Tag: law school

Categories
Blog

The interplay between intellectual property law and competition law- Similarities and Differences

THE INTERPLAY BETWEEN INTELLECTUAL PROPERTY LAW AND COMPETITION LAW

This article has been authored by Riya

Intellectual property rights grant the owners exclusive legal rights, limiting others’ access to the same, and thus reducing market competition. Competition law/anti-trust law, on the other hand, seeks to promote competition and increase market access. As a result, we can see that these two topics are diametrically opposed. However, another school of thought holds that the two realms can not only coexist but also complement each other.

As a result, the goal of this article is to examine how IPR and competition law are linked and interdependent. This study focuses on the fact that in order to develop the country’s economic efficiency, both IPR and Competition Law must coexist, and this study provides guidelines to help improve the efficiency of the Indian system of Competition law and patent offices.

To learn more about Competition Law in India, enrol for Advanced Certificate in Competition Law.

  1. INTRODUCTION

Any discussion of the relationship between competition laws and intellectual property rights must start with a definition of these two terms. Intellectual Property Rights are intended to encourage inventors’ creativity by granting them certain rights over their inventions that protect their interests in them. These are exclusionary rights, which grant inventors temporary rights to exclude others from using their IPR. Competition law, on the other hand, exists to promote economic growth by restricting rights arising from private property in order to prevent anti-competitive behaviour.

Competition law seeks to preserve the competitive nature of markets because competition among market forces is critical in protecting consumers from abuse. In India, dominance is not a problem in terms of competition law; however, the abuse of that dominance is. Following liberalisation and privatisation, India has shifted to more open market policies that encourage more innovation and rapid economic growth. The Indian Competition Act was enacted in this context to preserve market competition for the benefit of consumers.

To learn more about the intellectual property regime in India, enrol for Diploma in Intellectual Property: Law and Management. 

  1. THE OBJECTIVES OF IPR AND COMPETITION LAW

It has been observed that IPR and competition law are incompatible. It is because IPR grants the innovators of a new product a monopoly that others do not have access to, or it simply protects those owners from commercial exploitation of their products by granting them exclusive legal rights. Competition law, on the other hand, is opposed to static market access and competition rules, specifically the abuse of monopoly position. As a result, it should be noted that the term “competition” is used differently by IPR and Competition Law.

The main goal of granting licences in IPR is to encourage competition among prospective innovators while simultaneously restricting competition in various ways. After a specified period, the rights revert to the public domain, effectively ending the competition. The primary goal of competition law is to prevent abusive market practices, stimulate and encourage market competition, and ensure that customers receive high-quality goods and services at a reasonable price.

According to a UNCTAD[1] document on ‘examining the interface between the objectives of competition policy and intellectual property,’ the main goal of IPR is to encourage innovation by providing appropriate incentives. This goal is met by granting inventors exclusive rights to their inventions for a set period of time, allowing them to recoup their R&D investments.

Instead, the goals of Competition Law are to promote efficiency, economic growth, and consumer welfare. To achieve them, competition law limits, to some extent, private property rights for the benefit of the community. Competition is thought to be beneficial to the economy because it fosters innovation and increases competitiveness.

Thus, we can say that IPR is about individual rights that provide monopoly only to the owner of the innovated product in order to protect his invention from commercial exploitation, whereas Commercial Law protects the interests of the market and the broader community, rather than an individual, by limiting private rights that may harm the community’s wellbeing and thus encourages market competitiveness. Despite the fact that they are diametrically opposed, their ultimate goal is consumer welfare.

To learn more about Competition Law in India, enrol for Advanced Certificate in Competition Law.

  1. THE INTERFACE BETWEEN COMPETITION LAW AND IPR

It is obvious that, at first glance, the goals of IPR and competition law appear to be at odds. They appear to be irreconcilable, with conflict and friction unavoidable. Whereas friction may be a part of the overlap between IPR and competition law, where they may clash in any case, the truth is that they also work in tandem. Their goals are aligned with their ultimate goal: to improve the welfare of consumers in society by facilitating market innovation.

They achieve this goal through various means. Whereas IPRs give innovators and producers monopoly rights to be adequately reimbursed for their research and development costs, competition law protects the rights of the entire community by limiting private rights, including those granted by IPRs, to ensure the market is free of anti-competitive behaviour, resulting in more innovation and better products for the consumer. In this way, IPRs and competition law ultimately serve to improve consumer welfare by facilitating innovation.

This goal of enabling innovation necessitates a balancing act of competition law to ensure that IPRs are not exploited and abused while still allowing enough room and incentives for a vibrant market for innovation and creativity.

The various sections which speak about the inevitable connection between IPR and competition law are:

Section 3(5) of the Indian Competition Act, 2002 exempts reasonable use of such inventions from the purview of competition law, implying that it only protects reasonable conditions imposed by the IPR holder and that any unreasonable condition imposed can be dealt with under competition law.

Section 4 of the Indian Competition Act, 2002, deals with abuse of dominant position, and it only prohibits abuse, not the mere existence of a dominant position. What is important to note for our current discussion is that no exception has been made for IPRs under this Section, possibly because IPRs do not confer dominant position in the market, and even if they do, this Section does not prohibit the mere existence of dominant position, but only the abuse of dominant position.

Section 4(2) of the Indian Competition Act, 2002, which treats enterprise action as abuse and applies equally to IPR holders,

Section (3) of the Indian Competition Act, 2002 prohibits anti-competitive practices, but this prohibition does not limit “any person’s right to restrain any infringement of, or to impose reasonable conditions necessary for protecting any of his rights” conferred by IPR laws such as the Copyright Act, 1956, the Patents Act, 1970, the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999), and the Designs Act, 2000.[2]

To learn more about the intellectual property regime in India, enrol for Diploma in Intellectual Property: Law and Management. 

  1. DIFFERENCES

The conflict between competition policy and the regime of intellectual property rights has been most contentious in the context of patent laws. The methods used to achieve their mutual goals give rise to the interface between competition policy and patent law. On the one hand, competition policy requires that no unreasonable restraints on competition exist; on the other hand, patent laws reward the inventor with a temporary monopoly that protects him from competitive exploitation of his patented article.[3]

IPR protection is a tool for encouraging innovation, which benefits consumers by allowing for the development of new and improved goods and services, as well as promoting economic growth. It grants innovators the right to legitimately bar other parties from commercialising innovative products and processes based on that new knowledge for a limited time. In other words, the law provides innovators or IPR holders with a temporary monopoly to recover costs incurred during the research and innovation process. As a result, they earn just and reasonable profits, giving them an incentive to innovate.

Competition law, on the other hand, is critical in closing market gaps, disciplining anticompetitive practices, preventing monopoly abuse, inducing optimal resource allocation, and benefiting consumers with fair prices, a wider selection, and higher quality. As a result, it ensures that the dominant power associated with IPRs is not overcomplicated, leveraged, or extended to the detriment of competition. Furthermore, while competition law seeks to protect competition and the competitive process, which in turn encourages innovators to be the first in the market with a new product or service at a price and quality that consumers want, it also emphasizes the importance of stimulating innovation as competitive inputs, and thus works to improve consumer welfare.

Despite their differences, the two regimes tend to coexist on various grounds where both disciplines prevail by limiting each other’s rights. The interface between these two areas of law is widely anticipated in many sectors of the economy, including the pharmaceutical sector, where there is a lack of consumer knowledge, which gives rise to the problem of Pay for delay/Reverse delay settlements, discrimination in patient assistance programs, ever-greening of patents, and so on, and for which the concept of ‘Compulsory Licensing’ was addressed to draw the balance between intellectual property rights and competition law so that owners of intellectual property rights cannot abuse their privileges and stifle market competition by abusing their dominant position.

To learn more about Competition Law in India, enrol for Advanced Certificate in Competition Law.

  1. JUDICIAL PRECEDENTS

In recent years, the EU and the US have received a large number of cases involving IPR and competition law disputes. However, there are very few cases in India involving IPR and Competition Law disputes; in fact, it is still in its infancy.[4] However, in Aamir Khan Productions vs. the Director-General[5], the court addressed the issue of competition law and intellectual property law for the first time. The Bombay High Court ruled in this case that the Competition Commission of India (CCI) has jurisdiction to hear all IPR and competition law cases.

Conflicts over intellectual property rights (IPRs) were typically resolved before the Monopolistic and Restrictive Trade Practices Commission (MRTP Commission), the predecessor to the Competition Commission. However, the Competition Commission of India (CCI), which enforces The Competition Act, 2002 throughout India, now handles cases involving the applicability of competition issues to both IPR and Competition Law. This Commission was established on October 14, 2003, and it went into full operation in May 2009. The CCI is made up of a chairperson and six members.[6]

Entertainment Network (India) Pvt. Ltd. vs. Super Cassette Industries Ltd[7]. In this case, the Supreme Court addressed the issue of conflict between intellectual property rights and competition law. The Court observed that, even if the copyright holder has a complete monopoly, such a monopoly is limited if it disrupts the smooth operation of the market, which would violate Competition Law, and the same was true with the refusal of licence. Undoubtedly, intellectual property owners can reap the benefits of their innovations by issuing licences, but this is not an absolute.

To learn more about the intellectual property regime in India, enrol for Diploma in Intellectual Property: Law and Management. 

  1. CONCLUSION

Competition Law and Intellectual Property Rights are inextricably linked, necessitating a balanced understanding to appreciate the true scope of their complex and multifaceted interactions in modern India’s dynamic markets. It cannot be denied that there is some necessary tension and friction in their overlap; where competition law seeks to prevent abuses that may arise as a result of monopolistic power, intellectual property rights seek, in many situations, to grant exactly such monopolistic powers to incentivize innovators to innovate. It is in the best interests of Indian society to have the two regimes operate in such a way that there is widespread competition while also providing enough protection for inventors to recoup their investments in research and development.

These two ends point to a single goal: consumer benefit through the facilitation of a robust environment for innovation. Greater innovation is enabled by organisations competing with one another to produce better and more affordable products and services, whereas IPRs enable greater innovation by providing greater incentives to innovators to benefit from their innovations.

In terms of jurisdiction, India would benefit greatly from greater maturity in the legislative framework governing the extent and scope of the CCI’s jurisdiction. Competition law should balance the IPR regime by imposing curbs wherever the exercise of IPRs exceeds “reasonable conditions,” as defined in Section 3(5) of the Indian Competition Act, 2002, but such curbs should not go beyond the extent to which the exercise of IPRs causes an appreciable adverse effect on competition.

