Hon’ble Supreme Court of India vides its judgment dated 23.03.2021 rendered in Small Scale Industrial Manufacturers Association Vs. Union of India; disposed of, a batch of Public Interest Litigation (PIL) Writ Petitions. Consequently, granting only limited relief of waiver of penal interest, interest on interest, penal charges, etc. during the moratorium period from 01.03.2020 to 31.08.2020 (6 months) to all the borrowers without limit & restrictions.

It rejected all other prayers of waiver of interest, further relief sector-wise, the extension of moratorium period, etc. on the ground that these nature of reliefs are in the nature of policy, which appropriate authorities, statutory bodies & govt. respectively are competent to decide & that they are not exigible to judicial review unless any legal questions are involved for the court to adjudicate.

Through this batch of judgments, the Hon’ble Supreme Court of India has once again emphasized the separation of power between the court & the govt.

It reiterated that the court has a domain limited to law & government remit is confined to the subject of policy. Hon’ble Supreme Court of India acknowledged the Govt. & authorities’ actions under the Epidemic Disease Act, 1897 & Disaster Management Act, 2005 & reposed faith on them that they will act appropriately in due discharge of their duties to deal, prevent & mitigate the Covid-19 effects.

While the Hon’ble Supreme Court of India was dealing with the party’s public interest claim; a unique individual petition was filed before it by one Advocate Sh. Biswajit Das for a private client seeking a declaration that interest levy under loan contract is not enforceable by law. Moreover, that levy of interest during the moratorium period cannot be mandated by RBI in the exercise of its power under the Banking Regulation Act, 1949. Taking note of the substance of this new & unique legal argument, the Hon’ble Supreme Court of India advised the Petitioner to approach the Hon’ble High Court under Article 226 for its just adjudication.

Claiming that this proposition involves a unique jurisprudential concept, which he coined as Black-Hole Doctrine, Sh. B. Das filed a Writ Petition in Jharkhand High Court, which is now scheduled for onward hearing on 13.07.2021.

It is being argued by Sh. B. Das that RBI has no power to authorize banks & financial institutions to levy interest on borrowers de horse constitutional principles & law of contracts RBI Covid-19 package circular dated 27.03.2020 & 23.03.2020 transgress its power under Banking Regulation Act, 1949 in breach of Article 300A of the Constitution of India.

Sh. B.Das further stated that the issue involved in this petition is not an issue of waiver/charity but an issue of law involving lenders entitlement & borrowers liability under their respective loan contract/agreement.

He stated that State cannot wedge a divide amongst its population putting one class at a higher pedestal over the other in the name of effective management of disaster. Such a classification has to specifically come through legislative mandate & not through executive route this violates the constitutional concept of governance.

This provides a ray of hope to the entrepreneurs, commercial entities, etc. of India, who are grappling with Covid-19 infused operational & financial distress, to wrest some respite from their already distressed & precarious operable position.

The post Interest on Bank Loan: A subject of legal entitlement not a subject of Policy or charity by State or Bank appeared first on LexForti .

BANK OF INDIA V. BRINDAVAN AGRO INDUSTRIES PVT. LTD. MANU/SC/0238/2020

MATERIAL FACTS

An account with the Appellant Bank was operated by M/S Brindavan Agro Industries Pvt Ltd. (respondent). The bank debited the relevant transaction costs, namely the TEV study and the service tax fees, to the consumer’s account. The penultimate request for approval was sent to the Head Office which had the appropriate authority to grant the approval for such loans of substantial value.

The consumer raised objections; however, to the deduction of transaction fees because the bank was only entitled to do so once the loan had been approved. Due to the purported delay of the bank in permitting access to credit as well as the fact that the consumer had obtained financial assistance from other banks, the consumer demanded a refund of the specified amount on the basis of losses incurred.

Again, through e-mails, he recapitulated his demand application. The access to credit was, nonetheless, granted within three months of the final revised application. When the bank’s officers confronted the customer with the demanded letter of sanction for the credit facilities, the consumer manifested the letters of sanction granted by the other banks. The consumer lodged an application that authorized the State Commission in ordering the Bank to pay the balance of the transaction costs besides the interest. However, the appeal against such an order was dismissed before the National Commission.

ISSUE

Whether the Respondent was entitled to transaction costs debited by Bank?

RULE OF LAW

Section 17 of the Consumer Protection Act, 1986

ANALYSIS

The court, therefore, observed that the decisions of the State Consumer Disputes Redressal Commission (SCDRC) and National Consumer Disputes Redressal Commission (NCDRC) endured from patent illegitimacy and that their directions were subsequently set aside. The Bank decided, however, to reimburse some amount, from the transaction costs by intimating the customer through an email but in its e-mail, the customer had not approved such an offer.
Accordingly, the Consumer was qualified to a reimbursement of the amount conveyed to the Consumer by the Bank’s decision instead of an exemption of TEV charges in its totality. The demand was to award half of all the fees, thus the total sum of the fees to be taken into account and not the fees under a specific heading. In addition, the bank was ordered to provide a refund within two months of the date of the order.

CONCLUSION

The Bank’s facilities were used for cash credit services, which in turn entitled the respondent to hold a position of ‘consumer’ under the Act.
The consumer was evidently an old and a regular customer of the appellant bank, who requested more than Rs. 40 crores of credit facilities and it was shocking that he was oblivious of the Bank’s operation, policies and procedures because for many years he had been affiliated with the bank. It was not acceptable to acknowledge unfamiliarity with the Bank’s process and its Circular. The customer was conscious of the transaction costs and demanded that the transaction costs be waived; thus, the transaction costs were debited by the bank in accordance with the authorization granted by the consumer.

The post Whether a consumer is entitled to transaction costs debited by the bank? appeared first on LexForti .

Abstract

The central part of FSDR Bill 2019 revolves around the notion of establishing an effective resolution regime. It envisages the setup of machinery having critical powers for resolving banks, such as power to terminate; contracts, record debt, modify liabilities or set up bridge institutions.

To bring the disputed institution into resolution the Prompt Corrective Action framework will be adopted; also to ensure timely intervention on clearly defined triggers in the financial sector.

The Resolution Authority would set up a Prompt Corrective Action framework for all the institutions. It will also get appointed to tackle the financial sector; failures without superseding the burden to taxpayers while using a transparent mechanism. The concerned RA would be authorised to cancel or modify liabilities; of the errant bank to its creditors and modify the insurance limit.

There have been several questions raised on the long term efficiency of the Resolution Authority; as there is a possibility that excess power to any institution may lead to manipulation of the power. Once the Bill is implemented; the RA may become a future financial Supremo for all financial operations all over the country.

The result of concentrating power sometimes become devastating due to lack of proper checks and balances. Applying the same concept in the arena of the implementation of RA shows some clear indication that credibility and transparency; would become paramount to retain the trust of the private depositors who otherwise have to shift to non-banking investments like gold or real estate.

Without proper enforceable accountability of the incumbent, even a small misstep by this body could cause creditor to opt out of the banking system and find a safer option sometimes may be less profitable. FSDR Bill 2019 is a a positive initiative aiming the development of country’s financial structure but with certain drawbacks.

The main fear revolves around the centralisation of power to RA in the financial sector. Therefore the article discusses about the role of quasi-judicial bodies i.e National Company Law Tribunal; in regulating the arbitrary power if exercised by Resolution Authority established under the FSDR bill 2019.

Keywords: Financial Resolution and Deposit Insurance, Financial Sector Development and Regulation (Resolution) , Financial Resolution Authority

Introduction

In 2019, media reported that Government was preparing to table a new legislation; the Financial Sector Development & Regulation (Resolution) Bill (FSDR, hereafter).

Reportedly FSDR is meant to rescue banks; among other financial sector institutions, from collapse. [1]It replaces the Financial Regulation and Deposit Insurance Bill, 2017 (FRDI hereafter); which was withdrawn in 2018 following public outcry against a “bail-in” provision, which small depositors did not trust.

There was no formal declaration about the introduction of the act; and hence what is known about FSDR is from articles and YouTube interviews.[2] The uncertainty of the provisions due to the lack of any formal draft presented by the concerned ministry; makes it difficult to understand especially since the law when operationalized, can impact millions of individuals, institutions and public funds.

FSDR creates a Financial Resolution Authority (FRA) with absolute authority to undertake resolution measures.

• Its ambit will be “restricted to only orderly resolution and not to restoration and recovery.”
• It will have a representation of all financial sector regulators—RBI+ SEBI+ PFRDA+ (IRDAI)+ the Central government

Structure:

• Each regulator will be tasked with creating a PCA framework for institutions under their ambit.
• The Resolution Fund, which will replace DICGC, will collect premiums based on ‘risk-based assessment’. However, if there is a systemic issue, a government will bailout (to provide liquidity).[3]
• The FSDR has removed the controversial ‘bail-in’ provision
• Deposit insurance cover will be increased, it is the RA that will decide the extent of increase and will also have the power to modify the deposit insurance limit.

Functions of RA

• The RA, along with sector regulators, will classify all service-providers into five categories, namely, low, moderate, material, imminent and critical.
• The power of the RA to initiate action against the entity will depend on the classification.

Tools of Resolution:

• These include the use of one or more of the following: 1) transferring the whole or part of the assets and liabilities to another entity; 2) creating a bridge service-provider; 3) cancellation /modification of liabilities; 4) Merger or amalgamation; 5) Acquisition; 6) Liquidation; 7) Run-off, in case of an insurance company, if deemed appropriate.
• Time frame for Resolution: Resolution has to be completed in one year, with the provision for an extension of one additional year, except in the case of liquidation.
• Administrator ship: When the resolution process kicks in, the RA will suspend the board and take over as the administrator.
• It is empowered to make executive decisions on behalf of the entity including appointment or removal of managers and act as a receiver. A decision on liquidation, however, has to be cleared by the NCLT, which will appoint the RA as liquidator.[4]

National Company Law Tribunal

The Indian economy has always been stroked by different phases of boom and depression. The expansion of Indian Corporate Sector with diversifying operations. With the ever-expanding functions and corporate transactions; Banks and the financial institutions are facing staggered recovery issues making them vulnerable to the Non-performing asset crisis. Specialized Tribunals like NCLT is mainly equipped; for targeting the weak spots and promoting the interests of the banks the financial institutions; the stakeholder and the Corporate sector itself.

Relating the power of NCLT in the context of the new FSDR Bill we can refer that according to FSD; when financial sector entities like stock exchanges; clearing authorities and depositories or other capital market and insurance market intermediaries fail or are about to fail, the means for resuscitation are inadequate. FSDR establishes a comprehensive and effective resolution regime for the financial sector, of which banks are at the core. FSDR is a legislation to save financial institutions from bankruptcy caused by financial imprudence, mismanagement, defalcation, fraud, etc.

It will have a representation of all financial sector regulators–Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance and Regulatory Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), the Central government and will have three whole-time members and two independent members. 

