formulate policies for the company and various departments. This is apart from all the contract drafting, advisory, negotiation, litigation, etc. We even had a live webcast with the lead counsel at the Taj’s northern and middle east operations about the life of an in house lawyer. You can access the webcast here.

The point is, that corporate lawyers’ work is not easy, be it in-house or law firm.

The initial years at the law firm were gruelling as it should be. You learn the most in the initial years after all. But the lack of a systematic guidance mechanism is what makes the process gruesome. The volumes of work piling on the desk ranging from due diligence to drafting contracts, etc.

Then there is lack of intermittent feedback from the seniors. The seniors are busy with the work on their platter, hence they delegate and assign parts to the rookies. This way the rookies get to learn as well as the work gets done. Well, that’s the idea.

A rookie may not have all the information that he/she needs in order to complete the deliverable. They don’t usually interact with the clients directly. So all they have, are pieces of information. So when a rookie works off of the incomplete information, chances are they will not get the work done. To avoid such situation, there should be a mechanism for intermittent feedback from the seniors, so that the mistakes can be corrected in time.This also helps to reduce the reworking which eats up a lot of time of the rookies and working long hours so as to not miss the deadlines.

You can read about the struggles of corporate lawyers here.

Corporate lawyers make good money, there is no doubt about that. I know of some corporate lawyers who manage to pursue their interests like sports, social life along with their personal lives. But they are far and few.

But then why are people herding towards this field of legal profession? Is it overrated and overdone? Has it reached its saturation? Or are there more mountains to be climbed?

My colleague posed this question to the legal fraternity on LinkedIn, in order to get some direct insights from the lawyers who are working in the corporate law field. The responses were mostly positive. These respondents stated things ranging from “..it is a satisfying career” to  “It is the legal eye of the modern business world” and “Not at all. A nation is built on its trade and corporate law enables trade.”

Mr. Hitesh Kumar Singh, Attorney, stated , “Maybe but young lawyers have to visualise the evolving law which shall be more glamorous and lucrative in near future in India also as I can see it by wonderful queries and discussion happening with my friends in tech legal field”

Click here to know more about company law courses!

With such diverse fields of laws coming up, the need for corporate lawyers will intensify. There is a need for expert lawyers in these fields. One may purse cyber law course to understand cryptocurrencies, algorithm laws, online fantasy sports leagues, online defamation, privacy, blockchain technology, cyber security, etc.

Then, there are online company law courses for understanding the necessary regulatory compliances, basis of transactions, shares allotment, rights of shares/debenture holders, procuring approvals in case of mergers and acquisition, etc.

One of the most diverse view regarding the query, whether corporate law is overrated as a career choice, came from a law candidate. Mr. Kartik Dey stated that, “Wouldn’t have been in the early 2000’s. But I think the sheer number of people entering it has created a steep saturation, and a bottleneck effect…”. He further adds, “… Also, with the advent of big data and mechanisation, its nebulous for someone just starting out in the legal field to enter corporate, because 15 years down the line, it is highly likely that the very culture of firms and corporate work would change, with smaller firm sizes churning out higher productivity and efficiency in things like due diligence, transactional law, private equity etc using AI and machine learning.”

So, the answers to my query has been an eye-opener. The demand and supply of corporate lawyers is not the issue. There are plenty of corporate jobs for the corporate lawyers out there. The real issue are the bottleneck situation in certain sectors which pays well. You’ll find more lawyers heading towards M&A teams, banking and finance teams, general corporate teams, etc. This askew the demand and supply situation. This also makes the longevity of the corporate lawyers at risk, because there are more lawyers in line to take up their place.

In order to be more prepared to be part of the field, lawyers need to up the ante. They need to be better prepared with the theoretical knowledge of the laws and their practical application. This requires a strong foundation of company laws along with the knowledge of the specialised domain like M&A, cyber laws, labour laws, etc.

