Landmark judgments by the retiring Justice Ashok Bhushan

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September 3, 2021

This article is written by Divyanshi Singh, from Symbiosis Law School, Noida. This article discusses the landmark judgments given by Justice Ashok Bhushan during his tenure.

Introduction

“The Judges are only known by their judgments…Judgments are the only true criteria for testing the mettle of a Judge. Judges delivering the greatest of decisions are justifiably remembered.” (Said by Justice Ashok Bhushan in one of his interviews)

Such is the aura of Justice Ashok Bhushan who retired on 4th July 2021 after serving in court for four decades as an advocate in the beginning and later as a judge.

In 1979, Justice Ashok Bhushan graduated from Allahabad University. He began his practice in civil law at the Allahabad High Court and later served as the Standing Counsel for the Allahabad High Court and the Uttar Pradesh State Mineral Development Corporation Limited. He was elected as the Allahabad High Court Bar Association‘s Senior Vice-President.

Justice Bhushan was appointed to the Allahabad High Court as a permanent judge in 2001. He was also Chairman of the Higher Judicial Service Committee. He was appointed as a Judge of the Kerala High Court on July 10, 2014, and soon he took the office of 31st Chief Justice of Kerala High Court on March 26, 2015.

On May 13, 2016, he was appointed as Supreme Court Judge, where his judgments stood testimony to his welfarist and humanist approach by deciding the landmark cases with humility.

Landmark Judgments by Justice Ashok Bhushan

Binoy Viswam v. Union of India (2017)

Facts

Section 139AA was inserted in the Income-Tax Act, 1961 by an amendment (vide Finance Act, 2017) that made it mandatory to link the Aadhar number to the PAN as well as the income-tax return by the 1st July 2017. Moreover, it was further stated in the section that failure to do the same would result in a declaration of PAN as void ab initio.

Issue

In this case, the validity of Section 139AA of the Income Tax Act was in question.

Held

The joint bench of Justice Bhushan and Justice Sikri had ordered a partial stay to the mandatory linking of the Aadhar Card with the PAN card. This order remained in effect until a nine-judge bench decided on the scope of the right to privacy under Article 21 of the Constitution of India in Justice K.S. Puttaswamy v. Union of India (2018).

Union of India v. M Selvakumar (2017)

Facts

A physically handicapped person had filed a petition to increase the number of attempts to write the Civil Services Examination from 7 to 10 as he also came under the ambit of reserved OBC category.

Issue

Whether the number of attempts to write the Civil Services Examination could be increased from 7 to 10 for the candidates who belong to two reserved categories, i.e. physically disabled and OBC?

Held

A Division Bench consisting of Justice Ranjan Gogoi and Justice Ashok Bhushan denied the petition. It was held that the physically disabled category was in itself a separate category and an individual falling in this category cannot demand further reservation. Justice Bhushan said that the term “physically disabled” is a distinct group in and of itself. He further said that people in this category had similar limitations, regardless of whether they belong to the General or OBC categories. As a result, they must be treated equally in terms of concessions. It was also held by the court that such reservation falls under the ambit of government policy and courts have no power to bring such reservation in motion.

Jiju Lukose v. State of Kerala (2015)

Facts

In this case, the petitioner had received a copy of the FIR after 2 months of filing. Until then the petitioner was unknown of the charges levied against him.

A PIL was filed by the petitioner in the court for seeking directions for the uploading of FIR on the police station’s website and for making copies of the same available to the accused as soon as the FIR is registered. Petitioner further contended that according to the Right to Information Act, 2005, police officers are obligated to lay down the recorded information in the public domain.

Issue

Can a copy of the FIR be given under RTI Act?

Held

The Kerala High Court’s Division Bench comprising of Justice A.M.Shaffique and Justice Ashok Bhushan ruled that the police officials must release a copy of the First Investigation Report (FIR) on an RTI application unless the competent authority deems that the FIR is covered by the provisions under Section 8(1) that can be exempted from being disclosed until the investigation is completed. Further, it was held that a copy of the FIR is given to the accused only when the proceedings are to be initiated on a police report by the competent judge.

M Siddiq (D) Thr Lrs v. Mahant Suresh Das & Ors (2019) [Ram Mandir Verdict]

Fact

This is popularly known as the Ram Mandir case. As per the beliefs of the followers of Hinduism, an ancient Ram Temple was situated at the birthplace of Hindu Lord Rama in Ayodhya. However, the temple was demolished by general Mir Baqi on the orders of Mughal Emperor Babur and the Babri Masjid was built in the same place in 1528-29. Babri Masjid was demolished by the Hindu extremist mod in 1992 that was followed by unrest in the entire country. The dispute dates from 1528 when the Ram Temple was demolished.

Issue

Who does the disputed land belong to?

Held

This dispute came to an end on November 9, 2019, when the five-judge bench gave the final decision on the matter. The bench was led by the then CJI Ranjan Gogoi along with Justice Sharad A Bobde, Justice D.Y. Chandrachud, Justice Ashok Bhushan, and Justice Abdul Nazeer.

The bench ordered for the construction of Ram Temple on the disputed land and the whole of 67.703 acres of land was handed over to the trust named Shri Ram Janmabhoomi Tirtha Kshetra. The court further directed the Centre to allot a 5-acre tract to the Sunni Waqf Board for the construction of a mosque.

It is worth noting that Justice Bhushan joined the Ayodhya bench months after delivering a relatively crucial judgment on September 27, 2018, in which the three-member bench refused to refer the 1994 Ismail Faruqui verdict to the five-judge Constitution bench. The 1994 decision concluded that a mosque was not required to deliver prayers in Islam. When the bench took up the Ayodhya matter, Muslim groups demanded that the SC first submit the Ismail Faruqui ruling to the five-judge panel. In this case, Justice Abdul Nazeer issued a dissenting opinion that mosque is not an essential part of the practice of Islam.

In Re: Problems and Miseries of Migrant Labourers (2021)

Facts

This case was a suo moto case taken up by the Hon’ble Supreme Court of India in the view of problems faced by the migrant workers during the COVID-19 Pandemic.

Issue

During the lockdown, migrant workers were facing problems in earning their living and a lack of access to food. Another issue was the weak implementation of the national schemes.

Held

An extensive order was issued to the Central and State governments by the bench composed of Justice Ashok Bhushan and Justice MR Shah to ensure the welfare of the migrant workers and people working in unorganized sectors. The orders included the directions:

To host communal dinners in inconspicuous locations;
To re-assess the entitled beneficiaries;
To assure the implementation of One Nation One Ration Card;
To establish a national database for unorganised workers; etc.

Reepak Kansal v. Union of India and Others (2021)

Facts

A petition was filed in the Supreme Court of India seeking ex gratia monetary compensation of Rs. 4 lakhs to the families of people who died due to COVID-19 or its side effects.

Issue

Should ex gratia monetary compensation of Rs. 4 lakhs be provided to the families of people who fell prey to COVID-19?

Held

As part of the bench hearing this case, Justice Ashok Bhushan directed the Union government to formulate a uniform guideline on ex-gratia payments to the families of people who died due to COVID-19 within six weeks. He also accepted the fact that the Prime Minister-led National Disaster Management Authority (NDMA) had miserably failed to perform its statutory duty due to its inefficiency to follow the compensation scheme.

Jaishree Laxmanrao Patil v. The Chief Minister & Ors (2021)

Facts

This case is popularly known as the Maratha Quota Reservation case. The Maharashtra State Reservation for Socially and Educationally Backward Classes (SEBC) Act, 2018 was passed in the state of Maharashtra to increase the already existing reservation for the Marathi community to 16% in education and public employability.

Though the Bombay High Court upheld the Act, it tried to reduce the percentage of reserved seats for Marathas to 12% in education and 13% in public employment, as per the recommendations of the Gaikwad Committee.

Issue

The validity of the Maratha Quota Reservation was in question.

Held

A five-judge bench of the Supreme Court led by Justice Ashok Bhushan issued the decision on the constitutionality of the Maharashtra State Reservation for Socially and Educationally Backward Classes (SEBC) Act, 2018. The court unanimously dismissed the review petition on the grounds that no extraordinary cause had been made for breaching the ceiling limit of 50% in favor of the Marathas.

The bench of Justice LN Rao, Justice Hemant Gupta, and Justice S Ravindra Bhatt issued the majority opinion. However, Justice Ashok Bhushan (together with Justice Abdul S Nazeer) disagreed with the majority opinion regarding the function of states in identifying the underprivileged classes, pointing out that the 102nd Constitutional Amendment does not deprive the states of the authority to establish backward classes.

Ms. X v. State of Jharkhand (2021)

Facts

A petition was filed by a rape victim after being raped by Mohd Ali and 3 others while she was going to meet her child, who was under the custody of his father after their divorce.

Issue

What should be the benefits granted to the rape survivor?

Held

Justice Bhushan in the judgment stated that a rape survivor should be provided with housing facilities under Prime Minister Awas Yojna or any other Central or State Schemes, and the minor children of such women should be provided with free education in any government organization until the age of 14.

Shanti Bhushan v. Supreme Court of India (2018)

Facts

A writ petition was filed by Mr. Shanti Bhushan to question the powers of Chief justice of India as Master of the Roaster and suggested that the allocation of cases must be done either by a Collegium or by the full court.

Issue

Is it lawful for CJI as a Master of the Roaster to allocate the cases?

Held

In the Apex Court, the Bench comprising Justice A.K. Sikri and Justice Ashok Bhushan held that the “Chief Justice in his individual capacity is the Master of Roster and it cannot be read as the Collegium of the first three or five Judges. Thus, it is his prerogative to constitute the Benches and allocate the subjects which would be dealt with by the respective Benches.”

Small Scale Industrial Manufacturers Association (Regd.) v. Union of India and others (2020)

Facts

The case is popularly known as the ‘Loan Moratorium’ case. A writ petition was filed under Article 32 of the Indian Constitution seeking direction for a remedial measure to redress the financial strain that was faced by the industrial sector due to COVID-19. The petition stated that the COVID 19 Regulatory Package notified by RBI was inadequate and ineffective. Moreover, it did not offer any substantial relief to the industries.

Issue

Can courts order a remedial measure to redress the financial strain faced by the industrial sector?

Held

In the judgment on the loan moratorium of 23 March 2021, the Bench of Justice Ashok Bhushan, Judge R Subhash Reddy, and Justice MR Shah held that the topic of economic and fiscal regulation should be very carefully tackled since judges are not specialists. The decision concluded that during the duration of the loan moratorium the total exemption from interest cannot be provided and that the court cannot grant any sector-specific relief(s).

Conclusion

The judgments of Justice Ashok Bhushan will always be a testimony to his welfarist and humanist approach that he never failed. He believed that the relationship between the bar and the bench is like a relationship of the sea and clouds that always run parallel to each other but can’t exist without each other.

During his online farewell, Justice Ashok Bushan paid his homage and regards to members of the bar. Chief Justice of India (CJI) N.V. Ramana remarked that Justice Ashok Bhushan has always been a valuable colleague to work with and above all a “great human being.”

References

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Viewing raid as not a part of an investigation in light of Gopal Krishna and Ors v. the State of Karnataka

By

Rachit Garg

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September 3, 2021

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This article is written by Harman Juneja, from Dr. B.R. Ambedkar National Law University, Rai, Sonepat. This article talks about the police raid and how it is not a part of an investigation in light of Gopal Krishna and Ors vs. the State of Karnataka.

Table of Contents

Introduction

The High Court of Karnataka in, Gopal Krishna and Ors v. State of Karnataka, (2021) held that a raid does not constitute an investigation, and the police are not required to wait for the approval of the Magistrate in the case of a raid. For a better understanding of the topic, some basic concepts need to be clarified. Offences can be categorised under any of the following headings depending on the nature and degree of the offence. One such head is cognizable and non-cognizable offences.

A cognizable offence is one in which a police officer, under the first schedule of the Code Of Criminal Procedure, 1973 or any other legislation in effect at the moment, can arrest a suspect without a warrant and begin an investigation without the consent of the court. Murder, rape, kidnapping, theft, dowry death, and other horrific or serious crimes are examples of cognizable offences. Only cognizable offences generate a first information report (FIR).

A non-cognizable offence is one that is included in the Indian Penal Code (1860)’s first schedule and is not bailable. In the case of a non-cognizable offence, the police cannot arrest the suspect without a warrant, nor can they begin an inquiry without the court’s consent. Forgery, cheating, slander, public disturbances, and other non-cognizable crimes fall into this category. A criminal complaint is filed with the metropolitan magistrate, who is meant to direct the investigating police station to begin an inquiry. The police officer must file a charge sheet with the court, which will be followed by a trial. If the accused is found guilty after the trial, the court issues an order for an arrest warrant to be issued.

