Legal Implications of Business Transfer Agreement

Business restructuring is a comprehensive process be it financial or technological or market or organisational. There are various modes by way of which it can take place such as re-organisation of capital, compromise/arrangement, merger/amalgamation, demerger, acquisition/takeover, slump sale, strategic alliance and such other similar modes. The primary motive behind undertaking any such rearrangement would be to prosper both in size and profits. The corporate restructuring process can be either be by any of the much traversed gradual way or a much faster way of selling off the business undertaking.

Here it is important to note that the sale can happen in two ways, one is an entity sale and the other is an asset sale. The type of sale is determine which items of the business shall form part of the ownership transfer. A buyer is benefited from an asset sale by availing the depreciation benefits early and avoiding acquiring the former company’s liabilities. However, from a seller’s perspective an entity sale is preferable so as to pay taxes at a low long-term capital gain rate, as compared to the higher ordinary income tax rate applicable on asset sales.

A slump sale is a mode of transferring the business undertaking as a “going concern” along with the liabilities, that is to say, on an ‘as is’ basis. In this restructuring exercise, companies usually sell off their unprofitable business activities and the business activity as a whole is sold along with all the assets and liabilities pertaining to such business activity.

CONCEPT OF SLUMP SALE

As discussed, ‘Slump Sale’ is a mere method of corporate restructuring. The company goes forward to sell its undertaking and this is one of the widely used ways of business acquisition in India. Slump sale is generally undertaken:

• To improve the performance of the business;
• To improve focus and eliminate negative synergy and facilitate strategic investment; and/or
• To avail tax and regulatory advantages associated with it.

The Finance Act, 1999 ushered in the concept of slump sale by inserting section 2(42C) and section 50B to the Income Tax Act, 1961. While the former defined slump sale, the later provided the mode of computation of tax on slump sale.

But there is a long drawn background history on the taxability of slump sale. A lot of doubts were created on the issue of taxability of slump sales long back in a list of cases.

Prior to the insertion of section 2(42C), courts have held that slump sale is a sale of a business on a going concern basis where the lump sum price cannot be attributed to individual assets or liabilities. In CIT V. Artex Manufacturing Co.[1], the Apex Court treated the sale of the business on a going concern for a lump sum consideration as an itemised sale on the ground that the slump price was determined by the valuer on the basis of itemised assets whereas in CIT V. Electric Control Gear Mfg. Co[2]. the sale of the business on a going concern was regarded as a slump sale since in that case, there was nothing to show that the slump price is attributable to any asset.

In the landmark case of PNB Finance Ltd. v. Commissioner of Income Tax[3], the Hon’ble Supreme Court while considering scope of s 41(2), 45 and 50B held that gains made out of slump sale transactions do not fall either within the ambit of business income or capital gain. To attract section 41(2), the subject matter should be depreciable assets and the consideration received should be capable of allocation between various assets. In case of a slump sale, there is an undertaking which gets transferred (including depreciable and Non‐depreciable assets) and it is not possible to allocate slump price to depreciable assets and therefore, the same cannot be taxed as such. Whereas to attract capital gain, the Court held that the charging section and the computation sections are integrated code and if one fails other fails i.e if the computation sections fail then even the charging section fails.

Section 2 (42C) of The Income Tax Act, 1961, recognises ‘Slump-Sale’ as a transfer of an ‘undertaking’ i.e. a part or a unit or a division of a company, which constitutes a business activity when taken as a whole. In other words slump sale means transfer of the entire business unit for a single lump sum consideration without assigning value to individual assets and liabilities. Under the slump sale the business is sold on a ‘going concern basis’ that is there is transfer of all assets/ liabilities, contracts, employees, etc so that the business able to carry on its activities as before such sale.

The essential elements of slump sale can be summed up as follows,

• Sale of the undertaking. The mode of transfer in this case has to be essentially “sale”. No other mode of transfer of the business undertaking will amount to a slump sale transaction. In the case of Ece Industries Ltd. vs Deputy Commissioner of IncomeTax[4] it was held that even if one out of several undertakings were sold, it would still amount to slump sale. Further, In Avaya Global Connect Ltd. v ACIT (26 SOT 397) the tribunal held that Section 2(42C) defines slump sale that it is only a transfer as a result of sale that can be construed as slump sale. Consequently, when the transfer could not be said to be as a result of sale therefore the provision of section 2(42C) would not apply.

• Going Concern Basis: This test lays down the ability to continue the business activity post transaction. The literal interpretation of the term ‘slump’ means dropping or falling heavily, indicating to an undertaking that has suddenly declined or deteriorated or sunk heavily, being operational or financial loss. However, in the absence of any such specific condition for the undertaking to be necessarily a slump, it can be inferred that it is not necessary that undertaking should be a slump to effect slump sale. Thus, the process of slump sale can be used even for transfer of profit-making company.

• Assets and liabilities: The main essence of slump sale is the transfer of an undertaking as a whole. In an event where the assets of an undertaking are transferred without transfer of liabilities, the same shall not qualify to be regarded as a slump sale. In such a case it cannot be stated that undertaking has been transferred as a whole and consequently the provisions of slump sale shall not be applied.

• Lump sum consideration without assigning values to the assets. Consideration should be as a whole and not attributed individually to assets. It should be one time consideration and not in instalments or any other mode. Recently the Kolkata Income Tax Appellate Tribunal held that, where only specified assets of an undertaking were sold, it could not be termed as Slump Sale in accordance with section 50B of the Income-tax Act, 1961 merely because the agreement of transfer referred to transfer of a “Going Concern”.

Slump sale is an attractive option for a business entity that is desirous of transferring/selling an undertaking, given the complexities involved in determination of the costs and taxes in case of itemised sale for the transfer of business it is prudent for parties to negotiate and commercially agree on the cost burden of each party at the very outset.

The option of selling a business as a going concern by way of slump sale or alternatively, selling the assets independently is to be selected by analyzing the various advantages and shortfalls in the mentioned mode of transferring the undertaking, which may differ from case to case basis.

BUSINESS TRANSFER AGREEMENT

A Business Transfer Agreement (“BTA”) is structured to give effect to a comprehensive sale of assets and liabilities of one entity to another entity. It is in a form of a purchase and transfer of ownership agreement wherein details regarding the sale of the business and its assets are captured. It outlines the type of transfer, type of sale, terms of sale and details of the transferrable. The BTA, inter-alia, lists down the assets, liabilities, capital, contracts, customer lists, leases, employee insurance, new employment rights, inventory, tax issues, copyrights, and patents.

In common parlance, the transaction envisaged in a BTA is also referred to as slump sale. In order to give effect to such transaction, the parties typically enter into a BTA, which records the following terms and conditions:

• Assets and liabilities of the business undertaking to be transferred are listed in the schedule to the BTA;
• Lump sum consideration for the sale is specified (usually sale price is based on a business valuation report);
• The BTA specifies the date prior to which all necessary approvals, permissions, documents to consummate the transaction are to be obtained(usually referred to as the ‘Closing Date’);
• Requisite representations and warranties providing guarantee of good standing by the respective parties is often included, particularly, the selling entity with respect to the legal status and financial health of the business undertaking as on the Closing Date;
• The fact that upon obtaining all requisite documents and approvals, the transfer of business shall take place on the Closing Date is also captured.

BTAs are typically structured in two ways.

1. First, it is structured as an “agreement to sell”, wherein the manner in which the business undertaking is to be sold shall be laid down. The agreement itself does not result into any immediate transfer of the undertaking, rather it is overarching agreement whereby the intent of parties to give effect to an intended slump sale is listed out, and the actual sale is effected by diverse agreements/documents to follow. In essence therefore, the BTA remains an indication of intent, effectuated by subsequent binding documents.
2. Second form of BTA is one where the BTA itself causes the sale of business undertaking and payment of consideration thereof. In order words, such BTA itself consummates the sale of the business undertaking. Therefore, in such cases BTA is nothing but a deed of conveyance itself.

STAMP DUTY IMPLICATIONS

Execution of certain documents and instruments attracts stamp duty under the Indian Stamp Act, 1899 (“Stamp Act”). Stamp duty is payable on the instrument and not on the transaction. Thus it is important to understand the instrument and the subject matter of the instrument to understand the stamp duty implication for the same.

The Stamp Act does not define a BTA or lay-down any explicit provision on charging of stamp duty on a BTA. Therefore, it is pertinent to identify each asset that is proposed to be transferred through the BTA. In this regard it is pertinent to analyze the provisions of the Stamp Act that will have implications in case of a BTA.

Section 2(10) in the Stamp Act defines Conveyance, it states that,

“Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule.”

On reading the aforesaid definition it is apparent that the definition of Conveyance does not distinguish between movable and immovable property.

Section 54 of the Transfer of Property Act, 1882 states that in the case of immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

Further, as per the provisions of the Sale of Goods Act, 1930 read with Section 17 and 18 of the Registration Act, 1908, physical delivery/transfer of a movable property shall constitute a valid transfer if the same is done by obtaining an acknowledgement or receipt to that effect recording and/or acknowledging the transfer of title in such movables. In case the transfer of tangible movable property is by physical delivery, it will not require registration or stamping. However, stamp duty shall become applicable in case an instrument is executed in writing to record a transfer even for tangible movable property.

Similarly, actionable claims or goodwill are intangible movable property chargeable as conveyance, as it has to be transferred by executing a written instrument.  In case Deputy Commissioner of Income Tax vs Mahadeo R. Mahadik on^[5] it was discussed that:

“The sale of movable property is governed by Sale of Goods Act, 1930, and it is the settled law that the transfer of movable property by way of sale can be effected by delivery of the goods from seller to the purchaser. By this process, the ownership in the goods is changed from one person to another. Under the Transfer of property Act, 1882, section 54 deals with the transfer of immovable property by ways of sale. It provides that where the value of immovable property is more than Rs. 100 it cannot be transferred unless the sale deed is registered under the provisions of Indian Registration Act. However, it is pertinent to note that immovable property having value less than Rs. 100 can be transferred by mere delivery of the property. It does not lay down any condition regarding the transfer of movable property. Therefore, it appears that the law has made a distinction between the transfer of immovable property having value more than Rs. 100 on one hand and the transfer of movable property as well as transfer of immovable property having value less than Rs. 100 on the other. In the former case, legal ownership is not transferred unless sale deed is registered while in the later case no formality is required except the delivery of the property.”

In case of immovable property, reference is drawn to the case of Duncans Industries Ltd v. State of UP ^[6], wherein it was discussed that when there is an intention to transfer the entire business undertaking on an as-is-where-is basis including plant, machinery and other assets, the machinery which formed the fertilizer plant permanently embedded to the earth with an intention of running, is to be treated as “immovable property” and liable to stamp duty as conveyance.

The fact that a typical BTA would have stamp duty implications has been well settled in the case of Abbott Healthcare Private Limited v. Raj Kumar Prasad & Ors.[7], where the BTA was considered to be duly stamped. Further, there was no dispute on the fact that such a transfer would amount to a conveyance, as the deed which transferred the business undertaking including its goodwill was classified as “conveyance” by the revenue authorities in the case of Anil Purushottam Kakad v. Tax Recovery Officer[8]. The Apex Court has further held in the case of Hindustan Lever & Anr. vs. State of Maharashtra & Anr.[9] that a High Court order approving scheme of corporate arrangement under Section 394 of the Companies Act, 1956 (‘Companies Act’) is a ‘conveyance’ and, hence, subject to Stamp Duty. Thus a corporate arrangement is very much contemplated by the court when it comes to “conveyance”.

From the above discussion, it is thereby concluded that a typical BTA is stamped as a “conveyance” under the Stamp Act and the applicable rate will be as per the one applicable statewise.

However, an agreement which captures the intention to sell a business undertaking with its assets shall not amount to conveyance but shall merely be a contract to sell.

Article 5 of the Indian Stamp Act, 1899 specifies the stamp duty chargeable on an ‘Agreement or memorandum of Agreement’ as follows,

In case a contract is executed with an intention not to operate as an immediate transfer of the sale of property, the said instrument shall be categorized as an agreement to sell rather than a conveyance for calculating the stamp duty implications.

In the case of Life Insurance Corporation of India vs. Dinanath Mahadeo Tembhekar and others^[10]it was discussed as follows:

“Provisions of Section 3 in Chapter II makes the instruments chargeable with duty as contained in the Schedules appended to the Act and reference to other provisions like Sections 4 to 6 emphasises that it cannot be the intention of the Legislature to collect duty on transactions. There is a clear distinction in the legal affairs of men which can be taken note of in that transactions may be effected having legal effects without resort to formal inscribing of them in the shape of documents or instruments. Sometimes by the instruments the legal rights may stand conveyed and sometimes without it. Instruments may be inscribed and executed just to witness the completed transactions and similarly instruments or documents may come in existence with a view to create rights and obligations in future. There may be executed, executory as well executable instruments which may take the formal shape of agreements or which may be spelt out by the documents that pass between the parties. Question in each case while applying the provisions of fiscal statutes like the Stamp Act is a question of fact to be determined taking into account all the relevant circumstances, the nature of transaction and its legal effect, leaning always in case of doubt to favour the subject from the tax law.

Consequently, under the Stamp Act a business transfer agreement not evidencing a transfer of property shall be stamped as an agreement to sell under Article 5(c).

It is pertinent to note that instead of contemplating an immediate transfer, a business transfer agreement may direct the parties to execute a deed of conveyance. It has been clearly held by the Supreme Court in the case of Avinash Kumar Chauhan v. Vijay Krishna Mishra^[11] that agreement to sell would not be subject to payment of stamp duty which is payable on a sale deed. It stated that:

“Explanation appended to Article 23 of Schedule IA of the Stamp Act as substituted by M.P. ActNo. 19 of 1989 reads as under:-

“Explanation.- For the purpose of this Article, where in the case of agreement to sell immovable property, the possession of any immovable property is transferred to the purchaser before execution after execution of such agreement without executing the conveyance in respect thereof, then such agreement to sell shall be deemed to be a conveyance and stamp duty thereon shall be leviable accordingly:

Provided that the provisions of section 47A shall apply mutatis mutandis to such agreement which  is deemed to be a conveyance as aforesaid, as they apply to a conveyance under that section:

Provided further that where subsequently a conveyance is effected in pursuance of such agreement of sale, the stamp duty, if any, already paid and recovered on the agreement of sale, which is deemed to be a conveyance shall be adjusted towards the total duty leviable on the conveyance subject to a minimum of Rs.10.

