Laws for Owning Drones and Gyroplanes in Pipeline in India

Ravi Singhania


22/08/2017  

Drones are unmanned aircraft that can fly autonomously without a human in control. The flight (speed, navigation, aerobatics, etc.) are controlled by onboard computers which are in turn directed by remote human operators.

Gyroplanes are aircrafts, such as a Helicopters, Microlight aircraft, Light sport aircraft or Autogyros, equipped with wings that rotate about an approximately vertical axis.

Recently the Director General of Civil Aviation has laid down the following draft rules for commercial usage of drones and gyroplanes:

Licence permit for Drones

  • Drones weighing more than 250 grams will not be allowed to fly unless such aircraft has been allotted a Unique Identification Number by the Director-General. The fee to issue a unique identification number for a remotely piloted aircraft would amount to Rupees 1000 only.
  • The fees payable for grant of permit is Rupees 50,000 and for renewal of permit is Rupees 15,000 which is to be paid in the manner specified by the Director-General.
  • As per the conditions of the permit issued by the Director-General, a remotely piloted aircraft with all up weight exceeding the limit as specified by the Director- General from time to time is not to be permitted to fly by the operator.

Licence and pilot permit for Gyroplanes

  • The applicant should not be less than 17 years of age on the date of application.
  • Should have passed Class 10 or equivalent examination from a recognised Board.
  • Provide a certificate of physical fitness from an approved medical practitioner as per the requirements notified by the Director General.
  • Pass a written examination in Air Regulations, Air Navigation, Aviation Meteorology and Aircraft and Engine. An applicant who holds a valid Private Pilot’s Licence (Aeroplanes)/ (Helicopters) or a higher category of Pilot’s Licence shall pass an examination in Aircraft and Engines only.
  • Completed flying training in accordance with the syllabus prescribed by the Director-General.
  • The Licence shall indicate the type of gyroplane the holder is entitled to fly.
  • A Pilot of a gyroplane should have completed at least 40 hours of flight time that includes at least 15 hours of solo flight time of which 10 hours at the minimum should be completed within 12 months.
  • The holder of a current Private Pilot’s Licence (Helicopter) or a higher category of Licence (Helicopter) are only required to carry out familiarization flights under the supervision of an approved Examiner or a Flight Instructor authorized by the Director-General satisfactorily that need to be followed by not less than 3 solo take-offs and landings.
  • When a pilot completes a minimum of 100 hours of flight time as Pilot-in-Command, they are given an open rating for all types of gyroplanes.
  • Successfully perform the procedures and maneuvers prescribed in the syllabus, within 6 months of the date of application.
  • A Gyroplane Pilot is not allowed to:
    • Carry a passenger or property for compensation or hire.
    • Fly at night.
    • Fly in Class D and E airspace (controlled airspace) unless he holds a valid Flight Radio Telephony Operator’s Licence (Restricted) and has been trained by an approved instructor.
    • Fly at an altitude of more than 10,000 feet mean sea level or 2000 feet above ground level, whichever is higher and surface visibility is less than 5000 meter.
    • Fly without visual reference to surface.
    • Fly contrary to any operating limitation placed on the special certificate of airworthiness of the aircraft being flown.

Investment Arbitration – The Assignation & its Way Ahead in India

Madhu Sweta


22/08/2017  

India has given notice of unilateral termination of 58 Bilateral Investment Treaties (BIT) on 31st March 2017 and it is in process of signing some crucial BITs, such as the US-India BIT. All of this in conjunction with India’s aim of increasing foreign investment flow into the country makes the topic BITs and Investment Treaty Arbitration all the more important.

Introduction – The Regression of Gunboat Diplomacy

In the gamut of a sound and systematized International Arbitration regime, Investment Arbitration (IA) is more than often described as an insurgent counter against “Gunboat Diplomacy[1].” Investment Arbitration usually arises out of Investment treaties that are entered into by the foreign investors and the Host States, with a view to make an investment by one party in the business ventures of the other. The chariot of Investment Arbitration (IA) thrives upon its following wheels:

  1. An investment treaty, either multilateral (MIT) or bilateral (BIT).
  2. The national law of the Host State pertaining to Investments.
  3. An independent Investment Agreement, if entered.
  4. Choice of Independent and individual Arbitrator/Arbitral Tribunal.

