In this article, A. Mohamed Musthafa pursuing M.A, in Business Law from NUJS, Kolkata discusses how to claim Tax benefits under DTAA.  

A DTAA is a tax treaty signed between two or more countries. The key objective of DTAA is that tax-payers in these countries can avoid being taxed twice on the same income. A DTAA applies in cases where a taxpayer resides in one country and earns income in another. For example, let’s say that you are a resident in the USA and I’m a resident in India. You render some service to me for which I pay certain sum of money to you. In that case there will be two implications on you.

1. The amount paid for service rendered will be taxed (by way of tax deduction at source) in India as it is an income which has arisen in India.
2. And secondly, since you are a resident in USA, the income earned in India will be taxed in USA as well.

In this case, there will be an unnecessary burden on you to pay tax on same income twice.

Thus, DTAA comes to the rescue in cases where an entity is being taxed twice. As per the agreement, the income will be taxed in just one country. Say it is taxed in India, after taxing in India when you offer the same income for taxation in USA, you will get a foreign tax credit as deduction from tax payable which will be equivalent to the amount of tax that you have paid in India. DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc. India has DTAAs with more than eighty countries, of which comprehensive agreements include those with Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK and US.

In the current era of cross-border transactions across the world, due to unique growth in international trade and commerce and increasing interaction among the nations, residents of one country extend their sphere of business operations to other countries where income is earned.

One of the most significant results of globalization is the introduction noticeable impact of one country’s domestic tax policies on the economy of another country. This has led to the need for incessantly assessing the tax regimes of various countries and bringing about indispensable reforms. Therefore, the consequence of taxation is one of the important considerations for any trade and investment decision in any other countries. Where a taxpayer is resident in one country but has a source of income situated in another country, it gives rise to possible double taxation.

This arises from two basic rules that enable the country of residence as well as the country where the source of income exists to impose tax.

Source rule: The source rule holds that income is to be taxed in the country in which it originates irrespective of whether the income accrues to a resident or a nonresident Taxation

Residence rule: The residence rule stipulates that the power to tax should rest with the country in which the taxpayer resides.

If both rules apply simultaneously to a business entity and it were to suffer tax at both ends, the cost of operating in an international scale would become prohibitive and deter the process of globalization. It is from this point of view that Double taxation avoidance Agreements (DTAA) become very significant.

International double taxation has adverse effects on the trade and services and on movement of capital and people. Taxation of the same income by two or more countries would constitute a prohibitive burden on the tax-payer. The domestic laws of most countries, including India, mitigate this difficulty by affording unilateral relief in respect of such doubly taxed Double income (Section 91 of the Income Tax Act). But as this is not a satisfactory solution in view of the divergence in Taxation the rules for determining sources of income in various countries, the tax treaties try to remove tax obstacles that inhibit trade and services avoidance and movement of capital and persons between the countries concerned.

It helps in improving the general investment climate agreements. The double tax treaties (also called Double Taxation Avoidance Agreements or “DTAA”) are negotiated under public international Law or “DTAA” law and governed by the principles laid down by the Vienna Convention on the Law of Treaties. It is in the interest of all countries to ensure that undue tax burden is not cast on persons earning income by taxing them twice, once in the country of residence and again in the country where the income is derived. At the same time sufficient precautions are also needed to guard against tax evasion and to facilitate tax recoveries.

In India, the Central Government, acting under Section 90 of the Income Tax Act, has been authorized to enter into double tax avoidance agreements with other countries. The fundamental principles of Taxation throughout the world, therefore, aim at eliminating the prevalence of double taxation. Such agreements are known as “Double Tax Avoidance Agreements” (DTAA) also termed as “Tax Treaties”. DTAAs ensure that countries adopt common definitions for factors that determine taxing rights and taxable events. Crucial among these is the definition of a permanent establishment.

Most treaties also specify a Mutual Agreement Procedure (MAP) which is invoked when interpretation of treaty provisions is disputed. To prevent abuse of treaty concessions, treaties increasingly incorporate restrictions and rules, such as a general anti-functions of avoidance rule (GAAR), that allow tax authorities to determine if a DTAAs transaction is only undertaken for tax avoidance or not. Benefit limitation tests and Controlled Foreign Corporation (CFC) rules also place limits on claims of residence in countries eligible for treaty concessions. Exchange of tax information on either a routine basis or in response to a special request is provided for in most treaties to assist countries counter tax evasion.

As of now, there exists 84 Double Taxation Avoidance Agreements (DTAAs) between India & other countries. These treaties are usually between countries with substantial trade or other economic relations. Most treaties are between pairs of developed countries while, of the balance, most of the DTAAs entered are between developed and developing countries. DTAAs Taxation provides reciprocal concessions to mitigate double taxation, avoidance, assign taxation rights roughly in accordance with that “existing consensus” and largely though not rigidly follow the OECD Model Tax Convention or, for developing agreements countries, the UN Tax Convention (DTAAs). Recent treaties contain new clauses following the OECD Model Tax Conventions of 2005 to 2010 which extend areas of cooperation to administrative and information issues. A typical DTAA agreement between India and another country covers only residents of India and the other contracting country which has entered into an agreement with India. A person who is between India & not resident either of India or of the other contracting country cannot claim any benefit under the said DTA Agreement.

Section 90 of the Income Tax Act, 1961- Agreement with foreign countries or specified territories

Since the tax treaties are meant to be beneficial and not intended to put taxpayers of a contracting state to a disadvantage, it is provided in Section 90 that a beneficial provision under the Indian Income Tax Act will not be denied to residents of contracting state merely because the corresponding provision in tax treaty is less beneficial. Section 90A facilitates double taxation relief to be extended to agreements (between specified DTAAs & Associations) adopted by the Central Government. Section 91 explains, countries with which no agreement exists i.e, Unilateral Agreements. Some Double Taxation Avoidance agreements provide that income by way of interest, provisions of royalty or fee for technical services is charged to tax on net basis. This may result in tax deducted at source from sums paid to Non-residents which may be Income-Tax more than the final tax liability. The Assessing Officer has therefore been empowered under section 195 to determine the appropriate proportion of the amount from which tax is to be deducted at source Act. There are instances where as per the Income-tax Act, tax is required to be deducted at a rate prescribed in tax treaty. However, this may require foreign companies to apply for refund. To prevent such difficulties Section 2(37A) provides that tax may be deducted at source at the rate applicable in a particular case as per section 195 on the sums payable to non- residents or in accordance with the rates specified in DTAAs.

Importance of DTAA

DTAAs are intended to make a country an attractive investment destination by providing relief on dual taxation. Such relief is provided by exempting income earned abroad from tax in the resident country or providing credit to the extent taxes have already been paid abroad. DTAAs also provide for concessional rates of tax in some cases. For instance, interest on NRI bank deposits attracts 30 percent TDS (tax deduction at source) here. But under the DTAAs that India has signed with several countries, tax is deducted at only 10 to 15 percent. Many of India’s DTAAs also have lower tax rates for royalty, fee for technical services, etc.

Favourable tax treatment for capital gains under certain DTAAs such the one with Mauritius have encouraged a lot of foreign investment into India. Mauritius accounted for $93.65 billion or one-third of the total FDI flows into India between April 2000 and December 2015. It has also remained a favoured route for foreign portfolio investors. But the problem is DTAAs can become an incentive for even legitimate investors to route investments through low-tax regimes to sidestep taxation. This leads to loss of tax revenue for the country.

Why should I care?

For us to prosper, the economy has to grow. And for growth in today’s globalised world, foreign investments are inevitable. DTAAs basically provide clarity on how certain cross-border transactions will be taxed and this encourages foreign investors to take the plunge. If you are sent on deputation abroad and you receive emoluments during your stint away from home, your income may sometimes be subject to tax in both the countries. You can claim relief when filing your tax return for that financial year, if there is an applicable DTAA. Similarly, if you are an NRI having investments in India, DTAA provisions may also be applicable to your income from these investments or from their sale.

However, given India’s narrow tax base, it can ill-afford a tax regime that allows big fish to completely evade the tax net, citing a DTAA. Hence the ongoing drive to plug loopholes in these agreements.

Income types under DTAA

Under the Double Tax Avoidance Agreement, NRIs don’t have to pay tax two times on the following income earned from

• Services provided in India
• Salary received in India
• House property located in India
• Capital gains on transfer of assets in India
• Fixed deposits in India
• Savings bank account in India

The primary idea behind DTAA agreements with various countries is to minimize the opportunity for tax evasion for taxpayers in either or both of the countries between which the bilateral/multilateral DTAA agreement have been signed.

Lower withholding tax is a plus for taxpayers as they can pay lower TDS on their interest, royalty or dividend incomes in India, while some agreements provide for tax credits in the source or country of operations so that taxpayers don’t pay the same tax twice. In some cases, such as agreements with Mauritius, Cyprus, Singapore, Egypt etc. capital gains tax is exempted which can be a boon to taxpayers as they can use the DTAA agreement to minimize taxes.

DTAA Rates

The rates and rules of DTAA vary from country to country depending on the particular signed between both parties. TDS rates on interests earned for most countries is either 10% or 15%, though rates range from 7.50% to 15%. List of DTAA rates for particular countries is given in the next section.

Double Taxation Avoidance Agreement (DTAA) Country List

A total of 85 countries currently have DTAA agreements with India. The following countries having Double Taxation Avoidance Agreement with India. TDS rates on interests are listed below. (Listed alphabetically)

DTAA, or Double Taxation Avoidance Agreement is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country. At present, India has double tax avoidance treaties with more than 80 countries around the world.

The need for DTAA arises out of the imbalance in tax collection on global income of individuals. If a person aims to do business in a foreign country, he/she may end up paying income taxes in both cases, i.e. the country where the income is earned and the country where the individual holds his/her citizenship or residence. For instance, if you are moving to a different country from India while leaving income sources such as interest from deposits in here, you will be charged interest by both India and the country of your current residence as per your consolidated global earnings. Such a scenario can have you pay twice the tax over the same income. This is where the DTAA becomes useful for taxpayers.

The Protocol for amendment of the India-Mauritius Convention signed on 10th May, 2016, provides for source-based taxation of capital gains arising from alienation of shares acquired from 1st April, 2017 in a company resident in India. Simultaneously, investments made before 1st April, 2017 have been grandfathered and will not be subject to capital gains taxation in India. Where such capital gains arise during the transition period from 1st April, 2017 to 31st March, 2019, the tax rate will be limited to 50% of the domestic tax rate of India. However, the benefit of 50% reduction in tax rate during the transition period shall be subject to the Limitation of Benefits Article. Taxation in India at full domestic tax rate will take place from financial year 2019-20 onwards.

The revised DTAA between India and Cyprus signed on 18th November 2016, provides for source-based taxation of capital gains arising from alienation of shares, instead of residence based taxation provided under the DTAA signed in 1994. However, a grandfathering clause has been provided for investments made prior to 1st April, 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident. It also provides for assistance between the two countries for collection of taxes and updates the provisions related to Exchange of Information to accepted international standards.

The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 1st April, 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company. This will curb revenue loss, prevent double non-taxation and streamline the flow of investments. In order to provide certainty to investors, investments in shares made before 1st April, 2017 have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol. Further, a two year transition period from 1st April, 2017 to 31st March, 2019 has been provided during which capital gains on shares will be taxed in source country at half of normal tax rate, subject to fulfillment of conditions in Limitation of Benefits clause.

The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India’s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases. The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion.

In a laymen’s language, DTAA is an agreement entered between two countries so that the citizens of those countries need not pay taxes on same income in two countries.

Basically, some countries have residence based taxation like the USA, while some countries have source based taxation, meaning you have to pay taxes on such income if its source is in that country. India follows a dual structure.

So for the benefits of their citizens, the respective governments enter into agreement, defining tax residency, tax rates, where particular income shall be charged to tax etc, so that a particular income is not taxed in both countries. In case same income is being taxed in both countries, the respective income tax legislation generally have provisions to give credit of taxes paid in foreign countries with respect to that income.

A new revised Double Taxation Avoidance Agreement (DTAA) between India and Korea for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income was signed on 18th May 2015 during the visit of the Prime Minister Shri Narendra Modi to Seoul. It has now come into force on 12th September 2016, on completion of procedural requirements by both countries. The earlier Double Taxation Avoidance Convention between India and Korea was signed on 19th July, 1985 and was notified on 26th September 1986.

Provisions of the new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017.

Salient features of new DTAA

• The existing DTAA provided for residence-based taxation of capital gains on shares. In line with India’s policy of taxation of capital gains on shares, the revised DTAA provides for source-based taxation of capital gains arising from alienation of shares comprising more than 5% of share capital.
• In order to promote cross border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates from 15% to 10% on royalties or fees for technical services and from 15% to 10% on interest income.
• The revised DTAA expands the scope of dependent agent Permanent Establishment provisions in line with India’s policy of source-based taxation.
• To facilitate movement of goods through shipping between two countries and in accordance with international principle of taxation of shipping income, the revised DTAA provides for exclusive residence based taxation of shipping income from international traffic under Article 8 of revised DTAA.
• The revised DTAA, with the introduction of Article 9(2), provides recourse to the taxpayers of both countries to apply for Mutual Agreement Procedure (MAP) in transfer pricing disputes as well as apply for bilateral Advance Pricing Agreements (APA). Further, as per understanding reached between the two sides, MAP requests in transfer pricing cases can be considered if the request is presented by the taxpayer to its competent authority after entry into force of revised DTAA and within three years of the date of receipt of notice of action giving rise to taxation not in accordance with the DTAA.