[1] http://unctad.org/meetingsen/sessionalDocuments/ciclpd36_en.pdf

[2] Conflict of IPR in Competition Law available at: https://libertatem.in

[3] The interface between IPR and competition law. Available at: https://www.lloydlawcollege.edu.in/blog/interface-between-ipr-and-competition-law.html

[4] Forrester Ian S. Competition Law and IPR: Ten years on the debate still flourishes, http://www.eui.eu/RSCAS/Research/Competition/2005/2005 pdf.

[5] 2010 (112) Bom L R 3778.

[6] Competition Commission of India from https://en.m.wikipedia.org

[7] 2008(5)OK 719

Categories
Blog

Contracts in the Maritime Industry

This blog post has been authored by Dikshak Pankaj Soni

INTRODUCTION:

  1. The industry of the Maritime is correlated to those acts connected to waterways and/ or to the sea. The Maritime industry now-a-days impacts almost all the sectors/industries, mainly in terms of import and export (transportation) from one land to another (mostly Cargo).
  2. The second form where the Maritime industry holds its coverage is on the naval architecture, navigation, ocean engineering, exploration, drilling etc., this mainly exhausts the requirements of minerals and oil rigs in furtherance to transportation (mostly Marine Casualties).
  3. The third major form where the Maritime Industry holds its significant value is for direct consumers purpose i.e. cruise ships for travelling, tourism and recreational purpose (mostly Passenger Claims)

To learn more about the Companies Act and the roles of a Director, explore the Diploma Course on Maritime Law. 

MODUS-OPERANDI AND ACTS COVERED:

I. Marine Casualty:

i. Collision:

  • Due to issues caused by navigation or communication barrier/ faults/ miscommunication, there are chances of collisions between vessels travelling on/ against/ cross waved baths thereon. It is to be considered that a vessel is difficult to handle for all its acts and requirements.
  • In case of such collision, the master of the ship shall take all due endeavours for saving the lives of people on board as well as the ship to avoid maximum damage being/ to be caused due to such collision. Immediately thereafter the master shall make an entry in the official logs signed by him and the crew member, the same is then informed to the central government.
  • The Acts concerning this act shall include the Merchant Shipping Act, 1958, (Part X) and the Merchant Shipping (Prevention of Collisions at Sea) Regulation, 1975, such acts are in conscience with adopting the convention on the international regulation for preventing collision at sea, 1972.

ii. Pollution:

  • Pollution is caused by acts such overseas be it due to collision/ due to negligence by the naval, ocean engineering, exploration or drilling, or by the travel, recreational or tourism. The kinds of pollution that can be caused could be oil pollution damage, pollution by garbage and ships, pollution of oil by ships, pollution due to collision resulting in spillage in marine environment, pollution by sewage from ships, pollution by harmful substance carried by ship/ noxious substance carried by ships.
  • Such pollution attracts civil liability to the polluter. There are multiple conventions, rules and regulations that govern such pollution, one of which are International Convention on Civil Liability for Oil Pollution Damages, 1992, similarly there are multiple rules and regulations (2008 to 2010) enacted under the Merchant Shipping Act, 1958, (XB, XC and XIA) which governs such acts in regard to pollution in maritime.

iii. Salvage:

  • Due to collision, there are chances that the vessel might drift or start sinking, salvage is a process of saving such a vessel to the best possible extent, and delivering the same to the owner.
  • There ought to be a salvage agreement, where the owner shall pay a certain amount to the salvager for its services mentioned therein, the same is governed by the Merchant Shipping Act, 1958 (Part XIII) and the Merchant Shipping (Wreck and Salvage Rules), 1974.

iv. Wreck Removal:

  • When the vessel is either due to collision or malfunction, is not able to salvage or is/ started to sink to the sea bed, the process involved shall be construed as a Wreck Removal.
  • Either the owner takes full responsibility for such Wreck Removal, or the finder of such wreck shall be paid his fees/ salvage fees in such a case, or the central government may appoint a receiver to investigate and take possession of such wreck to sell such wreck under their custody. Similarly to salvage, it is governed by the Merchant Shipping Act, 1958 (Part XIII) and the Merchant Shipping (Wreck and Salvage Rules), 1974 but additionally also by the Indian Ports Act, 1908.

v. Limitation and Liability:

  • The losses caused due to collision, salvage or wreck are then subject to certain limitations and liabilities. The owner of the vessel, charter of the vessel, operator, master, crew and servant of the vessel, shall preliminarily limit their liabilities for claims under such vessel, following such the salvor, the defaulter/ neglect responsible for such actions, and later the insurer of such liability shall be limit to such liabilities.
  • The Merchant Shipping Act, 1958 (Part XA) and the Merchant Shipping (Limitation of Liabilities of Maritime Claims Rules), 2015 and its amendment rule of 2017 shall be governing the topic considered herein.

vi. The Limitation fund and Investigation:

  • The losses so caused shall be paid In terms of liabilities secured, such liabilities can be termed limited, wherein the person entitled to limit such liability shall make a reference to the appropriate jurisdictional High Court constituting a limitation fund, the High Court may decide such matter and may direct depositing such funds in the Court or through a bank guarantee.
  • The Director General of Shipping and the Maritime Marine Department shall carry out an investigation in such a case in respect of provisions under the Merchant Shipping Act, 1958 (Part XII) which deals with investigation and enquiries.

To learn more about the Companies Act and the roles of a Director, explore the Diploma Course on Maritime Law. 

II. Cargo Claims:

  • The term cargo mostly includes goods imported or exported. Taking into consideration the sender and the recipient, the problems that may arouse are the extent of bills of lading that defines the title of certain property sent and to be received, the carriage and its variety, feature of any kind supplied by the consignor and outward carriage i.e. from inland to outland.
  • The acts governing such claims shall include The Carriage by Goods Act, 1925, The Bills of Lading Act, 1856, The Major Ports Authority Act, 2021, the Merchant Shipping Act, 1958, the Admiralty Act, 2017, The Marine Insurance Act, 1973, the Sales of Goods Act, 1930, the Multimodal Transportation of Goods Act, 1993, etc.

III. Passenger Claims:

  • Passenger Claims shall include the losses suffered by the passenger due to any shipping incident, negligence, cancellation, refund of deposit money, delay in sailing, injury or death.
  • The acts governing such claims are vested in the Merchant Shipping Act, 1958 (part VIII) and the Admiralty Act, 2017, etc.

IV. Arrest and Security:

  • When a claim is made in regard to any acts as foreseen, and the owner/ master/ operator of the ship chooses to default in its legitimate duties in support of such claim, a claimant may make necessary reference vide an Admiralty Suit to the jurisdictional High Court for seeking an arrest of such vessel on such territorial waters and may pray for securing statutory maritime claims and liens.
  • The Admiralty Act, 2017 governs such claims of arrest, moreover, in case of outstanding freight and other charges, the Major Port Authorities Act, 2021 can also exercise its lien over the cargo in its jurisdiction. The security in such a case can be prayed in terms of cash deposit or bank guarantee. Even the Arbitration Act can entail its applicability in terms of dispute resolution, where in terms of interim relief such arrest can be procured by praying it before the concerned Court.

To learn more about the Companies Act and the roles of a Director, explore the Diploma Course on Maritime Law. 

CLAUSES:

While performing an international transaction in the Shipping and Maritime Industry, one must give due importance to the rules and regulations enacted by the respective jurisdictional countries and the same shall be in conscience with the provisions laid down by International Maritime Organization. Considering the modus-operandi of the Maritime Industry as aforestated, the most common types of agreements in the Maritime Industry include Marine Insurance Contracts, Import and Export Contracts, Transportation Agreement, Logistic Agreement, Affreightment Contracts, Freight Forwarding Agreements, Vessel Lease Agreement, Ship Charter Agreement, Ship/ Vessel Sale and Purchase Agreement, Ship Mortgage Agreement, Ship Management Agreement, Ship Repair, Ship Salvage and Wreck Removal Agreements, Dockage Agreement, Seafarer’s Employment Agreement, etc. Apart from the acts as aforestated, the agreement shall be on the basic principles of the Contract Act. The clauses to be included in the Agreements of Maritime Industry shall include/ safeguard/ clarify all the modus-operandi mentioned in the above chapter, certain of which are mentioned hereinbelow:

  1. Parties, recitals, and their purpose:

This is a preliminary clause of the contract which tends to mention the name address details and business of the parties, the recital which mentions the reason which lead the parties to execute that contract, and the brief purpose of that particular contract whose acceptable/ governing criteria’s shall be mentioned in the clauses mentioned thereafter.

  1. Risk Exclusion Clause:

This clause specifically mentions what kind of risk is to be excluded viz: loss in case of negligence, wilful misconduct, insurance exclusion, unsuitable condition and packing, breach of condition/ warranties, causes due to strikes, lockdown, labour disturbance, riots, civil commotion/ unrest, etc.

  1. Risk Covered Clause:

It shall mention the risk covered, such as salvage charges, loss due to unforeseen circumstances and mechanical malfunction, fire insurance, jurisdictional coverage, done in general governing law and practice, etc.

  1. Risk Attachment Clause:

This clause shall mention the subject matter of the insured which is supplied by other party of the insured. It specifically mentions what the insurance shall not attach until the risk of loss or damage to the subject matter insured shall be transferred to the Assured.

  1. Minimising Loss Clause:

In mention of this clause, it includes the acts done by the duty of assured recovery of the loss. It mentions the reasonable purpose of averting, preserving, and minimising the loss. Certainly, there are certain legislative provisions which govern minimising loss o be covered by the insurer/ owner.

  1. Duration and Transit Clause:

The subject matter mentioned herein shall include the duration/ transit time of one location to another, the same shall also mention exceptions in terms of unforeseen circumstances such as weather, salvage, collision etc.

  1. Change of Voyage Clause:

This clause mentions and safeguards the service provider in case a destination/ transit route is changed due to unforeseen circumstances, or a decision relating to minimising loss, shall also include the time and mode of transmitting such information.

  1. Termination of Contract Clause:

The Clause shall mention subject matter wherein circumstances are beyond the control of the service provider and when such the contract of carriage/ cargo/ passenger is to be terminated either at a port or at a particular location other than that of the specified destination named therein.

  1. Avoidance of Delay Clause:

This clause shall mention when the service provider shall undertake acts to avoid reasonable delay to the extent and circumstances, viz: in circumstances of unforeseen weather and change of transit time and route, etc.

