Share on facebook
Share on twitter
Share on linkedin

Modifying the Personal Data Protection (PDP) Bill to Deal with Rising Privacy Concerns

OVERVIEW OF DATA PROTECTION REGIMES

The recent advent of WhatsApp’s updated privacy policy has brought to light the legal loopholes that the Indian Data Protection Laws are laced with. A revised and updated change in Data Protection Laws in India could have prevented the possible infringements that may take place with WhatsApp’s new privacy policy.

The European Region has been able to circumvent this issue due to its updated Data Privacy Laws that successfully provide users with protection from such policies. These policies legally mandate WhatsApp to prevent the sharing of data with Facebook and a violation of it would infringe the provisions of the General Data Protection Regulation (GDPR).

We have discussed here the modifications that could possibly be added to the Personal Data Protection Bill (PDP Bill) in India in order to ensure an air-tight privacy regulatory authority.

RISING PRIVACY CONCERNS- A STUDY ON WHATSAPP’S PRIVACY POLICY

With an undeniable rise in the relevance and indispensability of the digital platform; comes the numerous concerns regarding its safety in terms of data and privacy protection norms. A case in this instance would be that of WhatsApp releasing its updated terms of Privacy on January 04,2021, under which it would deprive users of their choice to share data or other information with other apps, including those owned by Facebook. Moreover, this policy was accompanied by a condition under which users who did not accept the updated privacy terms, would have to quit using WhatsApp altogether- beginning February 08, 2021- when the updated terms and policies was planned to be enforced.



The updated privacy policies of WhatsApp leave the end-to-end encryption clause intact. This means that WhatsApp has no access to one’s text messages and cannot share the same with any other party. However, this clause does not cover the protection of metadata- which entails everything in a conversation apart from the actual text. This information can be shared with Facebook and other apps.

WHY THIS POSES A PROBLEM

A close perusal and analysis of the entire case reveals the observation that this issue could have been avoided with a concrete Data Protection Law or Regulation in place in India.

The core issue that centres the entire case is that people largely use WhatsApp to communicate with friends and family. The data thus shared on this App by individuals is now proposed to be shared with other companies to run their businesses, for monetary gains. This implies that the purpose for which WhatsApp would be using personal data and information is not even remotely connected to the purpose for which users had share that information on the app.

This issue assumes an even graver character due to the inability of the Indian Data Protection Laws to safeguard their users from a misuse of data. Without a data protection authority or regime in force; users will be exposing their data to the surveillance of the entire Facebook group of companies.

Its lack of effectiveness to provide remedies or relief in such situations stands in stark contrast to the legal frameworks that are in place in other jurisdictions, most particularly the European countries. These countries are equipped with laws that can impose fines on Facebook for unduly sharing and using information through WhatsApp. This clause came into effect when the Competition Commission of certain European countries imposed this condition on Facebook during its purchase and acquisition of WhatsApp.
An important point to take note of, is also the commitment made by WhatsApp during its launch in 2009- “to not sell user data or personal information to any third party”. This stance changed with the acquisition of WhatsApp by Facebook in 2014; and its sharing of data with its parent company in 2017.However, in 2017; users were given a choice to prevent the sharing of such data to other platforms. The updated policies have mandated the exposure of such data as a condition to continued usage of the App.
The users are thus breached of the expectations and commitments with which they had initially installed the App.

IMPLICATIONS ON USERS

Unfortunately, due to the technical and legal intricacies of the issue; a majority of the Indian population will stay unaware of this issue and not do much about it other than accept the terms being forced upon them.

However, there are sections of the population sensitive to data protection and privacy norms. This brings to light the possibility of shifting to alternate and safer platforms such as Signal, Telegram and iMessage. Moreover, petitions have also been filed in several legal courts pursuant to the policies introduced by WhatsApp in January 2021 seeking to stay the implementation of these policies. After all, Right to Privacy is a Fundamental Right granted under Article 21 of the Constitution of India and therefore, must not be compromised upon.

It is thus proposed that till an appropriate legal and concrete regulatory and supervisory authority is not in force vis-à-vis the Data Protection issues in India, the Court must prohibit the execution of this new Privacy Policy set forth by WhatsApp. Pursuant to this, the Supreme Court has directed WhatsApp and its parent company, Facebook, to file their replies to the petitions and growing concerns on privacy violations.

In furtherance of these directions, WhatsApp has most recently implemented its updated Privacy Policy with a new campaign. Through this updated campaign, WhatsApp aims to increase communication about its changes with its users through a small banner at the top of the chat, while also offering more time to let them read, understand and accept its terms. Following the backlash received, now the new Privacy Policy terms is expected to go into effect at a later date i.e. May 15, 2021.

HOW THE PDP BILL CAN BE MODIFIED TO INCREASE DATA PROTECTION

The PDP Bill can and must be modified in certain ways to ensure that arbitrary clauses in such online policies do not deprive the users of the rightful protection they are entitled to under the Right to Privacy. One of the main additions that the PDP Bill must incorporate is a clause or term in the law that prohibits the changing or modification of the terms of a contract after its enforcement. For instance, WhatsApp modified the terms of its contract resulting in a clause that was contrary to its initial commitments and objectives.

Moreover, since the PDP Bill has not been passed yet; it is crucial to look to other alternate legal provisions and statutes that may offer protection in such situations. For instance, the Information Technology Act of 2000, under Section 87 gives the government the authority to come up with regulations that can put a stop to arbitrary policies introduced by online platforms that pose a threat to privacy and data protection rights granted to individuals.

A company must not be able to modify terms according to their whims and mandate users to abide by it simply because they consented to the initial contract. Terms of such contracts must be regulated and privacy laws must ensure that changes in these policies have undergone user consent.

SUMMARY

In order to honour the Fundamental Right to Privacy, it is vital for the concerned platforms to provide clarity regarding its policies to ensure that a well-equipped and protective mechanism is set in force to deal with instances of data protection infringement in India. It is also crucial to formulate a structure on the PDP Bill that is well equipped to handle policy changes while ensuring a constant protection of data privacy rights. Other alternative laws must also be incorporated and interpreted in ways to prevent a breach of privacy.

The European Region was able to circumvent the imposition of data sharing norms by Watsapp due to its updated Data Privacy Laws that successfully provide users with protection from such policies. Our extant laws are glaringly inadequate and the proposed draft, as well as the delay in the passage, of the Personal Data Protection Bill (PDP Bill), is posing a serious threat to our online privacy and security.

REFERENCES

1 WhatsApp’s new privacy policy: Yet another reason why India needs data protection law – The Hindu BusinessLine.
2 Privacy Policy – Feb 2021. (whatsapp.com)

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

2021 Budget Impact on the Real Estate Sector

The Real Estate Sector has received an undeniable boost with the recommendations of the Union Budget of 2021. Projects like ‘Housing for All’ and ‘Pradhan Mantri Awas Yojana’ (PMAY) have always received emphasis under the Modi regime. Through the changes proposed to be implemented by the Union Budget of 2021, it is clear that measures like the granting of tax holidays for affordable housing and tax exemptions in the interest of migrant workers with regard to rental housing projects point towards the priority that the housing and Real Estate Sector enjoy in the current Union Government’s policy and execution scheme.  

Considering the unavoidable and unforeseeable fiscal deficit that struck the economy with the onset of the pandemic in 2020; the Finance Ministry had to tread judiciously with limited room for any big announcements under the Union Budget of 2021.  

 

The main standpoint with regard to the Real Estate sector that was observed was the policy of the government to promote and facilitate ‘Housing for All’ which entailed prioritizing and increasing access to and affordability of housing.  

The Budget of 2021 allotted Rs. 54,581 crores to the Ministry of Housing and Urban Affairs. 

  
Here is what the Real Estate gained in the Union Budget of 2021 

 

Increase in safe harbour limit for primary sale of residential units 

  • The safe harbour limit for the primary sale of residential units has been increased from 10% to 20% in order to increase the incentivisation of Real Estate developers and home buyers. 

Incentivising Affordable Housing 

  • In an instance of taking up a loan to purchase a house; the government had already allowed, in its 2019 Budget; a deduction of interest rate that amounted to a monetary sum of around Rs. 1.5 lakh to increase affordability and purchasing power. 
  •  This deduction in interest rates for housing loans is proposed to be extended further for another year- till March 31, 2022 in the current Budget policy. This would mean that the deduction of Rs. 1.5 lakh will continue to be available for loans that are taken up in order to purchase houses at affordable rates till March 31, 2022.  
  • To further advance the procurement and supply of affordable housing, the current Budget also proposed a year-long tax holiday for affordable housing projects till March 31, 2022.  
  • With an unprecedented rise in the number of migrants all across the country due to the pandemic; Nirmala Sitharaman has also advanced the action of allowing for a tax exemption for notified “Affordable Rental Housing Projects” in order to facilitate and encourage the supply of Affordable Renting Housing to these migrant workers.  

REITs 

  • Further, the Budget has also encouraged debt financing of InVITs and REITs by Foreign Portfolio Investors by according relevant amendments to legislations. These amendments would facilitate ease of financing to InVITs and REITs, consequently promoting greater funds for the real estate and infrastructure sectors.  
  • The Finance Ministry also went a step further and suggested the provision of advance tax liability to arise only after the payment or declaration of dividend. This move is aimed to eliminate the uncertainty that arose with an estimation of dividend income by shareholders for paying tax in advance. Further, the Finance Ministry has also proposed that tax on dividend income may be deducted at the more beneficial treaty rate, for Foreign Portfolio Investors.   

Infrastructure Development 

  • The Budget has also allotted revenue towards the development of infrastructure around the country. 702 kms of conventional metro is already operational, added to another 1,016 kms of metros and RRTS that is under construction in 27 cities across the country. 
  • Metro rail systems and access will now be provided at affordable and decreased prices, to increase access through the development of two new technologies- ‘MetroNeo’ and ‘MetroLite’ in Tier-2 cities and certain areas of Tier-1 cities. This is expected to increase efficiency and safety. 

