The Companies Act, 2013 (2013 Act) was enacted with a view to bring Indian company law in tune with global standards. However, as is the case with every new legislation the enactment of this new Act also led to chaos and confusion in the industry. The Government continued to receive representations from the industry and stakeholders that the 2013 Act needed further review. Thus, a Company Law Committee (CLC or Committee) was constituted with a mandate to make recommendations on issues arising from the implementation of the 2013 Act and examining recommendations received from other agencies such as the Law Commission of India. The CLC submitted its report on 1 February 2016 (Report) and recommended several changes to the 2013 Act with a view to ensure its effective implementation. The Ministry of Corporate Affairs (MCA) has invited comments on this Report by 15 February 2016. It is pertinent to mention that as per the Report, the committee’s recommendations will result in changes to about 78 sections of the 2013 Act and more than 100 changes in the 2013 Act itself. This update summarizes the important recommendations made by the Committee in the Report: Definitions: Associate Company [Section 2(6)]: CLC recommends amending this definition in order to make it consistent with the term associate company as defined under the Accounting Standards. Associate Company as defined under Accounting Standard-28 excludes joint ventures. Thus, CLC recommends that joint ventures, as defined in the Accounting Standard 28, be included in the explanation clause to Section 2(6) of the 2013 Act and the term ‘significant influence’ should be amended to mean 20% of the total voting power and not total share capital, since total share capital also includes preference share capital.   Subsidiary Company [Section 2(87)]: CLC recommends that since equity share capital forms the basis for determining the holding-subsidiary status of companies by virtue of it conferring voting power on the holder of the shares, the term total share capital should be replaced with total voting power. Further, CLC also recommends that the restrictions on layering of subsidiaries as contained in the proviso of the said section be omitted in order to enable companies to raise funds more effectively, which in turn will help smooth functioning of companies and also for structuring purposes. Private Placement [Section 42]: PAS-4: Given that the nature of information, which is to be disclosed in the Form is extensive, CLC recommends discontinuing the preparation, filing and circulation of PAS-4. Further, in order to protect the interest of the investors, CLC recommends that the disclosures which are made under Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital and Debenture) Rules, 2014, should be embodied in the Private Placement Application Form.   Making simultaneous offer of securities: CLC acknowledged that there may be instances wherein companies may be required to make simultaneous issue of different forms of instruments namely, preference shares or non-convertible debentures and the current prohibition on making a fresh offer of securities, if allotments to be made under the prior offer are pending, has hampered the ability of companies to meet their financial requirements. Thus, CLC recommends that subject to the offer being made to a maximum of 50 persons or such higher number as may be prescribed, a company can simultaneously keep more than one issue of securities open in a year, while ensuring that the regulatory concerns are not compromised.   PAS-5: CLC recommends that the requirement of filing Form PAS-5 should be discontinued. Also, Section 42 (7) of the Act should be amended to state that offers under Section 42 shall be made only to such persons whose details as prescribed under the rules have been recorded by the company prior to making an offer. Such details should not be filed with the Registry. In order to ensure accountability and transparency during the private placement process, CLC recommends that the relevant special/board resolution authorising the company to circulate the application form and collect monies should be filed with the Registry.   Valuation of convertible securities: CLC recommends that the valuation report, as required to be obtained by companies, need not be filed with the Registry or circulated, however, the same is required to be made available to the investors. The Committee further recommends that the current provisions under the 2013 Act requiring price of securities to be decided in advance should be modified and provisions allowing pricing to be done on the basis of a formula (on the lines of RBI Regulation/FDI Policy) should be considered.   General Meetings:   Annual General Meeting (AGM) [Section 96(2)]: On the basis of suggestions received from the industry, CLC has agreed to amend the relevant provisions of the 2013 Act to state that private companies and wholly owned subsidiaries of unlisted companies can convene AGM at any place in India, provided that 100% shareholder approval is obtained in advance by the company.   Extra-Ordinary General Meeting (“EGM”) [Section 100]: CLC recommends that wholly owned subsidiaries of companies incorporated outside India should be given relaxation to convene EGM outside India. Thus, CLC recommends deleting the explanation to Rule 18 (3) and inserting explanation to Section 100 granting exemption to wholly owned subsidiaries of companies incorporated outside India to convene EGM outside India.   Postal Ballot [Section 110]: Section 110 prescribes list of items, which are mandatorily required to be transacted by way of postal ballot. This mandatory list becomes redundant for companies, which are required to conduct voting using electronic means. Thus, CLC recommends amending the relevant provisions of 2013 Act and the rules to provide that if a company is required to provide for electronic voting, then the same items could be covered in its General Meetings also.     