Corporate Law

Lapse of Stay Orders and Judicial Delays: A Constitutional Conundrum

By Corporate Law, Others No Comments

The constitutional predicament of the Supreme Court’s direction in the case of Asian Resurfacing of Road Agency v. Central Bureau of Investigation (“Asian Resurfacing”) assumes significance because of the controversial dictum regarding stay orders. The direction in its essence is that any order that stays civil or criminal proceedings will now lapse every six months, unless it is clarified by an exception of a speaking order. The major grievance is that every order which is passed by the High Courts while exercising its jurisdiction under Article 227 of the Constitution and Section 482 of the Criminal Procedure Code, is virtually annulled with the passage of time. 

The decision comes into existence due to the indefinite delays that occur because of stay orders granted by the High Courts, which leads to judicial delays and denies the fundamental right to speedy justice. The Apex Court has observed that proceedings are adjourned sine die i.e. without a future date being fixed or arranged, on account of stay. Even after the stay is vacated, intimation is not received, and proceedings are not taken up. 

The concern is that during criminal trials, a stay order delays the efficacy of the Rule of Law and the justice system. The power to grant indefinite stays demands accountability and therefore the trial court should react by fixing a date for the trial to commence immediately after the expiry of the stay. Trial proceedings will, by default, begin after the period of stay is over. In the case where a stay order has been granted on an extension, it must show that the case was of such exceptional nature that continuing the stay was more important than having the trial finalized.

The High Court may exercise powers to issue writs for infractions of all legal rights, and also has the power of superintendence over all “subordinate courts,” a power absent in the Supreme Court as it was never intended to supervise subordinate courts or the High Courts.  In the case of Tirupati Balaji Developers (P) Ltd v. the State of Bihar, the Supreme Court recognized that despite having appellate powers, the current directive ordered by the Supreme Court takes a precarious position since the High Court cannot be limited in its exercise of power by any restrictions placed on it by the Supreme Court unless the Supreme Court interprets a statute or the Constitution and prescribes it as a matter of law, which is not the case in the directions issued for Asian Resurfacing. 

There are two perspectives to this: firstly, the directive does not annul “every order” of the High Court merely with the passage of time. It only causes those orders that “stay the trial proceedings of courts below” to lapse with the passage of time, wherein even those orders can be extended as per the High Court’s own discretion on a case-to-case basis. If this is considered supervisory or unconstitutional, then Appellate Courts will be left with the little prerogative to safeguard the basic rules of fair procedure. Secondly, the directive itself is not applicable to the interim order granted by the Supreme Court as reiterated in the case of Fazalullah Khan v. M. Akbar Contractor. 

It is clear that the demand for justice to be disbursed and a trial to be completed in 6 months is a necessity given the incessant judicial delays and indefinite freezes on criminal cases. Staying trial proceedings for 6 months must be made a thing of the past and should not be stayed for 6 months or more, save in exceptional circumstances. Allowing trial proceedings to stay for longer than 6 months encourages parties to abuse the process of law and move an appellate court merely to stall a trial that has an inevitable conclusion. Legal procedures, the appointment of judges, and judicial vacancies all contribute equally to judicial delay, the rot has spread far and wide in creating systemic delays in the entire judicial procedure. Although courts will be bound to welcome the judgment in letter and spirit, some pressing questions remain unanswered. It is unclear why the Supreme Court provided “directions” to the High Courts now when it has been cautious in issuing such directions in the past? Further, if the primary motive was curbing the judicial delays and ushering a change in the way the judicial system works, why is the Supreme Court not bound by its own directive? 

India strengthening insider trading laws at last

By Corporate Law, Others No Comments

There is no other kind of trading in India but the insider variety,” remarked a former president of the Bombay Stock Exchange (BSE) in 1992, whereas Arthur Levitt, Chairman of the US Securities Exchange Commission (SEC), viewed it as one with no place in any law-abiding economy. Between these ends of the spectrum lies the debate on insider trading. Although India was not late in recognizing the detrimental impact of insider trading on the rights of shareholders, corporate governance and financial markets, the legal regime, including the enforcement mechanism relating to its prevention, remains in a nascent stage. The Securities and Exchange Board of India (SEBI), Prohibition of Insider Trading Regulations, 2015 (PIT Regulations) prohibit insider trading while in possession of Unpublished Price Sensitive Information (UPSI) subject to certain exceptions. Rule four of the PIT Regulations contains provisions apropos trading when in possession of UPSI. Trades carried out by a person who has UPSI would be presumed to have been motivated by the knowledge and awareness of such information and they shall be held guilty of insider trading. Simply put, any abuse of position or power by insiders for personal benefits, monetary or otherwise, is a fraud committed on public shareholders, who expect unbiased management of the company’s operations in their interest. The 2020 amendments to the PIT Regulations aim at bolstering the level of compliance and mitigating the defects plaguing them. Prior to the amendment, there was considerable confusion with respect to the handling of UPSI by intermediaries. Notwithstanding the FAQs released by the SEBI to address the same, specific details regarding the maintenance of the digital database by such entities continued to remain shrouded in uncertainty. Further, the list of transactions under Schedule B of the Regulations, exempting them from trading window restrictions, was not amenable to additions. This prohibited reasonable expansion of the same to include transactions of a like nature. Lastly, there was also the issue of lack of adherence to the code of conduct under the PIT Regulations.

