Laws governing conscience rights in the workplace and outside the framework of employment

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November 14, 2021

This article is written by Aditi Aggarwal, a student of Symbiosis Law School, Noida. The article gives a detailed analysis about the rights protecting the conscience and beliefs of an individual at the workplace and outside the framework of employment, broadly in states of the U.S along with India’s position.

Table of Contents

Introduction

Employees in the U.S. are starting to believe that they should be given unqualified legal rights to refuse work activities that violate their ethical, moral, religious, or personal beliefs. These beliefs can be given a combined term i.e. conscience. Employees are increasingly refusing to fill prescriptions for morning-after pills, serve gay customers, sing “Happy Birthday” to restaurant guests etc. because of either their religious beliefs or their asserted feelings about the “rightness” or “morality” of the intructions given to them.

Conscience in the general workplace

Though the importance of conscience in American culture has existed since 1776, the protection of private workplaces is a new and growing phenomenon. At present, federal and state protection of conscience regulations are mainly limited to the field of health care but some laws provide the right to conscience outside the framework of employment too.

There is a little doubt regarding the expansion of the concept in the whole world and a larger workplace. Such a development would likely create uncertainty for employers. This growing trend may cause conflicts between organisations and workers. This debate will continue until future legislation and court rulings make this issue clearer.

Conscience and religion

As per the Illinois Health Care Right of Conscience Act 2016, ‘conscience’ refers to a series of sincerely held moral beliefs that originate from belief in God and its relationship with God and that which from a place in the life of its possessor which is parallel to the place filled by God among its adherents to the religious faiths. The Supreme Court interprets religion broadly to include deeply held beliefs but those are not religious in any traditional sense of the term in the case laws discussed below.

United States v. Seeger (1965)

In this case, it was held that if a person’s belief has the same position as his belief in God, then he can have conscientious objector status based on that belief. It was also held that such objections should be based on a religious belief and not on any sociological, philosophical, or political view and that the term “Supreme Being” should be interpreted to cover all types of faith.

Welsh v. United States (1970)

This case was decided during the Vietnam War. The Supreme Court tried to define the meaning of religion based on the First Amendment to determine whether an individual could obtain a religious exemption from military service. In this case, the Court determined that traditional religious beliefs were not a necessary condition for claiming the status of conscientious objector.

Freedom of conscience in the international arena

The Universal Declaration of Human Rights

The Universal Declaration of Human Rights was adopted by the United Nations (UN) General Assembly on December 10, 1948. Article 18 of the declaration states that everyone has the right to freedom of thought, conscience, and religion. Further, it states that the right also includes the freedom for a person to:

Change his belief or religion
Manifest his religion or belief in teaching, worship, observance, and practice

This freedom can be exercised either alone or in a community with others and in private or public.

The International Covenant on Civil and Political Rights

Article 18.1 of the International Covenant on Civil and Political Rights is the same as Article 18 of the Universal Declaration of Human Rights. It came into force in March 1976 as the Office of the High Commissioner for Human Rights, 1976.

American Convention on Human Rights

Article 12.1 and 12.2 of the American Convention on Human Rights 1978 recognizes the right to freedom of conscience and prohibits oppression of persons resulting from faith. Further, Articles 27.1 and 27.2 of the convention give the state the privilege of limiting some of the human and civil rights in cases of war or national emergency but freedom of conscience is ensured even in these extreme circumstances.

Conscience protection in the workplace

Primary federal law

The Civil Rights Act of 1964 prohibits discrimination based on race, religion, sex color, or national origin. Title VII of the revised Civil Rights Law protects employees and job applicants from employment discrimination. The federal agency responsible for implementing this title is the Equal Employment Opportunity Commission (EEOC).

What is Title VII

Title VII of the Act is the primary federal statute that covers most public and private employers with fifteen or more employees. The Act prohibits discrimination concerning job applicants and employees because of their religious beliefs and practices or because they do not have religious beliefs/practices in all aspects of employment.

The law is interpreted in such a way that it is required by employers to provide their employees with a “reasonable accommodation” for their sincere religious beliefs to remove the conflict arising between work and religion. The only limit is that the accommodation should not cause undue hardship.

When can an employer be sued for violating Title VII

Employees must prove the following points for suing an employer for religious discrimination:

The employee had ‘bona fide’ religious beliefs that the license with an employment requirement.
He had informed the employer or the employer already knew of his beliefs.
He suffered an employment action because he failed to meet the conflicting requirements or that the companies’ requirements and employees’ religious beliefs and practices were not removed by the company.

An employer’s right to question

An employer has the right to question if an employee’s beliefs are religious or not. This situation can arise if an employee acts inconsistently with a supposed belief or non-religious reasons are found to be there for getting the accommodation.

What are religious beliefs and practices

It has been held by courts and other related agencies that the protected religious beliefs or practices under the Act not just include the traditionally acknowledged religions like Judaism, Christianity, Buddhism, and Islam but even the new or uncommon faiths, faiths having few adherents or which have beliefs that are considered illogical, extreme or unreasonable by the society can be considered as protected religious beliefs.

Ethical beliefs about what is right and what is wrong or morals that are nontheistic can be religious and if sincerely held with the strength of traditional religious views are protected under Title VII. But there has to be a religious component as mere strength of belief or sincerity is not sufficient. Beliefs are not “religious” if they are social, economic, or political, are lifestyle choices, or are social or parental obligations.

A practice can be said to be religious by determining the motivation behind it. For example- An employee may refrain from a certain activity due to purely religious reasons while another for purely secular reasons. The same applies to activities like not working on a particular day, wearing a certain kind of beard, cloth, or tattoo, or following a particular dietary schedule.

What accommodations are required

It has been interpreted by courts and EEOC that an employee has to notify the employer if he needs religious accommodation and in doing so, he must also be prepared for explaining his belief or practice to the employer along with responding to questions and cooperating in the search for a reasonable accommodation as per the circumstances. If complete accommodation would not cause excessive hardship, a partial accommodation- lowering but not eliminating the dispute is inadequate.

For example, if an employee is being allowed to be absent on Friday night alternatively for Sabbaths but allowing to be absent every Friday night would not cause undue hardship, then the former is unacceptable. If there is no alternative accommodation without this charge, the accommodation may cause some additional costs or inconvenience to the employees. For example, the courts have upheld religious accommodation where there is no viable alternative and the job transfer resulted in lower wages or reduced benefits for affected workers.

Some circumstantial “reasonable accommodations” are:

Change in employees’ job assignments or schedules.
Permitting lateral transfers or schedule swapping.
Allowing use of vacation, sick, and “comp” days for covering absence due to Sabbath.
Wavering of dress requirements.
Wavering of workplace policies and procedures.
Permitting prayer or any other religious expression in the workplace.

When does an accommodation create an undue hardship

Though Title VII does not expressly specify what “undue hardship” in religious accommodation means and when it can excuse an employer to implement it, the EEOC and the courts have done that. According to them, the suffering caused by a religious accommodation must be only more than insignificant or inconsequential before it is considered “undue” and hence not obligatory of the enterprise.

When determining whether a requested accommodation causes “undue hardship,” the employer might properly consider the impact on the business. The company may consider the following elements:

Nature and size of the workplace.
Nature of the employee’s duties following the requested accommodation.
The needed costs and disruptions for making the accommodation given the employer’s size and operating costs.
The number of employees who would require similar accommodation.
The number of employees which would be affected by the accommodation.

One ambiguous thing is that there is no bright line between “hardship” and “undue hardship,” because “de minimis” (meaning pertaining to minimal things) is one such term that is not delineated in Title VII. The courts have however found that in an accommodation, “more than de minimis” hardship (thus excusing the company from implementing it) occur when others’ jobs, safety, or benefits are being infringed, the efficiency of the requesting employee’s or others’ jobs are affected, or it results in others picking up the accommodated employee’s share of potentially dangerous or unpleasant work.

Regarding any conflicts between the proposed religious facilities and the union’s qualification system or collective bargaining agreement, the law is relatively clear: “undue hardships” have been encountered repeatedly where the accommodation would deprive other employees of their work or shift preferences or other benefits guaranteed by collective agreement or bona fide seniority system.

Secondary federal laws

The Federal Abortion Non-Discrimination Act

The Abortion Non-Discrimination Act (ANDA) 2013 declares that no healthcare provider shall be forced to perform or assist in abortion by the government. ANDA codified the Weldon Amendment by making it permanent rather than an annual appropriations bill. It would also provide victims of discrimination under that policy, as well as the Church Amendment of 1973, a legal right to sue to safeguard their rights.

Church Amendment, 1973

The Church Amendment might be regarded as the first employment-related freedom of conscience or “refusal clause.” According to the Church amendment passed by Congress, public officials may not require individuals or organisations receiving public funds to perform abortion or sterilisation procedures, or to provide facilities or personnel for such procedures if such performance “would be contrary to the individual or entity’s religious beliefs or moral convictions.” The amendment was added to the Health Programs Extension Act, 1973 under Section 300a-7(b).

Weldon Amendment, 2005

Physicians and other healthcare professionals, hospitals, insurance plans, health maintenance organisations, provider-sponsored organisations, and other healthcare institutions, plans, or facilities are all covered under the Weldon Amendment. The amendment is a part of present HHS Appropriations bills and is prohibitive of federal agencies and programmes along with state and local governments who discriminate against healthcare providers that do not provide abortion coverage, service, or referrals.

If a law or regulation mandates any of this, the action would be taken as a discriminatory action and there might be a risk of losing the federal funds as provided under the LaborHHS-Education bill.

California challenged the Weldon Amendment

In State of California v. United States, 2008, California claimed that the Weldom amendment is unconstitutional as it interferes with California’s enforcement of a state law that provides for criminal and civil penalties against healthcare workers in case they do not perform or refer abortions. The California Federal Court judge rejected the challenge to the Weldon Amendment, so California will still be unable to fine and criminally prosecute health care workers and entities that refuse abortion.

The Protection of Conscience Project

The Protection of Conscience Project is a non-profit and non-denominational initiative whose main focus lies in the field of ‘health care’. According to the project, ‘health care must not be forced to do what they believe to be wrong or punished for refusing to do so.’

The functions of the project are as follows:

Critiquing the policies of coercion.
Advocating for the protection of legislation relating to conscience.
Providing information, offering suggestions, encouraging co-operation, and facilitating communication to those who are working for conscience protection.

Providing draftsmen of the legislature with the required information.
Acting as a clearinghouse and directing legal assistance to those who are discriminated against for giving reasons of conscience along with other possible support.
Promoting understanding and clarification of the issues involved for assisting public discussions.

Accreditation of Council for Graduate Medical Education (ACGME) standards

Accreditation of Council for Graduate Medical Education (ACGME) acquired the professional standards which required residency programs in obstetrics and gynecology to provide abortion training. These standards allowed an exemption for the programs or individuals having moral objections from participating in the abortion training.

The Coats Amendment (1996)

As a part of the Public Health Service Act, the Coats amendment was passed by Congress in 1996. The Coats Amendment was passed after the issuance of professional standards by ACGME and ensured that medical institutions that do not offer abortion training or give referrals to persons seeking abortion training at another institution continue to receive federal funds and legal status. Furthermore, discrimination against institutions and people who decline to offer the training is prohibited by the amendment. Under the amendment, individuals or institutions are not required to cite moral objections for their non-compliance.

The Religious Freedom Restoration Act (RFRA), 1993

Under RFRA 1993, The federal government and states were initially forbidden from severely burdening a person’s exercise of religion unless the burden was applied in support of compelling government interest and is the least restrictive method of advancing that interest but after the judgment given by SC in City of Boerne v. Flores (1997), the Congress amended the law in 2000 and limited the act’s applicability to the federal government. The US Supreme Court in the case of City of Boerne v. Flores held that RFRA 1993 exceeds Congress’ power and the act is constitutional in the case of the federal government only, not in the case of states.

Congress enacted the RFRA codifying a constitutional rule i.e, the balancing test that is used to evaluate whether generally applicable and religiously neutral laws that inadvertently impose a substantial burden on a person’s religious activities violate the First Amendment’s free exercise clause.

Affordable Care Act, 2010

The Affordable Care Act expands refusal clause protections. The expansion prohibits the health care plans under the new state-based health insurance exchanges from discriminating against health care providers and facilities if they are unwilling to provide, provide coverage of, pay for, or give referrals for abortions. In addition, President Obama issued an Executive Order reaffirming all existing federal refusal protections.

Conscience Rules, 2019

The U.S. Department of Health and Human Services (HHS) and the Office for Civil Rights (OCR) issued final Conscience Rules on May 2, 2019, improving the rights of hospitals and health care workers to refuse to participate in any patient-related activity due to moral or religious grounds.

This rule covers OCR’s power to investigate and enforce violations of 25 federal “protection of conscience” laws. Concerning the purchasing power of the US Constitution, this rule applies to state and local governments, as well as public and private health professionals and entities, if they receive federal funds such as Medicare or Medicaid. The rule applies to a variety of important health services, such as abortion, sterilization, assisted suicide, and advance directives, extended to gender reassignment and HIV treatment.

The final rule significantly expanded OCR’s power to enforce the Federal Law for the Protection of Conscience. The previous rules (2011) only covered 3 laws of conscience, while this final rule was expanded to 25. The new rule broadly defines the federal law of conscience. Covered entities and protected activities are equally broad, including activities that provide services, pay for services (private and employer insurance), consult, and even refer to other physicians.

Healthcare workers cannot be required to receive training for certain services to which they object. The rule applies to any employee of the covered entity, such as hospital receptionists and cleaners. Patients can also object to health services, including mental health services for children. Though the rule does not specify anything about vaccinating children, doctors, nurses, and patients can request a conscience exemption.

Protection at the state level

Almost all the states in the U.S. have enacted a conscience clause legislation in one form or another. Most of the states offer protection for religious discrimination (similar to Title VII) and procedure-specific protection in the areas of sterilization, artificial contraception, and abortion.

The Florida Civil Rights Act

The Florida Civil Rights Act of 1992 (FCRA) is our state law prohibiting discrimination in employment. Nothing much has been mentioned under the act relating to conscience.

The Illinois Health Care Right of Conscience Act (HCRCA)

This Act gives protection to health care workers from professional discipline and liability for refusing to provide care to patients due to a conscience-based or religious belief. This protection has been interpreted broadly over the years and provides no provision for the patients’ protection in Illinois.

When state legislators came to know that this lack of balance in the interests of patients and health care providers has harmed many patients and has put many others at risk, HCRCA was amended to adjust that balance. The amendment required health care providers to have procedures in place to guarantee that patients receive sufficient information about their illnesses and treatment options to make informed decisions about their care. The amendment also provided that without adopting and following such policies, protection cannot be claimed under the act if the denial of treatment leads to injury. Sponsors engaged with religious health care professionals during the legislation process and changed the text to accommodate their concerns.

