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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.

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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.

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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.

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  • 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.”

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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.

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  • 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

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  • 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

 

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Contracts in the Sports Industry and the Clauses Covered Under it

By: Tanisha Yadav

INTRODUCTION:

Sport is that social phenomenon that has existed from a very long time in all levels of society. It represents the country’s culture and affects people’s lifestyle, health, values, social status, country’s relation, fashion trends, etc.

It is a type of game or contest where people get involved and perform physical activities to compete against each other following definite rules and regulations. Cricket, football, basketball, and volleyball are played by the number of people in different parts of the world.

The sport has now taken the industry’s shape from the last few decades to which we often called the Sports industry. It is a market with an economic dimension, which offers products, services, places and ideas related to sport, fitness or leisure time to its consumers[1] which also involves people, organizations and businesses who facilitate, promote, and organize activities and events based on sports.

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Contract in the Sports Industry:

Sports Contracts are similar to those contracts we come across in our everyday life; they are the mutual agreements that legally bind two or more parties.

Generally speaking, the sports industry’s Contract occurs between the sports organization/sports Agent and player/Athlete.

It defines the rights and responsibilities of the various participants in the business of professional sports.[2]

All the sports contracts are express in which parties give their consensus by words either spoken or written to enter into the Contract by way of offer, acceptance and consideration in Contract. Virtually, in sports contracts, implied contracts are not considered as a real contract as its very hard to prove the implied Sports contract.

Apart from offer, acceptance and consideration, an athlete’s capacity, mutual agreement, mutual obligation and subject matter are the essential ingredients in forming the sports contract. If the athlete is an adult, he can sign the contract, but his legal guardian must sign the Contract if the athlete is minor.

In India, Sports Contracts are governed by The Indian Contract Act, 1872, and The Industrial Disputes Act of 1947.

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Following are the considerable areas/ subject matter in which sports contracts takes place[3]:

  • Endorsement and merchandising Contract
  • Contract of Sponsorship Rights
  • Contracts between Player and managers or Agency contracts.
  • Deal of Membership rights in sporting clubs or organizations.
  • Contract of Image rights
  • The contract for appearances by players
  • Contract of Participation Rights and Obligations.
  • Presenter’s Contract
  • Contract of sale of media rights with event managers, Broadcasters and promoters.
  • Endorsement and merchandising Contract
  • Contract of Player transfer
  • Contract of Brand rights.

Player-Agent Relationship:

The player-Agent relationship is significant in sports contracts, as the player is sometimes so occupied in his sports that he doesn’t get time to negotiate Contract and handle everything. Sometimes the player faces difficulty in understanding terms of the contracts too. In that scenario, the player needs a person to trust, who can look and manage a player’s commercial relationships.

Player: Player is a person who actively participates in any sports requires endurance.

Agent: A agent is a person who carries a fiduciary relationship with the player in which he serves a significant role in negotiating contracts of the professional player and handles finances and public relations.

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TYPES OF SPORTS CONTRACT:

Professional Service Contracts: These contracts are also known as standard player’s contracts. These contracts are usually in a “boilerplate” form. The boilerplate form is the standardized forms in which standard or generic language is used.

These boilerplate forms are used where a state of Contract that can be reused in a new context without having any substantial changes in it.[4] Thus, the wording of these contracts can be used again and again without any alteration or reformation. If a professional athlete is part of a team, usually the athlete receives a standard player’s contract.[5] Hence, the professional service contracts are the same for all the athletes except the differences in salary and athletes’ bonus and involve an employer-employee relationship. Furthermore, these contracts also leave the scope of modification that can be modified by introducing collateral agreements.

Endorsement Contracts: Endorsement contracts are the independent contracts which do not require employer-employee relationship. An endorsement contract is one that grants the sponsor the right to use (i.e., license) the athlete’s name, image, or likeness in connection with advertising the sponsor’s products or services.[6]

Appearance Contracts: The appearance contracts are those contracts which pay the player/athlete for his/her appearance in any public event of any organization, institute or company by way of Contract. Thus, it is a contract between the venue and the athlete. It includes Sports camp, sports tournament etc. It sets out the time and dates for the appearance of an athlete on the venue location.

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Besides, if under any of the kind of contract, the contracting party extends beyond the scope of the terms of the Contract, under section 27 of the Indian Contract Act, 1872, i.e., restraint of trade, it would be void and not enforceable.[7]

CLAUSES COVERED UNDER THE CONTRACT:

Title: Its always essential that there should be a title of the Contract, through which one can identify the very nature of the Contract.

Information Clause: Under this clause, the information of the contracting parties is mentioned. Such as the name and address of the parties to the Contract. It also includes the information that on which date the Contract was made.

Player services Clause[8]: What type of service provided by the player is being discussed under this clause.

Player obligations Clause: This clause contains the obligations of contracting parties towards each other. It elucidates the rights, duties and responsibilities of the parties.

Term clause: This clause specifies the Contract’s duration—the time of Contract from the beginning to the end date. After completing the due date, the Contract automatically terminates, although it is subject to the renewal option of Contract to the parties.

Revenue-sharing Clause: If any organization or a company is hiring the player on the promise of sharing revenue, this clause discloses the information about the percentage and related details shared between the parties to the Contract.

Bonus Clause: This clause states that the player would get a bonus amount on his/her exceptional performance in sport.

Arbitration Clause: This clause expounds that if any dispute, controversy or any claim arises or if the issue related to breach of contract, non-performance or interpretation of Contract occurs then in that case, the matter will be resolved by the arbitrator on request of any of the parties. If parties do not agree on an arbitrator in any case, then in that scenario, both the parties will select one arbitrator. Then both the arbitrators shall select a third, and then the third arbitrator shall arbitrate the dispute.

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Board, lodging, and travel expenses Clause: 

This clause deals with the board, lodging and travel expenses of the player. It states that all the costs mentioned above will be borne by the club or organization hiring the player.

Choice of Forum Clause: Under this clause, the choice of law is mentioned through which contracting parties would like to govern, construe and enforce the Contract. As most of the sports contracts affect the parties belongs to different states, choosing a common law or jurisdiction can save parties from any further jurisdictional issues.

Remuneration and other benefits Clause: This clause states the player’s remuneration for his services.

No-Tempering Clause:  A no-tampering clause which avers that one player cannot attempt to entice another employee to enter negotiations with another club while under Contract to a different team.[9]

Confidentiality clause: Most contracts come with the confidentiality clause; certain things need to be confidential between the contracting parties only. Therefore, under this clause, contracting parties agree to keep the Contract’s contents and related matter confidential. This clause binds the parties to the Contract even after the termination of the Contract.

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Player restrictions/Hazardous Activities Clause: Under this clause, the player agrees that during the duration of the Contract the player will not engage in any other sport or any activity which can involve the substantial risk of any personal injury or which can impair the skill of the player in his sport. Apart from that, this clause contains other restriction on the player by the organization or club for the effective enforcement of the Contract. If the player breaches any of the rules and regulation mentioned under the clause or if the player becomes injured as a direct result in taking part in the given activity, the team/organization can transfer the financial risk onto the player.[10]

Non-assignment Clause: Sports contracts are personal services contract, and therefore it cannot be assigned or transferred to any other person, firm, corporation, or other entity without the prior, express, and written consent of the other party.[11]

Termination Clause: A termination clause gives the right to the contracting parties to terminate the sports contract. Commonly, it is based on the failure of the parties’ performance, breach of any material condition, warranties, or the express agreement. Furthermore, in most cases, the contract is terminated because the player is no longer fit for the sport or cannot meet the team’s need.

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Usually, the party seeking to terminate the agreement must give the other advance written notice of his intention to terminate the Contract. As long as the party seeking to terminate the Contract complies with the notice provisions, termination of the Contract is permissible.[12]

Remedies Clause: A breach of Contract can be remedied through monetary damages, restitution or specific performance. Although, the parties seek for the remedial measures which were promised under the clause.

These were the few clauses present in almost every sports contract; there are some other clauses whose inclusion mainly depends on the nature of the sports contract.

CONCLUSION:

In India, the sports industry is at its boom. There are so many sports contracts that are signed every day in this industry. It is quintessential that the contract drafter should take exceptional care while drafting the policies, procedure and clauses under the Contract. Because it prevents the parties from any predicament.

But, it’s so sad that due to lack of proper sports law, Indian sports industry witnesses scandals and unfair dismissal of players. Today, there is a dire need for the introduction of sports legislation. Because it’s the only ray which can address this situation and bring fairness in this industry. Thus, for the Indian sports industry’s consistent growth, a healthy balance in the enforcement of Contract is required.

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[1] IGI Global, What is Sports Industry, IGI Global, https://www.igi-global.com/dictionary/concurrence-of-sports-and-entertainment-industries/43855 (last visited on Jul., 17, 2020).

[2] Avinandan Chattopadhyay, Regulation and Liabilities of Parties in Sports Contract, Social Science Research Network, file:///C:/Users/HP/Downloads/SSRN-id2145520.pdf (last visited on Jul., 17, 2020).

[3] Farleys: Solicitors LLP, Sports Contracts and Agreements, Farleys, https://www.farleys.com/solicitors-for-you/sports-law-for-individuals/sports-contracts-and-agreements/ (last visited on Jul., 19, 2020).

[4] James Chen, Boilerplate, Investopedia (Sep., 03, 2019), https://www.investopedia.com/terms/b/boilerplate.asp.

[5] US Legal, Sports Contracts – Basic Principles, US Legal, https://sportslaw.uslegal.com/sports-agents-and-contracts/sports-contracts-basic-principles/ (last visited on Jul., 19, 2020).

[6] Supra note 6.

[7] Supra note 3.

[8] Anirudh Rastogi and Vishak Ranjit, E-Sports Player Contracts: Common Clauses And Potential Legal Issues In India, Ikigai Law: Mondaq (Jun., 18, 2020), https://www.mondaq.com/india/gaming/955392/e-sports-player-contracts-common-clauses-and-potential-legal-issues-in-india.

[9] Supra note 2.

[10] Adam Epstein & Josh Benjamin, Unique Clauses in Sport Contracts, Sh10an: WordPress, https://sh10an.wordpress.com/2015/04/11/unique-clauses-in-sport-contracts/ (last visited on Jul., 19, 2020).

[11] US Legal, Drafting Suggestions for A Sports Contract, US Legal, https://sportslaw.uslegal.com/sports-agents-and-contracts/drafting-suggestions-for-a-sports-contract/ (last visited on Jul., 20, 2020).

[12] Roshan Gopalakrishna & Vidya Narayanaswamy, Sponsorship Contracts – Reasonableness of Contractual Restraints, The Sports Law and Policy Centre (Feb., 10, 2011), https://sportslaw.in/home/2011/02/10/sponsorship-contracts-reasonableness-of-contractual-restraints/.

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Analysis of Insolvency and Bankruptcy Laws in USA, UK and UAE

By: Anant Tyagi

Earlier, the Insolvency and Bankruptcy law was not very clear in UAE and was very divided into various areas, resulting in complexity and confusion. After 2016 the new bankruptcy law has been created with the strong base to resolve any insolvency issues that the businesses face to protect. The bankruptcy law 2016 was established under commercial companies law to aid enterprises to which range under the small and medium-sized companies based in UAE and are facing economic challenges. The features of the bankruptcy law are as follows:

  1. Financial Recognition

The act aims to boost the concept of Financial restructuring by establishing a regulatory body known as the committee of financial reconstructing. A list will approve this particular committee’s role of experts who are well-versed in bankruptcy and financial reorganization to carry on the task.

  1. Composition

Under the new bankruptcy law, composition approaches are also available to assist the debtor in settling with the creditor. It is up to the creditors to accept the settlement or any part payment. For this arrangement to be possible, a condition must be fulfilled, stating that a debtor must not have stopped payment for more than 30 consecutive days. When the debtor makes an offer of composition, it is submitted to the court, which appoints an expert to analyze whether the composition of finance is sufficient or not.

