How to choose the right kind of stock options for your employees in the United States?

August 31, 2021

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It’s common for startups to look for talented and experienced employees who can play a big role in taking the business to the next level. Startups need people who can build businesses. However, what is also common is that in the initial stages of business, these companies do not have a lot of cash to dole out higher salaries. They can offer equity instead, but the rights in such equity will be given gradually to the employee so that the employee does not get hold of the shares and leave. This is the idea behind stock options.

For example, here’s how a vanilla stock option grant would work:

Grant date: 30 August 2021, No. of stock: 1000, vesting period: 4 years, cliff period: 1 year

In this case, the employee will have a right to be allotted the stock as under:

30 August 2022: Nil
30 August 2023: 250
30 August 2024: 250
30 August 2025: 250
30 August 2026: 250

In addition to the vanilla stock option where equity shares are vested in an employee over a period of time, there are a lot of permutations and combinations which people have arrived at, based on the sectors, the needs of founders, tax treatment etc.

If you actually want to give the ownership stock to your employees, you can choose to grant Equity Stock Options, Sweat Equity, Restricted Stock Awards (RSAs) or Restricted Stock Units (RSUs) or use ESPPs – Employee Stock Purchase Plans.

If you simply want to give the value of the appreciation in the stock without actually granting the stock, you can choose to grant Phantom Stock Options or Stock Appreciation Rights.

2. Statutes in different countries can be taxing the stock options differently. For the purpose of this write-up, we will focus on tax treatment for stock options in the US. From a tax perspective, the stock options can be divided into Incentive Stock Options (ISOs) and Non-Statutory Stock Options (NSOs).

Let’s look at these in a little more detail:

Where your employees actually get the shares vs. where they receive only the value of the appreciation

In a vanilla stock option scheme, as we already saw in the example, your employees will receive actual equity shares, although this will be in a staggered manner and upon payment of an exercise price.

Similarly in a Restricted Stock Award (RSA), the employee is actually granted the equity shares, but the rights in such shares as an owner do not vest until a certain period has elapsed. Basically, the employee cannot sell such shares and benefit from the capital appreciation until they have vested. After they have vested also, the employee needs to pay a ‘purchase price’ in order to get the full rights in the shares.

This is used when you do not want to go through the formalities of the employee being given an option certificate first, then exercising it and then getting the shares. The shares are directly allotted here, just the rights are restricted.

Restricted Stock Units (RSUs) on the other hand are closer to what can be called ‘sweat equity’. The shares are allotted to the employee according to a vesting schedule and they do not have to pay anything for the shares except for the taxes.

In this scheme also there are no óptions’or option certificates which are given, but the shares are directly allotted in a staggered manner according to a vesting schedule.

Employee Stock Purchase Plans (ESPPs) are when the employees can purchase the shares of a company at a discount. The payment for the shares can even be made by deductions from the salary between the date when the shares are offered and when they are actually purchased.

In this method, the shares are granted and the rights to the shares are also granted simultaneously, but because of that, the discount is quite low (about 10%) and the employee will be paying for the shares like an external investor. In India, this kind of offering would be made as a part of an issue of the company, where the employees are offered the shares at a discount compared to the other investors in an issue.

As you can see, the above schemes do result in the employee holding ownership rights in the company through equity shares, but none of them grants instant ownership over the shares at a heavy discount. It is always over a period of time, to ensure that the employee remains interested in the growth of the company.

However, there can be schemes that never result in the employee holding any equity in the company and yet benefitting from the capital appreciation. This is what happens in Phantom Stock Options or Stock Appreciation Rights.

In both these schemes, there is a notional grant of shares to the employee and they are entitled to the difference in the value of the shares of the company when they were granted the shares vs. when there is an ‘éxit event’.

For example, if Andy is granted 100 options today under a Phantom Stock Option scheme, he will never actually receive the shares. But if the value of the shares is $100 today (at $1 per share) and after some period, there is an event where the founders sell their shares to an investor at $1.5 per share, Andy will receive $50 – the appreciation in the value of his holding.

How to choose between the two?

Schemes that do not grant any actual shares to the employees work well for founders who do not want to give voting rights in the decisions of the company and yet want the employees to benefit from capital appreciation.

For those founders who want the employees to be involved in the decision making in the company, schemes granting them actual equity shares or stock works well. Remember that you can always restrict the total number of shares the employees can hold in the company (called an option pool). So there will never be a situation where the founders or investors are minority shareholders and employees hold the majority of shares and call the shots.

The difference in the tax treatment of stock options – Incentive Stock Options (ISOs) and Non-Statutory Stock Options (NSOs)

In order to qualify as ISOs or incentive stock options, there are certain specific conditions that must be met, in respect of the scheme and the vesting and exercise of the stock options.

The basic idea behind a favourable tax treatment for these stock options is that these are granted to the employees only and not to the founders (these cannot be granted to individuals who hold more than 10% of total voting power) and these are also not used for advisors, consultants etc. The restrictions or qualifying conditions can be seen here. Some important restrictions for options to qualify as ISOs are:

The shares obtained by the exercise of these options are not to be sold until at least two years from the date of grant and one year from the date of exercise.
The option price is not lesser than the fair market value of the shares at the date of grant.
The aggregate fair market value of shares exercisable by ISOs in any calendar year cannot exceed USD100,000. This is actually the biggest limitation because the company would have to make the grants accordingly, otherwise, any additional exercises beyond this amount would be classified as NSOs.

The favourable tax treatment for ISOs is simply that there is no taxation at the time of grant or exercise or right until the time when the shares received upon the exercise of the stock options are actually sold. When they are sold, if they have met the holding conditions written at point 1) above, the gains on the sale are taxed as long term capital gains. These are applicable in different slabs of 0%, 15% and 20% depending upon whether you are single, married and filing taxes individually or jointly or if you are head of the household (see here).

On the other hand, Non-Statutory or Non-Qualified Stock Options are taxed twice i.e. once at the time of the exercise and other times, at the time of the sale of the shares received upon the exercise of the stock options, although the tax treatment can be different at both the times.

There is no taxation on grants or vesting of the non-statutory stock options. However, when you exercise the options, you get taxed on the difference between the exercise price and the fair market value of the shares of the company. The tax rates applied are the ordinary tax rates that you pay on your income.

This is useful to the company because the company gets to deduct this amount as if it were a salary paid to you. The company withholds a certain amount of tax on this notional payment and you would need to pay the balance at the time of filing your return.

Now when you actually sell the shares which you had received by exercising, if your sale amount is higher than the notional profit you paid taxes on, you pay the taxes on the difference. If you have exercised the options at least 12 months before the sale, you are taxed at the long term capital gains rates. If not, even this additional profit will be taxed at your normal income tax slab rates.

For example, if you are granted 100 stock options and at the time of exercise, your strike price is $1 but the fair market value of the company’s shares is $3, you would pay taxes on the notional profit of $200 [100 ($3-$1)] at your normal income tax slab rates at the time of the exercise.

Now if you hold the shares for at least a year after the exercise and sell them afterwards for $500, you will now be taxed for long term capital gains on $200 ($500-$300, the notional value at which you paid taxes earlier).

How to decide between the two?

ISOs may work well for an employee, but the overall restriction of $100,000 for a calendar year can become difficult for a company to maintain. It also depends upon to whom the company wants to grant the options. ISOs can only be granted to employees. Therefore, if the company wants to involve founders, advisors, consultants etc., it has to grant NSOs.

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Determining the liability of artificial intelligence in contemporary times

Sneha Mahawar

August 31, 2021

This article is written by Pranav Sethi, from SVKM NMIMS School of Law, Navi Mumbai. This article, attempting to establish an interface between A.I. and law, discusses the question as to whether artificial intelligence could be held liable in criminal law, civil law, and the controversies surrounding AI technology.

Table of Contents

Introduction

“We have seen AI providing conversation and comfort to the lonely; we have also seen AI engaging in racial discrimination. Yet the biggest harm that AI is likely to do to individuals in the short term is job displacement, as the amount of work we can automate with AI is vastly larger than before. As leaders, it is incumbent on all of us to make sure we are building a world in which every individual has an opportunity to thrive.” ~ Andrew Ng, Co-founder, and lead of Google Brain

Artificial Intelligence (AI) will almost certainly change how we live and work. Its implementation has been referred to as the fourth industrial revolution due to its enormous potential. As with any big technological innovation, it brings with it both potential and challenges. On the one hand, various applications have been produced or are in the works that can dramatically enhance people’s standard of living. According to a study, by 2035, the yearly economic growth rate of 12 wealthy countries will have doubled. On the other hand, there is a chance that jobs will be lost.

According to a few years back the online edition of an editorial monthly of a reputed platform, the question of which rules would apply if a self-driving car killed a pedestrian was often trending on the web. The issue of legal liability for artificial intelligence is discussed in this article. It talks about whether criminal liability could ever apply; to whom it might apply; and, under what circumstances it might apply. Whether an AI program is a product subject to product development under civil law and the policy framework involved around the UK laws and Indian legislations has been discussed through this article.

A common fear of job losses

According to existing estimates, job losses in the US are expected to reach 47 percent, 35 percent in the UK, 49 percent in Japan, 40 percent in Australia, and 54 percent in the EU during the next 10-20 years. No country can escape the effects of technological advancements in the age of globalization. However, by placing in position the required infrastructure and policies, the advantages can be maximized and losses can be reduced.

Defining artificial intelligence

Artificial Intelligence (AI) is the study of the nature of human intelligence and the creation of intelligent artifacts that can do jobs that need intellect when executed by humans. Any significant technological innovation brings with it a variety of problems and possibilities. While AI is expected to promote significant economic growth, it is also expected to result in the loss of employment. As a result, the requisite policy and infrastructure must be in place.

Even though AI has been a subject of research because the concept was created in 1956, it has only lately led to the widespread implementation of intelligent applications for various disciplines and jobs. The work in the late 1950s and early 1960s was focused on the creation of broad procedures that could be used in a variety of fields. The findings were not reassuring, prompting the field’s first winter, which began in the late 1960s and lasted into the late 1970s.

Artificial intelligence is a man-made innovation

It might alternatively be defined as any type of man-made organism capable of using the functioning capacity to perform cognitive activities such as abstract reasoning and logical deduction, as well as learning new information on its own. Using these cognitive powers, this organism would also be able to develop long-term plans for the future. Of fact, until we get to the point when the programs we construct have true intelligence, this term won’t fully explain AI.

Current AI is well below this criterion; most algorithms can only work independently in a very limited domain, severely limiting their utility. Artificial intelligence platforms have subsequently acquired tremendous traction in this incredibly innovative society over the last decade, with highly technical and sophisticated technology being applied to construct inventive, intelligent, and intellectual AI systems. As a result, the day is not far away when these intelligent bots will begin to create useful and amazing inventions without the assistance of human brains.

Researchers viewpoint

Some AI researchers believe that anything that replicates human intellect in any manner is “artificial intelligence,” while others believe that the only “artificially intelligent” systems are those which replicate how individuals understand. Many “artificially intelligent” algorithms are classified as complicated informational networks by those in the domain of information networks with “real” artificial intelligence designated for meta-level strategic thinking that is frequently referred to as “wisdom.”

Artificial intelligence (AI) has advanced and become more widely used in recent years. Just about every industry is hurrying to take advantage of AI’s capabilities, investing vast sums of money in the process. The potential for technology to promote productivity and creativity across a business is enormous. However, as the use of this technology grows, so do its drawbacks. Most programmers are often unaware of how an AI learns, adapts to new situations, and makes decisions. It would be difficult to decide who should be held responsible if something went wrong in this manner.

Self-driving system innovation in AI (artificial intelligence)

Human decision-making will undoubtedly drift into the context when AI develops at a quicker rate. In this setting, it is unavoidable that specific AI systems may fail to complete tasks. We will see an escalation in disagreements as a result of AI shortcomings in this area. An automated vehicle has murdered a woman in an Arizona roadway. When the first autonomous vehicles appeared on public roads in 2013, the main objective of automakers was to develop a self-driving car system that is plainly and demonstrably safer than a typical human-controlled vehicle.

Artificial intelligence and legal liability

We can draw our legal rights and responsibilities from the law. Following the law entails carrying out responsibilities and receiving benefits. As a result, legal conception for AI raises the topic of whether AI should have legal rights and responsibilities. Although the answer may seem progressive and advanced, a thorough examination should include a consideration of AI’s legal personality, as this would hold AI responsible for its actions.

Criminal liability

Criminal liability for AI will necessitate the AI’s legal personhood and will be equivalent to the commercial criminal liability which some legal regimes recognize. Corporate criminal liability is seen as a fabrication; it is an interpreted type of liability in which the company is held liable for the actions of its individuals. Unlike businesses, AI would be made responsible for its actions rather than being responsible for the actions of others. Even while it appears to be a straightforward answer that does not violate the rule of law, it demands a more thorough examination.

Why do criminal laws carry a different approach for artificial intelligence

When a person or individual executes a crime towards any other individual, he or she will undoubtedly be liable to the criminal laws that have been established in that country. Whenever it concerns artificial intelligence, therefore, any criminal activity perpetrated towards humanity by it may not be classified as a traditional crime, even though it has been committed with the help of a software or a robot that is not related to the person who created the software, program, or machine.

Consequently, to identify the criminal liability of crimes perpetrated by artificial intelligence, we must first evaluate whether artificial intelligence is a legal entity in and of as a whole as well as what the major obstacle has been in establishing and identifying the actus reus and mens rea, or the act and mental (intention) component, respectively.

Defining the black box problem

Computer and smartphone patrons remain dependent on complicated problem-solving algorithms to execute only the utmost simple activities effectively and swiftly, and artificial intelligence has established a major component of everyday life. It is similarly important for such algorithms to run efficiently and without errors, as well as for us to present the information, as this aids in any subsequent algorithm development. Nevertheless, when we try to figure out how the AI works, we hit a brick wall, and it’s difficult to describe what’s happening within.

It’s a big problem, but it’s now limited to massive profound training systems and neural systems. Because artificial intelligence is made up of complicated algorithms and data sets that are produced by software rather than by humans, these neural systems separate the problem into zillions of bits and then systematically analyze them bit by bit to provide a realistic result. Because the human mind does not work in the same way, we have no way of knowing what calculations the brain system is performing or what methods are being used.

As a result, this phenomenon is referred to as the “black box” or “explainability” dilemma, because there is no way to get access within the neural network to observe current activity during the problem-solving operation. This not only prevents us from getting the deep information needed to update the algorithm and subsequent calculations, but it also creates a host of security difficulties with AI and neural networks. As a result, it is claimed that a human will never be able to explain why a sound AI system using such self-generated methodologies or data sets arrived at a given response or made a specified “choice.”

Queries related to the AI framework’s choices and decisions

It is critical to remember that any examination of culpability in a civil or criminal action boils down to whether the relevant defendant’s activities or omissions were illegal as a result of the applicable AI framework’s choices and conclusions. Were their actions or omissions considered contract violations, negligence, or criminal offences? It is critical to emphasize that the defendant will be a legal person, not an AI framework, in any case.

To answer these types of questions, the court will not need to know why the relevant AI mechanism made the decision that resulted in the defendant’s allegedly illegal act or omission. We can’t help but imagine that we won’t be able to figure out why the AI framework made a decision. Nevertheless, in reality, the AI methodology did surely arrive at that particular choice which either produced or contributed to the defendant’s criminal act or omission.

For instance, a plaintiff who followed the defendant’s poor investment advice supplied by an AI algorithm lost money. According to the implied terms of the service contract, the plaintiff may argue that the defendant failed to use reasonable care and skill in his responsibility to provide investment advice. The plaintiff could be competent to prove a breach of duty as well as the defendant’s responsibility to use proper precautions without any justification as to why the ai provided such bad advice. As a result, courts may be able to find the defendant liable depending on the character and validity of the plaintiff’s view. Whether the counsel was provided by a robo-adviser or a human adviser, the court may have reached the same conclusion. It’s important to remember that the human brain has “black box” characteristics (we can’t always explain human behaviour), yet this hasn’t stopped courts from finding defendants accountable in the past.

Artificial intelligence: Is it a legal entity

The first death from a robot

Kenji Udhara, an engineer at a Kawasaki heavy enterprises company in which a robot was stationed to execute a specialized manufacturing job, was the first person to die as a result of a robot on this planet. As a consequence, when Kenji was fixing the robot, he neglected to close it, causing the robot to recognize Kenji as a barrier, following which he was mercilessly driven into an adjacent machine by the same robot’s powerful hydraulic arm, resulting in Kenji’s death almost immediately.

