A transition away from LIBOR – What it means for ECB lending in India

LIBOR may be the most popular acronym in the international financial markets, and rightfully so. It has for decades been the benchmark rate adopted worldwide for financial transactions ranging from loans, bonds and derivatives. Often touted as the ‘world’s most important number[1], it first made its appearance in 1969 and has since then established itself as the go to reference rate for all things money. Continue Reading A transition away from LIBOR – What it means for ECB lending in India

New CSR Regime – Is it a philanthropy or a tax levy?

The Ministry of Corporate Affairs (“MCA”), Govt of India, notified the amendments to Section 135 of the Companies Act, 2013 (“the Act”), (dealing with CSR contribution), by the Companies (Amendment) Act, 2019 (“2019 Amendment”), and the Companies (Amendment) Act, 2020 (“2020 Amendment”), on January 22, 2021. The MCA has also notified the Companies (CSR Policy) Amendment Rules, 2021 (“new CSR Rules”), which has made some fundamental changes to the CSR Rules, 2014. Continue Reading New CSR Regime – Is it a philanthropy or a tax levy?

From Harbour to Hardships - Understanding the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 Part II

This is in continuation of the series analysing the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“2021 Rules”) and their impact. In the first part, we traced the evolution of intermediary liability and the key changes brought about by the 2021 Rules.

In this part, we attempt to identify the implications of the 2021 Rules on intermediaries, mainly focussing on the consequences of non-compliance which could entail criminal liability, and aspects relevant to investigative authorities. Continue Reading From Harbour to Hardships? Understanding the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 – Part II

 Supreme Court Clarifies Law On Limitation Period For Filing An Appeal Under Section 37 Of The Arbitration Act

INTRODUCTION:

The Supreme Court in the case of Government of Maharashtra (Water Resources Department) Represented by Executive Engineer v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd.[1] has inter alia set right the law regarding the period of limitation for condonation of delay in filing appeals under Section 37[2] of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Overruling its earlier decision in N.V. International v. State of Assam[3] (“N.V. International”) and emphasising the central object of speedy disposal of disputes sought to be achieved by the Arbitration Act and the Commercial Courts Act, 2015 (“Commercial Courts Act”), the Court has allowed condonation of only ‘short delays’, setting out strict parameters for permitting the same. Continue Reading Supreme Court Clarifies Law on Limitation Period for Filing an Appeal under Section 37 of The Arbitration Act

New disclosure obligation in Financial Statements for companies holding cryptocurrencies - Are Regulators testing waters?

Context

India is witnessing a rapid increase in the number of crypto exchanges as well as cryptocurrency transactions. As per publicly available data, the average daily cryptocurrency trading volumes across the top Indian exchanges have grown nearly 500% from March 2020 to December 2020. Globally, countries such as Switzerland, Singapore and the US have been pro-active in undertaking cryptocurrency transactions, and simultaneously creating a robust regulatory framework for the same. In fact, investors from these countries have also been investing in Indian cryptocurrency exchanges. Continue Reading New disclosure obligation in Financial Statements for companies holding cryptocurrencies – Are Regulators testing waters?

Indian Edtech in 2020: The Effective First Shot

The outbreak of Covid-19 brought an unprecedented opportunity for the educational technology (“EdTech”) sector in India. The traditional face-to-face interaction between a teacher and students suffered a setback and almost instantaneously, there was a paradigm shift to the unconventional mode of online learning. This change brought the spotlight on EdTech industry following which it received the requisite financial and policy impetus to thrive through the financial year (FY) 2020-2021. A massive inflow of investments, acquisitions and emergence of new start-ups in the previous fiscal bear testimony to EdTech sector’s meteoric growth. Continue Reading Indian Edtech in 2020: The Effective First Shot

This Is the End - What Now The Aftermath of an Award being Set Aside

There is scarcely any aspect of the Arbitration and Conciliation Act, 1996 (“Act”), which has not seen the spectre of ad nauseum arguments and judicial pronouncements. Concepts have been devised, lauded, followed, and then set aside. Lawyers have forcefully argued for awards to be set aside, and Courts have assiduously upheld the essence and spirit of the concept of arbitration. The law has been set, and then upturned, and in this entire process, not much judicial/ legislative light seems to have fallen on the protagonist of this piece. The Act only hints at what happens after an award is set aside, and the ‘hint’ paints a somewhat grim picture.  Continue Reading This Is the End: What Now? The Aftermath of an Award being Set Aside