If the offer of competition is accepted, the court will select an official in charge who will prepare a record of debtor’s creditors to submit to a court. Any composition has to be passed by most creators, which is equal to two-thirds of the debt and equally approved by the court.

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  1. Restructuring and bankruptcy

This particular part of biography law 2016 deals with the restructuring process by aiding the debtors in applying for affection plan for a bankrupt business. It also provides for declaring the bankruptcy to fulfil the obligations. Either of debtor or creditor can request for the commencement of the bankruptcy process. It is required that bankruptcy should be declared within 30 days by the debtor.

When the court accepts the application, the official is selected for selling and reconstruction of business. Insolvency and bankruptcy code process of liquidation starts, the secured creditors are given more preference in the rank than ordinary creditors.

  1. Bounced cheques

Under the UAE law, any non-UAE national person signatory to a bounced cheque faces potential criminal liability. Similarly, in bankruptcy law penal provisions are to be stopped if it is proven that specified check was issued before the commencement of composition/ restructuring. The cheque amount will be added to the total debt of the debtor.

  1. Penalties

The complaint of the new bankruptcy law 2016 has to be backed by a variety of available penalties. The penalty aims to provide both imprisonment and substantial financial fines.

With the help of the new bankruptcy law that gives ample options to bypass bankruptcy, which earlier had a severe penalty for companies going through a bankruptcy is a welcome step in insolvency and bankruptcy. The new is debtor-friendly and provides a way for the companies to repay their debts while continuing the business instead of the older laws that forced companies to shut their operations completely whenever any financial difficulty arose. This law will encourage companies from around the world to enter the UAE market.

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“A new law called corporate information insolvency, and governance act 2020 has been introduced by the United Kingdom with major reforms like “free-standing moratorium” and New Restructure plans. Under the new law, free-standing Moratorium will aid the companies to take shelter from creditor’s action. Under the insolvency and bankruptcy code 2016, whenever a company goes into the Moratorium period, distributor action save the company is not predetermined. Under the new law, free-standing Moratorium will ensure that a company can choose the company’s rescuing. The company is not forced to stick to the formal process, but if there is an informal process to rescue the company, it can even be used. Moratorium period is time-based to ensure that no misuse is taking place and the Moratorium is cancelled if it is final that a company cannot be rescued.” [1]

“Another form that has been introduced under the CIGA is the restructuring plan. The act had introduced a process in which the restructuring plan between the company and creditor required the creditors to vote and sanction the court. However, the cross-class cram-down method has been mentioned that states that the court has the power to give a plan sanction, it requires even if the majority of the class is against it.” [2]A restructuring plan can be approved by the court even if all the creditors are against it if the court feels that the creditors would not be worse off with the suggested Restructure plan than when no Restructure plan was approved.

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The cross-class cram-down method’s possible effect is that the companies will have more flexibility whenever they are proceeding with the restructuring plan even in those situations where the consent of all creditor classes cannot be obtained. But this method also has its challenges because it is mentioned that the court can overrule the descending creditors and sanction the plan if they feel that under the proposed restructuring plan they would not be worse off if no restructuring plan was approved. It burdens court with the responsibility of doing valuations, which is very contentious because a market valuation keeps changing according to the market forces. With the new covid crisis, it will be very problematic for the courts to assume the economic market’s evaluation and outcomes.

One of the significant reforms is that earlier whenever the company was going through financial difficulties and bankruptcy process, the company’s supplier would always seek to get out of the contractual obligation and sever ties with the company rendering the company without any support. The present act will now prohibit the supplier from terminating the contract with the company when it goes into the restructuring plan. The company can focus on paying back their debts and keeping ongoing their business instead of just closing everything down.

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The United States of America constitution has provided the US Congress with the power and authority to enact the laws of bankruptcy in the country. While exercising their power and discretion, the lawmakers passed the bankruptcy Reform Act of 1978 which has largely governed the country’s current bankruptcy law’s bankruptcy issues. The United States bankruptcy code is also referred to as tight 11. It contains the business and individuals’ procedure and practices to follow whenever they are filing for the bankruptcy under the United States Bankruptcy court. Under the US bankruptcy code, both companies and the individuals are allowed to file a bankruptcy petition and seek relief. The most common form of bankruptcy in the United States is mentioned in chapter 7, which also covers the liquidation process. The court appoints the trustee, and the trustee must collect all the non-exempt assets of the debtor.

When the creditors come to know about the company’s condition, it will force a company to file for bankruptcy. Still, apart from the UK and UAE law, the day the petition of bankruptcy is filed in the court, the business will cease to exist. It is up to the court-appointed trustee whether he allows certain operations of the company or not. When it comes to large companies, the trustee may decide to sell the company’s property loss-making division to another flourishing company. The preference is given to the secured creditors, usually the first ones to be paid back. As mentioned before, the US bankruptcy law provides for companies to file bankruptcy and offers individuals to file for liquidation in which they are allowed to keep specific exam properties, but it varies from state to state. The trustee will sell the other assets which are not under the exempt class to pay back the creditors. In the 2005 bankruptcy abuse prevention and Consumer Protection Act, an amendment was made that barred consumer debtors filing bankruptcy because it was felt that this provision would be misused by the credit card companies from losses, resulting in the customers going bankrupt. The act also provides for cross border insolvency state code incorporate with foreign courts to solve cross border insolvency cases. United States of America’s bankruptcy code is one of the oldest coats and is still prevalent without any new law being drafted in present time.

As we can see that the UAE bankruptcy laws for very old and had regressive laws with penal provisions which decided the companies from investing in UAE or any running companies in the UAE. Still, with the new law, they have provided a well-defined process to form restructure plans while running the business remove regressive penal punishments which is a welcome step and encourages the companies to continue their business while also returning the amount in debt instead of just punishing the people running the company and suffering Loss which is the ultimate goal of insolvency and bankruptcy laws.

“On the other hand, the United Kingdom has also introduced a new law for the information c and governance by giving major reforms like a free-standing moratorium that gives the company the freehand to determine the course of action which helps to rescue the company instead of just following the formal procedures and not getting any result. The UK has also given major power to the court to bypass the creditor’s Ascent for the restructure plan in case a court feels that this is the best records available for the company and is being blocked by the creditors for their greed of larger returns which will further worsen the situation.” [3] Meta reforms have also been provided by the act to ensure that the business does not close down and keep ongoing.

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The bankruptcy code of The United States of America probably the oldest but the most reliable piece of legislation for dealing with insolvency but no significant amendments in the laws has made it behind the other laws. While the other laws understand the concept that that can only be paid when the company keeps on running the US law focuses on shutting down the company the day the petition of bankruptcy is filed which is a very regressive step because are not only the chances of getting the debt go down but also the economy suffers when the company closes down and incoming times the US government has to bring amendments to resolve this issue.

[1] corporate information insolvency and governance act 2020 by Andrew Mills and Paul Durban

[2] Pricewaterhouse coopers guide on UK Insolvency and Bankruptcy reforms

[3] Bankruptcy Reform Act of 1978

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Impact Of Covid-19 On Foreign Direct Investment and Related Laws

By Deepakshi Aeran

ABSTRACT

Covid-19 has locked up the world over. For such a deadly virus, not a single nation is safe. This condition is not the first time in the world. Earlier world encountered this form of deadly virus known as “influenza / Spanish flu” in 1918. After battling and coming out of that situation after 100 years, here stands a new challenge in front of the world. The question is that how this crisis has turned out for various nations. Covid-19 has hit the nations hard irrespective of it being a developed or developing ones; in every aspect possible. Stock markets have plummeted and many companies have to struggle with the economic damage. There is a great deal of uncertainty in global chains.

This article aims to bring light on how the pandemic has affected the Foreign Direct Investments and how governments are handling the havoc to come out of it with minimal damage, and may be taking some advantages for future.

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INTRODUCTION

Over the years, every nation government is altering their policies with respect to Foreign Direct investment[1] to improve their economy and to enforce condition on their achievement. The Emerging trend of increasing Foreign Direct Investment is too focused on the national safety concerns, for example last year UK government involvement was in the future contract between Advent International and Cobham plc.

In recent years, countries such as the United States have interfered in proposed foreign direct investment (FDI) transactions to resolve national security issues, with a particular focus on China. The Covid-19 pandemic not only impacted on healthcare and critical infrastructure from an FDI viewpoint, but also undermined companies in other sectors and made them easy targets for creditors and opportunistic buyers[2].

Furthermore, due to Covid -19 many countries have amended their foreign direct investment polices to control or to protect their economy. Companies those who are interested in multinational business they have to be aware of these new polices

Similarly, the article further deals with how various countries are working out with their policies and guidelines, like EC, UK, AUSTRALIA, INDIA etc.

EUROPEAN UNION

Just at beginning of April 2020, Germany adopted legislation that would allow regulatory authorities to examine whether the acquisition would lead to a likely disorder of public order or security (instead of a real threat to public order or security). While this amendment was recommended prior to the spread of Covid-19, Germany also proposes to raise the number of sectors in which FDI will require a primary focus, a move that appears to be driven by the pandemic.

Spain[3] has also formally introduced a provision for prior governmental approval for:

  • Non-EU investors purchasing 10% or more of or gaining management rights in or controlling Spanish companies engaged in sectors such as telecommunications, data processing or storage, electoral or financial infrastructure and sensitive facilities, vital technologies and dual-use products (such as robots and semiconductors, as well as biotechnology) supply of key contributors (such as raw materials and food safety) and sectors with access to or ability to monitor sensitive information;
  • Foreign direct investment where the investor is owned explicitly or implicitly by the government of another country.

Italy – one of the worst impacted by Covid-19 – has also extended the scope of sectors in which FDI would require a prior government inspection.

Prior to the pandemic, there was a growing propensity for the Italian Government to use its powers to review the FDI. However, on 7 April 2020, the Italian Government dramatically expanded its authority, both to new sectors and to sectors already subject to the FDI rule.

Specially, prior approval is now needed for acquisitions of 10% or more by non-EU-controlled investors in new sectors – banking, insurance, food and health. The inclusion of health (and likely insurance) as a strategic field seems to be a necessary reaction to the pandemic. It is interesting that these tougher guidelines have also been applied to EU-controlled investors by the end of the year.

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The French FDI regime has already been greatly improved by introducing the pre-planned changes that followed the pandemic. These wholesale amendments took effect on 1 April 2020 and, in short, expanded the spectrum of investment protected by the scheme, increased the list of strategic sectors to which the scheme applied, required substantive details to be given for approval, and increased penalties for non-compliance.

However, it was announced on 28 April 2020 that France would reduce the control limit for acquisition of non-European investors’ share capital of strategic French listed companies to 10% by the end of the year (against 25% at present).

This represents a major step-change from the pre-1st April 2020 regime by further restricting the control threshold, which was reduced to 25% just a few days earlier by the pre-planned reforms previously mentioned.

The whole reform comes in the sense of the French Government’s declaration of its intention to shield national companies from the danger of overseas takeovers during the COVID-19 crisis. Moreover, the French government has recently highlighted its comprehensive use of FDI powers in barring the acquisition by the US Teledyne of the French company Photonis (which develops applications for military use) – although the decision was not linked to COVID-19, it nevertheless represents a significant milestone.

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UNITED KINGDOM

The National Security and Investment Bill was released in the Queen’s Speech on 19 December 2019. The latest legislation follows the introduction of an EU system that would replace the current powers of the UK Government to deal with mergers and acquisitions under the Enterprise Act 2002.

