Importance of return or destruction of confidential information clause in NDA

By

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October 30, 2021

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This article is written by Raghav Mittal, pursuing Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

“Confidential Information” as the name suggests, is the kind of information that is disclosed only to the selected few and not to the public in general. When such information is disclosed to the receiving party it is made sure beforehand by entering into a Non-Disclosure Agreement (NDA) that such information will remain confidential and should not be disclosed without the permission of the party disclosing such information.

But the question that remains standing is, till when can one keep confidential information as a secret, and what if the professional relationship between the party disclosing information and the party receiving it has ended?

What constitutes a piece of information as confidential cannot be put to a definition as it varies from case to case, such as:

For a restaurant owner, certain recipes of dishes, ingredients used, or maybe dough of a certain type of bread.
For a manufacturer, its suppliers, manufacturing process, details of raw material, the technology used.
For a company, its customer’s data, financial records, plans of the business.
For a bank, its customer’s account details, aadhar card details, etc.

And this list has no end. The point is that there is no such thing that can be termed confidential. It depends upon person to person and business to business what information is to be termed as confidential. Therefore, in an NDA it is very important to define what information is taken to be confidential by the receiving party. The disclosing party should try to cover all the information that it has disclosed as confidential to avoid any conflict in the future.

Validity term of an NDA

It is not possible for parties to keep an agreement active for an infinite period of time. There needs to be a time specifying the period in which the party at the receiving end of the confidential information cannot disclose such information to the public, otherwise, there are chances that if within that period its competitors get a hand on such confidential information then it can result in huge loss to the party disclosing such information in the first place.

NDA is entered into with the party who is either hired for a particular project or on a contract basis or is an employee of such entity, where confidential information is exchanged between the parties. The period of NDA depends upon the type of information that needs to be protected. If the information relates to the daily working of an entity, then it can range up to 2 years. If the information relates to the internal matters of an entity then it may extend up to 4-5 years.

It depends upon the disclosing party for how much time they do not want a piece of information to become public, and for that, they need to analyze that for how much time that piece of information is relevant for them and after that period it doesn’t matter to them to that extent anymore. Some policies keep on changing with time and once a policy is changed then the information regarding that policy doesn’t attract such kind of protection.

When an employee leaves an entity, he/she is generally put to sign an NDA confirming that no information or policy that relates to the entity shall be revealed to any outsider or its competitor in the near future or to the public at large. It is generally because that company knows that the concerned employee would have gathered much insider information about the company during his tenure with the company and if such data and statistics get in the hands of an outsider, then it may result in loss of business to the company.

Destruction and return of confidential information

Even after entering into a Non-Disclosure Agreement, there can still be some lacuna left that needed to be covered because there was some information relating to deep internal affairs of an entity that it is needed to protect for a longer period than usual. The problem that arose was with the period in which the receiving party cannot disclose confidential information when increased beyond a certain level was not considered as reasonable.

Then, parties started to include a clause in Non-Disclosure Agreements that talks about either the return or destruction or both of the confidential information by the receiving party on the instructions of the disclosing party. It also includes the restrictions on the receiving party about not making any kind of replicas of the documents relating to such confidential information of the disclosing party.

The disclosing party has to be very careful while sharing any information with the receiving party. The disclosing party may also insert a clause in NDA about restricting or prohibiting any further use of such information, irrespective of whether it results in any loss to the disclosing party or not.

In the present time, since everything is being done digitally and especially after the covid outbreak in the world, there is hardly any sharing of information taking place by the supply of hard copies. Everything is being shared by the parties online. Cloud storage has become a part of life now, the information can now be accessed from any part of the world if it is been stored on cloud storage. The internet has become a basic necessity of an individual.

As technology is advancing, it is becoming easier and easier for the entities to share the information with the other and this has helped in maintaining the confidentiality of the information shared. The access to the shared information can anytime be taken away by the disclosing party resulting in more control over who can and in how much time the party can have access to such information.

Importance of this clause

No one can anticipate how anyone can use any information that relates to someone else to his benefit just because the term of NDA has lapsed and he still has access to some confidential information that relates to the other party obtained when they both have entered in a transaction in the past. In these situations, the clause of return or destruction of such information by the receiving party comes into the picture.

Such a clause will not only bar the receiving party to use such information for their gain but will also make them liable for damages in the future even after the term of NDA has expired. As per this clause, the receiving party is obliged to either return or destroy such information, so if there is an act of the receiving party using such information against the disclosing party will lead to the payment of damages to disclosing party because as per the contract the receiving party must not be in possession of any such information and thus there is a breach of such contract.

As technology is advancing, the majority of the information that is shared is through the means of the internet and there are endless methods in which a piece of information can be shared. There are various modes in which a piece of information can be shared through the internet. The disclosing party has options available with them:

Where they can revoke the access to such information by the receiving party at any time,
Where they can put restrictions on copy/pasting of such information by the receiving party,
Where they will be notified when the receiving party tries to take screenshots to make replicas of the same.

All these have curbed the practice of parties trying to bypass the clause.

Conclusion

The internet is a thing that we know dangerously little about. There are so many complexities involved that together make the working of the internet. There is something called the Dark Web that we don’t know much about. There is Hacking that we are unaware of. There is no such thing on the internet that cannot be accessed in one way or another, ethically or unethically. There is nothing on the internet that gets permanently deleted. the information can still be accessed if you have deleted any information. There is a concept of the internet footprint, also known as a cyber shadow, electronic footprint, or digital shadow, where every information leaves its traces and by following such traces such information can be accessed.

So, if one thinks that by just deleting the information from the internet, it cannot be accessed again, it is not so.

What all is left is that an entity should use the mix of offline and online share of information as per the gravity of the information being shared. All attempts should be made to make sure that the information that is shared with the receiving party is duly returned or destroyed as per the instructions given.

The disclosing party should make sure that the term of NDA should be as maximum as possible as even after the expiration of its term, there are chances that such information would have become obsolete even for the disclosing party, the policies would have changed. An entity is therefore advised to change its internal policies from time to time and opt for transparent management. Also, they should choose judicially while disclosing confidential information to the other party about what needs to be disclosed and what is not at all necessary. Extra sharing of information should be curbed.

References

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Legal nuances surrounding arbitration of intellectual property disputes

By

Diganth Raj Sehgal

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October 30, 2021

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Judicial interpretation in arbitration — Image Source: https://rb.gy/l7mswr

This article has been written by Madhuparna Ray pursuing BBA LLB (Hons.), GITAM School of Law, GITAM Deemed to be University, Visakhapatnam and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders). This article aims to explore the arbitrability of IPR disputes and the grey area surrounding the same by employing a case-by-case approach of the concept and a comparative analysis of the position in India and abroad with the help of various statutory laws and treaties encompassing this growing field of law.

Table of Contents

Introduction

As per World Intellectual Property Organization, Intellectual Property Rights Law revolves around protecting and safeguarding the creations of the human mind and creativity. IP rights grant the creator of the work ‘statutory monopoly’ upon it by conferring certain exclusive rights with regard to their creation. It is basically a right in rem as the right of the creator is against the entire world.

In India, IPR dispute resolution mainly occurs through courts of law. But the massive percentage of pendency of cases in the courts poses a difficult situation for the fast-paced and ever-increasing arena of Intellectual Property Rights. Due to this, the need for the Alternative Dispute Resolution mechanism is felt.

According to Section 89 of the Code of Civil Procedure, 1908, the courts may allow disputes to be resolved by arbitration, mediation, or conciliation if it deems fit. But there is a grey area surrounding the issue of arbitrability of IP-related disputes because the disputes concerning rights in rem are generally considered non-arbitrable.

With the arrival of the phenomenon of globalization, there has been a tremendous upsurge in international trade and commerce. This resulted in aggressive competition, which eventually paved the way for a manifold increase in disputes. Owing to the rapid pace of today’s world, these disputes require speedier resolution. The age-old system of litigation, even though it is time-tested, yet fails to cope up with such an ever-increasing magnitude of caseload. This leads to the pendency of cases which is not desirable. Hence, the new-age legal tools come into the picture in the form of alternative dispute resolution methods.

Arbitration is a much-coveted mode of alternative dispute resolution when it comes to commercial and international dispute resolution. This is mainly due to the quasi-judicial structure of arbitration, which outshines the overburdened Courts of Law. Arbitration begins with a contract between the parties wherein the rights and obligations of the parties are laid down beforehand, making the process systematic and organized. The method of arbitration ensures speed, flexibility, confidentiality and gives the involved parties the power to control the process. Moreover, along with a binding decision, in most of the cases, it helps to maintain the relationship between the parties, which is a highly essential criterion surrounding the commercial world.

The arena of intellectual property law is primarily commercial in nature and has an international reach due to the creators of such intellectual property licensing in various international jurisdictions. It is now an integral part of the corporate world as copyrights, patents, trademarks, designs, etc., are omnipresent. Neither their presence nor their importance can be ignored. In fact, with time, the field of intellectual property rights law is gaining worldwide attention, and so the resolution of the disputes in this field should be taken seriously.

Intellectual Property Rights Overview

As per World Intellectual Property Organization, Intellectual Property Rights Law revolves around protecting and safeguarding the creations of the human mind and creativity. IP rights grant the creator of the work ‘statutory monopoly’ upon it by conferring certain exclusive rights with regard to their creation. It is of extreme essence to protect intellectual property rights as they are intangible. Hence, several circumstances might pose several threats of infringement from various quarters if they are not adequately protected. These rights arise from the intellectual acumen of the creator or author of the intellectual work. Hence, its protection is necessary to incentivize the author so that he is encouraged to develop more such works in the future, which would naturally cause progress in that particular field of work.

Different Facets in Intellectual Property Disputes and How Arbitration can be Advantageous

Firstly, IP Disputes revolve around highly technical areas which need to be dealt with by experts in the field. In the case of traditional modes of dispute resolution, it might pose a problem as the judges might not possess the pre-requisite technical expertise to delve into the depths of the issue at hand. Contrastingly, in the case of arbitration, the parties would have the advantage of appointing an arbitrator who possesses all the technical knowledge required for the resolution of the dispute.

Secondly, when the case with regard to Intellectual Property goes before the Court of law, any confidential information which the parties wish to keep private from the world would inevitably become public knowledge. On the other hand, with the arbitration, confidentiality would be efficiently maintained.

Thirdly, there would be power in the hands of the parties to have a tailormade procedural set if they opt for arbitration. It comes in handy as opposed to the traditional system wherein there is no concept of ‘party autonomy’. Having such power would enable the parties to have better control in monitoring the fate of the case.

Fourthly, Intellectual Property Disputes have gained rapid international reach over the past few decades. Opting for a traditional dispute resolution system could turn problematic due to the fact that laws differ from country to country, and owing to the international nature of such disputes, multiple proceedings might arise in various countries. Also, problems might arise surrounding the jurisdiction as each party would prefer a jurisdiction supporting his own convenience. These peripheral disputes would make the core dispute more time taking and laborious. Each of these issues can be solved by choosing the process of arbitration, as then a single arbitral authority will be in a position to resolve the dispute. Moreover, the place and seat of arbitration can be chosen as per the convenience of the parties involved.

Finally, the corporate world prefers to resolve disputes in a manner that is effective as well as speed efficient so that they can carry on with their business. With the traditional litigation process, this becomes tough due to the massive load of pending cases therein. Hence, with the arbitration, the parties would have a result within a stipulated time. Also, as the decision is final and binding in case of arbitration, hence in most of the cases, the matter gets a speedy closure in contrast to the cases in Courts where several rounds of appeals exist.

Disadvantages of using Arbitration for Resolution of Intellectual Property Related Disputes

In spite of the existence of the various above-mentioned advantages of using arbitration as a method of dispute resolution, there are certain limitations in this process as well. First and foremost, the inclusion of a clause for referring to arbitration in case of a dispute is necessary for a contract between the parties beforehand. Without the existence of this clause, it can prove extremely difficult for one party to make the other party agree to take the path of arbitration. Secondly, if one party is at a higher position or, in other words, is at a more advantageous position with better availability of resources, then that party would have a tactical edge over the other party. Thirdly, the decisions reached through the process of arbitration do not have the power to be considered as a public precedent. Hence, even though there exists a suitable arbitral decision, it cannot be used as a binding precedent for subsequent cases.

Arbitrability of Intellectual Property Disputes in India

In the case of Guru Krupa Mech Tech Pvt Ltd v State of Gujarat and Ors., it was opined by the Hon’ble Gujarat High Court that the law of Intellectual Property deals with negative rights in the sense that it creates a right that excludes others from using the creation of the registered creator. The same stance was taken by the Hon’ble Delhi High Court in McDonald’s India Pvt Ltd v Commissioner of Trade and Taxes, New Delhi. Thus, it can be construed from these two cases that Intellectual Property Law deals with right in rem.

