In this article, Bharath Selvakumar,  pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on NBFCs in India.

Banking sector throughout the world constitutes a large number of financial operations such as deposits, loans etc. Most nations have a centralized bank that regulates all the other banks that operates in that nation. There are various types of financial companies that exist which indulge in financial businesses. A Non-Banking financial company is one such type of a financial company with a difference from banks.

Introduction

The Reserve Bank of India (RBI) defines a Non-Banking Financial Company as,

Simply put, a Non-Banking Financial Company (NBFC) receives money as a whole or in instalments connected to a scheme and runs its financial process. There are a variety of NBFCs that an individual comes across in day to day life that involves itself in various financial activities.

Difference between Non-Banking Financial company and a Bank

It is of prime importance to understand the basic difference between a bank and a Non-Banking Financial Company (NBFC). The basic differences from a bank are:

• Demand deposits cannot be accepted by NBFC

Demand deposits are those that can be by anyone into the financial institution and can be withdrawn at any time as per the wish of the depositor without any prior notice to the institution eg. current accounts in banks. These deposits are restricted to NBFCs by the RBI.

• Unlike banks, NBFC is not a part of payments and settlements system regulated by RBI

Payment and settlement systems in India include credit cards, debit cards, Real Time Gross Settlement (RTGS), National Electronic Fund Transfer (NEFT) and few others. NBFC cannot do these operations as per RBI regulations.

• NBFC cannot issue cheques on its name

As the NBFCs are restricted to be a part of payments and settlement system by the RBI, issuing cheques by NBFC cannot be done.

• For the depositors in NBFC the deposit insurance facility and credit guarantee corporation is not available.

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of RBI that insures all the deposits such as savings, fixed, recurring etc. upto a limit of ₹1,00,000 for each deposit and provides a guarantee for credit facilities. This facility is not extended to NBFC by the RBI.

Types of Non-Banking Financial Companies

Non-Banking Financial Companies are of many types depending on various factors. They are:

• Asset Finance Company (AFC)

Asset Finance companies are those that are involved in the financing of physical assets for an economic activity. The physical assets may be automobiles, generator sets, earth movers etc.

• Investment Company (IC)

Investment Company involves its business activity to the acquisition of securities such as shares, debentures, equity etc.

• Loan Company (LC)

Loan Companies are those that are into proving finances such as loans or advances for an activity or a business.

• Infrastructure Finance Company (IFC)

A company can be classified as an Infrastructure company if it satisfies the following conditions:

1. A company having at least 75% of its total assets in infrastructure loans.
2. Having a minimum of ₹ 300 crores of net fund.
3. Having an ‘A’ in credit rating.
4. Having Capital to Risk weighted Assets Ratio (CRAR) of 75%.

• Systematically Important Core Investment Company (CIC-ND-SI)

This type of company carries out business in the acquisition of securities, shares. And also following conditions should be satisfied:

1. Having a minimum of 90% of total assets in form of investments in securities of companies.
2. Investments in equity shares should contribute not less than 60% of total assets of the company.
3. Having asset size over ₹ 100 crores.
4. Involves only in the block sale of its investments with the sole intention of disinvestment or dilution.
5. Public funds should be accepted.
6. Should not involve in any other activity other than investing.

• Infrastructure debt fund Non-Banking Financial Company (IDF-NBFC)

It is a company that facilitates the long-term flow of long-term debt into infrastructure projects. It raises finances through the issue of Rupee or Dollar bonds with the minimum maturity period of 5 years. IDF-NBFC is liable to get sponsor only from IFC companies.

• Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)

It is a non-deposit accepting NBFC having the minimum of 85% of its assets satisfying following criteria:

1. Loans are given to people from a rural background with income not exceeding ₹1,00,000 or an urban person with income not exceeding ₹1,60,000.
2. The loan should not exceed ₹50,000 in the first cycle and ₹1,00,000 in consecutive cycles.
3. Total debt of a person should not exceed ₹1,00,000.
4. The tenure of loan for the amount more than ₹15,000 should not be less than 24 months if prepaid should be with the penalty.
5. Loans can be expanded without collateral.
6. Loans can be repaid in instalments on weekly, monthly or fortnightly basis left to borrower’s choice.
7. Total aggregate loans given for income generation by the company should not be less than 50% of total loans given.

• Non-Banking Financial Company-Factors (NBFC-Factors)

This type of company involves itself in the business of factoring. It should the minimum of 50% of its total assets through factoring and should constitute more than 50% of its gross income from factoring.

• Mortgage Guarantee Company (MGC)

It is a company having a net fund ₹100 crore and having at least 90% of its income from mortgage guarantee.

• NBFC- Non-Operative Financial Holding Company (NBFC-NOFHC)

It is a set up of a new bank opened by the promoters. It’s a wholly-owned Non-Operative Financial Holding Company that holds the bank and other financial services regulated by RBI.

Is it Necessary to Register a Non-Banking Financial Company with RBI?

No, it is not necessary for every NBFC to be registered with the Reserve bank of India (RBI). Though the question is binary, it has to have a brief explanation for this. A Non-Banking Financial Company can operate without registering itself with RBI and also without having the net fund of ₹2,00,00,000 in its company. However since there are many types of NBFCs there are certain other bodies that come into picture for regulating, other than RBI. In order to avoid dual regulation, certain types of NBFC’s are exempted from registering with the RBI and are in turn controlled by concern regulating bodies connected with the business type of the company. Below table gives few types of companies and its respective regulatory body of that type company:

What are the procedural requirements to start an NBFC in India?

Owing to the scope and the diversification of NBFCs, any person with an idea of venturing into a new business having funds would be tempted into financing sector. Though there are a lot of financing individuals who can be found in every area of a place mostly using undue standards in financing there are many who would like to venture into financing complying with legal formalities.

Below is an example of how to register an NBFC (in this case, a Microfinance institution)

Registering the Company

Firstly a name for the company has to be decided and has to be registered with the ROC. Also, it has to be registered as either a private limited or a public limited company.

Capital for the company

The minimum capital requirement for starting up a Micro Finance Institution is ₹2,00,00,000 for companies in the Northeastern region of India and ₹5,00,00,000 for rest of India.

Certificate for the capital holding

After the capital requirement is achieved it is necessary to deposit this amount in a bank account on a fixed deposit and obtain the certificate for the same from the bank.

Documents checklist for registration

• Registration certificate of the company.
• Company’s Memorandum of Association (MOA) certified copy.
• Resolution of the Board copy.
• Certificate of banking for deposited money.
• Report of the Bank for the company.
  

Submission the Application

With all the documents mentioned above-prepared application with those documents can be applied to the RBI for approval. Online application with all the required documents can be submitted in RBI online portal [https://cosmos.rbi.org.in]. Also, all the documents have to be physically submitted to the regional office of RBI in the respective region of the company.

Registration charges

The professional fee charged by RBI for registration of a new Micro Finance Institution is ₹4 to ₹4.5 lakh since this is a tedious, time consuming and a complicated process. The total registration charges will be up to ₹8.5 lakh.

It is to be noted that the registration process is complicated, time-consuming and costly but on the other side it is also worth it and has a great scope.

Conclusion

The scope of Non-Banking Financial companies is very high and extends into a broad dimension. From a simple lending company in the rural area to chit funds that most middle-class people rely to venture capital and investment companies that big companies rely on NBFCs lends its help and finds its scope to most in an economy. Though NBFCs roles are shadowed by banks the role of it to a developing economy like India is much appreciated and pivotal because it is able all class of people across the country and provide its services for the development of the same.

Reference:

• FAQ on Everything you needed to know about NBFCs from Reserve Bank of India website [https://www.rbi.org.in/Scripts/FAQView.aspx?Id=92 (April 25, 2018)].
• Documents required for registering as Type-I NBFC attachment from RBI website [https://rbidocs.rbi.org.in/rdocs/Forms/PDFs/CHECK17062016.PDF (April 25, 2018)].
• Article on How to start new microfinance company by Paras Mehra [https://www.hubco.in/articles/how-to-register-a-micro-finance-company-in-india-a-mfi-nbfc-in-india (April 25, 2018)].

This article is written by Kashish Khattar, Amity Law School, Delhi [IPU], currently enrolled in the Ace your Internship course at Lawsikho.

Motor Insurance claims

The frequency of traffic collisions in India is highest in the world. This is where the concept of an motor insurance comes in. Basically, when the owner buys an insurance policy, the owner shifts his liability to an insurance company. He shifts his potential of risk to be caused to an insurance company in exchange for a premium that he has to pay from time to time.

People typically raise a claim after a motor accident in the expectation of the money that was promised to them by the insurance companies. The money that will come through that can be used to pay for the damages to the car or pay any kinds of bills for the same. However, things don’t always go as planned. It is a common phenomenon that a car insurance policy claim is rejected by the insurer.

Process to file a claim

The process to file a claim for a motor vehicle is typically done in the following steps:

1. You have to first register your claim by calling on the toll-free number provided by your insurer.
2. Sending your vehicle for repair. In case of an accident, you can have it towed or take it to the service centre.
3. For a survey by the insurer, you would need a list of documents such as your driving license, FIR of the accident, your insurance policy, an estimate of your repairs such as your repair invoice etc. After the owner has submitted all the documents, the insurer ensures all the paperwork is complete. Then they move on to settle the claim.

Following are some of the points that need to be taken care of to not encounter such a situation.

Reasons why motor insurance claims are rejected

Here are some common reasons provided by Insurers to refuse the claim of an insurance policy:

Inappropriate use of the vehicle 

Some of the most common examples of inappropriate use of vehicles include:

1. Overloading a car with more passengers than the prescribed limit;
2. Parking in no parking zones as notified by the authorities; and
3. Using the vehicle without getting it serviced.

It is more likely that the claim will be rejected for reasons like these which show there was an inappropriate use of the vehicle.

Regular Wear and Tear

The most comprehensive policies are usually concerned with collisions, theft of the car, third-party liability and damages done due to natural calamities. It is a common phenomenon that people try to get claims from the insurance companies for the normal wear and tear of their cars. Insurance claims are a strict no-no when it comes to regular wear and tear of the vehicle.