The UK government will have power to “scrutinise investments and consider the risks that can arise from hostile parties acquiring ownership of, or control over, businesses or other entities and assets that have national security implications.”[4]

New powers apply to transactions in any industry, irrespective of the profitability or market share of the parties. The United Kingdom Government’s proposals are currently lacking in detail, but appear to build on those set out in its 2018 White Paper, which was included in the Advent / Cobham Agreement Warning. The three main components of the proposed law are as follows:

  • A notification system allowing businesses to flag deals with potential security concerns to the government for quick, efficient screening.
  • Powers to mitigate risks to national security – by adding conditions to a transaction or blocking as a last resort, plus sanctions for non-compliance with the regime.
  • A safeguarding mechanism for parties to appeal where necessary.[5]

AUSTRALIA

Given that Europe was declared to be the epicentre of the Covid-19 pandemic in March, the above-mentioned steps may have been anticipated. However, countries in other continents have also taken serious measures – for example, Australia has temporarily amended its FDI legislation with effect from 29 March 2020 in the national interest to deal with the economic implications of the spread of Covid-19, Following which all potential foreign investments subject to the Foreign Acquisitions and Takeover Act 1975[6], where the other requirements for notification are met, would now require prior regulatory approval, irrespective of size or existence of the foreign investor.

A number of temporary but substantial changes to the Australian FDI system were announced on 29 March 2020. The Australian Government described these steps as “important to safeguard national interest as the outbreak of coronavirus exerts intense pressure on the Australian economy and businesses” and thus indirectly recognised the possibility of taking over the troubled Australian economy. These adjustments effectively make all FDI subject to review for the duration of the pandemic by reducing the financial criterion for review in terms of target valuation to AUS$0.

This represents a significant constriction of the system, especially when combined with the already relatively low cut-off for review (20 per cent or lower in some cases). Moreover, this is a particularly significant change for investors from countries that have free trade agreements with Australia (such as the USA) – those investors may initially benefit from a criterion of approx. AUS$1.2 billion for investments in some (non-sensitive) industries.

The Australian reforms are thus broadly extended to all international investors (to the possible advantage of domestic investors) and are in contrast to the more focused approach adopted in Spain, France and India.

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THE UNITED STATES OF AMERICA

In response to COVID-19, the United States Government has not proposed any new restrictions on foreign investment in U.S. companies or any amendments to the authority of the Committee on Foreign Investment in the United States (CFIUS), an interagency government committee approved to investigate such transactions involving foreign persons.

However, as a consequence of defaults on loans, debt restructuring and investment opportunities, the pandemic may put those forms of lending transactions into the public eye of the CFIUS review that would otherwise normally escape scrutiny.

In addition, international investors seeking opportunities in this environment should be conscious that investments made under the aegis of lending or funding transactions that still be subject to transactions or investments protected by the CFIUS assessment[7].

INDIA

The trajectory of history is always influenced by unpredictable shocks, and the outbreak of COVID-19 is one such epoch-defining occurrence that restores international trade order and global supply chains. In the framework of multinational firms, in particular Multi-National Corporations (MNCs), trying to hedge potential output shocks, India has emerged as a promising and significant alternative link in the current global supply chains. The larger geopolitical scenario, India ‘s liberal FDI policy, the government’s sectoral and institutional reforms, both at central and state level, and India ‘s wide and greater than the mean consumer market are among the many factors that underscore India ‘s attractiveness as an FDI destination.

In India, the development of the manufacturing sector has been largely hampered by the legacy of property, labour and logistics, the most critical factors of development. The Government is building a land pool of about 461,589 hectares for new projects, dramatically reducing transaction costs for investors. India is also pursuing wide-ranging reforms on labor issues. Reforms in these crucial factors of production have opened up several opportunities for foreign investors to invest in India by sending out positive signals.

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Creating a strong base is a sine qua non for the growth and stability of the manufacturing sector, and investment in the sector needs to expand significantly to the maximum. A good reward system is known to be effective in channelling new investments. Recently announced production-linked incentive schemes for cell phone manufacturing, pharmaceuticals and medical devices have created a high level of interest among investors attempting to steal opportunities in these sectors. These schemes were developed with the intention of creating scale and size, with vertically integrated units, in the Indian manufacturing sector. Similar, initiatives for other sectors of strength are underway, and once unveiled, these schemes would further improve India ‘s position as a feasible alternative to China[8].

India is among the most liberal FDI policies in the world, where foreign investment of up to 100 per cent is allowed on an automatic basis in most sectors of the economy.

Foreign investment in only a few economic sectors is subject to limits on approval conditions or foreign investment ceilings. The number of sectors that are not open to FDI is small, and there are only a few industries, such as agriculture, where foreign investment is only approved for a restricted set of activities.

In addition, in the recently launched ‘Atma Nirbhar’ scheme[9], the honourable Finance minister launched a range of FDI related reforms. A declaration of an rise of up to 74% in FDI investment in the defence manufacturing sector is reflective of the government’s positive intention in the sense of FDI.

Over the period, the liberal FDI policy framework has helped India reap benefits of a greater inflow of foreign investment, which has risen faster than the country’s GDP growth rate. India’s GDP was $479 billion in 2001, and it is now $2.72 trillion. Around the same time, FDI inflows in India increased from $4.03 billion to $73 billion[10].

It is said that opportunities lie in adversity India is trying to leverage its plan to drive economic growth with a powerful manufacturing engine fuelled by rewards to attract FDI, and a wide domestic market. Moreover, with a renewed drive for changes, India is signalling pathways to the world that we welcome businesses.

CONCLUSION

The changes and developments made by various countries highlight the need for investors to carefully consider foreign investment. There may be many more changes and additions to the FDI policies to come and what restrictions we see is might be just the tip of an iceberg. Countries are posing restrictions and along with it trying to protect their economic and national interests as the virus is continuously spreading.

FDI is a major part of every economy and Covid-19 has really shackled the economies to the core. It is important for the nations to protect the domestic markets before focusing on foreign investments. And therefore, it is possible that other countries also impose barriers to its FDI, may be stricter, in long term in order to navigate through the storm.

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[1] OECD (2008), Benchmark Definition of Foreign Direct Investment, 4th edition, www.oecd.org/investment/fdibenchmarkdefinition.htm

 

[2] https://taxguru.in/finance/corona-impact-indian-economy.html

[3]Royal Decree-Law 8/2020, 17 March 2020: https://www.lexology.com/library/detail.aspx?g=177aae39-e8f4-4916-912c-5d5f758f1367

[4] Available at, https://www.lexology.com/library/detail.aspx?g=b6dbafd1-2b1b-4610-9260-ebf535b834a6

[5] Available at, https://www.mayerbrown.com/en/perspectives-events/publications/2019/11/uk-government-remains-committed-to-adopting-new-national-security-review-legislation

[6] Available at ministers.treasury.gov.au.

[7] Available at, https://www.reedsmith.com/en/topics/coronavirus-covid-19-resource-center-need-to-know-business-legal-issues

[8] Available at, https://www.mondaq.com/india/financing/923078/covid-19-impact-government-of-indiaamends-foreign-direct-investment-policy-to-regulate-chinese-investments-into-india

[9] Available at, https://www.prsindia.org/report-summaries/summary-announcements-aatma-nirbhar-bharat-abhiyaan

[10] Available at, https://www.news18.com/news/opinion/india-to-emerge-as-favourable-fdi-destination-post-coronavirus-2732193.html

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Corporate Social Responsibility and the related provisions in India and USA (Impact of COVID-19)

By: Anmol Sharma

In these times of crisis, a strong commitment to the well-being of stakeholders is of utmost importance. Companies around the world are currently facing sharp drops in demands that puts job at risks, threatens the income of suppliers and local communities in which we erode the confidence of providers finance to firms. Therefore welcome that companies around the world are stepping up their social responsibilities activities examples are Unilever a British dutch conglomerate that donated soaps, sanitizer, bleach, and food. German chemical company BASF gave away over 100 million masks and supplied health care facilities with hand sanitizers for free of charge. Microsoft grants its worked 12 weeks of paid parental leave because of school disruption. Another example could be of Danone, they announced to guarantee all employment contracts and wages onto the summer to extend childcare and health care programs and to put in place a 300 million euro find to support fragile suppliers.

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Likewise in India Ratan Tata had donated INR 1500 Crores to the government, being the biggest industrialist he donated such big amount of money in this pandemics and he even stated that if the country needs more help I might sell my company or everything I had earned till yet for the country, some of the bug donations had been done by Actor Akshay Kumar who donated an amount of Rs. 35 Crores to the government of India. Reliance industries donated INR 500 Crores to the PM cares meant for Covid crisis. SCR money can be helpful in ongoing pandemic situation of Covid-19, to run community kitchens, provide shelters to homeless and stranded migrants labourer example: to support to civil society responding to food relief. It can prevent deterioration in gains made in Area of child rights, girl rights for example: lots of children may be pushed into child labour, malnutrition may rise, under age marriage of girls given more poverty.

CSR is not philanthropy, Rather responsibility towards society. A way to achieve balance of Economic, Social and Environmental imperatives. As per Companies act 2013, 2% of profit should go for certain CSR related activities such as Environmental protection, Girl education, Nahi Kali(Mahindra).

CSR (Corporate social responsibility) comes in 2007 in India & in USA it truly began in 1971. In India company act it is mandatory provision under section 135 of company act 2013, which came into effect from 01.04.2014 on the other hand in USA CSR (Corporate social responsibility) is type of soft law which do not requires a statue or regulation that means hard law but is nonetheless seen as obligatory by most corporations because of consumer expectations and internal norms. Principles of building the legal shell specifically in interpreted rights, duties, and causation, are mainly worldwide embraced. Thus, corporates must have CSR schemes that are “litigation ready” when it requires human rights because the UNGPs would be informed about the content of sensible corporate practices, which had censorious implications for multinational civil and commercial disputes. That is to say, UNGPs (The United Nations Guiding Principles) make multinational tort liability of corporations to 3rd parties.

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CSR (Corporate social responsibility) is basically bringing consciousness about society, surroundings, environment and that is where the CSR brings in the stake holder perspective to think about society & have those consideration in the mind of businessmen basically when they are discussing strategy. [1]The capitalists should act as a trustees (not owners) of their property and conduct themselves in a social responsible way. This concept actually measures financial, social & environmental performance of the corporation. [2]The Business Responsibility Reporting (BRR) are mandated for requirement of top 100 (from 500 to now top 1000) lasted entities in their annual report. In todays world 90% of CEOs claims that Sustainability is key to success. Research shows that if you have good CSR programme it will increase employee commitment, customer satisfaction, reduce risk and even get better access to finance. The good example of irresponsibility is Volkswagen case, Volkswagen is known to be the most responsible companies top-rated on different screens and still it turned out that they had tampered with their emission technology and that of course led to major drop in their brand value but its also read to a drop in their share prices of the companies.

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Top management of corporate sector is not going to do the Job but they have to endorse the activities on the CSR so the first thing then is to put together a group of company across the company 5 to 10 people from different department and they together are going to find out and discuss what this companies main social impact or the main footprints of the company, a good check list for that is the sustainable development with 5 goals the SDGs of course those 5 goals are relevant for individual companies depends upon which secretary they’re in so first will be MAP lets say companies and the industry of producing clothing in developing countries well probably decent work and economic growth is most relevant or if company is in oil industry then climate action issues is relevant and if the company is in fish farming well then it would be life below water is more important. When the goals are identified a concrete plan with concrete target and how to reach the target must be set up when that is ready we move on to the second step that is TEST take the draft plan presented to key stakeholders ask for their input revise accordingly who are stakeholders like customers, suppliers other employees, non governmental organisation, environmental organisation these are ones to to come with feedback and then revise  the plan according to that then we’re ready for the third step which is LAUNCH the launch is about making the rest of the company aware of the plan and let them buy into tithe day-to-day work how do you do that, put it on a company website or newsletter or monitors be creative. The fourth step is the IMPLEMENTATION have you had to follow up the plan, are we reaching the targets are we not why there will be unexpected happenings these are great learning point. Now the last and fifth step that is REPORTING the reporting is like accounting coming forward with what worked or what didn’t work and why, and, be open and be honest and transparent not only focused on what went went well but also the problems the challenges one might think that companies with big CSR report are doing a lot of things are being good companies but actually its not true its the opposite way around companies with the big report writing a lot those are the ones who have been criticised and have to explain that they have changed and convinced the reader the CSR reports are good source of finding out to which extent the CSR work is actually integrated into the company.

