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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

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The 22nd Law Commission Report on Trade Secrets: Call for a balancing Act?

The 22nd Law Commission of India issued a report titled “Trade Secrets and Economic Espionage” (“LCR”), on March 5, 2024, to recommend a new legal framework to adjudicate claims related to disclosure of trade secrets, and the key provisions that it should encompass. Through this article, we intend to briefly summarise the legal framework applicable to trade secrets in India, highlight significant perspectives considered by the Law Commission and the recommendations thereof.

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Board Effectiveness - Challenges and Opportunities

CONTEXT:

It is the Board’s responsibility to successfully run a company, as per Section 179 of the Companies Act, 2013 (“Act”). Hence, it is imperative that the Boards function effectively to ensure that the company’s interests are always kept at the forefront while protecting interests of all stakeholders.

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Using Comity in Insolvency – Indian Courts pivot

In a previous blog post, we had stated that there exists no statutory regime for recognition of foreign insolvency judgments or proceedings in India. Hence, it remained unclear whether Indian courts would recognise and give effect to foreign insolvency interim orders or judgments.

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Promoter’s Liability for Joint Development Projects: Consideration Received by one cannot absolve the other from joint liability to refund

In a recent landmark ruling of the Hon’ble Bombay High Court (“BHC”) in the matter of Wadhwa Group Housing Private Limited (“Appellant”) vs. Vijay Choksi and Ors., it has been inter-alia held that a promoter of a joint development project, who has not received any consideration from the allottee of an apartment coming to the share of another promoter, is jointly obligated to refund that consideration with interest under Section 18 of the Real Estate (Regulation and Development) Act, 2016 (“RERA Act”). The Hon’ble Supreme Court has vide its order dated April 8, 2024 declined to entertain a special leave petition which was filed by the Appellant challenging the aforesaid judgement of the BHC.

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FAQs on Regulatory Amendments to AIF Regulations (Ambiguous GAAR Style Obligations Prescribed for Managers and KMPs)

The Securities Exchange Board of India (“SEBI”) has notified amendments to the SEBI Alternative Investment Funds Regulations, 2012 (“SEBI AIF Regulations”) on April 25, 2024, to:

Continue Reading FAQs on Regulatory Amendments to AIF Regulations (Ambiguous GAAR Style Obligations Prescribed for Managers and KMPs)
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Ayurvedic Medicine in Contemporary Times: Part 2 – Spicing Up Food Products

Part 1  of our Ayurvedic Medicine in Contemporary Times series discussed the regulations and clinical evaluations governing Ayurvedic drugs and proprietary Ayurvedic medicines. The recent global resurgence of Ayurveda and a renewed interest in nutraceuticals and supplements derived from natural sources has led to an increased demand for biological resources. While this trend does lay emphasis on sustainable farming practices and effective resource management, not every natural product qualifies as an Ayurvedic product despite natural biological resources, such as plants, animal extracts, and minerals, being the primary building blocks of these Ayurvedic single-ingredient drugs or compound formulations.

The crucial aspect here is that for classification as Ayurvedic Drugs/Proprietary Ayurvedic Drugs in India, such formulations must be based on, or include, ingredients as described in the authoritative Ayurvedic texts under the Drugs and Cosmetics Act, 1940 (“D&C Act”). Ayurveda, however, is not limited to only drugs and medications, but it also finds application in products regulated as food in India. Natural products include novel ingredients and small molecules produced by living organisms, including plants, invertebrates, and microorganisms, and companies have since long used natural products as a significant source for discovering novel bioactive compounds.

Ayurvedic Products and BDA 2002

Recognising the immense potential of traditional medicines, herbs, and particularly Ayurvedic products, the Government of India introduced the Biological Diversity (Amendment) Act, 2023 (“Amendment”), which serves several purposes, including reducing pressure on wild medicinal plants by promoting their cultivation and nurturing the Indian system of medicine. The primary objective of this Amendment is to facilitate simplified access to India’s rich biodiversity for research and development while ensuring environmental conservation and equitable benefits for local communities. By enabling this access, the Amendment encourages the expansion of the traditional health and wellness sector and helps bridge the gap between ancient wisdom and modern scientific exploration.

