SEBI’s Order Underlines the Importance of Disclosures

On September 12, 2023, the Securities and Exchange Board of India (SEBI) passed an adjudication order against Reliance Home Finance Limited (“RHFL”).[i] The order brings forth the crucial role of SEBI’s disclosure norms, and how non-compliance can cost entities dearly.

The order deals with findings against four entities – the first of which is RHFL. The other three being the key managerial personnel (“KMP”) of RHFL during the examination period. The order revolved around violation of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[ii] (“LODR Regulations”), SEBI (Issue and Listing of Debt Securities) Regulations, 2008[iii] (“ILDS Regulations”) and SEBI (Debenture Trustee) Regulations, 1993[iv] (“DT Regulations”).

Issues Involved

The primary issues in consideration before the Adjudicating Officer (“AO”) against RHFL can be summarised below:

S. No.

Violated Regulation(s)

Issue Description

1.       

Regulation 32 of the LODR Regulations

Statement of deviation, i.e., any deviation in the use of the proceeds from the objects stated in the offer document must be submitted to the stock exchange.

2.       

Regulation 30(10) of the LODR Regulations

The listed entity must reply to all queries raised by stock exchange(s).

3.       

Regulation 54 of the LODR Regulations

Maintenance of 100% asset cover sufficient to discharge the principal amount at all times.

4.       

Regulation 56(2) of the LODR Regulations

Submission of documents/ disclosures to the Debenture Trustee (“DT”).

5.       

Regulation 16(1) of the ILDS Regulations

Creation of debenture redemption reserve as per the Companies Act, 2013.

SEBI’s Findings and Analysis

  1. The primary contention by SEBI was that RHFL diverted the proceeds raised from the issue of non-convertible debentures (“NCDs”) to certain body corporates including group companies of RHFL. SEBI relied on the qualified opinion of the statutory auditor’s report which stated “Loan advanced under the ‘General-Purpose Corporate Loan’ product with significant deviations to certain bodies corporate including group companies and outstanding as on 31 March 2020 aggregating to Rs. 7,965.24 crores…majority of Company’s borrowers have undertaken onward lending transaction and end use of the borrowings from the Company included borrowings by or for repayment of financial obligation to some of the group companies.”
  1. The AO thus held that the onward lending transaction which resulted in borrowings by or for repayment of obligations to some group companies clearly deviated from the objects of the issue of the NCDs. Consequently, the failure to report such a deviation to stock exchanges on a quarterly basis violated Regulation 32 of the LODR Regulations.
  1. Issue number 2 pertains to the failure to provide a specific and adequate reply to all queries of the stock exchanges. The background behind this issue was the issuance of a press release by RHFL, in which it indicated that there were no adverse findings in the forensic audit report carried out. RHFL claimed that it had disclosed details of lending to the tune of Rs. 7, 984 crores to indirectly linked entities. Later, a media article was published titled “RHFL gave Rs 12,000 crore loans to ‘indirectly linked’ borrowers: Forensic audit.” Questions were raised by stock exchanges about these contradicting figures, which were not answered by RHFL. Thus, as per the AO, there was a failure to adequately and specifically respond to all queries raised by exchanges, in violation of Regulation 30(10) of LODR Regulations, which mandates that a listed entity has to provide “specific and adequate reply to all queries raised by stock exchanges.”
  1. SEBI also alleged that RHFL failed to maintain 100% asset cover sufficient to discharge the principal amount at all times for NCDs issued, as mandated under Regulation 54 (1) and (2) of the LODR Regulations. The order noted how the Notes to the financial statements for the financial year (FY) 2019-20, RHFL disclosed that it could not maintain the required security cover. Additionally, RHFL responded to SEBI’s allegation by submitting that “on account of adverse conditions in the financial sector in the FY 2018-2019, (RHFL) was unable to comply with the requirement for maintenance of 100% of asset cover.” Owing to the admission of default by RHFL, the AO held that the allegations by SEBI stand clearly established.
  1. As per Regulation 56(2) of LODR Regulations, read with Regulation 15(1)(t) of the DT Regulations, periodical reports/ documents/ disclosures have to be submitted by the DT. RHFL claimed to have submitted all necessary disclosures, albeit with delay. However, they provided no documentary evidence of having done so, except from mere statements, as per the AO. Additionally, RHFL contended that due to the sudden onset of the COVID-19 pandemic and subsequent lockdown, they were unable to submit the documents to the DT. However, the AO rejected this contention as well, stating that the failure to submit documents sought by the DT extended even prior to the onset of the pandemic and nationwide lockdown.
  1. SEBI alleged that RHFL violated Regulation 16(1) of ILDS Regulations, which mandates the creation of a Debenture Redemption Reserve (DRR) as per Rule 18(7) of Companies (Share Capital and Debentures) Rules, 2014. However, the AO noted in the order, that these rules were amended on August 16, 2019. This amendment removed the requirement of maintaining a DRR for housing finance companies registered with the National Housing Bank. Thus, it was held that the non-creation of DRR was not a violation of the ILDS Regulations.

Conclusion

Finally, the AO imposed a penalty of Rs. 15,00,000 against RHFL, under Section 15A(b) and Section 15HB of the SEBI Act. This order brings to the fore the importance of complying with disclosure norms for listed entities. Of late, SEBI has focused on tightening disclosure norms for companies. This is evident from the recent amendments to the LODR Regulations which mandate strict timelines and criteria for determining materiality of events. Non-compliance with SEBI regulations can and will invite strict action from SEBI, as seen from this adjudication order.

References:

[i] Adjudication Order in the matter of Reliance Home Finance Limited; available at: https://www.sebi.gov.in/enforcement/orders/sep-2023/adjudication-order-in-the-matter-of-reliance-home-finance-limited-_76787.html

[ii] Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015; available at: https://www.sebi.gov.in/legal/regulations/aug-2023/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-august-23-2023-_76498.html

[iii] https://www.sebi.gov.in/sebi_data/commondocs/ilds.pdf

[iv] SEBI (Issue and Listing of Debt Securities) Regulations, 2008; available at Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993; available at: https://www.sebi.gov.in/legal/regulations/aug-2023/securities-and-exchange-board-of-india-debenture-trustees-regulations-1993-last-amended-on-august-18-2023-_76330.html

Image Credits:

Photo by Kubra Cavus: https://www.canva.com/photos/MAEEZhVPcRI-home-finance/

The order passed by the AO brings to the fore the importance of complying with disclosure norms for listed entities. Of late, SEBI has focused on tightening disclosure norms for companies. This is evident from the recent amendments to the LODR Regulations which mandate strict timelines and criteria for determining materiality of events. Non-compliance with SEBI regulations can and will invite strict action from SEBI, as seen from this adjudication order.

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A Guide to Conquer the Cross-Border Compliance Challenges

Cross-border compliance is a critical aspect of business operations in an increasingly globalized economy. As companies expand their activities across international borders, they face the many challenges of legal and regulatory requirements that a company must comply with during cross-border transactions. This article provides an overview of cross-border compliance, highlighting its importance, challenges and strategies for effective implementation and states the consequences of failure in implementation, along with many examples of leading companies that have succeeded or failed to meet the cross-border compliance requirements.

Introduction

Cross-border compliance refers to the compliance and management of regulatory requirements and compliance obligations by organizations operating in different jurisdictions. It includes ensuring that companies comply with the laws, regulations and standards of each jurisdiction in which they do business. Operating in multiple jurisdictions further introduces complexities due to differences in legal and regulatory frameworks, cultural norms and business practices. Cross-border compliance aims to address these challenges and ensure that organizations operate within the boundaries of applicable laws and regulations while maintaining ethical and responsible business practices.

The key aspects of cross-border compliance include regulatory compliance, risk management, internal controls, due diligence, monitoring and reporting, cultural and ethical considerations, and cross-border data transfers. Cross-border compliance is an ongoing endeavour that requires a comprehensive understanding of each jurisdiction’s legal and regulatory requirements. It involves implementing robust compliance programs, conducting regular assessments and adapting to the evolving regulatory environment to ensure organizations operate responsibly and ethically in the global marketplace.