Critical analysis of the above mention structure of RA depicts the possibility of centralization of power, manipulation of which in a way would have harsh effect on the creditors. While the provisions looks very justifiable, the fact remains that the combination create a cocktail that without any notice could set off a chain of events that would end up in disaster for individual and families- the corporate in the finance sector, however, would not be affected.

Here comes the role of the quasi-judicial bodies as a redressal body to protect the interest of the aggrieved parties. The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates issues relating to Indian companies.

The Central Government has constituted National Company Law Tribunal (NCLT); under section 408 of the Companies Act, 2013 and was constituted on 1^st June 2016. The NCLT was constituted; on the basis of the recommendation of the justice Eradi committee on the law relating to insolvency and winding up of companies.

The power of NCLT includes the power to protection of interest of various stakeholders, especially non-promoter shareholders and depositors and also provide remedy of oppression and mismanagement by Authorities related to Corporate Sector.

Also, it has the Power to provide relief to the investors against a large set of wrongful actions committed by the company management or other consultants and advisors who are associated with the company which will include the actions of the aforementioned Resolution Committee established under the FSDR Bill.

Aggrieved depositors have the remedy of class actions for seeking redressal for the acts/omissions of the company which hurt their rights as depositors.

• The Tribunal is also empowered to investigate or for initiating investigation proceedings. Provisions are provided to assist investigation agencies and courts of other countries with respect to investigation proceedings.

• The NCLT has the power under the Companies Act to adjudicate proceedings pertaining to claims of oppression and mismanagement of a company, winding up of companies and all other powers prescribed under the Companies Act.

The RA expands its function as an administrator. It is empowered to make executive decisions on behalf of the entity including appointment or removal of managers and act as a receiver. A decision on liquidation, however, has to be cleared by the NCLT, which will appoint the RA as liquidator. 

Role of NCLT under FSDR Bill

Relating the power of NCLT in the context of the new FSDR Bill we can refer that according to FSDR, when financial sector entities like stock exchanges, clearing authorities and depositories or other capital market and insurance market intermediaries fail or are about to fail, the means for resuscitation are inadequate.[5] FSDR establishes a comprehensive and effective resolution regime for the financial sector, of which banks are at the core.

FSDR is a legislation to save financial institutions from bankruptcy caused by financial imprudence, mismanagement, defalcation, fraud, etc.

It will have a representation of all financial sector regulators–Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance and Regulatory Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), the Central government and will have three whole-time members and two independent members. 

Critical analysis of the above mention structure of RA depicts the possibility of centralization of power, manipulation of which in a way would have harsh effect on the creditors. While the provisions looks very justifiable, the fact remains that the combination create a cocktail that without any notice could set off a chain of events that would end up in disaster for individual and families- the corporate in the finance sector, however, would not be affected.

Here comes the role of the quasi-judicial bodies as a redressal body to protect the interest of the aggrieved parties. The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates issues relating to Indian companies and with respect to the FSDR Bill it has certain roles specified in the bill.

The RA expands its function as an administrator.[6] It is empowered to make executive decisions on behalf of the entity including appointment or removal of managers and act as a receiver. A decision on liquidation, however, has to be cleared by the NCLT, which will appoint the RA as liquidator. 

The provision of Systemically Important Financial Institutions (SIFIs) states that institutions which fail will be designated as SIFIs and they can appeal against their liquidation to the National Company Law Tribunal (NCLT).

Role of NCLT as a redressal body in financial sector

The power of NCLT includes the power to protection of interest of various stakeholders, especially non-promoter shareholders and depositors and also provide remedy of oppression and mismanagement by Authorities related to Corporate Sector.

Also, it has the Power to provide relief to the investors against a large set of wrongful actions; committed by the company management or other consultants and advisors; who are associated with the company which will include the actions of the aforementioned Resolution Committee established under the FSDR Bill.

Aggrieved depositors have the remedy of class actions for seeking redressal for the acts/omissions of the company which hurt their rights as depositors.[7]

Under Section 245 of Companies Act, 2013; An application may be filed to the tribunal by either the members of the company or by the depositors or on the behalf of the members; stating that affairs have been conducted in the manner which is prejudicial to the interest of the company.

On the application made by the members or the depositors; the tribunal shall issue a public notice to be served on all of the members and depositors, where similar application is made from jurisdiction, the tribunal shall consolidate and consider it as one application and the class members or depositors shall be allowed to choose the lead applicant, and two class-action application filed for the same cause of application shall not be allowed.

The orders which are passed by the tribunal; shall be binding on the members, depositors, auditor which includes audit firm, advisors, expert or consultant and any other person associated with the company.

Also,

• The Tribunal is also empowered to investigate or for initiating investigation proceedings. Provisions are provided to assist investigation agencies and courts of other countries with respect to investigation proceedings.[8]

• The NCLT has the power under the Companies Act to adjudicate proceedings pertaining to claims of oppression and mismanagement of a company, winding up of companies and all other powers prescribed under the Companies Act.

Aggrieved party may make an appeal for any decision or order passed by NCLT within the period of forty-five days of the receipt of an order or decision to NCLAT. Further, NCLAT gives its decision within six months from the date of receipt of the appeal. No civil court has jurisdiction to decide the cases; where NCLT and NCLAT are empowered to do so.

Conclusion

A brief analysis of the above article leads to the conclusion that; though the FRDI bill has been renamed as the FSDR bill with certain modifications and has been reintroduced in 2020; and though it has removed the controversial ‘bail-in’ provision of the FRDI bill but has not reduced the worries linked to it.[9] And the fear in is persisting. There are several harmful rules in the bill which may have a retrospective effect during their operation, like-

1) Transferring the whole or part of the assets and liabilities to another entity;[10]
2) Creating a bridge service-provider;
3) Cancellation /modification of liabilities;
4) Merger or amalgamation;
5) Acquisition;
6) Liquidation;
7) Run-offs.

The forming of the RA is itself dangerous by removing all acts such as the Banking Regulations Act, Bank Nationalization Act, etc it can liquidate a bank, merge banks, modify rules and cause damage to the banks.

Data shows that 58% of bank deposits are the small deposits of millions of citizens, and the bail-in clause would trigger serious apprehensions. And 68% deposits are of senior citizens who will be badly affected.

At such a point the presence of quasi-judicial judicial body like NCLT is playing a prominent role in safeguarding their rights through regulating the liquidation appeals and accepting class action suits. NCLT not only put check and balances to such government actions but also boost the confidence of genuine depositors to become a part of the existing financial system. Also, the establishment of NCLT, has led to speedy remedy in resolving the company law disputes and will be disposed of expeditiously.

[1] S G Vombatkere, Author at Countercurrents, https://countercurrents.org/author/s-g-vombatkere/

[2] FSDR – The Ghost of FRDI: Rescuing failed banks at whose … https://countercurrents.org/2020/07/fsdr-the-ghost-of-frdi-rescuing-failed-banks-at-whose-cost/

[3] .ECONOMICS – Manifest IAS https://www.manifestias.com/6-economicsp/page/58/

[4] Moneylife Exclusive – FRDI Bill To Come Back as FSDR: Many .. https://www.moneylife.in/article/moneylife-exclusive-frdi-bill-to-come-back-as-fsdr-many-questions-unanswered/59010.html

[5] FSDR -Rescuing Failed Banks At Whose Cost? – The Citizen https://www.thecitizen.in/index.php/en/NewsDetail/index/4/19088/FSDR–Rescuing-Failed-Banks-At-Whose-Cost

[6] lawmax – lawmax | NCLT and NCLAT (formerly CLB)http://lawmax.in/

[7] National Company Law Tribunal – Powers & Jurisdiction https://www.indiafilings.com/learn/national-company-law-tribunal-powers-jurisdiction/

[8] End term | Bankruptcy | Liquidation https://www.scribd.com/document/357248118/End-term

[9] Will the bank depositors be safe? | Times of India Blog https://timesofindia.indiatimes.com/blogs/economic-update/will-the-bank-depositors-be-safe/

[10] .ECONOMICS – Manifest IAS https://www.manifestias.com/6-economicsp/page/58/

The post Role of NCLT in Financial Sector Development and Regulation (Resolution) Bill, 2019 appeared first on LexForti .

What is a Legal Notice?

Legal Notice is an important instrument as, without it, you can’t take the legal action. It is a way to warn the opponent that, you are going to take legal action against them if they don’t fulfil your demand.

Why is it important to file the Legal Notice?

1. It gives prior notice to the opponent.
2. It is a Legal Requirement.
3. Increases the efficiency of the litigation process.

Essential features for the Format of Legal Notice

1. Keep it concise and provide only the material fact;
2. State the relief you want to get;
3. State the legal basis for which you are wanting the relief.

10 Types of Legal Notices

Legal Notice Format: Vacating the property given on the lease (Tenant Eviction)

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Pursuant to the instructions from and on behalf of my client ___________________, resident of _________________ I do hereby serve you with the following Legal Notice: –

1.  That the lease deed dated ……………………. made between my client of the ONE PART and you on the OTHER PART in respect of premises No. ………………………………….. (hereinafter referred to as demised premises).
2. That the lease deed has expired by efflux of time on the ………….. day of ……………, 202_.

I hereby call upon you to quit, vacate and deliver quiet and peaceful possession of the demised premises on or before the ………………….. day of …………………., 202_, failing which my client will file a suit against you for recovery of possession of the demised premises and for damages, which may be sustained by her by reason of your willfully retaining possession thereof and for breach by you of the covenants contained in the lease deed.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce in the court.

____________
ADVOCATE

Legal Notice Format: Filed by Purchaser for specific performance of Contract

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Pursuant to the instructions from and on behalf of my client ___________________, resident of _________________ I do hereby serve you with the following Legal Notice: –

1. That for the House No. _____, situated at _______, you had agreed to sell it to me vide an Agreement of sale.
2. That the agreement of sale was dated ________.
3. That the said agreement for sale was executed between me of the ONE PART and you of the OTHER PART.
4. That as per the clause ____ of the said Agreement for sale, the Deed of Conveyance, is to be completed within …………………. months from the date of said Agreement.

I hereby give you notice that I the undersigned …………………. was and am still ready and willing to complete the purchase, subject to your performing your part of the said agreement and I require you to complete the same and if you fail to complete the same within ……………… days from the date hereof, I shall file a suit against you for specific performance of the said agreement for sale with damages and costs.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce in the court.

____________
ADVOCATE

Legal Notice Format: Filed by Vendor for payment of immovable property

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Pursuant to the instructions from and on behalf of my client ___________________, resident of _________________ I do hereby serve you with the following Legal Notice: –

1. That my client had entered into an agreement of sale dated _____ with you.
2. That the sale agreement was for the selling of house no. ____, situated at _________ for a consideration of Rs. ____.
3. That according to the clause ___ of the agreement, the said transaction is to be completed within ____ months from the date of said agreement.
4. That my client was and is still willing and ready to execute a sale deed in your favour or in favour of any person as you may direct in accordance with the terms of the said agreement, but it couldn’t be done because of the default of the payment.