Geographical Limits

The Insurance Regulatory and Development Authority of India or the IRDA has defined two geographical zones for motor insurance. Metros like Mumbai, Chennai, Kolkata, Delhi come under Zone A and the rest of the country is considered to be Zone B. If the vehicle has an accident outside the geographical limits defined by your insurance policy. Your claim is most likely to be refused by the insurer.

Installation of various accessories

If the buyer has installed any or all kind of accessories on his vehicle after he bought the policy. There is a chance that the claim can be rejected by the insurance company. It is bound to happen, irrespective of the fact that the accessory had any part in the damage done to the vehicle or not.

A vehicle used beyond its limits

The insurer typically rejects claims when the vehicle claiming insurance policy is found to be used beyond the limits and is used in an extreme and inappropriate manner.

Policy not in the present owner’s name

When the insurer is looking at a vehicle which was involved in a motor car accident but it is a used or is a second-hand car. Also, the insurance has not been transferred in the name of the new owner. There is bound to be a rejection of the claim.

Repairs to the vehicle

When your vehicle is involved in an accident, it is important to inform your insurer about it. That should be done as soon as possible. If the owner gets the vehicle repaired on his own and then inform the insurer, the insurer wouldn’t be able to track as to how the accident took place. Situations like these stand a chance to face a rejection of the claim by the insurance companies.

Driver and Valid License

You are mandated by the Indian Law to have a valid driving license when you are driving a vehicle on the road. In the case of any mishappening, like an accident of the motor vehicle. The owner would not be able to raise claims on his policy if he is not in the possession of a valid driving license at that time.

Driving under the influence

If you are in a car accident while you were driving under the influence of any kind of intoxicant. You are in for a lot more other than the rejection of your insurance claim. It is illegal to do so. The claim goes out of the window if it is proved that you were under the influence of any type of intoxicants.

Consequential Damages

Basically, if a part of your vehicle which is not covered by the policy is responsible for the damage of the part which is insured by the Insurer. It will be said to be a consequential damage and most likely, a claim like that will be rejected for the same reason.

Delay in filing the claim

Insurers usually provide for a window of one to two says for an accident to be reported. In case of the owner facing an accident, it is logical to report the accident as soon as possible. If there is a delay in filing the claims, the insurers most likely reject these kinds of claims. Also, if the driver chose to drive the car right after the mishap, causing more damage to the car. The insurer can always reject the claim.

Expired Policy

It is a common instance that owners forget to renew their insurance. This has serious implications for the owner, as the insurer wouldn’t be able to cover your expenses if the insurance has expired. It does not matter if only a day has elapsed from the date of expiry of the insurance. Your vehicle will be deemed as it was not insured at all.

Conclusion

A car accident is almost always a bad experience for all the parties involved. It is followed by costs for repair which can be personal or third-party. The vehicle owner expects the insurance company to step in and help them in their time of need. Keeping all the above points in mind and being safe on the road is what matters the most. It is important for the owners to be aware of what all is covered by their motor vehicle insurance policy. It is also advised that the owner of the vehicle should follow up and timely renew his insurance policy in order to avoid the hassle of rejection of claims.

In this article, Vibhuti Kochhar, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on bidding on stressed assets under IBC

Introduction

The Insolvency and Bankruptcy Code, 2016 was enacted with the purpose of amending and unifying the laws relating to reorganisation and insolvency resolution of corporate persons, partnerships firms and individuals in a timely manner. The Code gave the provisions for insolvency resolution and liquidation of a corporate person which did not restrict any person from putting forward a resolution plan or to acquire stressed assets.

There were apprehensions raised to the fact that as there was no bar on any person from submitting a resolution plan or acquiring assets of a company in liquidation, the provisions of the Code could be misused by persons who had wilfully defaulted to regain control of the corporate debtor sans a major part of the debt. Thus, Section 29A was introduced to the code first, through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 dated 23rd November 2017 and then by Insolvency and Bankruptcy Code (Amendment) Act, 2018 dated 19th January 2018 to provide for making certain persons ineligible for being a resolution applicant and bidding on stressed assets.

What is a stressed asset?

In today’s economy stressed assets are getting much of the attention as diminishing asset quality has surfaced as a big economic risk to the Indian Banking sector. Stressed assets are a powerful indicator of the health of the banking system and in order to understand them, we must first understand what Non-performing assets are.

Non-performing assets are those loans whose interest or principal has not been repaid by the borrower within 90 days of the expiry of the loan repayment term.

Stressed assets, on the other hand, are those debts that are doubtful to be repaid and 30 days have elapsed from the stipulated time of repayment of the debt. Generally, stressed assets lead to NPAs.

How do you bid against a stressed asset?

The Insolvency and Bankruptcy Code, 2016 provides under Section 6 that when any corporate debtor commits a default, corporate insolvency resolution process may be initiated against him by a financial creditor, an operational creditor or the corporate debtor himself.

A resolution applicant may submit to the resolution professional a resolution plan that is placed before the committee of creditors. A resolution applicant is defined in Section 5(25) as a person, who individually or jointly with any other person, submits a resolution plan to a resolution professional.

A resolution plan can be said to be a bid for the corporate debtor, through which the resolution applicant proposes to repay the bad debt or part of the bad debt of the corporate debtor to the operational creditor and gains control of the corporate debtor as a going concern.

Disqualifications from bidding on stressed assets

Section 29A gives the disqualifications to being a resolution applicant and thereby is a restrictive provision, it has ten parts and any person falling within these criteria is ineligible to be a resolution applicant as defined in Section 25 (2)(h) and may not submit a resolution plan. The section further states that any other person acting jointly or in concert with the prospective resolution applicant shall also be ineligible to submit a resolution plan.

A meticulous analysis of the Section 29 A shows broadly four scenarios in which a person is ineligible from submitting a resolution plan. They are as follows:

1. where the person itself is ineligible;
2. where a “connected person” is ineligible;
3. where a “related party” of connected persons is ineligible; and
4. where a person acting “ jointly or in concert” with a person afflicted from the first three cases of ineligibility, becomes ineligible.

The person itself is ineligible if such person is

1. an undischarged insolvent;
2. a wilful defaulter;
3. has been convicted for any offence punishable with imprisonment for two years or more;
4. is disqualified to act as a director under the Companies Act, 2013;
5. prohibited by the Securities Exchange Board of India from trading in securities or accessing the securities markets;
6. As per Clause (c) of the Section 29A, a person or a person acting jointly or in concert with such person is barred from being a resolution applicant if such person:

• has an account that has been classified as a non-performing asset as per the guidelines of the RBI under the Banking Regulation Act, 1949; or
• is a promoter of a corporate debtor whose account has been classified as a non-performing asset; or
• is in control of a corporate debtor whose account has been classified as a non-performing asset; or
• is under the management of a corporate debtor whose account has been classified as a non-performing asset.

The clause further states that at least a period of one year should have lapsed from the date of such a classification till the date of the commencement of the corporate insolvency resolution process of the corporate debtor.

The proviso to this clause gives the criteria for making that person eligible to submit a resolution plan under certain circumstances being if that person makes payment of all the overdue amounts with interest and charges accrued to the NPA account before submitting the resolution plan.

Clause (g) of the Section gives the criteria of vulnerable transactions and states that any person who has been a promoter or in the management or control of a corporate debtor involved in such transactions would not be eligible to a resolution applicant if the National Company Law Tribunal (adjudicating authority) has passed an order with respect to such transactions.

Vulnerable transactions include:-

• preferential transaction (Section 43)
• undervalued transaction (Section 45)
• extortionate credit transaction (Section 50)
• fraudulent transaction (Section 49)
  
  Clause (h) gives the disqualification of those persons who have entered into guarantee obligations with respect to a corporate debtor which is undergoing insolvency procedure under this Code. As per this clause, the guarantee should be in favour of a creditor in respect of the corporate debtor and the creditor should have made an application for insolvency resolution that has been admitted under this Code. Thus, guarantors who do not fulfil their obligations towards the creditors are disqualified from being resolution applicants.

  Any person who has been inflicted from the above-stated disqualifications under any law outside the jurisdiction of India is also ineligible for submitting a resolution plan.

Connected Persons

The Second case of disqualification deals with “connected persons” as given under Clause (j) of Section 29 A and the explanation to this clause.

The clause states that a person who is connected to a person who suffers from ineligibility as given in clauses (a) to (i) of Section 29 A too shall be ineligible to be a resolution applicant under this Code.

The expression “connected person” is defined under the explanation as any person who is :

1. Promoter; or
2. Person in management; or
3. Person in control

of the resolution applicant (clause (i))or any person who is proposed to be a promoter, person in management or control of the corporate debtor during the implementation of the resolution plan (clause (ii)).

Clause (iii) of the explanation includes “holding company, a subsidiary company, associate company or related party” of a person referred to in the above clauses.

The proviso to the explanation gives exceptions to clause (iii) for

• Scheduled banks;
• Asset reconstruction companies registered with RBI under Section 3 of the Securitisation Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
• alternative investment funds registered with SEBI.

Therefore, these are not included in the ambit of clause (iii) and can proceed to submit a resolution plan.

Related party

Section 5 (24) defines “related party” of a corporate debtor. This definition would be applicable to the cases where the person referred to in the above clauses of the explanation is a corporate debtor. However, where the persons are other than the corporate debtor the definition of a related party under this section would not be applicable.

Where the person is a company the term “related party” would be interpreted with respect to section 2(76) of the Companies Act, 2013. In any other case, the scope of the term “related party” is open to interpretation.

Jointly or in Concert

The expression “persons acting jointly or in concert” has been added to the Amendment act which suggests that aside from the persons ineligible under Section 29 A any other person who acts along with such person afflicted from such ineligibility with a common objective of submitting a resolution plan would also be ineligible to bid against stressed assets and be a resolution applicant.

