Facts

A section 7 application filed by State Bank of India and Standard Chartered against Essar Steel India Ltd.(ESIL) for a default of Rs. 45,000 crores was admitted by NCLT and Mr. Satish Kumar Gupta was appointed as the IRP. In response to the invitation for expression of interest, ArcelorMittal(AM) India on 11^th October 2017 and an entity called Numetal Ltd. on 20^th October 2017 submitted their interest. The resolution plans were submitted on 12^th February 2018. On the apprehension that the RP might find it ineligible under Section 29A, Numetal filed an application before the NCLT to declare it eligible on 20^th March 2018. However, on 23^rd March the RP found both the resolution applicants to be ineligible. In his report he stated the reasons for declaring both the Ras ineligible. 

AM Netherlands holds 29.05% shareholding in Uttam Galva and has been classified as a promoter by the way of a co-promoter agreement dt. 4^th September 2004. AM Netherlands and AM India are connected persons as mentioned in the resolution plan. The account of Uttam Galva was classified as NPA for a period more than 1 year till 2^nd August 2017. AM Netherlands sold its shareholding to the other promoters on 7^th February 2018 and applied before NSE and BSE for declassification as a promoter as per SEBI regulations. As on the submission date of the resolution plan, AM Netherlands has not been declassified as a promoter of Uttam Galva and is hence ineligible under Section 29A(c). The plan was rejected and was not placed before the COC. 

Numetal as on the date of submission of expression of interest, was reliant on Essar Communications, one of its shareholders to comply with the eligibility requirements concerning tangible net worth in the EOI. On the date of submission of the resolution plan, it was reliant on Crinium Bay to comply with these regulations. Numetal was incorporated as a joint venture between Crinium Bay and Aurora Enterprises. Since Numetal relied on its shareholders for meeting the eligibility criteria at various stages, the RP decided to take into scrutiny the joint venture holders themselves to check the eligibility of the RA. Aurora Enterprises is comptletely held by Rewant Ruia and he comes within the scope of immediate relatives being the son of the promoter of ESIL, which was declared an NPA for over a year prior to the commencement of CIRP. Rewant Ruia was deemed to be acting in consort with his father Ravi Ruia and hence declared ineligible. 

Issues

1. Whether purposive interpretation of Section 29A is to be adopted on both the text and the context of the enacted provision?
2. Whether the text of the provision evinces persons acting in consort to the persons in management and control as stated under Section 29A?
3. Whether management, control and promoter are all to be met with for ineligibility under the section?
4. Whether the timeline provided under Section 12 read with 33 are mandatory and cannot be extended?
5. Whether the corporate veil is to be lifted for determining the eligibility under Section 29A of the Code?
6. Whether Section 29A(c) applies as on date of commencement of CIRP or as on the date of submission of the resolution plan?

Ratio

The court held that the provision should be interpreted to mean de facto position of the persons so as to include persons who are actually in control whether jointly or in concert. It is imperative to find the real individuals for the submission of a resolution plan. For the purpose of this provision if the persons are acting jointly then establishing an element of a joint venture is also not required. The court held that for persons to be acting in concert, an understanding (even if it is informal and indirect) to exercise over a target entity must be decided depending upon the facts of the case. 

The court stated that the ineligibility shall be applicable from the date of submission of the resolution plan as made clear by the statute itself in the opening words of the provision. 

Elucidating on the requirements of persons in management or control or promoters an NPA, the court held that any one of these elements needs to be proved for the RA to be ineligible. Both control and being a promoter of the NPA shall include de jure and de facto position while management refers to only de jure position as provided under the Companies Act. This ineligibility can be removed only if the persons falling under these categories make all the overdue payments before the submission of the resolution plan. The court emphasised on this aspect to avoid letting persons who are in charge of the corporate debtor to regain control without paying off its debts. But this interpretation does not extend to promoters of the companies with PUFE transactions. Even the complete payment of PUFE amounts cannot make them eligible again. 

The timeline given under Section 12(1) is mandatory and if no resolution plans are received or if they are rejected then the corporate debtor needs to be liquidated. It is of utmost importance for all the authorities to follow the model timeline. 

RP is required to examine the resolution plans and shall submit only the complete resolution plans before the COC. This provision does not empower the RP to decide if a resolution plan is in contravention with the law or not but he is required to form a prima facie opinion cornering its legal compliance. Though it is not a statutory requirement, it is advised that the RPs attach a due diligence report to each resolution plan stating its compliance of law or lack thereof. It was held by the Apex Court that RA does not have a vested right to have his plan be considered so a rejection by the RP cannot be challenged before the AA. Since no right is being affected a writ to this effect is also not maintainable. RA can approach the NCLT only if its plan has been considered by the COC after its voting. 

The rejection of a resolution plan by COC on the basis of ineligibility under Section 29A is not final and can be determined by the AA after hearing both the parties. If however the plan gets approved by both the COC and the AA, then the appellate tribunal may be approached for adjudication.

Both the RAs were held to be ineligible but the continuation of the CD as a going concern is in the best interests of all stakeholders so every effort was to be made in that respect. Since the law on Section 29A was laid down for the first time the court permitted the resolution applicants another opportunity to submit their resolution plans if they pay off their NPAs within two weeks. Then the COC may consider all the plans before it accept the best one with requisite majority or the CD will be liquidated. 

The post Applicability and Interpretation of Section 29A appeared first on LexForti .

Facts

Numerous writ petitions have been filed before the SC challenging the constitutionality of the amendment of 2018. This amendment made deem allottees of a real estate project to be financial creditors, enabling them to trigger CIRP against the real estate developers under Section 7 of the Code. The amendment additionally entitles them to be represented at the COC through ARs. 

Explanation given under Section 5(8)(f) clarified that the real estate allotees also come within the scope of financial debt as it falls under the category of forward sale or purchase agreement with the commercial effect of a borrowing. Respective changes have also been introduced under Section 21(6A)(b) to include allottees in the constitution of the COC and under Section 25A to lay out provisions concerning authorised representatives. 