Construction workers 
 

  • With an increase in the importance accorded towards the unorganised labour sector, the Finance Ministry has further proposed to initiate and introduce a portal to collect information on construction-workers, buildings and gigs, particularly for migrant labourers. This will promote insurance, housing, health and food policies for these migrant workers. 

 

Analysis  

 

A close analysis of the afore-mentioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

However, the current Budget policies revolving around the real estate sector have failed to accord with the additional demand levels that were anticipated by the stakeholders of the industry in order to sustain the growing demand for housing. To facilitate growth, efficient execution and time-bound implementation are crucial. Persistent focus and attention according to the policy of ‘Minimum Government, Maximum Governance’ would promote the ease of doing business. The proposed level of expenditure on infrastructure by the Government on metro lines, roads, warehousing, ports, etc. is a move that is expected to give a boost to the economic GDP and hence, is commendable.  

Conclusion 

 

While the various measures proposed to be implemented in the real estate sector through the current Budget will positively impact an economy that is still grappling with the hit delivered by the COVID 19 pandemic, these changes and proposals also act as a mark of the industry’s transition from mere existence to actual growth. 

References 

1 Budget Speech | Union Budget. (indiabudget.gov.in) 

2 Budget 2021: Analysis. (freepressjournal.in) 

 

Photo by Fabian Blank on Unsplash

close analysis of the aforementioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Evolution of the Doctrine of Public Policy in Arbitration

The pendency of litigation and piling up of cases in courts was the necessity which led to the discovery of alternative dispute resolution mechanisms. These tools of dispute resolution are highly efficient, time-bound and cost-effective. Further, as the dispute resolution is amicable, the delicate and long-standing relationship of parties is preserved. It is for this reason separate tribunals are set up for arbitration, independent mediators can be appointed for mediation and a number of unaided negotiations take place between the parties for settlement of any disputes. 

Arbitration is also familiar as a form of private litigation as to some extent the formalized means of dispute resolution; witness examination, expert opinions, and binding nature of the arbitral award will substantiate the fact. However, with enhanced remedial and appellate participation from the judiciary, the idea of ‘alternative’ dispute resolution seems to replicate a façade. The primeval legislation, Arbitration Act of 1940 provided for a triangular remedial setup, namely rectification, remission, and setting aside of the arbitral award. This was narrowed down to remission and setting aside of the award in the subsequent Act, 1996.

A noteworthy argument here is, that the arbitration disputes are often referred to as, ‘matters’ and not ‘suits’, this is a practice to limit the authority of courts over these disputes. The term ‘judicial authority’ is not construed in a narrow sense, rather derives a wider import to itself by the virtue of numerous common law precedents. Inclusion of District Forums, State Commissions and National Commission[1] under COPRA Act[2], commissions under Monopolies and Restrictive Trade Practices Act, 1969[3]  and Company Law Tribunals have been brought under the ambit of ‘judicial authority’.

The interplay of litigation courts in the proceeding of arbitration can be analyzed in three stages vis-à-vis before proceedings, during proceedings, and after proceedings. When on one hand this intermingling helps establish effective checks and balances when it comes to matters of public policy, on the counter, it defeats one of the primary advantages of arbitration, i.e. the expediency of dispute resolution. 

Section 5 of the Arbitration & Conciliation Act, 1996 provides for the limited or minimal intervention of judicial authority in arbitration proceedings.[4] The said section is analogous to Article 5 of UNCITRAL Model Law on International Commercial Arbitration, 1985[5]. The scope of judicial intervention is however non-arbitrary and is limited to the purposes prescribed in the Act, extending only to the administrative and non-judicial roles, within the non-obstante provisions.[6] The stance of the Indian judiciary was firmly established while inclining with the legislative intent behind the section, that the courts’ intervention should be minimal to encourage the resolution of disputes expeditiously and less expensively.[7] Even if the matter requires judicial intervention, the judicial authority is required to decide the issue expeditiously within a prescribed period and not to treat the matter in parimateria regular civil suits.[8]

Section 9 and 17 of the Arbitration & Conciliation Act, 1996 provide for interim measures  by the courts and tribunals. An application under Section 9 is that of a mandatory nature and is not a substantive remedy available at the discretion of the parties. The section provides for the judicial recourse for enforcement of rights of a third party in case its rights are being affected as a result of the arbitral award. As the third party is not a party[9] to the arbitration and does not have a locus standi, the said enforcement can happen only on a separate cause of action engaged by the third party and is not covered under the ambit of an arbitration agreement.[10] The right conferred by Section 9 is therefore not a contractual right, as only a party to the arbitration agreement possess the same.[11] Only in the rarest of rare cases, the third party would be competent to claim relief under Section 9 and not otherwise.[12] As locus standi is a significant rationale before granting interim relief under Section 9, the courts must be extra vigilant to not benefit frivolous litigations.     

As the remedy of ‘rectification’ has been taken away in the 1996 Act, the Arbitral Tribunal under the 1996 Act cannot review an Award on its own, the aggrieved party who has suffered on account of the Arbitral Award is required to challenge it according to the Law prescribed, and if the aggrieved party fails to apply under Section 34 for setting aside the Award, then a de novo inquiry cannot arise on its own. Section 34 of the Act provides for setting aside the arbitral award, in two cases when either a party is willing to challenge the award on grounds of prejudice or the Court finds that the award was in conflict with the public policy of India. The aggrieved party can make an application under this section within 3 months and additional 30 days from the date of receipt of the award. Section 34(2)(a) of the Arbitration and Conciliation Act, 1996 provides for numerous grounds on account of which the Court can set aside the arbitral award, including incapacity of parties, invalid or illegal arbitration, no proper notice for appointment of an arbitrator, non-agreement of parties on composition of the tribunal. The court is vested with powers to set aside the award in case of a non-arbitrable dispute or if the award conflicts with the public policy of India.  

AMBIGUITY IN ‘PUBLIC POLICY’ 

The ground of public policy for setting aside the arbitral award under Section 34 of the Act is a ‘judge-made’ ground evolving from common law. A series of precedents shaped the doctrine of public policy as it stands today with regard to setting aside the arbitral award.

The foremost case of Renusagar Power Co. Ltd v. General Electric Company[13] (Renusagar), which questioned the validity of Section 7 (1)(b)(ii) of the Foreign Award (Recognition and Enforcement) Act, 1961 which provided for the non-enforceability of a foreign award in case it contravened the public policy. It was held by the Apex court that “public policy” was to be interpreted as to be the public policy of India, whilst the application of foreign law in a purely municipal legal issue. The court relied on Article I(e) of the Geneva Convention Act, 1927, which recognizes objections by the host country regarding the enforceability of the award if the same contravenes the public policy of the host country. Further, Section7(1) of the Protocol & Convention Act, 1937 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Therefore, it was concluded that to invoke the bar of public policy the award must invoke something more than mere violation of any domestic law. A test was laid down for the satisfaction of the ‘public policy’ doctrine vis-à-vis, the award should not be contrary to i) fundamental policy of Indian law, ii) interests of India, iii) justice or morality.

The second landmark judgment in the evolution of public policy doctrine in the present context was, Oil & Natural Gas Corporation v. Saw Pipes Ltd[14] (Saw Pipes) the issue of the scope of judicial intervention under Section 34 was decided, as to whether a legally flawed arbitral award could be challenged on the pretext of contravention of provisions of the governing Act. The award was held to be ‘patently illegal’, therefore indirectly staining the public policy. The test to qualify repudiation of public policy in Renusagar was hence expanded to include acts contradicting i) fundamental policy of Indian law, (ii) the interests of India, (iii) justice or morality, (iv) if it is patently illegal. Hence, the thought of public policy was granted enormously wide abstract notions as if it was to ‘shock the conscience of the court’.

The final stone was laid by the Supreme Court in the case of Shri Lal Mahal Ltd. v. Progetto Grano Spa[15](Lal Mahal), where the vague and abstract nature of the expression, ‘public policy’ was challenged in relation to Section 48(2)(b)[16] of the Act with identical terminology. The SC analyzed that Section 34 was of a wider import than Section 48(2)(b) despite having identical terminology. Therefore, the decision limited the inference of ‘public policy’ in the impugned section to not include patent illegality of the award.

The ambiguity and blanket protection of the term ‘public policy’ was criticized in numerous judgments that followed. The defense of public policy cannot be used as a shield protecting judicial intervention in matters of arbitration. Various counter-claims included court must assume only a supervisory role by reviewing arbitral awards to ensure fairness.[17] The object of the 1996 Act itself is to radically curtail the judicial intervention in arbitration awards except in the circumstances as contemplated in the provisions of the Act, by vesting such enormous powers of judicial intervention in Section 34; the judiciary is violating the legislative intent.[18] It must be noted that the arbitrator is no less than a judicial authority and the view taken by the arbitrator in judicial capacity is no less than that taken by the judge, therefore his plausible view must not be interfered with in a judicial proceeding under Section 34 of the Act,[19] which was reiterated in the case of State of Jharkhand v. HSS Integrated SDN & Anr.[20]    

SIGNIFICANT AMENDMENTS

2015 Amendment

The 2015 Amendment in the Act brought about significant changes in the concept of ‘public policy’ under the Arbitration Act, drawing suggestions from the 246th Law Commission Report. An amendment was made to the Sections 2A[21] and 34(2),[22] by adding Explanation 2. The amendment restricts the scope of judicial intervention in arbitral proceedings by limiting the definition of public policy. The Amendment Act restricted the grounds of setting aside international arbitral awards solely on:

  • Induced or affected by fraud or corruption
  • Contravention in the fundamental policy of Indian Law
  • In conflict with notions of morality and public justice

Therefore, the court cannot act as an Appellate Court to examine the legality of the arbitral award, nor can it examine the factual merits of the claim.[23] As factual merits could not be questioned, the record of an arbitrator was to be held to be sufficient to furnish compliance with Section 34.[24] This was reiterated as cross-examination of persons swearing such affidavits/ records is not allowed unless absolutely necessary.[25] Further, the Amendment Act provided that proceedings for setting aside could be initiated only after due notice to the parties. Furthermore, Arbitration and Conciliation (Amendment) Act, 2015 was held to be prospective in nature and operation.[26]  Post amendment, the mere initiation of proceedings under Section 34 would not automatically operate as a stay of the arbitral award. The aggrieved party is required to file a separate application seeking stay of the award and the Court may grant a stay of the award by imposing conditions.