Police raid

The term “raid” is not used in legal parlance; instead, the laws that allow police the authority to conduct a raid frequently begin with “power to search” and/or “power to seize.” In a criminal prosecution, an accused individual is unwilling to bring incriminating evidence, thus the police are given these powers largely to obtain evidence that is concealed or held in different places such as a house, an office, etc. There are various provisions for conducting a raid and these are-

Section 93 of the Code of Criminal Procedure authorizes a court to grant a search warrant for the search of any place, including specific goods or documents.
Courts can also issue search warrants in order to locate individuals who have been wrongfully detained. Certain magistrates can issue search warrants to free those who have been unfairly imprisoned under Section 97 of the Code of Criminal Procedure. This provision also authorises police to raid any location for the purpose of searching for a person, however only with a magistrate’s permission.
Sections 165 and Section 166 of the Code of Criminal Procedure allow certain police officers to search or cause a search in a location where there is a realistic likelihood of finding evidence useful for an investigation without the consent of a magistrate. This gives the police the essential search power in an emergency.
Searches, seizures, and arrests are also covered in depth in Chapter XIII of the Customs Act, 1962, which is divided into Sections 100 to 110A.

Finally, Section 153 of the Code of Criminal Procedure gives the police the authority to search any location for the purpose of evaluating suspected forged weights, measures, and other weighing instruments. The magistrate’s permission is not required to use the search power afforded by this article.

Gopalkrishna vs. the State Of Karnataka

Facts

After receiving information that several people were gambling illegally, police went to the location and conducted a search warrant, seizing Rs. 12,550. They then obtained the authorization of the Magistrate and filed a complaint against the petitioners. The petitioners filed a motion to quash proceedings against them under Section 482 of the Criminal Procedure Code of 1973.

The contention of the parties

The petitioners contended that before performing the raid and inquiry, the police should obtain prior approval from the Magistrate as required by Section 155(2) of the Criminal Procedure Code. The petition was filed on behalf of nine defendants charged with illicit gaming at the Senior Citizens Service Centre in February 2020. As a result, the very fact that the petitioners are being prosecuted for an offence punishable under Section 80 of the Karnataka Police Act, 1963, vitiates the case. As a result, the court’s intervention is required.

The government pleader argued that the entry was made in the Station House Diary at 18.30 hours, and that the raid was performed after getting permission from the Deputy Superintendent of Police, and that a non-cognizable complaint was filed as a result. The investigation was only started with the Magistrate’s authorization, hence there could be no quashing of the proceedings.

Findings of the court

After hearing both skilled counsels for the petitioners and the learned government pleader for the State, and after reviewing the records, the court found this:

It states that at around 18.30 hours, credible information was obtained that people were engaged in illicit gaming in Andar-Bahar at the Senior Citizens Service Centre, which was recorded in the Station House Diary in accordance with Section 155(1) of the Cr.P.C. There was no disagreement about whether Section 155(1) of the Cr.P.C. was being followed. The fundamental point raised by the learned counsel for the petitioners before the Court was that Section 155(2) of the Cr.P.C. had not been followed.
After reading Section 155(2) of the Criminal Procedure Code, the co6urt found that it was evident that no police officer may investigate a non-cognizable offence without the permission of a Magistrate with the authority to try the case or commit it for trial.
The police had not only executed the raid in this case, but they had also drawn mahazar, which is equivalent to an investigation. As a result, there was a violation of Section 155(2) of the Criminal Procedure Code, it’s worth noting that Section 155(1) of the Criminal Procedure Code states that after receiving credible information, the same must be put in the Station House Diary. Upon entering, the cops proceeded to ask for permission to perform the search and, the search warrant from the Deputy Superintendent of police was obtained as well.
The question before the court was whether the police must obtain authorization from the learned magistrate prior to performing the raid. The court held that police are not expected to seek permission from the Magistrate before conducting the raid.
The petitioners’ argument that conducting a raid was equivalent to conducting an investigation cannot be accepted for the reason that when credible information was received about a person who had engaged in andar-bahar, the police were not expected to wait until they acquired permission from the learned Magistrate, and the authorization was only required for the case to be registered.

After considering the facts and opposing arguments, the court concluded that because the accused cannot establish that he was prejudiced as a result of the police investigation, the trial and conviction cannot be overturned.

Articles referred to in the case

Section 155 of Cr.P.C.- Information relating to non-cognizable cases and investigations of such instances are discussed under Section 155 of the CrPC.
Section 155(1) of Cr.P.C states that When an officer in charge of a police station receives information about a non-cognizable offence committed within the station’s boundaries, he must enter or cause the substance of the information to be entered in a book kept by the officer in the form prescribed by the State Government in this regard, and refer the informant to the Magistrate.
Section 155(2) pf Cr.P.C. reads that a police officer shall not investigate a non-cognizable case without the permission of a Magistrate with the authority to try the matter or commit it for trial.
The inherent power granted by Section 482 of the Code Of Criminal Procedure, 1973 is broad and unrestricted. It protects the High Court’s fundamental powers to prevent abuse of any court’s process or to accomplish the goals of justice, and as a result, the High Court must take into account the nature and gravity of the offences.
Section 80 of the Karnataka Police Act, 1963 states that on conviction, anyone discovered gaming or present for the purpose of gaming at a common gambling house faces a year in prison and a fine.

Conclusion

The public’s protection is based on the efficient work of the police force of the country, and that’s why the police have to act as soon as possible to get criminals to justice. Already the work of the police force is suffering from extreme delays due to the bureaucracy and permission required. Even after getting strong leads for offences being conducted, the police have to act as soon as possible instead of waiting for permission to conduct a raid. This is also observed by the court in the judgment already mentioned in the article, which is a good step in increasing the efficiency of the police.

References

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Is liquidation irreversible

By

Shoronya Banerjee

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September 3, 2021

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everything-to-know-about-company-liquidation — Image source: https://bit.ly/3idbj4B

This article is written by Vishakha Bhandakkar who is pursuing a Certificate course in Companies Act from Lawsikho.

Table of Contents

Introduction

Liquidation is the process in which a debt-ridden company sells its assets in order to pay off its debts to its claimants. When a liquidation order is passed, the business of the company comes to an end, which is why liquidation is considered to be the death of the company or “corporate death”. It is used as a last resort when the process of insolvency resolution fails. Being the last and final stage of a corporate entity’s life, there is no provision to convert liquidation proceedings into restructuring/rehabilitation proceedings. This article deliberates on the stages of revival of companies under liquidation, possible suspension of liquidation proceedings, and the way forward for companies facing corporate death.

What is liquidation?

The Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Companies Act, 2013 (“Companies Act”) do not define the term “liquidation.” Liquidation is the process initiated when a company is under debt and is unable to overcome its liabilities and obligations. The company sells its assets and property and converts it into cash in order to pay off its debts, liabilities, and obligations to its creditors. Any surplus amount is distributed among members, owners, and shareholders. Liquidation may either be compulsory or voluntary, and the reasons for liquidation could be insolvency, bankruptcy, willingness to discontinue business, etc. Liquidation is at the end of the process of the closure of business. It closes down the company as a legal entity. The National Company Law Tribunal (“NCLT”) passes a liquidation order only in the final stage of the closure of the business of a company.

The role of IBC in the revival of a company under liquidation

The IBC contains a thorough and extensive scheme for the rehabilitation/restructuring of a company facing liquidation. These rehabilitation or restructuring proceedings are in the form of Corporate Insolvency Resolution Processes (“CIRPs”) under Chapter II of the IBC. A ‘resolution plan’ is made under the CIRP. The NCLT passes a liquidation order only when the CIRP fails.

When does a CIRP fail?

The resolution plan under the CIRP may fail due to the reasons given under Section 33 of the IBC: –

The resolution professional informs the NCLT that the committee of creditors has, by requisite the majority of 66% voting share, decided to liquidate the company.
The committee of creditors has not submitted a resolution plan within the limit prescribed under Section 12 of the IBC or Section 56 in case of a fast-track corporate insolvency resolution process.
The NCLT rejects the resolution plan for non-compliance of conditions and prerequisites.
The corporate debtor contravenes the provisions of the resolution plan approved by the NCLT.

Recourse to compromise under Section 230 of the Companies Act

Recourse can be taken to Section 230 of the Act in order to revive a company facing liquidation. By taking recourse to this Section, the liquidation proceedings evolve into rehabilitation or restructuring proceedings in order to revive a company facing corporate death. In S.C. Sekaran v. Amit Gupta & Ors, the liquidator appointed under the IBC was directed by the NCLAT to “take steps in terms of Section 230” for the revival of the corporate debtor. Section 230 allows the liquidator appointed under Section 34 of the IBC to file an application before the NCLT proposing a scheme of compromises and/or arrangements between the company and its creditors, and where applicable, its members.

Who can and cannot propose a scheme under Section 230 of the Companies Act?

According to Section 230 of the Companies Act, the company or a creditor or a member of the company or the liquidator of the company can file an application before the NCLT proposing a scheme of compromise or arrangement between the company and its members or creditors, instead of passing a resolution of liquidation

Role of Section 29A of the IBC

The National Company Law Appellate Tribunal (“NCLAT”) has held that a creditor or a member of the company who is ineligible under Section 29A of the IBC cannot propose a scheme under Section 230 of the Companies Act.

In Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr., the Supreme Court held that Section 29A was inserted in the IBC in the public interest and effective corporate management and administration. It redresses a loophole in the IBC that permitted backdoor entry to the former management of the corporate debtor. It was inserted to prevent individuals from taking unfair advantage and participating in the liquidation process. It prevents such individuals from taking control of a dying corporate entity or corporate debtor. It provides a list of individuals who are ineligible to propose a scheme.

The conflict between Section 29A and Section 230

Until recently, there was ambiguity as to how Section 29A and Section 230 shall be implemented together. The NCLT had to look into the objectives and purpose of both the Sections in order to prevent the promoters from taking advantage of the liquidation proceedings. The Insolvency and Bankruptcy Board of India (“IBBI”) had invited public comments on this matter. In Jindal Steel and Power Ltd v. Arun Kumar Jagatramka & Gujarat NRE Coke Ltd, the NCLAT observed that a scheme of compromise and arrangement is not maintainable when proposed by an individual ineligible under Section 29 of the IBC. Therefore, it was held that a creditor/member ineligible under Section 29 of the IBC is disqualified from proposing a scheme before the NCLT.

Do individuals ineligible under Section 29A have the right to participate and vote in meetings?

A question arises whether the individuals ineligible under Section 29A of the IBC have a right to participate and vote in meetings of the committee of creditors and whether they are entitled to receive a notice of the meetings and copies of the scheme. The Companies Act and the IBC do not mention any eligibility criteria for participating and voting in the meetings. But the IBC, under Section 24, entitles directors and members to the notice and to participate in the meetings but does not permit them to vote in the meetings . In Vijay Kumar Jain v. Standard Chartered Bank & Ors, a question arose whether the directors who are entitled to attend the meetings are also entitled to receive copies of the resolution plans. The Supreme Court held that directors have a vital interest in the resolution plans discussed in the meetings of the committee of creditors and hence are entitled to receive notice of the meetings and copies of the plans.

Whose approval is required for a scheme?

Under Section 230(6) of the Companies Act, a scheme of arrangement and compromise requires the consent of at least 75% in value of the creditors/members or class of creditors/members, as the case may be.

What is the “class” of creditors?

The application filed before the NCLT requires the disclosure of the basis on which each class of creditors was identified for the approval of the scheme. In the Rajeev S. Mardia case, it was held that “class” in the context of liquidation would “include the classes of creditors as known to law”. Therefore, “class” of creditors may be identified as secured creditors, workmen, preferential creditors and unsecured creditors.

Implementation of the scheme

During the scheme implementation process, the liquidation order is stayed. The scheme becomes binding on the company, classes of creditors/members, the liquidator and the contributories. The order of the NCLT must be filed with the Registrar of Companies within 30 days of receipt of such order. The NCLT may impose a moratorium on the company from the formulation of the scheme to the approval of the scheme. The NCLT has powers to give directions and make modifications to the scheme, wherever it deems necessary, for the smooth and proper implementation of the scheme.

Summary procedure for winding up of companies

On 24th January 2020, the Ministry of Corporate Affairs notified the rules for the summary procedure for winding up of companies. The rules are called the Companies (Winding-up) Rules, 2020, and will have effect from 1st April 2020. The companies shall be wound up or liquidated under Section 361 of the Companies Act. The procedure is briefly discussed as follows:

Conditions

The company accepts deposits and the total outstanding deposits.	Do not exceed Rs 25 lakhs.
The company has loans and total outstanding loans including secured loans.	Does not exceed Rs 50 lakhs.
The total turnover of the company.	Does not exceed Rs 50 crores.
The paid-up share capital of the company.	Does not exceed Rs 1 crore.

