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News and Articles
Securities Law Update
[The Viewpoint] Securities Law Update | Liability of a Company Secretary for Wrong Disclosure in a Listed Company
Personal liability of a Company Secretary upon non-compliance of obligations towards the listed Company has come under question before the Securities Appellate Tribunal (SAT) in the case of V Shankar v. SEBI wherein it has been observed that the Company Secretary (i.e. Appellant) has no obligation to look into the veracity of the details mentioned in the financial statements and disclosures of the listed company. The judgement can make serious ripples in the securities market and has once again brought forth the debate on the scope and extent of a Company Secretary's liabilities.
This article endeavours to analyse V Shankar's judgement and the consequences arising from this same. However, before we analyse the same, let us evaluate relevant judgements of SAT with regard to Company Secretaries in the last decade:
G Jayaram v SEBI - Guilty (2013): In this judgement of SAT, it was held that a Company Secretary of Satyam Computer Services Limited is liable for not performing his obligations as a Compliance Officer under the Model Code of Conduct under the SEBI (Prohibition of Insider Trading) Regulations, 1992 for not closing the trading window when in possession of unpublished price sensitive information. SAT further clarified that a Compliance Officer would be liable for a penalty if he fails to close the trading window when in possession of unpublished price-sensitive information, even if no employee has traded in shares of that company when in possession of unpublished price-sensitive information. Thus, a stern approach towards the liabilities of a Company Secretary was taken by the SAT in 2013.
Pooja Mahna v SEBI - Not Guilty (2016): In the said case, SAT overturned the decision of the AO whereby the Company Secretary was held to be not liable as the offences pertaining to a Board meeting conducted after she had tendered her resignation and was under her notice period. SAT, in this case, found that there existed sufficient evidence to show that the Compliance Officer was not involved in the Board Meeting and thus, the imposition of penalty for non-compliance did not arise. Thus, SAT has emphasised the need to show a nexus between the offence committed and the responsibility of the officer who sought to be penalised.
Manoj Agarwal v SEBI - Not Guilty (2017): In stark contrast to G Jayaram Case, SAT, in this case, found the Company Secretary of Bharatiya Real Estate Development Limited (BREDL) was not liable for the alleged violations committed under Section 73(2) of the Companies Act, 1956 (1956 Act). In the said case, the SAT held that there was nothing on record to suggest that the Company Secretary was authorised to comply with the obligations relating to the deemed public issue and hence, the argument that the Company Secretary of BREDL ought to have been made liable cannot be accepted. This necessitates a higher threshold to hold the Company Secretary liable, by requiring some sort of nexus to be present between the offence and the offender.
Brooks Laboratories Limited & Ors (BLL) v SEBI - Guilty (2018): In this case, the question before the SAT was whether the Adjudicating Officer of SEBI (AO) was justified in imposing an individual penalty on the Company Secretary of BLL for failing to disclose material information and making false/misleading statements in the Prospectus. Interestingly, SAT found the Company Secretary to be liable for the violations of provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. SAT, while passing the order, equated the responsibilities of the KMPs and Company Secretary on the same footing under the aforementioned provisions. In this judgement, SAT held a higher level of responsibility to be vested on the Company Secretary.
Analyses of V Shankar v SEBI
n this case, the question before the SAT was whether the AO was right in holding the Company Secretary of Deccan Chronicle Holdings Limited (DCHL) liable for being:
(a) signatory to the annual reports of the Company wherein the outstanding loans, interest and finance charges were understated; and
(b) further for being a signatory to the public announcement made by the company for buyback of its equity shares without having adequate free reserves thereby misleading investors/shareholders and violating the Companies Act?
SAT interpreted Section 215 of the 1956 Act to indicate a fiduciary relationship upon the Board of Directors of the Company to verify the contents of the balance sheet before approving it. Once the balance sheet and the profit and loss statement are approved by the Board of Directors, then the ministerial task falls upon the company secretary and two of the directors to sign the balance sheet.
SAT further stated that "the Company Secretary, is only there to authenticate the contents indicated in the balance sheet or in the offer document and is not required to go into the veracity of the buyback offer document and its legal compliances before authenticating the such document." Such a duty was held as not to be a part of the responsibility of the Company Secretary.
Our Observations
It is interesting to observe that this judgement does not engage in any juris prudential analysis of the roles, responsibilities and liabilities of the Company Secretary. Further, under 1956 Act or under the Companies Act, 2013 (2013 Act), a Company Secretary is considered as principal officer and the Principal has to be accountable as a signatory to annual reports or other documents;
Indian Accounting Standards 107 dealing with "Financial Instruments: Disclosures", wherein the appropriate standards for disclosure of financial statements of the company have been prescribed. Such a duty of the Company Secretary is to be carried out in his individual capacity and not on behalf of the Board of Directors. Further, by virtue of Section 2(51) of 2013 Act, a Company Secretary is designated as a KMP thereby making him liable akin to that of the Director/ CEO / CFO of the Company.
Accordingly, we believe that the decision in V Shankar case may have future implications.