The failure of either of the wheels makes the functioning of the entire regime a fruitless exercise. As a general way of practice, a majority of Investment Arbitrations are treaty based which are governed by either Bilateral or Multilateral Treaties. Essentially, International Investment Arbitration adopts the body of procedure and enforcement from International Commercial Arbitration and applies the same to disputes between foreign investors and host states. The regime works hand in glove with the International Commercial Arbitration to create a conducive environment for Foreign Direct Investment (FDI) and business to flourish in any country. Thus the key aspect of investment arbitration is that it transplants the private adjudicative model from the sphere of International Commercial Arbitration into the realm of government, thereby giving individual investors/private parties a chance to seek redressal for treatment accorded to them by the Government of India.

Objective & Procedure

The dispute resolution clause which provides for the appointment of arbitrator is based either on treaties or general agreements. Such clauses entrust power and discretion to the appointed Arbitrators to make findings on the behavior of the Host State towards the foreign investors. The parties to an Investment Arbitration are free to engage independent arbitrators to make what are in quintessence; governmental decisions. These dispute resolution clauses which are common to all Investment Arbitrations are carefully drafted to either concur to an institutional arbitration format or an ad-hoc format, depending on the nation and its relevant treaties.

Dispute resolution by way of an institutional format or an ad-hoc basis comes with an elaborate procedure of rules which must be adhered to depending on the format the parties chose. Several treaties are either governed by the terms of International Convention for Settlement of Investment Disputes (“ICSID Convention”) or the UNCITRAL Rules for Arbitration (“UNCITRAL”).The basic structure, procedure and formats of Investment Arbitration are reproduced as follows:

 

The Indian Endeavor

The 1965 ICSID convention[2] created first of its kind forum for resolution disputes between states and the investors (directly), by way of including arbitration clauses in contract between states. India like many other developing countries hasn’t signed or ratified this convention (ICSID). Despite that India has entered into ‘Bilateral Investment Treaties’ commonly known as Bilateral Investment Protection Agreements (“BIPAs”)[3]with many countries, been part of various arbitrations and even had two major Investment Arbitration awards against it. The obligations that the contracting parties i.e. The Government of India and the foreign Investor are largely independent of the domestic legal systems, thereby pave way for public international law. The following are the essential clauses which involves BIT/BIPA:

  1. Applicability
  2. Fair and Equitable Treatment (FET)
  3. Full Protection and Security
  4. Most favored nation treatment (MFN)
  5. Expropriation
  6. Dispute Resolution Regime

India signed its first BIT with the United Kingdom[4] in 1994, and since then has signed more than 83 BITs with various nations across the globe, out of which 72 are still in force, while the remaining ones have not been enforced. Although India promises to be one of the most attractive destinations for FDI, but the relaxation of FDI norms still does not gel with many states making India a difficult jurisdiction to do business with.[5] Consequently, the investor-state disputes are inevitable.

The Union Government released the text for the new Model Indian BIT in December 2015[6]. This new Model BIT contains some controversial and debatable clauses, such as the updated ‘Most Favoured Nation’ (‘MFN”) clause, which may not gel with the interests of many contracting states. The issue of lack of awareness and the prevalence of misconceptions on BIT’s and BIPA’s implies that the investors are consequently unaware of all the protections that are afforded by such Investment Treaties. Under the Indian regime, the Investors should keep the following points in mind:[7]

  1. The conceptual framework of an ‘investment’ covers multitude of activities and contributions that might broadly be said to lead to acquisition of any right or asset by the investor.
  2. The protection afforded by investment treaties is usually in addition to the normal contractual rights that the investor will have against its counterpart.
  3. The protection afforded by investment treaties are directly enforceable by the investor against the Host State- often through international arbitration and without the need to litigate in the Host State’s Courts.
  4. Indian investment treaties do not just benefit foreign investors investing into India; claims can also be brought by Indian investors against foreign governments.

