ZEUS Newsletter December 2022

Highlights:

Corporate Brief

• Circular dated 07.11.2022 issued by SEBI on the redressal of investor grievances through the SEBI Complaints Redress System (SCORES) platform.
• Circular dated 10.11.2022 issued by SEBI on the applicability of GST on Fees remitted to SBI.
• Notification dated 14.11.2022 issued by SEBI on (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2022.
• Notification dated 21.11.2022 issued by the Ministry of Corporate Affairs on the Companies (Registered Valuers and Valuation) Amendment Rules, 2022.

RERA Brief

• Regulations issued by Haryana Real Estate Regulatory Authority, Gurugram (H-RERA) stating that order passed by the adjudicating officer or the authority or the appellate tribunal is enforceable in the same manner as if it were a decree or an order made by a civil court.
• Letter issued by Uttar Pradesh RERA in respect of Tax Deduction at source as per the provision of Section 194LA of the IT Act, 1961.
• Public notice issued by Real Estate Regulatory Authority, Punjab regarding the submission of certificates for withdrawal of money from the separate bank account.

NCLT Brief

• Vidarbha Industries Power Limited vs Axis Bank Limited (Civil Appeal 4633 of 2021) (SC)

Litigation Brief

• CASE ANALYSIS: HAMDARD NATIONAL FOUNDATION (INDIA) & ANR. VS. SADAR LABORATORIES PRIVATE LIMITED [PRONOUNCED BY THE HON’BLE HIGH COURT OF DELHI ON 21.12.2022 IN FAO (OS) (COMM) NO. 67 OF 2022]

Corporate Brief

Circular dated 07.11.2022 issued by SEBI on the redressal of investor grievances through the SEBI Complaints Redress System (SCORES) platform. 

• SEBI has now made it mandatory for investors to first take up their grievances with the concerned entity. The complainant may use SCORES to submit the complaint or grievance directly to the listed companies /intermediaries / MIIs for resolution. Such a complaint is called a “Direct Complaint” and shall be redressed by the entity within 30 days without any intervention of SEBI, failing which the complaint shall be registered on SCORES. Thereafter, SEBI shall take it up with the entity concerned. Only In case, the entity concerned fails to redress the complaint within the timeline provided herein, the investor may then file their complaint in SCORES.
• The circular also provides that SEBI reserves its right to reject a complaint lodged on SCORES, if the date of cause of action is more than one-year-old and/or the complainant has not taken up the complaint with the concerned entity prior to the said date.
• It is also stated that in case the investors require any assistance in filing complaints on SCORES, they may contact the Investor Associations (IAs) recognized by SEBI for any assistance in filing complaints on SCORES.
• The Circular further mentions the types of complaints that will not be dealt through SCORES.

Circular dated 10.11.2022 issued by SEBI on the applicability of GST on Fees remitted to SBI. 

• SEBI vide circular dated 18.07.2022 informed Market Infrastructures Institutions (MIIs), intermediaries registered with SEBI and companies which have listed/ are intending to list their securities on the Stock Exchange(s) and persons who are dealing in the securities market, that the fees and other charges payable to SEBI shall become subject to GST at the rate of 18% with effect from 18.07.2022.
• Accordingly under circular dated 10.11.2022 issued by SEBI, Chapter – xx (Bank account details for payment of fees) of the NCS Operational Circular, was replaced to state that the remittance particulars by email at [email protected], immediately after the remittance is made in the format mentioned in the circular. The amendments made in the circular include a format for providing information and details to be provided in the remittance particulars.

Notification dated 14.11.2022 issued by SEBI on (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2022. 

• SEBI notified the Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2022 to further amend the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The following key amendments have been inserted.
• The procedure regarding appointment of Independent Directors has been amended by the insertion of a proviso to sub-regulation (2A) which states that where a special resolution for the appointment of an independent director fails to get the requisite majority of votes but the votes cast in favor of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favor of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made under sub-regulation (2A).

• It was also provided that an independent director appointed under the first proviso shall be removed only if the votes cast in favor of the resolution proposing the removal exceed the votes cast against the resolution and the votes cast by the public shareholders in favor of the resolution exceed the votes cast against the resolution.
• Further sub-regulation 7 of regulation 52 - Financial Results was substituted to require listed entities to submit to the stock exchange(s), along with quarterly financial results, a statement indicating the utilization of the issue proceeds of non-convertible securities, in such format as may be specified by the Board, till such proceeds of issue have been fully utilized or the purpose for which the proceeds were raised has been achieved. Moreover, sub-regulation 7(A) has been substituted to require listed entities to submit to the stock exchange(s), along with the quarterly financial results, a statement disclosing material deviation(s) (if any) in the use of issue proceeds of non-convertible securities from the objects of the issue, in such format as may be specified by the Board, till such proceeds have been fully utilized or the purpose for which the proceeds were raised has been achieved.

• Regulation 59 A on the draft scheme of arrangement and scheme of arrangement was also inserted as well as Regulation 94 A on the draft scheme of arrangement and scheme of arrangement in case of entities that have listed their non-convertible debt securities or non-convertible redeemable preference shares along with schedule regarding fee in respect of draft scheme of arrangement.
• Further Regulation 32, Regulation 52, Regulation 61A and Regulation 94 were also amended.

Notification dated 21.11.2022 issued by the Ministry of Corporate Affairs on the Companies (Registered Valuers and Valuation) Amendment Rules, 2022.

• The Ministry of Corporate Affairs issued notification dated 21.11.2022 on the Companies (Registered Valuers and Valuation) Amendment Rules, 2022 to amend the Companies (Registered Valuers and Valuation) Rules, 2017.
• One of the key changes notified was the insertion of Rule 7 A. whereby a registered valuer was required to intimate the concerned authority for change in the personal details, or any modification in the composition of partners or directors, or any modification in any clause of the partnership agreement or Memorandum of Association, which may affect registration of registered valuer, after paying fee as per the Table -I in Annexure V.
• Another important rule that was inserted pursuant to the notification was Rule 14 A which requires registered valuers organizations to intimate the concerned authority for change in composition of its governing board, or its committees or appellate panel, or other details, after payment of fee as per the Table II in Annexure V.
• Further Rule 8, Annexure III and Annexure IV were also amended and Annexure V was inserted vide the said notification.

RERA Brief

 Regulations issued by Haryana Real Estate Regulatory Authority, Gurugram (H-RERA) stating that order passed by the adjudicating officer or the authority or the appellate tribunal is enforceable in the same manner as if it were a decree or an order made by a civil court

• H-RERA on 25.11. 2022 issued Haryana Real Estate Regulatory Authority, Gurugram (order passed by the adjudicating officer or the authority or the appellate tribunal is enforceable in the same manner as if it were a decree or an order made by a civil court) Regulations, 2022. The said regulations will take effect from the date of their publication.
• All matters falling under the purview of the Real Estate Regulatory Authority, Gurugram as declared by the Government of Haryana via Notification 1/92/2017-ITCP dated 14.12.2017.
• It was further stated that where the word "decree" appears in the regulation or order made by the authority, it shall be construed as the order, decision, or direction of the authority enforceable under section 40(2) of the Act read with rule 27(2) of the Haryana Real Estate (Regulation and Development) Rules, 2017, unless the context otherwise requires. Each order, decision, or direction made by the authority will be enforced as a decree of a civil court, unless such context otherwise requires.

Letter issued by Uttar Pradesh RERA in respect of Tax Deduction at source as per the provision of Section 194LA of the IT Act, 1961. 

• UP RERA vide its letter dated 14.11.2022 informed all the Promoters that the Income Tax Department has asked Uttar Pradesh RERA to direct all promoters of real estate projects registered under U.P. RERA to inform their buyers of immovable property valued at Rs. 50.00 lac and above to deduct and deposit TDS @ 1% on each payment (including advance payment) made by the buyers to the seller/developers/builders. According to the terms of 194 LA, the TDS amount must be placed into the Central Government account as follows:
• Any person who is a transferee and is responsible for paying a resident transferor any amount as consideration for the transfer of any immovable property (other than agricultural land) shall, at the earlier of the time of crediting the amount to the transferor's account or the time of payment in cash, by issuing a check or draft, or by any other method, deduct an amount equal to one percent of the amount.
• Where the consideration for the transfer of an immovable property and the stamp duty value of such property are both less than fifty lakh rupees, no deduction under sub-section (1) shall be made.

Public notice issued by Real Estate Regulatory Authority, Punjab regarding the submission of certificates for withdrawal of money from the separate bank account.

• Real Estate Regulatory Authority, Punjab vide its public notice dated 15.11.2022 stated that the promoters shall submit a copy of Form 1, 2 and 3 under section 4 (2) (I) (D) of Real Estate (Regulation and Development) Act, 2016 to Authority simultaneous to the submission of the same to the banks for withdrawal from the separate bank account.
• The forms are also required to be accompanied with the qualification certificate of the architect and engineer.

NCLT Brief

Vidarbha Industries Power Limited vs Axis Bank Limited (Civil Appeal 4633 of 2021) (SC)

The judgment rendered by Hon’ble Justices Indira Banerjee and J.K. Maheshwari in the case of Vidarbha Industries Power Limited vs Axis Bank Limited brings about major changes in terms of adjudication of an application filed under section 7 of the Insolvency & Bankruptcy Code, 2016 (“the Code”). In the said case, an appeal under section 62 of the Code was preferred against the judgment and order passed by the National Company Law Appellate Tribunal (“NCLAT”), before the Hon’ble Supreme Court wherein the NCLAT had refused to stay the Corporate Insolvency Resolution Process (“CIRP”) initiated by the financial creditor, Axis Bank Limited, under section 7 of the Code against Vidarbha Industries Power Limited (“Corporate Debtor”).

ISSUE FOR CONSIDERATION

The question of law before the Hon’ble Supreme Court was whether the National Company Law Tribunal (“NCLT”) while examining the existence of debt and default by a corporate debtor is empowered to exercise its discretion for initiation of the CIRP in an application filed under section 7 of the Code.

BRIEF FACTS-

The Corporate Debtor, an electricity generating company, was permitted by Maharashtra Electricity Regulatory Commission (“MERC”) to execute a Power Procurement Agreement with Reliance Industries Limited (“RIL”) whereby the Corporate Debtor was mandated to supply power to RIL. During the execution of the said agreement certain disputes arose with regard to fuel costs and coal procuring cost for the purpose of running the power plant. Subsequently, the Corporate Debtor filed an application before MERC for the purpose of truing up the tariff. MERC rejected the application filed by the Corporate Debtor and while disallowing the substantial portion of the fuel costs as claimed by the Corporate Debtor capped the tariff. Being aggrieved by the said order of the MERC, the Corporate Debtor filed an appeal before Appellate Tribunal for Electricity (“APTEL”). APTEL directed MERC to allow the Corporate Debtor the actual cost of coal and awarded a sum of Rs. 1,730 Crores to the Corporate Debtor, pursuant to which the Corporate Debtor filed an implementation application before MERC. MERC moved an appeal before the Hon’ble Supreme Court against the order passed by APTEL in favour of the Corporate Debtor. During the pendency of the said appeal, on account of non-implementation of the decision of the APTEL, the Corporate Debtor was under considerable financial strain.

Meanwhile, Axis Bank filed an application under section 7 of the Code before NCLT for initiation of CIRP against the Corporate Debtor. Further, Corporate Debtor filed an application before NCLT seeking stay of the said proceedings till the appeal filed by MERC was disposed of by the Hon’ble Supreme Court.

DECISION OF THE NCLT:

The NCLT dismissed the application seeking stay of proceedings under section 7 of the Code filed by the Corporate Debtor and observed that no extraneous matter should come in the way of expeditiously deciding an application under section 7 or 9 of the Code. The NCLT had observed that the dispute of Corporate Debtor with MERC would be extraneous to the said application. Further, the NCLT observed that the decision pending before the Apex Court would hardly have any bearing on the issues involved in the application filed under section 7 of the Code. Hence, the NCLT limited its jurisdiction to two aspects, i.e., existence of a debt and default by a corporate debtor in making the repayments, to trigger the CIRP.

DECISION OF THE NCLAT:

The Corporate Debtor filed an appeal before the NCLAT against the aforesaid order of the NCLT which was dismissed by the NCLAT. NCLAT upheld the view of the NCLT and held that the Corporate Debtor had no justifiable cause for stalling the CIRP.

HON’BLE SUPREME COURT’S OBSERVATION:

The present appeal was filed before the Supreme Court to determine whether section 7(5)(a) is a mandatory or a discretionary provision. The Hon’ble Court observed as follows: -

Comparison between the section 7(5) and section 9(5) of the Code, as the former uses “may” and the latter uses “shall”:-

• Where the Adjudicating Authority is satisfied that a default has occurred and the application under sub-section (2) is complete and there is no disciplinary proceeding against the proposed resolution professional, it may by order, admit such application. If the default itself has not occasioned, or the application is incomplete, or any disciplinary proceeding is pending against the proposed Resolution Professional, the Adjudicating Authority (NCLT) “may” reject such application in terms of section 7(5)(a) of the Code, subject to affording the applicant an opportunity to rectify the defect.
• Both NCLT and NCLAT held that if two aspects are satisfied, i.e., if a debt existed and the Corporate Debtor was in default of payment in respect thereof then the application under section 7(5)(a) of the Code, must necessarily be entertained and admitted.
• However, the Hon’ble Supreme Court held that the existence of a financial debt and default in payment only gave the financial creditor a right to apply for initiation of the CIRP proceedings of a corporate debtor. The NCLT ought to have applied its judicial mind to relevant factors in the said respect and ascertained, inter alia, the feasibility of initiating the CIRP of an electricity generating company operating under statutory control, the impact of MERC's appeal pending before the Supreme Court, order of APTEL in favour of the Corporate Debtor and the overall financial health and viability of the Corporate Debtor under its existing management.