Appointment of the official liquidator

The Central Government shall appoint an official liquidator.

Procedure for liquidation

Sale of assets and properties

With the prior approval of the Central Government, the liquidator shall sell the assets and properties of the company. The gross sale proceeds shall be paid to the liquidator and expenses incurred during the sale shall be covered by the liquidator from the gross sale proceeds. As per Section 349 of the Companies Act, the liquidator must pay the monies received by him in the public account of India in the Reserve Bank of India.

Payment to creditors

Within 30 days of his appointment, the liquidator shall call upon the creditors to prove their claims from the company. The creditors shall prove their claims in the prescribed manner within 30 days of receipt of the call from the liquidator. The liquidator shall then assess the claims made by the creditors. Upon expiry of the time period for proving the claims, the liquidator shall, within 30 days, file a list of creditors with the Central Government. The liquidator shall then discharge the debts and claims of the creditors.

Powers and duties of the official liquidator

The liquidator shall become the custodian of all assets and any amount due to the company. He may appoint an agent or an auctioneer for the sale of assets and property as approved by the Central Government. He shall investigate and submit a report to the Central Government regarding whether or not fraud has been committed in the affairs of the company.

Winding-up order

After examining the report submitted by the liquidator, the Central Government shall pass a winding-up order for the company.

Can a liquidation order be reversed?

A liquidation order once passed cannot be reversed. The liquidation process commences after the assets of the company have been sold and the proceeds have been distributed among the creditors and shareholders. This is when the dissolution of the company takes place. It results in the company being shut down. Liquidation order, be it voluntary or involuntary, cannot be reversed. It can only take recourse to a scheme of compromise and arrangement.

Can the Supreme Court reverse a liquidation order?

Article 142 of the Indian Constitution empowers the Supreme Court to pass any decree or order for doing complete justice in any cause or matter pending before it.

In Kamineni Steel & Power India Pvt. Ltd and Innoventive Industries Ltd. the Supreme Court upheld the NCLAT’s decision and laid emphasis on the committee of creditors’ autonomy in the approval or rejection of resolution plans based on their commercial judgment. The NCLAT directed liquidation in both cases as the resolution plans in both the cases had not been approved by the requisite majority of the committee of creditors. The Supreme Court refused to exercise its power under Article 142. Even though it does have the power to reverse a liquidation order, the Supreme Court will use it sparingly.

Measures and impact of the Corporate Insolvency and Governance Act, 2020

The Corporate Insolvency and Governance Act, 2020 (“CIGA”) was enacted to reform the United Kingdom’s insolvency laws and to facilitate failing companies in the COVID-19 pandemic. The reformation of the insolvency laws is a permanent measure whereas the facilitation of struggling companies is temporary. One such permanent measure is the moratorium for such companies.

The permanent measure of moratorium under the CIGA

The company shall have a moratorium period during which a viable restructuring plan may be sought to revive and rehabilitate the company. During such a period, the creditors shall not be allowed to exercise their rights and take action against the company without the permission of the court. The company shall be managed by its directors but under the supervision of an insolvency practitioner. This measure gives the company a “breathing space” during which it can revive itself and instead of being liquidated and subsequently closing down.

The Report of the Expert Committee on Company Law has observed the following on moratorium and suspension of proceedings:

“A limited standstill period is essential to provide an opportunity for genuine business to explore restructuring.

The law should, therefore, impose a prohibition on the unauthorized disposition of the Debtor’s assets and suspension of actions by Creditors to enforce their rights or remedies against the Debtor on the assets for a limited prescribed period to preserve and protect assets besides maximizing its value. This will facilitate unobstructed conduct of Insolvency processes by the Tribunal without having to deal with the complexities of multiple creditor debt actions in Debt Recovery Tribunals. This will also encourage creditors to participate in the Insolvency process besides achieving fair and orderly administration and upholding fundamental objectives and policy of the Insolvency Law.”

A provision similar to the moratorium introduced in the CIGA must be adapted and incorporated in the Companies Act in order to reform the provision for the schemes of compromise and arrangement. A moratorium or suspension of proceedings will give the company a breather during which it can seek revival through restructuring or a scheme of compromise and arrangement.

Conclusion

The scheme of arrangement and compromise in a liquidation proceeding is a redeeming feature for the revival of a company. Whether such a scheme takes the corporate debtor back to its pre-insolvency days, is difficult to say. This is because the liquidation order once passed cannot be reversed, the scheme only gives the company a chance of revival through compromise and arrangement. More clarity should be brought to aspects such as the mechanism of voting and approval of the scheme. This will help offset any issues which arise due to the cumbersome nature of the procedure involved in the scheme under Section 230 of the Companies Act which will ultimately benefit the companies facing liquidation.

References

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Laws on leg-hold animal traps around the world

By

Diva Rai

-

September 3, 2021

0

leghold-trapjpg-d9aa96acc1d8e033 — Image source - https://bit.ly/3BEr9ik

This article is written by Nandini Singhal, from Amity Law School, Noida. This article is a review of how cruel animal traps are and laws regarding the same.

Table of Contents

Introduction

A leg-hold animal trap is a device that captures animals by their paws forcefully causing cruel injuries and unbearable pain to them. The trap is attached by a metal chain alongside an anchor to keep the animals in that particular area. These are used worldwide to trap animals and later on these animals’ parts are used to make various things like leather jackets, fur coats, etc. These traps are most commonly used on species like coyotes, bobcats, raccoons, and otters to carry on research work (E.g. measuring, marking for identification, or relocation to another habitat). Since the Universal Declaration of Animal Rights (1948) is adopted by UNESCO which talks about various rights of animals, such inhumane practices and such devices become a medium of violating such treaties. There are various types of traps like under spring or jump, long spring, coil-spring, guarded, enclosed, etc. In this article, we will discuss various countries’ laws on leg-hold animal traps.

Leg-hold animal traps : the unnecessary torture

Animals’ rights should be equally important as human rights are, ignoring them is not at all justified. A leg-hold animal trap is one of the worst ways an animal can be tortured and made to suffer. These traps capture the animal and tear through their flesh and break the bones to hold them in place, the immediate reaction of the animal is to pull and push that particular part and they end up hurting themselves even more in the process. They have to suffer till the time they die out of pain or blood loss or till the time the trapper comes and captures them. It is not a form of hunting and is sheer unnecessary torture used just for humans’ benefit. It is completely unjustified to take away someone else’s rights just to make a living for yourself. Using them today has become very controversial, as animals’ rights are highly recognized and a lot of animal welfare organisations are stepping forward to make sure that animals are also protected and such cruel methods of trapping are banned. Trappers argue that they do this to maintain the balance of nature or to trap unwanted animals, but the quantum of pain animals’ suffering is not justified anyhow. Some of the main concerns are :

The injury they cause like bone fractures, hemorrhage, etc.
Secondly the mental shock they get because of pain or because of restraint, many animals do not like getting restrained and this can affect them permanently.
Thirdly the non-targeted animals which get trapped unnecessarily and lose their life.

Some international laws which aim to protect the animals are the International Convention for the Protection of Animals which covers varied abuses against the animals.

USA, UK, Canada, and India : the take on leg-hold animal traps

USA

When talking about the USA, it has a federal structure, so every state has its laws. Keeping in mind the cruelty of these traps, some states have gone ahead in creating legislation for banning these traps. Florida, in 1972, became the first state to ban the traps. Then further, California, Arizona, Colorado, Hawai, Massachusetts, New Jersey, Rhode Island, Washington started banning traps, with New Jersey being one of the few states with strong laws banning traps. Even after these laws were enacted, they did not provide complete protection to animals. Much later, in 1999, after a lot of struggle, finally a Bill was passed to eliminate trapping programs and put a ban on steel-jawed leg-hold traps. While here it becomes important to understand that the sale and buying of fur becomes one of the main reasons why animals get trapped, so a couple of states identified this and put a ban on the sale of fur-made clothes like in California and Washington. But at some places, businessmen retaliated against this law as they would be left without business then, so they were asked to put a label on how these animals were killed.

UK

The Agreement on International Humane Trapping Standards (AIHTS) lays down the guidelines and international standards for the approval of traps being used. This agreement was finally implemented in the UK in 2020. In 2018, Defra announced the implementation of AIHTS in the UK. Some considerable changes were made in the laws like Wildlife and Countryside Act 1981, Humane Trapping Standards Regulation 2019, Spring Traps Approval (England) Order 2018, Spring Traps Approval (Wales) Order 2019, etc. From 1 April 2020, Fenn-type traps are banned and new standards for the approval traps are imposed. In DPP v. Kavanagh (2019), the appellant was sentenced to three years imprisonment for causing unnecessary pain and suffering to the animals. The Court recognized the incident as a truly shocking one and posing threat to animal rights and once again implying the importance of compassion towards animals as well.

Canda

There is a myth among the Canadian people that just like the regular toothed trap all other non-harmful leg-hold traps are banned in Canada, but this is not true. Several other types of leg-hold traps are still legal and widely used. These models include the “padded”, “offset” and “laminated”. Leg-hold traps that are currently used in Canada:

“Padded”: This is not a padded or soft trap but It has a steel claw alongside a rubber line. It is the fur market that makes it sound like a soft trap.
“Offset”: This trap is an ordinary steel-jawed leg-hold trap with a superficial 3/16 of an inch gap between the closed steel jaws.
“Laminated”: This trap has extra steel added to the jaws to make them wider (thicker).

India

In India, the Prevention of Cruelty to Animals Act, 1960 is implemented to ban any kind of cruelty against animals, and Section 11 of this particular Act bans cruelty. One of the loopholes of the PCA Act is that penalties for violating the provisions range from just rupees 10 to 50, which does not justify the offence committed. Another provision in the Indian Constitution is Article 51A(g) which says that it becomes important for every citizen to have compassion for all. In Francis Coralie Mullins v. Union of India (1981), the Court held that the right to life is not limited to mere animal existence but also includes the right to live with dignity, hence, every citizen must have compassion for all including the animals. Further, the court has interpreted Article 21 r/w 51A(g) to further the ends of social justice. Then there is the Wildlife Protection Act, 1972 which lays down the laws to protect wild animals, it prohibits any kind of harm to animals in one or another way.

A person can make use of laws by sending a legal notice first to abusers, if no action is taken then a person can go ahead and file a complaint under Section 50(4) of the Wildlife Protection Act and an individual can be arrested under Section 43 of CrPC for a non-bailable and cognizable offence. In a landmark judgment, Animal Welfare Board of India v. A. Nagaraja and Ors. (2014), it was held that no cruelty against the animals would be tolerated and the Animal Welfare Board of India (AWBI) and governments were directed to take necessary steps in care and well being of animals and also to prevent the infliction of unnecessary pain against the animals. In another case, the State of U.P. v. Mustakeem and Ors.(2019), it was held that if anywhere it was found that goats were slaughtered in a cruel manner they were to be rescued from there and kept under state’s supervision, implying that animals are not to be subjected to any kind of cruelty in any form.

Recommendations

As we have seen above, various laws are being enacted to ban the traps, and animals’ rights are being recognized. However, it becomes important to understand that implementing them becomes equally important, so effective implementation is the first recommendation, classifying offences related to animal cruelty as grave offences and laying down extensive penalties could be one way of effective implementation. Recently while hearing a plea regarding whether animals are a juristic person or not, the ex CJI gave a statement, “we cannot give animals the status of a juristic person because, if we do so we need to give the plants the status of a juristic person as well because they also are considered living organisms as they also breathe carbon dioxide and give out oxygen”, the judiciary should refrain from giving such statements because animals too face a lot of cruelty and hardships, hence, they also deserve justice.
Secondly, there’s no way to stop animal abuse if you don’t know what it looks like. Most people know instinctively that kicking a dog is animal abuse, but they might not recognize the subtler forms like leg hold traps, hence it becomes important to recognize these crimes before making any sort of legislation or strict punishments.
Thirdly, by the analysis, we could figure out that the products made from animal skins are one of the biggest reasons why these animals are trapped. Spreading awareness amongst the consumers of those products is extremely necessary, in addition, regulating the selling of these products like done in the USA is also important. Then, wherever it is necessary to use traps, an alternative to them should be used, by inventing modern technology traps which could also reduce the quantum of pain animals get. Countries should imbibe international regulations in their domestic laws.
Fourthly, speaking up against animal cruelty can help end animal abuse. The more people talk about it and share education about the humane treatment of animals, the less abuse we’ll see. Hence it becomes very important to set up more and more NGOs and promote various animal rights activists so that the word could be spread and the people could be made aware.
Fifthly, awareness is the most important thing when it comes to preventing animal abuse. You can stop it when you see it, but only if you can recognize it. Transition to a vegan diet so you’re not putting cash in the pockets of those who abuse animals. Adopt pets from shelters, start your animal rights group, or volunteer to help organizations using your specific skill set. Raising money to prevent animal abuse is also helpful.

