Gautam – ��߲��

India’s CAM opens Singapore office

Gautam — Wed, 17 Feb 2021 08:51:14 +0000

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Indian law firm Cyril Amarchand Mangaldas (CAM) opened a representative office in Singapore on 12 February, the first overseas office for the law firm.

��The case for Singapore is kind of obvious,�� Cyril Shroff, managing partner at CAM, told Asia Business Law Journal. ��It��s been on our mind for a very long time because of the strategic importance of Singapore to the Indian market, and also broadly for the global legal community, because a lot of global firms are now running their India practice at least partly out of Singapore,�� said Shroff.

Cyril Shroff
Managing partner
Cyril Amarchand Mangaldas

��So, it��s become an extremely key centre for global law firm relationships, as well as for a large number of our financial sector clients, apart from corporates and others.��?

CAM��s representative office will do only promotional work for now, but the law firm has applied to the Singapore Legal Services Regulatory Authority for?a?foreign legal practice (FLP)?licence.

��But for the pandemic and the travel restrictions, we would have gone for a proper branch right from the beginning,�� said Shroff. ��But at this stage, people are not allowed to sort of go across or come in. So, we therefore took the first step of putting our toe in the water with a representative office. And in the course of the year, we will upgrade to a foreign legal practice or a branch.��?

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What should be disclosed during due diligence

Gautam — Tue, 14 Apr 2020 01:40:40 +0000

Due diligence is critical during any transaction, be it a potential merger and acquisition, investment, loan or financing. The general principle of buyer beware makes it important for any investor or purchaser to examine all material information as part of the due diligence exercise.

GV Anand Bhushan
Partner and Head of the Chennai office
Shardul Amarchand Mangaldas & Co

There have been numerous instances where mistakes in the due diligence process have proved to be costly after the completion of the transaction. It is the responsibility of the buyer to investigate and analyse the assets, liabilities, records, financials, and customers of a business to ensure that what is being acquired aligns with its expectations. It is the responsibility of the seller to correctly disclose what is necessary and material for the buyer to make an informed decision. The seller or target is asked to provide a prospective buyer with the information that the buyer needs to satisfy its own due diligence inquiries and to evaluate the target��s business.

Advisers conducting due diligence for the buyers generally commence such exercises with a broadly worded requisition list. The seller or target has to maintain a delicate balance between neither divulging more nor divulging less than what is required. It is essential for the seller or target to be mindful of their duty to disclose.

Abhishek Jain
Senior Associate
Shardul Amarchand Mangaldas & Co

The general rule is that mere non-disclosure does not constitute misrepresentation, unless there is a duty to disclose material facts, however disreputable such non-disclosure may be in the particular circumstances. As stated in the explanation of section 17 of the Contract Act, 1872, ��mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that �� it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.��

The courts have held that the duty to speak only arises where one of the parties is without the means of discovering the truth and has to depend on the good sense of the other party. Where a person is not asked for any information that he has no legal duty to disclose, he has no duty to speak of it. Obviously, a seller cannot be called on to disclose that of which he is not aware.

A seller or a target should be mindful that unless there is a duty to disclose, it can choose to remain silent about the aspects not asked for. However, where the seller or the target is entitled to remain silent, but instead chooses to speak, it has to speak truthfully and completely. The task is challenging in the initial phase when the requisition is broad; at this stage, the seller needs to be careful as to what has been asked for and what it is bound to be disclosed. Generally, in any due diligence exercise, the process is iterative and evolves in important respects over time. If the buyer asks for specifics, the seller cannot remain silent or disclose partial or misleading facts when it is aware of facts that it considers are material for the buyer to make an informed decision.

Daiichi Sankyo Company Limited v Malvinder Mohan Singh and others (2018) is a landmark case in recent corporate M&A history where the buyers, Daiichi Sankyo, alleged fraudulent misrepresentation against the sellers of Ranbaxy on the grounds of incomplete disclosure at the time of due diligence. Subsequent arbitration proceedings awarded over US$338 million in damages to the buyers. The fact that the sellers provided no representation and the warranty to the buyers under the share purchase and share subscription agreement could not protect them.

Practical suggestions for a seller or target regarding due diligence are:

Sellers and targets should undertake advance preparation and devote substantial time and resources;
The management of the target spearheading the due diligence exercise should have a firm grasp on the affairs of the target and should be fully involved in the due diligence exercise;
Trusted and competent professional advisers should assess what to disclose and what not to disclose. The team of professional advisers for the seller or company should be as deeply involved in the diligence exercise as that of the buyer;
Every disclosure should be recorded and documented with proper back up. Oral discussions during the due diligence exercise should be recorded in writing as far as possible;
Disclosure letters that are part of the transaction documents should be carefully drafted and not exclude any key disclosure;
A well-drafted nondisclosure agreement is essential to protect the target��s secrets and proprietary information.

