BizRegime

Introduction

In an attempt to ease matters for the companies and to provide them with an opportunity to make a “Fresh Start” in their life, the Ministry of Corporate Affairs (MCA) by issuing a General Circular No. 12/2020 dated 30th March 2020, introduced a new scheme called ‘Companies Fresh Start Scheme 2020 (“CFSS-2020”)’.

The changes were brought in the scheme with the intention of giving additional time and financial relief (in terms of compliance) to a certain extent to all the generous companies. The scheme is discussed below.

Overview of CFSS 2020

All the companies, which are registered and operative in India, are bound to follow various rules imposed by the government, which include, Annual Return filing, filling of Financial Statements, books of accounts, and other business-related documents and statements that are asked by the government. However, if these companies fail to comply with all the rules and norms, then they are charged with a penalty on interest as punishment. Companies like these are categorized as ‘Defaulting Companies’.
The CFSS scheme is introduced by the MCA to provide relief to the companies from heavy compliance.

Objective
i. Full Waiver for Payment of Additional Fees/Penalty
ii. Immunity from the launch of prosecution

iii. Immunity from proceedings for imposing a penalty

Validity of the Scheme

The scheme will be valid from 1 April 2020 to 30 September 2020.

Applicability

i. Companies which have not filed Annual Return and Financial Statements to Registrar of Companies (ROC)/MCA i.e. Form AOC-4, AOC-4 XBRL, AOC-4 CFS, and Form MGT-7

ii. Companies that have not filed any E-Forms that are required to be filed to ROC/MCA and not filed i.e. Form MGT-14, ADT-1, Form DPT-3, Form DIR-12, Form 20A, INC 22 except SH-7 & Charge related forms.

Non-Applicability

i. A company whose name is to be struck off u/s 248 of Companies Act, 2013.
ii. Amalgamated Companies
iii. Applications filed for obtaining Status of Dormant Companies u/s 455 of Companies Act, 2013
iv. Vanishing Companies
v. Increase in Authorized Share Capital (Form SH-7)

vi. Charge related documents (Form CHG-1, CHG-4, CHG-8, CHG-9)

Provisions in Scheme

i. Defaulting Companies
(a) Shall pay only the normal fees as prescribed by the Companies Rules, 2014 for all filings with the MCA-21 registry. No additional fees to be paid, whatsoever.

(b) Immunity against prosecution and proceedings for imposing penalty only where:

- The prosecution and proceedings arose due to the delay in the filing of belated documents.

- No other cases covered.

(c) In case there is an existing appeal filed by the company against any notice, complaint, or order issued with regard to prosecution and proceedings related to the delay in statutory filing, the following steps are to be followed:

- Before registering under the CFSS 2020, the appeal filed by the company should be withdrawn.

- At the time of making the application for the scheme, the company must furnish a copy of such withdrawal along with the application as proof.

(d) Where the order has been passed by the court and the company has not filed an appeal against the same as on the commencement of the scheme:

- The company is allowed 120 days to file an appeal before the Regional Director.

- During this period of 120 days, for the non – compliance of the order passed by the court with regard to the delay in filing of any documents for the same shall be condoned and no further action shall be initiated against the company.

(e) Form CFSS – 2020 may be filed by the companies under the scheme.

- The Form provides the companies with immunity for a period of 6 months after the date of closure of the CFSS 2020.

- No fees to be paid on this particular form.

- Immunity Certificates shall be granted by the designated authority.

(f) Immunity is not granted where:-

- An appeal is pending in court against the company.

- In case of management disputes pending before any court of law.

- Where an order is passed by the court and no appeal has been made before the scheme came into force.

(g) Extension granted to file DIR-3/DIR-3KYC: Extended timelines between 1st April 2020 and 30th September 2020 is provided by MCA for the directors’ whose DIN is deactivated to come forward and file DIR-3KYC/DIR-3 KYC-Web. The filing fee of Rs 5,000 will not apply.

ii. For inactive Companies:

(a) The defaulting inactive companies may apply for the CFSS 2020 so as to file the due documents.