  1. Claims Clause:

This clause mentions what kind of claims are to be covered by the Service Provider/ it’s insurance company either in terms of insurable interest, forwarding charges, constructive total loss, and the insured value calculation. In certain Agreement, this clause shall also mention the manner, how claims are to be requested, passed, validated, etc.

  1. Piracy and Malicious Damage Clause:

The maritime industry is subjected to piracy by sea pirates who intend to cause theft/ unrest/ untenable request, such mention of clause mentions where in case of deliberate damage to or deliberate destruction of the insured subject-matter, by the wrongful act of any person or persons causing malicious acts vandalism sabotage or piracy.

  1. Security Clause:

This clause shall mention the safety and security that the service provider tends to provide to the service receiver either cargo/ passenger, in terms of any theft/ malicious acts, vandalism/ sabotage/ piracy/ unforeseen circumstance, mechanical malfunction/ collision, etc.

  1. Weapon, Chemical, Radioactive exclusion, etc. Clause:

This clause is at times considered paramount to all the clauses mentioned in the contract, where without the due permission of law of land, approvals, permissions, and policy of the fearers, certain unwarranted and not-permitted contents/ articles shall not be allowed. This clause also nullifies the liability of the Insurer in such a case.

  1. Governance of Convention:

This clause mentions that the particular contract shall be governed by the provision of which particular international conventions and its specific articles. There are certain chances wherein either of the party’s country of origin is not a signatory party to such convention, and hence clarification in that regard is specifically mentioned.

  1. Preserve of Wild Fauna and Flora Clause:

This clause mentions that the vessel is not derogatory/ causing harm to any natural reserves/ or not causing any pollution and shall be in conscience with the international conventions in that regard. Similarly, the wild fauna and flora shall be preserved in its truest sense.

  1. Good Faith Clause:

This clause shall in its true values shall disclose clearly and accurately all material facts related to the risk involved by executing such contract, or by procuring the service of such service provider.

  1. Subrogation Clause:

The term subrogation means the right which one person has by standing in place of another and availing himself of all the rights and remedies of the other, whether already enforced or not. This clause shall be more specifically included in an insurance contract.

  1. Collision Clause:

This clause shall include what the service provider shall have liability towards, where there is a collision between two vessels/ or with any object tent to cause collision. There shall be a mention as to whether the damages and compensation to be paid is the liability of the Service Provider of the Insurer/ or the tent to choose advantage of ‘both to blame collision clause’.

  1. Salvage Clause:

This clause mentions that, in the case where there has been a mechanical malfunctioning, collision, or any act turning the ship to be salvaged, then in such a manner the claim, cost, reason/ purpose, manner and the company to undertake salvage shall be specifically mentioned herein.

  1. Wreck Removal Clause:

This clause mentions that in a manner where the ship is wrecked, there needs to be a mention where the manner/ purpose/ insurance claim shall be mentioned therein.

  1. Termination of Transit Clause:

This clause mentions the criteria eg: wreck, collision, weather condition, force majeure, terrorism, war etc, then in such a case the vessel’s transit shall be terminated in total and the claim in that regard shall be payable in the manner prescribed in the claim clause.

  1. Represent and Warrant Clause:

This is a general clause, wherein there is a mention of each party that they represent/ warrant towards each other and performance of their part in such modus-operandi.

  1. Waiver Clause:

This is a general clause, and it shall mention where one of the parties (provider) due to certain temporary circumstance, becomes unperformable, what acts shall be considered as wavier or not, similarly, it mentions when another party (receiver) may cause wavier of certain rights prejudice to him.

  1. Law and Practice Clause/ Party’s Jurisdiction Clause:

This clause shall mention the law which is to be followed in due course/ or at the time of enforcement. In terms of specific jurisdiction, there shall be a mention of such specific jurisdiction and the law/ practice and convention to be governed with.

  1. Disclaimer and indemnity Clause:

This clause shall specifically mention what the service provider tends to disclaim its liability towards, similarly there may also be a reference as to what the service provider tends to indemnify the service receiver towards, or vice versa.

  1. Dispute Resolution Clause:

In similar to the aforesaid, this is also a general clause, where there is a mention of Dispute if in case arisen and the provision in the way such dispute is to be resolved wither first by mutually, then by mediation, or by way of Arbitration. In the case of Arbitration, there needs to be a specific mention in terms of the Arbitration clause. The language and location of such Dispute Resolution are also to be mentioned.

  1. Force Majeure Clause:

This is a general clause, which mentions the wavier (temporary) of one of the parties for the performance of their part of the contract, in a situation beyond the control of either of the party, e.g.: natural calamities.

JURISDICTION AUTHORITY (SUBJECT TO LAW OF LAND AND INTERNATIONAL CONVENTIONS):

  1. Concerned High Court where certain territorial waters have jurisdiction for, and the kind and nature of relief which is claimed is beyond the powers/ finding/ disposal of the Mediation/ Conciliation or the Arbitration Tribunal.
  2. Arbitration Tribunal shall have limited jurisdiction, subject to the applicable Arbitration law of the land, disputes relating to contract act/ validation/ interpretation etc.
  3. Mediation and Conciliation shall be subject to the decision of the parties effecting, and the mode/ veracity of dispute that may have arisen.

To learn more about the Companies Act and the roles of a Director, explore the Diploma Course on Maritime Law. 

Categories
Blog Online law courses in India Online legal courses

Role of Director under the Companies Act, 2013

This article has been written by Mr. Abhishek Sinha

INTRODUCTION- Role of Director

A company’s management and affairs are overseen by the Board of Directors, which has supreme executive authority. In a company, majority shareholders at their wish can appoint a director during the incorporation of the company. Notice to the Board members can be used to call an Annual General Meeting if the shareholders wish to change the director expressing their opinion. Under the Companies Act, 2013, the MoA and AoA of the company, Directors are allowed to enforce their powers.

There is no exhaustive definition given in the Companies Act, 2013. As per Section 2 (34) of the Companies Act, 2013 – a “Director” is one who has been appointed to the Board of Directors. He is the individual who is assigned to carry out the responsibilities and functions of a company’s director in accordance with the Companies Act of 2013.

Lord Reid in the case of Tesco Supermarkets Ltd. v. Nattraso[1] held that “A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these it must act through living persons.” As per the Supreme Court, it is important to appoint an individual as a director in the company as the director’s office is the office of trust and if someone fails to carry out this trust then someone should be held responsible.[2] Section 149 of the Companies Act, 2013 states that the Board of Directors shall consist of individuals as directors. Lord Bowen held that the Board of Directors are the brain of the company and the company does act only through them. [3]

To learn more about the Companies Act and the roles of a Director, explore the Certificate course in Understanding Companies Act, 2013. 

 

WHAT ARE THE ROLES OF DIRECTOR? 

As a member of the Board of Directors, he is in charge of the company’s management, supervision, and direction. Directors are said to be the agents of the company, officers of the company and also trustees of the company. Professional men are hired by the company to direct the affairs of the organisation still they are not called the servant of the company.[4] But through a separate service agreement, a director can offer his professional services to the company as a sole employee and sole director.[5] Regarding the position or role of directors in the company, there is mere silence in the Companies Act, 2013. As per Bowen LJ, “Directors are called as agents, MD or trustees. But these expressions are used as indicating useful points of view through which they may for that particular period and the particular purpose is considered instead of using it as exhaustive of their powers and responsibilities.”[6]

I. As Employee

If the Board of Directors appoints and the company’s shareholders approve any full-time director who manages the company’s day-to-day operations as an employee.

In the outline of the employment letter issued by the BoD, all the directors make go an organization.

II. As Officer

  • High Court of Calcutta held that “Certain officials of the company should be treated as organs of the company so that for actions of that particular official company can be held liable just as a natural person is for the action of his limbs.”[7] The absence of the director can paralyze the company.

As per section 2 (59) of the Companies Act, 2013, the director is treated as an officer of the company on whose directions other directors or Board of Directors are accustomed to act. As per section 2 (60) of the Companies Act, 2013, the director is considered an “officer in default” and he is even punished as an officer in default for non-compliance with provisions.

III. As Agents of the Company

  • As per the Observation of Lord Cairns who believed that Public Company Directors are the agents of the Company. The Company and Directors have a relation of Principal and Agent.[8]”

In an Agency a person is bound to form, Perpetuate a relationship of Principal with third parties, the role and powers they get from Memorandum and Articles of the Company, if their activities are outside the criteria given under MOA and AOA, it is beyond legal Power.

IV. As Trustee of the Company

  • Based on an analogy Lindley LJ observed that Director is always considered and treated as trustees of the company as they have control of the company and they have been held liable to make good amounts of money since the invention of joint-stock companies.

They are considered the custodian of the assets of the company and are responsible to use the assets in the best interest of the company, as a trustee of the company. They would be held liable if they misuse or divert the assets in their vested interests.

To learn more about the Companies Act, explore the Certificate course in Understanding Companies Act, 2013. 

 

DUTIES OF DIRECTORS AS PER LEGAL PROVISIONS UNDER THE COMPANY ACT, 2013

The Companies Act of 2013 categorises the duties and responsibilities of directors into two categories: —

[i] The responsibilities and liabilities that uplift and advance the investment of directors’ work bring good corporate governance, good management, and making fully-fledged and shrewd decisions to avoid unnecessary risks to the company.

[ii] Fiduciary duties guarantee and ensure that the directors of companies always protect and secure the interests of the company and its stakeholders, above their self-interests.

The duties of a director were not expressed in the 1956 Act, however, they are specifically stated in Section 166 of the Companies Act, 2013[9].

SECTION 166 of the companies Act, 2013 lay down the following Duties of the Directors of a Company

Directors of Company are bound to do the following Duties given Under Section 166 of the Companies Act, 2013

  • Activities of the Director shall always be in accordance with the AoA[10].
  • Director shall perform in good faith in order to uplift the objects of the organisation, for the profit of shareholders and for the well-being of the organization[11].
  • He shall follow his duties with proper care and exercises independent judgment[12].
  • He shall not perform any act which give rise to conflicts.
  • Director shall be held liable to pay an equal amount to the gain if he found to be gaining any undue advantage[13].