GV Anand Bhushan is a partner and head of the Chennai office and Abhishek Jain is a senior associate at Shardul Amarchand Mangaldas & Co.

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COVID-19 may power down the energy sector

Gautam — Tue, 14 Apr 2020 01:20:32 +0000

The power sector is not excepted from the impact of COVID-19. While power remains an essential supply, lockdowns mean shrinking demand. This will affect every link of the supply chain. Power generation companies may face curtailment, distribution companies (discoms) will lose revenue from premium commercial and industrial users, transmission utilities and the grid will face issues of grid stability. Lenders to the sector will face difficulties of debt recovery. With the lockdown likely to continue in some form for the foreseeable future, the sector has to brace for hard times.

Abhishek Tripathi
Managing Partner
Sarthak Advocates & Solicitors

Coal based generation, which is the foundation of power generation may not be immediately impacted. However, many coal fired power plants depend on Chinese equipment for maintenance. The disruption in the supply chain for maintenance and repair equipment may impact the output of the power plants. However, power purchase agreements invariably provide for minimum availability commitments on the part of the generator, the failure to achieve such commitments usually requiring the generator to pay liquidated damages. It will be interesting to see if the effect of COVID-19 on maintenance and repair is likely to be classed as a force majeure event.

Solar plants under construction face the twin effects of the falling rupee and the disruption of supply due to COVID-19. Such effects are exacerbated because of overwhelming dependence on Chinese equipment. With the government having declared supply chain disruption due to COVID-19 as force majeure, solar power project developers (SPD) that are yet to achieve commercial operation may expect relief in the form of extensions of commercial operation dates.

Mani Gupta
Senior Partner
Sarthak Advocates & Solicitors

However, unless the government intervenes, SPDs that have already started operation may lose the most. SPDs may be the first to receive requests from the discoms for reduced output. If discoms also use force majeure as a ground for reduced output, subject to the contractual terms the SPDs may have only insurance cover to fall back on to enable them to survive. While the scale of the reduction of output is yet to be assessed, discoms may seek relief under section 56 of the Indian Contract Act, 1872, and invoke the doctrine of frustration to declare the power purchase agreements (PPA), as void. The doctrine of frustration allows a contracting party to declare an agreement to be void if the performance of the contract becomes physically impossible. Commercial impossibility is also a ground for invoking the doctrine of frustration. In such a scenario, it will be interesting to see how courts set the boundaries of what constitute grounds for frustration. There may be issues of the constitutionality of such decisions, if they are applied selectively.

Discoms may face a shift in demand from commercial and industrial sectors to domestic consumers. The likely adverse effect of COVID-19 on industrial and commercial consumers will make it harder for discoms to recover debts from them, while also impacting their ability to cross-subsidize domestic consumption from the higher income from industrial and commercial consumers. There may be demands from businesses for longer repayment periods, which will lead to additional stress on the finances of discoms.

Transmission utilities will also face the effects of falling demand. Reduced supply and underutilization of the grid are clearly foreseeable for the immediate future. Defaults by open access customers, particularly under long term contracts, are likely to result in termination of bulk power transmissions contracts. Unless the government or electricity regulators step in, disputes are likely between customers and the transmission utilities on the liability of the customers to pay transmission charges for the outstanding periods of such contracts.

Lenders to the power sector have been struggling for some time to recover debts. While lending institutions have already faced many sectoral and regulatory disruptions, COVID-19 is likely to add another dimension. With the government likely to step in and disallow action under the Insolvency and Bankruptcy Code, 2016, against power developers, lending institutions may be left with little choice but to write off all or part of their exposure to the sector. In the short to medium term, this may have an adverse effect on lending to the sector as a whole, as well as increasing its cost of borrowing.

COVID-19 is a crisis of huge proportions, with little or no global parallel. The world has never been so economically connected as it is now and the adverse impact will be considerable. A coordinated approach by governments and their people will be required to rebuild what may be destroyed, and some sections of the economy may have to shoulder a greater burden than others.

Abhishek Tripathi is the managing partner and Mani Gupta is a senior partner at Sarthak Advocates & Solicitors.

Sarthak?Advocates & Solicitors
S-134 (LGF)
Greater Kailash-II
New Delhi-110048
Contact details
Tel: +91-11-4171-5540
+91-11-4155-4393
Email:?contact@sarthaklaw.com

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A chaotic situation in cross-border demergers

Gautam — Tue, 14 Apr 2020 00:59:35 +0000

In December 2019, the National Company Law Tribunal (NCLT) in the matter of Sun Pharmaceutical Industries held that the Companies Act, 2013 (act), read with the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (regulations), do not permit cross-border demergers.

