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Handle with CARE: Relying on “Purposes of Employment” for Processing Employee Data

India has been preparing for the Digital Personal Data Protection Act, 2023 (“DPA”), for almost a year now. During this time, companies have realised that relying on consent as a long-term basis for processing may be difficult, and instead, using ‘legitimate uses’[1], as the bases for processing may be a better alternative.

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Optimal locations for Global Capability Centres (GCCs) in India: Where to set it up?

In part V of our series on key legal considerations for establishing global capability centres (“GCCs”) in India,[1] we discuss the key factors to keep in mind when determining the location where the GCC is to be set up here.

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IRDAI Regulatory Reform Series: Registration and Capital Structure of Indian Insurance Companies

Background

The Insurance Regulatory and Development Authority of India (“IRDAI”) has a statutory duty to regulate, promote and ensure orderly growth of the insurance business and reinsurance business in India. Based on the IRDAI’s initiative to promulgate consolidated and principle-based regulations to govern the insurance industry, the Life Insurance Council and General Insurance Council (representative bodies of life and general insurers, respectively) constituted the Regulation Review Committee (“RRC”) to review the entire insurance regulatory framework and recommend principle-based regulations.

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New SEBI FPI Beneficial Owner Disclosure Norms

Introduction:

The Foreign Portfolio Investor (“FPI”) regime is a foreign investments’ entry route in India, whereby FPIs can invest in Indian securities, subject to compliance with India’s foreign exchange control laws and the regulatory framework issued by the Securities and Exchange Board of India (“SEBI”). As part of the Know Your Customer (“KYC”) process for FPI registration, identification and verification of Beneficial Owner(s) (“BO”) is required to be undertaken as per Rule 9 of the Prevention of Money Laundering (Maintenance of records) Rules, 2005 (“PMLR”),[1] which is a part of the Indian AML/ CFT legal framework.

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India-Korea: Building Blocks for $50-Billion Bilateral Trade by 2030 & Other Investments

While the Korean Wave or ‘Hallyu’, referring to the global popularity (including India) of K everything may seem like a recent phenomenon, the year 2024 marks the 51st anniversary of diplomatic relations between the two countries. According to the India Brand Equity Foundation, bilateral trade between India and Korea grew by 21.46% to $27.8 billion in 2022-23. South Korea is one of India’s largest Foreign Direct Investment (“FDI”) contributors, having invested $5.78 billion in key sectors such as metallurgy, automobiles, and electronics from April 2000 to December 2023.[1] With continuing and strengthening economic ties, both countries continue to remain bullish with the aim to reach $50 billion in bilateral trade by 2030. 

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The “Ordinary Course of Business” exception in preferential transactions – Deciphering the interpretation methodology

Blog Post:

The concept of avoidance of preferential transactions under Section 43 of the Insolvency & Bankruptcy Code, 2016 (“Code”), is based on the principle that insolvency is a collective scheme process and that the assets of a corporate debtor (“CD”) are distributed equitably in a liquidation scenario. During the twilight period of insolvency, paying off one creditor selectively can be disadvantageous to the interests of other stakeholders/creditors as transferring certain assets/monies diminishes the CD’s value. To reverse/avoid such preferential transactions, Section 43(1) of the Code empowers the resolution professional (“RP”) or the liquidator to approach the jurisdictional National Company Law Tribunal (“NCLT”). As per Section 43(2), a CD shall be deemed to have been given “preference” if the CD’s transfer of property benefits any creditor on account of any pre-existing debt owed by the CD and such a transfer puts the creditor into a beneficial position than it would have had the assets been distributed in a liquidation scenario. One of the two exclusions Section 43(3) lays down two exceptions from the trappings of the deeming fiction of preferential transactions one of them being “transfers made in the ordinary course of business or financial affairs of the corporate debtor or the transferee” (the “OCOB Exception”)[1].