These are a few recommendations that could help in regulating the use of leg-hold animal traps.

Steps which can be taken by citizens

What you can do as a general citizen :

Never buy fur or fur trim.
Tell your friends and family that leg-hold traps are still illegal.
Ask your Member of Parliament to ban all leg-hold traps.
Post our anti-trapping video, Crying Shame, on your Facebook page.
Learn how to open/release a leg-hold trap.

Conclusion

Leg-hold animal traps pose a risk to both targeted and non-targeted animals, therefore it becomes necessary to regulate the use of them and the first step is making laws. Though the situation has improved considerably in many parts of the world as some have discussed above. But still, there’s a long way to go to protect the animals from cruelty completely. There’s a lack of a comprehensive international legal framework and because this is a problem faced around the world, it is essential to have an international framework that is binding on countries and they have to follow it. With time, this topic is receiving more recognition and is being discussed. People should come forward and participate in the fight for animal rights as they do for human rights, neglecting animal cruelty is one of the reasons that such atrocious devices are still not banned at some places.

References

https://www.avma.org/resources-tools/literature-reviews/welfare-implications-leghold-trap-use-conservation-and-research

https://www.animallaw.info/sites/default/files/lralvol9_p136.pdf

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A contrast between Roman law and common law

By

Diva Rai

-

September 3, 2021

0

Landmark judgments — Image source - https://bit.ly/3yBUAPX

This article is written by Ms. Nikara Liesha Fernandez from School of Law, Christ University, Bangalore. This article is a comparative analysis of the evolution and differences in the common and Roman law systems of justice prevalent in various countries all over the world.

Table of Contents

Introduction

Legal systems all over the world are characterized by their own unique set of rules and regulations to best suit and regulate the behaviour of the society they find themselves in. Broadly, however, all countries follow either a common law system or a Roman or civil law system of jurisprudence. Some countries have even developed a mixed legal system consisting of a combination of the two. This is known as a mixed legal system.

The most distinct basis of differentiation between the common and civil legal systems is that common law is governed by formal orders known as precedents or past judicial decisions whereas civil law is governed by codified statutes.

Some examples of common law countries are the United States of America, England, India and Canada. These countries were largely former British colonies. Countries that follow the civil law system are Japan, Germany, France and Spain as well as their colonies, which include a large part of Central and South America in addition to most of the Central and Eastern European and East Asian countries.

Evolution of Roman law and common law

Roman law

The civil law tradition finds its roots in Western Europe, in 3 A.D. and was predominantly founded on Roman law, hence it is sometimes still referred to as the same. The first developers of the civil law concepts were men known as jurists or jurisconsults who were not lawyers per se but took it upon themselves to study the law and offer their legal opinion to those who sought it. Thus, the law was first derived from their legal commentaries.

In the 4th century, the Roman empire was split into two-

The Eastern part, which came to be known as the Byzantium empire consisting of individuals from the Balkan states who fancied themselves as being the direct successors of the rulers of the Roman empire.
The Western part, comprising Italy, Spain and France where the law was not consolidated and instead was broken up and vulgarized. Due to this, the law of Western Europe did not survive.

In the East, the Emperor at the time, Justinian, made it his goal to revive the glory of the Roman empire. To do this, he believed that his first task would be to revive the Roman law and consolidate and improve it. He thus enlisted certain scholars and jurists to carry out this task.

What was eventually formed from this effort was Justinian’s Civil Code known as the Corpus luris Civilis (in Latin) which consisted of four main parts:

Digest, which was the writings of the jurists.
Code, which was the imperial enactment.
Novels, which were Justinian’s own enactments.
Institutes, which served as textbooks for students who wanted to study the law.

When Justinian’s reign eventually came to an end, the development of the law came to a sudden halt as well. Relatively not much was known of the legal system followed in Eastern Rome until the 11th century when there was a rediscovery of the Corpus Juris Civilis in a library in Pisa. This Code was brought to Bologna, Italy wherein the scholars carried out an extensive study on the same and produced various editions of it with their individual commentaries written in the margins of the text to create a more sophisticated legal system.

News of this spread throughout Europe and scholars from across the country made their way to Bologna University to study law as a subject based on the Corpus Juris Civilis.

Influence of other cultures

The law that was developed by Justinian and his scholars was significantly modified over time due to the influence of the various conquerors of Europe throughout the ages. Along with foreign influence, the indigenous laws (also known as Jus Commune) also thrived simultaneously.

Canon law was the law followed by the Catholic church in family issues such as marriage.
Customary and feudal law were followed with regard to property and succession.
Lex mercatoria was the law that governed all commercial activity of the land and seas.

As stated earlier, the language which was used to develop the field of law was Latin. However, between the 13th and 18th century French was being widely used by members of the legal fraternity due to foreign invasions by the French empire. This led to a sort of legal bilingualism.

Towards codification

Europe saw a period of political and intellectual turmoil in the 18th century which greatly influenced the principles of law as well. Jeremy Bentham, a modern thinker, in order to provide a sense of stability to the legal system, proposed the concept of legislation by which customs followed by society could be turned into statutory law through codification and would be logically organized according to the subject matter. This theory, however, did not gain much attention in Italy and rather gained a lot of popularity in France where the French Civil Code was formed mirroring Justinian’s Civil Code.

The concept of codification was spread gradually by Napoleon’s conquests to various other colonies all over the world as well. For example, the German Civil Code was also formed in the 19th century as a result of the failure of Prussian Landrecht which was the law followed by the Romans and French.

Common law

Common law arose in England in the provinces of Wales and Ireland. Its roots can be traced back to over 2,000 years ago when the ancient languages, which are now no more, of Welsh and Gaelic were spoken. Common law as we know it today, however, is said to have a large Anglo-Saxon nature. The Anglo-Saxons were considered to be Germanic warriors who had a language of their own. Several legal terminologies and processes of law which are followed even today can be traced back to the time of the Anglo-Saxons. These include the concept of moots, wills, compensation and oaths, to name a few.

In the year 600, Latin was introduced into society by the Christian missionaries. The Vikings of Denmark and the Scandinavians followed in the 9th and 10th centuries and integrated their respective languages with the prevailing legal languages of the country.

Finally, in 1066, the Norman conquest gave birth to a class of people that spoke French but wrote the laws in Latin. William the Conqueror, was the first king to make an attempt to unite all these different customs and traditions to form a unified legal system which would be common for the whole country to follow and hence gave birth to the term this law is known as today, i.e. ‘common law’.

Distinctive features of the common law system

Some distinctive features of the common law system are as follows-

It is not necessary to have a written constitution or codified laws as cases are normally decided on the basis of precedents set by the courts of law themselves.
Nature of judicial decisions- The judicial decisions made by the courts of law are binding. The two parts of the judicial decisions are the ratio decidendi and obiter dicta. The ratio decidendi or the rationale used by the judges to arrive at a particular decision is binding on the judges to use in future cases where the facts resemble that of the previously decided case. Obiter dicta are the comments made by the judge which merely provide additional information to further understand the facts and background of the case but have no binding authority on the decision of future cases.
Common law has a more prescriptive nature in general. With respect to contracts, they tend to be longer and more extensive as more importance is given to the expressed terms rather than the implied meaning of the same to prevent any grey areas of misunderstanding between the parties in the future.
The writings of legal scholars and experts have very little weightage under the common law system and the lawyers play the most active role.
Lawyers take on an adversarial role wherein they are required to question the witnesses, formulate and present cases on the basis of evidence received and can even demand more evidence in case the same is insufficient.
The common law system is more judge-centred where judges are given more autonomy and flexibility to use their discretionary power whenever they see fit thus allowing them to take on a more pragmatic approach.

The discrepancy between common law countries themselves

A unique difference that arises between countries following the same legal system, in this case, the common law system itself is evident in the case of the common law of the United States of America and that of the United Kingdom.

In the USA, the courts themselves have the authority to strike down any laws passed by legislators on the grounds of unconstitutionality or the same being a violation of the federal law. In the United Kingdom, however, only the Parliament, not the court of law, has the authority to revoke or make amendments to any legislation.

Distinctive features of a Roman law system

Some distinctive features of a Civil law/ Roman law system are as follows-

A written constitution is almost always mandatory as this form of a legal system relies heavily upon the written codes, statutes and ordinances which are very specific in nature.
Judicial precedents are not binding as the onus rests solely on the legislative enactments which are binding in nature.
The writings of legal scholars and experts hold a lot of weight in court as compared to the common law system. They exercise more autonomy than even the judges in some cases.
This legal system is less prescriptive in nature. With respect to contracts, the parties are not given sufficient autonomy to draft their own lengthy and extensive contracts as in the common law system, rather more importance is given to the implied meaning of the terms of the contract.
The lawyers play an inquisitorial role rather than an adversarial one. The lawyers are required to present arguments on the basis of the evidence which the court finds rather than finding it themselves.
The judges do not exercise considerable autonomy or discretionary powers and are bound by the codified statutes instead. Their role is merely to establish the facts of the case and apply the codified principles to the same in order to provide a remedy to the aggrieved party.

Mixed law countries

Countries even today seem to be figuring out the legal system they want to follow as since society itself is such a dynamic concept, the laws governing the same need to constantly change as well in order to remain relevant. Examples of some mixed law countries are-

Quebec – Although Canada, as stated earlier, is a common law country, the legal system of Quebec is slightly different. Being a French province, it follows a largely civil law system but due to Canadian federalism, it is subject to some common law traditions as well.
South Africa – The legal system in South Africa consists of an amalgamation of the native customary law, the English common law as well as certain aspects of civil law.
China – For the longest time, China had a very primitive legal system that was not given much importance. However, in the face of it becoming a global power today due to industrialization and urbanization, it has become increasingly important that the country adopt a legal system that can tackle international legal issues. Due to this, China is still trying to reform its plain legal system to form a stronger resemblance of the common law system.

Conclusion

From the above analysis, it is evident that though there exist many differences between the common and civil law systems, these differences tend to be more procedural or in the nature of the methodology adopted, rather than any substantive factors. At the end of the day, the aim of both these systems is the same- to deliver justice. Thus, it would not be fair to say that one system is better than the other. In fact, due to modernisation and globalisation, the differences between common and civil law are significantly reducing as cases that involve more than one jurisdiction deal with the question of choice of law that often uses a combination of both common law and civil law depending on the circumstances of the cases. Thus, there will definitely be a time in the future where each system might have to take a page out of the other’s book to best tackle certain situations in the future.

References

https://barbriqlts.com/common-law-vs-civil-law-an-introduction-to-the-different-legal-systems/

https://www.diffen.com/difference/Civil_Law_vs_Common_Law

https://www.open.edu/openlearn/society-politics-law/judges-and-the-law/content-section-8.1

https://onlinelaw.wustl.edu/blog/common-law-vs-civil-law/

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Insolvency and bankruptcy of personal guarantors of corporate debtors : analysis of Supreme Court’s recent verdict

By

Oishika Banerji

-

September 3, 2021

0

Untitled-design-52 — Image source: https://blog.ipleaders.in/lawyer-need-know-business-laws/

This article has been written by Aditya Saurabh pursuing the Diploma in Business Laws for In-House Counsels from LawSikho.

Table of Contents

Introduction

It is generally known in the Indian context that banks are the primary source of funding for any firm, large or little and that they have their own criteria for issuing loans or credit facilities, often requiring the personal guarantee of the promoter-directors as additional security for the loans. When the corporate debtor becomes ill, the guarantor should become more vulnerable, as banks will line up to take action against him under the Insolvency and Bankruptcy Code, 2016 (“Code” or “IBC”), making him a target like the corporate debtor.

This proceeding against the guarantor under the IBC legislation dealing with corporate insolvency was extended by a Notification dated 15 November 2019 (“Notification”), which brought into effect provisions of Part III of the Code, but exclusively in relation to personal guarantors to corporate debtors. The Notification exclusively applied the provisions of Part III of the Code to personal guarantors of corporate debtors, despite the fact that Part III of the Code provides for insolvency and bankruptcy for individuals and partnership firms.

Earlier, banks had to proceed before the Debt Recovery Tribunals to recover money from their debtors (including personal guarantors) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI Act”). Unfortunately, the Debt Recovery Tribunals (“DRT”) have been beset by judicial delays, which have hampered the process efficiency. As a result, creditors received the Notification with zeal, hoping for a faster and more efficient recovery of their debts from personal guarantors.