Cross-Border Compliance Issues

Cross-border compliance challenges are the difficulties and complexities that arise when companies operate in different jurisdictions and must comply with different regulatory frameworks, laws and cultural norms. These challenges can present significant hurdles for organizations, requiring them to navigate various legal, regulatory and operational aspects to ensure compliance across jurisdictions. Here are some common cross-border compliance issues: –

  1. Regulatory Variation

Each country or region has its own unique set of laws and regulations governing areas such as data protection, anti-corruption, labour practices, environmental standards and product safety. Companies operating in different jurisdictions must understand and comply with these variations, which can be complex and time-consuming. In addition, regulatory areas are constantly evolving, and new laws and regulations are introduced or amended. Such companies need to keep abreast of regulatory changes and adapt their compliance programs to ensure ongoing compliance. Every company involved in cross-border transactions usually faces this challenge.

  1. Language and Cultural Differences

Doing business across borders often involves language barriers and cultural differences. Accurately translating legal and compliance documentation, understanding local customs, and adapting compliance programs to local cultural norms can be challenging, but critical to effective compliance. Companies like Walmart, McDonald’s etc. face many language and cultural challenges because they operate in different countries with different languages ​​and different cultures.

  1. Privacy and Security

Data protection and privacy regulations vary from jurisdiction to jurisdiction. Companies must comply with various requirements related to collection, storage, transmission and privacy rights. Ensuring compliance with these regulations while maintaining effective data management practices can be particularly challenging in a global business environment. An example of a company with this problem is Facebook, which has faced several compliance issues related to privacy and user consent and has been under scrutiny for how it handles user data. These non-compliances have led to regulatory investigations, fines and increased public scrutiny of Facebook’s privacy practices.

  1. Supply Chain Complexity

Cross-border operations often involve complex global supply chain arrangements. Ensuring compliance throughout the supply chain, including vetting suppliers, managing third-party risks and monitoring compliance at each stage, can be challenging, especially when dealing with different legal and regulatory frameworks. The company Nike is an example that has faced criticism and legal challenges in the past related to labour practices and working conditions in its supply chain.

Overcoming Challenges & Risk Management in Cross-Border Compliance

Overcoming cross-border compliance challenges requires a proactive and strategic approach. Some of the steps that organizations can take to effectively address and mitigate these challenges are as follows: –

  1. Companies may carry out comprehensive compliance risk assessments to identify potential cross-border compliance issues specific to the organization and the jurisdictions in which they operate. This assessment should take into account regulatory variances, cultural factors and enforcement practices to identify areas of potential non-compliance and develop a comprehensive compliance program.
  2. Robust internal controls such as monitoring, auditing and reporting mechanisms can be implemented to detect and prevent violations. These controls should be designed to address specific cross-border compliance issues and adapt to the evolving regulatory environment. It should also establish a clear incident response plan to address violations or incidents that may occur in different jurisdictions and develop protocols for prompt and effective reporting, investigation and remediation of compliance issues by implementing corrective actions and monitoring their effectiveness to prevent future occurrences.
  3. Regularly monitoring regulatory changes and being informed of developments and changes in legislation in the jurisdictions where the organization operates is essential to deal with cross-border compliance challenges. The same may be done by establishing a process to track regulatory updates and evaluate their impact on the company’s compliance program. This ensures that the organization can proactively adapt its compliance efforts to stay in line with the evolving legal landscape. Companies must engage local legal counsel and compliance professionals familiar with the laws and regulations of each jurisdiction. Their expertise can help interpret and navigate complex regulatory environments, ensure compliance, and minimize risk.
  4. Technology solutions and data analytics tools could be used to streamline compliance processes, monitor compliance activities and identify potential compliance risks. It should also promote open communication and cooperation with local regulatory authorities and industry associations to ensure a cooperative approach to cross-border compliance.
  5. When working with third parties, it is an important requirement to conduct thorough due diligence to assess their compliance practices and risk profile.

By taking these steps, organizations can improve their ability to overcome cross-border compliance challenges, effectively manage risk, mitigate breaches, and ensure compliance with applicable laws and regulations in the jurisdictions where they operate. To effectively navigate the complexities of the global business environment, maintaining a commitment to compliance, ongoing monitoring and continuous improvement is essential.

Further, companies such as Apple Inc, Siemens AG, Unilever, Coco-Cola and many others have implemented robust compliance programs and invested in local expertise to ensure regulatory compliance across borders by addressing many cross-border issues such as data protection, antitrust, intellectual property rights, work practices, business transactions, audit processes and so on.

Consequences of Non-Compliance

Cross-border compliance is essential for companies operating globally, and non-compliance can result in various consequences such as legal and regulatory penalties, reputational damage from negative publicity, loss of business opportunities, legal disputes and lawsuits initiated by regulators, leading to additional costs, time and resources spent on litigation, disruption of operations, loss of licenses and certifications preventing the Company from doing business in certain markets or sectors, increased compliance costs due to remediation efforts, audits, internal controls and compliance programs to address issues with non-compliance and prevention of future violations and criminal and civil liability depending on the nature and severity of the non-compliance.

Key Takeaways

In conclusion, cross-border compliance presents unique challenges for companies operating in different jurisdictions. For navigating the complex web of laws, regulations and cultural differences, a proactive and systematic approach is required to ensure that compliance obligations are met, and a successful cross-border compliance strategy involves many factors and, more importantly, for long-term business opportunities, it is necessary to have a continuous assessment and improved cross-border compliance to gain market share and expand into new geographies. In addition, by effectively managing risk and proactively addressing compliance issues, companies can mitigate legal and reputational risks by maintaining stakeholder trust and operating with integrity across borders. However, it requires vigilance, adaptability and a commitment to ethical behaviour, which is essential for companies to stay abreast of changing regulatory environments to meet evolving requirements. Therefore, successful cross-border compliance is essential for companies to operate responsibly, sustainably and with integrity in the global business environment.

References:

Digital Cross-Border Compliance: The Definitive Guide

https://www.avalara.com/blog/en/apac/2022/04/five-cross-border-compliance-challenges-for-manufacturers.html

https://cellpointdigital.com/articles/blog/cross-border-payments-the-issues-and-challenges

https://www.capgemini.com/wp-content/uploads/2017/07/Regulatory_Reforms_around_Global_Cross-Border_Regulations.pdf

https://www.epiqglobal.com/en-us/resource-center/articles/cross-border-data-protection-laws

https://www.timesnownews.com/business-economy/companies/2021-facebook-data-breach-meta-fined-277-million-by-irish-regulator-article-95844568

https://www.forbes.com/sites/brianbushard/2023/01/04/meta-fined-over-400-million-by-eu-for-alleged-personal-data-collection-violation/amp/

https://markets.businessinsider.com/news/stocks/nike-stock-price-earnings-inventories-supply-chain-retail-forecast-sales-2022-9

https://www.ecotextile.com/2023030330436/social-compliance-csr-news/unions-and-ngos-lodge-complaint-against-nike.html

https://www.bbc.com/news/world-us-canada-66171702

https://www.forbes.com/sites/forbesbusinesscouncil/2023/03/08/how-to-develop-cultural-intelligence-to-avoid-pitfalls-overseas/?sh=314e0c382c5d

https://www.google.com/amp/s/www.cbc.ca/amp/1.4277179

Image Credits:

Photo by Melpomenem: Compliance theme with aerial view of city skylines – Photos by Canva

Cross-border compliance is essential for companies operating globally, and non-compliance can result in various consequences such as legal and regulatory penalties, reputational damage from negative publicity, loss of business opportunities, legal disputes and lawsuits initiated by regulators, leading to additional costs, time and resources spent on litigation, disruption of operations, loss of licenses and certifications preventing the Company from doing business in certain markets or sectors, increased compliance costs due to remediation efforts, audits, internal controls and compliance programs to address issues with non-compliance and prevention of future violations and criminal and civil liability depending on the nature and severity of the non-compliance.

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Green Deposits: Existing Framework and the Path Ahead

The use of green deposits in infrastructure banking and finance is a growing challenge, with a lack of awareness among individuals and institutions about its availability and benefits. Additionally, there is a need for more product offerings to be made available to investors and for the Indian government to commit to sustainable development. Green deposits can provide an avenue for investors to invest in these projects and help to promote sustainable development in India.