Mississippi Code, 2004

Mississippi regulations protect health care providers from “civil, criminal, or administrative liability for refusing to participate in health care services that violate their conscience” and prohibit any discrimination in employment based on such conscience.

Overview of other states

Colorado, Maine, Georgia, South Dakota, Florida, Tennessee, and Arkansas are some other states which have broad refusal clauses for health care providers. If there is a refusal to include an “undue hardship” or other accommodation limits of any significance, these states go further than their counterparts in Title VII or analogous state provisions on religious practice accommodation.

Case laws relating to Title VII

Dewey v. Reynolds Metal Co. (1971)

Dewey, an employee of the Reynolds Metals Company, began working at the company’s factory in Grand Rapids, Michigan, in 1951. He worked there until September 1966, when he was discharged for his refusal to enforce mandatory overtime on Sundays or seeking qualified replacements to do so. When he was discharged, he claimed that, as a member of the Faith Reformed Church since 1961, his religious beliefs prevented him from working on Sundays and did not allow anyone to work for him.

Dewey filed suit in the US District Court for the Western District of Michigan, alleging that Reynolds religiously discriminated against him under Title VII. The court rejected Reynolds’ arguments to the contrary and ruled in the plaintiff’s favour. The court ruled that Reynolds discriminated against Dewey as his mandatory overtime requests forced Dewey to choose between his religion and his job.

Walden v. Centers for Disease Control and Prevention (2012)

In this case, the court addressed the claims of religious discrimination brought by an employee. Marica Weldon was a devout Christian because of which she refused to counsel EAP clients engaged in same-sex relationships. She believed that such kinds of relations are immoral. She also did not want to lie to the clients. Due to her refusal, she was encouraged to seek other jobs within the company. Ms. Walden sued the employers and made several claims including religious discrimination in violation of Title VII. The trial court gave judgment in the favour of the employer and the appellate court affirmed.

According to the Court of Appeal, it found that Ms. Walden had indicated her true religious beliefs, that she was unable to provide relationship counseling to same-sex couples, even though EAP counselors were required to advise all employees on all issues. However, the court also found that EAP provided her with reasonable accommodation and encouraged her to obtain other jobs within the company.

The Court observed that the employer was obligated only to offer reasonable accommodation i.e. the opportunity to seek an open counselor position and not to offer Ms. Walden’s preferred accommodation. Court also found that plaintiff Walden failed in her duty to attempt in good faith to accommodate her own needs by choosing not to apply for an open position.

Are there any conscience rights for pharmacists

On one hand, conscience is used to justify legislation that allows individual pharmacists to refuse to dispense drugs on moral grounds while on other hand, conscience is used to support the law, allowing individual consumers to compel pharmacies to fill any legally obtained prescription without delay or inconvenience.

This has been a controversial issue as to what extent pharmacists may be allowed to shape their judgments based on their religious and conscience beliefs. Their judgments might affect a considerable population of women as it might narrow the range of services they offer to their consumers.

Though the current trend tends to support the increased freedom of conscience for health care providers, some states view the situation differently.

American Pharmacists Association, 2008

Over time, Journalists have reported some cases in which individual pharmacists have refused to fill prescriptions for emergency contraception as such contraceptives can prevent the implantation of fertilized eggs, and people who believe that human life can be protected after conception find this to be morally offensive and support the right to refuse.

The American Pharmacists Association appears to support this position, stating that it recognizes individual pharmacists’ right to conscientious objection and supports the establishment of a system that ensures patients receive legally prescribed treatment without compromising the right of objection. of the pharmacist.

New Jersey

New Jersey prohibits pharmacists from refusing to dispense prescriptions solely on moral, religious, or ethical grounds under the Emergency Contraception for Sexual Assault Victims, 2007.

California

In California, pharmacists are required to fill prescriptions and can refuse to dispense prescriptions, including contraceptives, only if the employer approves the refusal and women can still get the prescription on time under the 2005 California Labor Code. In the case of North Coast Women’s Care Medical Care Group, Inc., et al. v. San Diego County Superior Court (2008), the California Supreme Court ruled that doctors cannot refuse non-emergency medical treatment to gays or lesbians for religious reasons.

Right to conscience outside the framework of employment

Outside the framework of employment, the right to conscience has been protected in two ways by the US Legislatures and courts. The two key areas are the First Amendment and conscientious objection to war.

First Amendment protection against coerced expression

According to the first amendment, no law shall be made by Congress:

Which respects the establishment of religion
Which is forbidding the free exercise of religion
Which is curtailing the freedom of speech or the press
Which is abridging the right of the people to assemble peacefully
Prohibits petition to the government for the redress of grievances

The Supreme Court of the United States held that the First Amendment prevents the government from forcing people to express or promote opinions they disagree with.

West Virginia Board of Education v. Barnette (1943)

In 1942, the West Virginia Board of Education made it necessary for instructors and students to salute the flag as part of their school activities. When the children of a Jehovah’s Witness household refused to do the salute, they were sent home from school and they were also threatened with reform schools which were used for children who were criminally active and their parents were also persecuted.

The question, in this case, was whether the mandatory flag salute in public schools is a violation of the First Amendment. The United States District Court ruled that forcing children studying in public school to salute the flag is unconstitutional. In the 6-to-3 decision of the Court, Robert Houghwout Jackson gave an opinion that the First Amendment cannot compel unanimity of view on any subject and that national symbols such as the flag should not be given special consideration.

Wooley v. Maynard (1977)

All noncommercial cars in New Hampshire were required by law to display license plates with the state slogan “Live Free or Die.” The slogan offended George Maynard, a Jehovah’s Witness, who removed the words “or Die” from his plate. Maynard was found guilty of breaking state law and was fined as well as sentenced to prison.

The question, in this case, was whether the New Hampshire law interferes unconstitutionally with the freedom of speech guaranteed under the First Amendment. The Supreme Court ruled 6 to 3 that New Hampshire could not compel individuals to display the state motto on their license plates as it was unconstitutional. The Court observed that the state wanted the individuals to use their vehicles as a ‘mobile billboard’ to display the state’s ideology and held that the State’s interests could not outweigh the principles of free speech given under the First Amendment.

Pacific Gas & Electric Company v. Public Utilities Commission of California (1986)

In its monthly billing envelope, the Petitioner included a newsletter. The company’s political opinions were reflected in the newsletter, which also included public interest articles and energy-saving advice. In 1980, a public interest organisation called Toward Utility Rate Normalization (TURN) requested the Respondent to either prohibit the Petitioner from spreading the newsletter or allow the company also to express its views in that space.

The question, in this case, was whether the Respondent can force the Petitioner, a privately held firm, to provide third-party access to its billing envelopes. The Petitioner was allowed to communicate its own political opinions through its envelopes, according to the Supreme Court as it was protected by its First Amendment rights. The Court went on to say that forcing someone to give access to their property restricts that person’s ability to express himself and requires the speaker to change their message to satisfy the other party.

Conscientious objection to war

The American society exempts those from military service who conscientiously object. Since the Civil War, conscientious objectors have been included in every federal statute permitting obligatory military service in the United States. According to the statute, religious faith is defined as a belief in connection to a supreme being and which does not contain political, social, or philosophical ideas or a purely personal code.

Conflicting beliefs and workplace demands constitute religious discrimination

Faith-based “conscience opposition” in the workplace is becoming more and more common. Though it is often confusing and seemingly difficult at first, if the employer understands applicable laws and develops and implements a thoughtful policy and action plan, such situations can usually be resolved without discrimination or litigation.

How can employers reduce the risk of religious discrimination claims

By expressly stating in the personnel policies and employee handbooks the fact that religious discrimination or harassment is prohibited and that the employees’ religious beliefs/ practices will be reasonably accommodated provided such accommodations would not cause undue hardship.
By developing human resources protocols:

to respond to requests for “religious” accommodations.
to address conscience-based refusals to work or obeying supervisor’s instructions.
for enabling immediate and supportive interactions with an employee asking for accommodation to understand the reasons for their requests and to explore possible accommodations if reasons are premised on sincerely held religious beliefs.
to prompt investigation.
for Resolution of claims of “religious harassment”.

By training supervisors and managers about ‘protected’ religious activities in the workplace and the company’s obligation for providing accommodation (including training about the breadth of “religion” under the law)
By training staff about:

What are or are not protected religious beliefs and to avoid assumptions or any kind of stereotypes.
How to respond to employees and customer biases when it comes to religion.
How to respond and recognize religious accommodation requests of employees or their refusals to work/abide by company policies.

One more thing that should be kept in mind is that if the organisation employing a person is not a religious institution (which comes under the limited exception provided by Title VII), “religion” should not be a factor in decisions like hiring, discipline/discharge, compensation/benefits, employee work-life, etc.

Employers facing “conscientious objection” need a plan

Though the theories of Title VII and EEOC along with judges’ opinions are informative, they do not always provide answers in a crisis.

If an employee refuses to perform tasks or assignments, refuses to comply with company policies or procedures, or refuses to obey the supervisor’s request, with comments such as “This is against my religious beliefs” or “I don’t believe in this”, the plan could be as follows:

Gather information from the employee

Ask about the reasons for the refusal.
If assertedly faith-based, ask what is in their beliefs that won’t allow them to do that particular task/job.
Ask what the employee thinks about alternatives to the task that he is refusing and whether he would be willing to perform the task differently.
Ask what the employee wants the company to do.

Assess the stated reasons for his refusal

If the reason appears to be faith-based, then try to do a functional and not content-based analysis. For example- the company is not evaluating the “authenticity” of the beliefs, but instead assessing whether they are equivalent to the functions of religious beliefs/ prayer/ rituals in “traditional” faiths in everyday life.
Then analyze whether it appears that the beliefs are sincerely held by determining whether the beliefs are consistent with the employee’s prior acts and statements.
Determine if there is any reason to believe that employees’ actions are based on secular motives of “working in the system”, such as evidence that they try to avoid low-paid or unpleasant tasks, work certain days/shifts, work (or avoid) certain supervisors and so on.
Finally, weigh the consequences of rejecting employees’ claims that their actions are based on beliefs. It is usually wise to admit that beliefs are “religious” and “sincere” and proceed with the next step of the plan.

Assess possible accommodations if a refusal is based on religious beliefs

If a refusal is based on “religious” beliefs and those beliefs are protected by Title VII, determine whether it would be possible to assign the task to a different worker or modify the task in any way but without any extreme disruption or expense.
Assess whether it is possible to abandon compliance with company policies without causing significant disruption, cost, or security concerns.
If several adjustments seem feasible, assess which one can be implemented quickly, with the least disruption/cost to the business, but will eliminate the conflict between work and religion.

Decide what consequences you want to be there if an employee refuses for compliance

Determine in advance if the employee continues to refuse, will he be subject to disciplinary action or dismissal. If he would be, determine whether it is persuasive and documented evidence of:

The importance of refusal for violation of policies or tasks/instructions.
A warning is given to an employee of the consequences in case of continued refusal.
Disciplinary action or any dismissal from the company of employees for non-religious breach of policy or obedience to supervisor.
Employers and workers rejecting the “religious” basis for interactive communication with possible adaptations.
Outline of the employer concluding that the employee’s actions would not (or could not) be accommodated.

Refusal to accept so-called “religious” beliefs may lead to EEO investigations or litigation, so it is very important to properly record the incident when it occurs, to provide employer evidence for subsequent submission to the EEOC or the court.

What is India’s position regarding freedom of conscience

Article 25 of the Indian constitution

Article 25(1) of the Indian Constitution, all persons are equally entitled to freedom of conscience and the right freely to profess, practice, and propagate religion subject to public order, morality, and health. But there has been no such application of this law (the conscience part) in the workplace or even outside its framework.

Supreme Court’s take on freedom of conscience

The Supreme Court recognizes freedom of conscience and believes that “no one has the right to dictate to others the religion in which they believe; what philosophy does he have, what is his policy, what views he will accept, etc.” Any compromise on these principles is an attack on the rule of law.

But India saw an overlap of freedom to harbour and express beliefs and freedom of religion in the Sabarimala case. In this case, the Apex Court juxtaposed religious practices with equality before the law. In doing so, it ignored the freedom of conscience of devotees who claim to have practiced their beliefs for hundreds of years for moral reasons.

Need for recognition of the Right to Conscience at workplace

Just in the U.S, creating laws on the matter might be problematic and might raise controversies. It might leave people and lawmakers in dilemma and it might be difficult for the Supreme Court to balance the interests of both parties.

But the beliefs and conscience need to be recognized and put in a legal framework, especially in areas of employment. A country like India which is so diverse in religion should have some refusal clauses, especially for healthcare providers and pharmacists. Whether there is a need for such laws could be more clearly identified by talking directly to the stakeholders of this freedom i.e. the citizens of India.

Conclusion

Historically, personal conscience has always been the cornerstone of American society. Americans respect the conscience of anti-war conscripts, anti-abortion doctors, informants who oppose higher-level misconduct, and citizens who oppose government dogma, but the right of consciousness has a chilling effect on legislators who want to address the abortion barriers.

Finding an intermediate approach in any country, be it India or the U.S. might be difficult. The question of “Whether these rights might be expanded to every other occupation” does not have any certain answer as the whole concept is very contentious.

When it comes to India, until Constitutional precedents on freedom of conscience develop, courts must adopt a “middle ground” when dealing with ideological issues, which will only add more vitality to the vital nature of our Constitution.

References

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Risk preventions strategies ownership of employee : developed inventions and intellectual property

By

Shoronya Banerjee

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November 14, 2021

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This article has been written by Aditya Rastogi, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).

Table of Contents

Introduction

Companies are often into hiring and investing in employees in order to develop new products, improve the processes and create new kinds of technologies, inclusive of developing new markets. With this kind of investment, it should not be surprising that employers are generally into owning the intellectual properties that are created by the employees in the due course of employment. However, intellectual property which is created by the employee, other than the ones made in the course of employment of the employee, is generally owned by the employee and not the respective employer.

Employers should not make assumptions with regard to ownership

Intellectual property created during the period of an employee’s employment is not equal to the employer’s automatic and exclusive ownership of any and all kinds of intellectual property. In fact, employers who believe that they own such developed property automatically might pay an expensive price – through loss of inventions or improvements as a result of failing to protect such intellectual property or for not effectively being able to secure the rights from employees.

Critical to the employer’s own towards the intellectual property, an agreement is entered into with the employee as a party, especially one that is specifically assigned to the company with regard to all kinds of intellectual property created by the employee during the course of his or her employment in the company. Such an agreement is often known as an “assignment of inventions” or “ownership of discoveries” agreement. If such an agreement is absent, then the employee may have ownership rights in the intellectual property which he or she created while working in the company, even if the individual was specifically hired to invent a particular product or process.