According to Section 89 of the Code of Civil Procedure, 1908, the courts may allow disputes to be resolved by arbitration, mediation, or conciliation if it deems fit. But there is a grey area surrounding the issue of arbitrability of IP-related disputes because the disputes concerning ‘rights in rem’ are generally considered non-arbitrable. Over the years, the legal scape with regard to the arbitrability of Intellectual Property is undergoing lots of changes owing to the various judicial decisions in this regard.

In the case of Booz Allen and Hamilton Inc. v SBI Home Finance Ltd. and Ors., the Hon’ble Apex Court of India stated that the disputes that arise out of ‘rights in personam’ would be open to arbitration. On the other hand, cases that have come out of ‘rights in rem’ are not considered to be arbitrable. They would be resolved through Courts or Tribunals. The Court further added that it is not a rigid rule and could be subject to changes based on the situation. However, the Hon’ble Court laid down a list of disputes that it considers non-arbitrable. They are:

Disputes with regard to criminal offenses;
Matrimonial disputes;
Disputes over the issue of guardianship;
Insolvency Disputes;
Testamentary matters like succession certificate, grant of probate, etc;
Eviction and tenancy related matters.

Expanding the list further, the Hon’ble Supreme Court in the case of Ayyasamy v Paramasivam added the disputes from patents, copyrights, and trademarks to the above existing list of non-arbitrable matters. But, the Hon’ble Court further mentioned that there would be no absolute bar, and the arbitrability of Intellectual Property Rights matters would be decided on the merits of the case at hand.

Contrastingly, in the case of Eros International Media Ltd v Telemax Links India Pvt Ltd., the Hon’ble Bombay High Court held that each and every dispute that is related to Intellectual Property Rights Law could not be straight-jacketed as disputes arising out of ‘rights in rem.’ Hence, not every such dispute is non-arbitrable.

Therefore, after analyzing the above-mentioned judgments, it can be said that the grey area regarding the arbitrability of IP-related disputes still exist. In fact, even though The Hon’ble Supreme Court of India has opined that ‘rights in rem’ are non-arbitrable nonetheless, it can also be seen that no absolute bar was declared regarding the same. Hence, the decision would depend on the facts of a given case.

Arbitrability of Intellectual Property Disputes Abroad

United Kingdom: Initially, there was no recognition of arbitrability of disputes related to intellectual property law in the statutes of 1950, 1979, 1996. Under the UK Patents Act, 1977, permitted in certain circumstances. Now, arbitrability of Intellectual Property related disputes has received judicial recognition. In the United Kingdom, Copyright and Trademark matters are completely arbitrable.

United States: It is clearly mentioned in the Federal statutes that Patent disputes would be subject to arbitration if the parties agree to insert an arbitration clause in a contract related to patent or if the parties give their consent to resolve a continuing dispute with the help of arbitration. Even though there is no explicit provision of arbitrability of Copyright disputes, but still many copyright cases are being subjected to arbitration in the United States. In the case of trademark disputes, there is no statute that provides for its binding arbitration.

Canada: Even though there is no explicit provision for arbitrability of IP-related conflicts in Canada, yet arbitral award for a patent dispute can be enforced. Even though certain ambiguity exists, still from the trend, it can be said that Canada is pro-arbitration when it comes to IP disputes.

Australia: There is no specific statute for permitting arbitration of IP disputes, yet all the Australian Courts run on the motto that something that is fit to be determined by a court can be subjected to arbitration.

Conclusion

Therefore, it should be seen that the arena of Intellectual Property Disputes which is an ever-increasing field, should be dealt with effectively, speedily, and efficiently as its presence and importance is felt almost everywhere. Such advantages can be gained if the highly effective dispute resolution technique of arbitration is used. Hence, the grey area that exists in this regard should be cleared in order to facilitate quicker, easier and efficient resolution of Intellectual Property related disputes.

References

Anuradha Maheshwari, ‘The need of the hour is to propose necessary amendments in the IP/Patent laws to enable and encourage institutional arbitration in intellectual property disputes’ (available at http: // www.lexmantis.com / pdf / May – 2013 – LexMantis – Arbitration – And – IP.pdf )
Aastha Mullick, ‘Institutional Arbitration in Intellectual Property Right Disputes (available at https: // www.latestlaws.com /wp-content /uploads /2018 /08 /Institutional – Arbitration – in – Intellectual – Property – Right – Disputes – By – Aastha – Mullick.pdf )
Rajat Jain, ‘Arbitrability of IPR Disputes -A Harmonious Approach’ (available at https: // www.mondaq.com / india / arbitration – dispute – resolution / 977762 / arbitrability – of – ipr – disputes – – a – harmonious – approach )
Saniya Mirani, ‘Arbitrability of IP Disputes in India’ (available at http: // arbitrationblog.kluwerarbitration.com / 2019 / 03 / 09 / arbitrability – of – ip – disputes – in – india – a – blanket – bar / )
The Arbitration and Conciliation Act, 1966
Code of Civil procedure, 1908
www.legalservicesindia.com
www.scconline.com
www.worldtrademarkreview.com
library.iccwbo.org
www.wipo.int

Incapacity of ROC to deactivate DIN of disqualified directors of companies in India

By

Abanti Bose

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October 30, 2021

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Company-Act — Image source: https://cutt.ly/8lmwcb8

This article is written by Harsha Aswani, pursuing Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

A company is clothed with an independent personality that is distinct from that of its members. However, being an artificial person, a company cannot act on its own, and is, therefore, run and managed by an association of persons known as the Board of Directors. The directors are the brain of the company, who are responsible for:

Achieving the objectives enshrined under the Memorandum of Association;
Formulating policies; and
Establishing an organizational setup to implement the policies framed, in line with the objects of the company.

The Companies Act, 2013 read with Companies (Appointment and Qualification of Directors) Rules, 2014 deals with the appointment of directors, their disqualification, vacation, removal, DIN, etc.

Section 164 and 167 of the Companies Act, 2013 penalize the directors for non-compliance of certain provisions by disqualifying and vacating their offices, respectively, and Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 enlists the grounds of Cancelling, Surrendering and Deactivation of DIN of directors. Rule 11 empowers Central Government, Registrar Director or any officer authorized by Registrar of Director to cancel or deactivate the DIN of directors in certain circumstances, none of which points to the grounds of disqualification under Section 164 or vacation under Section 167, as the case may be. However, despite this, in the year 2017, the Registrar of Companies, on the directions of the Ministry of Corporate Affairs, began identifying the directors who have been disqualified under Section 164(2) of the Companies Act, 2013 and published the list of the same, followed by deactivating their respective DINs. Agitated, the directors moved to the Courts, challenging the validity of such a move on the part of ROC.

This article shall first explain the grounds for disqualification and vacation of directors, the allotment of DIN and the reasons for its deactivation. It shall then dive into the main question of whether the Registrar of Companies (ROC) has the power to deactivate the DIN of disqualified directors of companies in India and the related judicial pronouncements.

“Director” under the Companies Act

The term “Director” is not exhaustively defined under the Companies Act, 2013. Section 2(34) simply says that a “director” means a director appointed to the Board of a company.

Section 2(10) of the Companies Act, 2013 defines “Board of Directors” or “Board”, in relation to a company, to mean the collective body of the directors of the company.

Further, section 149 of the Companies Act mandates the Board of Directors of every company to consist of individuals only and prohibits the appointment of a body corporate, association or firm to be a director.

Thus, a director under the Companies Act is an individual appointed to the Board of directors of the company, which consists of two or more such individuals forming an association, and collectively controlling, guiding and managing the affairs of the company.

Director Identification Number (DIN)

DIN or Director Identification Number is a unique number allotted, by the Central Government, to every individual intending to be a director in any company, whether new or existing, for the purpose of his identification as a director of a company. The DIN so allotted by the Central Government to an individual is for his or her lifetime, and the same shall not be allotted to any other individual. A person is even forbidden to apply or obtain another identification number, once the Central Government has allotted him/her the DIN under Section 154 of the Companies Act.

Application for allotment of DIN

In the case of a new company, the application for the request of allotment of DIN for the proposed director can be made at the time of incorporation of such company only through the SPICe+ (INC 32) Form, and names of a maximum of three directors can be given during such incorporation.

Section 153 of the Companies Act mandates the filing of an application for allotment of Director Identification Number (DIN) by every individual who intends to be appointed as a director in any existing company. Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes the detailed procedure on this behalf. According to Rule 9, any person intending to be a director of an existing company must make an electronic application in Form DIR-3 to the Central Government, along with payment of prescribed fees as provided under the Companies (Registration Offices and Fees) Rules, 2014. During the filing of Form DIR-3, the applicant has to attach the following set of documents electronically:

Photograph;
Attested proof of Identity;
Attested proof of Residence;
Board Resolution proposing his/her appointment as director in an existing company;
Specimen signature duly verified.

Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital Signature Certificate, and shall be verified either by:

A Company Secretary in full-time employment of the existing company; or
The Managing Director of the existing company; or
The CEO or CFO of the existing company,

in which the applicant is intended to be appointed as the director.

In case the name of the person does not have the last name, then his or her father’s or grandfather’s surname shall be mentioned in the last name along with the declaration in Form No. DIR-3A.

Cancellation or surrender or deactivation of DIN

Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 empowers the following authorities to cancel or deactivate the DIN, upon being satisfying itself by verifying the particulars and documentary proof attached with the application received along with the prescribed fees:

Central Government; or
Regional Director, in case of Northern Region; or
Any officer authorized by the Regional Director.

Rule 11 also lays down the following grounds on which such Competent Authority may cancel or deactivate the DIN of the Director:

The DIN is found to be duplicated in respect of the same person. Provided the data related to both the DIN shall be merged with the validly retained number;
The DIN was obtained in a wrongful manner by fraudulent means;
Upon the death of the concerned individual;
The competent court declared the concerned individual as a person of unsound mind;
The concerned individual has been adjudicated an insolvent;

In case of DIN being obtained in a wrongful manner by fraudulent means, it is the duty of the competent authority to follow the principles of natural justice and give the concerned individual an opportunity of being heard, prior to cancelling or deactivating his/her DIN.

The competent authority further has an additional power to deactivate the DIN in case the concerned individual fails to intimate his particulars in e-Form DIR-3-KYC or the web service DIR-3-KYC-WEB, within the stipulated time as mandated by Rule 12A. The deactivated DIN shall be reactivated only after filing e-Form DIR-3-KYC along with payment of prescribed fees.

Rule 11 also allows any director to surrender his/her DIN by way of an application made in Form DIR-5, to the Central Government, along with the declaration that:

He/she has never been appointed as a director in any company, and
The said DIN has never been used for filing any document with any authority.

The Central Government, after verifying the e-records, shall cancel or deactivate the DIN.

Disqualification and vacation of Directors

Disqualification for appointment of Director

Section 164 of the Companies Act, 2013 prescribes three broad categories on the basis of which a person shall be disqualified from being appointed as a director of a company, whether public or private:

Disqualification in Individual Capacity,
Disqualification by reason of default of the Company in which he/she is director,
Additional grounds of disqualification.

Earlier, Section 274 of the 1956 Act dealt with the disqualification of directors, however, it applied only to public companies. By including private companies, the legislature has increased the scope of section 164, to target shell companies and reduce the menace of black money or money laundering.

Disqualification in an individual capacity

Section 164(1) lays down the following grounds on which a person shall not be eligible for appointment as a director:

He is of unsound mind, and stands so declared by a competent court;
He is an undischarged insolvent;
He has applied to be adjudicated as an insolvent, and his application is pending;
He has been convicted by a court of any offence involving moral turpitude or otherwise, and has been sentenced in respect thereof to:

Imprisonment for at least six months and a period of five years has not elapsed from the date of expiry of the sentence; or
Imprisonment for at least seven years or more.

A court or tribunal has passed an order disqualifying him for appointment as a director, and the order is in force;
He has defaulted in payment of calls in respect of any shares of the company held by him, either alone or jointly with others, and a period of six months has elapsed from the last day fixed for payment of the call;
He has been convicted of the offence under Section 188 of the Companies Act, dealing with Related Party transactions, at any time during the last preceding five years;
He has not complied with Section 152(3) of the Companies Act;
He has not complied with Section 165(1) of the Companies Act, by accepting directorships exceeding the maximum number, i.e., exceeding twenty directorships;

Disqualification by reason of default of the company

Section 164(2) lists down two grounds when a person shall be temporarily disqualified from being re-appointed as a director of the company in which he is already a director, or he shall not be eligible to be appointed as a director in another company:

The company has failed to file financial statements or annual returns for three financial years consecutively; or
The company has not repaid the deposits accepted, or has failed to pay interests thereon, or has not redeemed any debentures on the due date or not paid interest thereon or not paid any dividend declared, and such failure to pay or redeem continues for one year or more.

Such disqualification shall last only for a period of five years from the date of the above-mentioned defaults.

Also, proviso to Section 164(2) prohibits the disqualification of such director for a period of six months from the date of appointment, in case the company is in default of clause (a) or (b) above. This proviso attempts to provide a cool-down period to the new director, for six months, who has been appointed to make the company compliant with the provisions and rules of the Companies Law.