Introduction

Infrastructure is the backbone of any economy. In India, the need for infrastructure development is necessary due to the country’s large population and fast-paced urbanization. However, infrastructure development projects require large amounts of capital, which is always challenging. This is where infrastructure banking and finance come into play. Infrastructure banking and finance refer to the financial services provided to fund large infrastructure projects. In this context, green deposits serve a crucial purpose as a new source of capital for sustainable infrastructure projects. 

SEBI Circular

The Business Responsibility and Sustainability Reporting (BRSR) framework released by the Securities Exchange Board of India (SEBI) through a circular dated May 10, 2021, is expected to promote responsible business practices and encourage companies to invest in sustainable initiatives. The framework seeks to boost the demand for green bonds in India, which can provide a new source of capital for infrastructure projects and promote sustainable infrastructure development. However, it only applies to certain companies, such as listed companies and certain unlisted companies that meet specific criteria. The BRSR framework was voluntary in nature, and companies were not required to comply with it till FY 2021-22. However, it is made mandatory from FY 2022-2023 and hence, would have a positive impact on the environment, society, and the economy in the long run. By promoting transparency and accountability, the framework would improve their overall performance.  Financing energy-efficient projects through green deposits under public-private partnerships (PPPs) is an effective way to promote sustainable development and reduce the negative impact of energy consumption on the environment.

Green deposits can be utilized to finance the construction of energy-efficient buildings, including the installation of energy-efficient lighting, heating, and cooling systems, and the use of sustainable building materials thereby contributing to sustainable development as also envisaged by the Indian Government through a few of its projects. For example, the Centre’s Smart Cities Mission aims to develop 100 smart cities across the country, with a focus on sustainable development and the use of green technologies. Under this mission, several cities have launched projects to develop energy-efficient buildings, including green buildings, with support from the government and private sector partners.

The Hyderabad Metro Rail Limited (HMRL) is a classic example where HMRL collaborated with a private sector developer (Larsen & Toubro) to construct energy-efficient buildings at the metro stations in Hyderabad. The project involved the installation of energy-efficient lighting systems, rainwater harvesting systems, and solar panels to generate electricity[1]. Green deposits were utilized to finance the project, with the government providing guarantees and incentives to attract private-sector investment.

RBI’s Framework on Green Deposits

In recent years, the Reserve Bank of India (RBI) has taken several steps to promote sustainable finance and energy. One such initiative is the introduction of the RBI’s framework on green deposits, which was issued in April 2023. This framework provides guidelines for banks to offer green deposits to investors, with the aim of promoting investment in environmentally sustainable projects.

The RBI framework provides a clear definition of what constitutes a green deposit. According to the framework, green deposits must be used to finance projects that positively impact the environment, such as renewable energy projects, energy efficiency projects, and projects related to sustainable water management[2]. This clarity helps investors in making informed decisions and ensures that funds raised through green deposits are used for environmentally sustainable purposes.

Further, it encourages banks to adopt best practices in environmental risk management. This includes conducting environmental due diligence on potential projects, monitoring and reporting on environmental risks associated with green deposits and integrating environmental risk considerations into the bank’s credit risk assessment process.

One of the limitations of the RBI’s framework on green deposits is that it does not provide any incentives for banks to offer green deposits. While the framework encourages banks to offer green deposits, there are no financial or regulatory incentives for doing so.

Suggestions

In order to make green deposits successful, some tax incentives can be offered to encourage individuals and businesses to invest in green deposits. Some examples of tax incentives that can be given for green deposits include tax deductions, tax deferrals, reduced capital gains tax rate and income tax rate, etc.

The RBI’s green deposit framework includes concessional treatment of liquidity coverage ratio (LCR) and priority sector lending (PSL) requirements for banks that mobilize green deposits, which could help reduce interest rates and capital gains. This can encourage investors to hold on to their investments for a longer period, which can be beneficial for green projects.

Carbon credits are a type of tradeable permit that allows the emission of a certain amount of greenhouse gases. They can be given to green deposits to incentivize investments in projects that reduce carbon emissions or sequester carbon from the atmosphere. Once the project has been certified, the credits can be issued based on the amount of carbon emissions sequestered. The investors may be granted a carbon credit per ton reduced if they invest in the project. Such credits could be sold or traded on the carbon market, providing an additional source of revenue to investors.

The National Clean Energy Fund (NCEF) and other schemes of the government could also be financed with the help of green deposits under public-private partnerships (PPP) in several ways, namely: –

  • Equity Investment

Green deposits can be used to provide equity investment in PPPs that are aimed at promoting clean energy and sustainable development. This type of investment can provide long-term financing for PPP projects and can help to attract additional private sector investment.

  • Debt Financing

Debt financing can be extended to PPP projects through green deposits. This can be done through loans or other financial instruments that offer lower interest rates and longer tenors than traditional commercial loans. This type of financing can help to reduce the cost of capital for PPP projects and make them more attractive to private sector investors.

  • Risk Mitigation

Green deposits may be utilised to provide risk mitigation instruments to PPP projects. For example, they can be used to provide guarantees or insurance products that protect investors from potential losses due to project delays, cost overruns, and other risks. These instruments can help to reduce the perceived risk of PPP projects and attract more private sector investment.

  • Green Bonds

Green bonds that are backed by PPP projects can be issued through green deposits, to be marketed to socially responsible investors. Such bonds can act as a long-term source of financing for such projects and the proceeds from these bonds could be used to finance clean energy infrastructure and other sustainable development initiatives.

  • Technical Assistance

Conferring technical assistance to PPP projects is possible with the help of green deposits and this includes support for project development, feasibility studies, and other activities that help to build the capacity of projects and attract private sector investment.

Therefore, these mechanisms can help to accelerate the development of clean energy infrastructure and support the transition towards a low-carbon economy, while also attracting private sector investment to support sustainable development initiatives in turn providing financial support and incentives for renewable energy and sustainable development projects. Companies could also choose to invest in such projects using their CSR funds, potentially indirectly incentivizing green deposits.

Conclusion

The RBI’s framework on green deposits is a positive step towards promoting sustainable finance and encouraging banks to adopt environmentally sustainable practices. The framework provides clear guidelines for banks to offer green deposits and encourages them to adopt best practices in environmental risk management. However, the lack of incentives for banks to offer green deposits may limit the framework’s effectiveness and the RBI may need to consider providing financial and regulatory incentives for the same.

References:

[1] Anil Nair, Green Bonds for Sustainable Urban Transport in India

Available at https://www.janaagraha.org/files/Green_Bonds_Sustainable_Urban_Transport_India_1217C1.pdf

[2] Ravi Meena, Green Banking: As Initiative for Sustainable Development

Available at – http://www.ripublication.com/gjmbs.htm

Image Credits:

Photo by DAPA Images: https://www.canva.com/photos/MADFHHnnRyY-money-and-investment-growth/

Green deposits can be utilized to finance the construction of energy-efficient buildings, including the installation of energy-efficient lighting, heating, and cooling systems, and the use of sustainable building materials thereby contributing to sustainable development as also envisaged by the Indian Government through a few of its projects. For example, the Centre’s Smart Cities Mission aims to develop 100 smart cities across the country, with a focus on sustainable development and the use of green technologies. Under this mission, several cities have launched projects to develop energy-efficient buildings, including green buildings, with support from the government and private sector partners.

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Decoding IT Amendment Rules: The Hits and Misses

  • April 18, 2023
  • Padma Sinha
  • Sanjana Sreenath

On April 6, 2023, the Ministry of Electronics & Information Technology (MeitY) notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 to amend the 2021 Rules. In this article, the important changes introduced to the Rules are highlighted.

Introduction

Through the amendment, the Ministry intends to make a few changes to the intermediary eco-system by introducing new due-diligence requirements for intermediaries. It can be broadly summarised under two heads – partial censorship of digital media, and regulation of online gaming intermediaries. 