But much stands to be changed now as recently the Union Minister for Commerce and Industry has announced that the Indian Government intends to unilaterally terminate all existing BITs by 31st March, 2017. The Government of India had already conveyed this to all the contracting states of the existing BITs. What the Indian Government wants to convey with this is the intent to sign new BITs based on the new Model BIT that it published in December 2015, replacing all the existing BITs.

This comes at a juncture when around 23 BITs between India and various EU nations are on the verge of renewal/replacement. These numbers make the Indian BIT programme one of the biggest amongst developing countries. This bilateral regulatory framework is significant in terms of its effect on the domestic regulatory behavior of India as regards investment inflows from its treaty partners. The basic idea that persists is that investments and investor covered under the BITs are not to be put under risks, which are inappropriate or unreasonable.[8] The current Indian BITs do not give ‘a right to make investments’ in India. This is one of the most noticeable features of the BITs to which currently India is a party. Thus, what it conveys is that the rights under the BITs can only be exercised after making Investments in India.

White Industries vs. Republic of India

The dispute in this matter between Coal India Ltd. (a PSU) and White Industries (Australian Company) arose out of an ICC Arbitration Clause in relation to contract of development of a mine in Piparwar in India, valued at 206.6 Australian Dollars (AUD). The Arbitration whose seat was fixed in Paris resulted in effecting the Republic of India with an award worth 4.06 Million Dollars in favor of White Industries. In pursuance to the legal battle with respect the enforcement of such award, it is in 2009 when White Industries invoked the provisions of the India-Australia BIT, and opted for Investor-State Dispute Resolution. As a result, an Ad Hoc tribunal was constituted and the Investment Arbitration proceedings were conducted according to UNCITRAL Arbitration Rules.

The Tribunal observed in its award dated November 30, 2011[9], that “India had breached its obligation to provide effective means of asserting claims and enforcing rights”. What led the Republic of India to such knell was the “Most Favoured Nation” (MFN) clause which entailed the India-Australia BIT. White Industries had argued that Article 4(5) of the India- Kuwait BIT, made it mandatory for the host State to provide “effective means of asserting claims and enforcing rights” to investors, would be applicable to the India-Australia BIT as well, owing to MFN clause in the India-Australia BIT.

Antrix Devas Case[10]     

In 2005, an agreement to lease out satellite spectrum was entered into between ‘Antrix’, the commercial arm of Indian Space Research Institute (ISRO) and ‘Devas Multimedia’, a Bangalore based company backed by Mauritius based foreign investors. Under the agreement, Antrix was to provide the spectrum to Devas Multimedia on lease for a period of 12 years, in return of payment of 30 million dollars as fees upfront. But in 2011, ISRO annulled the above agreement citing ‘larger national and local interests’. Devas Multimedia initiated International Commercial Arbitration proceedings under an ICC Arbitration Tribunal. This resulted in an award of Rs.4,400 crores. Simultaneously, Devas Multimedia also initiated Investor-State dispute resolution proceedings against Antrix under the India-Mauritius BIT, as Devas Multimedia was backed by foreign investors. What followed was an award against India under the Investment Treaty Arbitration by the Tribunal at Permanent Court of Arbitration (PCA) at The Hague in July 2016. The tribunal ruled that annulment of Devas-Antrix agreement amounted to ‘expropriation’ and resulted in breach of treaty commitments under India-Mauritius BIT, to accord ‘Fair and Equitable Treatment’ to Devas’ foreign investors.

Besides the White Industries and Antrix-Devas awards, India has received several notices for Investment Treaty Arbitration under various BITs by several investors. Pending claims against India include challenges to various regulatory measures such as cancellation of telecom licenses and imposition of retrospective taxes. As on date, there are fourteen known pending proceedings of claims brought against India. Due to the adverse award in the White Industries case and several other notices for Investment Treaty Arbitrations under various BITs, the focus on BITs got renewed. The White Industries case in particular compelled India to rethink its BIT program. Consequently, the Union Government of India undertook a review of the 2003 BIT Model and what followed was the new Model BIT of India in March 2015.