Bhushan Shah is a Partner & Aditya Sarangarajan is an Associate at Mansukhlal Hiralal & Company.
https://www.barandbench.com/law-firms/view-point/securities-law-update-liability-of-a-company-secretary-for-wrong-disclosure-in-a-listed-company
Parking Spaces
[Part II] Parking Spaces: The Conundrum Continues
As seen in Part 1 of this article, there are a plethora of ambiguities surrounding parking spaces which become obvious when the governing statutes are read together. Briefly, the relevant statutes are provided as under:
Relevant statutes relating to parking spaces
Evidently the position of parking spaces being part of common areas has evolved with each statutory advancement. However, as seen in Part 1 of this article, despite the altered definitions of common areas, the entire domain of parking spaces is still kept within the purview of the CHS control by virtue of Model Bye Laws. The same is also the general trend of practice.
With respect to open parking spaces, it is settled that as the law stands today, the CHS has the highest control since the same form a part of common areas. However, the control exercised by the CHS with respect to garages and covered parking spaces (which include stilt parking spaces) is uncertain since control of these areas has not been statutorily handed over to the CHS under RERA. Several such ambiguities have gone unaddressed, and at times were further complicated by the addition of statutory or regulatory provisions regarding parking spaces. Part 1 explored the contradictions in statutes governing parking spaces and the ambiguities arising therefrom. In our quest to understand how much further we need to go in bringing clarity and fairness to the norms surrounding parking spaces, this part 2 of the article goes further to understand the gaps in the arena.
When it comes to the specifications of the parking spaces, it is pertinent to take note of the Development Control & Promotion Regulation, 2034 (DCPR). Rule 44(2) thereunder specifies the minimum number of parking spaces to be provided by the Promoter vis-à-vis the number and area of flats. For instance, it states that where there are 4 tenements having a carpet area of upto 45 sq. m. each, the Promoter is obligated to make a minimum of one parking space available for the 4 tenements. However, it remains unclear as to how the Promoter would decide to allot the one parking space amongst the multiple allottees of the tenements. It is noteworthy that, unlike the Model-Bye laws, no mention of first come first serve rule for allotment of parking spaces has been made under the DCPR. If it is assumed that the one willing to pay the price would get the benefit of being allotted the parking space, then foreseeably this is only a bidding war waiting to happen.
Further, as seen in Part 1 of this Article, the Promoter is supposed to allot parking spaces to the allottees by virtue of the 2021 Notification brought out by MahaRERA. This further substantiates the belief amongst flat buyers that a payment to the Promoter for a parking space will ensure that they are properly allotted the same.
However, the flat owners are usually in for an unpleasant surprise when they are allotted a parking space either under the DCPR Rules or by paying a handsome amount to the Promoter believing the Promoter to have the authority to allot parking spaces under RERA. While the flat purchaser receives an official allotment of parking spaces by the builder/promoter, the CHS once formed, takes over the control of all the parking spaces and reallots the same, as per its regulations. A layman, hence, believing in the authority of the Promoter/builder to allot parking spaces, pays his hard-earned money, only to be faced with legal ambiguities and uncertainties at a later stage.
Last but not least, the Government of Maharashtra has found one more opportunity to further grow its wealth. Despite the complete and obvious ambiguities in the status of the parking spaces, as well as the lingering question of whether the parking spaces allotted by the Promoter under the MahaRERA Notification can be taken over by the CHS at a later stage; the car parking allotments are stamped along with the stamp duty applied on the conveyance of the flat under Article 25(b) of Maharashtra Stamp Act, 1958. The Government treasury has hence thought it fit to add further burden on the flat purchasers, before addressing these glaring ambiguities.
What is perhaps possibly further enraging to the public is the undoing done by the Notification. The Notification inter alia provides that,
“Garage and/or covered parking space when sold/allotted for monetary consideration, the type, numbers and size as well as the place where such garage or covered parking space is situated should be mentioned in the Agreement for Sale being entered into and the plan showing the exact location / allotment along with the particulars as aforesaid should be annexed to the Agreement for Sale”
Whereas the Nahalchand Laloochand judgment established that the parking spaces are not saleable by the Promoters for monetary consideration and thereby solving a multitude of disputes regarding the same, the Notification going contrary to the established position effectively permits the sale of covered parking spaces and garages for monetary consideration.
Arguably, this Notification has come as a way of regulating the sale of parking spaces being engaged in by the Promoters despite the Nahalchand judgement. However, the fact remains that this step has gone partially against the much-welcomed Supreme Court judgement which has also found support in the recent Goel Ganga judgment passed by the Bombay High Court.
It is undoubted that it would require special attention from the legislature and the executive of the state to resolve and bring clarity to the issues and ambiguities surrounding parking spaces. It is not sufficient to bring in standalone clarificatory statutory or regulatory provisions. It is pertinent to review the existing and the new additions in the statutory realm surrounding parking spaces in consonance with each other. More than the lack of guiding principles, it is the lack of coherence which plagues the vehicle owners of the city looking to have an assured space for their vehicles.
Purvi Asher is a Partner and Veena Hari is an Associate at Mansukhlal Hiralal & Co.
https://www.barandbench.com/law-firms/view-point/part-ii-parking-spaces-the-conundrum-continues
Parking Spaces
Parking Spaces: The Conundrum
Disputes over parking space allotments are certainly not unknown nor are they uncommon. Lack of space, along with lack of clarity in law are the leading causes of these disputes, especially in cities like Mumbai, Maharashtra. This article is part 1 of our quest to explore the evolution of control and allotment of parking spaces and the current situation with regards to the same.