Partial censorship of digital media

The new amendment requires social media intermediaries, significant social media intermediaries and online gaming intermediaries to follow additional due diligence. It aims to regulate digital media by disallowing the publication of such information related to the business of the Central Government which is identified or declared as fake, false, or misleading by a fact-checking unit set up by the Central Government. This addition to the rules would make it mandatory for the intermediaries to take down (when given a notice by the user) any piece of information that is declared fake or misleading by the fact-checking authority. It is unclear from the amendment if the information checked by the already established fact-checking authority would warrant take-down, but with the available information, it would be reasonable to assume that any information fact-checked and deemed fake by the PIB fact-check mechanism would warrant takedown.

This part of the amendment has been challenged by a political satirist, Mr. Kunal Kamra. He filed a writ petition with the Bombay High Court with the averment that the amendment with respect to establishing a separate unit by the Central government to fact-check digital media is violative of Articles 14, 19(1)(a), and 19(1)(g) of the Indian Constitution and that it is ultra vires Section 79 of the Information Technology Act, 2000. The Bombay High Court has now directed MeitY to file its response within one week on why the IT Amendment Rules, 2023 should not be stayed, and also describe the factual background that necessitated the issuance of the amendments. The affidavit has been ordered to be filed by April 19, 2023, and the matter has been listed on April 21, 2023.

Regulation of online gaming intermediaries

Earlier, a draft of the amendment (pertaining to online gaming) to the 2021 Rules was released in January 2023; though the draft lacked clarity on the kind of online games it intended to regulate (click here to read more). Further, it did not delve into differentiating between games that are in the form of wagering/betting and those which are not. The current amendment attempts to overcome these shortcomings by providing for an ‘online gaming intermediary’ and stipulating the due-diligence requirements for such intermediaries.  

The amendment defines an online gaming intermediary as one that enables users to access one or more online games. It further defines an ‘online real money game’ that is played with real money, where the users are asked to deposit money. The amendment allows the online gaming intermediary to host only those games which are permissible online games and are certified by the online gaming self-regulatory body.

Disallowing online wagering and betting games.

As per the new amendment, social media intermediaries or online gaming intermediaries are not allowed to host an online game which is not verified as a ‘permissible online game’, or any information or content which is in the nature of an advertisement or a surrogate advertisement of such non-permissible online games. It also prohibits the hosting of such games that causes harm to the user.

Permissible online real money game

The amendment further clarifies that for a game to be certified as a permissible online real money game, any member of the online gaming self-regulatory body that enables online real money game can make an application to the online gaming self-regulatory body. The said private body is set up for the sole purpose of acting as an online-gaming self-regulatory body and is notified by the Central Government. It has the power to decide whether an online game is permissible or not. The regulatory body will inquire and ensure that the game does not involve any wagering and that the gaming intermediaries or the online game undertakes all the due diligence laid down in the Rules. Additionally, it shall also ensure that the permitted games are not against the interest of the country. It also has safeguards that protect users against harm, risk of addiction, financial loss, fraud, etc by providing repeated warnings or such. The body is required to adhere to the principles of natural justice. While the self-regulatory body has the power to certify an online game as a permissible one, the Central Government still reserves the right to suspend the certification if it believes that the said game is not in conformity with the Rules.

This is a private body set up for the sole purpose of acting as an online-gaming self-regulatory body and is notified by the Central Government. In brief, they have the power to decide whether an online game is permissible or not.

Due-diligence requirements

Previously, Rules 3 and 4 of the Rules stipulated the due-diligence requirements for social media intermediaries and significant social media intermediaries. With this amendment, such due-diligence requirements in Rules 3 and 4 are extended to online gaming intermediaries too.

Through these amendments, in addition to the existing due diligence requirements under Rules 3 and 4, the online gaming intermediaries that enable permissible real money games have certain additional due-diligence requirements like requiring to display a visible mark of verification, and inform the users about the policy related to the deposit and withdrawal of money, the KYC norms that they follow, the measures taken to protect the deposits made amongst others.  

Online games which are not real-money games do not have to follow the additional due-diligence requirements by default, the Central Government by notification may direct an intermediary to undertake certain due-diligence requirements.

Conclusion

The IT amendment rules are an improvement on the previously proposed amendment to the 2021 Rules. The definitional ambiguity is removed and a step is taken toward regulating online games that are based on wagering. It also makes the self-regulation of online gaming intermediaries more transparent by stipulating for disclosure of decision-making reasons, etc.

Image Credits:

Photo by anyaberkut: https://www.canva.com/photos/MADCr_H7g_U-it-concept-information-technology-diagram/ 

The new amendment requires social media intermediaries, significant social media intermediaries and online gaming intermediaries to follow additional due diligence. It aims to regulate digital media by disallowing the publication of such information related to the business of the Central Government which is identified or declared as fake, false, or misleading by a fact-checking unit set up by the Central Government. This addition to the rules would make it mandatory for the intermediaries to take down (when given a notice by the user) any piece of information that is declared fake or misleading by the fact-checking authority. It is unclear from the amendment if the information checked by the already established fact-checking authority would warrant take-down, but with the available information, it would be reasonable to assume that any information fact-checked and deemed fake by the PIB fact-check mechanism would warrant takedown.

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Pending Cheque Dishonour Cases – The Way Forward

  • April 3, 2023
  • Apurupa Gundu
  • P Meghna

While cheques are preferred for their versatility of use, they often lead to defaults in payment or dishonour of cheques. The dishonour of cheques due to insufficiency of funds is dealt with under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “the Act”) which was introduced through the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.

Introduction

Over the last few years, a notable rise in the number of financial transactions can be observed. This has certainly increased the occurrence of defaults in payments and given way to disputes. Though cash is still the preferred mode of payment in the country, there has been an upsurge in the use of digital payments in the last few years[1].  Traditionally, cheques have been used as an alternative to cash and have been a favoured mode of payment for people wanting to make cashless payments. According to a report published by the RBI in the year 2013, cheque-based payments constitute as high as half the total non-cash payments turnover[2]. 

Issue of Pending Cheque Dishonour Cases and Judiciary’s Response

Section 138 of the Act penalizes the drawer of the cheque when the same is dishonoured due to insufficient funds or if the amount exceeds the amount arranged (with the bank) to be paid from that account. Though the Act specifically provides for the summary trial of cheque dishonour cases, the process followed by the Magistrates has proven to be lengthy and tedious. As per a report filed by the amici curiae, Adv. Sidharth Luthra and Adv. K Parameshwar before the Hon’ble Supreme Court, cheque dishonour cases account for more than 8% of the total pending criminal cases with a total of 35.16 lakh pending cheque dishonour cases. The high number of pending cases can be attributed to the conversion of summary trials to summons trials by Magistrates in the exercise of discretionary power conferred under the Act[3]. This has not only frustrated the object of the Act but has also resulted in high expenditures.

The Metropolitan Courts and Judicial Magistrates have been burdened with cases under Section 138. In this regard, the Hon’ble Supreme Court has laid down certain guidelines in Indian Banks Association v. Union of India[4]. According to these guidelines, the Magistrates were required to scrutinize the complaint, affidavit and other documents on the day of the presentation of the complaint for cognizance of the complaint. For the purpose of examination-in-chief, the Magistrates were directed to complete them within 3 months. To do so, the Court was given the discretion to conduct an examination through affidavit.

In the case of Damodar S. Prabhu v. Sayed Babalal H[5], the Hon’ble Supreme Court laid down guidelines regarding the compounding of the offence under Section 138 of the Negotiable Instruments Act, 1881. For instance, it was decided that the Hon’ble Court may allow compounding of the offence of the Accused without imposing any costs if the application for compounding of the offence was made at the first or second hearing by the accused.

In the case of Meters and Instruments Private Limited v. Kanchan Mehta[6], the Hon’ble Supreme Court held that the Magistrate can at any stage stop the proceedings against the accused if the accused has adequately compensated the complainant and on this ground, the accused should be discharged as well.