The position of the term ‘public policy’ has been further clarified in the recent judgment of Ssangyong v. NHAI[27] (Ssangyong) to not include the ‘fundamental policy’ under Section 34, relying on the 246th Law Commission Report. However, with such a firm stance, the overall efficacy of remedy under Section 34 may be objected. The judgment is noteworthy while analysing the applicability of Section 34 as it unmistakably stated that ‘under no circumstances can the Courts interfere with an arbitral award on the ground that justice was not served in the opinion of the Court as the same would clearly contradict the ethos of Section 34.’[28]

On one hand where the Ssangyong endeavours to restrict the scope of ‘public policy’, the 2020 judgment of NAFED v. Alimenta[29] (NAFED) seems to elaborate it. The judgment included export policy within the ambit public policy, stating the contravention of the former will inevitably contravene the latter. On the face of it, the judgment seems to be against the precedents, however, one argument of the judgment is found on the premise that it is highly fact-based. Even though the judgment has accredited a lot of criticism in the short span after delivery to not have considered the judgment of Vijay Karia[30]. However, it must not be overlooked that the NAFED judgment seeks to define the ‘public policy’ in Section 48 of the Act which has a very distinct pose than the use of term under Section 34.

2019 Amendment

The threshold under the erstwhile Section 34(2)(a)  for the setting aside of arbitral awards by the court was that the applicant has to furnish proof of the circumstances enumerated therein for the Court to set aside the award. The ‘furnishing of proof’ led to the prolongation of setting aside proceedings serving as an obstacle for the enforcement of domestic awards. The amendment in Section 34(2) removes the requirement of furnishing proofs to substantiate the ground(s) for setting aside the award. Instead, by virtue of this amendment, the applicant needs to establish the ground(s) for setting aside of the award based on the record of the arbitral tribunal which may ensure that proceedings under Section 34 are conducted expeditiously. It was held that proceedings under Section 34 of the Act are summary in nature.[31] Furthermore, the court held that under Section 34 (2A) of the Arbitration Act, a decision which is perverse while no longer being a ground for challenge under “public policy of India”, would certainly amount to patent illegality appearing on the face of the award.[32] The court while deciding the application for setting aside an arbitral award decided that the court will not ordinarily require anything beyond the records before the arbitrator. If otherwise pertinent to the issue, the records can be brought before the Court by the way of affidavits by both parties.[33]

CONCLUSION

Conclusively it can be said that the legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. However, it must not be forgotten that the judiciary is expected to be the safe-keeper of the fundamental rights of the citizens; therefore, if genuine and gross violations in the arbitral award render the parties without a remedy, the courts must not be restricted to intervene in the arbitration proceedings. Standing the evolution in time and necessary amendments, the Arbitration and Conciliation Act, 1996 has proven to be a living document. 

References

[1] Fair Air Engineers Pvt. Ltd. V. N.K. Modi AIR1997SC533

[2] Consumer Protection Act, 1986

[3] Shri Balaji Traders v. MMTC Ltd. [1999] 34 CLA 251

[4] Sundaram Brake Linings Ltd vs Kotak Mahindra Bank Ltd (2010) 4 Comp LJ 345 (Mad)

[5] Article 5:  This Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this Law.

[6] Secur Industries Ltd vs M/S Godrej & Boyce Mfg. Co. Ltd. (2004) 3 SCC 447

[7] P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539

[8] Shin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234

[9] Sec. 2(h) of the Arbitration and Conciliation Act, 1996 defines ‘Party’

[10] Harita Finance Ltd. vs ATV projects India ltd., 2003(2)ArbLR376

[11] Firm Ashok Traders and Ors. vs. Gurumukh Das Saluja and Ors., AIR 2004 SC 1433

[12] L & T Finance Limited vs. C.T. Ramanathan Infrastructure Pvt. Ltd. A. No. 5314 of 2012

[13] Renusagar Power Co. Limited v. General Electric Company; 1994 Supp (1) SCC 644

[14] Oil & Natural Gas Corporation v. Saw Pipes Ltd, [2003 (5) SCC 705]

[15] Shri Lal Mahal Ltd. v. Progetto Grano Spa, 2013 (4) CTC 636

[16] Section 48 in The Arbitration and Conciliation Act 1996 Conditions for enforcement of foreign awards,

 (2) Enforcement of an arbitral award may also be refused if the Court finds that— (b) the enforcement of the award would be contrary to the public policy of India.

[17] McDermott International Inc. v. Burn Standard Co. Ltd 2006(5)ALT1(SC)

[18] Indian Oil Corporation Ltd. V. Langkawi Shipping Ltd, 2005 (2) Bom CR 458

[19] National Highway Authority of India v. Progressive MVR, (2018) 14 SCC 688

[20] (2019) 9 SCC 798

[21] Explanation to sec. 2A -An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiate by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence. 

[22] Explanation to sec. 34(2)- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute. 

[23] Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors [2017] 13 SCALE 91 (SC)

[24] Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306

[25] Emkay Global Financial Service Limited v. Giridhar Sondhi, Civil Appeal No. 8367 of 2018

[26] BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287

[27] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), Civil Appeal No. 4779 of 2019, Supreme Court

[28] Ibid

[29] National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A Civil Appeal No. 667 of 2012, delivered on April 22, 2020

[30] Vijay Karia & Ors. Vs. Prysmian Cavi E Sistemi SRL & Ors. Civil Appeal No. 1544 of 2020

[31] M/s.Canara Nidhi Limited v/s. M. Shashikala & Ors. 2019 SCC OnLine SC 1244

[32] Sangyong Engineering & Construction Co. Ltd. v/s. National Highways Authority of India, 2019 SCC OnLine SC 677

[33] M/s Emkay Global Financial Services Ltd. V. Girdhar Sondhi (2018) 9 SCC 49

 

 

Image Credits: Daniel b photos on Pixabay

The legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. 

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Revised MSME Definition: Impact Analysis

On 12th May 2020, the Prime Minister of India announced an economic package worth Twenty Lakh Crores for various sectors and segments to achieve the goal of self-reliant India. This economic stimulant package was intended to uplift the fallen economy due to COVID 19 outbreak and combat the adverse impact of lockdown.

The proposed economic stimulus package included significant measures for facilitating the promotion, development and enhancement of the competitiveness of Micro, Small and Medium Enterprises (MSME). The Ministry further noticed that the low threshold in MSME definition had created fear among MSMEs of graduating out of the benefits and hence killed the urge to grow. The Finance Minister, therefore, announced the following amendments to the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act). The changes were approved by the Cabinet and the amendment was notified in the official Gazette on 01 June 2020. The amended classification of MSME shall come into effect from 01st July 2020. Here is a limited impact analysis of the above-mentioned amendment for your easy reference:

Key Changes

  1. Investment threshold criteria have been revised upwards.
  2. Additional criteria for turnover have been introduced.
  3. The distinction between the manufacturing and service sector has been eliminated

 

  1. Investment based threshold criteria

As per the MSMED Act, the following eligibility norms are based on investment by an enterprise[i] in a plant, machinery, or equipment only:

 

Classification

Micro

Small

Medium

Existing

Revised

Existing

 Revised

Existing

Revised

Manufacturing Enterprises

Investment < INR 25 lakhs

Investment < INR 1 Crore

Investment < INR 5 Crore

Investment <  INR 10 Crore

Investment < INR 10 Crore

Investment < INR 20 Crore

Service Enterprises

Investment < INR 10 lakhs

Investment < INR 2 Crore

Investment < INR 5 Crore

               

 

 

  1. Turnover based threshold criteria added to Investment norms:

 

The amendment has added the following turnover based criteria to above mentioned upward revised Investment norms:

 

Classification

Micro

Small

Medium 

Manufacturing and Services

Investment does not exceed INR 1 Crore

&

Turnover INR does not exceed 5 Crore

Investment does not exceed INR 10 Crore

&

Turnover INR does not exceed 50 Crore

Investment does not exceed INR 50 Crore

&

Turnover INR does not exceed 250 Crore

 

*The Turnover of Enterprise shall be determined by data provided/declared in Goods and Service Tax (GST) returns.

 

  1. Distinction between manufacturing and service sector eliminated:

 

The MSMED Act, 2006, provided for a separate threshold limit for the manufacturing and service Sector. As per the amended provisions, the difference between service and manufacturing sector has been removed.

 

Major Impact of The Amendment:

 

  1. Due to the revision of the threshold limit, many Enterprises will be registered under MSMED Act, 2006 to avail various incentives declared by the Government of India.
  2. With the amended definition, MSMEs will be able to access many industries such as electronics, apparel, chemical and pharmaceuticals, etc.
  3. The move is likely to improve the quality of product and export share of the country.
  4. Consequent to this amendment, many industries would now fall in the ambit of the MSME segment and settlement of invoices within 45 days may create a financial burden for non-MSME entities.
  5. Special economic packages/incentives to MSME entities may create employment opportunities and improve the productivity of indigenous manufacturing units.
  6. The removal of a separate threshold of investment and turnover criteria is expected to provide more encouragement to the service sector enterprises.
  7. The shift will facilitate the competitiveness of indigenous Enterprises against unhealthy competitions created by Foreign entities/investors.
  8. Redefine payment cycle by restricting delayed settlement to Micro and Small Enterprises by big Enterprises.
  9. Facilitate the intrinsic growth of manufacturing and export-oriented Enterprises.
  10. Due to the revision of the threshold limit under the MSMED Act, 2006, Companies will have to seek details of MSME registrations from vendors and suppliers of goods or services. The outstanding amount of more than 45 days as per provisions of Section 15 of MSMED Act, 2006 shall be reported by Companies in Form MSME-1 with the Ministry of Corporate Affairs.