Nisha Mallik
Partner
Samvad Partners

Sun Pharma wished to restructure by consolidating the holding structure of its overseas group companies and demerging two vertical units into separate overseas companies situated in the Netherlands and the US. In accordance with sections 230-232 of the act, which detail the procedure for undertaking any scheme of merger or amalgamation, the company sought approval from its shareholders, creditors and statutory authorities such as the Registrar of Companies, the Reserve Bank of India (RBI), the Securities and Exchange Board of India and the income tax authorities.

No observations were received from any statutory authority apart from the registrar, who argued that section 234 refers only to cross-border mergers and amalgamations and does not cover demergers. Sun Pharma replied that section 234 applied to a scheme of amalgamation whether by way of merger or demerger. The RBI had indicated that they were not inclined to vet the proposed scheme on an individual basis and the NCLT considered this to be a deemed approval as all conditions under the regulations were satisfied.

Roshni Menon
Associate
Samvad Partners

However, the NCLT, in reviewing the provisions relating to cross-border mergers, contrasted sections 230 and 232, which relates only to mergers and amalgamations of Indian companies, with section 234, which relates to cross-border mergers. It held that the words ��compromise and arrangement�� in the former sections could be construed as including demergers, but that the same construction could not be placed in the specific language of section 234. On the basis of this interpretation, the NCLT held that cross-border demergers are not permitted under the act.

The NCLT also examined the position of demergers under the regulations and observed that, while the draft regulations specifically included the word ��demergers�� in the definition of cross-border merger, the notified regulations defined cross-border merger to mean ��any merger, amalgamation or arrangement between an Indian company and a foreign company��. The word ��demerger�� had been omitted. The NCLT relied upon such exclusion to support its decision that the intention of the legislature was to exclude cross-border demergers. On the strict interpretation of the act and regulations, the NCLT held that cross-border demergers were not permitted. It used the cardinal rule of interpretation that statutory expressions should be interpreted in their primary and objective sense. While the NCLT may be correct in its construction, it does not appear to have considered legislative policy and intentions with regard to section 234 or the regulations.

The Companies Act, 1956, did not allow the merger of an Indian company with a foreign one. However, the report of the Expert Committee on Company Law of 2005 recognized the importance of mergers and amalgamations in the corporate world and recommended sweeping changes in relation to such cross-border transactions, and accorded demergers the same status as mergers.

The Ministry of Corporate Affairs notified section 234 of the act in 2017 and required applicants to obtain the approval of the RBI to undertake such cross-border mergers.? To ease the process, the RBI notified the regulations in 2018, which allowed for deemed approval of the RBI in the event that all conditions stated in the regulations were satisfied.

Though the regulations in defining the term cross-border mergers do not include the word ��demerger��, the broad reading of section 232 of the act allowing domestic demergers and of section 234 stating that provisions relating to domestic mergers and amalgamations apply to cross-border mergers as well, supports the argument that cross-border demergers are, in fact intended to be allowed. This view is also supported by a 2018 decision of the NCLT in the matter of Sun Pharma applying to undertake an inbound cross-border demerger under section 234.? Even though the registrar had raised the same objection as in the present case that a demerger was not allowed under the act, the NCLT gave consent.

The lack of consistency in the different interpretations by the same tribunal on the permissibility of demergers is disquieting. This present order may be viewed as a setback to the progressive intention of the legislature to permit cross-border mergers. It is, therefore, critical that the position on demergers is clarified by the legislature. Until then, stakeholders will have to resort to alternative restructuring mechanisms to achieve their business objectives.

Nisha Mallik is a partner and Roshni Menon is an associate at Samvad Partners.

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Bias towards enforcement of foreign awards

Gautam — Thu, 09 Apr 2020 03:00:41 +0000

Disputes arose between joint venture partners for the control of Ravin Cables Ltd. Prysmian, the Italian partner, invoked arbitration under the London Court of International Arbitration (LCIA) rules alleging material breaches by the Indian promoters. The promoters also alleged a breach and made counterclaims. The sole arbitrator ruled in favour of Prysmian and ordered the promoters to transfer their shareholding at a discounted price, rejecting all counterclaims. The award was not challenged under English arbitration law and Prysmian applied to the high court for recognition and enforcement.