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INTRODUCTION

  • The Reserve Bank of India (“RBI”) has published the “Guidelines on Voluntary transition of Small Finance Banks to Universal Banks” dated April 26, 2024 (“SFB Guidelines 2024”), setting out the glide path for voluntary transition of Small Finance Banks (“SFBs”) to universal banks (“Universal Banks”) in terms of:
    • Guidelines for “on-tap” Licensing of Small Finance Banks in Private Sector dated December 5, 2019 (“SFB Guidelines 2019”);
    • Guidelines for “on tap” Licensing of Universal Banks in the Private Sector dated August 1, 2016 (“Universal Bank Guidelines”);
    • Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 dated January 16, 2023 (“Acquisition Directions 2023”); and
    • Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies dated January 16, 2023 (“Acquisition Guidelines 2023”).
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Maternity Benefits Granted Beyond the Contractual Term in Fixed Term Contracts

In August 2023, in Dr. Kavita Yadav v. The Secretary, Ministry of Health and Family Welfare Department and Ors. (“Kavita Yadav Case”),[1] the Supreme Court of India (“Supreme Court”) overruled the High Court of Delhi’s (“Delhi HC”) decision from 2019 in the same case (“Kavita Yadav Delhi HC Decision”) to hold that fixed-term employees would be entitled to full maternity benefits under Section 5 of the Maternity Benefit Act, 1961 (“Maternity Benefit Act”), even after the expiry of their contractual term.   

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Court settles patentability of man-made and novel non-living substance

An appeal was filed by Genmab A/S (hereinafter “Applicant” or “Appellant”) against an order dated May 30, 2016, which had rejected its’s Indian Patent Application No.4718/CHENP/2007. The application claimed priority from US Application No.60/667,579 dated April 1, 2005. A first examination report was received on February 27, 2013, and various objections were raised in view of certain prior arts and the patent application was considered not patentable under Section 3(j), 3(e), 3(i) and 3(c). The appellant revised its claims while responding to the examination report, leading to a hearing. However, the application was rejected as the application was thought to lack any inventive step, and patent ineligible under Section 3(c)[1].

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Administrative Adjudication under the Companies Act – Need for a relook at appeal provisions

Constitutional Perspective

The Central Government recognised the importance of setting up tribunals outside the judicial system that would help alleviate the overburdened judicial machinery. In 1976, the Constitution of India (“Constitution”) was amended through the 42nd Amendment to add two new provisions to the Constitution, viz., Articles 323A and 323B. This change laid the foundation for tribunal system and for the evolution of the system of administrative adjudication in India.

Article 323A provides that Parliament, through legislation, may establish tribunals to settle disputes concerning recruitment and terms of service of individuals appointed to public offices under the Central, State, local or other authority, as well as corporations owned or controlled by the government. The law made by Parliament for the purpose may specify the jurisdiction and procedure of these tribunals, thereby excluding the jurisdiction of all courts except the Supreme Court under Article 136 concerning service matters falling within the purview of these tribunals.

In comparison, Article 323B of the Constitution has a much wider coverage. It empowers the appropriate legislature to provide for adjudication or trial by tribunals of any disputes or offences with respect to the matters specified in clause (2) of Article 323B.

Decriminalising offences under the Companies Act

The Government of India has taken many steps to decriminalise certain offences under the Companies Act, 2013 (“CA, 2013”). In line with the government’s stated objective of promoting Ease of Doing Business and pursuant to the recommendation of the Committee to Review Offences under the Companies Act, 2013, the CA, 2013 was amended by the Companies (Amendment) Act, 2019 whereby 16 offences of the CA, 2013 were decriminalised and made civil violations. Further, the Companies (Amendment) Act, 2020 decriminalised nearly 46 provisions under the CA, 2013, after considering the recommendations made in the Report of Company Law Committee, 2019 (“CLC Report”). 

The adjudication of such decriminalised offences is being done by the officers appointed by Ministry of Corporate Affairs. Section 454 of the CA, 2013, talks about adjudication of penalties. There was no corresponding provision to Section 454 in the Companies Act, 1956. A new provision was introduced to provide for the adjudication of penalties under Section 454 under the CA, 2013.  As per the scheme of Section 454 read with the Companies (Adjudication of Penalties) Rules, 2014, as amended by the Companies (Adjudication of Penalties) Amendment Rules, 2019 (“Rules”) the Adjudicating Officer can pass orders imposing penalty on companies including officers-in-default or any other person for noncompliance or default under the provisions of the CA, 2013. Rule 3 provides for the appointment of the Adjudicating Officer and the procedure to be followed by him in adjudication of penalties. While adjudging the quantum of penalty, the Adjudicating Officer will have to take into consideration certain factors such as size of the company, nature of business carried on by the company, nature of the default, etc. as provided in the Rule 3(12) of the Rules.