FIG Papers No. 6 - Series–2 RBI Payment Regulations – 2009 to 2021 - Bank ‘nodals’ to PA PG licenses Blog

Introduction:

In our previous FIG Paper, we shared key learnings from our experience in connection with the payment aggregator and payment gateway guidelines (“PA/PG Guidelines”) issued by the Reserve Bank of India (“RBI”) on March 17, 2020. Based on representations received from various industry associations and payment intermediaries, the RBI has formalised the clarifications (initially issued on September 17, 2020) relating to the PA/PG Guidelines on March 31, 2021 (“Clarifications”). Continue Reading FIG Papers (No. 6: Series–2) RBI Payment Regulations – 2009 to 2021: Bank ‘nodals’ to PA/PG licenses!

 

Supreme Court on Section 482 CrPC - Have the inherent powers of High Courts been diluted

Recently, in Neeharika Infrastructure Private Limited v. State of Maharashtra[1] (“Neeharika Infrastructure”) a three-judge bench of the Supreme Court (“SC”) pronounced a detailed judgment on the powers of the High Court (“HC”), while adjudicating a petition for quashing of the FIR – filed under Section 482 of the Criminal Procedure Code, 1973 (“Section 482 CrPC”) and Article 226 of the Constitution of India.

Under Section 482 CrPC – “nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice”.

This provision confers the HC with an inherent power to quash an FIR or a complaint, upon satisfaction of well-established parameters that have been laid down in decisions such as State of Haryana v. Bhajan Lal[2] (“Bhajan Lal”) and R.P. Kapur v. State of Punjab[3] (“R.P. Kapur”). The parameters laid down in Bhajan Lal and R.P. Kapur includes the following:

  • If the allegations made in the FIR/complaint, even if taken at face value, do not prima facie constitute any offence or make out any case against the accused.
  • If the allegations made in the FIR do not disclose any cognisable offence, which justifies a police investigation under Section 156(1) of the CrPC.
  • If the allegations made in the FIR/complaint and the evidence collected in support of the same do not disclose the commission of any offence, and do not build any case against the accused.
  • If a criminal proceeding is based on mala fides, or the proceeding is maliciously instituted with an ulterior motive.

In Neeharika Infrastructure, the Appellants challenged an interim order issued by the Bombay HC, in a quashing petition filed under Section 482 CrPC and Article 226 of the Constitution. The Bombay HC issued an interim order directing that “no coercive measures shall be adopted against the petitioners in respect of the said FIR”. While examining the correctness of this interim order, the SC addressed two aspects relating to the HC’s quashing power under Section 482 CrPC, read with Article 226 of the Constitution:

  • The grounds on which an FIR/complaint can be quashed by the HC in a quashing petition.
  • The scope of the HC’s power to pass interim orders in a quashing petition.

The SC’s reasoning on both aspects is critically analysed in this blog.

Grounds for quashing of the FIR

After noting that the power of quashing should be exercised in exceptional cases to prevent a miscarriage of justice, the SC noted that the power conferred by Section 482 CrPC should be exercised in accordance with the parameters laid down in Bhajan Lal and R.P. Kapur.

However, the SC concluded that while exercising the power under Section 482 CrPC, the HC only has to consider whether the allegations in the FIR disclose the commission of a cognisable offence.[4] The SC also concluded that the HC is not required to consider on merits whether the allegations make out a cognisable offence, and the police/investigating agency should be permitted to investigate the allegations in the FIR.

This suggests that the HC should not even undertake a prima facie evaluation of whether the allegations made in the FIR constitute a cognisable offence, or build a case against the accused. Such a conclusion is contrary to the parameters laid down in Bhajan Lal, where the SC held that the quashing power under Section 482 CrPC can be exercised — if the allegations made in the FIR/complaint, even if taken at face value, do not prima facie constitute any offence or make out any case against the accused.