(b) Additionally, they may also do the following:

- Submit an application for Dormant Status under Section 455 of the Companies Act, 2013 by way of filing of e-Form MSC – 1 along with the prescribed fees.

- Submit an application for striking off the name of the company from the Register of Companies.

- Extension granted to file e-Form ACTIVE: An extended timeline between 1st April 2020 and 30th September 2020 is provided by MCA for the ‘ACTIVE non-compliant’ companies to come forward and file e-Form ACTIVE. The filing fee of Rs 10,000 will not apply.

List of Forms Allowed under CFSS 2020

i. Companies incorporated under Companies Act, 1956

Form No.	Purpose
Form 20B	Filing annual return by a company having a share capital
Form 21A	Particulars of annual return for the company not having a share capital
JForm 23AC/ACA	Filing balance sheet and other documents
Form 23ACA	Filing Profit and Loss Account and other documents
Form 23AC XBRL	Filing XBRL document in respect of balance sheet and other documents
Form 23ACA XBRL	Filing XBRL document in respect of Profit and Loss Account and other documents
Form 23B	Information by the auditor to Registrar
Form 23 C	Form of application to the Central Government for the appointment of cost auditor.
Form 23 D	Information by cost auditor to Central Government
Form 66	Form for submission of a compliance certificate issued by Company Secretary in practice

ii. Companies incorporated under Companies Act, 2013

Form	Purpose
Form FC-3	Annual accounts along with the list of all principal places of business in India established by a foreign company
FC-4	Annual Return of a Foreign company
Form GNL-2	Form for submission of documents with the Registrar
Form GNL-3	Particulars of person(s) or key managerial personnel charged or specified for the purpose of sub-clause (iii) or (iv) of clause 60 of section 2
Form IEPF-1	Statement of amounts credited to the Investor Education and Protection Fund
Form IEPF-2	Statement of unclaimed or unpaid amounts
Form IEPF-3	Statement of shares and unclaimed or unpaid dividend not transferred to the Investor Education and Protection Fund
Form IEPF-4	Statement of shares transferred to the Investor Education and Protection Fund
Form IEPF-6	Statement of unclaimed or unpaid amounts to be transferred to the Investor Education and Protection Fund
Form IEPF-7	Statement of amounts credited to IEPF on account of shares transferred to the fund
Form IEPF-e-verification Report	Application to the authority for claiming unpaid amounts and shares out of Investor Education and Protection Fund (IEPF) – E-verification report.
Form INC-4	One Person Company- Change in Member/Nominee
Form INC-5	One Person Company - Intimation of exceeding the threshold
Form INC-6	One Person Company – Application for Conversion
Form INC-12	Application for grant of License under section 8
Form INC-20A	Declaration for the commencement of business
Form INC-20	Intimation to Registrar of revocation/surrender of a license issued under Section 8
Form INC-22	Notice of situation or change of situation of registered office
Form INC-22A	Active Company Tagging Identities and Verification (ACTIVE)
Form INC-27	Conversion of a public company into a private company or private company into a public company
Form INC-28	Notice of order of the Court or Tribunal or any other competent authority
Form MGT-6	Persons not holding beneficial interest in shares
Form MGT-7	Annual Return
Form MGT-10	Changes in the shareholding position of promoters and top ten shareholders
Form MGT-14	Filing of Resolutions and agreements to the Registrar
Form MGT-15	Form for filing Report on Annual General Meeting
Form MR-1	Return of appointment of key managerial personnel
Form MR-2	Form of Application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or overpayment to managing director or whole-time director or manager and commission or remuneration to directors.
Form MSC-1	Application to Registrar for obtaining the status of dormant company
Form MSC-3	Return of Dormant Companies
Form NDH-1	Return of Statutory Compliances
Form NDH-2	Application for extension of time
Form NDH-3	Return of Nidhi Company for the half-year ended
Form NDH-4	Application for declaration as Nidhi Company and for updating of status by Nidhis
Form PAS-3	Return of allotment
Form SH-11	Return in respect of buy-back of securities

Specified Value

Section 2(i) of Act [1] explains the word ‘specified value’ with relation to commercial dispute as to the value of the subject-matter of a suit as determined in accordance with Section 12 of the said Act.