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Working practices of the corporate company have been totally changed since this pandemic of Covid-19 and turn corporate company to work on different platforms, for example, to work from home is mandatory these days as offices are still closed for time being for the safety of their own. This measure had been taken worldwide whether it’s India or the USA or any other country as this the social responsibility of corporate sectors to make sure that people are safe during these pandemics and they won’t suffer any monetary problems.

The legal department of the corporate sectors is still analyzing and evaluating the effects of this pandemic on contractual relationships of all sorts, as well as the consequences of Covid-19 on contractual relationships of all sorts, also as possible mitigating strategies which will have to be compelled to be implemented. In particular, the performance of contracts that one can reasonably expect to be impacted by the spread of coronavirus (a sizable amount of contracts of all kinds, indeed) would require deep analysis to verify whether or not they include the act of God clauses that would potentially and ultimately excuse performance from any (or both) parties within the event an unforeseen scenario. In this scenario, the legal departments will play a crucial role in this pandemic situation where they had to make a strategy for the corporate sectors so that it favors the corporate sector rather than affecting them. Even the Boards of the company had to come forward with strong leadership as they had several commitments towards their company. We are now seeing great samples of true leadership that goes beyond direct responsibilities within companies to a way larger scale: Leading initiatives that, because of the large power of globalization and therefore the scale of social and professional networks, have a really powerful reach. According to section 135 of the companies act, CSR spend is mandatory for every company beyond a financial threshold, Net worth of INR 500 Crores or Turnover of INR 1000 Crores or Net Profit of INR 5 Crores, required to spend 2 % of average net profit of last 3 years on CSR projects, reports made under clause (0) of sub-section (3) of section 134 specify the reasons for spending the amount. On the other hand in the USA, there are corporate foundations in the companies where spending money on CSR is also mandatory, recently [3]500 firms spend around $20 billion a year on CSR activities.

Section 135 of the companies act, the compliance of constitution of the CSR committee of the board 3 or more directors, at least 1 independent director, CSR committee shall formulate and recommend CSR policy (preference to be given to local), recommend CSR activities and expenditure on the same, monitor CSR policy from time to time, with this the responsibility of The Board as follows –

  1. Disclose composition of CSR committee.
  2. Approve CSR policy and report.
  3. Ensure SCR activities and undertaken by company
  4. Ensure spending on CSR activities and reporting of non-compliance.

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Now, on the other hand, the same business laws are there in the USA where it is mandatory for every company to spend on CSR and The Boards of the companies had to take measurable steps to ensure their responsibilities.

 Like we talk about today’s time then one of the most crucial steps taken under CSR in all the companies is that they had to make sure that all the departments including there buildings must be sanitized properly not only in India or USA but this is world-wide like in India it is set up by the central government for the promotion of sanitation, likewise in the whole world including the USA and other countries it is mandatory that to sanitized every building and keep sanitizer bottles or packs for employees so that they can be safe during this pandemic.

On other hand in India work from home is a new format which is not as successful as where employees work as in the office premises but yes during this pandemic this rule has to be followed by every corporate sector same as in the USA this step of work from home has been taken up and been followed up there also for the care of employees.

In India promoting education, including special education and employment vocation skills especially among children, women, elderly, and, the differently ables and livelihood enhancement projects.

On 23.02.2020 in India funds may be spent for various activities related to COVID 19 under item no. (i) and (xii) of Schedule VII relating to the promotion of health care, including preventive health care and sanitation, and, disaster management (including state Disaster Management Fund).

28.03.2020: contribution to PM cares fund shall qualify as CSR expenditure under item (vii) of Schedule VII.

[4]The SALARY of the employees during the lock-down and payment to casual/contractual workers – not CSR, any ex-gratia payment is made to temporary/ casual workers/ daily wage workers over and above the disbursement of wages. Specifically to fight COVID-19, the same shall be admissible towards CSR expenditure as a one-time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

On the other hand in the USA, there are cuts of salaries during lockdown even the former president didn’t do much about it but Newly appointed president Biden said that corporate sectors must pay the salary to there employees in this pandemic situation as it is difficult not only for corporate sectors but people of the country who are working in the corporate sectors are also suffering a lot in this Pandemic situation even the Government is also facing monetary problems in the whole world.

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CSR can be good for a company, first it can builds good image, responsible behaviour which gives competitive advantage, can act as a marketing strategy. CSR can be for government by helps government in achieving its social objectives welfarism concept.

BENEFITS TO CSR, Lack of awareness will be resolved, lack of interest of local community in participation of CSR activities will be tackled, an opportunity to build trust and synergy between CSR, NGO and Local bodies. All these will be a precursor in institution of CSR in India as well as in USA.

[1] Gandhis Concept of “Trusteeship”

[2] SEBI has, vide circular dated August 13, 2012

[3] Fortune Global, https://hbr.org/2018/01/stop-talking-about-how-csr-helps-your-bottom-line#:~:text=Today%2C%20Fortune%20Global%20500%20firms,for%20attracting%20and%20motivating%20employees

[4] Schedule VII Companies act COVID NOTIFICATION

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Pre-Packaged Insolvency

By: Prashant Pathak 

Pre-packaged insolvency (a “pre-pack”) is a sort of liquidation strategy, where a rebuild plan is concurred ahead of time of an organization announcing its bankruptcy. In the United States pre-packs are frequently utilized in a Chapter 11 recording. In the United Kingdom, pre-packs have gotten well known since the Enterprise Act 2002, which has made organization the prevailing bankruptcy method. Such game plans are additionally accessible in Canada under the Companies’ Creditors Arrangements Act.

 What is Pre-Packaged Insolvency?

A “Pre-Packaged Insolvency” is a course of action, where the offer of all or part of an organization’s business or resources is haggled with a buyer before the arrangement of an indebtedness proficient as the manager. The real deal is then executed on the arrangement and endorsement of the bankruptcy proficient (hereinafter alluded to as “IP”). The pre-pack instrument basically encourages the definition of a goal plan before any proper procedures. This plan lessens the time and cash spent on court procedures and straightforwardly moves to getting a reasonable goal for the organization. The fundamental target of pre-packs is to find some kind of harmony between the interests of the leaser and shield the business from liquidation.

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This may be a novel component in India, yet nations like the United States of America (USA) and the United Kingdom (UK) have effectively executed it in their particular indebtedness rehearses. Since India has no administrative involvement in pre-pack, another structure or alterations to the current arrangements of the IBC would be needed to execute the plan in the current bankruptcy system.

PRE-PACKAGED INSOLVENCY IN UNITED KINKDOM:

The expression “pre-pack deal” has been characterized by the Association of Business Recovery Professionals as “a game plan under which the offer of all or part of an organization’s business or resources is haggled with a buyer before the arrangement of an overseer, and the head impacts the deal quickly on, or soon after, his appointment”. The contrast between a pre-pack deal and an ordinary deal is that in a typical deal the executive business sectors the business and arranges the details of the deal after his arrangement.

The reasons a head sells on a pre-pack premise, instead of after post-arrangement advertising, differ from case to case, yet they regularly include the accompanying contemplations. A pre-pack deal dodges the expenses of exchanging (which implies loan bosses get more back), and undoubtedly, the organization and the executive might not have the assets to exchange. It likewise stays away from the chairman facing the challenges related with exchanging. The estimation of the business may disintegrate during organization exchanging.

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PRE-PACKAGED INSOLVENCY IN UNITED STATES OF AMERICA:

In the United States, regularly the term pre-packaged bankruptcy is utilized rather than pre-packaged insolvency. An ordinary liquidation case is one in which the account holder records for Chapter 11 help without having concurred ahead of time to the provisions of an arrangement of redesign with its loan bosses. Throughout the Chapter 11 case, the borrower or, if the indebted person doesn’t hold the selective option to propose an arrangement, a lender or loan boss gathering may figure and propose an arrangement of reorganization. An organization going through Chapter 11 redesign is adequately working under the security of the court until it arises. A model is the carrier business; in 2006, over a large portion of the business’ seating limit was on aircrafts that were in Chapter 11.

In a pre-bundled case, the arrangement advocates will have tied down adequate help from loan bosses to affirm their arrangement of redesign preceding petitioning for Chapter 11 rearrangement. Pre-bundled plans of revamping practically consistently disable (for example cover short of what) at least one classes of lenders, thus to guarantee that the arrangement can be affirmed by the liquidation court, the arrangement advocates should make sure about the help of in any event 66% in sum and more than one-half in number of at any rate one such hindered class, notwithstanding guaranteeing the arrangement agrees to any remaining necessities for affirmation. Two procedurally troublesome parts of the cycle are the declaration (which should be organized so as not to trigger authoritative end arrangements) and getting the imperative loan boss approval.

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In 2009, another element finished the acquisition of proceeding with activities, resources and brand names of General Motors as a piece of the ‘pre-bundled’ Chapter 11 reorganization. As positioned by absolute resources, GM’s liquidation marks one of the biggest corporate Chapter 11 insolvencies in US history. The Chapter 11 documenting was the fourth-biggest in US history, following Lehman Brothers Holdings Inc., Washington Mutual and WorldCom Inc.another substance with the support of the United States Treasury was shaped to secure productive resources, under area 363 of the Bankruptcy Code, with the new organization intending to give a first sale of stock (IPO) of stock in 2010. The excess pre-request leasers claims are paid from the previous partnership’s assets.

EXECUTION OF PRE-PACKAGED IN INDIA:

The Bankruptcy Law Reform Committee, entrusted with contextualizing the IBC, has suggested pre-packs as a suitable option to the customary CIRP in India. As per the report put together by the Committee, the pre-pack plan can be permitted under the NCLT administered plan of course of action. Under this course of action, the pre-pack plan would be exposed to earlier endorsement of the leasers and the important partner prior to being introduced to the NCLT. Further, the NCLT would endorse the arrangement simply subsequent to investigating and guaranteeing that the arrangement fulfills the fundamental necessity as might be recommended under the IBC. Along these lines, the pre-pack plan would basically follow the methodology under IBC, while as yet protecting the matter of the Corporate Debtor.

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PREFERENCES OF PRE-PACKAGE SCHEME :

Aside from saving the matter of the organization and shielding it from likely liquidation, pre-packs have numerous advantages that are exceptionally difficult to disregard. Initially, they would give a superior re-visitation of the leaser. In the current indebtedness component, frequently during the CIRP, the estimation of the resources gets devalued which in the long run brings about lesser compensation to the banks from the returns of the goal plan. Be that as it may, in the pre-packs component, the estimation of the resources will be haggled ahead of time, subsequently, giving better re-visitations of the lenders.

Furthermore, it’s fundamentally less tedious and modest in contrast with the conventional bankruptcy procedures, since all the basics of the pre-packs, similar to exchange and documentation of the proposed plan, are done heretofore. This decreases the all out cost associated with the cycle and jam the estimation of the business which can be vital for the endurance of independent companies.

Ultimately, pre-packs would work inside the overlap of the legal plan. Rather than a private rebuilding measure, pre-packs would work as a legal upheld goal measure under the IBC. This suggests that pre-pack would be exposed to the endorsement of the NCLT and resulting to the endorsement, all the partners would be limited by the goal plan. This would alleviate the danger of ensuing test and rebelliousness by the loan bosses.

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Difficulties to and Suggestions for Implementation of the Pre-Pack Scheme:

  1. MORATORIUM:

In the ordinary bankruptcy procedures under Sections 7 or 9 of the IBC, a programmed stay for example ban happen, as far as Section 14. The ban restricts the lenders from authorizing cures against the corporate borrower and its resources. Be that as it may, a borrower looking for pre-packs might not have the assurance of a ban. This would offer ascent to a circumstance where the leasers can move toward the Courts or Tribunals and implement their cures, while the indebted person is arranging a pre-pack goal. Such extra case would undermine the resources of the indebted person, yet in addition power the organization into CIRP or liquidation. To relieve such a danger, the Government should present an arrangement or stretch out the assurance of ban to the pre-pack instrument. This would permit the borrower to zero in on facilitated rebuilding and control the leasers from implementing cures against the account holder’s resources.