In order to avoid disputes over whether sufficient consideration exists to support the validity of the agreement, employers should always make sure that the agreement is executed prior to that of the commencement of the employee-employer relationship, and the agreement should also clearly reflect that respectively. In the case where the agreement was not entered in accordance with the start of the employment period, the employer should also provide additional and sufficient consideration in order to support the agreement. It is also important to the agreement that an addendum is included, where the individual identifies all kinds of intellectual property in which he or she has an ownership interest prior to the commencement of his or her employment with the company.

If the agreement is executed once the employment has commenced, the employee should consider such property to be of the employer. Also, employers should make sure to use similar “assignment of inventions” or “ownership of discoveries” provisions in agreements when they are working with independent contractors. The independent contractor agreement should clearly mention that the independent contractor’s work related to authorship, finishing of the product, all inventions, or other intellectual property will be exclusively owned by the company which will be free of any royalty fee or license. The agreement should also state the independent contractor “hereby assigns” all possible rights in the intellectual property in order to eliminate any kind of issues if and when the company pursues a patent or copyright for the developed products or the inventions.

Risk management strategy to be adopted by employers

Determine if there is a written agreement with his employees and all independent contractors. If such agreement exists, then is it inclusive of an “assignment of inventions” or “ownership of discoveries” clauses or, does that provision clearly mention the employee “hereby assigns” all kinds of rights and ownership in the intellectual property, trademarks or, copyrights.
Also, make sure that the written agreement is always supported by sufficient consideration. Is the agreement executed prior to that of the commencement of the employee employment or later and if later, then what all additional considerations did the company conclusively provide to the employee in exchange for his or her execution of the particular agreement.
Have an idea of the kind of prospective employees and/or independent contractors in order to clearly identify, in writing, those who will own such Intellectual property.
Periodically conduct employee surveys in order to update and identify, in writing, the intellectual property which they believe to be of their own and make sure that such intellectual property is created independently by the company’s resources.
Conduct exit interviews with employees and independent contractors, reminding them of their all-possible contractual obligations.

Opportunities exist for employees to own their ideas

Where there exists no employment agreement in order to assign rights to the employer, employers can still successfully impose ownership rights upon the employee inventions which are created during the period of the employee’s employment.

The primary focus of this analysis should be the reason for the hiring of a particular employee. If the employee is hired to create the intellectual property as a core part of their job, the employer should be the owner of the intellectual property. Thus, appropriate examination of the employment contract and the relative duties described therein can be worth determining of the ownership inquiry. In absence of a written agreement, the courts will look into whether the employer gave directives for the employee to achieve the respective goals. Ideas that come from these directions will generally belong to the employer. Consideration needs to be given in all kinds of circumstances.

One must also make sure to consider whether there exists an employee-employer relationship between them or not. In many cases, the hiring is of independent contractors. This too is a factor ripe for analysis, and with significant consequences.

Patent ownership, like copyright, is presumably owned by the inventor. Agreements like employment agreements usually require assignment of several ideas, which includes patentable ones, with respect to the employer. Even if such an agreement is not in existence, generally employee ownership may not result in the exclusivity of use or exploitation of that particular idea. The employer may still have certain rights in the process or invention whose development is employer-supported. The idea of providing such rights to the employer simply gives the respective employer who is providing funding, materials, tools, or work time with respect to the project pertaining to nonexclusive royalty-free rights to use such invention by the employee. The employer may or may not assign or transfer any particular kind of rights to another unless it is expressly allowed, with the kind of exception of a transfer of the employer’s business as part of a business sale.

Contracts play a major role in the ownership of trade secrets as well. In case of the absence of a contract, state laws will govern the ownership. This is a major patchwork of associated laws and decisions which may be of assistance to the employee to assert the ownership relatively over a trade secret or attack pertaining to the relative notion that the particular idea is a trade secret, in the cases where a contract is not existing or is not enough specific with respect to the idea which is at issue. In the cases where the idea is not protected by copyright, patent, or trade secret law, the idea is considered to be free for all to take, regardless of one’s former or current employment relationship.

Finally, slogans and trademarks are typically not the subjects of ownership-related disputes. Trademarks generally belong to those who usually use them and not those who create them. Thus, the respective company usually uses a mark that is used to promote a particular service or the goodwill owns the respective mark and the goodwill which is associated with that mark. Disputes over trademark ownership in an employee-employer relationship would be atypical.

Risk management strategy to be adapted by employees

Examine the employment agreement. Understand what you sign before you sign it and seek legal advice if you are unsure of what rights you have retained.
Look at any other agreements executed and determine whether consideration was paid for the execution of those agreements. Agreements signed after the employee are employed will be open to challenge if additional, insufficient and consideration was not provided for the respective obligations.
Keep the records that document the creation of certain ideas on your own time, with the funds and your own equipment. Never rely upon memory and never assume that these ideas worked on at home or on your own time belong to you.
Review all kinds of non-compete agreements to assess enforceability and reasonableness. Certain kinds of matters will not be enforceable under all non-compete agreements even if those agreements have a hindering effect in case of employees changing jobs and which are not really labelled as “non-compete” kind of agreements.
Were you an employee or an independent contractor? The difference matters in determining the ownership and should be consistently reviewed by a legal professional.

Conclusion

For the intellectual properties invented by the employees, they have full ownership rights over the same, pertaining to the policies of the respective organisation. Ensuring the ownership rights on the inventions it is very important for both the employees and employers to understand the contracts or the respective agreement which particularly mentions the clause related to the inventions which are done or developed during the course of employment. Hence, it is very important to adapt certain risk management strategies with regard to intellectual properties.

References

https://www.jdsupra.com/legalnews/risk-prevention-strategies-ownership-of-19863/
https://pro.bloomberglaw.com/common-misunderstandings-about-intellectual-property/
https://www.mondaq.com/india/patent/1087246/employer-employee-patent-ownership-in-india

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New rules to increase efficiency and transparency in international arbitration

By

Oishika Banerji

-

November 14, 2021

0

This article has been written by Vivek Vithalrao Jawale. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).

Table of Contents

Introduction

Society is not static, it is ever-changing. Therefore the law is also bound to change. The ability to change is called intelligence. Law is not the autonomy of any particular generation. Every generation has the right to change it as per the prevailing circumstances. The principle of change is applicable to both municipal and international law. But it is found that international law adopts new changes very quickly and municipal law follows it to some extent. Hence, it can be said that international law may shape municipal law. The present article is an attempt to study the New Rules of Arbitration, 2021 (“2021 Rules”), developed by the International Chamber of Commerce (“ICC”) through an online conference held on 1 December 2020.

These new rules have emerged due to the inability of the old laws of international arbitration to tackle the problems like consolidation, joinder, third party funding, arbitral appointments and changed circumstances during the COVID-19 Pandemic. The application of the new rules is prospective as it came into force from 1 January 2021 and has been made applicable for future cases. Thus, this article is an endeavor to discuss new rules in international arbitration so as to increase efficiency and transparency in international arbitration.

International arbitration

“Arbitration” means the use of an arbitrator to settle a dispute. The “Arbitrator” means an independent person or body officially appointed to settle a dispute. Dispute means a disagreement or argument on a particular issue. It may be called a conflict of interest. If the dispute is international then the international arbitration process is applicable. Thus, “Arbitration” is a mechanism to settle a conflict between the parties through an arbitrator by issuing a proper award, which is binding on both the parties.

The term “International Arbitration” is used in a peculiar sense, which is a hybrid form of international dispute resolution because it is a mixture of civil law procedure and common law procedure. It respects disputant parties’ freedom to finalize their terms and conditions pertaining to the resolution and arbitrator. But it is one of the limitations of international arbitration that it is only applicable to the matters which are arbitral. Its scope is very wide. It includes all types of international commercial disputes. The arbitral agreement is generally made prior to the arising of the dispute but sometimes it may be made after the dispute arises . The latter is called a “submission agreement”. The submission agreement is an arbitration agreement which is made and signed by the disputant parties after the arising of the dispute.

Moreover, the disputant parties are allowed the liberty to frame the terms and conditions of the international arbitral agreement, laws binding on the international arbitration, number of international arbitrators, place of international arbitration, the language of international arbitration etc. The best example of international arbitration is “investment arbitration”. It is related to the arbitration process by foreign investors against the state on the basis of bilateral or multilateral treaties.

International arbitration rules

It is found that the most of the international arbitration institutions generally formulate “international arbitration rules” which are applicable to the dispute settlement through international arbitration, e.g. the rules of arbitration formulated by the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”), the International Centre for Dispute Resolution of the American Arbitration Association (“ICDR”), the rules of the Singapore International Arbitration Centre (“SIAC”) and the Hong Kong International Arbitration Centre (“HKIAC”). Investment arbitrations are often resolved under the rules of the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”) or the United Nations Commission on International Trade Law (“UNCITRAL”) rules. Much of the arbitration involving Russian businesses takes place under the rules of the Stockholm Chamber of Commerce (“SCC”).

New rules to increase efficiency and transparency in international arbitration

These new rules emerged due to the problems faced by parties to arbitration in changed circumstances during the COVID-19 Pandemic. Accordingly, an online conference was held on 1 December 2020. Its main purpose was to streamline the International Arbitration process. Its operation is prospective since it came into force on 1 January 2021 and was made applicable for future cases raised after 1 January 2021. The “Following new rules” aim to bring new changes in international arbitration so as to increase efficiency and transparency in reality.

New rules of International Arbitration for Increasing Efficiency in International Arbitration

“Following new rules” of international arbitration are made by ICC in 2021 so as to tackle the failure of old rules about the joinder of parties and consolidation of arbitration proceedings. It proved that disputes concerning multiple parties and multiple contracts may be resolved.

Consolidation: The old rules of international arbitration did not elaborate on whether consolidation of arbitration proceedings was allowed only in the circumstance where each of the claims in the arbitrations arises from the same arbitration agreement, or if the dispute was arising from different contracts that contain identical arbitration agreements. But now the new rules of international arbitration allow the consolidation of cases involving different parties but taking its roots from the arbitration agreements. Moreover, consolidation is also allowed if the same parties’ claims arise from different arbitration agreements in connection with the same legal relationship.
Joinder: The old rules of international arbitration were not comprehensive about whether the parties to adjoin an additional party after the consolidation of the tribunal. But now, the new rules of international arbitration allowed a joinder of additional parties after the appointment of the arbitrator, without obtaining the consent of all relevant parties.
Green and Remote Arbitration: The COVID-19 pandemic promoted social distancing. Hence virtual court proceedings became the norm in almost every jurisdiction in the world. But the old rules of international arbitration were not comprehensive to allow virtual hearing of international arbitration but the new rules allowed a virtual hearing and electronically submission of documents.
New threshold for Expedited Procedure and Emergency Arbitration: The new rules of international arbitration (ICC 2021 Rules) increased the automatic threshold from USD 2 million to USD 3 million. It will be applied prospectively to cases with an arbitration agreement date of on or after January 1, 2021, it is aimed to encourage speedy, efficient, and low-cost international arbitral proceedings. Thus, it will increase cases of international arbitration as the threshold for initiating emergency arbitration has been raised to USD 3 million by new rules. It will ultimately develop efficiency as more cases will be solved speedily and cheaply.

New rules of International Arbitration for increasing Transparency in International Arbitration

New rules of international arbitration emerged due to the problems faced by parties to arbitration in changed circumstances during the COVID-19 Pandemic. The amended new rules made by ICC in 2021 brought greater accountability in the international arbitration process. The “Following new rules” are made to increase transparency in international arbitration.

Disclosure of Third-Party Funding: The old rules of international arbitration were not comprehensive about whether the third-party financing will come within the preview of international arbitration. But the new rules made by ICC have made the international arbitration proceedings more transparent by allowing third-party financing within the ambit of international arbitration. Hence it may be predicted that the other funding agreements like insurance coverage will also be brought within the same lines in future.
Limiting Changes to Party Representation: The old rules of international arbitration were not comprehensive about whether the change in the representation of parties to be reported to the Secretariat and the authority of the Secretariat to take cognizance of such change so as to protect the interest of the parties to the dispute but the new rules made by ICC has allowed it. It is a positive measure taken so as to avoid any disturbance to the international arbitration proceeding due to a change of lawyer or counsel.
Arbitral Appointments: The old rules of international arbitration were not comprehensive about whether the ICC Court has the power to decide all members of the arbitral tribunal. But the new rules of international arbitration have granted such power to the ICC Court so as to assure equality, fairness and transparency in the international arbitration for enforcement of arbitral awards. It is also made clear that the arbitrators may not be from the country of the disputant parties so as to avoid bias to be entered in the arbitral award. Thus, the principles of natural justice are truly followed and applied in international arbitration.

Conclusion

It is true that recent amendments in the rules of international arbitration of both; the ICDR and the ICC are made to provide solutions to the problems emanating out of previous rules. It successfully tackled the issues like multi-party disputes, the management of related disputes arising under separate arbitration agreements, the potential risks to arbitrator impartiality and independence because of undisclosed third-party funding arrangements, the increasing use of technology in arbitration in circumstances of increased data regulation and cyber security risk etc. Therefore the new rules of international arbitration may increase efficiency and transparency in international arbitration and provide an opportunity to the disputant parties to settle their complicated dispute in an amicable manner. Thus, the new 2021 ICC Rules can serve as a benchmark to other institutional arbitration to bring such innovative rules in for increasing their efficiency and transparency in future.

References

1. https://www.international-arbitration-attorney.com/what-is-international-arbitration/

2. https://www.international-arbitration-attorney.com/definition-of-arbitration/

3. https://iccwbo.org/media-wall/news-speeches/icc-unveils-revised-rules-of-arbitration/

4.https://www.mondaq.com/turkey/arbitration-dispute-resolution/1051634/new-2021-icc-rules-a-road-to-efficiency-and-transparency.

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PoSH policy of India

By

Oishika Banerji

-

November 14, 2021

0

This article has been written by Adv. Aruna Zaccheus pursuing the Introductory Course: Legal Writing For Blogging, Paid Internships, Knowledge Management, Research and Editing Jobs from LawSikho. This article has been edited by Aatima Bhatia (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).

Table of Contents

Introduction

Prior to 2013, there were no specific laws protecting women from sexual harassment at their workplace. Though the Indian Penal Code had a provision to punish any offence related to women, it did not address the issues directly that a woman faced at work. It was only after the famous case of Vishakha vs. the State of Rajasthan that the Hon’ble Supreme Court of India issued guidelines to give a safe work environment to women at the workplace. The Supreme Court framed guidelines and issued directions to the Union of India for a law to combat workplace sexual harassment. The main intention behind the guidelines was to provide a platform for redressal and grievance mechanisms against workplace sexual harassment. It was these guidelines that motivated the formation of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH)

What is PoSH?