The company is obligated to intimate the Registrar of the failures mentioned in Section 164(2) by filing Form DIR-9. An application for removal or disqualification of a director shall also be made by the company to the Registrar by filing Form DIR-10.

Additional grounds of disqualification

Section 164(3) of the Act empowers a private company, not being a subsidiary of a public company, to provide any additional grounds of disqualification in its Article of Association if it so desires.

Vacation of office of Director

Section 167(1) of the Companies Act lays down the following grounds on which the office of a director shall become vacant if:

He is disqualified under Section 164;
He is not present in any of the meetings of the Board of Directors for twelve months, whether with or without seeking leave of absence of the Board;
He acts in contravention of Section 184, dealing with entering into contracts or arrangements in which such director is directly or indirectly interested;
He fails to disclose his interest in any contract or arrangement in which such director is directly or indirectly interested, which is in contravention of Section 184;
Any court or tribunal disqualifies him by way of an order;
He is convicted of any offence involving moral turpitude or otherwise, and has been sentenced for the same for at least six months;
He is removed in pursuance of the provisions of the Companies Act, 2013;
He ceases to hold any office or other employment in the holding, subsidiary or associate company, then he shall have to cease to be a director in that company in which he has been appointed by virtue of holding such office or other employment.

In relation to clause a, it is important to note that a director, if becomes disqualified under Section 164(2), i.e., by reason of default of the company, then his office of director shall become vacant in all the other companies, except the company which is in default under section 164(2).

For instance, if Person A is a director in Company A Ltd., Company B Ltd., and Company C Ltd., and Company A has failed to file annual returns for three consecutive financial years, then in such case, Person A’s appointment as a director shall continue to hold the office in Company A until the term for which he is appointed expires, and only after the expiry of such term, Person A shall become ineligible for re-appointment in Company A. However, from the date of such default, he shall become disqualified from being appointed as a director in the other two companies− Company B Ltd. and Company C Ltd., in the sense that such director will have to vacate the office under Section 167(1)(a), and such disqualification shall continue for five years from the date of such failure.

Section 167(3) empowers any private company to prescribe any additional grounds for the vacation of office of the director under its Articles of Associations if it so desires.

The company has to intimate the Registrar of Companies about the vacation of the office of director by filing Form DIR-12.

Incapacity of ROC to deactivate DIN of disqualified directors of companies in India

In the wake of the 2017 demonetization exercise, the Ministry of Corporate Affairs directed the Registrar of the Companies all over India to publish the lists of the directors who have been disqualified under Section 164(2) of the Companies Act, 2013 for the default in filing of the financial statements or annual returns for a consecutive period of three financial years. The move was made with the objective of curbing the formation of shell companies and the consequent act of money laundering. In the said initiative, the ROC not only published the list of 74,920 disqualified directors but also began blocking their DINs. The move did not go well with these directors, as a result of which they filed a writ petition in the Delhi HC, questioning the power of the MCA and ROC to deactivate their DINs, amongst other important issues, in pursuance of the Companies Act, 2013 read with The Companies (Appointment and Qualification of Directors) Rules, 2014.

With respect to the capacity of the ROC to deactivate the DIN of the directors’ facing disqualification under Section 164(2), the single judge of the Delhi HC, in Mukut Pathak’s Case, quashed the action taken by ROC, and ordered the re-activation of the DINs of all the directors disqualified. The rationale behind the decision of the court was:

Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 empowers only three authorities to cancel or deactivate the DIN− the Central Government, the Regional Director, or the officer authorized by the Regional Director. The rule nowhere empowers the Registrar of Companies (ROC) to deactivate the DIN of any directors.
Rule 11 lays down the grounds for the deactivation of DIN, and none of it relates to the disqualification of directors.
DIN is important for a person to act as Director. However, it is not important that a person having a DIN is to be appointed as a director.
Section 164(2) only prescribes the temporary disqualification of a director as per which such director will not only be appointed or re-appointed for five years. It does not mandate the DIN of such a director to be deactivated.

In another incident, MCA ordered ROC to publish the list of directors who are associated with companies whose names have been “Struck off” under Section 248 of the Companies Act, 2013, and show their status as “disqualified” directors under Section 164(2) of the Companies Act. The ROC, Gujarat, along with the publication of the list, dated 12.09.2017, deactivated the DINs of the disqualified directors. The list also included names of those directors who were associated with the companies that were already dissolved prior to the publication of such a list. This implied that such companies were not obligated to file their financial statements and annual returns, and therefore, the question of disqualification of these directors under Section 164(2) does not arise. The deactivation of DINs of such directors made them unable to file their documents related to the other non-defaulting companies in which they were still holding the office of directors. Aggrieved by the action of ROC, Gujarat, multiple writ petitions were filed before the Gujarat HC, in Gaurang Balvantlal Shah’s Case, seeking the issuance of a writ in the nature of certiorari quashing and setting aside the list of directors associated with the “Struck-Off Companies” to the extent it includes the names of petitioners as disqualified directors.

The Gujarat HC, while quashing the MCA order requiring ROC to publish the list of “disqualified” directors, and subsequent deactivation of their DINs held the disqualification to be not legally tenable. This article shall not go into the question of the legal tenability of such disqualification and would restrict itself only to the issue of deactivation of DIN by the ROC. With respect to the issue of deactivation of DIN, the HC said that neither any of the provisions contained in the Companies Act give suo moto powers to the Central Government, or the Regional Director, or the officer authorized by the Regional Director to cancel or deactivate the DIN allotted to the Director, nor does any of the Rules talk about the cancellation or deactivation of DINs of the directors of the “struck-off company” or the directors who become disqualified under Section 164 of the Companies Act.

Section 155 of the Companies Act, 2013 read with Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 very specifically lists down the circumstances under which the DIN could be deactivated, and such circumstances do not include the ground of disqualification. The reason is that the DIN once allotted remains valid for the lifetime of the director, and could never be allotted to another applicant. Simply, on the basis of a single DIN, an applicant can become director of other companies, simultaneously. Thus, even if the names of any of the companies in which the concerned individual is the director is “struck-off” from the register by the ROC under Section 248 of the Companies Act, 2013, his/her DIN would still not be cancelled or deactivated as that would run counter to Rule 11.

The issue of ROC publishing the list of disqualified directors continued year on year, throughout India, with the deactivation of DINs of such disqualified directors. Again in 2019, a similar incident attracted the attention of the Allahabad HC, when 161 writ petitions were filed by the directors who were declared disqualified for five years by the ROC, Kanpur, under Section 164(2) of the Companies Act, 2013, and their DINs were yet again suspended by ROC. These petitioners sought a mandamus directing the ROC to reactivate the DINs and restore their names on the Roll of Directors.

The Allahabad HC in Jai Shankar Agrahari’s Case, arrived at a similar decision as that of the Delhi HC, with respect to the question of the power of ROC deactivating the DINs of the disqualified directors. The Court, after considering the following points, held that the ROC has no power under the relevant rules to deactivate the DIN of the directors:

As per Rule 10(6) of the Companies (AQD) Rules, 2014, DIN is valid for the lifetime of the applicant and shall not be allotted to any other person.
Rule 11 of the Companies (AQD) Rules, 2014 nowhere provides for the cancellation or deactivation of DIN upon disqualification under Section 164(2).
Deactivation of DIN would rather be contrary to Section 164(2) read with Section 167(1) since the concerned individual continues to hold the office of the director of the Defaulting Company.

A similar decision was given by the Telangana HC in Venkata Ramana Tadiparthi’s Case and by the Lucknow bench in Tariq Siddiqui’s Case. Both the courts concluded that the action of ROC in deactivating the DINs of the disqualified directors cannot be sustained in law because the grounds enumerated under Clauses (a) to (f) of Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014, dealing with cancellation or deactivation of DIN are different from those envisaged under Section 164(2)(a) of the Act. Therefore, the DINs cannot be deactivated or cancelled, except in accordance with Rule 11 of the concerned Rules.

Conclusion

On a conjoint reading of Sections 164 and 167 of the Companies Act, 2013 read with Rule 11 of the Companies (AQD) Rules, 2014, it becomes amply clear that except Central Government, or Regional Director, or any officer authorized by Regional Director, no other person including Registrar of Companies has the power to cancel or deactivate the DIN of any director. Rule 11 also makes it sufficiently clear that the DIN shall be deactivated only on the grounds envisaged therein, and none of the grounds is similar to those enumerated under sections 164 and 167 of the Companies Act, 2013 dealing with disqualification and vacation of office of directors, respectively. It is important to understand that if a company defaults in filing its financial statements or annual returns for a continuous period of 3 years, under Section 164(2) of the Companies Act, the director of such company still holds the office in the defaulting company until the expiry of the term, and becomes only temporary ineligible for appointment in all the non-defaulting companies in which he is a director. Pursuant to such disqualification, the office of such a director, in all the non-defaulting companies, becomes vacant, as per Section 167. Since the director still holds the office in the defaulting company, his/her DIN would be required to remain valid.

Thus, it can be said that the ROC has no power to deactivate the DIN of any disqualified director(s) of companies in India, and the said deactivation, if any, must be set aside for being arbitrary and not legally tenable.

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Primary and secondary market investment in equity

By

Abanti Bose

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October 29, 2021

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share capital — Image source: https://bit.ly/32rTN7r

This article is written by Aura Das, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

India’s capital markets are on a lifetime high, with stock market indices touching unreal numbers every day. This bull market phenomenon can be attributed to multiple factors like reduced barriers to market access, the rise of tech/cloud-based businesses and a boom in the startup industry with more and more businesses getting higher valuations from venture capitalists and institutional finance organizations. This is helping fuel the current investment surge by the Indian public and foreign investors alike. As more and more unicorns look to raise their capital from the stock markets, we will attempt to understand what are the different types of capital markets in India and how they work.

What is a primary market?

The primary market is a part of the capital market which helps in the creation of securities for its sale to the public. It is in the primary market that securities are created or new securities are issued for the first time to be purchased by the investors. This is generally a way of raising capital by the companies by issuing securities in a recognized stock exchange.

The primary market has no physical existence and exists in the form of stock exchanges. It provides for the origination, underwriting and distribution of securities. Origination involves assessing and creation of new securities. Underwriting is the process wherein a bank or any financial institution acts as a medium between the issuers and the investors. The selling of the securities to new investors is referred to as distribution.

The company issuing the securities, the underwriter and the investor are the three entities that are involved in the functions of a primary market. The primary market is also known as the new issue market since securities are issued for the first time in a primary market through an Initial Public Offering. The sale price is determined by the underwriters, who also facilitate the new issue offering. Investors then purchase the new securities in the primary market. Issuance of securities can take place in the form of public issues, private placements, rights or bonus issues. Securities can be issued at face value, premium value or par value. After the securities are issued in the primary market, trading of the securities begins in the secondary market.

The Securities and Exchange Board of India (SEBI) is the government regulatory body that regulates the primary market. The main purpose of companies for issuing securities in the primary market is to either expand their business operations, funding of their business or extend their physical presence in the market. Securities issued through a primary market involve stocks, corporate or government bonds, notes and bills.

What is a secondary market?

The securities after being initially offered to the public in the primary market are traded in the secondary market. The secondary market constitutes the equity market and the debt market. The secondary market provides an efficient platform for trading securities for any investor. It is also considered as an equity trading platform wherein pre-existing or pre-issued securities are traded amongst investors. The secondary market can either consist of the stock exchange, which is the part of an auction market or Over-the-Counter( OTC) which is a part of the dealer market. It is different from the primary market as the primary market deals with raising capital or funds by offering the securities to the public for subscription to investors

There are various departments of SEBI that regulate the activities in the secondary market such as the Market Intermediaries Registration and Supervision Department (MIRSD) which deals with registration, compliance, supervision and inspection of market intermediaries with respect to all segments of markets, the Market Regulation Department (MRD) which formulate new policies and supervise the functioning and operations of securities exchanges, their subsidiaries and market institutions and Derivatives and New Products Department( DNPD) which supervise trading at derivatives segments of the stock exchange, introduce new products to be traded and consequent policy changes. The types of securities dealt in a secondary market are equity and debentures.

What is equity?

Equity shares are the units that basically constitute the capital of the business. Investors who subscribe to the equity shares of a company by contributing to the total capital of the business become the shareholders of the company. The shareholders then become eligible to get returns of their investment from the company. Investors who invest in equity are rewarded in the form of dividends and capital appreciation. Dividends are paid out of the profit made by the company and capital appreciation is a long term benefit that is received once the business runs successfully for a considerable amount of time. Investments in equity is a risk as long as there is an assurance of generating long term profits. Equity shareholders also get voting rights in the matters of the company and their ownership is limited to the extent of the shares held by them.