I hereby call upon you to have the deed of conveyance executed by my client against payment of the balance of the consideration money on or before the ………… day of ………………….. in terms of the said agreement, failing which the said agreement will stand cancelled and the earnest money paid by you will stand forfeited. However, this is without prejudice to the rights of my client to recover all costs, damages, losses and expenses incurred by him by reason of your default in performing the said agreement.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce in the court.

____________
ADVOCATE

Legal Notice Format: Notice of Assignment by Assignee

                                Dated ____, __________

To,
_____________

Dear Sir/Madam,

I, the undersigned, A hereby give you notice

1. That Shri ________ has assigned the debt due by you from you with the interest accrued and hereafter to accrue thereon, under the bond _______ executed by you.
2. That the bond was executed by you in favour of Shri ________.
3. That Shri __________ has refused to sign the notice of assignment.

Yours Faithfully,

Assignee

Legal Notice Format: For suit against Government u/s 80 of CPC

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: Notice under Section 80, Code of Civil Procedure.

To,

The Secretary to the Govt. of …………………… ………………….. Deptt., ………………….. 

Under instructions from my client Shri ………………….. resident of …………………… I hereby give you the legal notice

That my client Shri ………………….. shall file a civil suit against the Government in the court of competent jurisdiction after the expiry of two months from the date of service of this notice for the cause of action and reliefs mentioned in the draft plaint enclosed herewith, which may be treated as part of this notice. 

Yours faithfully,

………………….

Advocate Enclosure: Plaint

Legal Notice Format: For the construction by neighbour which is invading my privacy

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Pursuant to the instructions from and on behalf of my client ___________________, resident of _________________ I do hereby serve you with the following Legal Notice: –

That you are constructing a strucute at your land adjacent to my house, which is interfering with my client’s privacy.

That you should stop the construction at the immediate effect.

Kindly note that if you fail to comply with my request, I shall be constrained to initiate legal proceedings against you at your risk, as to costs and consequences.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce in the court.

____________
ADVOCATE

Legal Notice Format: To company for non-payment of salary and other interest and allowances

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
XYZ. Company Private Limited

Through its Managing Director

Mr. ABC

Sir/Madam,

Pursuant to the instructions from and on behalf of my client ___________________, resident of _________________ I do hereby serve you with the following Legal Notice: –

1. That my client ______ was appointed by your offer letter dated _______ and the salary of my client ______ was fixed at Rs.______ per month.
2. That the offer letter dated _____, stated the joining date as ______ which my client ______ duly followed.
3. That my client did her duty diligently, regularly and with utmost punctuality and sincerity, and with full devotion in accordance with the well-settled provisions of the law. You issued the offer letter in the name of my client and got printed the visiting cards also in the name of my client along with the Identity Card.
4. That on _________, when my client went to attend her duty; then your office abruptly refused to allow to my client to attend her duty and told that services of my client are no more required by your office and thus the services of my client have been terminated by you in a most illegal and unlawful manner without any reasonable rhyme and cause. At the time of termination of the services of my client, you did not pay the salary for the month of ___and __ days salary for the month of _________ which comes to Rs. ______/- to my said client.
5. That my client visited your office from 9 a.m. to 4 p.m. from time to time and spent a huge amount of Rs. ____/- on the charges of travelling but you refused to pay and also the amount of Rs. ______- my client spent while doing fieldwork for your company. Lastly ____^th Month, year you clearly refused to pay the salary amount of Rs. _____/- to my client along with travelling charges and amount spend on fieldwork.
6. That you did not provide me statutory benefits i.e. Providential Fund. etc. You also did not pay the of bonus and other service benefits which totally comes to Rs. _____/-

I, therefore, call upon you through this Notice, to make the payment of the Rs. ______/- to my client along with interest up to date, under intimation to me, within the period of 15 days, failing which my client has given clear instructions to me to file criminal as well as the civil suit and Suit for Recovery in the competent court of law and in that event you will be fully responsible for all costs, risks, responsibilities, expenses and consequences thereof. Please note well.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce it in court.

____________
ADVOCATE

Legal Notice Format: Legal notice under Section 138 of the Negotiable Instrument Act for the honour of cheque

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Under the instruction and authority from my client Mr. A( here referred to as my ‘client’), I do hereby serve upon you the following notice of demand under Section 138 of the Negotiable Instrument Act, 1881:

1. That my client knows you, from the last ___ years and on that account you had gained the faith and confidence of my client, that you demanded a friendly loan of Rs.________ from my client in the month of ___. My client provided you with the said amount.
2. That earlier, you issued a cheque dated __^th _________ for Rs. ________ drawn on ******, in order to discharge your partial liability. At the time of issuing the cheque, you assured my client that the same is good for value and will be honoured as and when presented.
3. That when the aforesaid cheque was presented, for encashment by my client to his banker the same was returned unpaid by the banker with the reason that there was “Insufficient Fund”. My client informed you about it through the telephone/Email.
4. Despite various reminders, you failed to make payment to my client. You tried to avoid the matter and started to ignore my client. Since my client is left with no other option but to present you with the legal notice.
5. That you have failed to comply with the provisions of the law and also failed to discharge your liability from your account and the same cheque was dishonoured intentionally and willfully.
6. That, either you discharge your liability towards my client in next 15 days or criminal and civil charges will be framed against you, and you can be punished for imprisonment which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

A copy of this Notice is kept in my office for record and further necessary action and you are also advised to keep the copy safe as you would be asked to produce in the court.

____________
ADVOCATE

Legal Notice Format: Legal Notice for the forfeiture of the mortgaged property

Ref. No…………….                                  Dated ____, __________

REGD.A.D.
SUB.: LEGAL NOTICE

To,
_____________

Dear Sir/Madam,

Under instructions from my client Shri X, I have to call upon you to pay the principal amount together with interest due on the deed of mortgage dated the ………………….. day of ………………….., 2000, made between yourself of the ONE PART and the said X of the OTHER PART, which has become due and repayable to the said X on the ………………….. day of …………………., 2000, failing which, I have the instructions to file a suit against you for foreclosure of the mortgaged property.

Yours faithfully,

…………………..

Advocate

Legal Notice Format: Notice Of Dissolution Of Partnership

PUBLIC NOTICE is hereby given that the partnership heretofore subsisting between the undersigned and A, etc. and B, etc. carrying on the business of ………………………………… at ……………. under the name and style of M/s …………. is dissolved by mutual consent as from the ……………. day of ………….,2000.

Sd/-

Illustrative structure of a Legal Notice

The post 10 Legal Notice Format [Updated] appeared first on LexForti .

Introduction

In India, before the advent of IBC, the Insolvency Resolution Process involved several legislations. There was no one single consolidate law to deal with Corporate Insolvency. These statues include the Sick Industrial Companies Act, 1985[1]–SICA, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[2]– SARFAESI, DRT Act 1993[3] and the Companies Act 2013[4].

Broadly these laws provide for the dissimilar process of asset realization, seizure and debt structuring in order to facilitate the fulfilment of the outstanding debts.[5] However, due to the presence of so many legislations, the efficiency in the Insolvency Process took setback. The process was not efficient and it used to have inordinate delays. This gave rise to the immediate need to renovate the insolvency regime.

Applicability of different legal avenues an laws have led India to witness a huge piling of NPAs- Non-Performing Assets. Consequently, a long waiting period for creditors to recover their money from defaulters. The Insolvency and Bankruptcy Code is an attempt at completely reform the disintegrated corporate insolvency framework.

It aims to restore faith in creditors for speedy disposal of their cases. The Code aims to consolidate existing insolvency and debt recovery laws for the individuals and corporate entities into a single piece of legislation. This code has unified the statutes related to enforcing creditors’ rights and attempted to streamline the manner in which the revival of Debtor Company can be made without adversely affecting the rights of creditors.

Applicability of the Code

This code provides the creditors with a mechanism to initiate the Corporate Insolvency Resolution Process [CIRP] in the scenario in which the corporation defaults in repaying its debt. The code makes a distinction between Financial Creditors and Operational Creditors.

Financial Creditors

A financial creditor is the creditor whose relationship with the debtors is of pure financial contract[6]. Recent reforms in the code have tried to address the interests of the homebuyers through treating them as the financial creditors for the purpose of this code. As per the recent ordinance- the amount raised from the buyers under the real estate project – (a buyer for the commercial or residential under-construction property) is to be treated as the “financial debt” because such amount has the effect of commercial borrowing[7].

However, there is no clarification on whether such buyers/allottees are to be treated as unsecured or secured financial creditors. Such classification may be possible through the agreement entered into corporate debtor and homebuyers. In the absence of such clarifications, there will be uncertainty regarding their priorities in receiving dues from the proceedings of insolvency.

Operational Creditors

An Operational creditor refers to a person to whom an operational debt is owed and includes any person to whom such amount has been legally assigned or transferred for goods or services done by them. Vendors and suppliers, employees, government etc. are examples of operational creditors.[8].

The Institutional framework of the Code

The creation of several new institutions has been proposed by the code which possesses specialized functions in the insolvency resolution process. The IBC has created the supervisory and regulatory body called as IBBI- the Insolvency and Bankruptcy Board of India, which has the overall responsibility to effectively operationalize, implement and educate of Insolvency and Bankruptcy Code.

The IBBI has the further responsibility to smoothen functionality of IBC through framing rules/regulations and studying the practical implications to overcome any hurdle or difficulty. The Code envisions the creation of a core of professional insolvency practitioners which are known as Resolution Process- RP, who is tasked with the overseeing certain aspects of the resolution process.

The IBC also sets up IPA- Insolvency Professional Agencies which are professional bodies who will regulate the RPs.  Individual RPs are required to be registered with the IPA which are empowered to conduct exams, layout code of conduct and certify professionals.

Information utilities provided by the Code

The IBC provides the establishment of the information utilities[9] which are tasked with the maintenance, collection, collation, supply and provision of financial data to the business, adjudicating authorities, financial institutions, insolvency professionals and other stakeholders.

It thereby functions as a comprehensive database on corporate debtors which are of financial in nature. For operational creditors, it is options to provide financial information to information utility. This information includes overall debt, liabilities and defaults which is to be sourced from the creditors through the utility service.

It is a positive step towards having transparency where all security interest which is created on the assets are reported to the utilities[10], by financial creditors[11]. Such utilities’ records have evidentiary value in the insolvency resolution process and it can assist various stakeholders to arrive at the best resolution of distressed companies.

However, the IBC is silent on the interlinking and networking of multiple utilities. NeSL- National e-governance Service Ltd has become the first utility through IBBI.

The framework of the IBC

All proceedings under the Code against the corporate entities is to be adjudicated by the National Company Law Tribunal which has been designed as a special forum to tackle all aspects of the insolvency resolution proceedings.

