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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.

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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:

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