India has given notice of unilateral termination of 58 BITs on 31st March 2017 and it is in process of signing some crucial BITs, such as the US-India BIT. All of this in conjunction with India’s aim of increasing foreign investment flow into the country makes the topic BITs and Investment Treaty Arbitration all the more important.

Conclusion

A spectrum of recent incidents ranging from cancellation of 2G licenses, retrospective tax amendments etc. have resulted in the issuance of BIT Notices to the Government of India. Furthermore, the main problem with India’s new Model BIT lies in its ‘Dispute Resolution ‘clause. The pre-requisite of exhausting and pursuing all domestic remedies before bringing claims under the BIT is a redundant course of action as the same could render the whole purpose of BIT futile. However, the Indian government in its counter strike to avoid claims under the BITs is rather creating a plethora of future disdains. The need of the hour demands an amended ‘Dispute Resolution’ clause of the Indian Model BIT of 2015 which is more pragmatic. In order to achieve this, the Indian government has to work hand in glove with the Indian Judiciary to promote a regime of a rapid inland dispute resolution mechanism.

(The author would like to thank Kanika Tandon, Associate of the firm for the valuable assistance in researching for this article.)

 

[1] Cable, James. “Gunboat Diplomacy: Political Applications of Limited Naval Force” Chatto and Windus for the Institute for Strategic Studies, 1971, p. 10.

In international politics, Gunboat Diplomacy (or “Big Stick ideology” in U.S. history) refers to the pursuit of foreign policy objectives with the aid of conspicuous displays of naval power – implying or constituting a direct threat of warfare, should terms not be agreeable to the superior force. For instance- Great Britain, Germany, and Italy sent warships to the Venezuelan coast to demand reparation for the losses incurred by their nationals when Venezuela defaulted on its sovereign debt.

[2] Campbell MCLachlan et al., International Investment Arbitration: Substantive Principles, 315-49 (2008) as cited in S. I. Strong, Mass Procedures in Abaclat v. Argentine Republic: Are They Consistent with the International Investment Regime? 3 Yearbook on International Arbitration (Forthcoming), at p. 17.

[3] Bilateral Investment Promotion and Protection Agreements, Ministry of Finance, Government of India, available at http://www.finmin.nic.in/bipa/bipa_index.asp http://finmin.nic.in/bipa/bipa_index.asp?pageid=1

[4] Bilateral Investment Promotion and Protection Agreements, Ministry of Finance, Government of India, available at http://www.finmin.nic.in/bipa/bipa_index.asp http://finmin.nic.in/bipa/bipa_index.asp?pageid=1

[5] India an Attractive FDI Destination, Ministry of External Affairs, Government of India, Investment and Technology Promotion Division, available at http://indiainbusiness.nic.in/newdesign/index.php?param=advantage/171; Fact Sheet on Foreign Direct Investment, DIPP available at http://dipp.nic. in/English/Publications/FDI_Statistics/2014/india_FDI_March2014.pd

[6] Article 14.7 (i) of the Indian Model BIT text of 2015- “Applicable Rules- (i) The arbitration shall be conducted under the Arbitration Rules of the United Nations Commission on International Trade Law inforce at the time of the commencement of the dispute or any other rules agreed to -between the parties in writing prior to the commencement of arbitration, and as modified by this Treaty.”

[7] V. Inbavjayan & Kirthi Jayakumar; Arbitration and Investments – Initial Focus, Indian Journal of Arbitration Law, Volume II, Issue 1.

[8]https://www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20Investment%20Treaty.pdf

[9]  https://www.italaw.com/sites/default/files/case-documents/ita0906.pdf

[10] Antrix Corporation Limited v. Devas Multimedia Pvt. Ltd. (2014) 11 SCC 560

Well-known Trademarks – India Perspective

Dipak Rao


22/08/2017  

Till the present day, there are 81 declared well-known trademarks in the list maintained by the Trademark Registry in India.  By the introduction of one step procedure for determining a trademark as well-known, the list is expected to increase very soon.  This is the right opportunity for trademark owners in India or overseas to have their trademarks accepted and declared as well-known in India so that their trademarks are protected from being infringed or passed off by any unauthorized person.