It is not that corporate law is an overrated career. It seems that it has been overdone in certain fields like M&A, general corporate just because the supply of lawyers in this field is a lot. However, these very lawyers are still in demand in a developing country, where the businesses are thriving. With the advent of new corporate law fields (see above list), there will be an excess demand of skilled corporate lawyers.

Corporate law will remain one of the most lucrative career options for a long time to come. Trade won’t stop, businesses will continue running and so will transactions.

This article is written by Ramanuj Mukherjee, CEO, iPleaders.

Ever wondered what the fancy, well-dressed corporate lawyers do for a living? Is it really as it is portrayed on the famous series Suits?

For all those of you who take Suits as compass to the life of corporate lawyers, let me raise the curtain for you. That is exactly ‘not’ how corporate lawyers work. Yes, there is money, but that’s all the truth there is to the entire series.

Harvey Specter in reality doesn’t quite exist. And do not be surprised if you see lawyers not having the same liberties as Mike Ross.

Let’s say you work as an in house counsel. What sort of work would you be doing?

Specifically, what sort of company law related work would you do?

What if you are a compliance specialist, a job steadily in the rise that lawyers can very well fill in?

Let’s say you work for an organisation that has been established as an LLP. The partners are wondering if they should convert it into a Pvt Ltd. How will you decide? They will definitely want an opinion from their lawyer.

Let’s say the company is raising money. How should they structure it? What kind of shares should they issue? Is issuing preference share problematic? What are the downsides?

What are the powers and limits on powers of directors? What are the compliances they must do? What kind of records are to be kept of their meetings? Can you draft the board resolutions?

How can the company create charges on moveable or immoveable property? Let’s say a factory is planning to raise some money by providing the machinery and the plant as collateral. What is the process to create charge on the same?

Let’s say the company is planning to buy back some shares to reward the shareholders. What is the process? Can you create a playbook for the company to follow?

Can you understand, draft and negotiate a shareholders agreement?

If you are acquiring a company, and want exemption from applicability of the takeover code, how will you go about it?

How to appoint and fire statutory auditors? How to accept their resignation?

How can you draft a petition to be filed before NCLT to protect the minority shareholders from unfair acts of the majority shareholders?

There are many such tasks that lawyers are regularly called upon to do. This includes lawyers working for companies as well as those working at law firms.

These are basic functions in running a company that every business lawyer has to learn.

This is the kind of work that business lawyers regularly face.

If you haven’t yet learnt how to do these things, we have a course where we teach such skills step by step. Check this company law course to get free materials and know more!

Please join us, and master company law and associated skills. It will go a long way in building a very good career for you. 

This article is written by Ramanuj Mukherjee, CEO, iPleaders.

It was only by chance that I came across Predators’ Ball.

Trust the law school library to not have such a great and relevant book.

A friend had bought it. After he finished it, I saw it lying on the floor in his hostel room. I picked it up and flipped through. Something caught my eye in there. I would like to think I must have had taken my friends permission to read it, but more likely I walked out of his room with my eyes stuck between those pages.

I started reading it. It was an enjoyable read, but more importantly it gave me an exposure to a brand new world I didn’t know existed.

It was the world of corporate raiders, hostile takeovers, leverage buyouts, investment banks, people who were shaking up the entire economy and changing the entire financial world. Predator’s Ball is a real story of Wall Street investment bank Drexel Burnham Lambert and Mike Milken, who changed corporate finance in USA and perhaps the whole world forever.

After reading this book, a whole new world opened up for me. I didn’t want to stop. I wanted to learn more.

Next was Barbarians at the Gate. Interestingly, this was also a book that was connected to the junk bond king Mike Milken. This was a story of the leveraged buyout of RJR Nabisco, a massive old school american company.

This book sparked off my curiosity about hostile takeovers.

I began to research if there was every any hostile takeovers in India.