Equity investment in the primary and secondary market

Equity capital markets or ECM are the places where financial institutions help companies to raise funds. The ECM consists of primary and secondary markets. In the primary market, there are four ways by which investors can help in raising funds by buying securities. They are as follows:

Initial Public Offering (IPO)

This is a fast way of raising capital for a company by making its shares available to the public for the first time. For making an initial public offer, the companies need to get listed on a public stock exchange as per the guidelines of the SEBI. This is a risky option for the investors as there is a high chance of the company not performing well once it gets converted to a public company. It can be a profitable investment if the company performs well.

Rights issue

By this process, new shares are created while restricting investor access to the shares. A company generally offers new shares to certain investors or to its existing employees. ESOPs (Employee Stock Options) is an example wherein the shares get vested with the employees after the employees complete a specific period of employment. The investors can exercise their rights of being the shareholder of the company and also have the option to sell the rights of the shares to someone else.

Private placement

In this case, new shares are offered to a small group of investors, which can be institutional investors or certain individuals. Generally, High Net worth Individuals (HNIs) are sought by companies to offer their shares. It is different from an IPO since the shares are not open to public offers. This is an easier and faster way for start-ups and early-stage companies to raise funds as it involves fewer regulatory requirements as compared to other methods.

Preferential allotment

This is very similar to private placement as in this case, shares are offered to a select group of investors. They can be anyone and do not necessarily need to have any connection to the company. In this case, companies can control the transfer of shares to other investors.

With respect to the Companies Act, 2013, offering any kind of security on a private basis that attracts provisions of Section 42 is called Private Placement of Securities whereas allotment of equity shares or securities convertible into equity shares attracts both Section 42 and 62(1)(c) and called as Preferential Allotment of securities. It can also be said that preferential allotment involves the private placement of equity shares or convertible securities.

The secondary market is often known as the stock market where investors trade among themselves. Previously issued securities are traded here without involving the companies. The secondary market can be further divided into two categories:

Auction market

In the auction market, the prices at which the individual or institutional investors are willing to buy or sell are announced by them, which are known as bids and ask prices. In this scenario, all the parties come together and publicly declare their prices. This convergence helps the buyers and the sellers to mutually agree on a price. The best example is the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Dealer market

In the dealer market, parties need not be present in a particular location. Rather they are connected through electronic networks. The inventory of the securities is dealt with by the dealers who manage the selling and buying of the securities by the participants. The profit earned by the dealers is the difference between the prices of selling and purchase. The competition in the dealer market provides the best price for the investors.

Conclusion

Raising capital through equity markets has numerous advantages. Companies do not have to access debt markets which are expensive in order to raise capital to finance future growth. Equity markets are also relatively more flexible and have a greater variety of financing options for growth as compared to debt markets. In some instances, especially in a private placement, equity markets also help entrepreneurs and company founders bring in experience and oversight from senior colleagues. This will help companies expand their business to new markets and products or provide needed counsel. The process of the public offer can be a disadvantage as it is time-consuming and involves a lot of regulatory compliance as per the guidelines of SEBI. Investors who are more tolerant to business risks may choose equity investment as a suitable option, as abandoning the shares may produce negative results due to the drop in shareholding of the company.

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International commercial arbitration in the Philippines : key takeaways for India

By

Rachit Garg

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October 29, 2021

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This article has been written by Raina Jain, pursuing a certificate course in Arbitration: Strategy, Procedure & Drafting from LawSikho. It has been edited by Aatima Bhatia (Associate, LawSikho) Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

The utilization of arbitration continues to rise in the Asia-Pacific region. The major factors for resorting to the ADR mechanism here include the exponential growth and rising complex business transactions in the region (involving foreign elements), the expansion and development of the institutionalized arbitration body in Asia and the relatively low price of administering and conducting arbitral proceedings. Also, with China’s active initiation of the ‘One Belt One Road’ Policy in Asia and Africa, it is expected that disputes among Asian parties will increase in the coming future. Thus, it would make arbitration a preferred choice in resolving international disputes. Concomitantly with a greater number of cases filed in HKIAC and SIAC institutions, there has also been a rise in the constitution of several arbitral institutions in this sphere.

In pursuance of the above-said, the Integrated Bar of the Philippines (IBP) established a new arbitral institution: the Philippines International Centre for Conflict Resolution (PICCR), in February 2019. It is in addition to the Philippine Dispute Resolution Centre Inc (PDRCI) which has been in action since 1996. It aims to promote the practice and use of arbitration and other forms of Alternative Dispute Resolution in the Philippines. However, it is noteworthy that the trend was already increasing at a rapid pace as for the year 2018; the Philippines body of PDRCI and IBP has handled around 60 newly commenced domestic arbitrations and has assisted with the appointment of arbitrators in 40 newly commenced ad hoc arbitrations.

Therefore, considering the progress of the Philippines in the arbitration world, the present piece examines the recent developments in the Philippines in light of International Commercial arbitration, the scope and object of their arbitration legislation. Further, the article studies the current take of India on International commercial arbitration and what India can gain out of Philippines Jurisdiction that is the plausible key takeaways for India in this regard.

Philippines: a conducive environment for ADR

Philippines is gradually becoming the go-to mode of commercial dispute resolution in the arena of international arbitration. Mainly due to the rigid confidentiality of arbitral proceedings, faster delivery of binding decisions, available choice to pick independent, neutral and highly qualified arbitrators, limited scope of judicial review and supportive judiciary. Furthermore, there has been a momentous shift in the national court’s approach towards arbitration, which explains the moving of the Philippines towards a more arbitration-friendly regime.

In Fruehauf Electronics Philippine Corporation v. Technology Electronics Assembly and Management Pacific Corporation 2016, the Supreme Court held that simple errors of fact, law, or fact and law committed by the arbitral tribunal are not justifiable errors. Consequently, the courts are precluded from revising an arbitral award in a particular way, revisiting the tribunal’s findings of fact or conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal. Further, the Supreme Court also highlighted the need to uphold the autonomy of arbitral awards as an overriding public policy.

Thereafter in a landmark case pertaining to ‘Public Policy’, the Apex Court ruled in Mabuhay Holdings Corporation v. SembCorp Logistics Limited 2018, that mere error in the interpretation of law or factual findings do not suffice to warrant refusal of enforcement on public policy grounds. To rely on public policy grounds, the illegality or immorality of the award must reach a level where enforcement of the same would be against the State’s fundamental tenets of justice and morality, or would blatantly be injurious to the public or the interests of the society.

The Supreme Court, therefore, affirmed the Court of Appeal’s decision and ruled in favour of enforcing the arbitral award. The Supreme Court concluded its judgment with a reminder to the lower courts to apply Philippine arbitration legislation in accordance with the objectives of the statutes, emphasizing that: “there are policy reasons in favour of promoting international arbitration, as it would attract foreign investors to do business in the country that would ultimately boost . . . [the Philippine] economy.”

Later in 2019, the Philippines escalated in fostering arbitration by its domestic enactment. In February 2019, the Revised Corporation Code came into operation, which expressly states that the articles of incorporation or by-laws of a corporation may contain an arbitration clause. Intra-corporate disputes are hence now expressly arbitrable under Philippine law. Moreover, the PDRCI also ministered its first-ever emergency arbitration case in 2019, which successfully settled with an arbitral award issued by the sole emergency arbitrator. The trending pattern of arbitration clauses in the Philippines tend to be multi-tiered these days, that is, prior resort to mediation or negotiation is made a precondition to the arbitration proceedings.

The Indian perspective

India has widened its scope and functions in relation to international commercial Arbitration after introducing the major changes through the 2015 amendment in the Arbitration and Conciliation (Amendment) Act, 2015. Some key amendments include:

Only the High Courts and Supreme Court have jurisdiction in relation to international commercial arbitrations.
Section 9 (Interim measures), Section 27 (Court assistance in taking evidence) and Sections 37(1) (a) and 37(3) (orders which are appealable) of Part I of the 1996 Act made applicable to international arbitrations unless expressly excluded by the parties.
Interim measure orders by a tribunal are enforceable as an order of a court, hence expediting enforcement.
no more automatic stay of the award upon the filing of objections to the same.
Public policy as a ground to review the awards narrowed and defined.

When it comes to international commercial arbitration, the global focus of all the jurisdictions has been to uphold party autonomy and minimize national court’s interference in the arbitration proceedings. In view of this, it is notable to mention that the Indian Judiciary has given applaudable landmark decisions by upholding the doctrines of party autonomy and minimal court’s interference in all the three stages of the arbitral process i.e. pre-arbitration, during arbitration and post-arbitration (enforcement of awards etc.)

In the case of, Mcdonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 SCC OnLine Del 3949; the SC has refused to issue an Anti-arbitration injunction and has asked parties to adhere to their pre-decided agreement that is to arbitrate their disputes instead of litigating the same in national courts.

Similarly, the Delhi High Court has given its historic view in the cases of Cruz City 1 Mauritius Holdings v. Unitech Limited and NTT Docomo Inc vs. Tata Sons Limited OMP. (EFA) (COM.M) 7/2016; wherein both the cases similar objections were raised against the enforcement of foreign arbitral awards stating that the same is in breach of foreign exchange laws of India. In response to this, the court clearly refused to interfere and instead enforced the terms of the settlement agreement under section 49 (Enforcement of foreign awards) of the 1996 Act.

In another significant case of Zee Sports Ltd. v. Nimbus Media Pvt. Ltd. 2017 SCC OnLine Bom 426, the Supreme Court stated that as under:

“The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at the minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. ”

Hence, it is evident that the Indian Judiciary is showing a great inclination towards the arbitration-friendly regime with its “Pro-arbitration” approach and delivering some remarkable decisions by preserving the essence of arbitration law. Further, it is true to say that India is making sincere efforts to keep its legislation up to par with the international norms of arbitration.

The advanced/ progressive approach of Philippines: possible takeaways for India

In recent times, the Philippines have achieved a milestone in the field of Alternative Dispute resolution with the launch of a new arbitral institution namely The Philippines International Centre for Conflict Resolution (PICCR) and also it has witnessed an inauguration of the Philippines Arbitration Convention in the year 2019 that was famously called as “The Arbitration Day” (intended to be an annual event) which was organized by the Philippines institute of arbitrators. (“PIArb”)

The organizing of such a huge event has built a good network by bringing together the whole of business and professional communities and provided a good platform to meet and exchange ideas. The conduction of such annual events really increases the awareness of the subject in the greatest possible way and builds confidence and faith amongst the public. It would be beneficial for India as well, if it could also organize such events more frequently.

Also, a very noteworthy agenda of the Philippine Government which can be taken as a good guideline for other jurisdictions is that the Philippines facilitates ADR through incorporating a legally mandated arbitration clause in their government contracts. The said contracts include all nature of agreements like contracts between local government and private entities, build-operate-transfer projects, public-private partnership agreements and joint venture agreements.

Moreover, another unusual step taken by the Philippines Government which is indeed indifferent from the genre of Commercial Arbitration is that the construction industry of the Philippines is deeply engaged in arbitration. The legislative backing to it has been provided through the establishment of the Philippine Construction Industry Arbitration Commission (“CIAC”). (Via Executive Order No. 1008) One more uncommon practice with which the Philippine government is engaged is the mandatory arbitration process in labour cases. It is however the exception to the ordinary character of “party autonomy”.

Another significant fact that should be noted is that the country’s compulsory institution for licensed lawyers i.e. The Integrated Bar of Philippines (“IBP”) has played a vital role in encouraging the ADR in the country by commencing the Philippines International Centre for Conflict Resolution (PICCR) which is a non-profit and a non-stock ADR organization catering the ADR facilities and other services, also supervising the commercial arbitration. India can also adopt these techniques because such efforts and active initiatives by recognized and prominent institutions of the country really boost the confidence of the public in emerging fields like arbitration.

Conclusion

With all that said, it appears that the progressive approach of the Philippines is proving to be a mark of success for them and it has certainly been appreciated worldwide and many jurisdictions are embracing it as a guide for their further development.

Although it is evident that India is in a good position when it comes to International commercial arbitration, it can be appropriately recommended that India can also consider the steps and agenda implemented by the Philippine Government by making a guideline and accordingly adopting certain things to further progress in the field of Alternative Dispute resolution.

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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Rule of audi alteram partem with special reference to disciplinary proceedings against civil servants under Article 311(2) of the Indian Constitution

By

Rachit Garg

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October 29, 2021

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This article is written by Raslin Saluja from KIIT School of Law, Bhubaneswar. This article analyzes the rule of audi alteram partem in reference to disciplinary proceedings against civil servants under Article 311(2) of the Constitution.

Table of Contents

Introduction

Rules of natural justice imply fairness, reasonableness, equity and equality. These have developed over time and are a proper measure of the level of civilization prevailing in the community. These are a part of the higher procedural principles of common law developed through adjudication to guide the administrative agency while taking any decision adversely affecting the rights of a private individual. These principles are incorporated in the Indian Constitution to provide legal immunity and protection for safeguarding administrative officials and civil servants against the misuse of the law.