Issues

1. Whether the funds raised under a real estate project from allottees has the commercial effect of a borrowing?
2. Whether the provisions of RERA and IBC may be read harmoniously after the amendment?
3. Whether the distinction made between operational creditors and real estate allottees is based on intelligible differentia?
4. Whether the amendment made the allotees of a real-estate project financial creditors, entitled to be represented in the COC by an AR?
5. Whether deeming fiction can be adopted to include allotees under the scope of Section 5(8)(f) of the Code?
6. Whether the explanation given under this provision enlarges the scope of it?

Ratio

The allottees entered into assured returns/committed returns agreements with the developers, whereby the developers agree to pay a certain amount to the allottees on a monthly basis from the date of execution of the agreement till handing over the possession of the property. The amount raised by the developers by the assured returns scheme was shown as “commitment charges” under the head “financial costs”. This indicates that the funds raised have the commercial effect of a borrowing. A financial debt means a debt along with interest, which disbursed against the consideration of time value of money. The promoter was asked to provide a declaration that he undertakes to complete the project within a certain time period and that 70% of the funds raised from allotees under this project from time to time shall be deposited into a separate account spent only to defray the cost of construction of that particular project. The courts have included home buyers as financial creditors in cases where the agreement includes an assured returns policy. In some cases they have been categorised as “creditors other than financial or operational creditors”. By not giving them the status of either financial creditors or operational creditors they are being deprived of:

The right to initiate CIRP 

1. The right to be a part of COC
2. The guarantee of receiving at least the liquidation value under a resolution plan. 

The money disbursed by the home buyers was in relation to a future asset and these funds amount to a significant portion of the funds that are used to finance the real estate projects. It was held that even if not all forward sale or purchase agreements are financial transactions, if they are structured as a tool or means for raising finance then it shall be classified as a financial debt. 

The non obstante clause under Section 88 of RERA came into effect on 1^st May 2016 and Section 238 of IBC came into effect on 1^st December 2016. It was contended on behalf of the real estate developers that, RERA is a special enactment and IBC is a general law, hence RERA is to be given precedence. It was held that, the fact that the amendment drew the definition of allottees from RERA implies that the drafting committee was aware of the existence of the enactment and taken into consideration of all of the applicable provisions. The provisions under RERA are in addition to and not in derogation of the provisions of IBC. The remedies laid out under RERA are intended to be additional remedies and not exclusive remedies. Moreover it is to be noted that the authorities to be set up under RERA are to come into effect from 1^st May 2017 succeeding the provisions of the code that came into effect on 1^st December 2016 itself. 

RERA and IBC function into compltetely different fields and the code deals with proceedings in rem which focuses on rehabilitation of the corporate debtor. On the other hand RERA seeks to protect the interests of the individual investors so that they are not left in a lurch by ensuring that they are compensated or reimbursed to the extent of their payment towards the allotted property. Hence both the enactments can co-exist and to the extent of any inconstancy, RERA is to give way to IBC. 

It was contended by the counsels for the real estate developers that the classification of allottees as financial creditors is discriminatory as it treats unequals equally and equals unequally without any intelligible differentia having any nexus with the objects of the Code. It was contended that the real estate developers were being discriminated against as they are not being treated equal to other entities that supply goods and services. If the allottees are treated as financial creditors, then all they have to do is to produce evidence indicating that a debt is due to him irrespective of any disputes, while an operational creditor would fall outside the purview of code in case of a dispute. This discrimination was to have infracted Article 14 of the Constitution. The Apex Court held that equal protection under law, does not necessarily invalidate any classification made by law. It was elucidated that the reasonable classification includes “all who are similarly situated and none who are not”. It was held that the legislature is at liberty to experiment with economic legislations in public interest and any practical considerations that hurt a few cannot be helped. It was concluded that the contentions by the real estate developers were not successful in establishing that the classification of real estate developers is not based upon intelligible differentia that distinguishes them from other operational creditors. 

Supplementary contentions that this categorisation also infringes article 19(1)(g) and 300A was also put forth by the real estate developers. The court held that the language of the provisions is unambiguous and clear, hence the contentions raised by the Petitioners do not stand. 

In the light of the deliberations under the preceding issues, the Apex court adjudged allottees under real estate projects to be financial creditors and hence have a right to have representation in a COC meeting. Homebuyers and debenture holders can be numerous so the committee was of the opinion that the only feasible mode of accommodating all these financial creditors in a COC meeting was through an authorised representative. Such an authorised representative can be appointed either by the way of the debt agreement or by the NCLT for each such class of creditors.

It was contended by the Petitioner that the definition under Section 5(8)(f) was to be an exhaustive provision and to be read noscitur a sociis (an unclear or ambiguous word must be read in its context). It was argued that this provision cannot be stretched to include allottees. The primary argument by the petitioner is concerning the existence of a debt. The court held that noscitur a sociis is a mere rule of construction and words with wide scope have been deliberately used in residuary power to subsume instances that do not fall under the scope of the sub-clauses to fit within the umbrella of Section 5(8)(f). For the existence of a debt, a liability or an obligation in respect of a claim must be due. It was held by the court that a claim is defined as a right to payment or a right to remedy even if it arises out of a breach of contract. The disbursal under this provision refers to the payment of instalments by the allottees against consideration of time value of money. The real estate developers have an obligation to use the funds raised in the construction of the project and it being at a discounted value from the perspective of the allottee as he is having to lesser by the way of instalments than if he were to pay the complete amount after the completion of the project. Further the phrase “commercial effect of a borrowing” has a wide bearing on any other transactions that that inflicts financial indebtedness. It is clear that the allottees fall within the scope of this provision owing to the nature of the financial arrangement between them and the developers at various stages of construction. 

The introduction of deeming fiction is necessitated where the Parliament requires the subject matter to be treated as real. It was held by the Supreme Court that the deeming fiction has been taken into account only to the extent necessary to provide clarification on the true legal position. After the purpose of the statutory fiction has been ascertained, it must be carried to its logical conclusion and assume all such other necessary facts for it to operate. Thus the explanation uses deeming fiction only to put it beyond doubt that the allottees also fall within the scope of Section 5(8)(f) of the Code. 

It was held by the court that the explanation inserted by the amendment does not enlarge the scope of the provision. It merely clarifies the doubts concerning the status of allottees under real estate projects. The allottees are being subsumed under the provisions as it originally stood. The court resorted to creative interpretation of the provision for the purpose of a beneficial legislation. 