The amount for the subject matter of the suit must be equal to or more than Rs. 1 crore or any higher value which is notified by the Central Government.

The transactional disputes which qualify as a commercial dispute, are mentioned in the Act itself. [2] If the valuation of the subject matter in these commercial disputes is not less than Rs. 1 crore, this Court as the Commercial Division of the High Court would have jurisdiction. [3] Once a plaintiff seeks to bring a suit, which otherwise is below the minimum pecuniary jurisdiction of this Court for original civil disputes, he must establish that the suit arose out of a commercial dispute. [4]

Determination of Specified Value

According to Section 12 of the act, the Specified Value concerning the commercial dispute will be established in the following manner: [5]

i. When the relief prayed is for recovery of any money, the money which is sought to be recovered inclusive of any underlying interest shall be calculated up to the date of filing of such suit or application;

ii. When the relief prayed narrates to movable property or any right accruing therein, the market value of such movable property as on the date of filing.; [6]

iii. When the relief prayed is related to immovable property or any right accruing therein, the market value of the immovable property, as on the date of filing; [7]

iv. When the relief prayed relates to any intangible right [8], the market value of the rights that will be assessed by the plaintiff;

v. When the counterclaim is preferred, the total value of the subject-matter of the dispute in such a counterclaim as specified on the date of the counterclaim.

Introduction of Mandatory Pre-institution Mediation

(a) Scope and Extent

The Act [9] provides that the remedy of pre-institution mediation has to be exhausted before a plaintiff files a suit that does not contemplate any urgent interim relief.

The authority constituted under the Legal Services Authorities Act, 1987 will conduct the pre-institution mediation. This process of pre-institution mediation will be regulated with the rules that are notified by the Central Government. [10] This pre-institution mediation has to be conducted within 3 months from the date of filing of the application by the plaintiff, although this period can be extended with the mutual consent by parties. [11]

Plaintiff is not required to mandatorily go through pre-institution mediation where a suit contemplates an urgent interim relief. Such cases can arise if mediation would result in an irreparable loss; irreparable loss being one of the essential elements for the grant of an injunction. [12]

If a court is sufficiently convinced that the relief sought by a plaintiff is not of urgent nature and the plaintiff must go for pre-institution mediation, it can refuse to issue summons and also reject the plaint as being barred under Order VII Rule 11(d) of Civil Procedure Code, 1908.

(b) Confidentiality

The mediator, parties, or their authorized representatives or counsel shall maintain confidentiality about mediation and the mediator shall not allow stenographic or audio or video recording of mediation sittings. [13] This is in the nature of external confidentiality. The mediator shall also maintain the internal confidentiality of discussions made in separate sittings with each party and only such facts which a party permits can be shared with the other party. [14] There exists a duty upon the mediator to uphold the principles of trust and confidentiality. [15]

References

[1] Section 2(i). The Commercial Courts Act, 2015.

[2] Section 2(1)(c) in Clauses (i) to (xxii)

[3] Section 7 read with Section 2(1) of the Commercial Courts Act.

[4] Shriram EPC v. Rioglass Solar SA, 2018 SCC Online SC 1471.

[5] Section 12, The Commercial Courts Act, 2015.

[6] M. V. Durga Prasad, Commentary on The Commercial Courts Act, 2015 44 (Asia Law House, Hyderabad, 1st edn. 2018).

[7] Mukesh Kumar Gupta v. Rajneesh Gupta, 2016 SCC Online Del 3148.

[8] Microsec Capital Limited v. Ankit Bimal Deorah, 2016 SCC Online Bom 4795.

[9] Section 12A, inserted by The Commercial Courts, Commercial Division and Commercial Appellate Division Of High Courts (Amendment) Act, 2018

[10] Section 21A, The Commercial Courts Act, 2015.

[11] Rules under Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018 [Section 21A read with Section 12A, The Commercial Courts Act, 2015.]