• The legislative intent behind the usage of the expression “may” in section 7(5)(a) of the Code confers a discretion upon the NCLT.

• On the contrary, the pari materia section for operational debts, i.e., section 9(5) of the Code provides that the NCLT “shall” within fourteen days of the receipt of an application admit the application subject to the conditions prescribed under clauses (a) to (e) of section 9(5)(i) of the Code are satisfied.

• A bare perusal of the aforesaid makes it apparent that Legislature intended section 9(5)(a) of the Code to be mandatory and section 7(5)(a) of the Code to be discretionary in nature. An application is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the Code in respect of operational debts, whereas, in the case of an application by a financial creditor, the NCLT might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a financial creditor.

The Hon’ble Supreme Court allowed the appeal filed by the Corporate Debtor holding that an amount of Rs. 1,730 crores were realizable by the Corporate Debtor in terms of order of APTEL. The Hon’ble Court also held that NCLT and NCLAT committed a grave error in holding that once a debt existed and a corporate debtor committed default in payment of debt then there would be no option with the Adjudicating Authority, but to admit the petition under section 7 the Code. Further, the Hon’ble Court directed the NCLT to reconsider the application filed by the Corporate Debtor seeking stay on insolvency proceedings on merits in accordance with law. It may not be out of place to mention that the review preferred against the said judgment was dismissed.

Litigation Brief

CASE ANALYSIS: HAMDARD NATIONAL FOUNDATION (INDIA) & ANR. VS. SADAR LABORATORIES PRIVATE LIMITED [PRONOUNCED BY THE HON’BLE HIGH COURT OF DELHI ON 21.12.2022 IN FAO (OS) (COMM) NO. 67 OF 2022]

The captioned appeal was filed by Hamdard National Foundation (India) and Hamdard Dawakhana, also trading as Hamdard Laboratories (India)- Food Division, before the Hon’ble High Court of Delhi impugning an order, dated 06.01.2022, passed by the Ld. Single Judge whereby the Appellants’ application seeking an interim injunction against Sadar Laboratories Private Limited, from infringing the Appellants’ registered trademarks, under the name and style of “ROOH AFZA”, was rejected.

Facts:

1. Hamdard National Foundation (India) and Hamdard Dawakhana, also trading as Hamdard Laboratories (India)- Food Division (“Hamdard”) are the registered trademark owners of the leading sweet beverage concentrate “ROOH AFZA” since 1942, which has been in use since the year 1907, and has established itself as one of the most reputed marks used in relation to sharbats, along with many variants and formative marks.

2. Hamdard filed a suit bearing number CS (COMM) 551/2020, titled “Hamdard National Foundation (India) & Anr. Vs. Sadar Laboratories Private Limited” (“said Suit”), inter alia, seeking a permanent injunction restraining Sadar Laboratories Private Limited (“Sadar Lab”) from using the trademark “SHARBAT DIL AFZA”, which is likely to cause confusion and dilution of the trademark “ROOH AFZA”, and amounts to passing off.

3. Hamdard claims that the mark “ROOH AFZA” has acquired immense goodwill in relation to sharbats and their sales turnover has increased to INR 309,83,57,000/- during the FY 2020. It is Hamdard’s case that “DIL AFZA” is deceptively similar to their trademark, and further, the get up and design of the product, including the bottle used by Sadar Lab, is deceptively similar to the trade dress and get up of Hamdard’s product.

4. Sadar Lab contends that it is a registered proprietor of the trademark “SHARBAT DIL AFZA”, and by virtue of Section 29 of the Trademarks Act, 1999, an action for infringement is not maintainable. They further claim that no confusion has been caused on account of their use of the mark “DIL AFZA”, which has been in use for syrups and beverages since the year 2019.

5. It is further claimed by Sadar Lab that they have coined the trademark by joining separate words ‘DIL’ and ‘AFZA’, which are words from the vocabulary of Urdu language. Hamdard cannot claim any exclusive right over the word ‘AFZA’, solely by virtue of being the proprietor of the composite mark ‘ROOH AFZA’, the registration whereof does not grant any exclusive right of use in respect of any part of the said trademark. Further, the two competing trademarks are dissimilar as there is no phonetic or visual similarity between these marks.

Findings by the Ld. Single Judge:

1. The Ld. Single Judge in the said Suit, following the earlier decisions in Cadila Laboratories Limited & Anr. Vs Dabur India Limited[1], Schering Corporation & Ors. Vs Alkem Laboratories Ltd.[2] and Vardhman Buildtech Private Limited & Ors. Vs Vardhman Properties Limited[3], held that Hamdard can claim exclusivity only in respect of the complete trademark, and not the two words – ‘ROOH’ and ‘AFZA’ – that constitute the trademark.

2. The Ld. Single Judge also rejected the contention that the two competing marks are similar on the ground that the words ‘DIL’ and ‘ROOH’ entail deep emotion and the word ‘AFZA’ was common to both. The Ld. Single Judge observed that a bottle of sharbat would not entail any deep emotion and in any event, the consumers would be able to distinguish between ‘ROOH’ and ‘DIL’. While the words ‘ROOH AFZA’ may have acquired a secondary meaning to indicate Hamdard’s products, the word ‘AFZA’ by itself did not appear to have acquired any such secondary meaning.

Issue:    

The issues before the Ld. Division Bench in the captioned Appeal was whether there is any likelihood of confusion between the two competing marks and whether Sadar Lab infringed on Hamdard’s registered trademark(s).

Court’s observations, findings and conclusion:

1. The Hon’ble Court, while relying on several precedents from the United States’ Courts, observed that the three tests of sound, sight, and meaning are now well accepted for determining the similarity between competing marks. The question of similarity and the likelihood of confusion between two competing marks is determined on the basis of their overall commercial impression. 

2. The two trademarks are composite marks and the words ‘ROOH AFZA’ and ‘DIL AFZA’ cannot be dissected, as the similarity must be determined on the marks as a whole. The rationale for the anti- dissection rule is that a prospective buyer retains the overall commercial impression of a trademark and not one part of the same. However, it is permissible to examine a dominant part of the mark for determining the overall impression that a composite mark may carry. 

3. The Hon’ble Court observed that the urdu word ‘AFZA’, meaning “giver of plenty” or “increasing” is an integral part of both the trademarks. The word ‘AFZA’ is neither descriptive of sharbats nor any of its attributes. The Hon’ble Court further observed that Hamdard’s Trademark ‘ROOH AFZA’ was a source identifier for its product for over a century. In this view, the use of ‘AFZA’ – which is a significant part of Hamdard’s composite trademark- by Sadar Lab, as a part of a trademark in respect of a competing product, is material in determining whether the two competing trademarks are similar. 

4. In the present case, the fact that both the composite marks end with ‘AFZA’, lends an element of similarity to both the marks. It has been held in Kirorimal Kashiram Marketing & Agencies Private Limited vs. Shree Sita Chawal Udyog Mill[4] that “it is not permissible to copy a prominent part of the registered trademark of another person, more so, when the word mark is arbitrarily adopted with respect to the product in question”.

5. The Hon’ble Court thus held that it is not difficult to conceive that a person who looks at the label of “DIL AFZA” may recall the label of “ROOH AFZA” as the word “AFZA” is common and the meaning of the words “ROOH” and “DIL”, when translated in English, are commonly used in conjunction.

6. In the aforesaid background, the Hon’ble Court allowed the captioned Appeal preferred by Hamdard, and directed Sadar Lab to not manufacture and sell syrups and beverages under the impugned trademark “DIL AFZA”.

***

[1] 1997 SCC OnLine Del 360

[2] 2009 SCC OnLine Del 3886

[3] 2016 SCC OnLine Del 4738

[4] 2010 SCC OnLine Del 2933

by handyland

ZEUS Newsletter November 2022

Highlights:

Corporate Brief 

• RBI notification on appointment of Internal Ombudsman.
• RBI notification on Unhedged Foreign Currency Exposure Directions, 2022.
• RBI notification on Draft Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices
• SEBI notification on Cancellation, Suspension or Surrender of Certificate of Registration of a Credit Rating Agency.
• SEBI circular on reduction in denomination for debt securities and non-convertible redeemable preference shares

RERA Brief

• Public Notice issued by Kerala RERA on 07.10.2022 for submission of annual report in Form No. 5 by 31.10.2022 for the year 2021-22.
• Circular issued by Kerala RERA on 07.10.2022 for K-RERA-Submission of application for registration of plot development/ villa Projects.
• Order issued by Rajasthan RERA on 07.10.2022 stating submission of hardcopy of application for registration of project.
• Order issued by Bihar RERA on 10.10.2022 regarding the General Amnesty Scheme to safeguard the interest of allottees of such projects where the promoter failed to submit an application for extension of their project during the prescribed period.
• Order issued by Bihar RERA on 10.10.2022 regarding the SOP for the operation of a separate account to be opened under Section 4(2)(1)(D) of the Real Estate (Regulation and Development) Act, 2016.
• Circular issued by Karnataka RERA on 13.10.2022 for submission on annual audit report as per Section 4(2)(I)(D) of the RERA Act, 2016.

NCLT Brief

• CASE ANALYSIS: KOTAK MAHINDRA BANK LIMITED VS KEW PRECISION PARTS PRIVATE LIMITED & ORS. [CIVIL APPEAL NO. 2176 OF 2020]

Litigation Brief

• Director of a company not to be prosecuted in cheque bounce cases in absence of specific averments and company not being arrayed as a party
• If the issue of the arbitrability of dispute requires deeper/further consideration, the issue should be referred to the arbitrator by the court. 

Corporate Brief

Notification Number CEPD.PRD.No.S806/13-01-008/2022-23 dated 06.10.2022 of the Reserve Bank of India (“RBI”):

Appointment of Internal Ombudsman by the Credit Information Companies

By virtue of the said notification, the RBI directed all Credit Information Companies holding a Certificate of Registration to appoint an Internal Ombudsman for a fixed term of atleast 3 years and atmost 5 years meeting the prescribed prerequisites. The notification stated that the internal audit of the CIC shall cover the implementation of, and compliance with, this Direction, inter-alia, including: (i) The adequacy of the infrastructure provided to the Internal Ombudsman and whether it is in line with the volume of complaints and the stated position of the IO at the apex of the grievance redressal mechanism, (ii) Adherence with various timelines indicated in these directions, (iii) Support provided by the CIC to the Internal Ombudsman for redressal of the complaints. The said notification further delineates the scope, role and responsibility of the Internal Ombudsman, along with reporting requirements.

Notification Number DOR.MRG.REC.76/00-00-007/2022-23 dated 11.10.2022 of the Reserve Bank of India (“RBI”):

Reserve Bank of India (Unhedged Foreign Currency Exposure) Directions, 2022  

The captioned Directions aim to revise and update the previously issued several guidelines/ instructions/ directives to the banks on Unhedged Foreign Currency Exposure (UFCE) of the entities which have borrowed from banks. The provisions of these Directions shall be applicable to all commercial banks excluding Payments Banks and Regional Rural Banks. The Directions, inter-alia, provide that banks shall ascertain the Foreign Currency Exposure (FCE) of all entities (i.e., counterparty to which bank has exposure in any currency) at least on an annual basis.

Notification Number DoS.CO.CSITEG/SEC.xx /31.01.015/2022-23 dated 20.10.2022 of the Reserve Bank of India (RBI):

Draft Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices

The RBI released the Draft Directions on Information Technology Governance, Risk, Controls and Assurance Practices in order to provide the draft guidelines and instructions relating to information technology (IT) governance and controls, business continuity management and information systems. By virtue of the Draft Directions, the “Regulated Entities” are mandated to put in place a robust IT governance framework comprising of the governance structure and processes necessary to meet the business/ strategic objectives of the Regulated Entities which must, inter-alia, include adequate oversight mechanisms to ensure accountability and mitigation of business risks. The said Draft Directions further provide for IT infrastructure and services management, IT risk and information security, business continuity and disaster recovery management, and information systems’ audit.

Notification Number SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2022/140 dated 13.10.2022 of the Securities and Exchange Board of India (“SEBI”) 

Cancellation, Suspension or Surrender of Certificate of Registration of a Credit Rating Agency (“CRA”)

The said notification lays down the procedural requirements the concerned CRAs are required to follow, on and from the date of the cancellation, suspension or surrender of certificate order passed by SEBI. It further stipulates the following:

1. In case of cancellation of Certificate of Registration, the credit ratings assigned by the CRA shall be valid till such time the client withdraws the assignment and/or migrates the assignment to other CRA as specified or the CRA is wound-up, whichever is earlier.
2. In case of surrender of Certificate of Registration, the credit ratings assigned by the CRA whose certificate of registration is being surrendered, shall be valid till such time the client withdraws the assignment and/or migrates to another CRA, or the date of acceptance of surrender by SEBI, whichever is earlier.

• In case of suspension of Certificate of Registration, the credit ratings assigned by the CRA, whose certificate of registration is suspended, shall not be valid during the period of suspension.

Circular No. SEBI/HO/DDHS/P/CIR/2022/00144 dated 28.10.2022 issued by Securities and Exchange Board of India (“SEBI”)

Amendments to Operational Circular for issue and listing of Non-Convertible Securities, Securitised Debt Instruments and Security Receipts, Municipal Debt Securities and Commercial Paper dated 10.08.2021 (“Principal Circular”)

The Principal Circular, inter alia, mandates that the face value of each debt security or non-convertible redeemable preference share issued on private placement basis shall be Rs. 10 lakh and the trading lot shall be equal to the face value.