On the other hand, without ban, the account holder could consistently speak with the lenders and have a go at keeping up its validity to evade any such circumstance that could overcome the pre-pack goal. This would require the borrower to oblige the interests of leasers and offer all the fundamental data with the lenders. Notwithstanding, accomplishing such collaboration among lenders and indebted person is actually quite difficult. Without a ban, the loan bosses can sever the exchange whenever and authorize their privileges, in this manner overcoming the whole pre-pack goal. In this way, the assurance of the ban will be instrumental in arriving at an effective goal under the pre-pack system.

  1. Absence of Transparency:

The classified nature or absence of straightforwardness is another test to the execution of the pre-pack plot. Since the way toward going into the pre-pack plan is hazy and gets just the consent of the made sure about leasers, there are insufficient motivations to think about the stakes of unstable banks. In such cases, the resources of the indebted person organization might be moved without understanding the worth payable to the unstable lenders. Besides, the classified idea of the plan would deny such leasers the occasion to protest the exchange. Subsequently, sufficient cures and plan of action should be presented in the pre-pack plan to ensure the interest of unstable banks. A sensible time period should be accommodated the unstable lenders to record claims and mention criticisms regarding the arrangement. Also, the command to get endorsement from the NCLT would forestall such treacherous exchanges by partners and address the worries of unstable lenders. This would be critical to assist banks with creating trust in the new strategy.

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  1. Section 29A of the IBC:

Segment 29A would likewise goes about as a significant obstacle in the presentation of pre-pack plans in India. This arrangement was presented by the Insolvency and Bankruptcy Code (Amendment) Act, 2018, and it forbids the current administration or advertisers of the indebted person organization from recovering command over the resources of the organization. It basically stops the indirect access passages of the defaulting advertisers back to the administration. Since the pre-pack plot is an indebted person started measure, it would be the advertisers who are responsible for the cycle and not the IP. The advertisers haggle with the leasers to hold control of the business and keep it as a going concern. This would conflict with the essential substance of Section 29A and, along these lines, deny corporate borrowers from detailing a goal plan with the lenders.

It tends to be contended that quite a sly way of recapturing control under the pre-pack plan would bring about circumvention of indebtedness laws. In any case, if the powerlessness to reimburse the obligations is brought about by factors like languid financial development (brought about by pandemic like COVID-19), at that point permitting the current advertisers to hold control would be prudent. This would guarantee progression of the business action and limit the interference.

The Government should in this manner, weaken segment 29A to actualize the plan of pre-packs in India. The motivation to weaken segment 29A is to empower proactive indebted individuals (in trouble) to arrange the terms of indebtedness with their leasers. In the event that an arrangement like Section 29A is made pertinent to the elements ready to go for pre-bundled bankruptcy, it might will in general thrashing the goal of such a plan. Along these lines, pre-packs should be liberated from segment 29A.

CONCLUSION:

The COVID-19 pandemic and the resulting lockdown has presented difficulties for Governments around the globe. With each monetary action stopping, organizations are confronting extreme monetary emergency and are driven into indebtedness. The pre-packs conspire, whenever presented, will go about as an impetus in assisting those organizations with enduring.

Since India doesn’t have any earlier administrative involvement in pre-packs, the presentation of this plan would require some genuine thought and due steadiness. The Government should lead a far reaching consider and guarantee that all the issues are killed and a superior instrument is set up.

The COVID-19 episode and the resulting lockdown have influenced the Indian economy antagonistically, making monetary difficulties a few organizations the nation over. In the wake of the common circumstance and to forestall mass indebtedness procedures, the President has proclaimed a law and suspended the recording of new cases under the Insolvency and Bankruptcy Code, 2016 (hereinafter alluded to as “IBC”). The said Ordinance prohibits recording new applications under Sections 7, 9, or 10 of the IBC, for a half year, for any default set off by the COVID-19 emergency happening on or after 25 March, 2020. The choice to suspend IBC will give some breathing space to the organizations. Be that as it may, when the suspension is lifted, the council for example Public Company Law Tribunal (hereinafter alluded to as “NCLT”) will be overwhelmed with bankruptcy applications. Along these lines, it is an advantageous opportunity to return to the forthcoming changes and investigate elective answers for the ordinary corporate indebtedness goal measure (hereinafter alluded to as “CIRP”).

 

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Impact of COVID-19 on International Trade and the related Laws

By: Bodhisattwa Majumder

“That’s the positive aspect of trade I suppose. The world gets stirred up together. That’s about as much as I have to say for it.”

― Isabel Hoving, The Dream Merchant

Beginning the article with a “positive” quote was indeed the irony, in the ages where the world is scared of being positive. The Coronavirus or COVID-19 (“Coronavirus”) from Wuhan, People’s Republic of China (“China“) has engulfed as many as 213 countries across the globe with a medical emergency and has claimed more than 258,160 lives till now with 3,689,887 affected cases.[1] This strain of the virus is graver than the other types of Coronaviruses as it has never been identified in humans before. [2]Coronavirus belongs to the zoonotic group of viruses which can affect human being with a range of health ailments ranging from the common cold to serious problems such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV).[3] The World Health Organization and other countries including the US have declared it as “Global Public Health Emergency” and therefore it has been declared as public health emergency of international concern (PHEIC).  In order to restrict the transmission of the virus, China has taken various restrictive measures which have caused serious human rights violations including but not limited to arbitrary censorships, lockdowns, quarantines, police suppression, and mass detentions.[4]

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The nature of the Coronavirus Virus Disease (Herein after, “COVID-19”) was such that, the world was forced to shut their doors. Due to the highly communicable nature of the disease, every nation went into their own and restricted entry and exit of both people and objects. This led to trade restrictions both within the countries and also between the countries. Although these measures were aimed at countering the biological impacts of the virus, the ripple effects of these measures were not limited to the outreach of the virus and also impacted international trade.

It is rightly said that for the virus there is a vaccine (or will be a vaccine), however, for the impact the virus had on the economies, there is no instant cure. The immunity of markets has run dry and there is only one option to revive that. More trade. But that path is also faced with numerous impediments from the after effects of COVID-19. Every country had its obligation to provide healthcare in terms of care packages, fiscal benefits, waivers, loans which burdened every nation with sovereign debt.[5] Everything would have been feasible for the countries to handle if there was a certainty or a deadline when the pandemic would end. Currently the nations and the transnational organisations do not have the answer to the above question. Although the trials of vaccines and vaccinations of the public has already commenced, it is indeed a very difficult point to ascertain whether there will be any further peaks. Every industry faces the fear of a lockdown hence the initiation of new trade measures and risk taking has also faced a steep slope. However, in order to have a foreseeable growth it is quintessential that international trade is revived to ensure a steady supply and demand.

The Governments of the nations have already began providing initiatives such as tariff and tax exemptions to the players who are in a position to trade again.  But how far do we stand a chance? This article analyses the impediments in international trade and strives to provide possible courses of action.

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International Trade – What is ground zero saying?

According to a latest declaration by an UN agency[6],

“Assuming persisting uncertainty, UNCTAD forecast indicates a decline of around 20% for the year 2020,” the UNCTAD said in a report. “Trade in the automotive and energy sector collapsed while trade in agri-food products has been stable.”

It was reported by the United Nation Conference on Trade and Development that the developing countries have faced the most burnt of the COVID wrath. The exports have taken a herculean fall of 18% which stands beyond any look of recovery. Compared to them, the developed countries have performed have better. The UNCTAD report further had added that

“China appeared to have “fared better” than other major economies, with exports growing by 3% in April, but the recovery may be short-lived as imports and exports fell by 8% in May, it added.”[7]

The approach of the Countries to COVID and other nations

The basic tenets of trade law stand on the principle that the more fortunate countries should help the third world countries in the long run. The World as we know it has never been just about the member nations or the territory occupied by the nations. It has been an ecosystem of nations which has been a living entity, constantly evolving through ages connected by intangible interactions of trade, commerce, foreign policies and other forms of inter-national interactions. Despite the transnational wars and conflicts, the nations have always worked towards a peaceful coexistence. In order to achieve such a state of being, the nations have strived to mould its foreign policies, security interests, diplomatic ties and allocation of resources in tandem with the needs of its neighboring nations.

In furtherance of same, the WTO was formed which provided in its basic text that:

all WTO members to safeguard the trade interests of developing countries” and to “increase trading opportunity for developing countries.” 

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In times such as these there was a never a better opportunity or the need to put the above principle into practice, however the case was not the same. The moral responsibilities of the developed countries was not shown in the world market. There was no visible means to assist the third world economies, provide medical or social or economic support. Stringent laws were enacted to cut off other nations and at the end it came to shutting the doors by the fortunate in the face of those who are not.[8] Further, the COVID pandemic saw the cold war between the dragon and the eagle once again. While the United states took it to blame China for the pandemic and thus causing a ideological war on its practices to harm other nations and profit from it. Grave remarks were exchanged and various stringent measures have been taken to politically harm the other country.

There have been numerous measures from the United States towards China and other allying nations be it the draconian Hong Kong Shanghai Act, or the temporary bans on various Shanghai based industries operating on the united states, or imposing heavy charges on foreign debts, US has not shied away from a direct conflict.[9] Further India has also engaged in diplomatic warfare with the Chinese republic by banning a large number of Indian operated applications. But this makes us think, whether is it really the time for this?

 

Post COVID Trade – The urgent need for the phoenixes to rise again?

  1. Ensuring confidence of the players and the consumers.

Currently the trade needs to take off and for that we need steady and confident players in the market who take the first step. In order to have confident parties to engage in trade and invest their capital into business, it is essential that the parties are aware of the policies of the government in place. There should be absolute transparency on the part of the government, and there should be visible cooperation on their part. It is essential the countries make sure to honour their transnational trade agreements, and commitments with the member nations of the World Trading Organisation.[10]

 

  1. Removing the clog of Supply Chains Pipeline

The port restriction has severely affected the supply chains across the world in terms of the commercial voyaging. The policies has led to additional temperature screening at all sea checkpoints, including ferry and cruise terminals, and placed regulations to take additional precautionary measures such as prohibiting shore leave for personnel in China ports, mandatory temperature checks, keeping a log of crew movements and restricting staff travel to China among others.[11] The failure of delivery and performance of contracts due to these impediments in turn raise the commodity prices which act as a drawback for investors.

  • While the demand for essential commodities has increased significantly, these essential goods have taken the place of other commodities in supply. While it is understood that it is indeed a noble cause, and needs enforcement by the countries, it is evidently affecting the supply chain.
  • The need for additional cargo transport through the commercial vessels and passenger/cargo flights has been causing inordinate delays to the commercial transport of cargo. This problem needs to be addressed by either introduction of new modes of transport or segregation of the existing mediums.
  • The limits placed on the transport of passengers per commercial flight in order to comply social distancing norms has been causing huge impact to international travel industry.

These minute impediments have been adding to the already burdened supply chain. The result of this is increase in costs and time of voyage of goods. This blockage in the supply line is another reason for delay of the revival of trade.

  1. Avoid another pandemic – Ensuring this is a one-time thing

While the morale of the parties involved form an essential part of the problem, it is just the tip of the iceberg when it boils down to the growing economic crisis across the world. The crisis is not limited to any specific sector any specific geographic territory, but touches every corner of the world. To overcome this dark age or for the matter avoid another one, it is quintessential that the government of the nations across the world invest themselves heavily both financially and by spirit to provide social security. Further, huge investments are needed to be made in not only health sector but other sectors of economy. As this is not a continuous crisis but is coming in waves, the governments must be prepared for dealing with this approach for longer durations of time. Lastly, the intermediate actions taken now must be observed under close lens as they would be having long term ripple effects long after the COVID pandemic is over.