Numerous regulations of nations throughout the world at the moment, are incapable of establishing a definite criminal legal foundation for dealing with official situations where robots are implicated in the execution of a particular charge or injury to a person. With the development of AI, several new aspects have been introduced to the world, as well as the ability to manage with such a quick rate of change. It is also critical for states to enact legislation that clarifies the status of incidents and crimes involving robots and artificial intelligence Software.

Artificial intelligence’s lawful grounds

There is no formal regulation or statute in the Indian legislative framework that addresses the unborn child and its rights. Some statutes, on the other hand, not only acknowledge and state about an unborn child but also identify such a child as a legal person who only gains such rights after birth. The legislature is quiet on the concept of protections offered to such unborn and duties owing to certain unborn, which is intrinsically troublesome as a grey area in the legal arena. Similarly, AI systems are currently in their development, and the Indian legal system has yet to recognize them, which is a concerning situation, much alone the imposition of any rights, responsibilities, or liabilities on AI systems.

Since a particular person or corporation’s lawful position is intrinsically related to their autonomy, this position is bestowed not only on persons, but also on cooperatives, businesses, and organizations. However, no legal system has yet recognized artificial intelligence as a legal organization except for Saudi Arabia. Where a robot named Sophia, which is the state, has recognized an artificially intelligent humanoid as a citizen of the country with rights and duties equal to those of human beings, a noble person living within the state. The problem of establishing legal bodies for artificial intelligence robots or software depends on whether they can be assigned specific rights and responsibilities that would normally be given to a live human.

Ai responsibility for independent operations

Although a dwelling person is fully independent and can make his or her judgments, an artificial intelligence framework is formed by humans and operates according to the instructions of the programs that have been introduced to its framework to accomplish particular duties in a particular situation. But it is also responsible for operating independently. Although the corporate entities or businesses have the legal status of a different legal entity they are nonetheless jointly responsible to the stakeholders for any future liability arising from dealings that these businesses or corporations have engaged into.

Even though individuals created artificial intelligence, it is completely autonomous and capable of doing activities that may occur as a result of a breakdown or incorrect programming, resulting in the implementation of a criminal act even when the author of such an AI program had no intention of doing so. Under any country’s state law, the criminal liability of artificially machine intelligence is unclear.

As a result, only judicial judgments serve as the major source of judgment in instances where artificial intelligence is accountable for executing a particular crime (including or excluding the creator’s orders that produced such artificial intelligence robot software or algorithms).

Elaborating role of AI in criminal liability

According to Gabriel Hallevy, a distinguished legal scholar and attorney, various AI systems can satisfy the key elements of criminal liability.

An act or omission that constitutes actus reus.
Furthermore, mens rea, which necessitates knowledge or information.
Strict liability offences, which do not require mens rea.

The actus reus criterion in showing criminal liability

Artificial intelligence machines and software’s criminal liability emphasizes that whenever a criminal act is committed, the requirement of law serves as the basic foundation. As a result, without an actus reus, an individual’s criminal liability cannot be founded, and in the specific instance of artificial intelligence, actus reus can only be instituted if the crime perpetrated by such a framework can be stipulated to a human being, allowing the very circumstance of commission of an act to be satisfactory to penalize and demonstrate an individual’s criminal liability.

The components of mens rea

When it pertains to mens rea, the prosecution must show that an act performed by an AI was done deliberately by the users towards the other person. The greatest level of mens rea is the knowledge that may or may not be corroborated by the purpose of a single person under whose direction or management an artificial intelligence robot performed a particular act. The minimum point of mens rea is when the user of an AI system is guilty of criminal negligence or misconduct, which should have been obvious to a rational human under his strict liability.

Hallevy presented three legal paradigms to consider when investigating AI-related offences:

Perpetration by a Third-Party AI Liability.
Artificial Intelligence’s Natural Probable Consequence Liability.
The AI’s Direct Liability.

Perpetrator by another person

In the instance of a crime committed by an intellectually challenged person, a minor, or an animal, the offenders are considered innocent agents since they lacked the cognitive ability to form a mens rea, and this also applies to strict liability offences. However, if that innocent individual executed on somebody else’s orders, the individual delivering the instructions or the instructor would be held criminally accountable, such as a dog trainer who trains his dog to attack outsiders in the occurrence of a certain incident. As a result, according to this concept, while AI platforms or programmes are considered harmless agents, the user or system developer can be labelled as a perpetrator by another.

Natural-probable-consequence

In this concept, a component of an AI software designed for good purposes gets accidentally activated, resulting in the commission of a criminal act. Hallevy used the instance of Kenji Udhara, a Kawasaki heavy industries engineer who works in a company in which a robot was used to perform certain production tasks. As a result, when Kenji was fixing the robot, he failed to shut it down, which caused the robot to recognize Kenji as a threat to its assigned tasks and determine that even the most efficient strategy to neutralize this threat was to drive him into a neighbouring working machine. The powerful hydraulic arm of the similar robot mercilessly shoved him into an adjacent machine, killing Kenji almost immediately before returning to its job.

This model is used to determine “natural or likely consequence” liability, also known as “abetment,” under Chapter V of the Indian Penal Code, 1860 (hence referred to as IPC), which controls the culpability of those who aid and abet the execution of an offence. Hallevy outlines how an accomplice can be held accountable for an act even if no conspiracy is proven, as long as the accused’s conduct was a natural or foreseeable result of which the accomplices promoted or supported and had knowledge that a criminal plot was taking place.

Relevance of Section 111 of Indian Penal Code

In Indian criminal law, Section 111 of the Indian Penal Code (IPC) under Chapter V establishes the principle of expected outcome which states that the consequences of an act assisted and an act committed are not the same. Except for a probable outcome of abetment, the abettor will be responsible for the offender’s action in almost a similar manner and the similar manner as if he had assisted it. The broad consensus on abatement is that there can be no sentence for abetment unless an act is committed. In other cases, however, if the evidence is inadequate to indict the perpetrator but adequate to convict the abettor, the perpetrator may be acquitted while the abettor is likely to be found guilty based on evidence and circumstances.

As a result, AI platform programmers and operators may be held accountable for the AI software’s actions if they recognized the action was a natural or likely result of their AI system’s use. Nevertheless, separation needs to be made amongst AI systems intentionally built for criminal objectives as well as those with valid other goals when employing this principle i.e., where the AI system knows about criminal intentions and where it does not. The previous category of AI systems is covered by this concept, but the latter group may not be prosecutable due to a lack of information (but strict liability would apply to them).

Direct liability

This concept gives an AI system both actus reus and mens rea. An AI program’s actus reus is quite simple to assign. If the result of any operation made by an AI system turns out to be criminal conduct or a failure to respond in a scenario in which there was a responsibility to report, the actus reus of the charge has occurred. It’s difficult to assign a mens rea, hence the three-level system of mens rea enters into action here. In the instance of strict liability offences, when intention does not require to be established or is not needed, an AI system may be held guilty for the illegal act. An example of strict liability can be seen in the case of an autonomous self-driving automobile and speeding, where speeding is a strict liability offence. So, according to Hallevy’s approach, the legislation governing the criminal liability of over-speeding might be enforced in the same way that it would be implemented to humans driving a car driven by AI software.

Elaborating role of AI in civil liability

When software is flawed or a person is damaged as a result of using it, the legal actions usually charge negligence rather than criminal culpability. Gerstner addresses the three factors that must be proven in most negligence cases:

The defendant owed a duty of care to the plaintiff.
The defendant failed to fulfill that obligation.
The plaintiff was harmed as a result of the breach.

In the instance of the defendant’s duty of care, Gerstner pointed out that there is a duty of care owed by the software or system seller to the consumer; nevertheless, determining the quantity of standard care needed is difficult. If the system in question is an “expert system,” the degree of care would be competent at the very minimum, if not a specialist.

If the defendant breaks a duty, Gerstner suggests several scenarios in which an AI system could breach its duty of care, including:

Failure of the programmer to discover faults in the program’s features and functionalities.
An insufficient or incorrect knowledge foundation.
Inadequate or incorrect documentation and notices.
A failure to keep a current knowledge base.
Error due to erroneous input from the user.
The user’s undue reliance on the output.
Exploiting the software.

Finally, whether AI systems can cause or be assumed to cause an injury to a plaintiff as a result of a breach is controversial. However, the crucial question in AI is whether AI systems, like most expert systems, advise a solution in a given scenario or whether the AI system, such as an autonomous automobile, makes the decision and acts accordingly. As a result, although the former scenario involves at least one external agency, making causality harder to prove, the latter situation involves no external agent, making causation relatively straightforward to prove.

Policy framework

Leading researchers Tom Allen and Robin Widdison in 1996 noted that “Soon our autonomous computers will be programmed to roam the Internet, seeking out new trading partners, whether human or machine, at this point, we must ask if, and if so, how, existing contract law doctrine can cope with new technology.” They observed that “Neither American nor English law, as it is now, would give legal standing on all computer-generated agreements.” It means that the legal concepts in place at the time were incapable of adapting to the harm caused by technology. It also resulted in the formation of a problem, determining how the present law should be amended. Although it has been nearly two decades since Allen and Widdison submitted their paper, and the contract formed through the interaction of interactive voice response systems (IVRS) is now recognized and contractually enforceable, the simple question remains: can existing legal doctrines deal with new, arising, and advanced technologies, as well as the damage caused by AI, and if so, how?

According to UNCITRAL’s explanatory note, any computer or machine designed for a person (natural person or legal entity) would be accountable for any produced communication by that computer or machine. On an introductory note Section 213 of Article 12 of the Electronic Communications Convention states that Article 12 is an essential clause that should not be intended to enable the creation of rights and obligations for an automated messaging system or a computer. Electronic communications created automatically by message systems or computers without direct human participation should be considered to be “originating” from the legal entity on whose behalf the message system or computer is controlled. Questions of agency that may arise in that framework are to be resolved according to rules that are not part of the Convention.

Strict liability comparison to UK criminal law

No particular or special provision in the Indian legislative regime addresses the liability of such acts performed by a user, operator, or developer using artificial intelligence software or systems. While being a common law system, India’s strict liability concept, which corresponds to Hallevy’s direct liability principle, is not as advanced as English law. The strict liability doctrine in UK criminal law has developed over time as a result of the aggregation of existent English laws with altered, updated sections, authoritative judicial decisions, and legislative enactments passed by parliament from time to time. A comprehensive formulation of Indian penal laws, on the other hand, gives no room for the judiciary to go much further than current statutes.

Role of Information Technology Act, 2000 in AI

To assess the offence and the penalty for abettors, the IPC’s principle of probable cause responsibility or abetment is adequate. The Information Technology (Amendment) Act, 2008, broadened the concept of abetment to also include acts or omissions through the use of encryption or any electronic methodology, to keep up with the schedule of technological advancement. The Information Technology Act of 2000 (hereinafter referred to as the IT Act), which attempts to govern all elements of modern-day technology, describes the computer and relevant terms such as software. However, the Internet of Things, data analytics, and AI are not covered by the IT Act, nor are the liabilities that may be committed by humans using these IT systems (specifically AI software). Given that the primary goal of the Act was to give a legal character to digital signatures and electronic records, the Indian legislature did not place a strong emphasis on the scope of responsibility deriving from AI acts and countermeasures.

Liability for damages

There is no particular Indian legislation dealing with the criminal or civil liability of such acts perpetrated with AI in the Indian regulatory system. As a result, it is important to note that India is one of the countries that is heading towards its implementation of the policies that will allow AI to be integrated into the entire government system, but at the same time, the legal system is neglecting the potential negative consequences of future cybercrimes committed using these highly technological and advanced AI systems.

Judiciary’s role in determining responsibility

The Indian judiciary is the only sign of hope left in the Indian legal system for dealing with these instances due to the legislative vacuum, the formulation of final penalty, and the criminal/civil liability of such acts perpetrated by AI systems, software, and robots against other humans. Even though there has yet to be a substantial landmark ruling on the guidelines for the use of artificial intelligence software or robots to prevent the commission of any criminal or civil violation against others, the judiciary is expected to do so with the rapid advancement of artificial intelligence to transfer such regulations and judicial precedents from which the use of artificial intelligence could be changed immediately by identifying the criminal and civil liability of such artificial intelligence systems that may trigger harm or damage to other individuals through numerous unethical practices such as phishing, hacking and data theft, etc.

These new opportunities have brought with them several of the new ethical issues, but are not restricted to:

The liability issue raises several legal concerns.
Advanced AI programmes capable of self-generating content have raised worries about intellectual property rights.
Issues about the use of personal data, as well as privacy concerns.
Discrimination by AI programmes plays a part in deciding who gets hired.
Recognition of a person’s face.
The use of self-driving military weaponry allows AI to make judgments on its own.
when it comes to killing someone.
Self-driving vehicles that will have to decide what to crash into on their own should. They are faulty.

Artificial intelligence controversies

“Every coin has 2 sides”, the adoption of AI in the workplace causes certain problems that are regarded as the largest scandals in humanity. Everybody can acquire complete information about controversial scandals at a certain moment, thanks to the Internet and its data storage potential.

Tesla settled two lawsuits with the U.S securities and exchange commission (SEC)

Elon Musk, the CEO of Tesla, is among the greatest well-known hi-tech businesses in the AI and Big Data fields. With his whimsical tweet suggesting the privatization of Tesla at $420 per share in August 2018, Elon Musk had to face a lawsuit from the US Securities and Exchange Commission (SEC). It was one of the most widely publicised scams, with millions of people following it throughout the world. Elon Musk claimed that a shareholders vote will be conducted before Tesla became a private corporation and that the decision was taken because the strain of being a public firm caused numerous diversions, which are not beneficial to future profitability.

Actions brought by US securities and exchange commission

The SEC has brought a lawsuit over Musk, charging that he made false and deceptive representations in a tweet in which he did not check with the stakeholders before naming certain verified identities. The lawsuit was settled in September, and while Elon Musk did not accept or deny the charges, he was forced to stand down as CEO and become chairman of Tesla’s board of directors for three years.

Fines & complaints filed by US securities and exchange commission

Elon was hit with a huge $20 million fine, while Tesla was hit with a $20 million fine but no charges of fraud. In December 2018, he stated that the SEC is doing an excellent job as the Shortseller Enrichment Commission. In February 2019, the SEC filed a complaint alleging that he was in contempt of federal court for blatantly violating the conditions of his Tesla agreements. The lawsuit is still ongoing, and the ultimate decision is still pending.

Facebook-Cambridge Analytica data scandal

The Facebook-Cambridge Analytica controversy is the greatest AI scandal in recent years, affecting millions of Facebook users’ real-time individual information. In March 2018, Facebook was hit with a series of problems as a result of a huge real security breach. Cambridge Analytica, a strategic consultancy firm, obtained over 87 million personal data records from active Facebook users without their permission. The large-scale real-time data was reportedly exploited in the 2016 presidential election to help Donald Trump, a former US presidential candidate. The very same dataset was reportedly used to sway the outcome of the Brexit referendum in favour of the Vote Leave campaign.

Mark Zuckerberg’s response to US Congress and actions taken to avoid further data breach

Mark Zuckerberg, the creator, and CEO of Facebook did not take action regarding Cambridge Analytica for months after knowing of the data leak. Facebook did not follow up with the political consultancy firm to see if all of the personal information had been taken and deleted. According to the violation of user privacy protections and the ensuing hate campaigns, Facebook has been sued. In front of the US Congress, Zuckerberg promised to implement adjustments and rules at Facebook to prevent future data leaks.

Uber v/s Waymo trade secret lawsuit against self-driving cars

Waymo is a Google-owned self-driving car firm that sued Uber in February 2017 for allegedly stealing AI-based self-driving car technology. Most of the criticism revolved around Anthony Levandowski, who before joining Uber focused on AI-based machine learning towards self-driving cars. Before leaving for Uber, Anthony transferred 14,000 files from Google folders containing crucial engineering knowledge to his laptop, according to the charge sheet. The important material was about self-driving car technology, which led to the Uber vs. Waymo civil case settlement in February 2018, in which Uber decided to pay a $245 million penalty.

Decision taken by the court

Uber was prompted to remove self-driving cars off the road in December 2016 after receiving traffic fines and increasing warnings from self-driving cars. As a consequence of Anthony’s inability to comply with the judicial order to give over the information, Waymo filed a trade secret case against him, and Uber fired him. Anthony was condemned to 18 months in jail, to be spent after the pandemic, and agreed to pay $757,000 in restitution to Google, as well as a $95,000 fine and $179 million to Waymo, in exchange for a plea deal.