Even though numerous directions have been given by the Hon’ble Courts to tackle the high volume of cheque dishonour cases, the issue was not altogether resolved, and it became a cause for urgent attention when a cheque dishonour case amounting to ₹1,70,000/- was found to have been pending for more than 16 years. Hence, the Hon’ble Supreme Court was propelled to take suo moto cognizance of the matter in the case of In Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT 1881[7]. In this case, certain guidelines were laid down to ensure a speedy trial of cheque dishonour cases. After these guidelines were set down, the Hon’ble High Court for the State of Telangana came up with its own guidelines, some of which are listed below: –

  • All the Courts are required to follow the guidelines set forth by the Hon’ble Apex Court in the case of Indian Banks Association v. UOI[8]. Further, every case under Section 138 of the Act has to be registered as a summary trial case [Summary Trial Cases – Negotiable Instruments (STC – NI)]. The personal presence of the complainant need not be insisted on for registration; the same can be done through a power of attorney unless the attorney does not have personal knowledge of the transaction.
  • Assistance of police to be taken for the purpose of serving summons and warrants to the accused.
  • The capacity of the accused to engage a counsel to represent him in the Court proceedings has to be ascertained. If the accused is not in a position to afford legal representation, the Court has to appoint a legal aid counsel to represent the accused.
  • If the Court is satisfied that there is a scope for settlement, it may direct the parties to mediation or Lok Adalat. If a settlement is arrived at, then an execution application has to be filed. However, if the case is not settled, then the matter needs to be posted for framing charges or examination under Section 251 of CrPC.
  • Till the stage of filing of the defence statement, the Court has to treat it as a summary trial and the scope of converting it to a regular summons case can be considered only after examining all aspects of the case as prescribed in the guidelines.
  • Every cheque dishonour case has to be concluded within a period of 6 months and a judgment should be pronounced within 3 days from the day of the conclusion of final arguments.

Impact and Analysis

The guidelines issued by the Hon’ble Courts have proven to be effective in filling up the lacunae in the existing procedural law, accelerating the justice delivery process, and tackling the rising cheque dishonour cases. It was noticed that in the exercise of their discretionary powers, Magistrates proceeded with the conversion of cases under Section 138 of the Act to regular summons cases without even recording reasons for the same. By mandating that the case has to be treated as a summary trial in the initial stages, the guidelines ensure that the process involves fewer expenses and is time-saving and streamlined.

The said guidelines also provide for means of settlement, which encourage the use of Alternative Dispute Resolution (ADR) mechanisms. The compounding of offence in the trial’s initial stages has been incentivized as charges are imposed if the application for compounding is filed at later stages of the trial. In instances, where the accused lives outside the Court’s territorial jurisdiction, an inquiry needs to be held after which the Magistrate would decide whether to proceed with the case or not which saves the Court’s time to a considerable extent.

Coming to the concerns not addressed yet, the guidelines issued by the Hon’ble Apex Court specify that summons are to be sent through email and other electronic means and the same can be monitored through a Nodal Agency. However, there is ambiguity regarding the agency’s creation, functions, powers and regulation. Also, the guidelines laid down by the Hon’ble High Court for the State of Telangana do not make a reference to such an agency. The Courts also have not contemplated the technicalities involved such as the time that would be spent on inquiry, the possibility of a case not getting resolved through ADR mechanisms, etc.

Conclusion

Time and again, the Hon’ble Courts have taken up the initiative and issued guidelines to deal with the pending cheque dishonour cases and to ensure a speedy trial of such cases. However, it cannot be denied that the judiciary is overburdened with cases and there is a need to establish additional Courts and improve the already established infrastructure to deal with matters under the Negotiable Instruments Act, particularly pertaining to the dishonour of cheques. It is rightly said that “justice delayed is justice denied” and an overburdened Court will not be able to serve justice within a reasonable time. Such delays inevitably lead to the public losing trust in the justice mechanism and the judiciary. Therefore, setting up a sufficient number of Courts with well-trained judicial officers and staff is the need of the hour for the timely disposal of such cases.

References:

[1] Reserve Bank of India, Concept Note on Central Bank Digital Currency (Oct. 07, 2022) https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1218

[2] Reserve Bank of India, Discussion Paper on Disincentivizing Issuance and Usage of Cheque (Jan. 31, 2013) https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=698

[3] In Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT, 1881

[4] (2014) 5 SCC 590

[5] (2010) 5 SCC 663

[6] AIR 2017 SC 4594

[7] SUO MOTU WRIT PETITION (CRL.) NO.2 OF 2020

[8] Supra 4

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Photo by cottonbro studio: https://www.pexels.com/photo/a-person-s-hand-holding-a-cheque-6862457/

Time and again, the Hon’ble Courts have taken up the initiative and issued guidelines to deal with the pending cheque dishonour cases and to ensure a speedy trial of such cases. However, it cannot be denied that the judiciary is overburdened with cases and there is a need to establish additional Courts and improve the already established infrastructure to deal with matters under the Negotiable Instruments Act, particularly pertaining to the dishonour of cheques. It is rightly said that “justice delayed is justice denied” and an overburdened Court will not be able to serve justice within a reasonable time. Such delays inevitably lead to the public losing trust in the justice mechanism and the judiciary. Therefore, setting up a sufficient number of Courts with well-trained judicial officers and staff is the need of the hour for the timely disposal of such cases.

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BCI Allows Foreign Lawyers and Foreign Law Firms to Practice Law in India

  • March 15, 2023

The Bar Council of India (BCI) has released rules allowing the entry of foreign lawyers and law firms in India. Along with prescribing the eligibility criteria for practicing law in the country, the rules list out the matters which may be handled by foreign lawyers and foreign law firms.

  1. Introduction
  • The BCI has been empowered to list out a Foreign Lawyer’s[2] permitted area of practice, and if required, do so after consulting with the Ministry of Law and Justice of the Government of India. The Rules currently provide that Foreign Lawyers can practice in non-litigious matters (this includes practice on transactional work, corporate work such as joint ventures, mergers and acquisitions, intellectual property rights, drafting of contracts and other related matters, each on a reciprocal basis)[3] and diverse international legal issues. However, Foreign Lawyers will not be allowed to (a) appear before courts, tribunals or other statutory or regulatory authorities; or (b) be involved in any work pertaining to the conveyancing of property, title investigation or similar work.
  • The key principles under the Rules are that (a) Foreign Lawyers that propose to practice law in India are required to obtain prior registration from the BCI under these Rules; and (b) the primary qualification for Foreign Lawyers to apply for registration in India is that they have the ‘right to practice law’ in their foreign country of primary qualification. However, the Rules have one exception where Foreign Lawyers do not need to register with the BCI. This is if Foreign Lawyers practice law on a ‘fly in and fly out basis’ and: (a) provide legal advice to Indian clients on foreign law and on diverse international legal issues, (b) the Indian client procured such advice from a foreign country, (c) the Foreign Lawyer does not maintain an office in India for the purpose of such practice, and (d) such practice in India does not exceed 60 days in any period of 12 months (whether in one visit or multiple visits to India).
  1. Permitted Law Practice by Foreign Lawyers and Foreign Law Firms

The Rules provide the following inclusive list of what constitutes the practice of law in India for a Foreign Lawyer:

  • Foreign Law: doing work, transaction business, giving advice and opinions concerning the laws of the country of their primary qualification (i.e., foreign laws) and on diverse international legal issues – however, such advice cannot include representation or preparation of documents (including petitions, etc.) relating to procedures before an Indian court, tribunal or any other authority which is competent to record evidence on oath;
  • International arbitration conducted in India which may involve foreign law: as regards any international arbitration case conducted in India in which foreign law may or may not be involved, a Foreign Lawyer can provide legal expertise/ advice and appear as a lawyer for a person/ firm/ company/ corporation/ trust/ society, etc. which has an address, head office or principal office in a foreign country (“Foreign Client”);
  • Appearing before bodies that cannot take evidence for foreign law: provide legal expertise/ advice and appear as a lawyer for a Foreign Client in proceedings before bodies in India (which are not courts, tribunals, boards or statutory authorities) which are not legally entitled to take evidence on oath, and which require knowledge of foreign law of the country of the primary qualification of the Foreign Lawyer;
  • Limits on Indian lawyers at Foreign law firms in India: an Advocate registered with an Indian State Bar Council who is a partner or associate at a foreign law firm registered with the BCI under these Rules, will only be permitted to practice non-litigious matters and can only advise on issues relating to countries other than India.
  1. Registration Application and Registration Fee
  • Registration under the Rules is granted for 5 years, and any application for renewal should be submitted to the BCI 6 months before the expiry of the existing license. A Foreign Lawyer’s application (in the prescribed form) is required to be supported by various confirmations, including an NoC from its regulator in the foreign country, an NoC from the Indian Government and confirmations of their practice of law outside India and of no professional misconduct abroad.
  • Successful applicants are required to pay a registration fee equivalent to the enrollment fee in their home foreign country, but the minimum fee should at least be USD 25,000 with a security deposit of USD 15,000 for an individual foreign lawyer (with the renewal fee being USD 10,000), USD 50,000 with a security deposit/ guarantee amount of USD 40,000 for a foreign law firm (whether as a firm, private limited partnership, limited liability partnership, company or otherwise), with the renewal fee being USD 20,000.
  • A key determining factor for such applications is the principle of reciprocity. The BCI has the discretion to refuse registration of a foreign lawyer/law firm if it believes that the number of foreign lawyers/ law firms from a particular foreign country will become disproportionate to the number of Indian lawyers or Indian law firms allowed to practice in a such foreign country, to protect the interest of Indian law firms / Indian lawyers.