 

Other Registration Requirements:

 

There is no separate MSME registration required for each branch/manufacturing unit of an enterprise. Enterprises are required to provide addresses and details of branches and manufacturing units at the time of registration and the same would be displayed in the Certificate issued under MSMED Act, 2006. Further, enterprises engaged in wholesale trading activities are not eligible to register as MSME Enterprises. MSME is to support start-ups with subsidies and benefits, whereas trading companies are just like middlemen, a link between manufacturer and customer.

 

Moreover, enterprises are required to fulfil only investment and turnover criteria to register under the MSMED Act, 2006. Hence, a subsidiary of another Indian Company or Subsidiary of Foreign Body Corporate can be registered as MSME Enterprise under MSMED Act, 2006. The Government would most likely notify more restrictions on applicability criteria for registration under the MSMED Act, 2006. The Statutory time limit for the realisation of Export payments is provided under the Foreign Exchange Management Act, 1999. Further, the liability to make payment to Micro and Small Enterprises under the provisions of Section 15 of the MSMED Act, 2006, is applicable only for outstanding payments against the domestic supply of goods or services.   

 

Conclusion:

 

The objective of the amendment is mentioned in the Statement of Objects and Reasons of the MSME (Amendment) Bill as “over a period of time, it has been felt necessary to change the criteria for the classification in order to align it with the need of current times and changing business ecosystem.”

 

Therefore, the amendment had been brought in with the belief that the criterion of investment in plant and machinery or equipment often incentivises the tendency in the promoters to keep the investment size small in order to retain the benefits associated with micro or small enterprises category. Further, the physical verification of the value of assets had been a difficult task. On the contrary, if the annual turnover is taken as a criterion for classification, the information available with goods and services tax networks and other sources can be used for the determination of the category of the enterprises.

 

Thus, to conclude the annual turnover based classification

  • will bring in a transparent and objective classification system 
  • will enable industrial growth and increased employment in the country and
  • will promote the ease of doing business 

 

References

[i] Meaning and Definitions:

 

Enterprise: As per the provisions of Section 2(e) of MSMED Act, 2006, “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;

 

  1. Calculation of Investment of Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:

Micro

Small

Medium 

As per explanation to Section 7 (1) of MSME Act, 2006, investment in plant and machinery excludes-

i)       the cost of pollution control,

ii)     research and development,

iii)    industrial safety devices

iv)    such other items as may be specified, by notification, shall be excluded

As per explanation to Section 7 (1) of MSME Act, 2006, investment in plant and machinery excludes-

i)         the cost of pollution control,

ii)       research and development,

iii)      industrial safety devices

iv)      and such other items as may be specified by notification shall be excluded

 

As per explanation to Section 7 (1) of MSME Act, 2006, investment in plant and machinery excludes-

i)         the cost of pollution control,

ii)       research and development,

iii)      industrial safety devices

iv)      land and building

and such other items as may be specified in vide notification No.S.O.1722(E) dated October 5, 2006 issued by Ministry of Small-scale Industries

 

 

Investment by Enterprises engaged in providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006

 

 

Image Credits: Photo by Bill Oxford on Unsplash

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

A legal Analysis of the Companies Fresh Start Scheme-2020

To mitigate the economic hardship caused due to COVID-19 pandemic and to facilitate ease of doing business, various efforts are being made by the Government of India. In furtherance of these initiatives, the Ministry of Corporate Affairs (“MCA”) has brought about certain relaxations for companies vide its general circular no. 13/2020 dated 30th March 2020 (“Circular”). The relaxation enables companies to regularize compliance-related filing with the Registrar of Companies ( “Registrar”).

The Companies Act, 2013 (and erstwhile 1956 Act) (‘hereafter the ‘Act’) stipulates various mandatory filings for companies, and in case of failure in adherence, penal provisions are attracted in most instances.  It is observed from the list of ‘defaulter companies’ provided under the official website of the MCA that there is a substantial increase in the number of non-compliances by companies. The defaults are mostly caused due to difficulties in understanding the applicability of a provision or due to paucity of time. This leads to a large number of companies being unable to file the required forms and returns with the Registrar within the stipulated time and thereby resulting in being in default under the Act.

In order to lighten the burden of the defaulting companies[1], the MCA has brought out the Companies Fresh Start Scheme, 2020 (hereafter referred to as the “Scheme”), whereby companies have been provided with the flexibility to fulfill pending filing compliances. The Scheme thereby condones the delay in filing the documents, forms, and returns with the Registrar without payment of any additional fees.

 

Applicability of the Scheme:

The Scheme has been promulgated by the MCA under Section 460 read with Section 403 of the Act, which empowers the Central Government to expressly condone the delay in filings with the Registrar.

The Scheme is applicable to all defaulting companies whose documents, returns, or forms are pending for filing as of the date of the notification of the Scheme. The benefits under the Scheme are available to both domestic companies registered under the Act as well as foreign companies. The Scheme also gives an opportunity to Inactive Companies[2] to get their companies declared as a ‘dormant company’ under Section 455 of the Act by filing a simple application on payment of the normal fee. The said Scheme is effective from 01st April, 2020 and is valid till 30th September, 2020.

However, it may be noted that the Scheme is not applicable in the following cases:

  1. Where a final notice for striking off the name of the company under Section 248 of the Act has already been issued by the designated authority.
  2. Where a company has Suo-moto applied for striking off the name of the company from the register of companies.
  3. Where a company is amalgamated under the scheme of compromise and arrangement under the provisions of the Act.
  4. Where the company had applied for dormant status under Section 455 of the Act before the introduction of the Scheme.
  5. For Vanishing Companies[3].
  6. For documents related to increasing in Authorized Share Capital (Form SH-7).
  7. For charge-related documents i.e. Form CHG-1, CHG-4, CHG-8, and CHG-9.
 
 

The Process under the Scheme:

The Scheme stipulates that every defaulting company will be entitled to make the belated filing by paying only the normal fees as prescribed under Companies (Registration office and Fees) Rules, 2014 for filing of all such belated forms, returns, and documents, and no additional fees is required to be paid. After filing the pending document under the Scheme, the defaulting company is required to file e-form CFSS-2020 on the MCA website, without paying any fees thereon, giving brief details of the belated forms which have been filed by it. It is pertinent to note that the defaulting company is required to file the e-form CFSS-2020 within 6 months from the closure of the Scheme i.e. it has to be filed between 01st October 2020 and latest by 31st March 2021 in order to claim immunity under the Scheme.

If a defaulting company has filed an appeal against any notice, complaint, the order passed by the court or by an adjudicating authority, it can file an application under this Scheme for immunity certificate only after withdrawing such appeal and furnishing proof of such withdrawal with the application (CFSS-2020). The company is mandatorily required to provide proof of withdrawal of the appeal.

 

 

Relevance of Immunity Certificate:

On the basis of the declaration given in e-form CFSS -2020, the Designated Authority[4] will issue an Immunity Certificate. The immunity provided under the Scheme is only with respect to any penalty in relation to the non-filing of such form or document with the Registrar and the defaulting company is not protected from any consequential proceedings including any interest of shareholder or director etc. It is pertinent to note that the immunity certificate is not granted automatically but is subject to scrutiny and only after the document is taken on record or approved by the Registrar, as may be applicable.

Upon issue of the immunity certificate, the defaulting company gets protection from any penalty for such non-filings. Further, the designated authority will withdraw the prosecutions before any courts and proceedings pending before adjudicating authority in respect of which the immunity has been granted, which is deemed to be completed without any further action by the designated authority. It is pertinent to note that, immunity cannot be availed in the following circumstances:

  • In case any management disputes of the company are pending before any court of law or tribunal;
  • In case any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudication authority under the Act, and no appeal has been preferred against such order before the commencement of the Scheme i.e. on or before 30th March, 2020.

The only remedy which has been provided for a circumstance under point (ii) above is in a situation wherein an appeal under Section 454 (6)[5] is not filed before a regional director for an order passed by the Registrar and the last date of filing appeal falls between 1st March 2020 to 31st May 2020. In such a case, there is an extension in time by 120 days for the company to file an appeal. Furthermore, during such grace period, no prosecution will be initiated against the company or its officers for non-compliance of an order of the adjudicating authority in so far as it pertains to non-filing of forms or documents.

 

Analysis of the Scheme:

While on one hand, it is noted that the Scheme provides benefits to the defaulting companies, at large, to make the filings of documents, forms, and returns which are pending for filing, the Scheme also entail other benefits as explained below:

  1. Inactive Companies- This is a good opportunity for all the defaulting inactive companies to file all their pending forms and returns at normal fees instead of the hefty additional fees of ROC and also file an application for immunity in E- Form CFSS-2020. The company can subsequently file for either Form MSC-1 to obtain the status of Dormant Company under Section 455 of the Act or file Form STK-2 for striking off the name of company under Section 248 of the Act.
  1. Directors whose DIN are deactivated due to non -filing of KYC forms-The Scheme gives an opportunity to those Directors whose DIN were deactivated due to non-filing of Form DIR-3 KYC. Those Directors can activate their DIN after filing their pending KYC forms at normal fees.
  1. Filing of annual return: The Scheme also gives companies, who have not complied with the annual return filing requirement, an opportunity to rectify the same. Further, a company that has been struck off due to non-filing of annual returns, may apply for revival before the NCLT and thereafter obtain approval for revival and then take benefit under the Scheme.