In order to increase access of non-institutional investors and to enhance liquidity in the market for corporate bonds, the captioned Circular reduced the face value and trading lot. By virtue of said Circular, the face value of each debt security or non-convertible redeemable preference share issued on private placement basis shall be Rupees One Lakh. Further, the face value of the listed debt security and non-convertible redeemable preference share issued on private placement basis traded on a stock exchange or OTC basis shall be Rupees One Lakh. The provisions of the said Circular shall be applicable to all issues of debt securities and non-convertible redeemable preference shares on private placement basis, through new ISINs (International Securities Identification Numbers), on or after January 01, 2023.

RERA Brief

Public Notice issued by Kerala RERA on 07.10.2022 for submission of annual report in Form No. 5 by 31st October 2022 for the year 2021-22.

Kerala RERA, vide its Public notice dated 07.10.2022, stated the following:

• As per Regulation 4(4) of Kerala Real Estate Regulatory Authority (General) Regulations 2020, the annual report on the statement of accounts for each registered projects in Form No.5 shall be uploaded by the promoter in the allotted web page on the website of-the Authority on or before 31.10.2022 of every year until the project is completed.
• It was further directed that the Promoters shall upload Annual report in Form No.5 on K-RERA web portal for the financial year 2021-22 for their registered projects on or before 31.10.2022.

Circular issued by Kerala RERA on 07.10.2022 for K-RERA-submission of application for registration of plot development /villa Projects.

Kerala RERA, vide its Public notice dated 07.10.2022, stated the following directions, regarding the submission of the application for registration of plot development /villa projects under Section 3 of the Act:

• For registration of plot development projects, the applicant shall upload the development permit/ layout approval along with the application. lf any constructions are proposed as part of the common amenities provided, a building permit for the same shall also be uploaded.
• Conversion of a registered plot development project to a villa project is not permissible under the law. Hence fresh application for registration as a villa project shall be submitted.
• A real estate project to be developed as a villa project, shall be registered as such with development permit/ layout approval obtained from the competent Authority. The promoter while applying for registration for a villa project, shall upload the development permit/ layout approval and building permit pertaining to all villas proposed in the project.
• ln case the promoter is not able to obtain permits for all the villas proposed in the project during the time of submission of the application for registration due to time constraints or for any other reason, at least one building permit pertaining to each type of villa proposed in the project shall be obtained and shall be uploaded. The fee shall be paid for the entire land area and for entire villa units. Fee for constructions if any included in common amenities shall also be paid in accordance with the Act & Rules. Agreement for Sale - Annexure "A", shall be executed for villa and plots together.

Order issued by Rajasthan RERA on 07.10.2022 stating submission of hardcopy of application for registration of project.

 Rajasthan RERA, vide its order dated 07.10.2022, stated the following:

• In case the promoter fails to submit the hardcopy of the application for registration of project along with the complete set of documents, in accordance with the directions issued by Authority's order no. 1478 dated 27.08.2021, within 30 days from the date of issue of registration certificate (RC), delay processing charges of Rs. 1,000/- per day (with a maximum capping of an amount twice the Registration Fee) shall be payable before or at the time of depositing of hardcopy.
• This order shall be deemed to be effective from 27.08.2021, with a condition that the cases in which the delay processing charges have already been deposited shall not be re-opened and no refund shall be made therein.

Order issued by Bihar RERA on 10.10.2022 regarding the General Amnesty Scheme to safeguard the interest of allottees of such projects where the promoter failed to submit an application for extension of their project during the prescribed period.

Bihar RERA, vide its order dated 10.10.2022, stated the following:

• For the projects whose date of completion has expired and the project against whom no complaint has been filed, would be given an opportunity to submit their application for extension of their project in Form ‘E’ online with the prescribed fees of Rs 1,00,000/- (Rupees One Lakh) with an additional fee @25% of the registration fees for delay of every quarter (three months) up to a period of delay of one year maximum of 100% of the registration fees. For delay beyond one year, the promoter needs to submit double of the registration fees till the end of 2^nd
• For the projects where date of completion has expired, and application for extension has not been submitted and where the complaint case has been filed against the project, extension would not be granted till the final order is passed in the case.

Order issued by Bihar RERA on 10.10.2022 regarding the SOP for the operation of a separate account to be opened under Section 4(2)(1)(D) of the Real Estate (Regulation and Development) Act, 2016.

RERA Bihar vide order dated 10.10.2022, approved the following Standard Operating Procedure (SOP) for the operation of the dedicated separate account of the project, with immediate effect:

• The physical progress report in the prescribed formats of the Engineer and Architect would be uploaded for every quarter. The financial progress report of the Chartered Accountant, which would indicate the amount spent on the project and the amount received from the allottees, both during the quarter and cumulatively till the reporting period would also be uploaded.
• The difference between the amount spent by the promoter on the project as per the report of the above-mentioned quarterly report and the amount received from the allottees of the project till the end of the quarter will define the tranche limit.
• The promoter would be entitled to withdraw funds from the dedicated separate account within the tranche limit as mentioned above without a certificate from the CA, Engineer, and Architect provided that such withdrawal does not exceed the amount withdrawn from the account in the preceding quarter.
• The promoter may withdraw either in instalments or in full and part within the tranche limit without the report of the CA, Engineer, and Architect.
• If the amount spent on the project is less than the deposit received from the allottees, then the promoter would be required to deposit 100% of future installments in this separate account up to the tranche limit or complete the work up to that extent out of their funds.
• A certificate from CA, Engineer, or Architect would be necessary for any withdrawal beyond this limit.

Circular issued by Karnataka RERA on 13.10.2022 for submission on annual audit report as per Section 4(2)(I)(D) of RERA Act, 2016.

Karnataka RERA, vide its circular dated 13.10.2022, stated the following:

• In exercise of the power conferred under section 25 and 37 of the Real Estate (Regulation and Development) Act, 2016 and as the Karnataka Real Estate Regulatory Authority has recently notified the new format for Form 7, Annual Audit Report on Statement of Accounts. The promoters are mandated to obtain the New Form 7 for the financial year 2021-22 and for subsequent years for each project from a Chartered Accountant in practice
• Further, the new form 7 shall be submitted in a separate online module. The promoters shall visit the K RERA Web portal and select Annual Audit login under Registration and submit the required information, details, documents, and New Form 7.
• In addition, the promoters shall submit the information of Annual Audited books of accounts (Profit and Loss Account, Balance Sheet along with schedules, cash flow statement, Income Tax Returns and Auditor report) along with New Form-7 for the financial year ending 31st March 2022 on or before 15th November 2022, which is in compliance with the Real Estate (Regulation and Development) Act, 2016 and Real Estate (Regulation and Development) Rules, 2017.

 NCLT Brief

CASE ANALYSIS: KOTAK MAHINDRA BANK LIMITED VS KEW PRECISION PARTS PRIVATE LIMITED & ORS. [CIVIL APPEAL NO. 2176 OF 2020] 

1. ISSUES BEFORE THE HON’BLE SUPREME COURT

• Whether an application to initiate corporate insolvency resolution process (“CIRP”) against a corporate debtor is maintainable in respect of a time barred debt if the debtor has after the expiry of the limitation period agreed to repay the same?

1. BRIEF FACTUAL BACKGROUND OF THE CASE

In 2013, Kotak Mahindra Bank Limited (“Financial Creditor”) provided certain financial facilities to Kew Precision Parts Private Limited (“Corporate Debtor”). However, the Corporate Debtor defaulted in making repayments and its bank account was categorized as a non-performing asset (“NPA”) in the year 2015.

The Financial Creditor sent a demand notice to the Corporate Debtor on 19.11.2017, in accordance with section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"). The Corporate Debtor recognized its liability towards the Financial Creditor on 12.12.2018 and proposed a one-time settlement, which was updated on 19.12.2018 and subsequently, on 20.12.2018. The Financial Creditor and the Corporate Debtor eventually agreed to an one-time settlement to pay the outstanding debts for a lump sum of Rs. 24,55,00,000 ("One-time Settlement Amount"), which was to be paid by 31.12.2018. On 20.12.2018, the terms of the one-time settlement were signed and executed by and between the Financial Creditor and the Corporate Debtor.

Thereafter, the Corporate Debtor failed to pay the One-time Settlement Amount as agreed, and the Financial Creditor filed an application to initiate CIRP against the Corporate Debtor under section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Vide judgment dated 06.10.2019,

the  Hon’ble National Company Law Tribunal ("NCLT") admitted the said application.

The Corporate Debtor filed an appeal before the Hon’ble National Company Law Appellate Tribunal ("NCLAT"), arguing that the Financial Creditor's petition filed under section 7 of the IBC was time-barred. The Corporate Debtor contended that there was no acknowledgment of debt within a period of three years from the date when the Corporate Debtor's account was classified as NPA, which was 30.09.2015.

The Financial Creditor argued that the conditions of the one-time settlement were executed on 20.12.2018 wherein, the Corporate Debtor duly acknowledged its liability towards the Financial Creditor and accepted its obligation to pay the One-time Settlement Amount. Thus, it was contended that the application under section 7 of the IBC was within limitation.

The NCLAT rejected the submissions made by the Financial Creditor and held that the application under section 7 of the IBC was time-barred in the absence of an acknowledgement of debt as per the Limitation Act, 1963 (“the Limitation Act"). Consequently, the NCLAT dismissed the CIRP brought against the Corporate Debtor.

1. FINDINGS AND OBSERVATIONS OF HON’BLE SUPREME COURT

The Hon’ble Supreme Court vide its judgement set aside the order of the NCLAT and allowed the appeal. Furthermore, the Apex Court held that a debt due in terms of a Recovery Certificate is a "Financial Debt" as defined by section 5 (8) of the IBC.

THE LAW OF CONTRACT

The Hon’ble Supreme Court, while relying on section 25 of the Indian Contract Act, 1872 (“the Contract Act") held that a time-barred debt payment arrangement would be legally enforceable if there exists a promise to pay. Further, under section 25(3) of the Contract Act, a debtor may enter into a written arrangement to settle all or part of a debt that the creditor may have been able to collect, if the debt wasn’t time barred. Thus, the Hon’ble Apex Court held that the present one-time settlement agreement is a legally binding contract and a written commitment to pay the forbidden debt. Such a promise amounts to novation and may serve as the foundation for a lawsuit unrelated to the initial debt.

THE LAW OF LIMITATION

Additionally, the Hon’ble Supreme Court drew a demarcation between a promise as defined under section 25 of the Contract Act and an acknowledgement given in accordance with section 18 of the Limitation Act and held that a written acknowledgement that is signed by a party or an authorized representative of that party has the same effect as a ‘fresh period of limitation’. An acknowledgement in pursuance to section 18 of the Limitation Act need not be accompanied by a commitment to pay and must be made within the limitation period. Even if there may be a refusal to make payment, if an acknowledgement demonstrates the existence of a jural relationship, the limitation may be extended. However, section 25(3) of the Contract Act only applies in a situation where a debt that is time-barred in whole or in part has an unambiguous guarantee to be paid.

THE INSOLVENCY REGIME VIS-À-VIS ADEQUATE OPPORTUNITY

The Hon’ble Supreme Court additionally relied on section 7(5)(b) of the IBC to note that the NCLT must inform the applicant and provide them 7 days’ time to correct any errors in the said section 7 application before it is rejected. The NCLAT dismissed the CIRP brought against the Corporate Debtor in this instance, without allowing the Financial Creditor a chance to correct the errors as specified in section 7(5)(b) of the IBC. As a result, the Hon’ble Supreme Court made the observation that that the NCLAT was unable to determine whether or not section 25(3) of the Contract Act would apply. NCLAT proceeded on the theory that the CIRP proceedings were barred by limitation and in the absence of any acknowledgement of debt as per the statute of limitations, appeal preferred by the Corporate Debtor ought to be allowed. The same was done without taking into account the issue of whether section 5 of the Limitation Act, which permits forbearance of delay would be applicable to proceedings under section 7 of the IBC.

Thus, the Hon’ble Supreme Court observed that the NCLAT erred by allowing the appeal and dismissing the CIRP proceedings of the Corporate Debtor, before providing the Financial Creditor an adequate opportunity to substantiate whether there was a sufficient and bona fide cause for delay in approaching the NCLT. The requirement of section 7(5)(b) of the IBC, of informing the Financial Creditor before rejecting a claim would, hence, be attracted as an appeal constitutes the continuation of original proceedings.

In light of the aforesaid facts and circumstances, the Hon’ble Supreme Court allowed the appeal with appropriate directions to the NCLT to re-evaluate the application to initiate CIRP against the Corporate Debtor.

LITIGATION BREIF

Director of a company not to be prosecuted in cheque bounce cases in absence of specific averments and company not being arrayed as a party

IN THE MATTER OF: Pawan Kumar Goel vs. State of U.P. and Ors., MANU/SC/1509/2022

Decided by Hon’ble Supreme Court on 17.11.2022

Facts:

1. The Appellant was having business relation with a private limited company in which Respondent No.2 was appointed as director. Respondent No.2 issued an account payee cheque for a sum of Rs. 10 lakhs in favor of Appellant towards discharge of its liability for supply of material made by the Appellant.
2. The said cheque got dishonored upon presentation before the banker on ground that cheque amount exceeds arrangement. Thereafter, the Appellant sent a legal notice to Respondent No.2 through registered post, which was served, however, met with radio silence.
3. Aggrieved by no response and non-payment of amount by Respondent No.2, Appellant filed four criminal complaints against Respondent No.2 for the offence punishable under Section 138, Negotiable Instruments Act, 1881 (“NI Act”). The Ld. Magistrate took cognizance of the complaint of Appellant and passed an order summoning Respondent No.2 for trial.
4. Against the summoning order, Respondent No.2 filed criminal revision petition before Sessions Court, which was dismissed. Thereafter, Respondent No.2 approached Hon’ble High Court by way of Criminal Miscellaneous Writ Petitions seeking quashing of summing order of Ld. Magistrate. The Hon’ble High Court quashed the entire proceedings including summoning order holding that the complaint of Appellant is itself bad in law since the main accused i.e. Company of which Respondent No.2 is a director, has not been made party in the instant complaint.
5. Appellant approached the Hon’ble Supreme Court challenging the Order of Hon’ble High Court by way of filing Criminal Appeals. 