Recent amendments to insider trading: Through a previous amendment that came into effect on April 1, 2019, the SEBI had mandated every listed entity, intermediary and fiduciary to maintain a structured digital database, which would have the name and PAN details of a person with whom the UPSI was shared. This was done to ensure that there was a trail of information whenever the SEBI needed to investigate the sharing of UPSI. Now, through an amendment in July, the SEBI has mandated that the nature of the UPSI and the details of the person sharing it must also be recorded in the database. Moreover, maintaining such a database has to be done internally and cannot be outsourced. The database should store data for the previous eight years at any given time.

The second most notable amendment is that the trading window restrictions would no more apply to “offer for sale” (OFS) and “Rights Entitlement” (RE). Schedule B of the PIT Regulations mandates that there should be a closure of the trading window for designated people and their relatives as it can be reasonably expected that they possess UPSI. However, through another notification in July, the SEBI allowed the selling of promoters’ holding by way of OFS and exercising RE during the period of closure of the trading window.

The SEBI also specified that listed entities, intermediaries and fiduciaries are now mandated to promptly and voluntarily report any Code of Conduct violation under the PIT Regulations in the prescribed format to the bourses and any amount recovered from the defaulter shall be deposited in the Investor Protection and Education Fund.

Analysis and impact: The primary benefit of the amendment that mandated a structured digital database is reduced information asymmetry while the SEBI investigates matters of insider trading. In cases relating to it, distinguishing the insider who conveyed the UPSI, in any case, turns out to be progressively significant for narrowing down expected guilty parties and to follow the data trail. This was one of the pertinent issues in the ongoing “WhatsApp spill” case wherein after extensive investigations, the SEBI had punished certain people for spilling data identified to be price-sensitive. However, since WhatsApp messages are typically ensured through end-to-end encryption, the SEBI could not efficiently recognize the entities involved in the trade, thus setting an alarmingly low standard of proof in such cases. It is hoped that the new, organized and structured digital database may help and forestall such cases. The second amendment that cuts a special exception to the trading window is in the light of the ongoing endeavors by the SEBI to facilitate easy routes of raising capital. This is much needed and will give more chances to listed entities to raise fast capital. Lastly, the mandatory announcing of infringement of the code of conduct would make a more strong system of compliance.

 Regulatory solutions: With each of these amendments, while the SEBI has chalked out additional responsibilities for intermediaries and fiduciaries, as well as streamlined its regulatory powers with bourses, the overall impact on the market hygiene remains to be seen. While there seem to be concerned regarding the degree and extent of control that may be exercised by stock exchanges over unlisted entities, the same will depend on the successful implementation of the PIT Amendment and issuance of further clarifications and circulars by SEBI.

The requirement of maintaining an enhanced digital database is in line with the SEBI’s probe and surveillance procedure. However, it may lead to particular operational challenges and issues for the listed firm, intermediary or fiduciary, because in addition to maintaining more data for a more extended period, the entity is no longer permitted to outsource the task of keeping the database.

Market conduct regulation is poised at a critical threshold in India, where a combination of nuanced laws and efficient enforcement can indeed be transformative. When understood in their true spirit, these amendments are capable of engendering a behavioral shift across corporates, their Board and other key stakeholders, in terms of how we balance commercial interests with accountability for information access. As the market practice evolves on this, one can only hope that we can achieve that fine yet firm balance, amply aided by even-handed regulatory practices and judicial momentum.

Transformation in the hospitality sector

By Corporate Law, Others No Comments

The magnitude of devastation attributed to events like 9/11 and the ‘Great recession of 2008’ seem bleak in comparison to the havoc wreaked by the COVID19 pandemic. The pandemic-induced lockdown has disrupted supply chains, closedown of businesses and mass unemployment. But the government’s decision to reopen the country in a phased manner brings a breath of fresh air and hope for a gradual but steady ascent. However, the ascent is contingent upon the hospitality industry’s adaptability to the virus-induced irreversible transformational effect at large.

With canceled flights, empty hotel rooms, and deserted restaurants, this pandemic has taken a toll on the hospitality industry. The industry’s dependence on the airline, tourism and travel industry makes recovery agonizingly difficult during these unprecedented times. However, as the industry strives to get back up on its feet, stringent rules applicable to hotels in the MMR region, including Mumbai, Pune and Nashik must be followed. Therefore, the hospitality industry is in metamorphosis as they gear up for the post-COVID era.

At the outset, the entire guest experience from check-in until check-out is likely to be redefined to cater to the current requirements of social distancing and hygiene. Zero-maintenance buildings, contactless interactions, and technology-based sanitization will emerge as the “new normal” for hotels and restaurants at large. Specifically, hotels outside containment zones will be allowed to operate at 33% capacity subject to adherence of social distancing and hygiene guidelines. The rationale behind this is not only to avoid overcrowding but also to convert the remaining 67% capacity into a quarantine facility, as and when required by the government. Reduced operational capacity and increasing costs of running a hotel or restaurant will compel the industry to look for unconventional avenues to keep business afloat during a depressionary phase.

Moreover, several other guidelines ensuring hygiene and social distancing such as mandatory thermal screening, protective glass at reception tables, sanitizers to all hotel staff and guests, and contactless digital payments, etc. will change the entire guest servicing experience. This goes without saying that only asymptomatic guests will be allowed entry into hotels. As an additional measure, hotels are required to keep each room empty for a minimum of 24 hours post guest check-out and sanitize the room. Many of the facilities, like bars, buffet, spas and swimming pools, will have to stay shut for now and even though restaurants can open, they will only serve hotel guests for now. The State-mandated guidelines will propel the hospitality industry to provide a safe, contact-less experience from the pick up at the airport to the check-in, entire stay and until check-out.