 

ROLE OF DIRECTORS DURING THE PANDEMIC

Pandemic has affected most of the big companies and due to this, they have also suspended their work for the time being. As cases are reducing these days but still due to mass gathering companies are not able to work at full capacity. So here the role of directors during the pandemic is that he needs to take certain steps for the survival of the organization in this pandemic. Primary considerations of the directors are:

I. Procuring the shareholder’s interest

  • As shareholders always look to have transparency and honesty from the companies’ end. The company shall inform the respective shareholders about the crisis plan which they are going to use to tackle the challenges caused due to covid-19. And directors should pay dividends to the shareholders if the company has a good amount of cash reserves. Director shall inform the current situation of the organisation.

II. Health and safety of employees

  • Directors shall emphasize the safety and health of their workers, employees and suppliers. It’s their basic responsibility to build a safe environment during the lockdown. Work from Home should be allowed during the pandemic and in extreme cases, they shall be called to offices and factories. Director shall comply with the government circulars and advisories. To prevent data breaches or losses there shall be proper data security measures.

III. Avoid conflicts of interest

  • The director shall avoid any personal interest while taking the decision for the company and he shall also not engage himself in an act which can give rise to a conflict of interest. All relevant information shall be disclosed by the director to the board as failing to do this can be a reason for dispute with shareholders and which can result in damage to long terms prospects.

IV. Independent decisions shall be made

  • Director shall act in good faith to promote the long interest of the company. He should avoid making decisions which can affect the company in long run.

 

CONCLUSION

The Directors of the Company play a crucial role in the Company, They play an essential part in managing and directing the course of the Company.

The company’s main motive is to run in a successful manner, to hand over the management of the Company in the hand of a responsible person. In this regard Company has a Board of Directors who runs the Company with the greatest responsibility, if the Director’s action causes mismanagement in the Company then the Director is liable to the company for reimbursement of the loss.

To learn more about the Companies Act, explore the Certificate course in Understanding Companies Act, 2013. 

 

[1] [1977] AC 153 at 170.

[2] Oriental Metal Pressing Works P. Ltd. v B. K. Thakoor, [1961] 31 Comp Cas 143.

[3] Bath v Standard Land Co.

[4] Moriarty v Regent’s Garage and Engg. Co., [1921] 1 KB 423.

[5] Lee v. Lee’s Air Farming Ltd., [1961] AC 12.

[6] Imperial Hydropathic Co. v. Hampson, [1882] 23 Ch. D. 1.

[7] Gopal Khaitan v State, AIR 1969 Cal 132.

[8] Ferguson v Wilson, [1886] LR 2 Ch 77.

[9] Section 166, Companies Act, 2013.

[10] Section 166(1), Companies Act, 2013.

[11] Section 166(2), Companies Act, 2013.

[12] Section 166(3), Companies Act, 2013.

[13] Section 166(4), Companies Act, 2013.

Categories
Blog

Right to be forgotten in India

Unlike the EU, India does not have any existing legal framework which recognises the right to be forgotten. However, the Indian courts have taken varying views in respect to whether such right exists in India as yet. In Dharamraj Bhanushankar Dave v. State of Gujarat & Ors., the Gujarat High Court denied the existence of such right. However, the Karnataka High Court in Sri Vasunathan v. The Registrar General & Ors. recognised it. Recently, in 2020, the Orissa High Court in Subhranshu Rout @ Gugul v. State of Odisha, emphasized the importance of ‘right to be forgotten’.

Learn more about Data Protection laws in India with Enhelion’s Certificate course on Information Security and Data Protection.

Though the existence of such right is unclear right now, however, the PDP Bill, 2019 has a dedicated provision on the ‘Right to be forgotten’. According to Clause 20 of the Bill, the data principal enjoys the ‘right to restrict or prevent the continuing disclosure of his personal data’ by a data fiduciary if– 

  1. The purpose for which the data was collected is fulfilled;
  2. The data principal has withdrawn his consent; 
  3. The disclosure was made contrary to the provisions of the bill or any other law in force.

The provision further provides that such right can only be enforced by virtue of an order by the Adjudicating Officer, after the data principal has made an application on the grounds mentioned above. The burden of proving that this right overrides the freedom of speech and expression and the right to information of any other citizen, is on the data principal. 

Learn more about Data Protection laws in India with Enhelion’s Certificate course on Information Security and Data Protection

The provision further provides for the factors which the Adjudicating Officer should take into account, while making the order. Such order can be reviewed by the Adjudicating Officer himself, and any order made by the Adjudicating Officer can also be appealed to the Appellate Tribunal. 

Therefore, on analysis of the provision of right to be forgotten under the PDP Bill, 2019, it is apparent that its scope is very limited compared to the scope it enjoys under the GDPR. The Bill merely provides for restricting or preventing continued disclosure of information, as opposed to GDPR which provides for complete erasure.

Learn more about Data Protection laws in India with Enhelion’s Certificate course on Information Security and Data Protection

Categories
Blog

Development of Cybercrime Law in the United Kingdom

Development of cybercrime law in the United Kingdom

The enactment of computer crime specific legislation or cybercrime law in the United Kingdom can be attributed to a number of cases which highlighted the issue of absence of such legislation and the subsequent acquittal of individuals.

R v. Thompson

Firstly, in R v. Thompson,[1] the appellant in Kuwait, had fraudulently caused a bank to credit certain bank balances in England. The access was authorized, however, such access was used for an unlawful purpose. The Theft Act of 1968 was sought to be applied[2]. The primary issue was that of jurisdiction (Kuwait or England) as well as identifying the victim. The court held that for applying the Theft Act, the identification of a human victim is a prerequisite. However, in the present case, the computer system was deceived, rather than a human mind. This highlighted the inadequacy of the existing legal framework to deal with cases where computer was a victim of a crime, rather than a mere facilitator.

R v. Gold and Schifreen

Secondly, in R v. Gold and Schifreen,[3] certain individuals got access to the files contained in British Telecom Prestel Network by seeing the username and password entered by the authorized person, over his shoulders. The accused were charged under the Forgery and Counterfeiting Act of 1981. However, the court held that the accused cannot be prosecuted under the said Act as the use of recorded electronic information did not fall under the definition of ‘false instrument’[4]. Therefore, the act committed by the accused does not come under the ambit of the Forgery and Counterfeiting Act. The outcome of this case highlighted that new age crimes (cybercrimes) cannot be prosecuted under the traditional criminal laws.

Learn more about Cyber Laws with Enhelion’s Online Law firm certified Diploma Course on Cyber Law.

It is pertinent to note that there were a series of case laws wherein the court adopted a more liberal approach to include the new age crimes within the ambit of traditional laws. In Cox v. Riley,[5] the court held that ‘damage’ implies any injury impairing the value and usefulness. Such injury need not be apparent to the naked eyes. Therefore, deleting program from a computer-controlled machine, which renders it unusable, constitutes ‘damage’ under the Criminal Damages Act, 1971. A similar approach was adopted in R v. Whiteley[6].

The increasing instance of computer crimes, the failure of court to effectively prosecute individuals who committed computer crimes, and the significance of ensuring effective prosecution by broadening the scope of existing laws, had a combined effect which led to the enactment of the Computer Abuse Act of 1990[7] in the United Kingdom.

Originally, the 1990 Act brought within its ambit, three categories of offences-

  1. Unauthorized access to programs or data[8];
  2. Unauthorized access with further criminal intent[9] and
  3. Unauthorized modification of data[10].

In Ellis v. DPP,[11] section 1 of the Act was interpreted, and the court held that unauthorized access, even though in absence of damage, comes under the ambit of the 1990 Act.

Learn more about Cyber Laws with Enhelion’s Online Law firm certified Diploma Course on Cyber Law.

The 1990 Act addressed the issue of jurisdictional challenge in cases of computer crime by making it an offence to use a computer in the home country to commit a crime in another country and to commit a crime in the country from a computer in another country[12].

It is pertinent to note that the 1990 Act was not well equipped to deal with computer crimes per se in a comprehensive manner. The issue with respect to section 2 of the Act was highlighted in R v. Bedworth[13], wherein while proving intent, addiction was recognized as a defense. As a result, the Jury acquitted the accused.

Learn more about Cyber Laws with Enhelion’s Online Law firm certified Diploma Course on Cyber Law.

[1] R v. Thompson, (1984) 79 Cr App R 191.

[2] Theft Act, 1968, § 15.

[3] R v. Gold and Schifreen, CACD [1987] QB 1116.

[4] Forgery and Counterfeiting Act, 1981, s. 8(1)(d).

[5] Cox v. Riley, [1986] QBD.

[6] R v Whiteley, [1991] 93 CAR 25.

[7] Computer Abuse Act, 1990.

[8] Id., § 1.

[9] Supra note 18, § 3.

[10] Supra note 18, § 2.

[11] Ellis v. DPP, [2001] EWHC 362.

[12] Supra note 18, § 4.

[13] R v. Bedworth, 1991.

Categories
Blog

Development of Telecommunication Law in British India

The communications system forms the basis of the economic development of a country and plays a key role in every aspect of an individual’s life. The communications system in India has come a long way from the use of telegrams in the 1850s to the extensive use of the Internet in the present times. It is pertinent to note that the foundation of telecommunications in India was laid by the British East India Company (referred to as ‘EIC’ hereafter), and was later developed by the British Government, under the British Crown.

  • Development of Telegraph services under the British regime

Research in the field of telegraph started in India way back in 1833 when a 24-year-old assistant surgeon with the East India Company (EIC), Mr. William O’Shaughnessy, started experimenting with electricity.[1] In 1839, he set up a 13.5-mile-long demonstration telegraph system near Calcutta.[2] During the same time, Samuel F.B. Morse was developing his own demonstration system back in the United States.[3] However, O’Shaughnessy was completely unaware of this development, and therefore, used a different code which was indigenously developed. On successful experimentation, he published a pamphlet about his work, but he was unable to catch the attention of the EIC.