Conclusion

The disqualifications given in Section 29A of the Code limits the scope of potential bidders who may submit a resolution plan and bid for stressed assets. The provision seeks to exclude those persons having questionable legal and financial credibility by increasing transparency in the process. This means that the resolution applicants would have to submit their details along with the details of persons acting jointly or in concert with them. The intent of the provision is to exclude persons with poor antecedents from submitting a resolution plan and thereby affecting the credibility of the resolution process.

This provision may affect genuine bidders, interested in taking over stressed assets, as it includes promoters, their “connected persons” and persons acting “jointly or in concert”. It imposes strict limitations and restraints on potential applicants and includes even those persons who suffer from these disqualifications even outside the jurisdiction of India. As a result of this, the number of bidders may significantly reduce affecting the price of the asset and the ability of the creditors to recover their debt.

In this article, Sahali Manna, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the judicial interpretation of ‘goods used for commercial purposes’ under the Consumer Protection Act

Introduction

After the amendment in the Consumer Protection Act in 2002, the definition of ‘consumer’ has been defined in Section 2. Any person purchasing goods for the purpose of resale and any other commercial purpose has been excluded from the purview of “consumer”. But there are several exceptions to this rule. Several judicial interpretations have been given to understand the concept of “consumer” and “commercial purpose”.

Understanding the concept of “consumer”

Section 2(1)(d) of the Consumer Protection Act defines who is a consumer. A person must hire or purchase any good or service for consideration which has been paid in full or in part. So, it can be said that to become a ‘consumer’ under this Act:

• The purchased good should not be used for reselling or any other commercial purposes.
• In addition to this, any beneficiary of such purchased goods or hired services will also be deemed to be a ‘consumer’ under this act.

Amendment Act 62/2002 in the Consumer Protection Act, 1982 excluded any person who hires or purchases any goods for resale or for any other commercial purpose from the definition of ‘consumer’ as defined in Section 2 of the Act.

In the case of Super Engineering Corporation vs. Sanjay Vinayak Pant and Anr, the Hon’ble National Consumer Commission observed that the intention of the Parliament behind the amendment in the definition of ‘consumer’ is to deny those benefits to those individuals who purchase goods for the purpose of resale or for making profit on a large scale.

What can be considered as commercial purpose?

The term “commercial purpose” and “livelihood” has not been defined in this Act but from the above discussion commercial purpose may be considered when any good has been purchased for resale or for any other profit-making activity in large scale.

Important Judicial Interpretations

In the case of Laxmi Engineering Works vs. P.S.G Industrial Institute, the Supreme Court held that whether goods bought by a person are for a ‘commercial purpose’ is a question of fact and it should be decided by taking into account all the facts and circumstances in each case. The Supreme Court further observed that if the goods have been used by the purchaser himself for commercial use then he would be considered to be a consumer under this Act but if that person does not use the good himself and engages some other person to operate that particular good then such person will not come under the ambit of  the definition of ‘consumer’.

In Narasamma vs. LIC of India, the State Commission held that the widow of the deceased policyholder is the beneficiary of the services. Hence, she must be compensated for the loss caused by the negligence of the LIC, as a beneficiary of any service comes within the definition of ‘consumer’ under this act.

Even if a machine is purchased for commercial purposes but the defect in the machine arises within the warranty period then the purchaser of such machine would be a consumer as held in Dr. Vijay Prakash Goyal vs. The Network Ltd.

The entire issue of the case was regarding replacement of an ultrasound scanner Model 2i2. Which went out of order after installation and needed to be replaced. Despite the repeated request to the respondent company they did not replace it and contested that the petitioner is not a consumer under the consumer protection Act 1986. The National Commission held that if a machine develops defect within warranty period the purchaser of the machine would be consumer even if has been purchased for the commercial purpose.

C.P Moosa vs. Chowgle Industries Ltd.- in this case, appellant bought EPBAX system with warranty and AMC (annual maintenance contract) for his hotel. There was a deficiency of service during the warranty period and AMC period. The National Commission held that the appellant is entitled to compensation as the case falls under Section 2 (1)(d).

Some similar scenario came up in the case of Super Computer Centre vs. Globiz Investment Pvt. Ltd. In this case, along with some related accessories the complainant company purchased computer system from the other party. The intellifax machine which has been sent by the respondent part with the computer at the time of supply turned out to be defective. In the redressal forum the opposite party contended that the complainant company does not come under the definition of ‘consumer’ under COPRA hence, this complaint is not maintainable, the National Commission held in this regard that even though the complainant company bought the goods for commercial use the complaint is still maintainable as the defect period has arisen within the warranty period and thus the purchaser company comes under the definition of ‘consumer’ under this act.

In Action construction or Equipment Ltd & Anr vs. Bablu Mridha, the national commission explained that if a purchaser takes help or assistance to operate a machine he will still remain a ‘consumer’ under this act. In this case, the respondent had two machines by which he used to maintain his livelihood and hence, it cannot be said that those machines were used for business activities.

In a recent case of Vimal Mehra vs. Manager/ Managing Director, the national commission remanded back the case to the state commission and decide the case on the merits as in the first instance,  the state commission rejected the complaint stating the Mehra is not a ‘consumer’ under COPRA and the state commission also failed to observe that Mehra had booked the shop for earning livelihood.

When Mehra appealed before the Hon’ble National Commission against the order of state commission, the National Commission held that it is very wrong on the part of the State Commission to reject the complaint at the threshold. Though the National Commission did not express any view on “commercial purpose” or “livelihood” as these are the question of facts and will be decided on the basis of evidence and pleadings of both the parties.

The bench of Justice D.K Jain and M. Shreesha, the National Commission remanded the case back to the State Commission by its order dated Aug 2 to adjudicate the matter on the merit as well as on the evidence by both the parties.

Concluding comments

Parliament excluded those people from the purview of the definition of ‘consumer’ who obtain goods or services either for the purpose of reselling it or for any other commercial purpose. By way of amendment in 2002 in the Consumer Protection Act, the definition of ‘consumer’ got restricted to those buyers of goods who used it for ‘self-consumption’ and not for any other economic activities. But there are exceptions to this rule:

• A person who is a beneficiary of some service comes under the purview of the definition of “consumer” under the Consumer Protection Act.
• A person will fall within the ambit of “consumer” if any “defect” [‘defect’ can be any fault, shortcoming, lack of proper performance, as explained in sec 2 (1)(f) of the Consumer Protection Act ] comes up in the product within the warranty period even if the goods have been bought for commercial usage or other profit-making activity.
• Another exception to the rule is when goods and services are purchased to avail livelihood.

So, it can be said that every complaint involving commercial purposes cannot be observed by the courts as not maintainable. Entire facts, circumstances, evidence of each case must be considered for adjudicating any case, as circumstances of each case are different than the other. Who is a “consumer” and what is “commercial purpose” is entirely a question of fact that must be decided upon looking into certain circumstances and evidence.

By the way of some judicial interpretation, the courts and the National Commission have drawn the scenarios and an understanding when consumer complaints will still be maintainable even if it is meant for commercial purposes.

This article is written by Kashish Khattar, Amity Law School, Delhi [IPU], currently enrolled in the Ace your Internship course at Lawsikho.

Introduction

Estonia – The Startup Hub

After the breaking up of the Soviet Union, Estonia has tried to rebuild itself from scratch. The Baltic nation invested hugely on the internet and it paid off. Their primary focus on the internet and upcoming new tech lead to the nation being called as the ‘Silicon Valley of Europe’. Their development agenda was simple, ‘Let us do everything online.’

Therefore, it is not surprising to know that Estonia in 2000 declared the internet as a basic human right in the country. It was the first country to do so. They were also first in conducting elections online in 2005. You can do everything online in Estonia, ranging from paying taxes, setting up any kind of business, filing complaints, to claiming any kind of returns etc. The nation claims that you can establish a business in 15 minutes and fill the taxes in 3 minutes. Their e-governance initiative rules out corruption. It also makes possible for radical programs such as the e-residency programs to flourish without any intervention by the bureaucracy.

Let’s Startup!

Let us now talk about the suitable environment that Estonia provides for start ups. The following factors make it one of the most suitable and exciting place to be for a startup:

• Ease of doing business and Online services:

Estonia is said to be one of the most digitally advanced nations of our present times. You can run your whole business online without any hassle or interference by the authorities. Signing documents, registering the business, filing various forms – Everything is done with the help of the internet. The latest trend developing thing that the baltic nation has come up with is opening up of a bank account without going to the bank or even being in Estonia! Estonia’s business environment is fantastic, a particular feature about the nation is their most liberal income tax system. They offer zero corporate income tax to the businesses.

• The Community and the Skype Legacy

Estonia maybe a small baltic nation in the EU, but the startup community that they have managed to build is well-knit and welcoming. There is no kind of a language barrier – as most of the nation speaks English very well. The strong legacy of building Skype in Estonia, the startup community has a lot of talent in the sphere. Estonia also launched its own Startup Visa. The visa is particularly for business-minded non-EU nationals to come and work for Estonian startups. It also includes options of relocating their existing startups to Estonia or establishing new ones in Estonia. The visa also made it easier for estonian startups to acquire foreign talent without any intervention from the bureaucracy.

• Living environment

The quality of living is high but also easy on the pocket in Estonia. 51% of the country is covered with forests, the nation is surrounded by the sea from two sides. Air is said to be the cleanest in the world. Estonia ranks above average in all verticals such as education, skills, environmental quality, social connections and work life balance according to the OECD index. The school system boasts as being one of the best in the world, and children are taught how to build bitcoin apps in class.

E-residency Program – A critical analysis

Estonia again has become the world’s first country to offer an e-residency program. It is a government issued digital identity given to entrepreneurs to run businesses. These businesses can be run by their founders from anywhere in the world. All thanks to their e-governance facilities and ability to get everything done online. The list of things that are provided to an e-resident by the program include:

1. Issue a digital identification.
2. Manage accounts and all the records online.
3. Declare any and all of Estonian taxes online.
4. Can issue verified and authenticate signed documents.
5. The residents get digitally signed documents and contracts, which are encrypted.
6. The residents can run the company from anywhere in the world.
7. Remote money transfer is possible.