The National Company Law Tribunal is refereed as the sole Adjudicatory forum in respect of the corporate insolvency and no other tribunal or court can stay action initiated through the NCLT.  Appeals from the orders of NCLT lie before the NCLAT- National Company Law Appellate Tribunal[12].

All appeals against the NCLAT lies with the Supreme Court of India.[13] The IBC has explicitly ousted the jurisdiction of the Civil courts with respect to the matters addressed by the IBC.[14] In addition to that, it is now well settled that the Limitation Act is applicable to the proceedings under the IBC[15]. 

When it is not viable of resolution of debts or restructuring, the NCLT can order the dissolution of the company. It is a two steps process. First is revival and second is liquidation.

Judicial developments of The Insolvency and Bankruptcy Code 2016

With almost 3 years since the commencement of the IBC-2016, there have many challenges in implantation of the code. However certain effective amendments coupled with the constructive interpretation by the judiciary have helped to eliminate such issues and challenges.

IBBI- Insolvency and Bankruptcy Board of India which is the supervisory and regulatory body of the IBC has also done a commendable job in regulating space and proactively spreading the awareness. Many important judgements have been pronounced throughout just 3 years.

Certain landmark judgements of the Supreme Court has attempted to ensure that spirit of the code is given priority over the procedural requirements. Through such judgements, proper interpretation of the code is done along with new insights and different point of view.

IBC- Eligibility of the bidders

Section 29A of the IBC provides for the eligibility criteria which is applicable to any person/entity and resolution applicant acting in concert or jointly provided that such resolution applicant fulfils certain requirements. In the case of “ArcelorMittal India Private Limited & Others v. Satish Kumar Gupta & Others”[16], the SC has explored Sec 29-A[17] of the Insolvency and Bankruptcy Code and it was found that Sec 29-A requires lifting of the corporate veil too.

According it was held by the Supreme Court that if on the basis of the facts of the case it can be inferred that certain people were acting jointly in such manner as to impute that such people were acting mutually then such people would fall under the category of “person acting jointly”.

In addition to that while IBC does not specifically define the phrase “person acting in concert”, the Supreme Court by taking into account existing laws and precedents held that such phrase shall have the similar meaning of the term as assigned by the SEBI Takeover Code.

In this case, the further meaning of terms such as “control” and “management” under sec 29A was discussed by the Supreme Court of India. It was held that “control” will cover only proactive or positive control and not any sort of reactive or negative control. It was further held that “management” will cover the de jure management of the corporate debtor.

In addition to that the issue that whether a resolution applicant can avoid falling within the criteria for ineligibility under sec 29-A was examined by the Supreme Court. The SC applied to look back approach and it was held that along with the present credentials of the resolution applicant on the date of submission of plan can be considered, his past actions which are relevant and proximate to the current resolution plan can also be considered.

Invalidation of fraudulent, extortionate or preferential transactions

Through judicial interpretation, Insolvency and Bankruptcy Code has conferred powers on the Adjudicating Authorities to reveres or nullify the effect of certain transaction which are carried out for the purpose of circumventing or undermining any provisions of the Code.

In the case of “IDBI Bank Ltd vs Jaypee Infratech Ltd”[18], it was held by the NCLT Allahabad that mortgages created by the JIL- “Jaypee Infratech Ltd” in favour of the creditors of its holding company JAL- Jaiprakash Associates Ltd amounts to the fraudulent and preferential undervalued transactions.

Upon finding that such transactions were preferential, undervalued and fraudulent, the NCLT Allahabad ordered that to release encumbered lands from holding company JAL- Jaiprakash Associates Ltd’s landers and directed to vest them back in the JIL- “Jaypee Infratech Ltd”.

Following factors were taken into account by the NCLT to reach an abovementioned conclusion.

1. Making mortgage in favour of the holding company JAL’s landers, in beneficial position or interest in the case if JIL’s assets are distributed as per the distribution scheme under sec 53 [19] of the IBC.
2. Such mortgage was not in the ordinary course of business of Jaypee Infratech Ltd.
3. Jaypee Infratech Ltd did not have any benefit from such mortgage in any manner.
4. Jaypee Infratech Ltd created a mortgage in favour of JAL without any counter-guarantee or any consideration.

Insolvency code is a Special Law which has an overriding effect

In the case of “Jagmohan Bajaj v. Shivam Fragrances Pvt. Ltd & Anr”[20], it was held that initiating of CIRP can’t be defeated by taking recourse to the pendency of internal dispute between Corporate Debtor’s Directors on the allegations of mismanagement and oppression.

IBC is a special law with an overriding effect[21]. Thus it was held that rights of financial creditors can’t be made docile to pending proceedings as per Sec 241[22] and Sec 242[23] of the Companies Act 2013. 

Challenge of Arbitral Award

In the case of “K.Kishan v Vijay Nirman Company Pvt Ltd”[24], it was clarified by the Supreme Court that the operational creditors can’t use IBC for extraneous considerations, as a substitute for debt enforcement procedure or prematurely or extraneous considerations or as a substitute for the debt enforcement procedure.

It was held that petition filed under sec 34 of the Arbitration and Conciliation Act -1996 against the arbitral award is a stage of pre-existing dispute which concludes its initial stage in the form of award and it remains continue till the date of final adjudicatory process concluded under sec 34 and 37 of the Arbitration Act.

Therefore it was held that the proceedings under IBC can’t be initiated till all mechanism available through statutory appeal have been exhausted by the parties.

Prevalence of the IBC over the Income Tax Act 1961

The High Court of Telangana, in the case of “Leo Edibles & Fats limited vs The tax recovery officer- IT Department, Hyderabad”[25], dealt with the issue of settlement of dues pending before the Income Tax Authority during the liquidation of the debtor company. 

It was held by the High Court that in the event where assessee company is under the liquidation process as per provisions of the Insolvency and Bankruptcy Code, the IT authority can’t claim the priority of recovering dues under the Income Tax Act. It was further held by the High Court that assets which are under the attachment can no longer create an interest in favour of the IT authority by making them secured creditors under the Insolvency and Bankruptcy Code-2016.

Apart from that in respect of moratorium, the High Court ruled that proceedings initiated under the IBC confirm that any previous pending litigation, initiated before the commencement of the insolvency/bankruptcy proceedings are suspended.

No necessity to accept only matured claim by resolution professional

In the case of “Andhra Bank vs M/s F.M. Hammerle Textile Ltd”[26], it was held by the NCLAT that it is not mandatory that all the claims submitted by the creditors need to be matured on the date of initiation of the Corporate Insolvency Resolution Process.

Even the for the debt which is due in future upon its maturity, the “Operational Creditor” or “Financial Creditor” or “Unsecured Creditor” or “Secured Creditor” can file such claim. Rejection of claim cannot be made by the Resolution Professionals on the grounds that only claims which are matured can be entertained and others can’t be looked into. Thus in the total liabilities of the corporate debtor, un-matured claims including uninvoked guarantees can be included[27].

Moratorium under Section 14 of the IBC applicable to the personal guarantor also

In the case of “State Bank of India vs V. Ramakrishnan & Anr”[28], it was held that under Sec 14 of the IBC- moratorium does not intend to create bar against assets of the guarantors for the recovery of debts from the corporate debtor.

The scope of the sec 14 of the IBC for moratorium can be restricted to the assets of the corporate debtor only. It was held that even in the case of personal guarantee- principles of contractual guarantee is to be respected during the moratorium.

Equality in making payments to the Financial Creditors

In the case of “Binani Industries Limited v. Bank of Baroda & Another”[29] it was held by the NCLAT that the resolution plan submitted by the Dalmia Company was discriminatory in nature because of unequal treatment of similarly put operational and financial creditors.

In addition to that NCLAT dealt with the importance and priority of maximization of assets over the procedural compliance of IBC. Therefore it was ruled by the NCLAT that a resolution plan making unintelligible discrimination between creditors on similar footing would result in invalidation of such resolution plan by the Adjudicatory Authority.

Committee of creditors can’t initiate liquidation without inciting expression of interest

In case of “Vedika Nut Crafts Pvt Ltd”[30], it was held by the NCLT bench that the committee of the creditors can’t initiate liquidation process before inviting Expression of Interests[31] by the prospective/ strategic resolution applicant.

Such a decision will be arbitrary and would violate fair play and legal provisions. It is the mandatory duty of the Resolution Professionals to invite Expression of Interests because in absence of that there would be no possibility of any prospective applicant to make an offer.

NCLT under IBC doesn’t have jurisdiction to examine the legality of a foreign decree

In the case of “Usha Holdings L.L.C. vs Francorp Advisors Pvt Ltd”[32], NCLAT held that Insolvency resolution is not litigation and Adjudicating Authority under IBC is not Tribunal or court. Accordingly, NCLAT doesn’t have the jurisdiction to decide whether the foreign decree is proper or legal.

In this case, an appeal was filed against the order of refusal to admit a petition under Sec 9 of the IBC. The appellant’s claim for being an operational creditor was rejected on the basis of money decree passed by the US Court to which the company was complying with.

Recognition of Rights of Operational Creditors

In the Case of “Mobilox Innovations Private Limited (“Mobilox”) versus Kirusa Software Private Limited”[33], the Supreme Court of India has settled the issue of the interpretation of the term “dispute in existence”[34] under the IBC-2016.  Here the question was raised before the Supreme Court as to the interpretation of the code as to what would constitute dispute when it comes to the debts which is owed to the operational creditors.

It was held by the Supreme Court that for the existence of dispute all that NCLT is required to see is whether there is any plausible contention which makes it necessary for further investigation and that such dispute is not the shaky legal argument or just the fact uncorroborated by the evidence.

Delayed claims

In the case of “Speculum Plast Pvt. Ltd v PTC Techno Pvt. Ltd[35]” the NCLAT held that the provisions of the Limitation Act shouldn’t apply to the proceedings initiated under the code. It was held by the NCLAT that for the proceedings under the code the Limitation Act should not apply.

Further, it was clarified by the NCLAT that in the scenario where an application is filed under “sec 7” [36] or “sec 9”[37] of IBC after a long delay, NCLT will provide an opportunity to the applicant under above-mentioned sections to provide an explanation for such delay and before rejecting a belated application any negligence on the part of an applicant can be taken into consideration.

However, it was specifically clarified that the same opportunity won’t be provided to the applicant filing an application under Sec 10 of the code for initiating insolvency resolution process by the corporate debtor against itself in case there is no specific debt or claim. In the case of a claim, it was held by the NCLT that it is the Committee of Creditors who will decide whether such a claim after a long delay can be accepted or not.

If the creditor feels aggrieved by such decision, he can apply to the NCLT for the relief. However, this specific relief for limitation is applicable only on the claims before initiation of the IBC. Through the amendment in 2018[Ins. by Act No. 26 of 2018, sec. 34 (w.e.f. 6-6-2018] sec 238-A was inserted in code which provides for the application of limitation to the code.[38]

Thus this move has cleared all litigations around the country regarding the applicability of the limitation to the IBC.