Google Nightingale data controversy

Google, a Silicon Valley company, teamed together with one of the country’s top hospital systems on project Nightingale, a massive operation. The primary goal was to gather and analyze extensive healthcare real-time data from millions of patients in 21 states. Lab findings, diagnosis, medical records, such as health information, and patient private information were among the raw data. This real-time data harvest was taking place without the agreement of doctors or patients, even though about 150 Google employees had complete access to millions of patients and their emergency contacts.

Unethical data harvesting practices

This approach complied with federal health regulations and provided strong protections for patients’ raw private information. The debate grew in popularity as unethical data harvesting practices became more prevalent. Google was using AI and Big Data analytics to collect data to design new software, whereas the Health Insurance Portability and Accountability Act of 1996 mentioned that any hospital is expected to access data with business partners without their consent for the sole purpose of assisting with healthcare functions. Google was constantly in the news because it goes above and beyond legal standards in deciding not to educate people about their real-time data.

Photo-scraping scandal of IBM

IBM is the most well-known American multinational hi-tech corporation that uses AI and Big Data to generate world-changing technologies. In 2019, IBM was involved in a photo-scraping incident that centred on 1 million photographs of human faces. To improve the facial recognition AI-based system, IBM provided a set of real-time data with roughly 1 million photographs. The direct source of the images was discovered by NBC, and it was Flickr, an online photo-hosting site.

The debate triggered about AI-based platforms

To produce reliable knowledge through advanced machine learning, AI-based algorithms constantly demand real-time data. There was a debate about AI-based systems created expressly for photo-scraping from publically accessible sources with direct access to real-time data. Because of the quick expansion in the internet sector, this controversy raised awareness among social media users about how their data is being utilized. Companies have been forced to take personal information without legal consent due to Silicon Valley’s data monopoly and monetization. This sparked a wave of ethical and unethical debate regarding active users’ real-time data on social media networks.

Conclusion

A future filled with competent AI-powered robots and technologies may appear frightening at first, but some believe that our future is bright, and the possibilities are far more than we can now grasp. Rather than discussing the potential benefits of AI and how we might utilize it to better ourselves, create an ideal society, and even explore other worlds, I’ve recently seen experts explaining the perils of AI and painting a picture of a Terminator-style doomsday scenario. This negative perspective is counterproductive and it should not allow it to stifle AI growth. Today, AI is not recognized as a separate entity under both national and international law, which means it cannot be held liable for the devastation it causes. As a result, the principle guaranteed by Article 12 of the United Nations Convention on the Use of Electronic Communications in International Contracts, which states that the person at whose behest the system was configured must ultimately be held liable for any act done or message generated by that system, may be extended to AI liability.

References

https://link.springer.com/article/10.1007/s12027-020-00648-0

https://www.google.com/url?sa=t&source=web&rct=j&url=https://ili.ac.in/pdf/gyc.pdf&ved=2ahUKEwjn28qf5qfxAhWGzTgGHSlHCgwQFjABegQIBBAG&usg=AOvVaw1RRuNokVzKIl_M_6j21a4R

https://www.financialexpress.com/industry/the-ai-revolution-legal-issues-plaguing-artificial-intelligence-industry-here-is-what-can-be-done/1402929/

https://www.mondaq.com/india/privacy-protection/1015476/self-regulation-in-artificial-intelligence-an-indian-perspective

https://techlawforum.nalsar.ac.in/criminal-liability-of-artificial-intelligence/

https://www.thehindu.com/opinion/op-ed/artificial-intelligence-the-law-and-the-future/article27766446.ece

https://www.analyticsinsight.net/considering-liabilities-of-artificial-intelligence-while-technology-adoption/

https://www.researchgate.net/publication/326575334_Artificial_Intelligence_way_forward_for_India

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Role of innovation in merger control – a case study of the Dow and Dupont Merger

Oishika Banerji

August 31, 2021

ma-consistent-in-real-estate-sector-1 — Know about: https://blog.ipleaders.in/structure-ma-deal/

This article has been written by Manan Sabharwal pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.

Table of Contents

Introduction

Merger Control in the United States of America is principally governed by Section 7 of the Clayton Act which prohibits transactions where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” Both the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) have the authority to enforce Section 7 of the Act. Merger control essentially means the practice of prevention and prohibition of such activities which will topple the balance of a fair industry and create undue advantages in favor of a significant player in the market at the expense of other players.

Merger Control is also known as Antitrust and Competition Practice enforced by governmental and non-governmental agencies from around the world. Both Dow Chemical Incorporative and E.I. du Pont de Nemours and Company are significant market shareholders in the U.S.A for farm products like insecticides, pesticides etc. The Dupont and Dow merger was famously termed as a 130 billion dollar merger of equals. The objective behind this article is to analyse the Dow and Dupont Merger to show how innovative strategies were used to avoid merger control provisions and the post-deal integration strategy behind this mammoth deal.

Background of Dow and Dupont

The Dow Chemical Company was founded in 1897 by chemist Herbert H.Dow of Midland city to supplement the Midland Chemical Company (1890) and the Dow Process Company (1895). In the year 1900, Dow Chemical was incorporated, combining all of Dow’s Midland properties. After the year 1920, it turned to the production of phenol and magnesium, initially for use in World War I ammunition. Pre-merger in the last decade, Dow Chemicals employed tens of thousands of people with manufacturing plants in more than 150 countries and was especially famous for adhesives, herbicides, insecticides, and pharmaceutical products but also had its fair share of controversies. You can know all about Dow Chemicals’ history here. In the year 2015, Dow’s Gross Profit stood at 3.2 billion dollars as per the regulatory findings as referenced here.

Dupont Company, in full E.I du Pont de Nemours & Company is an American Company engaged primarily in biotechnology and the manufacture of chemicals and pharmaceuticals. The company was founded by Eleuthera Irene du Pont in Delaware in 1802 to produce black powder and later explosives, which remained the company’s main products until the 20th century. DuPont now makes an array of products like synthetic fibers, pharmaceuticals, agricultural chemicals, etc. You can read more about DuPont here. DuPont’s gross profit in the year 2015 was even higher than Dow’s, at 11 billion dollars, referenced here.

With changing global trends around the world and paradigm shifts in industries, an effective strategy for mammoths like these is to combine forces and enjoy varied market dominations around the world. It’s only natural to face merger control hindrances and competitors taking objections to the deal when enormous market czars like Dow and Dupont intend to combine powers.

Intricate details of the deal and innovative strategy used

Timeline of the Deal –

December 11, 2015 – Dow and Dupont announced that their board of directors approved a definitive agreement under which the companies will combine in an all-stock merger.
May 23, 2016 – Dow and Dupont announced their senior leadership appointments, for now, to be known as DowDuPont, following the consummation of the proposed merger of equals.
July 20, 2016 – Dow and Dupont announced stakeholders of both companies have voted to approve all stockholder proposals necessary to complete the merger of equals transaction.
March 27, 2017 – Dow and Dupont announced that the European Commission has granted conditional regulatory clearance in Europe for the Company’s proposed merger.
May 2, 2017 – Dow and Dupont gave a statement that China’s ministry of commerce had granted conditional regulatory approval of their proposed merger.
May 11, 2017 – Dow and Dupont gave a statement that Brazil’s Administrative Council for Economic Defense has granted conditional regulatory approval of their proposed merger of equals.
June 15, 2017 – Dow and Dupont announced that they have reached a proposed agreement with the Antitrust Division of the United States Department of Justice that will permit the companies to proceed with their proposed merger.
June 28, 2017 – Dow and Dupont announce that both respective boards support a comprehensive portfolio review for DowDuPont, which is intended to assess current business facts and leverage the knowledge gained over the past year and a half to capture any material value-enhancing opportunities in preparation for the intended creation of three industry-leading companies.
August 4, 2017 – Dow and DuPont announced that all required regulatory approvals and clearances have been received and that the merger of equals will close after the market closes on August 31, 2017.
September 01, 2017 – On this day Dow and Dupont announced the successful merger of equals.

In what was being termed as one of the largest mergers in the history of business, Dow and Dupont in an all-stock merger deal had at the beginning unanimously agreed that the combined company would be called DowDuPont and the parties would subsequently pursue a separation into three independent publicly traded companies through tax-free spin-offs. Now known as DowDuPont and dually headquartered in Midland, Michigan and Wilmington, Delaware the corporation gave details of the proposed merger that will include a global Agricultural company, a global Material Science company, and a Technology and Innovation-driven Speciality products company.

Upon the closing of the transaction, DowDuPont had a combined market capitalization of 130 billion dollars and as per the terms of the transaction, it was made public that Dow shareholders received a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share and DuPont shareholders simultaneously received a fixed exchange ratio of 1.282 shares of DowDuPont for each Dupont share.

The European Commission opened an in-depth probe in 2016 to assess whether the proposed merger was in line with E.U Merger Regulations. The proposed merger was seen as creating the world’s largest integrated crop protection and seed company, especially in an industry that is already highly concentrated. The Commission has the responsibility to assess mergers and acquisitions involving companies with a turnover above the threshold prescribed in Article 1 of Merger Regulation. You can read about the investigation here.

The National Farmers Union in the United States was one of the first organizations to take explicit objection to the deal, stating that farmers would face higher costs, also considering that this merger was to change the demographics of the farming industry globally, among other industries. More details about the controversy can be found here.

DowDuPont before incorporation had to go through its fair bit of trouble, which included a detailed investigation by the European Commission and the Department of Justice(DOJ) and regulatory approval from all major Merger Control and Anti-trust organizations in the world. One of the conditions agreed to by DuPont before E.C was to sell its pesticide business and most of its agricultural R&D generating 1.4 billion dollars in sales in 2016 to FMC Corporation, another chemical manufacturing company. In return, DuPont was to receive 1.6 billion in cash and FMC’s health and nutrition business. This was seen as a bold strategic move to satisfy the antitrust regulators of the European Union and to eventually receive a green light to the gargantuan deal.

The relevance of innovation was discussed at length by the E.C which observed that the merger would not only significantly impede competition in the pesticides and petrochemical industries at a global level but would also reduce future innovation in the global pesticide industry. It was noted that the development of effective and environment-friendly pesticides required large-scale investments and continuous R&D globally. The DowDupont merger would further consolidate market power in a highly concentrated industry with significant market barriers and would substantially reduce the parties’ incentives to innovate in the pesticide sector. More details of which can be found here.

In addition to the strategic move and to further post-merger integration, future plans to split the behemoth organization into 3 different companies as agreed before, McKinsey was hired as an independent consulting firm which led a 4-month review and gave its detailed advice to the chemical company.

Indian law context

At the outset, it’s important to mention that a merger between Dow and Dupont as mentioned above, will be synonymous with the term Horizontal Merger in the Indian context. The meaning of which is ‘merger between companies operating in the same industry or producing similar products.’ The main objectives of horizontal mergers are to benefit from economies of scale, reduce competition and achieve greater market share. A horizontal merger is common in industries with fewer firms and is intended to dissolve high competition among fewer players. The consequent market power surge may undoubtedly invite action under Antitrust regulations, which is principally governed by the Competition Act 2002 and enforced by the Competition Commission of India (CCI).

Some examples of Horizontal Mergers are: in the banking industry in the Indian acquisition of Times Bank by HDFC Bank in February 2000, Bank of Madura by ICICI Bank in 2001. In the consumer electronics segment acquisition of Electrolux’s India operations by Videocon International Ltd. in 2013. And in the BPO sector acquisition of Daksh by IBM in 2004.

A point of concern that was noted by the CCI in the DowDupont merger before granting a clean chit to them was the innovation harm emanating from the merger that would adversely affect the Indian crop protection market and would jeopardize the rate at which new and better pesticides come to the Indian market. The CCI while cooperating with other jurisdictions, accepted the E.C directive for a global divestiture of the DuPont deal with FMC to address innovation concerns.

Conclusion

Industries and Business Environments are becoming highly dynamic and volatile, burdened by uncertainty, and making successful post-deal integration makes it increasingly difficult to trump such situations. Innovation emerges as a make-or-break deal factor ensuring continuous growth and contributing towards consumer welfare and mankind in general. The DowDuPont merger being an accord of titanous nature, could either be seen as a consented step towards world market domination or as a corporation being a custodian for the welfare of farming based industries contributing to the enrichment of environment and public benefit – the perception wholly depends on the point of view of the reader. Either way, the DowDuPont merger acts as a lesson and case study for attorneys, law students, and lawyers in general on how to circumvent the provisions of Merger Control and push towards a successful post-deal integration while simultaneously satisfying the majority of Antitrust and Competition agencies around the world all of it credited to innovation.

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Importance of privacy and data protection during the pandemic and how it may have changed the work pattern completely

Sneha Mahawar

August 31, 2021

This article is written by Anindita Deb, a student of Symbiosis Law School, Noida. This article is going to elucidate on the privacy concerns which have arisen due to the pandemic and the relevant data protection laws.

Table of Contents

Introduction

On 11th March 2020, the World Health Organisation declared that the spread of COVID-19 has become a Global Pandemic. What started in the Chinese city of Wuhan and seemed to be an Asian problem, spread across the globe in the blink of an eye and forced countries across the world to go into lockdown.

However, with the technological advancements of the 21st century and the continuous evolution of applications and software serving our needs, we are better equipped than ever before to combat this situation. With online delivery of groceries and medicines to work from home through Zoom and digital classrooms which make it possible to learn from the comfort of our homes, technology prevented the disruption of the life of the masses during a pandemic. Location data is being used to determine movements of people, the spread of the virus, and to ensure if the protocols are being followed. But with this comes a major concern that cannot be ignored: is the data we are compelled to share online on an everyday basis duly protected? As useful as technology is proving to be, it comes with shortcomings of global concern data protection issues. Furthermore, political and corporate players might use this situation to justify a more intrusive data use of the people and may continue doing so in the future even after the pandemic is over.

Privacy and personal information consideration

People across the world have had various questions since the pandemic brought about an online environment that required them to disclose personal information to various organisations and share it over the internet. Through this article, I would like to address some of the concerns.

What if our privacy policy outlines the kind of personal information acquired and how will it be used, yet we need to disclose personally identifiable information (“PII”) of our customers, guests, or website users in response to COVID-19 (e.g., to the government and/or health agencies).

Various privacy policies do reveal the type of PII that the government might need an individual to disclose in extreme circumstances, like for wanting to stop the spread of COVID-19, but many of them do not do so. The policies which do reveal the types of PII typically include a type of language that describes tracking of timing and location of customer purchases, tracking the movement of the person through geolocation data from apps, cookies, and pixels. Companies normally persuade users to share this type of information in exchange for discounts on certain products or any future services. However, despite the use of this language, customers generally do not contemplate the use of PII for public health purposes.

Given the current situation, companies and organisations must review their existing privacy policies to ensure that these policies cover the disclosure of PII to government and public health agencies for emergency purposes. Industry-standard privacy policies should also mention sharing of PII to protect a person’s health or safety, or in response to a legal obligation imposed on them.

Customers and partners of the company should also consult relevant professionals as to whether their exceptional disclosure of PII will trigger a product, service, or a change in the organisation’s role in accordance with the existing data protection laws.

What if, in response to COVID-19 (e.g. employee, client, or customer travel or geolocation), an organisation wishes to gather PII for wider interests such as public media, government agencies, and what all it should consider before collecting, using, or sharing it

The first and foremost step for an organisation to do so is to ensure that:

Such data collection and its use is lawful under the existing data protection laws, and
Review their privacy policies and consent notices to determine sufficiency concerning the PII that the organisation wishes to collect, and in what manner it intends to use or share the PII that has been disclosed to them.

If the policies in existence do not allow the usage of data in the manner that the organisation wishes to use, the organisation is obligated to update all the applicable privacy policies before requesting disclosure of PII. In addition to that, there must also be a new and/or supplemental privacy policy or notice at the time of obtaining consent and data collection which should cover any new PII that the organisation intends to collect, especially about COVID-19.