It may be added that a Memorandum of Understanding (MoU) on suspension of collection of taxes during the pendency of Mutual Agreement Procedure (MAP) has already been signed by Competent Authorities of India and Korea on 9th December 2015. The MoU provides for the suspension of collection of outstanding taxes during the pendency of MAP proceedings for a period of two years (extendable for a further maximum period of three years) subject to providing on demand security/bank guarantee.

• The Article on Exchange of Information is updated to the latest international standard to provide for exchange of information to the widest possible extent. As per revised Article, the country from which information is requested cannot deny the information on the ground of domestic tax interest. Further, the revised DTAA contains express provisions to facilitate exchange of information held by banks. Information exchanged under the revised DTAA can now be used for other law enforcement purposes with authorization of information supplying country.
• The revised DTAA inserts new Article for assistance in collection of taxes between tax authorities.
• The revised DTAA inserts new Limitation of Benefits Article i.e. anti-abuse provisions to ensure that the benefits of the Agreement are availed only by the genuine residents of both the countries.

The revised DTAA aims to avoid the burden of double taxation for taxpayers of two countries in order to promote and thereby stimulate flow of investment, technology and services between India and Korea. The revised DTAA provides tax certainty to the residents of India and Korea.

What are the benefits of DTAAs?

Every country seeks to tax the income generated within its territory on the basis of one or more connecting factors such as location of the source, residence of taxable entity, maintenance of Permanent Establishment and so on. The interaction of two tax systems each belonging to different country, can result in double taxation. Following are the main advantages of DTAAs.

1. DTAAs avoid double taxation by considering the specific ax laws of the two countries (the two countries in the case of a bilateral DTAA).
2. DTAAs as international tax treaties often provide tax information exchange. This tax exchange information lowers the administrative costs of taxation.
3. Another advantage is that there is legal certainty in DTAAs as there are specific rules for taxing international income. This encourages foreign investment to developing countries as there is tax certainty.
4. DTAAs also incorporates anti-abusive provisions to ensure that the benefits of the DTAAs are availed by the genuine residents of the two countries.
5. With DTAA, investors need not depend on conflicting national tax rules. Rather the taxation of international income falls under the rules of DTAAs.

Income types under DTAA

Under the Double Tax Avoidance Agreement, NRIs don’t have to pay tax two times on the following income earned from:

• Services provided in India
• Salary received in India
• House property located in India
• Capital gains on transfer of assets in India
• Fixed deposits in India
• Savings bank account in India

When income from these sources is taxable in the NRI’s country of residence as well, they can avoid paying taxes on it India by availing the benefits of DTAA.

The benefit of DTAA can be used by the following methods

Bilateral relief – Under this method, the Governments of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which relief is to be granted. India has entered into 84 agreements for relief against or avoidance of double taxation. Bilateral relief may be granted in either one of the following methods:

• Exemption method, by which a particular income is taxed in only one of the two countries and types of relief.
• Tax relief methods under which, an income is taxable in both countries in accordance with the respective tax laws read with the Double Taxation Avoidance Agreements.
• However, the country of residence of the taxpayer allows him credit for the tax charged thereon in the country of source.

Unilateral relief – This method provides for relief of some kind by the home country where no mutual agreement has been entered into between the countries.

Exemption Method – One method of avoiding double taxation is for the residence country to altogether exclude foreign income from its tax base. The country of source is then given exclusive right to tax such incomes. This is known as complete exemption method and is sometimes followed Methods of in respect of profits attributable to foreign permanent establishments or income from immovable property. Indian tax Eliminating treaties with Denmark, Norway and Sweden embody with respect to certain incomes.

Double Credit Method Taxation – This method reflects the underlining concept that the resident remains liable in the country of residence on its global income, however as far the quantum of tax liabilities is concerned credit for tax paid in the source country is given by the residence country against its domestic tax as if the foreign tax were paid to the country of residence itself. Double Taxation Avoidance Agreements with India.

Tax Sparing – One of the aims of the Indian Double Taxation Avoidance Agreements is to stimulate foreign investment flows in India from foreign developed countries. Methods of One way to achieve this aim is to let the investor to preserve to himself/itself benefits of tax incentives available in India for such Eliminating investments. This is done through “Tax Sparing”. Here the tax credit is allowed by the country of its residence, not only in respect of taxes double actually paid by it in India but also in respect of those taxes India forgoes due to its fiscal incentive provisions under the Indian Income Taxation Tax Act. Thus, tax sparing credit is an extension of the normal and regular tax credit to taxes that are spared by the source country i.e. forgiven or reduced due to rebates with the intention of providing incentives for investments. Double Taxation Avoidance Agreements with India.

Procedure to Seek exemption under DTAA

A person who earns income must pay tax in the country he earns in as well as the country he resides in. In order to avoid this, India has signed Double Taxation Avoidance Agreements (DTAAs) with many countries so that the income is taxed only once.
To claim this benefit, one needs to know whether the country one resides in or earns income in has a DTAA with India. One has to file Form 10F, a tax residency certificate and self declaration in the prescribed format to the entity responsible for deducting tax at source.

Form 10F

This can be obtained from the bank or downloaded at www.incometaxindia. gov.in/forms/income…/103120000000007197.pdf

Details like the applicant’s nationality, tax identification number, address and period of residential status has to be filled and the form has to be signed. Form 10F must be verified by the government of the country in which the assessee is a resident for the period applicable.

Points to note

1. PAN of the assessee needs to be provided in Form 10F and the self declaration form.

2. In order to know whether a particular country is under a DTAA, one can access the following link: http://www.incometaxindia. gov.in/Pages/internationaltaxation/dtaa.aspx 

A person who earns income must pay tax in the country he earns in as well as the country he resides in. In order to avoid this, India has signed Double Taxation Avoidance Agreements (DTAAs) with many countries so that the income is taxed only once.

To claim this benefit, one needs to know whether the country one resides in or earns income in has a DTAA with India. One has to file Form 10F, a tax residency certificate and self declaration in the prescribed format to the entity responsible for deducting tax at source.

This article is written by Atul Alexander and Shubhanshi Phogat. The article deciphers the legal perplexities of Rohingyas crisis.

The historical roots of the Rohingya crisis

The ongoing conflict in Myanmar is reflective of many aspects that the society is heading towards. The suppression of minorities has reached an all-time high in the recent past. The Rohingyas, whose population constitutes 1% of the entire population of Myanmar, have their roots in Ancient Indo-Aryans race. It is also to be highlighted that the Bay of Bengal which was considered a key center for maritime trade and cultural exchange was once ruled by the migrant Rohingyas.

Moreover, the Arabs came in contact with the Rohingyas in the mid of 8^th & 9^th century. So, culturally and traditionally Rohingyas had a very spread out history and customs. The unabated human rights violations, of these distinct sects have dented the morale of International community as a whole. The oppression of the minorities is a common occurrence in the 20^th century, be it the case of the mass massacre of the Jews at the hands of Adolf Hitler or the Genocide in Cambodia, Rwanda and Yugoslavia, the international community has remained as a silent spectator to these vicious acts.

International Law is the branch that offers a healing effect to the crimes committed to the minorities. In this respect one has to view the escalating crimes committed towards Rohingyas under two broad categories namely; Genocide and Crimes against Humanity.

Abuses against Rohingyas – Human Rights Perspective

The role played by the Human Rights Monitoring Committees in supervising the Human Rights abuses in the Rakhine state is self-evident. The Kofi Annan led commissions on Human Rights to enquire into the state of affairs, opinioned, “the Rohingyas were restricted from freedom of movement, education, employment etc, and Human Rights”, along with the reports of several Human Rights Officials describe, terming it as an Ethnic Cleansing, which is quite tangible since the crackdown on Rohingyas were orchestrated on several episodically phases (1978, 1991, 1992, 2012, 2015, 2017), one of the starkling report, by the United Nations Special investigator Yanghee Lee underlined the state sponsored propaganda to wipe out the entire Rohingyas populations, in the other side, the contention placed by the State counselor of Myanmar is that “these groups are illegal migrants from the Bangladesh having dubious track record in terms of terrorist act.”

United Nations on Rohingya crisis

This has been condemned by several head of the states at the recently held 72^nd United Nation General Assembly Session. It is not surprising to witness such statements since the General Assembly is a common platform to exude countries customary national interest. Notably, the statements issued by the President of United States, terming the North Korean dictator as Rocket Man is placing national interest of United States above the acute Human Rights Violation across the Globe.

With regard to the gross human rights violation in the turbulent terrain of Rakhine state, the broad segment of applicable law which could be pressed into service are International Humanitarian Law, International Criminal Law, International Human Rights Law, International Refugee Law, which have to be unlocked to get a clear picture on the ground realities.

Rohingyas as victims of genocide under Genocide Convention of 1948

The most appropriate Law in the context of the human rights violation meted out on the Rohingyas is the 1948 Genocide Convention. The peculiarity of the convention is that, Article 1 of the convention enumerates that Genocide could be committed even during peace time.

Secondly, it is a Human Rights Instrument, since the preamble of the convention employs the term humanity. Article 2 of the Genocide Convention lists down the categories of persons on whom the convention would be binding and one such category is religion. Also, one of the paramount fact is that dolus specialise or specific intent as fulfilled which is an essential component of a crime of Genocide.

Historically, the crime of Genocide was codified post world war II. During 1990’s the Rwanda and Yugoslavian Genocide paved the way for a more comprehensive interpretation on the Genocide Convention, albeit majority of Genocidal acts have remained cremated in the minds of the large sections of international actors, which is also true in the current scenario of Rohingyas.

Genocide is considered as a Crime of Crimes as observed in, Prosecutor vs. Jean Paul Kambande, therefore to remain ignorant of the heinous acts in the Rakhine state is absurd. The clenching element that makes it as a case of Genocide is intention to destroy the group in whole or part in Aricle 4 of the Genocide Convention, which makes even the constitutional ruler capable for the act of Genocide. He/she cannot claim immunity by virtue of being the Head of the State.

Rohingyas crisis – Crime against Humanity

Henceforth, the Governmental agencies can be held liable for the acts of Genocide, which is widely touted as an act perpetrated by the Myanmarese Government. The other crime which falls short of Genocide is Crimes against Humanity under which Torture, sexual violence, Murder, Deportation, enslavement would fall, that being the case, anything of a lesser kind would fall under Crimes against Humanity.

The elements of Crimes against Humanity is borrowed from International Military Tribunal, Control Counsel Law no 10, Draft code on Peace and Security of Mankind, International Criminal Tribunal For Rwanda (ICTR) and International Criminal Tribunal for Former Yugoslavia (ICTY) which stands as, it should be targeted against civilian population, widespread and systematic together with the notion that it should be against a common policy.

So, considering these elements, it is perspicuous that Crimes against Humanity is also effectuated in the ongoing conflict. Apart from these crimes that are enlisted in the documents of International Criminal Law, International Humanitarian Law gains momentum in view of Geneva Convention vis-à-vis Additional Protocols.

The Common Article 3 of Geneva Convention, which guarantees minimum protection to the civilian population, has to be noted. The said provision mentions the phrase Right to Life, since life is an embodiment of Humanitarian Law, the killing of civilian population in the Muslim occupied terrain of Myanmar constitutes gross violation of Human Rights and Humanitarian Law. Another major law which is the bone of contention is International Refugee Law which is most fitting law when it comes to migration of Muslim population to Bangladesh and India.

Definition of Refugee under Article 1 of the Refugee Convention, 1951 

“A person who owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country; or who, not having a nationality and being outside the country of his former habitual residence as a result of such events, is unable or, owing to such fear, is unwilling to return to it.”

The focal point of Article 1 is the fear of persecution, this has to be determined on a case to case basis, when it boils down to the present situation the Rohingyas are to be given the refugee status, since there is a constant fear with respect to extortion, arbitrary taxation, land confiscation, forced disappearance etc., in 2016, the senior officials in Bangladesh accused Myanmar of ethnic cleansing.

Further, one of the cardinal principles of International Refugee Law is the principle of non-refoulement which has attained the status of Jus Cogens. Jus Cogens are norms in International Law, which the nations pledge to abide, irrespective of treaty status, violation of which would entail state responsibility, hence, to refuse safe passage of Rohingyas refugee in the territory of Bangladesh and India is a violation of Jus Cogens principle under Article 32 of the Refugee Convention, 1951.

India has been at the forefront in accommodating Refugees from across the globe, Indian Government has enlisted the categories of Refugees under its Ministry of External Affairs and Rohingyas finds a place in the discourse of Refugees in India, but lately, the stance taken by Government has been controversial.

The external affairs spokesperson has cited development and security as a factor in limiting the number of Refugees entering India, but prior to this statement Indian government has proactively undertaken a mission viz. operation insaniyat to provide relief materials like Rice, Sugar, Salt, Pulses, Oil to the affected refugees. Accusations of Rohingyas being radicalized by the militant groups like Lashkar-e-Taiba, Al-Qaeda has underscored the credibility of refugee to a larger extent.

The statement issued by Minister of State for Home Affairs has been, extremely hypercritical on the movement of Rohingyas refugees in the volatile borders of Bangladesh. India’s refused to sign the Bali Declaration, has clearly demonstrated the position taken by the Indian Government, which is zero tolerance on any insurgent movement to the North-East and a step towards protection of national interest. The Supreme Court of India has directed the executive to play a mediators role in resolving the tensions between the stakeholders.