Up until the application of Real Estate (Regulation and Development) Act, 2016 (“RERA”), the governing laws for the promotion, construction, sale, management, and transfer of flats in Maharashtra was controlled by the Maharashtra Ownership of Flats Act, 1963 (“MOFA”).
MOFA lays down that the common areas are to be transferred to the Co-operative Housing Society (“CHS”). However, it failed to define “common areas”, it was hence unclear if parking spaces would be included thereunder. Alongside, it was observed that certain promoters had been selling parking spaces within the building premises for monetary consideration. This led to numerous disputes, which were eventually resolved in Nahalchand Laloochand, wherein the Apex Court laid down that parking areas, whether open to the sky or stilted portion, fall within the purview of “common areas and facilities” under MOFA. Further it was clarified that parking spaces are not independently saleable.
Going on the premise that parking spaces form a part of common areas and are to be transferred to the CHS, the Model Bye-laws (2014) (“Model Bye-Laws”) brought in by the Maharashtra State under the Maharashtra Co-operative Societies Act, 1960 (“MCS Act”) provides that the CHS will control the allotment of parking spaces.
The Model Bye-Laws states that the Society shall frame and adopt Parking Rules to regulate the Parking slots and the allotment of Parking Space shall be made by the Committee on the basis of "First Come First Served", for available parking slots. Where the number of eligible Members for parking slots is in excess of the available parking slots, the Managing Committee shall allot parking slots on annual basis by fair and transparent process, in concurrence with the General Body regulations.
Hence, it became clear on a combined reading of MCS Act, Model Bye-Law and the judgement of Nahalchand Laluchand, that parking spaces form a part of the Common Area and are to be regulated by the Housing Societies, and further, they are not saleable for monetary consideration.
The introduction of RERA in 2016 brought in certain alterations in the status of parking lots. RERA provides a definition of common areas, to the specific inclusion of “open parking areas”, and hence to the specific exclusion of “covered parking spaces” and “garages” from the definition of common areas. This exclusion shows a slight departure from the earlier established view by virtue of the Nahalchand judgement which inter alia included closed parking spaces within the definition of common areas.
Section 17 and Section 19 of RERA establish the same position as the Model Bye-Laws, i.e. the possession and control of the common areas lie with the CHS. However, despite the altered definition of common areas, the covered parking spaces are still kept within the purview of the CHS control by virtue of Model Bye Laws which are still in force.
To the misfortune of the public and to the fortune of the legal academicians, the plot further thickens.
The Maharashtra Real Estate Regulatory Authority (Maha RERA), recognizing the growing need for proper regulation of parking spaces, brought out a notification in 2021(“Notification”) under the RERA Act. It gives the following straight forward rule as to the allotment of parking spaces in real estate projects:
Open parking areas, garages, and covered parking spaces should be specifically marked and numbered at the real estate project site in accordance with and as per approved/sanctioned plans and tagged to the apartment to which it is allotted.
However, quite contrary to the intent, the Notification when read in consonance with other statutory rules governing the matter, the arena gets more ambiguous than what we started out with.
As seen above, the CHS has a claim to the common areas under RERA alongside the control given to CHS by virtue of the Model Bye-Laws. However, the Notification, effectively contradicting RERA, states that the Promoter shall allot individual parking spaces, including the open parking spaces which form a part of common areas, to specific apartments and thereby to the respective allottees. Hence, now there are effectively 2 claimants of parking spaces. Moreover, when the claim to common areas eventually is handed over to the CHS as per RERA provisions, it remains unanswered if the allotment of open parking spaces made by the Promoter under this Notification is of any value or not.
Further, the initial control over the parking spaces, by virtue of the Notification, stands with the Promoter. Once he allots a parking space to any specific apartment, the right to use the same is endowed onto the allottee of the respective apartment. The control once again shifts to the CHS by reason of Model Bye-laws and the general practice in force up till now. It is hence quite evident that ambiguity as to parking spaces has once again crept in.
Moreover, it hasn’t been made clear what the meaning of allotment by the Promoter of parking spaces means. Whether the allotment be for additional consideration by the apartment allottee or whether it be for consideration included within the consideration for the apartment, it is not clear if the same amounts to any sort of claim of the allottee as to that specific piece of land constituting the parking space or is the allottee’s claim subject to any claim of the CHS over the parking spaces.
In order to avoid a new set of disputes arising from the above stated ambiguities, it is pertinent at this stage to bring all the governing statutes with respect to parking spaces in consonance with each other such that all scope of ambiguities is done away with.
Further the Notification permits and regulates the sale of closed parking spaces and garages and to that extent overrides the Nahalchand judgment. The following part of this article explores the arena further.