What information can an organization disclose if employees or customers have tested COVID-19 positive

As the virus keeps spreading, organisations need to identify employees, customers, contractors, and guests in the workplace who are or may be carrying the novel coronavirus. For this purpose, they will need to collect, disclose and use PII in a manner that does not breach the data protection laws in force. Organisations that seek to use and disclose personal information related to COVID-19 identified in the workplace must ensure that they comply with the following rules:

That the collection, use, or disclosure of the PII is for a reasonable purpose. Organisations are normally authorised to take reasonable steps to protect the health and safety of their employees, contractors, customers and guests. In response to the COVID-19 outbreak, it may be considered reasonable for the organisation to identify individuals in the workplace who are or may be carrying the virus by collecting and using their PII, and then acting upon that information under the guidelines laid down by the local public health authorities.
The PII collected, used, and disclosed of the identified individuals by the organisation must only be to meet the reasonable purpose for which it was collected or disclosed such as in compliance with the instructions of the public health authorities. With regards to every collection, use, or disclosure, the organisation should consider whether there are other less invasive alternatives for achieving the same end.
The collection, use, and disclosure of PII without obtaining the consent of the individual must be in accordance with the law. In certain situations such as the COVID-19 outbreak that puts public health at great risk, legal provisions authorise organisations to disclose personal information of employees, customers, and guests without obtaining their consent. In case the organisation does not enjoy any such exemption by law to disclose PII, then it will have to provide notice to the individuals, and if required, obtain their consent to do so.
It is important that the organisation uses an appropriate form of consent for the disclosure of PII. When determining this means, organisations must take into consideration the sensitivity of the information and the reasonable expectations of the individual. An organisation should notify its workers, contractors, and visitors that it has implemented a COVID-19 response policy, which outlines how it will handle the collection, use, and disclosure of personal information if COVID-19 is detected in the workplace.

Human rights and data protection

Constitutions and Human rights are designed keeping in mind the time of crises like a pandemic. Certain rights are inalienable, such as the right to life (unless in the case of deaths caused by lawful acts of war), the prohibition of torture and other instances of ill-treatment, the prohibition of slavery or servitude, and the rule of no punishment without law. Many other rights, however, are subject to limitations, including the right to privacy, freedom of expression, freedom of movement, and the right to freedom of assembly and association. Such restrictions may only be in force for a limited period of time. As it was stated in the case of ADM Jabalpur v. Shivkant Shukla (1976), that a person’s right not to be unlawfully detained may be suspended in case of an emergency.

Privacy and data protection are human rights that might be suspended during a crisis. The usage of data from and by corporate agencies adds to the complexity of the problem. In the current situation, corporate firms hold the key to utilising ‘Big Data’ to combat the corona crisis. In addition, conventional data protection regulations, such as the EU General Data Protection Regulation (GDPR), emphasize individual rights and consent. As a result, they overlook several features of collective autonomy. In conclusion, conventional data protection regimes and human rights laws offer minimal protection for privacy and ethical data usage in emergencies.

In the landmark judgment of KS Puttaswamy v. Union of India (2017), the Supreme Court of India held that the right to privacy is a part of the ‘right to life and personal liberty’ and hence will be considered a fundamental right under the Constitution of India. However, the Apex Court added that the right to privacy is not absolute, and may be limited in times when the legal framework requires doing so.

Potential concerns

In response to the spread of the pandemic, the World Health Organisation (WHO) has directed testing, isolation, location, and contact tracing to control the spread of the virus. In this regard, many countries, including India have launched applications and software which track the location of users and their social contacts. Other technological methods like thermal screening and mass surveillance have also been adopted by the authorities. While all these applications and technological advancements are providing great assistance in the fight against the pandemic, it has raised some serious concerns over the data protection and privacy of the masses at large.

All companies store some personal information related to their customers like phone numbers, email IDs, financial transactions with each customer, and sometimes even their credit card numbers. Besides this, they also have data like personnel files, product information, customer databases containing their choices and preferences, etc. The management of these companies makes future marketing decisions based on this data in order to deliver quality products according to their customers’ preferences and ensure maximum customer satisfaction. Hence, it is clear that data is one of the most important assets for any business organisation. Thus, data protection should be a top priority for every business. This involves ensuring the integrity of the data, guarding the access of information to its employees, and maintaining the confidentiality of the data at all times.

When a customer engages with any business organisation, ensuring that their data is protected by the company is the minimum expectation they carry. Employing a good data protection mechanism builds trust between the customers and the company. It safeguards the reputation of the business, while also establishing a brand in the market that the company is worthy of the customers’ trust.

Position in India

The Central Government on April 2, 2020, launched the Aarogya Setu app which tracks the location of the users and notifies them of their proximity to infected individuals. The data protection laws of the country only provide a basic framework and do not exhaustively mention the responsibility of the public health authorities to ensure data protection while collecting data during a public health emergency. As per the KS Puttaswamy case, the Supreme Court of India has stated that if the state protects an individual’s identity, it can legitimately argue a reasonable state interest in public health preservation in order to devise suitable policy interventions based on the data provided. The Aarogya setu app requires users to keep their Bluetooth and GPS turned on at all times which will facilitate their location tracking through the app. This has been highly criticized by tech experts across the globe due to the fact that the application can serve as a surveillance tool for the Government.

The State Governments of various states across the country have also launched similar applications which raise serious concerns with regards to the data protection of the citizens. The State Government of Kerala was using an application Sprinklr which enabled a foreign entity to access personal sensitive information. The High Court of Kerala in April 2020 issued an interim order directing the State Government to anonymize all the data collected in relation to COVID-19 before sharing it with Sprinklr and to obtain consent from the citizens informing them that their data can be shared with Sprinklr or other third parties. The High Court further restricted Sprinklr from committing an act that may result in the breach of data confidentiality under their contract with the State Government of Kerala and exploiting such data for any commercial purpose whatsoever, directly or indirectly, or representing to any third party that they were granted access to information relating to COVID-19 cases. Sprinklr was also ordered to return all the data upon the completion of contractual obligations and to delete any secondary or residual data in its possession.

While a crisis like a coronavirus pandemic necessitates targeted, swift, and effective responses, it’s important to remember that data depends on context. In distinct contexts, the same dataset can be sensitive, and we need proper governance structures to ensure that this data is collected, analyzed, kept, and shared in legal and responsible ways. Location data could be highly beneficial for epidemiological study in light of the COVID-19 pandemic. However, the same location data can jeopardize the rule of law, democracy, and the enjoyment of human rights in the event of a political crisis.

Cybersecurity laws in India

The main legislation that governs cyberspace and the activities carried on within the cyber framework is the Information Technology Act, 2000 (“IT Act”). The IT Act defines cybersecurity as the protection of information, devices, equipment, computer and computer resources, communication devices, and all the information stored therein from unauthorized access, use, disclosure, modification, disruption, or destruction. The Act not only provides legal recognition and protection for all the transactions carried out through electronic data or any other means of electronic communication, but the IT Act, along with various other rules made thereunder, also focus on areas like information security, defines reasonable security practice that must be followed by companies and redefines the roles of intermediaries, recognises the role of the Indian Computer Emergency Response Team (“CERT-In”), etc. The IT Act further led to the amendment in the scope of the Indian Penal Code, 1860, the Indian Evidence Act, 1872, the Bankers’ Books Evidence Act, 1891, and the Reserve Bank of India Act, 1934, and for matters connected therewith or incidental thereto, which were mainly focusing on the regulation of the overly sensitive banking and financial services sector.

The IT Act is not only applicable in India but also extends to any offence or contravention committed outside India by any person. The legal sanctions provided for under this Act include imprisonment, penalties, and also have a framework for compensation or damages to be paid to the claimants. Additionally, if a company involved in possessing, dealing, or handling any sensitive personal data or information in a computer resource that it owns, controls or operates, is negligent in implementing or maintaining reasonable security practices and procedures and this results in wrongful loss or wrongful gain to any person whatsoever, such company will be liable to pay damages in the form of compensation to the person who has been affected by their negligence.

Some relevant rules framed under the IT Act

Information Technology (The Indian Computer Emergency Response Team and manner of performing functions and duties) Rules, 2013 (“CERT Rules”)

CERT-In has been formed as the nodal entity responsible for collecting, analysing, and disseminating information on cyber incidents, as well as implementing emergency actions to contain such occurrences, according to the CERT Rules. Furthermore, it is mandatory to report to the CERT-In the following instances:

A targeted intrusion or the compromise of critical networks or systems;
Unauthorised access to IT systems or data;
Website defacement, malicious code attacks, denial of service and distributed denial of service (DDoS) attacks, attacks on domain name systems and network services; and
Attacks on e-government and e-commerce apps. Individuals and businesses can also freely report any other cybersecurity incidents or vulnerabilities to CERT-In and seek the necessary support and technical assistance to recover from them. Unfortunately, the law’s reporting requirements are insufficient and need to be revised, as they are not mandatory and are only requested on a voluntary basis. This relieves the entities of the duty to maintain the required transparency.

Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (“SPDI Rules”)

The SPDI Rules are strictly aimed at governing the corporate entities that are involved in collecting and processing sensitive personal information across India. The Rules:

Mandate consent for data collection;
Imply that it be done only for lawful purposes;
Mandate that organisations have a privacy policy;
Specify data retention instructions;
Provide individuals with the right to correct their information; and
Impose restrictions on disclosure, data transfer, and security measures. Besides this, certain sectors like banking and insurance, telecom, health sector, etc., have their own specific sectoral rules which contain data protection provisions. In the absence of more comprehensive or stringent law, the current framework at least adheres to the fundamental principles of data privacy and gives businesses more flexibility to create industry-specific standards and best practices.

The Personal Data Protection Bill, 2019

The Personal Data Protection Bill, 2019 (PDP Bill) was introduced in December 2019 as a new iteration of data privacy and protection legislation. Section 24 of the PDP Bill requires data fiduciaries (also known as data controllers as per PDP Bill terminology) to put in place safeguards for a myriad of purposes, including preventing misuse, unauthorised access to, modification, disclosure, or destruction of personal data. Section 25 contains provisions regarding the reporting of a breach of personal data. The clause requires the data fiduciary to inform the envisaged Data Protection Authority about the cases where a data breach may potentially cause harm to the data principal.

In response to growing concerns about privacy and cybersecurity, the government is assessing threats, which may include political opportunities, and enacting regulations affecting vulnerable populations such as children. regulations are also being formulated that will affect the data protection framework for high-risk applications, including e-commerce platforms.

Punishment for the breach of cybersecurity

The term “cyber-crime” covers the aspects of breach of cybersecurity. The term is not defined in any statute or rulebook, however, “cyber-crimes” are offences relating to computers, the internet, and virtual reality.

Laws that deal with penalising cyber-crimes can be found in various statutes and regulations framed by different regulating bodies. In India, the IT Act and the IPC penalise a number of cyber-crimes and various provisions of both the acts can also be found to be overlapping with each other. The cyber-crimes penalised by the IPC and the IT Act have the same ingredients and sometimes even the same nomenclature. Following are some cyber-crimes related to data breach and their punishments as given under IPC and IT Act:

Hacking and data theft

Section 43 and Section 66 of the IT Act penalise a variety of activities like hacking into a computer network, data theft, introducing and spreading viruses through computer networks, damaging computers, computer networks, or computer programmes, disrupting any computer, computer system, or computer network, denying authorised personnel access to a computer or computer network, damaging or destroying information stored in a computer, etc. The maximum penalty for the aforesaid offences is 3 (three) years in prison or a fine of Rs. 5,00,000 (Rupees five lac), or both.

Since Section 22 of the IPC states that the words “movable property” are intended to include corporeal property of every description, except land and things attached to the earth or permanently fastened to anything attached to the earth, Section 378 of the IPC, which deals with “theft” of movable property, will apply to the theft of any data, online or otherwise. The maximum penalty for theft under Section 378 of the IPC is three years in prison or a fine, or both. Besides this, Section 424 of the IPC also applies to data theft. The maximum punishment under this section is imprisonment up to 2 (two) years or fine or both.

Damaging computer systems or denying access to a computer system will fall within Section 425 of the Indian Penal Code, which deals with mischief. The maximum penalty for mischief is provided under Section 426 of the IPC as imprisonment of up to three months or a fine or both.

Receipt of stolen property

Dishonestly receiving any stolen computer resource or communication equipment is punishable under Section 66B of the IT Act. The individual receiving the stolen property must have done so dishonestly or had reason to believe it was stolen property, according to this provision. The punishment for an offence under this section is imprisonment of up to three years or a fine of up to Rs. 1,00,000 or both.

Section 411 of the IPC is also similarly worded as Section 66B of the IT Act and prescribes a penalty for dishonestly receiving stolen property. The punishment under Section 411 of IPC is imprisonment of either description for a term of up to 3 years or with fine or both. The difference is that under IPC, there is no maximum limit on the fine that can be imposed.

Identity theft and cheating by impersonation

The penalty for identity theft is dealt with under Section 66C of the IT Act. This Section provides that anybody who fraudulently or dishonestly uses another person’s electronic signature, password, or other unique identification feature must be penalised by imprisonment of either description for a term that may extend to 3 (three) years, as well as a fine of up to Rs. 1,00,000. (Rupees one lac).

Section 66D of the IT Act defines “cheating by personation by using computer resource” as “any person who cheats by personation by using any communication device or computer resource,” and states that any person who cheats by personation by using any communication device or computer resource shall be punished with imprisonment of either description for a term that may extend to three years, and shall also be liable to a fine that may extend to Rs. 1,00,000.

Section 419 of the IPC also establishes a penalty for ‘cheating by personation,’ stating that anyone who cheats by personation will be punished with imprisonment of any description for a term up to 3 (three) years, a fine, or both. A person is considered to be guilty of ‘cheating by personation’ if he or she cheats by claiming to be someone else, or by deliberately substituting one person for another, or by representing himself or herself as someone other than who he or she is.

In a case of identity theft, the provisions of Sections 463, 465, and 468 of the IPC, which deal with forgery and “forgery for the purpose of cheating,” may also apply. Forgery for the purpose of defrauding is punishable under Section 468 of the IPC, which stipulates a penalty of imprisonment of any kind for a time up to 7 (seven) years, as well as a fine. Section 463 defines forgery as the making of a false document or part thereof with the intent to cause damage or injury to the public or any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with the intent to commit fraud or that fraud may be committed.

In this regard, Section 420 of the IPC provides that any person who cheats and thus dishonestly induces the person deceived to deliver any property to any person, or to make, alter, or destroy the whole or any part of valuable security, or anything signed or sealed and capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term extending up to seven years, and shall also be liable to pay fine.

The fundamental difference between the provisions of the IPC and the IT Act is that the latter requires that the offence be committed using a computer resource.

Work from home is more convenient but it serves as a gateway to cybercrime – final thoughts

Work from home has evolved as one of the most convenient developments in work ethics. Jobs that do not require physical labour can very well be performed by employees from the comfort of their homes at their own will without restricting themselves to the 9-to-5 working hours. Even after the daily cases hit an all-time low, various IT sector companies decided to continue the work from home infrastructure in order to save company resources and ensure the safety of their employees. However, while being convenient for both the company and the employees, the work from home system opens a whole new horizon of opportunities for cybercriminals to adapt their tactics and exploit employees even in their homes. There has been a substantial increase in cyber-crime statistics since the pandemic came knocking at our doors and this new version of working has been the major cause for it.

In our digital age, businesses have had to improve their cybersecurity, yet cybersecurity dangers have increased significantly as a result of distributed work. Employees who work from home are at a significantly higher risk than those who work in offices. Because residential connections are less secure, fraudsters can gain access to a company’s network more easily. Furthermore, the popularity of digital collaboration and productivity tools, solutions, and services tends to have the bare minimum of security default settings, and updates from third-party suppliers can easily change security preferences and be neglected.

Threats like phishing and ransomware can more readily evade company defences when they aren’t in the immediate environment of an office. In a traditional office setup, workers can quickly query adjoining coworkers, which provides a natural barrier against phishing. Indeed, when working from home, such checks may be more difficult to replicate, especially for less tech-savvy employees or those who are not connected to the @security channels on Zoom or Teams (if the company even has those). Before the pandemic, managers who were aware that corporate security was beefing up fraud detection dismissed a test phishing message; however, employees working from home exhibited a higher tendency to click on phishing emails since they were not in the loop.

In the work-from-home concept, ransomware also has a benefit. Workers will have a harder time getting help from the right experts and authorities if their connection to the company is cut off. Furthermore, because trust levels are weaker when working from home, some employees may be anxious that they have “done something wrong” and so be hesitant to request assistance. While additional training and messaging that vigilance and involving corporate IT would be rewarded will help mitigate this risk, it is still an uphill struggle.