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

The state of affairs changed in 1847 when Lord Dalhousie was appointed as the Governor-General of India.[4] He showed real interest in developing public works like roads, canals, railways, and postal services in India. He also envisioned the potential of the telegraph invented by O’Shaughnessy and authorized him to build a 30 miles long line near Calcutta. This was the first experimental electric telegraph line in India which started between Calcutta and Diamond Harbour in 1851[5]. The success of this electric telegraph line incentivized Lord Dalhousie to authorize O’Shaughnessy to build telegraph lines across India.[6]

O’Shaughnessy completed the work assigned to him by 1854, and as a result, Calcutta was linked to Agra, Bombay and Madras by the telegraph network.[7] From 1851 till 1854, the telegraph was strictly limited to use by the EIC. In April 1854, first telegram was sent from Mumbai to Pune and electronic telegraph facilities were made open to use by the public[8]. Taking these developments and the subsequent need for legislation to regulate the establishment and management of electronic telegraphs in India into consideration, the Electronic Telegraphs Act of 1854[9] was enacted. The 1854 Act provided exclusive right to establishing telegraph lines in India to the EIC, however, the Governor-General of India in Council was given the power to grant the license to any person or company to establish a line[10]. The Act further established a separate Electric Telegraph Department[11]. The Act penalized the laying down of telegraph lines in contravention of the provisions of the Act.[12] It also penalized the persons who willfully caused interruption to the transmission of signals[13].

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

The development of the telegraph system continued and by 1856, 4000 miles of Indian telegraph system was established connecting Calcutta, Agra, Bombay, Peshawar, and Madras.[14] It is believed that the Indian telegraph service played an instrumental role in suppressing the 1857 sepoy mutiny.[15] It proved to be a critical military tool by rapidly providing a reliable system of information which was used by the EIC to mobilize its troops. Owing to the significance of the telegraph network in suppressing the 1857 revolt, a number of Indians tried to destroy the same as an act of vengeance.[16]

The 1857 sepoy mutiny led to a significant change in power in the Indian colony. The Electric Telegraph Act of 1854 was repealed, and the Telegraph Act of 1860[17] was enacted to reflect the shift of power from British EIC to the British Crown. The 1860 Act brought two significant changes to its predecessor. Firstly, it gave the exclusive power previously enjoyed by the EIC to the Governor-General of India in Council[18]. The Governor-General also retained its power to grant licenses to private individuals and companies for establishing the telegraph lines. Secondly, considering the attempts of Indians to destroy the telegraph network post-1857 revolt, the Act of 1860 increased the number of penalties for intruding into the signal room[19] and cutting the line[20].

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

The developments in the telegraph system in India were accelerated once submarine cables were completed between India and Britain in 1870.

The next significant step in the evolution of communications services in India was the enactment of the Indian Telegraph Act of 1876[21], which repealed the 1854 Act[22]. The 1876 Act was applicable to the whole of British India as well as British subjects in the Princely States[23]. The Act is considered as the first comprehensive legislation regulating telegraph services in India. It defined the terms like ‘telegraph’, ‘telegraph officer’ and ‘message’[24]. ‘Telegraph’ was defined as an electric or magnetic telegraph[25]. Just like the 1854 Act, the Governor-General retained his power of exclusive privilege and the right to grant a license under the 1876 Act.[26] The Act further increased the penalties for causing destruction to the telegraph network. The most peculiar feature of the 1876 Act was the provision for the deployment of additional police in places where mischief to telegraphs was repeatedly committed[27]. In such a scenario, the inhabitants of such a place were required to bear the cost of such deployment[28].

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

After the 1876 Act came into force, in 1880, two private telephone companies namely Oriental Telephone Company Ltd. and The Anglo-Indian Telephone Company Ltd. approached the Governor-General of India to propose establishing telephone exchanges in India.[29] They were denied permission on the ground that the introduction of telephones was a Government monopoly and hence the Government itself would commence the work.[30] However, in 1881, the decision was reversed and Oriental Telephone Company Ltd. was granted a license for opening telephone exchanges at Kolkata, Mumbai, Chennai and Ahmedabad. The telephone came to India a little later in 1882.[31]

In 1883, the telegraph services were combined with postal services.[32] In the meanwhile, a Bill proposing the repeal of the 1876 Act was tabled to the Council. The Bill suggested modification of the definition of ‘telegraph’ to be in consonance with the developments in Britain. It also suggested the creation of a new category of penalties. This led to the enactment of the Telegraph Act of 1885[33]. The Act broadened the definition of ‘telegraph’ to include “appliances and apparatus for transmitting or making telegraphic, telephonic or other communications by means of electricity, galvanism or magnetism”[34]. The Act also created a Telegraph Authority, which meant the Director-General of Telegraphs and included any officer empowered by him[35]. Just like its 1860 and 1876 predecessors, the Governor-General enjoyed the exclusive privilege and the right to grant a license under the 1885 Act as well. The Act further granted the power to Government to take possession of licensed telegraphs to intercept messages[36].

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

In 1888, overseas communications were merged with the Director-General of the Indian Telegraph Department.[37]

The next significant development took place in 1902 when cable telegraphs were changed to wireless telegraphs.[38] Therefore, in 1902, the Indian telegraph services went wireless. Furthermore, in 1914, a big administrative change happened. The Postal Department and the Telegraph Department were amalgamated under a single Director-General by amending the definition of ‘telegraph authority under the 1885 Act[39].

The 1885 Act underwent a number of changes in the years 1914, 1930 and 1937. As per the amendment of section 4 in 1914, the Government was given the power to establish and maintain wireless telegraphs on ships within Indian territorial waters and telegraphs other than wireless telegraphs[40]. This provision was further amended in 1930 to include the use of wireless telegraphy on aircraft[41].

  • Development of Radio broadcasting services under the British regime

Respect to radio broadcasting, broadcasting was introduced as a private venture through radio clubs in Calcutta, Madras, Bombay and Lahore in 1923 and 1924.[42] In June 1923, the Radio Club of Bombay made the first-ever broadcast in India. In 1927, Calcutta Radio Club was established. During this time period, there was a daily broadcast of 2-3 hours of music and talks. However, most of these stations faced liquidation within three years of their establishment due to insufficient finances.[43]

The year 1927 also witnessed an agreement between the Government and a private company named Indian Broadcasting Company Ltd. (IBC).[44] This agreement led to the setting up of the Broadcasting Service which began broadcasting in 1927 on an experimental basis in Bombay and later in Calcutta. However, IBC faced liquidation within 3 years of its establishment.[45] The government acquired its assets and established the Indian Broadcasting Service under the Department of Labour and Industries.[46] Since then, broadcasting has remained under the control of the Government in India.

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

Following the establishment of the Indian Broadcasting Service, in 1935, Lionel Fielden was appointed the first Controller of Broadcasting.[47] In the same year, a private radio station, Akashvani Mysore, was set up.[48] In 1936, a radio station was commissioned in Delhi.

The next significant step in the development of radio broadcasting services in India was the renaming of the Indian State Broadcasting Service as ‘All India Radio’, or AIR in June 1936.[49] A new signature tune was added to AIR. The Delhi radio station, established in the same year, became the nucleus of broadcasting at the national level. In 1937, AIR was brought under the Department of Communications and in 1941, under the Department of Information and Broadcasting. The Department of Information and Broadcasting was again changed to the Department of Information and Broadcasting (I&B) on 10th September 1946.[50]

Radio broadcasting underwent considerable developments during World War II. By 1939, the entire country was covered by short-wave service. Taking into account the outbreak of World War, the programme structure of radio underwent a change to meet wartime contingencies. News and political commentaries were introduced and special broadcasts were made for the people on the strategic north-eastern and north-western borders.

  • Regulation of Wireless Telegraphy in the British regime

Wireless telegraphy in India developed in line with the development of radio services. One of the major sources of revenue for the Indian State Broadcasting Service was revenue from the licence fee for working of wireless apparatus under the Indian Telegraph Act, 1885. Owing to the lack of legislation dealing with the unlicensed use of wireless apparatus, the Indian State Broadcasting Service faced substantial revenue losses. To deal with the unlawful possession of wireless telegraphy apparatus, the Indian Wireless Telegraphy Act of 1933[51] was enacted.

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

The 1933 Act defined terms like ‘wireless communication’ and ‘wireless telegraphy apparatus.[52] The Act prohibited the possession of wireless telegraphy apparatus without a license under section 4. The telegraph authority under the Indian Telegraph Act of 1885 was given the power to issue licenses to possess wireless telegraphy apparatus under the Act[53]. The act of possession of wireless telegraphy apparatus without a license was made a punishable offence[54].

  • The relevance of Communication Laws enacted in the British regime after the coming into force of the Constitution of India in 1950

When India became independent, there were over 7000 telegraph offices and about 300 state-owned telephone services, across the country. Furthermore, there were 6 AIR stations at Delhi, Bombay, Calcutta, Madras, Lucknow and Tiruchirapalli, with 18 transmitters, among which six were on the medium wave and the remaining were on short wave.

The legal regime governing the telecommunications sector in India developed to a considerable extent after independence owing to technological changes, however, it is pertinent to note that the government decided to adopt certain key legislation relating to the telecommunications sector which was in force during the British regime. The most significant adoption was the exclusive privilege over the telegraph service and right to grant a license, enjoyed by the Government over the telecommunications sector in the British regime. This status was adopted in the Constitution of India by virtue of Entry 31 of List I in Schedule 7 which puts ‘posts and telegraphs, telephones, wireless, broadcasting, and other like forms of communications’ in the exclusive domain of the Union List[55]. The then Prime Minister of India, Jawaharlal Nehru, was also of the opinion that the telecommunication sector should be retained by the Central Government owing to its criticality to the development of India.

The Telegraph Act of 1885 was amended in the year 1948 to substitute the word ‘Provinces’ with ‘India’[56]. Although the definition of ‘telegraph’ has been amended in the subsequent years to ensure that technological development does not leave out certain services from being regulated by the state, however, the basic premise of the 1885 Act has remained intact over the years.

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

The Wireless Telegraphy Act, 1933 too is still in existence and retains most of the provisions of the original Act.

With respect to radio broadcasting services, All India Radio is in existence even today, under the control of the Ministry of Information and Broadcasting.

Therefore, the British regime did not only help India in laying the infrastructural foundations of communications, it also helped to develop a legal regime governing the same. This legal regime is still operational, with certain amendments aimed at adopting the dynamic nature of technology.

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

[1] John H. Lienhard, Indian Telegraph, https://www.uh.edu/engines/epi1380.htm (last visited Apr. 20 2021).

[2] Id.

[3] Indian telegraph Service, INDIAN PHILATELY, http://www.indianphilately.net/indiantelegraph.html (last visited Apr. 20 2021).

[4] Lienhard, Supra note 1.

[5] Development of posts and telegraph during the British rule, https://madhyapradesh.pscnotes.com/modern-history/development-of-posts-and-telegraph-during-the-british-rule/ (last visited Apr. 20 2021).

[6] Lienhard, Supra note 1.