Karthik Somasundram
Partner
Bharucha & Partners

Objections to recognition and enforcement were rejected by the high court as the grounds of challenge did not meet the criteria in section 48 of the Arbitration and Conciliation Act, 1996 (act). Since the act does not provide an appeal mechanism when a foreign award is recognized, the promoters challenged the judgment of the high court, by applying to the Supreme Court to use its inherent powers. In the case of Vijay Karia & Ors. v Prysmian Cavi e Sistemi S.r.l & Ors, the Supreme Court had to decide if the foreign award was contrary to public policy as provided under section 48(2)(b) and whether Vijay Karia had been unable to present his case before the arbitrator as alleged, and the foreign award fell afoul of section 48(1)(b) of the act.

Karia argued that the arbitrator had not considered the evidence of key witnesses, material evidence and admitted facts in making the award. It also argued that the high court had not really made a determination of all the points argued including those relating to bias, perversity and breach of natural justice. However, the court agreed with Prysmian that interference with the merits of an arbitral tribunal��s decision fell outside the scope of section 48 of the act.

Shreya Gupta
Managing Associate
Bharucha & Partners

Relying on its earlier judgment in Ssangyong (2019), which had in turn relied on the ruling in Renusagar (1994), the court noted that the New York Convention (convention) had simplified the method of recognition and rendered enforcement of foreign awards more effective. Article V of the convention does not contemplate a challenge to an award on merits. Section 48 of the act, which deals with recognition and enforcement of foreign awards passed under the convention, is similar to article V. A mistake of fact or law by the arbitrator is not a ground for refusal of enforcement of a foreign award.

In Shri Lal Mahal Ltd. (2014), the court held that challenges to a foreign arbitral award on the grounds of public policy would be limited in scope compared to domestic awards. Inquiry under section 48 does not permit review on the merits relating to procedural defects, inadmissible evidence or ignoring or rejecting material evidence. Section 48 does not afford the opportunity for a second look at the award and does not prevent enforcement on the grounds of public policy.

The court considered judgments from other jurisdictions and noted the pro-enforcement bias of the convention and the consequent narrow meaning of public policy. The court, however, agreed that if a foreign award failed to determine material issues going to the root of the dispute or failed to decide a claim or counterclaim entirely, that would offend the most basic notion of justice and to that extent could be against public policy. However, poor reasoning in the way a material issue is determined or adjudicated will not be classified as being against public policy. This defence applies only in exceptional circumstances. A foreign arbitral award must be read as a whole, fairly and without nitpicking. If the disputes are adjudicated fairly, enforcement must follow. The impugned award did not suffer from material defects and therefore was not against public policy. No review was warranted. The court also rejected Karia��s challenge to the award on grounds that transfer of shares to Prysmian at a discounted value would violate the Foreign Exchange Management (Non-debt Instrument) Rules, 2019, and therefore breach a fundamental policy of Indian law. The court disagreed. Such a breach must be of a legal principle or legislation, which is so basic that it cannot be compromised.

Relying on the Delhi High Court judgment in Cruz City (2017), the court noted that unlike the earlier regime of foreign exchange laws, transactions in violation of the Foreign Exchange Management Act, 1999 (FEMA), were not void. Violation of the FEMA rules as alleged, would not amount to an illegal activity. Approval or permission could subsequently be obtained from the Reserve Bank of India (RBI). The RBI could direct that the shares be sold only at market value or noted discounted value or may choose to condone the breach. A breach rectifiable under the FEMA cannot be in violation of a fundamental policy of Indian law.

Karthik Somasundram is a partner and Shreya Gupta is a managing associate at Bharucha & Partners.

Bharucha & Partners

13th Floor, Free Press House
Free Press Journal Marg
Nariman Point
Mumbai �C 400 021

India

Contact details
Tel: +91 22 2289 9300 / 6132 3900
Fax: +91 22 2282 3900 / 6633 3900
Email: sr.partner@bharucha.in

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How COVID-19 affects personal health data

Gautam — Thu, 09 Apr 2020 02:45:36 +0000

Governments and civil societies worldwide are making dramatic efforts to contain the spread of COVID-19. In India, notices have been placed outside the homes of people under quarantine or with the names of those who have tested positive for COVID-19. This raises questions concerning the personal privacy and data protection rights of those affected by COVID-19. This article deals with the protections offered in respect of health data and to what extent the disclosure of information is permissible. There is no comprehensive framework to provide protection for the health data of individuals. The provisions regulating health data are scattered across a multitude of statutes and judgments, and are far from adequate.

Deeksha Manchanda
Counsel
Chandhiok & Mahajan

The Information Technology Act, 2002: One of the main data protection provisions is the Information Technology Act, 2002 (act), as read with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (rules). The rules define personal and sensitive personal information, and set out obligations of collectors of such information.