[1] Rule 2(vi) defines ‘foreign law’ as a law, which is or was effective, in the country of primary qualification. The latter term is defined under Rule 2(v) as a foreign country in which the foreign lawyer is entitled to practice law as per the law of that country.

[2] Rule 2(iii) defines a ‘foreign lawyer’ as a person, including a law firm, limited liability partnership, company or corporation, by whatever name called or described, who/which is entitled to practice law in a foreign country.

[3] Rule 8(2) of the Rules.

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The Rules currently provide that Foreign Lawyers can practice in non-litigious matters (this includes practice on transactional work, corporate work such as joint ventures, mergers and acquisitions, intellectual property rights, drafting of contracts and other related matters, each on a reciprocal basis) and diverse international legal issues. However, Foreign Lawyers will not be allowed to (a) appear before courts, tribunals or other statutory or regulatory authorities; or (b) be involved in any work pertaining to the conveyancing of property, title investigation or similar work.

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Examining the Constitutionality of the Scheme of Appointing Heirs of Retired Employees

Compassionate appointments are subject to various conditions and are granted as exceptions. Further, the applications for the same have to be filed as per the applicable rules. Time and again, courts have ruled that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. In a recent judgment, the Supreme Court has held that appointment of heirs of retiring and/or superannuating employees is violative of Articles 14 and 15 of the Constitution.

 The Central Government and the State Governments have schemes in place providing for compassionate appointments. When a government servant dies while in service (i.e., before retirement) or retires on medical grounds, his or her dependant family member can make an application to the concerned authority to gain employment on compassionate grounds. However, the application has to be filed within the stipulated time and the prescribed eligibility criteria have to be fulfilled before the appointment can be granted. For instance, the government servant’s family should require immediate financial support for reasons such as medical treatment, re-payment of a home loan to avoid dispossession, etc. It is pertinent to note that different states have their own rules and regulations, hence, the criteria, procedure, and other aspects vary from state to state.

Courts across the country including the apex court have made some relevant observations about compassionate appointments in the past while analyzing various facets and allowances under the scheme. The Supreme Court in The State of Maharashtra Vs. Madhuri Maruti Vidhate reiterated that “compassionate appointment is an exception to the general rule of appointment in the public services” and held that a married daughter cannot be held to have been dependent on her deceased mother after assessing the financial situation of her family.

The Allahabad High Court in Smt. Santoshi Vs. State of UP & Ors., held that a widow appointed on compassionate grounds cannot be removed from service on account of her remarriage which is a personal choice and a fundamental right under Article 21 of the Constitution.

The Rajasthan High Court in Smt. Shobha Devi Vs. Jodhpur Vidhyut Vitran Nigam Ltd. & Anr. held that a daughter of a deceased government servant is eligible for compassionate appointment irrespective of whether she is married, single, divorced, or widowed, and discrimination on said grounds is violative of Articles 14, 15, and 16 of the Constitution. The court remarked that “the perception of the daughter, after marriage no longer being a part of her father’s household and becoming an exclusive part of her husband’s household, is an outdated view and mindset”.

And recently, the Supreme Court in Ahmednagar Mahanagar Palika Vs. Ahmednagar Mahanagar Palika Kamgar Union [CA No.5944 of 2022 (2022 SCC OnLine SC 1154)] held that the appointment of heirs of retiring and/or superannuating employees is violative of Articles 14 and 15 of the Constitution. Accordingly, the court set aside the judgment of the Bombay High Court and the award passed by the Industrial Court directing the Ahmednagar Mahanagar Palika to make such appointments.

The division bench of Justice MR Shah and Justice BV Nagarathna observed that such appointments have to be provided after due assessment of various factors including the financial standing of the deceased employee’s family, etc. Also, it was stated that appointments made on compassionate grounds are not “automatic” and are provided only in exceptional circumstances.

The case traces back to the year 1979 when the Union formed by the employees of Ahmednagar Municipal Council raised an industrial dispute regarding the grant of employment to the employees’ legal heirs. Several demands were raised by said Union, one of which pertained to giving appointments to heirs of employees on their retirement. Consequently, it was agreed by the Municipal Council and later, decided by the Industrial Court through an order dated 30th March 1981 that if the employees in the Class-IV category die before retirement, become invalid or retire, then their heirs have to be provided with a compassionate appointment.

Then, the Ahmednagar Municipal Council was reconstituted as the Ahmednagar Mahanagar Palika in 2003, thereby bringing its employees within the ambit of the schemes of the State Government. After the reconstitution, two more complaints were filed by the Union in 2005, seeking employment for heirs of retired employees. Accepting the Union’s contentions, the Industrial Court passed awards dated 16th September 2016 and 21st September 2016 directing the Ahmednagar Mahanagar Palika to comply with its judgment dated 30th March 1981.

Aggrieved by the decision of the Industrial Court, the Municipal Corporation (Mahanagar Palika) filed writ petitions before the Bombay High Court, which were dismissed. Subsequently, appeals were filed before the Supreme Court.

The main issue was whether the heirs of the employees of Ahmednagar Mahanagar Palika were eligible for compassionate appointment upon the employees’ retirement and/or superannuation.

After hearing the parties, the Supreme Court specified that upon due conversion of the Municipal Council into a Municipal Corporation, the award passed by the Industrial Court in 1981, was no longer applicable and the employees of the Municipal Corporation were governed by the scheme framed by the State Government “at par with the government employees”. The respondent’s contentions were dismissed since the State Government’s scheme on compassionate appointments did not include retirement and/or superannuation as grounds for appointing employees’ legal heirs.

Further, it was asserted that such an appointment is contrary to the very object of compassionate appointments and also infringes upon the right to equality guaranteed under Article 14 of the Constitution. The court added that if such appointments were provided, then “those who are the outsiders shall never get an opportunity to get an appointment though they may be more meritorious and/or well educated and/or more qualified.”

Compassionate appointments are provided by the government to ensure that the government servant’s dependant family members do not become destitute. Due to the nature of the appointment, it is subject to certain conditions and is provided as an exception. In a catena of cases, courts have emphasized the importance of considering the financial position of the family to determine the applicant’s eligibility and have also held that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. Hence, the applications have to be viewed holistically in deciding whether a compassionate appointment can be granted or not.

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Photo by Sora Shimazaki: https://www.pexels.com/photo/ethnic-businessman-shaking-hand-of-applicant-in-office-5668859/

Compassionate appointments are provided by the government to ensure that the government servant’s dependant family members do not become destitute. Due to the nature of the appointment, it is subject to certain conditions and is provided as an exception. In a catena of cases, courts have emphasized the importance of considering the financial position of the family to determine the applicant’s eligibility and have also held that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. Hence, the applications have to be viewed holistically in deciding whether a compassionate appointment can be granted or not.

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UGC Releases Draft Regulations Facilitating Entry of Foreign Campuses in India

The UGC has released Draft Regulations that propose a mechanism to facilitate the establishment of foreign campuses in India and lay down the procedure to be followed for the same. 