Independent Directors [Section 149(6)]: The criteria for appointment of independent director as mentioned in 2013 Act states that an independent director must not have any pecuniary relationship with the company, holding company, associate company, etc. Thus implying that even minor pecuniary relationships would be covered within the captioned section, even though such transactions do not compromise the independence of the director. In light of the above, and in order to bring it in harmony with the SEBI listing agreement, the Committee recommends that the test of materiality be introduced in determining the pecuniary relationship. Loans to Directors [Section 185]: CLC recommends that companies should be allowed to advance loans to other person, including subsidiaries in which the director is interested, subject to the company obtaining prior approval of the shareholders by way of special resolution. Further, loans extended to persons, including subsidiaries, falling within the restrictive purview of Section 185 should be used by the subsidiary company for its principal business activity only, and not for further investment or grant of loans.   Loans and Investment by companies [Section 186]: CLC recommends that layering restrictions on investment companies should be removed. Further, CLC also suggests that an explanation should be provided to clarify that use of the word person in sub-section 2 of Section 186 does not include employees of the company who have been given loans as a part of conditions of service or pursuant to any approved scheme for all employees by the company. Related Party Transactions [Section 188]: The Committee recommends withdrawal of the MCA Circular No 30/2014, which clarified the requirements of second proviso to Section 188 (1) of the Act. The Committee recommends that all related parties cannot vote on related party transaction. Prohibition on forward dealing and insider trading of securities [Section 194 and 195]: CLC recommends that both the Sections should be omitted, in view of the practical difficulties expressed by the stakeholders. Managerial Remuneration: (i) CLC recommends that the requirement of obtaining government approval for authorising payment of managerial remuneration in excess of the prescribed limits should be done away with. (ii) CLC also recommends that Schedule V be amended such that remuneration payable to managerial personnel who is not related to any director or promoter of a company or who is not a promoter of the company, and is a professional with relevant knowledge and domain experience; and does not hold more than 2% of the paid up equity share capital of the company or its holding company, should be approved by way of ordinary resolution and not by way of special resolution. In other cases, however, the requirement for special resolution of the shareholders should be retained. (iii) The Committee further recommends that the limits of yearly remuneration prescribed in the Schedule be enhanced. Charge [Section 77]: Given that the 2013 Act does not set out the specific list of charges which are required to be filed with the Registry, pledges and liens created were also required to be filed with the Registry. Such filings of pledges and liens created various practical difficulties, relating to the quantum and frequency of registrations required, especially for NBFCs and Clearing Corporations. Thus, the Committee recommends that prescriptive powers should be provided under Section 77 (3) to allow certain liens or securities or pledges to be exempted from filing. Board Meetings: Video Conference: The rules framed under 2013 Act specify a list of items which cannot be dealt with via video conferencing or any other audio visual means. CLC observed that this requirement completely bars the participation in the board meeting via video conferencing even if the requisite quorum as prescribed under the 2013 Act is physically present. CLC therefore recommends flexibility be provided to allow participation of directors through video conferencing, subject to such participation not being counted for the purpose of quorum. However, such directors, though not counted for the purposes of quorum, may be entitled to sitting fees. Interested Director: Given that private companies have been exempted from the provisions of Section 184 (2), which prohibits interested directors from participating in the board meetings, CLC recommends that since Section 184(2) and Section 174(3) are related sections with respect to interested directors, related exemption under Section 174(3) to enable such participating interested Directors for the purposes of quorum, should be given to private companies using the power of exemption available to the Government under Section 462 of 2013 Act.       Companies (Share Capital and Debentures) Rules, 2014:   Issue of Sweat Equity Shares [Rules 8(4) and 12]: CLC recommends that start-up companies can issue sweat equity shares in excess of the 25% ceiling and up to 50% of their paid up equity share capital. Further, CLC has also recommended that in order to encourage start-up companies, ESOPs can be issued to the promoters, who work as employees or employee directors or whole time directors, which will help them gain when the valuation of the company goes up in the future, without in any way impacting finances of the company in the initial years.   Preferential Allotment of partly paid up shares [Rule 13(2)(c)]: Currently, the captioned rule does not allow preferential allotment of partly paid up shares. However, given that the Department of Industrial Policy and Promotion vide its Press Note No 9 (2015 Series) dated 15 September 2015 allowed partly paid shares and warrants as eligible capital instruments for the purposes of FDI policy. The Committee also recommends amending this Rule in order to allow preferential allotment of partly paid-up shares. MHCO COMMENTS: A majority of the amendments that have been recommended and discussed above, are to the Sections under the 2013 Act which can only be amended by the legislature and thus will require approval of both the Houses of Parliament. Also, it can be argued that these recommendations made by the Committee will drive the ease of doing business but it may dilute some of the governance recommendations made in the 2013 Act.  