However, a number of prominent company’s promoters who had provided personal guarantees for their corporations filed applications in various High Courts challenging the Notification. The Supreme Court moved all of these applications filed in various High Courts to itself in order for the Apex Court to settle the meaning of the Code’s provisions relating to personal guarantors once and for all, avoiding any confusion caused by the High Courts’ differing opinions. Therefore, the petitioners in this recent case of Lalit Kumar Jain v. Union of India raised numerous doubts before the SC about the applicability of the III chapter to individual directors-guarantors (who are non-corporate entities). The Supreme Court of India in which ultimately affirmed the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”) that allowed banks to pursue personal guarantors for debt repayment.

Grounds for challenge

The petitioners asserted that the notification was invalid and arbitrary based on the following contentions, among others:

That the Central Government exercised excessive delegation: The petitioners argued that the power delegated under Section 1(3) only applies to the point in time when distinct provisions of the Code can take effect and that it does not allow the Central Government to notify specific provisions of the Code or to limit their application to specific groups of people. Because the contested Notification was used to change the provisions of Part III of the Code to apply only to personal guarantors of corporate debtors, it was argued that it was done in violation of the provision to Section 1(3) of the Code and amounted to an unjust executive abuse of legislative power.
That the Notification is arbitrary and discriminatory: The petitioners argued that under Section 2(g) of the IBC, ‘personal guarantors’ are excluded from the definition of ‘individuals,’ arguing that the Notification is manifestly arbitrary and discriminatory because there is no discernible differentia for carving out personal guarantors, and a single procedure is provided regardless of whether the creditor is financial or operational. This was in contrast to the CIRP, which is outlined in Part II of the Code and includes distinct procedures for different types of creditors.
That the Notification creates self-contradictory legal regimes for insolvency proceedings against personal guarantors: The petitioners argued that Section 243 of the Code, which repeals the Presidency Towns Insolvency Act of 1909 and the Provincial Insolvency Act of 1920 (collectively, “erstwhile legislations”), was not included in the Notification. Individual insolvency proceedings were controlled by the previous legislations prior to the issue of the Notification. The Presidency Towns Insolvency Act of 1909 applies to the former presidency towns of Calcutta, Bombay, and Madras, whereas the Provincial Insolvency Act of 1920 applies to the rest of India, with the exception of these towns. Thus, it was argued that the Notification is unreasonable because it creates two incompatible legal regimes for insolvency actions against personal guarantors to corporate debtors by not repealing the stated statutes.
That there is the co-extensive liability of a guarantor and a principal debtor: The petitioners argued that by extending the code to personal guarantors, the notification merely removes the protection provided by law; they cited Sections 128, 133, and 140 of the Indian Contract Act, 1872. It was argued that a personal guarantor’s liability is co-extensive with that of the corporate debtor; and that once a corporate debtor’s resolution plan is approved, any past, present, or future liabilities encumbered on the corporate debtor are dismissed, except to the extent committed in the insolvency resolution process itself. As a result, the end of insolvency proceedings against the corporate debtor would also mean that any claims against the personal guarantor would be canceled. This is obvious from Section 31 of the code, which makes the adjudicating authority’s resolution plan enforceable by the corporate debtor, its creditors, and guarantors.

Supreme Court’s verdict

In this landmark case, the Hon’ble Supreme Court examined all of the provisions incorporated into the IBC at different phases and concluded that the strategy used by the Central Government to bring various provisions of the Act into force had a clear purpose: to achieve the IBC’s objectives in relation to the priorities. The Supreme Court went on to say that the IBC’s objectives are to foster entrepreneurship and credit availability, to guarantee the interests of all parties are balanced, and to promote timely bankruptcy resolution for corporations, partnership businesses, and individuals.

Thus in order to fulfill the objectives of IBC, the apex court held:

That there was no excessive delegation and selective application exercised by the Union of India: The court determined that the Code does not require that it be applied to all individuals (including personal guarantors) at the same time or not at all. Sections 2(e), 5(22), 60, and 179 of the Code provide sufficient indication that personal guarantors, despite being part of a larger grouping of individuals, were to be treated differently, through the same adjudicatory process and by the same forum as corporate debtors, due to their intrinsic connection with them. The Notification likewise makes the Code’s requirements applicable to personal guarantors to corporate debtors, another group of people to whom the Code has been expanded. As a result, the Notification was issued within the scope of Parliament’s authority and in good faith. As a result, the power exercised in issuing the Notification under Section 1(3) is not ultra vires; the notification is legal.
That there is no incongruity in provisions enforced by the Notification: The Court noted that the Code’s structure presumed that a corporate debtor’s assets and those of its personal guarantor would be treated similarly throughout bankruptcy proceedings. As a result, various amendments to the Code were made in a timely manner, such as Section 2(e) being amended, resulting in Sections 2(e), (f), and (g) coming into force, to make sure that the adjudicating body dealing with the insolvency of corporate debtors also deals with the insolvency of its personal guarantors. In addition, for the purposes of Section 60(2), the Parliament integrated the provisions of Part III with the procedures against corporate debtors under Part II, i.e., proceedings against personal guarantors as well as corporate debtors.

The court concluded that there appear to be reasonable reasons for the National Company Law Tribunal (NCLT) to be the forum for adjudicating insolvency processes, which have divergent requirements. This is because the NCLT would be able to look at the big picture, so to speak, of the nature of the assets available, making it easier for the creditors’ committee to come up with realistic plans while keeping in mind the possibility of recovering some of the creditor’s dues from personal guarantors.

That there is no reason to repeal the personal insolvency laws: The Court held that the provisions of the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, did not overlap with those of the Code. The Court held that the Code has an overriding effect over other existing and conflicting legislation by relying on Section 238 of the Code, which has a non-obstante clause, and that this could be the basis for not notifying Section 243.
That the sanction of resolution plan does not itself discharge the personal guarantor’s from its liabilities: In response to the argument that a personal guarantor’s liability is co-extensive with that of the corporate debtor, the Supreme Court ruled that the approval of a resolution plan and the finality conferred on it by Section 31 do not function as a discharge of the personal guarantor’s liability. Because the guarantor’s liability originates from an independent contract, the type and scope of the liability will be largely determined by the conditions of the guarantee. As a result, an involuntary process, such as by operation of law or owing to liquidation or insolvency proceedings, will not acquit the guarantor of his or her duty, when the debtor is discharged.

The Supreme Court also cited several decisions, including Vijay Kumar Jain v. Standard Chartered Bank, in which the Supreme Court held that the justification for permitting directors to take part in committee of creditors meetings is that the directors’ liability as personal guarantors continues to be held against the creditors and that an authorized resolution plan can only result in a revision of the amount owed.

Therefore, the Notification was held legal and valid.

Persisting issues : analysis

While the Supreme Court may have resolved an important issue, it has also caused personal guarantors to have other worries. The idea of bringing legal action against the corporate debtor and personal guarantors at the same time could result in a cascade of legal actions. Overly concerned creditors would be compelled to file applications against both personal guarantors and corporate debtors at the same time in order to increase their prospects of early recovery, causing turmoil. Only the adjudication forum’s consolidation of procedures will serve as a remedy for multiplicities of proceedings.

The IBC expressly states in Section 60 that insolvency resolution or bankruptcy proceedings involving a personal guarantor must be conducted before the same NCLT as a CIRP or liquidation proceeding involving the corporate debtor. The IBC further states that the proceedings must be brought before the NCLT in the territorial jurisdiction where the corporate person’s registered office is situated. However, how the relevant NCLT would be decided in a scenario where the personal guarantor has issued a guarantee for more than one entity and such entities are simultaneously subjected to the CIRP in separate NCLTs remains to be seen.

Aside from that, the form of procedures has not been specified, such as whether the actions against the corporate debtor and the personal guarantor can be merged or must be conducted separately. It’ll also be interesting to see if the adjudicating authority can choose a single resolution professional to handle both cases.

Furthermore, if personal guarantees advanced by the company’s promoters or directors violate the limited liability principle by having made them personally liable, including the binding of their personal assets, this will affect the decision to extend personal guarantees, making guarantors hesitant and risk-averse.

Despite several inconsistencies, the Supreme Court’s decision serves as a stimulant for the Insolvency Proceedings to be completed on schedule. Directors or promoters acting as personal guarantors for corporate debtors would be required to consider and execute Resolution Schemes that are acceptable to the Committee of Creditors to avoid personal liability, thereby giving the Resolution process the needed energy.

Conclusion

As the Supreme Court’s verdict might be considered a substantial triumph for the lenders, the image of IBC being creditor-friendly law is confirmed, as is an underlying goal of the legislators to deal with problematic loans and their economic impact. It will enable creditors to recover any deficit amounts not covered by the corporate debtors’ resolution plan from the personal guarantors of such corporate debtors by instituting separate insolvency proceedings against such personal guarantors.

Earlier, company directors or promoters would agree to act as personal guarantors for loans taken out by their companies, only to later squirm out of their obligations, owing to an inefficient debt collection mechanism. This was partly due to banks’ lack of due diligence and the mechanized manner in which big loans were provided to corporations, which far outstripped the guarantor’s financial net worth by considerable multiples.

However, such practices are expected to alter in the future, as directors and promoters will be leery of providing personal guarantees at the request of corporations that could put them in jeopardy of going bankrupt. As the law governing the implementation of a personal guarantee provided to a corporate debtor becomes clearer, the terms and conditions governing the granting of personal guarantees will undoubtedly change!

Nonetheless, it is clear that the legislature has once again failed to examine the real complexities of the insolvency process. In order for the regime to function effectively, courts and tribunals must be on their toes. The practical features of caseload on NCLT as a result of simultaneous procedures are at odds with the purpose of speedy debt recovery for lenders, which we believe requires another modification. Furthermore, creditors have a stronger responsibility to make a meaningful effort to resolve debts before proceeding against personal guarantors, as the objective of the code cannot be to short-change the guarantor. As a result, the only way to address the decision’s unintended repercussions is for the law to be clarified or changed.

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Original artwork of property in terms of the law : an analysis

By

Rachit Garg

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September 3, 2021

0

Copyright Law — Image Source -https://rb.gy/omzllu

This article is written by Akshita Gupta, from Symbiosis Law School, Noida. This article discusses the analysis of the original artwork of property and how it could be protected under Copyright Law.

Table of Contents

Introduction

Copyright is the right given to the owners exclusively to protect their original work from theft, misuse and its duplication. One such type of work protected by copyrights is artistic work. Artistic works are not only paintings but also includes drawings, sculptures, cartoons, plans, plots, etc. In order to qualify as an artistic work under the law, the work must be original. The artistic work can have minimum artistic quality.

What is the original artwork of property in terms of the law

Section 2(c) of the Copyright Act,1957 provides the definition of artistic work. In simple words, an original artwork could be defined as a work that is unique in itself created by an author or an owner which is in tangible form. It must be able to get itself registered in the Copyrights Registrar despite the fact that such work is of artistic merit or not. The work should have been expressed as a result of the artist’s use of talent and judgement, i.e., they should’ve done more than mechanical exercises for making the work.

Artistic work includes:

Paintings;
Sculptures;
Logos;
Drawings;
Engraving;
Architecture works (architecture plans, model of buildings, etc;
Blueprints;
Cartoons;
Maps;
Graphics;
Plans;
Plots; and
Photographs.

The question that arises in every reader’s mind is whether the creation of nature can be claimed for copyright protection. The answer is ‘yes’ because in endless forms, the creation of nature can be conveyed; a depiction by the artist would be unique as he/she had applied their skills and judgement and thus capable of the protection of copyright.

The Copyright Law and its role

What is copyright law

As per Section 14 of the Copyright Act, 1957, copyright provides only the creator with the right to replicate his work. The right to be the legal owner of a given intellectual property is also granted under this law.

It prevents others from duplicating the work without the permission of the creator. It could be duplicated or reproduced by the creator for a given amount of time, at which point it becomes a public domain.

When a person makes a unique product, the product is considered to be original, using a significant mental or intellectual capacity. Unique designs include websites, software for computer applications, musical lyrics, art, literature, poems, graphical drawings, compositional music, novels, innovative designs, films, and more.

If the inventor wishes to keep his work safe and secured he might voluntarily register for copyright. The creator is entitled to sue a person reproducing his/her work by registering the work. Concepts like discoveries, slogans, brand names, logos, concepts, domain name, theories and tiles are all excluded from copyright and belong under the category of trademarks and patents. Any speech, idea, finding, etc., in respect of copyright should be physically written.

Therefore, it is necessary to get the registration of copyright in order to avoid any theft or duplication of work. In India, under the Copyright Act of 1957, a copyright is automatically provided when the software code is incorporated into any tangible format such as ROM, paper, magnetic tape, etc. The entry of such works is kept as a public record in the copyright register, which includes the title name and the name of the author in the index. The acquisition of the copyright under the Copyright Act, 1957 does not have a formal procedure.