In another recent decision in Arnab Goswami v. State of Maharashtra[5] (“Arnab Goswami”), the SC held that while adjudicating a quashing petition, the HC is duty-bound to undertake a prima facie evaluation of whether the ingredients of the alleged offence have been established in the FIR. Interestingly, the SC did not make any reference to this decision.

The SC also did not examine as to whether a dilution of the standards for review of the contents of the FIR would be contrary to the parameters laid down in Bhajan Lal. As the decision in Neeharika Infrastructure was delivered by a 3-Judge Bench, and the earlier decisions in Bhajan Lal and Arnab Goswami were delivered by Division Benches, it may be argued that the decision in Neeharika Infrastructure has unsettled the well-established parameters for quashing of FIR under Section 482 CrPC.

Scope of HC’s powers to pass interim orders in a quashing petition

The SC held that the parameters for quashing should also be considered by the HC while passing any interim order in a petition filed under Section 482 CrPC. Reference was made to three kinds of interim orders that are routinely passed in a quashing petition:

  • Interim order directing that ‘no coercive steps’ should be taken against the accused, until competition of investigation.
  • Interim order directing a stay of investigation.
  • Interim order granting protection from arrest.

After stating that interim orders under Section 482 CrPC cannot be passed in a mechanical manner, the SC severely criticised the practice followed across High Courts, where interim orders directing that ‘no coercive steps should be taken against the accused’ are routinely passed under Section 482 CrPC — without giving brief reasons for the same. It was held that all interim orders under Section 482 CrPC can be issued only after giving brief reasons through a speaking order, as that would demonstrate an application of mind.[6]

The SC also made separate observations relating to interim orders directing (a) stay of investigation; or (b) protection from arrest.

Stay of investigation

The SC concluded that an interim order directing stay of investigation can be passed with circumspection, and should not be passed in a routine or mechanical manner. It was held that if the HC is prima facie of the opinion that an exceptional case is made out for a stay of investigation, it can pass such an order after considering the parameters framed under Section 482 CrPC, read with Article 226 of the Constitution.

The SC also highlighted two illustrative cases where a stay of investigation shall be justified – (a) if there is an abuse of process of law, by converting a purely civil dispute into a criminal dispute, with the objective of pressurizing the accused; and (b) The complaint is prima facie barred by law, and the allegations in the FIR do not disclose any cognisable offence.[7]

While the conclusions of the SC were with the objective of ensuring that a consistent approach is followed by the HCs, the SC could have further clarified that a stay of investigation shall also be warranted if it has been initiated with a mala fide objective or an ulterior motive.

Protection from arrest

The SC referred to two earlier decisions in State of Telangana v. Hamid Abdullah Jeelani[8], and Ravuri Krishna Murthy v. State of Telangana[9], which held that the HC cannot grant interim protection from arrest under Section 482 CrPC, after dismissing a quashing petition. The SC held that granting interim protection from arrest while dismissing a quashing petition would indirectly amount to an order for anticipatory bail, which can be passed only if the conditions prescribed under Section 438 of the CrPC are satisfied. Hence, according to the SC, if a quashing petition is dismissed, the accused should be relegated to filing an application for anticipatory bail under Section 438.[10]

While the SC’s reasoning is in accordance with earlier judicial precedents, one aspect that was left unaddressed is in relation to the stringent bail conditions present in some special penal statutes – such as Section 212(6) of the Companies Act, 2013 (“2013 Act”), and Section 45(1) of the Prevention of Money Laundering Act, 2002 (“PMLA”).

Under Section 212(6) of the 2013 Act, for the offence of ‘fraud’ as defined under Section 447 of the 2013 Act, an accused shall not be released on bail unless the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence, and he is not likely to commit any offence while on bail. The same pre-conditions for bail were also prescribed in Section 45(1) of the PMLA – which was struck down by the SC in the Nikesh Tarachand Shah case.[11]

One of the reasons given by the SC for striking down Section 45(1) was that it reversed the burden of proof in favour of the prosecution. As Section 212(6) is in pari materia with Section 45(1), it has the same implication of reversing the burden of proof, which makes it very difficult for the accused to secure bail. Hence, for offences which provide for stringent bail conditions, there may be strong reasons for the Court to grant interim protection from arrest to safeguard the rights of the accused, until the completion of investigation and filing of the charge-sheet under Section 173 CrPC.