The said explanation has been inserted by M.P. Act 19 of 1989 with effect from 15th November, 1989.By reason of the said provision, thus, a legal fiction has been created. Although ordinarily an agreement to sell would not be subject to payment of stamp duty which is payable on a sale deed, but having regard to the purpose and object it seeks to achieve the legislature thought it necessary to levy stamp duty on an instrument whereby possession has been transferred.

The validity of the said provision is not in question”

Based on the above provisions of law and relevant case laws, it can be concluded that where a BTA is in the form of an agreement to sell, it will be chargeable to stamp duty as per Article 5 (c) of Schedule I of the Stamp Act, and the conveyance deed through which the assets of the entity, whether movable or immovable property, is to be transferred, shall be liable to stamp duty as applicable on the nature of asset that is being transferred and the instrument executed to record such transfer. Therefore, in order to understand the stamp duty implications in the instant transaction, it is pertinent to analyse the nature of asset that is being transferred and the instrument through which it is being transferred.

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References

[1] https://indiankanoon.org/doc/884541/

[2] https://indiankanoon.org/doc/397621/

[3] https://indiankanoon.org/doc/1182674/

[4] https://indiankanoon.org/doc/1207906/

[5]https://indiankanoon.org/doc/514000/

[6]https://indiankanoon.org/doc/135953/

[7] https://indiankanoon.org/doc/126370654/

[8] https://indiankanoon.org/doc/1873059/

[9] https://indiankanoon.org/doc/1859141/

[10]http://www.supremecourtjudgements.in/judgment?jid=149130

[11]https://indiankanoon.org/doc/1729274/

KS Legal & Associates, Mumbai, is hiring for ‘Litigation Lawyers’ at Mumbai. Details are as follows:

JOB AT A GLANCE

• Designation: General Corporate lawyer
• Bachelor Degree with LLB/ LLM also preferred. The experience should preferably be in litigation sector.
• PQE: 1- 2 Years

Job description

• Corporate commercial transactions
  
• Drafting and negotiating contracts
  
• Business Advisory
  
• General Corporate Law, in-depth knowledge of FEMA, FDI, SEBI and RBI regulations and Conducting due diligence 
• Have worked in legal frame work of mergers and acquisition or private equity deals.

• Understanding of corporate legal requirements in India & Cross border deals.
• The ability of preparing legal documentation for corporate deals. Analyze the legal documents.
• Legal advisory on Corporate Laws and transaction based assistance, Advising on M&A transactions, JVs, formation of companies, setting up of liaison, branch & project office, Drafting & Negotiating contracts & agreements, due diligence of companies
• Excellent communication and drafting skills
• Hardworking and passionate and wants to work in a challenging environment.
• Salary: 10 – 25k which can vary based on expertise and experience of the candidate.
• Candidates should be from Mumbai only.

COMPANY PROFILE

KS Legal & Associates is a corporate firm specializing in all arenas of non litigation including real estate and IPR.

How to apply?

The candidates need to send their resume to the email ID [email protected] a cover letter in not more than 250 words.

KS Legal & Associates, Mumbai, is hiring for ‘Litigation Lawyers’ at Mumbai. Details are as follows:

Job at a Glance

• Designation: Litigation Lawyer
• Essential Qualifications: Bachelor Degree with LLB/ LLM also preferred. The experience should preferably be in litigation sector.
• PQE: 1- 2 Years

Job description-

• Drafting and review of pleadings, petitions, appeals, settlement memorandum, argument notes, case summaries.
• Working knowledge of court proceedings and practice rules in various courts, tribunals, commissions and fora.
• Appearing before various courts, tribunals, commissions or fora and representing the company in litigation matters.
• Good knowledge of relevant laws
• Sound legal knowledge specially in recovery, injunction, arbitration, winding up petitions and court proceedings
• The candidate must have excellent command over drafting of complaint/ reply to complaint etc.
• To attend all courts (including High Court) for various cases, litigation etc.
• Should have practiced in High Court for various litigation cases and familiar with its procedure.
• Present and summarize cases to judges and juries.
• Evaluate findings and develop strategies and arguments in preparation for presentation of cases.
• Examine legal data to determine advisability of defending or prosecuting lawsuit.
• Present evidence to defend clients or prosecute defendants in criminal or civil litigation.
• To draft all legal documents and petitions
• Excellent communication skills
• Should be collaborative, open to work with a diverse group, and interested in dynamic, progressive and evolving work and responsibilities.
• Salary: 10 – 25k which can vary based on expertise and experience of the candidate.
• Candidates should be from Mumbai only.

Company Profile

KS Legal & Associates is a corporate firm specializing in all arenas of non litigation including real estate and IPR.

How to apply?

The candidates need to send their resume to the email ID [email protected] a cover letter in not more than 250 words.

In this article, Arpit Srivastava put forth the employer’s obligation under the Maternity Benefit Act, 1961

Maternity Benefit Act, 1961

Maternity Benefit Act came into force in the year 1961 with the objective of safeguarding the dignity of motherhood and providing healthy care to mother and her child. This Act ensures the rights of a pregnant woman will be looked after even when she is at home taking care of her child. Apart from the benefits provided to mother and her child, this Act also puts some obligations on the part of the Employer.

Meaning if employer under the Maternity Benefit Act

For the purpose of this Act, “Employer” would mean a person appointed by the Government for supervising and controlling employees or where no person then the head of department. In case of local authority employer would mean any person appointed for supervision of employees or chief executive officer of that authority. In any other case employer would mean any person having control over the affairs of the establishment like manager, managing director or any such person.

Obligations of Employer under this Act are discussed below

• No employer shall employ a woman within six weeks of her delivery or miscarriage.
• No employer shall allow a pregnant woman to do any arduous work which requires long hours of standing or likely to interfere with her pregnancy.
• An employer shall be liable to pay the payment at the rate of average daily wage for the period of her actual absence. This period might include any period preceding the day of delivery, actual day of delivery or any following the delivery. On contravening these conditions the employer shall be punishable with imprisonment for a period of three months which might extend to one year and with fine ranging from two thousand to five thousand.
• On receipt of the notice from any woman claiming maternity benefit under the Act, the employer shall allow the woman to absent herself from the work.
• The amount of maternity benefit for the period immediately preceding the expected dates of delivery shall be paid in advance to the woman on production of the proof that she is pregnant. That amount should be paid within forty-eight hours of production of such proof.
• If woman entitled to maternity benefit dies before receiving it then the amount shall be paid by employer to the person nominated by that woman for receiving such benefit.
• Employer shall provide the concerned woman with the medical bonus as mentioned under the Act.
• If a woman is absent from the establishment in accordance with the provisions of this Act then it is unlawful on the part of the employee to dismiss or discharge her from the employment. On contravention of this punishment for employer is imprisonment for three months and it might extend up to one year and with fine ranging from two thousand to five thousand.
• Employer is required to provide information regarding the names and addresses of the women employed, applications or notices received from them under the Act and payment made to them to the inspector appointed under this Act.
• Every employer shall maintain registers, records, and muster-rolls as may be prescribed.
• Every establishment having fifty or more employees shall have the facility of a creche (a nursery where babies or young children are cared during the working day) and it shall be the duty of the employer to allow four visits to the woman to the creche.
• Benefits available to every woman should be intimidated to her at the time of her initial appointment by the establishment in writing and electronically.

These are some of the obligations of an employer for ensuring better work environment for the woman. Employer is required to pay maternity benefit, allow nursing breaks, grant leave as and when required. The main objective of this act is to remove the fear of job insecurity from the minds of working women and ensuring them equal pay even during the time of their pregnancy.

This was all on employer’s obligation under the Maternity Benefit Act, 1961. What are your views on employer’s obligation under the Maternity Benefit Act, 1961? Comment below and let us know.

Suggested Readings.

Maternity Benefits in Organized & Unorganized Sector

Legal Rights Of A Woman In India

Importance Of Paternity Leaves In India

The article put forth the provisions of Medical Termination of Pregnancy Act and the right of women over her own body.

ABSTRACT OF THE RESEARCH UNDERTAKEN

Abortion has always been considered a taboo in the Indian camaraderie. The pro-life and pro-choice positions, which are highly debated in various countries, have not really manifested themselves in the Indian discourse on abortion as a result of complex reality of our country. Limited and regressive discourse on abortion as a result of considering it as something being against God’s will make the situation even worse for those who never wanted pregnancy in the first place. Hence, there is a dire need to engender a progressive and informed discourse on abortion in India. It is ironical to note here that not much attention by the media is given to the legislations concerning women, which are faulty or have loopholes in it.

This paper, with the help of different legislations, precedents and scholarly articles aims at discussing some of the very relevant issues regarding abortion which have been subjected to extensive debate all over the world. It has been divided into four sub-parts. Should a woman be given an absolute right to make decisions regarding her own body or not? Should law and media interfere in matters which are as personal as termination of pregnancy? Is such interference justified? If yes, then what should be the extent of such intervention? These are exactly the questions which have been addressed in the first part of the paper. The second part critically analyzes the provisions of Medical Termination of Pregnancy Act, 1971 in the light of the fact that the Act allows abortion as a population control measure rather than as a right and subjects the provisions of the Act to the test of fundamental rights guaranteed under Articles 19 (right to freedom) and 21 (right to protection of life and personal liberty) of the Indian Constitution and other basic human rights. This part also talks about the time bar for abortion set by the MTPA and discusses its constitutional validity. The third part then goes on to discuss the amendments to the Medical Termination of Pregnancy Act, 1971 and subjects them to strict scrutiny in the light of recent development of abortion laws all over the world. The authors, after thoroughly analyzing and comparing abortion laws of various countries (with emphasis on the USA), have proposed certain changes to the draft MTP amendment bill which has also been discussed in the third part. Lastly, the fourth part provides a conclusion and summarizes the whole discussion on abortion.

Medical Termination of Pregnancy Act

Margaret Sanger, an early 19^th century birth control activist once furiously said that:

“No woman can call herself free who does not control her own body.”[2]

The result of this was that she was prosecuted under Comstock Act, 1914[3] for her book on Family Limitation. The scenario at that point of time was catastrophic as to the rights of a woman to abort. The world has moved ahead but how far India and the people of India have come with their opinion and standpoint on abortion is the question that is always left in ambiguity and is still questionable. Discussing the status of woman in India, it is necessary to quote the father of the nation and what he said at the time of the India’s struggle for freedom. Mahatma Gandhi was of the view that no national movement for independence could succeed if so long and so great a portion of the population was being held back. Critical about the position of women in India he wrote:

“Today, the sole occupation of a woman amongst us is supposed to be to bear children, to look after her husband and otherwise to drudge for the household. This is a shame. Not only was the woman condemned to domestic slavery, but when she went out as a laborer to earn wages, she was paid less, though she worked harder than men.”[4]

He not only tried involving women in the freedom movement by helping them come out of their comfort zone but also condemned the legal disabilities which hobbled woman.[5] It is really sad that even after multitudinous efforts taken by government and so many educational programs; we still fail as a country and institution in curbing out the gender issues and in awareness with respect to a lady’s right.

NULL HYPOTHESIS

1. Section 3 (b) of MTP Act, 1972 violates right to life and personal liberty guaranteed under Article 21 of the constitution of India;
2. Media plays a very important role in creating awareness in the society and has to be the flag bearer now to change the perception of the society in abolishing the social and moral stigma that surrounds abortion.

ABORTION, MTP ACT, AND THE INDIAN CONSTITUTION

Before 1972, abortion was an offence punishable under the Indian Penal code and was permitted only when it was needed to save the life of the mother. This law because of the restriction imposed and the strictness led to its violation in numerous cases. The huge uproar and the demand for liberalization for a number of years led to the formation of Medical Termination of Pregnancy Act in the year 1972. When an unborn is in mother’s womb, it is necessary to understand here that it is a part of a woman’s body, and if a lady does not have a right over her own body then it is a complete infringement of right to life and personal liberty guaranteed by the state under article 21 of the Indian Constitution.