Travel histories are likely to fall within the scope of personal information, and medical records and history are sensitive personal data (SPD) as defined in the legislation. The rules extend to a ��body corporate�� i.e., companies, firms, sole proprietorships and other association of individuals engaged in commercial or professional activities. The rules require the body corporate collecting information to:

have in place privacy policies that cover the purpose for which the information is collected, its usage and its disclosure;
obtain consent for the collection of information and set out the purpose of the collection and the intended recipients;
disclose information only where the provider has agreed, either while information is being collected or afterwards, or when public agencies require it to verify identity;
disclose the SPD only under a lawful order, including an order issued for reasons of public health;
ensure that the SPD is not published.

The medical profession: A myriad of rules and regulations requires confidentiality in a doctor-patient relationship. The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and the Code of Medical Ethics, both impose a secrecy obligation on physicians. Whether the obligation of confidentiality is absolute was decided by the Supreme Court in Mr X v Hospital Z. The court held that the obligation was not absolute and may give way to the protection of public health or the right to life of another person. Hospitals and consequently the doctors working with them, also fall within the scope of the rules if they are a body corporate.

The constitutional framework: Article 21 of the constitution has been interpreted to include the right of individuals to privacy. Some guidance about whether and to what extent the right to privacy nonetheless permits disclosure about an individual suffering from a communicable disease can be found in the Supreme Court��s decision in KS Puttaswamy v Union of India, where the court notes that:

privacy of health and individual information is part of the fundamental right to privacy;
right to privacy is not absolute and may be subject to reasonable restrictions for such purposes as the protection of public health;
anonymized data may be used by the government for the preservation of public health and for appropriate policy interventions;
any restriction on the right to privacy by the government are amenable to judicial review and must fulfill the test of proportionality, that is there must already exist a law permitting the restriction, the restriction must serve legitimate government aims and should be proportional.
Given the above, the situation for patients and those otherwise affected by COVID-19 are as follows:
they have the choice whether to consent to disclose their information to an employer or a hospital;
employers, or a hospital that is a body corporate may be required by law to disclose information regarding a patient. Disclosure may also be permitted where a patient has consented to it;
the government may by law require the disclosure of names and other personal data of a patient from hospitals and employers;
all laws made and measures taken by the government, either requiring the disclosure of personal data or publication of it through notices, will be amenable to judicial review. The courts will determine whether such a law is proportionate to the need to combat the risk to public health and the unprecedented nature of the crisis.

Deeksha Manchanda is a counsel at Chandhiok & Mahajan.

Chandhiok & Mahajan
C-524, Defence Colony
New Delhi �C 110 024
India

Mumbai | Bengaluru
Contact details
Tel: +91 11 4163 0033
Fax: +91 11 2433 9075
Email: office@chandhiok.com

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Budget gives foreign direct investment its rightful place

Gautam — Thu, 09 Apr 2020 02:15:34 +0000

Despite weak macroeconomic trends due to various internal and external factors, India witnessed a sharp increase of 16% in foreign direct investment (FDI) in 2019. Structural reforms undertaken by the government, including a reduction in the corporate tax rate and the effective implementation of the insolvency and bankruptcy code resulted in a notable improvement in ��߲�� ranking in the World Bank��s ease of doing business table, and undoubtedly contributed to the increase in FDI in India.

Navin Syiem
Partner
L&L Partners

In an attempt to further boost FDI, the government in the 2020 budget has proposed further major structural reforms. One proposal is to abolish the dividend distribution tax (DDT) that a company declaring a dividend is required to pay at a rate of 20.35%. The dividend is not at present subsequently taxable in the hands of the recipient. With effect from 1 April 2020 however, companies will not be required to pay DDT, and the recipients will be taxed directly on their dividends. This will result in greater yields for foreign investors as well as benefiting those foreign investors who are liable to pay no, or a lower rate of tax on dividend income. This will lead to transparency in the repatriation of profits by a company to its foreign shareholders as tax payments in respect of DDT will no longer be an issue for foreign holding companies. However, this could have an adverse impact on infrastructure investment trusts (InvITs).

Nitin Gera
Managing Associate
L&L Partners

As India aims to become a US$5 trillion economy by 2024-25, infrastructure is one sector that will require significant investment. Acknowledging its importance to economic growth the government in the budget has announced special exemptions to make investments in the infrastructure sector more attractive to foreign investors. It is proposed that sovereign wealth funds will be granted 100% tax exemption on interest, dividends and capital gains from investments in the infrastructure sector that have a minimum lock-in period of three years. The budget also proposes extending the concessionary corporate tax rate of 15% to new companies in the power sector. These reforms will certainly stimulate growth in the infrastructure sector in the near term. Interestingly, this exemption is not offered to private sector investors, something that would have attracted more FDI in the infrastructure sector. Perhaps, the government should offer similar tax concessions to private investors in the infrastructure sector provided they meet the prescribed minimum thresholds and lock-in requirements.