Audi alteram partem – the rule of fair hearing

In simple terms, the principle of audi alteram partem means hearing the other side. It is the second fundamental principle of natural justice which states that no man should be condemned unheard, that both the parties must be given the reasonable opportunity to be heard before passing any order. This is the first principle of civilized jurisprudence and is accepted by laws of men and god and is a sine qua non of every civilized society. The principle is used to ensure fair play and justice in the field of administrative action. Its application depends upon the factual matrix to improve administrative efficiency, expediency and to mete out justice. The rule of fair hearing is a code of procedure, and hence covers every stage through which an administrative adjudication passes, starting from notice to final determination.

Article 311 of the Indian Constitution

Article 311 of the Constitution of India as such does not affect or modify the doctrine of pleasure exercised by the President/Governor or any person so authorized on their behalf under Article 310 but only provides limitations on it by subjecting them to the two conditions laid in the Article. It protects the civil servants holding civil posts by safeguarding and protecting them from arbitrary arrest. Civil post here essentially means an office or appointment from the civil side of administration. In the case of State of Uttar Pradesh v. A.N. Singh (1965), the Supreme Court laid down certain points to determine the relationship of an employer and employee in terms of appointment for services, control and management, duty to pay, method of work and power to terminate.

The safeguards mentioned under Article 311 of the Constitution can be claimed by members of All India Service, members of civil service of the Union and a State, persons holding a civil post under the Union or a State. However, some persons are excluded from claiming the benefit of the Article like those in military services, the defence sector, employees of statutory public corporation, P.G.I, etc., the employees of government companies registered under the Companies Act, 1956, or of registered societies, or of a university are not holders of civil post and thus do not fall under these civil servants. Further, where a person is appointed without following the recruitment and procedure, his appointment being illegal can be terminated without complying with the safeguards.

Article 311(2)

This provision is applicable only upon the event when a civil servant is “reduced in rank”, “dismissed” or “removed” against his will before the expiration of the period of his tenure. They are entitled to this safeguard under clause 2 only when the reduction in rank, dismissal, or removal is done by way of penalty. To determine whether it was done by way of penalty/punishment, the Supreme Court laid down two tests in the case of Parshotam Lal Dhingra v. Union of India (1958) which are:

Whether the concerned employee has the right to hold the post?
Whether the employee has been visited with evil consequences? (evil consequences mean civil or penal consequences)

It has been held in the case of Union of India v. Raghuwar Pal Singh (2018) that the simple order on termination does not reflect on the respondent’s conduct rather it is just an implication of his appointment being illegal due to being made without the prior approval of the competent authority. Where such termination is made without taking recourse to an inquiry is violative of the principle of natural justice and Article 311(2) of the Constitution. Article 311(2) also attracts certain cases like rank reduction or termination of the contractual or permanent employee since both have the right to hold posts. Similarly, under Rule 6 of Central Civil Services (Temporary Service) Rules, 1965, Article 311(2) is attracted as it states that the termination of services of persons in ”quasi-permanent” services would also be treated as punishment. Thus, it can be concluded that for any order passed in any form with the effect of rank reduction, dismissal or removal against employees holding a civil post, to be valid has to be preceded by an inquiry and reasonable opportunity to be heard as guaranteed under Article 311(2).

Inquiry and reasonable opportunity

A civil servant to be reduced in rank, dismissed or removed will first have to be given a reasonable opportunity to be heard and make his defence. The Preamble of the Indian Constitution offers economic, social and political justice along with the freedom of belief, thought and equal opportunity which allows the employee an opportunity to make his defence pursuant to ensuring fairness in administrative action based on the rules of natural justice. These principles are connected to Article 14 which ensures “equality before the law and equal protection of the law”, in a way that violation of principles of natural justice would violate Article 14 as well. Such an administrative action would be considered arbitrary in nature. All the procedures of Audi Alteram Partem from the right to notice to the final determination of a complaint filed against an employee have to be applied equally to every employee and otherwise, it would violate Article 21 of the Constitution.

The reasonable opportunity to be heard entails all the aspects of the natural justice principles that must not be left unaddressed to provide an absolute opportunity to present his defence. Since all the principles of natural justice cannot be laid down to determine whether a reasonable opportunity was given or not, a generic statement that is given recognition is that an inquiry was followed after observing the principles of natural justice in fair conduct. In the case of Union of India v. T.R. Varma,(1957), Venkatarama Aiyer J said, for the purpose of applying the rules of natural justice, a party must be given an opportunity for adducing all relevant evidence on which he relies. He should be allowed to cross-examine witnesses. No material should be relied upon without giving him the opportunity to make the defence.

It was held in the case of Khem Chand v Union of India (1958), that the opportunity of being heard translates into allowing the concerned employee to establish his innocence after the charge sheet is issued to him, this would also allow cross-examining the witness for his defence as well as the one in support of charge sheet. This will be followed by the opportunity to make representation only when penalties like dismissal, removal or rank reduction have been inflicted by the competent authority.

Prior to the 42nd amendment in 1976, a civil servant had the opportunity to make defence at two stages:

at inquiry stage where the inquiry officer is given the opportunity to make his own defence, and
at the punishing stage where the employee concerned is given the opportunity to make his representation against the penalty proposed to be imposed by the disciplinary authority.

After the amendment, the second stage was removed. Therefore later when in the case of Keya Kar v.The State of West Bengal (2019), the petitioner was granted the opportunity to make a defence in the enquiry and not against the order of punishment. Hence, it was held that there was no violation of principles of natural justice.

Exclusion of inquiry

Though Article 311(2) of the Constitution states that every person shall be given the opportunity to be heard, however, it is not absolute and has some exceptions wherein it is not required to give the said opportunity and it will not amount to a violation of principles of natural justice. These instances are as follows:

Exception 1 – conviction on criminal charge [proviso 2(a), Article 311(2)]

According to proviso (a) to clause (2) of Article 311, the protection under clause 2 of Article 311 i.e opportunity to be heard, will not be applicable before imposing any of the major penalties in cases where the prosecution of the employee is for a criminal offence and leads to rank reduction, dismissal or removal. To apply this proviso, it is not necessary for the government to wait until the disposal of appeal or revision presented against the conviction. But the order of dismissal will cease to exist if the conviction is set aside.

Exception 2 – where inquiry is not reasonably practicable [proviso 2(b), Article 311(2)]

The scope of this clause has been explained in the case of Union of India v. Tulsiram Patel (1985), wherein the Supreme Court said,

Whether it was practicable to hold the inquiry or not must be judged in the context of whether it was reasonably practicable to do so at the satisfaction of the disciplinary committee. It is not a total or absolute impracticability that is required by clause (b).
What is requisite is that the holding of the inquiry is not practicable in the opinion of a reasonable man taking a reasonable view of the prevailing situation.
The disciplinary authority is to record the reasons in writing for dispensing with the inquiry. There is no obligation to communicate the reasons to the government servant.
The decision of the disciplinary authority is final by Article 311(3). However, it is not binding upon the courts so far as its power of judicial review is concerned.

In another case of Southern Railway Officers Association v. Union of India (2010), the application of clause 2 was put to test before the Supreme Court. Herein a disciplinary proceeding was initiated against one Arputharaj which led to his dismissal from the services who was later reinstated. One day, when the disciplinary authority for workmen working in the workshop was waiting in the railway station when that servant abused him and threatened to kill him. Based on the documents available with the Committee, he was dismissed from the service without holding an inquiry which was held properly by the Apex Court.

Exception 3 – the holding of inquiry not expedient in the interest of state [proviso 2(c), Article 311(2)]

This exception provides that it is not expedient to give a civil servant the opportunity when it is found to not be in the interest of the security of the state subject to the satisfaction of the president/governor. The purpose of this exception was elaborated by the Court in Union of India v. Tulsiram Patel, wherein the satisfaction of the president/governor is in the context of expediency in holding an inquiry in the interest of the security of the state. This satisfaction is subjective in nature and cannot be classified by objective standards.

In the case of Union of India & Anr v. M.M.Sharma (2011), an Indian employer working in China was terminated for disclosing certain confidential photos to the Chinese government. The Supreme Court held that it was justified for protecting the interest of the security of the state.

Clause D – Article 311(3)

It is the finality clause that refers to the situation covered under Article 311(2) (b), provision (ii), mentioned earlier. It states that if a question arises whether it is reasonably practicable to hold such inquiry as in clause 2 in respect of such a person, the decision of the empowered authority to dismiss, remove or reduce rank shall be final. However, it has been stated by the Apex Court that Article 311(3) does not absolutely bar the judicial review of the action taken under Clause 2(b) of Article 311, proviso (ii). It has been held that the finality of it can be tested in the court of law when it is found that the action is arbitrary or mala fide or motivated by extraneous consideration or a ruse to dispense with the inquiry.

Conclusion

Article 311 aims to safeguard the rights of the civil servants under government service against the arbitrary rank reduction, dismissal or removal. It enables them to discharge their function confidently and efficiently. The main aim is to ensure a certain amount of security to them. Thus, in case of imposition of penalty in the form of rank reduction, removal or dismissal by virtue of Article 311(2), they must be given an opportunity to be heard. The public interest and security of the country are given more emphasis and therefore the principles of natural justice are tailored to serve the public interest and adapt to the demands of the developing society. Therefore, their application needs to be flexible to accommodate the requirements of the case. However, sometimes following the principles can create unnatural results and it may not be possible to present such an opportunity to be heard, hence the exceptions.

References

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Regulations applicable to overseas direct investments in unlimited companies registered in India

By

Abanti Bose

-

October 29, 2021

0

This article is written by Aabir Shoaib, pursuing Diploma in General Corporate Practice: Transactions, Governance and Disputes from Lawsikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

Overseas Direct Investment (ODI) is now a catchphrase in this age of globalization. It can be seen during the last few years that the trend of investing in firms overseas is expanding year upon year. Many Indian residents and companies are investing in or purchasing stakes in foreign companies. Money invested by way of donation to the capital or subscription to the Memorandum of Association of a foreign entity, or purchase of equity securities of a foreign entity either by market purchase, private placement, or stock exchange, excluding portfolio investment, is referred to as ‘Overseas Direct Investment’ and this generally signifies a long term interest in the foreign entity.

It is important to note that Foreign Direct Investment (FDI) is regarded as a significant non-debt financial resource for economic development, especially in a developing country like India. FDI flows into India have increased steadily since liberalisation and have become an essential element of foreign investment because it infuses long-term sustainable capital into the economy and contributes to the transfer of technology, corporate strategy sector development, greater innovation, contestability, and job creation, along with other benefits. As a result, the government of India encourages and supports FDI in order to augment indigenous capital, technology, and skills in order to drive economic growth and development.

Unlimited company in India

An unlimited company is defined under Section 2(92) of the Companies Act, 2013. An Unlimited Company means a company not having a limit on the liability of the members of the company, that is, the shareholders. As there is no limit on the liability of the members of the company, if and when the company is unable to pay off its liabilities and debts in a full-fledged manner and it decides to initiate the process of liquidation/winding up, the creditors of the company will have right to recover their payments by asking for the personal assets of the shareholders to be sold in order for the payments to be made to the creditors.

Naturally, unlimited companies are riskier and put the shareholders at much greater risk in case of an adverse situation since there is no limit on the liability of the members regardless of their percentage of shareholdings. However on the bright side, in the case of a company having unlimited liability the creditors have higher chances of recovering their money so it becomes easier to get credit from creditors. This also makes the company realise the value of its assets given that they could lose all of them anytime. Additionally, the management decisions of the company are crucially operated and evaluated at every step thereby significantly reducing their chances of getting the business into potential risks.

Foreign Direct Investment/Overseas Direct Investment in India

‘Foreign Direct Investment’ or FDI, or an overseas direct investment in India is referred to as an investment made through capital instruments by a person residing outside India in an unlisted company registered in India or in ten per cent or more of a listed Indian firm’s post-issue paid-up equity capital on a fully diluted basis.

If a pre-existing stake by a person residing outside of India in capital instruments of a public company drops below ten per cent of the fully diluted post-issue paid-up equity capital, the investment will be classified as FDI. The entire number of shares that would be outstanding if all feasible sources of conversion were used is referred to as a ‘fully diluted’ basis.

The government has developed an FDI policy framework that is transparent, dependable, and easy to understand. This framework is enshrined in the Circular on Consolidated FDI Policy, which could be modified on a yearly basis to assess and stay consistent with regulatory changes that occur during the interim. The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, Government of India, issues consolidated FDI policy circulars, press notations, and press releases, notified by the Department of Economic Affairs (DEA), Ministry of Finance, Government of India, as amendments to the Foreign Direct Investment Policy.

Regulations applicable to Overseas Direct Investments

Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations promulgated via Section 6(3), Clause (a) of the Foreign Exchange Management Act, 1999 govern transactions in respect of Overseas Direct Investments. (Refer FEMA.120/RB-2004 notification issued July 7, 2004, for more details.)