[7] Supra note 3.

[8] Maninder Dabas, Today in 1854, first telegrpoh was sent in India, INDIA TIMES (Apr, 27, 2017, 4:15 PM), https://www.indiatimes.com/news/today-in-1854-first-telegram-was-sent-in-india-between-mumbai-and-pune-here-is-all-about-the-telegraph-service-that-ende.

[9] Electronic Telegraphs Act, 1854, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in116en.pdf.

[10] Id, § 1.

[11] Supra note 9, § 7.

[12] Supra note 9, § 2.

[13] Supra note 9, § 9.

[14] Lienhard, Supra note 1.

[15] Michael Mann, The deep digital divide: The telephone in British India, 35(1) HISTORICAL SOCIAL RESEARCH 188, 200 (2010).

[16] Id.

[17] Telegraph Act, 1860, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in117en.pdf.

[18] Id, § 2.

[19] Supra note 17, § 9.

[20] Supra note 17, § 10.

[21] Indian Telegraph Act, 1876, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in118en.pdf.

[22] Id, § 2.

[23] Supra note 21, § 1.

[24] Supra note 21, § 3.

[25] Id.

[26] Supra note 21, § 4.

[27] Supra note 21, § 16.

[28] Id.

[29] Gopika G G, Growth and development of telecom sector in India- An overview, 16(9) IOSR-JBM 25, 26 (2014).

[30] Id.

[31] Id.

[32] Id.

[33] Telegraph Act, 1885, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in119en.pdf.

[34] Id, § 3(1).

[35] Supra note 33, § 3(6).

[36] Supra note 33, § 5.

[37] Id.

[38] Gopika G G, Growth and development of telecom sector in India- An overview, 16(9) IOSR-JBM 25, 33 (2014).

[39] Supra note 33, § 3(6).

[40] Act 7 of 1914.

[41] Act 27 of 1930.

[42] Growth and development, PRASAR BHARTI, https://prasarbharati.gov.in/growth-development-air/ (last visited 20 Apr. 2021).

[43] Id.

[44] Alasdair Pinkerton, Radio and the Raj: Broadcasting in British India (1920-1940), 18(2) JOURNAL OF THE ROYAL ASIATIC SOCIETY 167, (2008).

[45] Id. at 175.

[46] Id.

[47] Id.

[48] Supra note 42.

[49] K.C. Archana, 80 years of AIR: Remembering the golden days of All India Radio, INDIA TODAY (June 8, 2016, 3:51 PM), https://www.indiatoday.in/fyi/story/80-years-of-air-remembering-the-golden-days-of-all-india-radio-12987-2016-06-08.

[50] Id.

[51] Indian Wireless Telegraphy Act, 1933, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in037en.pdf.

[52] Id. § 2.

[53] Supra note 51, § 5.

[54] Supra note 51, § 6.

[55] Constitution of India, 1950, Schedule VII, List I, Entry 31.

[56] Act 45 of 1948.

Categories
Blog

Development of Cybercrime Law in the European Union

At the European Union level, although the possibility of having a comprehensive legal framework dealing with cyber crimes was not a far stretched idea owing to the cooperation at the Union level, however, this idea was not considered until the late 1990s.

Taking into account the growing incidents of cyber crimes, their peculiar nature, and the essential element of international cooperation in this regard, a series of initiatives were taken at the EU level in the form of recommendations and Council conclusions. This was followed by the first legislative proposal by the Commission in early 1998 to deal with certain aspects of computer crimes, i.e. credit card frauds and forgery of non-cash means of payment. However, it was only in May 2001 that the Framework Decision on Combating Fraud and Counterfeiting of Non-Cash Means of Payment was adopted.[1]

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

During the same time, the Council of Europe was taking a number of steps and engaging in negotiations, in collaboration with the G8 countries, USA, Canada, Japan, United Kingdom, Germany, France, Italy, and Russia, with respect to judicial cooperation in this field.  As a result, an agreement was reached in 1997 pertaining to an action plan to combat high-tech and computer-related crimes. One of the action plan’s initiatives is the 24/7 network of law enforcement contact points to combat cybercrime, which is now a part of the current legal framework at the EU level. This network furthers the objective of international cooperation, specifically with respect to the investigation of cybercrimes.

In October 1999, the G8 met again as a follow-up measure of the action plan. This follow-up concluded that the biggest roadblock in combating computer crimes is the identification and tracking of criminals in cyberspace. To overcome this roadblock, many principles were adopted to ensure transnational access to data, simplified mutual assistance, and general permission to access publicly available material in another state without express permission. These principles now form the basis of the current legal regime at the EU level[2].

Meanwhile, the European Committee on Crime Problems[3] (CDPC) decided to set up a committee of experts to deal with cyber-crime in November 1996. Subsequently, the Report submitted by Professor H.W.K. Kaspersen concluded that “it should be looked to another legal instrument with more engagement than a Recommendation, such as a Convention. Such a Convention should not only deal with criminal substantive law matters but also with criminal procedural questions as well as with international criminal law procedures and agreements”.[4]

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

Taking into account the Report submitted to the CDPC, the Council of Europe was successful in formulating the Convention on Cybercrime[5], with an aim to bring minimum harmonization in the acts termed as ‘cybercrime’ in the Member States of the EU.

The Explanatory Report of the Cybercrime Convention highlights the changing nature of crimes and the subsequent need to develop a legal framework to prosecute such crimes exclusively. It states that-

“The technological developments have given rise to unprecedented economic and social changes, but they also have a dark side: the emergence of new types of crime as well as the commission of traditional crimes by means of new technologies.[6] Criminals are increasingly located in places other than where their acts produce their effects. However, domestic laws are generally confined to a specific territory. Thus, solutions to the problems posed must be addressed by international law, necessitating the adoption of adequate international legal instruments”.[7]

The Convention on Cybercrime adopts a holistic approach in dealing with both substantive and procedural aspects[8] of cybercrimes at the EU level. Section 1 of Chapter II covers both criminalization provisions and other connected provisions in the area of computer or computer-related crime by defining nine offences (illegal access, illegal interception, data interference, system interference, misuse of devices, computer-related forgery, computer-related fraud, offences related to child pornography and offences related to copyright and neighbouring rights) grouped into four different categories (offences against the confidentiality, integrity and availability of computer data and systems, computer-related offences, content-related offences and offences related to copyright and neighbouring rights)[9]. It further deals with ancillary liability and sanctions[10].

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

Furthermore, the Convention also contains provisions for traditional as well as computer crime-related mutual assistance and extradition.[11] It also provides for transborder access to stored computer data without mutual assistance, either with consent or without consent, in the case of publicly available data. It also provides for the setting up of a 24/7 network to ensure speedy assistance among the Parties.

Lastly, at the Union level, to address the issue of cooperation at, the Union level, the European Network and Information Security Agency (ENISA) was established in 2004. ENISA was given the responsibility to develop expertise to enhance cooperation between public and private sectors and provide assistance to the Commission and Member States of the EU in their dialogue with industry for the purpose of addressing security-related problems in hardware and software products. It was also required to promote risk assessment activities as well as interoperable risk management routines.[12]

Learn more about Technology Law with Enhelion’s Online Law firm certified Master Course! 

[1] EUR-Lex, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001F0413 (last visited May 3, 2021).

[2] These principles can now also be found in the Cybercrime Convention.

[3] Decision CDPC/103/211196.

[4] Salaheddin J. Juneidi, Council of Europe Convention on Cyber Crime, IPICS (2002).

[5] The Cybercrime Convention.

[6] Explanatory Report to the Cybercrime Convention, part I(5).

[7] Explanatory Report to the Cybercrime Convention, part I(6).

[8] Supra note 29, chapter II, § 2.

[9] Supra note 29, chapter II, § 1.

[10] Supra note 29, chapter II, §1, title 5.

[11] Supra note 29, art. 25.

[12] ENISA, https://www.enisa.europa.eu/ (last visited May 6, 2021).

Categories
Blog

Rule Of Law in Globalising World

The concept of rule of law finds its origin in the rulings of Chief Justice Sir Edward Coke[1] wherein he emphasised the significance of the King being under the law. However, it was only later that A. V. Dicey in his book: Introduction to the study of the Law of the Constitution, 1885[2], tried developing the concept further. He identified three components of the rule of law[3]–

  1. The supremacy of law
  2. Equality before law
  • Constitution as a result of ordinary law of the land (signifying the relevance of judge-made laws in England)

These components ensured that the rule of law acted as a constraint on the arbitrary exercise of power by the sovereign over its subjects. Therefore, his primary focus was on the way in which the law was made, applied, and enforced (process-focused approach), rather than the actual content of the law (end-focussed approach). This creates a lot of confusion with respect to the applicability of the rule of law. Modern democracies are founded on this principle, however, there are contrasting convictions about what ‘law’ is/should be.

Previously, the concept of rule of law was limited in its application to the sovereign territory of the state as the interactions were primarily intranational. However, over a period of time, with the advent of technology and the movement of people, goods and services across borders, such interaction became international, leading to cross-border disputes. Through the process of globalization, “political, economic, and technological changes have had globalizing ramifications that penetrate state borders in ways that transformed the core rule of law values in the international legal order and have created a shift away from the previously prevailing state-centric system.”[4]

With respect to the applicability of rule of law at the international level, globalisation has made the world one single market where individual and state entities interact with other individuals and entities on a daily basis. Therefore, such interaction cannot be left unchecked with respect to the foundation principle of the legal system i.e. the rule of law. Hence, there is a need to transpose the principle of rule of law, internationally, in light of the globalized world. The significance of rule of law at the international level in the era of globalisation has been pointed out a number of times[5].

However, this transposition is easier said than done. There are some inherent issues in applying the principle globally. Firstly, with respect to whether such a principle, which was originally developed to be applicable to the national legal system, can be applied to the international legal system, in the absence of a central sovereign authority. Secondly, if the answer to the first issue is affirmative, does such international application require a reconceptualization of the original concept of rule of law in order to adapt it to the legal issues arising at the international level. Thirdly, should the international rule of law be limited in its application with respect to the relationship of different sovereign nation-states, or should it also be applied to the relationship of different individuals who are subjects of such nation-states?