Issues:

The issue which arose in the instant case is whether a director of a company would be liable for prosecution under Section 138 of NI Act without the company being arrayed as an accused and without their being any averments that the named director was in charge of and responsible for the conduct and business of the company.

Court’s Observations and Findings:

1. The Hon’ble Supreme Court, while observing that the penal statutes are to be construed strictly held that criminal liability for offence by company under Section 138 of NI Act, is fastened vicariously on the persons referred under Section 141 (1) by virtue of a legal fiction and therefore a specific averment complying with requirement of Section 141 is imperative.
2. The Hon’ble Court further considered scope of Section 141 of the NI Act as expounded in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Anr., MANU/SC/0622/2005, wherein it was observed that the liability under Section 141 arises from the person being in charge of and responsible for conduct of business of the company at relevant time when the offence was committed and not by merely holding a designation. Hence, a liability under Section 141 should be fastened vicariously on a person, the principal accused being the company itself.
3. Reliance was also placed on Aneeta Hada vs. Godfather Travels & Tours (P.) Ltd., MANU/SC/0335/2012, where the three-Judge Bench of Hon’ble Supreme Court, held that it is imperative to array a company as an accused for maintaining the prosecution under Section 141 of NI Act and non-impleadment would be fatal for the complaint.
4. The Hon’ble Court also echoed observations made in N. Harihara Krishnan v. J. Thomas, MANU/SC/1062/2017, to held that an additional accused cannot be impleaded subsequent to filing of the complaint once the limitation period prescribed under Section 142 of NI Act has expired.
5. In conclusion, placing reliance on various judgements and the fact that Appellant has not made any averments in its complaint that Respondent No.2 was in charge of, and was responsible to the company for conduct of its business at the time when offence was committed, the Hon’ble Apex court dismissed the appeals.

If the issue of the arbitrability of dispute requires deeper/further consideration, the issue should be referred to the arbitrator by the court. 

IN THE MATTER OF: VGP Marine Kingdom Pvt Ltd & Anr. versus Kay Ellen Arnold. (pronounced by the Hon’ble Supreme Court of India on 04.11.2022 in Civil Appeal No. 6679 OF 2022)

Facts:

1. A Share Subscription and Shareholders Agreement (“the Agreement”) was entered into between the VGP Marine Kingdom Pvt Ltd & Anr. (“Appellants”) and Kay Ellen Arnold (“Respondent”) at Chennai on 27.04.2016.
2. The Appellants approached the High Court of Judicature at Madras (“The High Court”) under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”) by way of O.P. No. 304/2019 to appoint an arbitrator in terms of Clause 17.1.2 of the Agreement entered into between the Parties.
3. The High Court in O.P. No. 304/2019, vide Judgement and Order, dated 05.08.2021 (“Impugned Order”), dismissed the Application under Section 11(6) of the Act and refused to appoint an arbitrator and refer the dispute to the arbitrator on the grounds that (i) at the time of filing of the said Application, the matter was already referred to another arbitral tribunal with respect to one Agreement, dated 27.04.2016, subsequent Amendment Agreement, dated 06.12.2017, and Addendum Agreement, dated 28.05.2018; and (ii) oppression and mismanagement proceedings initiated by the Respondent were pending before the National Company Law Tribunal (“NCLT”).
4. Therefore, the present appeal was filed by the Appellants herein being aggrieved by the Impugned Order.

Issues:

1. Whether the present dispute between the Parties with respect to the Agreement arbitrable?
2. Whether an application under Section 11(6) of the Act is liable to be dismissed during the pendency of oppression and mismanagement proceedings before the NCLT?

Courts Observations and Findings:

• The Hon’ble Supreme Court of India opined that the High Court erred in dismissing the Application and for refusing to appoint an arbitrator to resolve the dispute between the Parties arising out of the Agreement.
• The Hon’ble Supreme Court, while discussing the the first ground of dismissal taken by the Hon’ble High Court, stated that the Appellants were not a party to the said arbitral proceedings and the present Agreement is an independent agreement from the other Agreements entered into between the Parties. The contention of the Respondent, that all the three Agreements were interlinked, was found to be not maintainable. The Hon’ble Supreme Court, while relying on the case of Vidya Drolia and Ors. Vs. Durga Trading Corporation[1], reiterated that “unless on the facet it is found that the dispute is not arbitrable and if it requires further/deeper consideration, the dispute with respect to the arbitrability should be left to the arbitrator.”
• With respect to the second ground of dismissal taken by the Hon’ble High Court, the Supreme Court of India stated that an application under Section 11(6) of the Act cannot be dismissed due to the pendency of oppression and mismanagement proceedings before the NCLT since the dispute being referred to the arbitration is entirely different from the allegations of oppression and mismanagement.
• Therefore, the Impugned Order, dated 05.08.2021, was set aside and the Application under Section 11(6) of the Act was allowed. Shri Justice K. Ravichandrabaabu Former Judge, Madras High Court, was appointed as the arbitrator to resolve the dispute between the Parties arising out of the Agreement.

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[1] (2021) 2 SCC 1

by handyland

ZEUS Newsletter October 2022

Highlights:

Corporate Brief 

• Notification issued by the Ministry of Corporate Affairs, Government of India on 20-09-2022 Amendment of the Companies (CSR Policy) Rules, 2014 of the Companies Act,2013.
• Circular No. 09/2022 dated 28.09.2022 issued by Ministry of Corporate Affairs in regard to Extension of time for filing e-form DIR-3-KYC and web-form DIR-3-KYC-WEB without fee. 
• Notification issued by the Reserve Bank of India on 30.09.2002 regarding Late Submission Fee for reporting delays under Foreign Exchange Management Act, 1999 (FEMA).

RERA Brief

• Odisha Real Estate Regulatory Authority, direction dated 28.09.2022 under section 37 of Real Estate (Regulation & Development) Act, 2016;
• Karnataka Real Estate Regulatory Authority, notification dated 09.09.2022 and Corrigendum dated 20.09.2022; and
• Gujarat Real Estate Regulatory Authority order dated 30.09.2022 for extension of due date for submission of Form-5 for FY 2021-2022.

Litigation Brief

• CASE ANALYSIS: SUNSHINE TEAHOUSE PRIVATE LIMITED VS. MTRM GLOBAL PRIVATE LIMITED [PRONOUNCED BY THE HON’BLE HIGH COURT OF DELHI ON 11.10.2022 IN CS (COMM) NO. 617 OF 2022]

 Corporate Brief

Notification issued by the Ministry of Corporate Affairs, Government of India on 20-09-2022 Amendment of the Companies (CSR Policy) Rules, 2014 of the Companies Act,2013

The Ministry of Corporate Affairs, vide its notification dated 20.09.2022 amended the Companies (Corporate Social Responsibility Policy) Rules, 2014 (hereinafter referred to as the “said Rules”), as under:

In the said Rules, in rule 3:

(a) after proviso to sub-rule (1), the following proviso has been inserted, namely: -

“Provided further that a company having any amount in its Unspent Corporate Social Responsibility Account as per section 135 (6) shall constitute a CSR Committee and comply with the provisions contained in sub-sections (2) to (6) of the said section.”

(b) In rule 3, the sub-rule (2) has been omitted.

• In the said Rules, in rule 4:
• for sub-rule: (1), the following sub-rule shall be substituted, namely: -

‘(1) The Board shall ensure that the CSR activities are undertaken by the company itself or through, –

(a) a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company; or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or

(c)  any entity established under an Act of Parliament or a State legislature; or

(d) a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

Explanation - For the purpose of clause (c), the term “entity” shall mean a statutory body constituted under an Act of Parliament or State legislature to undertake activities covered in Schedule VII of the Act.”

• In the said Rules, in rule 8 sub rule (3)-
• for the word’s “five percent”, the words “two per cent.” shall be substituted;
• for the words “whichever is less”, the words “whichever is higher” shall be substituted.
• Existing Annexure -II of the said Rules has been substituted by a new Annexure-II prescribed under the Notification.

Circular No. 09/2022 dated 28.09.2022 issued by Ministry of Corporate Affairs in regard to Extension of time for filing e-form DIR-3-KYC and web-form DIR-3-KYC-WEB without fee.  

• Ministry of Corporate Affairs vide its circular no. 09/2022 dated 28.09.2022 allowed filing of e-form DIR-3-KYC and web-form DIR-3-KYC- WEB without filing fee up to 15^th October 2022.

Notification issued by the Reserve Bank of India on 30.09.2022 regarding Late Submission Fee for reporting delays under Foreign Exchange Management Act, 1999 (FEMA)

• The Late Submission Fee (LSF) was introduced for reporting delays in Foreign Investment (FI), External Commercial Borrowings (ECBs) and Overseas Investment related transactions with effect from November 07, 2017, January 16, 2019 and August 22, 2022 respectively.
• The Reserve Bank of India vide its notification dated 30.09.2022 has decided to bring uniformity in imposition of LSF across functions.
• The said notification shall come into effect immediately for the delayed filings made on or after the date of this circular.
• All other provisions of reporting under FEMA remain unchanged.

Real Estate Brief

ODISHA

The Odisha Real Estate Regulatory Authority, as per the direction dated 28.09.2022 under section 37 of Real Estate (Regulation & Development) Act, 2016, directed as follows: 

• In exercise of the powers conferred by section 37 of the Real Estate (Regulation and Development) Act, 2016 (“RERA”), the Odisha Real Estate Regulatory Authority directed that the Promoter and the Allottees shall form an Association as *Association of Allottees" as required under clause (e) of sub-section (4) of the section 11 of RERA in accordance with the model Bye-law and Memorandum of Association as annexed to the direction and such association may be registered under the Societies Registration Act, 1860.

• It has been further stated that the direction shall come into force on the date of its publication in the official website of the Odisha Real Estate Regulatory Authority.

 KARNATAKA

The Karnataka Real Estate Regulatory Authority, as per notification dated 09.09.2022, notified as follows: 

• The Karnataka Real Estate Regulatory Authority, under the guidance/ directions of the Hon’ble Karnataka State Legal Services Authority Bengaluru, shall hold National Lok Adalat in the premises of Karnataka Real Estate Regulatory Authority.
• The National Lok Adalat shall be held on 12.11.2022 to settle/compromise the complaints/cases, relating to, refund of money with or without interest, compensation, payment of interest for delay in delivering possession, cases relating to providing amenities, permissible execution proceedings in the disposed off cases or any other litigation which can be settled before the Lok Adalat, filed under the Real Estate (Regulation and Development) Act 2016 and the Karnataka Real Estate (Regulation and Development) Rules 2017.
• The Pre Lok – Adalat sittings will be held from 12.09.2022 to till 10.11.2022 between 02:30 P.M. to 05:30 P.M., during all working days and final orders/awards shall be recorded on 12.11.2022.

• Following the aforementioned notification, the Karnataka Real Estate Regulatory Authority has issued a corrigendum dated 20.09.2022 in respect of the notification of 09.09.2022. In the said notification it had been stated that the final orders/ awards shall be recorded on 12.11.2022 which was corrected in the corrigendum to state that the final orders/ awards shall be recorded on the respective dates as and when the cases are compromised/ settled but shall be on or before 12.11.2022.

GUJARAT

The Gujarat Real Estate Regulatory Authority, vide order dated 30.09.2022, ordered for extension of due date for submission of Form-5 for FY 2021-2022. 

• As per section 4(2)(1)(D) of the Real Estate (Regulation and Development) Act, 2016 read with regulation 4 of the Gujarat Real Estate Regulatory Authority (General) Regulation, 2017, every promoter is required to submit the annual report on statement of accounts in Form-5 within 6 (six) months after the end of every financial year for every registered project.
• The Gujarat Real Estate Regulatory Authority has made available a facility by which Form-5 may be filed online by Chartered Accountants on the Gujarat Real Estate Regulatory Authority portal for promoter of registered projects.
• Since representations had been received from various stakeholders requesting for extension of the time limit for submitting Form-5, after due consideration the Gujarat Real Estate Regulatory Authority passed the said order extending the last date for submission of Form-5 for financial year 2021-2022 from 30.09.2022 to 31.10.2022.
• Promoters and Chartered Accountants are required to comply with the requirement of submitting Form-5 by the revised time period to avoid penalties.

Litigation Brief

CASE ANALYSIS: SUNSHINE TEAHOUSE PRIVATE LIMITED VS. MTRM GLOBAL PRIVATE LIMITED [PRONOUNCED BY THE HON’BLE HIGH COURT OF DELHI ON 11.10.2022 IN CS (COMM) NO. 617 OF 2022]

The captioned suit was filed by Sunshine Teahouse Private Limited before the Hon’ble High Court of Delhi to restrain infringement of its registered trademark and the unauthorized use of the tradename by MTRM global Private Limited, relating to the competing trademarks ‘Chaayos’ and ‘Chaiops’.

Facts:

1. Sunshine Teahouse Private Limited (“Sunshine Teahouse”) is the registered trademark owner of the leading tea café brand CHAAYOS since 2017, which has been in use since 2012, with over 200 outlets at present. MTRM Global Private Limited (“MTRM”) on the other hand has conceptualized and adopted the mark CHAIOPS in 2020, for selling tea products through cafes, with 37 outlets at present.