The Supreme Court, in a recent case of Rohan Builders v Berger Paints, has held that an application for an extension of the time period for passing an arbitral award under Section 29A(4) of the Arbitration and Conciliation Act, 1996 (“Act”) read with Section 29A(5) of the Act is maintainable even after the expiry of the 12 months or the extended 6 month period, as the case may be. Background The Calcutta High Court in the case of Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Limited had come to a conclusion on 6 September 2023 that the application for extension of time for passing of the arbitral award can only be entertained under Sections 29A(4) and 29A(5) of the Act, if filed before the expiry of the mandate of the arbitral tribunal. When this decision of the Calcutta High Court was challenged before the Supreme Court, the Apex Court took notice that several other High Courts had taken a contrary view, thus requiring a further judicial inquiry to determine the correct position of law and eliminate any contradictions in the interpretation of Section 29A(4) of the Act. The Calcutta High Court had taken the view that once the mandate of the arbitral tribunal is terminated by afflux of time of 12 months, or when so consented to by the parties after a further 6 month extension, the power of the court to extend time under Section 29A(4) cannot be invoked. Similar view was taken by the Patna High Court. Whereas the High Courts of Delhi, Bombay, Madras, Jammu & Kashmir, and Kerala have taken an contrary view and have held that an application for extension of time limit for arbitral award can be filed by a party even after the expiry of the term of twelve months or the extended period of six months. As a result, the Supreme Court was required to settle the position of law with respect to the correct interpretation of Section 29A(4) of the Act. Relevant Law Section 29A of the Act provides that the arbitral award in domestic and commercial arbitration must be passed by the arbitral tribunal within a period of twelve months from the date of completion of pleadings. The parties can mutually extend this period for a maximum of six months. Section 29A(4) of the Act provides that if the award is not passed within a period of twelve months or eighteen months, as the case may be, the mandate of the arbitrator(s) terminates unless the court has, either before or after the expiry of the period so specified, extended the period. The parties are required to file an application to seek such an extension. View of the Calcutta High Court: The Calcutta High Court relied upon the recommendations made by the 176th Report of the Law Commission of India, which had suggested using the term “suspend”. Juxtaposing the words “terminate” and “suspend” it is noted that the use of the expression “terminate” reflects the legislative intent of terminating the mandate of the arbitral tribunal upon the expiry of the specified period. Therefore, the reasoning observes that on the termination of the mandate, the arbitral tribunal becomes de jure incapable of performing its function. As a sequitur, a party must file an application for an extension of time to make an arbitral award before the culmination of the initial twelve-month period or the extended six-month period. View of the Supreme Court: The Apex Court opined that the legislative preference for the term “terminate” over “suspend” is apparent, since the word “suspend” could cause a legal conundrum if no party files an application for an extension of time. In such a scenario, the arbitral proceedings would stand suspended ad infinitum. Therefore, the legislature by using the word “terminate” intends to affirm the principle of party autonomy. In conclusion, the Apex Court held that an application for extension of the time period for passing an arbitral award under Section 29A(4) of the Act read with Section 29A(5) of the Act is maintainable even after the expiry of the 12 month or the extended six-month period, as the case may be. The court while adjudicating such extension applications will be guided by the principle of sufficient cause and must exercise judicial discretion when deciding the terms and conditions, subject to which, such an order of extension will be passed. MHCO Comment: The view taken by the Supreme Court will ensure that parties are at liberty to apply for extension of time for passing of the arbitral award even after the expiry of the specified period. At the same time, the Apex Court has rightly stressed on the need to allow such an extension only when there exists a sufficient cause and subject to stringent terms and conditions. This emphasis by the Supreme Court will curb delaying tactics the parties employ. In conclusion, the Apex Court has taken a balanced view while interpreting Section 29A(4) of the Act.