The Biological Diversity Act, 2002 (“BDA 2002”), requires entities to seek approvals from the National Biodiversity Authority[1] or inform the State Biodiversity Board[2] in advance, as the case may be, before accessing any biological resource in India or its associated knowledge for commercial use. Notably, the BDA 2002 provides an exemption[3] on the use of biological resources by “vaids”, “hakims”, and “Ayush practitioners” who have dedicated their professional lives to practicing indigenous medicine. While the BDA 2002 is silent on the particulars/qualifications of practitioners for classification as “vaids”, “hakims”, and “Ayush practitioners”, some State-specific laws have defined these terms. For example, in Uttar Pradesh, a practitioner of Ayurvedic system of medicineand surgery is a “vaidya”,[4] and a practitioner of the Unani Tibb system of medicine and surgery is a “hakim”.[5] In Bihar, a “vaidya” is a practitioner of Ayurvedic system of medicine[6] and a “hakim” is a practitioner of the Unani Tibb system of medicine.[7]

Ayurveda in Food Products

Ayurveda lays significant emphasis on health promotion and disease prevention. The concepts of “Ahara” (wholesome diet) and “Anna” (wholesome food) drive this approach, as Ayurveda recognises the critical role food plays in health and wellness. Certain concepts with respect to food, dietetics, and nutrition are unique to Ayurveda and comprehensively explain the importance of food, the measure of food, taste of food, code of dining, metabolism, incompatible foods and processes, personalised diet based on individual “Prakrti”, and wholesome and unwholesome dietary articles.

The Food Safety and Standards Act, 2006 (“Food Act”), states that “foods for special dietary uses”, “functional foods”, “nutraceuticals” and “health supplements[8] do not include “Ayurvedic, Siddha, and Unani Drugs[9], implying drugs and wellness products containing Ayurvedic ingredients or those medicines formulated in terms of the authoritative books of Ayurveda need to seek approvals under the D&C Act regulatory regime.

Food products containing Ayurvedic components, however, have separate regulations on regulating “Ayurvedic Aahara”,[10] which has been prescribed under the Food Safety and Standards (Ayurveda Aahara) Regulations, 2022 (“Ayurveda Regulations”). Ayurveda Aahara is a food prepared in accordance the authoritative books of Ayurveda listed under “Schedule A” of the Ayurveda Regulations. While it includes products with botanical ingredients that comply with the specification of Ayurveda Aahara, it excludes the following:

  • Ayurvedic drugs or proprietary Ayurvedic medicines and medicinal products;
  • cosmetics;
  • narcotic or psychotropic substances;
  • herbs listed under Schedule E(1) of D&C Act and the Drugs Rules, 1940; and
  • metal-based Ayurvedic drugs or medicines, bhasma, or pishti.

Regulation of “Ayurveda Ahara”

Food Business Operators are required to formulate Ayurveda Aahara as per Schedule B of the Ayurveda Regulations and are permitted to use only those additives contained in Schedule C of the Ayurveda Regulations. A prohibition also prevents the sale and manufacture of Ayurveda Aahara products that do not comply with the Ayurveda Regulations. Furthermore, Ayurveda Aahara products’ labelling should follow the Food Safety and Standards (Labelling and Display) Regulations, 2020 and ensure that the labelling, presentation, and advertisement do not claim that the Ayurveda Aahara product has the property of preventing, treating or curing a human.

Summarised below are the categories, ingredients, safety data requirements, and label claims in relation to Ayurveda Ahara under the Ayurveda Regulations:

CategoryDescriptionIngredients Permitted and ProcessSafety Data (Prior Approval of Product)Label Claim
Health BenefitDisease Risk Reduction
AAyurveda Aahara prepared in accordance with the Authoritative Ayurveda Texts in Books listed in Schedule AAs provided in the Authoritative Ayurveda Texts in Books listed in Schedule ANot requiredPrior approval of the Food Authority not required if claim is as per the Authoritative Ayurveda Texts in Books listed in Schedule AEvidence-based prior approval of the Food Authority required
BA new recipe of Ayurveda Aahara using ingredients listed in the Authoritative Ayurveda Texts in Books listed in Schedule A, along with other botanicals used in Ayurveda Dietetic Principles (viz. Rasa, Guna, Virya Vipaka, and Karma)Text reference required for using new recipe or ingredient(s) provided in the Authoritative Ayurveda Books listed in Schedule ARequired[11]Prior approval required based on the Authoritative Ayurveda Texts in Books listed in Schedule AEvidence-based prior approval of the Food Authority required
B1Ayurveda Aahara presented in a format different from that specified in the Authoritative Texts of Books listed in Schedule AAs provided in the Authoritative Ayurveda Texts in Books listed in Schedule ANot requiredRationale and Efficacy Data of new format including the target population, required for prior approval of the Food AuthorityEvidence-based prior approval of the Food Authority required
B2Ayurveda Aahara for Specific Medical Purpose[12]As provided in the Authoritative Ayurveda Texts in Books listed in Schedule ANot requiredRationale and Efficacy Data for the specific medical purpose including the target population, required for prior approval of the Food AuthorityEvidence-based prior approval of the Food Authority required

Conclusion

The practice of Ayurveda diverges significantly from that of modern allopathy and nutrition. The globally escalating healthcare costs are a cause for concern for both developing and developed nations. Understanding how to manage individual health and emphasizing wellness can potentially mitigate these soaring expenses. Ayurveda’s primarily preventive role positions it favourably to answer this challenge. Prevention and interventions at the primary level can ensure cost reductions and loads at the secondary/tertiary levels of healthcare.

A product labelled Ayurveda Aahara without having complied with the requirements of Ayurveda Regulations cannot be termed and promoted as such. Labelling a food product as “Ayurvedic”, especially health supplements and nutraceuticals without complying with the Ayurveda Regulations is not an exercise done in good faith and can lead to the erosion of public trust and credibility associated with genuine and regulated Ayurvedic products. The recent trend of companies obtaining dual licenses for their nutraceuticals and health supplements products under both the D&C Act and Food Act is not ideal. Companies should assess and evaluate the correct classification of their products and only obtain necessary approvals and licenses under one regulatory regime.

Lately, the Government of India has been playing an active role in the integration of traditional and modern system of medicine to promote wellness among its citizens.  The Ministry of Ayush recently released an advisory note stating that all Ayush drugs manufacturers are required to strictly adhere to the labelling provisions and advertisements of Ayush drugs and any misleading advertisement/claim in any form or on any platform will attract consequent legal actions by the competent authorities. The development of Ayurvedic drugs and food products is at an exciting juncture, however, stringent safety & efficacy testing and scientific validation remain elusive. To prevent the deception of the general public, manufacturers and sellers should avoid making exaggerated, misleading, or inconclusive claims about Ayurvedic ingredients without robust scientific evidence. Standardising safety testing protocols, rigorous scientific validation, and transparent quality control will pave the way for more global trust and acceptance in Ayurvedic drugs, treatment, and food products.


[1] In terms of section 19 of the Biological Diversity Act, 2002.

[2] In terms of section 7 of the Biological Diversity Act, 2002.

[3] Section 7 of the Biological Diversity Act, 2002

[4] Section 2(x) of United Provinces Indian Medicine Act, 1939

[5] Section 2(xi) of United Provinces Indian Medicine Act, 1939

[6] Section 2(q) of the Bihar Development of Ayurvedic and Unani System of Medicine Act, 1951

[7] Section 2(d) of the Bihar Development of Ayurvedic and Unani System of Medicine Act, 1951

[8] Explanation 1(b)(i) to Section 22 of the Food Safety and Standards Act, 2006.

[9] As defined under the Section 3(h) of the Drugs and Cosmetics Act, 1940.

[10] As defined under regulation 2(b) of the Food Safety and Standards (Ayurveda Aahara) Regulations, 2022.

[11] Rationale, and Safety Data (including mutagenicity, carcinogenicity, and teratogenicity testing) of the new recipe or ingredient(s) or supporting published modern scientific evidence.

[12] Ayurveda Aahara intended to provide a health benefit, or as an adjuvant, to support a specific disease condition, or disorder specified/ not specified in the Authoritative Texts of Books listed in Schedule A.