INTRODUCTION

With the emergence of several social media platforms and innovative advertising ideas the reach of brands to the consumers have increased tremendously. Consumers are growing aware of trademarks associated with such famous brands. A huge amount of time, money, and resources are being spent by the owners of the trademarks to maintain their popularity in this globalized world. The tag of ‘well-known trademark’ in such a competitive market would be like attaining ‘MOKSHA’ for trademark owner as with the tag of the well-known trademark the basic aim for the protection of trademark shifts from the ‘consumer deception’ to preserving the distinctiveness of a trademark by protecting it against dilution and tarnishing. Hence, proof of confusion and deception, which is one of the traditional requirements of trademark infringement actions and passing-off actions, becomes a secondary consideration in the protection of well-known trademarks.

Indian Trademark Law recognizes well-known trademarks and has adopted the criteria that has been laid down under Article 6 of the TRIPS Agreement.

The statutory definition of a well-known trademark is given in the Trade Marks Act, 1999, (“Act”) is –

“well-known trade mark”, in relation to any goods or services, means a mark which has become so to the substantial segment of the public which uses such goods or receives such services that the use of such mark in relation to other goods or services would be likely to be taken as indicating a connection in the course of trade or rendering of services between those goods or services and a person using the mark in relation to the first-mentioned goods or services.

Further, there are provisions in the Act which lays down the factors which deals with the various matters concerning protection of well-known trademark. They are in the nature of explanations, which may arise in the context.

Under the Act, the Registrar of Trademarks (Registrar), while determining whether a trademark is a well-known trademark, will have to take into account any fact which he considers relevant for determining a trade mark as a well-known trademark including-

  1. the knowledge or recognition of that trademark in the relevant section of the public including knowledge in India obtained as a result of promotion of the trademark;
  2. the duration, extent and geographical area of any use of that trademark;
  3. the duration, extent and geographical area of any promotion of the trademark, including advertising or publicity and presentation, at fairs or exhibition of the goods or services to which the trademark applies;
  4. the duration and geographical area of any registration of or any application for registration of that trademark under this Act to the extent they reflect the use or recognition of the trade mark;
  5. the record of successful enforcement of the rights in that trademark, in particular the extent to which the trademark has been recognised as a well-known trademark by any Court or Registrar under that record.

Also, while determining the knowledge and recognition of the trademark in the relevant section of public as mentioned above the Registrar will have to take account of-

  • the number of actual or potential consumers of the goods or services;
  • the number of persons involved in the channels of distribution of the goods or services;
  • the business circles dealing with the goods or services to which that trademark applies.

The law is very clear regarding the fact that if a trademark has been determined to be well-known in at least one relevant section of the public in India by any Court or Registrar, the Registrar shall consider that trademark as a well-known trademark for registration under the Act.

The Act states that while determining a trademark to be well-known, the Registrar shall not require as a condition that the trademark has been used or registered or has been applied for registration in India. It also states it is not essential that the trademark should also be well known to the public at large in India. Further, it is also not a condition that the trademark is well-known or a registered trademark or the pending registration or pending in any jurisdiction other than India.

Once a trademark is declared as well-known by the Registrar or by any courts, the trademark registry while dealing with any new trademark shall not register any similar or deceptively similar trademark that is identical or similar to the ‘well-known’ trademark across all classes of goods and services. For e.g. “SONY” has been declared as a well-known trademark under the Indian law which means that in India only Sony Corporation can use or register the mark “SONY” in any class of goods and services. Similarly, if there is an infringement proceeding, a ‘well-known’ trademark can be asserted against defendants dealing in entirely different goods or services. Therefore, a well-known trademark is of great importance to the trademark owners and has huge commercial implications.

A recent amendment in the Indian Trademark Rules, which have been notified as ‘The Trademark Rules, 2017’ (“Rules”), has created a lot of buzz amongst the trademark owners. A new procedure for filing of an application for the determination of trademark as well-known by the Registrar has been introduced. Prior to enactment of any such Rule, the process of declaring a trademark as well-known was solely decided by the Courts or Tribunals, resulting out of a full-fledged contested litigation or legal proceeding.  A mere claim that the trademark is well-known by the owner of the trademark is not sufficient.