The budget also proposes a uniform tax treatment for both listed and unlisted InvITs. This is helpful as the Securities and Exchange Board of India has already permitted private placement of units of InvITs. With such uniform tax treatment, InvITs will no longer have to list solely to gain tax advantages over an unlisted status. This will provide flexibility and cost savings to issuers as unlisted InvITs face fewer compliance requirements and a less onerous governance burden.

After a long wait, the government has finally indicated that it will take steps to encourage external commercial borrowing and FDI in the education sector. Despite the fact that FDI in the education sector is already permitted up to 100% under the automatic route, there has been little FDI in the formal education sector compared to the overall growth of FDI in India. This is largely because a formal education institute in India can only be set up as a non-profit entity and therefore does not attract much interest from financial investors. To incentivize foreign investors, the government may perhaps consider relaxing the mandatory requirement to carry out business through a non-profit entity and allowing foreign investors to repatriate a portion of their profits. The government has given no details of the nature and extent of the reforms and only after a formal announcement has been made can the proposals be evaluated.

The budget certainly ticked some boxes but there were omissions as well. Against expectation, the budget did not increase the FDI limit for insurance companies to 74% from the existing 49% to allow entry for the foreign players who would introduce new technologies, sophisticated insurance products and efficiency. Such innovations can only benefit the Indian economy. Industry experts were also expecting removal of the long-term capital gains tax on equity mutual funds to boost private consumption but were disappointed.

These reforms, designed to build confidence will certainly brighten the prospects for FDI. They should go far to create a sustainable investment environment, encouraging both GDP and economic growth and boosting the aim of becoming a US$5 trillion economy by 2024-25.

Navin Syiem is a partner and Nitin Gera is a managing associate at L&L Partners. The views of the authors are personal.

L&L Partners

9th Floor, Ashoka Estate
Barakhamba Road
New Delhi �C 110 001
India
Mumbai | Bengaluru | Hyderabad
Contact details
Tel: +91 11 4121 5100
Fax: +91 11 2372 3909
Email: delhi@luthra.com
Website:

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Legal and financial plans beyond COVID-19

Gautam — Thu, 09 Apr 2020 01:53:29 +0000

COVID-19 has presented challenges that nobody could have envisaged three months ago. Each day existing as well as future challenges become larger. We need to fight the current difficulties and keep ourselves safe from danger. At the same time we need to assess how we will recover from this threat from nature. Assuming that the COVID-19 pandemic lasts for the next three to six months, we should plan accordingly.

Gautam Khurana
Managing Partner
India Law Offices

Legal challenges: The most difficult problems that businesses need to consider are their legal liabilities and obligations. Broadly, the areas that will be affected are contractual obligations, employee-employer relations and tax and compliance obligations.

For contractual obligations, there are two aspects to address. Firstly, how clearly have force majeure clauses been drafted in each agreement, and secondly, to scrutinize any new acts or laws that the government may introduce to define what would be a breach. We can expect substantial leniency and therefore contractual breaches should not bring too much stress, while economies are in lockdown or limited mobility phases.

With regards to employer-employee challenges, this could be the most critical challenge of all, given the inability of small businesses and low wage earners to survive for an extended period. The COVID-19 crisis comes on the back of an unprecedented slowdown in India and a world economy that was already slowing down. There will be no quick solution. There will have to be a combination of compassion and practical decisions. Substantial government support is not expected given the other challenges to the economy and the current deficit. The short-term crisis should be met by businesses absorbing the losses and requiring employees to take leave already accrued. If the crisis threatens to become larger, businesses would need to reduce non-core activities and make teams leaner. A much longer crisis might see the need to renegotiate employment contracts and to cut wages.

There should be little to worry about in the area of tax and compliance. The government can grant exemptions for the inability to file taxes and to fulfill compliance requirements. The government should grant extensions of time in cases where there would otherwise be lockouts or periods of restriction.

Fundraising during this period: Fundraising is likely to be hit during the period when the crisis exerts an influence unless it is for a purpose, industry or segment that alleviates pandemic-related problems. Domestic fundraising will be on hold, but should recover fairly quickly once the crisis ends with the government giving support and the Reserve Bank of India issuing policy guidance. M&A related capital raising will become extremely slow unless transactions represent bargains and are available at very attractive prices. Historically, when profit projections go south, valuations of businesses also go downwards. With this in mind, businesses should raise capital through debt funding rather than equity fundraising until valuations are restored.