While the work-from-home structure has its own shortcomings, it is evident that this system is here to stay for quite some time, at least since it is completely safe for workers to start working at full strength in their offices. Until then, some legal remedies can be sought in case a user has been a victim of cybercrime.

Section 43A of the Information Technology Act of 2000, which includes fines and compensations for offences such as “damage to the computer, computer system, or computer networks, etc.” provides the victim with the right to file an appeal in court for compensation for the wrong done to him. Anyone who deals with sensitive data, information, or maintains it on their own or on behalf of others and recklessly compromises such data or information will be held accountable under this section and may be ordered to pay compensation at the discretion of the court. Offences involving “tampering with computer source documents” are punishable under Section 65 of the Act.

There are some crimes that are not covered under the IT Act since they are already covered by other laws, such as “cyber-defamation,” which is covered by the Indian Penal Code, 1860. Because the impact of such an online offence is the same as it is offline, the term “defamation” and its punishment are specified in this Act, there is no need for a separate definition elsewhere.

NIST Compliance – the need for India to implement a similar compliance structure to ensure data protection

The National Institute of Standards and Technology (NIST) is a non-regulatory government agency that develops technology, metrics, and standards to help U.S.-based science and technology companies innovate and compete more effectively. NIST contributes to this effort by developing standards and guidance to assist federal agencies in meeting the Federal Information Security Management Act’s (FISMA) obligations. NIST also offers cost-effective programmes to help those agencies protect their information and information systems.

Many of the country’s most inventive firms rely on the National Institute of Standards and Technology for technological growth and security. As a result, many high-tech firms have made compliance with NIST standards and guidelines a primary priority.

NIST recommendations are often developed to assist agencies in meeting specific regulatory compliance obligations. NIST, for example, has listed nine steps to complying with FISMA:

Categorize the data and information you need to protect.
Develop a baseline for the minimum controls required to protect that information.
Conduct risk assessments to refine your baseline controls.
Document your baseline controls in a written security plan.
Roll out security controls to your information systems.
Once implemented, monitor performance to measure the efficacy of security controls.
Determine agency-level risk based on your assessment of security controls.
Authorize the information system for processing.
Continuously monitor your security controls.

The advantage of NIST compliance is that it aids in the security of an organization’s infrastructure. NIST also lays out the groundwork for organisations to follow in order to comply with specific regulations like FISMA. India can benefit by implementing a similar guidance manual for data protection.

Conclusion

The pandemic has forced people to take safety measures and follow government protocols to reduce the risk of infection, and until the time is right for all the employees to resume working in offices at full strength, companies are compelled to employ the work from home system. However, it is necessary that companies, as well as their employees, take all precautions regarding the safety of their computer systems and files contained by them. Installing anti-virus software and forming strong passwords are only some of the few things that the users must ensure while using electronic devices. Besides that, one also needs to keep updated on the cybersecurity laws which can come to aid in case they have been a victim of a cyber-crime.

References

https://www.bennettjones.com/Blogs-Section/Privacy-Considerations-When-COVID-19-Identified-in-the-Workplace

https://www.episerver.com/guides/covid-19-privacy-considerations

https://jhumanitarianaction.springeropen.com/articles/10.1186/s41018-020-00072-6#Sec3

https://www.mondaq.com/india/data-protection/928998/covid-19-implications-on-the-data-protection-framework-in-india

https://www.lexology.com/library/detail.aspx?g=d7b0a465-cc55-48e9-9534-b05bf0c036bd

https://www.mondaq.com/india/it-and-internet/891738/cyber-crimes-under-the-ipc-and-it-act–an-uneasy-co-existence

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Climate refugees – their rights and duty of the law

Diganth Raj Sehgal

August 31, 2021

3.-Climate-change-will-lead-to-yield-shocks.-Photo-by-Rajarshi-Mitra — Image source: https://bit.ly/3lPCfsC

This article is written by Daksh Ghai, from Symbiosis Law School, Noida. The article provides a brief overview of the mechanism of climate change, and the steps taken by various organizations to protect the interests of people who have been displaced internally and across borders as a consequence of natural calamities and to mitigate these climate changes.

Table of Contents

Defining climate refugees

Climate change is among the most critical issues of the twenty-first century. Climate refugees are people who are obliged to travel to different regions or cross borders as a result of catastrophic climatic and natural events. As a result of rising temperatures and sea levels, governments all over the world will be compelled to witness massive and unprecedented human displacement, for which international law currently lacks a method and a framework. According to figures issued by the United Nations High Commissioner for Refugees (UNHCR) in April 2021, 21.5 million people have been displaced by climate change-related disasters since 2010.

Displacement due to climate change

Displacement occurs when people are forced to leave their homes. Displacement can occur both within and across borders. If the displacement occurs within the country, it is the country’s primary responsibility to ensure that the displaced person’s human rights are protected; however, if the displacement occurs across borders, there are no provisions in place to protect the migrants’ rights. Economic, political, social, demographic, and environmental factors can all contribute to displacement. Climate change is a natural phenomenon, but human activities such as the release of greenhouse gases have contributed to it. Climate change causes glaciers to melt, floods, and droughts. Desertification and rising sea levels are forcing people to relocate, either internally or across borders. Movement in response to environmental and climate change is a normal human adaptation strategy. The Intergovernmental Panel on Climate Change (IPCC) was the first one to discuss the effects of climate change on human beings in 1990. It mentioned that rising sea levels, coastal flooding, and agricultural disturbances would probably relocate several people.

The responsibility of the country of origin and third countries in terms of protecting climate refugees

International Human Rights obligations

The State of origin is nonetheless obligated to respect, safeguard, and fulfil human rights during and after an environmental displacement crisis (exceptions exist in cases of public emergency). Human Rights and Natural Disasters: Operational Guidelines (2006) provides us with knowledge on how human rights apply before, during, and after natural disasters. The Guiding Principles on Internal Displacement apply to internal environmental refugees. While it is unclear whether these ideas are part of customary international law, they do reflect actual international duties to some extent. Their added value is demonstrated, for example, by demonstrating how human rights provisions obligate the State of origin to take mitigating measures during “internal environmental displacement.” As a result, they are an important tool in the development of national policies and legislation. However, most states affected by internal displacement’s incapacity or unwillingness to fulfil their commitments to internally displaced persons remains a concern.

Presently, the international human rights regime appears directed towards establishing obligations on the part of the State of origin for those who reside on its territory or are subject to its jurisdiction. Third-country obligations can be derived from international aid and cooperation duties in the context of economic, social, and cultural rights (ESCR); these commitments are in addition to those of the State of origin.

It is widely acknowledged that those extraterritorial obligations exist in relation to the need to uphold human rights (e.g. a promise by foreign countries not to engage in any actions that could compromise the fulfilment of ESCR in the place of origin, such as development projects) because there is currently no such universal provision in international law, efforts are being made to deduce a right to a healthy environment indirectly as a component of other human rights that presuppose a healthy environment; these other human rights can include civil and political rights (e.g. the right to life, right to private life), ESCR (e.g. the right to health), and collective rights.

While state responsibilities to prevent individuals from moving because of climate change are not directly stated in treaty law, they can be established through the interpretation of such rights (at the regional and universal level). Obligations are clearly only in place when environmental changes have a negative impact on an individual’s rights. However, no general declarations about the actual scope and content of those obligations can be made at this time due to discrepancies in the interpretation of numerous rights from different legal sources and at different levels (regional/global) by different treaty bodies. The interpretation imposes the following obligations:

Obligations to prevent environmental change situations

International treaties on the environment contain a set of commitments to prevent transboundary environmental change. The UN Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol (KP) are significant in the context of climate change because they provide extremely specific duties addressing climate change prevention, such as greenhouse gas emission reductions. The Montreal Protocol to Reduce Ozone Depleting Substances, the Geneva Convention on Long-Range Transboundary Air Pollution, and the Convention to Combat Desertification all have additional commitments for the prevention of environmental changes.

As a result, states must take all reasonable steps to prevent or mitigate environmental damage in other countries. In the absence of specific contractual requirements, this rule is of specific importance. However, it appears to be a concern because such preventative commitments do not entail absolute obligations to limit damage; rather, they only require States to adopt actions that meet a particular degree of care. The precise scope of the duties may thus only be determined in each case and is highly dependent on a State’s economic capabilities.

Obligations relating to adaptation to changing environmental conditions

Contractual obligations exist in the area of climate protection for third countries and the country of origin in relation to adaptation measures, i.e. measures aimed at reducing vulnerability to climate change-induced environmental change, such as the formation of capacities or institutions to better cope with foreseeable damage. However, the implementation of such duties by poor countries is reliant on financial assistance from industrialised countries. The precise scope of adaptation duties under the UNFCCC and the Kyoto Protocol is uncertain; they must only be “adequate.”

Improving the adaptability of a country involves measures to enhance health and social policies, agriculture and forestry, ecosystems, watercourses, and coastal and marine areas. It’s unclear if resettlement qualifies as an adaptation measure under the UNFCCC and KP. In the framework of disaster prevention, the need for preventive measures in terms of adaptation has been emphasised even more. The emphasis on disaster mitigation is reflected in international mechanisms as well as recent regional accords. The legal regulations in the domain of disaster prevention are, on the whole, fragmented. As far as regional binding agreements are concerned, ratification rates are low. In the realm of environmental disaster prevention through adaptation and readiness, there are no global binding instruments.

Obligations relating to mitigation and preventive obligations after a climate-induced displacement has occurred

The mitigation of environmental and climate damages is only a rudimentary responsibility in international treaties relating to environmental protection. There are no comprehensive compensation rules in place. However, if specific criteria are met, an obligation to compensate for losses caused by violations of primary international norms might be derived from principles of state responsibility. The notion of “preparedness” is rapidly becoming relevant in the sphere of disaster preventive procedures such as risk assessments, awareness-raising, and concrete task allocation in the event of a disaster should be taken before a disaster occurs to lessen its possible negative consequences. The need to notify people about approaching calamities as soon as possible is critical for minimising harm. This requirement can be found in a number of international treaties; however, documents embodying general obligations in relation to disaster prevention and relief now only exist on a regional level, with their ratification status and, as a result, their practical relevance being restricted.

The primary responsibility for delivering humanitarian help resides with the country of origin, and only if it agrees third parties can be allowed to give humanitarian aid. An obligation of the State concerned to claim humanitarian aid does not exist de lege lata. However, there is a recent tendency toward revising this viewpoint, particularly in light of the country of origin’s utter inability to cope with a disaster. Foreign countries have the right to provide assistance; but, humanitarian help can only be imposed by the UNSC at this time. Some international treaties are evolving to include a requirement that the country of origin receive aid if it is unable to defend its citizens.

Role of UNHCR in mitigating climate induced migration

Climate change has several consequences that cause displacement and worsen living situations. In many regions of the world, limited natural resources, such as drinking water, are becoming increasingly scarcer. Crops and animals struggle to thrive when temperatures become too hot and dry, or too cold and wet; in such conditions, climate change can function as a threat multiplier. The UNHRC is a leader in protecting and aiding persons who have been forcibly displaced, sending teams to help with registration, documentation, reuniting the families, and housing, sanitation, and food. According to the UNHCR, we must spend now in preparedness to avoid future crises.

Three action pillars

Law and policy

UNHCR has played a critical part in the development of laws and policies relevant to refugees at the international, regional, national, and sub-national levels over time, and will continue to provide legal advice, guidance, and support to the different world organizations in developing additional safety for refugees and other people displaced in disasters. Some of the possible actions are:

UNHCR takes the lead in providing legal counsel and assisting states in constructing legal frameworks and structures to prepare for and respond to displacement.
UNHCR will pursue research and evidence-based advocacy on issues such as cross-border displacement and the possibility of statelessness.
UNHCR will, as a preventative and adaptive strategy of last resort, advise governments about planned evacuation away from unsafe or unsuitable regions.
Keeping track of legal and policy developments.

Operations

Every year, disasters caused by climate and weather-related dangers force millions of people to flee their homes. We will all be needed to reduce and manage risks by modifying our internal processes and activities to meet UNHCR’s goal. Increasing the preparedness and resilience of displaced individuals and host communities to the consequences of climate change by reducing the environmental pollution in displacement contexts. During the operating stage, the following actions may be taken:

Increasing access to and usage of renewable energy and energy-efficient technologies will help in less global warming and improved public health.
Working with governments and other stakeholders to promote afforestation, reforestation, and sustainable agriculture to prevent soil erosion and reduce carbon dioxide in the air.
Planning for anticipated internal and cross-border displacement, including pre-positioning resources and supply chain operations.
The United Nations High Commissioner for Refugees (UNHCR) aspires to improve protection for displaced individuals and their hosts by investing in proactive measures to reduce and manage risks and support progress toward solutions.

UNHCR’s environmental footprint

UNHCR intends to reduce its greenhouse gas (GHG) emissions and any adverse environmental consequences of its operations. Minimizing environmental damage helps to achieve global climate action while also safeguarding the natural resource-based livelihoods, health, and security of displaced people and host communities.

Greening the blue strategy

Various other strategies would be included in this strategy to help UNHCR monitor their power and water consumption, greenhouse gas emissions, and come up with solutions and alternatives to help them make decisions about installing renewable energy sources at their offices to achieve both carbon and financial savings.

Discrimination against migrants

The 1951 Convention on the Status of Refugees is the fundamental international institution that safeguards the legal rights of displaced people. The vast majority of climate migrants will have no protection under the International Law as under Article 1. Refugees must according to Article 1 of the 1951 Convention have a well-founded fear of persecution from their government based on “race, religion, nationality, or membership of a specific social group or political viewpoint,” This would prove problematic, as climate change affects all people in a nation regardless these factors and as a result, the climate refugees will not be provided the access to the judicial system, public education, and a right to work in the foreign state.

The principle of non-refoulment provides that no refugee shall be expelled or returned to the territory where they will have to face persecution on the grounds of four statuses (“race, religion, nationality, or membership of a specific social group or political viewpoint) the climate refugees, as a result, will not be provided with any protection under the non-refoulment protection principle as they do not fall under the definition of a refugee.

Bargaining powers of the refugee`s home countries

States’ environmental human rights duties have been derived either from a substantive right to a healthy environment, from procedural rights (e.g., rights to information and participation), or from rights that presuppose a healthy environment. Currently, a substantive right to a healthy environment exists only at the regional level (contractual and customary law); this right has yet to be adequately articulated on a global level; as a result, no clear universal State obligations can be identified. The international protection of potential refugees’ nationals is restricted due to the poor bargaining power of their home nations. Despite the existence of international protective systems.

In the case of Somalia

Somalia had an unstable political government and frequent food shortages as a result of the ongoing conflict, which was fuelled by the region’s climatic vulnerability, which makes it prone to droughts. Drought frequency and intensity in the African continent have progressively increased over the last half-century.

In the years 2010-2012, Somalis were displaced in large numbers due to a complex combination of violence, a lack of governmental institutions, and drought. While the majority remained internally displaced, a considerable number of people sought shelter in Kenya. Initially, Kenya recognised the arriving Somalis as refugees and granted them a prima facie refugee status. In 2012, Kenya had 512,000 Somalis, the majority of them lived in the Dadaab refugee camp, which was the world’s largest at the time. The Dadaab complex was also subject to the same environmental conditions that the Somalis were fleeing from. The same drought that drove Somalia to Dadaab also contributed to 3.8 million Kenyans starving.

The Kenyan authorities were immediately burdened by the growing vulnerability of the local population, interwoven with developing tensions with the migrants, and the constant influx of fresh refugees. Despite the fact that Kenyan authorities initially granted Somalis refugee status, they never permitted them to merge into Kenyan society. The authorities removed the prima facie status and attempted to close the Dadaab camp multiple times. Somalis in Kenya demonstrate the refugee country’s lack of negotiating power. While Kenya first supported Somalia’s crisis, it did so not because Somalia had any bargaining leverage, but rather because Kenya was a signatory to international protection treaties.

Small pacific island states Inhabitants in New Zealand

Ioane Teitiota was a citizen of the Republic of Kiribati, which is located in the Central Pacific Ocean and is one of the countries most vulnerable to rising sea levels. In 2012, he petitioned for refugee and/or protected person status in New Zealand, claiming that rising sea levels and other effects of climate change have made living circumstances in Kiribati unstable.