Introduction

The National Education Policy, 2020 (“NEP”), envisaged the internationalization of higher education in India by allowing foreign universities to set up their campuses in India. In furtherance of the same, the University Grants Commission (“UGC”) issued the draft University Grants Commission (Setting up and Operation of Campuses of Foreign Higher Educational Institutions in India) Regulations, 2023 (“Regulations”). This draft has been formulated to ensure that Indian students get access to the education offered by foreign institutions without having to travel abroad.

Overview of the Draft Regulations

The draft regulations lay down certain criteria to be followed before foreign higher education institutions can set up their campuses in India as per which the foreign higher education institution must:

  • Mandatorily obtain approval from UGC.
  • In the case of foreign universities, be one of the top 500 universities (as per overall or subject-wise global rankings as specified by UGC) or in case of foreign institutions be a reputed institution in its home jurisdiction.

Additionally, the procedure for making an online application on the UGC portal has been provided. As part of the procedure, a non-refundable fee has to be paid and the application should be accompanied by the required information and documents such as the fee structure, courses, resources, information on infrastructure and faculty, etc. This application would be processed by the UGC in 90 days and the manner in which the applications are processed is two-fold:

  • The guidelines require the UGC to set up a standing committee that must process each application on merits which entails checking the credibility of the institution, the impact that the institution would have in creating opportunities in India, etc. The recommendations need to be made by the standing committee within 45 days from the day the application is received.
  • After receiving the standing committee’s recommendations, the UGC must, if approved, issue a notification with (or without) conditions for the institution to operate in India within 45 days of receiving the said recommendation.

The approval granted by the UGC is valid for 10 years and has to be renewed one year before its expiry. The institution would have to apply for a renewal in the ninth year and the UGC may then grant renewal for the next 10 years. Further, a certain level of autonomy is proposed to be granted to foreign higher educational institutions in the following matters:

  • Making decisions regarding the fee structure.
  • Control over the admission process and criteria.
  • Formulating the norms for recruiting faculty from abroad or India including their qualifications and remuneration.

Some of the requirements prescribed by the draft, to be complied with by a foreign higher educational institution for setting up a campus in India are as follows:

  • The prospectus including details such as the number of seats offered in a program, fee structure, refund policy, and eligibility criteria has to be published on its website, 60 days in advance from the day on which the admissions are due to start.
  • Fee structure has to be transparent and reasonable.
  • The qualifications of the institution’s faculty should meet the standards of the main campus (situated in the institution’s country of origin).
  • The foreign faculty should stay in India for a reasonable period.
  • A student grievance redressal mechanism has to be set up.
  • The quality of education must be at par with that offered on the main campus.
  • The qualifications conferred on students at the Indian campus must be treated on the same level as the corresponding qualifications obtained at the main campus.
  • Adequate physical infrastructure should be arranged for.
  • It has to be ensured that the operations of the institution don’t compromise the integrity and sovereignty of India.
  • It has to go through a quality assurance audit and submit the report when required.
  • An annual report must be submitted to the UGC.
  • The provisions of the Foreign Exchange Management Act (FEMA), 1999 have to be duly complied with.

The UGC has been empowered under the Regulations to impose a penalty and/or suspend/withdraw approval in the following circumstances – a) The campus of the foreign higher educational institution has failed to adhere to or has violated the Regulations; b) Its activities or academic programmes are against the interests of the country; c) It has failed to abide by the undertaking given at the time of application; d) It engages in operation (s) other than the one (s) permitted under the Regulations; and d) In case of any adverse finding, misappropriation and suppression of facts.

Conclusion

Education not only plays a crucial role in the development of a human being but also helps in the advancement of the nation. Over the past few years, the government and regulatory bodies have introduced numerous measures to strengthen the education sector. The UGC, in an attempt to ensure that Indian students get an opportunity to receive an affordable international degree and to help make India a “global study destination”, unveiled the draft Regulations. It remains to be seen whether the  Regulations serve the needs of and are suitable for Indian students considering that Indians choose to study abroad for a multitude of reasons not contemplated in the draft regulations.

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Photo by Keira Burton: https://www.pexels.com/photo/cheerful-multiethnic-students-with-laptop-and-copybook-studying-on-grassy-lawn-6146983/

Education not only plays a crucial role in the development of a human being but also helps in the advancement of the nation. Over the past few years, the government and regulatory bodies have introduced numerous measures to strengthen the education sector. The UGC, in an attempt to ensure that Indian students get an opportunity to receive an affordable international degree and to help make India a “global study destination”, unveiled the draft Regulations. It remains to be seen whether the  Regulations serve the needs of and are suitable for Indian students considering that Indians choose to study abroad for a multitude of reasons not contemplated in the draft regulations.

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An Analysis of the Regulation of Children's Online Activities Under the Digital Personal Data Protection Bill, 2022

The DPDP Bill was tabled by the Ministry of Electronics and Information Technology on November 18, 2022, for comments. The purpose of the Bill was to provide for the processing of digital personal data in a manner that recognized both the right of individuals to protect their personal data and the need to process personal data for lawful purposes. Though the object behind the proposed DPDP Bill appears to justify the need of the hour, the DPDP Bill has imposed certain additional obligations with respect to children.

Introduction

The internet has become an indispensable part of modern life. The significance it bears and the impact it has on young minds cannot be overstated. It provides them with access to a vast array of information and resources, including educational content, news, and entertainment. It also allows them to connect with others and form communities, whether it be through social media, gaming, or online forums. The use of the internet in day-to-day affairs of life has considerably grown over the past two decades. The leitmotif of this article is not to regurgitate the importance of the internet but to reflect on the intriguing debate over the regulation of the internet by parents with respect to children under the proposed Digital Personal Data Protection (“DPDP”) Bill, 2022.

The Gordian Knot

Section 10[1] of the proposed DPDP Bill deals with the processing of the personal data of children. The section states that ‘The Data Fiduciary shall, before processing any personal data of a child, obtain verifiable parental consent in such manner as may be prescribed’. Under the Bill, a child is defined as someone who has not completed eighteen years of age[2]. Every time a child creates an account, be it social media, gaming, or an OTT account, the Data Fiduciary[3] involved, which would be the platform providing the service, would necessarily have to secure the consent of the parent or legal guardian of the child before processing their data. The DPDP Bill also prescribes a penalty of up to Rs. 200 crores for its non-compliance[4].

The implications of this proposed section are vast. Currently, most social media platforms including Twitter, Facebook, and Instagram require the user to be above the age of thirteen years to create an account, without any requirement of parental consent. Practically speaking, these platforms do not verify the age as claimed by the user and thus, it is possible to provide incorrect age in order to create an account. The same goes for all other prospective Data Fiduciaries. From knowledge-providing platforms like YouTube and Quora to entertainment or gaming platforms like Spotify and Stream, all these platforms currently have set thirteen years as the minimum age to create an account and enjoy these services. To comply with the DPDP bill, in case it is passed, the platforms would not just have to modify their own terms and conditions for the Indian jurisdiction but also have to come up with a verifiable parental consent requirement mechanism. Since most platforms and websites on the internet require the creation of an account to access the features or services fully, enforcing Section 10 of the DPDP bill would require an entire overhaul of how the internet functions. There would have to be parental consent forms and verification mechanisms in almost all corners of the internet.

While mandating such monitoring of every online activity of a child might sound fit in an average conservative Indian household, it is important to understand that doing so fundamentally alters the very forte of the internet – accessibility to information. Curtailing this would have detrimental effects on any child’s development, by allowing the parents to restrict any chances of the child’s exposure to perspectives that might not agree with their own. This would also be in defiance of Article 13 of the Convention on the Rights of the Child[5], which India had signed and ratified on December 11, 1992. The Article promotes the “right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers” for children.

Untying the Knot

Perhaps one way to mitigate the issues that could arise if the proposed section is brought into effect is by introducing gradation in the age limit that it specifies consent for. In this respect, inspiration can be taken from the Indian Penal Code, 1860,[6] which categorizes children and provides for classification based on age (below 7, from 7 to 12, etc.) to determine the law applicable to them. Even the much popular General Data Protection Regulation, 2016 of the European Union allows member states to lower the age of the child to 13 years to determine if parental consent would be needed or not[7].