State-mandated guidelines although necessary for the health and safety of individuals, it is likely to have catastrophic consequences for alternate accommodation such as Bed & Breakfast, Guest Houses and unbranded budget hotels which constitute 95% of the hotel industry. On the other hand, implementation of these guidelines is easier for chain and luxury hotels with deep pockets, however high maintenance costs coupled with fewer customers may pose a challenge. In light of this, the low-priced sector in the country can ride on India’s large domestic tourism to kick start the industry. Also, the alternate accommodation industry offers potential entrepreneurial opportunities to small-scale business owners. Seeking out entrepreneurial opportunities is especially important as revival projections do not look promising as of date.

Corporate travel will perhaps revive the chain hotels though the lockdown has shown that corporate travel can be limited with the emergence of the work-from-home concept. As per FHRAI, hotels are seeing about 15-20 percent occupancy at present. For restaurants, a limited number of working hours coupled with restrictions on the sale of alcohol makes business unviable, thereby hurling several small restaurants, bars and hotels towards an empty treasury. Moreso, inbound traffic is bound to be slow due to travel restrictions and recessionary conditions limiting disposable income. Clearly, the prolonged impact of the COVID-19 crisis, even after the lockdown has been relaxed, is likely to have a long-term impact on the sector on account of burdensome guidelines and recessionary conditions limiting the disposable incomes of customers.

Driving up sales requires a culmination of strategies including – continuous and effective marketing strategies that communicate with loyal guests through digital and social media during and post the lockdown. In doing so, hotels and restaurants can showcase their contributions and safety measures in wake of the pandemic for their customers. Secondly, it is imperative for hotels and restaurants to maintain adequate liquidity for working capital. This can be achieved through a combination of renegotiation and extension of payment cycles with vendors, adopt RBI’s 3-month moratorium period for existing interest and principal payments to banks, and enforce rigid cost-control measures while supporting the salaries of its staff members. Consequently, a higher budget will be allocated to technology; minimum human interaction is maintained while providing a safe, hygienic and comfortable stay.

The Finance Ministry’s economic package disappointed the hospitality industry, which came to a screeching halt on account of the COVID-19 outbreak. Unfortunately, the survival of this industry is interlaced with the situation of the aviation, hospitality and tourism sectors, thereby making survival and recovery of hoteliers challenging across leisure, heritage, adventure and niche verticals. The industry is starved for relaxation from the government, but more importantly for customers to feel at ease to visit hotels and restaurants once again. It goes without saying that a resumption of economic activity is essential, but the vigil on the virus must remain and in doing so Indians are likely to witness decades of unprecedented transformation in near future.

The Sinking Hospitality Industry

By Corporate Law, Others No Comments

With international borders sealed, suspension of movement across the country and the declaration of the nationwide lockdown, the hospitality industry witnesses an unprecedented truncated phase in history. Adding to the persisting nemesis comes panic and dread for travel amongst people. The hospitality industry feels the heat as travel becomes a long-forgotten phenomenon in this Covid world. The occupancy level of hotels and resorts has hit a major low since the beginning of March as the nervousness and anxiety about the spread of the virus started unfurling throughout the world. Adding to the tumult, the situation for businesses working on a lease for commercial space has been grim. With bleak chances of revival of business soon, payment of rentals has been one of the most worrisome aspects for many of the business owners in the hospitality sector.

Small to the world is huge to the Hospitality Industry

The hospitality industry has been one of the worst-hit by the pandemic with a shortfall in business and lack of government stimulus. Closure of food outlets and downsizing operations have been routine since the spread of the virus. The industry has come down to zero revenue in the past three months. This would customarily lead to the loss of jobs for many in the industry. Food joints have been forced to connect with online food delivery businesses with the hope of some respite. Metropolitan cities, which witnessed business visitors in plenty before the pandemic, are anticipated to be ready for tough times ahead.

Revival of Hospitality Sector: Bleak chances in near future

The hospitality industry despite being worst hit by the pandemic, has received the least stimulus from the government. It is not very soon, that businesses in this sector can be expected to be flourishing afresh. Even with the go from the government for reopening the industry in June, it would be wrong to expect the situation to get back to normal before November 2020. The average reset for the entire industry is contemplated to be 12 months, with major ramp up of operations can be expected to arrive by February 2021. The revival period coincides with the off season period of six months, which is set to commence shortly; and the industry can be expected to only see cash flows improving by the beginning of the next year.

Change of business model for the hotel industry

Post the pandemic, the hotel industry awaits a transformation in operations as well as setting up of business. Instead of huge properties, developers would be looking forward to small but multiple properties to make the process cost effective and incur less debt in the balance sheet. Domestic leisure travel facilities could see a boom in business as most people will avoid international vacations for quite some time now. Drivable destinations would be the go-to place as the hassle of stay could be avoided. Luxury business hotels shall remain in a worrisome position with minimal international travel their operations are not expected to pick until a few months from now.

Hospitality 2.0: The Post Covid Era

The hospitality industry is looking for a way out to kick start business soon after the lockdown. There is a multitude of considerations from operational changes, repurposing property and maintaining strict hygiene measures before the onset. With many hotels and businesses in the industry being forced to shut down due to the implications of the revenue loss, the industry is hunting for new operational solutions to commence business. The post-Covid era would expect the industry to enhance their hygiene and sanitization process opting for more contactless delivery and services. The succeeding times could also witness a revamp of the hotel business model to ensure a safe stay for the customers.