According to him his life in Kiribati has grown so unbearable that returning him to New Zealand would be a violation of his right to life under the New Zealand`s Immigration Act (2009). His asylum application was dismissed by the Immigration and Protection Tribunal, the High Court, the Court of Appeal, and the Supreme Court of New Zealand, and he and his family were deported to Kiribati in 2015. He then filed for a review in the UNHRC committee, the committee upheld New Zealand`s decision and ruled that the return had not been taken in violation of his rights. Nonetheless, the committee reminded states that they must refrain from deporting a person if there are significant grounds to believe there is a serious risk of irreparable harm, as recognised by Articles 6 (right to life) and Article 7 (right to liberty, prohibition of torture or cruel, inhuman or degrading treatment or punishment).

Murillo Saldías and Others v. Spain

In the case of Murillo Saldías and Others v. Spain (2006), the petitioners were survivors of an accident at the Biescas campsite in the Spanish Pyrenees, when 87 people died in heavy flooding caused by excessive rain. The disaster claimed the lives of the first applicant’s parents, brother, and sister, while the other applicants were all injured. The petitioners specifically protested that Spain had not taken all of the essential precautions to protect users of the Biescas campsite. They said that despite being aware of the possible dangers, the authorities had granted authorization to use the land.

The application was ruled inadmissible by the court. Noting that the Audiencia National Court had granted the first applicant compensation at an amount that could not be considered unreasonable and that the Supreme Court would very certainly confirm or even enhance the amount when it considered the applicant’s appeal on legal grounds, it was decided that, following the Audiencia Nacional’s judgement, he could no longer claim to be a victim of a violation of the Convention’s rights under Article 34 (right of individual petition). The remaining petitioners had only entered the criminal case as civil parties and had declined to file administrative complaints against the authorities before filing their application with the Court. As a result, they had run out of options at home.

Ignorance of local governments towards climate change and its effect on the population

Local governments can be said to be ignorant of climate change because there is no planning on their part. The first step governments must take is to determine the locations most vulnerable to unexpected natural disasters, as well as the individuals who will need to be relocated. If climate change renders certain regions uninhabitable so the people must be relocated, the government will have to look after their food and shelter, then it is on to the governments to start thinking about it and prepare for it accordingly. Every Nation has different systems, legislation, public policies, the assignment of specific roles, and finance, must be established. These changes do not occur overnight. This consultation and supporting research are based on the notion that planned relocations will play a major role in future climate change adaptation plans. Climate change has an impact on the environmental and social determinants of health, such as clean air, clean water, enough food, and a safe place to live.

Water resources and a safe place to live

Both society and ecosystems rely on water resources. To maintain our health, we need a consistent, clean supply of drinking water. Agriculture, energy production, and industry all require water. Many of these uses increase the burden on water supplies, which is likely to further increase by climate change. Climate change is predicted to increase water demand while decreasing supply in many locations. This changing balance would make it difficult for water managers to meet the needs of rising populations, sensitive ecosystems, farmers, energy producers, and manufacturers all at the same time.

The amount of rain that falls during rains has changed, indicating that the water cycle is altering. People and animals require more water when temperatures rise to remain alive and thrive. Water is also required for many vital economic operations, such as generating electricity at power plants, raising animals, and cultivating food crops. The amount of water available for these activities could be limited, and rising sea levels and increased rainfall in some locations could render the land unfit for human habitation.

Food security

Climate change is speeding up, and this, combined with the global population, poses a danger to food security around the world. Climate change has a significant impact on agriculture. Higher temperatures eventually reduce ideal agricultural yields while fostering the spread of weeds and pests. Short-term crop failures and long-term production losses are more likely as precipitation patterns change. Despite certain increases in some crops in some parts of the world, climate change is anticipated to have a negative overall impact on agriculture, affecting global food security. People in underdeveloped countries, who are already vulnerable and food insecure, are likely to be the hardest hit.

Diseases

A warmer climate could make water-borne infections more common, as rising temperatures and environmental conditions improve bacterial survival time and growth, potentially increasing the prevalence of diarrheal disease disorders. Mosquitoes will move outside their existing habitats as the world heats, spreading the burden of diseases like malaria, dengue fever, and chikungunya.

India’s stance on conventions

In South Asia, India is the country that receives the most refugees. Bangladesh, India, Sri Lanka, Bhutan, Pakistan, the Maldives, Afghanistan and Nepal make up the “South Asian region.” Because SAARC countries do not endorse the Refugee Convention, they formed an organisation called the South Asian Association for Regional Cooperation (SAARC). Neither the 1951 Convention nor the 1967 Protocol on refugees apply. As a member, India must abide by SAARC’s rules, procedures, consistent decisions, and principles in order to receive assistance from the other member nations for the country’s successful operation.

In fact, India has taken different steps in ratifying other international conventions compared to other SAARC countries, such as the 1984 Torture Convention, the International Convention on the Elimination of All Forms of Racial Discrimination, 1969, the Convention on the Rights of the Child, 1990, and the Convention on the Elimination of All Forms of Discrimination against Women, 1979, etc., which are intended to protect vulnerable populations like as women, children, and people who are subjected to police interrogation torture.

Furthermore, India is bound by the principle of non-refoulment established by customary international law, which states that there may be no forcible return. Furthermore, the Convention Against Torture (CAT) says in Article 3 that, “No State Party shall expel, return (“refouler”) or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture.” India is not a signatory to the 1951 Refugee Convention or its 1967 Protocol. It does, however, continue to accept a substantial number of refugees from neighbouring countries and adheres to the UNHCR’s mandate for other nations, primarily from Afghanistan and Myanmar.

The road ahead

States, organizations, and private parties have begun to propose ideas and plan to better cope with cross-border displacement and migration.

Domestic level

Several countries’ disaster management legislation has now included provisions for help and protection for those affected by natural calamities in their country, notably the internally displaced people. In terms of cross-border issues, some states have provided shelter to climate refugees on their territory based on humanitarian considerations rather than obligations imposed by specific legislation, policy, or even a bilateral or regional convention.

Regional level

At the regional level, the US Immigration and Nationality Act (1952) allows for the grant of Temporary Protection Status (TPS) to foreign nationals if:

The foreign state has suffered an environmental disaster that has resulted in a severe loss of life, but temporary, disruption of living conditions.
The foreign state is temporarily unable to adequately handle the return of its nationals.
The foreign state has formally requested such designation.

Conclusion

Climate change is a very serious issue, and it cannot be viewed solely as an environmental issue. The reality is that it will forever alter the world’s socio-economic landscape. According to the World Bank, by 2050, three regions (Latin America, Sub-Saharan Africa, and Southeast Asia) will develop 143 million additional climate migrants; those with the fewest options will have the least ability to adapt to climate change. Because there are no legally binding agreements requiring nations to assist climate migrants, the UNHCR and many other organizations are working on climate change discussions and providing guidance and help to various countries to develop a legislative framework on the problem. People should become more conscious of the effects of climate change and begin taking steps to minimize carbon emissions and switch to more renewable energy sources.

References

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How do stock splits and reverse stock splits work

Abanti Bose

August 31, 2021

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This article is written by Nishish Mishra Rajnish, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.

Table of Contents

Introduction

Stock splits (also known as sub-division of shares) and reverse stock splits (also known as consolidation) of shares are the methods of alteration of the share capital of a company. Any variation in the share capital always requires compliance under the Companies Act, 2013 as well as compliance with the constitutional documents of the company.

Section 61 of the Companies Act, 2013 deals with such alterations.

In this article, we will be critically examining what stock splits are, followed by the reason a company chooses to split its stock and how the splitting of share certificates take place. We will also try to understand what is a reverse stock split and whether or not a shareholder’s approval is required for such a split.

What is a stock split?

A stock split or subdivision is the division of existing shares into many shares. The number of shares in the company will eventually increase after the shares are split. A share split is always considered with reference to the face value of the shares and not the market value. For example, a share of the face value of Rs.10 will be split into two shares of face value Rs.5 each. Here, the market value of the shares will not be a reference point since it is dynamic in the case of a listed company and is based on the net assets in the case of an unlisted company.

After the share split, both the face value and the market price of the shares will be reduced as the number of outstanding shares is increased. Although a decrease in the face value or an increase in the outstanding shares never harms the market capitalization of the company, the decrease in the market price can certainly increase the trading and consequently result in an increase in the market price.

Why would a company want to split its shares?

1. Unaffordable shares

The purpose of a share split is to make the shares more affordable to retail investors. High-priced shares are usually traded by high net worth investors and institutions. In this case, the trade volume of the shares is less since the shares are restrictively traded by a particular class of investors.

2. Psychological effect

Splitting of shares makes the investor feel that they hold more shares, which results in building confidence among the existing shareholders. Further, the low price is perceived to be less risky and this increases the demand for the shares.

3. Competitiveness

Occasionally, the organization also uses this strategy as a tool to increase the price of the shares in comparison to its competitors. As the perception among the shareholders regarding the positive growth of the company increases, the demand for the shares also increases.

Splitting of share certificates

Share certificates are now relevant only for private companies, but these companies are most preferred by entrepreneurs, at least in the early stages of the business. Further, as we saw above, splitting of shares happens largely in the case of companies who want to increase the trading in shares by splitting the same and thus making the market price more affordable.

However, splitting of share certificates happens when a certificate bearing a large number of shares is split into two, to facilitate the transfer of a smaller number of shares. Where there are physical share certificates in place, splitting of shares definitely results in the splitting of share certificates because the certificate will now contain double the number of shares. However, the splitting of share certificates is not necessarily a consequence of the splitting of shares.

The provisions of Section 46 read with Rule 6 of the Companies (Share Capital and Debentures) Rules, 2014 deals with the provision with respect to the issue of renewed or duplicate share certificates. In the case where a renewed certificate is issued in subdivision or consolidation of shares, the renewed share certificate shall be issued subject to the condition of surrendering the original share certificate.

What is a reverse stock split or consolidation of shares?

A share consolidation is the opposite of a share split and hence, it is also called a reverse stock split. A share consolidation is the merger of a set of existing shares into one share. Unlike share split, the shareholder’s rights like the right to dividend or voting rights in case of consolidation remain intact. However, as the share base decreases, it increases the share price.

For example, let’s say you own 100 shares in ABC Inc, and they are trading at 2 INR per share each. So, your total shares are worth 200 INR (100 x 2 each). If ABC Inc decides to do a 1:2 reverse split, that means you will now own 50 shares, trading at 4 INR each. Your investment is still worth 200 INR, but the stock’s price is double what it was. Earnings per share are also now doubled. That sounds good, right?

A reverse stock split has no inherent effect on the company’s value, with its total market capitalization staying the same after it’s executed. Yes, the company has fewer outstanding shares, but the share price increases in direct proportion to the reverse stock split.

Reverse stock splits aren’t without flaws. In many cases, companies keen to artificially boost their share price in this manner risk being spurned by investors.

Reverse stock splits can carry a negative connotation. As previously stated, a company is more likely to undergo a reverse stock split if its share price has fallen so low that it is in danger of being delisted. Consequently, investors might believe the company is struggling and view the reverse split as nothing more than an accounting gimmick.

When does a company consolidate its shares?

1. To deal with the bearish investor sentiment

The consolidation of shares is processed when the price of the shares falls lower than expected and hence, becomes unattractive to investors. Poor performance and consistent bearish trends can result in removal from market indexes (if the regulations of the respective stock exchange provide so). By consolidation, the price of shares jumps to a higher level and thus improves the investor sentiment for the company and again, may result in increasing the trading in the company.

2. To reduce outstanding shares

By adopting the method of consolidation, the companies decrease the number of outstanding shares. As the number of outstanding shares falls there may also be a smaller number of shareholders which the company now needs to service.

3. To improve the company’s image in the market

A share with a single-digit is termed as “penny stock”. An increase in the price of shares with the help of consolidation will also enable the company to regain its reputation in the market.

4. To attract investors

Consolidation is also conducted to gain more attention from analysts and investors. As the price increases, it becomes an attractive topic for investors to look upon.

Consolidation is merely an artificial increase in the price without redressing the factors which resulted in the price sinking in the first place. Consolidation may, therefore, backfire and not result in an increase in trading of the shares of the company as may have been expected.

Is shareholder approval required for stock splits and reverse stock splits?

Interestingly, Section 61 of the Companies Act, 2013, which deals with the alteration of the share capital of the company states that “A limited company having a share capital may alter its memorandum in its general meeting…….”, thereby mandating a resolution from the shareholders at a general meeting. However, Section 13, which deals with the alteration of the memorandum, makes an exception of Section 61, while requiring a special resolution to alter the provisions of the memorandum. A combined reading of these sections will mean that the alteration to capital can be approved by an ordinary resolution of the shareholders.

This, however, is subject to the condition that the Articles of Association does not contain the details of the capital and simply states that the capital shall be as per a specific clause of the memorandum. If the articles are required to be altered in any manner, a special resolution will be required. Further, if the articles make it mandatory to secure a special resolution for altering capital, even then the special resolution will be required although this is not mandatory under the Companies Act, 2013.

Conclusion

Stock split and reverse stock split of shares are the methods of alteration of the share capital of a company which are briefly covered in Section 61 of the Companies Act 2013. The mechanism of reverse stock split helps a company recover from losses and avoid the adverse results of delisting. In the past, several stocks have shown an uptick in price after this exercise. In the short term, it can increase the price of a share.

For the investor, a reverse stock split allows trading with better liquidity. The psychological value of shares goes up after this exercise with a higher value.

References

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Firoz Iqbal Khan vs Union of India : analysis of the concept of hate speech and Sudarshan TV’s claim of ‘#UPSC Jihaad’

Diganth Raj Sehgal

August 31, 2021

This article has been written by Shohom Roy, from Symbiosis Law School, Noida. This article analyses a recent case about the vilification of a religious minority and the concept of hate speech in India.

Introduction

Democratic societies with an inclination towards individual autonomy have gifted us with rights. The makers of the Constitution of India ensured that undue interference with the rights of the people is averted by a system of checks and balances. The right to freedom of speech and expression guaranteed by Article 19(1)(a) of the Indian Constitution is not an absolute right and can be restricted by the government under Article 19(2). In light of the derogable right of freedom of speech and expression, a writ petition was filed by Mr Firoz Iqbal Khan before the Supreme Court seeking a pre-broadcast interlocutory injunction against the telecast of a program on Sudarshan news named “Bindas Bol ”. Although initially the Apex Court had refused to grant a pre-telecast interlocutory injunction, the news channel was stopped from telecasting the remaining episodes by the Court. This raises some serious concerns about the consequences of restricting journalistic freedom and the need for a strong self-regulatory mechanism in the media.

Facts of the case

In the case of Firoz Iqbal Khan vs Union of India (2020), a writ petition was filed before the Supreme Court under Article 32 of the Constitution on August 28, 2020, by Mr. Firoz Iqbal Khan seeking a pre-broadcast ad-interim injunction on the telecast of the ‘ Bindas Bol’ program at 8 P.M. by Sudarshan news. On the same day, the High Court of Delhi while hearing a plea by students from the Jamia Millia Islamia against the program, restrained the news channel from broadcasting the program and ordered the Ministry of Information and Broadcasting to investigate whether there was a breach of the Programme Code under the Cable Television Network (Regulation) Act, 1995. The Apex Court had dismissed the petition initially and had refused to grant a ban on the airing of the program based on an unverified transcript of a forty-nine-second clip. The Court opined that the contentions of the petitioner that the content of the program was derogatory about the Muslim community and created an environment of hostility towards a specific community on religious grounds are not maintainable. It was held that statutory authorities responsible for regulating the content of news channels should examine the content of the program before its scheduled telecast. The episodes of the program were aired on the 11th, 12th,13th, and 14th of September 2020 after the permission of the Ministry of Information and Broadcasting.

Issue raised

In light of these contentions, the Apex Court deliberated on the questions of:

Reasonable limitations on the constitutional right to freedom of speech and expression
Regulatory mechanisms for broadcasting of television programs
Violation of the provisions of the Cable and Television (Network Regulation) Act, 1955
The mechanism of pre-broadcast interlocutory injunction and the promotion of hate speech against a specific religion

Laws invoked

Article 14 of the Indian Constitution provides equality before the law and equal protection under the law.
Article 19 deals with the protection of rights to freedom of speech and expression, religion, etc. These rights may be abrogated by the State by abiding by the due procedure of law.
Article 32 provides remedies in the form of writs for the enforcement of fundamental rights through the Supreme Court of India
Article 51A lays down the Fundamental Duties of every citizen of India
Section 19 of the Cable Television networks (Regulation) Act, 1995 seeks to prohibit the broadcasting of certain programs in the public interest.
Section 20 of the Cable Television Networks ( Regulation) Act, 1995 allows the central government to prohibit the operation of a cable television network if it appears to be a threat to public order, national integrity, or sovereignty of the nation.