PIL as a resort to protect the Legal Rights of Rohingyas

In line with that, Public Interest Litigations (PIL) have flooded, to protect the Rights of Rohingyas, Mr. Mohammed Balimuolla a citizen of Myanmar filed a PIL on account of the widespread violence, bloodsheds and Persecution in their home territory. The counter affidavit on the part of the center alleges the draining of countries resources and security threats.

One of the pitfalls of Genocide Convention is that the definition of Genocide is inadequate since it fails to factor in gender, environment and political element, also the Genocide Convention does not provide compensation to the aggrieved victims. Moreover, the Genocide Convention mentions Genocide as a crime having universal jurisdiction the convention per se does not deal about universal jurisdiction.

Myanmar being a sovereign has unilateral control over its territory, the question of fixing the international liability seems farfetched courtesy the doctrine of sovereignty, which is a stumbling block in the enforcement of International Legal Order. The grotesque political framework surrounding the whole episode could be laid to rest by adopting a collaborative approach like increased involvement of International Fact Finding mechanisms, Human Rights Investigatory Agencies, Regional Mechanisms, intervention of United Nations coupled with Security Council’s active involvement to discover an amicable solution.

Regional and International response

India

The government of India is largely silent on the atrocities faced by Rohingya people and believes that the unity and territorial integrity of Myanmar should be respected. As per UNHCR3 data, 18000 Rohingyas have taken refuge in India over the past decade. India described these refugees as “illegal immigrants” while the security agencies have claimed that some Rohingyas sympathize with extremist ideologies and can be potential threats to internal security. Thus, India announced plans to deport the Rohingya population stating that it is neither a party to the 1951 Refugee Convention or its 1967 protocol nor is bound by any national refugee protection framework. However, it responded readily to the crisis in Bangladesh due to Rohingyas, by extending its assistance through ‘Operation INSANIYAT’ and delivering material aid for Rohingya refugees in Bangladesh.

Myanmar

Myanmar government has responded defiantly to the Rohingya crisis by protecting its unity and territorial integrity. The govt of Myanmar has strongly denied any human rights abuse and rejected UN findings as “one-sided”. The country maintains that military action, which followed militants’ attacks on security forces in 2017, as a legitimate counter-insurgency operation. The country described the violence as an internal armed conflict, further raised objections to the jurisdiction of the international court of justice over the region and considers the international community to cause hindrance in the sustainable development of Rakhine state.

Bangladesh

The Rohingya crisis has strained Myanmar-Bangladesh relations since 1970s. Discussions on Bilateral agreements and negotiations aimed at repatriating Rohingya refugees have been in place since the 1990s followed by the formation of pacts in 2017 and 2019 however all efforts have so far foundered. In late 2019 the countries agreed to repatriate Rohingya but this time the leaders of the Rohingya community denied returning to Myanmar as they are aware that though their situation in Bangladesh is grim but their prospects in Myanmar would be even worse. Another surge in the situation came when on 4 December2020 the Bangladesh government transported the first batch of Rohingya refugees to Bhashan Char4, a newly developed island in Bay of Bengal which is 34 km from mainland in order to ease overcrowding in camps and claims to spend

$350 million in order to provide better living conditions to the refugees.

International Court of Justice

In November 2019, the state of Gambia on behalf of the fifty-seven-nation organization of Islamic cooperation instituted the first international lawsuit against the state of Myanmar at ICJ accusing the country of committing the offence of genocide against Rohingya Muslims. In a historic judgement by the presiding judge Abdulqawi Yusuf and 16 other judges on 23 January 2020, held that Rohingyas face an ongoing threat that necessitates Myanmar to take “all measures within its power to prevent all acts” prohibited under 1948 genocide convention and report back to the court after every six months. In a recent order dated 28 January 2021 the court directed Gambia to present its observations on the objection of jurisdiction raised by Myanmar. This ruling has been hailed as an “accomplishment of international justice” and applauded by human rights groups all over the world.

Suggestions and recommendations

A comprehensive solution to the ongoing Rohingya refugee crisis can be achieved through joint efforts of the government of Myanmar and Bangladesh as well as international mediators like -the UN, EU, and OIC. Members of the association of southeast Asian states (ASEAN) must enhance regional cooperation in order to improve protections for the region’s refugees.

According to me, Rohingya represent “the last man” of the international community that Gandhiji talked about. They are the ones for whom Aung San Suu Kyi brought democracy and human rights. The odd thing is that the genocide and vulnerability of people is lost in bureaucratic issues of legal and political status which sadly shows that the world missed the leadership and compassion of Mother Teresa. This is not just saving beleaguered people but a question of saving the very soul of humanity in the world. Thus, there exists Rohingya in all of us.

This article is written by Mishika Bajpai. The article answers the question whether rewriting or sharing news articles amounts to violation of Copyright law or not.

Can one have a copyright over a news item? Can one exercise this right which might result in a violation of the fundamental right to know and express?

This short write-up aims to clarify the position of news items in the copyright law and whether any embargo on the right of the citizens to express daily events and discern themselves with common facts in the public domain can be legally exercised. The whole idea is presupposed on a belief that copyright and public interest are not inevitably competing forces and can co-exist in a cultural society.

Consider an example, where A gains knowledge from B about a football match that is about to happen, and uploads a story about it on the internet after the match. Can B claim copyright over the idea of reporting this event? Can B claim copyright over the fact that she knew about the event and only she had the right to publish any story on it?

First, there exists no copyright in news or facts or information, as the same are neither created nor have they originated with the author of any work, which embodies these facts.

Second, facts may be discovered and discovery of facts cannot be given the protection of copyright.

Third, the protection of copyright is afforded only when a fact or event or information or material is applied to create a form of work, literary or otherwise. When there is no copyright in news, there can be no infringement of an original ‘idea’ either, copyright may exist in the manner of expressing it.[1] That being the position, any edited piece of work which had an established amount of skill, labor and capital put as inputs would amount to innovative thoughts and creation of the editor. Copyrighted material is that what is created by the author by his own skill, labor and investment of capital. Therefore, it is necessary to perceive the labor, skill and capital invested in the expression of the work and not the fact itself.[2]

Fourth, law of Copyright in India only protects original and creative expressions of ideas and not ideas themselves. As held by the Supreme Court of India[3], “There can be no copyright in an idea, subject matter, themes, plots or historical or legendary facts and violation of the copyright in such cases is confined to the form, manner, arrangement and expression of the idea by the author of the copyrighted work.” Even Article 2(8) of the Berne Convention for the Protection of Literary and Artistic Works 1886 excludes the protection for “news of the day or to miscellaneous facts having the character of mere items of press information.”

Fifth, the news element in the information reporting current events contained in the literary production is not the creation of the writer, but is a report of matters that ordinarily are publici juris; put in different words, it is the history of the day.[4] The same is true for all facts scientific, historical, biographical, and news of the day. They can never be copyrighted and are part of the public domain available to every person.[5]

Copyright vis-à-vis freedom of speech & expression

Consider another example, where A has received a scoop from B about an event which may not have seen the light of the day yet. A publishes an article on the scoop, setting out the impact this particular scoop may have on public interest. Can B claim monopoly over this news scoop, which may have a direct bearing on public interest?

If it were the law that practice of reporting stories in one’s own words constituted breach of copyright, the consequences, would be that a paper or person that obtained a scoop from a confidential source would obtain a monopoly on that piece of news. That would not be in the public interest as it would prevent the wider dissemination of the news to the public at large.[6] Such an approach would also prove counterproductive to the duty to communicate to the general public for various sociological, economic, and political functions. Whilst the admitted position of law that there cannot be a copyright in news items, any impediment in its numerous and recurring expressions amounts to violation of the fundamental right[7] and human right[8] of freedom of expression.[9] When it comes to dissemination it is not done with a view as to whose news is it.

An instance, when the Indian judiciary delivered on this subject extensively was a case^[10] which raised the question of reproduction of the Supreme Court judgments. The court found that the reproduction or publication of anything in the public domain did not amount to infringement of copyright. Therefore, if a person gains knowledge of an event and creates news item or publishes an informative story on the internet or shares a report, perhaps on Whatsapp or Twitter, cannot be said to be violating any copyright. The discoverer of these facts may only find and record the instances, but it is the expression that matters.

The issue gains more importance in the light of the fact that the legislature not once, but on many occasions limited the right of the freedom which has sought justice and been successful before the Courts. The right to know, as laid down by the Courts, flows from the assertion of the Supreme Court which in 1975 declared any impediment against the right of press as a violation of the fundamental right to freedom of speech and expression.[11] The Apex Court has also on numerous occasions stated the right to know derives its powers from the quintessential part of Article 19(1)(a) of the Constitution of India. There is no gainsaying in stating the obvious that without adequate information, a person cannot form an informed opinion.[12] It is the press responsible for the reporting of timely news and information for public consumption, journalistically; And an underinformed or uninformed press would hardly be in a position to disseminate any news to the public.

Where there was the dissenting opinion of Mathew, J. in Bennett Coleman & Co. v. Union of India^[13] that “the freedom of speech does not mean a right to obtain or use an unlimited quantity of newsprint. Article 19(1)(a) is not a “guardian of unlimited talkativeness”. The majority ruling in the case supported the faith of the citizens in political wisdom and virtue which would sustain themselves in the free market of ideas so long as the channels of communication are left open. The confidence in the popular Government also rests on the old dictum, “let the people have the truth and the freedom to discuss it and all will go well.”[14]

It is worth recollecting the words of Justice Patanjali Sastri, J.,[15] speaking for the Supreme Court in the landmark case of Romesh Thappar[16]–

“Thus, every narrow and stringent limits have been set to permissible legislative abridgement of the right of free speech and expression, and this was doubtless due to the realisation that freedom of speech and of the press lay at the foundation of all democratic organisations, for without free political discussion no public education, so essential for the proper functioning of the processes of popular Government, is possible”.

Celebrated scholar, William Blackstone, is also revered for his commentaries on freedom of the press to express:

“Every free man has an undoubted right to lay what sentiments he pleases before the public; to forbid this is to destroy the freedom of the press; but if he publishes what is improper, mischievous or illegal, he must take the consequence of his own temerity.”

Reasons rather than rhetoric

Every man has a right to publish and circulate, for the purpose of giving the public information that which it is proper for the public to know.[17] And as long as the expression of that particular fact or news or information or event does not fall within the exceptions under Article 19(2) i.e. the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence, there ought to be no restriction on the exercise of the right. On another instance, our Apex Court had, while dealing with the censorship of a film, stated the following.

“Our commitment of freedom of expression demands that it cannot be suppressed unless the situations created by allowing the freedom are pressing and the community interest is endangered. The anticipated danger should not be remote, conjectural or far-fetched. It should have proximate and direct nexus with the expression. The expression of thought should be intrinsically dangerous to the public interest. In other words, the expression should be inseparably locked up with the action contemplated like the equivalent of a ‘spark in a power keg’.”[18]

For making the news reach its deserving audience, it cannot be gainsaid that the journalists experience copyright issues and have to take crucial decisions while portraying a true picture. While dissemination of news and views for popular consumption has always been permissible under our constitutional scheme, it is sometimes a ‘forced’ cultural responsibility backed by the dogmatic and conventional morality which might be enough ground to penalise an author.

It is not just the citizens who face limited content, but also the journalist who are hit by the worry whether they can publish in the new world or do they need to first comfort themselves with the copyright laws on fair use reporting which gives them the liberty to override the limited monopoly rights of copyright holders in the course of their work.

At this stage, the Courts have to consider all the circumstances before approaching the moot question, and the same shall include whether the information is at all sufficient value to the public. The rationale behind keeping the veil of public interest as low as possible is to reduce obstacles to the facilitation and reporting of news.

Truth can only prevail in the absence of any obstruction or monopolisation of that market whether it be by the Government itself or by a private licensee. It shall then enable the members of the society to preserve their political expression of comment not only upon public affairs but also upon the vast range of views and matters needed for free society.[19]

Since no copyright protection can be advanced against the fundamental right to expression, the court may at the highest, in principle indemnify the author for any loss caused to him or account to him for any profit made as a result of copying his work.[20]

It is not necessary that an exclusionary right such as copyright may never be in tandem with the protection of human rights and fundamental rights of the general public. Hence, the very motive of an effective copyright regime is to encourage production and investment. Though copyright protection is a tool for economic emancipation, sheer conventionalism may hamper the effective willingness to share. A society will fail if it does not reward such creators who would eventually cease to exist.

References.

[1] Springfield v. Thame, (1903) 89 LT 242 at 243; Express Newspaper v. News (1991) F.S.R. 36

[2] Feist Publications Inc. v. Rural Telephone Services Company, 499 U.S. 340 (1991)

[3] R.G Anand v. Delux Films, AIR 1978 SC 1613 [14-18] [41] [61]

[4] News Service v. Associated Press, 248 U.S. 215, 234, 354 (1918)

[5] Miller v. Universal City Studios Inc., (650 F.2d 1365, 1369 5th Cir. 1981

[6] See Express Newspaper v. News, (1991) F.S.R. 36, 7

[7] Constitution of India, 1950, Article 19(1)(a)

[8] Universal Declaration of Human Rights, 1948, Article 19

[9] LIC v. Manubhai D. Shah (Prof.), (1992) 3 SCC 637, 648

[10] Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1, 111

[11] State of Uttar Pradesh vs. Raj Narain (1975) 4 SCC 428, Read also, S. Khushboo v. Kanniammal, (2010) 5 SCC 600

[12] State of U.P. v Raj Narain, AIR1975SC865; Reliance Petrochemicals Ltd. v. Indian Express, AIR1989SC190; Secretary, Ministry of Information and Broadcasting, Govt. of India v. Cricket Association of Bengal, AIR1995SC1236; Dinesh Trivedi v. Union of India (1997)4 SCC 306; and Association for Democratic Reforms v. Union of India, AIR2001Del126.