The Bombay High Court, in a recent case of Hem Prabhakar Shah v the State of Maharashtra, has held that when a person is intercepted & detained in pursuance of a Look Out Circular (“LOC”), such a detention is equivalent to an arrest and the police is mandatorily required to produce such a person before a Magistrate within 24 hours of the arrest and must disclose grounds of arrest, failing which, such an arrest will be illegal. Brief Facts: The Petitioner, a Singapore national, landed at Ahmedabad Airport on 13 August 2024. Upon landing, he was intercepted and detained by the Immigration Officers at around 10 PM based on an LOC, which was issued at the instance of State of Maharashtra. Without providing any further information, he was transferred to the custody of Ahmedabad Airport police station, where he was detained in police lock up till 1 PM on 14 August 2024. Maharashtra Police officer arrived in Ahmedabad at 3 PM, the Petitioner was brought to Mumbai by air on 14 August at 7 PM. Finally, he was shown to be arrested at Azad Maidan Police station at 11.08 PM on 14 August 2024. On 15 August 2024, the Petitioner was produced before the Magistrate at around 12.30 PM. The Magistrate had authorized his remand initially till 17 August 2024 and was extended till 21 August 2024. The Petitioner had sought issuance of writ of Habeas Corpus on the ground that he was illegally detained. He had also challenged Remand Orders claiming that the arrest was not in accordance with law. Contention of the Parties: The Petitioner contended that his detention at the airport itself amounted to arrest. He submitted that as his movements were restrained resulting in deprivation of personal liberty, the detention itself amounted to arrest. Subsequently, the Police failed to produce him before the nearest Magistrate within 24 hours of the arrest, in violation of Article 22(2) of the Constitution and section 57 of Code of Criminal Procedure, 1973 (“CrPC”). He also contended that the arrest was illegal as grounds of arrest were not communicated to him in contravention of Article 22(1) of the Constitution and Section 50 of the CrPC, which makes it mandatory for a police officer or a person effecting an arrest to disclose full particulars of offence or other grounds of arrest. The State of Maharashtra defended the action and submitted that there was no infraction of any right of the Petitioner. It was argued that when he was spotted at the airport, he was apprehended and his identity was established. In order to prevent him from escaping, he was only taken into formal custody and that it did not amount to arrest. It was also argued that reasons for arrest were communicated to the Petitioner. Held: After considering rival submissions, the Bombay High Court referred to the affidavit affirmed by the police inspector, Azad Maidan police station, Mumbai. The affidavit stated that the Petitioner was detained as per the LOC and that, from 13 August 2024 at 10 PM until the custody was received by Azad Maidan Police Station on 14 August 2024, the procedure was part of the arrest process. Therefore, the Hon’ble Court deduced that the Petitioner indeed was arrested at the airport at 10 PM. And, as he was detained for almost 30 hours till his production before the Magistrate, the same is in violation of section 57 of the CrPC and Article 22(2) of the Constitution. The Hon’ble Court also reiterated the difference between reasons of arrest and grounds of arrest and held that the police did comply with Section 50 of the CrPC and Article 22(1) of the Constitution by not disclosing the grounds of arrest to the Petitioner. In view of the aforesaid observations, the Hon’ble Court declared that the arrest of the Petitioner was illegal, as a result, subsequent remand orders were also declared as illegal. MHCO Comment: The view taken by the Bombay High Court shows its unwavering commitment to personal liberty and its resolve to ensure that constitutional safeguards and processes of law are respected and followed in letter and spirit by the police. This decision will hopefully act as a deterrent to excesses of law at the time of arrest and bring in compliance of the basic constitutional guarantees by the police.