The first roadblock towards the applicability of the principle of rule of law in the globalised world today encompasses the fact that there is no common sovereign power in the international arena. There is United Nations, however, the international law establishing such an institution, is a soft law in itself. Besides, it is left to the discretion of the nation-states to decide whether they wish to be a part of the U.N. Since there is no common sovereign, it is often contented by scholars that the rule of law cannot meaningfully exist in the international arena.[6] This further entails the difficulty in ascertaining what constitutes “law” in the international context since there is no “one” sovereign, and no “one” law regulating the conduct of individual nation-states.

Secondly, the Dicean concept of rule of law highlights a very narrow and process-focused approach. Such a framework will not satisfy the end objective of rule of law at the international level, with respect to acting as a constraint against the gross violation of the fundamental human rights of the individuals by the sovereign states. Therefore, the rule of law, when transposed to the international level, should not only be process-oriented but also end-oriented.

However, the nation-states, in light of the growing interaction in the globalized world and the common aim to attain international peace and order, have taken the necessary steps to address these roadblocks in the applicability of the principle internationally[7]. Globalization has a significant contribution to the development of both domestic and international legal frameworks governing and regulating transnational transactions and activities. This has led to the development of international institutions tasked with the implementation of international law to secure peace, order and respect for basic human rights in the international community.

In today’s world, however, the significance of the rule of law stretches far beyond its application to traditional inter-state relations. The second aspect of the rule of law at the international level is the increasing attention of the international community on the impact of the international rule of law on individuals, with respect to the need to protect the inalienable human rights of the individuals. The international humanitarian law and human rights law has ensured that the basic human rights of the “individuals” are brought at the centre stage[8], and that every nation-state is obligated to protect them. These developments have placed legal constraints on the conduct of sovereign states in the international community and prescribed international standards which ensure that substantive aspects of justice are also catered to, at the global level.

However, this individual-focused approach to rule of law at the international level is being implemented at the domestic level, by making the domestic legal system in line with the international standards. In light of this, it is important to keep a check on the discretion provided to the national legal system regarding the substantive rules as rule of law cannot be considered effective in its true essence if the laws are unjust and oppressive.

 

[1] LTJ, http://lawtimesjournal.in/rule-of-law/ (last visited Feb. 1, 2021).

[2] A V DICEY, INTRODUCTION TO THE STUDY OF THE LAW OF THE CONSTITUTION (1885).

[3] Id.

[4] Ruti G. Teitel, Humanity’s Law: Rule of Law for the New Global Politics, 35 CORNELL INT’L L.J. 355, 357 (2002).

[5] The Rio +20 Conference on Sustainable Development Outcome Document, 2012; UN Millennium Development Goals etc.

[6] Charles Sampford, Reconceiving the Rule of Law for a Globalizing World, GLOBALISATION AND THE RULE OF LAW 9, 10 (2005).

[7] UDHR, ICCPR, ICESCR, Convention against Terrorism, Human Trafficking etc.

[8] United Nations Human Rights Committee, the International Criminal Tribunals (ICTY, ICTR), and the International Criminal Court (ICC) etc.

Categories
Online legal courses

E-Commerce Contracts and the clauses covered under it

By: Alok Rao

Introduction: –
E-commerce is a form of business model, or segments of a larger business model, enabling a company or person to conduct business on an electronic network, typically the Internet. However, there is no specific meaning of the term e-commerce, which is usually used to denote a form of doing business by electronic means rather than by conventional physical means. E-commerce questioned companies’ traditional system trading with customers, putting together diverse business models that empowered consumers.

The most popular business models facilitated by e-commerce are:

  1. B2B: Business to Business (B2B) explains trade transactions between different companies, allowing foreign companies to develop new partnerships with other companies. As between the manufacturer and the wholesaler, or between the wholesaler and the retailer.
  2. B2C: Business to Consumer (B2C) defines companies’ operations providing end customers with goods and/or services. There has always been a direct interaction between companies and customers, but with e-commerce, the traction has been gained in such transactions.
  3. C2C: Business to Consumer (C2C) includes electronically facilitated transactions between consumers through third parties. Traditionally, customers have had interactions with other consumers, but only a handful of these practises have been of a commercial sort.
  4. C2B: Customer to Business (C2B) involves customers supplying goods/services to businesses and generating value for the company.
  5. B2B2C: This is an alternative to the B2C model, and there is an external intermediary sector in this form of the model to assist the first business transaction with the end customer. For example, Flipkart is one of the popular e-commerce portals and offers a stage for customers to buy a wide variety of items, such as books, music, CDs, etc.

As a result, the e-commerce world may appear uncomplicated and economical; there are several legal considerations that an e-commerce company must seriously consider and bear in mind before beginning and while carrying out its operations.

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

E-commerce law in India: –

Information Technology Act, 2000
The first ever e-commerce legislation passed by India’s Government was the Information Technology (IT) Act 2000. It was an act to give effect to the UNCITRAL Model Law on Electronic Commerce, 1996. On 30 January 1997, the General Assembly of the United Nations adopted a resolution commending the Model Law on Electronic Commerce for favourable consideration by the Member States as a Model Law as they pass or amend their rules, given the need for uniformity of the law applicable to alternatives to paper-based methods of communication and storage of information.

The IT Act’s primary purpose was to include legal recognition of transactions carried out through electronic data exchange and other electronic means of communication, generally referred to as electronic commerce (e-commerce). The IT Act 2000 facilitates e-commerce and e-government in the region. It includes guidelines on the legal recognition of electronic records and digital signatures rules for the allocation of e-records, the process and manner of reception, the time and place of dispatch and the receipt of electronic documents. The Act also sets out a legal system which sets out penalties for various cyber offences and crimes. Significantly, under the Act, the Certification Authority is the focal point around which this Act revolves, as most of the provisions relate to the Regulation of Certification Authorities, i.e., the appointment of a CA Controller, the licensing of CAs and the recognition of international CAs. It has also punished crimes such as hacking, damage to the source code of the machine, publication of information that is obscene in electronic form, violation of confidentiality and privacy, and fraudulent granting and use of digital signatures. It also provides civil liability, i.e., cyber contraventions and criminal infringements, fines, the establishment of the Adjudicating Authority and the Cyber Regulatory Appeal Tribunals.

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

The relevant provisions of the Indian Panel Code, 1860, the Indian Evidence Act, 1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934 were also amended to resolve the related issues.

Information Technology (Amendment) Act, 2008
India incorporated the Information Technology (Amendment) Act, 2008 to apply the UNCITRAL Model Law on Electronic Signatures, 2001 in India. The IT Act of 2000 was modified to make it technologically neutral and accepted electronic signatures over-restrictive digital signatures. The Act incorporated several amendments, such as implementing the principle of e-signature, the modification of the definition of intermediary, etc. Also, the State asserted unique powers to monitor websites in order, on the one hand, to protect the privacy and, on the other hand, to control potential misuse leading to tax evasion. It is important to note that this Act acknowledged the legal validity and enforceability of digital signatures and electronic records for the first time in India and concentrated on protected digital signatures and secure electronic documents. These reforms were implemented to reduce the occurrence of electronic forgeries and promote e-commerce transactions.

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

Legal Validity of Electronic Transactions in India: –
There are numerous legal concerns related to the formation and legality of electronic transactions, such as online contracts and compliance issues, which are dealt with below.
Formation of an E-Contract
The most popular types of e-contracts are clickwrap, search wrap and shrink wrap contracts. The terms and conditions of such agreements shall be made available to the contracting party in a manner which is substantially different from the standard paper contracts. By clicking on the wrap contract, the party’s affirmative approval is made by checking the ‘I agree’ tab with a scroll box that allows the acceptance party to access the terms and conditions.
In the case of a browser wrap arrangement, the website’s mere use (or browsing) makes the terms binding on the contracting party.
In a Shrink-wrap agreement, the contracting party can read the terms and conditions only after opening the box inside which the product (usually a licence) is packed. Such contracts are important in the context of e-commerce, primarily because of the form of products associated with shrink-wrap agreements.

Online Contract Validity
The Indian Contract Act, 1872, regulates all e-contracts in India, inter alia, mandate specific pre-requisites for a valid contract, such as free consent and legal consideration. The concern to be considered is how the Indian Contract Act’s specifications can be met with e-contracts. Also, the Information Technology Act, 2000 (‘IT Act’) enhances the legitimacy of e-contracts.
According to the Indian Contract Act, 1872, some of the essential specifications of a legal contract are as follows:

  • The agreement should be entered into with the free consent of the parties.
  • The agreement should be considered lawfully.
  • The parties should have the authority to enter into contracts.
  • The purpose of the contract is to be lawful.
  • Terms and conditions associated with the e-commerce platform are of the utmost importance in ensuring that the e-commerce agreement meets a legal contract’s specifications.

Unless expressly forbidden, clickwrap agreements would be enforceable and legal if the provisions of a valid contract set out in the Indian Contract Act of 1872 were met.

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

There is no provision under the Indian Contract Act that written contracts be physically signed. However, the unique statuses do include the criteria for signature. Furthermore, the very essence of e-commerce is that it is virtually impossible to verify the age of someone who is trading online and who presents problems and liabilities to e-commerce platforms because the situation under Indian law is that a minor is not qualified to enter into a contract and that such an agreement is not enforceable against a minor.
In India, any instrument under which rights are produced or transferred must be stamped. The stamping of the instrument also depends on relevant stamp duty legislation passed by different states in India.

Standard Type of Online Contracts is not appropriate.
There is no well-developed case law in India as to whether the traditional type of online agreements is unwise. However, Indian courts have previously dealt with cases where contract terms, including common form contracts, have been negotiated between parties in unequal negotiating positions. Specific provisions of the Contract Act deal with unenforceable agreements, such as when public policy is opposed to considering the contract or subject-matter of the contract. The agreement itself cannot be valid in such situations.
The courts may place the individual’s responsibility in the leading position to show that the contract was not caused by undue influence.
In the case of ‘LIC India Vs. Consumer Education & Research Centre’
L.I.C. Of India & Anr vs Consumer Education & Research Centre & Ors. Etc. 1995 SCC (5) 482, the Hon’ble Apex Court of India interpreted the insurance policy issued by India’s Life Insurance Corporation by adding certain public interest elements. The court observed that ” in dotted line contracts there would be no occasion for the weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.”

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

It is essential to provide well-thought-out terms that shape online contracts to ensure that there is an ample opportunity for consumers to familiarise themselves with the terms of such agreements. In addition to the above, there is also a range of other legal, tax and regulatory concerns, in particular Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Control, Intermediate Liability, Jurisdictional Issues and Tax Issues, which need to be taken into account when dealing with e-commerce transactions.