It is mainly focussed on enabling individuals to run credible, secure and safe businesses online. Since 2014, thirty thousand virtual residents from 143 countries have created around three thousand companies and paid 2.8 million euros in labour taxes. According to a report by Deloitte, the program has brought 14.4 million euros back to Estonia directly or indirectly through financial or socio-economic benefits. It is predicted to rise to 1.84 billion euros by 2025. This represents a fantastic return of 100 euros for every one euro invested in the program. The Managing director of the program has gone ahead and called it “one of the most important governmental experiments of the 21st Century.”

E-Residency Program – Effect on India

Estonia approached and opened the e-residency program for Indian startups. They came up with a slogan to pass on their message to the masses “Make in India and Sell in Europe”. The main benefit that the Indians would have is the access to the entire EU market. The program has its eyes set on to enrol 200 Indian startups in a year through various Industry tie-ups and a series of roadshows.

The main selling point for Indians was the cost-effective setting up of business and run them from anywhere in the world.  With President Trump accelerating his plans of Buy American by each day, US has a wide market but the regulations and Visa under the current presidency are difficult to procure. This is where the Republic of Estonia comes in. The entrepreneurs who have an idea to cater to the EU as a whole, can now incorporate a company there and access the free market which it offers. E-residents basically have an access to the EU business environment and can public e-services provided by the EU through their digital identity. Indian startup owners can not only run their micro business here in India but also expand it to the whole of Europe through this program. Applying for an E-residency costs a 100 euros and registering a company is for 190 euros in Estonia.

Velmenni

One of the first companies to shift from India to Estonia was Velmenni, which develops high-speed LiFi technology. The company was established in the national capital in 2012 and moved to Estonia in 2014. Deepank Solanki, founder and CEO, stated that he had signed up more clients in Germany due to his Estonian link. He did move back to India in 2015 due to lack of talent. But as he had established a client base and interacted with a lot of European Investors. He opted to not close the Estonian entity. He says that he got his first opportunity there, Estonia is where they could commercialize their first proof of concept.

Solanki has stated that investors were much more comfortable working with an Estonian entity in comparison to an Indian one. Furthermore, he says that e-residency played an exceptionally important role. Because of the ease of managing the whole business sitting anywhere in India.

Another startup founder Avijit Sarkar of CapOne Research has only praises for the program. He talks about the difficulty in getting a US Visa and the high taxes of the nation. This is where Estonia who granted him a with a virtual address within weeks, had his VAT number in 15 minutes. He underlines the importance of Ease of doing business in the baltic nation. Talent acquisition is simpler because of his incorporation in Estonia. His startup has already applied to EU for funding and has bagged the in-principle approval.

Estcoin

Estonia has always made sure in the past to bet big on the next thing. That is what they have done with the Initial Coin Offering, a USD 4 Billion market in 2017. Estonia, which has been successful in establishing the e-residency program and an entire paperless bureaucracy system based on digital ID is now moving ahead with the introduction of its own crypto token – the estcoin. Estcoin is not a mere replacement to the euro, which is the official currency of the EU. It is said to be a digital token which would not fluctuate in value. Estcoin is proposed to function as a crypto token for the country’s residency Program. After a strong statement from the president of the European Central Bank, Estonia has decided to roll back its plan of making Estcoin the official cryptocurrency of the nation. According to reports, Estcoin will be now used just as an incentive to e-residents. It would be available in 3 different formats:

1. Community Estcoin – Kind of like a reward for promoting or improving the residency program. Can be given to residents who hold regulated ICOs within the e-residency system.
2. Identity Estcoin – A kind of digital signature used to sign smart contracts or access to online services. This will be connected to a person’s identity and will not be exchangeable.
3. Euro Estcoin – This is to be used as a digital token for daily, instant transactions through the Blockchain Technology.

Estcoin is just one piece of the puzzle to establish Estonia as a global haven for ICOs. ICOs with the use of the e-residency program as an entirely new method for conducting ICOs within Estonia. ICOs run through this program will be subjected to the best regulations, guidelines. Giving the investors, more confidence and transparency in the system. Estonia may not be successful in its quest for a state-regulated ICO with their own cryptocurrency. But in my opinion, Estonia will find a way to make their state-backed ICOs a reality.

Conclusion

The Republic of Estonia has roughly about 350 startups. One for every 3700 citizens. The country does not lack the entrepreneurial spirit. Estonia basically runs like a tech startup. Apart from everything being online and the technology is highly advanced. The Republic of Estonia is also said to be the least corrupt and transparent in the Central Eastern Europe region. Estonia’s economic freedom is said to be one of the highest in the whole world and number one in the whole of the central eastern Europe region.

Estonia has become the European silicon valley and the preferred startup hub. It is also said to be a hotbed for companies which are raising in a couple of million every year. Estonia has come a long way from an old deserted cold country of the Soviet Union to be the Silicon Valley of Europe. With the next decade to bring in more highly advanced technology to masses, it will be interesting to see how much of that tech comes from the Estonian region.

References

1. Borpuzari, P., 2018. Economic Times. [Online] Available at https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/estonia-pitches-indian-startups-with-make-in-india-sell-in-europe-proposition/articleshow/63243776.cms [Accessed 3 June 2018]
2. Witismann, R., 2018. Medium. [Online] Available at:https://medium.com/@Incorporate_ee/estonia-to-become-a-global-ico-hub-6a4a53863719 [Accessed 3 June 2018]
3. Ayyar, R., & Anand, J., 2017. Times of India. [Online] Available at: https://timesofindia.indiatimes.com/trend-tracking/women-outnumber-men-in-opting-for-digital-courses/articleshow/59442526.cms [Accessed 3 June 2018]
4. Nair, D., 2018. YourStory. [Online] Available at: https://yourstory.com/2018/03/estonia-e-residency-india-startups/ [Accessed 3 June 2018]

This article is written by Snigdha Pandey, Marketing Associate at iPleaders.

“Why do you want to be a lawyer?”

This was the first question I was asked during my interview for joining law school. I still remember racking my brain to figure the answer to this question.

Being a commerce student I was expected to become a Chartered Accountant and work my way towards it. However, I soon discovered that I loved writing and debating more than tallying the balance sheets. The clincher for me was that one of my friends took me to her law preparatory classes and I was hooked! It was pure logic and reasoning based on interpretation of laws. What a beaut!

Let’s be honest, while I knew I had an interest in law (or the idea of it), I did not know at the time what kind of law I wanted to pursue and why. My reason for pursuing law remains the same – to educate people about their rights, make them understand the law in a simplified manner so that they can use it for themselves.

I did not know in which kind of organisation I wanted to work for – a law firm or a company or an NGO? Ask yourself this question. When you were eighteen years old, barely out of school, did you know which specific field of law you wanted to make a career in? I hear a number of prospective law students very confidently say “I have been told that I am very good at debating, and arguing. Hence, I decided to take law, but, I don’t want to do litigation. Corporate it is for me.” Sometimes I wonder, how misguided are they?

Having joined law school I was also nervous thinking about the fact that after working so hard, what if I end up picking the wrong area of law? I liked cyber law, intellectual property law and criminal law alike. The only logical way to ascertain my niche area of work was to explore all of them! So, I did what any law student is told by their peers and seniors – intern with an NGO,  a criminal lawyer, an IP law firm and a company.

The initial problem I faced was the usual: how do I get an internship with the organisation of my choice?

Back in 2008, when I joined law school there was no way to learn the law apart from gaining a degree from a reputed law school. I belong to the era before the advent of online courses which help law students today from CV building to learning necessary technical and soft skills, and improve their overall profile. Lawctopus, the leading website for law students to look for internship opportunities and reviews was launched much later in 2010.

I did some research each time I had to intern about the company or the law firm or the NGO. It was difficult. Not only did I have to research about the organisation, I also had to mould my resume to suit their needs. Each organisation, whether its a law firm or a company, has its own criteria to grant an internship. You are expected to mould your resume to their needs.

For example, if you were to intern in the litigation department of a company dealing in print media, you would be expected to show some knowledge or relevant experience in the field. Then the chances of your application being accepted are higher. If you’ve written a research paper on a topic close to print media – say something on ‘effect of defamation laws in India on journalists’, they see that you’re interested, if not experienced.

However, these are issues that arise much later in the years at law school. You primary concern must be how do you portray your resume when you apply for that first internship in your first year at law school.

For your first internship, your CV doesn’t really have any relevant information. What do you do then? You call up people you might know or who might know someone in these organisations and start sending out your CV months in advance. Networking is of the utmost importance throughout one’s career. Being a first-generation lawyer, I knew very few people and called up an uncle who referred me to a small law firm.

The pro of working with a small law firm is that there are not many resources hence you get to have a hands-on experience. A lot of work like drafting affidavits and notices, assisting the senior advocates comes to an intern. It is an extremely opportune learning experience for an intern as they understand the ground reality of what they may have to do a few years down the line.

Which brings us to the main question- what do you intern for? Do you intern to learn or do you intern to perform?

Do you intern to learn skills or do you perform in internships in order to get the ever-elusive pre-placement offer (PPO)?

During my internships, I learnt a lot about things related to law which is not taught in schools. For instance, in final year at law school I interned with a law firm. I was assigned a copyright infringement matter which I thought would be a run-of-the-mill case. But, turned out because of the nature of the case, evidence was to be collected in a particular manner. This is where I learnt about cyber forensics and its applications in copyright matters. How did this help me? I eventually landed a job with a media and entertainment company – my very first job.

I interned mainly to figure out the area of law most suited for me. I believe most of us who intern during law school spend their five years getting a flavour of every possible field of law. While interning with an NGO working on women empowerment, sanitation programmes, etc. I was required to interview, collate data, and prepare notes and reports. This was a very useful skill I acquired which helped me while developing and maintaining report management systems as a in-house counsel. This internship also made me realise that an NGO is not the best fit for me.

Over the next few semesters, I interned with bigger law firms and in-house legal teams in companies. My favourite internship was with an infrastructure company. I was reporting directly to the Vice President – Legal. My assignments varied from vetting agreements and preparing reports and documents to do the intellectual property registration for the entire group of companies. One day it was learning how to establish a venture business in a foreign country and its laws and the next day it was about figuring out how to establish a secondary school in the particular state of India!