Certificates for Operational creditors

In the case of “Macquarie Bank Limited v Shilpi Cable Technologies Limited”[39], it was held by the Supreme Court that under sec 9(3)(c) of the Code, for operational creditor the requirement to provide a certificate from the financial institution is not a mandatory and only directory.

The second issue which was touched by the Supreme Court was whether a demand notice of unpaid operational debt can be issued by a lawyer on behalf of the operational creditor?

The Supreme Court answered in affirmative and further held that a court must endeavour to interpret the IBC in a manner that would fulfil its objectives without creating major inconvenience for the innocent parties.

Timeline for rectification of defects

In the case of “JK Jute Mills v M/s. Surendra Trading”[40], it was held by the NCLAT that prescribed period of 14 days for Adjudicating Authority requiring them to pass such order is directory however the period of 7 days which is given to the operational creditor or applicant to rectify the defects in the application is mandatory.

However, it was held by the SC that such period of 7 days to rectify the defects in the application by the operational creditor is also directory and mandatory. On the other hand, the SC has clarified that in the case where such defect is not removed within 7 days, it is mandatory for the applicant to file an application and to show sufficient grounds for the delay due to which objections were not removed within 7 days.

This ruling providing time limit of 14 days for adjudicating authority and 7 days for operational creditor only directory can stretch the timelines in the insolvency process. However, recognition of time as an essence might be helpful to avoid unnecessary delay. It is yet to see whether this ruling will provide fairness or open a way to use it as a tactic for delaying insolvency proceedings.

Analysis of the evolution of IBC through Essar steel judgement

In a recent judgement of “Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors”[41], the Supreme Court has clarified certain core issues regarding Insolvency and Bankruptcy Code, 2016 specifically related to Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’). The present research paper attempts to encapsulate the core of the judgement which has evolved the IBC in a specific manner. The crux of the judgement is as follows:

Jurisdiction of Appellate tribunal and adjudicating authority

In this judgement, the Supreme Court has clarified the scope of judicial review which can be exercised by the Adjudicating Authority and held that it is confined within the ambit of “Sec 30(2)”[42] of the IBC while on the other hand scope of review by the Appellate Tribunal was held to be within the grounds which are provided in “Sec 32”[43] of the IBC read with Sec 61(3).

For Adjudicating Authority it was observed that it can’t exercise equity or discretionary jurisdiction outside the ambit of Sec 30(2) of the IBC in the case where the resolution plan is put before Adjudicating Authority.

It was emphasised by the Supreme Court that the ultimate discretion regarding how much to pay and what to pay to each class or subclass of creditors lies with the COC-Committee of Creditors. It was however with a caveat that the decision of the committee of creditors shall reflect the fact that it has taken into consideration of requirement that the corporate debtor to keep going as a concerned party during the resolution process.

Meaning of that is that COC requires to maximize the value of corporate debtor’s assets and similarly on the other hand interest of all stakeholders which includes operational creditors needs to be considered.

Further, it was observed by the Supreme Court that in such cases where nothing is paid to the operational creditors or the minimum value/ liquidation value which is in most cases is nil after all secured creditors are paid, would not maximise the value of assets of corporate debtors or balance the interest of stakeholder if running of business becomes impossible.

Further, it was held that the judicial review by the Adjudicating Authority includes the examination of resolution plan and to determine that whether such resolution plan approved by the committee of creditors has met the conditions required under Sec 30(2) of the IBC.

Further as mentioned in Sec 30(2) judicial review would include keeping check that such resolution plan submitted by the COC doesn’t contravene any other law for the time being in force including the provisions mentioned in IBC as they are also provisions of law time being in force. If it is found by the adjudicating authority that there is a breach of any condition mentioned as above, it may return the resolution plan to the COC and compel them to re-submit such resolution plan after satisfying above-mentioned criteria.

Equitable treatment to creditors

It was categorically stated by the Supreme Court that equitable treatment is to be applied to similarly situated creditors and such equitable principle can’t be stretched to treat unequal equally.

Such equitable treatment is to be rendered to each creditor based on their class to which they belong to whether unsecured or secured, operational or financial.

Further, it was held that there is no law to not to approve the resolution plan only on the ground that it is unjust or unfair to a class of creditors as long as the interest of each class has been taken into considered and looked into.

The validity of sub-committee constituted by Committee of creditors

With regard to the exercise of Committee of Creditors’ powers it was held by the Supreme Court that such powers which have a serious impact on the running of the business of the corporate debtor, such powers shall not be delegated to any person as per provisions of sec 28(1)(h) of the code.

Also for the approval of resolution plan under Sec 30(4), the same also can’t be delegated to any other person as it is the only committee of the creditors who have been vested with the power to take such decision which it needs to take itself.

It was clarified by the Supreme Court that appointment of sub-committees can’t be done for the purpose of performing administrative or ministerial acts, or for the negotiating with resolution applicants provided that such acts are ratified and approved after due analysis by the Committee of Creditors.

Extinguishment of undecided claims and personal guarantees

It was made clear by the Supreme Court regarding the effect of approving of resolution plan on such claims of the creditors who did not submit their claims before the RP- Resolution Professionals within the specific time period provided under the code.

It was laid down by the Supreme Court that once under Sec 31(3) of the IBC resolution plan is approved by the committee of creditors it shall have a binding effect on all stakeholders and guarantors. It was held by the Supreme Court that once a resolution plan by the successful creditor has been accepted, he can’t suddenly face the challenge of undecided claims thereafter. Such an act would throw a prospective resolution applicant who has taken over successfully business of corporate debtor into the uncertainty of claims.

All such claims are required to be submitted before and decided by the Resolution Professionals in order to make aware a prospective resolution applicant exact amount to be paid to successfully take over and run business of the corporate debtor.

The National Company Law Appellate Tribunal/ the Appellate Tribunal in its judgement also rejected rights of the creditors against the guarantees which were extended by promoters or group of promotors of the corporate debtor. However such decision was overruled by the Supreme Court on the ground that it was violative of Sec 31(1) of the IBC and Supreme Court’s ruling on “State Bank of India vs V. Ramakrishnan”[44]

Apart from above, it was argued by the guarantors of the corporate debtor that the rights of subrogation can’t be extinguished by the resolution plan. It was observed by the Supreme Court that it is difficult to accept the contention that part of the resolution which provided that on an instance of subrogation claims of guarantors extinguished do not apply to the directors of the corporate debtor.

However, in respect of the present case, it was clarified by the Supreme Court that it is refraining from stating anything which might have an effect on the pendency of litigation due to invocation of such guarantees.

Utilization of profits of the corporate debtor

It was held by the National Company Law Appellate Tribunal that the profits of Corporate Debtor during the process of Corporate Insolvency Resolution Process shall be utilized to pay off creditors of the Corporate Debtor. However, the Supreme Court overturned the decision and held that after the consented proposal is approved by the COC, such profits won’t go the creditors.

The constitutional validity of Section 4 of the IBC (Amendment Act) 2019

Constitutional Validity of Sec 4 of the IBC (Amendment Act) 2019 hereinafter referred to as Amending Act -2019 was under constitutional challenge before the Supreme Court.

Sec 4 & Sec 6 of the IBC Amending Act, 2019 brought the mandatory time period of 330 days[45] for completion of Corporate Insolvency Resolution Process failing of which the liquidation process of the corporate debtor would be initiated.

It was observed by the Supreme Court that time period of legal proceedings should not be such which would harm a litigant in the case where tribunal itself would be unable to take up the case within the specified period without fault of the litigant.

It was further held that mandatory deadline provision without such exception would violate Art-14 and Art 19(1)(g) of the Indian Constitution. Because of that, the Supreme Court left sec 4 of the Amending act intact and only struck downed the mandatory provision for being violative of art 14 of the Indian Constitution.

It was held that its restriction was excessive and unreasonable which hampers applicant’s right to carry business, as per Art 19(1)(g) of the Constitution. 

Clarification of effect of such declaration was made and it was laid down that in ordinary case the time taken in Corporate Insolvency Resolution Process must be within the limit of 330 days from the date of commencement of insolvency proceedings including extensions period and the time period in legal proceedings.

However as per the facts of the case if it can be validly shown that only a short period beyond 330 days is required for completion of CIRP and it is in the interest of all stakeholders that instead of liquidation corporate debtor is put back on its feet and the delay in legal proceedings is due to factors which are beyond controls of litigants before the Appellate Tribunal or Adjudicating Authority or large part of such factors are attributable to the delayed process of Appellate Tribunal or Adjudicating Authority itself.

It was held that, in such scenario, time limit of 330 days can be extended.

Disputed claims before resolution professionals

In this case, the Resolution Professionals admitted claims of certain creditors at a notional value of INR 1 on the basis that various disputes were pending before many authorities in respect of the said claim/amount.

However, the Adjudicating Authority and even the Appellate Authority in appeal held that Resolution Professionals are required to register the entire claim.

However, the said decision by the Appellate Authority was set aside by the Supreme Court and it was held that Resolution Professionals were correct in admitting claim at an only notional valuation of INR 1 because of pendency of numerous cases with respect to such claims.

Conclusion and Recommendations

The IBC 2016 is a vital reform which will make it easier to do business in India. The Code will lead to the availability of the credit, balancing the interest of all stakeholders and promote entrepreneurship by amending and consolidating laws related to insolvency resolution of individuals, partnership firms and corporate entities and for maximization of value of assets of the corporate debtor.

The Insolvency and Bankruptcy Code promises to facilitate faster and better debt recovery mechanism and to make it easier to wind up the failing business in the country. The Code is a revolutionary step as through it the credit market is going to be transformed which was malfunctioning due to malpractices and various other problems. The entire code will be implemented through NCLTs and DRTs.

Insolvency and Bankruptcy Code is one of the best reforms implemented by the Indian Government. Firstly the appropriate result needs to be within 330 days. Prior to amendment in IBC, the requisite period was of maximum 180 days which would further allow only one-time extension of 90 days from the date of commencement of insolvency proceedings.

However, it was not practically possible for CIRPs, to conclude all the proceedings within 270 days. This was one of the lacunas of the code which was rectified through 2019 amendment. However, the amendment provided mandatory completion of the proceedings within 330 days and 90 days for transitionary measure after which there will be a risk of liquidation.

This was also acting against the interest of several stakeholders due to delay being caused by the adjudicating authority. Thus in Essar Steel Judgement, the Supreme Court struck down the mandatory provision. However, it now becomes the duty of the Adjudicating and Appellate Authority that time-line of 330 days is extended only in exceptional cases.

Secondly, it is the creditors whose money is at stake and thus Code provides the Committee of Creditors powers to take vital decisions concerning the practicality of running of business and resolution process. 

Thirdly that it is the NCLT which should be judging viable maters of fairness and priority shall be given to the Insolvency Professionals. The IBC aims to justify procedure and process for insolvency and bankruptcy. It intends to increase creditors’ assurance in Indian Market and for that advance procedure for recovery of debts.