Financial literacy a must for the right decision-making

By Corporate Law, Others No Comments

Indian financial markets have turned increasingly complex for the common man, and a necessity has arisen to increase financial literacy to enable people to make informed decisions. Financial literacy consists of knowledge of financial concepts such as spending, saving, borrowing, investing, etc., and using it to manage personal resources efficiently.

Individuals faced with having to make complex financial decisions because of the complicated financial environment find that imprudent financial decisions like excessive spending, living on borrowed money and deferred debt payment made earlier in life can prove to be costly. Financial education can be seen as the best strategy to help individuals to manage their limited financial resources wisely, ultimately resulting in a decrease in the number of individuals being declared bankrupt.

The Organisation for Economic Cooperation and Development (OECD) has defined financial education as, “the process by which financial consumers/investors improve their understanding of financial products and concepts and risks, and through information, instruction and/or objective advice, develop the skills and confidence to become aware of (financial) risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being and protection.”

Financial literacy has assumed a significant role in the present era due to factors including the development of new financial products, the complexity of financial markets, information asymmetry, and the changes in other economic factors. It results in the intersection of financial inclusion, financial development, and financial stability. Financial inclusion The Indian government has tried to provide financial products and services to all sections of society concentrating particularly on the weaker sections and the low-income groups to enable their inclusion in the market. People are getting literate enough to understand banking and financial concepts and terminology. Reserve Bank of India (RBI) has aggressively looked into it by joining hands with non-governmental organizations (NGOs), self-help groups (SHGs) and commercial banks.

Financial literacy and credit counselling centres have inculcated saving habits among people, to make them aware of the financial products and the credit schemes, and to counsel them to prevent unmanageable debt levels. Increased financial literacy supports social inclusion and enhances the wellbeing of the community. The Securities and Exchange Board of India (SEBI) has undertaken measures through stock exchanges, depositories, mutual funds association, associations of merchant bankers, etc. by organising seminars wherein study material is disseminated to educate investors. Other material related to financial education is available on the official website of SEBI.

Furthermore, the advancements in the information and communications technology (ICT) sector, the advent of mobile phones, the internet, and ATMs have also changed the way financial business is conducted. Financial development Financial illiteracy has been a barrier as per as delivering services is concerned. If individuals are not familiar or comfortable with products, they will not go for it. In recent years, the knowledge about interest rates, exchange rates, etc. has been influencing the decision-making of individuals and they face financial risks despite informed decisions. It leads them to devise risk management strategies.

Businesses sometimes try to control financial risks with private insurance coverage and sometimes through various financial products. Financial literacy programs have played an important role in reducing economic inequalities as well as empowering citizens and decreasing information asymmetries between financial intermediaries and their customers. Innovations such as electronic payments are helping those who have been excluded from the system. Financial development is widely recognized as an important determinant of economic growth.

Financial stability is also an integral component of customer protection. Customers are often penalized for minor violations in repayments, although they have limited redressal mechanisms to rectify deficiencies in service by banks, rendering the banker-customer relationship one unequal. Literacy has empowered the common person and thus reduced the burden of protecting him/her from the elements of market failure from a regulatory perspective. They understand the details of the regulations and avoid any kind of mistake that can have adverse effects.

Financial literacy has improved the integrity and quality of markets. It has provided individuals with basic tools for budgeting and helped them to acquire the discipline to save. It has ensured that they can enjoy a dignified life after retirement. It relates to personal finance, which enables individuals to take effective action to improve overall well-being and avoid distress in financial matters. Hence increased financial knowledge has enabled people to participate in financial markets. Numerous households have improved money-related proficiency and individuals, as well as households, have been observed to be inclined to possess a retirement plan and savings.

Financial literacy plays a vital role in the efficient allocation of household savings and the ability of individuals to meet their financial goals. It has resulted in instability in the market and individuals’ financial conditions have improved. Conclusion Knowledge is crucial for financial decision-making.

This conclusion may be drawn on the basis that a strong correlation exists between the extent of an individual’s education and that individual’s investment acumen, the propensity to save, and management of personal credit. A positive correlation between greater education and increased investment in higher-yielding assets and higher investment-related income and a lower incidence of personal credit mismanagement like bankruptcies can be achieved. RBI and SEBI’s initiatives are strides taken in the right direction for achieving its objectives of financial inclusion and financial literacy. Various NGOs and SHGs are also contributing to improving the financial education of the people.

However, more capital infusion towards financial literacy workshops, seminars at schools, colleges, workplaces, and residential areas is required so as to boost its effectiveness and spread. Early financial education and increased financial literacy are imperative, and should be a first order concern for public policy and educators alike.

An Analysis Of Anti-Competitive Agreements & Heavy Discounting By Ecommerce Players

By Corporate Law No Comments

In 2017, Reliance’s Jio gifted a country of 1.3 Bn people free voice calls and high-speed internet at rock-bottom prices.  Consequently, it generated a gargantuan shift in the consumer base making it India’s largest mobile network operator with over 350 Mn subscribers today.

Naturally, this revolutionary step attracted complaints from major telecom players like Bharti Airtel, citing concerns like – “Predatory Pricing,” and “Abuse of Dominance.”