The long title of the Act is “The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013” PoSH is a short form of Prevention of Sexual Harassment. It means the prevention of sexual harassment at any work place, which includes domestic, factory workers and office professionals, in short, any working woman from both regulated and unregulated sectors is protected under this act. The Vishaka Guidelines laid the foundation for the government to enact a law to prevent and protect women from sexual harassment in the workplace. The law has established policies and procedures to address the grievances of female employees. It also includes the process of constitution of the Internal Investigating Committee at various levels, the grievance redress mechanism, punishment, and interim relief, etc.

Why PoSH?

The PoSH Act is an effort to provide a safe and healthy work environment for any woman who chooses to become independent. The Act protects the fundamental rights of Articles 14 and 15 on equality enshrined in the Constitution of India for women and Article 21 for the Right to Life, which includes the right to live with dignity and to engage in any type of employment or business. Article 21 also guarantees the right to a safe work environment, which is both physically and mentally safe. Whereas other than being a mandate from the Constitution of India, the right to live with dignity is also recognised as a human right recognised universally through the Convention on the Elimination of all Forms of Discrimination against Women. The Government of India ratified the convention on June 25th, 1993. Therefore, this act was enacted to give effect to the International Convention and to empower women through the fundamental rights of equality, life, and employment enshrined in the Constitution of India.

How is PoSH implemented?

The Act was enforced on 22nd April, 2013. It is applicable to all the states in India. All organisations with more than 10 employees need to conduct an awareness programme for the employees of the organisation. The organisation has to constitute an internal committee to address the issues and complaints related to sexual harassment within the organisation. The internal committee will also include external members from NGOs working for the welfare of women. Organisations with fewer than 10 employees can approach the Local Committee set up at District Level by the State Government.

PoSH has become a part of every employment contract in every organisation. This Act applies not just to the organised sector but also to the unregulated sectors like small industries and domestic workers. The Government constitutes a Local Committee at the district level that addresses the issues and complaints of women from unregulated or small-sized establishments.

Thus, it is an all-inclusive Act comprising detailed definitions on essential terms like “workplace,” “aggrieved women,” and “sexual harassment.” It elaborates on how behaviour can be termed as sexual harassment and the different forms of sexual harassment.

The aim of the PoSH Act

The aim of the act is to provide a safe work environment for every woman who is willing to earn her living with dignity and equality. Section 3 of the Act outlines the aim of the policy is prevention. Section 3 also states that any threat to employment at present or in the future, discriminating or preferential behaviour at work, humiliation, and causing undue mental stress by creating a hostile work environment will also be termed as sexual harassment.

The act defines sexual harassment in Section 2 (n) as follows:

Contact or advances on the physical body; or
Demand for sexual favours, or
Making sexually charged comments, or
Showing Pornography, or
Any other unwelcome physical, verbal, or non-verbal conduct of a sexual nature.

The scope of the definition of sexual harassment widened in terms of identifying the behaviour present in the circumstances or context of sexual harassment in Section 3. It has measures for the prevention of sexual harassment by identifying the behaviour of the person, both expressed and implied, in terms of preferential treatment or detrimental treatment at work. Expressed or implied threat regarding current or future employment causing undue hardship by creating a hostile work environment, being offensive or intimidating, or interfering with the work. Humiliating the woman is likely to affect her health or safety.

Section 2(o) is a comprehensive definition of the workplace, which includes almost all types of workplaces where a woman is deemed to be engaged. It also includes company transport, on-site and off-site offices, or any office as a workplace. The section provides a comprehensive list of places that can be a workplace, but it is not exhaustive. The creator of the law left the provision open to a broad interpretation of the term “workplace,” keeping in mind the possibility of technological advancement in the future.

Therefore, even remote workers can file a complaint of sexual harassment even though they are not present in the physical office. Sexual harassment, as defined in section 2 (n), can be performed through virtual means such as phone calls, emails, and social media. Virtual sexual harassment has an impact on the overall productivity, and excessive mental stress has an impact on her overall well-being.

The outcome of the PoSH Policy

The policy is a large umbrella, and it covers all the possible places a woman may be working and all the types of employment, whether permanent or contract staff, domestic maids, staff with or without remuneration, trainees and interns, which also include students.

Duties of Employers

The employer is mandated through the provision of the act to implement the PoSH policy in the organisation. The onus of implementation and compliance of policy is on the employer. The act sets a list of obligations on employers to be compliant with the PoSH policy.

Chapter VI, section 19 of the Act, lists all the duties of an employer to provide a safe working environment for any female employee. The word “Every Employer” gives a wide interpretation of the term employer in section 2 (g). It includes both organised and unorganised sectors. The following is the list of duties an employer is bound to do:

Provide a safe working environment for female employees not only from the employees working within the organisation but also anyone who may come into contact with the employee. For example, vendors, contractors, and delivery people.
Display the consequences of sexual harassment with its penal provisions in accordance with the Act and create an Internal Complaint Committee.
It is the duty of the employer to create awareness through workshops for employees to keep them informed of the policy of sexual harassment and its consequences. Employers also need to conduct orientation programmes for their Internal Complaint Committees to give them the training to handle the issues effectively.
An employer is obliged to provide essential facilities while dealing with complaints and during inquiry to the internal Complaint Committee or Local Committee.
The onus is on the employer to arrange the attendance of both respondents and the witness for the inquiry.
The employer needs to provide all the necessary details that are important to the complaint and conduct an inquiry with the Internal Complaint Committee.
The aggrieved woman has every right to file a police complaint under the Penal Provisions of the Indian Penal Code even if the offender is not an employee of the company, but the incident took place in the office or at the workplace. It is the duty of an employer to assist her in filing a complaint against the offender.
Add sexual harassment as a form of misconduct to the service rules and the procedures for initiating action in the event of a complaint.
Internal Complaint Committee reporting should be on time.

Chapter II, section 4, mandates an employer to constitute an Internal Complaint Committee.

A detailed process has been laid to appoint a Presiding Officer in the Internal Complaint Committee.
Section 4(4) has made provision for the appointment of an external member to the Internal Complaint Committee. This builds trust in fair treatment and confidence in getting justice.
Section 5 of the Act has provisions for the removal of the members of the Internal Complaint Committee in the event they contravene the provisions of the act, any inquiry pending related to any offence in accordance with the law, pending disciplinary proceedings, and abuse of the position.

Chapter VIII section 26 has provisions of penalty on the employer for not constituting the Internal Complaint Committee in accordance with the provision of the law.

First-time offenders will be penalised for the sum up to fifty thousand only.
The second time, the punishment is twice the amount of the first default.
The third time, offence will lead to revocation of licence, cancellation of registration or non-renewal of contract or license to carry trade or business.

Chapter III deals with the issues where an employer is a small-sized organisation or an employer of a domestic worker, and it is unfeasible or impossible to have an Internal Complaint Committee constituted. Therefore, enlarging the scope of the act to protect women engaged in unregulated sectors is therefore necessary.

Section 6 of the Act elaborates on the constitution of the Local Committee and its jurisdiction to accept complaints.
Section 7 deals with the selection of members, qualification for being a member of the Local Committee, and other terms and conditions imposed on the Local Committee. Since the appropriate government, as defined in section 2 (b), is responsible for the constitution of the Local Committee, the presiding officer is held by a woman of repute from a social work background that is committed to the welfare of women. Working women of the district, taluka and municipality are nominated to be members of the committee. Subsection (c) has provision to appoint one woman from an NGO that specifically works in the area of sexual harassment in the workplace, a woman from the reserved class, and any member preferred with legal knowledge.

Systematic complaint handling mechanism

Chapter IV provides the detailed system and an approach for handling complaints from the aggrieved woman.
1. Section 9 has a mode of complaint stated as writing, and if an aggrieved woman is unable to make a complaint in writing, then the Internal Complaint Committee or the Local Committee Presiding Officer or a female Member should make the complaint within three months from the last instance.
2. The section further enables the legal heir in case of death, or any other person, to make a complaint on behalf of the aggrieved woman in case she is physically and mentally unable to file a complaint.

Section 10 is a unique provision that enables the Internal Complaint committee or local committee to initiate the conciliation process before starting the inquiry with the consent of the aggrieved woman.

The settlement under conciliation is non-monetary in nature.
In the event that the parties reach an agreement through conciliation, the Internal Complaints Committee or the Local Committee records the details of the agreement and forwards them to the employer in the case of an organisation or to the District Officer in the case of an unorganised sector employer so that the appropriate actions can be taken based on the settlement report.
After settlement through conciliation, the Internal Complaint Committee or Local Committee gives a copy of the settlement letter to both parties to the complaint. The settlement puts an end to complaints before the start of an inquiry.

Section 11 of the Act details the Internal Complaint Committee or Local Committee’s examination process of the complaint. In the case of a large organisation, the inquiry is conducted in accordance with the service rules of misconduct and the punishment for the same is as described in the service rules of the organisation. However, in the case of non-organised or small-sized organisations that do not have service rules for inquiry and punishment, then the Local Committee has to forward the complaint to the Police within seven days of receiving it. The police shall register a case under section 509 of the Indian Penal Code or any other law in force at the time of the complaint.

A police complaint is also made when the respondent fails to keep the terms of the settlement agreement.
When both parties are employees of the organisation, they are given copies of the report made by the Internal Complaint Committee. The law of natural justice is upheld and both parties are given the opportunity to represent their case against the report made by the Internal Complaint Committee.
Upon conviction under section 509 of the Indian Penal Code, the convicted party is ordered to pay a fine. The details of the compensation are described in section 15 of the PoSH act.
The Internal Complaint Committee or a local committee has the same power as the civil court to try the suit.

Section 15 elaborates the basis on which an aggrieved woman is entitled to compensation. It includes pain, as well as mental and emotional trauma caused due to sexual harassment. Negative impact on her career, missed opportunities. Money spent on medical and psychiatric treatments. The court considers the economic status of the respondent before ordering the compensation. The payment of compensation can be either in a lump sum or in instalments.

Chapter V has a detailed process of examination of complaints.

Section 12 deals with the responsibility of the employer during the pending investigation. The employer can transfer either party to a different workplace or can send the woman on leave for up to three months. The leaves are treated as additional leaves. Or the employer can grant any recommended relief by the Internal Complaint Committee and send the report of implementation to the committee.

Section 13 of the act has the process of making the inquiry report within 10 days from the end of the inquiry and making it available to both the parties to the complaint.
1. If the report finds the respondent is not guilty then they shall record a remark as no action is required.
2. If the respondent is guilty of the act and works in an organisation then the action will be taken according to the service rule on misconduct and in cases with no service rule in accordance with prescribed law.
3. If the employer is unable to deduct the salary under the service rule for misconduct to compensate the aggrieved woman then order for recovery of a sum is sent to the District office to collect it as land revenue arrears.
4. The employer or the District officer has to take action within sixty days of receiving the recommendation from the Internal Complaint Committee or local committee.

The policy is made to provide a safe workplace for women, however, misuse of the provision is dealt with sternly and punishment is listed under Section 14 of the Act. The woman will be punished according to the service rules of misconduct or in the absence of service rule the provisions of applicable law.

The policy also upheld the right to privacy of the parties to the complaint under section 16 of the act. The identity of the woman is never revealed and the details of the inquiry and its outcome is not to be published in public or given under the Right to Information Act (2005). Only the information on the justice received can be reported without disclosing the identity of the victim. Section 17 imposes a penalty for non-compliance with section 16 of the act.

Section 18 provides a process for appeal either to the court or to the tribunal within 90 days from the receipt of the recommendation in case of contravention of sections 14 and 17, not taking action as per the recommendation.

Positive change in society and the workplace

The Actis a two-edged sword. The positive side of it is that it gives assurance to a woman at work that she is being heard and there is a law to punish the offender. However, the negative side of it is that it is not a gender-neutral policy. The misuse of the special law against male employees for personal vendetta will defeat the aim of the policy. Though to deal with false allegations the act has made provisions, however, the mental trauma going through the process of inquiry is daunting and affects the overall well-being of a male employee. Such allegations affect the reputation of a man in his peers and society at large.

Landmark judgements

The Vishakha Vs State of Rajasthan laid the foundation stone of the PoSH act. It was for the first time the Supreme Court defined the sexual harassment and forms of sexual harassment at workplace and recognised that it violates the fundamental rights of a woman under Articles 14, 15, 19 and 21.

Supreme Court framed a detailed guideline to prevent sexual harassment of women at the workplace and made it mandatory for the employer to implement it.

In the case of Medha Kotwal Lele & Ors V. Union of India and Ors, a letter from Medha Kotwal was converted into a writ petition which highlighted the ineffective implementation of Vishakha Guidelines. The Supreme Court ordered the implementation and respect of the Vishakha Guidelines in both letter and spirit. It also allowed the aggrieved person to approach the High Court in case of non-compliance with Vishakha Guidelines.

In Seema Lepcha vs. State of Sikkim & Ors , the Supreme Court gave direction to State on publication of the guidelines through newspaper, television, and through Legal service Authority and Social welfare of Sikkim

The Supreme Court in the case of Apparel Export Promotion Council v. A.K Chopra dismissed the senior officer for being guilty of sexual harassment and expanded the definition of sexual harassment stating that physical contact is not essential for sexual harassment.

In the case of Anita Suresh vs Union of India & Others, the Supreme Court dismissed the petition with a cost of fifty thousand on the petitioner for misuse of the provisions of the law and also directed the respondent to initiate appropriate action against the petitioner for filing a false complaint.

Conclusion

There is not a field that women have not conquered. Women are leaders in the fields of medicine and the media, space and marine, law and legislation, technology, and teaching, and in general, everything women have been continuously excelling in. Since time immemorial, women have been subjected to cruelty at the hands of the patriarchal society. In ancient times, this cruelty was limited to the domestic life of a woman, now in modern times, both domestically and professionally, they face many challenges. Though they are strong enough to lead and fight, being subjected to sexual harassment for being a woman is one of the gravest issues, as it deters women from aspiring to achieve greater heights in any profession.

Thus, through the judgements, we see that the provision is not a one-sided policy protecting women only and penalising men. However, in the judgement of Anita Suresh vs Union of India & Others, the Supreme Court has balanced the prejudice based on gender.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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Yes Bank scam crises : crime within the corporate sector

By

Sneha Mahawar

-

November 14, 2021

0

This article is written by Varchaswa Dubey, from JECRC University, Jaipur. This article is concerned with the Yes Bank scam, with special emphasis on legal aspects of corporate fraud.

Table of Contents

Introduction

The concept of scams is not new for India and various scams have been witnessed from time to time. One such scam is the Yes Bank loan fraud of Rs. 2,435 crores. It is the greed of money and the lack of proper functioning of the laws which lead to such a large scam being committed by one of the largest and most trusted private banks in India.