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[1] “Coronavirus Maps and Cases: Track the Global Spread”, CNN Health, Available at https://edition.cnn.com/interactive/2020/health/coronavirus-maps-and-cases/, Last Updated: May 6, 2020 at 10.45 am ET.

[2] “Coronavirus disease (COVID-19) Pandemic”, World Health Organization, Available at https://www.who.int/emergencies/diseases/novel-coronavirus-2019, Accessed on 06th May, 2020.

[3] “Factsheet for health professionals on Coronaviruses”, European Centre for Diseases Prevention and Control, https://www.ecdc.europa.eu/en/factsheet-health-professionals-coronaviruses , Accessed on 6th December, 2020.

[4] “Explainer: Seven ways the coronavirus affects human rights” Amnesty International,  https://www.amnesty.org/en/latest/news/2020/02/explainer-seven-ways-the-coronavirus-affects-human-rights/ , Accessed on 06th December, 2020

[5] COVID-19 and International Trade: Issues and Actions, OECD, 12th June 2020, Available at http://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/.

[6] UNCTAD Forecast, UN Conference on Trade and Development, November, 2020.

[7] Ibid.

[8] Nicolás Albertoni and Carol Wise, International Trade Norms in the Age of Covid-19 Nationalism on the Rise?, National Public Health Emergency Collection, Available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7519384/.

 

[9] Tariff Exclusions, Step Toe, Published April 2020, Available at https://www.steptoe.com/en/news-publications/what-you-need-to-know-about-the-impact-of-covid-19-on-international-trade.html#tradedispute.

[10] COVID-19 and International Trade: Issues and Actions, OECD, 12th June 2020, Available at http://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/.

[11]Bodhisattwa Majumder, Maritime Implications of Coronavirus in Southeast Asia, CMNLU NLU Orissa, Published December, 2019.

 

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Tortious Liability of Companies in India and USA

By: Prashant Pathak

 

“A tort is a common wrong for which the cure is an activity for unliquidated harms and which isn’t solely the penetrate of an agreement, or the break of a trust, or the penetrate of other only impartial commitment”- Salmond

The term ‘tort’ was brought into the phrasing of English Law by the French talking legal counselors and Judges of the Courts of Normandy and Angevin Kings of England. As a specialized term of English law, misdeed has gained an exceptional importance as a types of common injury or wrong. Till about the center of the seventeenth Century misdeed was a dark term, when method was viewed as more significant than the privilege of a person. This accentuation on procedural perspective for deciding the accomplishment for a case proceeded for exactly 500 years, till 1852, when the Common Law Procedure Act was passed and supremacy of substance over the technique progressively picked up firmer ground. Today the adage as it stands seems to be ‘ubi jus ubi remedium’, for example where there is not too far off is cure.

Tort is what might be compared to the English word ‘wrong’ and of the Roman law term ‘delict’. The word misdeed is gotten from the Latin word ‘tortum’ which means contorted or abnormal or wrong and is as opposed to the word rectum which implies straight. It is required out of everybody to act in a clear way and when one goes astray from this straight way into screwy ways he is said to have submitted a misdeed. Thus misdeed is a lead which is wound or slanted and not straight. In spite of the fact that numerous conspicuous essayists have attempted to characterize Tort, it is hard to do as such for shifted reasons. The vital explanation among this being, that the law of Torts depends on chose cases. Judges while choosing a case, feel their essential obligation is to decree the situation close by as opposed to set down more extensive guidelines and consequently they only from time to time set out any meaning of a lawful term. Besides the law of misdeed is as yet developing. On the off chance that a thing is developing no acceptable definition can be given.

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TORTIOUS LIABILITY:

It is relevant to comprehend what is implied by tortious obligation or rather the idea of misdeed law to comprehend its utility. To toss all the more light, the word misdeed developed, from at one time very nearly passing into abstract use as an equivalent for wrong yet after the center of the seventeenth century, a training started in the courts of the customary law, of recognizing activities in ‘contract’ for breaks of agreement and activities for different wrongs, and of utilizing the word ‘misdeed’ as a succinct title for the last class of activities. From that point forward it was regular to discuss ‘activities in agreement’ and ‘activity in tort'[1]. So a misdeed came, in law to allude to that specific class of wrongs for which an activity in misdeed was perceived by the courts of customary law as a cure and to lose the nonexclusive feeling of wrong which it might have helped in well known use.

Another fascinating consequence of this relationship of the word with a type of activity was that it came to allude likewise to the obligation of an individual who didn’t submit any misdeed or wrong, for example an expert who is sued for the harms by the individual harmed by a misdeed submitted by his servant[2]. This was on the grounds that an ‘activity in misdeed’ was the cure against the expert and in course of time and because of new requirements and conditions, the expert was held subject to pay harms despite the fact that he had not submitted any misdeed. So the law of misdeeds is that assortment of law which manages the risk of people against whom an ‘activity in misdeed’ would lie.

tort as we probably am aware today has developed throughout the long term and has filled immensely in nations, for example, the England, United States of America, and other reformist nations and partly in India. The primary investigation in this article anyway would spin around two parts of this part of law, initially, regardless of whether the law of misdeed in India is pointless and besides, whether the law of misdeeds has been basically disregarded. Prior to proceeding onward to the center subject it is basic to completely comprehend the significance of the term misdeed in the Indian setting.

TORT LAW IN INDIA:

In India the term tort has been in presence since pre-freedom time. The Sanskrit word Jimha, which means warped was utilized in antiquated Hindu law text in the feeling of ‘tortious of fake conduct’.[3] However, under the Hindu law and the Muslim law, misdeed had a much smaller origination than the misdeed of the English law. The discipline of violations in these frameworks involved a more noticeable spot than pay for wrongs. The law of misdeeds in India as of now, is mostly the English law of misdeeds which itself depends on the standards of the custom-based law of England. Anyway the Indian courts prior to applying any standard of English law can see whether it is fit to the Indian culture and conditions. The utilization of the English law in India has consequently been a particular application.

“We need to develop new standards and set down new standards which will enough arrangement with new issues which emerge in a profoundly industrialized economy. We can’t permit our legal deduction to be built by reference to the law as it wins in England or for the matter of that in any far off nation. We are absolutely set up to get light from whatever source it comes yet we need to construct our own law.”

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During British standard, courts in India were charged by Acts of Parliament in the UK and by Indian institutions to act as per equity, value and great still, small voice if there was no particular principle of authorized law relevant to the contest in a suit. As to suits for harms for misdeeds, courts adhered to the English customary law to the extent that it was consonant with equity, value and great still, small voice. They left from it when any of its standards seemed nonsensical and unsatisfactory to Indian conditions. An English resolution managing misdeed law isn’t by its own power pertinent to India however might be followed here except if it isn’t acknowledged for the explanation just referenced.

TORTIOUS LIABILITY OF COMAPANIES IN INDIA:

The law of torts in India depends on the standards of the English Common Law. Be that as it may, it has been adjusted to meet the nearby necessities. A portion of the significant standards of misdeeds incorporate carelessness, disturbance, trespass, vicarious obligation, severe and supreme risk. In setting of the current article, we will center upon the ideas of exacting and total obligation versus the two outstanding modern fiascos in India.

  1. a) Doctrine of Strict Liability

The regulation of “severe risk” advanced in Fletcher v. Rylands. For this situation, Rylands employed temporary workers to assemble a supply on his territory. While building it, the contractual workers found a few imperfections and left them unfixed. After some time, Rylands’ repository burst and overflowed Fletcher’s bordering mine causing £937 worth of harm. Blackburn, J. believed that any individual who for his own motivations welcomes on his property and gathers and keeps there anything liable to do underhandedness, in the event that it gets away from should keep it at his hazard and in the event that he doesn’t do as such, is at first sight responsible for all the harm which is the regular outcome of its escape.

  1. b) Doctrine of Absolute Liability

The guideline of “outright risk” was first historically speaking applied by the Supreme Court of India in M.C. Mehta v. Association of India (popularly known as Oleum gas spill case). For this situation, oleum gas spilled from a manure plant of Shriram Foods and Fertilizers, Delhi and made harm a few people. A forthcoming public interest suit (PIL) by M.C. Mehta gave the occasion to the Court to pass a progression of requests managing the eventual outcomes of gas spill. For this situation, the Court objected the utilization of the standard of severe risk

  1. Bhopal Gas Tragedy

Association Carbide India Limited’s (UCIL) plant at Bhopal was planned by its holding organization Union Carbide Corporation (UCC), USA and was inherent 1969 for making pesticides, created by responding Methyl Isocyanate and Alpha Naphthol. An occurrence of gas spill occurred in the Bhopal pesticide plant of UCIL the evening of 2-3 December, 1984 making extreme misfortune the lives of individuals in the region. Individuals were presented to this gas all around the city and the quick impacts were hacking, retching, serious eye disturbance and a sensation of suffocation. A huge number of individuals passed on quickly, and lakhs of individuals continued perpetual wounds.

Then, the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985was passed by Parliament to give certain forces on the Central Government to make sure about that cases emerging out of, or associated with, the Bhopal gas spill fiasco, are managed expediently, successfully, impartially and to the best bit of leeway of the petitioners and for issues coincidental thereto. This Act made the Union Government illustrative of the casualties of the misfortune and permitted them to record suits for their sake. Alongside this, an out of court settlement between the Government of India and Union Carbide was shown up at, which fixed the risk of the organization to pay $470 million according without limit and last settlement, everything being equal, rights and liabilities emerging out of that fiasco. With everything taken into account, it was a terrible move, as the settlement restricted the liabilities for the cases which were recorded later. It is a hard certainty, however it is as clear as open air that $470 million dollars were not adequate to remunerate all the harmed. Truth be told, it is not really 15% of the first case of $3.3 billion.

The pay granted was around Rs. 1 lakh for the groups of the individuals who lost their lives, Rs. 50,000 for forever harmed and Rs. 25,000 for briefly harmed.

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TORTIOUS LIABILITY OF COMPANIES IN USA:

ENTITY LIABILITY:

The idea of element obligation permits an enterprise to be held at risk for the criminal wrongdoings of its representatives if (1) the specialist is acting inside the real or evident extent of their business or authority and (2) if the specialists mean, in any event to some degree, to some way profit the organization through their activities. The organization can at present be held at risk for their representatives’ criminal offenses or activities regardless of whether the specialists’ activities are in opposition to corporate strategy or straightforwardly dismiss express requests of the enterprise. This standard was set up in New York Central and Hudson River Railroad v. US, 212 U.S. 481 (1909), where the court chose to expand the misdeed precept of respondeat better than criminal cases, setting up a type of corporate criminal obligation for activities of company’s representatives.

ARE AMERICAN COMPANIES LIABLE FOR TORT COMMTITED ABROAD?

In Ogoniland, Nigeria, ecologically concerned protestors were beaten, assaulted, and murdered for shows contradicting forceful oil advancement in the Ogoni Niger River Delta. Nigerian nationals brought suit under the Alien Tort Statute (ATS) in the Southern District of New York, asserting that unfamiliar enterprises that work together in the United States helped and abetted these atrocities. In Kiobel v. Illustrious Dutch Petroleum Co., the Supreme Court held that unfamiliar organizations are not dependent upon obligation in the United States for tortious acts outside of the United States. Be that as it may, on the grounds that Kiobel managed an unfamiliar enterprise, the assessment left open whether or not a United States organization could be at risk for tortious acts outside of the nation, and the open inquiry brought about a circuit split. The Fourth Circuit has held that American partnerships can be sued for acts submitted outside of the United States, while the Eleventh Circuit has extended Kiobel and expressed that American courts need ward over these cases, hence excepting them in that circuit. The Fourth Circuit’s thinking is a superior examination of cases brought under the Alien Tort Statute (ATS) on the grounds that the resolution was proposed to give a solution for outsiders harmed by Americans. Thusly, the United States has a commitment to give a gathering to noncitizens to get pay for misdeeds submitted by Americans in different nations. Moreover, the ATS was made to manage an American resident’s lead outside of the United States. Without a court authorizing this commitment, companies have minimal solid motivation to screen workers’ potential tortious exercises abroad.