Though Code is in its initial stage it has attempted to bring changes through various amendments and have attempted to rectify lacunas. Initially, under the code, it was uncertain that whether amalgamation, merger or demerger can be included under a resolution plan. After 2019 it is now clarified that the resolution plan can include amalgamation, merger or demerger.

The Government has brought many amendments in Insolvency and Bankruptcy Code 2016 to make it an effective instrument to deal with insolvency proceedings. For example, initially, criteria to become Resolution Professionals were not defined and now they are very well defined.

Another example of the needful amendment is a requirement for approval of resolution plan by 75% of Creditors which is now reduced[46] to 2/3rd or 66%. Because initially, only 26% of dissenting creditors could take the company into liquidation.

However, one thing which is not changed is the minimum value of default which can trigger the insolvency proceedings which is just a sum of Rs. 1, 00,000/- because in a corporate regime any small vendor under late-payment or non-payment of dues can initiate Insolvency proceedings although such late payment might be due to temporary disturbance in the cash-flow.

This will increase the caseload of NCLT. To prevent this minimum threshold value to file a suit shall be increased and also no. of benches for NCLT shall be increased. Apart from it to prevent multiplicity of proceedings all powers at initial stage shall lie to NCLT only through IBC and High Court shall have only supervisory power through appeal.

No case shall be allowed to file in different form such as DRTs unless NCLT has adjudicated or rejected the petition. An attempt shall be made to bring all laws regarding debt recovery into single umbrella legislation of Insolvency and Bankruptcy Code.

Though Insolvency and Bankruptcy Code has certain lacunas, the Government has played a pro-active role in bringing amendment in this code. Through the introduction of this code, the Indian Corporate Market can see the hope for a better future for creditors as well as motivation for new investors. Further effective implementation of this code will result into lesser pendency of insolvency of the suit. The quick judicial decision would further result in maximization of assets of the corporate debtor and thus would be more beneficial to creditors.

Author: Nisarg Shah

[1] Available at http://legislative.gov.in/actsofparliamentfromtheyear/sick-industrial-companies-special-provisions-act-1985

[2] Available at http://legislative.gov.in/sites/default/files/A2002-54.pdf

[3] Available at http://www.drat.tn.nic.in/Docu/RDDBFI-Act.pdf

[4] Available at ebook.mca.gov.in/default.aspx

[5] It is to be noted that creditors even have right to approach the Arbitration Tribunal or Civil Courts for contractual obligation.

[6]As per Sec 5(7) of IBC “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;

[7] As per amendment in sec 5(8) of the code-through Ordinance of 2018 for Insolvency and Bankruptcy Code- any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;  [Explanation. -For the purposes of this sub-clause, – (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

[8] As per Sec 5(20)of IBC “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;

[9] As per Sec 210 of the IBC, these utilities needs to be registered with the IBBI

[10] See Sec 215 (2) of the IBC

[11] See Sec 215(3) of the IBC

[12] As per Section 61, of the IBC

[13] As per Section 182, of the IBC

[14] As per Section 231, of the IBC

[15] Section 238A, Insolvency and Bankruptcy Code, 2016 (As amended by the Insolvency and Bankruptcy (Amendment) Ordinance, 2018.

[16] CA No. 9402 – 9405 of 2018.

[17] Sec-29A. Persons not eligible to be resolution applicant.

[18] CA No.26/2018 in Company Petition No.(IB)77/AD/2017.

[19] Sec 53of the IBC-.  Distribution of assets.

[20] CA (AT) (Insolvency) No. 428 of 2018.

[21] See Sec 238 of IBC

[22] Sec 241 of the Companies Act-2013. Application to Tribunal for relief in cases of oppression, etc

[23] Sec 242 of the Companies Act -2013- Powers of Tribunal

[24] CA No. 21824 of 2017.

[25] Available at- Writ Petition No. 8650 of 2018https://www.ibbi.gov.in/webadmin/pdf/whatsnew/2018/Jul/26th%20Jul%202018%20in%20the%20matter%20of%20Leo%20Edibles%20&%20Fats%20Ltd.%20Vs.%20The%20Tax%20Recovery%20Officer%20(Central)%20IT%20Dept.,%20Hyderabad_2018-07-27%2014_02_39_2018-07-28%2021:02:14.pdf

[26] CA (AT) (Insolvency) No. 61 of 2018. Available At https://nclat.nic.in/Useradmin/upload/7456493665b6a891d72c52.pdf

[27] Also See- Export Import Bank of India v. Resolution Professional, Company

[28] CA (AT) (Insolvency) No. 61 of 2018

[29] CA (AT) (Insolvency) No. 82 of 2018.

[30] (IB)-40(PB)/2017.

[31] INVITATION FOR EXPRESSION OF INTEREST- (Under Regulation 36A (1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

[32] Civil Appeal (AT) (Insolvency) No. 44 of 2018.

[33] CIVIL APPEAL NO. 9405 OF 2017 Available At https://indiankanoon.org/doc/166780307/

[34] Sec 8(2) of the IBC

[35] Available at https://taxpublishers.in/Ency_CL/CL_Judg_Show?83974000?a0

[36] Sec 7 deals with Initiation of corporate insolvency resolution process by financial creditor.

[37] Sec 9 deals with Application for initiation of corporate insolvency resolution process by operational creditor

[38] Sec-238-A The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be

[39] SC Civil Appeal No. 15135 of 2017 Available at https://indiankanoon.org/doc/185937110/

[40] Available at https://ibbi.gov.in/1stMay17JKJuteMills_SurendraTradingALD2017.pdf

[41] CIVIL APPEAL NO. 8766-67 OF 2019 in SUPREME COURT. Available at https://www.ibbi.gov.in/uploads/order/d46a64719856fa6a2805d731a0edaaa7.pdf

[42] Sec 30(2) of the IBC deals with method of examination of resolution plan by Resolution Professional

[43] Sec 32. Of IBC   Appeal. – Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61.

[44] Supreme Court CIVIL APPEAL NO. 4553 OF 2018 available at https://ibbi.gov.in/webadmin/pdf/order/2018/Aug/11958_2018_Judgement_14-Aug-2018_2018-08-14%2022:04:34.pdf

[45] As per Amended Sec 12 of the IBC

[46] Sec 30(4) of the IBC

Edited by Medha Mukherjee

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Introduction

Investment arbitration is a mechanism in a free trade agreement or investment treaty that provides foreign investors, with a right to access international tribunal to resolve investment disputes with the host state. A massive escalation in attracting foreign direct investments (FDI) has led to a significant increase in International Investment Agreements (IIA’s) at bilateral and regional levels. Consent to investment arbitration is most commonly given by host States in International Investment Agreements (IIA’s), including Bilateral Investment Treaties (BIT’s) as well as Free Trade Agreements (FTA’s) and multilateral agreements.

Within IIAs, specific procedures have been put in place with respect to the settlement of disputes between private parties and the host country arising from investment. The vast majority of BITs, as well as some regional agreements and other instruments, contain provisions on investor-state dispute settlement. The usual approach to investor-State disputes in IIAs is to specify that the parties to a dispute must seek an amicably negotiated settlement. If amicable negotiations fail to resolve a dispute, international arbitration is usually the next step – either on an ad hoc or an institutional basis.^[i]

The sense of security provided through Investor-State dispute settlement provisions in IIA’s has acted as a catalyst in creating a favourable investment climate for foreign investors into the host countries. This holds prominent importance in developing countries where the investors get a guarantee to not be overly regulated by the host country and avoid wide gamut of judicial procedures in such a country. Nevertheless, there have been fears about frivolous or vexatious claims that could inhibit legitimate regulatory action by Governments, as well as concerns about balancing national and international methods of dispute settlement.^[ii]Furthermore, the relatively nebulous language of treaty provisions and the increasing complexity of IIAs can make the result of arbitration less expectable.

Investor-state provisions have existed in the trading world since the 1960s, the applicability of these provisions to constitute arbitration proceedings have been relatively new. Since 1987 – when the first investor-State dispute based on bilateral investment treaties (BITs) was recorded under the arbitral proceedings of the International Centre for Settlement of Investment Disputes (ICSID).^[iii] At least 61 Governments – 37 of them in the developing world, 14 in developed countries and 10 in South-East Europe and the Commonwealth of Independent States – have faced investment treaty arbitration.^[iv]

Although the aim is of a hassle-free settlement of a dispute between the investor and the state it is not free of ambiguities. These major drawbacks have stimulated out of the limited meaning of certain provisions of IIA’s, for example, the meaning of ‘Fair and Equitable’ provisions stands unclear while different interpretation of the same yields different results.

What is a BIT?

Bilateral Investment Treaties (BITs) are treaties between two countries aimed at protecting investments made by investors of both countries.^[v] BITs protect investments by imposing conditions on the regulatory behaviour of the host state and thus, prevent undue interference with the rights of the foreign investor.^[vi] These treaties safeguard the interest of the investors by providing regulations of treatment, right to establishment and redressal of disputes if they arise by submitting to negotiations and arbitrations rather than to the host country’s judicial body. There has been a steady increase in the number of BITs across the world—from 500 in 1990s to more than 3,324 by the end of 2016.^[vii] The consequence of which has been an increase in investor-state disputes in international investment laws where wide arrays of over regularised laws specifically for investors by host countries have been challenged by investors as potential breaches of BIT’s.

Indian BIT: a brief history.

The origin of Indian BIT dates back to the year 1990s when as a part of its liberalization scheme adopted in 1991 India entered into first BIT with the United Kingdom in 1994. The next model of BIT was drafted on the very template of 1994 in the year 2003. The 2003 model attracted a lot of backlash soon after the first publically known arbitral award was issued against India in the case of White Industries v. India.^[viii] The lack of attention of the government on the provisions of its BIT was critically commented upon by academicians, reporters, international investors and research scholars from 2003 up till 2011. This resulted in a series of development that took place; there was an increased involvement in ISDS on the Indian footing with a plethora of cases slapped against India soon after its first arbitral award. There was a demand in India to revisit its BIT and frequent discussions in the Parliament.^[ix]

The major development relates to internal debate with the Indian government on BIT. The Ministry of Commerce’s discussion paper “International Investment Agreements between India and Other Countries,”^[x] prepared in 2011 was greatly inspired by the work of the United Nations Conference on Trade and Development (UNCTAD) on BITs.^[xi] The paper recognised that “when developing countries enter into BITs, a balance between investors’ rights and domestic policy must be ensured.”^[xii] This paper was then subjected to review from the year 2012 which finally led to the adoption of Model BIT in 2016. 

Analysis of major ambiguities in IIA’s with respect to Indian BIT

Investor/ investment definition.