The Supreme Court's recent ruling in Omkar Realtors and Developers Pvt. Ltd. vs. Kushalraj Land Developers Pvt. Ltd. & Anr. represents a significant development in consumer protection within the real estate sector. This case centres on the interpretation of "consumer" under the Consumer Protection Act, 2019, and sets important precedents for fair trade practices in real estate transactions. Background of the Case The dispute arose when Kushalraj Land Developers Pvt. Ltd. (KLDP) booked a flat in the "Omkar 1973 Worli" project developed by Omkar Realtors and Developers Pvt. Ltd. (ORDP). KLDP made an initial payment of ₹51 lakhs, followed by further payments amounting to approximately ₹6.8 crores. An allotment letter issued on 29 June 2016, promised possession by 31 December 2018. However, ORDP advanced the possession date unexpectedly and demanded the remaining balance of ₹28.88 crores within 30 days.  KLDP discovered that the flat was already allotted to another individual, being one Mr. Nakul Arya, leading them to reject possession and stop further payments. In response, ORDP cancelled the booking on 31 August 2017, and forfeited the amounts paid by KLDP. KLDP then filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC), citing service deficiencies and unfair trade practices by ORDP. Key Legal Issues The case hinged on two primary issues: 1.  Whether KLDP, as a real estate developer, qualifies as a "consumer" under Section 2(7) of the Consumer Protection Act, 2019. 2.  Whethe­r ORDP's actions amounted to deficient service and unfair trade practices, specifically concerning the double allotment and subsequent cancellation and forfeiture of deposits. Definition of "Consumer" Under the Consumer Protection Act Under Section 2(7) of the Consumer Protection Act, 2019, a "consumer" is defined as a person who buys goods or services for personal use and not for resale or commercial purposes. The crucial question was whether KLDP, a corporate entity, could be considered a consumer under this definition. The NCDRC and the Supreme Court analyzed whether the flat's purchase was intended for personal use or commercial exploitation.   NCDRC's Ruling The NCDRC ruled in favor of KLDP, recognizing them as a "consumer" under the Act. The commission found that despite KLDP being a real estate company, the flat was purchased for the personal use of a director and his family, not for resale or commercial purposes. The NCDRC also determined that ORDP engaged in unfair trade practices by double allotting the flat and failing to rectify the issue before cancelling the booking. As a result, ORDP was directed to refund ₹7.16 crores with a 6% annual interest from the deposit dates, escalating to 9% if the refund was delayed beyond two months. Supreme Court's Analysis The Supreme Court upheld the NCDRC's decision, affirming both KLDP's status as a consumer and the finding of service deficiencies by ORDP. Citing previous judgments, including Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Crompton Greaves Ltd. vs. Daimler Chrysler India Pvt. Ltd., the Court clarified that entities purchasing for personal use, rather than commercial gain, qualify as consumers. The Court emphasized that KLDP's flat purchase was for residential use by a company director, not a commercial transaction. Furthermore, criticizing ORDP's conduct, highlighting the unethical practice of double allotment and the unjustified advancement of the possession date. The Court noted that ORDP's cancellation of the booking without resolving the allotment confusion, violated principles of fairness and transparency. Implications of the Judgment This judgment has far-reaching implications for consumer protection in real estate: Broadening the Definition of "Consumer": The ruling affirms that corporate entities can be considered consumers if the purchase is for a non-commercial use. This interpretation ensures broader protection for entities involved in non-commercial transactions, safeguarding them against unfair practices. Ensuring Fair Trade Practices: The case sets a precedent that real estate developers must adhere strictly to their commitments and cannot cancel bookings arbitrarily or withhold refunds without just cause. It emphasizes transparency, fairness, and accountability in real estate dealings. Holding Developers Accountable: The decision serves as a warning to developers engaging in unethical practices like double allotments or unjust cancellations. It upholds consumer rights and promotes integrity in real estate transactions. Enforcing Timely Refunds: The Court's directive for refunds with compensatory interest stresses the importance of honouring financial commitments, ensuring consumers are compensated for delays, and encouraging developers to fulfil obligations promptly. MHCO Comment The Supreme Court's decision is a landmark ruling that strengthens consumer rights in the real estate sector. By broadening the definition of a "consumer" and reinforcing the need for fair practices and accountability among developers, this judgment will likely enhance consumer protection and promote ethical standards in real estate transactions across India.