The Competition Commission of India (CCI) held that Reliance Jio did not enjoy a dominant position in India with less than 7% market share in India. Further, CCI stated that incentivizing customers through attractive schemes in order to establish its identity in a hyper-competitive market cannot be considered as a contravention of Section 4(2)(a)(ii) and 4(2)(e) of the Competition Act, 2002 and accordingly dismissed Airtel’s complaint.

Jio’s move may have resulted in industry-wide losses for its competitors, but consumers welcomed the new entrant and the competition with open hands which further makes it difficult for others to form a basis of competition.

Prohibitions Under Competition Act, 2002

The current trajectory of India’s economic development requires a competition law that focuses on promoting efficiencies and allowing firms to freely innovate, strategize, and reap profits. At the same time, it is also important to continuously check for any kind of exploitation as the economy grows and new market structures emerge.

Realizing this, the Competition Act, 2002 outlaws anti-competitive practices like “Predatory Pricing” – the practice of pricing of goods or services at low levels with a view to reduce or eliminate competition – treating it as an abuse of dominant position and thus prohibited under Section 4 of the Act and “Anti-Competitive Agreements” which cause or are likely to cause Appreciable Adverse Effect On Competition (AAEC).

Section 3(1) of the Act provides a general prohibition on the following to enter into agreements and the CCI has been given the authority to direct any enterprise or person to modify, discontinue and not re-enter into an anti-competitive agreement and impose a penalty, which can be 10% of the average of the turnover for the last three years.

Section 4(2) (a) of the Competition Act, 2002 states that:

There shall be an abuse of a dominant position under Sub-section (1) if an enterprise:

(a) Directly or indirectly, imposes unfair or discriminatory-

(i) Condition in the purchase or sale of goods or service; or

(ii) Price in purchase or sale (including predatory price) of goods or service.

Denial of market access briefly referred to in this section, if read conjunctively, is expressly prohibited under Section 4 (2) (c) of the Competition Act, 2002.

Exclusive Agreements & Heavy Discounts

OYO-Make My Trip

In a market with no clear standards to determine what price is excessive or fair or what agreement is preventive rather than restrictive, adopting such a practice may be at the disposal of the manufacture with a view to contacting a more extensive group of onlookers in a savvy way.

However, concerns with respect to the dispossession of other market players, especially offline ones keep surfacing now and again as observed in the OYO and Make My Trip case.

In a recent case, the CCI ordered an investigation into an online travel booking company Make My Trip (MMT) and hospitality provider OYO based on complaints by members of the Federation of Hotel and Restaurant Associations of India (FHRAI) alleging preferential treatment, deep-discounting, and cheating by these firms.

First, it was alleged that MMT and OYO have entered into confidential commercial agreements wherein MMT has agreed to give preferential, exclusive treatment to OYO on its platform, further leading to a denial of market access to Treebo and Fab Hotels.

Second, FHRAI alleged that OYO and MMT are hurting competition by offering deep discounts and charging exorbitant fees from hotels. Further, FHRAI stated that OYO’s prices in small Indian markets are about 30% lower than average industry prices, which helps it attract more customers at the cost of smaller, independent hotels which are then forced to join OYO’s network or lose out on potential revenues.

Past Judicial Approach

A similar issue of the exclusive agreement had emerged before the CCI in the case of  Mohit Manglani v.  Flipkart India Pvt. Ltd. & Ors. in relation to the sale of the book titled “Half Girlfriend” written by Chetan Bhagat, which was available for sale exclusively at Flipkart. It was alleged that such as arrangement was destroying players in the physical market, controlling the creation and supply, and consequently bending the reasonable rivalry in the commercial centre.

However, such allegations were rejected by the CCI which opined that a selective plan between a maker and an e-gateway would not make any entry obstructions since products sold via online portals face competitive constraints. Thus, in the opinion of the CCI:

  • Mobile phones, tablets, books, cameras etc., are not to be trodden by imposing business model or predominance.
  • There was a lack of concrete evidence to show that it was by reason of the exclusive agreements that any of the existing players were getting adversely affected.

But in the Flipkart case, the CCI at the prima facie level rejected the claim since none of the players enjoyed dominance in the retail market and in order to prove predatory pricing it is fundamental to show that the enterprise has a dominant position in the market. The determination of dominance is connected to the refusal made by the CCI to designate e-market as a different space of goods/services.

Further, in the case of Snapdeal v. Kaff Appliances, where a suit was instituted by Snapdeal against a manufacturer which had placed restrictions on its dealers in their dealings with e-retailers. It was alleged by Snapdeal that Kaff Appliances, had imposed a blanket ban on providing after-sale warranties with regards to products purchased online from unauthorised sellers. In this case, it was held by the CCI that:

  • The conduct of the Kaff Appliances was by its very nature a unilateral policy and involved coercion
  • The ban lacked reasonable justification and led to total deprivation of consumer choice thereby violating Section 3(4) (d) of the Act.

Way Forward

In the light of the audacious and laudable stance taken by CCI in the Snapdeal case, the CCI is likely to mirror the bold mindset in determining the alleged anti-competitive practices of the OYO and Make My Trip. In doing so, the CCI shall continue its endeavor in doing justice to the three-prong focus of the Competition Act, 2002 namely –

  • Encourage competition,
  • Protect consumer interests, and
  • Ensure freedom of trade in markets.

The Indian Competition law can be said to have created enough space so as to allow the novel and creative organizations to enter the market and offer more options to the customers and organizations. It seeks to promote the equality between the ecommerce enterprises and the traditional bricks and mortar companies and dealers.