The issue of how to read the definition of investment and who qualifies as an investor is a complex. The investor entitled to use investor-state dispute redressal mechanism depends on the very definition of what and who constitutes as an investment and an investor respectively. In Chapter 11 of NAFTA, an “investor” can initiate the claim on behalf of the “investment” (i.e. the company established in the host country) or on its own behalf as an injured investor.^[xiii]

The BIT replicates a similar approach and the concept of ‘investment’ has a broad scope both in NAFTA and BIT’s. Usually, BIT’s operate based on an asset-based definition of investment which covers broad categories of forms of investment. Traditional treaties such as the FCN treaties defined the formula of ‘Investment’ to be ‘properties, rights and interests.’ The definition of investment and investor forms the backbone of applicability of BIT and jurisdiction under the BIT. BITs generally envisage one of the two approaches to defining ‘investment’ – asset-based or enterprise-based.^[xiv]

The asset-based definition of investment includes every asset worth an economic value, acquired and established by a foreign investor as an investment. Whereas if we consider the enterprise-based definition of investment, only an investment that has been constituted and is operating as a legal entity with the real or substantive business within the host state qualifies as in ‘investment’ under the ambit of BIT and only such investment are guaranteed protection and security under BIT.

Under the 2016 Model BIT Article 1.3 defines an ‘enterprise’ as a legal entity constituted, organized and operated in accordance with the law of the Host State. Article 1.4 defines ‘investment’ as an enterprise constituted, organized and operated in ‘good faith’ in the Host State and ‘in compliance with the law’ of the Host State.^[xv]

Additionally, the ICSID Convention also contains the term ‘Investment’ in Article 25. Although this term is not defined, parties to BITs referring disputes to ICSID have been required to fulfil a double-barrel test – to fulfil the definition of Investment under the relevant BIT but also satisfy the objective criteria of investment under the ICSID Convention.^[xvi].

Treatment to Investment

The major expectations arising out of a bilateral investment agreement is that of ‘Fair and Equitable Treatment’ (FET) as well as ‘Protection and Security’. The foreign investors need an assurance that their investment into a foreign land will have fair and equitable treatment when compared to the host country’s enterprises. They enter into BIT’s to make sure that they have protection and security against civil unrest and illegal disturbances. 

The standard of FET and protection and security are the most debated issue in arbitral disputes under investment agreements on the grounds of lack of meaning attached to these standards. The threshold for this standard was articulated in S.D. Myers v. Canada, where the tribunal held that a breach of the fair and equitable treatment standard, in Article 1105 of NAFTA, “occurs only when it is shown that an investor has been treated in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective”.^[xvii] In Pope & Talbot, Inc. v. The Government of Canada, it was held that the standard applies to conduct that requires a failure of due process that surprises the observer, a standard that would be more “rigorous for evaluating what governments do to people and companies”^[xviii]

The 2016 India Model BIT does not contain a FET clause, but rather a “treatment of investments” clause.^[xix] It prohibits a country from subjecting foreign investments to measures that constitute a violation of customary international law. The reference to customary international law highlights India’s attempt to restrict the interpretation of the standard to minimum standard treatment without making express mention of the FET standard.^[xx]

The India Model BIT provides that foreign investment and investors shall be accorded full protection and security.^[xxi] Further, the Model provides that FPS is restricted to physical security for foreign investment and investors and does not extend to ‘any other obligation whatsoever’.^[xxii] The clear definition provided by Indian Model of BIT 2016 is a clear attempt to curb out arbitral discretion on the standard of ‘Protection and Security’. 

National Treatment

One of the main expectations arising from an investment agreement is that foreign investors will not be subject to discriminatory treatment by the host country, including through legal, administrative or other decision-making. The principle of non-discrimination is usually formulated in a provision on national treatment that requires treatment “no less favourable” than that provided to domestic investors “in like circumstances”. ^[xxiii]

As observed in the Methanex case: “As to the question of whether a rule of customary international law prohibits a State, in the absence of a treaty obligation, from differentiating in its treatment of nationals and aliens, international law is clear. In the absence of a contrary rule of international law binding on the States parties, whether of conventional or customary origin, a State may differentiate in its treatment of nationals and aliens.”^[xxiv]

The 2016 India Model BIT provides for national treatment. It provides that a Party shall not apply measures that accord less favourable treatment than that it accords, in like circumstances, to its own investors or to investments by such investors with respect to the management, conduct, operation, sale or other disposition of investments in its territory. However, the interpretation of ‘like circumstances’ does not carry blanket meaning and hugely based on case- to – case analysis.

Expropriation

The norm of Expropriation in international law is that foreign-owned property may not be expropriated or subject to a measure tantamount to expropriation, unless four conditions are met: 

• the measure is for a public purpose; 
• it is taken in accordance with applicable laws and due process; 
• it is non-discriminatory; and 
• Full compensation is paid.^[xxv]

However, the majority of disputes in a BIT arise out of expropriation. BITs regulate the conditions and consequences of this right of expropriation. The very basic element of this right is establishing that the property to be taken constitutes an ‘Investment’ under BIT. This does not merely relate to tangible property. Expropriation can also cover intangible assets such as intellectual property, moveable assets such as shares, rights under contracts, arbitral awards.^[xxvi]

Expropriation can be both direct and indirect. Direct expropriation means taking away of tangible or intangible property by the host state to transfer the ownership of the property to another person. Whereas, indirect expropriation relates to taking away of the property (tangible/intangible) without any effect on the title of the investment. The latter is more widespread.

The 2016 Indian Model BIT covers both direct^[xxvii] and indirect^[xxviii] expropriation. It provides that direct expropriation would constitute a formal transfer of title or outright seizure. Indirect expropriation would occur if measure(s) substantially or permanently deprives the investor of fundamental attributes of the property in its investment such as the right to use, enjoy and dispose of the investment without formal transfer of title or outright seizure.^[xxix]

Conclusion 

Through this article, we have tried to identify some of the issues concerning investor-state dispute settlement procedures with regards to Indian Model of BIT 2016. Chapter IV of the 2016 India Model BIT deals with Settlement of Disputes between an Investor and a Party’. This is the longest chapter on the settlement of disputes in any BIT so far and contains eighteen (18) articles. 

Although the BIT in India has undergone several remarkable changes in interactions and altercations under various BITs, several proceedings have been initiated against India under BIT. 2016 Model of Indian Bit appears as a knee-jerk reaction from India to the spate of proceedings being initiated against it under several BITs. It is crystal clear that the 2016 India Model BIT has been understood to house several provisions that tilt the balance in favour of the host State and give rise to a protectionist model.

It is pertinent to point out that India has requested twenty-five of its BIT partner countries to issue joint interpretative statements to resolve, what India describes as ‘uncertainties and ambiguities that may arise regarding interpretation and application of the standards contained, in India’s BITs. If these joint interpretative statements are finalized, India expects that they would become an important element in the process of treaty interpretation. There is no information available as to how many countries have responded to this request except Bangladesh.^[xxx]

^[i] (UNCTAD, 2003a, 2003b)

^[ii] (UNCTAD 1998, 2003a, 2003b)

^[iii] Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, 27 June 1990

^[iv] https://unctad.org/en/Docs/iteiit20054_en.pdf

^[v] For a general discussion on BITs see R. DOLZER & C. SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW (2012); A. NEWCOMBE & L. PARADELL, LAW AND PRACTICE OF INVESTMENT TREATIES 1-73 (2009); JESWALD SALACUSE, THE LAW OF INVESTMENT TREATIES (2015).

^[vi] DOLZER & SCHREUER, supra note 1, at 13.

^[vii] See UNCTAD, WORLD INVESTMENT REPORT – INVESTOR NATIONALITY: POLICY CHALLENGES 101 (2017).

^[viii] White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (Nov. 30, 2011).

^[ix] See Pinaki Misra, Lok Sabha Questions, Unstarred Question No. 5870 on Bilateral Investment Treaties, Parliament of India. A Member of Parliament, in May 2012. See also M S Reddy, Lok Sabha Questions, Unstarred Question No. 3926 on Bilateral Investment Pacts, Parliament of India.See also Bhola Singh, Lok Sabha Questions, Unstarred Question No. 4946 on Bilateral Investment Treaty, Parliament of India (16 December 2016).

^[x] Ministry of Commerce, Government of India, International Investment Agreements between India and Other Countries.

^[xi]This is evident from the fact that the paper quotes various UNCTAD reports multiple times to support different arguments. See for UNCTAD’s work on BITs http://unctad.org/en/pages/DIAE/International%20Investment%20Agreements%20(IIA)/International-Investment Agreements-(IIAs).aspx. 

^[xii] See supra note 25; supra note 26.

^[xiii] (Articles 1116-1117).

^[xiv] Berk Demirkol, The Notion of ‘Investment’ in International Investment Law (February 1, 2015). (2015) I Turkish Commercial Law Review 41.

^[xv] Indian Model BIT 2016, Article 1.3 & 1.4

^[xvi] CSOB v. Slovakia, Decision on Jurisdiction, 24 May 1999; MHS v. Malaysia, Award on Jurisdiction, 17 May 2007

^[xvii] S.D. Myers Inc. v. Canada, op. cit., paragraph 263.

^[xviii] Pope & Talbot, Inc. v. The Government of Canada, op. cit. Award on Damages, paragraph 64.

^[xix] Indian Model BIT 2016, Article 3.1

^[xx] . Ranjan and Pushkar, The 2016 Indian Model BIT at 23.

^[xxi] Indian Model BIT 2016, Article 3.2

^[xxii] Id., Article 3.2

^[xxiii] UNCTAD, 1999c

^[xxiv] 6. Methanex Corporation v. United States (Final Award of the Tribunal on Jurisdiction and Merits, 3 Aug. 2005) [Methanex] at Part IV – Chapter C, para. 25

^[xxv] see Antoine Goetz v. Republic of Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999 (Belgium Luxembourg Economic Union/Burundi BIT).

^[xxvi] Saipem v. Bangladesh

^[xxvii] Indian Model BIT 2016 Article 5.3 a (i)

^[xxviii] Indian Model BIT 2016 Article 5.3 a (ii)

^[xxix]Seehttp://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Bilateral_Investment_Treaty_Arbitration_and_India-PRINT-2.pdf

^[xxx] Jarrod Hepburn, Unable to Unilaterally Terminate a 2011 BIT, The Government of India Persuades Counter-Party to Agree Joint Interpretive Note to Clarify BIT’s Implications, IA REPORTER (Jul. 17, 2017) https://www.iareporter.com/articles/unable-tounilaterally-terminate-a-2011-bit-the-government-of-india-persuades counter-party-to-agreejoint-interpretive-note-to-clarify-bits-implications/

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Introduction

For a sale of a company or even when the entity acquires a company, many at times, a number of obstacles arises which may both be functional as well as bad for the future. Understanding what may be good or bad decides how such a decision would be affecting the company. A majority of times, especially in a share acquisition, acquisition cannot be made without the full consent of all the shareholders. This might create problems for the future a rather lucrative offer might slip off one’s table because a minority portion of the shareholders had denied such an offer. Therefore in order to retain such an offer, a drag-along right is used. In this article, we shall understand what a drag-along right is as contractual mechanisms of investment realizations.