The post SC on Status of Homebuyers under the Waterfall mechanisms appeared first on LexForti .

Facts

Appellant is a multi product manufacturing company in diverse sectors. It started going into losses in 2012 and failed to meet with the requirements of 19 of its financial creditors (banking entities). It then proposed a corporate debt restructuring and the financial creditors formed a consortium led by the Central Bank and a restructuring plan was approved in 2014. According to the aforementioned restructuring plan, the creditors were to infuse more capital into the entity and the debt would be repaid by a 2 year payment plan. Subsequently, an application was filed under Section 7 of IBC by ICICI Bank due to default on part of the Appellant in meeting with the requirements of the payment plan. 

On the first instance, the Appellant was of the contention that under Maharashtra Relief Undertakings (Special Provisions) Act, all the liabilities and remedies for enforcement were suspended for a period of one year by the way of notification issued on 22^nd July 2015 and for another one year as notified on 18^th July 2016. In the second hearing, the appellant contended that the default has occurred to due to non release of funds under the Master Restructuring agreement by the creditors. It was stated that the credit given by five of its lenders were repaid in accordance to the agreement as they have complied with its terms in full. 

NCLT held that IBC would prevail over the Maharashtra Act in view of the non-obstinate clause given under Section 238 of the Code. It was held that the Parliamentary statute would prevail over that of a State and the evidence placed before it was sufficient to ascertain the existence of a default. Hence the application was admitted and moratorium was imposed. 

An appeal was filed before NCLAT. NCLAT was of the view that both of these legislations operate in different fields and are not repugnant to each other. It further held that the Appellant cannot derive any advantages from the state act as it was done only in order to stave of the proceedings under Section 7. 

It was contended by the appellant before the Supreme Court that both the acts are repugnant to each other and they cannot function together. The Maharashtra Act imposes a limited moratorium and the directors are still in control of the management of the corporate debtors after which the State government may take control over the company. While on the other hand the Code places a complete moratorium and adopts a creditor in control model. It was contented by the Respondents that the erstwhile directors are no longer in control over the corporate debtor and hence are not in position to initiate any proceedings on behalf of the corporate debtors. 

Issues 

1. Whether the present appeal by the erstwhile directors on behalf of the corporate debtor maintainable ?
2. Whether the Maharashtra Act and IBC are repugnant to each other?

Ratio 

It was held by the Apex Court that, the management of the company was handed over to the interim resolution professional and the directors are no longer in a position to represent the debtor. Hence it was held that the appeal is not maintainable by the Directors.

The SC held that the NLCT and NCLAT were correct in holding that the Maharashtra Act does not place a bar on proceedings under Section 7 of the code owing to the non obstinate clause under Section 238 of the Code. The Court referred to Article 254 of the Constitution which states that in case of any inconsistency between laws made by the Parliament and laws made by the Legislature of the State, the laws made by the Parliament would prevail irrespective of whether they have been made prior or later than the state legislation. It was held that the admission of under Section 7 was right and the appellant is unconditionally obligated to follow the provisions of the code. 

The post Insolvency and Bankruptcy Code to prevail over State Legislations appeared first on LexForti .

Keywords: Judicial Review, Constitutionality of Law, Re-modification of Laws, etc.

FACTS

There were multiple Petitions which were filed at Madras High Court. These Petitions were filed under Article 226 of the Constitution. These Petitions challenged the validity of Rule 29(4) of The Copyright Rules 2013 (hereinafter referred as Rule).

Now the Division Bench of the Madras High Court passed an interim order on 2^nd August 2021. The said order was appealed before the Supreme Court of India

What did the Division bench directed; which was appealed?

1. To not broadcast the copyrighted work without issuing a prior notice under Rule 29;
2. Information like duration, time slots and the like; including the quantum of Royalty payable maybe furnished within 15 days of the broadcast;
3. Compliance be affected with a modified regime of post facto, as opposed to prior compliance mandated by Rule 29(4).
4. The Statutory mandate of a 24-hour prior notice shall be substituted by a provision for compliance within 15 days after the broadcast; and
5. The said interim order has limited scope toward the Petitioners approaching this High Court and 2^nd-3^rd Respondents.

ISSUES

High Court

1. Whether the Rule 29(4) of the Rule violates Article 19(1)(a) of the Constitution?
2. Whether the Rule 29(4) of the Rule ultra vires Section 31D of the Act?

Supreme Court

1. Whether the interim order of the High Court can be sustained?

CONTENTIONS OF PARTIES

Appellant: The interim order of the High Court has the effect of re-writing Rule 29(4) of the Rules which was framed w.r.t Section 31D and 78(2)(cD) of the Copyright Act 1957 (hereinafter referred as “Act”)

There was no challenge to the validity of Section 31D of the Act and still the Rule 29 was reframed keeping Section 31D as the point of perspective.

The scope of the interim order was made for the parties to the proceeding only. It leaves the Pan-India operation in the uncertainty.

Respondent: Appellant haven’t filed any counter affidavits in response to the Petitions.

Appellant: Appellant assured that they will file the counter-affidavit expeditiously; so that the Writ Petitions could be disposed of.

Respondent clarified that while Section 31D states about the notice; it does not specify about the conditions to incorporate the minute details.

Section 31D was brought keeping the interest of the broadcasters; by the Parliament. Rule 29(4) defeats the object of Section 31D as it incorporates the need of prescribing the minute details.

DECISION AND FINDINGS

Supreme Court acknowledged that the Petitioners were represented before the High Court, on caveat; and afterward, disposed the said appeal for the said reason.

Court said that the said batch of Petitions are yet to be disposed; i.e., will be getting disposed on 4^th October 2021.

The Court in order to dispose the present appeal decided to briefly look into the facts.

The Court recognized that Section 31D was brought up by the Copyright Amendment Act 2021. Section 31D(1) stated that, the Broadcasting organization which desires to communicate the public regarding any published literary/musical/sound recording may do it after complying with the said Section.