Kiobel v. Illustrious Dutch Petroleum Co.

 In Kiobel, Nigerian residents claimed that the Royal Dutch Petroleum Company and Shell Transport and Trading Company helped and abetted the Nigerian government in viciously stifling fights against forceful oil advancement in Nigeria. The offended parties looked to recuperate in United States court under the ATS for the savage, tortious acts submitted in Nigeria. The ATS gives that “the region courts will have unique purview of any considerate activity by an outsider for a misdeed just, dedicated disregarding the law of countries or a deal of the United States.” The offended parties asserted that the organizations abused Nigerian law. On allure, the Supreme Court confronted the issue of whether an ATS case could gives harms to activities by non-American enterprises a working in an unfamiliar area. The Court depended on a legal standard known as the “assumption against extraterritorial application” to discover that the ATS doesn’t cover these claims. The Court held that the assumption against extraterritorial application applies to claims under ATS, yet that nothing in the resolution counters that assumption, so the ATS didn’t matter to the cases in Kiobel. Further, all pertinent lead in Kiobel occurred outside of the U.S.However, the Court expressed that if claims “concern the domain of the United States,”they can refute the assumption against extraterritorial application, yet should have adequate power to do so. Thus, this holding left open whether or not government courts have position to hear claims with respect to tortious acts submitted outside the United States yet that “contact and concern” the United States by prudence of their American tortfeasors.

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Analysis of Cyber Laws in UAE, Australia And China

By: Apoorva B N

ABSTRACT

In the modern swift- moving world, computers and internet are no more a privilege. Internet facilities have become a necessity as it is the par on course for any individual’s life today. Today, we have achieved so many advancements in the technological arena that it is next to impossible to even imagine our lives without computers or the internet. Now that internet has made its way to almost every aspect of human life, along with its blessings are its share of dangers and threats that haunt individuals today. In order to regulate the use of internet and everything that comes with it, ‘Cyber law’ emerged as a necessary facet of law. Cyber law deals with disputes arising in the internet domain, including matters like data protection, privacy concerns, identity left, electronic signatures, information technology and security. As information technology is looking at advancements taking place at a rapid rate, law regarding its regulation also needs to be updated at the same rate. In India, the main legislation that seeks to regulate information technology and related aspects is the Information Technology Act, 2000. Various amendments are being made to this legislation from time to time to be on par with the technological advancements that are taking place in the IT field. Similarly, this article aims to get an understanding and a brief analysis of the cyber laws of other jurisdictions like UAE, Australia and China.

INTRODUCTION TO INFORMATION TECHNOLOGY (IT)

Technological advancement is one of the most important factors contributing to a country’s economy. It also brings about modern rapid changes to the social lives of the individuals. Advancement in technology and science brings about rapid growth in employment opportunities thereby increasing the GDP of the country that enriches the economy as a whole. Information Technology is the study and use of computer systems to store, retrieve and send information.[1] In order to regulate information technology, especially facets of it including internet law, information and digital security, IT law or cyber law has emerged as a necessary aspect of law.

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CYBER LAWS IN UAE

UAE is said to be the most digitally advanced Arab country. It had also made its place in the top 20 digital economies in 2018[2]. In 2017, two breakthrough digital initiatives, the Dubai Internet of Things (IoT) Strategy and the Digital Wealth Initiative, were launched[3]. Securing an important position in the word for being digitally advanced, UAE has its own set of cyber security laws for the regulation of the cyber threats and like offences that form a part of any technological advancement. Therefore, the UAE has a comprehensive legislation on cyber laws called the ‘Cyber Crimes Law 2012’ (UAE-Law No. 5 of 2012)[4]. Few of the important offences and penalties that are covered under this legislation are—

  • Promoting or publishing pornographic material or indecent act and gambling activities.
  • Publishing of others information and photos on internet
  • Violating others privacy by eavesdropping and publishing the information using the social media
  • Human Trafficking
  • Data Forgery of prohibitive data
  • Unauthorized use and interception of computer services

Penalties for imprisonment for a term which may extend to ten years and a fine up to 200,000 AED.

The National Electronic Security Authority (‘NESA’) implements the Cyber Law and regulates the protection of communications networks and information systems in the UAE.[5] The Telecommunications Regulatory Authority (‘TRA’) was established by the Telecommunications Law to supervise the telecommunications division in the UAE. The TRA set up the Computer Emergency Response Team (CERT) to advance the standards of information security and protect the IT set-up.

Information Security Regulation (ISR) standards from Dubai Smart Government mandates government entities in Dubai to implement requirements and controls stated in the standard to ensure appropriate level of confidentiality, integrity, and availability of information assets.[6]

These were the key features of the Cyber law infrastructure in the UAE.

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CYBER LAWS IN AUSTRALIA

The legislations that deal with cyber and Information technology laws in Australia are as follows[7]

  1. Australian Privacy Principles (APP): It is an amendment made to the Privacy Act, 1983 including various other amendments like—
  • The Privacy and data protection Acts, 2014-Victoria ;
  • Privacy and data protection Act, 1998– New south Wales;
  • Privacy and information Act, 2009– Queensland;
  • Personal information Privacy Act, 2004– Tasmania;
  • Information privacy Act, 2014– Australian capital territory;
  • Information Act, 2002– Northern territory.
  1. The Cybercrime Act, 1995: In August 2012, the Government passed the Cybercrime Legislation Amendment Act 2012(Cth) (CLAA). The purpose of the CLAA was to empower Australia to assent to the Council of Europe Convention on Cybercrime (Cybercrime Convention), the only international treaty on cybercrime. The Cyber Crime Act, 1995 was very much based on the international convention on cybercrime and it contains various offences relating to the unauthorised access, modification, or impairment of data and restricted data (sections 477.1, 477.2 and 478.1 of the Criminal Code).
  2. TELECOMMUNICATION ACT, 1997—The main objective of this legislation is to protect the privacy of individuals who use Australian telecommunication systems related to real time communications.[8]

These were the key Cyber law legislations of Australia and their objectives.

When it comes to high tech crime or cybercrimes of national importance, the accountability of investigation and response is conferred to Australian Federal Police (AFP). They possess jurisdiction over cases of cybercrime concerning online frauds affecting any governmental institution. Their jurisdiction further ranges to the investigation of cases related to virtual child sex harassment and exploitation, child protection and tourist child sex offenders.[9]

The Director of Public Prosecutions prosecutes on violations relating to unauthorised admission to data, damage caused to electronic communication and use of carriage services to harass or cause a wrongdoing, within sections 478.1(1), 477.3(1) and 474.17 of the Criminal Code (Cth).[10]

The New South Wales Police are conferred with powers to investigate and prosecute online fraudsters in offences in areas like internet banking, mobile banking, phishing, mule recruitment, shopping and auction site fraud, scams, spam and identity theft, child sexual exploitation and cyber bullying offences.[11]

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CYBER LAWS IN CHINA

The Chinese Government has always laid emphasis on the advancement in science and technology. Their innovation model includes huge projects in areas like Nano Technology, biotechnology, aircrafts, high-end generic microchips etc. Cybersecurity law of the People’s Republic of China was enacted by the e Standing Committee of the National People’s Congress on November 7, 2016 and was enforced on June 1, 2017. The key features of the cyber law of China are as under[12]

  1. Security obligations of ISPs
  2. Rules for the transnational transmission of data at critical information infrastructure
  3. Rules for personal information protection
  4. Principle of cyberspace sovereignty

It also provides intricate rules and definitions on legal liability for various unlawful conducts, and sets a range of punishments like fines, suspension for modification, withdrawal of licenses and commercial licenses among others. The law therefore enforces cybersecurity and administrative authorities with powers and duties to implement the law against illegal activities.

Relevant cases in China[13]

Sina Weibo v. Maimai (2016) was the first unfair competition case concerning big data analytics in China. The central issue for the court to decide was whether the alleged “unauthorized collection and use of data” and its related activities constitute unfair competition under the Anti- Unfair Competition Law. The case is a landmark decision to address one of the important questions on competition for data resources in the internet industry: to what extent data scraping (both personal data and other data) targeting a competitor could be potentially caught by the rules of unfair competition.

Tencent v. Douyin (2019) – case concerning the ownership of users’ ID, nicknames and profile pictures.

Facts: Douyin had entered into a Developer Agreement with WeChat and QQ platforms, and had access to users’ WeChat and QQ IDs, nicknames and profile pictures. Douyin had shared those data with Duoshan, a social networking product run by its affiliate. WeChat and QQ platforms claimed that the unauthorized use of IDs, nicknames and profile pictures of their users constitute unfair competition. The court granted a temporary injunction restraining Douyin from using those user data until the date of final judgment. It remains to be seen whether the court would consider the case following the same logic of the Maimai case.

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CONCLUSION

We can therefore conclude on being able to have understood the meaning and importance of information technology and how it has become an inevitable and a significant aspect of human life today. We also understood the IT laws or cyber laws that are codified in various jurisdiction across the world, like UAE, Australia and China. By the above stated information, it is safe for us to conclude that among the countries whose cyber laws have been discussed in this article, China appears to be the most technologically advanced country thereby making it better equipped in IT or cyber laws to regulate the threats that will be posed with technological advancements. Secondly, UAE is also seen to have been making efforts and taking efficient steps to get their IT or Cyber law infrastructure well- equipped. Australia appears to be relatively backward in terms of technological advancements in comparison with China and UAE. But Australia’s latest technological advancements have given rise to good legal backing by way of the cyber law legislation of the country.

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[1]WHAT EXACTLY IS INFORMATION TECHNOLOGY (IT)’, workforce.com, https://www.workforce.com/news/what-exactly-is-information-technology-it

[2] CLEOFE MACEDA, ‘UAE MOST DIGITALLY ADVANCED IN ARAB WORLD’, GULFNEWS, https://gulfnews.com/technology/uae-most-digitally-advanced-in-arab-world-1.2239034

[3] Ibid.

[4] BASSAM ZA’ZA’, ‘UNDERSTANDING UAE’S CYBERCRIME LAW AND PENALTIES’, GOING OUT, SEPTEMBER 12, 2015 07:00, https://gulfnews.com/going-out/society/understanding-uaes-cybercrime-law-and-penalties-1.1564565#:~:text=the%20uae%20cybercrime%20law%20no,and%20seriousness%20of%20the%20cybercrime.

[5] IBID.

[6] COMPLIANCE AND DATA PROTECTION SERVICE, RNS TECHNOLOGY SERVICES, https://www.rnstechnology.com/compliance-data-protection/#:~:text=information%20security%20regulation%20(isr)%20standards,compliance%20with%20local%20regulations

[7] KING & WOOD MALLESONS, ‘AUSTRALIA’S CYBERCRIME LEGISLATION’, LEXOLOGY, https://www.lexology.com/library/detail.aspx?g=4ab62fdd-f177-47eb-b02d-e327cf9833a9

[8] “Cybercrime Laws in Australia.” lawteacher.net. 11 2018. All Answers Ltd. 12 2020 https://www.lawteacher.net/free-law-essays/australian-law/cybercrime-laws-in-australia-8255.php?vref=1

[9] PAVUL LEGAL, ‘CYBERCRIME LAW IN AUSTRALIA’, PAVUK, 2 June 2018, https://www.pavuklegal.com/cybercrime-law-in-australia/

[10] PAVUL LEGAL, ‘CYBERCRIME LAW IN AUSTRALIA’, PAVUK, 2 June 2018, https://www.pavuklegal.com/cybercrime-law-in-australia/

[11] Ibid.