• It is necessary to note here that our Constitution does not confer any specific rights for an unborn and it can never be preceded over fundamental right of a women to electively abort as she is the one who ultimately has to carry the weight of an undefined and unborn child in her womb. Right to life and personal liberty offered under Article 21 has a very wide scope of interpretation.[6]
• This article in itself has become an inexhaustible source of many rights.[7] This right has been given a paramount position by our courts.[8]
• The statement that no person can be deprived of his/her life or personal liberty has been repeatedly quoted with approval by the Supreme Court[9] but was further interpreted to include the right to livelihood after certain controversy.[10]
• Now further interpretation of Article 21 suggests that commission of rape is a violation of right to life of the victim which includes right to live with human dignity.[11] It is difficult to understand why the interpretation of the article cannot include right to elective abortion that is abortion at any point of time and by choice of the woman.
• Among various rights available to a woman, deciding what should be inside her body and what not is the most fundamental right and the state should not take away this right from her. Right to abortion comes under the ambit of right to privacy which is recognized under right to life.[12]
• Mother’s right to abortion cannot be pressed for the rights of an unborn, which is not even a complete moral person.[13] The scientists have agreed that fetal brain will be sufficiently developed to feel some sort of pain approximately after twenty six weeks,[14] hence putting a twenty week bar on the termination of pregnancy is not even morally incorrect but scientifically also does not make any sense.
• Liberty, in the 5^th and 14^th Amendments to the United States constitution, has a very wide scope of interpretation and takes in all the freedoms.[15] With a slight contrast Article 21 of Indian Constitution qualifies liberty by “personal” and it can be inferred that the scope of liberty in Indian Constitution is narrower than that in the US.
• Still, it is not an issue with respect to Abortion as there is nothing that can be as personal as abortion.
• This can be substantiated by the judgment given in the case of State of Maharashtra v. Madhukar Narayan Mardikar,[16] the Supreme Court held that even a prostitute or a sexually available woman is entitled to right to privacy and no one can evade her privacy as and when one likes. Again explaining the right to privacy in R. Rajagopal v. State of Tamil Nadu,[17]  the court held that it is our fundamental right to be let alone and a citizen has the right to safeguard his own privacy, along with his family’s privacy, procreation, motherhood, child-bearing and education among other matters.
• The words like procreation, motherhood, child-bearing mentioned here very strongly contend that it’s a lady’s right whether she wants to procreate or not, whether she wants to be a mother or not, whether she wants to bear a child or not and even the narrowest interpretation of right to privacy includes right to abort. This absolutely makes it clear that Section 3(2) (b) of Medical Termination of Pregnancy Act, 1972 which imposes a 20-week restriction on abortion violates a woman’s fundamental right to abort.
• Though there has been a draft MTP bill proposed but that draft also focuses more on saving the doctors/medical practitioners from being prosecuted under section 312 to 316 of Indian Penal Code 1860 which relates to the unlawful termination of pregnancy.[18] Section 312 also covers a woman who causes herself to miscarry, which is really unreasonable as no mother would love to abort her own baby unless the social, financial or moral reason. The scope of this section, in researcher’s opinion needs to be narrowed down to include every legal entity except the woman who has the fetus.

ABORTION AND ROLE OF MEDIA: LIBERTY AND FREEDOM OF SPEECH AND EXPRESSION

• Justice Bhagwati in the case of Maneka Gandhi v Union of India[19] concluded that the expression ‘personal liberty in Article 21 is of the widest amplitude and it covers a variety of rights which go to constitute the personal liberty of man or a woman. Adding to that Mr. Tripathi, in his venture “Spotlight on Constitutional Interpretation” writes that the innumerable aspects of personal liberty are impossible exhaustively to enumerate.[20]
• In the case of State of Maharashtra v. Prabhakar Pandurang[21], the court held that the right to personal liberty included the right to write a book and get it published and if this there is any sort of hindrance in exercising this right without the authority of law, then it violates Article 21 of the Indian Constitution.
• Through these cases, the researcher wants to throw some light on the power and freedom that press and media has in our country. After the removal of Section 66A of the Information Technology Act, which contained punishment for sending an electronic mail or electronic message for the purpose of causing annoyance and inconvenience or to decisive or mislead the addressee or recipient about the origin of such messages, shall be punishable with a punishment which may extend to a term of three years and fine, the social media has become more fearless than ever and can be the best way to put a standpoint.
• The preamble of our constitution inter alia speaks of liberty of thought, expression, belief, faith and worship and in the researcher’s opinion after severing the most barbaric censorship law in India, the Supreme Court has opened a huge gateway for the media to be the flag bearers of new thinking, opinions, standpoints, reasoning, and logic. Now, we as humans with reasonable intellect are duty bound to protect and preserve the rights of each and every citizen of this country.
• Article 19(1) that is the right to freedom of speech and expression imparts the right to know, receive and impart information[22] and since the state has a duty to protect the freedom of expression as it is the liberty guaranteed against the state, [23]it becomes the duty of the state to protect the rights of the press and media (which includes films) and a State cannot suppress a dramatic performance or any demonstration on account of threat of hostile audience or threat of violence.
• It is very easy to explain why there is always a threat of violence when there is a new view point proposed. In India, from ancient Vedic period, abortion is regarded as a social evil and is condemned in every religion followed in India and with respect to women and men, problem of gender issues are still prospering. We have seen in numerous cases how media trials help in identifying and repairing the loopholes present in different acts and statutes.[24]Though identifying non-allowance of abortion as a crime committed by state is not really a correct interpretation but at least we know that it is unfair and unreasonable restriction imposed by the state

ABORTION LAW IN THE UNITED STATES

• In the year 1973, United States witnessed a landmark judgment which changed the abortion laws of United States by introducing concept of fetal viability.[25] In this case the Supreme Court of US held that the abortion laws of Texas which criminalizes abortion except to save the life of the mother is violative of the Fourteenth amendment to the US Constitution and specifically the due process clause.[26]
• The US Supreme Court also held that the word “Person” mentioned in the fourteenth amendment does not include an unborn child which supports the researcher’s contention that an unborn child’s right cannot be given preference over a lady’s right to abort. Only when a fetus can survive outside the mother’s womb, the state’s interest as to the protection of a potential human life, but still cannot prohibit abortion when the life and health of the mother are in question.

Following this case, in Planned Parenthood Southeastern Pennsylvania v. Casey,[27] the Supreme Court created a new standard to test the constitutionality of State abortion restriction which was called the undue burden test instead of trimester test. Undue Burden is defined as having effect of placing substantial obstacles in the path of a woman’s choice.[28] While giving this judgment as well, the court was of the view that the constitutional protection of woman’s decision to terminate her own pregnancy is derived from the Due process clause of Fourteenth Amendment.

Now the role of media here is to create awareness about the developments that have happened in countries like USA and also about the right that is induced in every lady who never wanted pregnancy in the first place, or became pregnant because of some atrocities like rape or family pressure. Newspapers, TVs and different social media platforms are the catalysts of a progressive society and the persistent acknowledgement and awareness programs on the loophole in the MTP Act, 1972 from the media shall indeed lead to changing of opinion of the masses about abortion.

RECOMMENDATIONS

According to the author, just enactment of a new laws, rules and statutes, is not at all a solution to the problems with respect to abortion that have been pre-existing for centuries. The execution part of it has to also be taken into consideration. Also it is necessary to note here that women in need of abortion will obtain one whether safe or unsafe[29] so why not remove the upper gestation limit for the termination of pregnancy. It does sound like an extreme move or maybe one which totally neglects the rights of an unborn but idealistically and constitutionally it cannot be called wrong. If rights of an unborn are taken into consideration, then also the bar of 20 weeks set by the government which is subjected to judicial discretion which ultimately varies in different cases and in the lights of the recent judgment of Supreme Court.[30]The media needs to be more persistent with its approach and has to repeatedly make known to people the present problems with respect to MTP Act and has to continuously keep on interpreting the Supreme Court decisions and make it available to the masses as the reach on social network and media is much more than the judgments of the courts. Also the paid media has to come to an end as the country needs much more than regulated news. Our constitution guarantees the right to freedom of speech and expression and it’s high time everyone starts utilizing it for the betterment of the society. 

CONCLUSION

It cannot get simpler than this, if you are against abortion, then don’t have one but don’t restrict others to avail what is their fundamental right. No woman has an abortion for fun, but no woman is answerable as to why she wants to remove something from her body which may or may not develop into an entity. The question if put in different words is not even about the right to abortion, the emphasis must be not on the right to abortion but on the right to privacy and right to reproductive control where the involvement of the state should be minimal. As Hillary Clinton said that one cannot have maternal health without reproductive health, it is necessary to always keep in mind that reproductive health includes contraception and family planning and access to legal and safe abortion. According to the researcher, abortion is an extremely personal and intimate issue for a lady and anyone opinionating against abortion or trying to set a bar on the time period before which she can abort is actually putting shackles of some rhetoric moral hearsay on her and substantially infringing a lady’s right over her own body which comes under the ambit of right to life and personal liberty. Media has to play the role of a backbone, which always stands for the rights of pregnant women and has to bring the change in the opinion of the masses. As rightly said by Ayelet Waldman:

“Listen to the pregnant woman. Value her. She values the life growing inside her. Listen to the pregnant woman, and you cannot help but defend her right to abortion”

 References

[1] Work of Kshitij Asthana, Student of Symbiosis Law School, Pune (2^nd Year, BBA (H)LLB). LinkedIn- https://www.linkedin.com/in/kshitij-asthana-a70ab2a8/?trk=public-profile-join-page.

[2] Sanger Margaret. Autobiography (New York: Norton, 1938), p. 13; Katz, Esther, et al., eds, The Selected Papers of Margaret Sanger, Vol. 1: The “Woman Rebel” 1900–1928 (Urbana: Illinois University Press, 2003), pp. 4–5

[3] United States Congress, enacted on March 3, 1873.

[4] Kasturba Memorial, at 181 (1962).

[5] Young India, (Oct. 17, 1929)

[6]Mahendra Pal Singh,  V.N. Shukla Constitution of India, Twelfth Edition, Eastern Book Company

[7] Menka Gandhi v. Union of India, (1978) 1 SCC 248: AIR 1978 SC 597,620

[8] Kedar Singh v Union of India, (1989) 1 SCC 204: AIR 1989 SC 653

[9] Kharak Singh v. State of U.P., AIR 1963 SC 1295, 1301,1305; Sunil Batra v. Delhi Admn.,(1978 4 SCC 494, Olga Tellis v Bombay Municipal Corporation., (1985) 3 SCC 545: AIR 1986 SC 180, 194

[10] Port of Bombay v. DilipKumar Raghavendranath Nadkari, (1983) 1 SccCC 124, 134, where court held that right to livelihood is inclusive in Article 21; Begula Bapi Raju v. State of A.P., (1984) 1 SCC 66, where the court did not follow the judgement given in the preceding case and held that right to livelihood is not included in Article 21.

[11] Bodhisattwa Gautam v. Subhra Chakraborty, (1996) 1 SCC 490; Railway Board v. Chandrima Das (2000) 2 SCC 465: AIR 2000 SC 988

[12] Roe v Wade (1973) 410 US 113 (1973)

[13] Mary Anne Warren, “On the moral and legal status of abortion”, A fetus is not a person. All and only persons have full moral rights. A fetus, therefore, does not have full moral rights. Moreover,….a woman’s right to protect her health, happiness, freedom and even her life, by  termination of unwanted pregnancy, will always override whatever right to life it may be to appropriate to ascribe to a fetus, even a fully developed one.”
Available at www.thatmarcusfamily.org

[14] See Clifford Grobstein, “Science and the unborn: choosing Human futures (Basic Books. 1988) p.13

[15] Munn v. Illinois, 24 L Ed 77:94 US 113 (1877)

[16] State of Maharashtra v. Madhukar Narayan Mardikar, (1991) 1 SCC 57: AIR 1991 SC 207, 211. Also see, Govind Mishra, “Privacy: A Fundamental Right Under the Indian Constitution,” (1979-80) 8 & 9 Delhi L Rev 134

[17]R. Rajagopal v. State of Tamil Nadu, (1994) 6 SCC 632: AIR 1995 SC 264

[18] S. 312 defines offence of causing miscarriage as “Whoever voluntarily causes a woman with child to miscarry shall if such miscarriage be not caused in good faith for the purpose of saving the life of a woman to be punished with imprisonment of either description of term which may extend to 3 years, or fine or both and if the woman be quick with the child shall be punished either with imprisonment of either description for a term which may extend to 7 years, and shall be liable to fine.”

[19] Maneka Gandhi v Union of India, (1978) 1 SCC 248: AIR 1978 SC 597,620.

[20] P.K. Tripathi, “Spotlight on constitutional Interpretation” (1972) 166.

[21] State of Maharashtra v. Prabhakar Pandurang, AIR 1966 SC 424: (1966) 1 SCR 702

[22] S.P. Gupta v. Union of India, 1981 Supp SCC 87: AIR 1982 SC 149, 234; Ministry of Information and Broadcasting Govt. of India v. Cricket Assn. of Bengal, (1995) 2 SCC 161

[23] S. Rangarajan v. P. Jagjivan Ram, (1989) 2 SCC 574

[24] Nirbhaya case 2014 (2) ACR 1615 (SC), 2014 iv AD (S.C.) 193, Shreya Singhal v. Union of India, (2013) 12 SCC 73, Arushi Talwar case (2012) 2 SCC 188

[25] Roe v. Wade, 410 US 113 (1973)

[26] US Supreme Court Reports, Vol 35, The lawyers cooperative Publishing co., New York p. 147 to 199

[27]Planned Parenthood Southeastern Pennsylvania v. Casey, (1992) 120 L. Ed 2d 67

[28] Sai Abhipsa Gochhayat, “Understanding of Right to Abortion Under Indian Constitution”

[29] Unsafe abortion: the preventive pandemic. Grimes DA, Benson J, Singh S, Romero M, Gantra B, Okonofua FE, Shah IH. Lancet 2006 Nov 25; 368  (9550):1908-19

[30] The Supreme Court rejected the plea of a 37 year old woman to abort her 26 weeks old fetus when it showed signs of Down’s syndrome. It is necessary to take into note that when the plea came to the court, the fetus was only 23 weeks old. Contrarily, in 2016, the Supreme Court allowed a rape survivor to terminate her pregnancy beyond the prescribed limit of 20 weeks citing grave physical and mental challenges. Available at supremecourtofindia.nic.in/FileServer/2017-01-17_1484639749.pdf

In this article, Padamasre Manoj who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses How to change the name of a private company and public company.

How to change the name of a private company and public company

Name of the company always needs to be well thought through and constructed in a manner that can be scalable and sustainable to stay relevant even during the future of the company. The Companies Act will be applicable for set up and such name changes to legally render the changes as valid.

While registering the name, the registration authorities will check to ensure that the name is not already be used by any other organisation nor be resembling closely that of a competitor organisation. It should also not be vague or general, for example, Silk Company Pvt. Ltd.

It should be specific and reflect the nature of the business in the name.  In cases where the organization decides to change its name, either due to change in ownership, beliefs, expansions etc. the legal process needs to be followed meticulously to ensure that the registration of the company is valid and the company bools is passed on without a break.