Purvi Asher is a Partner and Veena Hari is an Associate at Mansukhlal Hiralal & Co.
https://www.barandbench.com/law-firms/view-point/parking-spaces-the-conundrum
News & Articles
Understanding Quia Timet Action vis-a-vis Intellectual Property Rights
'Quia Timet', is a Latin phrase to mean: 'because it is feared or apprehended'. It is an action, to prevent a party from a wrongful act, which is anticipated to be either threatening or imminent, but has not yet begun which may harm the aggrieved party.
Quia Timet Action in Intellectual Property Suits
Quia Timet Action (QTA), is a remedy, which has a long history with influences from injunctive relief in property disputes, lawsuits for document cancellation under specific relief law, preventional detention under criminal law and other such cases. However, modern day trademark passing off actions are merely inspired by the principles laid down by Court of Chancery's landmark judgement of Fetcher vs Bealey. This remedy has effectively replaced the typical way of framing'acts of the defendant'to framing' likelihood or apprehension of acts that might be done by the Defendant'.
Generally, in a passing off and / or trademark infringement suit, an injunction is usually granted to Plaintiff when the Defendant commits some wrong. However, QTA is an injunction that allows a Plaintiff to protect its rights, even before there is violation of such rights. This is on the basis of fear or apprehension that a wrong might be committed.
Indian Court's ruling on Quia Timet Action
In India, the extension of QTA for trademark suits began by throwaway mentions of English cases in the High Courts of Bombay, Madras and Delhi. However, for trademark suits, one of the first independent and clear most endorsement of QTAs can be traced from the Delhi High Court's Mars Incorporated vs Kumar Krishna Mukherjee & Ors. ("Mars Case").
Facts of Mars Case:
The plaintiff was a registered owner and user of the trademark 'Mars' for chocolate, confectionery and other preserved food products. The Defendant, although had incorporated a company in the name of Mars Food Private Limited had neither commenced any business nor had used the mark 'Mars' in respect of their business. Fearing infringement, the Plaintiff initiated a suit for QTA before the Delhi High Court against the Defendants. The Plaintiff choose to file a suit for QTA as no goods and/or services of Defendants bearing the mark 'Mars' were found.
The Delhi High Court while granting reliefs, realized that it is of utmost importance to first decide whether the Plaintiff is entitled to such an injunction or not. Therefore, while deciding the suit under QTA, the court sought out three conditions that were essential to qualify as a QTA. They are as follows:
a. That the Plaintiff’s right must be under threat;
b. That such a threat to Plaintiff’s right should be “substantial and material”; and
c. That such a threat, if carried out, could cause substantial damage for which granting of any monetary compensation would be inadequate.
Keeping the above three principles in mind, the Delhi High Court concluded and injuncted the Defendants while further laying down four tests, that were to be satisfied for maintainability of a QTA. They are as follows:
a. The goods and services sold by the Defendant should be similar to that of Plaintiff’s, and such goods and services should likely cause confusion or deception;
b. That the Defendant’s intention was to override goodwill and reputation of the Plaintiff;
c. That there is and was likelihood or reasonable probability of real or tangible damage or injury to the Plaintiff if the Defendant were to act; and
d. That the hardships faced by Plaintiff are greater than that of Defendant, if an injunction was to be rejected against the Defendant.
These above laid principles in the Mars case, are the basis on which suit for QTA suits are usually decided. The court recognized the importance of protecting a well-known trademark and protecting damages to the reputation of the brand. Overall, the Mars Case highlighted the importance of trademark owners being proactive in protecting their Intellectual Property Rights, and the legal options available to them in doing so.
The Mars Case is a landmark judgement that has laid down the principle of QTA, which was thereafter upheld by many High Courts. Some of the cases were Intel Corporation vs Harpreet Singh and Merck Sharp & Dohme Corporation vs Aprica Pharmaceutical cases.
In most cases of QTA, plaintiffs are granted reliefs including ex-parte relief, despite the fact that the cause of action is not fully being formed. However, damages in such cases are not awarded, as damages are merely apprehended and not actually caused. To simplify, QTA enables Plaintiff to seek injunction by apprehending violation of trade mark rights.
A stitch in time always saves nine and that is the essence of Quia Timet Action. It is a strong tool which the trademark owners can use to restrict potential trademark infringers from infringing upon the goodwill and reputation of a mark. Many trademark proprietors have approached the Courts with QTA suits as such injunction action provides a quick and effective means of preventing harm as compared to a traditional trademark infringement suit. However, it is worth noting that courts follow a strict procedure to avoid abuse of this legal process. The courts carefully examine the facts and circumstances of each case and ensure that any injunction granted, is based on genuine fear of infringement and is not just to restrict competition and innovation.
Bhushan Shah is a Partner, Meeta Kadhi is a Senior Associate and Kanak Kadam is an Associate at Mansukhlal Hiralal & Co.
https://www.barandbench.com/law-firms/view-point/understanding-quia-timet-action-vis-a-vis-intellectual-property-rights
MHCO Updates
MHCO Updates
DIGITAL PERSONAL DATA PROTECTION ACT, 2023 – FINALLY NOTIFIED!