Under the notified Rules, the trademark owner can now file an application for declaration of their trademark as a well-known trademark before the Registrar by making a payment of prescribed fee of INR 1 lakh (USD 1550 approx.). While reviewing such an application, the Registrar would determine whether the said trademark is to be considered as a well-known trademark or not based on the provisions laid down in the Act as mentioned above. Under the Rules the trademark owner can now directly proceed to protect his trademark as well-known, without initiating any infringement or opposition proceedings. Though the Rule does inflict certain duties on the general public as they are free to object and such objections are to be filed within 30 days from the date of invitation of such objection.

In order to further streamline the procedure for filing of an application for well-known trademark, a notice has been issued by the concerned authority. The notice includes certain requirements to be fulfilled by the applicant while filing the application for inclusion of a trademark in the list of well-known trademark.

The general guidelines include:

  1. The application should be accompanied with following set of documents:

Statement of case:

This should describe the applicant’s rights in the trademark and also the applicant’s claim that the trademark is a well-known trademark, clearly and in a proper manner.

Evidence in support:

Evidence in support of the applicant’s rights and claim is to be filed along with the application. In other words the application should be accompanied with:

  1. Evidence as to use of trademark.
  2. Any applications for registration made or registration obtained.
  3. Annual sales turnover of the applicant’s business based on the subject trademark duly corroborated.
  4. Evidence as to the number of actual or potential customers of goods or services under the said trademark.
  5. Evidence regarding publicity and advertisement of the said trademark and the expenses incurred.
  6. Evidence as to knowledge or recognition of the trademark in the relevant section of the public in India and abroad.

Details of successful enforcement of rights:

If there are any enforcement rights relating to the said trademark in particular extent to which trademark is recognized as well-known trademark by any Court in India or Registrar, those details have to be clearly stated.

Copy of the Judgment:

If there is a judgment by any Court in India or Registrar, where the trademark is determined as well-known trademark, such judgment should be given with the application under rule 124.

The size of the document:

The documents submitted along with statement of case as evidence / supporting document should be in PDF format with resolution of 200 X 100 dpi on A4 size papers and total file size shall not exceed the limit of 10 MB.

  1. After the receipt of the application, the controller will consider the claim of the applicant on the basis of documents submitted.
  2. The office may publish the details of trademark proposed to be included in the list of well-known trademarks.
  3. Any person, who wants to object the inclusion of the said trademark in the list of well-known trademarks, may file his objection in writing to the Registrar stating out the reasons clearly for his objection and also the supporting documents, if any exist.
  4. Copy of the objection will be communicated to the applicant for comments within stipulated time.
  5. Office will communicate the decision in respect of the objections to the parties concerned.
  6. Final decision of the office regarding inclusion of the trademark in list of well-known trademarks will be communicated to the applicant.
  7. In case the mark is determined as well-known, the same will be notified in the Trade Marks Journal and included in the list of well-known trademarks made available on the official website.

Till the present day, there are 81 declared well-known trademarks in the list maintained by the Trademark Registry. By the introduction of one step procedure for determining a trademark as well-known, the list is expected to increase very soon.  This is the right opportunity for trademark owners in India or overseas to have their trademarks accepted and declared as well-known in India so that their trademarks are protected from being infringed or passed off by any unauthorized person. At the same time, the Registrar ought to follow a cautious approach while considering applications for determination of trademarks as well-known, since once a trademark is declared as well-known, it will preclude any other party from using such trademark (or even similar to it) in respect of other goods and services.

(The author would like to thank Nishi Shabana, Principal Associate of the firm for the valuable assistance in researching for this article.)

The Companies (Amendment) Bill, 2016 – Key Features

Ravi Singhania


22/08/2017  

With a focus to ease doing business in India, the Government of India through this Bill addresses inconsistencies and procedural restrictions in the present Companies Act, 2013. Considering the changes the Bill propose to bring about, it can be clearly said that there will be a sea change in the present Act which will boost economic growth and upheave foreign investment in India.