However, it is suggestive that the CCI should take into account the unique features of the e-commerce sector such as rapid technological advancement, increasing returns, network effects, data collected from the users while analyzing the position of dominance and abuse.

10 Laws That All Women Entrepreneurs Should Know About

By Corporate Law No Comments

Equality is not merely limited to equality of rights but also equal opportunity to enjoy such rights and practice them. The societies of the world are trying hard to bridge the gap between gender and the differences in opportunity available to them but still, there are various steps yet to be taken. When it comes to challenging the role of entrepreneurship which can also be called the building block of human economics and development, women are seen to be lagging behind their male counterparts. The reason could range from societal issues to tradition or economies but we need to understand the legal aspect of the problem. Firstly we would know what are the laws that are present currently in India that a women entrepreneur should know about and the changes that we need? Take a look at laws for women in business.

1) Equal Pay For Equal Work

It has been the most basic of all the right that the government of any state would be trying to secure i.e. “equal pay for equal work.” With the advent of the industrial revolution women started working in the factories together with males but with a lower payment for the same amount of work owing to the dogma of them being less efficient or physical weak in terms of employment that requires physical labor despite clearly showing no difference in work carried on by both the sexes. This ideology continues even till now and as a result, we see a gap in the earning of the two genders however the legislation is already there in this regard known as the Equal Remuneration Act 1976 which clearly states under Section 4 that no discrimination in payment between men and women doing same nature of the job and it caused all establishment to raise the wages of women at par with men as a reduction in wages was prohibited. This law still holds well in modern times.

Apart from this specific legislation our Constitution too give the Fundamental Duty of the state to secure this equal payment for equal work vide Article 39. However, this practice is still to be followed in full fledge as in the non-organized sector we still see the exploitation of laborers and workers so there is no doubt that equal pay would be a farfetched reality for women working there. Also, it’s not only about the non-organized sector even in the glamorous field of cinema and sports we see the huge difference in pay structure. Any Women entrepreneur therefore must keep in mind this law to secure the right of other women in the field and general development thereof.

2) Equal Opportunity Equal Pay

Same as equal payment for work the same Equal Remuneration act, 1976 talks about giving equal opportunity to male and women for securing an employment and no discrimination in recruitment is to be made as per Section 5 of the very act. The act was amended is 1987 to include “condition of service subsequent to recruitment such as promotions, training or transfer” thereby making the ambit wide enough to protect a women’s right not only at the time of appointment but at all subsequent stages so that it doesn’t lose the very essence for which it is drafted. Indian Constitution again talks about similar line of right in Article 16 that talk about equal opportunity in work in public offices which is extended version of Right to Equality but very well made out into another article to stress upon its importance. It is to be also made known to all women out there that non-compliance of these provision would led to penal consequences.

3) Sexual Harassment at work

In year 1997 the Supreme Court through Vishakha v State of Rajasthan gave Vishakha Guidelines to be followed at workplace to ensure safety of women. This guidelines were removed from effect with passing of Sexual Harassment of women at workplace (Prevention, Prohibition and redressal) Act, 2013. It provided the definition of sexual harassment for the first time together with list of actions that will constitute an act of such harassment and prohibited such acts especially by those in workplace who exercise power of authority over women which is common in organisational structure so as to save them from sexual exploitation whether it is public or private organisation. All working women should be aware about their rights in relation to such activity and therefore so does an entrepreneur.

4) Maternity benefits at work

Maternity Benefit act of 1961 recently amended in 2017 provides for a period of 26 weeks of maternity paid leaves for women employees expecting their first two child. In comparison it is very gracious from other nations where period range from 8 to 17 weeks only. An entrepreneur must know that this payment for 26 weeks in India is to be borne by the ‘employer only’ and not by state or any other agency as in case of France, Brazil, USA, Canada or Singapore. This could be a reason for low selection of women at the first place, especially those who might expect their child in near future, seeing the cost to be borne by the organisation for women employees with no work in return. Government therefore should try to adopt a more balance approach following the footstep of other country where insurance company and public fund also contribute for these payments borne.

5) Labour Laws

Labour laws are a must know for all entrepreneurs and women must have a grasp over it too. These laws can be with relevance minimum wages, gratuity, PF payment, weekly holidays, maternity advantages, harassment, payment of bonus and so on. A start up registered beneath the Start-up India program has the choice to finish self-declaration for nine labours laws among one year and acquire an exemption from the labour review. The nine laws are as follows: the economic Disputes Act, 1947 The Trade Unit Act, 1926 Building and different Constructions Workers'(Regulation of Employment and Conditions of Service) Act, 1996 the economic Employment (Standing Orders) Act, 1946 The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 The Payment of Gratuity Act, 1972 The Contract Labour (Regulation and Abolition) Act, 1970 The Employees & Provident Funds and Miscellaneous Provisions Act, 1952 The Employees & State Insurance Act, 1948. Thus to continue with the exemption, the start-up will file the self-declaration for the second and third year conjointly. Also, if a start-up options a well-defined worker policy, then it might give a footing over different start-ups. This policy may facilitate in talent acquisition and retention. Moreover, this may boost the employee’s morale and overall productivity.