Conclusion: –
Rapid growth in e-commerce has generated the need for vibrant and efficient regulatory frameworks to reinforce the legal framework crucial to the success of e-commerce in India. It has always been argued that poor cybersecurity laws in India and the lack of a proper regulatory system for e-commerce are why both Indians and the e-commerce industry face so many challenges in enjoying a consumer-friendly and business-friendly e-commerce climate in India. India does not have any dedicated e-commerce regulatory legislation other than the IT Act that governs India’s e-commerce and transactions. Therefore, the government should create a legal structure for e-commerce so that domestic and foreign trade in India will flourish so that fundamental rights such as privacy, intellectual property, the prevention of fraud, consumer protection, and so on are taken care of. The legal community in India needs the required expertise to direct entrepreneurs, customers, and even courts. The rapidly evolving market module can comply with existing legislation usually applicable to business transactions in standard modules. Simultaneously, it should ensure that the benefits of technology are unhindered by the judicious evolution of law by the learned interpretation of the court, and there is still a consensus that specialized law governing and controlling some aspects of e-commerce is an obligation and an exclusive requirement.

Learn more about Contracts and Drafting with Enhelion’s Online Law firm certified Master Course! 

Categories
Blog

Impact Of Covid-19 on Insolvency and Bankruptcy Laws of India and the World at Large

By: Anjan Bhandari 

INTRODUCTION:

In the past few months, India has witnessed unprecedent changes being made in almost every sphere; whether it be something as simple as a lifestyle change or something as complex as amending various legislations to safeguard and protect the interests of both the parties. To give you a better perspective, the Central Government on 24th March declared a nationwide lockdown as a preventive step to limit the spread of the infectious coronavirus. In doing so, everyone was required to restrict themselves to their homes thereby bringing our economic structure to a standstill. Nobody knew for how long the lockdown would ensue when it began, but now we do have adequate data that informs us about the manner in which the lockdown was imposed and in how many phases –

  • PHASE 1 : 25th March – 14th April [Nationwide lockdown]
  • PHASE 2 : 15th April – 3rd May [Further extended]
  • PHASE 3 : 4th May – 17th May [Further extended]
  • PHASE 4 : 18th May – 31st May [Further extended]
  • PHASE 5 : 1st June – 30th June [Considerable relaxations from 8th June]

According to the above-mentioned data, it is clear that COVID-19 is the primary reason for all business uncertainties and the economic stabilities at large since the lockdown was continued for so long. All industrial activities came to a standstill because of which the Companies suffered huge losses which either resulted in salary reduction or laying off a major chunk of their employees in order to manage their sustainability. And not just the industrial sector, the outbreak of COVID-19 has caused massive difficulties for all sectors globally, such as the Micro Small Medium Enterprises (MSME’s), healthcare, tourism, automobile, etc. Courts all across the country has prohibited physical hearing to maintain social distancing except a few important cases and has instead resorted to virtual court proceedings. The only thing that can be said with absolute surety is that the brunt of this economic meltdown will be faced by all the financial institutions since its difficult to comment on the overall impact of the lockdown.

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!

IMPACT OF COVID-19 ON IBC LAWS IN INDIA:

The All India Association of Industries estimated a loss of 2lakh crore by 31st March due to the nationwide lockdown. The Central government has been trying to minimise such drastic blows by bringing in numerous reforms. The virus has indisputably disrupted the performance of contracts and payments consequently creating problems for the financial and operational creditors. It will have a devastating impact on economy if the creditors wish to initiate insolvency proceeding against the corporate debtors at a mass scale amidst this pandemic.

What’s important to notice is that the value of the stocks is declining at a startling rate since the demand has decreased at a global level. It wouldn’t be too far-fetched to suspect that at this point, the financial and operational creditors would move to the National Company Law Tribunal (NCLT) to avail remedies available to them under the Insolvency and Bankruptcy Code, 2016. After approaching the NCLT, initiation of the insolvency proceeding will have a negative impact because then the management of the company would shift from the hands of the corporate debtor to the insolvency resolution professional and as a result, the value adding mechanism by the corporate to the economy gets highly stunted.

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!

It is imperative to safeguard the interests of the MSME’s because if insolvency proceedings are initiated against them, it would further lead to rise in unemployment in the country. Pre-empting such an impact, our Finance Minister Nirmala Sitaraman had announced that if the current state of affairs continued beyond 30th April, the Central government may suspend a few relevant sections of the IBC for 6 months in order to protect companies from being forced into insolvency proceedings in such force majeure causes of default. Due to these reasons, the Government of India decided that they need to adopt a pragmatic approach in dealing with this problem and came up with the following amendments to the IBC, 2016 –

  • Application under Sections 7, 9 and 10 can only be filed when the default is of Rs. 1 crore or more.[1] Earlier U/S 4(1) of IBC, the minimum amount of default was Rs. 1 lakh which has now been officially increased by the Ministry of Corporate Affairs (MCA).
  • Section 7 : Initiation of insolvency proceedings by financial creditor

Section 9 : Initiation of insolvency proceedings by operational creditor

Section 10 : Initiation of insolvency proceedings by corporate applicant

According to the MCA Notification No. S.O. 1205(E) dated 24th March 2020 the Finance Minister as a relief to the affected industry announced that no petitions would be entertained unless the minimum amount of default is Rs. 1 crore or more.

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!

  • The Supreme Court on 23.03.2020 opined that the lockdown period should be excludedfor the purpose of counting the timeline. Even the NCLAT ordered the same on 30.03.2020. The order states that “the period of lockdown imposed by the central government in the wake of Covid-19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”[2]
  • The government may even consider scrapping Section 7, 9 and 10 of the IBC, 2016 so that no insolvency proceedings be initiated by the promoter, operational or financial creditor if the situation continues beyond 30th April, 2020 and if it does, it would be scrapped for a period of 6 months.

The first amendment that came in on 24th March which increased the minimum default vale from Rs. 1 lakh to Rs. 1 crore not only reduced the workload on the insolvency resolution professionals but also turned out to be beneficial for the MSME’s and corporate debtor. However, the fruit to such benefits is only enjoyed by one as opposed to safeguarding equal interest of the parties. Increasing the default value to such a higher threshold causes immense dissatisfaction to the operational and financial creditors. The operational creditor in particular would face hindrances as they won’t be able to utilise this remedy to regain the operational and corporate debt from the corporate debtor. Moreover, their operational debt isn’t generally this high to be able to initiate insolvency proceedings which further puts them on the backfoot. Under Section 9 of the IBC, 2016 the operational creditor cannot even jointly file for an application unlike as mentioned under Section 7 of the Insolvency Code, 2016. Kumar Saurabh Singh, Partner at Khaitan & Co. said that the Central Government shall also cover matters of liquidation in other courts and tribunals besides the IBC process. He said that “A similar approach would also be required to be followed by other courts/tribunals in the country to not allow enforcement and sale of assets of companies which are suffering from the impact of the pandemic situation so that the benefit of suspension of insolvency law is effectively given to the borrowers.”

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!

After diving deep into the details of the impact of COVID-19 on the IBC laws in India, the question still remains whether the applicants who filed for the insolvency resolution before the pandemic should be affected or not. In my view if it does, then the applicants would rather prefer indulging themselves in outside settlements rather than utilising the provisions under the Insolvency and Bankruptcy Code thereby defying the very purpose of the said statute.

IMPACT OF COVID-19 ON IBC LAWS ACROSS THE WORLD:

  • UNITED STATES – On 19th February, the Small Business Reorganisation Act became effective which seeks to provide an economical and quicker option for reorganisation of businesses with total debts falling within the quantum of $2,725,625. On 28th March, Donald Trump gave a nod to the Coronavirus Aid, Relief, Economic Security (CARES) Act. Apparently, it is the largest emergency aid package ever provided in US history. It includes revised retirement account rules, student loan changes, and the unemployment coverage. There has also been an increment in the debt limit under the CARES Act to $7.5 million for a year in order to allow small business debtors to realign their affairs for a new start.

    Learn more about Insolvency and Bankruptcy Laws with             Enhelion’s Online Law firm certified Master course!

  • SINGAPORE – The Ministry of Law in Singapore had announced that they would introduce a bill in the Parliament aimed at finding a way for an organised moratorium so that the obligations that ensue are either suspended or deferred. A distinctive feature of the Bill is that the parties would not be allowed to be represented by lawyers in case of a dispute. Instead, an assessor would be appointed by the Ministry of Law who will decide on an equitable and just outcome without any legal fees. 
  • AUSTRALIA – On 23rd March, the Commonwealth government introduced the Coronavirus Economic Response Package Omnibus Bill 2020[3] which was passed by both Houses of Parliament and received the Royal Assent on 24th Certain temporary amendments were made to the Corporation Act, 2001 which are as follows:
  • Amendment relating to individual in financial distress
  • Amendment relating to businesses in financial distress
  • Temporary relief for directors from the duty to prevent insolvent trading

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!

  • UNITED KINGDOM – Alok Sharma, Business Secretary announced a package of insolvency measures to be adopted in the future. The UK government has shown keen interest in bringing forward such legislation, but the timing still remains uncertain. It is evident that the government is building up on potential reforms announced in August 2018. The new structuring tools include –
  • To bring in measures safeguarding the suppliers and creditors, thereby ensuring timely payments until a more viable solution is reached.
  • Coming up with a new restructuring plan, and binding creditors to that plan.
  • To introduce a moratorium for companies allowing them a breather from creditors enforcing their debts for a while until they seek a restructure or rescue.
  • To protect their supplies thereby enabling them to continue with their trading activities during the moratorium period.

 Thus, on comparing the impact of COVID-19 on IBC laws in India with the rest of the world, we can deduce that almost similar precautionary steps were adopted by other countries. Some of them increased their minimum default limit required to file for insolvency proceedings, some have thought of implementing a moratorium period, while the others decided to put a bar on initiation of insolvency proceedings after a set particular date.

[1] https://www.ibbi.gov.in/uploads/legalframwork/48bf32150f5d6b30477b74f652964edc.pdf

[2] http://www.mca.gov.in/Ministry/pdf/Notification_30032020.pdf

[3] https://pinpoint.cch.com.au/document/legauUio3230299sl1133168580/regulation-5-4-01aa-temporary-increase-to-the-statutory-minimum-and-statutory-period

 

Learn more about Insolvency and Bankruptcy Laws with Enhelion’s Online Law firm certified Master course!