The Court then proceeded with the five requirements:

1. A prior notice
2. In the manner prescribed
3. The Intent to broadcast the work
4. Duration and territorial scope of the broadcast
5. Payment to the owner of the work

There were applications which were filed before IPAB (Intellectual Property Appellate Board). These applications were regarding determination of rates; The rates for the purpose of statutory licensing under Section 31D (For FM Radios).

On 31^st December 2020, the IPAB determined the rates. These rates would be effective from 1^st October 2020. According to the said Order, the music companies were supposed to pay the arrears of royalty to the music companies on or before 10^th February 2021 for the period of 1 Oct – 31^st Jan.

It directed that; the radio broadcasters have to comply with the Rule 29 of the Rules to obtain the statutory license from the public license from music companies by giving advance notice to the owner of the copyright along with an advance payment. Now, there were more directions which were passed by the IPAB; accessible from here.

Now these directions by the IPAB were challenged by the Copyright owners. There are pending suits before the Delhi and Bombay High Court.

The High Court while examining the issues, observed that the Rules of disclosing information are indeed claustrophobic and need to be modified.

The rule was re-fashioned and time-limit of disclosing the details was kept ‘within 15 days’ of the broadcast.

Court denied to give any opinion on the Constitutionality of the Rules; as the matter were still pending before the High Court of Madras.

Court sticked to the issue. Court referred the case of In Re: Expeditious Trial of Cases under Section 138 of the NI Act, 1881 and emphasized that the Judiciary cannot transgress into the domain of the Policy making by re-writing the Statute.

Court also referred the case of Padma Sundara Rao v. State of Tamil Nadu, where it was held that, if the language of the statute is clear and precise, then there is no need to read the words of such law into the statute.

Final Finding

Court was of the view that the High Court’s act of re-drafting Rule 29(4) was unwarranted, particularly at the interlocutory stage.

High Court’s ruling to enlarge the period of 15 days was also impermissible, since it would substitute a statutory rule made in exercise of the power of delegated legislation.

Court allowed the appeal.

CONCLUSION

Madras High Court tried to re-interpret the language of the rule during the inter-locutory stage. While the matter regarding the Constitutionality was still pending; the court before disposing the matter, remodified the rules. Supreme Court reclarified after citing past cases, that; Courts are not allowed to transgress into the rule making process. Court has the power to Judicial Review. Court shall not go outside the said purview.

The post Courts cannot re-modify Laws | Scope limited to Judicial Review only! appeared first on LexForti .

Following the Classic Trinity Test, Serum Institute of India successfully defends the trademark “COVISHIELD” for its own Covid-19 vaccine in a passing-off action brought by a Nanded-based patented firm. 

The Bombay High Court’s recent decision denouncing Cutis Biotech’s petition to prevent SII from ever using trademark ‘Covishield’; for its vaccine has laid the groundwork for the reduction of vexatious lawsuits.

The Hon’ble Court, through discarding Cutis Biotech’s appeal; stated that ‘Covishield’ is a widely known Coronavirus vaccine. The State’s Vaccine Administration Program will be confused and disrupted; if a temporary restraining order directing SII to stop using the mark “Covishield”. In this case, an injunction would have far-reaching consequences that would extend further than the parties to the lawsuit.

Procedural History

Before the District Judge : Nanded

Around December 2020, a Nanded-based patented firm, through its sole proprietor Mrs Archana Ashish Kabra, filed a lawsuit toward Serum Institute of India (herein referred to as SII) and Anr. (one, Mr. Bhandaru Srinivas), desiring an order of injunctive relief prohibiting SII from using the trademarks ‘Covishield’ and/or ‘Covid shield’ for their COVID-19 vaccine.

Cutis Biotech asserted that they had adhered to the trademark “Covishield” before SII, and also that their sanitisers and disinfectants had begun to circulate throughout the market under the same title.

SII filed an application under Order 7 Rule 11(d) of the Code of Civil Procedure, 1908; requesting that the plaint be dismissed on the grounds that the lawsuit was just not maintainable under section 134(2) of the Trademark Act, 1999.

Before the Commercial Court: Pune

Cutis Biotech submitted a Commercial Suit in the District Court of Pune; together with an appliance for a temporary injunction, while the Nanded suit had been pending adjudication.

Contentions: Cutis Biotech

It was contended; that they coined the term “Covishield” for pharmaceutical and other associated accessories, for the first time;

Additionally, they were using the trademark ‘Covishield’ on their hand sanitiser since April 29, 2020. The date as to which they submitted an Application for registration of the mark ‘Covishield’ in Class 5 in regards to; pediatric, ayurvedic, allopathic, medicinal, and pharmaceutical preparations, vitamins and nutritional supplements for animals and humans; that is still pending well before Trademarks Registry;

It was asserted, that their company garnered products bearing the trademark ‘Covishield’ from their producer. It includes antiseptics and disinfectant liquid, sanitizers, surface decontaminant spray, as well as fruit and vegetable washing liquid, and began selling them throughout India;

Further assertions were made that, their merchandise yielding the trademark ‘Covishield’ are sold commercially. Such products have been popularized through; advertising, publicity, endorsement, and marketing, and that as a result of their preceding use of the trademark; they already have earned reputation and goodwill;

The SII applied for the trademark ‘Covishield’ under Class-5 for the product ‘vaccine for human use’ only on June 6, 2020; and also that the implementation is still currently awaiting with the Trademarks Registry;

They plan to launch a several more products for sale yielding the trademark ‘Covishield,’ include but are not limited to vaccines; but then that due to Serum Institute of India’s trademark registration and various press releases affirming the Covid-19 vaccine’s name as ‘Covishield’, their major trading partners and producers have denied to deliver the products and/or collaborate with them owing to a ‘potential of ambiguity’ pertaining ‘Covishield’, that has led them to suffer losses;

that the both candidates are trading in a prevalent area of activity and since Cutis has used the same trademark prior to SII; the use of “Covishield” by Serum Institute of India is mischaracterizing and manipulative to consumers.

Counter Contentions: Serum Institute of India

Suppression of Material Facts

Cutis Biotech has clandestinely filed the current suit without discontinuing or informing the Nanded court of the previous suit, which strives the very same sculptures and is filed against the other parties.