Direct investment by residents in joint ventures and totally owned subsidiaries based overseas is allowed under the aforementioned provisions. Any investment in joint ventures and wholly-owned subsidiaries may be made via the Automatic Route (without seeking Government of India approval) or the Approval Route (subject to Government approval).

The Reserve Bank of India (RBI) has the authority under Section 6(3) of the Foreign Exchange Management Act, 1999 to prohibit, restrict, or control transactions by imposing required restrictions. Section 11 of the FEMA Act also authorises the RBI to make directions to ensure that the terms of the Act, as well as the rules, regulations, notices, and directions issued thereunder, are followed.

Most importantly, only ‘Authorised Dealers’ covered under the definition of Section (1) of Section 10 of FEMA, registered with the Reserve Bank of India can undertake Overseas Direct Investments. The Indian party/Resident Individual is required to route all transactions relating to a specific overseas Joint Venture (JV) or Wholly Owned Subsidiary (WOS) through only one branch of an Authorized Dealer. This branch would be the designated ‘Authorised Dealer’ for that Joint Venture or Wholly Owned Subsidiary, and all transactions and communications relating to the investment in that particular entity would be reported only through this designated Authorized Dealer branch.

For the purposes of ODIs, FEMA and RBI, company incorporated in India, a body created by an Act of Parliament, a partnership firm registered under the Indian Partnership Act 1932, a Limited Liability Partnership (LLP) incorporated under the LLP Act, 2008, and any other entity in India as may be notified by the Reserve Bank is all considered Indian Parties. When more than one of these companies, bodies, or entities invests in a foreign Joint Venture or Wholly Owned Subsidiary, the combination is known as an “Indian Party.”

In case an Indian Party wants to make an overseas direct investment from India, it may make bona fide overseas direct investment in any bona fide activity but Real Estate (as defined in Notification No. FEMA 120/RB-2004 dated July 7, 2004) and banking as these are prohibited sectors for FDI. The term “real estate business” refers to the buying and selling of real estate or the trading of Transferable Development Rights (TDRs), but it does not include the development of townships, the construction of residential/commercial premises, roads, or bridges.

In a recent case, Standard Chartered Bank has been fined Rupees 100 Crore involving illegal share distribution as the Enforcement Directorate’s Adjudicating Authority (AA) penalised Standard Chartered Bank, Tuticorin-based Tamilnad Mercantile Bank, and others for violating provisions of the Foreign Exchange Management Act (FEMA).

Standard Chartered Bank (SCB) was fined 100 Crore by the AA, while Tamilnad Mercantile Bank (TMBL) was fined 17 crores and MGM Maran, the then chairman and director of TMBL, was fined 35 crores. According to the Enforcement Directorate, the AA held SCB guilty of contraventions of the provisions of FEMA for opening the SCB Project Windmill escrow account without prior permission of the RBI.

Conclusion

In a nutshell, the investment made through capital instruments by a person residing outside India in an unlisted company registered in India; or in ten per cent or more of a listed Indian firm’s post-issue paid-up equity capital on a fully diluted basis is referred to as ‘Foreign Direct Investment’ or FDI.

An unlimited corporation is one in which the responsibility of the members of the company, i.e. the shareholders, is unrestricted. Because the members’ liability is unlimited, if and when the company is unable to pay off its liabilities and debts in a timely manner and decides to initiate the process of liquidation/winding up, the company’s creditors will have the right to demand that the personal assets of the shareholders be sold in order for the payments to be made.

In India, the Reserve Bank of India reserves the right to prohibit, restrict, or control transactions by placing certain restrictions under Foreign Exchange Management Act, 1999 such as transfer or issue of any foreign security by a person resident in India; transfer or issue of any security by a person resident outside India; transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; any borrowing or lending in rupees in whatever form or by whatever name called; any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; deposits between persons resident in India and persons resident outside India; export, import or holding of currency or currency notes; transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; giving of a guarantee or surety in respect of any debt, obligation or other liability incurred either by a person resident in India and owed to a person resident outside India; or by a person resident outside India.

This Act also empowers the Reserve Bank of India to issue directions to ensure that the Act’s terms, as well as the rules, regulations, notices, and directions issued thereunder, are followed, and that only ‘Authorised Dealers’ registered with the Reserve Bank of India can engage in Overseas Direct Investments. The investment shall be considered as FDI if a previous stake by a person residing outside of India in capital instruments of a public company falls below ten per cent of the fully diluted post-issue paid-up equity capital. A fully-diluted basis refers to the total number of shares that would be outstanding if all possible sources of conversion were utilised. An Indian Party may make bona fide overseas direct investment in any bona fide activity but Real Estate and banking are the prohibited sectors for FDI. The term “real estate business” refers to the buying and selling of real estate or the trading of Transferable Development Rights (TDRs), but it does not include the development of townships, the construction of residential/commercial premises, roads, or bridges.

Foreign Direct Investment (FDI) is viewed as an important non-debt financial resource for economic development, particularly in developing countries like India. Since liberalisation, FDI flows into India have steadily increased and have become an important component of foreign investment because it infuses long-term sustainable capital into the economy and contributes to technology transfer, corporate strategy sector development, greater innovation, contestability, and job creation, among other things. As a result, the Indian government encourages and supports foreign direct investment (FDI) in order to supplement indigenous capital, technology, and skills and drive economic growth and development.

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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Acquisition and transfer of immovable property in India by a person resident outside India

By

Diva Rai

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October 29, 2021

0

immovable-property — Image source - https://bit.ly/3Bqcerm

This article is penned down by Ojasvi Gupta, a student of Faculty of Law, Banaras Hindu University, Varanasi. It attempts a comprehensive take on all matters and concerns on the process related to the acquisition and transfer of real estate in India by a non-resident Indian.

Table of Contents

Introduction

The property market in India has been witnessing rapid growth over the last decade, with noticeable growth in the interest for purchasing real property in India from persons residing both inside and outside of India. In this article, we examine the relevant rules and regulations that govern the method through which non-resident Indians [NRIs], foreign nationals, and foreign nationals of Indian origin acquire or transfer immovable property in India.

Who can purchase immovable property in India

In order to determine who can or cannot purchase immovable property in India, it would be prudent to first establish what categories of persons are stated in the law. They are as follows:

Indian citizen

The Citizenship Act of 1955, provides four ways through which a person can acquire Indian citizenship. It could be through birth, descent, registration, or naturalization as listed in Sections 3, 4, 5, and 6 of the Act, respectively.

NRI

A person who is staying abroad for employment purposes or business-related purposes is generally referred to as an NRI. Legally speaking, NRI – a non-resident Indian is an Indian citizen who lives in a foreign country for more than 180 days in a financial year.

PIO

Abbreviated for persons of Indian origin, a PIO is an individual who has now settled in a foreign country. Any of the following people could be a PIO:

A person who was born in India or whose parents/grandparents/great grandparents were born in India or were permanent residents in the country or any of the territories that became a part of the country, based on the Government of India Act of 1935.
A person who owned an Indian passport in their name in the past.
A person who is the spouse of an Indian citizen, residing in India only.
OCI.

Abbreviated for an overseas citizen of India, an OCI is a person who is formally a citizen of another country but is granted several rights and freedoms enjoyed by Indians. It should be noted that India does not allow dual citizenship, OCI is as close as it gets. They could be:

A spouse of an Indian citizen, being married for at least two years.
Children of an Indian parent or grandparents.
Children and grandchildren of OCI holders.
Foreign National.

At last, after removing the above-mentioned categories and citizens of India residing in the country, we are left with the individuals called foreign nationals.

The Foreign Exchange Management Act, 1999 (FEMA) along with the Regulations issued by the Reserve Bank of India (RBI) govern the process of acquisition and transfer of real estate in India to a major extent. Out of the mentioned categories, PIO, OCI, and NRI can acquire and transfer immovable property in India with some specified terms and conditions, whereas a foreign national cannot do so.

Whether NRI/PIO can acquire agricultural land/ plantation property/ farm house in India

An NRI/PIO cannot acquire agricultural land/plantation property/farm house under general permission, which applies to residential citizens in India. Although such proposals can be assented to, after fulfilling the requirement of specific approval of the Reserve Bank, which considers the proposal in consultation with the Government of India to decide the allowance of acquisition.

An NRI can purchase and hence acquire (with specified payment methods provided below), any immovable property in India except agricultural land/plantation property/farmhouse. Transferring the property under this category has some restrictions. The party to which it is transferred should be one of the following:

A citizen of India who resided in some foreign country.
A person of Indian origin not residing in India.
An Indian resident.

Though an NRI can own agricultural land/plantation property/farmhouse, they can inherit this property further only to Indian citizens permanently residing in India.

Similarly, a PIO also cannot acquire agricultural land/plantation property/farmhouse by way of purchase but it can be inherited. Subject to certain conditions, a PIO can inherit real estate in India from another NRI or PIO as well. RBI’s permission should be obtained when the inherited property goes in favor of a citizen of a foreign state, who is resident outside India.

Another essential factor that needs to be kept in mind is that the person from whom the NRI inherits the property, the original owner, should have acquired the same property in accordance with the provisions of the law of foreign exchange, prevalent at that time. Therefore, in instances where the permission was required to be obtained, no immovable property can be inherited by the NRI or PIO, without specific permission obtained from the RBI.

Do any documents need to be filed with the Reserve Bank of India after the purchase

Purchase of residential/commercial property comes under general permission and as such a PIO is not required to file any specific documents with the Reserve Bank of India. The same is the case with an NRI. Real estate other than the agricultural land category, generally requires following the documents:

OCI card (In case of OCI)
Passport (In case of NRI)
Passport size photographs
Address proof
Pan card (Permanent account number)

How many residential/commercial properties can NRI/PIO purchase under the general permission

The statutory rules and regulations do not stipulate any restriction as such on the number of residential/commercial properties that can be purchased by NRI/PIO. The only limitation placed is that they can repatriate sales proceeds, i.e. convert the money in the currency of the country they are residing in, of only 2 residential properties outside India. The amount of repatriation is li mited to USD 1 million per Financial Year, subject to satisfaction of Authorized Dealer (AD) Bank and payment of applicable taxes.

This manner of repatriation applies to foreign nationals too, on the condition that the property should have been inherited from a person resident in India. Sale proceeds in foreign exchange are not permitted to repatriate to Nepal and Bhutan.

Can a foreign national who is a person resident in India purchase immovable property in India

FEMA provides for a foreign national resident in India to acquire immovable property in India. This applies to individuals of all countries with the exception of Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Afghanistan, China, Iran, Macau, Hong Kong, or the Democratic People’s Republic of Korea (DPRK), who would require prior approval of the RBI in order to do so.

Can an office of a foreign company purchase immovable property in India

An office, branch, or another place of business, (with the exception of a liaison office) of a foreign company in India, established with all the necessary approvals, is eligible to purchase immovable property in India. This property must be only used for the purpose of business or anything auxiliary to carrying on such activity and it goes without saying that all applicable laws, rules, regulations, or directions in force should be duly complied with.

The business entity or the concerned person of the company has to file a declaration with the Reserve Bank within a period of ninety days from the date they acquired the property. This declaration is called the International Payment Instruction form (IPI). The person resident outside India also has the option to mortgage the property for the same effect. An immovable property purchased for the above-mentioned purpose can be transferred through mortgage by a non-resident to an AD bank as a security for any borrowing.

However, persons of 11 countries need to obtain RBI permission for acquiring such property for a period exceeding five years. These countries are Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Democratic People’s Republic of Korea (DPRK). Citizens of these nations, irrespective of their residential status, cannot acquire or transfer immovable property in India, without prior permission taken from RBI.

Likewise, a foreign company for the purpose of establishing a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can acquire any real estate in India. The payment for acquiring such property is done through proper banking channels. This is known as Inward remittance – when someone receives money from an NRI abroad. Properties of this category could be used as a mortgage with an Authorised Dealer (a category of banks notified by RBI) as a security for other borrowings. In cases when these companies wind up their business/office, the sale proceeds require the permission of RBI for repatriation.

Further, acquisition of commercial property by business entities to set up Branch Offices in India which are originally incorporated in the neighboring countries of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan would require prior approval of the Reserve Bank. Nonetheless, if the foreign company has established a Liaison Office, it can not acquire immovable property. In such cases, Liaison Offices can take property by way of the lease only, that too for a time period not exceeding 5 years.

Whether immovable property in India can be acquired by way of gift

An NRI/PIO can acquire residential/commercial property by way of a gift from any of the following – resident of India, an NRI, or a PIO. However, a foreign national or a non-Indian origin residing outside India cannot be gifted residential/commercial property in India. The option to acquire agricultural land/plantation/farm house in India by way of gift is not available to a person resident outside India.

NRI/OCI may give residential or commercial property as a gift to NRIs or OCIs who are in relation with them. These relatives are defined in Section 2(77) of the Companies Act, 2013. Foreign nationals of non-Indian origin require prior approval of RBI for gifting the residential/commercial property.