[13] (1972) 2 SCC 788 at page 843

[14] Bennett Coleman & Co. v. Union of India, (1972) 2 SCC 788 at page 823

[15] Ibid

[16] Romesh Thappar v. State of Madras [AIR 1950 SC 124

[17] Cox v. Feeney, (1862) 4 F and F 13,18

[18] S. Rangarajan v. P. Jagjivan Ram [(1989) 2 SCC 574, pp. 595-96, para 45

[19] Red Lion Broadcasting Co. v. Federal Communications Com. [(1969) 395 US 367 : 23 L.Ed.2d 371] – Neither regulation nor direction with regard to medium of expression encroaches on the First Amendment right of the American Constitution. [“Regulatory statutes which do not control the content of speech but incidentally limit the unfettered exercise are not regarded as a type of law which the First Amendment to the American Constitution forbade the Congress of the United States to pass.”]

[20] See Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd. 2008) 13 SCC 30 [87]; Copinger & Skone James on Copyright, Vol. 1, 10th Edn., 2012, 165

In this article, Archit Singh, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on the legal framework and regulations governing Nidhi Companies.

Understanding Nidhi Companies

“Nidhi” is a Hindi word, which means finance or fund. Nidhi means a company which has been incorporated exclusively with the object of developing the habit of thrift and reserve funds amongst its members, receiving deposits, and lending to its members only for their mutual benefit. Nidhi Companies are monetary business companies operating in India and can be classified as Non Banking Financial Companies (NBFC) and Banking Companies. However, unlike NBFCs and Banking Companies a Nidhi company does not require a license from the Reserve Bank of India (RBI) to operate. A Nidhi Company works through its members. Any person who is a member of a Nidhi can make deposits and borrow or take loans when need be.

Nidhis are also known as ‘Mutual Benefit Societies’ or ‘Mutual Benefit Companies’, terms given to it by the ‘Sabanyagam Committee on Nidhis’ and the ‘Expert Committee on Nidhi’ to distinguish it from other Co-operative societies and Banks which may engage in a similar kind of activity. The basic function of a Nidhi is to promote the savings and utilization of funds by its members and to safeguard the financial conditions of its members.

Objectives of Nidhi Companies

Nidhi is Public Limited Company formulated with the primary object to carry on the business of accepting deposits and lending money to member-borrowers only against jewels, mortgage of immovable property and fixed deposit receipts. Nidhis are not permitted to engage themselves in the business of Chit Fund, hire purchase, insurance or in any other business including investments in shares or debentures. Thus, Nidhis do their business only with Members. Such Members are only individuals. Bodies Corporate or Trusts are never to be admitted as Members.

The Nidhis cater to the needs of middle class and lower middle class persons, who are all the members of the Nidhi generally operate in a small local area and the members are very often known to each other.

Legal framework and regulatory bodies regulating the functioning of Nidhi Companies

Nidhis are companies registered under Section 406 of the Companies Act, 2013 (or Section 620A of the Companies Act, 1956) and is regulated by the Ministry of Corporate Affairs (MCA). NBFCs are wholly or partially regulated by the RBI. Nidhis are one such class of NFBCs that is only partially regulated by the RBI i.e. in reference to the matters relating to their deposit acceptance activities. Unlike section 620A of the 1956 Act, the 2013 Act under Section 406 finally defines Nidhi Companies. This definition was first recommended to be added by the Sabanyagam Committee on Nidhis.

It was observed by the ‘Expert Committee’ that since Nidhis operate in a small area and cater the needs majorly of the middle and lower middle section of the society and the members are often well known to each other, certain norms prescribed for the NBFCs should be diluted when applied to these institutions.

Nidhi Rules, 2014

• Nidhi companies are governed by Nidhi Rules, 2014. They are incorporated in the nature of Public Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014. Nidhis are regulated by the provisions of the Companies Act in force.
• They also come under one class of NBFCs and hence RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. RBI has in recognition of the fact that these Nidhis deal with their shareholder-members only exempted the notified Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs.
• However, unlike other NBFCs, no RBI approval is necessary to register the company, as RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as the notified Nidhi companies are exempted from the provisions of Section 45-IA (Compulsory Registration with RBI), Section 45-IB (Maintenance of Liquid Assets) and Section 45-IC (Creation of Reserve Fund), it has been decided on the lines of Government advice to exempt the MBCs in existence as on January 9, 1997 and having NOF of Rs.10 lakh from the above mentioned provisions of the Act in terms of powers vested with the Bank under Section 45-NC of the Act and also from those provisions of NBFC Directions on Acceptance of Public Deposits and Prudential Norms which do not apply to notified nidhi companies.

Question regarding the regulatory powers of RBI upon a Nidhi was raised in the case of Puraswalkam Santhatha Sanga Nidhi Ltd. v. Reserve Bank of India wherein restrictions were placed on Nidhi Companies by a notification issued by the RBI under Section 45-I of the RBI Act, 1934. The notification placed restrictions on the rate of interest and payment of brokerage and commission etc on Nidhi Companies. The Madras High Court in this case held that RBI hold power to issue directions to all financial institutions carrying on trading or activities relating to advancing of loans. The Court stated that since Nidhis are engaged in the activity of advancing loans to its members it falls squarely within the definition of a ‘Financial Institution’ and there RBI was empowered to issue directions with intention to regulate credit system of the country.

Further, S. 406 empowers the Central Government to notify a company to be a Nidhi company. Central Government is also empowered to notify the which all provisions of the Companies Act may or may not be applicable to a Nidhi Company along with any modification or exception to any procedure that may apply to it.

Incorporation of a Nidhi Company

For a Nidhi to be incorporated under the Companies Act, it has to be incorporated as a public company with a minimum paid up equity share capital of five lakh rupees. Except as provided under the proviso to sub-rule (e) to Rule 6, no Nidhi can have any object in its Memorandum of Association other than the “object of cultivating the habit of thrift and savings amongst its member, receiving deposits from, and lending to, its members only, for their mutual benefit.” And lastly, Rule 4(5) makes it mandatory for every company incorporated as a Nidhi to have the last words “Nidhi Limited” as part of it name.

Membership

Rule 5 of the Nidhi Rules, 2014 specifies the requirements of the minimum number of members and net owned funds that a Nidhi company must have. The rule stipulates that it must have not less than 200 members at any point of time of the existence of the company after its incorporation, have Net Owned Funds of ten lakh rupees or more and the ratio of the net owned funds to deposits should not be more than 1:20.

Other than this, the provisions with regard to share capital and allotment, membership, net owned funds, branches, acceptance of deposits, loans, rate of interests, rules relating to directors, dividend, auditors, prudential norms are provided in the rules 7- 20.

General restriction imposed on Nidhi Companies

1. Nidhis are barred from issuing of any preference shares, debentures or any other debt instruments. Preference Shares issued before the commencement of the Act are, however, permitted to be redeemed as per the terms of their issuance.

2. Nidhis are barred from opening any current accounts with its members. The objective of Nidhis is to promote savings and thus they are permitted to only open savings accounts with their members.

3. There is an absolute restriction on a Nidhi to extend loans or allow deposits to any person who is not its member.

4. Nidhis cannot carry on any business other than the business of borrowing or lending in its own name.

5. Further, Nidhis are restricted from accepted any deposits or advancing loans to any persons (including body corporates) other than its members, pledge any of the assets ledged by its members as security, enter into any partnership arrangements, pay any brokerage or incentives for mobilising deposits from members or for granting loans.

6. At present, Nidhi Companies are barred from payment of brokerage on deposits and making advertisements in any manner. The only stipulation of RBI presently applicable to Nidhis pertains to the ceiling on interest rate payable on the deposits.

Conclusion

Nidhi companies, with its unique institutional structure, offer a profitable path for organising a lending business without getting into the regulatory web of ordinary financial services. Though there exist a dedicated gamut of legislation governing Nidhi Companies carefully crafted to plug possible loopholes, this structure is advantageous with its relatively easier formation and limited regulation. Nidhi Companies being mutual benefit organisations is devoted strictly to its members, pro lower and middle class. A bulk of members are attracted with the benefit of easy documentation and favourable rates. Thus, in a country like India having a high percentage of unbanked population and with a society still not fully equipped with a sound banking culture, these companies are a solid alternative to a traditional banking system to align the interests of many within a closed unit. However, these companies are still not common uniformly throughout India with the bulk of them in Southern India. Though the concept of such companies is quite old, the recent tightening of regulation for interests of depositors is a positive step to promote yet another means of financial inclusion.

In this article, Parth Sarthy Kaushik discusses whether SEBI should have the power to penalise Auditors or not.

Introduction

Corporate governance refers to the role played by different participants (such as the management, the board of directors, the shareholders and the auditors) entrusted with the supervision, control, and direction of the company. The need for good corporate governance essentially arises from the division between ownership and control of the company. Therefore, corporate governance focuses on running the company in the mutual interest of all stakeholders.

The role of the auditors is pivotal to effective corporate governance as they are in the best position to provide an unbiased analysis of the finances of the company thereby acting as trustees of shareholders and prospective investors. The shareholders of the company place very high trust on the auditor’s report, which apparently shows the true and fair view of the accounts of the company. However, in many cases the auditors fail to perform this role diligently and honestly and are often found to commit fraud in collusion with the management.

Therefore, the need for an effective oversight of the performance, independence and objectivity of the auditor and the quality of the audit cannot be overstated. With a view to enhance the standards of corporate governance of listed companies in India, Uday Kotak Committee on Corporate Governance has recommended, inter alia, an active monitoring of the role of auditors and conferring powers on SEBI to act against auditors in case of an ineffective audit. However, The Institute of Chartered Accountants of India (ICAI) has expressed its dissent on these recommendations as the regulation of chartered accountants is covered under the Chartered Accountants Act, 1949 and disciplinary measures for auditors will come under the National Financial Reporting Authority (NFRA), which is a regulatory agency for auditors proposed to be set up under Section 132 of the Companies Act, 2013.

Thus, these recommendations can give rise to jurisdictional conflict and have wide-ranging implications for companies and their auditors. In the present context, it is very important to examine these recommendations and objection raised in light of the failure of the ICAI to rein in erring auditors.

Rules Governing the Role of Auditors – Present Framework Vis-à-Vis Proposed Framework

Following are some of the key proposals made by the Committee to ensure independence of the auditors and the quality of audit reports:

1. Audit Qualifications

Under Schedule IV, Part-A of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (LODR) if the impact of audit qualification is not quantifiable, the management is required to make an estimate which shall be reviewed by the auditor. In case the management is unable to make an estimate, it is required to provide the reasons.

Committee has recommended that the disclosures regarding audit qualifications should be made mandatory. However, there is one exception to this rule i.e. matters of going concern or sub-judice matters. In such cases, the management will be required to provide reasons which will be reviewed by the auditor.

2. External Opinion

Currently, there are no specific provisions in any law which enables an auditor to obtain an independent external opinion in relation to the audit/limited review.

Committee has recommended that Regulation 33 of LODR, which deals with the Financial Results of a listed entity, should be amended to grant auditors a right to independently obtain opinions from external experts, when they do not agree with experts appointed by the listed entity. Also, it has been suggested that any expenditure incurred for obtaining such opinion shall be borne by the listed entity.

3. Resignation of Auditors

Section 140 (2) of the Companies Act, 2013 read with Rule 8 of the Companies (Audit and Auditors) Rules, 2014 provides that, upon the resignation of auditors, reasons for such resignation shall be filed with the company and Registrar of Companies. However, SEBI LODR Regulations does not have any specific provision providing for such disclosure.

To ensure that auditors don’t resign quietly when called upon to take a position on contentious issues, it is very important that detailed reasons for their premature resignations are provided. Therefore, with a view to bring the LODR Regulations in consonance with the provisions of the Companies Act, 2013 the Committee has recommended that it should be mandatory for a listed entity to disclose the reasons for the resignation of its auditors. Furthermore, auditors shall also be required to truthfully disclose the reasons for their resignation.

4. Role of ICAI

At present the Chartered Accountants Act, 1949 regulates the conduct of Chartered Accountants in India which, inter alia, provides for the mechanism of disciplinary action against erring members. Further, Section 147 of the Companies Act, 2013 provides that if an auditor contravenes any of the statutory duties laid down in the Act then –

(a) In case of unintentional contravention, the auditor can be punished with a maximum fine of Rs. 5 Lac; and

(b) In case of wilful contraventions, the fine can be extended upto Rs. 25 Lac. Further, in case where audit of a company is being conducted by an audit firm, the partners of the concerned audit firm and the firm can be made jointly and severally liable. However, it must be emphasised that the enforcement of the provisions of CA, 2013 is through the Ministry of Corporate Affairs and not the ICAI.