Background of Yes bank

The Yes Bank is one of the top private sector banks in India which was incorporated in the year 2003 and began functioning in the year 2004 after a partnership of its Founder Rana Kapoor and Ashok. Initiated to provide a high-quality private Indian bank with a customer-centric approach.

The Yes Bank is the fourth-largest private sector bank in India which is currently functioning across all 29 states and 7 Union territories in India with more than 1000 branches and 800 ATMs in the country.

What was the Yes bank scam

The scam began between April and June 2018, when Yes back invested Rs. 3,700 Crore in the form of short-term debentures of DHFL. The founders of DHFL agreed to pay back the amount in the form of loans to DoIT Urban Ventures to Rana Kapoor and his family as an ins i de trade after the stock price of the company fell at an alarming rate and the customers started withdrawing money from the bank.

A charge sheet was filed in May by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 regarding Rana Kapoor’s illegal gratification of Rs. 5,050 crores along with several other cases of providing inside loans to many corporate entities. Yes bank also used customers’ money to cover the debts of the bank. It also diverted Rs. 2,185 Crore to Morgan Credit, one of the holding companies of Yes bank.

Yes Bank was found liable for not only insider trading but also illegal lending practices, evergreening of loans, the high charge from borrowers which was not the policy of the bank, overstatement of profits, and violations of RBI guidelines.

What were the after-effects of the scam

A case against Rana Kapoor, his wife, and his three daughters who were the owners of the companies was filed in Mumbai Sessions Court. Rana Kapoor was asked to step down from the top position of the company and the management of Yes bank came under Reserve Bank of India (RBI) under Section 45 of the Banking Regulation Act, 1949 which reserves the power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution of amalgamation.

RBI also enacted a draft scheme for the reconstruction of Yes Bank in the year 2020 under which Yes Bank was placed under a moratorium period under which the deposit withdrawals by customers of the bank during this period were limited to Rs 50,000 per person.

The State Bank of India also showed interest in the reconstruction scheme of the bank and it got 49% shares of the Yes Bank.

What are the other corporate scams India has witnessed

Corporate crime, which is also referred to as organized crime or white-collar crime, being committed by individuals in their occupation, for maximizing their profit. India has witnessed many corporate scams since its independence and each scam has always affected the economy of the country. Other corporate scams in India are:

Mundhra scam: The first-ever big scam in independent India was witnessed in 1957 when Haridas Mudhra, a stock speculator manipulated Life Insurance Corporation (LIC) to invest Rs. 1,26,86,100 in his own companies by putting political pressure. Consequently, the M.C. Chagla committee was formed which submitted its report within 24 days in a transparent manner exposing the scam of the politicians and Haridas Mudhra, who was imprisoned for 22 years.
Sahara scam: A scam of more than 24,000 Crore, the Sahara group’s owner Subrata Roy failed to return the money of its more than 30 million small investors despite the Securities and Exchange Board of India ordering the company to return the money of its investors.
Satyam computers scam: The scam was unearthed when the founder of the company Ramalinga Raju admitted that he increased the company’s revenue, 13,000 fake employees, profit and profit margins of all the quarters of the company for a period of 5 years, i.e. from the year 2003-2008 and the estimated money involved in the scam is around Rs. 7,000 Crore.
Ketan Parekh securities scam: Ketan Parekh, was involved in the manipulation of stocks and circular trading from 1999-2001. Parekh used to borrow from banks and manipulated the host of stocks. The amount of scams committed by Parekh is around 1,250 Crore Rs.
Harshad Mehta scam: Popularly known as ‘big bull’, Harshad Mehta was associated with one of the largest and most economically affected scams ever. The scam began when Harshad Mehta obtained fake bank receipts from small banks and such receipts were given to other banks to obtain cash from that bank and the money obtained was put in the stock market. Later, when the scam was unearthed, the amount of said scam was around Rs. 5000 Crores. While some refer to this scam as corporate fraud others refer to it as exploitation of loopholes in the system.

How industrialists practice abuse of power in the corporate sector

The Tendolkar committee report highlighted reasons how industrialists practice abuse of power:

Loans and advances: The companies and industries where the general public has invested provide loans and advance money in the absence of any security or surety and at low rates of investment to lure people to invest in the company. Many companies are provided with huge amounts of cash which have uncertain positions in the market. Despite Section 85 of Companies Act, 2013, which states that no company shall advance any loan to any director or any firm in which such director is a partner, loans are being provided to the directors of the company, while Section 86 reserves that no employee shall be provided with any loan or advance to an employee.
Improper transfer of assets: By merely inserting the transaction in the books while no real transaction exists, assets are transferred from one company to another like the subscription to share capital, transaction of sale and purchase, etc and no cash transaction or any other type of payment is made, which results in manipulation of rates.
Liquidations: After a public company is disassociated from operating, one technique is the liquidation of the company and look for a liquidator which shall arrange sanctions from the courts and hand over all the assets and records to the liquidator company and then after obtaining a transfer fee destroy all the fake records. Section 361 of the Companies Act, 2013 gives the summary procedure for liquidation of the company.
Courts and arbitrators: The system is corrupt and all the legal safeguards are weak, therefore, an illegal act can be easily carried out like jurisdictions of the court and liquidators were bribed. Such events attract provisions of the Prevention of Corruption Act, 1988.
Registrar of companies: The registrars of the company also lack competent jurisdictions in the matters and it has been found that registrars have been exploited by money. The registrar of companies is appointed under Section 609 of the Companies Act, 1956.
Auditors: The bookkeepers are responsible for keeping the true accounts of the public however the auditors are themselves at fault for dishonestly manipulating the records leading to corporate fraud. Section 139 of Companies Act, 2013 deals with the appointment of auditors in a company, while Section 139-148 of Companies Act, 2013 deals with different provisions concerning auditors.
Selling and managing agencies: The agencies get their part of the money and the shareholders of the company did not get any remuneration they were entitled to.
Manipulations: The whole administration of the books, including transactions of sales and purchase, inter-company loans, and investments are being manipulated. It is done by taking advantage of the different financial years of different companies, no disclosure of dividends earned by the company, converting public companies to private companies, and avoiding tax.

What are the laws to tackle corporate fraud

The Indian laws which aim at combating corporate fraud and punish those who are involved in corporate fraud are:

Prevention of Money Laundering Act, 2002

The legislation aims at the prevention of any activity concerned with money laundering, which refers to the concealing of origins of the money which is obtained illegally.

According to Section 4 of PMLA, any person who is involved in any money laundering activities shall be imprisoned for a term not less than 3 years but may extend to 7 years and fine.

Prevention of Corruption Act, 1988

In most of the scams, it has been witnessed that the offenders bribe the government officials to not take any action against their illegal acts and this leads to the amount of corporate fraud being large in amount. To prevent this, the Prevention of Corruption Act, 1988 is legislation that seeks to eliminate corruption.

According to Section 7 of PCA, any public servant who is found to be taking, agreeing, attempting, any illegal gratification for himself or someone else shall be imprisoned for a term which shall not be less than 6 months but may extend to 5 years and fine.

The Companies Act, 2013

The Companies Act, 2013 is another significant legislation concerning corporate frauds, although the companies act is primarily concerned with high standards of corporate governance and putting restrictions on insider trading, and protecting the interest of the investors.

Section 212 provides the Investigation into the affairs of the Company by the Serious Fraud Investigation Office.
Section 447 of the said act provides for the punishment for fraud for a period not less than six months but which may extend to ten years and shall also be liable to fine.
Section 449 provides for the punishment for false evidence, for a term which shall not be less than three years but which may extend to seven years, and with a fine which may extend to ten lakh Rs.
Section 451 provides for punishment for repeat offenders, which may be imposed if an offence has been committed within three years, then the person guilty shall be punished with twice the amount of fine for such offence and to any imprisonment provided for that offence.

The Securities and Exchange Board of India Act, 1992

The Securities and Exchange Board of India Act, 1992 provides the rules and regulations required by the board to avoid any circumstances which shall originate any irregularities among corporate fields.

Section 15A provides punishment for failure to furnish information, return, etc. with one lakh Rs. for each day during which such failure continues or one crore Rs., whichever is less.
Section 15B provides punishment for entering into any agreement with the client, with one lakh Rs. for each day during which such failure continues or one crore Rs., whichever is less.
Section 15G of the Act is a significant one because it provides for the punishment for insider trading with twenty-five crore Rs. or three times the amount of profits made out of insider trading, whichever is higher.

Conclusion

After scrutiny of the legal provisions bestowed by the parliament of India to its legal mechanism, it can be concluded that our corporate system lacks enforceability of laws and a strict rule of checks and balances, which is the primary reason for huge corporate frauds and a loss to the economy of the country.

The practice of corruption in the system is certainly a matter of grave concern, however, the unlawful and mala fide practice of corporate sectors can be eliminated if the safeguarding laws are more stringent and are equally enforced.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

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Comparative evaluation strategies in mergers and acquisitions : an analysis

By

Sneha Mahawar

-

November 14, 2021

0

M&A — Image source: https://rb.gy/mhcvnw

This article is written by Anushka Singhal, a student of Symbiosis Law School, Noida. This article tries to delve deeper into evaluation strategies in M&A and their significance.

Introduction

With an increase in technology and with a rise in globalization, the world has seen an increase in Mergers and Acquisitions (M&A). Corporate houses merge their companies with others or they tend to acquire a company to maximize their profits. M&A being an important decision for the company needs to be done after evaluating all the pros and cons. Thus, we need to have certain M&A evaluation strategies.

M&A under Indian laws

The term Mergers is not defined under the Income Tax Act,1961 (ITA) or the Companies Act 2013. Section 230-234 of the Companies Act 2013, deals with schemes of M&A between various companies. There are various methods of amalgamation and some of them are also given under the Income Tax Act. Section 2(42C) of the ITA defines slump sale as a “transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.” Companies opting for mergers should apply to the National Company Law Tribunal (NCLT) and when the application is approved, the company can go forward with the M&A deal. Along with the Companies Act, the securities law also governs mergers and acquisitions. The Securities and Exchange Board of India (SEBI) (Listing Regulations) 2015 has laid down conditions to be followed by a listed company while making an application before the NCLT, for approval of a merger or amalgamation. The Competition Act, 2002 ensures that the new mergers or acquisitions do not lead to anti-competitive agreements. Thus, while deciding which strategy to adopt when cracking an M&A deal, one also needs to abide by the above given Indian laws.

Accounting measures of performance: an overview

While going for mergers and acquisitions one needs to predict whether the M&A transaction would be beneficial or not for the company. The performance needs to be measured through appropriate accounting measures. Some of the important accounting measures of performance are-

Analysis of accretion/dilution and balance sheet impact

This test answers the question that will a particular M&A deal increase the post-transaction earnings per share or will it decrease the same. Post-transaction earnings per share are also known as post-forma earnings per share and are calculated by the formula- Pro-forma EPS= (Acquirer’s net income + Target’s Net income +/- Incremental Adjustments) / (Acquirer’s shares outstanding + new shares issued). If the pro-forma-EPS is higher than the original EPS, then you are in a good position to acquire/merge with the company. This increase is called accreditation and reflects that the performance after M&A will be beneficial for the acquiring company.

Analysis of synergies

Synergy allows for the enhanced cost efficiencies of the prospective business. The dictionary defines synergy as the interaction of two or more organizations to create a better effect. So, if the synergy is in favor of a company that is in favor of M&A, he should go forward with it. Synergies can take up various forms like-

Staff reductions
Economies of sale
By acquiring new technology
By improved market reaches and market shares.

Type of consideration offered (cash or stock) and its impact on results

Cash considerations are useful where the transactions take place through bidding. A bidder would be more likely to accept the cash instead of going with the stock. Otherwise, it depends from situation to situation which type of consideration will help you crack a good deal.

Goodwill and other balance sheet adjustments

A company with goodwill is always a good choice to go with. Acquiring or merging with a company that already has a name in a market will anyway boost the acquirer’s performance. The goodwill of a company can be calculated by the formula:

Goodwill = (Consideration paid + Fair value of noncontrolling interest) – (Assets acquired – Liabilities assumed)

Transaction costs

They are the sunk costs resulting from economic trade in a market. They include direct and indirect costs. In M&A deals these costs play a substantial role and thus should be kept in mind.

A look into the comparative evaluation strategies in Mergers and Acquisitions

A strategic move is always better than an unplanned one. While taking over a company or while merging it with another company, a comparative evaluation needs to be done. The target company must be evaluated keeping all the pros and cons in mind. Following are some strategies in mergers and acquisitions-

Taxation

In India an acquisition can be done in varied ways i.e. through merger, demerger, share purchase, slump sale, and asset sale. The Indian Income Tax Act, 1961 lays down provisions for different taxation for different types of mergers. One should analyze all the types and the taxes involved in them before opting for an M&A transaction.

Discounted cash flows (D.C.F)

Free cash flows are discounted at the expected rate of return to arrive at the present value of the economic benefits that are expected from the entity. Also, when combined with the present value of the terminal valuation, they help to ascertain the valuation of the target company. One must try to evaluate the sales and generation value of the targeted company for at least 5 years. The Free Cash Flow (FCF) technique is employed under this methodology and the free cash flow is calculated by the given formula-

FCF = NOPAT(net operating profit after tax) + Non-Cash Charges +/ – Changes in Working Capital – Capital Expenditure

Comparative company analysis

In this method, a comparative set of companies is formed, i.e., companies doing the same or similar work. These companies form a comparative set to the target companies. The most common valuation measures used in comparable company analysis are Enterprise Value to Sales (EV/S), Price to Earnings (P/E), Price to Book (P/B), and Price to Sales (P/S). Based on this one can find whether a company is overvalued or it is undervalued.

Company transaction

In this evaluation strategy, the cost of a merger is seen. It is much like the comparative company analysis, the difference is that in it, the details for the data are taken from recent transactions and acquisitions.

Net asset value

It is represented by the funds per share market value and is calculated by

Net Asset value per share= NAV/ Outstanding Share, where NAV = assets-liabilities.

Mergers and acquisitions strategies also differ according to uncertainty and controversy. Certain categories of situations can be formed forming pairs like-

There is no straight-jacket formula for evaluation. The heterogeneity in the evaluation methodologies across the firms arises due to the uncertainties and risk factors. Also, both socio-political scenarios and evaluation methods affect mergers and acquisitions.

Porter’s test

If M&A transactions are carried out keeping in mind the following points then they will have to create a shareholder value and pass the three tests given below-

The attractiveness test- The industry selected should be an attractive and growing industry.
The cost of entry test – The dilemma a company faces during acquisition is whether it should acquire an already successful company at a high price or it should buy a company that is poorly working and then turn it into a successful one by investing resources. It depends on the condition of the acquiring company whether it is financially well-off or not. If the acquiring company is well-off and has money in hand then it should go with acquiring an already successful company.
The better-off test- It says that together the two companies should perform better than an individual company.