6) Company Laws

Company Act in general must be known by all entrepreneurs. Company law is the key for establishment, setting up and closure of business. An entrepreneur would generally be the promoter of the company therefore must have a good hold of Company law so women entrepreneurs should also know this. The new Company act, 2013 vide section 149(1) has made it compulsory for all listed companies to have at least 1 woman director in its board of director. This must be done within 6 months of date of incorporation of such companies and therefore is an essential piece of law that must be kept in mind by all the entrepreneur out there, especially women. This was done in order to increase women participation at a higher level and boost the decision making capability of women. Although it has resulted in no significant development as corporations are simply appointing acquaintances as rubber stamps to comply with the provision which must be amended to that affect to include them as independent directors outside the company or relation.

7) Tax Laws

Till the year 2012 there was a difference in the tax slab over income between men and women but it was removed afterwards. However we still have some concession for women in other taxes whether it is property tax rebate, stamp duty concession, lower interest rate on home loans, credit subsidy for house etc. These will benefit women entrepreneurs and therefore must be known to them. A clear understanding of tax law both direct and indirec including the Goods and Services Tax should be known to a women entrepreneur.

8) Contract Laws

Contracts laws are effective to make positive use of the conventional functioning of any project or to supply recourse simply just in case of non-performance Indian Contract Act, 1872, Negotiable instrument act, Partnership Act, Sale of Goods Act etc. are a must know for entrepreneurs.

NDAs or Non-Disclosure Agreement is another vital contract that a startup may notice helpful. Any startup discusses its ideas with sort of folks from the investors to the employees to customers and because of this, there's a large chance of leakage of the ideas that is wherever NDAs inherit play. This prevents the data from spreading not solely from the folks within however conjointly with the people outside the organization.

9) Intellectual Property Laws

If you’ve a secret sauce or an algorithmic program then it’s important that you just simply ought to take a note of this law. This law helps you secure your ideas from getting exploited commercially by any other player of market. By getting a patent of your product or copyright over your work and thus securing Intellectual property right over your idea you simply protect yourself from any future consequences. In line with this, you may want to patent a trademark than offers you right over commerce beneath a selected name. All this comes beneath property rights.

A Start-up will leverage the ‘Scheme for Start-ups property Protection’ (SIPP) beneath the ‘Start-up India program’. This theme was acknowledged to safeguard and commercialize your property. The facilitators of the theme are impanelled by the Controller General of Patents, logos and class. This panel of facilitators conjointly facilitate the start-up by providing consultative services, aiding in patent filing and disposal.

10) Winding up of Business

It’s not possible that always everything will work out as you planned. With less than 1 percentsuccess rate of Start-ups it is but natural that many company would be forced to shut down its operation. But as a company or any business entity is a legal person it therefore follows a legal process even for its closure. Company law although deals with this part as well however a code of Insolvency and Bankruptcy is there for declaring a company bankrupt as per legal sanction and moving forward with liquidation. The liability of individuals attach to it and the share they might get all depends on this law and therefore women entrepreneurs should also know this very piece of legislation for long run and success.

Apart from the above-mentioned law, an entrepreneur is expected to have certain basic ideas of the Arbitration and Conciliation Act and Information Technology act. Moreover, a successful entrepreneur is one who knows how to derive maximum benefit from the dynamic societal changes and therefore should always be aware of what is happening around him and in the business environment in which he is working and since laws are the guiding principle behind working of society whether it is a business organization or the economy as a whole, a basic idea of all such laws is must for them. They need not be an expert in it but surely shouldn’t be absolutely ignorant about it.

Failed to perform your contractual duties? May the Force (Majeure) be with you!

By Corporate Law No Comments

The lockdown due to COVID-19 has brought business activity to a grinding halt, prompting companies to declare force majeure. But, from a legal standpoint, how important is it to include this clause when you enter into a contract with several parties?

The world has hit the pause button. But contractual obligations must be fulfilled, unless something extraordinary happens. Given the unexpected nature of the pandemic, businesses are asking whether that “something” is COVID-19? The answer lies in the language of contracts.

The concept of force majeure — a ‘superior force’ — was derived from French civil law and later embodied under Sections 32 and 56 of the Indian Contract Act, 1872. This provision provides for relief to parties when a contract becomes impossible or onerous to perform due to circumstances beyond the control of parties. Common force majeure events include floods, fire, an act of God or natural disasters, war, labour strikes, epidemics, pandemics, or simply an event beyond the control of parties. However, the extent to which it saves you from consequences of non-performance is contingent upon the language of the contract. Whether a force majeure clause covers a pandemic depends on the language of contracts, which may be broad or restrictive as agreeable to the parties of a contract. Now, a contract may specify all events that would trigger a force majeure clause, or may loosely define force majeure event as “an event beyond the parties’ control”, leaving room for interpretation. Given the extraordinary circumstances of the emergence of COVID-19, most contracts may not have it listed directly as a force majeure event. In such a scenario, companies must look for relevant language such as ‘disease,’ ‘epidemic,’ ‘pandemic,’ ‘quarantine,’ or ‘acts of government,’ which may be interpreted to include the COVID-19 outbreak. However, the provision does not provide comprehensive, absolute protection against any non-fulfillment of contractual obligations. So, when public health crises or pandemic events such as the COVID-19 are not explicitly included in the agreements — as is most commonly observed — creative arguments and legal advocacy will be critical in creating the best interpretation of the provision to support a force majeure defence.