There are certain protocols to be followed to ensure that the name change for both private and public companies are done in a legally valid manner, we will look at those in the appended notes.

Name change in Private and Public company

Any alteration of name will result in fundamental change in the Memorandum of Association of the Company (MOA). This is critical as the name of the company will be mentioned as part of the various clauses of the MOA and therefore this needs thorough review and change across those clauses.

This also means that the shareholders of the company need to agree to the change and sign the MOA.  The Ministry of Corporate Affairs needs to review the change and approve.  These can be obtained through separate resolution to be passed based on the permission.  Name change will however, not have a fundamental change to the corporate entity. Aspects such as the rights & obligations of the company will continue to remain as before. Likewise, any legal charges for or against the company will continue and not go invalid. Any new legal proceeding in the old name may also be filed by any consumer or shareholder and these will be valid.

Steps for incorporating the name change

Board Resolution

The name change has to be discussed and agreed by all of the Directors of the company. As part of the legal process, a written notice has to be sent to each of the Directors address notifying the change.  This should then brought to the Board meeting and a notice alongwith the agenda should be shared in the meeting. The new name for the Board to review has to be put forth in the Board meeting and enable 2 key resolutions to be passed at the end of the meeting;  Firstly, the Company Secretary or Director needs to make an application to the registrar of companies for confirming the availability of the proposed name. This step is critical as no two companies in the same sector can exist with identical names. Secondly, upon receiving confirmation, there has to be an Extraordinary General Meeting called for to approve the new name and changes to MOA.

Application for Name reservation with Registrar of Companies

The Company Secretary or Director of the company has to present an application to the Registrar to confirm and reserve the proposed new name for the company. Form INC-1 is the application template, this along with the applicable fees prescribed in the Companies (Registration offices and fees) Rules, 2014, i.e, Rs. 1000 should be filed. The name selected should be in line with Rule 8 of the Companies (Incorporation) Rules, 2014.   Form INC-1 is available online and can be downloaded from the website. The details for changing the name needs to be provided in Part B, C & D of the Form. The consensus based revised copy of the Board Resolution has to be attached with the Form. The approval provided by the Registrar of Companies is valid for a period of 60 days, within which the name change has to be incorporated.

EGM – Extraordinary General Meeting

Upon taking consensus of all the Directors, a resolution needs to be passed at the beginning of the name change process.  With the confirmation of the Registrar of Companies, an EGM has to be conducted to ensure that the change is accepted by the Board.  A notice explicitly stating the reason calling for an EGM has to be sent to Board members at least 21 days before the name change and should ideally be in writing to ensure that all of the stakeholders are available for the EGM. The details of interests or concerns raised by every Director and key stakeholders needs to be annexed to the meeting to ensure that all of the participants in the EGM understand the change, the meaning and impact on business caused due to the name change.

A minimum of 2 members should be present for the EGM to be valid. There needs to be voting to check if there are any differences and the proposal will be invalid if those disagreeing to the change is 3 times more than of those who are in agreement.  This EGM is critical as the special resolution passed here will lead to the next step of fundamentally changing the Memorandum of Association.

Resolution to be filed with the Registrar – MGT 14

Upon changing the MOA, post the EGM, as per Sec.13(6) the revised MOA needs to be filed with the Registrar of Companies. The required forms MGT 14 with the annexures need to be updated and the special resolution that is passed to alter the MoA of the company needs to be filed with the registrar by paying the fee. This should be completed within 30 days from the date of passing the resolution as per the Companies Rules, 2014.  This is also available and can be downloaded from the website.

Central Government Approval – FORM INC 24

Form INC 24 along with the required fees and documents need to be filed to the Central Government for altering the MOA and change in name. The Companies Rules, 2014 Rule 29 specifically lays out that a change of name shall not be allowed to a company which has defaulted in filing its annual returns or has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.

The Form INC 24 is available online and can be filed along with the required fees for obtaining the revised Incorporation Certificate. This is provided in Form INC 25, which confirms a change in name of company.

This was all on How to change the name of a private company and public company. What are your views on How to change the name of a private company and public company? Comment below and let us know. Do not forget to share.

References :

Section 13(2) and 13(3) of the Companies Act, 2013
Section 173 (1) of the Companies Act, 2013
Section(4) of the Companies Act, 2013
Rules 8,9 of the Companies (Incorporation) Rules, 2014
Section 100(1) of the Companies Act, 2013

In this article, Pradeep Raja Ravipalli who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Rupee Denominated Bonds Issued To Overseas Investors

Abstract

The present article mainly focuses on describing “Rupee Denominated Bonds” and RBI guidelines about the RBDs, Interpretation of the position of RBDs in selected corporates in India, advantages and future of RBDs in India. Rupee Denominated bonds are issued by an Indian entity in overseas markets and the interest payments and principal reimbursements are denominated (expressed) in rupees. The uniqueness of rupee denominated bond is that buying of bonds, interest payments, and repayment all are communicated in rupees. All payments are transformed into corresponding dollar values at the time of payment.

Introduction to Bonds and Rupee Denominated bonds

In the language of finance, “bond” is a form of loan or IOU (“I owe you”). The issuer of the bond is the borrower (debtor) and the owner of the bond is lender (creditor), and the coupon is the interest. The debtor or the borrower will get external funds to finance long-term investments.

Bonds-its features

In order to understand the bonds, we need to know the key features of the bonds and key terminology of this bonds such as coupon amount, bond yield, par or maturity amount, Credit Quality and Market price. Following are the brief description of these key features.

Principal

The principal amount is the amount in which the issuer pays the interest and it can be also called nominal, par, or face amount. A redemption amount, which is different from the face amount, is available for some structured bonds and these are linked to performance of particular assets.

Maturity

Maturity is the date on which the issuer agrees to repay the total amount of money and the length of the time from agreement date to maturity date is called “the term” or “the tenure” or “the maturity” of a bond. The bond maturity is set when it is issued. The maturity can be any length of time, most of the bonds have a term up to thirty years and some bonds have been issued with tenure of fifty years. There are some issues which does not have any maturity date. i.e. irredeemable.

Coupon

In old days, the bond certificate was issued in a paper and had attached a coupon to it, one for each interest payment. The coupon rate is fixed throughout the bond life. On the due date the bond holder would hand in the attached coupon to the bank in interchange for the interest payment. Hence, the interest rate that the issuer pays to the holder for a bond is called “Coupon”.

Yield

The yield is the percentage of return amount from the investment in a bond. For example, let us assume an investor purchase a bond with a 10% annual coupon rate and principal value of a 1000 rupees. Each year bond pays 10% or 100 rupees, in interest. Its annual yield is the interest divided by its principal amount.

Credit Quality 

The issue quality of the bond denotes to the possibility that the holders will obtain the amounts promised at the due dates. It depends on an extensive range of factors. Credit rating agencies graded the high yield bonds as below investment grade.

Market Price

The market price of the bonds will be subjective by many factors such as the currency, amounts, and timing of the interest payments, capital repayment due, the quality of the bond, and the available redemption yield of other comparable bonds which can be traded in the markets.

Some of the important kinds of bonds

Corporate Bonds

Any corporate companies can issue bonds as it can issue stocks. Most of the corporations have much flexibility as to how much debt they can issue and the limit is whatever the market will bear. In general, a short term corporate bond has the par value of less than five years, intermediate is five to twelve years and long term is more than twelve years.

These bonds are characterized by higher yields because of their higher risk of a company defaulting than a government. The companies which are having higher credit quality, the investors receives lower interest. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on.

Convertible Bonds

A convertible bond may be exchanged for a predetermined amount of the company’s equity usually at the discretion of the bondholder.

Issuing convertible bonds minimizes negative investor interpretation. For example, if a public company selects to issue stock, it’s usually interpreted as a sign that the company’s share price maybe overvalued. Issuing convertible bonds overcomes this negative impression and gives the benefit of converting to equity if the company does healthy.

In view of an investor’s, these bonds have a value-added component built into it and is fundamentally a bond with a stock option hidden inside. Thus, it inclines to offer a lower rate of return in exchange for option to trade the bond into stock.

Callable Bonds

Callable bonds, also known as “redeemable bonds,” can be redeemed by the issuer prior to maturity. A premium is paid to the bond owner as compensation when the bond is called.

The main cause of a call is a decline in interest rates. In order to boost its finances, the company will call its current bonds and reissue new, lower-interest bonds to save money.

Term Bonds

These are the bonds from the similar issue and that share same par dates. These bond can be redeemed at an earlier date than the other issued bonds. There is feature called Indenture agreement in which the bond issuer make with buyers. This agreement provides the schedule and price of redemption plus maturity dates.

Some municipal bonds are examples for this term bonds and this will have ten year call features. It means the issuer of the bond can redeem it at a predetermined price at specific times before the bond matures. These bonds on the other hand is the opposite of a serial bond. It has various maturity schedules at regular intervals until the issue is retired.

Amortized Bonds

An amortized bond is a financial certificate that has been reduced in value for records. Treating a bond as an amortized asset is an accounting method in the handling of bonds. When a bond is issued at a discount – that is, offered for sale below its par – the discount must either be treated as an expense or amortized as an asset. Amortization allows for profiting from the discount rather than treating it as an expense.

As we discussed in Section 4, amortization is a method that gradually and systematically reduces the cost value of a limited life, intangible asset. (To learn more about bond premium amortization, read Premium Bonds: Problems and Opportunities.)

Junk Bonds

Junk bonds typically offer interest rates three to four percentage points higher than safer government issues. These are also called “speculative bond” or “high-yield bond”. These bonds are rated “BB” or lower because of its high risk.

Angel Bonds

These are investment bonds and provides a lower interest rate because of the issuing company’s high credit rating. These are the opposite of fallen angels, which are given a “junk” rating and are consequently much more risky.

Rupee Denominated Bonds

These bonds are issued by an Indian entity in overseas markets and the interest payments and principal reimbursements are denominated (expressed) in rupees. The uniqueness of rupee denominated bond is that buying of bonds, interest payments and repayment all are communicated in rupees. All payments are transformed into corresponding dollar values at the time of payment.

The present article mainly focus to describe about “Rupee Denominated Bonds” and RBI guidelines about the RBDs, Interpretation of the position of RBDs in selected corporates in India, advantages and future of RBDs in India.

1. Rupee Denominated Bonds

Some Governments, banks, companies and other independent entities may issue bonds in foreign currencies, which appear to be more stable and predictable than their domestic currency. Bonds denominated in foreign currencies will give the ability to the issuers to access investment capital available in foreign markets. Some foreign issuer bonds have their Nicknames such as “samurai bond” – issued by an investor based in Europe and will be governed by Japanese law. “Dim-sum bonds” are the Chinese bonds and dim-sum is a popular dish in Hong-Kong.

The rupee denominated bonds is used to mention to rupee denominated borrowing by the entities in abroad markets to eliminate foreign exchange risk, also, these are called “Rupee debt bonds” or “Masala bonds”. The International Finance Corporation (IFC) named these bonds as “Masala Bonds” to give a local flavour by keeping to mind Indian culture and cuisine. The payment of interest and principle reimbursement are expressed (denominated) in Indian rupees.

It is a significant plus for the Indian economy the rupee denominated bonds were took off. These are issued to foreign investors and settled in foreign currency, so that, the risk lies with the investor and not the issuer, unlike the external commercial borrowings (ECBs).

1.1 Reserve Bank of India’s guidelines on Rupee Denominated Bonds

In September 2015, RBI issued guidelines on Rupee denominated bonds, and modified the guidelines in August 2016, in view of these guidelines, money accumulated by “Masala bonds” to be used only for infrastructure funding purposes. Banks were allowed to issue “Masala bonds” to meet the capital needs and accumulate funds for the infrastructure projects. These guidelines will be similar to that for “External Commercial Borrowings (ECBs)”

1.1.1 Who can issue Rupee Denominated bonds?

• Any corporate or corporate body i.e. an entity which is registered under India’s companies Act as a company, formed with particular “Parliament Act” is eligible to issue Masala bonds overseas.
• In accordance with the new RBI guidelines, InvITs (Infrastructure Investment Trusts), REITs (Real Estate Investment Trusts) which are under SEBIs (Securities and Exchange Board of India) jurisdiction are also eligible.
• In view of recent guidelines (August 2016), banks are allowed to borrow the bonds in order to finance their tier-1 and tier-2 and infrastructure funding.

1.1.2 Who can’t issue Rupee Denominated bonds?

LLPs, partnership firms, co-operative societies, trusts (other than REITs and InvITs), non-profit making organizations and individuals are not eligible issuers of “Rupee denominated bonds”.

1.1.3 Corporate Issuers and Maturity Period

• The Indian corporate companies, who are authorized to increase ECBs (External Commercial Borrowings), are also permitted to increase off-shore Rupee Denominated Bonds. The RBD (Rupee Denominated Bonds) follows the same guidelines as the corporate companies follows to issue ECBs. The corporates have to take RBI approvals in case to get benefit of masala bonds if they issue ECBs under approval route, but, in the case of they follow the automatic route to issue ECBs, RBI approval is not required.
• The other payments such as coupons and redemptions are settled in foreign denomination. The money to be issued and the average maturity period i.e. minimum of three years, end use protection are considered according to the guidelines provided for External Commercial Borrowings.

1.1.4 Interest Payments and Maximum Amount

The interest payments i.e. coupon payment must not be more than five hundred basis points. Under consequent maturity the coupon payment should not be above the superior yield of the Indian government’s security.

For example, G-sec five year bond issued with the interest rate of “six percentage”, then the RBD rate of interest must not be above 11%.

In automatic route, any eligible issuer of the rupee denominated bonds can raise a maximum of fifty billion rupees or its equivalents through RDBs during a financial year. The funds generated by RDBs can’t be used for some restricted areas of FDI and for real estate activities but there is an exception the development of housing projects and townships.