Domestic and international expansion: Each crisis is an opportunity. This statement need not be interpreted as opportunistic. Instead it is a call to entrepreneurs to evaluate which way the economy is moving and to adapt their businesses. There will be a dip in traditional consumption, but a large expansion of industries in the data analytics, healthcare, food value chain and telecommunications sectors. Good entrepreneurs will seize the opportunities as soon as markets open up.

Cross-border opportunities will depend on how soon India is able to come out of the crisis, and how long other countries take to do the same. The shorter the period of crisis in India, the greater its investment appeal will be. Should the crisis deepen in India, however, the country could see itself sidelined for a very long time. If the country can bounce back right away, much outsourcing work will return very quickly. Businesses need to understand that foreign companies and financing sources will consider their own markets first. If their local markets provide attractive opportunities and India does not, FDI will be lost for some time. However, if the Indian market provides attractive business opportunities and the local markets in developed countries have not yet recovered there could be valuable FDI potential to be exploited. Indian businesses have to discover those areas that are attractive to the international investor community and be ready to exploit them at the earliest opportunity.

A lot will depend on the length of time the COVID-19 challenge continues in India. If the pandemic can be quickly brought under control, it can help India to achieve international leadership.

Gautam Khurana is the managing partner at India Law Offices.

India Law Offices
D-19 (GF) & D-31, South Extension �C 1
New Delhi �C 110 049
India

Mumbai | Bengaluru

Contact details
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Fax: +91 11 2465 4364
Email: g.khurana@indialawoffices.com

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Emerging product liability regime in e-commerce

Gautam — Wed, 08 Apr 2020 03:58:52 +0000

The convergence of trade and technology has enabled rapid growth in e-commerce and fintech transactions, throwing up new legal and regulatory challenges including those of product liability involving consumers. There is also the problem of illicit trade-related transactions. There is now a product liability framework to protect the interests of consumers, initially under the Consumer Protection Act, 1986, and now under the Consumer Protection Act, 2019 (act). The draft Consumer Protection (E-Commerce) Rules, 2019 (rules), recently circulated by the government sets out the emerging compliance regime in the e-commerce space. The following are primary objectives of the draft rules.

Manoj Kumar
Founder and
managing partner
Hammurabi & Solomon

Mandatory registration. Every e-commerce entity carrying out or intending to carry out e-commerce will need to register and comply with conditions for carrying out such business.

Transparency and obligations. Sellers will need to disclose details of their e-commerce entities on their portals in a clear and transparent manner, including their legal names, main addresses, contact details, website names, products sold and so on. E-commerce entities will need to display the terms of their return, refund and exchange policies, warranty and guarantee policies, shipment and delivery terms, payment terms, grievance redress mechanisms and so on. In addition, e-commerce entities must ensure that they do not display false or misleading advertising regarding product characteristics, and that they clearly set out other relevant details including health and safety information, the security of payment methods, the shelf life of products, and the breakdown of prices showing all included charges. They will need to protect, use and store personal identification information of its consumers in compliance with the law. E-commerce entities will need to unconditionally accept the return of goods that are delivered late or are defective, a term that includes counterfeit and wrongly advertised products, and provide refunds within 14 days.

Unfair contracts. The concept of unfair contracts under the act enables consumers to file complaints and challenge contracts that are unfair or arbitrary. E-commerce websites depend on contractual terms to mitigate risk exposure and safeguard their interests against third-party liabilities. These terms and conditions are generally in the form of a clickwrap agreement and become binding on consumers at the time they register on the platform or purchase goods or services. These standard terms and conditions are now required to satisfy the provisions of the rules.

Sale of spurious products. The act sets out penalties for the manufacture, sale, storage, distribution or import of such products, including imprisonment and the suspension or cancellation of trading licences. This is to ensure that e-commerce entities do not allow their platforms to facilitate counterfeiters and to ensure the authenticity of the goods sold on their platforms. They must accept the return of spurious or counterfeit goods and refund the purchase amount within 14 days.

Level playing field. To maintain parity between bricks-and-mortar stores and e-commerce platforms, and to ensure that smaller players are not disadvantaged by predatory pricing and deep discounting, e-commerce entities are to refrain, directly or indirectly, from influencing the price of goods or services sold through their portals.

Redress procedures. The draft rules oblige e-commerce entities to appoint grievance officers and to publish their contact details while explaining the procedure through which consumers can make complaints. The draft rules require grievance officers to resolve the? complaint within one month from the date of receipt of the complaint. The draft rules also identify other means by which complaints can be filed such as phone, email or website.

The draft rules also require sellers on e-commerce platforms to comply with such requirements as entering into written contracts with entities before soliciting sales on their platforms, ensuring that mandatory information relating to sales such as unit price, taxes, fees, delivery charges and display requirements under legal metrology rules is provided, providing fair and reasonable delivery terms and accepting responsibility for warranties.