Background
Six years after the Supreme Court ruled that the right to privacy falls within the ambit of Article 21 of the Constitution of India in Justice Puttaswamy (Retd) v. Union of India, India has finally enacted the Digital Personal Data Protection Act, 2023 (Act), published in the Gazette of India on 11 August 2023. The Act saw a tumultuous path towards enactment which started with the appointment of a special committee headed by Justice B N Srikrishna followed by the introduction of several drafts and severe criticisms surrounding them. This legal update is prepared with the objective to provide you with a brief overview of the Act and implications on its non-compliance as it is applicable to every organisation (small or large) in India.
Scope and Applicability | Personal Data
The Act defines ``personal data`` as any information that can pinpoint an individual’s identity and processing of personal data entails various activities such as gathering, storing, utilizing, and sharing of such data.
The Act covers the handling of digital personal data in India, whether collected online or offline, as long as it is in digital form. Additionally, the Act applies to processing personal data outside India if it is related to providing goods or services within India.
The Act however does not apply to personal data that is made publicly available by the person to whom such personal data relates; or to any other person who is obligated under any law for the time being in force in India to make such personal data publicly available.
Consent | Data Principal
The Act emphasises that before processing any personal data, a Data Fiduciary, i.e. a person who processes personal data (Data Fiduciary), must take consent from the Data Principal, i.e. the individual to whom the personal data relates (Data Principal). In order to take consent, the Data Fiduciaries must first provide a notice specifying the particular personal data to be collected and the specific purpose for which it will be used (Notice). The consent given by the Data Principal shall be limited only to the extent of the specific purpose as made out in the Notice and any consent taken beyond the specific purpose shall not be considered valid.
A Data Principal may also appoint a consent manager, i.e. a person registered under the Act to act as a single point of contact to enable a Data Principal to give, manage, review and withdraw their consent through an accessible, transparent and interoperable platform (Consent Manager). A Consent Manager shall be accountable to the Data Principal under the Act and a Data Principal shall have a right of redressal of grievances by the Consent Manager.
Further, Data Principals retain the right to revoke their consent at any time upon which the Data Fiduciary shall within a reasonable time cease and cause its data processor, i.e. a person who processes the personal data on behalf of a Data Fiduciary, to cease the processing of the personal data of such Data Principal.
Obligations of Data Fiduciaries
The Act places substantial responsibilities on the Data Fiduciaries. These obligations encompass making reasonable efforts to ensure data accuracy and completeness, establishing security measures to prevent data breaches, promptly notifying both the Data Protection Board of India and affected Data Principal in the event of a breach, and erasing personal data once its intended purpose is fulfilled and legal retention is no longer necessary. Further, if a Data Fiduciary sends personal data to a data processor, the Data Fiduciary is liable for the actions/ inactions of the data processor.
Rights and Duties of Data Principals
The Act further acknowledges the rights of the Data Principals. These rights encompass the ability to obtain information about how their data is being processed, request corrections or erasure of their personal information, nominate a representative in case of incapacity or death, and seek remedies from the Data Fiduciary of any grievance they may have. Certain responsibilities have also been imposed upon the Data Principal such as refraining from making false or unnecessary complaints and providing accurate information.
Cross-border Data Transfer
The Act allows personal data to be transferred beyond India, except to countries which may be specifically notified by the Central Government. This provision however does not restrict the applicability of any law for the time being in force in India that provides for a higher degree of protection for or restriction on transfer of personal data by a Data Fiduciary outside India.
Significant Data Fiduciaries
Under the Act, the Central Government may notify any Data Fiduciary or class of Data Fiduciaries as a significant data fiduciary, on the basis of an assessment of relevant factors a such as the volume and sensitivity of personal data being processed, potential risk to the rights of Data Principal, impact on the sovereignty and integrity of India, security of the State and public order. Entities that are notified as significant data fiduciaries have to maintain extra compliances such as conducting independent and periodic data audits and appointing a data protection officer and an independent data auditor to gauge the impact of their actions and ensure compliance with the regulations.
Data Protection Board of India
The Act envisages the appointment of a Data Protection Board of India (Board) to be established through a notification by the Central Government to that effect. The Board shall act as the adjudicating body for any breach of personal data.
Breach of Personal Data
Personal data breach has been defined under the Act as any unauthorised processing of personal data or accidental disclosure, acquisition, sharing, use, alteration, destruction or loss of access to personal data, that compromises the confidentiality, integrity or availability of personal data.
In case of a breach of personal data, the Data Fiduciary must immediately inform the Board as well as the Data Principal, whose personal data was breached.
The Board would then inquire into the breach.
If the Board is of the opinion that there are insufficient grounds to proceed with the complaint, it may close the proceedings and impose costs if the Board believes that the complaint was frivolous.
If after inquiring into the complaint, the Board believes that there are sufficient grounds to proceed with the complaint, it shall conduct a further investigation into the complaint.
After investigating into the complaint, the Board may issue interim orders.
If the Board believes that there has been a breach of personal data, the Board may impose a penalty which can range from Rs 10,000 (Indian Rupees Ten Thousand) to Rs 250,00,00,000 (Indian Rupees Two Hundred and Fifty Crores). The specific penalties have been laid down in the Schedule of the Act.