1.2 Interpretation of selected corporates in India

1.2.1 International Finance Corporation (IFC)

• “International Finance Corporation” is the prime investors for development countries. In the last decade, IFC mostly investing about eleven billion US dollars in long term financing for climate smart projects such as energy efficiency, green buildings, sustainable agriculture, private sector adaptation to climate change and renewable power.
• These issuance of bonds will be used to progress private sector development in India.
• IFC issued two billion Indian rupees in fifteen year masala bond in March, 2016 which is historic longest dated overseas bond.

  1.2.2 National Thermal Power Corporation (NTPC)

• The India’s biggest power utility company, the NTPC (National Thermal Power Corporation Limited), was established by Government of India in 1975 and was awarded Maharatna status in May 2010.
• Green bond structure was initiated by the NTPC and has been certified by climate bonds, which is the associate of London stock exchange independently.
• NTPC mainly producing and selling electricity to the power distribution companies and electricity boards of the individual states in India. India Government goal is to produce 175 GW of renewable energy by 2022.
• The issuance of these bond will support solar and wind projects supplementing Indian

1.2.3 Housing Development Finance Corporation (HDFC)

• HDFC (Housing Development Finance Corporation Limited) is an Indian financial corporation based in Mumbai founded in 1977, and it is a leading provider of Housing Finance and it is established as the first.
• HDFC has raised a total amount of Rs 5,000 crore through the issue of Rupee denominated bonds (as on October 14, 2016).
• HDFC is the world’s first Indian corporate issued the Masala bond.

1.2.4 British Columbia

• The Canadian province “British Columbia”, was the first foreign government unit to issue a rupee denominated bond.
• The income generated from the bond will be utilized by HDFC (Housing Development Finance Corporation) in India’s housing industry.

1.2.5 European Bank for Reconstruction and Development (EBRD)

• EBRD was founded in 1991 and is the short form of “European Bank for Reconstruction and Development”, this multilateral international financial institution uses investments as a device to build market economies.
• EBRD is owned by two governmental institutions (i.e. EU and EIB) and sixty five countries.
• The European Bank for Reconstruction and Development (EBRD) is one of the important issuer of Indian Masala bonds in London.

1.3. Merits of masala bonds

1.3.1 To Corporate

• RDBs/Masala bonds helps the corporate companies in India to expand their bond portfolio. RDBs facilitates Indian companies to valve a large number of investor base.
• RDBs helps to corporate companies to borrow from overseas market because the interest rates are much lower in developed countries compared to India.
• Indian corporates do not have to bear the risk of currency since the risk is totally lies with the off-shore investor in case of any fluctuation in the currencies.

1.3.2 To Investors

• Masala bonds are more profitable to investors. They can earn more returns through masala bonds in overseas comparatively their home countries. For example, In US, the bond yields is 3% where as in masala bond it ranges from 5-8%.
• In order to attract and benefit more foreign investors, the Ministry of Finance has cut the withholding tax (a deducted tax at source on populace outside the country) on interest proceeds of bonds from 20% to 5%. And capital gains from appreciation of rupee are also exempted from tax.
• An investor benefits from the masala bond if the rupee appreciates at the time of maturity.
• Those who are not interested to invest in the offshore market are getting attracted because of RDBs.

1.3.3 To India

• Currently Indian government has put so many goals such as “Make in India”, “digital India” and developing smart cities . . . etc. for these achievements it requires approximately around twenty six lack rupees in next few years. To achieve this RBD is an efficient way to tap foreign capital.
• RBDs helps to enhance the confidence in off-shore investors and will create reasonable knowledge about Indian economy.
• In India, many projects in the area of infrastructure and power are delayed due to shortage of capital. To overcome this rupee denominated bonds are the best solutions.

4. Demerits of Masala Bonds

There are few risks involved with shifts in capital flows, financial candidness, and the risk that overseas market may portray liquidity away from the domestic market.

5. Rupee Denominated Bonds – Future

RDBs boosts the growth of India economy. RBI enlights the Indian economy by allowing Indian banks to raise their foreign currency through RBDs. The biggest corporate entities in India were attracted by the success of HDFC bank in rupee denominated bonds. Indian railways, Yes bank, are ready to entry in overseas market.

ECBs are the only option to corporate companies to raise foreign currency before the introduction of RDBs. However, the RBDs are more advantageous and leaving the risk of currency to the investors.

6. Tax implications in respect of RBDs in Budget 2017

Indian finance minister Mr. Chidambaram presented the finance bill 2017 and provided a clarity on the tax implications for rupee denominated bonds. Following are the amendments proposed in Finance bill 2017:

A transfer of RBDs (Rupee denominated bonds) which were made outside India, by a non-resident to another non-resident, will not be considered as a transfer for the purpose of levy of capital gains tax

Concessional rate of 5% withholding tax on interest payment to a Qualified Foreign Investor in respect of investments or a Foreign Institution Investor in Government Securities or rupee denominated corporate bonds to be made available on interest payable before 1 July 2020 (instead of 1 July 2017 earlier)

Rupee Denominated Bonds Concessional TDS rate of 5% will be also applicable to rupee denominated bonds issued outside India (commonly known as Masala Bonds) before 1 July 2020. This amendment is proposed with retrospective effect from assessment year 2016-17.

Conclusion

The revised RBD policy introduced by RBI seems to encourage the growth rate of Indian economy and provided a new era of raising debt by Indian corporates. The revised policy facilitates a new pool of borrowers such as start-ups, to raise overseas currency in a hassle free manner.

The very recent amendments proposed by 2017 finance bill are a welcome move by the government of India and will incentivize the Indian companies to borrow / raise funds from outside India and support initiative like “Make in India”, “Startup India” etc. of the Government of India.

Masala bond will help the Indian entities to lessen its interest cost burden on the liability amount on its balance sheet. The foreign funds can be used for infrastructural development in India. Overall, the development of “a Masala bond market” would be positive for Indian companies, opening up possibly important new sources of funding over External Commercial Borrowings.

References:

1. http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/a-new-era-of-debt-raising-rbi-announces-liberalized-framework-on-rupee-denominated-overseas-bor.html?no_cache=1&cHash=c614e590d38df08145d94306697a5f0d
2. https://www.rbi.org.in/Scripts/FAQView.aspx?Id=113
3. http://www.moneycontrol.com/news/fixed-income/indian-companies-all-about-rupee-denominated-bonds_4070321.html
4. http://indiacorplaw.blogspot.in/2015/10/rbi-introduces-rupee-denominated-bonds.html
5. https://en.wikipedia.org/wiki/Bond_(finance)
6. http://www.indianeconomy.net/splclassroom/261/what-are-rupee-denominated-bonds-or-masala-bonds/
7. http://financelab.iimcal.ac.in/download/mag/jan-2016-volume-3-issue-3.pdf
8. http://www.theijbm.com/wp-content/uploads/2016/11/22.-BM1610-070.pdf
9. http://www.lseg.com/sites/default/files/content/documents/India%20presentation%202016.pdf
10. http://www.cgihamburg.de/PDF/Masala_Bonds_pst_080916.pdf
11. http://www.londonstockexchange.com/specialist-issuers/debts-bonds/masala/masala-presentation.pdf
12. http://www.iaeme.com/MasterAdmin/UploadFolder/IJM_07_05_020-2/IJM_07_05_020-2.pdf
13. http://www.sebi.gov.in/cms/sebi_data/DRG_Study/FIIGBM.pdf
14. http://www.investopedia.com/terms/b/bond-yield.asp

In this article, Raghav Gupta who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, Maintainability of consumer complaint when the goods are meant for a commercial purpose.

Who is a consumer

Consumer is a person who pays to expand merchandise and enterprises created. All things considered, shoppers assume a crucial part in the monetary arrangement of a country. Without customer request, makers would need one of the key inspirations to deliver: to pitch to shoppers. The buyer additionally frames some portion of the chain of dispersion.

As of late in showcasing rather than advertisers creating wide statistic profiles and Fisio-realistic profiles of market portions, advertisers have begun to participate in customized promoting, authorization showcasing, and mass customization.

To a great extent due the ascent of the Internet, buyers are moving increasingly towards getting to be “prosumers”, purchasers that are likewise makers (regularly of data and media on the social web) or impact the items made (e.g. by customization, swarm subsidizing or distributing their inclinations) or effectively partake in the generation procedure or utilize intuitive items.

The law principally utilizes the thought of the purchaser in connection to buyer insurance laws, and the meaning of shopper is regularly limited to living people (i.e. not enterprises or organizations) and bars business clients. A run of the mill legitimate basis for ensuring the shopper depends on the idea of policing business sector disappointments and wasteful aspects, for example, disparities of dealing force between a buyer and a business. Starting at all potential voters are additionally shoppers, purchaser security goes up against an unmistakable political significance. Concern over the interests of buyers has produced activism, and also consolidation of customer instruction into school educational module. There are additionally different non-benefit productions, for example, Consumer Reports and Choice Magazine, committed to aid shopper instruction and basic leadership.

In India, the Consumer Protection Act 1986 separates the culmination of a product or administration for individual utilize or to gain a job. Just customers are ensured per this demonstration and any individual, element or associations buying a product for business reasons are exempted from any advantages of this demonstration.

What are consumer goods

Purchaser merchandise are items that are bought for utilization by the normal buyer. Then again called last merchandise, purchaser merchandise are the final product of creation and fabricating and are what a buyer will see on the store rack. Dress, nourishment and gems are all cases of purchaser merchandise. Fundamental materials, for example, copper are not considered buyer merchandise since they should be changed into usable items.

There are three principle sorts of customer products: strong merchandise, nondurable merchandise and ventures. Strong merchandise are shopper products that have a long life expectancy and are utilized after some time. The life expectancy is commonly three years or more. Illustrations incorporate bikes and fridges. Nondurable products are expended in under three years and have short life expectancies. Cases incorporate sustenance and beverages. Administrations incorporate repairs and hair styles. Shopper merchandise are additionally called a last decent, or final result. These things are sold to purchasers for use in the home or school or for recreational or individual utilize. Customer merchandise bar engine vehicles.

One of the biggest purchaser merchandise gatherings is called quick moving buyer products. This portion incorporates the nondurable merchandise like nourishment and beverages. Organizations and retailers like this section as they are the speediest moving purchase products from stores, offering high retire space turnover openings.

What are commercial goods

Great or administration (however not land) sold or exchanged the typical course of a company’s business; or usually utilized by the overall population or offered to it for rent, permit, or deal. See likewise standard Item. Thing not yet monetarily accessible (on the grounds that it is developing through advances in execution or innovation) however will be accessible so as to fulfill the prerequisites of an agreement.

India has been attempting to secure the purchasers recently with different acts and resolutions and the most prominent and usually known law go by the legislature was shopper assurance act 1986 which was corrected later in 2003 which has assumed a crucial part in insurance of customer rights.

The Consumer Protection Act, 1986

Despite the fact that shopper is the reason and most intense propelling power of creation, yet in the meantime purchaser is similarly helpless portion of the entire promoting framework. Endeavors have been made to monitor the enthusiasm of the purchaser sporadically till 1986, when Government of India sanctioned a thorough enactment Consumer Protection Act, to safe watch the enthusiasm of the shopper then ever some time recently. The Consumer Protection Act, 1986, applies to all merchandise and ventures, barring products for resale or for business reason and administrations rendered complimentary and under an agreement for individual administration. The arrangements of the Act are compensatory in nature. It covers open, private, joint and agreeable divisions.  The Act reverses the privileges of the shopper, for example, ideal to security, appropriate to be educated, ideal to be listened, and ideal to pick, ideal to look for redressal and ideal to customer instruction.

Shopper:  A customer is any individual who purchases any merchandise for a thought and client of such products where the utilization is with the endorsement of purchaser, any individual who enlists/benefits of any administration for a thought and any recipient of such administrations, where such administrations are profited of with the endorsement of the individual employing the administration. The customer requires not have made full installment.

Merchandise: Goods mean any versatile property and furthermore incorporate shares, yet do exclude any significant cases.

Benefit: Service of any portrayal, for example, keeping money, protection, transport, handling, lodging development, supply of electrical vitality, stimulation, board or cabin.

Nature of complaint

1. Any unjustifiable exchange rehearse or prohibitive exchange phone embraced by the exchange
2. Defective merchandise
3. Deficiency in administration
4. Excess cost charged by the seller
5. products which are unlawful are risky to use and have a small life

India:  Maintainability of purchaser agreeable when the products are implied for business purposes

After the correction Act 62/2002 in the Consumer Protection Act, 1986, that came into constrain with impact from 15.03.2003, the meaning of the expression “shopper” as characterized in Section 2 of the Consumer Protection Act, 1986, was revised and it barred from its domain a man who acquires such merchandise for resale or for any business reason.

Advance, an Explanation was added to the definition which peruses that, “with the end goal of this proviso “business reason” does exclude use by any individual of merchandise purchased and utilized by him and administrations benefited by him only with the end goal of winning his occupation by methods for independent work”.

In Super Engineering Corporation Vs Sanjay Vinayak Pant [1992 CPJ (1) 95 NC], The Honorable National Commission watched that the aim behind the alteration of the Parliament is to preclude the advantages from claiming the Act to people buying products either with the end goal of resale or with the end goal of being utilized as a part of benefit making movement connected with on a vast scale. In this way, the people who buy products for utilization or use in the fabricate of merchandise or wares on a huge scale with a view to make benefit, will all fall outside the extent of the meaning of “buyer”.

To the extent the words “business reason” and vocation” are concerned neither of these terms have been characterized under the Consumer Protection Act or under the Rules confined in that. Subsequently, understanding of these words is to be viewed according to the truths of the case and the judgments as have been illustrated by the courts in various cases.

In Synco Textile Private Ltd Vs Greaves Cotton and Co Ltd (1991) 1 CPJ, the Court while stressing on “business reason” set out that “for any business design are sufficiently wide to take in all situations where merchandise are bought for being utilized as a part of any movement straightforwardly proposed to produce benefit”. Synco Textile’s case ensnares that “business reason” ought to be recognized from business association or business movement.