The learning and mentorship in this internship were by far the best I’ve had, but they were not looking to absorb me just yet and was asked to extend the internship, instead of a PPO. That’s not something I preferred.

Looking back, maybe extending the internship would have been fruitful because the training in any industry can last easily up to 6 months if not more. I thought I did not have the time to keep interning in the same place for 6 months! But in the long term, those 6 months would have meant probably getting a PPO instead of looking for a job after graduation! The right guidance at that point in time would have definitely helped me in making a better decision.

Maybe an internship is all about performance? Making an impression instead of merely learning things for yourself? About contributing to the discussion or even starting one?

The crippling fear of figuring out which area of law is going to be your future usually comes around the 3rd or 4th year of law school. It is an overwhelming decision to make, even if you have all the information. Usually by this time a law student has been exposed to a range of activities like moot-courts, debates, publications, etc., apart from the regular course-work. These activities help you narrow down the fields of interest at the least.

Getting a PPO is very subjective in nature. The parameters differ from law firms to companies to NGOs. Some may consider past internships or areas of internships, others may consider the publications and grades, or some simply might see inexplicable promise in you!

What is common to most PPOs is a clear thought process. If a student has had good grades but no publication or moots or anything extra, they might not get the edge over their competitors who have nuanced publications to their credit with probably lesser grades. The point is that legal education is a cumulation of various demonstrable skill sets. To understand this, just think of how as a law student you would want to join the college which has the best infrastructure, academic panel, library and where students get good placement offers. Similarly, a student has to demonstrate that he has more than one aspect to his CV along with performance in the internships itself to enhance his shot at a job offer.

Some places offer jobs to the intern who works the best in terms of effective turn-in of deliverables assigned to them. Some look at the performance, past internships, publications, grades as a whole to come to a decision. There is no thumb rule followed by all organisations.

I did not get a PPO through my internships. However, I did get my job after graduation based on the skills that I learned during those internships.

Which is better learning or performing during internships?

In my opinion, learning is a more wholesome and long-term process. Getting a PPO was all I wanted during my college days, but unfortunately I did not make the cut. Maybe if I had learnt how to ace my internships, things might have been different for me. Is my life any less for the lack of PPO? No. As I learnt the skills needed to get and sustain a career in the long term, it has been working well for me. Can you ascertain the same?

Learning is an undeniable part of building ones career and requires constant efforts.It is an integral part of good performance during internship and beyond that. But what might work for one, may not work for another. All we can do is consistently learn, improve ourselves and perform!

As a famous saying goes, “aim for excellence, success will follow on its own.”

In this article, Shrey Lodha of National Law University Odisha (batch of 2017-2022) discusses Why Are Internships Necessary For A Law Student? What Are The Advantages of The Internships?

Just like food, shelter and water are necessary for human survival similarly internships are necessary for a law student’s survival in the legal sphere. A well-versed student in academics doesn’t equate for a well-versed student in experience clubbed with academic knowledge. A law student gains this experience and contemporaneously inculcates work ethics by interning either under a lawyer or a law firm or a government body participating in legal sphere or a research organisation or any other legally-oriented institution.

The “eleven reasons why” internships are necessary for a law student are

1. Application of knowledge acquired in law school into reality

Law student’s academic structure goes through jargons, statutes, articles, sections, provisos and case laws. Understanding authoritative principles, analysing burning judgements and upholding set conventions are a part and parcel of a law school’s curriculum. However, keeping this knowledge refrained to your exam papers will not fetch you either a good job or a better understanding of the status quo.

Whether you aspire to enter corporate world or the world of litigation or the life of an academician, internships are equally important and pervasive in nature. Being acquainted with practical procedures of filing Public Interest Litigation to sealing an Mergers & Acquisitions are the aspects that one can develop a knack over in an internship.

2. Getting Exposure

Internships provide you exposure to multifarious people, situations and work. You have the opportunity to meet people from different states or countries (if doing an international internship) having different ideologies and perceptions towards the same thing which when observed helps you perceive things better.

In addition, interning under various heads of authority, i.e., ranging from interning at a research organization to interning under an international company will provide you an understanding of a wide and robust work culture spread through various heads.

3. Breaking the vicious circle of non-network building

The period that you’re expected to intern is in the summer and winter holidays which are approximately 40 days in duration respectively. This period is a blessing in disguise for all the law students as it provides all the opportunity of incorporating a change in their set, eventually boring, routine. Not restricting itself to incorporation of change in schedule, it also provides an opportunity to meet new people who indeed could be a boon in value addition through the period of internship. Interning helps you develop networking with people of the same age having same field of interest but demarcated by geographical reasons and with those who have authority in a particular field with respect to knowledge and experience.

Networking with co-interns

In an internship, it goes without saying, you meet different interns from various law schools, cultures, regions and backgrounds. You happen to meet a person who is of unconventional. intellect to a person who has a radical understanding. You have the probability of meeting a very influential person to meeting a person trying his best to coax the mentors. This exposure to diversity in nature, behaviour and perception helps you grow as a person.

Networking with mentors

Networking with mentors shan’t be misconstrued with cajoling them. Attempting to impress mentors by flattery and not by work will definitely attract bad impression of yours. Unnecessary showering of words buttered with loads of extra butter repel the mentors and any other work supervisor. Genuine questions, seeking reviews, meeting deadlines and asking for pieces of advice are some of the factors that one needs to adopt to build a healthy relationship with the mentor.

4. Ingraining new skills

Whether a law student or not, it is of utmost importance to constantly upgrade and imbibe new skills in one’s skill set. Thus, it becomes very important for a law student to timely do so; and the same can be achieved by doing a concentrated and serious internship. Developing a logical acumen, adapting to an articulated writing style and imbibing a well-formulated speaking skill shall be the primary goals for an upcoming lawyer during an internship in the initial years. Upon developing these, one shall then focus on specializing in the field of interest so determined.

Internships can help you inculcate the spirit of team-effort, make you more patient and help you learn time-management as there is a prevalence of a controlled and stable environment. All these things combined help you understand in which way does your coursework is preparing you for.

5. An Internship is “your experiment with the truth”

Upon completion of your first internship, you will be struck with an epiphany that hierarchical difference between law schools and other students’ GPA has little role to play in determining one’s understanding of work and application of law in the real world. Another epiphany that will strike you would be that the field of interest that you were concretely having conviction in for fetching you better career prospects would no longer be the field that might excite you upon your completion of a particular internship. Internship is a good opportunity to explore and discover various career prospects that might intrigue you upon which you might pursue that as your field of interest.

6. Acquaintance with rigorousness

Since the work culture of any institute aimed at either for profiting or delivering justice or targeting social backwardness is followed by rigorous work hours and exhaustive work-to-be-conducted, one gets acquainted with the same which in the future fetches them a better standing position in comparison to one’s peers. Increasing competition, economic volatility and constant need of delivering the best have further pushed the institutions of such work to always be on their toes and as a result, the interns are also made subject to such conditions.

7. Unlearning The Myths

In law school, one is made subject to certain laws, rules and regulations which have long been repealed and are outdated. An internship opportunities provide clarity with regard to such long repealed laws, rules and regulations and help the intern to come in contact with the status quo which the future employers expect the upcoming lawyers to be well-aware of. For example, an upcoming lawyer is expected to know the changing position of law with respect to any revised judgement given by the Supreme Court of India on that matter (the position of law as to determining the act of not standing in movie theatres for the national anthem as an offence).

8. Experience building for CV

If authoritative case laws are equally important with persuasive case laws, if sparkle of sunshine equally important with sunrise then your work experience is equally important with your score-sheet during an interview. A law student has to always remember that Grade Point Average (GPA) is only a gateway to an interview, however, work experience is a key factor of displaying one’s understanding of market functionality and application of the law into present circumstances. A wide range of internships spread judiciously over the CV of a law student shall always provide him with the necessary edge over the others.

9. A sacrosanct factor of measuring capability by the employers

A law student has to take into consideration a fact that his/her CV in the hands of an employer is the one-time chance which shall determine one’s career trajectory. Even the smallest mistake might devoid him/her of a golden opportunity. Thus, the section which the employers definitely have a look over in any candidate’s CV is the internship experience that one has gained. Keeping this section dull might repel the employer’s interest in your candidature.

Also, increased competence in scoring GPA has compelled the employers to adopt this approach in order to distinguish the thin blue line between different candidates.

10. Audition in disguise

Internships initially serve the purpose of a non-binding probationary service wherein the employers seeking to a heuristic approach of selecting few interns for a full-time position after their graduation. Thus, if an intern works seriously and diligently, there is a possibility of him/her being given an opportunity of a full-time position in a particular company.

11. Knowing yourself is beginning of all wisdom

During the period of internship, one gets to explore one’s threshold of efficiency and patience. A law student shall keep on overpowering one’s own level of burning out and brainstorming. However, being it a daunting task, it would be of immense advantage for a law student to seek clarity in terms of the goals to be achieved and the career prospects to follow in order to bring equanimity between the status quo’s efforts made and future aspirations.

How to choose an internship?

Just like choosing right words at the right time is a key to one’s success, similarly, choosing right internship at the right time is a key to a law student’s enhanced skill set. Since internships can range from participation in the affairs and objectives of a non-governmental organization to seeking tutelage under a Supreme Court judge, a law student has to devise a well-thought road map before choosing an internship depending upon factors like personal preferences/interests, objectives-to-be-achieved and future rewards.

The process of metamorphosis during which an egg transforms into a fully grown adult butterfly is the most appropriate analogy that can be drawn to illustrate the significance of choosing the right internship at the right time. Just like an adult butterfly has to go through various life stages, i.e., from the stage of an egg to that of larva to that of pupa before entering the stage of an adult butterfly similarly a law student has to choose his internships wisely in order to become the perceived lawyer.

Formulation of a road map:

Formulation of a road map with respect to internships to be applied for is the quintessential step for a law student which shall guide him/her towards developing the requisite skill set, exposure and network chain facilitating the process of becoming the perceived lawyer. However, formulation of a road map is a subjective approach which can only be determined individually considering pivotal factors as mentioned above.