Cutis Biotech has withheld a material fact from the Hon’ble Court, namely that on December 12, 2020, it applied to the Trademarks Registry for the registering of the trademark “Covishield” in respect of “vaccine for human use,” and has thus accosted the Court with soiled hands.

Abuse of process of Law

Serum Institute of India relied on the judgements in K.K. Modi v. K.N. Modi[1], M/s. Chetak Construction Ltd. v. Om Prakash & Ors[2]. and Union of India & Ors. v. Cipla Ltd. & Ors[3]., in submitting that Cutis had filed two Suits along with two Applications for the same reliefs against the same parties Serum Institute of India but in two different Courts which amounts to an abuse of the process of law, forum shopping, and breach of the principles of natural justice.

Cutis failed to establish a case for passing off

Cutis Biotech seemed to have prima facie struggled to meet the three main elements of the Original Trinity test for passing off a trademark:

(a) Cutis Biotech’s goodwill;

(b) Serum Institute of India’s misinterpretation; and

(c) losses incurred to Cutis Biotech’s goodwill.

Cutis Biotech failed to meet any of the parameters, according to Serum Institute of India.

Prior Goodwill attached to the Vaccine and their usage

SII claimed that it was founded in 1966 with the goal of producing life-saving immuno-biologicals; and were in short supply in the country and had to be imported at exorbitant prices. SII has been successful in making India self-sufficient in dealing with various diseases and illness. Such complications includes Tetanus, anti-toxin, and other life-saving biologicals on a large scale and at reasonable prices since its inception.

It was further claimed that, ithas built a strong reputation as well as goodwill amongst these trade and the general public as a result of its advancements and comprehensive research and development in collaboration with AstraZeneca and Oxford University to evolve a vaccine for COVID-19 virus immunity, as well as the applications for various regulatory authorizations and authorizations.

Further submissions were made that, several transcripts since March 2020, making reference to a USD 100 million financing and its plan to develop a Covid-19 vaccine in collaborative efforts with Astra Zeneca, demonstrating prior use of the ‘Covishield’ mark.

As a result, when SII implemented for registering of the trademark “Covishield” on June 6, 2020; it was already well-known in the press. SII had also filed the necessary documents; demonstrating a continuous chain of fast and efficient activity in the development of the vaccine under the said name.

SII argued that Cutis Biotech’s use of the trademark ‘Covishield’ earlier to SII was highly improbable.

Visual Appearances

Because the essence as well as visual appearance of both parties’ products are so dissimilar; there is no chance of consumers being confused, misled, or deceived.

Case Laws

SII contended that although a party has a registered trademark for goods or products in a classification descending underneath one class; the Supreme Court’s decisions in Nandhini Deluxe v. Karnataka Cooperative Milk Producers Federation Limited[4] and Vishnudas Trading as Vishnudas Kishendas v. Vazir Sultan Tobacco Co. Ltd., Hyderabad & Anr[5]; it’s doesn’t vest dominance over the complete category of goods with the owner of these registered mark.

SII also argued that there really is no deceiving similarity or mischaracterization, citing the Cadila Health Care Ltd. v. Cadila Pharmaceuticals Ltd[6]. decision. SII also cited the decision in N. R. Dongre & Ors. v. Whirlpool Corporation & Anr.[7], which established that comparative hardship and the equilibrium of accessibility must be considered when granting an injunction for a passivized act.

Further Claim

SII also asserted that Cutis Biotech can only assert to have initiated the market in May 2020; and that the company has not been in business long enough to even have built up significant goodwill or reputation that can be exploited by SII. As a direct consequence, the basic components of the passing off action are lacking.

SII also argued that the equilibrium of expedience favors them as the vaccine is a medicine that prevents a fatal disease, namely Covid­ 19.

SII is currently supplying this vaccine to the Indian government and distributing it to a number of other countries across the world. As an outcome, the number of people who have used the vaccine ‘Covishield’; It is much higher than the number of people who have used Cutis Biotech’s product(s).

Rationale behind rejection of Cutis Biotech’s plea:

Cutis Biotech prima facie failed to prove that any independent customer was conned as a result of SII’s actions.

There is a difference in the overall aspect of the products of SII and Cutis Biotech. It has also different objectives; any likelihood of deception also cannot be identified.

Cutis Biotech also failed to prove the trinity test for passing off a trademark (more specifically described hereinabove). It failed to show that the equilibrium of convenience is in its favor or that it will suffer irreversible damage if the injunction is not awarded.

The Court considered that, the people all over the world were waiting for a vaccine to stop Covid-19.. As a result, it was determined that prohibiting SII from using the trademark ‘Covishield’; and disseminating the vaccine under that trademark at this time would cause significant hardship.

As a result, the Court determined that both comparison hardship and the balance of accessibility favor SII.

Affronted by the interim order made by the Hon’ble Commercial Court; Cutis Biotech contested the interim order before the Hon’ble Bombay High Court in a Plea under Section 13 of the Commercial Courts Act, 2015.

Before the Hon’ble Bombay High Court

The Hon’ble Court applied Classic Trinity test, which states that the essential elements in a trademark infringement initiative are;

(a) constructing reputation and goodwill affixed to the services and goods; 

(b) demonstrating that the respondent’s actions are likely to result the public into believing that the respondent’s goods and services are the applicant’s goods and services; and

(c) demonstrating that the claimant is likely to suffer or has suffered damages in the event of the respondent’s actions.

A Division Bench of the Bombay High Court in Pune, agreeing with the Hon’ble Commercial Court, described five  significant factors for dismissing Cutis Biotech’s appeal, that are as follows:

Prior Usage

After reviewing the evidence on database, the Court determined that there was sufficient evidence to show prior adoption and use; and that SII has continued to use it without interruption. SII had also obtained various authorizations and licenses to manufacture the vaccine underneath the trademark ‘Covishield,’ it was discovered.

The Hon’ble bench took into account;

(i) inter-departmental correspondence pertaining to the mark,

(ii) the fact that SII is evolving a vaccine being reported in the media being not refuted,

(iii) the monthly manufacturing of 60 million doses and deliver of 48 million doses of the vaccine to the Government of India,

(iv) various licenses obtained for fabricating the vaccine, and

(v) various agreements signed globally for the consumption of the vaccine.