While managing the ambit and the extent of the expression “Business Purpose” the Honorable Supreme Court in Lakshmi Engineering works Vs PSG Industries, AIR 1995 SC 1428, has set out the trial of close and direct nexus with the business movement. The Court has additionally held that the clarification added to Sec 2(d) (ii) decreases the question “what is a business reason” to an issue of actuality to be chosen in the realities of each case. The Court additionally held that it is not the estimation of the merchandise that matters, but rather the reason to which the products purchased are put to. The few words utilized in the clarification viz “utilizes without anyone else’s input” “solely with the end goal of gaining his work” and “by methods for independent work” make the goal of the Parliament inexhaustibly clear, that the merchandise purchased must be utilized by the purchaser himself, by utilizing himself for procuring his job.

The Court has additionally held that the reason for which a man has purchased products is a business reason inside the importance of meaning of expression “customer” in area 2(d) of the Act and is dependably an issue of truth to be chosen in the certainties and conditions of the case.

In BhuperndraGuna Vs Regional Manager and others (II 1995 CPJ 139), the National Commission held that a tractor bought principally to till the place where there is the buyer and let or on contract amid the sit without moving time to till the terrains of others, would not add up to business utilize.

In Kalpavruksha Charitable Trust Vs Toshniwal Brothers (Bombay) Pvt Ltd 2000 (1) SCC 512 where the question included was whether the appealing party is a shopper inside the significance of Consumer Protection Act, 1986, and whether the products being referred to were acquired by him for “re-deal” or for any “business reason”. The Honorable Supreme Court held that, since each patient who is alluded to the analytic focus and who exploits the CT check, and so forth needs to pay for it and just 10% patients are sans given administration. That being along these lines, the “Products” (hardware) which are acquired by the appellants were being utilized for business purposes.

In C. P. Moosa – Vs. – Chowgle Industries Ltd 2001 the appealing party had bought EPBAX framework for his lodging with guarantee and yearly upkeep contract. There was lack of administration amid guarantee period and AMC period. The National Commission held that the case falls under Section 2(1) (d) (ii) and appealing party qualified for pay.

In Super Computer Center vs Globiz Investment Pvt. Ltd. III (2006) CPJ 265 (NC) where the complainant, an organization, had acquired PC framework alongside related extras from the inverse party. The intellifax machine, which was provided with the PC, was not surrendering execution to the stamp and the same was imperfect. At the point when the question went to the redressal gathering under the COPRA, the inverse party battled that the complainant was not a customer as the PC and the machine were acquired by the organization for business reason i.e. for business reason. In any case, the deformity in the machine was implied to the inverse party inside the guarantee time frame. The National Commission held that the buyer of the apparatus would absolutely be a purchaser in regard of imperfection in machine amid time of guarantee. In real life Construction Equipment Ltd and Anr versus Bablu Mridha 4(2012)CPJ245(NC), the Honorable National Commission has said that the law on this point is very much settled, that when a purchaser takes the help of maybe a couple people to help/help him in working the machine, he doesn’t stop to be a customer. Since, in the present case likewise, respondent is having just two machines and same are being utilized by the respondent for acquiring his job, by no extent one might say that respondent is occupied with business exercises.

Conclusion

Accordingly, by method for a few judgments the Honorable Supreme Court and National Commission have unmistakably portrayed the situations under which customer consistent are viable even where the merchandise are implied for business purposes.

The Consumer Protection Act avoids administrations for “business reason” from its domain, however, does not characterize this term. This has prompt to tumult as the term is being translated contrastingly by various judges and there is no consistency. Subsequently, result of the case has no legal sureness and relies on upon the fortunes of the gathering. Shockingly, even the proposed alterations don’t address this issue.

Contextual analysis 1: Delhi Public School had recorded a protest against Uttar Haryana Bijli Vitran Nigam Ltd, saying that in spite of it consistently paying its electric bills, the last had all of a sudden sent a request notice on February 12, 2011, for Rs 1516046 reflectively evaluated from August 2008. The Nigam tested the locale of the buyer discussion and legitimized the request, battling that the meter was running moderate and enlisting just a single third the genuine utilization. The gathering permitted the objection, yet in request, the state commission turned around the request, holding that the supply was for business reason. The school moved toward the national commission in modification.

By October 29 arrange, the national commission held the dissension to be viable, watching that the school was not utilizing energy to make any products. In spite of the fact that the association is non-local, it would not add up to business reason as the supply was utilized for jolt of the school premises.

Contextual investigation 2: Puran Murti Education Society in Kami Village at Sonepat had a debate with respect to the supply of power to it. It recorded a grumbling before the Sonepat region discussion, which administered in the general public’s support. In offer, the Haryana state commission put aside the request as the general public couldn’t be named a customer. The general public moved toward the national commission in amendment. It contended that the association was being utilized for a social cause and not for business reason. Dismissing the conflict, the national commission watched that the association was being utilized for P M College of Engineering and Polytechnic keep running by the general public. Understudies were being charged expenses. It inferred that despite the fact that the association was a non-residential one, it was being utilized for business reason, and thus not viable.

Contextual investigation 3: Lourdes Society, which is enrolled under the Societies Registration Act and the Trusts Act, runs Snehanjali Girls Hostel in Surat. It recorded a buyer protestation with respect to the tiles buy for the inn. The producer scrutinized the locale of the gathering, fighting that the tiles were acquired for business reason. The gathering watched the general public is running a lodging. In spite of the fact that expenses are being charged from understudies, the running of an inn couldn’t be viewed as a business or benefit making action. The discussion presumed that it was not a business action and held the objection to be viable. The Gujarat state commission maintained this request. In modification, the national commission put aside the request and held that running of lodging and charging the detainees was a business action. Simply in light of the fact that this movement was directed by a trust would not have any effect. As needs be, it held that the protestation was past the ambit of the Consumer Protection Act.

Amendment to the Consumer Protection Act ought to consolidate a definition for “business reason” so that there is consistency in elucidation. Since the Act is intended to enable shoppers, it is perfect to keep the redressal gathering open just to individual purchasers and avoid business houses stopping up the redressal component with business-to-business debate.

Indeed, even subsequent to finishing its Silver Jubilee, there are still some hazy area in the Consumer Protection Act. The example, the expression “business reason” has not been characterized under the Act, which abandon it open to subject elucidation in various conduct by various managing officers, bringing about turmoil and disarray.

Contextual analysis 1: Harsolia Motors v/s National Insurance and other associated cases –

In a few question documented by business houses in regard of protection claims, the insurance agencies had battled that such debate would not be viable in perspective of business administrations having been avoided from the domain of the CPA according to the 1993 correction to the Act.

The national commission achieved this after words, which watched that a guaranteed who takes a protection approach can’t exchange or carry on any business movement as to the protection strategy taken by him. Henceforth employing of administrations of an insurance agency by a business foundation can’t be held to be a business reason. The strategy is taken for repayment or for reimbursement for the misfortune which might be endured because of different risks. There is no doubt of exchanging or carrying on business in protection approaches despite the fact that the protection scope might be taken for business movement. Since a protection approach is taken for securing the enthusiasm of the safeguarded and not for making any benefit or exchanging or carrying on business reason, it was held that a shopper dissension would be viable.

An investigation of this judgment would demonstrate that a qualification was drawn between business movement and business reason. Debate with respect to business exercises where there is no exchanging or benefit era were thought to be viable under the CPA.

Contextual investigation 2:  Interfreight Services Private Ltd. v/s Usha International

Interfreight Services had bought fans for its office. The question eventually achieved the National Commission, which held that the expectation of Parliament in barring products for business intentions was to force a limitation that the extraordinary cure under the CPA could be conjured just by conventional shoppers buying merchandise for their private and individual utilize and not by business associations.

This gives off an impression of being the most intelligent judgment, remembering the points and targets of the CPA.

BIBLIOGRAPHY

Consumers protection act 1986 in our constitution

Indiankanoon.org

ACKNOWLEDGEMENT

I would like to thank Mr. Ravi Kumar Chaurasia who helped me with this topic everytime I needed.

In this article, Shatarupa Chaki who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses, Combination (Merger Control) Regulations.

Abstract of the research undertaken on Combination (Merger Control) Regulations

1. This paper describes Merger Control regulations of India only
2. “Combination” covers “acquisitions, mergers, amalgamations and de-mergers”. While this paper will primarily cover “mergers” but may overlap with other definitions of “combination”. Moreover, “Mergers and Acquisitions” or “M & A” is a commonly used terminology, loosely referring to “combinations”, especially involving mergers and “amalgamations” (as defined by the relevant laws) and the words “Merger” and “Merger and Acquisition” are often used loosely and interchangeably (usually for business and commercial purposes) to refer to “amalgamations” under relevant laws. Hence, the paper covers relevant regulations related to “Combinations” and not just “mergers” in the strictest sense.
3. Legal definitions, where required, have been maintained without any dilution or modifications as provided under relevant laws

What Are “Combinations”

Following the economic liberalization reforms, when India joined the free market economy, Mergers and Acquisitions, or M&As as it is commonly known, became a common phenomenon throughout India, making it one of the most sought after ways for companies to gain strategic advantage in both domestic and international markets, to expand and diversify their businesses, gain competitive advantage, reduce costs, and unlock value.

Looking at a legal and structural distinction between Mergers and Acquisitions:

A Merger is an arrangement, between two or more companies, that assimilates the assets of all the merging companies and vests their control under one company – which can be an existing entity (one of the companies being merged) or a completely new entity. In such cases, all the concerned companies lose their pre-merger identities (forming a completely new entity) or become a part of the identity of the company under which the control is being vested.

An Acquisition happens when one company buys the ownership of another company and its assets, both tangible and intangible. Such a purchase may include one company buying the controlling interest in the share capital of another company or in the voting rights of the other company.

So, in an acquisition situation, the acquiring company purchases the interests of the acquired company’s shareholders who then cease to have any interest or right in the acquired company, whereas in Mergers both companies pool their interests, so that the shareholders of both the companies still have their interests from their existing companies and also get interests in the new merged entity.

Advantages of “Mergers and Acquisitions”

Mergers and Acquisitions are an important way for companies to grow and become stronger and larger organizations.

M&As add the following value

1. Builds a company’s reputation
2. Reduces and optimizes operating expenses and costs
3. Allows scalability
4. Gives access to management and technical talent and manpower, niche skills and knowledge, proprietorial information etc.
5. Gives access to new product lines or expansion of current portfolio, adding of more customer categories etc.
6. Helps companies grow their market share by complementing, supplementing, or diversifying their current business lines / products / services etc.
7. Gives quick access to new markets or allows easy diversification by allowing entry into a new industry
8. Consolidates the market
9. Gives access to new technology, manufacturing capacity or suppliers
10. Builds goodwill through brand acquisition

Background to the Current Regulations

In the wake of liberalization and privatization in India in the early nineties, came the realization that India needed to build a transparent, well-regulated, investor friendly environment, to build an economy that encouraged and nurtured competition by allowing free market forces to shape businesses and companies, while preventing any abuse of power and with that realization, it became obvious that the existing Monopolistic and Restrictive Trade Practices Act, 1969 (“MRTP Act”) was not equipped to handle “competition” especially in the open market / open economy scenario. So, it became imperative to move the focus of competition laws from curbing monopolies to ensuring a climate of growth and investment.

“Competition”: meaning and benefits

Competition is when sellers (this includes literally anyone, i.e. individuals, companies, businesses, enterprises etc.) work towards attracting buyers / customers (of the goods and services being offered by such sellers) with the expectation of achieving business objectives such as increasing profits, market share, sales volume, market value, customer base, market penetration, changing customer preferences etc.

Competition, when fueled by the free market, gives free rein to entrepreneurial forces, innovation, and productivity, and offers consumers a vast array of cost effective choices while optimizing resource allocation; all of which fuels economic growth and technical break-throughs, creating a positive growth spiral with technology and growth fueling each other.

To ensure that the free market remains free, and that the economy continues to grow, countries across the globe protect their markets and economies by enacting competition laws that protect free market forces while curbing any anti-competitive strategies and practices being employed by companies and enterprises for their own short-term gains.

In the same way, India, also enacted the Competition Act, 2002 as an omnibus code to deal with matters relating to the existence and regulation of competition and curbing monopolies. The Act is intended to supersede and replace the MRTP Act in a phased manner. The Act is procedure intensive and is written in a simple way to make it more flexible and easy to comply with. Though the Act operates in tandem with other laws, the provisions of the Act, takes precedence over other Acts in case of any inconsistencies.

It is through the Competition Act that the Merger Controls are enacted in India.

Key Points on Combination Regulations (Under the Competition Act, 2002):[1]

The Regulatory Framework and The Relevant Regulatory Authorities:

The Competition Act 2002 is the principal legislation in India, that regulates combinations, i.e. acquisitions, mergers, amalgamations, and de-mergers. It is an omnibus legislation that works in tandem with other laws and Acts (e.g. The Companies Act 2013). The sections, 5 and 6 of the Act, that deal with the regulation of combinations and have come into force since 1 June 2011.

The procedure for notifying combinations is set out in the following Regulations of the Competition Commission of India:

1. Regulations 2011, as amended on 7 January 2016 – this regulation details the procedures related to the transaction of business as related to combinations.
2. Regulations 2009 – details out general regulations

The Competition Commission of India (CCI) is the regulatory authority responsible for reviewing proposals for combinations and assessing whether such combinations are likely to adversely affect competition in Indian markets.

Combinations where the involved companies, exceed the assets / turnover thresholds as defined under the Act (details given below), is mandatorily required to obtain the CCI’s approval for such combinations.

The CCI can charge the Director General (DG) with a Phase II investigation of a combination as required. The DG performs all investigations under the aegis of the CCI.