In the case of agricultural land/plantation property/farmhouse, NRI/OCI can give it as a gift to an Indian citizen who resides in the country only. A foreign national would require prior approval of the RBI to qualify as a gift receiver. A non-resident can transfer residential/commercial property as a gift.

Analyzing it all, it can be said that, NRI/ PIO may gift residential/commercial property to:

A person resident in India; or,
An NRI; or
A PIO;
A foreign national of non-Indian origin with prior approval from the Reserve Bank.

An NRI/PIO/Foreign national, who owns an immovable property under the agricultural category can gift it to a citizen resident in India. To do so, a foreign national of non-Indian origin will again need prior approval from the Reserve Bank.

What are the accepted modes of payment for property acquired in India

Payment for immovable property in India is accepted through funds remitted via normal banking channels (includes branch banking, mobile banking, and ATM channel of banking) and is subject to the appropriate taxes and other duties/ levies imposed in Indian territory. Besides the manner stated above, the payment can also be made out of funds held in NRE (a Non-Resident External account, as the name suggests, is used by an NRI to facilitate deposit earned in foreign currency) / FCNR (Foreign Currency Non-Resident (Bank) deposits) / NRO (NRO account can be loosely termed as the bank account for regional functions, it is used to manage the income earned by NRI in India only) accounts of the NRIs/ OCIs, maintained in India. Payments can not be made through either travelers’ cheques or currency notes of a foreign denomination. No payment shall be made outside India for this purpose.

Can a foreign national of non-Indian origin and resident outside India purchase immovable property in India

A foreign national of non-Indian origin, resident outside India cannot purchase real estate in India. Although they may take immovable property on lease provided it is not for a period exceeding 5 years. Approval of RBI is required to increase the lease period from 5 years. However, they are permitted to acquire one immovable property (other than agricultural land/plantation property/farm house) jointly with their spouse, provided the spouse is NRI or OCI and otherwise not prohibited from such acquisition.

Joint acquisition by the spouse of an NRI or an OCI

A person resident outside India (i.e., a foreign national), excluding a non-resident Indian or an overseas citizen of India, who is a spouse of an NRI or an OCI may acquire an immovable property (other than agricultural land/farm house/plantation property), jointly with his/her NRI/OCI spouse. Such an acquisition would follow these rules:

The payment for transfer shall be either in the form of
- Funds received from a foreign country through banking channels (inward remittance) in the bank account of the NRI/OCI.
- Funds held in a non-resident bank account, which are maintained according to the provisions of the FEMA Act, supplemented by the regulations made by the RBI.
No payment for the transfer of immovable property will be accepted through the traveler’s cheque or in the form of foreign currency notes or by any other mode that is not permitted specifically.
The solemnized marriage must be registered and subsisted for at least two continuous years immediately before the date of the acquisition of the property.
The non-resident spouse must not be, due to any previous discrepancy, prohibited from such acquisition.

Can a non-resident give his residential/commercial property

As per Indian law, there is no limitation on accepting any type of property i.e. commercial or residential as a gift or acquired through inheritance. There is no restriction. The donor could be a resident Indian, PIO, or NRI. The only condition is that agricultural land cannot be gifted. Agricultural land or plantation property or farmhouse can only be inherited. Simply put, NRIs cannot purchase agricultural land but can inherit the agricultural land. Furthermore, this inherited agricultural land can only be sold to the resident Indians.

Rules are slightly different for persons of Indian origin. PIOs can inherit any real estate including the agricultural category from a person who acquired the same property in compliance with the foreign exchange law or FEMA, whichever was in effect at the time of acquisition. A PIO is authorized to gift the residential or commercial property to persons including resident Indian, NRI (citizen of India), and PIO as well.

Can foreign embassies/diplomats/consulate general purchase sell immovable property in India

Foreign Embassies/Diplomats/Consulate Generals (diplomatic mission located in a foreign country, but not in its capital city) can purchase as well as sell real property in India other than agricultural land/plantation property/farmhouse after obtaining clearance from the Ministry of External Affairs, Government of India. The mode of payment, as discussed above, should be foreign inward remittance through normal banking channels.

References

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Stepping towards deployment with the necessary legal documents required by you and your family in the USA

By

Rachit Garg

-

October 29, 2021

0

Criminal trial — Image Source - https://rb.gy/yf4umm

This article is written by Vanya Verma from O.P. Jindal Global University. This article covers all the necessary documents one needs to take care of before leaving for deployment in the USA.

Introduction

Being ready for deployment is a way of life in the military. One may be duty-ready, but should not overlook preparations on the homefront. Before deploying, make sure to create or amend any necessary legal documents. Do it for the sake of your family. Many personal and practical difficulties arise as a result of deployment orders. The urge to get things in order and the need to do so fast is one of the most common desires. Even when you’re not at home, you want to safeguard and care for your home and loved ones.

Legal steps to take before deployment

Designate a power of attorney

A power of attorney appoints one or more people to act on your behalf for legal or financial matters for a set period of time. Banking transactions, property sales or purchases, and medical decisions are some examples of these challenges. Powers of attorney come in various forms:

Powers of attorney might be general, specific, or limited.

A general power of attorney gives a designated representative(s), the legal authority to act on the behalf of a service member or grantor.
A specific or limited power of attorney is one that is limited to a single transaction or commercial connection. Powers of attorney for specific bank accounts, automobiles, or activities such as the sale of a certain property are examples of this. Detailed information should be included in a special power of attorney. The disadvantage of employing special powers of attorney is that you’ll need one for each business relationship being covered.

Regular, long-lasting, and revolving powers of attorney

Regular: When you assign a regular power of attorney, it takes effect immediately. A standard power of attorney is valid until it expires, is revoked, the grantor becomes incapacitated, or when either party dies.
Durable: When a durable power of attorney is assigned, it normally goes into effect immediately and lasts until it expires, is revoked, or when one of the parties dies. However, a durable power of attorney has particular language that allows the representative’s powers to continue even if the grantor is incapacitated.

Springing: A springing power of attorney does not become effective until a specific event occurs; most commonly when the grantor becomes incapacitated and unable to make their own decision, the power of attorney becomes effective. They may or may not have an expiration date.
Termination: A power of attorney is only valid for a given amount of time or during a certain event, such as the duration of a deployment. When that time period or event has ended, the POA will automatically expire.

Making use of the appropriate POA forms

In many circumstances, the corporation or organisation will want you to use their unique form to pre-file the power of attorney with them, or meet other conditions. To find out what format and policy your bank, insurance company, or other institution prefers for submitting documents, it’s preferable to contact them.

Choose an ideal person to represent you

Choose the appropriate person(s) to represent you in any legal or financial matters that may occur. This person can be someone you trust, such as your spouse/partner, parents, or a close friend.

Tips

Figure out the type(s) of power of attorney you’ll require.
To prepare or update the required power(s) of an attorney, contact your installation legal services office or a civilian attorney. To locate a legal help office near you, use the Armed Forces Legal Services Locator.
Work with the individual you designated as your power of attorney to determine where the power(s) of attorney documentation will be kept. Legal offices are not a repository for powers of attorney or wills. You must keep your copy secure.
Set up your power of attorney for the period of your deployment, plus three months extra in case it is extended.
You must go through crucial papers with the person(s) you’ve chosen, such as your leave and earnings statement, insurance documents, bank account information, and so on, so they’re ready to make decisions pertaining to this if the need arises.

Make a living, last will and testament

If you’re unable to make decisions due to a major accident or sickness, a living will, also known as an advance directive, specifies the medical procedures you want or don’t want.

A last will and testament, often known as a will, is a legal document that specifies how your property, and possessions will be distributed after your death. If you don’t have this document, the court may step in.

Before you call legal services, consider the following points and discuss them with your spouse, partner, or parents.

In the event of a serious illness or accident, decide which medical procedures you want and which you don’t. This could include instructions on resuscitation, mechanical ventilation and organ donation.
Make a decision on who will be your executor (i.e. the person who will make sure that what you say in your will is carried out).
Decide who will be your children’s guardian.
Make a list of your assets, liabilities, and any special gifts that you may have received.

Consult your installation’s legal services office if you have any questions. They can also assist you with document preparation, or you can hire a civilian attorney.

Tips

Even if you already have a will, consult with an attorney to examine it and make any necessary changes before your deployment.
Ensure that your address appears on all legal documents.
Ascertain that a designated person, such as your spouse, partner, or parent, is aware of where your legal documents are stored and how to access them.

Make a family care plan

This document serves as a guide for how you want your family to be looked after while you’re away. If you’re a member of the military, you’ll need a plan if you’re:

Single parent
Dual-member couple with dependents
Married with sole custody o0000r shared custody of a child whose non-custodial biological or adoptive parent is not the service member’s present spouse, or who otherwise bears sole responsibility for children under the age of 19 or individuals unable to take care of themselves in the absence of a service member.
Primarily responsible for family members that are dependent on you.

Update your Servicemembers Group Life Insurance and DD Form 93

Service members are eligible for Servicemembers Group Life Insurance (SGLI), which they must update or confirm at least once a year during in- and out-processing. The milConnect website allows you to update your SGLI.

The Record of Emergency Data, also known as DD Form 93, is an official and legal document used by the military to select beneficiaries of certain benefits and decision-makers in the case of your death or missing status.

When a life event occurs, such as marriage, divorce, the birth of a child, the death of a beneficiary, or a change in a beneficiary’s residence, it is critical that you check and update your SGLI and DD Form 93.

Note that updating your SGLI does not update your DD Form 93; instead, you must access it through the Electronic Military Personnel Office, or eMILPO.

Understand your protections under the Servicemembers Civil Relief Act

Active-duty service personnel and their families, including those in the National Guard and reserves, are protected financially and legally under the Servicemembers Civil Relief Act. Here are some of the legal safeguards to keep in mind as you prepare for deployment:

Civil court cases that have been postponed: You can request a 90-day postponement, or stay, in a civil court action or administrative procedure if you are unable to participate due to your military duty. This may include divorce actions, child paternity and support cases, and foreclosure processes. Any criminal court or criminal administrative proceedings are not covered by this protection.

Eviction prevention: Regardless of the text of your rental agreement or local laws, you and your family cannot be evicted for nonpayment of rent without a court order. This protection applies to homes with monthly rents that are less than a particular amount. For further information, contact your local legal aid office.
Residential leasing agreements can be terminated if you signed a lease and subsequently received orders to deploy for more than 90 days. You can do so by giving written notice of cancellation. Agricultural, professional, and corporate leases are all covered by this protection.
Automobile lease termination: If you signed a lease agreement before receiving your deployment orders, you may end the lease for your car.
Right to vote in your home state: Your voting residency for state, federal, and local elections is unaffected by your deployment from the state. Spouses have similar protections.

Update Life Insurance

Military deployment is risky in many instances. Men and women in the military may be required to operate in difficult settings or participate in combat missions. With a higher level of risk comes a greater requirement for accountability. It’s a good idea to double-check that your life insurance and will are current in case the worst happens.

While it is unpleasant to consider the worst-case situation, it is preferable to be prepared so that your friends and family are not burdened with financial and legal issues. Taking the effort to ensure that those you leave behind are cared for and that your property is passed on to the right people might help you avoid future difficulties.

Guard your identity

While serving your country, you may also be exposed to another danger, i.e. identity theft. Because it can be more difficult to keep a track of your credit while on active service, the danger of ID theft can be higher. Take precautions to safeguard your identity, such as requesting a free security freeze. A security freeze prevents credit reporting agencies from disclosing your personal information to new creditors without your permission. Identity thieves may be unable to obtain new credit in your name as a result of this. An active duty alert is another approach to protect yourself against identity theft while away from your regular duty station.

Know your rights as a renter

Military personnel who finish their leases early owing to premature or involuntary discharge, or a permanent change in duty station requiring travel of more than 50 miles, are subject to a cap on the amount of rent owed under State law. Military members can break their lease by giving their landlord written notice at least 30 days before their move date, according to the law. A copy of their official military orders or a written verification signed by a superior officer must be included in the notice.

Get your financial house in order

Ensure that your financial records are current and accurate. This means giving your husband or wife (who will be paying the bills for the next few months) all bank account and credit card numbers, a list of assets and outstanding debts, a list of typical expenses like rent and utilities, as well as all phone numbers and addresses needed to deal with financial matters.

Taxes must be paid

Decide how your taxes will be filed and who will file them before you deploy. If your spouse is going to be filing taxes for the first time, make sure he or she has all of the appropriate paperwork. The IRS (Internal Revenue Service) also allows military personnel to file for an extension by using Form 2350.

Financial obligations to be fulfilled prior to deployment

There are various financial factors to address before your deployment begins, in addition to marking legal matters off your pre-deployment checklist:

Notify your credit card issuers and banks that you will be deployed so that they can accept charges from outside the United States.
Notify all of your lenders that you will be deployed. The Servicemembers Civil Relief Act caps the amount of interest that can be imposed on certain financial obligations acquired prior to deployment to not more than 6%. This includes credit cards, mortgages, and vehicle loans.