Even considering these benefits, it may be noted that there are some shortfalls under the Scheme or areas wherein the Scheme needs to bring more clarity:

  • A defaulting company gets immunity only with respect to penalty for non-filing of the form/document and the immunity is applicable only upon scrutiny and form being approved (if applicable) and a certificate being issued by the Registrar. However, in the event the form is not approved by the Registrar or the immunity certificate is not granted, the benefit under the Scheme is not available and that means the defaulting company continues to be under default.
  • The Scheme expressly provides that the immunity will not be applicable in case where the adjudicating officer under the Act has already passed an order and it is not being appealed. Similarly, in the event, if an appeal is being filed by the defaulting company against an order, then in order for the company to claim benefit under this Scheme, the application has to be withdrawn. In this regard, it is pertinent to note that there is an inordinate delay in the withdrawal of cases from the appellate authorities.[6] Given the backlog of matters before the authorities and practical difficulties arising due to COVID-19 restrictions, it needs to be considered whether the timeline provided is practically sufficient for the defaulting companies to file for withdrawal and obtain a copy thereof and thereafter file for the benefit under the Scheme. Even considering the options for online application filing that has been provided by most forums such as NCLT because of COVID-19, companies could face difficulties in meeting the timeline. Further, in a situation where a defaulting company withdraws the appeal and files for immunity but the Registrar denies or refuses to grant immunity, there is no express clarity on whether it would affect the ability of the defaulting company to file for a fresh appeal or to what extent the defaulting company will face exposure under Section 454. Alternatively, the company may have to reserve the liberty to seek fresh appeal at the time of withdrawal, as per feasibility.  
  • While at one hand, the Scheme does provide benefit in rectifying non-compliances for forms such as Annual Returns, however, the benefit is not being provided for forms such as charge-related filings which carry heavy duties in terms of additional fees as well as the time limit for filing. Also, such forms if accepted for filing would have given greater protection to the secured lenders.

In light of the above, it may be noted that while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016, etc. However, it needs to be considered whether the benefits are in their true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

References 

[1] The Scheme defined a ‘Defaulting Company’ as a company defined under the Companies Act, 2013 and which has made a default in filing of any of the documents, statement, returns etc including annual statutory documents on the MCA 21 registry.

[2] Inactive Company means companies defined in Explanation (i) to sub-section (1) of section 455 of the Act, which deals with the definition of Dormant Company

[3] Vanishing Companies are those companies which raised funds from public through initial public offers (IPOs) and subsequently failed, inter-alia, to comply with the listing/ filing requirements of Registrar of Companies (ROC) and the Stock Exchanges for a period of two years and were not found at their registered office address at the time of inspection done by authorities / Stock Exchange.

[4] Designated Authority means the Registrar of Companies having jurisdiction over the registered office of the Company.

[5] Section 454 (6) requires an aggrieved person to file an appeal against the order of an adjudicating officer within 60 days from the order thereof.

[6] As per Government of India Ministry of Corporate Affairs Rajya Sabha Unstarred Question No. 1148 answered on Tuesday, the 6th March, 2018 regarding pending cases under the Companies Act, 2013: ‘9,004 number of applications have been filed as on date for withdrawal, out of which 4,066 number of cases have been withdrawn.’

 

 

Image Credits: Ayma Nejed from Pixabay

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Delhi High Court Suspends CGPDTM Notice Fixing the IP Applications Cut-off Date

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

 

Keeping in mind the extraordinary situation prevailing in the Country attributable to the lockdown announced by the Government, causing difficulties to litigants/advocates in filing their petitions/suits/applications/appeals/or other proceedings, etc. within the limitation period, the Hon’ble Supreme Court had Suo Motu registered a case numbered as Suo Motu Writ Petition (Civil) Nos. 3/2020 titled Re: Cognisance for Extension of Limitation.  

Invoking its plenary power conferred by the Constitution under Articles 141 & 142, the Bench comprising of Hon’ble Chief Justice S.A. Bobde, Hon’ble Justice L. Nageswara Rao & Hon’ble Justice Surya Kant passed the Order dated 23rd March 2020 extending the period of limitation applicable to all proceedings before all Courts and Tribunals governed by general law or special laws whether condonable or not with effect from 15th March 2020 till further orders.

The CGPDTM had issued a Public Notice dated 4th May 2020 informing applicants/registrants and/or its agents/advocates that the due-dates with respect to timelines/periods prescribed under the IP Acts and Rules, falling due during the lockdown, to complete various acts/proceedings, filing of any reply/document, payment of fees, etc. in the matter of any Intellectual Property (IP) applications, shall be 18th May 2020, since the lockdown period from 25th March 2020 to 3rd May 2020 was further extended by two weeks, i.e., till 17th May 2020.

Aggrieved by this public notice, a writ petition (W.P.(C) No.3059/2020) was filed before the Delhi High Court on 06.05.2020 by the Intellectual Property Attorneys Association (IPAA) challenging the said notice. The petitioners submitted that the public notice issued by the CGPDTM is a blatant disregard to the order of Hon’ble Supreme Court dated 23rd March 2020, and specifically conferred the following arguments:  

  1. The order of extension of limitation is applicable to all proceedings irrespective of whether it was governed by general laws or special laws and would be in force with effect from 15th March 2020, as opposed to 25th March 2020 as mentioned in the public notice.
  1. The said extension of limitation shall be in effect until further orders. Hence, the cut-off due-date of 18th May 2020, fixed by the CGPDTM in the public notice, for the completion of various acts/proceedings, filings, payment of fees, etc. in the matters of any IP applications, is also contrary to the Supreme Court order. 
  1. The said due date of 18th May 2020 would also pose difficulties to litigants/advocates to obtain necessary documents/files and file them as per the prescribed procedures, since the lockdown would only be lifted on 17th May 2020.

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal, or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

The Hon’ble Delhi High Court hence rightly held that order of Hon’ble Supreme Court was binding on the CGPDTM and disposed of the petition by suspending the operation of the public notice dated 4th May 2020.

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

Image Credits: Photo by samer daboul from Pexels

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Relaxations to Listed Companies by SEBI in the Times of COVID 19

The Hon’ble Delhi High Court unprecedented situation brought in by the COVID-19 global pandemic has thrown some difficult challenges both in the physiological and economical realm. Ensuring business continuity and sustenance has become a priority for the revival of the backsliding economy. While measures are being taken in individual level, governmental authorities and agencies across the globe are offering relaxations in strict compliance requirements to help organizations make through the current situation seamlessly. The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

 

As expected, the Securities and Exchange Board of India (SEBI) started responding to this complex situation and giving some respite to Listed Companies through its first Circular dated March 19, 2020. Subsequently, several circulars have been issued extending dates for meeting compliance requirements. Relaxations provided by SEBI to Listed Companies are mainly in respect of complying with various obligations under SEBI (Listing Obligations and Disclosure) Regulations, 2015 (SEBI (LODR) Regulations, 2015) and circulars issued thereunder.

Common and Regular Compliance Obligations:

SEBI (LODR) Regulations, 2015 envisages that a Listed Company complies with various requirements such as the appointment of Share Transfer Agent for maintaining share transfer facility or maintaining such functions in-house. Listed Companies are required to send statements giving the number of investor complaints pending at the beginning of a quarter, those received during a quarter, disposed of during a quarter and those remaining unresolved at the end of a quarter to the recognized stock exchange. The compliances of this nature which are common and regular in nature are given more time to comply with. Similarly, compliance requirements regarding certificate for share transfer facility, statements of investor complaints, a certificate from practicing company secretary on the timely issue of share certificate, Corporate Governance Report and Shareholding pattern which were supposed to be submitted by April 2020 are given an extension of time until May 2020. 

SEBI (LODR) Regulations, 2015 also envisages that the Listed Companies are required to submit an annual Secretarial Audit Report along with its Annual Report. The SEBI (LODR) Regulations, 2015 also require submission of financial reports on a quarterly and annual basis to Stock Exchanges where they have listed their equity shares. In respect to the Secretarial Compliance Report and Financial Results, timelines were extended from May 2020 to June 30, 2020.

As we can observe from the above extension as of the date of March 19, 2020, the extensions have given a breathing time of nearly 45 days to Listed Companies.

Board Meetings, Committee Meetings and Annual General Meetings (AGM):

A Listed Company, in addition to regular compliances, is also required to hold four board meetings in a year with a maximum time gap of one hundred and twenty days (120) between two meetings. The condition that there should not be a time gap of 120 days between two Board meetings or Audit Committee meetings was also relaxed to an extent. If a Board meeting is held or proposed to be held between December 1, 2019, and June 30, 2020, then the relaxation from 120 days rule would be available to such listed companies. A similar rule is also made applicable for a Listed Company for holding Audit Committee meetings as they assist the Board to hold the mandated four meetings in a year. If the Audit Committee meeting is held or proposed to be held between December 1, 2019, and June 30, 2020, then 120 days rule would not be applicable between two Audit Committee meetings. But it is important to note that there are no exemptions from holding a minimum number of Board Meetings or Audit Committee meetings, which are four in a year.

In addition to Audit Committee, a listed company has various committees such as the Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee to serve the Board of Listed Company in order to carry on its functions. These Committees are required to hold a meeting at least once in a year. Time for conducting these Committee meetings such as Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee were extended up to June 30, 2020, vide Circular dated March 26, 2020.

Regulation 44 of the SEBI (LODR) Regulations, 2015 has put in place a higher expectation for top 100 Listed Companies by market capitalization in respect to holding of AGM and live one-way webcasting of proceedings of AGM. It requires them to hold AGM within a period of 5 months from the date of closing of the financial year. These top 100 Listed Companies shall be determined based on market capitalization as at the end of the immediate previous financial year. Accordingly, these companies need to hold their AGMs before May 31, 2020, or August 31, 2020, depending on the financial year followed i.e. Financial Year either ending on December 31, 2019, or March 31, 2020. This requirement is relaxed and time is extended up to September 30, 2020 to hold AGM.