As the current mechanism has failed to deter auditors from participating in fraudulent activities in collusion with the company management. The Committee has recommended that ICAI may be given powers to increase the scope of punishment as well as the penalty amount by increasing the upper limit to Rs. 1 crore in case of auditors and Rs. 5 crore in case of repeated violations by an audit firm. In addition, it has been recommended that a separate cell should be formed by ICAI for the enforcement of disciplinary proceedings pertaining to listed entities.

5. Enforcement by SEBI

Section 11 of the SEBI Act, 1992 provides that, in order to protect the interests of investors and to promote the development of the securities market, SEBI can restrain person accessing the securities market a certain time period. However, under the SEBI Act or Regulations framed thereunder, currently there is no specific provision which provides for specific penal powers in relation to auditors.

As SEBI is duty bound to protect the interests of investors in the securities market and regulating listed entities, it is only logical that SEBI should have clearly defined powers to act against auditors with respect to their functions concerning listed entities. The Committee has recommended that the power conferred under Section 11 ought to be extend against the audit firms as well.

ICAI and Auditors – A Mutual Benefit Society?

The infamous Satyam scandal which broke out in January, 2009 showed that no system is fully equipped to prevent greedy and dishonest people from putting their personal interests ahead of the interests of the companies they manage. Today it’s a well-known fact that the auditors were paid to hide the fraud and actively participated in luring the investors by manipulating facts and figures.

This is not a one off instance where auditors were found hand in gloves with the management in perpetrating frauds of unheard proportions. In 2001, the role of the auditors of Global Trust Bank had come to light in the backdrop of Ketan Parekh stock market scam. A lot of noise is made in the regulatory circles, every time there is a new scam exposing the wrongdoings of auditors but the system governing auditors does not witness any observable improvement.

The reforms suggested by Uday Kotak Committee can have far reaching impact on the role of auditors in the corporate governance of listed companies. As expected, ICAI has protested by claiming that the Committee has exceeded its mandate and the recommendations if implemented would cause a conflict of jurisdictions between SEBI and ICAI or proposed National Financial Reporting Authority (NFRA). Considering that ICAI has been successfully lobbying against NFRA and its own track record in taking action against the erring auditors, one may find it baffling to see ICAI making the above argument. But given that the governing council of ICAI is elected by Chartered Accountants, it can hardly be expected that elected representatives will show any diligence in acting against the members who elect them. One such example is the disciplinary proceedings against the auditors of Global trust Bank, which stretched for more than a decade.

It is clear that self-regulation of auditors has resulted in dubious accounting and auditing practices. Therefore, it is imperative that SEBI should be allowed to strengthen its capacity to effectively reduce opportunities for accounting fraud and insure greater accountability of the auditors.

Conclusion

The auditing profession has an important role to play in strengthening the corporate governance mechanism. If the above recommendations are implemented in their letter and spirit then transparency in accounting and auditing practices is sure to increase, which will result in adoption of more ethical practices. In long-term, these reforms will prove out to be instrumental in the evolutionary process of India’s corporate governance mechanism.

In this article, Akansha Vidyarthi discusses enforcement of foreign judgments and decrees in India.

ABSTRACT

In this new Era of globalization, Indian legal system is often appreciated for the importance it gives to enforcement of foreign decrees and judgment. Foreign legal materials are now easily available due to communication and technological development. Foreign judgments may be recognized based on bilateral or multilateral treaties or conventions or other International Instruments. The “recognition” of a foreign judgment occurs when the court of one country accepts a judicial decision made by the courts of another “foreign” country, and issues a judgment in substantially identical terms without rehearing the substance of the original lawsuit. Recognition of judgment will be denied if the judgment is substantively incompatible with basic fundamental legal principles in the recognizing country.

Indian legal system is based on Common law legal system. The Constitution of India is inspired from laws and statute of other countries, as many provisions of Indian Constitution has been borrowed from the Statutes of other countries. Fundamental Rights from The U.S. Bill of Rights, DPSP from Ireland etc. Therefore, it is necessary that Indian Judiciary enforce such foreign decrees and judgments in India which is in consonance with the basic fundamental rules and laws in force in India.

The Indian Judiciary has given various guidelines and judgment which are greatly inspired by laws of other countries. One of the recent examples is Triple Talaq which has been declared unconstitutional by Supreme Court. In recognizing freedom of the press, the Court relied on the U.S. Supreme Court’s decision in Kovacs v. Cooper. In upholding the death sentence, the Supreme Court relied on the U.S. cases of Furman v. Georgia, Arnold v. Georgia, and Proffitt v. Florida. Cases where conflict of laws arises, judges do the comparative study of laws of various countries to reach a fruitful conclusion.

This Article aims to study in detail the enforceability of foreign Judgments & decrees passed by foreign courts and the nature and scope of Section 13, Section 14, Section 44-A of the Civil Procedure Code, 1908. The exceptions of Section 13 has been dealt separately in detail. This paper discusses various decisions of the Supreme Court, High Courts and other Courts of India, and some propositions are also discussed so that the decisions can be rightly appreciated.

Civil Procedure Code, 1908

The Indian Code of Civil Procedure, 1908 (CPC) lays down the procedure for enforcement of foreign judgments and decrees in India. CPC, 1908 had defined the following as-

• Section 2(5) “foreign Court” means a Court situate outside India and not established or continued by the authority of the Central Government[1].
• Section 2(6) “foreign judgment” means the judgment of a foreign Court.

Nature and Scope of Foreign Judgments

Section 13 embodies the principle of res judicata in foreign judgments. It embodies the principle of Private International law that a judgment delivered by a foreign court of competent jurisdiction can be executed and enforced in India.

Object of Recognizing Foreign Judgments

The judgment of a foreign court is enforced on the principle that where a foreign court of competent jurisdiction has adjudicated upon a claim, a legal obligation arises to satisfy that claim in the country where the judgment needed to be enforced. The rules of private international law of each state differ in many respect, but by the comity of nations certain rules are recognized as common to civilized Jurisdictions. Through part of the judicial system of each state these common rules have been adopted to adjudicate upon disputes involving a foreign element and to enforce judgments of foreign courts, or as a result of International conventions[2]. Such a recognition is accorded not as an act of courtesy but on consideration of basic principle of justice, equity and good conscience[3]. An awareness of foreign law in the parallel jurisdiction would be a useful guideline in determining our notions of justice and public policy. We are a Sovereign Nation within our territory but “ it is not derogation of sovereignty to take accounts of foreign law”.

“We are not provincial as to say that every solution of the problem is wrong because we deal with it otherwise at home”[4].

Therefore, we shall not brush aside foreign judicial process unless doing so, “would violate some fundamental principle of justice & deep-rooted traditions of common weal”.

Jurisdiction of Foreign Courts

In Private International Law, unless a foreign court has jurisdiction in the international sense, a judgment delivered by that court would not be recognized in India[5]. But it considers only the territorial competence of court over the subject-matter and defendant. Its competence or jurisdiction in any other sense is not regarded as material by the court in this country.

Presumption as to foreign judgments

Section 14 states the presumption that an Indian court takes when a document supposing to be a certified copy of a foreign judgment is presented before it. The Indian Courts presume that a foreign Court of competent jurisdiction pronounced the judgment unless the contrary appears on the record, but by proving want of jurisdiction may overrule such presumption.

Section 14. Presumption as to foreign judgments – The Court shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a Court to competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction[6].

Conclusiveness of Foreign Judgments

Section 13 lays down the fundamental rules which should not be violated by any foreign court in passing a decree or judgment. The decree or judgment of foreign court will be conclusive except where it comes under any of the clauses (a) to (f) of Section 13.

13. When foreign judgment not conclusive[7].-A foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except,—

(a) Where it has not been pronounced by a Court of competent jurisdiction;

(b) Where it has not been given on the merits of the case;

(c) Where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable;

(d) Where the proceedings in which the judgment was obtained are opposed to natural justice;

(e) Where it has been obtained by fraud;

(f) Were it sustains a claim founded on a breach of any law in force in India. 

In Brijlal Ramjidas v. Govindram Gordhandas Seksaria[8], Supreme Court held that Section 13 speaks not only of “Judgment” but “any matter thereby directly adjudicated upon”. The word ‘any’ clearly shows that all the adjudicative parts of the judgment are equally conclusive.

Foreign Judgments when cannot be Enforced in India

Before enforcing a foreign judgment or decree, the party enforcing it must ensure that the foreign judgment or decree must not fall under these 6 cases. If the foreign judgment or decree falls under any of these tests, it will not be regarded as conclusive and hence not enforceable in India. Under Section 13, there are six cases when a foreign judgment shall not be conclusive. Six tests are discussed below.

Foreign Judgment not by a competent court

It is a basic fundamental principle of law that the judgment or order passed by the court which has no jurisdiction is void. Thus, a judgment of a foreign court to be conclusive between the parties must be a judgment pronounced by a court of competent jurisdiction. Such judgment must be by a court competent both by law of the state which has constituted it and in an international sense and it must have directly adjudicated upon the matter which is pleaded as Res judicata.

In the case of R.M.V. Vellachi Achi v. R.M.A. Ramanathan Chettiar[9], it was alleged by the respondent that since he was not a subject of the foreign country, and that he had not submitted to the jurisdiction of the Foreign Court (Singapore Court), the decree could not be executed in India. The Appellant, in defense of this argument, stated that the Respondent was a partner of a firm which was doing business in Singapore and had instituted various suits in the Singapore Courts. Therefore, the Respondent had accepted the Singapore Courts jurisdiction. The Court held that it was the firm which had accepted the jurisdiction of the foreign Court and the Respondent, in an individual capacity, had not accepted the jurisdiction. Thus, High Court held that the decree against the Respondent was not executable.

PROPOSITION

Under Section 13(a) of CPC, the following proposition may be laid

In case of actions-in-personam, a foreign court may pass an order or judgment against an Indian defendant, who is served with the summons but he remains ex parte. But it may be enforceable against such Indian defendant, by fulfilling any of the following conditions.

• If the person is a subject of the foreign country in which the judgment or decree has been obtained against him on prior occasions.
• If the person is a resident in foreign country when the action is commenced.
• If a person selects the foreign Court for taking action in the capacity of a plaintiff, in which he is sued later
• If the party on being summoned voluntarily appears before the foreign court
• If by an agreement a person has contracted to submit himself to the Court in which the judgment is obtained.

Foreign Judgments not on Merits

In order a foreign judgment to operate as Res Judicata, it must have been given on merits of the case[10]. A judgment is said to have been given on merits when after taking evidence and after applying his mind regarding the truth or falsity of case.

The Actual test for deciding whether the judgment has been given on merits or not is to see whether it was merely passed as a matter of course, or by way of penalty of any conduct of the defendant, or is based upon a consideration of the truth or falsity of the plaintiff”s claim.

In the case of Gurdas Mann v. Mohinder Singh Brar[11], the Punjab & Harayana High Court held that an exparte judgment and decree which did not show that the plaintiff had led evidence to prove his claim before the Court, was not executable under Section 13(b) of the CPC since it was not passed on the merits of the claim.

PROPOSITION

Under Section 13(b) of CPC the following proposition may be laid

A judgment or decree passed by a Foreign Court against an Indian defendant, who has remain ex-parte, may not be enforceable against him, unless it can be shown that the said judgment was passed after investigation into the plaintiff’s claim.

Foreign Judgments against International or Indian Law

A Judgment which is contrary to the basic fundamental rules of International law or a refusal to recognize the law of India where such law is applicable is not conclusive. Where a suit instituted in England on the basis of contract made in India, the English court erroneously applied English law, thus, the judgment of the court is covered by this clause as the general principle of Private International Law is that the rights and liabilities of parties to a contract are governed by the place where the contract is made (lex loci contractus).[12]

In the case of I & G Investment Trust v. Raja of Khalikote[13], a suit was filed under the English Jurisdiction to avoid the consequences of the Orissa Money Lenders Act. The Court held that the judgment was passed on an incorrect view of the international law. The Court further observed that, although the judgment was based on the averment in the plaint that the Indian law did not apply, however, there was no “refusal” to recognise the local laws by the Court.[14]

PROPOSITION

Under Section 13(c) of CPC, the following proposition may be laid

• A judgment passed by a foreign Court upon a claim for immovable property, situated in the Indian territory may not be enforceable since it violates International Law.
• A judgment passed by the foreign Court, where before a contrary Indian law had been shown, but the Court had refused to recognize such law, then that Judgment or decree may not be enforceable, except where the proper law of contract is the foreign law.

Foreign Judgments opposed to the principle of Natural Justice

It is the essence of a judgment of court that it must be obtained after due observance of the judicial procedure i.e., the court rendering the judgment must observe the minimum requirements of natural justice. It must be composed of impartial persons, who must act in a fair and justified manner, without bias, and in good faith, it must give reasonable notice to the parties to the dispute and each party should be given equal opportunity of presenting their case. A judgment which suffers from such infirmities on the part of a judge will be regarded as a nullity and the trial “coram non judice”[15]

In the case of Lalji Raja & Sons v. Firm Hansraj Nathuram[16], the Supreme Court held that just because the suit was decreed ex-parte, although the defendants were served with the summons, does not mean that the judgment was opposed to natural justice.

PROPOSITION

Under Section 13(d) of CPC, the following proposition may be laid

The foreign court must follow the principle of natural justice while delivering the judgment. Judgement must be impartial, given fairly, moreover, the parties to the dispute should be given appropriate notice of the initiation of legal proceedings. Equal opportunity of presenting their case, in order to avoid any allegation of not fulfilling the principles of natural justice in case the judgment or decree comes to the Indian court for enforcement. Unless this is done the judgment or decree passed by a foreign Court may violate the Principles of Natural Justice.