Arguments advanced

Petitioners

The petitioners asserted that the Sudarshan TV channel was maligning the Muslim community and making false allegations about the alumni of Jamia Milia Islamia by calling them “Jamia ke Jihadi”. The program was intended to disseminate false information about the infiltration of the members of the Muslim community in the civil services to carry out terrorist activities. Although the Apex Court had previously denied a pre-broadcast interlocutory injunction on the program, the petitioners had placed screenshots and transcripts of the episodes aired from September 11 till September 14, 2020, in order to prove that the program was indulging in hate speech.

Respondents

The government contended that it was the Fundamental Duty of a journalist to produce unbiased facts to the public under the right to freedom of speech and expression. The respondents claimed that the contents of the program were focused on national security issues and the involvement of foreign terrorist funding in India. Such programs raise awareness on several important issues and encourage active citizenry. Citing the Supreme Court’s earlier refusal to issue a pre-broadcast injunction on August 28, 2020, the respondents sought dismissal of the Delhi High Court’s order stating the breach of Programme Code and an injunction on the airing of the program from 9th September, 2020.

Judgment of the Court

After hearing the arguments advanced by both parties, the Supreme Court realized that since the dismissal of the petition for pre-broadcast injunction there has been a change in the circumstances. In light of the evidence placed before the Court, it has emerged that the content, tenor, and object of the episodes of “Bindas Bol” broadcasted between 11th and 14th September 2020 are an attempt to vilify a specific community. Since the rest of the episodes will resemble the ones already aired, it is imperative to inject any further telecast of the program either under the same or any other caption or title. The Court held that the edifice of the Indian democratic society is dedicated to the adherence of the rule of law along with the constitutional rights, values, and duties associated with it. The Supreme Court as the custodian of fundamental rights and constitutional values must thwart any attempts to vilify a community within the socialist, secular, democratic republic of India.

Ratio decidendi

The editor-in-chief, Suresh Chavnakhe’s claims about the “UPSC jihad” after the success of students of Jamia Millia Islamia in the UPSC exam and infiltration of Muslims into the civil services to propagate terrorism within the country were held to be palpably false statements by the Apex Court. The Court observed that false and derogatory statements had been made about the Muslim community and held that it was a planned attempt to vilify a particular community. Linking organizations that offered help to students of the Muslim community with terrorist groups like ISIS and claiming that Muslim candidates were entitled to nine attempts to clear the civil examination compared to the six attempts given to their Hindu counterparts, is a clear instance of hate speech.

The Court observed that under Rule 6(1)(c) of the Cable and Television Networks (Regulation) Rules no program should attack the religious or communal sentiments of a particular community or promote communal hatred. Under Rule 6(1)(d) of the Programme Code, the law prohibits the broadcasting channels from publishing defamatory, false, half-truth statements or suggestive innuendos. Any contravention with the aforementioned rules entails penalties under Section 19 and Section 20 of the Cable and Television Networks (Regulation) Act, 1995.

The Supreme Court established that the defense of ‘fact-based investigation’ into organizations like the Zakat Foundation cannot be upheld under the garb of journalistic privilege established through cases like Romesh Thapar vs State of Madras (1950) and Brij Bushan vs the State of Delhi, (1950) as the program seeks to make derogatory comments about the entire Muslim community. While dismissing the role of media regulatory bodies such as the News Broadcasters’ Association and the News Broadcasters Federation as ‘toothless’, the Supreme Court directed the government to instill a strong media self-regulatory mechanism. Organizations like the News Broadcasters Association, News Broadcasters Federation are voluntary organizations and therefore cannot be held to be good regulatory mechanisms. Organizations like the Indian Broadcasting Federation and the Advertising Standard of India which deal with grievances related to contents in broadcasts and advertisements respectively should be strengthened.

Case Analysis

Legislative action against hate speech

The legislative wing of our government has enacted the following laws to punish the evil of hate speech:

Indian Penal Code, 1860

Section 124A of the Indian Penal Code, 1860 deals with the charge of sedition
Section 153A of the IPC criminalizes the fostering of animosity between different groups on the basis of religion, race, place of birth, residence, language, etc
Section 153B of the IPC punishes statements that are against national integration. Section 295A penalizes actions that might hurt religious feelings or create hostility between different groups of people.
Section 505(1) and (2) punishes all kinds of publications that cause public mischief, enmity, or hatred between any class of individuals.

Representation of the People Act, 1951

Under Section 8 of this Act, a candidate may be barred from participating in the election process if he is found to be guilty of breaching the reasonable restrictions imposed on the right to freedom of speech and expression. Similarly, Section 123(3A) and Section 125 mandates that there should be no use of propaganda to create feelings of enmity on religious, racial, communal, or lingual grounds in connection with the election.

Protection of Civil Rights Act, 1955

Section 7 of this Act criminalizes promotion or encouragement of the notion of untouchability through verbal, non-verbal, or any visible representations or otherwise.

Religious Institutions (Prevention of Misuse) Act, 1988

Section 3(g) of this Act, prohibits the use of any religious institution and the people associated with it from promoting or attempting to promote discord between the people on religious, racial, lingual, or communal lines.

Cable Television Network (Regulation) Act, 1955

Section 5 and Section 6 of the said Act regulates the transmission and retransmission of cable television broadcasts and advertisements. It seeks to prohibit any program that breaches the prescribed program or advertisement code.

Cinematograph Act, 1952

Section 4, Section 5(B), and Section 7 of the Cinematograph Act, 1952 seeks to regulate the broadcasting of films and prohibit any sort of depiction that could be interpreted as hate speech.

Code of Criminal Procedure, 1973

Section 95 of the aforementioned Act, allows the State Government to confiscate any publications that are punishable under the Indian Penal Code, 1860.

The menace of hate speech

The law gives great importance to the diversity of opinions in society. Our legislators have been reluctant in curbing the freedom of speech by imposing restrictions that might ultimately seem undemocratic. Due to this, there has been no definition of hate speech. The doctrine of freedom of expression and speech may even shelter speech that appears to be offensive. However, the state must intervene where statements are likely to arouse distress among individuals and incite hostility between groups. Thus, State intervention in cases where an offensive speech is likely to cause injury to certain groups of people may be described as hate speech. The issue of hate speech is of considerable concern especially in the age of digital media and anonymity. The Human Rights Council’s ‘Report of the Special Rapporteur’ advocates the need to protect the doctrine of freedom of speech while establishing the grounds on which such freedom may be suppressed. A country like India has been built on the concept of ‘Unity in Diversity. Therefore, in such a plural and complex society, conflict of opinions and different interpretations of the same object is bound to happen all the time. Such public discourse and disagreements should never go beyond the boundaries of civility. However, there are instances in which offensive statements have injured the dignity of individuals and tarnished the very spirit of our Constitution. The state must create mechanisms to deal with the menace of hate speech which usually targets minorities and the vulnerable sections of the society. Article 21 of the Indian Constitution guarantees the right to live with dignity and the state must prioritize the protection of this fundamental right.

Jurisprudence on hate speech

The Supreme Court had exercised its power under Article 19(2) in the case of Brij Bhushan vs State of Delhi (1950), to establish that the right to freedom of speech and expression may be curtailed on the grounds of public order. The Court had held that public order was a part of public safety and security of the state which was later inserted as a legitimate ground for dismissal of the rights guaranteed under Article 19 by the First Constitutional Amendment. The Courts had elaborated on this concept in the case of Ram Manohar Lohia vs State of Bihar (1965), to conclude that law and order was a broader concept that encompassed the concept of public safety. The security of the State cannot be interpreted to be a part of public safety. Therefore the Court might only curb the right to freedom of speech and expression under Article 19(1)(a) when there is a direct and proximate connection between the restriction and public order. The Apex Court has also verified the constitutional validity of the penal provisions dealing with the concept of hate speech in the case of Ramji Lal Modi vs State of Uttar Pradesh (1967) and Bilal Ahmed Kaloo vs State of Andhra Pradesh (1997). This has not always been the case as Section 66A of the Information Technology Act, 2000 was declared unconstitutional by the Supreme Court in the case of Shreya Singhal vs the Union of India (2015), due to the lack of reasonable connection between the restriction imposed by the Section and the freedom of speech.

In the case of Pravasi Bhalai Sangathan v Union of India (2014), the Supreme Court had refused to grant a peremptory injunction against hate speech makers and clarified that penalizing hate speech by going beyond the threshold of existing laws would set a dangerous precedent of ‘judicial overview’. A similar stance was taken by the Apex Court while hearing a plea for a pre-broadcast interlocutory injunction against the program titled ‘Bindas Bol’.

Conclusion

The Court held that a pre-telecast ban is a tool that must be used rarely and only in a certain narrow range of issues. A preliminary or ad-interim injunction is usually a mechanism by which the Courts preserve the status quo before the final judgment in a trial. The courts usually grant an ad-interim injunction depending on the facts and circumstances of the case and require that some essential criteria be fulfilled before passing such an injunction. There is an imminent need for a single statutory umbrella mechanism of grievance redressal that carefully balances the importance of journalistic freedom while curbing the menace of hate speech. The Court stressed the need to establish standards to be followed by the electronic media and the importance of stringent regulation on television news channels as compared to newspapers. Since the television news channels cater to a larger audience there must be strict adherence to the standards of broadcasting.

References

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Analysing the applicability of moratorium period on wilful defaulter’s proceedings under Insolvency and Bankruptcy Code, 2016

Abanti Bose

August 31, 2021

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This article is written by Abhikrishna Lal, pursuing Certificate Course in Insolvency and Bankruptcy Code from LawSikho.

Table of Contents

Introduction

The Insolvency and Bankruptcy Code, 2016 (“the Code”) was enacted to ensure the revival of the corporate debtor which is facilitated by a mechanism wherein the creditors are in control of the revival process.

The Corporate Insolvency Resolution Process (“CIRP”) under the Code enables the Committee of Creditors to make viable commercial decisions pertaining to the resolution process so as to revive the corporate debtor and to protect their investment or capital infusion.

Similarly, the Code was intended for corporate debtors who are unable to pay off their pending debts due to their financial incapacity and not to wilful defaulters who fraudulently try to evade their liability to pay debts despite having the financial capacity to do so.

In light of the same, this article intends to analyse the applicability of the moratorium period to proceedings of wilful defaulters under the Code.

Who are wilful defaulters?

The Reserve Bank of India in its Master Circular (RBI) defines wilful defaulters as a unit defaulting in meeting its payment or repayment obligations to the lender despite having the capacity to do so. The use of the term ‘unit’ comprises individuals, juristic persons, and other forms of business enterprises irrespective of whether they are incorporated or not. Further, the definition of a wilful defaulter is restricted with a proviso clause which states that wilful defaulters should be ascertained taking into consideration the track record of the borrower and not on an isolated basis. This was presumably added to ensure lenders do not frivolously enforce this mechanism at every instance of a default in payment.

Subsequently, the following acts if performed by a unit will lead to the unit being classified as a wilful defaulter as under the circular:

Unit defaulting in meeting its payment obligations to the lender despite having the capacity to honour such obligations.
Unit has diverted the funds obtained from the lender and has not used it for the specific purpose it was borrowed for.
Unit has siphoned off the funds and the funds are not available with the unit in the form of other assets.
Unit has disposed of the securities without the lender’s knowledge.

To ascertain wilful defaulters, an “Identification Committee” is to be constituted as per the RBI’s Master Circular wherein if the committee concludes that wilful default has occurred subsequent to examining evidence pertaining to the same, a show-cause notice is issued to the borrower company or their full-time director or promoter.

After considering the submissions of the alleged wilful defaulter, an order shall be issued recording the fact of wilful default and the reasons for the same. The order is final and binding after being reviewed by the Review Committee.

Once an entity is declared as a wilful defaulter, it attracts potential criminal proceedings and is unable to avail funds from any bank or financial institutions, unable to propose resolution plans and other similar measures.

Moratorium period under the Code

Subsequent to the commencement of the CIRP under the code, a moratorium period is imposed by the Adjudicating Authority wherein no proceedings can be instituted against the Corporate Debtor for such period. This period extends from the date of the order imposing moratorium period till the completion of CIRP. However, it can also be terminated when an order approving the resolution plan or liquidation of the corporate debtor is declared by the Adjudicating Authority. The moratorium period prohibits the following:

“(a) institution or continuation of pending suits against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.”

Whether a moratorium period extends to willful defaulter’s proceedings?

The Code seems to be an attractive way to evade liability to pay or repay debts for most wilful defaulters. This is supplemented by the fact that after initiation of CIRP, a moratorium period is imposed wherein no proceedings can be instituted against the corporate debtor. Wilful defaulters have tried to take advantage of Section 14 of the Code by stating that proceedings pursuant to being declared a wilful defaulter fall within the ambit of the moratorium period. However, the courts have held otherwise. Two such cases illustrating the same are elucidated below.

Applicability of moratorium period to proceedings against the director of a willfully defaulting company

In Ayan Mallick v. State Bank of India (W.P.O. No. 23 of 2021), the petitioners were the former directors of the company M/s A.K Power Industries Limited. The company had availed a loan from the State Bank of India and had not repaid the same on the stipulated dates upon which a forensic audit was conducted by the Bank on the affairs of the company.

Subsequently, the company was declared as a “No fraud Account’ upon which a one-time settlement was proposed by the company which the bank readily accepted. However, concurrently, the company was admitted into CIRP by the Calcutta High Court. The bank issued a show-cause notice to the company to state reasons as to why their names should not be forwarded to the wilful defaulter’s list of the RBI.

Pursuant to multiple back and forth communications between the parties, the Bank challenged the impugned notice of the bank. The issues raised in the writ petition were:

Whether the borrowing company can be classified as a wilful defaulter after initiation of CIRP and whether related proceedings fall within the ambit of the moratorium period?
Whether the directors of the borrowing company would be granted immunity vis-à-vis the willful defaulter proceedings after the commencement of CIRP?

Pertaining to the first issue, the Hon’ble Calcutta High Court held that declaring the borrowing company as a wilful defaulter and proceedings arising from the same would be detrimental and in conflict with the functioning of the Resolution Professional as prescribed within the code.

Thus, such proceedings would fall within the ambit of Section 14 and shall be barred during the moratorium period. However, pertaining to the second issue, the Court answered in the negative. As per Section 17 of the Code, the management of the affairs of the company is handed over to the Interim Resolution Professional after CIRP is initiated and the Board of Directors remains suspended.

Since the directors do not play any role in the functioning of the company after the commencement of CIRP as the powers of the directors are handed over to the IRP, it was held that publishing the names of the directors in the list of wilful defaulters would not affect CIRP.

Applicability of moratorium period to guarantor/whole-time director/promoter of willful defaulter company

In Gouri Prasad Goenka v. State Bank of India (WPO No. 171 of 2021), two show-cause notices were issued by the Deputy Manager of the State Bank of India to the petitioner as to why they should not be declared a wilful defaulter. The first notice against the petitioner was in the capacity of a guarantor and the second notice was the full-time director and promoter of Duncans Industries Ltd which were challenged by the petitioner. The issues raised were:

Whether the notices served against the petitioner were valid and maintainable?
Whether the petitioner could be declared as a wilful defaulter in both capacities and whether related proceedings will fall within the ambit of Section 14 of the Code?

The Hon’ble High Court of Kolkata held that the notices issued by the General Manager of the Bank were valid and maintainable as they were merely communications of the Wilful Defaulter Identification Committee’s orders and directions. Such a notice does not intrude into the jurisdiction of the committee under the RBI’s Master circular and is thus valid.

Further, pertaining to the second issue, the Court opined that apprehension of a prospective resolution plan does not absolve the liability of the full-time director or promoters who were managing the affairs of the company when the default occurred. It was held that wilful defaulter proceedings against the guarantor is an exception to the moratorium period under Section 14(3)(b) and whole-time directors/promoters/guarantors cannot escape the liability of wilful default on the basis of a prospective resolution plan. Thus, it was held that proceedings of wilful default against a guarantor/promoter/wholetime director are not within the ambit of the moratorium period.

Conclusion

The implementation of the Code was lauded by many as a saviour owing to the time-bound resolution of corporate debtors and the creditors in a controlled mechanism. However, there seems to be a lacuna as the true purpose of the Code i.e to revive corporate debtors is misused by wilful defaulters in order to escape their payment or repayment obligations to lenders.