Issuance of Debt Securities to Public or Post Disclosures:

A Listed Company intending to issue debt securities to the public is required to comply with SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and Circulars issued thereunder. In this regard one of the requirements is to submit audited financials that are no older than 6 months.  As though in line with the relaxation given for holding Board Meetings, vide Circular dated March 23, 2020, the requirements for Listed Companies intending to issue debt to the public were given exemption from submitting audited financials which are not older than 6 months and allowed them to do a public issue of debt by submitting unaudited financials with a limited review for such period.

Additionally, vide Circular dated March 23, 2020, relaxations were provided to Listed Companies which have already issued debt with respect to disclosures to be made by them. Timelines for making disclosures regarding financial results and disclosures to be made by large corporates were extended up to June 30, 2020.

Relaxations under Takeover Code:

SEBI had also relaxed disclosure to be made under Regulations 30(1), 30(2) and 31(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Regulations 30(1) and 30(2) contemplate disclosures regarding shareholding in a Listed Company on an Annual basis by promoters or shareholders holding 25% or more of the voting rights in the Listed Company. Similarly, under Regulation 31(4), promoters are also required to make a declaration that no encumbrance on shares held by them, other than that already disclosed is made by them. The disclosures which had to be made by March 31, 2020, maybe made before June 30, 2020. SEBI in its Circular dated March 27, 2020, has noted that travel restrictions and various other logistical challenges as reasons for granting such relaxations.

Relaxations Regarding Newspaper Publications:

SEBI has mandated publication of notification of Board Meetings, financial results notice to shareholders etc. in ‘Newspaper’ as per regulation 47 of the SEBI (LODR) Regulations, 2015. These publications seem to be made in order to disseminate information to especially those investors not having access to electronic mode and to enable the investors to make an informed decision on their investments. SEBI seems to have provided relaxation to publish in newspapers for events till May 15, 2020, in order to balance the interest of investors and compliance by Listed Companies. SEBI has also extended similar relaxations to Listed Companies which need to comply with regulation 52(8) of the SEBI(LODR) Regulations, 2015. Regulation 52(8) of SEBI (LODR) Regulations, 2015 requires Listed Companies that have listed NCDs or NCRPS to make similar “Newspaper” publications.

Postponing Implementation of Enforcement Mechanism:

More importantly, as a move to enforce the SEBI(LODR) Regulations, 2015, the penalty mechanism had been rationalized under the Circular dated January 22, 2020. SEBI has now decided to postpone the implementation of the Circular that provided for the imposition of stringent fines with respect to violations of SEBI (LODR) Regulations, 2020 until June 30, 2020. However, the Listed Companies should note that earlier Circular dated May 3, 2018, regarding penal provisions for violation of SEBI(LODR) Regulations, 2015 is still valid.

Miscellaneous Relaxations:

 

Vide Circular dated April 17, 2020, SEBI has also granted the following exemptions to Listed Companies.

  1. Penalty attracted for delayed reporting of share certificates and the issue of duplicate certificates from March 01, 2020, to May 31, 2020, under Circular dated May 3, 2018, is exempted.
  1. The obligation of prior intimation of Board Meetings required under Regulation 29 (2) to Stock Exchanges is reduced to 2 days from 5 days for meetings considering financial results. This exemption would be available for board meetings held till July 31, 2020, from the date of Circular i.e. March 27, 2020.
  1. Submissions that are allowed to be made to stock exchanges under SEBI (LODR) Regulations, 2020 may be done using digital signature certifications until June 30, 2020.

Conclusion:

As is evident from the above discussion, relaxations have been provided to Listed Companies with respect to timelines pertaining to common obligations, debt issues, meetings, disclosures, publication in newspapers, promoting digitalization by allowing Digital Signature Certificates and immunity from penalties arising under SEBI (LODR) Regulations, 2015.

Although these relaxations seem to be a calibrated attempt to help Listed Companies comply in difficult times, it cannot be denied that it would adversely affect investor’s interests. The regulatory body seems to be doing a balancing act between the needs of Listed Companies and the interest of investors.  

However, as uncertainties around the cure of the COVID 19 Pandemic continue, it is not clear if these exemptions would be extended for further time. Nonetheless, it is felt that SEBI should embrace digitalization and extend filings to be made using Digital Signature Certificates beyond June 30, 2020, which is largely the case with other regulatory bodies.

 

 

Image Credits:  Alec Favale on Unsplash

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

Related Posts

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

A legal Analysis of the Companies Fresh Start Scheme-2020

To mitigate the economic hardship caused due to COVID-19 pandemic and to facilitate ease of doing business, various efforts are being made by the Government of India. In furtherance of these initiatives, the Ministry of Corporate Affairs (“MCA”) has brought about certain relaxations for companies vide its general circular no. 13/2020 dated 30th March 2020 (“Circular”). The relaxation enables companies to regularize compliance-related filing with the Registrar of Companies ( “Registrar”).

The Companies Act, 2013 (and erstwhile 1956 Act) (‘hereafter the ‘Act’) stipulates various mandatory filings for companies, and in case of failure in adherence, penal provisions are attracted in most instances.  It is observed from the list of ‘defaulter companies’ provided under the official website of the MCA that there is a substantial increase in the number of non-compliances by companies. The defaults are mostly caused due to difficulties in understanding the applicability of a provision or due to paucity of time. This leads to a large number of companies being unable to file the required forms and returns with the Registrar within the stipulated time and thereby resulting in being in default under the Act.

In order to lighten the burden of the defaulting companies[1], the MCA has brought out the Companies Fresh Start Scheme, 2020 (hereafter referred to as the “Scheme”), whereby companies have been provided with the flexibility to fulfill pending filing compliances. The Scheme thereby condones the delay in filing the documents, forms, and returns with the Registrar without payment of any additional fees.

 

Applicability of the Scheme:

The Scheme has been promulgated by the MCA under Section 460 read with Section 403 of the Act, which empowers the Central Government to expressly condone the delay in filings with the Registrar.

The Scheme is applicable to all defaulting companies whose documents, returns, or forms are pending for filing as of the date of the notification of the Scheme. The benefits under the Scheme are available to both domestic companies registered under the Act as well as foreign companies. The Scheme also gives an opportunity to Inactive Companies[2] to get their companies declared as a ‘dormant company’ under Section 455 of the Act by filing a simple application on payment of the normal fee. The said Scheme is effective from 01st April, 2020 and is valid till 30th September, 2020.

However, it may be noted that the Scheme is not applicable in the following cases:

  1. Where a final notice for striking off the name of the company under Section 248 of the Act has already been issued by the designated authority.
  2. Where a company has Suo-moto applied for striking off the name of the company from the register of companies.
  3. Where a company is amalgamated under the scheme of compromise and arrangement under the provisions of the Act.
  4. Where the company had applied for dormant status under Section 455 of the Act before the introduction of the Scheme.
  5. For Vanishing Companies[3].
  6. For documents related to increasing in Authorized Share Capital (Form SH-7).
  7. For charge-related documents i.e. Form CHG-1, CHG-4, CHG-8, and CHG-9.
 
 

The Process under the Scheme:

The Scheme stipulates that every defaulting company will be entitled to make the belated filing by paying only the normal fees as prescribed under Companies (Registration office and Fees) Rules, 2014 for filing of all such belated forms, returns, and documents, and no additional fees is required to be paid. After filing the pending document under the Scheme, the defaulting company is required to file e-form CFSS-2020 on the MCA website, without paying any fees thereon, giving brief details of the belated forms which have been filed by it. It is pertinent to note that the defaulting company is required to file the e-form CFSS-2020 within 6 months from the closure of the Scheme i.e. it has to be filed between 01st October 2020 and latest by 31st March 2021 in order to claim immunity under the Scheme.

If a defaulting company has filed an appeal against any notice, complaint, the order passed by the court or by an adjudicating authority, it can file an application under this Scheme for immunity certificate only after withdrawing such appeal and furnishing proof of such withdrawal with the application (CFSS-2020). The company is mandatorily required to provide proof of withdrawal of the appeal.

 

 

Relevance of Immunity Certificate:

On the basis of the declaration given in e-form CFSS -2020, the Designated Authority[4] will issue an Immunity Certificate. The immunity provided under the Scheme is only with respect to any penalty in relation to the non-filing of such form or document with the Registrar and the defaulting company is not protected from any consequential proceedings including any interest of shareholder or director etc. It is pertinent to note that the immunity certificate is not granted automatically but is subject to scrutiny and only after the document is taken on record or approved by the Registrar, as may be applicable.

Upon issue of the immunity certificate, the defaulting company gets protection from any penalty for such non-filings. Further, the designated authority will withdraw the prosecutions before any courts and proceedings pending before adjudicating authority in respect of which the immunity has been granted, which is deemed to be completed without any further action by the designated authority. It is pertinent to note that, immunity cannot be availed in the following circumstances:

  • In case any management disputes of the company are pending before any court of law or tribunal;
  • In case any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudication authority under the Act, and no appeal has been preferred against such order before the commencement of the Scheme i.e. on or before 30th March, 2020.

The only remedy which has been provided for a circumstance under point (ii) above is in a situation wherein an appeal under Section 454 (6)[5] is not filed before a regional director for an order passed by the Registrar and the last date of filing appeal falls between 1st March 2020 to 31st May 2020. In such a case, there is an extension in time by 120 days for the company to file an appeal. Furthermore, during such grace period, no prosecution will be initiated against the company or its officers for non-compliance of an order of the adjudicating authority in so far as it pertains to non-filing of forms or documents.