While deciding the amount of the monetary penalty, the Board shall look into the following matters:
the nature, gravity and duration of the breach;
the type and nature of the personal data affected by the breach;
repetitive nature of the breach;
whether the person, as a result of the breach, has realised a gain or avoided any loss;
whether the person took any action to mitigate the effects and consequences of the breach, and the timeliness and effectiveness of such action;
whether the monetary penalty to be imposed is proportionate and effective, having regard to the need to secure observance of and deter breach of the provisions of the Act; and
the likely impact of the imposition of the monetary penalty on the person.
Any person aggrieved by the order of the Board may appeal to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) within 60 days from the date of receipt of Order of the Board, and the TDSAT shall dispose of the appeal within 60 days of the presentation of the appeal. The TDSAT shall have all the powers of a civil court.
Additionally, the Board has the power to direct any complaint to be resolved through mediation.
MHCO Comment:
In this age of inevitable digitalisation of all personal information, the Act comes as a welcome move to protect people’s privacy. However, a perusal of the Act shows that the Central Government has been given significant powers such as the powers of exclusion of specific Data Fiduciaries and instrumentalities of the State from the ambit of the Act and to notify a Data Fiduciary as a significant data fiduciary. Concerns about inordinate Executive interference may hence arise and this could alter the effectiveness of the Act. This would also make the Rules to be notified under the Act essential in carving out the operative aspects of the Act.
Further the Act suffers from the practical difficulty of a lack of timeline for the appointment of the Board by the Central Government without which the Act would be remain powerless. It is also very ambitious of the Act to envisage compliance with the heavy obligations imposed upon all the Data Fiduciaries, considering the wide ambit of the term, which would also cover under it the smallest of enterprises such as photocopy stores which receive bulks of personal data on a daily basis. Such obligations also include the establishment of grievance redressal mechanisms by every Data Fiduciary. The severity of the obligations imposed upon the Data Fiduciaries stands further enhanced when the burdensome penalties laid down under the Act are considered. The Act hence has a large feat to accomplish.
Author: Bhushan Shah - Partner | Veena Hari - Associate
MHCO Updates
LEGAL UPDATE: THE JAN VISHWAS (AMENDMENT OF PROVISIONS) ACT, 2023
The Jan Vishwas (Amendment of Provisions) Act, 2023 (Act), was approved by the President on 11 August 2023. Its enforcement will be determined by the Central Government through notification, with varied dates for amendments in the Schedule. The Act led by the Commerce and Industry Minister, seeks to ease daily life and business operations by amending 183 provisions in 42 Central Acts under 19 Ministries. It aims to decriminalize these provisions for a more business-friendly environment.
BACKGROUND
The Minister of Commerce and Industry spearheading this initiative suggests that the focus might be on creating a more business-friendly environment and fostering a culture of entrepreneurship. By decriminalizing provisions within these Central Acts, the government may intend to encourage risk-taking, innovation and investment by providing greater legal clarity and reducing the fear of unintended legal consequences.
However, while the proposal to decriminalize provisions is aimed at streamlining processes and fostering economic growth, it is important to carefully consider the implications of such amendments. Striking a balance between promoting ease of business and ensuring accountability and responsible conduct is crucial. Some provisions might be related to public safety, consumer protection, environmental safeguards, and more, which need to be assessed thoroughly to prevent any negative consequences. The effectiveness of this legislation would depend on the specifics of the amendments, the clarity of language used, and the mechanisms put in place to ensure that the intended benefits are realized without compromising on the larger interests of society.
PURPOSE OF THE ACT
The Act serves a twofold purpose; one to elevate both the quality of everyday life and second to promote the business environment in the nation. By targeting a wide array of sectors like agriculture, media, health, and the environment, the proposed amendments aim to address outdated or problematic aspects of these Acts. The Act’s intent is to streamline and modernize these regulations, fostering a more business-friendly climate and simplifying the lives of citizens. The Act reflects a comprehensive effort to harmonize legal frameworks with contemporary needs, thereby promoting ease of living and facilitating smoother business operations across diverse sectors.
KEY HIGHLIGHTS
Fines and penalties in multiple provisions to increase by ten percent of the minimum amount every three years.
A total of 183 provisions across 42 Central Acts, overseen by 19 Ministries/Departments, to be decriminalized.
Decriminalization achieved through various methods:
Elimination of both imprisonment and/or fines in certain provisions;
Removal of imprisonment while retaining fines in select provisions;
Elimination of imprisonment while increasing fines in specific provisions;
Conversion of imprisonment and fines to penalties in some cases;
Introduction of compounding of offenses in a few provisions;
NATURE OF AMENDMENTS
The changes suggested in the Act aim to make certain provisions less focused on punishment by taking actions like eliminating imprisonment and increasing the fines, and introducing penalties or alternatives. These changes aim to streamline punitive measures within the legal framework to achieve desired outcomes.
For example, some of the proposed amendments in the Drugs and Cosmetics Act, 1940 (Drugs and Cosmetics Act) are: the current provisions of Section 27(d) and Section 27A(ii) of the Drugs and Cosmetics Act mandate imprisonment of up to 2 years and a minimum fine of INR 20,000 for spurious cosmetics, adulterated drugs, certain drug and cosmetics-related convictions. Proposed amendments suggest a compounding option for violations, through an addition to Section 32(B) of the Drugs and Cosmetics Act. Similarly, Section 29 of the Drugs and Cosmetics Act provides for penalties for misusing a government analyst's report for drug/cosmetic advertising. The Act proposes to increase the penalty for the above mentioned violation from INR 5,000 to INR 1,00,000. The amendment to Section 30(2) of the Drugs and Cosmetics Act proposes replacing imprisonment with a fine of INR 5,00,000 for subsequent offenses involving the same violation. These changes aim to provide legal clarity and streamline penalties.