This is further exemplified by such debtors being identified as wilful defaulters once the CIRP process is initiated and the moratorium period is imposed. Whilst the Hon’ble Courts have consistently pierced the corporate veil to unveil the directors or promoters or guarantors indulging in such unscrupulous measures and exempted them from moratorium period for related proceedings under the Identification committee; the corporate debtor still undergoes CIRP due to the reason that such acts would interfere with the functioning of the Interim Resolution Professional.

This creates a loophole whereas the corporate debtor is still undergoing CIRP and possibly liquidation if CIRP fails, and paves a path for the creditor to incur losses. Hence, a deafening call needs to be made for concerted efforts and more stringent measures to be implemented under the Code to restrict wilful defaulters under the Code completely.

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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The ideology behind obligatory motor vehicle insurance : national and international perspective

Shoronya Banerjee

August 30, 2021

This article is written by Gyaaneshwar Joshi, a student of the Faculty of Law, Jamia Millia Islamia, New Delhi. This article discusses the various provisions under the Indian Motor Vehicle Act that provide for mandatory insurance of motor vehicles in the country.

Introduction

Motor vehicle insurance comes under miscellaneous categories of insurance. The business of insurance is wide enough that insurance companies have maintained separate departments to provide lucrative insurance plans to the policyholders.

The first car appeared in 1894 and the first insurance policy was issued in 1897. According to the Ohio Historical Society, Gilbert J. Loomis was the first person who bought an automotive liability insurance policy in 1897. The first policy covered only the claims for insurance in case of simple damage to the car, but later the policy got revamped and few other plans were introduced like liability for the third party, accidental damage to a car, burglary, and fire. The trend of motor insurance was first introduced in the United Kingdom with the Road Traffic Act, 1930. Under the provisions of this Act, third-party insurance was made mandatory in the UK considering the increased number of vehicle accidents in the post first world war era.

In India, the legislation regarding motor vehicle insurance was first passed as the Motor Vehicles Act, 1939 with a motive that victims of motor accidents should not go without compensation owing to the financial capacity of the first party.

Motor vehicle insurance : an Indian perspective

Motor vehicle insurance was made compulsory under the Motor Vehicles Act, 1939 which was subsequently amended in 1988. Motor Insurance is generally referred to as auto insurance, vehicle insurance, and car insurance which provides coverage related to property damage, bodily injury, medical expenses, and other sorts of compensation in legal proceedings. After the passing of the Motor Vehicles (Amendment) Act, 1988; the third party insurance policy was made mandatory for all the vehicles to be used on the roads. Hence, it is compulsory under the rules of Section 146 of the Motor Vehicles Act, that any vehicle either used for domestic or commercial purposes has to be mandatory insured.

There are three parties entitled under the insurance policy contract:

Insured or the vehicle owner, who acts as a first-party,
The insurance company or insurer who is liable to pay the damages to the injured acts as a second party, and
The third party will be the ‘other vehicle owner’ in case an accident or injury has occurred.

Insurance is a time-bound contract between an insurer and insured, under which the insurer pledges to indemnify the insured against any amount of loss in exchange for an advance payment of a premium. The money to indemnify that loss comes from the pool of premium of all the insured.

Every risk of loss is covered by a third party in the sense that they are other than the ‘first party,’ that is. the insurer and the ‘second party’, that is, the insured. According to the risk covered by an insurance contract, different types of policies are issued having their benefits that are provided to the first party or the owner of the vehicle. There are two types of insurance policies issued under motor insurance:

1. Third-party policy

Section 145(g) of the Motor Vehicles Act, 1988 defines ‘third party’ as any person excluding the contracting parties to the insurance policy. The third-party policy is a statutory requirement under the Motor Vehicles Act, 1988. Third-party liability coverage is a part of an insurance policy that protects a person in case he gets sued or asked for compensation from a third party. This policy compensates for all types of physical injury to the injured or any damage that occurred to someone else’s property by the accident from the owner’s vehicle. However, it does not cover the repairing cost of the owner’s car or in case the owner suffered any car-related injuries.

Under this policy, the insurer or the insurance company has to pay all sums of liability to the third party, the costs, and the expenses for which the insured becomes liable. Third-party liability could be following – bodily injury liability and property damage liability. If the insured has taken this policy, he may get compensation from the insurer up to the value of insurance which may be higher than the minimum amount prescribed under the Motor Vehicles Act, 1988.

In the case of G. Govindan v. New India Insurance Co. Ltd (1999), it was held that third liability insurance is mandatory under the law and should not be overridden by any clause given in the policy.
In the case of Oriental Insurance Co. Ltd. v. Sudhakaran K.V (2008), the court held that the pillion rider in a two-wheeler is not treated as a third party when the accident has taken place owing to rash and negligent riding of the scooter. The Supreme Court held that the legal obligation arising under Section 147 of the Act, 1988, could not be extended to an injury or death of the owner of the vehicle or the pillion rider.

2. Comprehensive policy

The comprehensive policy is extensive motor insurance which is not compulsory to be taken as per vide Supreme Court order dated 1 August 2018, which was implemented from 1 August 2020. Earlier, it was mandatory to have long-term comprehensive insurance for the first five years of the two-wheeler vehicle purchase and three years for four-wheeler purchase, and later the onus goes on to the policyholder whether he wants to continue with the scheme or not. But after the Supreme Court order, the Insurance Regulatory and Development Authority of India (IRDAI) has decided to scrap this long-term comprehensive policy and continues with a one-year mandatory third party insurance policy that has to be compulsorily taken before any vehicle purchase, and further to be extended.

Now, taking the comprehensive policy is an optional coverage that provides overall protection to the car against both the personal damage of the vehicle along with third party vehicles as in third party liability coverage. Therefore, this policy can be referred to as one step ahead of the third party insurance policy, because it not only offers third party coverage but also covers the cost of damage to the owner’s vehicle.

The comprehensive policy covers loss and damage to the vehicle in a comprehensive sense which means all benefits are provided in one policy, but in a practical sense, all risks are not fully covered under this policy. There are only major risks that are covered like:

Damage to cars and their bodies due to riots, strikes, earthquakes, floods, storms, etc.,
Loss or theft of the insured vehicle,
Third parties liability,
Repair charges,
Medical expenses for the driver.

However, this policy does not cover few things such as:

Depreciation,
Electrical or mechanical breakdown,
Wear and tear of the vehicle,
Damage caused to the person, who is driving a vehicle without having a valid driving license,
Damage caused due to drunken driving or under the influence of drugs,
Loss or damage to the vehicle caused due to war or mutiny.

In the case Prabhu Dayal Agarwal v. Saraswati Bai (1975), the insurer had issued a comprehensive policy to the owner of the car, which stated that the insurer shall indemnify in the event of an accident caused by the use of motor vehicle, and liable to pay the claimant’s cost and expenses in respect of death or bodily injury to any person. In this case, the gratuitous passenger traveling in the car was killed. Therefore, the court held that since the insurer had undertaken the liability wide enough to cover such a situation, he is liable to pay for the same.

What does the Motor Vehicles Act state about motor insurance

The Motor Vehicle Act regulates almost all aspects of road transport vehicles. The Act provides detailed guidelines on licencing of the drivers and conductors, registration of motor vehicles, traffic regulations, related insurances, liabilities, and penalties. It also makes mandatory a valid driving licence for every driver and no vehicle can be driven without being registered under the Motor Vehicle Act.

The Motor Vehicles Act 1988, like the earlier Act of 1939, is a comprehensive enactment in respect to various matters relating to traffic safety on the roads and the minimization of road accidents. Chapter XI of the Motor Vehicles Act (Section 145 to 164) contains provisions concerning ‘Insurance of Motor Vehicles against Third-Party Risks’. According to Section 146(1) of the Act, “No person can use, except as passenger, or cause or allow any other person to use a motor vehicle in a public place, unless an insurance policy against third party risks is in force, concerning the use of the vehicle.” However, under Section 146(2) of the Act, the stated requirement of insurance is not mandatory in respect of any vehicle owned by the Central Government or a State Government and used for government purposes unconnected with any commercial enterprise.

Therefore, under the provisions of the Motor Vehicle Act, no person can either himself use, or allow another person to make use of a motor vehicle unless there is in force an insurance policy taken on that vehicle. Section 196 of the Act defines the punishment for driving a motor vehicle in contravention of the provisions of Section 146, which shall be of imprisonment extended up to three months, or a maximum fine of one thousand rupees, or both.

Application for compensation

A new forum called Motor Accidents Claims Tribunals (Claims Tribunal) has been created under the Motor Vehicles Act for a cheaper and speedier remedy to the victims of motor vehicles accidents. It substitutes civil courts and unlike the civil courts, in this case, no payment of ad valorem court fee is required. The Claims Tribunal is bound to follow a summary procedure and appeal from the decision of the Claims Tribunal lies directly to the High Court.

According to Section 165 of the Motor Vehicle Act, 1988, the Claims Tribunals are constituted to adjudicate upon claims of compensation in respect of accidents arising out of the motor vehicle. Section 166 of the Act defines how an application for compensation may be made. It can be made by:

A person who has sustained the injury.
Owner of the damaged property.
When a death has been caused by the accident, then it can be made by any of the legal representatives of the deceased.
An agent duly authorized by the person injured.

Every application of compensation shall be made to the Claims Tribunal having jurisdiction over the area in which the accident occurred. The time limit of making the application for compensation is six months from the occurrence of the accident.

It has been held in the case National Insurance Company Limited v. Lachhibai (1997) that the tribunal has the inherent power to review its award under Section 169 of the Motor Vehicles Act.

The compulsion of car insurance in India

The Motor Vehicles Act, 1988 makes the insurance of motor vehicles compulsory. The owner of every motor vehicle is bound to insure his vehicle. Hence, all motor vehicles to be used in public places need to be insured against third-party risk. The objective of the insurance is to protect the interest of a third party, who suffers from the use of the vehicle. If the vehicle is insured against third-party risks, the injured party can claim compensation from the insurance company. Even if the driver or the owner of the vehicle is not in a position to pay compensation to the accident victim, the insurer will pay compensation on behalf of the owner of the insured vehicle.

Section 147 of the Motor Vehicles Act, 1988 provides about the requirements of a valid policy of insurance, and also the limits up to which the insurer will be liable in respect of an insurance policy. If a vehicle is not insured against third-party risks, the liability of the driver and the owner of the vehicle can still be there, although no insurer could be made liable in such a case.

In the case of National Insurance Co. Ltd. v. Swaran Singh & Ors (2004), the Supreme Court held that the Motor Vehicles Act which provides compulsory insurance of vehicles is a kind of social welfare legislation that provides relief to the victim in the form of compensation of accidents caused by the use of motor vehicles. Therefore, the court held that provisions of compulsory insurance coverage of all vehicles have to be interpreted to effectuate the said object.

International perspective

Most of the foreign countries have mandated the vehicles to have third-party liability insurance. However, several countries approach auto insurance differently to allow the vehicle to be eligible for legal driving on the roads.

Australia

It is mandatory to have compulsory third-party (CTP) insurance to drive legally in Australia. Third-party damage helps to cover injuries and deaths caused by car accidents and it also protects when a person damages someone else’s vehicle or property. In Australia, every car must be insured with CTP insurance, which is also known as Green Slip.

Comprehensive insurance is voluntary and can be taken as a form of additional insurance in case someone else’s vehicle or property is damaged.

Thailand

Thailand requires drivers to have compulsory third-party liability insurance also called Por Ror Bor which is required by every motor vehicle under the Road Protection Act, 1992. The policy covers medical expenses up to 80,000 Baht for injury and 3,00,000 Baht for death in case of an at-fault accident. However, Thai drivers mostly choose private insurance.

In case of injuries from an accident, the claim can be directly taken from the hospital by informing the hospital cashier. It can be later reimbursed by the insurance company with the receipt of the medical expenses and showing some other required documents like a copy of passport and insurance copy.

Japan

In Japan, it is mandatory to have liability insurance, however, the country does not require voluntary insurance coverage. The at-fault driver is legally responsible for any damage exceeding its insurance coverage. There is a test called 60-point safety inspection which is mandatory for every vehicle to qualify to avail of this insurance. This inspection is repeated every two years and helps to ensure that every car on the road is roadworthy.

South Africa

The Road Accident Fund was established by an Act of Parliament in South Africa to pay injured parties or the survivors of the deceased parties in a road accident since May 1999. Under the provisions of RAF, the involved drivers are assigned a percentage of responsibility for the accident which is deducted from the number of bodily injury claims. However, the RAF does not repair or replace damaged property.

There is no additional insurance required in South Africa, and only 30% of the drivers possess some kind of additional insurance apart from RAF. The drivers of financed vehicles are required to purchase comprehensive coverage.

China

In China, all auto-owners are required to have ‘compulsory traffic insurance’ which also covers third-party liability, that is, cover in the event of death, injury, and property damage of the no-fault party or third party.

Many drivers prefer to buy a separate third-party liability insurance policy that increases their coverage of low required minimums and helps in covering the full claim of even a minor accident. There are other insurance options available to the vehicle owners like (driver’s insurance) to cover at-fault driver and their passengers through (passenger insurance), replace their damaged property (vehicle damage insurance), and protection against theft (theft insurance).

The Motor Vehicles (Amendment) Act, 2019

The Minister of Road and Transport and Highways, Mr. Nitin Gadhkari introduced the Motor Vehicle (Amendment) Bill in the Lok Sabha on 15 July 2019 to add some specific provisions in the Motor Vehicle Act, 1988 regarding road safety. On 1 September 2019, it was implemented in the country and became the Motor Vehicle (Amendment) Act, 2019. The discourse concerning the Act is to minimize road accidents by incorporating deterrents into law. The new Act focuses more on penalties than compensation. These are the main perspective of the Act:

A. Putting accident victims at the centre of vehicle law

The amended Act provides enhanced insurance compensation to the victims of Rs. 5 lakhs in case of death of a person in a traffic accident and Rs. 2.5 lakhs in case there is grievous hurt. Under the new Act, the compensation of victims of hit and run incidents has been now increased to Rs. 2 lakhs if a victim dies and Rs. 50,000 if someone suffers grievous injuries.

B. Cashless treatment

The new Act requires insurance companies and the government to notify schemes relating to ‘cashless treatment’ during the Golden Hour, which is the period of the first sixty minutes from the occurrence of an accident when the risk of fatality can be minimized to the greatest extent.

C. National Road Safety Board

The Act provides for setting up a National Road Safety Board which will act as an advisory body. Section 215(B) has been added to the Act that specifically defines the functions and powers of the advisory board. This Board will provide advice to the central and state governments on the setting of road standards.

On the recommendation of the Sundar Committee on Road Safety and Traffic management, the National Road Safety Council has given the freedom to set safety standards about the design, construction, and maintenance of roads and motor vehicles.

D. Compulsory insurance

The Act requires the central government to constitute a Motor Vehicle Accident Fund to provide compulsory insurance cover to all road users in India, including pedestrians. These new provisions will help the accident victims to be provided proper justice.

This fund will be credited through:

Payment of a nature notified by the central government.
A grant or loan made by the central government.
Balance of the Solatium Fund (existing fund under the Act to provide compensation for hit and run accidents).
Any other source as prescribed by the Central Government.

Conclusion

Despite third-party motor insurance being compulsory in India, the report of the General Insurance Council of India states that approximately 60% of automobiles are uninsured in which mostly are two-wheeler vehicles. In India from 2015-16, approximately 19 crore automobiles were registered out of which only 8.26 crore (less than half) were insured.

Most of the vehicle owners do not buy vehicle insurance coverage only because they think that no one will stop them to show the insurance documents. Currently, the requirement of having every vehicle to be insured is the need of an hour because uninsured automobiles impose huge liability on accident victims. It is high time when we need to be responsible for ourselves and must take responsibility for our actions so that nobody will face a loss because of somebody else.

References

R.K. Bangia, Law of Torts, Allahabad Law Agency, Faridabad
https://www.policybazaar.com/motor-insurance/car-insurance/articles/everything-you-need-to-know-about-motor-insurance-india/
https://www.lafarmbureau.com/2020/05/20/foreign-car-insurance/
https://www.iffcotokio.co.in/motor-insurance/why-is-motor-vehicle-insurance-mandatory-in-india
https://economictimes.indiatimes.com/definition/third-party-insurance
https://bnblegal.com/article/motor-vehicle-insurance-laws-in-india/

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