 

Analysis of the Scheme:

While on one hand, it is noted that the Scheme provides benefits to the defaulting companies, at large, to make the filings of documents, forms, and returns which are pending for filing, the Scheme also entail other benefits as explained below:

  1. Inactive Companies- This is a good opportunity for all the defaulting inactive companies to file all their pending forms and returns at normal fees instead of the hefty additional fees of ROC and also file an application for immunity in E- Form CFSS-2020. The company can subsequently file for either Form MSC-1 to obtain the status of Dormant Company under Section 455 of the Act or file Form STK-2 for striking off the name of company under Section 248 of the Act.
  1. Directors whose DIN are deactivated due to non -filing of KYC forms-The Scheme gives an opportunity to those Directors whose DIN were deactivated due to non-filing of Form DIR-3 KYC. Those Directors can activate their DIN after filing their pending KYC forms at normal fees.
  1. Filing of annual return: The Scheme also gives companies, who have not complied with the annual return filing requirement, an opportunity to rectify the same. Further, a company that has been struck off due to non-filing of annual returns, may apply for revival before the NCLT and thereafter obtain approval for revival and then take benefit under the Scheme.

Even considering these benefits, it may be noted that there are some shortfalls under the Scheme or areas wherein the Scheme needs to bring more clarity:

  • A defaulting company gets immunity only with respect to penalty for non-filing of the form/document and the immunity is applicable only upon scrutiny and form being approved (if applicable) and a certificate being issued by the Registrar. However, in the event the form is not approved by the Registrar or the immunity certificate is not granted, the benefit under the Scheme is not available and that means the defaulting company continues to be under default.
  • The Scheme expressly provides that the immunity will not be applicable in case where the adjudicating officer under the Act has already passed an order and it is not being appealed. Similarly, in the event, if an appeal is being filed by the defaulting company against an order, then in order for the company to claim benefit under this Scheme, the application has to be withdrawn. In this regard, it is pertinent to note that there is an inordinate delay in the withdrawal of cases from the appellate authorities.[6] Given the backlog of matters before the authorities and practical difficulties arising due to COVID-19 restrictions, it needs to be considered whether the timeline provided is practically sufficient for the defaulting companies to file for withdrawal and obtain a copy thereof and thereafter file for the benefit under the Scheme. Even considering the options for online application filing that has been provided by most forums such as NCLT because of COVID-19, companies could face difficulties in meeting the timeline. Further, in a situation where a defaulting company withdraws the appeal and files for immunity but the Registrar denies or refuses to grant immunity, there is no express clarity on whether it would affect the ability of the defaulting company to file for a fresh appeal or to what extent the defaulting company will face exposure under Section 454. Alternatively, the company may have to reserve the liberty to seek fresh appeal at the time of withdrawal, as per feasibility.  
  • While at one hand, the Scheme does provide benefit in rectifying non-compliances for forms such as Annual Returns, however, the benefit is not being provided for forms such as charge-related filings which carry heavy duties in terms of additional fees as well as the time limit for filing. Also, such forms if accepted for filing would have given greater protection to the secured lenders.

In light of the above, it may be noted that while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016, etc. However, it needs to be considered whether the benefits are in their true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

References 

[1] The Scheme defined a ‘Defaulting Company’ as a company defined under the Companies Act, 2013 and which has made a default in filing of any of the documents, statement, returns etc including annual statutory documents on the MCA 21 registry.

[2] Inactive Company means companies defined in Explanation (i) to sub-section (1) of section 455 of the Act, which deals with the definition of Dormant Company

[3] Vanishing Companies are those companies which raised funds from public through initial public offers (IPOs) and subsequently failed, inter-alia, to comply with the listing/ filing requirements of Registrar of Companies (ROC) and the Stock Exchanges for a period of two years and were not found at their registered office address at the time of inspection done by authorities / Stock Exchange.

[4] Designated Authority means the Registrar of Companies having jurisdiction over the registered office of the Company.

[5] Section 454 (6) requires an aggrieved person to file an appeal against the order of an adjudicating officer within 60 days from the order thereof.

[6] As per Government of India Ministry of Corporate Affairs Rajya Sabha Unstarred Question No. 1148 answered on Tuesday, the 6th March, 2018 regarding pending cases under the Companies Act, 2013: ‘9,004 number of applications have been filed as on date for withdrawal, out of which 4,066 number of cases have been withdrawn.’

 

 

Image Credits: Ayma Nejed from Pixabay

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Concept Note on Force Majeure Event in light of the COVID -19 Pandemic

The term ‘Force majeure’ literally translates from French as ‘superior force’. It’s a common clause in legal contracts that allows either party to limit their liability in the face of some unforeseeable, extraordinary event. In English, the term is often used in line with its literal French meaning, but it has other uses as well, including one that has roots in a principle of French law. It is related to the concept of an act of God, an event for which no party can be held accountable.

The novel Corona Virus (COVID-19) pandemic prevalent across the globe has created considerable havoc and India is not an exception. COVID-19 is highly contagious in nature and it is transmitting from human to human like wildfire impacting millions of lives adversely.

Considering the gravity of this adverse situation and to bring it under control, the Central Government has imposed a nation-wide Lock-Down, wherein the mobility of all (Citizens, Resident Indians, Non-Resident Indians, Foreigners, immigrants, and so on) are restricted. Under this scenario, the questions before all landlords and tenants are whether this untoward and unprecedented situation would qualify as an irresistible force and fall under the category of a Force Majeure event? If so, what remedies do the landlords and tenants have in such an event?

There are a plethora of instances where epidemic/pandemic situations have been adjudged as Force Majeure events such as the Ebola epidemic in West Africa where it was declared a Force Majeure event for the purpose of continuing business operations and performing obligations of the concluded terms of contracts. Similarly, Courts in China interpreted the outbreak of Severe Acute Respiratory Syndrome (SARS) as a Force Majeure event where contracts could not be performed owing to the epidemic. Compared to them, the Covid-19 pandemic is much adverse in its impact as well as severity and has resulted in a global crisis. Hence, COVID-19 would most likely be listed as a Force Majeure event in India on demonstrating that the performance of a contract had become impossible during the existence of the pandemic and the consequent lockdown.

Contracts that have a Force Majeure clause that mentions an epidemic/pandemic situation would be governed by the terms therein i.e. the parties may seek amnesty under the Force Majeure clause. Similarly, in the event, a contract has the requisite Force Majeure clause embodied in it but explicitly excludes a situation like COVID -19 shall be dealt in accordance with the contract i.e. the Parties shall be disentitled from invoking COVID -19 as a Force Majeure event and seeking any reprieve out of it. However, in the event a contract does not contain a Force Majeure provision, the affected party may nevertheless be able to rely on the prevailing law. In this regard, it is crucial that we shall refer to Section 56 of the Indian Contract Act, 1872 and Section 108 (B) (e) of the Transfer of Property Act, 188.

The relevant portions of the aforesaid provisions are reproduced hereunder for ready reference: 

Section 56 of the Indian Contract Act 1872:

“56. Agreement to do impossible act.—An agreement to do an act impossible in itself is void. —An agreement to do an act impossible in itself is void.” Contract to do act afterwards becoming impossible or unlawful.—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.1 —A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.2″ Compensation for loss through non-performance of act known to be impossible or unlawful.—Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise. —Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.”

This section incorporates the Doctrine of Frustration which deals with those cases where the performance of a contract has been frustrated i.e. the performance of obligations has become impossible due to any unavoidable reason or condition. The doctrine will apply where an unforeseen event either renders a contract impossible to perform or makes the outcome of the performance radically different from what was envisaged by the parties at the time the contract was formed. Although the frustration principle is subject to a very high threshold, it may be possible to envisage a range of factual circumstances in which COVID-19 and the ensuing governmental response measures could be construed as a frustrating event.

However, Section 56 does not ideate a situation wherein a Lessee is restrained to use a Demised Premise temporarily due to the occurrence of a Force Majeure event. The treatment of such a lease agreement (temporary frustration of the contract) will depend on the Court’s interpretation. It is therefore upon the Court/s to adopt a liberal interpretation of Section 56 to include the situation of temporary shutdown due to the current pandemic. Moreover, it would be to the benefit of the majority of the Courts in India to liberally interpret the Force Majeure clause as well as liberally apply Section 56.

One needs to understand that the COVID 19 situation being universal in nature, has made both the Lessor and the Lessee victims of the situation and led to cascading adverse impacts affecting both parties in the performance of their respective agreed obligations. Like the Lessee, the Lessor has the right to invoke Section 56 of the Contract for non-performance on his part due to frustration of the contract in the absence of a contract stating otherwise.

Besides the doctrine of frustration, one may also invoke Section 108 (B) (e) of the TP Act to a limited extent to cover COVID -19 situation as explained below.

Section 108 (B) (e) of the Transfer of Property Act, 1881:

“108. Rights and liabilities of lessor and lessee.—In the absence of a contract or local usage to the contrary, the lessor and the lessee of immovable property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following, or such of them as are applicable to the property leased:—

(B) Rights and Liabilities of the Lessee

(e) if by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force, any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be void: Provided that, if the injury be occasioned by the wrongful act or default of the lessee, he shall not be entitled to avail himself of the benefit of this provision;”

Upon careful reading and strict interpretation of the foregoing provision, one will notice that Section 108 provides “other irresistible force” as one of the events qualifying as a Force Majeure event. If the Demised Premises becomes unfit to occupy (any material part of the Demised Premises be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let) due to the said event, the Lessee at his option can terminate the Lease Agreement without being liable to pay any damages/penalties.

Therefore, for application of the foregoing provision, a liberal interpretation of ‘other irresistible force’ would be required to cover the COVID-19 situation. Moreover, the application of the provision would depend on the demonstration of the effect the pandemic has on the property i.e. only if a situation arises consequently to the pandemic and the lockdown which destroys the Demised Property or renders it unfit for the purpose it was let, the provision would apply. Further, whether a situation where the Lessee is restrained to use the Demised Premises temporarily due to the pandemic and the treatment of such a lease agreement would entirely depend on the Court’s interpretation.