[12] LAUREN MARANTO, ‘WHO BENEFITS FROM CHINA’S CYBERSECURITY LAWS?’, CSIS, https://www.csis.org/blogs/new-perspectives-asia/who-benefits-chinas-cybersecurity-laws#:~:text=In%20June%202017%2C%20the%20China,for%20China’s%20present%20day%20guidelines.&text=The%20law%20requires%20that%20data,to%20government%2Dconducted%20security%20checks.

[13] Recent privacy case law update in China, Dentons, file:///C:/Users/Apoorva%20Narendranath/Downloads/8b0990bc-f987-428d-b3c1-4eea30fbce82.pdf

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Role of Flag States under United Nations Convention on the Law of the Sea (UNCLOS)

By: Shubham Bhalla 

INTRODUCTION

 The development of flag states started in 1000 BC. The Egyptians used them for the first time for identity purposes. The usage of flag advancement increases in the Stone Ages for identification and in middle age, it has been used as a symbol of the nation. The Law of the Sea Convention explains the duties of Flag States on a large scale in comparison to previous conventions. In Public International Law, it is concerned within the maxim used in the North Sea Continental Shelf cases, Opinio Juris et necessitatis, refers to the psychological element representing the State that acts as they are fulfilling a legal Requirement which is obligatory for them. It also represents the establishment of an International Custom which has been sought for recognition earlier among other states, in the condition of taking certain practices obligatory.[1]

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In the early 19th Century, the ‘Lotus case’ revealed the essential for creating a new customary rule of International Law i.e Opinio Juris. In this case, it has been seen that even if the state has no jurisdiction in exercising their power over crimes committed on High Seas in respect to the Flag States then the French Government had no proof for the act, which had legal obligation over. This case has been criticized majorly for allowance of all those things which is not forbidden under International Law. Later, it has been overruled through the Geneva Convention on Law of Sea, 1958 by application of Article 11 of the convention, stated as ‘No criminal or disciplinary proceedings, except before the judicial/administrative authorities of either the flag State or of the State of which they are citizens, can be initiated against the persons responsible for the collision’.[2]

The practice of State establishes the coastal state in exercising its jurisdiction beyond the territorial jurisdiction by taking control of foreign vessels, to prevent the threat and enforce their rule of law. The example of North Sea Continental Shelf Cases is classical here which speaks about the provision of universal jurisdiction concerning the crimes of piracy. In today’s phenomenon, States are not free to see the resources of the sea, it is due to the “conservation and Co-operation” under Modern International Law. It is all related to the requirement of new legal order which combined as the balance of interests, between exploitation and conservation of the sea Law, from free seas to clean seas and from the peaceful uses and Strategic considerations to the balance between the Coastal Interests and Flag Interests.

The freedom of Sea well explained by the Jurist Lauterpacht, “Freedom of the seas’ true purpose is to ensure freedom of navigation, unhampered by exclusive claims of the seas’ true purpose is to ensure freedom of navigation, unhampered by exclusive claims of individual States, and freedom of utilization of the sea resources to a degree to which they can be equitably utilized by all”.[3]

WHAT IS ‘FLAG STATE’?

The state will be called “Flag State” where the Ship has been registered in that particular Country. It is deemed to be a Home Country for a Ship. The Flag state has the overall responsibility to ensure that the ship or vessels flying its flag in compliance with the International Treaties, Conventions, Regulations, and other Laws applicable. Here, the inspection is carried out within the issue of certificate every time, which is based on National regulations and ratified by that Flag State. So, Safety is measured by the authority. It is a planned perspective as there is the issuance of certificate after every inspection. The flag State does not maintain any threat matrix as compared to Port State under Public International Law. [4]

In the case of Naim Molvan v. Attorney General for Palestine[5], the court held that the ship sailing without the flag of any state has no right of freedom of navigation. This case put a legal regime of a vessel on the seas. The flag helps in settling the responsibility where Rights should be applicable concerning that particular vessel. The flag gets its recognition with the codification of the usage under the High seas convention and ultimately under the United Nations Convention on Law of the Sea (UNCLOS) 1982.

ROLE OF FLAG STATE 

  • ARTICLE 94- DUTIES OF FLAG STATES

Every State shall efficiently execute its power in administrative, technical, and social matters over ships flying its flag. Law of the sea convention prescribes in the second Para of Article 94, a duty of the flag State to maintain regular checks upon the seaworthiness of ships, to maintain a register of the vessel, to take measures to ensure safety at sea concerning the construction, equipment, and seaworthiness of the vessel.

To ensure that crews are qualified, to hold inquiries into shipping casualties, to effectively exercise jurisdiction and control over their Ships, the manning of ships, and labour conditions, etc.

Article 94(1) the matters on which the flag State is to exercise its duties is made precise, that is jurisdiction and control over administrative, technical, and social events. This provision, also present under the 1958 High seas convention, was added to strengthen the concept of concerning the nationality of a vessel by indicating matters over which the flag State should exercise its jurisdiction. The United Nations Convention on Conditions for Registration of Ships 1986 amplifies the objective set out.

Article 1 – It prescribes that the flag State is to apply the provisions of that convention to ensure or, as the case may be, strengthening between a State and ships, fly its flag and, to operate effectively. Its jurisdiction and control over such ships concerning identification and accountability of ship owners and operators as well as concerning administrative, technical, economic, and social events.

The reference there to economic matters has no direct counterpart in Article 94, but that has mentioned the comprehensive character of the obligations imposed on flag States generally throughout the UNCLOS, this slight widening of the purpose served by registration and of the duties of the flag State is compatible with the UNCLOS.

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  • ARTICLE 94(2) – REGISTER AND ASSUME JURISDICTION:

Flag states are required to keep a record of ships flying their flag & to allow jurisdiction under its internal laws over each vessel, its masters as well as crew in administrative, technical, and social matters concerning the ship. For this, the requirement is that the register should contain the names of the vessel and in particular, nothing further requirements were mentioned within this provision.

Article 11 of UNCLOS, on the other hand, sets out in considerable detail the information that should be in a record of a vessel.

  • ARTICLE 94(3) – CONSTRUCTION, EQUIPMENT, AND SEAWORTHINESS OF SHIPS

(b) Crew of ships, labour requirements, and the Coaching of crews taking into account the suitable international instruments;

(c) Utilisation of signals, the maintenance of communications, and the prevention of collisions.[6]

  1. Each vessel before registration is surveyed by a qualified surveyor of ships and should have proper navigational equipment as are appropriate for the safe navigation of the ship. International Maritime Organization is a very specialized agency of the United Nations which is liable for actions to promote the safety and security of international shipping and to prevent marine pollution from ships.
  2. Every vessel has a head which is a master and officers who have proper qualifications and various crew members who have proper qualifications for their work as engineers etc. Safety of Life at Sea (SOLAS), 1974 commands a universal responsibility on flag States to ensure, for the safety of life at sea, the appropriate manning of the ship.

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Standard of Training, Certification, and watchkeeping of Seafarers (STCW) 1978, as amended, contains a comprehensive set of international regulations concerning training and certification of personnel. This Convention establishes minimum requirements for training, qualifications, and seagoing service for masters and officers and certain categories of ratings, such as those forming part of a navigational watch or engine-room watch on, Oil Tanker, LPG, etc.

  1. To ensure safety at high seas means of communications are vital for accident prevention and safety. To exercise its jurisdiction the flag states must take necessary measures regarding the use of signals and maintenance of communications and prevention of collision. The Act for the prevention of collisions at sea is found in International Regulations for Preventing Collisions at Sea 1972.

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Rules on signals: Under Safety of Life at sea (1974) all vessels are required to carry radio installations.[7]

  • ARTICLE 94(5) – CONFORMITY WITH INTERNATIONAL REGULATIONS;

Similarly, with regards to article 94(3) and (4), subsection 5 stresses that flag state is required to conform to “generally accepted” international regulations, procedures, and practices and to take any steps which may be necessary to secure their observation. Internationally accepted regulations and practices are dictated by practical necessity. While each state remains free to apply its legal requirements as regards safety, there would be chaos if these requirements widely varied or were incompatible. This provision is questionable to a range because the law and procedures to be adopted are not defined. It also does not give guidance as to what legislation could be classified as “generally accepted”. Thus one could go ahead to understand it to mean rules and standards established through competent international organizations or general diplomatic conferences to bridge the reluctance of states to impose strict safety legislation due to competition in the industry. So, a nation might be compelled to standards it did not specifically adopt. Examples of particular rules, procedures, and standards include Safety of life at sea (SOLAS), The International Convention for the Prevention of Pollution from Ships (MARPOL), etc. Flag states by this article, are under obligation to take any steps necessary to ensure observance of generally accepted international regulations and procedures. Including those related to safety, marine pollution, and the maintenance of radio communication.

  • ARTICLE 94(6) UPON RECEIVING A REPORT FLAG STATE SHALL INVESTIGATE THE MATTER.

In this article, the country has the right to use its power if the flag state has not exercised proper jurisdiction and control concerning a ship flying its flag, to report its facts to flag states. Upon receiving the report the flag state is to investigate the matter and will take remedial steps if necessary. This article calls for good faith on the part of flag states; it also re-emphasises the exclusive jurisdiction of flag states over vessels flying their flag on the high sea.

  • Article 94 (7) Inquiry into every marine casualty or incident of navigation on high seas

Few flag states are consistent in investigating casualties involving ships properly registered under their flag. They also make reports which show that they are working in the field for collecting the reason for which these casualties are happening. The Marine Accident Investigation Branch is very productive and a good example compared to other organizations. This article applies to the incidents which cause casualties like loss of life or very serious injuries to nationals of different states, damages to ships, or the marine environment. In this Flag state and other states who have a dispute will cooperate and conduct such inquiry. SIMO plays a very vital role in uniting other states for smooth conducting of such inquiries and the betterment of their mutual interest.

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INDIAN SCENARIO IN RESPECT TO THE CASE, The Italian Republic v. The Republic of India[8] (Enrica Lexie Incident)

In this case, two Italian mariners working under Vessel Protection Detachment (VPD) posted on Enrica Lexie, an Italian commercial vessel, shot two Indian Fishermen mistaking them to be pirates in contiguous waters (20.5 nautical miles off the coast of Kerala). Thereafter, the Indian navy and coastguards detained the two Italian marines.

The Permanent Court of Arbitration (hereinafter referred to as PCA) held that Italy was guilty of violating India’s freedom and right of navigation under the United Nations Convention for the Law of the Sea (UNCLOS) Article 87 (1) (a) and 90. India and Italy had concurrent jurisdiction over the incident and a valid legal basis to institute criminal proceedings against the mariners; however, their immunity as state officials acts as an exception to the jurisdiction. The mariners will now be tried in Italy and given a sentence according to their domestic laws.

COMMENTS:

While delivering the judgment, the PCA did not acknowledge the presence of natural rights of a person which cannot be violated in furtherance of official duty. Furthermore, the case has established a dangerous precedent where it will be difficult for India to protect its innocent unarmed citizens from such acts done without provocation in the future.

[1] Dr. Ashok k. Jain, PUBLIC INTERNATIONAL LAW & HUMAN RIGHTS [LAW OF PEACE], (Third Edition 2010).

 

[2] S.S. Lotus Case (1927) PCIJ, Series A No. 10.

[3] SUPRA NOTE 1.

[4] Dr. ASHOK K. JAIN, PUBLIC INTERNATIONAL LAW & HUMAN RIGHTS [LAW OF PEACE], Third Edition 2010.

[5] 81 Ll L Rep 277.

[6] Mafia.org. (2020). Article 94. Duties of the flag State. [online] Available at: https://maifa.org/resolution/resolutions/UNCLOS%2094.htm [Accessed 15 Dec. 2020].

 

[7] Nordquist, Volume III, United Nations Convention on the Law of the Sea, a Commentary at 149.

[8] (2013) 4 SCC 721.

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