INTRODUCTION

In order to facilitate ease of doing business in India, the Lok Sabha on 27th July, 2017 passed The Companies (Amendment) Bill, 2016 (“Bill”) thereby bringing change to the present Companies Act, 2013 (“Act”) with respect to structuring, disclosure and compliance requirements for the companies.

Some of the focal points of the Bill are discussed hereinbelow:

  1. Associate Company: In order to align the definition with the Accounting Standards, the Bill propose to change the definition of “significant influence” in section 2(6) of the Act and accordingly, it shall mean control of twenty percent of the total voting power, or control of or participation in business decisions under an agreement.

The Bill propose to include the definition of “joint venture” which shall mean a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

  1. Key Managerial Personnel (KMP): The definition of KMP as given in section 2(51) has been extended to include any other officer of the company (i) who is not more than one level below the directors; (ii) who is in whole time employment; and (iii) has been designated by the Board as a KMP.
  2. Related Party: The term “company” under section 2(76) (viii) is proposed to be substituted with “body corporate” so as to include the companies incorporated outside India related to the Indian company under the related party definition.

Additionally, a body corporate which is an investing company or the venturer of a company would also be a related party.

  1. Small Company: Paid-up Capital is proposed to be increased from INR 5 Million to INR 100 Million in section 2(85). Turnover from minimum of INR 20 Million and maximum of INR 200 million is proposed to be revised to a maximum of INR 1000 Million in the said section.
  2. Liability of Members: Insertion of new clause 3A providing for liability of members when the minimum number of members falls below the statutory limit i.e. seven in case of a public company or two in case of a private company and such a situation continues for a period exceeding six months or more. The persons continuing to be involved with the company as members shall be severally liable for the payment of the debts contracted during the above period and they shall also be liable to be sued severally for such debts.
  3. Business Objects: The company would not be required to have main objects in its Memorandum of Association as required under section 4(1) (c) and 4 (5) (i) and is permitted to engage in any lawful act or activity or business, or any act or activity or business to pursue any specific object or objects, as per the law for the time being in force.

However, where the company propose to carry out any specific object or activity, it has to mention the same in the Memorandum and the company shall not pursue any other activity than mentioned in the Memorandum.

The time limit for reservation of name of the company by the Registrar of Companies has been proposed to be reduced to twenty days from the existing period of sixty days.

  1. Registered Office: It is proposed that the company shall within 30 of its incorporation have registered office instead of present requirement of 15 days as provided under section 12 (1). Also, in case of change of registered office of the company, it shall intimate such change to the Registrar of Companies within 30 days from the date of change instead of 15 days.
  2. Beneficial Interest: The Bill propose to define “beneficial interest” under section 89 in a share shall now include holding directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with another person to either exercise the rights attached to the shares or to receive or participate in respect of the dividend on the said shares.
  3. Annual Return: The Bill propose to exclude the extract of Annual Return forming part of the Board’s Report as provided under section 92.
  4. Place of Annual General Meeting: The Bill Propose to amend section 96 whereafter Annual General Meeting (AGM) of unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.
  5. Global Extra-Ordinary General Meeting: Extra-Ordinary General Meeting (EGM), as provided under section 100, of wholly owned subsidiary of a company incorporated outside India can be held outside India.

EGM can be called at a shorter notice where consent is given by members holding not less than 95% of paid-up share capital in case the company is having share capital.

  1. Consolidated Financial Statements: The company shall prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall then be laid before the AGM of the company. Presently, as per section 129 (3) the company is required to file consolidated financial statement of only its subsidiaries.
  2. Board’s Report: Few of the proposed changes in section 134 are as follows:
  • The Board Report shall be signed by the Chief Executive Officer, whether he is a director in the company or not.
  • Disclosures which have been provided in the financial statement shall not be required to be reproduced in the report again.
  • The extract of the Annual Return is not required to be annexed with the board’s Report. Only the of the web address where the Return can be accessed needs to be furnished;
  • The company need not mention the exact text of the policies, key feature of policies along with its web link shall be disclosed in Board’s Report.
  1. Corporate Social Responsibility (CSR): Eligibility criteria for constituting the corporate social responsibility committee and incurring expenditure towards CSR as provided under section 135 is proposed to be calculated based on immediately preceding financial year instead of preceding three financial years.