Under the proposed amendments to the Trade Marks Act, 1999 (Trade Marks Act), the Act aims to strengthen penalties for specific offenses and introduce two new sections concerning penalties and appeals. It grants authority to a designated officer for adjudication and penalties related to Trade Marks Act violations. Proposed Section 112B outlines the appeal process, requiring the aggrieved party to appeal within 60 days, and the appellate authority to address appeals within 60 days of filing. Additionally, the Act empowers the Central Government to create rules for inquiry and appeals.
Further, under the Customs Act, 1962 (Customs Act) the Commissioner of Customs can request information on goods with false trademarks, and non-compliance results in a fine of INR 10,000. The Act extends this power to the Customs Act authority for penalty imposition and collection.
MHCO Comment:
In conclusion, the Act marks a significant step towards fostering a business-friendly environment and enhancing ease of living. By decriminalizing provisions and introducing streamlined penalties, it aims to encourage innovation, investment, and entrepreneurship. This proactive approach has the potential to boost economic growth and simplify legal processes. However, the challenge lies in striking the right balance between promoting ease of business and ensuring answerability, especially in cases involving public safety and consumer protection. While the Act holds promise for improving the regulatory landscape, careful implementation and monitoring will be crucial to prevent any unintended negative consequences and to maintain societal interests.
Author: Shreya Dalal - Associate Partner | Sayali Puri - Senior Associate
MHCO Updates
IBC UPDATE | MAINTAINABILITY OF DEBT BASED ON THE ORIGINAL NATURE OF TRANSACTION
The recent judgement of Shreepati Build Infra Investment vs Abhiyan Developers, NCLT illustrates amendments to the Insolvency and Bankruptcy Code, 2016 (IBC) can significantly impact the maintainability of insolvency proceedings. This case revolves around a dispute stemming from a real estate transaction and hinges on the crucial provisions of the IBC that dictate the eligibility of applicants to initiate Corporate Insolvency Resolution Process (CIRP).
BACKGROUND
The dispute centres on a real estate transaction between Abhiyan Developers Private Limited (Financial Creditor) and Shreepati Build Infra Investment Limited (Corporate Debtor). The Financial Creditor entered into an agreement to purchase a flat for consideration of INR 3,50,00,000. However, due to inadequate permissions and approvals, the Corporate Debtor was unable to proceed with construction. Subsequently, the amount was restructured into a loan account, with an agreement for repayment, inclusive of a 15% cumulative interest, compounded quarterly. Despite these terms, no payment was forthcoming.
On 10 August 2018, the Financial Creditor filed a company petition under Section 7 of the IBC, which was admitted on 29 October 2021. However, the Corporate Debtor challenged the admission order, leading the NCLAT to set it aside and remand the case back to the NCLT.
Thereafter, the Corporate Debtor filed an Interim Application (IA) under Section 60(5) of the IBC, along with Rule 11 of the NCLT Rules, 2016 to bring forth the NCLAT's order and to consider the objection regarding the maintainability of the case, particularly in light of the amended provisions of the IBC.
HELD
The NCLT allowed the IA while holding that the CIRP application filed by the Financial Creditor is not maintainable. The NCLT’s decision was profoundly influenced by the amended provisions of the IBC, particularly Section 7, which reads in the following manner:
“7. Initiation of corporate insolvency resolution process by financial creditor.—
(1) A financial creditor either by itself or jointly with 5 [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government,] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. ….
Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less: …”
Nature of Transaction: The NCLT affirmed the core nature of the transaction as a builder-allottee relationship, as per the agreement dated 15 February 2011. According to the NCLT, even in the presence of subsequent agreements, the fundamental nature of the transaction remained unaltered. Consequently, the Financial Creditor retained its status as an allottee within the purview of Section 2(d) of the Real Estate (Regulation and Development) Act, 2016 (RERA). This classification positioned it as a "financial creditor" to whom a "financial debt" is owed, as per Section 5(7) and Section 5(8)(f) of the IBC respectively.
Amendment to Section 7: The NCLT drew attention to the critical amendment to Section 7 of the IBC, which came into effect on 28 December 2019. This amendment, as extracted hereinabove, stipulated that applications for initiating CIRP against Corporate Debtors involved in real estate projects must be filed by not less than 100 allottees under the same real estate project or not less than 10% of the total number of such allottees, whichever is less.
Non-Maintainability: The pivotal outcome was that the main Company Petition had been filed by a single allottee, without complying with the revised provisions, rendering it non-maintainable. The Financial Creditor had not taken the necessary measures to ensure that the application was jointly filed by the required number of allottees.
MHCO Comment:
The above-mentioned case underscores the critical significance of the amended provisions in the IBC, particularly the requirement for not less than 100 allottees or not less than 10% of the total number of such allottees to initiate CIRP proceedings against a Corporate Debtor in the context of real estate transactions.