• Foreign judgment obtained by fraud

It is a well settled principle of Private International Law that if foreign judgments are obtained by fraud, it will not operate as res judicata.

It has been said “Fraud and Justice never Dwell together” (fraus et jus nunquam cohabitant); or “ Fraud and deceit ought to benefit none” (fraus et dolus nemini patrocinari debent)[17].

In the case of Satya v. Teja Singh[18] the Supreme Court held that since the plaintiff had misled the foreign court as to its having jurisdiction over the matter, although it could not have had the jurisdiction, the judgment and decree was obtained by fraud and hence inconclusive.

In S.P. Chengalvaraya Naidu v. Jagannath [19] Supreme Court held that it is well settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law.

PROPOSITION

Under Section 13(e) of CPC, the following proposition may be laid

Where the plaintiff misleads the Foreign court and the judgment or decree is obtained on that basis, the said Judgment may not be enforceable, however, if there is some error in the judgment then the Indian courts will not sit as a Court of appeal to rectify the mistake or error.

• Foreign Judgments founded on breach of Indian Law

When a law in force in India is wrongly construed so as to form the reasoning behind a judgment delivered by a foreign court, in such cases the enforceability of the foreign judgment in Indian courts will be under question.

China Shipping Development Co. Limited v. Lanyard Foods Limited, wherein the High Court held that a petition for winding up of an Indian company would be maintainable on the basis of judgment of foreign Court. In this case, the foreign company delivered cargo to the Indian company in compliance with requests made by the Indian company and in the process the foreign company had incurred certain liabilities towards third parties and it had to pay certain amount in legal proceedings and therefore, in terms of the letter of indemnity issued by the respondent Indian company, the foreign company claimed the amount from the respondent Indian company, which denied its liability and therefore the foreign petitioner company initiated legal proceedings against the Indian company in the English Courts as provided in the Letter of Indemnity. The respondent Indian company did not file defence and therefore the English Court passed ex-parte order awarding a certain amount in favor of the petitioner foreign company on consideration of evidence and on merits of the claim filed by the foreign company. By a notice issued under sections 433 and 434 of the Companies Act, 1956, the petitioner foreign company called upon the respondent Indian company to pay the amount due under the order of the English Court. 

After the respondent Indian company failed to honour the amount, the petitioner Foreign Company filed a petition for winding up of the Indian company. In the above circumstances since the records of the case manifestly revealed that the respondent Indian company was unable to pay its debts, the petition for winding up was admitted vide order dated 4.4.2007 under sections 433 and 434 of the Companies Act, 1956.

PROPOSITION

Under Section 13(f) of CPC, the following proposition may be laid

A judgment passed by a foreign court, which breaches any law in force in India may not be enforceable, except where it is based on a contract having a different “proper law of the contract”.

Enforcement of Foreign Judgments

A foreign Judgment which is conclusive and does not fall within section 13 (a) to (f), may be enforced in India in either of the following ways.

By instituting execution proceedings

A foreign Judgment may be enforced by proceedings in execution in certain specified cases mentioned in Section 44-A of the CPC.

Section 44A – Execution of decrees passed by Courts in reciprocating territory[20].-(1) Where a certified copy of a decree of any of the superior courts of any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it had been passed by the District Court.

(2) Together with the certified copy of the decree shall be filed a certificate from such superior court stating the extent, if any, to which the decree has been satisfied or adjusted and such certificate shall, for the purposes of proceedings under this section, be conclusive proof of the extent of such satisfaction or adjustment.

(3) The provisions of section 47 shall as from the filing of the certified copy of the decree apply to the proceedings of a District Court executing a decree under this section, and the District Court shall refuse execution of any such decree, if it is shown to the satisfaction of the Court that the decree falls within any of the exceptions specified in clauses (a) to (f) of section 13.

Explanation I: “Reciprocating territory” means any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory for the purposes of this section, and “Superior Courts”, with reference to any such territory, means such courts as may be specified in the said notification.

Explanation II: “Decree” with reference to a superior Court means any decree or judgment of such court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties, but shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment.

The List of the Reciprocating Territories as per the Provisions of Section 44 A of the Code of Civil Procedure, 1908

1. United Kingdom
2. Singapore
3. Bangladesh
4. UAE
5. Malaysia
6. Trinidad & Tobago
7. New Zealand
8. The Cook Islands (including Niue)and The Trust Territories of Western Samoa
9. Hong Kong
10. Papua and New Guinea
11. Fiji
12. Aden.

Moloji Nar Singh Rao vs Shankar Saran[21] Supreme Court held that a foreign judgment which does not arise from the order of a superior court of a reciprocating territory cannot be executed in India. It ruled that a fresh suit will have to be filed in India on the basis of the foreign judgment.”

Therefore Under Section 44A of the CPC, a decree or judgment of any of the Superior Courts of any reciprocating territory are executable as a decree or judgment passed by the domestic Court. The judgment, once declared, will be executed in accordance with section 51 of the Code. Thereafter, the court may order measures such as attachment and sale of property or attachment without sale, and in some cases arrest (if needed) in enforcement of a decree. This is done by the methods discussed below.

By instituting a suit on such foreign judgment

Where a judgment or decree is not of a superior court of a reciprocating territory, a suit has to be filed in a court of competent jurisdiction in India on such foreign judgment. The general principle of law is that any decision of a foreign court, tribunal or any other quasi-judicial authority is not enforceable in a country unless such decision is embodied in a decree of a court of that country[22]. In such a suit, the court cannot go into the merits of the original claim and it shall be conclusive as to any matter thereby directly adjudicated between the same parties. Such a suit must be filed within a period of 3 years from the date of judgment[23].

In Marine Geotechnics LLC v/s Coastal Marine Construction & Engineering Ltd.[24], the Bombay High Court observed that in case of a decree from a non-reciprocating foreign territory, the decree-holder should file, in a domestic Indian court of competent jurisdiction, a suit on that foreign decree or on the original, underlying cause of action, or both.

However, in both the cases, the decree has to pass the test of Section 13 CPC which specifies certain exceptions under which the foreign judgment becomes inconclusive and is therefore not executable or enforceable in India.

Foreign Award

An award passed by foreign arbitrator is enforceable in a country where it was made and can also be enforced in India. Courts may refer to CPC or any other statute while considering the procedure to be followed for enforcement of foreign awards under Foreign Awards (Recognition and Enforcement) Act (45 of 1961)

Effect of Foreign Judgment

A foreign judgment is conclusive for any matter adjudicated between the parties. Such judgment is conclusive and would create Res judicata between the same parties or between parties under whom they or any of the claims.

Limitation period for Enforcement of Foreign Judgments

As per the provisions of the Code, foreign judgments from reciprocating territories are enforceable in India in the same manner as the decrees passed by Indian courts. The Limitation Act, 1963 prescribes the time limit for execution of a foreign decree and for filing of a suit in the case of judgment passed by foreign court.

• Three years, commencing from the date of the decree or where a date is fixed for performance; in case of a decree granting a mandatory injunction; and

• Twelve years for execution of any other decree commencing from the date when the decree becomes enforceable or where the decree directs any payment of money or the delivery of any property to be made at a certain date, when default in making the payment or delivery in respect of which execution is sought, takes place.

A judgment obtained from a non-reciprocating territory can be enforced by filing a new suit in an Indian court for which a limitation period of 3 years has been specified under the Limitation Act, 1963 commencing from the date of the said judgment passed by foreign court.

Foreign currency conversion rate

In a decree passed by foreign court, the amount awarded is generally in a foreign currency. Therefore, while enforcing the foreign decree in India, the amount has to be converted into Indian currency. In Forasol vs. ONGC [25] it was held that the date of the decree should be used for the calculation.

Confilct between Domestic Judgment & Foreign Judgment

The principle of res judicata embodied in the Code prohibits a court of competent jurisdiction from trying a suit on a matter that has been substantially decided in a prior suit between the same parties. Therefore, a decree or judgment passed by a superior court of a foreign country cannot be enforced in India if it contradicts an earlier conclusive judgment passed by a competent court in a suit between the same parties. A foreign judgment passed by a court of a non-reciprocating country can only be enforced by filing a new suit in India where the foreign decree is merely a piece of evidence with persuasive value. Therefore, the judgment debtor can raise the claim of res judicata and stay the suit at the preliminary stage.

Conclusion

Therefore, the above discussion of the legal issues involved in enforcement of foreign decrees in India emphasizes the need for the Indian business sectors not to treat the summons received from foreign courts casually. Rather, to contend at a later stage that the foreign decision/decree is not based on “merit” or contrary to the provisions of the Indian Civil Procedure Code, may turn out to be unsafe and may jeopardize the protective umbrella which the Indian companies are so accustomed to while dealing with litigations in Indian courts.

Where a judgment or a decree is passed by a foreign Court against an Indian defendant, the judgment or decree may not be enforceable against him due to the operation of Section 13 of CPC. It can be seen that the plaintiff has to come to the Indian courts to either get the foreign judgment executed or enforced in India under Section 44A or file a fresh suit in Indian courts upon the foreign judgment for its enforcement. Therefore by getting a decree in the foreign court, the plaintiff only avoids the inconvenience of leading evidence in the Indian Courts but runs a much bigger risk under Section 13. Therefore, it is advisable for a foreign plaintiff to institute claims in India itself where the defendant is in India as generally international transactions involve more of documentary evidence and that comparatively leading of evidence may not be that inconvenient, it may be advisable to avoid the risk under Section 13 and file claims in India itself.

Hence, we can conclude that a judgment of foreign court creates estoppel or res judicata between same parties, provided such judgment is not subject to attack under any of the clauses (a) to (f) of Section 13 of the Civil Procedure Code. If any claim is made by any party and subsequently abandoned at the trial of a suit and if the decree or judgment in that suit implies that claim has not met with acceptance at the hands of the court, then the court must be deemed to have directly adjudicated against it.

References.

[1] Code of Civil Procedure, Twenty Sixth Edition, Eastern Book Company, 2014, Pg 2,3.

[2] R. Viswanathan v. Rukhn-ul-Mulk Syed Abdul, AIR 1963 SC 1 at pp. 14-15: (1963)3 SCR 22

[3] Satya v. Teja Singh, (1975) 1 SCC 120: AIR 1975 SC 105

[4] Cardozo, J. in Loucks v. Standard oil Co. of New York, (1918) 224 NY 99 at p.111.

[5] Sankaran Govindan v. Lakshmi Bharathi, (1975) 3 SCC 351 at p.368: AIR 1974 SC 1764 at p. 1766.

[6] Code of Civil Procedure, Twenty Sixth Edition, Eastern Book Company, 2014, Pg.10

[7] Code of Civil Procedure, Twenty Sixth Edition, Eastern Book Company, 2014, Pg.9

[8] Brijlal Ramjidas v. Govindram Gordhandas Seksaria, (1946-47)74 IA 203:AIR 1947PC 192 (194)

[9] R.M.V. Vellachi Achi v. R.M.A. Ramanathan Chettiar, AIR 1973 Mad. 141

[10] Narasimha Rao v. Venkata Lakshmi,(1991)3 SCC 451.

[11] Gurdas Mann v. Mohinder Singh Brar AIR 1993 P&H 92.

[12] Ibid 5

[13]I & G Investment Trust v. Raja of Khalikote AIR 1952 Cal.  508.

[14] Ibid. at p. 525 para 43 and 44.

[15] Viswanathan v. Abdul Wajid, AIR 1961 SC 1 at pp. 24-25, 32

[16] Lalji Raja & Sons v. Firm Hansraj Nathuram AIR 1971 SC 974 at p. 977.

[17] A.V. Papayya  Sastry v. Govt. Of A.P., (2007) 4 SCC 221 at p.231: AIR 2007 SC 1546.

[18] Satya v. Teja Singh AIR 1975 SC 105 at p. 117 para 50.

[19] Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1 : AIR 1994 SC 853

[20] Code of Civil Procedure, Twenty Sixth Edition, Eastern Book Company, 2014, pg22.

[21] Moloji Nar Singh Rao vs Shankar Saran AIR 1962 SC 1737

[22] Roshanlal v. R.B. Mohan Singh, (1975)4 SCC 628: AIR 1975 SC 824

[23] Art 101, Limitation Act, 1963.

[24] Marine Geotechnics LLC v/s Coastal Marine Construction & Engineering Ltd. 2014 (2) Bom CR 769

[25] Forasol vs. ONGC 1984 AIR 241, 1984 SCR (1) 526

In this article, Anchal Gandhi pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on rights of minority shareholders under Companies Act, 2013.

Introduction

In corporate world, all democratic decisions and management of a company are made with the majority rule which is deemed to be fair and justified. The majority rule of decision making, quite often than not overlooks the views of minority shareholders. A minority shareholder is a person in a company who does not enjoy much power in the management of the company and their interests are disregarded. Despite the provisions placed under Companies Act, 1956 of protection of the interest of minority shareholders, the minority shareholders found themselves incapable of exercising their rights due to lack of the resource or of time. Therefore, this resulted in the majority domination and suppression of minority shareholders rights in the decision making and management of the company and to overcome this problem faced by the minority, the Companies Act, 2013 came up with the solution to tackle the problems which are usually faced by the minority shareholders. However, the definitions of minority shareholders are not mentioned under the Companies Act, 2013 but under Section 235 (Power to acquire shares of the dissenting shareholders) and under Section 244 (Right to apply for the oppression and mismanagement) of Companies Act, 2013 the minority shareholders are given 10% of shares or minimum hundred shareholders, whatsoever, is less with share capital and 1/3 of the total number of its members in case of companies without the share capital.