What is the duration for the protection of copyright?

Since, the protection of copyright is for a limited period it is generally for 60 years in order to protect the registered work. It protects the original works of literature, drama, music and art for 60 years following the death of the author and for 60 years from the date of publication offers protection to films, sound recordings, photos, governmental works, or other international organisations, etc. with the copyright protection extension from the lifetime of the author and upto 70 years post his death.

What are the rights after registration for the artistic work

Once the registration of copyright for a work is done, the authors get certain rights under this as per their form of work.

The rights under the registration of artistic work include:

The right to replicate the work.
The right to inform the public of the work.
The right of publication of copies of this work.
The right to make any adjustment in that work.
The right to allow the work to be included in cinematographic films.

Advantages of registration of copyright

The advantages of getting the work registered under the Copyright Act, 1957 are as follows:

It provides the power to file a lawsuit on infringement of copyright – In order to file a lawsuit the work must be registered by its author.

The copyright registrant is entitled to “legal costs and the attorney’s fees” and “statutory damages” if a copyright registration has happened before any infringement takes place, or within 3 months from its publication date of work.
The copyright owner is not entitled to receive the statutory damages or the legal costs and the attorney’s fees, in case the infringement occurs before the effective date of the copyright registration or after a three-month grace period.
When the Copyright Office receives the complete registration application, which consists of the application fee and the deposit copies, is the effective date of the copyright registration. The registration certificate provides prima facie proof that the work is original and owned by the copyrighted registrant.

It offers global protection – The owner will have the same benefits as in India if the copyright is registered elsewhere.
It creates IP – IP is an intangible object and registered copyright is an intellectual property that may be sold, franchised and contractually bought.
The work is tracked by the owner – The Copyright Register lists the owner of the work in order to monitor the work by its author.
Legal remedies against the unauthorised usage – The copyright gives the copyright owner legal remedy for unlawful use or reproduction of the work, as a violation of copyright.
Owner’s remuneration and royalty are granted – The owner is entitled to claim remuneration or royalty in respect of such a translation, adaptation or modifications when the protected work is translated or modified.
It facilitates the importation, export and display – Copyright registration facilitates the import and export of works and can be shown or sold by the creator of the artwork.

Disadvantages of copyright

The disadvantages of copyright are:

The author cannot distribute his work publicly for usage.
It becomes a problem when the author and the owner are different. The rights enjoyed by an owner under Copyright Act, 1957 are not available for the author.
It protects only the expression of the idea, not the idea itself.

Remedies on Infringement

Infringement occurs when an individual tries to reproduce, distribute, display or perform the protected work without the permission of the author. It may be intentional or unintentional.

Copyright is considered to be an infringed under Section 51 of the Act if:

Any act that only the copyright holder is authorised to do is done without the authorization of the copyright holder.
A person permits the use of a location for the transmission, sale, distribution, or exhibition of an infringing work unless he knows or has cause to suspect that such permission will result in a copyright violation.
Infringing copies of a work are brought into the country.
Without the permission of the copyright holder, a person reproduces his work in any manner.

According to Section 55(1) of the Copyright Act, the copyright holder is entitled to two types of civil remedies that are injunction and damages on infringement.

The suitable remedy in case of infringement is an injunction. It is a judicial process through which one party is restricted to continue his acts or is ordered to restore it to the position that was before the act has happened.

Damages are provided to the copyright holder in order to restore him to the earlier position. In most cases, damages are calculated based on how much the copyright holder would have received if the person had gotten the licence from him/her. However, there are a number of other elements that go into determining the amount of damages, such as the copyright holder’s loss of profit, reputation, and drop in the sale of the copyright holder’s work.

The copyright owner has the option of filing criminal charges against the offender. The criminal remedy is not a replacement for the civil remedy, but rather a supplement to it. As a result, the copyright owners can file both civil and criminal charges at the same time. Copyright infringement is a criminal offence, according to Section 63 of the Copyright Act.

Judgements related to copyright infringement

In the case of Cadbury India Ltd v. S.M. Dyechem Ltd. (2000), the ‘lay observer’ test has been developed while addressing the issue of infringement of copyright of artistic work. As per this test, if a lay observer, who is not an expert in artistic work, looks at the visual and believes it has been copied from another work, it is an infringement of artistic work.

Microfibres v. Girdhar & Co.(2006) has been the landmark case to state the difference between artistic work under Copyright Act,1957 and design under the Design Act.

When it comes to preserving the visual characteristics of a business, copyright protection is usually the first thing that comes to mind. It’s worth noting that, due to Section 15(1) of the Copyright Act of 1957, design registration and copyright protection cannot exist at the same time. And, according to Section 15(2) if an article that can be registered under both is duplicated more than 50 times by an industrial process, the copyright protection is automatically lost. If this is the case, and the design has not been registered in India, it cannot be protected from replication by the competitor.

In this case, it was stated that copyright protection lasts considerably longer than the Design Act protection. Therefore, if a piece of art purely puts an artist’s idea into canvas, it would be considered an artistic work and should be protected by the Copyright Act. The crucial point to remember here is that if someone develops art with the intention of mass commercialization, it is no longer an artistic piece but a design with a shorter protection period. If your work falls within the design category, you must safeguard it by registering it under the Design Act. If you skip out on statutory design protection, the Copyright Act provides remedy under Section 15(2), which protects copyright in a design until 50 copies are manufactured through an industrial process. Copyright expires after the 51st reproduction.

Art financing and art lending – an overview

Art lending

Loans are given by the borrowers to customers of parent and its subsidiaries to finance the purchase or carrying of, or in anticipation of the potential sale of, or secured by, works of art are referred to as art loans.

The Ministry of Culture’s Guidelines for lending art/antiquity to institutions/museums abroad and within the country govern the lending of antiques and art treasures in India.
The procedures for temporarily loaning art to foreign and national institutions and museums are outlined in the Guidelines.
On the consent of the Inter-Ministerial Committee for Exhibition, led by the Culture Secretary, art may be loaned to international institutions or museums for a period of three years, which can be extended by two years.
Art may also be shipped outside of India for exhibitions for a maximum of six months, which can be extended by another six months.
Art can only be loaned to government museums or institutes across the country. This loan could be long-term (for ten years, with a five-year extension option) or short-term (for five years, with a five-year extension option), (for one year, further extendable by one year).

These loans can only be extended with the consent of the ASI’s Director General or the institution lending the artwork. In India, private collectors lend works to museums. This is done through a contract or agreement between the parties.

Art finance

Art finance is a phrase used to describe a collection of financial services offered by auction houses, banks, and consulting businesses to art collectors and artists as clients.

In India, there is no such thing as art finance. The majority of High net worth individuals (HNIs) and private collectors buy art for the love of it and with their own money. The artists in these collections are a mix of international and Indian artists. In India, banks and financial institutions do not lend money to artists. In India, the Osian Art Fund was established in 2010, the Kotak Mahindra Bank established an art fund, and the Yatra Art Fund was established in 2015. However, the Securities and Exchange Board of India (SEBI) determined that these were required to be wound up and ordered the businesses to repay investor funds. In England, Phillip Hoffman established an Indian fine art fund. SEBI has rigorously supervised the formation of funds and the use of retail investors’ monies.

The Prevention of Money Laundering Act of 2002 (PMLA), India’s primary legislation governing anti-money laundering, includes the notion of reporting entities (REs). It allows the Indian government to issue notifications to any business or profession that is required to keep specific records. Although people who work with art and art objects are not now classified as REs under the PMLA, this could change in the future.

Conclusion

Copyright protection extends to literary or artistic works that need ingenuity, such as databases and computer software. Although it is not required to register a work in order to be eligible for copyright, it is frequently recommended because it serves as evidence in court. If someone infringes on someone else’s copyrighted work, he will be held guilty for both civil and criminal liability.

However, there are several exceptions to copyright infringement, such as when a person is not needed to get the copyright holder’s permission to utilise his work. However, it is always recommended to create unique work rather than repurposing someone else’s copyrighted work without permission. Also, art lending helps collectors and gallerists to obtain liquidity without having to make unfavourable transactions in order to meet short-term cash-flow needs.

References

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Does phone tapping violate Article 21

By

Sneha Mahawar

-

September 3, 2021

0

Phone tapping — Image Source: https://rb.gy/qnnk8y

This article is written by Abhishek Chaudhary Attri, from UPES, School of Law, Dehradun. The author has critically discussed the “Right to Privacy” and phone tapping in India along with the procedure established by the Hon’ble Supreme Court of India.

Table of Contents

Introduction

Article 21 of the Constitution of India has time and again been stressed as the very soul of fundamental rights by the Supreme Court of India. The inclusion of the extended meanings of the terms “life” and “liberty” have made this statute multi-dimensional and has given a broader aspect in interpreting it. The provision ensures that no person shall be deprived of life and personal liberty and an exception to be made only in the circumstances where the law provides the procedure for the same. The right to privacy in India under Article 21 has been derived from the right to life where it has been interpreted that life is much more significant than just mere existence and one such aspect is privacy. The question remains whether the right to privacy is absolute or there can be some interference allowed by the law with any safeguards.

Right to Privacy under Article 21 and phone tapping

As stated above, the term personal liberty includes but is not limited to the right to privacy, under which a citizen has the right to safeguard his privacy and including that of his family. The right to life as mentioned under Article 21 of the Constitution of India amounts to more than mere existence or survival. It shall include the meaningful aspects of life, which makes ones’ life worth living and privacy are considered in such aspects. In the case of K.S. Puttaswamy vs. Union of India, 2018, it was observed by the Hon’ble Supreme Court of India that being precious, life becomes worth living due to freedom which enables each individual to live life as they see fit, freedom is enabled by entrusting the individual with the decision on how to live life. They are continuously shaped by the social milieu in which individuals exist.

The duty of the state shall be to safeguard the ability to take these decisions and keep it in the autonomy of the individual as to dictate those decisions. “Life” within the meaning of Article 21 is not confined to the integrity of the physical body. The right comprehends one’s being in its fullest sense. That which facilitates the fulfilment of life is as much within the protection of the guarantee of life. In the context of the nature of the right to privacy, it was established by the Supreme court in the case of Gobind v. State Of Madhya Pradesh And Anr, 1975 that it is not absolute and though it is a fundamental right explicitly guaranteed it too subject to the conduct carry restriction on the basis of compelling public interest.

As far as the statute allows for the safety of the rights of an individual there is a procedure in place to invade such right in the most just fair and reasonable manner in the occurrence of public emergency via phone tapping. The procedure was laid down in the case of People’s Union for Civil Liberties v. Union of India (1996), where the Supreme court laid down exhaustive guidelines to regulate Section 5 of the Indian Telegraph Act, 1885 for the authorization of the interception of messages in specific circumstances.

An overview of PUCL v. Union of India

Facts of the case

The writ petition was filed by the People’s Union For Civil Liberties (PUCL) in the Hon’ble Supreme Court of India. PUCL is a voluntary organisation and it highlighted the incidents of telephone tapping while challenging the constitutional validity of Section 5(2) of the Indian Telegraph Act, 1885. The incidents were reported on the account of tapping telephones of politicians by the Central Bureau of Investigation (CBI). The investigation revealed that MTNL had major lapses in maintaining the record of the interception of telephones.

Apropos of 111 cases, the telephones were intercepted beyond the 180 days authorized by the government. The investigations also revealed that various authorised agencies were not maintaining the records and logbooks of the interception and the reason for the interception was also not mentioned properly.

The CBI report indicated that under the provisions of Section 5(2) Telegraph Act, 1885 the Central Government authorizes the interception to Intelligence Bureau, Director General Narcotics Control Bureau, Revenue Intelligence, Central Economic Intelligence Bureau and The Enforcement Directorate. In Section 5(2) of the Telegraph Act, 1885 it is precisely mentioned that in the event of a public emergency or the interest of public safety the central or state government can authorize the interception of messages. Such measures can only be taken when, the sovereignty and integrity of India, the security of the state, friendly relation with the foreign nation, prevention of incitement to the commission of an offence or public order is in jeopardy.

The contention of parties to the case

The allegation was denied by the Assistant Director-General, Department of Telecom by a counter-affidavit on the behalf of the Union of India. It mentioned that the party in power whether in the Centre or State Government could not misuse their power of taping the telephone as it could be done only under certain circumstances such as national emergency or in the interest of Public Safety. The reason to tap a telephone shall be mentioned before the tapping begins and if the same is communicated to the party whose telephone is being tapped it would defeat the whole purpose of the process as the work is very sensitive and secretive In the situation where the aggrieved party would allege the misuse of the tapping of the telephone by any authorised officer suitable action can be taken as necessary. Hence, Section 5(2) of the Indian Telegraph Act, 1885 should not be struck down.