However, the Hon’ble NCLT seems to have forgone one of the cardinal rules of contractual relations i.e., parties to the contract are free to alter its terms by mutual consent as long as such alterations are permissible by law. Despite the Corporate Debtor having consented to change the amount given as a loan transaction, the NCLT chose to stick to its original nature. This draws attention to the extent to which the NCLT can go in order to determine the true nature of a debt and where it falls under the scope of IBC. In essence, it highlights the need for stakeholders to stay abreast of changes in the law and adapt their strategies accordingly to navigate the complex terrain of insolvency in the real estate sector.
Author: Bhushan Shah - Partner | Aditya Sarangarajan - Associate
MHCO Updates
SEBI Update: New Alternative Dispute Resolution Mechanism
A well-functioning capital market is the backbone of the financial structure of a nation. As competition and complexities in the market increase, it becomes imperative to address customer disputes promptly and efficiently. Securities and Exchange Board of India (SEBI) plays a vital role in regulating and monitoring the Indian capital and securities market, where investors expect a fair and accessible system for complaint management and dispute resolution when their funds are affected by market participants’ errors or misconduct. A robust mechanism is essential for increasing retail investor engagement and ensuring efficient capital market operations
SCORES
The complaint management system of SEBI includes an online platform known as the 'SEBI Complaint Redress System (SCORES). Investors can use SCORES to lodge complaints with SEBI against the authorized intermediaries and listed firms under (a) SEBI Act, 1992; (b) Depositories Act 1996; (c) Securities Contract Regulation Act, 1956; and (d) Companies Act 2013. Investors having accounts with depository participants or brokers can resolve disputes within a three-year limitation period for complaint submission from the date of cause of action. If a stock exchange or depository does not resolve an investor grievance, then Investors can file for arbitration under the rules and regulations of that stock exchange or depository.
Arbitration Mechanism of SEBI
SEBI provides for an arbitration mechanism for resolving disputes between clients and members in accordance with the provisions of the Circular dated 11 August 2010, read with Section 2(4) of the Arbitration and Conciliation Act, 1996 (1996 Act)
The panel of arbitrators is formed by considering the following factors: age, qualifications, and experience in financial services. Arbitrators from all stock exchanges with nationwide trading terminals will form a "Common Pool." If parties fail to choose arbitrators from this pool, an automated process will randomly select arbitrators.
The limitation period for filing arbitration claims is 3 years. An arbitration reference for a claim/counterclaim up to Rs 25 lakhs shall be dealt with by a sole arbitrator, while a panel of 3 arbitrators shall deal with claims above Rs 25 lakhs. The appointment of arbitrators should be completed within 30 days from the date of receipt of the application from the applicant. The arbitration shall be concluded by issuing an arbitral award within four months from the date of appointment of arbitrators. The arbitration facility must be available at centers specified by SEBI as the place of arbitration.
A party dissatisfied with an arbitral award has the right to appeal to the appellate panel of arbitrators. The appeal must be filed within one month of receiving the award, and the appellate panel must conclude the appeal within three months from the date of its appointment.
SEBI`s New Dispute Resolution Mechanisms for Securities Market Entities
On 3 July 2023, SEBI made a significant move by issuing amendments to the Alternative Dispute Resolution Mechanism. This amendment was approved during the SEBI Board Meeting in June 2023, wherein the they approved linking SCORES with the Online Dispute Resolution (ODR) platform.
The Board has also accepted the proposals aimed at revitalizing SEBI SCORES. One significant change is to reduce response timelines and ensure quicker resolution for complainants. Moreover, complaints will now be automatically routed to the relevant regulated entities, expediting the process further. To ensure adherence to prescribed timelines, an auto-escalation mechanism will come into effect in cases where regulated entities fail to meet the required deadlines. This move emphasizes the importance of timely action and accountability.
The SEBI has introduced an amendment through SEBI (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023 (ADR Regulations) in its following regulated entities, namely: merchant bankers, registrars to an issue and share transfer agents, debenture trustees, mutual funds, custodians, credit rating agencies, collective investment management companies, KYC registration agencies, alternative investment funds, investment advisers, research analysts, infrastructure investment trusts, real estate investment trusts, portfolio managers, foreign portfolio investors, and vault managers. These existing regulated entities were amended by the addition of a provision for a Dispute Resolution Mechanism through arbitration /conciliation /mediation.
ADR Regulations mandate that all claims, differences, or disputes between these regulated entities and their clients/ investors arising from their activities in the securities market shall be submitted by the standardized procedure for the ADR mechanism. Additionally, the Board has embraced a hybrid mode of conducting proceedings, allowing for a more flexible and accessible approach. This decision aims to streamline the dispute resolution process.
MHCO Comment:
SEBI's recent amendments to the ADR Regulations represent a significant advancement in safeguarding investor interests by implementing various measures to enhance the resolution process within the securities market. The primary objective is to create a transparent and efficient system by streamlining the process of resolving disputes between financial entities and their clients. These amendments are geared towards providing a secure market for investors and addressing their issues.
Author: Purvi Shah - Partner
LIFE AT MHCO