The draft rules, read with the act, mark a shift from the principle of caveat emptor (let the buyer beware) to caveat vendor (let the seller beware). The draft rules seek to protect consumers from misinformation and misrepresentation on e-commerce platforms, to address issues of consumer rights, unfair trade practices and misleading advertisements. They impose penalties for faulty and fake products by ensuring that the entities and sellers will be subject to clear legal standards.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon.

Hammurabi & Solomon
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Plot No. D-4, Saket District Centre
New Delhi �C 110017, India
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2019 was a significant year in competition law

Gautam — Wed, 08 Apr 2020 02:10:45 +0000

2019 marks a decade of enforcement by the Competition Commission of India (CCI), following the notification in 2009 of the antitrust provisions of the Competition Act, 2002 (act). Despite challenges to its jurisdiction and a shortage of manpower, the CCI has emerged as a strong economic influence, and one of the most active regulatory authorities.

Vaibhav Choukse
Partner
J. Sagar Associates

2019 was important for competition law. The Competition Law Review Committee (CLRC) submitted its long-awaited report to the Ministry of Corporate Affairs (MCA), recommending significant amendments. The CCI introduced its green channel route (GCR) and published its market study on the e-commerce sector. In enforcement, the CCI took notice of about 70 antitrust cases and cleared over 100 M&A matters. Penalties for antitrust violations exceeded US$47 million.

Proposals and amendments. To strengthen competition law, the CLRC has recommended: (i) a leniency plus regime; (ii) settlements and commitments in certain cases; (iii) the concept of deal value thresholds to cover certain combinations, and (iv) provisions relating to hub and spoke cartels. In response, the MCA circulated its draft Competition (Amendment) Bill, 2020 (bill), for public comments. If passed, it will enhance the powers of the CCI and pose new challenges for businesses.

Nripi Jolly
Associate
J. Sagar Associates

Amendments to combination regulations. The CCI introduced GCR, a mechanism to fast track the approval process for transactions with no overlap i.e. horizontal, vertical or complementary, between the activities of the parties. Transactions are deemed to be approved once the CCI acknowledges a short form application. So far, the CCI has approved 10 such applications.

Enforcement. In a 2019 landmark decision, the Delhi High Court declared section 22(3) of the act, which gives the chairman of the CCI a casting vote when the CCI is divided in its opinion, unconstitutional and void. The court directed the CCI to appoint a judicial member in all adjudicatory proceedings.

This decision will entrench principles of natural justice in the procedures of the CCI. Recently, the Karnataka High Court granted interim relief to Amazon and Flipkart by staying a CCI investigation into alleged anti-competitive practices. The companies argued that the CCI had ordered the investigation without applying its mind to the allegations.

Digital markets. The advent of online aggregators has threatened traditional markets, with established players complaining to the CCI. There has been great debate on the impact competition law will have on digital markets. The debate intensified after the CCI started investigations into online travel platforms Makemytrip and Oyo, and into e-commerce platforms Flipkart and Amazon for allegedly imposing vertical restrictions and abusing dominant positions. Recently, the CCI has also published its market study on the e-commerce sector recognizing the anti-competitive conducts likely to arise in the sector and propagating self-advocacy.

M&A activities. The CCI approved the acquisitions of Aditya Birla Retail by Samara Capital and Amazon, a minority stake in IndiaIdeas.com (Billdesk) by Visa, a minority stake in Quess Corp by Amazon and of outstanding voting securities of MakeMyTrip by Ctrip.com International.

Automobiles. The CCI constantly turns its attention to this sector. It is investigating Honda and Maruti Suzuki over alleged anti-competitive activities including imposing restrictive clauses in dealer agreements and resale price maintenance.

The CCI penalized two major Japanese manufacturers of power steering systems, NSK and JTEKT Corporation, for running a cartel in their supply to car manufacturers. NSK received full immunity from fines, while the CCI granted a 50% reduction to JTEKT, following a leniency application. There have been innovative collaborations between manufacturers, especially in the electric vehicles segment. The CCI approved collaboration between Toyota and Suzuki and the formation of a joint venture between Mahindra & Mahindra and Ford.

Merger control. The CCI approved over 100 M&A deals in 2019, of which 85 were notified under the short form procedure. It approved most deals unconditionally, while requiring minor behavioural commitments in only a few. Just one, Schneider and L&T, resulted in the divestment of assets. The CCI continues to fast track matters arising from the Insolvency and Bankruptcy Code, 2016, to enable the speedy recovery of insolvent businesses and has cleared 10 such combinations.

Vaibhav Choukse is a partner and Nripi Jolly is an associate at J. Sagar Associates. The views of the authors are personal and not attributable to the firm.

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