Mr Rajinder Sachar, Senior advocate contended that the state’s right to privacy is a fundamental right guaranteed under Article 19(1) and Article 21 of the constitution, besides, to make Section 5(2) constitutional, changes have to be made, such as the substantive as well as the procedural laws were just, fair and reasonable. To make this possible, it is necessary to read down the said provision to provide adequate machinery to safeguard the right to privacy. The prior judicial sanction which shall be ex-parte in nature can eliminate the elements of arbitrariness and unreasonableness.

Further contentions were made that Section 5(2) lays down the conditions which dealt with the exercise of powers but how it is to be executed is not prescribed, hence, procedural safeguards should be established which will come into play before judicial scrutiny and save the act from the vice of arbitrariness. Section 7(2)(b) of the Telegraph Act, 1885 gives the power to the Central government to make appropriate changes in the rules consistent with this Act by the notification in the Official Gazette to the precautions to be taken for the prevention of improper interception or disclosure of messages.

Observations made by the court of law

Both sides had relied upon the judgement of Kharak Singh vs. the State of UP, 1962 where the connection between the terms “life” and “personal liberty” in the context of Article 21 was elaborately discussed by the Supreme Court of India. The seven-judge bench concluded in the case that Article 21 of the Constitution of India includes the right to privacy as the right to protection of life and personal liberty.

The counsels then elaborated upon the right to privacy as a broad and moralistic concept. The right to hold a telephone conversation in the privacy of one’s home or office falls under the concept of “right to privacy”. The conversation carried out in such places is more intimate or confidential and this has become a part of a person’s life. As more people carry such mobile devices in their pockets and conduct communication frequently, this becomes an important factor of a man’s private life. Right to privacy shall include telephone conversations in one’s home or office. Hence, telephone tapping would infringe on Article 21 of the constitution of India.

The sine qua non for the application for provision under Section 5(2) of the Indian Telegraph Act, 1885 is the occurrence of a public emergency or when in the interest of public safety. Unless these conditions have occurred, the central and state government authorities have no jurisdiction to resort to phone-tapping even though they are appeased by the fact that it is in the interest of the sovereignty and integrity of India. Neither of the two conditions mentioned is secretive and that these shall be apparent to a reasonable person. In a recent case of Vinit Kumar vs Central Bureau of Investigation, 2019, it was held by the Bombay High Court that the phone tapping was only allowed only when there is a case of public emergency or public safety other than that it will lead to infringement of the fundamental right to privacy. Thus the court quashed three orders passed by the Union Home Ministry, against a businessman who has allegedly been involved in a bribing case, allowing the investigating agencies to tap his phones.

As per the contentions made on behalf of the applicant and through the analysis of Section 5(2) of the Indian Telegraph Act, 1885. It is an undisputed fact that there are no rules framed under Section 7(2)(b) of the Act that has ensured the prevention of improper interception of telephones or disclosure of messages and there are no just and fair regulations to do so. The investigation report by CBI has revealed several lapses that were caused due to the absence of such regulations. Therefore, it becomes necessary for the court to provide procedural safeguards for the exercise of power under Section 5(2) of the Act to protect the right to privacy under Article 21.

The procedure established by the Supreme Court to prevent illegal phone tapping

To rule out the arbitrariness of Section 5(2) and to provide the just fair and reasonable procedure in the ambit of Section 7(2)(b) of the Telegraph Act, 1885 the Hon’ble Supreme Court of India had ordered and directed as under the order for telephone-tapping shall only be issued by the Home Secretary, Government of India and Home Secretaries of the State Governments.

In emergency matters, the power under Section 5(2) shall be delegated to the officer of the Home Department to the centre and state governments. The Review Committee shall be given a copy of the order within one week of passing. The order dealing with the interception shall take into account that whether the information which is considered necessary could be obtained by other means or not and the order shall require the addressed person to intercept the course of transmission through a public telecommunication system, such communications are described in the order.

The interceptions shall be of such communications which are sent from one or more addresses which are used for the transmission of communication for one specified person or set of premises described in the order. The order passed by any authority shall not exceed 2 months, if such authority considers continuing the order in the terms of Section 5(2) of the Act, then the order can be renewed, but the total period of operation of the order cannot exceed six months.

The following records shall be maintained by the authority which has issued the orders.

The communications are intercepted.
The extent to which the material is disclosed.
The identity of the persons to whom the material is disclosed.
The extent to which the material is copied and the number of copies made of the same.

The use of the intercepted material shall be limited to as per the provisions of Section 5 (2) of the Act. The copy of any interception of communications shall be destroyed as soon as it is no longer necessary. The Review Committee on the Central Government Level shall consist of the Cabinet Secretary, the Law Secretary and the Secretary of Telecommunication. While on the State Level it shall consist of Chief Secretary, Law Secretary and a member other than the Home Secretary, appointed by the State Government.

The Review Committee, within two months of passing the order by the concerned authority, shall investigate whether the concerned order falls under the ambit of Section 5(2) of the Act. If the investigation concludes that there has been the contravention of the provisions of Section 5(2), it shall set aside the order under the committee’s scrutiny and further, it shall direct the destruction of the copies of communication intercepted. If the committee concludes that there have not been any violations as per the provisions then it shall record the finding to that effect.

Judicial interpretation

The Supreme Court of India in the case of R.M. Malkani v. The State of Maharashtra, (1973) delivered a controversial judgement when it accepted illegally obtained evidence for prosecution. In this case, the appellant Mr R.M. Malkani, a coroner of Mumbai was indulged in obtaining a bribe of Rs. 15000 from a doctor whom he threatened to falsely accuse in the case involving the negligent death of the patient. The doctor was not interested in paying the bribe and approached the Anti-Corruption Bureau of Police. The police officials traced the call between Malkhani and the doctor regarding the discussion of the amount to be paid and the location at which the transaction shall take place. All of this was done without any intimation of Malkhani and on the account of the statements made on the phone call, charges were framed against him.

The Court was of the view that this another person listening in on a conversation was a technical process and in respect of the admissibility of the evidence stated it as a “mechanical eavesdropping device”. The whole act of tracing and filing charges was deemed as legitimate on the basis that there was no element of compulsion or coercion in which case the act might be violated. The Court then conceivably realized that it was wrong and further added that this shall be used sparingly under proper direction and circumspection. It was decided that the evidence was to be held relevant as per Section 7 and Section 8 of the Indian Evidence Act, 1872.

However, in the case of Rayala M. Bhuvaneswari v. Nagaphamender Rayala, AIR 2008 AP 98, where the husband himself tapped his wife’s conversation, which she was making with her friends and parents was deemed to be illegal and this act was said to be infringing wife’s constitutional right to privacy. It was pointed out by the Supreme court that the husband has resorted to illegal means, breaking the trust between the husband and wife and making the institution of marriage redundant. The telephonic conversations are an important part of a person’s, this shall not be recorded by immoral means and even if the truth is revealed in the conversations the tapes become inadmissible in the courts as it was obtained unconstitutionally.

In a recent case of Toman Lal Sahu vs. State of Chattisgarh, 2021, where a police constable allegedly asked for the favour from a hardcore criminal through a telephonic conversation. The constable was then terminated from his services on the basis of this conversation without any departmental inquiry. Significantly this conversation was submitted as a CD to the court and the source was not disclosed, also the recorded conversation was not supplied to the petitioner. The Court was presented with a question of law that whether the telephonic conversation recorded illegally would form the basis of dismissal without the establishment of an inquiry. Observing closely, the guidelines held in the case of PUCL vs Union of India, the Court held that this act had infringed Article 21 of the Constitution of India and the source of telephonic conversation was not verified by any forensic expert thus the evidence cannot be held admissible under Section 65-B of Indian Evidence Act, 1872. The respondents, however, were authorized to conduct a departmental enquiry against the petitioner and give him a proper opportunity of hearing the petitioner and follow the rules established by the procedure.

Conclusion

The relation between the ‘right to privacy’ and ‘personal liberty’ was distinctly observed by the court of law, along with the necessities to tap communications of the individuals. The need of safeguarding the rights of the individuals and maintaining privacy is paramount but when it comes to public emergencies or safety in the public interest the procedure established by the court is to be followed while breaching the privacy of an individual and keeping it secretive because of the sensitive nature of the information gathered. The court has established a fair and just procedure to keep the checks and balances so that no misuse of power takes place.

References

https://legislative.gov.in/sites/default/files/A1872-01.pdf

https://thedailyguardian.com/phone-tapping-the-saga-of-right-to-privacy-and-the-telegraph-act/

https://indiankanoon.org/

https://main.sci.gov.in/

https://www.lawctopus.com/academike/law-phone-tapping-india/

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Double taxation in Limited Liability Partnership

By

Sneha Mahawar

-

September 3, 2021

0

Limited Liability Partnership — Image Source- https://bit.ly/3io6dDl

This article is written by Harsh Gupta from the School of law, HILSR, Jamia Hamdard. This is an exhaustive article which deals with the concept of double taxation and provisions of taxation regarding LLP in great detail.

Table of Contents

Introduction

Limited liability partnerships combine the advantages of both partnerships and corporations. These two forms are incorporated in it. Limited liability means that partners are not liable for the debts of the company, as indicated by their name. As many entrepreneurs are opting for this form of business today, it has become very popular. The firm has several partners, so they cannot be held responsible for the misconduct of other partners. Everyone is responsible for their actions. Limited liability partnerships are governed by the Limited Liability Partnership Act of 2008. In India, however, LLPs were introduced in April 2009.

Legally speaking, it exists apart from the owners. Property can be acquired in its name through a contract. India is not the only country where LLP forms are prevalent. It is also prevalent in countries like the United Kingdom, Australia, etc.

Concept of double taxation

A situation of double taxation is when a tax is charged twice on an income. This can happen on an economic or a juridical basis. When an income or part of it is taxed twice in the same country, in the hands of two individuals, that is economic double taxation. Additionally, juridical double taxation occurs when income earned outside of India is taxed twice in the hands of the same individual, once abroad and once at home. In this situation, the taxpayer is double taxed, resulting in an undue burden.

What can be done to prevent double taxation?

It is uncommon for an individual taxpayer to be able to avoid double taxation, but the Income Tax Act provides certain provisions to provide relief to an individual whose income is likely to be taxed twice. Double Taxation Avoidance Agreements (DTAA) is at the core of this relief measure.

What is a DTAA?

Double Taxation Avoidance Agreements are tax treaties signed by India with other countries. By utilizing the provisions of this treaty, an individual can avoid being taxed twice. DTAA can be comprehensive agreements that cover all types of income or specific agreements that target only certain types of income.

India and Singapore, for instance, have a DTAA under which income is taxed based on a person’s residence status. In this way, taxation is streamlined and the individual is not taxed twice on income earned outside India. Over 80 countries currently have bilateral DTAAs with India.

In what ways does the Income Tax Act provide relief from double taxation?

Relief from double taxation can be unilateral or bilateral.

Unilateral relief

A unilateral exception to double taxation as provided by Section 91 of the Income Tax Act, 1961. An individual can be exempted from paying double taxes by the government under this Section, regardless of whether there is a DTAA between India and the foreign country in question. Individuals must, however, satisfy some conditions before they can be granted unilateral relief. The conditions are as follows:

In the previous year, the individual or corporation must have been a resident of India.
According to the previous year’s tax return, the income must have accrued to the taxpayer and received by him or her outside of India.
Taxes should have been collected in both countries where DTAAs do not exist.
Taxes should have been paid in that foreign country by the individual or corporation.

Bilateral relief

Under the Income Tax Act of 1961, bilateral relief is covered under Section 90. By implementing the DTAA, it offers protection from double taxation. There are two ways to receive this type of relief.

Exemption method

By using the exemption method, you are protected from being taxed twice. In other words, if an income earned outside India has been taxed in the relevant foreign country, it is not taxable in India.

Tax credit method

Individuals or corporations can claim tax credits (deductions) for the taxes paid outside India by using this method. An assessee can use the tax credit to offset the tax due in India, thereby reducing its overall tax bill.

As a result, individuals earning income in other countries may minimize their tax liabilities by taking advantage of the provisions of DTAAs and the relief measures available under the Income Tax Act.