Other key pointers while invoking the force majeure clause are as follows: Companies also have the ‘duty to mitigate’ effects arising from such events by taking proactive steps and exercising reasonable diligence. The Indian courts have held, time and again, that the burden of proof for a force majeure defence lies with the party asserting it. Furthermore, if other factors lead to the party’s non-performance, then a force majeure clause may not be applicable. Alternate remedies to force majeure In contrast to force majeure clauses, parties may invoke other terms such as limitation or exclusion clauses, material adverse change clauses, escalation or price adjustment clauses and study its implications as stipulated under liquidated damages or predetermined compensation clauses in the event of non-performance of contractual terms. However, a party’s ability to invoke other defences is contingent upon the language of the contract and interpretation of the courts. Further, a party can claim relief under Section 56 of the Indian Contract Act, 1872, commonly referred to as the Doctrine of Frustration. The doctrine is applicable in cases where the occurrence of an event has made the performance of the contract to be impossible and beyond the control of the promisor — typically, death or incapacity of a party, a frustration by virtue of legislation, or material change of circumstances leads to frustration of a contract. In the present scenario, unprecedented government orders arising from the COVID-19 pandemic —like the prohibition on public gatherings, curfews and travel restrictions — may give rise to a valid impossibility defence. However, mere government regulation does not excuse non-performance by a party. Parties seeking an impossibility defence must exhaust all reasonable steps for performance before asserting impossibility under a contract.

What now?

Businesses must, in such unprecedented times, collaboratively work with counter-parties to reach a mutually beneficial solution before going down the adversarial route of litigation, arbitration and adjudication. However, if amicable discussions fail companies should assess their rights and liabilities in regards to force majeure, termination and dispute resolution under a fine lens and in due course renegotiate contractual terms to mitigate damages to avoid suffocation of monies involved in these commercial contracts. Further, parties should assemble and retain all correspondences to insulate themselves from disputes arising in near future.

The pandemic has engulfed over 200 countries and restoration of normalcy appears to be a distant dream in India. Therefore, in a jurisdiction where words of a contract are sacrosanct with little to no intervention by the courts, a deep collaboration between parties to a contract with a shared objective of contractual performance, may be the way forward.

Policy | SEBI’s Innovation Sandbox offers a right balance between innovation and regulation

By Corporate Law No Comments

British writer Arthur C Clarke once said, “Any sufficiently advanced technology is indistinguishable from magic.”

Since the advent of technology, human life has undergone considerable changes that may be perceived as nothing short of magic. We saw a transition from barter system to a cash-dependent economy where citizens have further moved online for gold, savings, gift cards, loans, investments, etc. This change can be attributed to the confluence of finance and technology, also known as FinTech, a term used to describe new technology that seeks to improve and automate the delivery and use of financial-services.

However, with the advent of technological innovations comes an array of problems, such as determining the legal liability of robo-advisors that provide automated, algorithm-driven financial planning services with little to no human supervision, enforceability issues of smart-contracts, ambiguous and loosely-worded data protection laws, etc.

It is in this backdrop that we need to look at the concept of a regulatory sandbox, and more importantly, at the SEBI Innovation Sandbox. This regulatory sandbox is intended to serve as a testing ground for new business models and technologies that benefit investors, markets and the economy at large.

The emergence of the first regulatory sandbox concept was in the United Kingdom in 2015. By 2018, the concept was adopted in many countries such as Australia, Malaysia and Singapore.

Rapid, unchecked growth in the FinTech industry necessitates the need for regulation while promoting innovation. Realizing this, the Securities and Exchange Board of India (SEBI) announced its approval of a regulatory sandbox for live testing of new products, services and business models by market players on select customers for a specified period of time, to ensure that the sandboxing environment has the minimum regulatory burden. That said, no exemptions will be granted from existing principles of investor protection framework, know-your-customer (KYC) and anti-money laundering (AML) prescribed by SEBI.

Further, the SEBI lays down several eligibility criteria for testing a project, including a genuine need to test, direct benefits to customers, no risks to the financial system, to name a few. However, testing may not be permitted if the proposed FinTech solution is similar to those already being offered in the markets, or if the applicant has no intention to deploy the FinTech solution in India.

Once the eligibility criteria is met, the FinTech applicants are then given a testing ground for their new business models and are required to submit reports as prescribed by SEBI. Thereafter, concerned departments of SEBI may perform an initial evaluation of the sandbox applications and present their findings to a committee for final evaluation and confirmation. This process enables SEBI to gauge the readiness of the FinTech solution for the market.

While the Indian capital market participants have been early adopters of technology, the SEBI is of the view that adoption and usage of emerging financial technology can be a key instrument to further develop and maintain an efficient, fair and transparent ecosystem.

In fact, this new framework is likely to open a plethora of opportunities for the FinTech players in the securities and exchange market. SEBI’s Innovation Sandbox will help FinTech participants to test their solutions, foresee any hindrances and yet make a difference with innovative technologies. Hence, it allows the FinTech firms to bring their best to the table.

SEBI’s Innovation Sandbox might strike the right balance between encouraging emerging technological advancements and governing them accordingly. It is a step in the right direction by providing an environment of balanced innovation and regulation, which will enable India to emerge as a startup haven.

However, it is important to note that mere existence of a regulatory sandbox is not sufficient for multi-dimensional growth; implementation is the key. Although this appears to be a welcoming step towards encouraging innovation and technology in the financial sector, its effectiveness and success is largely dependent on its execution.

As rightly said by American author Simon Sinek: “What good is an idea if it remains and idea? Try. Experiment. Iterate. Fail. Try again. Change the world.”

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