“After assessing the evidence on record, we find that Serum Institute coined the term ‘Covishield’ and took significant steps toward its design and deployment,” the Hon’ble Court concluded. As a result, there is sufficient and convincing evidence on file to show Serum Institute’s prior adoption of the mark.

Likelihood of Confusion

The Hon’ble Court disagreed with Cutis Biotech’s claim that there is indeed a risk of confusion between Cutis Biotech’s and SII’s products.

The vaccine ‘Covishield’ manufactured by SII is not available on prescription; and will be administrated through government agencies, according to the Court.

As a result, the Government of India is the buyer of SII’s ‘Covishield’ commodity. Cutis Biotech’s merchandise, on the other hand, are allowed to be sold. While they may be related to the same field, namely health care products, the general public cannot be confused. The Hon’ble Court, ascertained that,

“The presidency of vaccine through injection is very well established. It’s a stretch to believe that average consumers will be confused about the use of a trademark in a government-administered vaccine at designated locations and over-the-counter sanitizer merchandise.

……To substantiate passing off by SII, Cutis Biotech will have to demonstrate that SII is passing off its products as that of Cutis Biotech premised on the benevolence of Cutis Biotech. As a result, Cutis Biotech’s assertion is inherently self-destructive.”

Goodwill

The Court found insufficient evidence to demonstrate goodwill in pursuit of Cutis Biotech’s use of trademark “Covishield” while adjudicating the issue of both parties’ goodwill.

“According to us, there is insufficient substance on record to hold that Cutis Biotech has founded sufficient goodwill pertaining the trademark “Covishield,” the Court concluded. Cutis Biotech’s failure to validate its claim that it was a preceding user of the mark and had procured goodwill is more than clear based on the evidence presented. The District Court’s finding that Cutis Biotech has not founded this test for awarding an injunction is not perverse”.

Future Damage

The Court looked into the combined influence of the Classic Trinity test when deciding on the damage suffered; and the possibility of such damage as a result of the alleged passing off. It stated that; the factors contributing to the potential injury must be viewed in the context of prior usage.

When a party fails to maintain goodwill and prior use, the argument of lost revenue or potential injury cannot stand on its own. As a result, the Bench determined that because the Respondent is the first to use the mark and has built up goodwill as a result; customers are not consciously purchasing Cutis Biotech’s goods.

Balance of Convenience

Ultimately, in assessing the most important aspect of a passing off action; the Court noted that administration of SII’s vaccine, ‘Covishield,’ began on January 16, 2021, after the Case was filed on January 4, 2021. In the first round, nearly 300 million people were recognized as candidates for the vaccine. Afterward, the first order for 11 million doses of ‘Covishield’ was positioned by the Indian government.

The vaccination drive for the age of 60+ and those with the age of 45+ having comorbidities began on March 1. As of March 16, 2021, the States and UTs had distributed 66 million doses of “Covishield.” Furthermore, over 59 million doses had already been distributed to 72 countries.

Having mentioned the aforementioned facts, the Court noted, “That ‘Covishield’ is a vaccine to rebut Coronavirus is now publicly recognized. A preliminary injunction instructing Serum Institute to withdraw the use of mark ‘Covishield’ for its vaccine will lead to confusion and disruption in the Vaccine domestic situations of the State.

In this case, an injunction will have far consequences that would extend beyond the parties to the lawsuit.” As a result, the balance of accessibility was found to be in favor of SII; which would be severely harmed if the injunction were granted against each other.

Conclusion

After cautious analysis of the facts, arguments, evidence, and established precedents on the matter; the Hon’ble Commercial Court in Pune came to the conclusion. The Court has demonstrated an exceptional grasp of the nuances of the concept of passing off. While hearing this case; the Appellate Court implemented great caution. It re-established the importance of the Classic Trinity Test in matters of passing off. Both directives are unquestionably valuable additions to the Indian trademark law literature.

[1] AIR 1998 SC 1297

[2] (1998) 4 SCC 577

[3] (2017) 5 SCC 262

[4] (2018) 9 SCC 183

[5] (1997) 4 SCC 201

[6] AIR 2001 SC 1952

[7] (1996) 5 SCC 714

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In the further hearing the Assessing Officer also contended that there was error of law and facts made by the CIT(A) when they reversed the Assessing Officer’s action of adding the unaccounted expenditure and income. All the statements of the Assessing Officer, Directors, Assessees, and other persons were recorded accordingly. The Cit(A) review shows that all the twin additionals of unrevealed spending and unrevealed revenue (supra), which are contested in the case of the M /s. VNR Infrastructure Limited Assessee’s firm, have been removed for the sole reason that they have been evaluated properly.

After listening to all the contentions, the tribunal held that the CIT(A) has correctly withdrawn such twin additions in the hands of the assessee/individual, as its M/s. VNR Infrastructure Limited carrying on the market in its own name is responsible for the corresponded unknown and unacknowledged revenues. The ITAT made it clear that the revenue did not even show the fact that the profits itself exceeded the business evaluation.

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After the verification of the document and reports, it was determined that there are excess and unaccounted stock of raw materials in the factory premises. Due to this, the appellants were given a show cause notice which proposed the seizure of the raw materials to be confiscated with the imposition of penalty. On this, the appellant has urged that the accounts for the excess raw material was yet to be recorded and there was no such allegation that the records were not maintained by the appellant for a long time. It was also submitted that there was no evidence which reiterated that the impugned allegations of clandestine removal as the excess goods present on the factory premises were not for the production of more than one day. Therefore, the non-entry of that day’s production record cannot be a reason to impose penalty.

Considering all the arguments and submissions the court held that it is apparent from the records that the appellant requested for the opportunity of cross-examining the witnesses the said opportunity has been denied cross-examination is the basic rule of ensuring fair trial the denial thereof in the case which lacks any cogent evidence adversely affects the Department. Department has not brought any such evidence which may prove their allegations. In the absence thereof, however, in view of the acknowledgment that the notice shortage is just of one-day production even if recording as required under Rule 10 is missing, but the same does not warrant the application of Rule 25 (1) (b) of Central Excise Rules, 2002.