2. It is the case of Sunshine Global that in violation of its registered trademark CHAAYOS, MTRM adopted the mark CHAIOPS for offering identical products and services. It is settled law that using a prominent word in a logo amounts to trademark infringement, as Section 17 of the Trademarks Act, 1999, safeguards the trademark as a whole- i.e., inclusive of all the devices used in a trademark and not parts thereof.

3. The Hon’ble Court was of the opinion that an amicable resolution could be reached between the parties considering their business status. Since the dispute primarily was on the word mark and the device and the logo were not objected to, the parties explored various options for the word mark which could be adopted by MTRM.

Issue:    

The parties reached an amicable settlement, and hence, the only issue before the Hon’ble Court was the final terms of the settlement and the timeline to give effect to such terms.

Terms of settlement and Court’s observations:

1. It was agreed between the parties that MTRM would change its work mark to ‘ChaiApps’ instead of ‘CHAIOPS’, which was accepted by Sunshine Global. 

2. The Hon’ble Court directed MTRM to effect the change to its existing centres, physical boards, stationery by 1^st April, 2023, and in respect of online platforms and any new outlets to be opened, the change would be immediate. MTRM was further directed to inform its customers within 1 month that the name of its establishment has been changed ‘ChaiApps’, and to remove all references of the earlier mark from the world wide web and all social media platforms, including changing the domain name and emails. 

3. MTRM agreed that with effect from 1^st April, 2023, it will cease use of the mark CHAIOPS. The Hon’ble Court further directed Sunshine Global to immediately bring any such material to the knowledge of MTRM. In case MTRM fails to take down such boards, signage, destroy such goods, materials, online or otherwise, within 1 week of receipt of such notice from Sunshine Global, they will be liable to pay damages to the tune of INR 50,000/- for each day till the default continues. 

4. It was agreed that Sunshine Global would not object to the use and/ or registration of the new work mark ‘ChaiApps’, or any variants thereof. Further, the Hon’ble Court directed MTRM to withdraw their currently pending trademark applications before the Trademark Registry for the trademark CHAIOPS, or its variants, within one week. 

5. In the aforesaid background, the Hon’ble Court finally held that the terms of settlement agreed upon by the parties would be full, final and binding on all person(s) directly or indirectly related to them in their ordinary course of business activities or even otherwise.

***

by handyland

ZEUS Newsletter September 2022

Highlights:

Corporate Brief

• Reserve Bank of India Notification No. RBI/2022-23/98 dated 01.08.2022 on “External Commercial Borrowings (ECB) Policy – Liberalisation Measures
• Master Circular issued by the Reserve Bank of India on 02.08.2022 regarding Credit Facilities to Minority Communities
• Central Board of Indirect Taxes (CBIC) Circular No. 178/10/2022-GST dated 03.08.2022 clarifying GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law
• Notification issued by the Reserve Bank of India on 08.08.2022 Authorised Dealer Category-I License eligibility for Small Finance Banks.
• Notification issued by the Ministry of Corporate Affairs, Government of India on 18.08.2022 inserting Rule 25B in the Companies (Incorporation) Rules, 2014
• Reserve Bank of India issued the Foreign Exchange Management (Overseas Investment) Directions, 2022 on 22.08.2022.
• Notification issued by the Ministry of Finance in the Official Gazette notifying the Foreign Exchange Management (Overseas Investment) Rules, 2022 on 22.08.2022.
• Notification issued by the Ministry of Corporate Affairs notifying the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022 on 24.08.2022.
• Circular issued by SEBI regarding enhanced disclosures by CRAs and norms of rating withdrawal on 25.08.2022.
• Circular issued by SEBI regarding disclosures requirement for Asset Management Companies (AMCs) on 25.08.2022.
• Notification issued by the Ministry of Corporate Affairs notifying the Companies (Acceptance of Deposits) Amendment Rules, 2022 on 29.08.2022.  
• Notification issued by the Ministry of Corporate Affairs notifying the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2022 on 29.08.2022.
• Notification issued by the Ministry of Corporate Affairs notifying the Companies (Registration of Charges) Second Amendment Rules, 2022 on 29.08.2022.

RERA Brief

• Circular issued by Punjab RERA providing for filing of RERA execution applications
• Order issued by Odisha RERA providing for eventualities for extension of time period under Section 7(3) of the Act
• Order issued by Maharashtra RERA introducing guidelines for submission of proforma of the allotment letter and agreement for sale at the time of registration
• Order issued by UPRERA enacting Regulation No. 48 to prescribe the amount of fee payable by real estate agents
• Notification issued by Rajasthan RERA amending Form-G of Rajasthan Real Estate (Regulation and Development) Rules, 2017

Litigation Brief

• Statutory pre-litigation mediation mandatory under Section 12A of the Commercial Courts Act, 2015.
• Case Analysis: Vidarbha Industries Power Limited Vs. Axis Bank Limited [Civil Appeal No. 4633 of 2021]

Corporate Brief

RBI Notification No. RBI/2022-23/98 dated 01.08.2022 on “External Commercial Borrowings (ECB) Policy – Liberalisation Measures

The Reserve Bank of India (RBI) on August 1, 2022 has issued a Notification on “External Commercial Borrowings (ECB) Policy – Liberalisation Measures”. Attention is invited to paragraph 2.2 of FED Master Direction No.5 on External Commercial Borrowings, Trade Credits and Structured Obligations, dated March 26, 2019, in terms of which eligible ECB borrowers are allowed to raise ECB up to USD 750 million or equivalent per financial year under the automatic route, and paragraph 2.1.vi. ibid, wherein the all-in-cost ceiling for ECBs has been specified. As announced in paragraph five of the press release on “Liberalisation of Forex Flows” dated July 06, 2022, it has been decided, in consultation with the Central Government, to:

• increase the automatic route limit from USD 750 million or equivalent to USD 1.5 billion or equivalent.
• increase the all-in-cost ceiling for ECBs, by 100 bps. The enhanced all-in-cost ceiling shall be available only to eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs). Other eligible borrowers may raise ECB within the existing all-in-cost ceiling, as hitherto.

The above relaxations would be available for ECBs to be raised till December 31, 2022.

Master Circular issued by the Reserve Bank of India on 02.08.2022 regarding Credit Facilities to Minority Communities.

The Reserve Bank of India, vide its notification dated 02.08.2022 issued Master Circular regarding Credit Facilities to Minority Communities to ensure that the minority communities secure the benefits flowing from various Government sponsored schemes. The Government of India has also annexed a list of 121 minority concentration districts having at least 25% minority population The Circular states that:

• A target of 40% and 75% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent amount of Off-Balance Sheet Exposure (OBE) has been mandated for lending to the priority sector by domestic scheduled banks commercial banks and foreign banks and small finance banks, respectively.
• Each bank should set up a special cell having a Nodal Officer in order to ensure smooth flow of credit to minority communities.
• The Lead Banks in 121 identified districts may involve the State Minority Commissions/ Finance Corporations.
• Banks may route loans under the Differential rate of Interest (DRI) scheme through State Minority Commissions/ Finance Corporations.
• Data on credit extended to members of minority communities should be furnished to Reserve Bank of India and to the Government of India, Ministry of Finance and Ministry of Minority Affairs, on half yearly basis as at the end of March and September every year within 1 (one) month from the end of each half year.
• Banks should create publicity through various means about the anti-poverty programmes of the Government where there is large concentration of minority communities and particularly in the districts.

Central Board of Indirect Taxes (CBIC) Circular No. 178/10/2022-GST dated 03.08.2022 clarifying GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law

CBIC has issued a circular clarifying the GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law. The circular has clarified that “Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act” has been specifically declared to be a supply of service in para 5 (e) of Schedule II of CGST Act if the same constitutes a “supply” within the meaning of the Act.”

The circular stated that “forfeiture of earnest money by a seller in case of breach of ‘an agreement to sell’ an immovable property by the buyer or such forfeiture by Government or local authority in the event of a successful bidder failing to act after winning the bid for allotment of natural resources, is a mere flow of money, as the buyer or the successful bidder does not get anything in return for such forfeiture of earnest money. Forfeiture of earnest money is stipulated in such cases not as a consideration for tolerating the breach of contract but as a compensation for the losses suffered and as a penalty for discouraging the non-serious buyers or bidders. Such payments being merely flow of money are not a consideration for any supply and are not taxable.”

Notification issued by the Reserve Bank of India on 08.08.2022 regarding Authorised Dealer Category-I License eligibility for Small Finance Banks.

The Reserve Bank of India, vide its notification dated 08.08.2022 stated that all the scheduled Small Finance Banks, after completion of at least two years of operations as Authorised Dealer Category-II, will be eligible for Authorised Dealer Category-I license, subject to eligibility norms laid down in Annex-I of the notification. The eligible Small Finance Banks can approach Foreign Exchange Department, Central Office, Reserve Bank of India with their application along with the supporting documents with regard to their eligibility and the list of requisite documents is laid down in Annex-II of the notification.

Notification issued by the Ministry of Corporate Affairs, Government of India on 18.08.2022 amending the Companies (Incorporation) Rules, 2014

The Ministry of Corporate Affairs, Government of India, vide its notification dated 18.08.2022 inserted Rule 25B in the Companies (Incorporation) Rules, 2014. The rule is regarding the physical verification of Registered Office of the company and provides format for the report on physical verification of the Registered Office of the company. The rule states that:

• The Registrar, on the basis of the documents made available on MCA 21, shall visit the address of the registered office of the company and may cause the physical verification of the said registered office in presence of two independent witnesses of the locality and may seek assistance of local police for such verification.
• The Registrar shall carry the documents as filed on MCA 21 for the purpose of physical verification and to check the authenticity of the same by cross verification with the copies of the supporting documents collected during the said physical verification.
• The Registrar shall take photograph of the registered office of the company while causing physical verification.

Reserve Bank of India issued the Foreign Exchange Management (Overseas Investment) Directions, 2022 on 22.08.2022.

The Reserve Bank of India, vide its notification dated 22.08.2022, issued the Foreign Exchange Management (Overseas Investment) Directions, 2022. The directions simplify the existing framework for overseas investment by persons resident in India to cover wider economic activity and significantly reduces the need for seeking specific approvals, which will reduce the compliance burden and associated compliance costs. The directions enhance clarity with respect of various definitions, has introduced the concept of “strategic sector”, introduces “Late Submission Fees” for reporting delays. Detailed operational instructions are mentioned in Annex-I and Annex-II attached with the notification.

The regulations provide detailed provisions for financial commitment by modes of equity capital, debt, guarantee, pledge or charge. The regulations also provide acquisition or transfer by way of deferred payment, mode of payment, what are the obligations of person resident in India etc.

Notification issued by the Ministry of Finance in the Official Gazette issued the Foreign Exchange Management (Overseas Investment) Rules, 2022 on 22.08.2022.

The Ministry of Finance, vide its notification dated 22.08.2022 issued the Foreign Exchange Management (Overseas Investment) Rules, 2022. The rules aim to simplify the existing framework for overseas investment by a person resident in India to cover wider economic activity and significantly reduce the need for seeking specific approvals. The rules will will subsume extant regulations pertaining to Overseas Investments and Acquisition and Transfer of Immovable Property outside India Regulations, 2015.

Notification issued by the Ministry of Corporate Affairs in the Official Gazette notifying the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022 on 24.08.2022.

The Ministry of Corporate Affairs, vide its notification dated 24.08.2022 issued the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022 to amend the Form No. STK-1 and Form No. STK-5A under the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

Circular issued by SEBI regarding enhanced disclosures by CRAs and norms of rating withdrawal on 25.08.2022.

SEBI, vide its circular dated 25.08.2022 has laid down enhanced disclosures and norms of rating withdrawal. The new framework will be applicable to credit ratings of securities that are already listed or proposed to be listed on a stock exchange. Credit Rating Agencies (CRAs) will have to compare two consecutive rating actions. Further, a CRA will have to disclose a sharp rating action if the rating change between two consecutive rating actions is more than or equal to three notches downward. CRAs also have to frame detailed guidelines on what constitutes non-cooperation by issuers and need to have a detailed policy regarding methodology in respect of assessing the risk of non-availability of information from the issuers.

Circular issued by SEBI regarding disclosures requirement for Asset Management Companies (AMCs) on 25.08.2022.

SEBI, vide its circular dated 25.08.2022 laid down disclosure requirement for Asset Management Companies (AMCs). Vide the circular, SEBI has amended the definition of “associate” as per clause (c) of sub-regulation (1) of regulation 2 of SEBI (Mutual Funds) Regulations, 1996. The circular also states that AMCs shall ensure scheme wise disclosure of investments, as on the last day of each quarter, in securities of such entities that are excluded from the definition of associate. Further, the circular states that disclosure of Investment shall include International Securities Identification Number (ISIN) wise value of investment and value as percentage of Assets under management (AUM) of scheme.

Notification issued by the Ministry of Corporate Affairs notifying the Companies (Acceptance of Deposits) Amendment Rules, 2022 on 29.08.2022.

The Ministry of Corporate Affairs, vide its notification dated 29.08.2022 notified the Companies (Acceptance of Deposits) Amendment Rules, 2022 to amend the Companies (Acceptance of Deposits) Rules, 2014. In rule 16, after the words “auditors of the company” of the Companies (Acceptance of Deposits) Rules, 2014, the words, letters and figure “and declaration to that effect shall be submitted by the auditor in Form DPT-3” has been inserted and certain changes have been made in Form DPT-3 and Form DPT-4 by the Companies (Acceptance of Deposits) Amendment Rules, 2022.