Understanding a drag-along right

Drag along rights give more power to the majority shareholders as they can, therefore, forced upon the minority shareholders to participate in such a sale transaction of the company. This can also be understood as such a right that makes the majority shareholders not to require the consent of the minority shareholders while undergoing any sale transaction. Each merger and acquisition agreements provides the minority shareholders with the right to sell their shares at the same price as that of the majority shareholders along with the provided terms and conditions that the other sellers would possess. As has been mentioned under a drag-along right, it forces the minority shareholders to sell their stocks during such a sale of the company. Such a term is commonly used by the venture capital and the private equity firms. During the sale of such a company, the buyers often tend to or even usually desire of 100% control of the company or even usually desire of such ownership. The goal of such a sale is to bring on board all the majority of such a shareholder and eliminate the minority owners or bring them on the table and get them to agree on to sell the company to such potential buyers. Such a right is often taken up with much caution since the provision of a drag-along right would often implicate their rights in the future sale transactions. In most of the companies or the founders of such a transaction who have been involved in financing or are negotiating finance have come across “Drag-along rights”. While such a right is very much prevalent across, how they are utilized or are instead applied is what decides if such a right is good or bad.

Triggering a drag-along rights

Before the majority of owners can force minority shareholders to participate in the sale of the company. Following issues must be considered:

• Transfer of transactions– From the perspective of the majority owner, a drag-along right or transactions have the capability or can be triggered by various kinds of sales: mergers, sales of substantial assets, sale of company securities and acquisitions in most of the cases.
• Minimum percentage required to trigger the drag-along rights– The minimum percentage that is required to trigger off such ownership is 51%. However, the exact number may vary depending on the ownership mix and the strength of the shareholders.
• Restrictions by the minority owners– Sometimes the minority owners may put up restrictions or even delay the process of drag-sale from happening. They might also require a guaranteed minimum prize of return over the specified period before the drag right can be affected.

Advantages of a drag-along rights

Drag along rights makes it very much more comfortable for the majority shareholders to find a buyer and successfully negotiate a sale because of the assurances that they provide to the potential buyers that once the majority of the shareholders are on board with the transaction, completing the deal will not require any additional shareholder’s consent. An excellent example of this is when technology starts up opens a Series A investment round, so as to sell the ownership of the company to a venture capital firm. In here, the majority of the ownership would reside with the CEO of the company that is 51% of the firm. Under such a situation, the CEO would want to maintain the majority control and would also want to protect himself in case of an eventual sale. The drag-along rights under such a situation would be to prevent any future possibilities in which minority shareholder can block the sale of such a company. Drag-along rights are also very much advantageous for the minority shareholders as they are provided with the benefit of homogeneity as such a provision would require an equal price, terms and conditions across the board and this would help the small equity holders to choose favourable sales terms that might otherwise not be attainable.

Disadvantages of drag-along rights

The primary disadvantage to this right is subjected to the minority shareholders with regards to the forced sale transaction. The minority shareholders would, therefore, limit the circumstances under which such a right can be applicable. Such a right would also make the minority shareholders lose the future profits earned that could have been earned had the company had not been sold. The minority shareholders would, therefore, also not receive a sufficient amount of liquidity for their share. 

Conclusion

A number of companies are adapting to the new norm of the drag-along right because of the surety that it provides to its investors who would want to invest in such a company. Even though the minority shareholders would have to be dragged along but such a method would guarantee much more advantages rather than the disadvantages based on the situation of the company. However, while adapting to such a right, the company so adopting would have to provide for a notice regarding such adoption to the minority shareholders.

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Introduction

Non-profit organization is an organization which indulges in public and private interest without the goal of monetary profits or commercial benefits. Such organizations need to get qualified under the Internal Revenue Code 501(c)(3). Once an organization is exempted from this tax, it gets exempted from other such state and local taxes. It is a legal entity and is separate from the founder of the organization. The founder/owner puts the charitable mission and structure before his/her personal interest. An organization must be operated exclusively for religious acts, charitable acts or public safety purposes, or should collect and turn over the money to charitable organizations. A non-profit organization must be registered to gain tax benefits and official recognition by the Government. Registration can be done in 4 ways- by trust, by society, by section 8 of Companies Act, or by special licensing. It can be done through the Registrar of Societies (RoS) or Registrar of Companies (RoC).

Indian Law Provisions related to NPOs:

• Article 19 and Article 30 of the Indian Constitution.
• Societies Registration Act, 1860.
• Income Tax Act, 1961.
• Public Trust Acts (of States)
• Section 8 of the Companies Act, 2013.
• Foreign Contribution (Regulation) Act, 1976.

Advantages for Non-Profit Organization:

• Non-Profit Organizations are exempted from paying sales tax and property taxes.
• The income of a non-profit organization is not subject to Employee Taxes (Social, Security, and Medicare) as that for any profitable organization or company.
• Non-profit organizations can also offer individuals and businesses for a tax deduction by asking contributing them to contribute for charitable purposes.
• A Non-profit organization has the right to exist in perpetuity whereas an informal organization does not have that.
• Apart from the federal tax, non-profit organizations are also exempted from paying the state tax and local taxes.
• The founder, employee, or any person related to a non-profit organization is not personally liable for the debts of the organization. The creditor and courts are limited to the assets of such an organization.
• The working of Non-profit organizations is transparent, i.e., they may get a copy of salaries and expenditure of non-profit organizations and are free to inspect.
• Sometimes such organizations are provided with tax credit by the government (federal as well as state government) and some private institutions. The tax credit denotes the amount it owes as tax for the particular term or year.

Conclusion

Although non-profit organizations are exempted from taxes, they must submit the necessary paper-work and documents such as annual filings to the state and Internal Revenue Code within the deadline, to keep the organization active and exempt from taxes. A non-profit organization may be taxed for engaging in certain activities that are unrelated to its basic functions.

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(Meaning and Scope)

Section- 5 of Income Tax Act, 1961 gives Scope of all-out Income if there should arise an occurrence of an individual who is an inhabitant, on account of an individual not commonly occupant in India and individual who is a non-inhabitant which incorporates. Pay can be Income from any source which (an) is gotten or is regarded to be gotten in India in such year by or for the benefit of such individual, or (b) collects or emerges or is esteemed to gather or emerge to him in India during such year, or (c) accumulates or emerges to him outside India during such year.

Note-

1. Private status is according to segment 6 of the Income Tax Act, 1961.
2. Esteemed salary isn’t gathered however should be collected nationally.
3. The salary collected is the point at which the assessee gets the rights to get it.
4. Earlier year implies the money related year promptly going before the appraisal year.

Salary collecting or emerging outside India will not be esteemed to be gotten in India inside the importance of this segment by reason just of the way that it is considered in an accounting report arranged in India.

The salary which has been remembered for the all-out pay of an individual on the premise that it has gathered or emerged or is regarded to have collected or emerged to him will not again be so remembered for the premise that it is gotten or considered to be gotten by him in India.

Certain Examples of salaries which rewarded as earnings considered to have gathered or emerged in India:

• If Mr. X Transfer his Residential Property arranged in Delhi then Capital increase emerging on the move of such Capital Asset is considered to collect in India. It implies Capital addition emerging on the move of property arranged in India.
• Income from the business association in India.
• Dividend paid by an Indian organization.
• Income from any property, resource, or another wellspring of pay situated in India.

Compensation:-

Regarding administrations rendered in India.

Indian national from the Government of India regarding administration rendered outside India. In any case, stipends and perquisites are excluded from this situation.

Intrigue pay:-

• Gotten from Government of India.
• Gotten from an occupant is treated as salary regarded to have collected or emerged in India in all cases, but where such premium is earned regarding assets obtained by the occupant and utilized by inhabitant for carrying on business/calling outside India or is regarding assets acquired by the inhabitant and is utilized for procuring pay from any source outside India.
• Gotten from a non-inhabitant is treated as pay esteemed to gather or emerge in India if such intrigue is regarding assets obtained by the non-occupant for continuing any business/calling in India.

Eminence:

• Gotten from Government of India.
• Gotten from occupant is treated as salary esteemed to have gathered or emerged in India in all cases, except for where such sovereignty/expenses identify with business/calling/another wellspring of pay carried on by the payer outside India.
• Gotten from non-inhabitant is treated as salary esteemed to have accumulated or emerged in India if such sovereignty/charges are for business/calling/another wellspring of pay conveyed by the payer in India.

INDIA:

According to Section. 2(25A) of the Income Tax Act, 1961, the expression “India” signifies the region of India as alluded to in article 1 of the Constitution, its regional waters, seabed and dirt fundamental such waters, mainland rack, elite monetary zone or some other oceanic zone as alluded to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone, and other Maritime Zones Act, 1976 and the air space over its domain and regional waters.

Pay is characterized by u/s 2(24) of the Act.

According to section 2(13), the business incorporates:

• Exchange, business or fabricate or any experience or worry in the idea of exchange, trade or assembling
• Benefits emerging from a disconnected exchange are available as business benefits, on the off chance that it is treated as an experience in the idea of exchange, trade, or assembling.

In this association, it isn’t important that there ought to be a progression of exchanges in business and it ought to be continued forever. Neither redundancy nor the progression of comparable exchanges is vital. As effectively characterized under segment 2(13), the pay got from any experience in the idea of exchange is additionally rewarded as a business salary.

According to Section 2(36) calling” incorporates livelihood:

• A calling is an occupation requiring simply learned ability or manual aptitude e.g., attorney, CA, engineer, specialist, creator, and so forth.

Scope of Section 5 of the Income Tax Act, 1961

The extent of complete pay. 

(1) Subject to the arrangements of this Act, the complete payment of any earlier year of an individual who is an inhabitant incorporates all salary from whatever source inferred which— (an) is gotten or is regarded to be gotten in India in such year by or for the benefit of such individual, or accumulates or emerges or is regarded to gather or emerge to him in India during such year; or collects or emerges to him outside India during such year :

Given that, on account of an individual not customarily inhabitant in India inside the significance of sub-area (6)* of segment 6, the salary which accumulates or emerges to him outside India will not be so included except if it is gotten from a business controlled in or a calling set up in India.

(2) Subject to the arrangements of this Act, the complete salary of any earlier year of an individual who is a non-inhabitant incorporates all pay from whatever source determined which— (an) is gotten or is esteemed to be gotten in India in such year by or in the interest of such individual, or gathers or emerges or is considered to collect or emerge to him in India during such year.

Conclusion

Income gathering or emerging outside India will not be considered to be gotten in India inside the significance of this segment by reason just of the way that it is considered in an accounting report arranged in India.

For the evacuation of questions, it is therefore announced that pay which has been remembered for the all-out salary of an individual on the premise that it has accumulated or emerged or is regarded to have gathered or emerged to him will not again be so remembered for the premise that it is gotten or considered to be gotten by him in India.

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