The Primary Responsibility of CCI

The CCI is primarily responsible for regulating combinations to ensure that “competition” is not adversely affected (“appreciable adverse effect on competition or AAEC”) and uses the following criteria to determine the same:

These are described in section 20(4), of the Competition Act

• What is the impact this combination will have on the market share in the relevant market?
• What is the extent of barriers to entry?
• What is the level of combination already present in the relevant market?
• What is the degree of countervailing power?
• To what extent are substitutes available?
• What is the extent to which the market is likely to be able to sustain effective competition?
• How much do imports impact the actual and potential level of competition in the market?
• Will this combination eliminate a strong competitor?
• What is the nature of and to what extent is vertical integration taking place with this combination?
• Is there a possibility of a failing business?
• What will be the impact of the nature and extent of innovation?
• Will this combination contribute to economic development despite the likelihood of an AAEC?
• Will the benefits of the combination outweigh any negative impact it may otherwise have?

The Process

3. Companies / enterprise who cross certain thresholds and do not have any exceptions that are applicable to them, as described in the Act are required mandatorily to notify the CCI of the intended combination
4. The CCI is expected to respond (passes an order or issues directions) within 180 days. The Competition Act allows for a deemed clearance if the CCI does not pass an order within 210 days from the date of notification
5. The CCI may conduct a two phase investigation and at the end of either at the end of Phase I or Phase II, the CCI can reach any of the following decisions:
6. Unconditionally clear the combination
7. Approve the combination, subject to modifications or remedies
8. Block the transaction completely if it believes that the combination is likely to cause an AAEC and that it cannot be addressed adequately through modifications. The Act further defines rights of third parties and prescribes remedies, penalties and appeals and regulation of specific industries
9. Joint ventures and their treatment remain nebulous

Notifiable And Triggering events

Notifiable Events:

1. The acquisition by one or more companies / enterprises / parties of the control, shares, voting rights or assets of one or more companies / enterprises / parties, where the acquiring companies / enterprises / parties meet the specified assets/turnover thresholds as defined in the Act.
2. If a person / party / group takes control over an enterprise with which it competes, where the parties, or the acquiring person / party / group meet the specified assets/turnover thresholds.
3. Mergers or amalgamations, where the enterprise remaining, or the new enterprise that is created, or the group to which the enterprise will belong after the merger/amalgamation, meets the specified assets/turnover thresholds.

Thresholds

In event of the following threshold of assets / revenues being exceeded, combinations need to be notified and approval needs to be obtained from the CCI.

The thresholds are as follows (having any one would trigger the approval process)

1. Where the combined assets or turnover of both enterprises within India are either:
   1. Combined assets of the companies are INR 2000 crores
   2. Combined turnover in India of INR 6000 crores
2. Where the combined assets or turnover of both enterprises within India and Worldwide are either:
   1. Combined global assets of USD 1 billion (approx. INR 1200 crores, calculated at an exchange rate of INR 63 to the US Dollar), including combined assets in India of INR 1000 crores
   2. Combined global turnover of USD 3 billion (approx. INR 3600 crores, calculated at an exchange rate of INR 63 to the US Dollar), including a combined turnover in India of INR 3000 crores
3. Where the acquiring group has:
   1. Assets in India of INR 8000 crores
   2. A turnover in India of INR 24000 crores
4. Where the acquiring group has:
   1. Global assets of USD 4 billion (approx. INR 4800 crores, calculated at an exchange rate of INR 63 to the US Dollar), including assets in India of INR 1000 crores
   2. Global turnover of USD 12 billion (approx. INR 14400 crores, calculated at an exchange rate of INR 63 to the US Dollar), including a turnover in India of INR 3000 crores.

Exemptions to the Notification Requirements

1. Where the target enterprise has either Indian assets of less than INR 350 crores or an Indian turnover of less than INR 1000 crores. (This is applicable till March 2021 by the order of the Government of India)
2. Combinations that are not likely to cause an appreciable adverse effect on competition

So, when thresholds are met and no exemption is available then it is mandatory to notify the CCI of the proposed “combination”.

Timeline for Companies entering into a Combination

A combination must be notified to the CCI within 30 days of either:

1. Executing a binding agreement for acquisition
2. Passing of the board resolution approving the combination (in the case of a merger/amalgamation).

However, the following are allowed as an exception, to provide a post facto notification within 7 days from the acquisition of share subscriptions, financing facilities or an acquisition made under an investment agreement or loan agreement:

1. Public financial institutions
2. Foreign institutional investors
3. Banks or venture capital funds

Timelines for CII

The CII is expected to pass an order or issue directions within a period of 180 days from the date of notification.

The Competition Act allows for a deemed clearance if the CCI does not pass an order within 210 days from the date of notification.

Responsibility for notification

For acquisitions, the acquirer must file the notification. For mergers/amalgamations, the parties to the combination must jointly file the notification with the CCI.

References to “Amalgamation / Merger” Under Various Other Acts (Previous and Current with Comparisons)

The Companies Act, 1956 and 2013[2]

The 1956 Act:

In the 1956 Act, the terms “amalgamation” and “merger” are used interchangeably, however neither of these two terms are afforded a precise definition under the Act.

Sections 390 to 395 of the 1956 Act, dealt with arrangements, amalgamations, mergers, and the procedures to be followed under them, compromise, scheme of amalgamation, approvals etc. However, once again it fails to define the terms “merger” or “acquisition”.

Company law in India underwent a complete overhaul and a new law was finally passed in 2013.

However, the provisions relating to mergers covered in Sections 230 to 240 have been notified and have been implemented only since December 15, 2016.

The 2013 Act:

The following are the key changes introduced in the 2013 Act and comparisons between the 1956 and 2013 Acts regarding “mergers”. In the 2013 Act, also the word “mergers” continues to be used interchangeably with “amalgamations”.

Key changes to the Framework under the 2013 Act

• Definition of “Amalgamation” provided
• Introduction and formation of the National Law Company Tribunal (“Tribunal“) for adjudicating on various matters related to companies (including “amalgamations”). The Tribunal takes over the jurisdiction of High Courts for sanctioning mergers by virtue of having jurisdiction over the Registered offices of companies

Chapter XV of the 2013 Act deals with “Compromises, Arrangements and Amalgamations”, and details out the various provisions related to them. However, other than the provisions covered under Chapter XV, various other provisions also become applicable at different stages in the process of amalgamation.

Amalgamation is defined as below:

In an amalgamation, the property, assets, and liabilities, of one (or more) company are transferred to and absorbed by either an existing company or a new company. So, the transferring company integrates with the company to which it is being transferred and while the first company loses its separate identity it does so without actually closing.

The 2013 Act also introduces a new quasi-judicial body, the National Law Company Tribunal (“Tribunal“) which adjudicates on various matters related to companies and the Tribunal has also been granted the jurisdiction to sanction mergers, that has been with High Courts till now, by virtue of being granted jurisdiction over the Registered Offices of the companies seeking merger.

Changes in the Process under the 2013 Act

• Retention of the “Scheme” with changes in procedures
• Recognition of different types of mergers and separate procedures for the same
• Penalties

Describing the process under the 1956 Act, will help set the context for the changes under the 2013 Act. Some of the key steps described in the 1956 Act are described below.

Under the 1956 Act, companies which have reached a consensus to merge were expected to prepare a “scheme” of amalgamation/merger (“Scheme“). The Lenders (financial institutions and / or banks), if any, of the merging companies were required to provide in principle approval to the “Scheme”, followed by the approval of the respective Board of Directors of the merging entities. Post the approval by the Boards, listed Companies, involved in the merger, then required that all price-sensitive information be communicated to the stock exchange immediately, to seek approval from the capital market regulator, Securities and Exchange Board of India (“SEBI“), which was done simultaneously with the public notification. The companies would then apply to the relevant High Court seeking an order to convene shareholders’ and creditors’ meeting. This would allow any Shareholder wishing to raise an objection to the Scheme do so during the court proceedings.

The 2013 Act retains the elements of preparing the Scheme and additionally:

• Recognizes cross border mergers
• Sets out separate procedure for merger of small companies and those of holding with wholly-owned subsidiaries
• Prescribes thresholds for objections
• Describes mandatory filings to ensure legal compliance.

What has changed in the process

1. Regulatory/Third party approvals: The 2013 Act requires that notice of the Merger be sent along with such other documents as the Scheme and valuation report, not only to shareholders and creditors, but also to various regulators like the Ministry of Corporate Affairs, the Reserve Bank of India (in cases, where non-resident investors are involved), SEBI and Stock Exchanges (for listed companies), Competition Commission of India (in cases where the prescribed fiscal thresholds are being crossed and the proposed merger could have an adverse effect on competition), Income Tax authorities and any other relevant industry regulators or authorities which are likely to be affected by the merger. This ensures compliance of the Scheme with any and all other regulatory and statutory requirements that need to be followed by the merging entities. The 2013 Act also prescribes a 30-day period for the regulators to make representations, failing which the right would cease to exist. The 1956 Act provided no such period, leading to considerable delays in the court proceedings since it was mandatory to receive approvals from all relevant authorities before proceeding.
2. Approval of the Scheme through postal ballot: The 1956 Act required the presence of the shareholders and creditors in the physical meetings, either in person or by proxy, to cast their vote for/against the Scheme. In the 2013 Act, the shareholders and creditors have also been given the option to cast their vote through postal ballot.
3. Valuation Report: Though the 1956 Act does not require companies to submit a valuation report, most listed companies did so from a perspective of good governance and transparency. The Courts required the valuation report to be submitted along with the application. The 2013 Act mandates that the valuation report needs to be made readily available to shareholders and creditors.
4. Objections: The 2013 Act allows objections to be raised only by shareholders holding 10% or more of equity and creditors whose debt represent 5% or more of the total debt as per the last audited financial statements. This helps companies to avoid frivolous objections/litigation.
5. Accounting Standards: As a matter of practice, frequently the Scheme provided for accounting treatment that would deviate from the prescribed accounting standards necessitating a note to this effect in the balance sheet of the company. This was frowned upon by the tax authorities. Consequently, in case of listed companies, the listing agreement was amended to provide that an auditor’s certificate stating that the accounting treatment is in accordance with the accounting standards was required to be filed for seeking approval of the stock exchanges. The 2013 Act makes such prior certification from an auditor mandatory for both listed and unlisted companies.
6. Merger of a listed company into an unlisted one: The 2013 Act specifically allows the order by the Tribunal to state that the merger of a listed company with an unlisted company will not automatically make the unlisted company listed. It will continue to be unlisted until all the applicable listing regulations and SEBI guidelines have been complied with. In addition, if the shareholders of the listed company choose to exit, the unlisted company would have to facilitate the exit with a pre-determined price formula which shall be within the price specified by SEBI regulations. The 2013 Act captures SEBI guidelines for listing shares of unlisted companies and for merger of listed companies and merger of listed companies with unlisted companies.

The new kinds of mergers being recognised

Apart from the changes mentioned above, the 2013 Act provides for separate provisions for the following:

1. Cross border mergers
2. Merger of two small companies
3. Holding with wholly-owned subsidiaries

However, corresponding changes in other laws are yet to be done, in order for this to be implemented in its entirety.

1. Cross-border mergers: The 1956 Act allowed cross-border mergers only when the Company transferring was a foreign company. However, the 2013 Act allows, in-principle mergers between an Indian and a foreign entity, provided it is located in a jurisdiction notified by the central government in periodic consultation with RBI. Such mergers require RBI approval and the Scheme can allow for payment in cash or depository receipts or both. The payment in cash or depository receipts allows those shareholders to exit, who do not want to be part of the of the merged entity. However, The Income Tax Act only grants tax exemptions on mergers if the receiving Company is an Indian company and does not recognize a foreign company, as the receiving company as described under the 2013 Act.
2. Merger of “small companies” and holding with wholly-owned subsidiaries: The 1956 Act did not differentiate between companies’ basis their nature or size and expected court approval for all companies wishing to enter into an amalgamation. The 2013 Act allows for a separate procedure for small companies and the holding and wholly-owned subsidiaries. Section 233 of the 2013 Act allows for a simplified fast track procedure for these mergers and does not require the approval of the Tribunal, provided consent is obtained from the following: (a) Shareholders holding 90% in value (b) Creditors representing 9/10th of debt (c) Approval of the Scheme by the Regional Director, Ministry of Corporate Affairs with “no objections” from the Official Liquidator and Registrar of Companies. Approval of the Tribunal is not required for such mergers. This allows these smaller merging entities to be exempted from the following: (a) In the case of a listed company – file documents required to be filed under the listing agreement (b) give notice to various authorities, (c) provide auditor’s certificate of compliance with applicable accounting standards. However, if the Regional Director is allowed to approach the Tribunal if s/he believes of the opinion that the Scheme is not in the interest of the stakeholders. The Tribunal may then follow the entire amalgamation procedure, prescribed under the 2013 Act. This allows for both flexibilities as well as good governance.

The Income Tax Act, 1961

The Income Tax Act, 1961 defines the term ‘amalgamation’ under section 2(1B) of the Act as the merger of one or more companies to form one company in such a manner that all the properties and liabilities of the amalgamating company(s) become the properties and liabilities of the amalgamated company, and not less than three-fourth shareholders of the amalgamating company become the shareholders of the amalgamated company.

In Conclusion:

The lawmakers have made every effort to ensure that Combination Regulation is:

1. Simplified
2. Easy to implement
3. Holds authorities and companies accountable to ensure speedy implementation
4. Aligns various laws / Acts and remove contradictions

However, different parts of the Acts have yet to be notified or have existed for too short a period for the industry and law makers to be sure of its efficacy and will continue to require focus from law makers to not only remove any issues that may be there in current legislations and alignments among various Acts, it will also need to be scrutinized periodically to keep the legislation relevant and topical.