One needs to appreciate the fact that a contract concluded based on mutual agreements shall supersede the application of Section 108 of the TP Act. Accordingly, any contracts having the requisite Force Majeure clause embodied in them shall be dealt with in terms of the said contract. If the Contract provides for Force Majeure clause but does not specifically provide for COVID -19 situation, one has to rely on a liberal interpretation of the Force Majeure clause and examine whether one can conclude that the COVID-19 situation is implied in the Force Majeure clause provided in the contract. However, the impact of the Force Majeure event cannot be generalized and shall vary depending on the nature of the transaction and its impact on the same. The High Court of Bombay in its decision dated 8 April 2020, in the matter of Standard Retail Private Ltd Vs GS Corp & Others, dealt with the COVID-19 claim and held that Force Majeure cannot be invoked by the purchaser in making payments when the seller has performed its part of the contract.

One needs to bear in mind that the COVID -19 situation is absolutely unprecedented and unenforceable. We all need to accept the hard reality that the World is not the same as it was in December 2019. We are living in an arbitrarily changed scenario and we need to adapt accordingly to this new world order.

 

Image Credits: Anastasiia Chepinska on Unsplash

For the application of the foregoing provision, a liberal interpretation of ‘other irresistible force’ would be required to cover the COVID-19 situation. Moreover, the application of the provision would depend on the demonstration of the effect the pandemic has on the property i.e. only if a situation arises consequent to the pandemic and the lockdown which destroys the Demised Property or renders it unfit for the purpose it was let, the provision would apply

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Telemedicine in India: Doctor’s Consultation is just a Phone call away!

India is making some major headway towards providing universal health coverage. However, a significant challenge is the limited number of qualified doctors and other healthcare professionals available in our country. Telemedicine is a solution to this limitation as it allows consultation, diagnosis, and treatment by healthcare professionals from remote locations with the help of technology

The requirement of telemedicine was starkly visible during the current COVID-19 pandemic and the resultant lockdown. It significantly helped in reducing hospital visits, waiting periods, and long travel to and from the hospital. Other benefits of telemedicine include timely and faster access to healthcare services, convenience, cost-saving, and adequate documentation of health records. Until recently, there was no legislation or guidelines on how telemedicine could be practiced in India. In view of the current pandemic, the Government of India has timely come up with the Telemedicine Practice Guidelines on 25th March 2020.  This guideline forms a part of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and is numbered Appendix-5. With this, there is now some legitimacy attached to the service and the guidelines would pave the way for statutory legislation on the same lines in the future.

Evolution of Telemedicine in India

From the constitution of a Telemedicine Taskforce in the year 2005 by the Ministry of Health and Family Welfare, India has gradually progressed in telemedicine by budgeting for it, setting up various institutions, connecting Regional Cancer Centers with peripheral centers across India through the ONCO-NET India Project and networking of states and district headquarters and premier institutes as part of Integrated Disease Surveillance Project (IDSP).  The Government has further facilitated it through the establishment of the National Rural Telemedicine Network, mother, and child tracking system (MCTS), the establishment of National Telemedicine Network, National and Regional Resource Centers etc. Various indigenous software has also been developed to provide telemedicine solutions.

Scope of the Telemedicine Practice Guidelines, 2020

The Telemedicine Practice Guidelines introduced on 25th March 2020 provide norms and protocols pertaining to physician-patient relationship; issues of liability and negligence; evaluation, management, and treatment as well as informed consent. The provisions also deal with continuity of care; referrals for emergency services; medical records; privacy and security of the patient records and exchange of information; prescription; health education and counseling. These guidelines also provide information on technology platforms and telemedicine tools available to medical practitioners and how to integrate them into these technologies.

Guidelines for Registered Medical Practitioner

  • Information Exchange: A Registered Medical Practitioner (“Doctor”) is empowered by these guidelines to provide telemedicine consultation to patients from any part of India, and the same professional norms, ethics, and standards apply. All physical examinations cannot be done via video/audio/text messages. Therefore, it is left to the Doctor’s professional judgment as to whether he/she can provide a technology-based consultation or an in-patient consultation. In addition, doctors are restrained from providing telemedicine when the physical examination is critical for consultation. Doctors are also mandated to uphold the same standard of care as in-patient consultation. Both Doctors and patients are required to provide their identification to the other as may be deemed appropriate.   Since prescriptions are based on the age of the patient, a Doctor is required to explicitly ask for the age, and if necessary, seek proof thereof.  In the case of a minor, teleconsultation can only be done when the minor is accompanied by an adult whose identity is also required to be verified.
  • Informed Consent: Patient consent is mandatorily required for a telemedicine consultation. Consent is implied when telemedicine is initiated by the patients themselves. If it is initiated by a health worker, another Doctor, or caregiver, explicit consent of the patient must be procured and recorded.  Health education, counseling, and prescription of medicines can be done through telemedicine. If a caregiver is not present with the patient and does not have authorization, Doctors cannot provide telemedicine consultation. In the case of a health worker, he/she should have obtained informed consent from the patient to obtain consultation from Doctor.
  • Prescription of Drugs: The guidelines categorize drugs into four lists, List O (over the counter medications), List A (can be prescribed during the first consultation and has relatively low potential of abuse), List B (when an in-patient consultation is already done, and drugs have to be prescribed in follow up consultation), Prohibited Drugs (high potential for abuse). Doctors cannot prescribe prohibited drugs. Doctors can only prescribe List A drugs if the consultation is done through video as it involves the first consultation. If the gap between two successive consultations is more than 6 months or if the consultation is for a different health condition, it would be construed as a first consultation. Signed prescription or e-prescription can be sent to the patient digitally (or to the pharmacist after the explicit consent of the patient).
  • Confidentiality, Privacy and Data Protection: Doctors are required to abide by their professional conduct regulations, IT Act, Data protection and privacy laws in India, and other applicable rules. The guidelines specify a certain inclusive list of actions constituting misconduct by Doctors such as insisting on telemedicine when a patient is willing to travel, misusing patient data, prescription of medicine from the restricted list, and solicitation of telemedicine. Further, doctors will not be held responsible for breach of confidentiality if there is a piece of reasonable evidence to believe that patient’s privacy and confidentiality has been compromised by a technology breach or by a person other than the Doctor. However, doctors should ensure that a reasonable degree of care is undertaken during hiring such services. Penalties for violation would be as per the IMC Act, ethics, and other prevailing laws.
  • Documentation: Doctors are required to maintain digital trails and documentation of the telemedicine consultation such as logs of telemedicine interaction; patient records, reports, diagnostic data, etc., utilized during telemedicine consultation, and prescriptions for such period prescribed from time to time. Fees for telemedicine consultation should be treated in the same way as in-patient consultation, and a fee receipt should be provided to the patient.

 

Guidelines for Technology Platforms

It is the responsibility of technology platforms such as websites, mobile apps, etc., assisting in telemedicine services to:

  1. Ensure that the telecommunication is with a Doctor who is duly registered with the national or state medical councils.
  2. Conduct Due Diligence before listing Doctors in online portals. The technology platform should provide the name, qualification, registration number, and contact details of every Doctor.
  3. Report any non-compliance to the Board of Governors of MCI.
  4. Ensure that Artificial intelligence or machine learning is not utilized to counsel patients. However, such technologies can be used to assist Doctors in inpatient evaluation, diagnosis, management, and prescription.
  5. Ensure that the technology platform has a proper mechanism to address the queries and grievances of patients.

Any violation by the Technology Platform would lead to blacklisting of them by the Board of Governors or MCI, and thereafter, no Doctor shall use such a platform to provide telemedicine services.

Conclusion

In the wake of the coronavirus pandemic and the heavy toll it is taking on the healthcare sector across the world, the telemedicine guidelines had to be brought in to limit hospital visits and avoid the transmission of diseases significantly. The guidelines are designed to regulate unauthorized use and assist Registered Medical Practitioners to provide their services in an uninterrupted manner and to remote locations.  The provision for blacklisting technology platforms that do not abide by these guidelines is a welcome step to ensure due care from their end and was necessary to inculcate faith in these platforms. However, it is unjust on the part of the Government of India to only empower doctors who practice modern medicine to provide telemedicine services and not bring practitioners of Indian Medicine under its ambit.  As the definition of Registered Medical Practitioner in the guidelines state, it is only for doctors enrolled in the State Medical Register or Indian Medical Register as per the Indian Medical Council Act 1956.  Practitioners of Ashtang Ayurveda, homeopathy, Siddha, Unani, Tibb, or Sowa-Rigpa who are registered under other enactments have been overlooked.

That said, several initiatives by the Government of India on providing greater bandwidth connectivity, optical fiber connectivity, and National Knowledge Network connecting more than 800 institutions including medical institutions would encourage Telemedicine and Telehealth significantly. With people across the country in isolation and quarantine, Telemedicine is a viable alternative for patients to get immediate medical attention for minor health issues. With the assistance of technologies like fitness trackers, smartwatches, and plasters that are capable of monitoring heart rate, breathing rate, body temperatures, and generating ECG reports, it is time to harness Telemedicine for faster and timely access to healthcare services.

 

Image Credits: Photo by National Cancer Institute on Unsplash

In the wake of the coronavirus pandemic and the heavy toll it is taking on the healthcare sector across the world, the telemedicine guidelines had to be brought in to limit hospital visits and avoid the transmission of diseases significantly. The guidelines are designed to regulate unauthorized use and assist Registered Medical Practitioners to provide their services in an uninterrupted manner and to remote locations.  The provision for blacklisting technology platforms that do not abide by these guidelines is a welcome step to ensure due care from their end and was necessary to inculcate faith in these platforms.

POST A COMMENT