Relationship of LLP & taxation

In terms of taxes, LLPs avoid the double taxation that applies to some corporate entities. Profits from a partnership are taxed solely on the partners’ personal tax returns. With some other types of business formations, the profits are taxed first at the corporate level before the dividends of shareholders are taxed on their individual tax returns. Although sometimes LLPs pay state franchise taxes, they are not required to do so.
Business entities in India primarily exist as sole proprietorships, partnerships, and companies. Identify the advantages and disadvantages of each of these business structures so that you can choose one that is right for you to different regulatory and tax regimes. The taxation of LLPs in our country shall be governed by the Income Tax Act, 1961.
The Limited Liability Partnership Act, 2008 has come into effect in 2009. LLP Rules and forms have been notified w.e.f. 1st April 2009, the Finance No.2 Act, 2009 has incorporated the taxation scheme of LLPs in the Income Tax Act.
According to the Income Tax Act, 1961 (the Act), LLPs are treated as firms for tax purposes. The structure is the same as with partnership firms, i.e. taxation is in the hands of the firm and exemption is in the hands of its partners.
An LLP, like a partnership firm, will pay tax on its profits after deducting business expenditures, salaries, and interest paid to partners. A share in profits is exempt from taxation, but a partner’s salary and interest are taxable.
If an LLP cannot recover an amount due taxes, every partner is jointly and severally liable for it, unless he can prove that the non-recovery is not the result of gross negligence, misfeasance, or breach of duty on the part of its Partner.

Is LLP is the most tax-efficient structure

Whether a company or a limited liability company is the most tax-efficient structure depends on the particular facts of each case. In terms of dividend payouts, various assumptions are taken into account, including the type of business (manufacturing/non-fabrication), the taxable income, the shareholders ‘/partners’ income level, and so on. Companies are the only ones entitled to deductions for in-house R&D, such as weighted deductions. This implies a large degree of subjectivity. When deciding which entity will be more lucrative tax-wise, it is important to take a few assumptions into consideration. An LLP is generally a better option if the payout exceeds 25%. When the pay-out is lower, the company is better off. The pay-out ratio exceeds 60-65% in most cases for a company that qualifies for the reduced tax rate of 15%, with a few exceptions. LLPs are entitled to other tax benefits like additional depreciation, Chapter VI-A benefits, etc. that a company is not entitled to. Although LLPs are subject to an Alternative Minimum Tax of 18.5%, they may still be beneficial due to tax-free distributions. Partners claim credits and deductions on their individual tax returns based on the company’s credits and deductions. Credits and deductions are determined by the percentage of each partner’s interest in the company.

The following points apply to LLPs in India:

Income tax will not be surcharged.
Profits will be taxed in the hands of the LLP rather than the partners.
LLPs will not be subject to the Minimum Alternate Tax.
Dividend distributions are not taxed.
Taxation of partners’ remuneration is based on “income from business and profession”.
Conversion of partnership firms into LLPs does not result in capital gains.
Designated partners will be liable to sign and file the income tax return.

Some of the conditions for tax implication on LLP

Taxes are paid by partnership firms to their partners, but LLPs pay tax on the LLP itself.
Changing from partnership to LLP will not have any tax implications, except for the fact that (a) rights or obligations will not change and (b) assets and liabilities will not be altered.
A breach of any of the above conditions will be handled according to Section 45.
LLPs have more responsibility for their designated partners. Due to this, the tax return for the LLP will be signed by the designated partner. However, if the designated partner is not available, then any other partner may sign the income tax return of the Limited Liability Partnership (LLP).
The new healthcare program introduced as a form of business Limited Liability Partnership was taxed in the 2009-10 Budget.
Budget 2009-10 declared that LLPs are to be treated as Partnerships for income tax.

Change in definition of firm, partner & partnership

Budget 2009-10 had amended the definition of the terms Firm and Partners as follows:

The term company shall have the meaning given to it in the India Partnership Act 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act 2008.

Indian Partnership Act, 1932 defines partner as follows and shall include:

Anyone who is a minor has been admitted to the benefits of partnership;
A partner of a limited liability partnership as defined by the Limited Liability Partnership Act of 2008.
The Partnership Act of India 1932 shall apply in addition to the Limited Liability Partnership Act of 2008, which defines what a partnership is.

Tax rate

A flat tax rate of 30% plus a 3% education levy.
Taxes on dividend distributions and alternate taxes without a minimum.
A Limited Liability Partnership must satisfy the following criteria under Section 148 of the Income Tax Act in order to be assessed as a firm under the Income Tax Act.
The legal existence of the LLP is evidenced by a written agreement, i.e., the LLP Agreement.
The deed identifies the individual shares of the partners.
To be submitted with the return of income for the partnership year in which it was formed, a certified copy of the LLP Agreement must be enclosed.
An updated copy of the revised LLP’s constitution or profit-sharing ratio may be required if changes occur in the previous year.
During the previous fiscal year, a return of income should be filed along with the agreement.
The LLP should not neglect to respond to notices sent by the income tax officer in order to complete the assessment of the LLP.

LLP can claim the following deductions

As long as the LLP has authorized such interest payments to partners agreement.
Salaries, bonuses, commissions, or remuneration (by whatever name they are called) to a working partner will be deductible if it is paid to an individual.
The amount of remuneration paid to such working partners must be authorized by the LLP Agreement, and cannot exceed the set limits. If Section 184 is not followed, no deductions are allowed for interest and remuneration. According to Section 185, this is the mandate.

Conclusion

With India’s limited liability partnerships, foreign investors have the much-anticipated form of business organization that is free from double taxation and carries limited liability. According to the LLP Act, small and closely-held US companies will be able to target the rapidly growing Indian market with remarkable ease.

It is also susceptible to abuse, however, since it is a form of business structure. Private limited liability partnership agreements are probably the weakest link. OECD also identifies limited liability partnerships as corporate vehicles that can be misused since they are less regulated than corporations.

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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Manoj K Sheth vs NSE : perusing the competition concerns in the Co-location facility

By

Oishika Banerji

-

September 3, 2021

0

Stock-Trade-Settlement-Process-in-India-cover — Image source: https://blog.ipleaders.in/settlement-securities-carried-stock-exchanges/

This article has been written by Avik Sarkar pursuing the Diploma in M&A, Institutional Finance and Investment Law from LawSikho.

Table of Contents

Introduction

The Co-location facility has been in vogue since 2009. This facility promises to make trading faster with minimal glitches. Here, a broker is allowed to place their server in the data centre of the Stock exchange. And for setting up the server certain consideration shall be paid to the stock exchange. This setup helps the stockbroker receive price feeds faster than the others. Though this facility sounds very promising at the outset, certain reservations remain. There have been competition concerns that have been swirling around it. The same was delved into in the recent case of Manoj K. Sheth v. NSE,. This piece holistically analyses the said dictum and tries to bring out the lacunae in the same.

A brief insight into the concept of Co-Location

The Indian Capital market has always been able to garner the attraction of the small and large enterprises, as it gives them a platform to invest and expand. Since its inception, it has witnessed monumental changes, one of them being the concept of dematerialization. It was after the introduction of the concept of dematerialization the electronic media started playing an instrumental role in purchasing and selling shares. And this computer-automated version of trading is known as High-Frequency Trading (hereinafter referred to as HFT).

High-Frequency Trading is an automated form of trading that strives to increase the efficiency of buying and selling of shares. It employs various ways using which it increases the efficiency of the whole capital market machinery one of them being the Co-location facility.

The concept of Co-location was introduced in the Indian Capital markets regime back in 2009 by National Stock Exchange (hereinafter referred to as NSE). In a colocation facility, a broker is allowed to place their server in the data centre of the Stock exchange. And for setting up the server certain consideration shall be paid to the stock exchange. This setup helps the stockbroker receive price feeds faster than the others. Though this system sounds very convincing at the outset there has been a plethora of conundrums involved with the same. In a recent matter of Manoj K. Sheth v. NSE, a case was filed against NSE under Section 19(1)(a) of the Competition Act, 2002 alleging violation of Sections 4(2)(b)(ii) and 4(2)(c) of the Competition Act, 2002. In this case, the informant had accused NSE of abusing its dominant position by availing the co-location facilities only to select trading members. Though the Competition Commission of India went on to decide the case in favour of NSE the decision was certainly not welcomed by the masses. This piece discusses the judgement holistically and tries to figure out the inaccuracies in the same.

Informant contention

NSE had introduced the co-location facility back in 2009 where it was providing market access to select brokers in their premises. In the present case, the informant had alleged that NSE was providing unfair access to select trading members leaving out all other trading members who had subscribed to the Co-location facility thereby granting them further competitive edge over the rest of the trading members who had paid for the co-location services. The informant had backed his claims based on the complaint of a whistle-blower of NSE before the Securities Exchange Board of India (hereinafter referred to as SEBI) and a subsequent report by the Technical Advisory Committee and Deloitte.

According to a report of SEBI published on 10 February 2021, the SEBI has stated that the Co-location facility is susceptible to market manipulation. And this kind of market manipulation violates Section 41(2) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012.

NSE’s contention

Firstly, the NSE averred that the Co-location facility was introduced in order to have faster dissemination of data at lower costs. And a similar regime of co-location facility has been incorporated by other notable stock exchanges such as NASDAQ, London Stock Exchange, Chicago Stock Exchange etc which has been highly successful.

Secondly, though the informant had alleged that NSE violated section 4 of the Act by colluding with certain trade members to provide them with a further advantage, no such evidence was put forward by the informant. Further, it was contended that SEBI’s findings against NSE on a certain issue are still pending before the Securities Appellate Tribunal (hereinafter referred to as SAT). And the commission carrying on parallel proceedings while SAT already looking into the nuances of the same will go against the judgement given in the case of CCI vs Bharti Airtel and Others.

Thirdly, NSE had succinctly stated that if at all a trading member breaches any guideline, then NSE is not liable for the same. Finally, it was averred by NSE that multiple proceedings were filed by the informant at different forums and non-mention of the same before the CCI will lead to violation of The Competition Commission of India (General) Regulations, 2009.

Dictum of CCI

The commission takes note of Adv. Jitesh Maheshwari v. NSE where similar infractions relating to co-location services were filed. Here the commission had refused to probe into the matter as SEBI was already examining the same. However, the commission agreed with the informant that any pending lis before SAT or any other forum cannot divest CCI from exercising its statutory functions.

The commission delved into two issues:

Whether NSE has abused its dominant position (Section 4 of the Competition Act).
Whether giving an unfair advantage to select members out of all the others who availed of the facility is in derogation with Competition Act.

Firstly, the informant had delineated the relevant market to be the securities markets in entirety. However, the commission delineated the relevant market as a ‘market for providing co-location services for Algo-trading insecurities to the trading members.

Secondly, the commission delved into the dominant position that NSE holds in the market. To establish the same commission relied on a) Annual Report 2019-2020′ of SEBI, b) NSE’s Annual Report for 2019-20 and c) decision of CCI in the matter of NSE’s Annual Report for 2019-20.

Thirdly, the commission after satisfying itself with the dominant position of NSE in the market. It goes on to peruse the reports by SEBI where it was stated that NSE didn’t exercise proper due diligence while setting up the tick by tick (TBT) architecture which led to asymmetric dissemination of information. Thus, SEBI held this failure of NSE to grant equality to every trading member amounts to a violation of Regulation 41(2) of SECC Regulations, 2012.

Despite such strong evidence on-record, the CCI absolved NSE of all charges by stating that using a technology that involves the perils of getting manipulated by someone even without colluding with the NSE, doesn’t lead to abuse of dominant position. Thus, bonafide choice of technology doesn’t lead to violation of Section 4 of the Act. And since there was no fraudulent conduct found by SEBI under its SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, CCI closed the matter in absence of any prima facie case.

Analysis

Firstly, after perusing SEBI’s order it can be construed that it had termed the acts of NSE to be “non-equitable”, “denying equal access” which thereby resulted in “information asymmetry”. Further, SEBI had succinctly stated in its order that many traders had gained unfair access to its secondary server without any checks or actions taken by the NSE. And from its report, it could be concluded that NSE has failed to provide equal access to its trade members. And the report was enough for the commission to form a prima facie case but it decided otherwise.

Secondly, NSE has time and again reinstated the fact that the co-location facility has been implemented by other world’s leading stock exchanges. But it must be noted that there were similar allegations against these leading stock exchanges. The Federal Bureau of Investigation (FBI) had bought a class action against leading stock exchanges named Chicago Board Options Exchange, NASDAQ OMX Group for engaging in fraudulent activities which were aimed to manipulate the market. During the investigation, it was found that these stock exchanges were actually involved in providing an unfair advantage to their trade members and stringent actions were taken against the same.

The panacea of the situation may lie in the Essential Facilities Doctrine. According to this doctrine, a dominant market player needs to share its resources with the other market players in order to maintain healthy competition. If the dominant player doesn’t share its resources, then any facility created by the dominant market player will be seen as a barrier for entry to other market players.

Conclusion

To summarise from the above-mentioned statements, it can be perused that a prima facie case did exist and for the further demystification of the matter it should have been referred to the Director-General (DG). And to break NSE’s monopoly and ensure fair play the essential facility doctrine shall be brought into play as the market share of NSE is overarching and can lead to serious market deformities. Further NSE should strive to ensure fairness in the whole system.

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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