References

[1] Retrieved from http://us.practicallaw.com/0-501-2861?source=relatedcontent, Law stated as at 17-May-2016, Authors: Shweta Shroff Chopra, Partner and Toshit Shandilya, Associate, Shardul Amarchand Mangaldas & Co

[2] “India: Merger Regime Under The Companies Act, 2013”, Author: PSA Legal, Retrieved from http://www.mondaq.com/india/x/289180/Corporate+Commercial+Law/Merger+Regime+Under+The+Companies+Act+2013

In this article, Rohit Upadhyaya who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Ten must-have clauses in an LLP Agreement that are not prescribed by default under LLP Act.

Introduction

With the development of modern day industrial structures, a new concept of legal artificial person was adopted to promote industrial development and to encourage industrial development of trade and business. In old primitive days establishment of corporation and companies was based on the will of the parliament of the nation and if the roots are traced further during the regime of kings and emperors and monarch there such an entities were incorporated by the means of charter. The incorporation of such a business entity is done by formation of a legal personality. So whenever such incorporation is done an independent legal personality is formed.  Legal personalities are of two types first is natural legal personality and second artificial legal personality. All living human individual who are capable of contractual liabilities and are of sound mind can termed as a natural legal personality. Whereas formally incorporated entities such as companies are example of artificial legal personality.This method of incorporation was adopted by the modern day economic scenario because the legal personality was created with an intention to form such a body which will have its legal existence which will have a few legal rights such as right to sue some individual person or some other legal personalities and such legal firm could be sued. In case of any contractual liability the accountability could be fastened upon the whole company of firm. The company and the firm can never be made liable for any criminal liability and it could be made only as subject to pay compensation unless involves a deep involvement of the members of the firm or company.

Types of legal entities

The legal artificial entities could be identified in following categories. The artificial legal entities are formed to conduct and carry financial and mercantile activates. In order to promote a regulatory body and to ascertain a common set of regulations. The legislature have prepared a statutory authority name as “Registrar of Company”.   Company is huge independent structure which have its own legal existence and have all the authorities for such existence there are two types of companies firstly, public company and secondly is private. A company is the most organised structure of artificial entity. When compared to the other structures the structure of a company is very transparent and clear structure of business management.  Another business module is simple partnership deed is formatted under Indian partnership act, 1932. There is no formal need of incorporation of such firm required. The non-registration of such partnership firms invites no penalties and penal consequences. So it could be easily understood that a simple partnership firm is an opaque form of business structure which have uncertain and ambiguous. So in order to introspect into the understanding of the scheme is not a convenient. Another form or incorporation of a legal entity is a limited liability partnership firm. A limited liability partnership firm is hybrid concept which has both the merits of a registered company and have flexibility of a partnership firm.

History of limited liability partnership.

The evolution of limited liability partnership was not an overnight event. This business structure was evolved to satisfy the upcoming needs of business formats the major factor contributing towards was the ambiguity and uncertainty of the partnership.During the primitive days there were only two ways of business structuring were either too form a company (different form of companies) or to enter into a partnership fir. When compared between both the business modules the later one was very convenient. As it was free of all the technical formalities and it was had very easy conditions of formation and the statutory compliances required by the government were also relative very low. So in corporation of a partnership firm was very easy and was considered to be on time saving and cost effective measure. But with lack of statutory control on regulation of these firms and they used to manage business on their own whimsical. During the year 1980-1990s the American economy was troubled with the issue of declaration of insolvency. This course was adopted to alienate the liability occurring out of arbitrary actions of the partners of the firm. The innocent partners were unnecessarily subjected to the hardships and was accounted towards the actions of his partners whether those action were weather consistent with the spirit of the partnership or not. The innocent partners were fastened with the liability of the partner responsible for the unwarranted debts of the partnership firm. As partnership firms hold indefinite liability upon it partners. This drew attention of the legislators to prepare such as statute which would encourage the free spirit of the person who wanted to run such firm and to cap the fraudulent intentions of partners who used get engaged in such illicit practices. So the hybrid concept of limited liability partnership was adopted. This was done with an intention to ascertain personal liability of the defrauding partner and save the hard earned effort of the innocent partner.  This method of business structuring was recognised and followed and was implemented by means of incorporation of statute. Limited Liability partnership act, 2008. The salient feature of the act of 2008 which lead to its adoption in

The salient feature of the act of 2008 which lead to its adoption in Indian business structuring module are as following

• This Limited liability partnership act 2008 was first to act to firstly extinguish the liability of the firm with the liability of the partners personally. The limited liability partnership firm has its own corporate legal entity.
• The Limited liability partnership act 2008 provide first opportunity to the partners to personally set up their respective shares into the liability. The partners mutually determine their share into any future lability that may incur.
• The statutory authority have a wise judicial control over the limited liability partnership by the means requiring the limited liability partnership to produce their liquidation status every financial year such a corporate compliances restricts any wilful default on the end of the partners and also prevents the financial interest of the partners engaged into the practice.
• The limited liability partnership have a few more advantages over the regular setup of partnership firm which are further associated with advantages of a company practice.
  • A limited liability partnership would be merged or amalgamated into another firm by compliance of statutory regulation made under limited liability partnership act 2008.
  • The limited liability partnership can be converted into a company.
  • The regulation of the partnership firm is regulated by Indian partnership act 1932. Whereas limited liability partnership is governed by the limited liability partnership act, 2008.
  • The limited liability partnership is subject to inspection of statutory bodies as a company formed and incorporated under companies act.

Major structure of business planning and business structure

The following are major business industries.

1. Manufacturing process– The process of consuming raw goods to produce a fine product to be utilised by the end term product to the consumer.
2. Merchandising or mercantile business process– This business process outsourcers produces made by the manufacturer to the distributor and then to the retailer till the end term consumer.
3. Service based industry – this industry is established to outsource service to the various sectors and resultantly serves between all levels of business interphases. To provide bridge between all the organisations.

The following are major structure of business

1. Sole proprietorship: -In this form of business structure there is only person who is responsible to manage the business affairs. This form of business is adopted for small business strategies it is adopted to promote small scale enterprise.
2. Cooperative society: – This a business format is established to benefit the lower and socially and economically backward society. Such an institutions are incorporated with a philanthropic intent.
3. Partnership firm: – It is the most primitive form of business organisation as this was adopted to mutually promote business by two or more person entering into mutual agreement to initiate or conduct mercantile exercise.
4. Limited liability partnership: – This is the modern hybrid concept which have equitability of a partnership and secured presence of company.
5. Limited liability Company: – Limited Liability Company is a mutual path of corporation and a company benefits. The members or directors of such companies cannot be personal liability for the company.

Few must have clauses which should be incorporated as an integral part of a limited liability partnership (LLP) agreement

The following are the major highlights which a proper limited liability partnership agreement must address for its proper compliance and for obtaining the maximum outcome of the limited liability partnership agreement.

1. The title clause: This clause is the head note of the limited liability partnership and it should specifically mention that between how many parties this particular is being executed this is done to ascertain the parties with individual existence so that the contracting parties could be identified.
2. Date of execution of limited liability partnership agreement: This is a necessary inevitable part to determine the enforceability of the agreement and to provide it a proper legal position to the firm formed by this limited liability partnership.
3. Operating clause: The operating clause of the limited liability partnership agreement is the heart of the complete structure whereas it identifies the spirit of formation of this particular mode of business structuring. The operative clause personally fastens individual liabilities upon the parties of the limited liability partnership agreement. It also defines the nature and ambit of the limited liability partnership agreement. In case of any litigation or any such legal casualty, the interpretation of this particular operative clause plays a vital role to fasten liability upon any of the partner or partners.
4. Rights of the partners: This clause of the limited liability partnership agreement defines the status of the partners into the partnership firm. The operating condition of this clause acts as the sovereign and most sanctified condition in case of any unforeseen condition or any fallout between the partners.
5. Duties of the partners: This operative clause of the agreement provide for the specific set of instruction and regulation for the partners of the limited liability partnership agreement, non compliance and not regulation of the same conditions give birth to unwarranted legal conflicts. Misuse of the aforementioned legal duties or arbitrary use of the rights by the right conferred upon an individual partner or ultra vios use of the authority may give birth to civil actions.
6. Jurisdiction: jurisdiction is the position of authority to form specific rules and regulations pre-determined for any upcoming future contingencies. Jurisdiction in such mercantile agreements are pre-determined in order to avoid any particular dispute and if any particular dispute if arose should be resolved at a place convenient to both the parties. It also ensures that the ill intent of any partner or partners does not maliciously impact others innocent partner or partners.
7. Governing statutes: These statutes are for reference for construction of the nature of the transition and it established the civil limitations of the statue.
8. Remuneration: This clause is the financial capital of the limited liability partnership this determines the financial viability of the limited liability partnership firm and allocation of the financial produce aspect of the limited liability partnership firm into different coordinates of the expenses.
9. Term of limited liability partnership: The original agreement of limited liability partnership firm must necessarily contain the term of the firm as certain tenure and to the partnership firm.
10. Mode of theretirementof partner: The limited liability partnership firm has perpetual succession so in case of death, insolvency or unsoundness of a partner the limited liability partnership is succeeded by the another partner which may be introduced by the consent of the partners or by some other means.
11. Winding up of the firm: this clause operates and provides for provision in case when the limited liability partnership needs to be dissolved on account of financial crisis, dispute between the partners or any other reason. This clause provides for liquidation of the limited liability partnership firm and for further distribution of all the assets and the liabilities between the members or partners of the limited liability partnership firm.

The above mentioned are the agreement made on the standard regulation of the formation of the limited liability partnership firm. But in addition to the above defined clauses few more clauses are to be added into the limited liability partnership agreement to provide more stringent and effective draft of the limited liability partnership firm. The major highlights of such are as follows.

1. Interpretation clause: The limited liability partnership agreement must have an interpretation clause. This eases the functional understanding of the terms of understanding of the limited liability partnership agreement. The advantage of the interpretation clause in the limited liability partnership agreement is to ascertain the Conesus ad idem. The interpretation clause also helps to understand the basic nature of the agreement and to distinguish the nature of the limited liability partnership agreement.
2. Non-competitive clause: In modern day scenario the ethical standards of the business fraternity are falling often leading to actions which are highly unethical and immoral standard hazards. One of the prevalent practices observed now a days that the founder members or the principle partners of a firm due to their high expectations get engaged into few practices which are adverse against the financial or otherwise interest of the limited liability partnership firm. These actions can be controlled by induction such non-competitive clauses which not only restricts such action, conduct and behavior of the partners but also improves the overall produce of the limited liability partnership firm.
3. Restraint of the partner retiring or terminated from the limited liability partnership firm: this clause have a huge functionality approach to refrain the partners from engaging into business activities with the rival business organizations which proliferate of any trade or business secrets to other organizations. The business secrets of a particular organization are backbone to their survivals and gives them an upper hand over their rivals when it comes to the competition in the market. To keep the novelty of the secret, this clause helps the management to appoint partners without the fear of getting their secret disseminate in the industry.
4. Conditions for termination or suspension of partners:
   Pre-determination of the conditions that may leads to termination or suspension of a partner/s is a vital pre-requisite of the limited liability partnership firm as after the execution of the agreement, those specific domains will be the main ground on which the termination/ suspension will be executed.  Pre-determination will also provide clarity among the hired and Hiree partners as well as to the arbitration. These specific conditions will act as a preventive measure for the partners to not indulge in those activities which may end up hurting the interest of the business.

Following are the generic conditions which are basic to most type of businesses and industries,

• No criminal antecedents: A partner must not have any criminal record/trial pending against him/her under the court duly established by laws of India. He/she, with the prior approval of the quorum could be appointed as a partner or appointee, subjected to the decision the quorum after examining the facts and the relevant penal laws. If such previous antecedent are not disclosed to the pre-existing partners of the firm. it would be considered as concealment of material fact and may further lead to suspension or termination of the partner.
• Office of profit: A partner/ appointee must not hold any other office of profit other than limited liability partnership firm. The partner should have only single business association with the firm only. In Absence of compliance to this particular condition, the accused partner may serve term of suspension which may be a period of 6 months up to indefinite period. As per the conditions prevailing by then, subsequent offence regarding the same activity/mis-conduct, would be a valid ground for termination of that partner.
• Harassment: a Partner of limited liability partnership firm who is accused or found guilty of any act which may come under Physical, mental, sexual harassment or found guilty of using any criminal force against any employee can be valid ground for suspension. Habitual indulgence of similar practices would be considered as a ground for termination of partnership.

Arbitration clause:The limited liability partnership agreement must have a necessary arbitration clause to resolve any legal disturbance. The arbitration proceeding are highly efficient and contribute towards the mutual benefit of the litigating parties. Consequently saving a lot human effort and time in respect thereof.

Compulsory retirement of partner:The partner of a limited liability partnership firm must have a fixed age of retirement. Since the limited liability partnership firm has perpetual succession. The legal position of the retiring partner could be further followed by person or candidate of his choice. This compulsory retirement of the partner would promote newer and dynamic approach. Compulsory retirement is adopted to ensure the partner engaged with the limited liability partnership firm could make his best possible efforts to maximise the profit of the firm or to promote the interest of the limited liability partnership firm

Annual report:The managing partner of the firm would be under an obligation to produce a status report of the performance of the firm to all the other members of the firm. This repot must include audited financial report, current reserved, and status report of the previous plans, the up comings plans and the scheduled organiser of the year. This practice would ensure that all the members of the limited liability partnership firm are actively updated about the performance of the firm and may participate in the decision making exercise.

Pre quantified damages:The limited liability partnership agreement must have clearly distinctive conditions on prequantified damages as in event of any particular event the partner accused of responsible for a certain damage must be pre liquidated. Such prequantified damages are extremely essential to abstain a partner from particular actions.

Winding up the process: A limited liability partnership agreement must have a proper description of the winding up process. It must figure all the conditions in which a liquidation could be initiated and how the residue assets would be distributed within remaining partners.

Liberty to change business: The limited liability partnership agreement must have a clause which may further change the basic nature of the limited liability partnership firm into a company which may be further subjected to compliance of regulations of company law.