This article throws light on the rights of minority shareholders protected under Companies Act, 2013.

Definition of minority shareholders

Minority shareholders are the equity holders of a firm who does not enjoy the voting power of the firm by the virtue of his or her below 50% ownership of the firm’s equity capital.

Rights of Minority Shareholders

Many provisions of Companies Act, 2013 deals with the situations where minority shareholders rights have been protected and the same can be divided into various major heads. The rights of minority shareholders are discussed below.

Oppression and Mismanagement

In Companies Act, 1956, the protection for the minority shareholders from oppression and mismanagement have been provided under section 397 (An Application to be made to company law board for relief in cases of oppression) and 398 (An Application to be made to company law board for relief in cases of oppression).

According to Section 397(1) of Companies Act, 1956, the term oppression has been defined as “when affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members‘”.

Whereas the definition of mismanagement has been defined under Section 398(1) as “conducting the affairs of the company in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or there has been a material change in the management and control of the company, and by reason of such change it is likely that affairs of the company will be conducted in a manner prejudicial to public interest or interest of the company”.

Therefore, right to apply to the company board for the oppression and mismanagement is provided under the Section 399, which is,  meeting 10% of shareholding or hundred members or one-fifth members limit. However, central government under their discretionary powers has allowed any numbers of shareholders to apply for the company board for the relief under Sections 397 and 398.

Whereas, on the other hand, under Companies Act, 2013, the relief from the oppression and mismanagement has been provided under Section 241-246 where the relief can be sought from the tribunal in case of mismanagement and oppression through section 244(1) which provides the right to apply to tribunal with the same minority limit mentioned in Companies Act, 1956 but however, the tribunal, while exercising discretionary powers, may allow any numbers of shareholders and to be considered as minority.

Further, under the Section 245, Companies Act, 2013, the new concept of class action has been introduced which was non-existent in Companies Act, 1956 wherein it provides for class action suits to be instituted against the company as well as against the auditors of the company.

Reconstruction and Amalgamation

In Companies Act, 1956 with respect to minority shareholder right for reconstruction and amalgamation of companies, under section 395 states that for the transfer of shares or any class of shares of a company to another company, consent of the holders of at least (9/10) i.e. 90% of the shareholders consent will be required, which is therefore referred to the majority suppressing the rights of the minority shareholders. It further states that the transferee can give a notice to any dissenting shareholder expressing his desire to acquire their shares within 2 months after the lapse of the 4 months. Whereas, to counter these shortcomings, Companies Act, 2013 under Section 235 grants the power to acquire the shares of shareholders dissenting from the scheme approved by the majority not less than 9/10 in value of the shares and can transferee company may give notice to dissenting shareholder for acquiring his shares. Therefore, under Section 235 it is made mandatory for the shareholders to notify the company regarding their intention of buying the remaining equity shares or by a group of persons holding 90% consent of the registered holder of the company. The Companies Act, 2013 further provides the shares need to be acquired at a price determined on the basis of valuation by a registered valuer in accordance with the rules and the regulations.

Minority Upgraded

Companies Act, 2013 has empowered the corporate decision making of the minority shareholders also. Under Section 151 of the Companies Act, 2013, listed companies are now required to appoint directors who are elected by the small shareholders i.e. shareholders holding shares of a nominal value of not more than twenty thousand rupees. Furthermore, the provision in this regard was elaborated where it is stated that the listed companies may elect a small shareholders’ director amongst the small shareholders by either suo-moto or by giving notice of not less than 500 or 1/10^th of the total number of the small shareholders. It is important to note that the small shareholders are different from minority holders as the former ones are being ascertained according to their individual shareholding which can be less than INR 20,000. Whereas minority shareholders are collectively ascertained as by having non-controlling stake in the company.

Apropos, it has been further provided the procedures for the nomination of a small shareholder director with the information to be furnished along with. However, the Company Rules of 2013 also provides the majority and protection to the small shareholders for safeguarding their interests. The Company Rule further protects the interests of small shareholder director and ensures that the small shareholder director will not retire by the rotation and shall enjoy tenure of three years. However, the small shareholder director will not be further eligible for reappointment.

Furthermore, sub clause 4 of clause 11 of the companies rules provides that “such director shall be considered as an independent director subject to his giving a declaration of his independence in accordance with sub-section (7) of Section 149 of the Act”.

It is therefore clear from the aforesaid clause that the small shareholder director may or may not be an independent director, thus, making optional for small shareholder director to be an independent director.

This empowers the minority/small shareholders rights in the process of decision making and in the management of the company. Thus, it also states the provisions where the interest of the minority shareholders can be protected through the appointment of an independent shareholder directors.

E-Voting

E-Voting has been made mandatory for the listed companies with at least 1000 shareholders which indeed will enhance the active participation and offers a platform to the minority shareholders in the management of the company. This will also enable the minority shareholders to exercise their power in the company.

Protection of Minority Shareholders – Steps taken by companies

Piggy Backing – This provision states that if the majority sells their shares then the minority shareholder right has to be included in the deal. Moreover, “Piggy Backing” requires the party to consider the purchase of the business to sell 100 percent of the outstanding shares. To ensure the compulsory provisions of the minority shareholders.

Conclusion

After critically examining the provisions of Companies Act, 2013, it can be ascertained that the core intention of the legislation is to safeguard the interests of the minority shareholders but it requires the proper implementation of these provisions safeguarding and to give due consideration to their valuable rights. It may also be concluded that the minority shareholders back in Companies Act, 1956 were not considered as a major part of the company due to suppression of the majority rules and regulations in the company. But Companies Act 2013 has taken various crucial steps to safeguard the interest of the minority rights of the shareholders in the company irrespective of existence of oppression and mismanagement of the company affecting the rights of the minority shareholders. Therefore, this dual approach towards the enforcement of the minority rights guarantees proper administration of the corporate activities successfully only when it is implemented properly by giving importance and rights to the minority shareholders in the management of the company.

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In this article, Anisha pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on Impact of GST on Information Technology Sector.

INTRODUCTION

“GST is one indirect tax for the whole nation, which brought India under one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.”[1]

The GST gives a lot of benefits to the manufacturers, sellers and to the end users i.e. the consumers. Some of the main advantages of GST, in general, are that it follows a uniform tax structure and there cannot be any discrimination between place, etc. It is easy compliance because the taxpayer services such as registration, payment, returns, etc. could be made through the online portal. In addition, GST aims for removal of cascading effect of taxes, improved efficacy thereby improving the competition and also gain to the manufactures and the exporters.

From the view of the Central and State Government, GST is beneficial because it is simple and easy to administer, there is better control on leakage since tax is paid at each steps and also higher revenue efficiency thus promoting the overall development and growth of the country.

In view of the consumers, there is a single and transparent tax that is proportionate to the value of goods and services and relief in overall tax burden.

The much-awaited GST Bill was passed on July 1^st, 2017. The IT sector will include services like the software development, mobile app development, website design, etc will have a huge impact because of the GST.

Impact of GST

The main ways in which the GST implementation will impact the IT sector are discussed below.

The Tax Rate Administration

The GST is dual structured and is governed by the Central Board of Excise and Customs (CBEC) and State Tax Administration and they will be responsible for collecting CGST and SGST. Hence for this dual tax structure to be in place, there requires a robust mechanism and system in place to track down the flow of goods and services across the country. The implementation and execution part has to be strong, only then non-compliance will be less and the punishment also should have a deterrent effect in as much as any other law.

As per the CRISIL analysis will reduce the cost of logistics for non-bulk goods by 20% thus excluding the bulk commodities that are transported by the railways like coal, iron ore, cement, steel, food grains, fertilizers and the like. Under the GST luxury goods are charged at a higher level, at about 28% which includes luxury cars and high end products whereas essential commodities such as education, healthcare and the like are charged less. The rates of the cess will be 5%, 12%, 18%, 28%. The tax rate for IT sectors before GST was 15%. Under GST, even though the recommended rate was 15-15.5%, it is around 17-18%. Hence this will raise the cost of IT services thereby rendering it difficult for the end use consumers who do not claim the tax input credit.

Under the previous tax structure, for the sale of packaged software, there was VAT (Value added tax) approximately 5% which will go the State Government and the Service Tax approximately 15% will be directed to the Central government and all of which would amount to 25%-35%. But under the GST scheme it is expected to be only around 18-25% because of taxing only by the last dealer and not at every stage.

For example, under the old scheme, if a software comes on a CD, DVD, Hard disk then there might be three types of taxes applied on it like Excise duty for manufacturing of product, VAT for sale and Service Tax for providing service. But under GST, all these complications will not be present.

Cascading Effect of Taxes

Cascade tax means that the amount of tax levied on each stage of production up to the final stage of production till it reaches the final consumer. This GST scheme purports to remove the idea of cascading of taxes to a greater extent. There is benefit of credit of services for the traders under the GST such as in the Annual Maintenance Scheme (AMC) contracts. Under the previous structure IT service providers cannot guarantee credits of quality including the assessment or arrangement charge spent on setting the IT infrastructure and also services given to the client is a cost to that was incurred by the IT service providers. But under the present scheme, the IT service providers and the clients can claim full credit of GST. This will remove the cascading effect of the taxes.

Business Restructuring

IT companies might need a business restructuring because of the fact that under this scheme, the IT service providers will have to bifurcate their services and bill their customers based on their location of consumption and hence GST can also be termed as Destination-based tax system for this reason. So the IT service providers should get registered in all states where they have customers. As per the interview given by the NASSCOM (National Association of Software and Services Companies) Chief, Mr. Chandrashekar he points out certain difficulties that the Information and Technology sector could face because of operation of GST. The Central Goods and Services Tax Act, 2017 was passed by way of hundred and first Constitutional Amendment. Mr Chandrashekhar also stated that the current GST scheme might give rise to potential litigation risks because of certain provisions. This is so, because of the complex billing and invoicing requirements due to the ‘supply and valuation’ provisions making it difficult to the service sector especially the information technology sector.

In GST scheme there are three points of taxing, the center, inter-state and state GST whereas in the previous tax structure there was only one point of taxation i.e. central service tax. This would mean that an IT company has to register under 37 jurisdictions which comprises of 29 States and 7 Union Territories if the company is on a PAN-India basis and also the IT company has to register and file compliance reports at 111 points (37 jurisdictions multiplied by 3 tax points). Hence in the previous tax structure, the process was simple as the service industry was under the central service tax regime. But this system hampers the ease of doing business for IT companies at this one juncture. Moreover, the ‘place of supply’ will be requiring multiple invoices. Although GST brings in a uniform tax structure, the valuation of services can potentially invite many legal claims. Also, most of the items used in the IT industry like printers, photocopier and fax machines are highly taxed at a rate of 28 percent.

E-commerce Sphere

For the e-commerce traders, the GST is expected to increase its administration costs.

Also with respect to e-commerce, there are taxes imposed on businesses that depend on online transactions. This is because of the provision which says ‘Tax Collection at Source’ thus rendering e-commerce platforms unrealizable. This also makes compliance difficult for the e-commerce companies since they have a lot of sellers on their platform. Moreover, this might lead to cash flow issues and small scale sellers might ask for refund on the tax paid on inputs.

New Software’s required

Accounting systems and ERP (Enterprise Resource Planning) are done in batches. So ERP are the resource persons who train the company employees and understand the needs and requirements of the company and design the software accordingly. In the previous tax structure, ERP’s were taxed over the years and service tax was charged accordingly keeping in account the amount paid. Under the current GST system, the ERP’s will be taxed periodically and continuously as and when their service is provided. Now all companies will thrive to build GST oriented software systems and hence will open a market for software developing companies. India is one of the biggest exporters of IT services. Exports are zero rated and input taxes will be allowed as a refund. The default rule for ‘place of supply’, in this case if it is export of services, is the location of the service recipient if his address is available. Freelancers who are offering software services such as designing, app development, website designing etc., earlier paid a service tax of 15%. But now under the GST, it has been raised to 18%. Even though the service rates had been increased to 18%, the IT sector will benefit due to the increase in the sale of the software. Now since the availability of the Information and Technology service providers has increased, it will bring down the operating costs and thereby increase the consumer base and bring in more profit.

Hence the current GST scheme should encompass all the positive aspects of the previously existing system so that there could be more ease of doing business as India ranks low when it comes to Ease Of Doing Business.

References

http://www.gstindia.com/about/

https://cleartax.in/s/impact-of-gst-on-it-sector

http://blog.saginfotech.com/gst-impact-on-indian-it-industry

[1] http://www.gstindia.com/about/

In this article, Abdul Hannan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on Foreign Trade (Development and Regulation) Act, 1992.

Foreign Trade and its implications

Imports and exports are considered to be two important components of foreign trade. Foreign trade refers to nothing but the exchange of the goods and services between two or more countries, across their respective international borders. The former implies the physical movement of the goods into a country from another country following a legal manner. The latter is concerned with the physical movement of the goods and services out of the country in a legal manner. Thus, both the import and export have made the world a local market.