It turned out that our own Reliance, led by Dhirubhai Ambani, attempted to take over L&T, a blue chip listed company. I am not sure, but given that the events in the USA and India were happening a few years apart, it could be that Dhirubhai was inspired by the goras.

On enquiry, I found out about a book called The Polyester Prince. The content of this book was so sensitive that it was banned in India. Nonetheless, it is not impossible to find pdf copies on the internet. I found one, and read it, let’s say, when I was abroad.

This was another book that filled my mind with wonder. Dhirubhai Ambani is probably single handedly responsible for forcing SEBI to come up with more than half of its regulations today. If India had its Mike Milken (I say it appreciatively, only with a lot of admiration), it was definitely Dhirubhai.

And a book is a must read for every would be corporate lawyer or securities lawyer.

Another book I want to talk about is King of Capital. If the previous books talked more about raising capital from the public, and this book is about Private Equity. You will learn more about private equity from this book than you can learn by practicing as a private equity lawyer for a year or two.

It is fascinating to say the least to learn about the journey of Blackstone to become the world’s biggest private equity firm in 2007, when it emerged as a whole or part owner of 55 companies that together employed over half a million people.

The book recounts Blackstone’s evolution through fits and starts, disastrous early investments and internal clashes. It not only reveals the personalities behind the firm but also the larger forces at work in the corporate and financial worlds that transformed private equity from a handful of upstart investment boutiques in the 1970s and 1980s into a mainstay of the financial world, backed by billions from public pension funds and other institutional investors.

Finally, you must read Zero to One. It is written by Peter Thiel, a billionaire credited with creating two unicorn companies of our era: PayPal and Palantir. If you don’t know what is Palantir – it’s a company that works with governments to strengthen surveillance. It is often credited with finding out where Osama Bin Laden was hiding.

Thiel writes about how new age businesses are built, how zero to one is achieved. It is a business bible of the new digital economy, explains capitalism better than anything I read, and a corporate lawyer or aspirant who is yet to read it is yet not ready to face the brave new world.

So when I appeared for my law firm interviews, I knew stuff that thoroughly impressed my interviewing partners. I could say very wise things in my interviews that they could hardly expect me to think up, but fortunately I was standing on shoulders of giants.

So these 5 books are going to change your life. Buy a copy each and read them. They will unleash the hunger to learn more.

Tomorrow, I shall be telling you about the kind of work corporate lawyers have to do on a day to day basis. How do they earn their bread and butter? Do not miss out on the email. Look for “How do corporate lawyers earn their bread and butter?” in your inbox.

And do subscribe to one of our courses here. Take a diploma course if you are very sure about what you want to learn. It will take a year to learn. If you can’t make that kind of an commitment yet, opt for an executive certificate course for now. It will take 3 months, but 3 months of solid learning, practice and brainstorming will put you in a new orbit of learning.

See you in class.

This article is written by Ramanuj Mukherjee, CEO, iPleaders

I was sitting in a small conference room. A senior associate was sitting across, intently listening to the myriad voices on the phone. We are in the middle of a due diligence and getting some clarifications from the target company.

We were getting to know more about their corporate governance. My senior had flagged a few important things that I missed so now we had to have this urgently scheduled call. The other side was not very pleased. I just had an earful from him for missing things I obviously should not have missed.

I could hardly focus on the call. What am I supposed to do? The whole transaction was going at a real fast pace. The seniors had little time to explain their own instructions, forget teaching me stuff. I was getting the feeling that I am really dumb and have chosen the wrong profession.

When I joined this firm, I was a very confident person. However, with more time passing I was now beginning to feel that I am not very smart.

One of the things I still remember after many years is how helpless I felt, sitting in that dimly lit conference room where 3 of us could barely fit in. I wanted to open the door, run out of the office, run away from the whole city. I didn’t know where to go.

Let me begin from the beginning.

I had heard company law is a very important thing to learn. I heard that knowledge of company law is must if you want to be a corporate lawyer of any sort, and even if you want to do corporate litigation.