It is interesting to note that several writ petitions challenging the constitutional validity of Section 212(6) are currently pending before another bench of the SC and the judgment in the matter is expected shortly.

Concluding Thoughts

In a recent decision in Sandeep Khaitan v. JSVM Plywood[12], the SC held that the power conferred by Section 482 CrPC cannot be exercised in a manner that would undermine the provisions of other statutes — such as Sections 14 (declaration of moratorium) and 17 (vesting of management of the company with the interim resolution professional) of the Insolvency and Bankruptcy Code, 2016.

While such specific restrictions are necessary, placing strict guidelines on the exercise of Section 482 CrPC dilutes the cardinal principle of Bhajan Lal – which held that the inherent powers of the HC should be exercised to prevent an abuse of process and secure the ends of justice, and it is not possible to lay down any precise or inflexible guidelines for the exercise of this power.

While mandating HCs to give reasons before issuing interim orders under Section 482 CrPC is well-founded, the SC has at the same time strictly circumscribed the powers of the HC under Section 482 CrPC. Although the SC noted that a balance should be struck between the statutory obligations of investigation and the rights of the accused, a finer balance could have been achieved by taking into account the additional challenges posed under special penal statutes — such as Section 212(6) of the 2013 Act.

The decision in Neeharika Infrastructure may accordingly lead to a dilution of the inherent powers of the HC. At a practical level, HCs may now be more circumspect while exercising its inherent powers in a quashing petition.


[1] M/s Neeharika Infrastructure Private Limited v. State of Maharashtra, 2021 SCC OnLine SC 315.

[2] State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335: 1992 SCC (Cri) 426.

[3] R.P. Kapur v. State of Punjab, AIR 1960 SC 866.

[4] Neeharika Infrastructure, at Para 10 (xv) and Para 23 (xv).

[5] Arnab Manoranjan Goswami v. State of Maharashtra, AIR 2021 SC 1.

[6] Neeharika Infrastructure, at Para 14-16, and Para 23(xvii).

[7] Neeharika Infrastructure, at Para 12.

[8] State of Telangana v. Hamid Abdullah Jeelani, (2017) 2 SCC 779.

[9] Ravuri Krishna Murthy v. State of Telangana, Criminal Appeal Nos. 274-275 of 2021, decided on 05.03.2021.

[10] Neeharika Infrastructure, at Para 23(xvi).

[11] Nikesh Tarachand Shah v. Union of India, AIR 2017 SC 5500.

[12] Sandeep Khaitan, Resolution Professional v. JSVM Plywood Industries Limited, 2021 SCC OnLine SC 338, at Para 25.

Rapid Metro Judgment - Reinforcing the Sanctity of Contracts and Public Good

The premise of project financing lies in financing of infrastructure projects undertaken by a special purpose vehicle (“Borrower”), the repayment of which is broadly dependent on the cash flows generated by the projects itself rather than the balance sheet of the Borrower or its promoter/sponsor. The onset of public private partnership (“PPP”) regime in the project financing space in India has been instrumental in implementation of multiple commercially viable projects. The PPP projects are projects based on a contract or concession agreement, between Government or statutory entity on one side and a private sector company on the other side, delivering public utility infrastructure services which can be availed on payment of user charges. It provides an opportunity for private sector participation in financing, designing, construction, operation and maintenance of public sector programme and projects. The licence to develop such projects is given by the statutory authority in various models like build, operate, transfer (BOT), build, develop, operate and transfer (BDOT), build, own, operate and transfer (BOOT) and toll, operate and transfer (TOT). In most cases, PPPs combine the best of both worlds: the private sector with its resources, management skills and technology and the public sector with its regulatory actions and protection of public interest[1]. Continue Reading Rapid Metro Judgment: Reinforcing the Sanctity of Contracts and Public Good