Notification issued by the Ministry of Corporate Affairs notifying the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2022 on 29.08.2022.

The Ministry of Corporate Affairs, vide its notification dated 29.08.2022 notified the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2022 to amend the Companies (Appointment and Qualification of Directors) Rules, 2014 by introducing new forms in the Annexure, for e-form DIR-3-KYC  and  web-form DIR-3-KYC-WEB..

Notification issued by the Ministry of Corporate Affairs notifying the Companies (Registration of Charges) Second Amendment Rules, 2022 on 29.08.2022.

The Ministry of Corporate Affairs, vide its notification dated 29.08.2022 issued the Companies (Registration of Charges) Second Amendment Rules, 2022 to amend the Companies (Registration of Charges) Rules, 2014. Rule 13 was inserted after rule 12 of the Companies (Registration of Charges) Rules, 2014 which is regarding signing of charge e-forms by insolvency resolution professional or resolution professional or liquidator for companies under resolution or liquidation.

 Real Estate Brief

  Circular issued by Punjab RERA providing for filing of RERA execution applications

Vide Circular No. RERA/Legal/2022/7816 dated 04.08.2022, Punjab Real Estate Regulatory Authority (“Authority”) provided the procedure for filing of execution applications arising from the complaints filed under Section 31 of the Real Estate (Regulation and Development) Act, 2016 (“Act”). The said applications shall be heard by the Authority or respective benches of Authority or Adjudicating Officer, as the case maybe. The said execution application may be filed personally or through an authorized representative in the prescribed format. In case the application is found to not be in the prescribed format, a communication shall be given to the applicant to rectify deficiencies within 15 (fifteen) days. Upon due consideration of the execution application and finding a prima facie case, the Authority shall issue notice to the respondent/ judgment debtor.

Order issued by Odisha RERA providing for eventualities for extension of time period under Section 7(3) of the Act

Vide Order no. 3332/ORERA dated 05.08.2022, Odisha Real Estate Regulatory Authority (“Authority”) provided for eventualities whereby extension of a project beyond one year under Section 7(3) of the Act may be considered. The Odisha RERA Authority reiterated parts of the judgment of Hon’ble Bombay High Court in “Neelkamal Realtors Suburban Pvt Ltd v. Union of India” wherein the Hon’ble High Court opined that a genuine promoter may not always be able to complete a project within stipulated time owing to justifiable reasons and therefore, the provisions of Section 6 and Section 7 of the Act should be read harmoniously in interest of the larger public in order to regulate the real estate sector. Furthermore, in case of failure of completion of project within stipulated time period, the only outcome shall not be to directly oust the promoter from the project. The promoter may be provided with an opportunity to convince the Authority by providing compelling reasons leading to delay in completion of project and the same shall be accordingly examined on a case to case basis. In pursuance of the observations of the Hon’ble High Court, it was provided that in case a promoter of a registered project fails to complete a project within an extended period of at most one year as allowed under Section 6 of the Act, then, such promoter may apply afresh in Form-II for further extension of registration on payment of requisite fees and such application shall be considered by the Authority under Section 7(3) of the Act subject to restrictions and conditions imposed by Hon’ble High Court in abovementioned judgment.

Order issued by Maharashtra RERA introducing guidelines for submission of proforma of the allotment letter and agreement for sale at the time of registration

Vide Order No. 35/2022 dated 12.08.2022, Maharashtra Real Estate Regulatory Authority (“Authority”) introduced guidelines for submission of proforma of the allotment letter and agreement for sale at the time of registration of real estate project in accordance with Clause (g) of Sub-section 2 of Section 4 of the Act. The said order stipulates that the proforma of the allotment letter proposed to be signed by the promoters with the allottees should be in conformity with the model allotment letter as approved by the Authority and such allotment letter should be annexed with the application for registration of real estate project. The promoters are also required to upload the proforma of the agreement to sale proposed to be executed. If the promoters choose to execute an allotment letter or agreement to sale which is not in accordance with the approved proforma or model agreement, respectively, then, the deviations/ modifications in such allotment letter or agreement, as the case may be, shall be highlighted in a different colour before being uploaded along with a deviation sheet mentioning such deviations/ modifications in order to enable the allottees to make an informed decision. Non-compliance of the mentioned directions shall lead to rejection of registration application subject to the mandate of the proviso appended to Section 5 of the Act.

Order issued by UPRERA enacting Regulation No. 48 to prescribe the amount of fee payable by real estate agents

Vide Notification dated 23.08.2022, Rajasthan Real Estate Regulation Authority (“Authority”) made amendments in Form-G (Agreement for Sale) of Rajasthan Real Estate (Regulation and Development) Rules, 2017 by virtue of which Term 18A was inserted titled “The Rajasthan Apartment Ownership Act, 2015”. Term 18A reads to effect assurance by the promoter to the allottee(s) regarding completion of project as per Rajasthan Apartment Ownership Act, 2015. By virtue of Term 18A, the Promoter further assures the allottee(s) that all provisions of other laws, rules and regulations prevailing in Rajasthan have been duly complied with regard to the project.

Notification issued by Rajasthan RERA amending Form-G of Rajasthan Real Estate (Regulation and Development) Rules, 2017

Vide Order No. 9845/U.P.RERA/Gen.Regulation/2022 dated 26.08.2022, the Uttar Pradesh Real Estate Regulatory Authority (“Authority”) provided for insertion of Regulation No. 48 to prescribe the amount of fee payable by real estate agents for amendment to registration certificate granted to real estate agent in Form-H to effectuate the amendment in the period of validity of the registration certificate of the real estate agent. The said  regulation provided that such fee shall amount to Rs. 1,000/- (Rupees One Thousand only) in case of real estate agent being and individual and Rs. 5,000/- (Rupees Five Thousand only) in case of real estate agent being anyone other than individual. Payment of such fees is to be made through online modes as provided on the website of the Authority.

Litigation Estate Brief

Statutory pre-litigation mediation mandatory under Section 12A of the Commercial Courts Act, 2015.

 IN THE MATTER OF: Patil Automation Private Limited and Ors. Vs. Rakheja Engineers Private Limited, MANU/SC/1004/2022

Decided by Hon’ble Supreme Court on 17.08.2022

 Facts:

1. The Respondent filed a commercial suit against the Appellants for recovery of money along with interest on a certain sum under Order XXXVII of the Code of Civil Procedure (“CPC”) before the Additional District Judge, District Court, Faridabad.
2. In response, the Appellants filed an application under Order VII Rules 10 and 11 read with Sections 9 and 20 of the CPC seeking rejection of plaint of the Respondent on the basis that Section 12A of the Commercial Courts Act, 2015 (“the said Act”) mandating pre-litigation mediation has not been complied with.
3. The Ld. District Court however, rejected the application of the Appellant holding that giving strict interpretation to Section 12A so as to reject a suit would have a catastrophe effect. The Ld. Trial Court further stated that Section 12A was incorporated only to ensure the alternative means of dissolution are adopted so that the genuine cases come before the court which will result in de-congesting the regular courts. While observing that the procedure and law are for advancement of justice and not to thwart on technical grounds, the Ld. Trial Court kept the civil suit in abeyance and directed both the parties to appear before the Secretary, District Legal Services Authority, Faridabad for the purpose of mediation as per the provisions of Section 12A.
4. Aggrieved by the rejection of its Application, Appellant filed a Civil Revision Petition before the High Court of Punjab and Haryana. The Hon’ble High Court confirming with the view of Ld. Trial Court observed that intention of legislature behind referring the dispute to mediation is to explore settlement, which cannot be interpreted to deliver ‘perverse justice’.
5. Appeals with similar facts and issues pending before the Hon’ble Supreme Court were also dealt with in this judgment.

 Issues:

The issue which arose in the instant case is whether the statutory prelitigation mediation provided under Section 12A of the said Act as amended by the Amendment Act of 2018 is mandatory so as to reject a plaint filed in a commercial suit for non-compliance of the said pre-condition.

 Court’s Observations and Findings:

1. The Hon’ble Supreme Court referred to catena of judgments dealing with interpretation of different statutory enactments to consider whether such enactments were mandatory or directory and to perceive a distinction between the words ‘must’ and ‘shall’ used in any Act.
2. Relying on Sharif-ud-Din v. Abdul Gani Lone^[1] wherein it has been held that, if the object of the law is defeated by non-compliance with a provision, then, it would be regarded as mandatory, it was observed that Section 12A cannot be described as a mere procedural law, which is a mandatory provision and any other interpretation would result in frustration of the object of the said Act.
3. The Hon’ble Court also observed that the judgment of Single Judge in Ganga Taro Vazirani v. Deepak Raheja^[2], holding Section 12A to be a procedural provision and which has been relied upon in the impugned judgments, has been overruled by the Division Bench in appeal which stated that Section 12A is a mandatory and considering the object and purpose of Section 12A, being rooted in public interest, there is no question of it being waived.
4. The Hon’ble Court went through the language of Section 12A of the said Act, rules for initiation of mediation process and the statement of objects and reasons of the Amending Act of 2018 which brought Section 12A into existence to observe that a commercial suit cannot be filed except after the remedy of pre-litigation mediation is attempted and exhausted.
5. Placing reliance on views expressed in Ram Bakshi and Ors. v. Sonia Khosla (Dead) by Legal Representatives,^[3] in favour of mediation, the Apex Court opined that Section 12A provides for a cooling period wherein all the parties are to be referred for mediation at the hands of skilled mediators which is a need of the hour in this period of docket explosion. The Hon’ble Court also stated that there is no absolute right to file a civil suit and the same can be barred until certain conditions are fulfilled.
6. In conclusion, the Hon’ble Court declared that Section 12A of the Act is mandatory and held that any suit instituted in contravention of Section 12A must be rejected, which can be done even suo moto by the court.

 Case Analysis: Vidarbha Industries Power Limited Vs. Axis Bank Limited [Civil Appeal No. 4633 of 2021]

 The captioned appeal was filed before the Hon’ble Supreme Court against a final judgment and Order dated 02.03.2021 passed by the Hon’ble National Company Law Appellate Tribunal, New Delhi (“NCLAT”) in Company Appeal No. 117 of 2021. The main issue in the said matter was the following:

• Whether the NCLT has the power to reject an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) even if there is a default on the part of the Corporate Debtor?

Facts-

• Vidarbha Industries Power Limited (“Corporate Debtor”) is a power generation company which defaulted on its payment obligations under credit facilities availed from a consortium of six banks which is led by Axis Bank Limited (“Respondent”). In pursuance to default in repayment to the tune of INR 533 crores, the Respondent filed an application under section 7 of the Code, i.e., C.P. (IB) No. 264 of 2022, for the initiation of the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor on account of the said default.
• The Corporate Debtor filed an interlocutory application seeking stay of further proceedings in light of various proceedings pending before Maharashtra Electricity Regulatory Commission (“MERC”), Appellate Tribunal for Electricity (“APTEL”) and the Supreme Court as a sum of Rs. 1,730 Crores was due to the Appellant on account of revision of tariff caused by rise in price of coal for Financial Years 2014-2016 basis the Order dated 03.11.2016 of APTEL which if recovered would have enabled the Appellant to clear all of its dues. It is pertinent to mention that the debt or occurrence of default was not disputed by the Corporate Debtor.
• Relying on the threshold requirements for initiation of the CIRP proceedings provided by statute, i.e., existence of debt and evidence of default (commonly known as twin test), upheld by the Supreme Court in Swiss Ribbon and Innoventive Industries, the NCLT dismissed the interlocutory application filed by the Corporate Debtor holding that no external reason triggering default by a corporate debtor would be relevant if the threshold of twin test is satisfied.
• The application filed under Section 7 of the Code by the Respondent was allowed and the CIRP proceedings of the Corporate Debtor was initiated. The order allowing initiating the CIRP proceedings of the Corporate Debtor was challenged in the NCLAT, New Delhi; but the Hon’ble NCLAT dismissed the appeal.
• Thereafter, the Appellant challenged the judgment of NCLAT in the captioned appeal before the Hon’ble Supreme Court under Section 62 of Code.

Observations of the Hon’ble Supreme Court-

• Hon’ble Supreme Court held that the Code was instituted with an aim to facilitate the assessment of viability of an enterprise at a very early stage and to ensure a time bound insolvency resolution process in order to preserve economic value of the enterprise.
• The court in variance to the order of the NCLT held that the precedence set up in Swiss Ribbons Private Limited and Anr. vs Union of India and Ors.^[4] providing for timely resolution of Corporate Debtor must always be relied upon but the viability and overall financial health of the Corporate Debtor are not to be considered as extraneous as provided in the said judgment.
• The apex court criticized NCLT for overlooking the award of APTEL in favor of the Appellant and further held that the said award amounted to Rs 1,730 Crore, which was far exceeding the claim of financial creditor. The court further emphasized that existence of financial debt and default in payment thereof only provides a financial creditor with a right to apply for initiation of the CIRP proceedings and that the NCLT is required to apply its mind to relevant factors including the feasibility of initiation of the CIRP proceedings of a corporate debtor.
• The court elaborated on the intention of the legislature while choosing to use “may” in Section - 7(5)(a). It was emphasized upon that “may” is used to confer discretionary authority in statutes whereas “shall” is used postulating mandatory requirements.
• Furthermore, weighing upon the literal rule of interpretation, it was opined that the said provision must be considered to confer jurisdiction on the NCLT with respect to initiation of CIRP proceedings. Furthermore, as there existed no ambiguity in interpretation of the concerned provision, the court held that it need not depart from the literal rule of interpretation to any other rule of interpretation of statute.
• The court also highlighted the use of the term “shall” in Section 9(5) of the Code conferring a mandatory directive upon the NCLT. In furtherance to the same, it was opined that the legislature must have used different words in similar provisions intending to convey a different meaning to each of the provisions.
• Emphasizing upon the title of the Code, the court held that the Code has been formulated to deal with bankruptcy and insolvency and certainly not to penalize solvent companies and therefore, temporary default in repayment of debt cannot be a justified reason to initiate insolvency proceedings mandatorily. Furthermore, the question of time bound initiation and completion of CIRP proceedings could have only arisen if companies were bankrupt or insolvent and not otherwise.
• The Hon’ble Supreme Court further held that the powers conferred under Section 7(5)(a) were discretionary; however, the said discretion ought not be exercised arbitrarily or capriciously. Furthermore, an application under the said provision should be considered citing appropriate reasons by the NCLT.