S.W.O.T analysis

The strength, weaknesses, opportunities, and threats need to be identified. Both internal and external factors need to be considered while doing the S.W.O.T analysis. This analysis is quite subjective as two persons cannot have the same definition of strengths or weaknesses. While internal factors constitute our strengths and weaknesses, external factors include opportunities and threats.

Boston Consulting Group (BCG) matrix

In the BCG matrix, a company should delve into its business portfolio before venturing into any merger or acquisition. Firstly, a company should analyze its current position and secondly, it should think of future ideas to improve its business. There are two best portfolio planning methods- the Boston Consulting Group method and the General Electric Shell method.

In the first method, a BCG box is created and its strategic business units are classified into different groups. There can be four techniques to build a business strategic unit-

Build share
Hold
Harvest
Divest

A BCG box helps a company to classify its Business Support Units (BSUs) into two dimensions- on the horizontal axis (this tells about BSU strength in the market) and on the vertical axis (it provides for a measure of market attractiveness).

Due diligence

One must investigate and evaluate the assets that one is going to acquire. Early research needs to be conducted before acquiring a company. It has to be carried in a formulaic manner weighing all the pros and cons. One has to analyze well beforehand keeping in mind the time constraints and pressure and then acquire a company.

Targeting

One must not use a one size fits all approach while going for an M&A transaction. What might be successful in one country may not be successful in the other.

The role of strategies

The strategies help us to chalk out our plan of action. They are essential for a successful valuation. The comparative company analysis helps us to find an approximate value of the target company vis a vis other companies in the market. This method helps us to analyze and access data more efficiently. The data involved in comparative company analysis is sourced originally and is not based on any assumptions unlike the data sourced for direct cash flows. The discounted cash flow analysis helps in arriving at the expected changes that a company may go through during the best or worst scenarios. The changes in estimations can also be modeled and this type of valuation is very intrinsic. The comparative transaction method is said to be an easy-to-use and understand method. The source data is original here, coming from the recent market values, and thus has more authenticity. When used wisely, these strategies are likely to lead to a beneficial deal.

Scope for recommendation

One has to be prudent while selecting a target company. Apart from the above-mentioned techniques, one should keep some general things in mind.

Understanding your own business- Understand the work you do and the work that the target company is engaged in. Having the same or similar work is always an essential thing.
Know your culture- You should know about the culture at your firm. If the company that you are acquiring has a similar culture as yours, then it will be easier to adjust for your employees. Otherwise, disruptions might occur.
Knowing the expected benefit- Having a good idea about the benefits that you will acquire after the merger is always a plus point. Consider how you and your target company will make two plus two a four.
Money- Profits per Equity Partner (PEP) should be kept in mind. If your PEP does not match your partner’s PEP, i.e., it is either higher or lower than yours, then reconsider your decision of acquisitions and mergers. Also, a formulaic approach cannot be useful every time. One needs to see his condition, his surroundings, as well as the target company’s situation before acquiring a firm.

There are certain things to be kept in mind while opting for an M&A transaction. One should not blindly trust the target company. Steps must be taken to verify whether everything is alright or not. The due diligence strategy is made for the same and one must employ this strategy while going for an acquisition. One can go for an onsite visit and see the target company himself before taking this crucial decision. Following the above recommendations will help a company in cracking a beneficial Merger and Acquisition deal.

Lessons from some failed M&A deals in the international market

Pfizer and Allergen-The M&A transaction of both these countries could have led to the biggest takeover in the past 15 years but the deal failed. The reason for the same was tax regulation. If they would have known about the new regulations coming up and have forecasted the same with the help of professionals, the situation might have been better.
Kraft Heinz and Unilever– The reason for the failure of this deal was a lack of communication and due diligence. One must try to match and cover the cultural gap to materialize the deal efficiently.
Ant-Financial and MoneyGram– The failure of this deal alerts one about the geopolitical effects on M&A transactions. Country restrictions, relations with the country of the target company, national issues, etc. must be kept in mind while strategizing an M&A transaction.

Conclusion

M&A transactions have evolved as a popular concept. Acquisitions have become an important way for a company to progress. Therefore, before making this huge decision of acquiring a company, the acquirer must weigh all the things. The above-given strategies act as an apt method to guide the acquirer while going for a merger or acquisition.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Lebanon human rights violation – economic crisis and political deadlock

By

Sneha Mahawar

-

November 14, 2021

0

Lebanon — Image Source: https://rb.gy/b4fgzh

This article is written by Shruti Yadav, from Jagran Lakecity, Bhopal. This article talks about the ongoing crisis and human rights violations in Lebanon.

Table of Contents

Introduction

Lebanon is a parliamentary republic in which the President is a Maronite Christian, the speaker of the Chamber of Deputies (parliament) is a Shia, and the Prime Minister is a Sunni. Officially, the law recognises 18 religious groups or confessions. Lebanon is experiencing an unprecedented humanitarian crisis that is driving the country into poverty and compromising population well-being, economic progress, social welfare, and national and regional stability. Lebanon has been facing a capricious political structure and unstable government since 2014. Due to the political impasse, there have been no proper economic reforms, plunging the country and its people into a grave economic crisis. The looming pandemic and the disastrous explosion on 4 August, 2020, the Port of Beirut, which killed more than 200 people while injuring more than 6,500 others, did nothing but aggravate the country’s already worsening situation. The economic plight worsened, with unemployment surging exponentially and the United Nations asserting that more than 55% of the population lived in poverty, approximately double the preceding year’s rate. The degrading state of the economy and the political scenario in the country has increased human rights violations. Government officials held a measure of exemption for human rights abuses, including eluding or manipulating judicial processes. The country suffers from perpetual corruption; therefore, there has been no improvement in the treatment of its citizens or amelioration of human rights conditions. In this article, the author shall be discussing the political imbalance in Lebanon that has led to an economic crisis.

The economic crisis in Lebanon

Lebanon is undergoing a severe and prolonged economic depression. In the light of colossal challenges, continuous policy inaction and the lack of a fully functioning executive authority imperil the already dire socio-economic conditions of the country and a frail social standing. Lebanon has been enduring intensified challenges over a year or two: with its most major financial, economic and peacetime crisis due to COVID-19 and the explosion in the Port of Beirut. Policy responses by Lebanon’s administration to these hurdles have been highly incompetent. The inadequacy is more trivial due to knowledge clefts and quality guidance and a lack of political consensus over competent policy initiatives. The political consensus in denial of a bankrupt economic system benefited a few for so long. In hindsight, Lebanon’s economic crisis was foreseen. The economy was facing several predicaments.

First, the public sector deficit had reached such elevated levels that a default had become a question of when not if.
Second, having lent three-quarters of deposits to the government, the banking sector had become functionally insolvent and increasingly illiquid.
Third, the prolific economy had recorded no growth for an extended period of time due to significant socio-political issues. As the Lebanese pound depreciates, the price of essential goods, most imported, is rapidly increasing, eroding people’s ability to afford food, shelter, and healthcare. The COVID-19 pandemic compounded the poverty and economic hardship many-faced and disproportionately affected marginalized groups, including low-income families, people with disabilities, migrants, refugees, and lesbian, gay, bisexual, and transgender (LGBTQ) people. The government did not develop a timely, robust, or coordinated plan to help.
Finally, and probably most crucially, the country was in the midst of a political deadlock. Between 2014 and 2016, no President was in office. The creation of the cabinet was delayed several times, and the 2018 legislative elections were held only after a five-year wait. The Hariri government in place when the crisis hit in 2019 became inept to such an extent that it lacked the power to deliver on any of the reforms essential as a prerequisite for foreign support. With a history of continued civil war and multiple conflicts — Lebanon is identified as a Fragility, Conflict & Violence (FCV) State owing to the capricious socio-political turmoil. The socio-economic conditions were frequently put at risk of systemic failings at a national level, with effects resonating globally. In 2020, while GDP per capita fell by around 40 per cent in dollar terms, monetary and financial circumstances remained highly volatile; within the context of a multiple exchange rate system, such a severe contraction is usually a result of constant conflicts or wars.

The perpetual crisis has resulted in surging inflation. On the one hand, the spread of COVID-19 and the doom of a pandemic forced anti-government protesters off the streets. However, on the other, it worsened the economy and highlighted the inadequacy of Lebanon’s social welfare system.

Many businesses unwillingly fired numerous employees or put them on furlough without pay; the gap between the Lebanese pound’s value on the official and black-market exchange rates stretched, and banks tightened capital controls. Growing economic hardship triggered fresh unrest. The government, meanwhile, finally signed a recovery plan that it anticipated would end the economic crisis by expecting the International Monetary Fund (IMF) would harbour support for a bailout by loaning a lump sum amount.

The perpetual political deadlock in the country

Lebanon’s recent past is marred by violent incidents at the hands of both domestic and international powers, which have damaged the population’s psyche and resulted in profound sectarian divides as well as a corrupt, exploitative sectarian political environment. The Lebanese civil war, which lasted from 1975 until 1990, claimed the lives of up to 150,000 people, leftover 100,000 people badly injured and displaced up to two-thirds of the country’s population. The 1982 Israeli invasion of Lebanon and the 2006 Israeli assault on Lebanon resulted in the deaths of nearly 17,000 and 1,109 persons, mostly civilians, and the damage of vital infrastructures, respectively. Since 1976, Syria has had a significant influence in Lebanon. Explosions and assassinations followed the murder of former Prime Minister Rafik Hariri in 2005; since then, ongoing political unrest has continued to compound instability. Lebanon has been embroiled, since late 2019, in a deep economic and financial crisis, intensified by a political deadlock that escalated when Prime Minister-designate Saad Hariri stepped down. The history that led to the political instability in Lebanon is as follows:

A combination of subsequent mass demonstrations and international pressure forced Syria to withdraw troops from Lebanon. Lebanon enters a new era free of Syrian domination. Hezbollah, an Iran-backed group, enters government for the first time.
May 21, 2008, after mediation, rival leaders sign a deal in Qatar to end 18 months of political conflict. Parliament elects Michel Suleiman, the army chief, as President.
In January 2011, Saad al-Hariri’s first government was toppled when Hezbollah and its allies quit because of tensions over the U.N.-backed Special Tribunal for Lebanon.
Then in 2019, Hariri quit on October 29, against the wishes of Hezbollah. Lebanon is left rudderless as the crisis deepens. A hard-currency liquidity crunch leads banks to impose tight curbs on cash withdrawals and transfers abroad.
Then in 2020, After two months of talks to form a new, Hariri-led coalition government hit a dead end, Hezbollah and its allies backed Hassan Diab, a little-known academic and former education minister, for Prime Minister.
March 7, 2020, Diab announces that Lebanon cannot repay a maturing bond and calls for negotiations to restructure its debt.

After three nights of violent clashes in Tripoli, it was made clear by the then Prime Minister Hassan Diab, that Lebanon will seek to request aid from the International Monetary Fund following the government’s approval of a proposal to recover the economy.
However, negotiations with the IMF quickly go off the rails. A massive explosion on August 4, 2020, in Beirut’s seaport, caused by the authorities’ corruption, incompetence, and negligence, killed more than 200 people, injured more than 6,000, and left 300,000 without shelter. The blast reduced entire neighbourhoods to rubble, decimated Beirut’s trade and commercial centre, and destroyed half of the restaurants and bars in the greater Beirut area, a vital part of the economy. However, the internal investigation into the causes of the blast is not independent, transparent, or credible.
Mustapha Adib, a diplomat, is named Lebanon’s new Prime Minister, vowing to make reforms and a deal with the IMF. Nevertheless, Adib bows out after less than a month.
Hariri, already Prime Minister three times, was named on October 22, 2020.
Later that month, protesters tried to assault central bank offices in the northern city of Tripoli and Sidon in the south after the national currency fell to a new record low on the black market.
Days later, the government hikes fuel prices by more than 30 per cent as it reduces subsidies and customers queue for short supplies at service stations. Lebanon’s medicine importers say they have run out of critical drugs and warn of more shortages.
After nine months of horse-trading, Hariri stepped down on July 15, 2021, saying he could not establish a government.
Then billionaire businessman Najib Mikati was appointed as Lebanon’s new Prime Minister-designate following binding parliamentary consultations with President Michel Aoun.
Mikati ran virtually unopposed, receiving 72 votes, with former ambassador Nawaf Salam receiving just one vote.

The lack of political will for amelioration is currently at its highest levels. Depreciation of the Lebanese Pound and the political deadlock coincided. Along with the international community, many experts continue to exert importance on implementing reforms across the public sector, including in the power sector, the port. However, the lack of political will is the leading cause of no steps towards reform, reflecting a dysfunctional political system that has not overcome perpetual political deadlocks. Lebanon’s political system had prevailed slightly since the end of the civil war, as the country kept facing one crisis after another

The political deadlock and economic degradation leading to a humanitarian crisis

Lebanon has been continuously enduring multiple crises, including a massive explosion in Beirut’s port, an economic collapse, rising political instability, and the COVID-19 global pandemic, all of which endangered residents’ fundamental rights. The Lebanese political order neglected to competently address any of these crises, some of which were of their own making. For many people in Lebanon, whether Lebanese, refugees or migrant workers, the prevailing economic disaster and the deteriorating living circumstances come on top of traumatic events and stressful experiences they have already had to face, such as conflict or displacement.

These constant stress factors have contributed to disrupting people’s psychological well-being. Many patients who request MSF mental health services in Lebanon show emotional distress, depression, anxiety and hopelessness. All of this together has contributed to a massive humanitarian crisis and violations of human rights in Lebanon.

The economic crisis and the COVID-19 pandemic severely affected the medical sector, endangering the ability of hospitals to provide life-saving care. The government’s failure to reimburse hospitals the funds it owes them has thrown Lebanon’s healthcare sector into crisis, compromising its ability to respond to the COVID-19 pandemic.

According to the UN, over half of Lebanon’s population lives in poverty, nearly double the number from the previous year. Approximately 89 percent of Syrian refugees in the nation are reported to be living in severe poverty. A growing number of Lebanese people have been knocking on MSF clinics’ doors over the past year, unable to cover their medical fees anymore – particularly in remote areas. Patients have reported they are struggling to access essential food items, such as meat, chicken and even some vegetables, due to financial issues, which have become a daily reality.