I wanted to be an awesome corporate lawyer. So I tried to read up the Companies Act, 2013. If you are a lawyer or CS or CA you must be knowing that it is a huge tome and really thick language which is difficult to understand.

I still sat down and went through the sections. Some made sense to me and some didn’t. I got a decent score in company law in law school. I knew I didn’t really have a grasp on company law. I prayed that what I know is enough and that I will manage when I face real  life work.

Internships were not that hard to be honest. But they just hadn’t prepared me for what I will face when I was in the law firm.

I just could not write even a research note that my senior will find acceptable.

It was a pressure cooker environment. People routinely shouted at their juniors. It is apparently normal in corporate law firms. I saw people being fired left, right and center too for non performance.

I figured they will give me some opportunities to catch up. They did.

However, the initial few months were really difficult. I had to learn things on the go, as I also had to deliver work. It was crazy.

Let me share with you why it is very important to be very well prepared before you join your first job. Or a job in a big law firm or a company.

Nobody has time to teach you. You will be extremely, extremely lucky to find a boss who will even take out 15 minutes in a day to teach you. Why will they? If they can find some extra time, they also want to get out of the office and spend with their family or pursuing something more fun.

So, how are you going to learn?

Most people learn by trial and error.

Let’s be honest. You probably don’t even know what you need to learn in the first place.

On top of this, getting started is very difficult to. Where do you begin? What is the right material to study?

I often spent hours studying the wrong things. Even if I was reading the right material, sometimes I didn’t get the right understanding because I did not get the context.

I did not get the right guidance.

Another important factor is feedback on the work done. Did I do a good job? I was always confused about the feedback I got. What was I doing wrong? How do I get better? I didn’t see a clear forward path.

Then comes the tremendous work pressure. For several months, I was easily working 14 hours a day. I spent many weekends in the office. I didn’t mind that, but the problem was that I was spending a lot of extra time redoing the work I didn’t get correct on the first shot.

The firm had a knowledge management system and even training. But what they taught didn’t help me. I got more information, but I wasn’t getting better at my work.

I remember that experience. I remember how hard I had to work, and the fear and ignominy of not doing a good job.

I am a proud person. I was always a good student. I always succeed. I had tough time adjusting to the law firm environment because I was really off balance, because I was unprepared.

What would I have to do to be well prepared for a job at a big law firm? Or a in-house legal team in a big company for that matter? What would I not give to be well prepared so that my life would have been easier when I actually began working at a law firm?

I soon realised that this was not my problem alone. Almost all juniors go through this painful phase. Not only at big law firms, but even in companies and law chambers.

So when we were building online courses, I focused on this pain point. This was worth addressing.

I strongly believe that we can train law students and young lawyers so that they never face these problems. Back in 2012, we started training law students to be better lawyers. We focussed on training them practical skills that will help them to stand out in a workplace, as interns or as lawyers.

Today law firms and in-house legal teams hire us to train their junior lawyers better.

We have come a long way. We are now really good at training law student and young lawyers.

I really want to tell you that story, and how it happened, but not today. That’s another story.

Today I want to leave you with a question: what career do you want to pursue? What skills should you develop? Getting the job is only the first step. You want to dominate your work, not get dominated by it. Are you learning the things you need to learn to get there? How will you climb the stairs of success?

Most people do not think of these things.

Please take out 5 minutes and write down your answers, and post as reply to this. I read every comment.

I will tell you our secret: how we became the most successful legal education platform in India! Our competitors charge less, and still we get more students. We never raised any capital, but still we grow faster than others. And why law firms and lawyers are very happy to hire our graduates just based on our recommendation!

Don’t forget to write down about your career plan: if you get the dream job you want, what can you do now to prepare for the job. How will you ensure you do really well when you get it?

If you really deserve it, you will probably get it. What can you do to totally, totally deserve it?

In the meantime, if you want to get started with learning company law without more ado, check out this course.