Foreign trade or international trade is considered to be extremely important for the brand survival as well as the growth of any country. This is because foreign trade acts as one of the primary economic boosters for that specific entity. Not only this, foreign trade is also supposed to cover up the need for a country for particular resources and to further get rid of the extra resources that are abundantly available in the country.

Whether it is the optimum utilization of the resources, specialization and labor division or price equality, quality of goods, multiple choices or the overall economic development of the country, foreign trade has always helped in the growth of a country where a country could stand on its own to address itself on an international platform. Exporting, importing as well as entreporting involved in the foreign trade of any country helps to raise the standard of living of the people. These kinds of foreign trade also help to maintain the payment solution balance of the country and make sure that there always exists a free flow of economy.

Globalization has reached on its very summit and therefore a number of countries have introduced their own respective foreign trade policies so as to avoid all the hassle that might occur while trading with the foreign countries. Thus, India, like other countries of the world has its own respective foreign policy that covers all the know-hows as well as aspects involved while dealing with the foreign countries.

The Foreign Trade (Development and Regulation) Act, 1992

The foreign policy of India is governed and regulated by the Foreign Trade (Development and Regulation) Act, 1992. This Act was established on the 7^th of August in the year 1992. The Act hasn’t been originated as a separate act to regulate the foreign policy, but the same came into existence as a replacement to the Import and Exports (Control) Act, 1947.  Today, the entire scenario of exports and imports in India is regulated and managed by the Foreign Trade (Development and Regulation) Act, 1992. This act has eliminated all the existing nuances of the previously introduced act and has given the Government of India some of the most enormous powers to control it. This act is considered to be a supreme legislation in accomplishment of the foreign trade taking place in the country. The Act has been incorporated with a major intention to provide a proper framework as to the development as well as standardization of the foreign trade by the way of facilitating imports and enhancing the exports in the country and all the other matters related to the same.

Under this Act, various powers have been bestowed upon the Central Government. According to the provisions of this act, the Central Government has all the power to make any provisions that are related to foreign trade in order to fulfill the objectives of the act. This Act also empowers the government to make any provisions in tandem to the formulations of import as well as export policies governing throughout the country. The Act further provides for the appointment of the Director General by the Central Government by notifying this appointment in the Official Gazette for carrying out all the foreign trade policies as per the provisions provided.

Salient Features of the Act

Foreign Trade (Development and Regulation) Act, 1992 is believed to be a breakthrough in the economic development of the country, especially in today’s world of globalization and industrialization. The entire act has been designed in such a manner so as to run in consonance with the current trade policies associated with the foreign countries. Thus, overall, this Act features everything that makes the economy of the country stronger whenever the regard of foreign trade is taken into consideration.

The following are considered to be the salient features of the act:

• The act has empowered the Central Government to make provisions for the development as well as regulation of foreign trade by the way of facilitating imports into as well as augmenting exports from the country and in all the other matters related to foreign trade.
• This act authorizes the government to formulate as well as announce the export and import policy and to also keep amending the same on a timely basis. The government has also been given a wide power to prohibit, restrict and regulate the exports and imports in general as well as specified cases of foreign trade.
• The act provides for certain appointments especially that of the Director-General to advise the Central Government in formulating import and export policy and to implement the same.
• The act commands every importer as well as exporter to obtain a code number called the ‘Importer Exporter Code Number (IEC)’ from the Director-General or the authorized officer.
• The act provides the balancing of all the budgetary targets in terms of imports and exports so that the nation reaches the very peak of economic development. The principal objectives here include the facilitation of sustain growth as to the exports of the country, the distribution of quality goods and services to the domestic consumer at internationally competitive prices, stimulation of sustained economic growth by providing access to essential raw materials as well as enhancement of technological strength and efficiency of Indian agriculture, industry as well as services and improvement of their competitiveness to meet all kinds of requirement of the global markets.

Present scenario of the Foreign Trade Policy

Presently, the Foreign Trade Policy of our country is in its sixth instalment of the five-year policy that was earlier introduced in the year 1992 by the Government of India. The new foreign trade policy of the country was announced on the 1^st of April, 2015 by the Government of India, Ministry of Commerce and Industry. This current foreign trade policy extends for the period 2015-2020. The major aim of the current foreign trade policy introduced in the country is nothing but the development of export potential, improvement of export performance, encouragement of foreign trade as well as the creation of favorable balance of the position of the payment. This policy, also known as the Export Import Policy (EXIM Policy) is updated every year on the last day of March and all the new improvements, modifications as well as schemes so updated become effective from the first day of April each year.

The current foreign trade policy so introduced in the country has laid down certain aims and objectives before it. The major objectives that the current foreign trade policy of our country has laid down are stated as under:

• The simplification as well as merger of all kinds of rewards schemes including the Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS), incentives to be made available in these schemes for all the Special Economic Zones, duty credit slips to be freely transferable and useable for the payment of various duty and many others.
• Special boost has been given to ‘Make in India’ policy that has been launched by the government to encourage national as well as multinational companies to manufacture their products in India.
• The trade facilitation and ease in terms of the performance of legal business of all the kinds.
• The introduction of various other initiatives involving new schemes that could run in tandem with the growing needs and wants of the people at large and the increasing use of technology as well as digitalization into these initiatives so as to reach the summit of technical advancement.

Importance of Foreign Trade Policy

Foreign Trade policy of any country is equally important for the free flow of economy and the overall economic development of the country. Without a proper foreign trade policy, any country would fail to execute its import as well as export business smoothly. If there exists no proper foreign policy in a country, the entire import-export and international business of the country will fall down miserably and the same will surely meet a dead end. A foreign trade policy of any country ensures a free flow of business as well as economy while transacting or trading on an international scale. The same policy helps to maintain the free flow of economy of the country, thereby accelerating the financial growth, facilitating a free trade and liberalization as well as improving the overall standard of living of its people.

Conclusion

After the implementation of foreign trade policy in India, the import, as well as export among the foreign countries, have increased and the same has become very safe and secure to perform. Setting up of different plans/policies such as SEZ and EPZ by the Foreign Trade Policy of India has increased the number of foreign investors in the country. Trading Housing has given a platform to both, the consumers as well as the manufacturers and thus the same has entertained an easy practice of trade in between different countries. Furthermore, the simplification of procedures, as well as the idea of incentives provided to the exporters and importers involved in the foreign trade, has acted in a fair way for the traders and there is still a wide scope of improvement in the same.

Thus, the introduction of Foreign Trade (Development and Regulation) Act, 1992 in India has made the industrialization more liberal and the same has been proven to be highly beneficial for all the traders as well as consumers in the coming ages.

In this article, Aastha Maharesh pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on issues of Corporate Governance in Family Owned Companies.

Corporate Governance in a Family Owned Companies

Corporate governance is a form of governance applied to business setups or organizations and as such, could include within its ambit all the rules, norms, procedures that operate, regulate and control businesses. The responsibility of governing a business falls upon the management – its Board of Directors, Auditors, Shareholders and any other stakeholder to help the corporate structure achieve its goals with transparency and accountability. The management can take up this responsibility by incorporating provisions to that effect in the key documents governing the company such as the Memorandum and Articles of Association and Investment Agreements. This is important in order to ensure that the investors, employees, and customers don’t lose their confidence in the business and the business runs smoothly.

On looking into the reasons for corporate failures and frauds in a number of large businesses in India, a number of steps have been taken by the Confederation of Indian Industry, Securities and Exchange Board of India, other regulators and even the Ministry of Corporate Affairs to identify, recommend and issue guidelines to ensure quality governance in corporate setups.

Certain provisions of Corporate Governance in a Family Owned Companies have been actively statutorily incorporated in the Companies Act, 2013 such as:

• Independent Directors and Women Directors: To build up the transparency and accountability of the Board of Directors, the Act now requires at least 1/3^rd of the total directors of a listed company to be Independent Directors and have no material or pecuniary relationship with the company or related persons. Public companies with paid up share capital exceeding Rs. 10 Crores or turnover exceeding Rs. 100 crore are statutorily required to have at least 2 directors as Independent Directors.

To ensure diversity on the board, all listed companies and non-listed companies having paid up share capital more than Rs. 100 Crores and turnover exceeding Rs. 100 Crores are required to have at least one woman director on the board.

• Corporate Social Responsibility: Every company having net worth of Rs. 500 Crores or more, turnover exceeding Rs. 1000 Crores or net profit of more than Rs. 5 Crore is required to constitute a Corporate Social Responsibility Committee under Section 135 of the Companies Act, 2013 constituting 3 or more directors with at least 1 Independent Director to formulate policies and recommend activities that the company may undertake for promotion of education, gender equality, health, poverty eradication, environment, employment etc. Again, this measure puts responsibility on the company for the social wellbeing not just of its workforce, but also makes it publicly accountable.
• Audit Committee: The Act provides for the setting up of an Audit Committee comprising of at least 3 directors by all listed companies, majority of which have to be independent directors. The members of such a committee have to be persons who can read and understand financial statements and the task entrusted to such a committee is recommending remuneration and appointments of auditors and reviewing their independence.
• Nomination and Remuneration Committee: The Nomination and Remuneration committee shall comprise of 3 or more non-executive directors out of which at least half shall be Independent Directors. Such committee shall identify persons qualified to become directors of the company and make recommendations to the board of directors regarding their appointment and approval.
• Serious Fraud Investigation Office: Section 211 of the Act provides for the establishment of a Serious Fraud Investigation Office to look into the affairs of the company and investigate incidences of fraud upon receipt of report of the Registrar or inspector or generally in the public interest or request from any Department of Central or State Government.

Governance measures in private companies are a lot more flexible

The level of strictness of norms in case of public listed companies is usually much higher than in case of private unlisted companies. The Securities and Exchange Board of India (SEBI) has issued certain norms on corporate governance that are binding on all listed companies.

Need for Corporate Governance in a Family Owned Companies

Families need governance just as much as any other structure involving multiple persons with their varied, often competing, interests. Family businesses constitute a major chunk of business in India and cannot be put on the back seat. Their contribution to the country’s economy is immense and if they are not disciplined and properly governed, it inevitably affects the national economy. Strong governance measures in a family owned business can effectively act as a prevention mechanism against a lot of tensions that may arise between family members at a later stage. It is also imperative for family businesses to adopt effective corporate governance measures in order to be a tough competition to other players in the global market.

The most glaring characteristic of a family owned business is that all the key managerial positions in such businesses are held by family members. Non-family members may of course be employees of the company, but the decision-making power usually vests with the members of the family. This is probably the reason why a lot of family businesses are not pro-active in taking strict corporate governance measures in their activities – out of fear of losing control over the business. These businesses derive their strength from the love, trust and personal bond that the members share, but at the same time, even slight instability or rivalry in the family could adversely affect the business and project a negative picture of the family firm in the market before prospective investors.

MAJOR CHALLENGES FACED BY FAMILY OWNED COMPANIES

• Investors are often hesitant and distrustful of the company due to chances of the controlling family abusing rights of other shareholders. Therefore, governance measures need to be such that provide reassurance to the investors that their interests will not be diluted in the larger scheme of things.
• Concentrated & restricted ownership – there is always the risk of nepotism and favoritism in a family business.
• Maintaining harmony and establishing a good business relationship between the family and non-family members of the business can often be a very challenging prospect.
• Family businesses are driven more by emotion than by professional ethics.
• Incapacity of the head of the family to run the business or a change in generations – real problems arise when a clear succession strategy is not chalked out. Conflicts arise over the control of the company leading to a trust deficit. As the generations progress, their interests may no longer align and internal competition among family members may heighten and become hostile.

CORPORATE GOVERNANCE MEASURES FOR FAMILY BUSINESSES

Family owned companies are expected to more or less adhere to the same corporate governance measures for their business as any other business. The same principles and practices that apply to any other business are essential for the successful run of a family business as well. Some of these measures include compliance with the Accounting Standards in the preparation of financial statements by a company and its auditors, financial reporting as a measure of transparency and accountability – providing essential financial information about the company to all its shareholders and other stakeholders, regular board meetings and appointment of independent directors along with other directors for an accountable and transparent board of directors, whistleblower policies, etc.

However, there are some measures that family businesses particularly need to lay extra focus on so that they may be successful in the long run:

• Clear demarcation between business and emotions: This is essential for the smooth continuity of the business. This responsibility that entails communicating every member’s clear cut roles to them lies upon the shoulders of the head of the family as at the end of the day, the business should be about competing at a global level with other businesses and not internal clashes among members of the same company.
• Clarity on leadership: There needs to be a clear strategy on choosing the next-of-kin to pass the baton to after the death or incapacity of the previous leader. If there is no such strategy in place, it could lead to confusion and chaos, causing a hit to the roots of the business.
• Democracy – a participative decision making and democratically appointed board of directors is key to a flourishing and disciplined business practice. More so in case of family businesses, since they are ridden with the tendency of nepotism and favoritism.

CONCLUSION

Therefore, corporate governance in any business is the buzz word that attracts investors to invest in it. An outsider to the company would never want to risk his money in a firm that clearly indicates poor governance. Family businesses are no different. In fact, by virtue of being wound up tight due to common lineage, interests, blood and family traditions, family businesses likely need a tighter grip on the proper governance of the business than other non-family businesses to shine in the global market. Family businesses should thereby not shy away from adopting the above-mentioned techniques and preventing any possible damage to the business.

References

Books:

• Avatar Singh on Companies Act, 2013
• SEBI Manual by Taxmann

Other readings:

• https://www.oecd.org/daf/ca/corporategovernanceprinciples/43654301.pdf