Anti-government protests, which began on October 17, 2019, against the political establishment’s corruption and incompetence, continued in 2020. Excessive and deadly force was deployed by security forces, including the army, anti-riot police, and legislative police, against predominantly peaceful protestors. The Lebanese Armed Forces (LAF) unjustifiably used excessive force against protesters in Tripoli on April 27, 2020, killing one protester and injuring scores more. Tens of thousands of protesters gathered in downtown Beirut on August 8, 2020, to express their outrage over the Beirut blast and demand accountability. Security forces fired live ammunition, metal pellets, and kinetic impact projectiles such as rubber balls, including health workers, and police deployed excessive quantities of tear gas, including at first aid stations. Several teargas cartridges were fired directly at protesters, striking some in the head and neck. Security forces also threw stones at protesters and beat them: 728 people were injured.
Attacks on free speech escalated in the wake of the October 17, 2019, nationwide protests, and authorities continued to utilise Lebanon’s criminal defamation laws to arrest and prosecute people for speaking out against government representatives, mainly regarding corruption charges.
Women proceed to suffer prejudice under 15 distinct religion-based personal status laws. Discrimination includes inequality in access to divorce, child custody, and inheritance and property rights. Unlike men, Lebanese women also cannot pass on their nationality to foreign husbands and children. Lebanon has no minimum age for marriage, and some religious courts allow girls younger than 15 to marry.
An estimated 250,000 migrant domestic workers, primarily from Ethiopia, the Philippines, Bangladesh, and Sri Lanka, are excluded from Lebanon’s labour law protections. The restrictive kafala (sponsorship) system regulates their status in the country, which ties migrant workers’ legal residency to their employer. The kafala system gives employers excessive control over workers’ lives, leading to an array of abuses, including non-payment of wages, forced confinement, excessive working hours, and verbal, physical, and sexual abuse. During the economic recession, several employers left their employees unpaid or returned airline tickets to their home countries in front of consulates and embassies. After the Beirut bombing, workers said they were discriminated against when it came to getting help.
Nearly one million Syrian refugees are registered with Lebanon’s United Nations High Commissioner for Refugees (UNHCR). Lebanon’s residency policy for refugees makes it difficult for Syrians to maintain legal status, heightening risks of exploitation and abuse and restricting refugees’ access to work, education, and healthcare. Seventy-eight percent of Syrians in Lebanon now lack legal residency and risk detention and deportation for unlawful presence in the country.
Lebanon is experiencing an unprecedented humanitarian crisis, the consequences of which would be felt for years. Children are among the most vulnerable parties affected. Even before the Beirut blast, which left at least 183 schools damaged and is estimated to have affected access to learning and education support for children and youth, there were reports that numerous schools would close due to the economic crisis. Many children had been removed from schools due to economic misfortune. Since October 2019, rising child labour rates have been recorded, with a rise in the number of children identified as the sole breadwinners in their homes.
Child marriage is apparently on the rise in Lebanon, especially among Syrian refugee girls, to relieve financial strains on families.
In Lebanon, children’s physical and mental health issues are expected to continue to rise. Refugees and vulnerable children face different and distinct psychosocial issues, such as a fear of violence and being targeted by the Lebanese government and neighbouring communities, particularly among Syrian refugee boys.

Conclusion

Lebanon is facing an existential crisis. The best-case scenario is that the country reforms through with available foreign financial support that aids in ending the financial crisis and bringing the economy forward. Efforts should be made so that the 2022 parliamentary elections are held on time, putting an end to the political impasse with a leadership that will take the country to the level of prosperity that it deserves. The Lebanese government must uphold its international treaty commitments, particularly the prohibition on deporting or coercively returning those who are in danger of torture. This means promptly halting arbitrary deportations of Syrians from Lebanon to Syria and enacting measures that ensure Syrian refugees in Lebanon receive the appropriate protection. It should also provide deportation victims with the opportunity to challenge deportation orders issued against them to competent Lebanese legal tribunals, and overturn the decision to deport Syrians who entered Lebanon through unofficial crossing points. The citizens of the country, who bear the brunt of the crisis, are in dire need of some reforms that protect their human rights and alleviate their living conditions. International efforts, led by France, focus on pushing Lebanon to curb corruption and implement reforms. In order to restart delayed discussions with the International Monetary Fund, Lebanon must create a new government. However, politicians, bankers and the residents need to agree on the losses and reforms needed so that the country can stop living beyond its means.

References

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Statutory provisions of the corporate insolvency resolution process

By

Oishika Banerji

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November 14, 2021

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This article has been written by Jinal Prajapat pursuing the Introductory Course: Legal Writing For Blogging, Paid Internships, Knowledge Management, Research and Editing Jobs from LawSikho. This article has been edited by Aatima Bhatia (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).

Table of Contents

Introduction

The existing set of laws and forums in India venot been able to aid various lenders in inefficacious recovery/restructuring of debts. This also has a serious effect of causing undue stress upon the existing Financial and Credit System of the country. As a result of this, the International Bankruptcy Code (IBC) was created to help lenders recover and restructure their debts more effectively. Creating a single legislation for insolvency and bankruptcy is the goal of India’s Insolvency and Bankruptcy Code 2016. With the enforcement of IBC, the winding-up procedure is now under the supervision of the National Company Law Tribunal (NCLT), which ensures quick and prompt action during early stages of debt default by a firm, thereby resulting in an optimum recovery rate.

What is insolvency?

Insolvency is the procedure of financial death and rebirth. A company or individual is declared insolvent if it is unable to pay its debts and if its liabilities exceed its assets. An inability to pay one’s bills is known as insolvency. The insolvency of a person or a company can be caused by a variety of circumstances. Inadequate accounting or human resources management hired by a firm, increased vendor expenses, litigation brought by customers or business partners may lead to insolvency. Customers’ requirements change over time, this can lead to the demise of certain companies. Customers’ requirements change over time, which can lead to the end of certain companies. Informal arrangements with creditors are common before a company or individual becomes involved in insolvency proceedings, such as putting up alternative payment arrangements.

However, being insolvent doesn’t necessarily mean the inevitable end of the company, there are options for business debt restructuring, company rescue, and business turnaround. Insolvency practitioners have a heavy focus on restoring a company rather than liquidating it so that it can continue. Insolvency proceedings are designed to maximize the return on the company’s creditors’ investments.

The firm can be resurrected by finding a new buyer to sell it, as a going concern and raising fresh funds. This is done through the Corporate Insolvency Resolution Process. Another individual may propose a resolution plan to take over the company and pay out the remaining obligations, thus settling the remaining debt. The CIRP procedure is regarded to have failed if a resolution plan is not filed or accepted by the committee of creditors (COC). The liquidation process would subsequently begin, as ordered by the tribunal, in such a case.

Corporate Insolvency Resolution Process (CIRP)

According to the Code, a company’s insolvency is resolved through CIRP. Insolvency resolution and liquidation for corporate persons is addressed under Part II of IBC, 2016. At least one crore rupee in default is required to trigger application, according to IBC Section 4. The Central Government has the authority to enhance this sum up to a maximum of Rs. 1 crore. In CIRP, the financial creditors assess the viability of the debtor’s business and the options for its revival and rehabilitation. The debtor’s business goes through a liquidation process if the corporate insolvency resolution procedure fails or if the financial creditors conclude that the debtor’s firm cannot be operated profitably and should be wound up.

Persons who may initiate corporate insolvency resolution process

CIRP may be initiated by a financial creditor, an operational creditor, or a corporate applicant of the corporate debtor in the event of any default by the corporate debtor.

A financial creditor is defined in Section 5(7) as any person who owes a financial debt, including any person who has been legally assigned or transferred the debt, while an “operational creditor” is defined in Section 5(20) as any person who owes an operational debt. Both these expressions include persons to whom such debts have been legally assigned or transferred.

The Code offers a simple test to begin the resolution process for corporate insolvency. An insolvency resolution procedure is triggered by the Code’s use of a default-based test. When a company displays early symptoms of a financial crisis, an insolvency resolution method that is based on a default test allows for early intervention. A prompt settlement of insolvency can only be achieved if early signs of financial distress are detected.

Once a corporate debtor default on a debt, the Insolvency and Bankruptcy Code, 2016 allows both the corporate debtor and its operational creditors to commence the insolvency resolution procedure. Unsecured creditors can now initiate insolvency resolution processes, which aligns the legislation with worldwide standards. This includes all operational creditors such as employees, suppliers, and other third parties.

Initiation of CIRP by financial creditor

The process laid forth in Section 7 is for a financial creditor to initiate the process of corporate insolvency resolution. It is possible for a financial creditor to make an application with the National Company Law Tribunal on behalf of a financial creditor, either alone or along with other financial creditors or any other person on behalf of a financial creditor, as may be notified by the Central Government.

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, revised Section 7 of the Code. Financial creditors were previously the only ones who could apply for initiating corporate insolvency resolution against a corporate debtor, but since the Second Amendment Act, any financial creditor or any other person on behalf of the financial creditor may now apply for initiating the process.

When a financial creditor of the corporate debtor defaults on a financial debt owing not only to the applicant but to any other financial creditor of the corporate debtor, it is considered a default. Financial creditors can thus apply for corporate insolvency resolution even if the default is about the debt of another financial creditor

Furnishing of information by the financial creditor

The financial creditor shall, along with the application for initiating the corporate insolvency resolution process, furnish a proof of default and the name of a resolution professional proposed to act as the interim resolution professional in respect of the corporate debtor. Proof of default is required to prevent financial creditors from filing frivolous or petitions that prematurely place the corporate debtor in insolvency resolution procedures for unrelated reasons.

The time frame for ascertaining the existence of default

NCLT must determine whether a financial creditor is in arrears within fourteen days of receiving the application.

Admission of application

If NCLT is convinced that the default exists, the application is complete and that no disciplinary procedures are underway against the suggested resolution professional, the application shall be admitted. It is not required to look into any other criteria for admission of the application.

Rejection of application

As long as it is determined that the suggested resolution professional has not committed a breach of contract, or that the application is unsatisfactory in some way, the NCLT can reject an application. Before rejecting the application NCLT, shall give notice to the applicant to rectify the defect in the application within seven days of receipt of such notice from the National Company Law Tribunal.

Commencement of corporate insolvency resolution process

A corporate insolvency resolution procedure begins on the date of admission of the application.

Communication of Order

NCLT shall communicate, within seven days of admission or rejection of such application, as the case may be to the financial creditor and the corporate debtor where the application is accepted, or to the financial creditor where the application is rejected.

What happens once the National Company Law Tribunal (NCLT) admits the application against defaulting debtors?

The NCLT will appoint an Interim Resolution Professional (IRP) to handle the defaulting debtor as soon as the case is accepted by the NCLT. The Committee of Creditors has the option of keeping or terminating the Resolution Professional at this point. To the extent practicable, the Resolution Professional’s job is to guarantee that the defaulting debtor continues to function as a going concern. It is the goal of the CIRP to maximize the amount of money owed to creditors.

Who will manage the corporate debtor and board of directors after admission of CIRP?

The corporate debtor’s issues will be handled by the interim resolution expert once he is appointed. After then, it will be under the control of the resolution professional, who will be appointed as soon as possible. Once an interim resolution expert has been appointed, the powers of the corporate debtor’s board of directors or its partners, if applicable, should be suspended. The interim resolution professional or the resolution professional, as the case may be, will have these powers.

Time-limit for completion of insolvency resolution process

Resolution professionals are required to make an application to the NCLT for an extension of the corporate insolvency resolution process if they are ordered to do so by a vote of 66% of the voting shares at a meeting of the committee of creditors. Section 12 of the Code has been revised by the IBC (Second Amendment) Act, 2018 to reduce the voting threshold from 75% to 66% for the committee of creditors’ extension of the corporate insolvency resolution procedure term. Section 12 sets a 180-day deadline for the completion of the corporate insolvency resolution procedure, which can be extended for an additional 90 days. Only the resolution professional can apply for the extension, and it must be approved by a majority of 66% of the voting shares at a meeting of the committee of creditors. This section does not allow for more than one extension of the corporate bankruptcy resolution process. Commercially unviable corporate debtors will not be retained in the resolution process for extended periods and will be liquidated based on the financial creditors’ choice at the earliest opportunity, thanks to a well-defined time limit For creditors and other stakeholders, the time restriction would not only lower the expense of a long-drawn-out operation but also eliminate any decline in the value of the corporate debtor’s firm. As a result, it would be easier for business owners to get out of failing operations quickly.

Withdrawal of application admitted under Section 7, 9 or 10

By the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018, a new section, Section 12A, was added. According to this, Adjudicating Authority may enable the withdrawal of an application allowed under section 7, section 9, or section 10, if the application is filed by the applicant with the permission of the committee of creditors, in such way as may be defined, under the new section 12A.

Conclusion

The goal of the IBC Law was to make conducting business in India significantly easier. The winding-up procedure for corporations has been streamlined by this law, which was previously fragmented owing to a multitude of regulations and forums. Through the Corporate Insolvency Resolution Process or liquidation of the defaulting debtor firm, creditors are empowered to recoup their losses under this legislation.

References

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Section 66A of the Information Technology Act : police turns a Nelson’s eye

By

Diganth Raj Sehgal

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November 14, 2021

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China’s-Personal-Information-Protection-Law-Privacy-Compliance-IT-Perspective (1) — Image Source: https://rb.gy/c8fun6

This article is written by Aastha Verma, pursuing B.A L.L.B from Kalinga University, Raipur, Chhattisgarh. The article describes Section 66A of the IT Act and how police have arrested people even after Section 66A was held unconstitutional.

Table of Contents

Introduction

Section 66A of the Information Technology Act, 2000 provides punishment for sending offensive messages through communication devices. These messages may be any information created, transmitted, or received on the computer system or device including attachments in form of texts, images, audio, or any other electronic record which may be transmitted with the messages. Freedom of speech and expression is one of the most important fundamental rights guaranteed under Article 19 of the Indian Constitution. The Supreme Court of India has given the importance of freedom of speech and expression in its judgment given in the case of Shreya Singhal v. Union of India (2015). The gap between the court’s judgment and Section 66A is explained by a political climate in which free speech, dissent, and legitimate criticism are seen to be exercised in bad faith.

Overview of Section 66A of IT Act, 2000

The Information Technology Act, 2000 was enacted with a view to give legal recognition to electronic records and to prevent cybercrimes, and ensure security practices. Due to the recent increase in cybercrime, concerns of data security have assumed greater importance. Therefore, the Information Technology (Amendment) Act, 2008 was passed and has been made effective from 27th October 2009. A review of the amendment indicates that there are several provisions relating to data protection and privacy to curb terrorism using an electronic and digital medium that has been introduced in the Amendment Act.

Section 66A of the Information Technology Act, 2000 was also inserted through the amendment made in 2008 which has changed the Act to regulate the various type of internet crimes including the sending of offensive messages through the internet, digital communication, video voyeurism, leakage of confidential data, cyber terrorism, etc. This Section empowers police to make arrests in terms of their subjective discretion but it could become offensive for the purpose of causing annoyance, inconvenience, etc.