However, it is to be understood that a road map for your internship is a facilitator in enabling you to explore the field of your interest and is not to be rigidly followed verbatim. Rather, the road map is subject to amendments corresponding to your changing interests.    

Right internship at the right time:

The latter part of the phrase “at the right time” signifies that an internship chosen shall be the one in which one can apply the acquired knowledge in a law school into reality. For example, a law student in the first semester of his/her course may fetch no benefits by interning under a Tier-1 corporate law firm, for a law student in his first semester is not made acquainted to the subjects and dynamics of either the laws or the work ethics to be followed while working in a Tier-1 corporate law firm. On the contrary, a law student in his/her seventh semester might fetch unparalleled benefits in the same internship as compared to the law student in his/her first semester.

For more information on how to choose an internship click here.

Do’s and Don’ts in an internship:

Do’s:

1. Make sure to have a communication with all the co-interns as well as mentors from time to time to understand the work ethics and functionalities of the place where you are interning.
2. Meet the deadlines with respect to the work allotted to you.
3. Be in consistent communication with your mentor for receiving constructive feedback and extending your ambit of learning.
4. Attempt to be at constant availability for work. This practice shall give you an edge above the others as it shows your interest in the work and makes you more prominent in receiving work from the mentors.

Don’ts:

1. Tactics involving flattering the mentors shall be discouraged as the mentors would prefer timely quality work over wastage of time in flattery.
2. Repetitive reminders with respect to work allotment and work-to-be-reviewed may make you vulnerable to your mentor’s annoyance. Reminders shall be made considering the amount of work the mentors have to undertake.
3. Avoid missing deadlines as punctuality is the key to ace your internship.

Conclusion: A Caveat

Internships, for the aforementioned reasons, are of utmost significance in a law student’s life. It is not only the skill set that one gains, but the invaluable experience which one obtains over the period of an internship. This experience shall not only help a law student in growing dynamically but also further acquaints him/her to possible volatility.

In the words of Barney Stinson, if you miss an internship, you’ll be sad and won’t be able to be awesome.

In this article, Pradeep Dubbula, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses how to draft a corporate lease deed.

Introduction

The laws pertaining to the transfer of property and/or the usage rights of property are covered under the Transfer of Property Act, 1882 (ToPA). It broadly covers various modes of transfer such as Sale, Mortgage, Exchange, Lease, Gift etc; Lease is covered in detail in Chapter 5 of the Transfer of Property Act.

What is a ‘lease’?

As per Section 105 of the Transfer of Property Act, the definition of ‘Lease’ can be understood as a transfer of a right to enjoy property for a certain time or in perpetuity; in consideration of a price paid or promised or of money, a share of crop, service or any other thing of value to be rendered periodically or on specific occasion to the Lessor by the Lessee who accepts the transfer on such terms.

In this context,

• Lessor is the absolute owner of the property which is the subject matter of the lease;
• Lessee is the person acquiring the rights to use and enjoy the property on lease from the Lessor;
• Duration is the term for or period for which the rights to use and enjoy the property is granted. The duration of the lease can be for a certain time, express or implied or can also be in perpetuity;
• Premium or Rent is the consideration for granting the rights to use and enjoy the property can be in the form of a one-time price paid or promised i.e. Premium or on payment of money or any other thing of value, periodically or on specific occasions or intervals, known as Rent.

Therefore, by executing a Lease Deed, what is transferred by the Lessor to the Lessee is only his right to enjoy the property, subject to the terms agreed upon, and not the whole or any part of the absolute ownership rights, this type of transfer in conveyancing parlance is known as a ‘demise’.

A lease can be understood as the rightful separation of ownership and possession i.e. prior to the grant of the lease, the Lessor has the right to enjoy the possession of the land but during the concurrence of the lease, he excludes himself from that right (Anwarali vs Jaminilal Roy, AIR 1940 Cal. 89).

The usage of the term ‘demise’ in a Lease Deed or instrument of lease triggers the Lessor’s liability for the warranty of quiet enjoyment of the property the Lessee is entitled to remain in possession until the lease is terminated by due process of law (Jaswantsinh Mathurasinh & Anr. vs Ahmedabad Municipal Corporation & Ors., 1992 Supp. (1) S.C.C. 5, 12.).

Difference between Sale and Lease

Difference between Lease and License

Stages of a Lease Deed

The entire transaction executing the Lease Deed can be broken down into the following stages:

1. Negotiation Stage: This is the very first stage of the transaction and it comes into effect right after the Lessee has identified a property suitable for his use. The parties involved shall need to discuss the various commercial aspects of the deal such as duration of the lease, consideration, mode of payment etc. The focus at this stage is more on the commercial aspects rather than the legal aspects.
2. Preliminary Documentation Stage: Once the commercial aspects of the transaction have been agreed upon, the parties involved can get into an Agreement to Lease or preferably a Memorandum of Understanding recording the commercial aspects of the deal and the broad duties and obligations of the respective parties. This creation of an Agreement to Lease or Memorandum of Understanding is to place on record the intention of the parties and thus allow the next stage of the process.
3. Title Investigation or Due Diligence Stage: The focus of this stage is to verify the Lessor’s title to the property and the Lessor’s ability to demise the property by way of the lease in favour of the Lessee. This typically involves a thorough reading of the title deeds, verification with the Government records by way of a Title Search at the respective office and finally the issuance of Public Notices inviting objections. The issuance of Public Notice is not mandatory and can be avoided based on the situation. At this stage, it is also necessary to see what permission are mandatory and the steps required to obtain the same.
4. Drafting and Payment of Stamp Duty Stage: The lease can be demised by way of an Agreement to Lease however the preferred mode is a Lease Deed as it is not contingent upon a future instrument. Once the document has been drafted taking into consideration the various terms of the transaction and the draft approved by the parties; the payment of stamp duty can be undertaken on the Lease Deed. Since Stamp Duty is a State subject, let us consider an example of Maharashtra; an Agreement of Lease needs to be stamped as per Article 25 of Schedule I whereas a Lease Deed can be stamped as per Article 36 of Schedule I of Maharashtra Stamp Act (Schedule I of The Maharashtra Stamp Act, 1958).
5. Execution and Registration Stage: This stage involves the payment of premium by the Lessee to the Lessor. The parties can simultaneously exchange the consideration amount, take possession of the property and execute the Lease Deed. Though not mandatory, it is accepted practice for two people to record their signature as witnesses to the execution of the Lease Deed. Once the instrument has been executed it can be put up for registration at the Office of the applicable Sub-Registrar of Assurances having suitable jurisdiction over the property.
6. Post Registration Stage: Once the registration of Lease Deed is done and the property is in possession of the Lessee, it is advisable that the various governmental and semi-governmental bodies having jurisdiction over the property be notified in writing about the change of holder. This would ensure a smooth transition and make the process of making applications and acquiring Licenses relatively easy.

It is important to note that as per Section 107 of the Transfer of Property Act, 1882 and Section 19 (1) (d) of the India Registration Act, 1908 it is mandatory to register the lease of an immovable property for a term exceeding one year or system of yearly payment of rent.  (The Transfer of Property Act, 1982) (The Registration Act, 1908). A lease deed that needs to be mandatorily registered is void if not registered (Usha Ranjan Ray Burman vs Sova Das, AIR 1990 Cal I).

Template

Here is a short template of a standard Lease Deed for setting up a small scale industry in an Industrial area.

Checklist

Here is a checklist of key elements to consider and include when drafting a lease deed for commercial purposes:  

1. Property Description: A detailed description of the property should be provided along with the area, the exact location, respective Survey No.(s) etc. It is also advisable to include a description of all the structures standing on the property along with the list of all the fittings and fixtures thereon.
2. Term: The exact duration of the lease should be mentioned along with the commencement date and expiry date.
3. Title Search: Proper Title Search should be conducted and public notices issued to ensure that the Lessor is entitled to give the property on lease and that there is no legal impediment in the property being demised in favour of the Lessee.
4. Lock-In Period to be mentioned if any.
5. Termination: The grounds for termination of lease like breach, non-payment of rent, force majeure, failure to pay rent etc., to be included along with the agreed process for termination by the parties and the notice period.
6. Rent Payment: The quantum of rent, the mode of payment, due dates, the procedure for delay, rent escalation etc., to be discussed and reduced to writing.
7. Security Deposit, if any.
8. Maintenance Charges and Land Taxes: Who is responsible for payment of maintenance charges, society charges, land taxes and other government charges? Effect of non-payment and the process for dealing with that.
9. Utility Charges: It should be clearly defined whose obligation it is to pay for the utilities such as water, electricity, telephone, internet etc and in whose name the receipts are to be generated.
10. What are the permitted uses of the demised property?
11. Whose obligation is it to ensure the maintenance and upkeep of the demised property and the procedure with repairs.
12. Restriction of material alteration of the property without the express consent of the Lessor.
13. Sub Letting: Whether sub-letting of the demised property is permitted and if so then under what terms and only with the express approval of the Lessor.
14. Inspection of the demised property should be permitted by the Lessee at reasonable hours and with prior notice.
15. Study the applicable law pertaining to the payment of Stamp Duty and Registration of the Lease Deed and ensure that adequate payments are made and the correct forum followed.
16. Legal Charges: Whose obligation is it to pay the Stamp Duty, Registration Fee and other governmental and incidental charges in the transaction?
17. Procedure for the handover of possession at the end of the lease and the execution of a Deed of Surrender of Lease, if applicable should preferably be mentioned in the Lease Deed itself.
18. It is recommended that either of the parties get their own insurance cover on the demised property to protect against any unexpected event.
19. Clearly identify the jurisdiction of the relevant Court and the dispute redressal mechanism in the event of a dispute arising between the Lessor and Lessee.
20. Respective Indemnities: Ensure that there are adequate Indemnity clauses in the Lease Deed to cover foreseeable incidents like defaults in payment of rent, damage to property, breach of terms, wrongful representations and warranties, defect in title etc.