Conclusion-

For the reasons discussed above, the captioned appeal was allowed. The impugned Order dated 29.01.2021 passed by the NCLT and the impugned Order dated 2.03.2021 passed by the NCLAT dismissing the appeal was set aside. The NCLT was directed to re-consider the application of the Appellant for stay of further proceedings on merits in accordance with law.

****

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[1] MANU/SC/0352/1979

[2] MANU/MH/0403/2021

[3] MANU/SC/0430/2014

^[4] (2019) 4 SCC 17

by handyland

ZEUS Newsletter August 2022

Highlights:

Corporate Brief

• Circular dated 04.07.2022 issued by SEBI in regard to introduction of web-based Investor Grievance Redressal Mechanism.
• Gazette Notification No. S.O. 3210(E) dated 15.07.2022 issued by Ministry of Finance declaring ‘zero coupon zero principal instruments’ as securities.
• Circular dated 18.07.2022 issued by SEBI in regard to levying of Goods and Service Tax on the fees payable to SEBI.
• Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2022.
• Notification dated 14.07.2022 on the Special Economic Zones (Third Amendment) Rules, 2022.
• Reserve Bank of India Notification No. FEMA.3(R)(3)/2022-RB dated 28.07.2022 on Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022.
• Circular No. RBI/2022-23/87 dated 07.07.2022 issued by RBI in regard to relaxations on Investment by Foreign Portfolio Investors (FPI) in Debt.

 RERA Brief

• Public Order issued by Maharashtra Real Estate Regulatory Authority to amend the proforma of Allotment Letter to be submitted during project registration.
• Directions issued by Maharashtra Real Estate Regulatory Authority regarding registration of Real Estate Projects and Real Estate Agents, Project Extensions and Corrections.
• Guidelines issued by Maharashtra Real Estate Regulatory Authority to the Promoters to provide Regular Updates on Registered Projects.
• Guidelines issued by Uttar Pradesh Real Estate Regulatory Authority in regard to advertisements relating to promotion marketing and sale in Real Estate Projects.
• Order issued by Maharashtra Real Estate Regulatory Authority regarding declaration about separate bank accounts for real estate projects.

Litigation Brief 

• Case analysis: Marico Limited vs. Dabur India Limited [pronounced by the Hon’ble High Court of Calcutta on 19.07.2022 in cs no. 264 of 2021]
• Civil Appeal before the Hon’ble Supreme Court against a final judgment and order dated21.09.2021 passed by the Hon’ble Telangana High Court.
• An Arbitral Award can be partially/partly set aside, under section 34 of the Arbitration and Conciliation Act, 1996, and the same would not tantamount to being modification of the award.

 Corporate Brief

Circular dated 04.07.2022 issued by SEBI in regard to introduction of web-based Investor Grievance Redressal Mechanism. 

• SEBI has implemented an online platform (SCORES) to help investors to lodge their complaints, related to the securities market, against listed companies and SEBI registered intermediaries. It enables investors to lodge and follow-up their complaints and track the redressal status of such complaints from anywhere.
• All Recognized Stock Exchanges, including Commodity Derivatives Exchange/ Depositories have been advised to design and implement an online web-based complaints redressal system of their own for grievance redressal. It has been directed that such redressal mechanism is to be implemented within 6 (six) months from the issuance of the circular and the salient features of the system have been enclosed in the annexure appended to the circular.
• It has also been advised that the Stock Exchanges continue with the Hybrid Mode (i.e., online and offline) for conducting redressal through the Grievance Redressal Committee and Arbitration/ Appellate Arbitration as advised during Covid.

Gazette Notification No. S.O. 3210(E) dated 15.07.2022 issued by Ministry of Finance declaring ‘zero coupon zero principal instruments’ as securities. 

• The Central Government vide Notification No. S.O. 3210(E) dated 15.07.2022 declared ‘zero coupon zero principal instruments’ as securities under the Securities Contracts (Regulation) Act, 1956.
• It was explained that ‘zero coupon zero principal instrument’ means an instrument issued by a Not for Profit Organization which shall be registered with Social Stock Exchange segment of a recognized Stock Exchange in accordance with the regulations made by the Securities and Exchange Board of India.”

Circular dated 18.07.2022 issued by SEBI in regard to levying of Goods and Services Tax (GST) on the fees payable to SEBI. 

• The GST council in its meeting held on 28.06.2022 and 29.06.2022, recommended, among other things, to withdraw the exemption granted to services by SEBI.
• SEBI vide its circular dated 18.07.2022 informed all Market Infrastructure Institutions, Companies who have listed/ are intending to list their securities, other intermediaries and persons who are dealing in the securities market that the fees and other charges payable to SEBI will be subjected to GST at the rate of 18% with effect from 18.07.2022.

Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2022. 

• SEBI notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2022.
• Under Regulation 2(h) the definition of ‘designated securities’ has been expanded to include the ‘Zero Coupon Zero Principal Instruments.’ Further clause (zo) has been inserted as follows: the expressions “For Profit Social Enterprise”, “Not for Profit Organization”, “Social Enterprise”, “Social Stock Exchange”, “draft fund-raising document”, “final fund raising document”, “fund raising document”, “Social Auditor” and “Social Audit Firm” shall have the same meaning as assigned to them under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulation, 2018.
• Chapter IX-A has been inserted which lays down the Obligations of Social Enterprises. According to Regulation 91A, this chapter is applicable to “For Profit Social Enterprise whose designated securities are listed on the applicable segment of the Stock Exchange(s) and a Not-for-Profit Organization that is registered on the Social Stock Exchange(s). The disclosure requirements for a For Profit Social Enterprise, a Not For Profit Organization, intimations and disclosures by Social Enterprise are further laid down under Regulation 91B, 91C, 91D and 91E. A statement of utilization of funds needs to be submitted by Not For Profit Organizations to the Social Stock Exchange(s) on a quarterly basis in respect of the utilization of the funds raised, under Regulation 91F. 

Notification dated 14.07.2022 on the Special Economic Zones (Third Amendment) Rules, 2022. 

• The Central Government vide the Notification issued by the Ministry of Commerce & Industry, dated 14.07.2022, has further amended the Special Economic Zones Rules, 2006, as the Special Economic Zones (Third Amendment) Rules, 2022 (“Amendment Rules”).
• In the Amendment Rules inter alia a new rule - Rule 43A has been inserted detailing the provisions regarding Work From Home for employees working in Special Economic Zones. The key takeaways of the provision are as follows:
  1. A Unit may permit its employees, including contractual employees, to work from home or from any place outside the Special Economic Zone in accordance with Rule 43A.
  2. Employees of the Information and Technology and Information and Technology enabled Services Special Economic Zone units, employees who are temporarily incapacitated, employees who are travelling and employees who are working offsite are covered under this new rule.
  3. The Development Commissioner, if satisfied that the proposal is in conformity with this Rule 43A, may grant permission for work for home for such period not exceeding one year at a time.
  4. The proposal for work from home shall cover a maximum of 50% of the total employees, including contractual employees of the Unit and the Unit is required to maintain accurate attendance record for the entire period of permission for work from home and submit such records to the Development Commissioner from time to time. The Development Commissioner may approve a higher number of employees to work from home for any bona-fide reason to be recorded in writing.

Reserve Bank of India Notification No. FEMA.3(R)(3)/2022-RB dated 28.07.2022 on Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022. 

• The RBI vide notification dated 28.07.2022 made an amendment to the Individual limits of borrowing in the Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2018.
• Previously all eligible borrowers/ category of borrowers were permitted to raise ECB of up-to USD 750 Million or equivalent per financial year. However, as per the notification dated 28.07.2022 the limit of USD 750 Million or equivalent per financial year is temporarily increased to USD 1,500 Million or equivalent. This dispensation will be available for ECBs raised till 31.12.2022. 

Circular No. RBI/2022-23/87 dated 07.07.2022 issued by RBI in regard to relaxations on Investment by Foreign Portfolio Investors (FPI) in Debt. 

• RBI vide its Circular No. RBI/2022-23/87 dated 07.07.2022 issued by RBI introduced relaxations on Investment by Foreign Portfolio Investors (FPI) in Debt.
• It has been decided that investments by FPIs in government securities and corporate bonds made between 08.07.2022 and 31.10.2022 (both dates included) shall be exempted from the limit on short-term investments till maturity or sale of such investments.
• It has also been decided to allow FPIs to invest in commercial papers and non-convertible debentures with an original maturity of up to one year, during the period between 08.07.2022 and 31.10.2022 (both dates included). These investments shall be exempted from the limit on short-term investments till maturity or sale of such investments.
• These directions are applicable with immediate effect.

 Real Estate Brief

Public Order issued by Maharashtra Real Estate Regulatory Authority (Mah-RERA) to amend the proforma of Allotment Letter to be submitted during project registration. 

• Mah-RERA vide its public order dated 01.07.2022 amended the proforma of Allotment Letter that is required to be submitted at the time of registration of a real estate project in compliance of Clause (g) of Sub-section 2 of Section 4 of the Real Estate (Regulation and Development) Act, 2016.
• The promoters must use the model allotment letter that has been introduced via this order which suppresses the Order No. 30/2022 dated 30.06.2022.
• The promoters have been given the option of increasing the number of days within which the booking can be cancelled and decreasing the percentage of amount that can be deducted in case of cancellation of booking that has been prescribed under the allotment letter.
• The order also lays down that for enabling prompt and speedy verification, the deviation/modification from the proforma must be highlighted in a different color.
• In case of non-compliance, the application of the promoter for registration shall be liable to be rejected according to proviso to Section 5 of the Real Estate (Regulation and Development) Act, 2016.

Directions issued by Maharashtra Real Estate Regulatory Authority (Mah-RERA) regarding registration of Real Estate Projects and Real Estate Agents, Project Extensions and Corrections. 

• Mah-RERA vide its public order dated 01.07.2022 lays down the process to be followed in case of different scenarios where the application for registration of Real Estate Projects and Real Estate Agents, Project Extension and Corrections is incomplete or there is any discrepancy.
• The application that is submitted with discrepancy or mismatch in information such application will be sent back to the applicant with remarks and treated as incomplete.
• The applicant may resubmit the application and if it is found to be incomplete again, then it will be sent back to the applicant.
• If the application submitted after resubmitting is also found incomplete, then the applicant will have to appear in the Open House Meeting for resolving the issues. The application will have to be submitted with all the compliances within seven days of the open house.
• If the application is found to be incomplete even after resubmitting the application after the open house, then it will be treated as incomplete and closed.
• Thereafter, a penalty of 25% of the registration fees will be levied in case of resubmission and all the above processes will be followed again. The application can also be resubmitted if it is found to be incomplete even after following the whole process for second time but a penalty of 40% of the registration fees will have to be paid.
• If the application is found incomplete even after following the whole process for the third time, then the Authority will pass the necessary orders.

Guidelines issued by Maharashtra Real Estate Regulatory Authority (Mah-RERA) to the Promoters to provide Regular Updates on Registered Projects.

• Mah-RERA vide its public order dated 05.07.2022 laid down guidelines to provide Regular Updates on Registered Projects by the Promoters.
• Guidelines lay down six categories under which the promoters need to provide the update.
• Firstly, the promoters are required to file within twenty days of the end of quarter a ’Quarterly Progress Report’ along with the details such as status of booking and project, changes in the building plan, and a self-certification in case no money was withdrawn from the designated bank account.
• Secondly, the promoters are required to file Annual Statement of Accounts in Form 5 within six months and Form 2A i.e., Quality Assurance Certificate within three months of the end of financial year.
• Thirdly, Form 1, Form 2 and Form 3 are required to be filed in case of withdrawal of money from the designated bank account.
• Fourthly, the Promoters are required to update in case of change in any details including that of the litigation, project professional, Reports such as encumbrance and CERSAI, and formation of legal entity.
• Fifthly, Form 4 that certifies the completion of Project by the Architect and Occupancy certificates need to be provided by the promoter.
• Sixthly, conveyance of the project need to be confirmed through the disclosures attested by both the association of allottees and promoters.

Guidelines issued by Uttar Pradesh Real Estate Regulatory Authority (UP-RERA) in regard to advertisements relating to promotion, marketing, and sale in Real Estate Projects.

UP-RERA vide Notice No. 8258 dated 21.07.2022 laid down guidelines to the promoters in regard to advertisements relating to promotion, marketing, and sale in Real Estate Projects. Please refer to https://www.up-rera.in/pdf/Letter031.pdf for the update.

Order issued by Maharashtra Real Estate Regulatory Authority regarding declaration about separate bank accounts for real estate projects.

Mah-RERA vide its order dated 27.07.2022 directed every promoter to submit a declaration about separate bank account for real estate project on the letter head of promoter in the prescribed form at the time of registeration of real estate project.