So, basically, Section 66A of the Act provides a provision prescribing punishment. Whoever commits the crime shall be liable for imprisonment for a term that may extend to three years and with a fine. The explanation provides the definition of the term electronic mail and electronic mail message means a message or information created or transmitted on a computer including attachment in text, image, etc. but the provision does not define any term which is used in provisions for creating crimes.

Retrospective analysis of Section 66A

Section 66A of the Act was created to regulate a group of offenses but unfortunately, this Section restricts freedom of speech and expression on the eight grounds. They are the security of the State, public order, decency, morality, speech in relation to contempt of court, defamation, incitement to offense, and friendly relation with foreign states. After the internet was made available for expressing personal views, the right to speech and expression has received a tremendous level of understanding from the judiciary as well as the legislature. The right to speech and expression on the internet extends to expressing one’s own opinion through emails and messages. In the case of Manubhai Shah v. Life insurance Corp of India (1980), the court held that the right to speech and expression on the internet also includes the right to reply and includes the right to reply to criticism within the limits enshrined under Article 19(1) of the Indian Constitution. The introduction of the Information Technology Act, 2000 prohibited the publishing, transmitting, or causing for publishing any information which is obscene. With the introduction of the Amended Act in 2008, the scope of the provisions was extended and restrictions and punishment are given under the Section. Section 66A was framed to include all sorts of speeches that may be brought within the purview of law from time to time depending upon the situation. Because of this reason, the Supreme Court of India declared Section 66A unconstitutional, which has been discussed later in the article.

Is Section 66A really needed

Cyberstalking has been recognized under Section 354 of the Indian Penal Code, 1860. Though this section is gender-biased, men or people from the LGBTQ community can avail the protection under Section 507 of the IPC depending upon the nature of the offense. Though Section 66A is gender-neutral and covers anti-stalking laws, the usage of speech and communication for hacking is not explicitly mentioned in any of the provisions. The police authority is taking advantage of this and is arresting people without giving any specific reason which is contrary to Articles 19 and 21 of the Indian Constitution.

Landmark judgment

In the case of Shreya Singhal v. Union of India (2015), the petitioner contended that Section 66A of IT Act, 2000 provides a provision that does not define certain terms and is prone to be subjected to extreme vagueness in defining what constitutes annoying speech. This Section has also given vast power in the hands of police to enjoy their freedom of speech without laying down specific reasons.

In this landmark judgment, the court observed that provision under Section 66A of the Act is vague and violated the freedom of speech and expression under Article 19(1) of the Indian Constitution. Also, it was not protected by Article 19(2) that empowers the State to impose reasonable restrictions on freedom of speech and expression. The court held that Section 66A is capable of limiting all forms of internet communication as it makes no distinction between mere discussion or advocacy of a particular point of view which leads to a causal connection with public disorder and the security of the State. By concluding the case the Supreme Court declared Section 66A of the Act as unconstitutional.

The Shreya Singhal judgment was highly appreciated as it corrects a major fault in the Information Technology law which regulates people’s activity on the internet. The Supreme Court’s decision has given relief to thousands of internet users who considered it as a major victory to exercise their fundamental right of freedom of speech and expression. It mitigates the problem of unwarranted arrest by the police due to political pressure and also facilitates a fearless communication of ideas on internet platforms. In this case, the Supreme Court performed the role of guardian to protect the fundamental rights of the citizens.

Parliament cannot enact any law which is against the Constitution and if any Act is against the Constitution then the court can examine its validity and declare it unconstitutional if it is violating the fundamental rights of the citizens. This power is given to the Supreme Court and High Courts to strengthen the rule of law in the country.

After-effects of the judgment

Section 66A of the Information Technology Act, 2000 was declared unconstitutional in 2015. It has been many years since this Section was struck down by the Supreme court but police are still arresting people under this provision. Yet this draconian piece of dead law has had an astonishing afterlife in police stations across the country, leading to persecution of several citizens for online posts. In the present era when the information reaches within a second, the Indian police still seem to behave with no information that Section 66A is illegal and they are arresting people under the non-existing Section. Some of the cases are below –

In March 2017, an 18-year-old boy named Zakir Ali Tyagi from Muzaffarpur, Uttar Pradesh was arrested under Section 66A of the Act for posting a comment on UP Chief Minister Yogi Adityanath.
A chemistry professor of Jadavpur University was arrested under Section 66A of the Act in 2012. The trial is still going on and charges under all other provisions are dropped out.
In October 2018, Veeramreddy was arrested under Section 66A of the Act in Andhra Pradesh.
In May 2019, BJP worker Priyanka Sharma was arrested and remanded to judicial custody. Section 66A of the Act was also imposed on her with certain other charges. The Supreme Court intervened in the matter and ensured her immediate release.
Recently, the Supreme Court expressed displeasure when the Public Union of Civil Liberties (PUCL) informed it through Public Interest Litigation (PIL) that the police were still registering cases under Section 66A of the IT Act. The Petitioner said that several people are facing trial in different district courts. The Supreme Court issued a notice to the government and asked to reply. The center has written to state governments asking them to pass on the memo to the police force and withdraw all cases that have been filed under Section 66A of the Act. The police have arrested several people even after it was scrapped. This is an open insult to the authority of the Supreme Court. As per Article 141 of the Constitution, the government is bound to implement the decision of the court. The government should bring the judgment given by the Supreme Court to the knowledge of all law enforcement agencies that deal with the IT Act so that people don’t suffer. The Supreme Court has directed all states to publicize the Shreya Singhal judgment. Despite the direction given by the Apex Court no effective action has been taken to implement the judgment of the court by the police. States need to spread information among all police officers and notify them about the contempt proceedings if they disobey the rule of law.

Disturbed by the rampant and continued use of struck-down provision by police authorities, the Supreme Court directed to send the officials to jail and ordered them to send a copy of the judgment to all the district courts. This matter is of serious concern that no official communication is issued by the central government and circulated to all the police stations within the country, because of which the citizens of India are facing problems and their fundamental rights are being violated.

The measures that need to be adopted

The Ministry of Home Affairs must issue necessary advisories with immediate effect to all states/ UTs and give them to all the police stations.
Publicity of advisory should be done so that the public at large will be able to know about the steps taken by the government.
Special actions should be taken against the police personnel and the same should be publicized so that other police officers will be aware of the same.
Both central and state governments should take all the necessary steps to ensure that the public at large should be aware of their fundamental rights.

Conclusion

Section 66A was introduced with a view of protecting the rights of the citizens, but this Section has given vast power to the police authority and proved to be vague by the Supreme Court. The government can easily circulate the notice in all police stations if they are serious about following the rule of law. There is an urgent need to circulate the judgment of the Court to the police and all other law enforcement agencies to keep them updated with the changes in penal provisions. Police officers need periodical legal training which will help them to be updated with the legal knowledge and be made sensitive about human rights and dignity. The courts have to lay down some guidelines to police about the court’s ruling and law. The pending criminal cases under Section 66A of the Act should be quashed and some reasonable compensation shall be given to the aggrieved person. Also, courts, as well as Parliament, should think to enact better laws from the positive aspect of Section 66A. The aim of justice may be achieved when the effect of laws is tested from all aspects. The words which are not specifically explained in Section 66A should clear their meaning and with the positive effect, India can have a better provision for preventing misuse of freedom of speech and expression.

References

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Common errors to avoid while drafting a PaaS Agreement

By

Abanti Bose

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November 14, 2021

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This article is written by Atchaya J, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

Rapid technological developments have given birth to advanced software. But the development that has occurred in accessing these softwares is even more remarkable. Recent years have witnessed the evolution of new categories of business models – Software as a Service (SaaS), Platform as a Service (Paas) and Infrastructure as a Service (“IaaS). Let us understand how these differ from software licensing and their legal considerations.

What is a PaaS agreement?

Platform as a Service (“PaaS”), in layman’s terms, is a cloud platform (inclusive of hardware, software and infrastructure) provided by a cloud service provider for developers to develop, run and manage applications. Developers can easily do all this without incurring the cost, complexity, or inflexibility of building and maintaining an on-premise platform. The PaaS provider hosts everything, and the customer pays a fixed fee or subscription fee (subscription model) for the resources they use and the number of users. Servers, networks, storage, operating system software, databases, development tools- all of these remain a responsibility of the PaaS provider and are hosted at their data centre. Amazon Web Services (AWS), Google Cloud, IBM Cloud and Microsoft Azure are some of the globally leading cloud service providers.

A PaaS agreement binds a vendor (the cloud service provider) and buyer (the customer/client/subscriber who accesses the cloud platform) in pursuance of the PaaS agreement. The objective of a PaaS Agreement is to govern the customer’s right to access and use the PaaS application for a definite period of time. Since every PaaS application and customer is different, there cannot be a straight jacket drafting strategy for the PaaS agreement. Currently, there is no specific regulation for cloud computing in India. Also, no license is required to provide cloud services. A locally incorporated cloud service provider must comply with the general corporate laws, tax laws, labour laws, data privacy laws, etc.

Difference between PaaS Agreement and a licensing agreement

The single most common issue in a software agreement is the confusion between a licensing agreement and a Saas, Paas or IaaS agreement. Most of the time, the clients themselves are unaware of which model they are working under, or which model to opt for. In a software licensing model, the software is physically delivered to the client to be downloaded, installed, run and operated on on-premise hardware. The software itself is delivered as a tangible product. Whereas in the PaaS model, there is no physical delivery. As discussed, the platform offered as a service is accessible through the cloud and all the hosting is done by the cloud service provider through their data centres.

Lack of awareness gives rise to contractual issues more often. It is not uncommon to see a company offering SaaS, PaaS or IaaS and have a software licensing model instead. Since these two models are very distinct, their clauses from maintenance to data security, payment to termination differ in all aspects. It is critical for both client and their legal team to understand all the related aspects before entering into a software agreement.

Growing relevance of PaaS

Paas comes with its own pros and cons, which plays a vital role for lawyers to keep in mind while drafting a Paas agreement. As discussed, the PaaS Agreement differs from a license agreement and any template form may not suit the needs of the vendor. Hence, it is critical that the vendor gets an IT Asset Management study report from the customer and discusses it with the legal team before finalizing an agreement.

It is the responsibility of the legal professional to understand the technical as well as the financial aspects of the deal to come up with the best negotiation. Technically, PaaS is growing in relevance despite having some cons of its own. PaaS is fast and easy to get an application up and running. It is also easy to create and delete resources in PaaS, so you can use it for specific events without paying for the whole month.

Cost-wise, it is beneficial to use PaaS as: (a) there is no need to pay for a full-time system or IT admin; and (b) developers can use plenty of DevOps tools or collaborative tools or use API(Application Programming Interface) marketplace service plugins easily. On the other hand, there is a lack of control with PaaS. Unless the PaaS in question is an open-source code, it is difficult to migrate it to another cloud. In addition to this vendor lock-in, security is a critical issue with PaaS. Vendors claiming to have the most robust defences against viruses, malware or denial of service attacks are mostly lying. The best practice is to undertake due diligence and find out the vendor’s disaster recovery architecture and time objectives. In light of these technicalities, let us see how drafters can avoid a few common errors committed while drafting a PaaS Agreement.

Common errors to avoid while drafting a PaaS

Ambiguous agreement terms

An effective PaaS agreement should contain the key elements and address customer-specific issues instead of having general terms. These elements must be clearly defined and consistent throughout the agreement as:

“Platform” – The software platform offered, including the software, services, applications, utilities, databases etc.
“Professional Services” or “Services” – Detailed description of the services with fees agreed upon by the parties for the same.
“Software” – Inclusion of all software, related integration, implementation and configuration coding, updates etc.
“Update” – Any update, patch, new release and/or new version of the platform or service.
“Client” – The entity buying the Platform as a Service from the vendor named the Client on the signature page.
“Deliverable” – Definition of the deliverable expressly designated as a deliverable in an applicable order.

Failure to clearly define or negotiate these elements may render the agreement and lead to an unwanted dispute in the later stage. For instance, an ambiguous “Update” definition may not include ‘the new version of the Platform’. The client/customer may end up paying an extra fee to incorporate the update. Such issues may not arise with a better and clear definition in the agreement.

Risky data security provisions

Data Management and Security play a vital role in PaaS than in most software licenses. Here, the Subscriber may upload their data or create user-generated content (UGC). Questions such as (a) who owns the data uploaded in the application, (b) what is the nature of the, how will the data be uploaded, (c) what is the permission/license required to incorporate UGC; must be answered clearly through “Data Security” provisions. These provisions should align with the IT Act and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“Indian Privacy Laws“) in India. Since a PaaS Agreement is likely to take place between two global parties or interact with global third-party users, region-specific and important global data privacy legislations are important to comply with such as:

Imprecise payment terms

Cloud platform service agreement involves a lot of confusion regarding the payment term. One should avoid the error of including a standard clause. Most of the time pricing terms are not considered as part of the overall drafting. For instance, the vendor is offering a multi-user service model. The agreement for such must include a detailed price schedule. The subscriber should not end up paying for all the users, just because the price schedule for all the users was included as an attachment instead of being part of the agreement itself. While drafting, the legal professional must not be kept in the dark regarding the fees to be charged apart from the subscription fee. A flat fee rate for an add-on service will make only sense if such an aspect is incorporated as a clause in the agreement. Another issue that often arises is adding irrelevant fees to the price schedule.

Unclear proprietary and intellectual property rights

Generally, it’s rare for a Subscriber to obtain any IP rights over the platform accessed. However, it is extremely crucial that the parties confirm the chain of title to the Intellectual Property in the application prior to entering a PaaS agreement. There should not be any ambiguity where the Subscriber ends up breaching a third party’s intellectual property rights at the outset. Any new modification or improvement made to the platform may result in new intellectual property. An agreement incorporating all these aspects is an indicator of a good agreement with mitigated risk elements.

Not limiting liability

It is important to include a “Limitation of Liability” clause that limits the liability of the vendor to the customer. It should incorporate all the issues from loss relating to installation, use or operation of the platform, amount of liability, liability with third parties etc. Almost often, liability becomes the heart of the dispute between the parties. Especially in the PaaS model where the delivery is virtual and no on-premise installation takes place, parties may tend to assume their own escape from liability. It is crucial to include these expressly in the agreement.

Conclusion

A PaaS Agreement differs from a SaaS or IaaS Agreement. One cannot incorporate clauses from a software licensing agreement into a PaaS Agreement. Understanding the PaaS model is the first crucial step in the process of drafting a good PaaS agreement. One cannot get started with drafting before understanding the technical, economical and financial aspects of the model. Thus, the terms of PaaS contracts must be considered carefully along with the above-discussed aspects, common errors and the applicable laws. PaaS contracts are certainly not something that is suitable for a one size fits all approach. It must be negotiated and drafted catering to client needs individually.

References

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