The aforementioned is a basic outline of the process of drafting a legally competent and balanced Lease Deed concerning commercial lease deed with a corporate purpose in mind.

A corporate lease deed needs to be drafted and scrutinized more thoroughly than a lease of residential premises or tenancy as there are various aspects of commercial transactions of commercial use of a property which are not present or do not have a very large role to play in non-commercial transactions.

Bibliography

• The Transfer of Property Act, 1982. (n.d.). Retrieved from http://dolr.nic.in/Acts&Rules%5CTransferOfPropertyAct%281882%29.htm
• Anwarali vs Jaminilal Roy, AIR 1940 Cal. 89.
• Jaswantsinh Mathurasinh & Anr. vs Ahmedabad Municipal Corporation & Ors., 1992 Supp. (1) S.C.C. 5, 12..
• The Registration Act, 1908. (n.d.). Retrieved from http://dolr.nic.in/Acts&Rules/RegistrationAct%281908%29.htm
• Schedule I of The Maharashtra Stamp Act, 1958. (n.d.). Retrieved from http://igrmaharashtra.gov.in/SB_PUBLICATION/DATA/Schedule/Maharshtra%20Stamp%20Act%20Shulde.pdf
• Usha Ranjan Ray Burman vs Sova Das, AIR 1990 Cal I.

This article is written by Shivam Sharan in which he discusses Unsettled Conundrum as to its biased treatment by an unbiased code.

INTRODUCTION

Over the period, the jurisprudence on the Insolvency and Bankruptcy resolution in India has evolved quite a lot, but there still exist certain grey areas, which could be the factor for the biased way of treatment to the parties involved in the rescue process of the company hit by Insolvency or Bankruptcy. One such factor which is pervasively present in most of the issues raised in association to this code is the favorable framework of the code for a type of Creditor, and not so favorable framework that it extends to another type of creditor and the debtor.

The Companies Act 1956[1], can be said to be the parent legislation of the Insolvency & Bankruptcy code[2] (hereinafter, IBC), under which the companies, by volition, concurred to be wound up, unlike the case in the IBC, where, the Financial Creditor[3]/ Operational Creditor[4] files for the resolution process at NCLT. The free volition scenario is there indeed, but only on paper, in a large number of cases. Due to this, the essential function of the code, which is to resurrect the dying company, nullifies, as the financial state of the company gets worse after the invocation of the company insolvency resolution process.

The first instance where the unfair treatment could be witnessed is if we see the wordings of section 7[5], section 8[6] and section 9[7] of the IBC. Section 7[8] states that, in case of default, the application by the Financial Creditor could be made to the NCLT where the details of the same will be provided and if the adjudicating authority[9] is convinced of the fact that the default exists, then the direction can be given for the initiation of the insolvency resolution process. Now, this is in stark contrast to the case which is made by virtue of section 8[10] and section 9[11], cumulatively of the IBC.

 PROCEDURE :

In case of the operational creditor[12], a demand notice[13] is required to be provided to the Corporate Debtor[14], who is then required to revert within the span of ten days, apprising the presence of any dispute[15] regarding the claim[16]. In absence of the dispute[17] being present, the adjudicating authority[18] is bound to initiate the resolution process. But, in case of the presence of the dispute[19], or any fallacy in the application, the adjudicating authority[20] can ask the applicant to rectify the same within the span of seven days. This shows the lack of communication in the case where the Financial Creditor[21] files an application for the initiation of CIRP and puts the Corporate Debtor’s right to save itself prior to the initiation of the resolution process in peril. The same state has also been spawned by a plethora of judicial pronouncements, for instance, in Sree Metaliks Limited & Anr v. Union of India,[22] the Calcutta High Court stated in its dictum that-

“proceedings before NCLT are adversarial in nature and such proceedings have drastic consequences, hence, person(s) cannot be condemned unheard. even though the application of principles of natural justice are not expressly provided, they can and should be read into in, therefore, the NCLT would be bound to afford the right to reasonable opportunity of hearing in an application under section 7 of the code.”[23]

In yet another case of Starlog Enterprises Ltd. v. ICICI Bank Ltd.[24], the NCLAT held that-

“it is imperative for the adjudicating authority to adopt a cautious approach in admitting insolvency applications and also ensuring adherence to the principles of natural justice.”[25]

Apart from all the aforementioned arguments, it is also pertinent to observe, considering the current scenario of the discourse that, the legislation is silent on the part where the adjudicating authority[26] is required to decide and grant the hearing to the Corporate Debtor[27]. In addendum, the code has a non-obstante clause under section 238[28] which gives the code an overriding power over any other legislation. This negates the strict applicability of the provision of Civil Procedure Code[29] and the principle of natural justice which is encapsulated in Section 424[30] of the Companies Act- 2013[31].

Secondly, there is not any intelligible basis on which the distinction between the Financial Creditor[32] and the Operational Creditor[33] is made in the code. An instance of the same is that the Financial Creditor[34] has the right to preside over the meetings of the Committee of Creditors[35] (hereinafter, COC) and exercises the vote in commensuration to the amount disbursed as loan to the debtor. In juxtaposition, the Operational Creditor[36] has no such right. The fundamental possibility of the situation is completely overlooked that, the Operational Creditor[37] might have a claim[38] which could be of a huge monetary value.

Furthermore, the code does not create an obligation on the adjudicating authority[39] to look into the veracity and genuineness of the claim made by the Financial Creditor[40], unlike in the case of the Operational Creditor[41], where the ascertainment of the amount, veracity and genuineness of the claim[42] is paramount and mandatory. This, again, is without any basis and rationale.

PARTIES AGAINST UNFAIR TREATMENT

1.Corporate Debtor[43]- As he has got no say to avert the resolution process, even though the claims made might not be that of an actual amount. The only consideration made in this by virtue of section 7[44] is, that there is a default made by the debtor and it subsists. This has been well put forth by the Supreme Court in the case of Innoventive Industries Ltd. ICICI Bank[45], where the court said-

“…It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”[46]

2.Operational Creditor[47]– As the division between the procedures in case of the two types of creditors is not on the same line. The Operational Creditor[48] has to go through a lot of checks before getting the claim [49]sorted, and also does not get cast the vote in the meeting of the COC. Even the presence of the Information Utility[50], in case of the Financial Creditor[51], also does no good, for two reasons, essentially:

• The presence of default is the only criterion which is needed to be looked into, irrespective of the dispute on the claimed amount, before initiating the resolution process.
• Procuring the authentic information might be difficult as sharing information from the digital database exposes oneself to the risk of data privacy and data theft, making it impossible for the parties to the suit to ascertain the genuineness of the claims made.

CONCLUSION

One of the reasons provided, usually for such a distinction, bases itself on the findings of the report of the Bankruptcy Committee[52] chaired by Dr. T. K. Viswanathan, which submitted that the claim of financial creditors is usually left uncontested. There is indeed a paradigm shift in the insolvency law in India and the unification and adherence to this law is remarkable, but, leaving such loopholes on the basis of mere assumptions and probabilities makes it detrimental for the ones who do not find themselves landing in the aforementioned set. The law, in such changing times, needs to be accommodative of all the possible permutations and combinations of probabilities which might emerge. Though the hope for the same is zilch as there cannot be an all-embracing law possible, an attempt to reach near the same could be made.

REFERENCES

[1] Companies Act, 1956

[2] Insolvency and Bankruptcy Code, 2016

[3] Code, Id. at Sec. 5 (7)

[4] Code, Id. at Sec. 5 (20)

[5] Code, Id. at Sec. 7

[6] Code, Id. at Sec. 8

[7] Code, Id. Sec. 9

[8] Id. 5

[9] Code, Id. at Sec. 5 (1)

[10] Supra 6

[11] Supra 7

[12] Supra 4

[13] Code, Supra at Sec. 8(2) Explanation.

[14] Code, Supra at Sec. 3(8)

[15] Code, Supra at 5(6)

[16] Code, Supra at 3 (6)

[17] Id. 15

[18] Id. 9

[19] Id. 15

[20] Id. 9

[21] Supra 3

[22] Sree Metaliks ltd. v. Union of India, [2017]140CLA30(Cal), (Calcutta High Court).

[23] Debangsu Basak, J. Sree Metaliks ltd. v. Union of India, [2017]140CLA30(Cal).

[24] Starlog Enterprises ltd. v. ICICI Bank ltd., [2017]142SCL1, (National Company Law Appellate Tribunal)

[25] Sudhanshu Jyoti Mukhopadhaya, J. Starlog Enterprises ltd. v. ICICI Bank ltd., [2017]142SCL1

[26] Supra 9

[27] Supra 14

[28] Code, Supra at Sec. 238

[29] Civil Procedure Code, 1908

[30] Sec. 424, Companies Act, 2013

[31] Companies Act, 2013

[32] Supra 3

[33] Supra 4

[34] Supra 3

[35] Code, Supra at Sec. 21 (2)

[36] Supra 4

[37] Supra 4

[38] Supra 16

[39] Supra 9

[40] Supra 3

[41] Supra 4

[42] Supra 16

[43] Supra 14

[44] Supra 5

[45] Innoventive Industries ltd. v. ICICI Bank ltd., (2018)1SCC407, (Supreme Court of India).

[46] R. F. Nariman, J., Innoventive Industries ltd. v. ICICI Bank ltd., (2018)1SCC407

[47] Supra 4

[48] Supra 4

[49] Supra 16

[50] Code, Supra Sec. 3(21)

[51] Supra 3

[52] Insolvency and Bankruptcy Board of India, The Report of Bankruptcy Law Reforms Committee, (2015), available at http://ibbi.gov.in/BLRCReportVol1_04112015.pdf (Last visited on May 11, 2018)

In this article, Kumar Gourav, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the role of SEBI in curbing insider trading in India

Introduction

Insider trading is the buying or selling of a security by someone who has access to material non-public information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still non-public.

Meaning of the term ‘Insider’

The term ‘insider’ has been defined under Regulation 2(e) of SEBI (Prohibition of Insider Trading) Regulations, 1992. Basically, the term ‘insider’ can be classified into three broad categories, which are:

• Persons who are connected to the company,
• Persons who were connected with the company,
• Persons who are deemed to be connected to the company.