The rigidity with respect to parental consent should also be based on a model which considers the evolution and development of children at different ages. France’s model of children’s data privacy rights under the French Data Protection Act, 1978 which was heavily amended recently in 2018, could also be looked at. Article 45 of the said Act[8] introduces the concept of “Joint Consent”. It states that ‘If the child is under 15 years of age, the processing will be lawful only if consent is given jointly by the child and the holder(s) of parental responsibility over that child.’ This, in essence, means that the consent is based on a mutual agreement between the child and the parent(s) holding parental rights. With respect to children above the age of 15 years, the Act allows them to give their own consent.

Conclusion

Thus, while it is ultimately up to the lawmakers to resolve, they must keep in mind the logistical and sociological effects of enforcing mandatory parental regulation on children’s online activities. If not by reducing the age to a more reasonable one, as done by other jurisdictions, systems like gradation in age or joint parental-child consent should be put in place. In the case of Faheema Shirin R.K. vs State of Kerala[9], the Kerala High Court, specifically speaking in the context of students, stated that the right to access the internet forms a part of freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution. In the said case, it was held that ‘Enforcement of discipline shall not be by blocking the ways and means of the students to acquire knowledge’. The concept of “best interest of the child” which is much popular in custody and guardianship cases and puts the best possible alternative for the child before the rights of the parents, could perhaps be interpreted broadly and acknowledged by the lawmakers with respect to the present debate as well.

References:

[1] Section 10, The Digital Personal Data Protection Bill, 2022.

[2] Defined under Section 2(3), The Digital Personal Data Protection Bill, 2022.

[3] Defined under Section 2(5), The Digital Personal Data Protection Bill, 2022.

[4] Section 25, The Digital Personal Data Protection Bill, 2022.

[5] Article 14, Convention on the Rights of the Child, 1989 [General Assembly resolution 44/25].

[6] Sections 82 and 83, Indian Penal Code, 1860.

[7] Article 8, General Data Protection Regulation, 2016.

[8] Article 45, French Data Protection Act, 1978.

[9] Faheema Shirin R.K vs State of Kerala, 2019 [WP(C)No.19716 OF 2019(L)].

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Photo by Pavel Danilyuk: https://www.pexels.com/photo/woman-using-a-laptop-with-her-daughter-7055153/

While it is ultimately up to the lawmakers to resolve, they must keep in mind the logistical and sociological effects of enforcing mandatory parental regulation on children’s online activities. If not by reducing the age to a more reasonable one, as done by other jurisdictions, systems like gradation in age or joint parental-child consent should be put in place.

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Registration of GUI as Designs: Existing Provisions and Challenges

  • January 13, 2023
  • Drishti Kardam

In this article, an attempt is being made to highlight how GUIs can be protected and to ascertain the challenges faced by applicants in filing design applications for the registration of GUIs.

Introduction

A Graphic User Interface (GUI) which allows users to interact with electronic devices or machines, is widely used in the present digital age. The term was coined in the 1970s to distinguish graphical interfaces from text-based ones, such as command line interfaces (CLI), etc. Apple’s GUI-based operating system – Macintosh, Microsoft’s Windows, Mobile Touch Screens, and other 3D interfaces (Eg. Augmented Reality) are all examples of GUIs.

Protection of GUI: A Look at Locarno Classification and Designs (Amendment) Rules, 2021

Just as trademarks are classified into various classes of goods and services provided for in the internationally accepted NICE classification, Designs also have a classification of articles to which a design can be applied, known as the Locarno Classification.

The Locarno Classification, developed under the Locarno Agreement (1968), is an international classification used for registering industrial designs. India became the 57th member to be a signatory to the Locarno agreement in 2019. The changes were incorporated through the Designs (Amendment) Rules, 2021, thereby bringing the classification of industrial designs at par with the rest of the world as opposed to the previous national classification.

Subsequently, on 25th January 2021, the Ministry of Commerce and Industry notified the Designs (Amendment) Rules, 2021, which substituted Rule 10 of the Design Rules 2001, and incorporated the current edition of the Locarno Classification, which specifically created Class 14 – Recording, telecommunication, or data processing equipment, with a subclass “Class 14-04 – Screen Displays and Icons”, and further provided for Class 32, allowing for two-dimensional graphic designs, graphic symbols, and logos, to be protected under the Designs Act, 2000, provided that these designs satisfy the essentials of an ‘Article’ and a ‘Design’ as defined in Sections 2(a) and 2(d) of the Act.

Lacunae in Legislation

As per the Designs Act, 2000, a design means “only the features of shape, configuration, pattern, ornament, or composition of lines or colours applied to any article, whether in two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate, or combined, …”

Now, this is precisely where the problem arises. Even after the Locarno Classification was introduced and the Designs Rules were amended to deal with confusion and uncertainties in the classification of industrial designs, the lawmakers have failed to amend the definition of ‘Design’ and bring the Designs Act, 2000, along the same lines. Further, the Controllers make conflicting observations and the interpretations provided by them seem to lack uniformity.

A GUI should be protected since its intrinsic purpose is to enhance the visual appeal of the program and thus build on its commercial value. The definition of a design given under the Act is limited and does not expressly provide for graphics and/or software. Due to this lacuna, the definition is open to multiple interpretations.

Practice Followed by the Indian Design Office

Before 2009, Microsoft was granted registration for some of its designs under Class 14-99, in the ‘Miscellaneous’ category. Thereafter, in the year 2014, Amazon filed a design application under no. 240305 pertaining to a “Graphic user interface for providing supplemental information of a digital work to a display screen”, which was rejected by the Design Office, on the grounds that GUIs do not qualify as designs under Section 2(d) of the Act, they lacked “consistent eye appeal” and were not physically accessible.

Over the years, several new applications for the registration of GUIs have been filed. While a few have been granted[1], most Examiners opine that the GUIs do not fall under the definition of ‘designs’ and hence, cannot be protected. Hence, applicants are wary of filing design applications for registration of GUIs due to the absence of robust precedents.

Observations made by US Courts

In Ex Parte Tayama[2], the Court made the following observations –

  1. Programmed Computer Systems would suffice to be termed as an article of manufacture.
  2. Design (GUI) is an integral part of computer programmes.

Further, the patent battle[3] between Apple and Samsung (2011 – 2018) ended with Apple being awarded $539 million for Samsung’s infringement of its initial design. Apple was all the while contending to protect its “Total User Experience”.

Various Design Patents have been granted by USTPO, such as apparatus for displaying the path of a computer program error as a sequence of hypertext documents in a computer system having display[4], device, method, and graphical user interface for adjusting content selection[5], etc.

European Union’s Position

EU also provides wide protection to designs under EU Directive 98/71/EC on Legal Protection of Designs. GUIs in the EU are generally registered under the Community Design Regulation (Council Regulation No. 6/2002/EC) but may also exist as unregistered Community Designs. The regulation, however, excludes computer programmes.

Conclusion

The current definition of a design is inadequate and does not expressly cover the aspects of graphics/GUIs. Undoubtedly, the various developments in the IT industry have made the world realize the importance of protecting graphics. However, the introducing of international classification (Locarno Classification) and bringing amendments to existing laws are not sufficient. It is imperative to establish new guidelines and provide appropriate training to the Examiners at the Design Office so that a uniform mechanism is in place to facilitate the registration of graphic symbols/GUIs.

References:

[1] Design Application Numbers 274917, 274918, 284680, 276736, 260403

[2] 24 U.S.P.Q.2d (BNA) 1614 (BPAI Apr. 2, 1992)

[3] Apple, Inc. v. Samsung Elecs. Co., 926 F. Supp. 2d 1100 (N.D. Cal. 2013) (partially affirming jury damages award).

[4] US6763497B1

[5] US10915243B2

Image Credits:

Photo by cottonbro studio: https://www.pexels.com/photo/person-using-macbook-3584994/

A GUI should be protected since its intrinsic purpose is to enhance the visual appeal of the program and thus build on its commercial value. The definition of a design given under the Act is limited and does not expressly provide for graphics and/or software. Due to this lacuna, the definition is open to multiple interpretations.

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