The CSR committee can be constituted with two or more directors in case the company is not required to appoint independent director.

  1. Ratification of Auditors: The requirement of ratification of appointment of auditors under section 139 at every AGM shall not be necessary.
  2. Qualifications of Directors: Few of the proposed changes in chapter XI are as follows:
  • The computation of 182 days for determining whether a director is resident in India shall be done in reference to previous financial year instead of calendar year;
  • The Central Government should be empowered to recognize any other identification number in place of Director Identification Number;
  • Directorships in dormant company shall be counted for the purpose of calculating the ceiling limit of number of directorships;
  • Any director who has been disqualified under section 167(2) shall cease to his directorship in other companies except the company in which he has defaulted;
  • It is optional to file form DIR-11 by the director upon resignation; and
  • The directors shall be allowed to participate on restricted items at board meetings through video conferencing or other audio-visual means if there is quorum through physical presence of directors.
  1. Loans to Director: The entire section 185 has been substituted. Some important changes are:
  • The Bill propose to impose complete restriction on providing loan, guarantee or security in connection with loan to any director, director of the holding company or any partner or relative of any such director or any firm in which any such director or relative in a partner;
  • Loan to any private company of which any such director is a director or member; any body corporate at a general meeting of which not less than twenty- five per cent. of the total voting power may be exercised or controlled by any such director, or by
  • two or more such directors, together; or any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company; is allowed subject to special resolution passed by the shareholders of the company.
  1. Loan and investment by a company: The Bill propose to remove the restriction under section 186 of making investment through not more than two layers of investment companies.

CONCLUSION

With a focus to ease doing business in India, the Government of India through this Bill addresses inconsistencies and procedural restrictions in the present Companies Act, 2013. Considering the changes the Bill propose to bring about, it can be clearly said that there will be a sea change in the present Act which will boost economic growth and upheave foreign investment in India.

 

(The author would like to thank Ankita Singh, Associate of the firm for the valuable assistance in researching for this article.)

Investment Opportunities Special Economic Zones In India

Dipak Rao


22/08/2017  

The Export Processing Zone (EPZ) Policy implemented in 1965 during the ‘Import Substitution Industrialization’ (ISI) period included multiplicity of controls and clearances, absence of good infrastructure and unstable fiscal regime which paved way for the transformation of EPZs into Special Economic Zones. The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and compatible environment for exports. The policy aimed at promoting exports from the country and boost the economic growth by using tax and business incentives to attract foreign investment.

The Special Economic Zones Act was enacted in the year 2005 and became effective in the year 2006.

Selection and Appointment of Arbitrators in India

Abhishek Kumar


21/06/2017  

The Arbitration and Conciliation (Amendment) Act, 2015 grants the liberty to the parties to appoint an arbitrator mutually.

The Act provides that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. However, if the parties fail to do so, the arbitral tribunal shall consist of a sole arbitrator.1

The procedure in relation to appointment of arbitrator(s) is provided under Section 11 of the Act. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. The aforesaid section also deals with the contingency wherein the parties fail to appoint an arbitrator mutually. In such a situation, the appointment shall be made, upon request of a party, by the Supreme Court or any person or institution designated by such Court, in the case of an International Commercial arbitration or by High Court or any person or institution designated by such Court, in case of a domestic arbitration.

Before the appointment of arbitrator is made, the concerned Court or the person or institution designated by such Court is required to seek a disclosure in writing from the prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to any qualifications required for the arbitrator by the agreement of the parties and the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may affect his ability to complete the arbitration within 12 (twelve) months.

The purpose of this provision is to secure the appointment of an unbiased and impartial arbitrator.

Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh Schedule (Annexure-B) lays the grounds which make a person ineligible to be appointed as an arbitrator.

The Act provides that in an International Commercial Arbitration, an arbitrator of a nationality other than the nationalities of the parties may be appointed where the parties belong to different nationalities.

Expeditious disposal of application for appointment of an arbitrator(s) is emphasized by the Act and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

Footnote

1 Section 10 of the 2015 Act