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Later, when the total income filed by the petitioner was verified, the AO found that the assessee has claimed the double taxation relief under Section 90 of the IT Act and admitted total income but claimed TDS of Rs.7.66,567/- in his return. For this, the petitioner was required to furnish the Tax residency certificate to claim the relied under Section 90 of the salary received outside India for the services provided outside India and the copy letter between the Employer and employee.

On such demand, the petitioner stated that he qualifies as a non-resident under Section 6(1) of the Act. With the same reason, the foreign allowance of Rs. 20,72,238 was not offered to tax in India in the income return as the same was received by him outside India for the services rendered outside India and shall not form part of total income under section 5(2) of the Act.

The tribunal, after considering all the submissions, directed the Assessing Officer to allow exemption under DTAA and held that it is a very hectic task to obtain the certificated from the foreign countries for the compliance of domestic statutory obligations. In such conditions, the assessee cannot be obligated to do impossible task and penalized for the same. If the taxpayer provides the circumstantial evidence in such cases, the requirement of Section 90(4) is to be relaxed.

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Title of the case – ADM Jabalpur vs. Shivkant Shukla

Citation – 1976 (2) SCC 521; AIR 1976 SC 1207

Court – Supreme Court of India

Bench – A.N.Ray, Hans Raj Khanna, Mirza Hameedullah Beg, Y.V.Chandrachud, P.N.Bhagwati

Introduction

One of the most serious challenges over the independence and integrity of judiciary was faced when the then Late Prime Minister Smt. Indira Gandhi imposed ‘emergency’ through a proclamation by the then President Fakhruddin Ali Ahmad under Article 352(1) of the Constitution. In this situation, the government declared that a grave emergency existed wherein the security of our country was threatened by internal disturbances.

Background of the case 

This imposition of emergency was not at all a sudden decision. This entire scenario started when Smt. Indira Gandhi’s election to the Lok Sabha was challenged before the Allahabad High Court. Justice Sinha, at that point in time, convicted her for indulging in unfair practices and declared her election void. This simply meant that from now onwards she will not be able to hold her office for the next six years.

Indira Gandhi appealed to Supreme Court but was only granted a conditional stay. Further, in order to reclaim her power which was refrained by the aforesaid judgment, she decided to invoke the Constitution and impose an emergency on 26th June 1975.

With this move of hers, the power under Article 359(1) was invoked and with this the right to approach the Apex Court to enforce Article 14 which talks about the Right to Equality, Article 21 which talks about the Right to life and personal liberty and Article 22 which talks about Protection against detention in certain cases were suspended.

As soon as these provisions were invoked the people who were considered to be political opponents or critics were being taken into custody.

A.B. Vajpayee, Jay Prakash Narayan and Morarji Desai were amongst the people who were arrested under the Maintenance of Internal Security Act (MISA) which provided for custody without trial.

Several people who opposed the moves of the Prime Minister were unlawfully detained and put behind the bars.  Many people who got arrested under the MISA Act approached various High Courts under the provisions of Article 226 of the Constitution which guarantees the Right to Constitutional Remedies to secure the liberty of their near and dear ones by way of using the Writ of Habeas Corpus which provides relief when someone is unlawfully detained, some even got favourable orders.

The then government became concerned with these High Courts and approached the Supreme Court of India in the case of ADM Jabalpur v. Shivkant Sharma.

Issue

The main issue was that when an Emergency is imposed and Articles 14, 21 and 22 get suspended, then can a writ of Habeas Corpus be maintainable in front of the court and then can relief be granted to an individual.

Petitioner’s Arguments

It was argued by the state that the main aim of provision of emergency was to vest special powers in the executive so that it holds complete control over the law and order of the nation since the situation of emergency is of extreme importance when the situation is fragile.

Further, it was argued that when a person is detained, the order of detention could not be challenged as wrong stating that there were no strong reasons to detain a person. When an emergency is declared a person forfeits Article 19 of the Constitution and if a person is held in contravention to Article 22, the same cannot be questioned in the proceeding of Habeas Corpus since the option to file a petition in the court is closed during the situation of an emergency.

It was held that the curtailment of such a right was done under the President’s order and accordingly it could not be questioned. A Presidential Order made under Article 359 is done under special circumstances and the court is not empowered to question the rationale behind the same and entertain a Habeas Corpus petition.

Respondents Arguments

Respondents argued that the very objective of Article 359 was to remove any type of power of legislature from legislating at the time when an emergency is imposed. The article prohibits moving to the Apex Court for enforcement of certain rights but there isn’t any prohibition on moving to the High Courts of India regarding enforcement of statutory rights of personal liberty under Article 226. 

It was contended that this presidential order was against the principle of natural law and other underlying fundamental principles of law. When a law on preventive detention has been introduced then the same should conform to the conditions set by the law.

Moreover, it was also contended that Article 21 is not the only torchbearer of the Right to life and personal liberty, there are rights that are not fundamental rights but are statutory or natural rights, these rights were not affected by presidential order and couldn’t be taken away. 

In addition, it was further argued that when the state has made a law for making detention then that detention should be very much within the ambit of the statute. If the conditions are not met then it would go beyond the power of the statute.

Judgment

This case was heard by a five judges bench. Four out of five judges ruled in favour of the state and held that during an emergency the fundamental rights guaranteed by the Constitution of India to the citizens shall not be available. All rights shall stand extinguished in the light of presidential order.

Moreover, it was held that none of the citizens of the country shall have the option of moving the High Court for writ of Habeas Corpus if the Presidential Order said so and along with that all other proceedings of the court shall remain suspended till the emergency continues.

However, Justice Hans Raj Khanna gave a dissenting judgment and this dissenting judgment paved the way for the future development of law. He was of the view that Article 21 which talks about the right to life and personal liberty are the basic tenets of society and the state cannot deprive a citizen of his/her life and personal liberty without due authority of law.  

Conclusion

‘ADM Jabalpur vs. Shivkant Shukla’ also known as the Habeas Corpus Case has been widely criticized for favouring the state instead of standing up for individual liberty. Immediately after the emergency ended the Apex Court changed its stance by giving Article 21 a permanent character and further linked Article 21 with Article 14 and Article 19 of the Constitution.