Moreover, under Section 454(5) of the CA, 2013, any person/company aggrieved by the order of an Adjudicating Officer may appeal to the Regional Director having jurisdiction in the matter and the Regional Director may decide the appeal after hearing the parties concerned. Every appeal has to be filled within sixty days from the date on which the copy of order made by the Adjudicating Officer is received by the aggrieved person.

An important feature of this section is that it follows principles of natural justice. Under sections 454(4) and 454(7) of the CA, 2013, no order can be passed by either the Adjudicating Officer or the Regional Director unless an opportunity of hearing has been duly provided to the defaulting company or to any person authorized by it.

As per Section 454(8) of the CA, 2013, where a company fails to comply with the order made by the Adjudicating Officer or the Regional Director, within a period of 90 days from the date of the receipt of the copy of the order, the company shall be punishable with a fine not less than twenty-five thousand rupees (INR 25000), but which may extend to five lakh rupees.

Appeal against the Orders:

As per Section 454 of the Act, any person aggrieved by the Adjudicating Officer’s order may appeal to the Regional Director, who is also an officer appointed by the Ministry of Corporate Affairs (“MCA”) and operates under its administrative control. Currently, the law does not provide for a further appeal to the National Company Law Tribunal (“NCLT”), the National Company law Appellate Tribunal (“NCLAT”) or any other judicial forum. It is recommended that Section 454 be amended to provide for an appeal against the Adjudicating Officer’s decision to the NCLT, followed by a second appeal to the NCLAT. Further, appeal to the Regional Director would not add any value from the judicial perspective as the Regional Director is also an officer appointed by the MCA.  

The CLC Report of 2019 recommended suitable amendments to the Companies Act to introduce further appeal to NCLT for the next phase. As per the Report of the Committee, “While the Committee was of the opinion that providing for an additional stage of appeal against the orders of the RD may be beneficial, it was also noted that the same requires comprehensive examination to identify all such provisions where an appellate mechanism is desirable. Accordingly, suitable amendments in this regard may be considered and taken up in the next phase.” This Report is of 2019, and yet no legislative action has been taken in this matter thus far.

The Supreme Court in Union of India v. Madras Bar Assn.[1] held that tribunals should have a judicial member and a technical member, and that the judicial member will ensure compliance with the basic principles of natural justice, such as fair hearing and reasoned orders. The SC stated that a technical member ensures the availability of expertise and experience related to the field of adjudication for which the special tribunal is created, thereby improving the quality of adjudication and decision making.

The adjudication of penalty, which is a quasi-judicial function, now falls upon the Adjudicating Officer and the Regional Director. Both the Adjudicating Officer and the Regional Director are appointed by the Central Government and are under the Government’s direct control. As per the Ministry of Corporate Affairs website, 2572 adjudicating orders have been passed by the ROC till date out of which 347 have been appealed and the Regional Director has passed adjudicating orders for the same. Establishing an independent authority comprising adjudicators with a judicial background could enhance the neutrality and objectivity of the entire process of adjudication.

Conclusion

The adjudication of penalty, being a quasi-judicial function, needs to be undertaken by a forum which has a judicial member. The NCLT and the NCLAT are tribunals constituted under the CA, 2013 and have a judicial member. Section 454 of the CA, 2013 needs to be amended to provide for an appeal to the jurisdictional NCLT against the order of the ROC and then a right of second appeal to the NCLAT. This will introduce judicial scrutiny of the orders passed by the ROC by a forum with judicial background. It will also give much-needed credibility to the adjudication process under Section 454 of the CA, 2013. Hopefully, the MCA will take necessary steps to introduce suitable amendments to Section 454, to provide for a first appeal to the NCLT, followed by a second appeal to the NCLAT as discussed above in the next round of amendments to the CA, 2013.

* The Author was assisted by Anika Natani, Intern.


[1] Union of India v. Madras Bar Assn., (2010) 11 SCC 1