In order to become an insider a person has to fulfil three elements, viz;

• The person should be a natural person or legal entity;
• The person should be connected person or deemed to be connected;
• Acquisition of the unpublished price sensitive information by virtue of such connection.

Unpublished Price Sensitive Information

Unpublished price sensitive information means any information which refers to the internal matters of the company and ordinarily it is not disclosed by the company in the regular course of the business.

Insider Trading and the Securities Exchange Board of India

Insider trading in India is basically determined by SEBI laws which govern the whole trading in national stock exchange or Bombay stock exchange. The main aim of this law is that to ensure traders that no one is gained by trading on ‘insider’ or ‘unpublished’ information- information that is not made public. Another aim of this law is to make the information available to all the participants. The enforcement of insider trading laws increases the market liquidity and decreases the cost of equity. Insider trading laws are found in developed countries where strong trading regulations are adopted. The main aim of government in the enactment of insider trading laws is that all the participants in the market have the same information. When the Indian economy was liberalized and security market was open to foreign institutional investors, common investors aim to get quick returns in short period of time.

In India, SEBI (Insider Trading) Regulation, 1992 framed under the Section 11 of the SEBI Act, 1992 intends to curb and prevent the menace of insider trading in securities. An insider is a person who is an accepted member of a group or organization who has special knowledge regarding his firm.

Evolution

Bombay stock exchange was established in 1875 and since then Indian securities markets started functioning. Before the enactment of SEBI Act 1992, there were two acts namely Capital Issues Control Act,1947 and Securities Contract Regulation Act,1956. After independence, there was no such as act which governed the insider trading practices in India.

Penalties for committing insider trading

The penalties and punishments for committing insider trading have been defined under Chapter IV-A of the SEBI Act. The penalties have been discussed below according to the SEBI (Amendment) Act, 2002.

• Section 15(G)(i)–  if an insider either on its own or on behalf of any person has dealt on behalf of his company any unpublished information then he may be fined with RS. 25 crores or 3 times the profit made, whichever is higher.
• Section 15G(ii)– if an insider has given any price sensitive information then he may be fined up to RS. 25 crores or 3 times the profit made.
• Section 15G(iii)–  if an insider has procured any other person to deal in securities of anybody corporate on basis of published information then he may be fined up to RS. 25 crores or 3 times the profit made which is higher.

Case Laws

Hindustan Lever Limited v. SEBI (1996)

This case mainly concerns the purchase of 8 lakh shares by HLL of BBLIL from the Unit Trust of India on March 25, 1996. This purchase was made barely two weeks prior to a public announcement for a proposed merger of HLL and BBLIL. Upon investigation, SEBI found that HLL was an insider at the time of purchase.

SEBI upon investigation found that at the time of purchase of shares of BBLIL from UTI, HLL was an insider under Section 2(e) of the 1992 Regulations. HLL filed an appeal before the appellate authority asking on what grounds they can be termed as an insider. But after hearing on the evidence of HLL, the authority appreciated the evidence but it was not enough to prove it. Consequently, the appellate authority found the SEBI investigations right. The matter is currently pending before the Supreme Court.

TISCO case (1992)

In this case, the profit of TISCO for the first half of the financial year 1992-93 felt to Rs. 50.22 crore in comparison to the profit of Rs. 278.16 crore for the financial year 1991-92. Before the announcement of the half-yearly results, there was intense activity in the trading of share between October 22, 1992, and October 29, 1992. However, the SENSEX saw a decline of 8.3% during the same period. The insiders who had the knowledge of the same had manipulated the market to make short sales. Small investors were hit badly. Due to the absence of insider trading regulations in India, it was not possible to investigate the case.

DSQ Holdings Ltd. v. SEBI (1994)

DSQ biotech ltd. (DSQB) was originally promoted by KND engineering and technologies ltd., jointly with Tamil Nadu industrial development corp. DSQ Holdings Ltd. Is a same promoter group company of DSQB. The board of directors held a meeting on 30 July 1994 considered rights issue and same was communicated to the stock market. The purpose of sending information to the public was to properly disseminate it.

The erstwhile management of DSQB entered into an agreement in April 1994 with DSQH Ltd. promoted by Shri Dinesh Dalmia (DD) group. Through the agreement, the DSQ Holdings Ltd. (DSQH) purchased 44, 98,995 shares of DSQB at the rate of Rs. 15.94 per share from the erstwhile promoters. Thereafter DSQ group made an offer as per clauses 40A and 40B of the Listing Agreement to acquire a further 17,66,400 shares (20% of the paid-up capital of the company) during the last quarter of 1994. The scrip of DSQB prior to the takeover of the company by the DSQ group in April 1994 was not actively traded on the exchanges with the price hovering in the region between Rs.12 and Rs.18 during most part of 1993 and also during the first half of 1994. The scrip witnessed considerable movement both in terms of price and volume immediately after the DSQ group took over the company.

A detailed investigation was carried out by SEBI. It was found that there was a steep jump in shares of DSQB from RS. 20 to RS. 92. From the investigation of SEBI, the DSQB failed to give the actual proof of dispatch of AGM notice. Regulation 2(k)(iii) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 considers the information regarding the issue of shares by way of public, rights, bonus etc. as unpublished price sensitive information. In this case, it was clear that DSQB made an advantage over other investors. So DSQH was a ‘connected person’ under regulation 2(c) of SEBI Insider trading regulations.

Role and Power of SEBI in curbing Insider Trading

SEBI is established as a statutory body which works under the framework of Securities and Exchange Board of India, 1992. The various roles and power of SEBI have been discussed under Section 11 of the SEBI Act,1992.

• The main duty of SEBI is to protect the safeguard of investors and ensure proper trading.
• The main power of SEBI is that if any person has violated the provisions of this Act then SEBI set up an enquiry committee.
• In order to investigate SEBI may appoint officers who look after the books and records of insider and other connected persons.
• It is the duty of SEBI to give a reasonable notice to the insider before starting the investigation.
• The board can also appoint an auditor who may inspect the books of accounts and affairs of an insider.
• It is the duty of insider to provide necessary documents to the investigating authority.  However, it has neither any power to examine on oath, nor does it have the same power as are vested in a civil court under the Code of Civil Procedure,1908 while trying a suit.
• After all the investigations, the officer has to submit the report within 1 month as per SEBI 1992 regulations. It also depends on the investigating officer to take longer time if he funds that the work could not be completed within the stipulated time.
•  After the final report submission, SEBI has to communicate the findings to the insider and issue a show cause to the insider or other person within 21 days of the receipt of the communication.
• The person to whom the finding has been communicated has to give the reply to the notice within 21 days of receiving the notice. The Expert Group (headed by Justice M.H. Kania) constituted by the SEBI in August, 2004, recommended in its Report that, Section ll(2)(i) of SEBI Act be amended to empower SEBI to call for information from professionals, subject to the professional’s rights (for not parting with the privileged information in their possession).
• Any person who feels aggrieved by the directions of the SEBI can appeal to the Securities Appellate Tribunal (Regulation 15).
• An appeal can be filed within 45 days of the receipt of the copy of the order from the date on which appeal had been filed. SEBI (insider trading) regulations, 1992 consists of three chapters and twelve regulations.

An insider is a connected person who is connected to the company directly or indirectly with the company. The term ‘connected person’ is an important concept for defining the charge of insider trading. It represents a person who is a director of a listed company or is an officer or an employee of a listed company. Connected persons have access to the unpublished price sensitive information of the company. It also includes a person who has been connected to the company prior to 6 months to the implementation of insider trading regulations.

There are various regulations under SEBI Regulations, 1992 that defines the term ‘connected persons’. They are as follows:

• Regulation 2(h)(i)- an officer or employee of the same company under subsection(1b) of Section 370(1b) or subsection (11) of Section 372 of the Companies Act, 1956 or subsection (g) of Section 2 of the MRTP Act,1969.
• Regulation 2(h)(ii)
• Regulation 2(h)(iii)
• Regulation 2(h)(iv)- a member of the board of directors
• Regulation 2(h)(v)- an official or an employee of a self-regulatory organisation
• Regulation 2(h)(vi)- any relative of any of the aforementioned persons
• Regulation 2(h)(viii)- a relative of the connected person
• Regulation 2(h)(ix)- a concern, firm, trust, Hindu undivided family

Why is the rate of investigation of insider trading lower in India?

Over the last two decades, Indian markets have been criticized because of the failure to investigate and prosecute the convicted person. Even if the person is caught the punishment and penalty is so low that the regulations have lost its effects. Below is the data which shows the number of insider trading investigations and completed between 2010-15:

The reason behind the low rate of successful investigation and convictions could be due to these factors which are discussed below:

• SEBI was only recently granted the power to call for phone records of suspects under investigation: As we know insider trading is not easy to determine and also SEBI has not been empowered with the basic investigation tools.
• SEBI does not have the power to wiretap phone calls: As in the US where the authority can obtain the phone call records but in India, it cannot be done so.
• SEBI has failed to utilize its power and penal provisions: SEBI in many ways failed to utilize its power and has also asked the government to give additional powers to the body.
• SEBI does not have the appropriate human resource to conduct a proper investigation: SEBI has nearly 800 old employees and does not have proper human resource department.

In developed countries like USA or UK, there is severe punishment for insider trading. In European union, there is 4 years term jail for insider trading.

Conclusion

As I have discussed above that insider trading offences are defined under Section 11 of SEBI Act,1992. It has the power to investigate on matters and look upon the books of the firm. Despite the regulations, SEBI has failed in many investigations because of lack of various factors SEBI has the power to initiate criminal prosecution under Section 24 of SEBI Act 1992. There was no such provision before the enactment of SEBI Act but after the various committees had submitted their report to the SEBI (Insider Trading Regulation) Act, 1992 was enacted.

In other developed countries, there is strong legislation regarding the insider trading but in India, though there is legislation under SEBI Act, 1992 but the rate of investigations is very low because of many factors and the government has to look upon the matter and pass more strong legislation to curb the insider trading practices.