This case was overturned by the Supreme Court of India in the landmark judgment of the Puttaswamy Case (Right to Privacy Case) in 2017.  

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Not many of us know that the circles were a result of what was held in the case of Ozair Hussain v. Union of India by the High Court of Delhi (AIR 2003 Delhi 103). Since you have already come this far reading the article (it would only take you a few minutes to read the intricacies of the case) why not go ahead reading the intricacies of this case, it would only take a few minutes.

Facts:

The petitioner, an animal welfare volunteer is a promoter and believer of animal rights and objects the consumption and use of animals and their derivatives for food, cosmetics and drugs. The fact that almost half of the vegetarian population in India are illiterate and do not understand English moved the petitioner to seek for the cosmetic and food products to bear an easily recognizable symbol conveying the origin or ingredients of the products, whether vegetarian or non-vegetarian, so that both literate or illiterate consumers can make an informed choice before selecting the products and complete disclosure of constituents of cosmetics and food products by pleading that the Articles 19(1)(a), 21, 25 of the Constitution and the Preamble to the Constitution mandates disclosure of information.

Issues:

1. whether or not in this country a consumer of cosmetics, drugs and articles of food has a constitutionally guaranteed right to full disclosure of the ingredients thereof clearly specified on the product or its label or wrapper by means of a writing?
2. whether or not packages of non-vegetarian products should bear a symbol giving their non-vegetarian origin?
3. whether or not a package of vegetarian product should also bear a symbol?

Rule:

It is the fundamental right of the consumer to know whether the food products, cosmetics and drugs are of non-vegetarian or vegetarian origin, as otherwise it will violate their fundamental rights under Articles 19(1)(a), 21 and 25 of the Constitution.

It is held that the Constitution mandates disclosure of information, since there is a constitutionally guaranteed right of the consumers to the full disclosure of the ingredients of cosmetics, drugs and articles of food.

A consumer of cosmetics, drugs and articles of food has a constitutionally guaranteed right to the full disclosure of the ingredients thereof clearly specified on the product or its label or wrapper by means of a writing; (ii) packages of non-vegetarian products should bear a symbol giving their non-vegetarian origin; and (iii) a package of vegetarian product should also bear a symbol.

Analysis:

The answer to the first issue lies in Articles 19(1)(a), 21 and 25 of the Indian Constitution read with a few provisions of the Articles of the European Convention on Human Rights, International Convention on Civil and Political Rights.

Article 10 of the European Convention on Human Rights states that everyone shall have the right to freedom of expression, and this right shall include freedom to seek, receive and impart information of ideas of all kinds regardless  of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice. Reading Article 19(1)(a) along with Article 19(1) and 19(2) of the International Covenant on Civil and Political Rights to which India is a signatory, it can be inferred that right to freedom of speech and expression includes freedom to seek, receive and impart information of ideas. It seems to us that freedom to hold opinions, ideas, beliefs and freedom of thought, etc., which is also enshrined in Preamble to the Constitution, is part of freedom of speech and expression.

In this aforementioned context the Court reads Article 19(1)(a) of the Constitution to serve the following two purposes, i.e. 1) it can help the consigner to discover the truth about the composition of the products, whether made of animals including birds and fresh water or marine animals or eggs, and (2) it can help him to fulfil his belief or opinion in vegetarianism.

The Court in this case expanded the meaning of the term ‘liberty’ in Article 21 of the Constitution by not confining the term to mere freedom from bodily restraint but rather extended the beauty of the term to other rights such as the right to hold opinions and the right to sustain and nurture such opinion. Article 21 provided this right to every Indian citizen and that it guaranteed his/her right to receive information and to know the ingredients of the cosmetics, drugs and food products.

Article 25 of the Constitution deals with freedom of conscience. In the present context if the packages of food, cosmetics and drugs do not disclose any information through an appropriate symbol or in writing about the contents therein then the freedom of conscience of the consumer is violated as they may be unconsciously consuming a product against their faiths, beliefs and opinions.

 In case of food products some of the amendments that the Court made to Part VII of the Food Adulteration Act of 1954 are as following:- the names of the ingredients used in the product along with their composition must be disclosed on the packaging and a declaration to indicate that a product is a vegetarian or non-vegetarian shall be made by a green or a brown colour filled circle inside the square with a green or a brown outline respectively having the side double the size of the diameter of the circle. Such symbol must be prominently displayed on the packaging having a contrast background close to the name or brand name of the product and on the labels, containers, pamphlets, leaflets, advertisements in any media. If the product contains egg only as a non-vegetarian ingredient then the same must be declared in addition to the symbol.

Where cosmetics are concerned, they must be treated at par with the packaging of food for the purpose od disclosure of their ingredients. Moreover directions were given to the effect that, a cosmetic or a drug other than a life-saving drug containing ingredients of a non-vegetarian origin then the package shall carry label bearing a red colour symbol on the principal display panel just close in proximity to name or brand name of the drug or cosmetic. In the case of a cosmetic or a drug other than a life-saving drug containing all ingredients of vegetarian origin then the package shall bear a green colour symbol on the principal display panel just close in proximity to name or brand name of the drug or cosmetic. Whether the ingredients are of vegetarian or a non-vegetarian origin a declaration shall be made in writing on the package indicating the nature of the origin of the product.

With regards to life saving drugs the Court was of the opinion that the consumer need not be informed in his own interest as to whether that particular life saving drug is derived or manufactured, wholly or partly, from an animal as it is conducive to the preservation of life.  Drugs which are not life-saving drugs must stand at part with the food products and in case they are derived from animals, whether in whole or in part, the consumers must be informed.

Conclusion:

This Judgement truly revolutionized the packaging of cosmetic, drug and food products and the way consumer rights were perceived in the past. The Court once again echoed that it is important to respect a person’s beliefs, practices and opinions and if receiving certain information is vital to a consumer’s opinion, belief and practices then it is important that he/she is informed but such information. Through this case the consumer rights were once again strengthened and went on to secure the rights of the most vulnerable consumer, i.e. an illiterate consumer. This case can is just another example of the lengths  the judiciary goes to, to safeguard the rights of its citizens.  

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