Consider opening a joint bank account (if you don’t already have one) to make it easier to pay bills and keep track of your finances.
Set up automatic deposits into the appropriate accounts. Some of your benefits may be deposited directly into your savings account.
Make a list of all your accounts, including bank accounts, credit cards, loans, utilities, and so on, with account numbers and due dates.
Consider setting up automatic payments on any bills that are applicable.
Provide a copy of your family’s budget.
Create an emergency fund or a credit card to be used in the event of a true emergency.

Precautions to safeguard personal belongings before deployment

Before you launch, check off these items on your to-do list:

Notify your homeowner insurance company that your house is going to be vacant. Also, inform them if you are putting your goods in a storage unit.
If you rent and live alone, you have the option to terminate your agreement. The Servicemembers Civil Relief Act gives you the legal authority to do so (SCRA).
Notify your car insurance company of your deployment. If your car will not be used, you may be eligible to cancel all or part of your coverage.

Make arrangements for roadside assistance so that your family has access in the event of a breakdown. Make sure the vehicles are equipped with emergency kits and that your spouse is familiar with how to utilise them.
Create a vehicle maintenance schedule and a list of favourite mechanics or auto shops in case of an issue.
Make an extra set of keys for your house and car.

Other preparations to be taken care of

Here are some last-minute pre-deployment tasks to remember:

Make sure your Emergency Data Form is up to date with your family’s current email addresses, phone numbers, and other contact information.
Make sure your family’s military IDs are current and won’t expire while you’re gone.
Notify your phone carrier that you will be out of the country. It’s possible that they’ll need to update your phone in order for you to make and receive international calls.
Make a Facetime or video chat schedule so you may talk to your loved ones over the internet.
Even if you don’t plan to utilise it, make sure your children are enrolled with the Child Development Center. If your partner becomes ill or has to travel, this may be necessary.
Provide phone numbers for your family members to call if they need to contact the rear-detachment or family support groups.

By taking preemptive measures, you may assist everyone in becoming more organised and prepared to deal with potential issues while deployed.

Conclusion

All the main documents and necessary steps that a person needs to take before heading towards deployment are covered in this article.

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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Enforcing emergency arbitral awards in India

By

Shoronya Banerjee

-

October 29, 2021

0

This article is written by Sanjay M Jawle, pursuing a Certificate Course in International Commercial Arbitration and Mediation from LawSikho. The article has been edited by Prashant Baviskar (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

Emergency arbitration is a mechanism that allows the disputing parties to apply for emergency interim relief before the appointment of a formal arbitration tribunal. A party may be required to seek interim relief, at any time after the making of an arbitral award but before it is enforced. In India, the provisions of Section 17 of the Arbitration & Conciliation Act, 1996 empower the arbitral tribunal to grant interim relief after it is constituted. However, the formation of an arbitral tribunal can be time-consuming. Even when the parties agree on the number of arbitrators to be appointed, and the party seeking reference designates his/her choice of an arbitrator in his notice for arbitration, the respondent has 30 days to designate a preferred arbitrator from the date of the said notice. The two party-appointed arbitrators have another 30 days to select the third or the presiding arbitrator. In case any of the parties fail to appoint an arbitrator, or if the two arbitrators fail to appoint a presiding arbitrator, or if there is a challenge to the appointment of an arbitrator, the process gets delayed still further. So, if a party wants to get interim relief on priority it is left with just one option, i.e. to approach the courts.

The provisions of Section 9 of the Act empower the courts to grant interim relief before the arbitral tribunal is constituted or after the Award is made but before it is enforced. Section 9 also gives restricted power to the court to grant interim relief after the arbitral tribunal has been constituted only if the remedy given by the tribunal under Section 17 is inefficacious.

However, it has been observed that in spite of the powers granted to the courts to grant interim relief, the courts do take a lot of time to grant interim relief. The concept of Emergency arbitration and emergency arbitrator stems from the above-mentioned shortcoming of the Court. Also, the aspect of confidentiality does not exist in the courts. Emergency arbitration is a concept that is increasingly becoming popular across the globe to overcome the aforesaid limitations.

Legal status of emergency arbitration

Section 2(1)(d) of the Arbitration & Conciliation Act, 1996, which defines arbitral tribunal to mean a sole arbitrator or a panel of arbitrators, has not defined or expressly included the term emergency arbitrator.

An emergency arbitrator only has temporary authority and his authority ceases once the arbitral tribunal is constituted. Several questions have been raised as to whether an interim relief granted by an emergency arbitrator can be binding in India?

Generally, the rules of various institutions provide that the decisions of the Emergency Arbitrator are binding only for an interim period. i.e. they can later be modified or suspended by the tribunal once it is formed. The International Chambers of Commerce ICC Rules provide that the order of the emergency arbitrator can be revisited by the arbitral tribunal once it is constituted. Some institutional rules also provide that such interim relief may expire by default after a certain period of time.

Depending on the applicable arbitral rules of the institute, read along with the laws of the country, an emergency arbitral tribunal, generally comprising of a sole arbitrator, may grant interim relief in a number of ways;

in the form of a preliminary order,
a procedural order,
a directive, or
an interim or partial award.

In India, the Act also does not provide for the appointment of temporary or Emergency Arbitrators. UNCITRAL also does not provide any provisions for the appointment of an Emergency Arbitrator for seeking emergency interim relief.

However, across the globe, leading arbitral institutions such as SIAC, LCIA, ICC, ICDR, JCAA etc have amended their rules to meet the interim relief requirements of their clients by incorporating a procedure for the appointment of an emergency arbitrator.

Such procedures, amongst other routine checks, like checking for the existence of an arbitration agreement, check that the parties did not ‘opt out’ of the interim relief or emergency arbitration procedure or did not agree to a different procedure for obtaining interim measures. The procedures also include procedures for the expedited appointment of emergency arbitrators, notification of emergency procedure, timelines for the respondent for emergency response, expedited challenge procedure with the challenge being decided expeditiously by the institution.

The emergency arbitrator has to necessarily meet the criteria of impartiality and neutrality and make the disclosures as per the rules of the arbitral institution. On his appointment, the emergency arbitrator prima facie first checks the jurisdiction of the emergency arbitral tribunal.

Criteria for granting interim relief

There are three fundamental principles that must be met before granting any interim relief. These are:

i) There must be a prima facie case for interim relief. ie at first appearance there must appear to be a sufficient cause or presumption to establish a fact unless rebutted or disproved.

ii) The balance of convenience must be in favour of the claimant. i.e. it is fairly likely that the dispute will be adjudicated in favour of the plaintiff.

iii) Perilum in mora i.e. there is danger in delay or irreparable loss may be inflicted on the claimant if no protection is given. There has to be such urgency for grant of interim measure that cannot wait for the appointment of the Arbitral Tribunal. The burden of proof here lies on the plaintiff.

While granting interim relief the emergency arbitrator has to ensure the proportionality of the interim measure sought. The relief granted should be sufficient to protect the interests of the plaintiff in case the dispute is adjudicated in his favour without being unfavourable to the respondent.

Tenure of the emergency arbitrator

The tenure of the emergency arbitrator is limited to the time required for granting or refusing to grant interim relief. The jurisdiction of the emergency arbitrator comes to an end once the Award or Order is delivered by the tribunal and thereafter the tribunal becomes functus officio.

Important case laws related to emergency arbitration in India

In Raffles Design International India Pvt Ltd v. Educomp Professional Education Ltd, the Emergency Arbitrator in Singapore granted certain interim relief to the petitioner. When the respondent acted in contravention of the emergency arbitral award, the petitioner approached the Delhi High Court, wherein the Court, in October 2016, observed that the Act does not contain any provisions for enforcement of an emergency/interim award issued in a foreign seated arbitration, and therefore, the emergency award was unenforceable in India. However, it further added that since enforcement of emergency arbitral awards was not possible in India, making an application under Section 9 was the only option left to the parties to seek interim relief in the case of foreign seated arbitrations.
In HSBC Pl Holdings (Mauritius) v. Avitel Post Studioz Ltd, where the Claimant had obtained an Interim Award from an Emergency Arbitrator, the Claimant had also applied for Interim Relief u/s 9 of the A&C Act, 1996. Though the Bombay High Court could determine the Interim Relief independent of the Emergency Award, on the basis of the Indian Law, the Court took a note of the content of the Emergency Award in granting Interim Relief. However, the Bombay High Court while granting relief under Section 9 of the A&C Act, 1996, held that a Section 9 application was not equivalent to the enforcement of an emergency award.

On appeal, the Supreme Court in its judgment on 6^th August 2021, had to decide on the question as to whether an Award delivered by an emergency arbitrator under SIAC rules qualifies as an order under Section 17(1) of the A&C Act, 1996. The Court held that Interim Awards of India-seated emergency arbitrators would be enforceable in India. However, in this case, as the seat of arbitration was in India, the Supreme Court was not required to deal with emergency arbitration in foreign seated arbitration.

The Supreme Court also said that Section 37 of the A&C Act, 1996 does not cover enforcement proceedings and hence no appeal would lie against the order of the emergency arbitrator. The methodology of the Bombay High Court in HSBC Pl Holdings (Mauritius) v. Avitel Post Studioz Ltd of granting interim relief on the basis of the Emergency Award was again adopted by the Bombay High Court in the case of Plus Holdings Ltd v. Xeitgeist Entertainment Group Ltd & Ors.

In Ashwini Minda v. U-Shin Ltd, the Claimant appealed under Section 9 against the Emergency Award. The Delhi High Court clarified that the courts will not pass an order contrary to the emergency arbitrator simply because a party has failed to obtain such reliefs from the emergency arbitrator and that there is no substantial change in the circumstances from the time the Emergency Award was passed.

Thus, in the Ashwani Minda case, the Court did not interfere with the Order of the Emergency Arbitrator and thus virtually accepted the order of the emergency arbitrator. From the above case laws, it is apparent that from an initial refusal to emergency arbitration, the Indian Judiciary is now beginning to accept emergency arbitration. However, the process is slow and the judgments of the courts are, at times, uncertain and unpredictable. In order to overcome this difficulty and to speed up the process, it would be in the larger interest of the country’s judicial system to make suitable amendments to the Arbitration & Conciliation Act, 1996. Some of the provisions that need to be added are given below:

Definition of emergency arbitrator.
Process of appointment of emergency arbitrator.
Notification of emergency procedure,
Timelines for the respondent for emergency response
Jurisdiction of emergency arbitrator.
Expedited challenge procedure for the appointment of emergency arbitrator.
Jurisdiction – Who shall have the power to decide on the challenge to the emergency arbitrator.
Award/Order of the emergency arbitrator
Enforcement of emergency arbitration Award / Order.
Appeals against emergency arbitration Award / Order.

Conclusion and the way forward

It is clear from all of the above that emergency arbitration is a trend in International Commercial Arbitration that is increasingly becoming popular across the globe due to the shortcomings of the Courts of Justice of many countries. The main advantages of the emergency arbitral Award or Order over the rulings of the court are confidentiality, time, and costs. The enforceability of the emergency award in India has been a question mark though. There is no provision in the Arbitration & Conciliation Act, 1996 which provides for the appointment of an emergency arbitrator and its Award or Order. However, the recent trend of the High Courts and the Supreme Court of India has been towards accepting the Award or Order of the emergency arbitrator is indeed heartening in keeping with the global trend.

To avoid litigation relating to emergency arbitration and its enforceability in India some amendments are required to be made in the Arbitration & Conciliation Act, 1996 & the same should be done expeditiously. Further, for the parties to be able to steer clear of any fresh litigation arising out of emergency arbitration and its enforcement, the parties should also have their stand pertaining to emergency arbitration clearly stated in the contract or arbitration agreement itself.

References

Emergency Arbitration: by Mr Arthur Lauvaux & Dr Kabir Duggal – 2^nd August 2021.
Global Arbitration Review: Asia Pacific Arbitration Review; India – Vijayendra Pratap Singh, Abhijnan Jha & Arnab Ray, AZB & Partners, 7^th July 2021.
Corporate Counsel – 15^th July 2015; Rules for Appointing an Emergency Arbitrator Drafting the International Arbitration Clause, Part 3 of 4. From the Experts – Ann Ryan Robertson, Derrick Carson and David E. Harrell Jr.
Enforceability of interim measures and emergency arbitrator decisions. Authors: Martin J. Valasek Jenna Anne de Jong. – Norton Rose Fulbright – Global Publication. May 2018
Settlement of commercial disputes Issues relating to expedited arbitration Note by the Secretariat – United Nations Commission on International Trade Law Working Group II (Dispute Settlement) Sixty-ninth session New York, 4–8 February 2019
Emergency Arbitration Procedures – What should a practice note of best practices consider. By Stephanie Khan Clayton & Benson Lim. 11^th January 2019.

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.