Litigation Brief

CASE ANALYSIS: MARICO LIMITED VS. DABUR INDIA LIMITED [PRONOUNCED BY THE HON’BLE HIGH COURT OF CALCUTTA ON 19.07.2022 IN CS NO. 264 OF 2021]

The captioned suit was filed by Marico Limited before the Hon’ble High Court of Calcutta to initiate an action for disparagement and infringement pertaining to advertisements published and widely circulated by Dabur India Limited in both print and electronic media.

Facts: 

1. Marico Limited (“Marico”) and Dabur India Limited (“Dabur”) are both reputed manufacturers and distributors of Fast Moving Consumer Goods (“FMCG”) and are trade rivals in the FMCG market. Marico manufactures a hair product under its registered trademark and label mark ‘Nihar’ in the name and style of ‘Nihar Naturals Shanti Badam Hair Oil’. Dabur also engages in the manufacture and production of hair oils under its registered trademark ‘Dabur’, namely, ‘Dabur Amla Hair Oil’ and ‘New Dabur Amla Hair Oil’.

2. The impugned advertisements published by Dabur contain the caption- “DABUR AMLA DE SHANTI KE MUKABLE 50% ZYADA MAZBOOT BAAL”, along with the disclaimer “UTPAD NIHAR SHANTI AMLA KE SHABD, DEVICE / LABEL MEIN TRADEMARK KE ADHIKAR ‘MARICO LIMITED’ KE PAAS HAIN. PACK SHOTS UDHARAN KE LIYE DIKHAYE GAYE HAIN. VASTVIK PACK KA AKAR ALAG HO SAKTA HAIN”.

3. It was alleged by Marico that the pictorial impact of the impugned advertisements demeans and disparages its products, depicting them as ineffective, useless, and an unattractive purchase. It was contended by Dabur that the impugned advertisements are legitimate, honest, truthful, well substantiated, statistically proven and constitute commercial speech, protected under Article 19 (1) (a) of the Constitution of India. It was further contended by Dabur that they are entitled to show a competitor’s product by naming the competitor, as long as use of the competitor’s mark is honest, under comparative advertising.

Issue:    

The question for consideration before the Hon’ble Court was whether the impugned advertisements disparage the product manufactured by Marico, as per the principles of law of disparagement settled in Reckitt & Colman of India Limited vs. M.P. Ramachandran ^[1].

Court’s observations and findings: 

1. The principles of law of disparagement laid down in Reckitt & Colman (supra), have been consistently reiterated by different Courts in various judgements such as Heinz India Private Limited vs. Glaxo Smithkline Consumer Healthcare and Others ^[2], Dabur India Limited vs. Wipro Limited Bangalore ^[3], Pepsi Co. Inc. vs. Hindustan Coca- Cola Limited ^[4], etc.
2. The Hon’ble Court while relying on the above observed that a balance has to be struck by the advertiser merely trying to promote its product but not being permitted to brand a competitor’s product as bad. An amount of hyperbole is to be expected in the description of goods, property and services in advertisements, however, an advertiser cannot be permitted to defame his competitors and slander their goods.
3. The Hon’ble Court while placing reliance on the judgement in Horlicks vs. Heinz ^[5] noted that comparative advertising is a modern day reality. A certain amount of disparagement is implicit in such advertisements which are protected by the Constitution of India and the Advertising Standards Council of India Code, as long as the same are limited to puffing. However, while referring to the decisions of Reckitt Benckiser India Private Limited vs. Hindustan Unilever Limited ^[6], Glaxosmithkline Consumer Healthcare Limited vs. Heinz India (P.) Limited ^[7] and Colgate Palmolive Company vs. Hindustan Unilever Limited ^[8], the Hon’ble Court further observed that comparative advertising cannot be permitted to be a means to name and shame a rival’s products.
4. In the aforesaid background, the Hon’ble Court finally held that the impugned advertisements published by Dabur were more than just puffery, conveying that Marico’s Nihar Naturals Shanti Amla Hair Oil is ineffective, unattractive and useless. Therefore, the impugned advertisements disparage and rubbish the product manufactured by Marico. Accordingly, the Hon’ble Court restrained Dabur from publishing and circulating the impugned advertisement. 

Civil Appeal before the Hon’ble Supreme Court against a final judgment and order dated21.09.2021 passed by the Hon’ble Telangana High Court.

IN THE MATTER OF- My Palace Mutually Aided Co-Operative Society vs. B. Mahesh & Ors.

Decided by the Hon’ble Supreme Court on August 23, 2022

Main Issue-

• Whether the Hon’ble High Court erred in exercising jurisdiction under Section - 151 of the CPC when alternate remedies existed under CPC.
• Whether the Senior Judge on the Bench, who previously appeared for one of the parties, ought not to have heard the matter.

Facts-

• The dispute in the present matter relates to Sy No. 57 (Old Sy No. 274) in Shamsguda Village, Ranga Reddy District, Telangana forming part of S. No. 252 of the list of the Mukhtas in the preliminary decree dated 06.04.1959 by the erstwhile Hon’ble High Court of Andhra Pradesh in CS No. 7/1958.
• Original suit was filed back in 1953 before the then City Civil Court, Hyderabad by Smt. Sultana Jahan Begum seeking partition of properties of the Nawab known as ‘Asman Jahi Paigah’. The said suit was later transferred to the High Court and disposed off by way of preliminary cum final decree dated 06.04.1959. The final order provided that the suit was withdrawn by the Plaintiff and furthermore, a compromise was reached in between certain defendants. In contradiction to the aforementioned final order, the suit entered a complicated state with several parallel proceedings taking place and the same not being settled even after passing of 60 years.
• The appellant had previously contended that they acquired the property under an Assignment Deed dated 16.09.2000 executed by earlier predecessor-in-interest under a preliminary decree. Also, a Conveyance Deed had been executed on 03.08.2003 in favor of Appellant, conveying the scheduled property with specific boundaries. Both the documents were unregistered and henceforth, another registered document namely ‘Deed of Declaration/Confirmation’ dated 12.08.2011 was registered in favor of appellant.
• On the basis of above mentioned contention of appellant, an application was filed before the High Court by the appellant along with another party for passing orders in favor of the appellants, physical possession of the said property was also prayed for. The said application was allowed.
• State of Andhra Pradesh challenged the said order which was later taken up by the State of Telangana after separation of the two states. State of Telangana sought condonation of delay of 182 days which was later modified to 913 days. The appeal was later dismissed by the Hon'ble Court.
• After passing of 7 years, final decree was granted in favor of the appellant and thereafter 6 Interim Applications were filed by Respondents before the High Court. One of the six applications was granted allowing filing of applications recalling the final decree dated 19.09.2013.
• The order allowing the previously mentioned application was challenged but dismissed giving the parties liberty to raise all objections when substantial application for recalling of final decree was to be heard. Hon’ble High Court upon hearing the contentions of all parties, passed the impugned order allowing recall of the final decree dated 19.09.2013.

Observations of the Hon’ble Supreme Court-

Issue 1

• Hon’ble Supreme Court opined that Section 151 of CPC confers upon the civil court the powers to invoke their inherent jurisdiction in order to meet the ends of justice or to prevent abuse of process. The said powers have been limited by the Hon’ble Supreme Court in Padam Sen vs State of Uttar Pradesh^[9] to circumstances where certain procedural gaps exist in order to ensure that substantive justice is not obliterated by hyper procedural technicalities.
• Furthermore, while exercising powers by Section 151 of CPC, the civil courts must not exercise substantive jurisdiction to unsettle already settled disputes. It was reiterated that a court having jurisdiction has power to decide and even in cases where the court arrives at a wrong conclusion, such conclusion is binding upon all parties to suit until set aside by any means.
• It was provided that Section 151 of CPC could only be taken into consideration strictly in cases where there existed no alternate remedy. Also, such inherent powers could not be in contradiction to statutory provisions and neither could create remedies not provided for in the Code.
• The court observed that in the present case, the applicants/respondents had access to recourse under Section 96 allowing appeal from original decree as the matter was being heard by the High Court exercising its original jurisdiction. Though the said provision does not provide for the category of people who can prefer an appeal but the same has been well settled by various precedents that any person affected by an order may challenge the same with the leave of concerned court.
• The court cited previous case of Ram Prakash Agarwal vs Gopi Krishan^[10], wherein the Hon'ble Supreme Court clarified the law on use of Section 151 of CPC in cases of fraud.
• To sum up, it was held that recalling of a final decree in provided circumstances was not appropriate under Section 151 of CPC and rather the court ought to direct the respondents to pursue effective alternate remedy available under law.

Issue 2

• The Hon’ble Court laid emphasis upon the established principle of law that “Not only must justice be done; it must also be seen to be done”. Furthermore, the court cited the case of State of West Bengal vs Shivananda Pathak^[11] wherein the aforementioned principle was elaborately discussed.
• The court pointed out that it was the duty of the Appellant to bring it to the notice of the Senior Judge regarding his previous involvement in the concerned matter.
• The appeal was allowed considering overstepping of High Court in exercising jurisdiction provided under Section 151 of CPC.

An Arbitral Award can be partially/partly set aside, under section 34 of the Arbitration and Conciliation Act, 1996, and the same would not tantamount to being modification of the award.

IN THE MATTER OF: National Highways Authority of India and Ors. vs.  The  Additional Commissioner, Nagpur and Arbitrator under the National Highways Act, 1956 and Ors.

(pronounced by the Hon’ble High Court of Bombay on 20.08.2022 in Arb. Appeal No. 3 of 2022)

Facts:

1. The Appellants undertook the process of acquisition of lands of Respondent Nos. 3 to 8, through the Respondent No. 2 [Land Acquisition Collector and Competent Authority], under the National Highway Act, 1956. The land was acquired for a section of National Highway 7.
2. On 31.03.2018, the Respondent No. 2 passed an order awarding compensation for the said acquisition to Respondent Nos. 3 to 8. Respondent Nos. 3 to 8, being aggrieved by the said order, initiated arbitration before the Respondent No. 1 for the enhancement of compensation.
3. The Respondent No. 1, vide order dated 30.11.2019, partly allowed the claims of Respondent Nos. 3 to 8 and enhanced the said compensation. The Appellants herein filed an application under section 34 of the Arbitration and Conciliation Act, 1996 (the Act) challenging the said award.
4. The learned Principal District Judge, vide order dated 21.12.2020 (Impugned Order), found favour in the contentions of the Respondent Nos. 3 to 8 on all points except one, i.e., payment of additional amount of 10% on the total compensation for loss of easementary rights as per Section 3 - G (2) of the National Highway Act, 1956. As such, the learned Principal District Judge partly allowed the application of the Appellants and partly set aside the award dated 30.11.2019 to the above-mentioned extent.
5. Therefore, the present appeal was filed by the Appellant herein being aggrieved by the order dated 21.12.2020 of Court of Principal District Judge, Nagpur.

Issues:

1. What is the scope and extent under Section 34 of the Act to interfere with an Arbitral Award?
2. Whether the setting aside of the partial award by the learned Principal District Judge amounts to modification of the arbitral award?

Courts Observations and Findings:

• The Hon’ble High Court of Bombay, while relying on Mcdermott International Inc. Vs. Burn Standard Co. Ltd.^[12] and NHAI vs. M. Hakeem,^[13] reiterated that the Court does not consider an appeal under Section 34 of the Act and it performs a supervisory role wherein it cannot correct the errors of the Arbitrators. The Court can only quash the Award leaving the parties to go for arbitration afresh, if so advised.
• The Hon’ble High Court of Bombay further relied on the judgement of the Hon’ble Supreme Court of India in Delhi Development Authority Vs. M/s. R.S. Sharma and Company^[14] and stated that the Court while exercising power under Section 34 of the Act does not exercise appellate jurisdiction. It further stated that the findings rendered in the Arbitral Award can be interfered with only on the touchstone of the principles enumerated in the above quoted judgments.
• The Court also placed reliance on the case of S. Jiwani (M/S.) Vs. Ircon International Ltd.^[15] wherein the full bench had opined that it would be perversity of justice to a party which has succeeded before the Arbitral Tribunal as well as in the court of law but still does not get a relief. The bench stated that to say that it is mandatory for the court without exception to set aside an award as a whole and to restart the arbitral proceeding all over again would be unjust, unfair, inequitable and would not in any way meet the ends of justice and held that:

                                            “The judicial discretion vested in the court in terms of the provisions of section 34 of the Arbitration and                                                          Conciliation Act, 1996 takes within its ambit power to set aside an award partly or wholly depending on the facts and circumstances of the given case.”

• The Hon’ble High Court of Bombay, while referencing G. Engineers Pvt. Ltd. Vs. Union of India and another,^[16] held that under section 34 of the Act, the Court can partially set aside the arbitral award. It further opined that the when the Award deals with several claims that can be said to be separate and distinct, the Court can segregate the Award on items that do not suffer from any infirmity and uphold the Award to that extent.
• Thereby, the Hon’ble High Court of Bombay disposed of the appeal filed by the Appellants.

 ****

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[1] (1999) 19 PTC 741

[2] 2009 (2) CHN 479

[3] (2006) 32 PTC 677 (Del)

[4] 2003 (27) PTC 305 (Del)

[5] 2019 (77) PTC 45

[6] (2021) 88 PTC 584

[7] 2010 SCC OnLine Del 3932

[8] 2014 (57) PTC 47 (Del)

^[9] AIR 1961 SC 218

^[10] (2013) 11 SCC 296

^[11] (1998) 5 SCC 513

[12] MANU/SC/8177/2006

[13] MANU/SC/0461/2021

[14] MANU/SC/3624/2008; (2008) 13 SCC 80

[15] MANU/MH/1492/2009; (2010) 1 Mh.L.J. 547

[16] MANU/SC/0527/2011; (2011) 5 SCC 758

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