[12] M/s M.K. Food Products v. M/s S.H. Food Products, Civil (Revision) Petition No. 3690/2018; GSD Constructions Pvt. Ltd v Balaji Febtech Engineering, MANU/MP/0451/2019.

[13] Rule 9, Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018

[14] Rule 7(1)(vi), Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018

[15] Rule 12, Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018

Introduction

The Insolvency and Bankruptcy Code, 2016 (‘the Code’) has amended and as well as replaced many provisions of other statutes that could have created an overlap of powers and functions with respect to the resolution of insolvency and liquidation of certain entities. Among these statutes, One Person Company [1] (‘OPC’) and Limited Liability Partnership ('LLP') has also been covered in order to give power to National Company Law Tribunal (‘NCLT’) to regulate the insolvency resolution process as well as the liquidation process for the abovementioned entities. [2]

Amendment in Limited Liability Partnership Act, 2008

In the 10th Schedule of the Code, the provisions of winding up of an LLP as mentioned in other statutes [3] were omitted. On the other hand, for OPC, Schedule 8 was enacted for the same purpose. These schedules, when coupled with the overriding power of the Code [4], states, that from the date of enforcement of the Code, all the insolvency and liquidation matters of the entities as mentioned therein [5] will be governed by the Code alone. This is also evident from the provisions which give power to the Code [6] to apply the provisions of the statute on any OPC/LLP. [7]

Initiation of Insolvency Proceedings

1. Insolvency Proceedings against an OPC and LLP can be initiated by any Financial Creditor [8], Operational Creditor [9], or the entities themselves [10] when there is any debt [11] with respect to any of these creditor(s) [12], and there exists a default of payment [13] with respect to these debts.

2. It must be noted that, in order to initiate a corporate insolvency resolution process (‘CIRP’) against an OPC/LLP, the default of payment must be at least Rs. 1 lakh [14] and falling in the ambit of financial debt [15] or operational debt [16] as mentioned in the Code.

3. Because of the fact that time is an essential aspect, the whole process of CIRP is to be completed in 180 days [17]. However, if the NCLT is of the opinion that the process will not be able to be completed within such prescribed time-limit, and extension of 90 [18] days can be granted by it. Thus, the total time period for the CIRP to be completed must not exceed a period of 330 days from the date of commencement of insolvency proceedings against the corporate debtor. [19]

Steps after the admission of application for CIRP

1. Once the application for initiation of CIRP is admitted by NCLT, it appoints an Insolvency Resolution Professional (‘IRP’) [20] who takes charge of the management of the firm in order to take necessary steps to help revive the company and pay-off its debts. [21] He can also raise fresh funds [22] to continue the operations of the OPC/LLP and has to make all the endeavors to protect the value of the property of the corporate debtor. [23]

2. During this period, the NCLT also initiates the period of moratorium [24], while the IRP makes a public announcement to call out all the creditors of the firm to claim their debt. [25]

3. The firm is deemed to be insolvent on the very date when an application for initiating CIRP against the firm is admitted by NCLT. [26]

Committee of Creditors

1. The Creditors give their claims to IRP, and submission of these claims are regulated by the Code. [27]

2. After all the claims are collated by the IRP, he forms a Committee of Creditors (‘CoC’) [28] which contains all the creditors of firm tom whom the debt has not been paid off. The constitution of the CoC also has certain conditions and priorities with respect to the category of creditors. [29]

3. The CoC has the power to appoint IRP as the Resolutions Professional (‘RP’) or appoint any other eligible Insolvency Professional as RP. [30]

4. The CoC has the power to decide the actions taken by the RP [31] for managing the business of the corporate debtor.

5. The voting rights of members of the CoC are in proportion to the financial debt owed to them by the corporate debtor. [32]

6. The CoC has to conduct regular meetings to discuss the next steps to be taken for the insolvency resolution of the corporate debtor. These meetings are to be in conformity with the provisions of the Code. [33]

Preparation of Information Memorandum

When the CoC has appointed an RP, the next step is to create an information memorandum [34] that contains all the relevant information that acts as an aid for the CoC to make better decisions with respect to the situations, which the committee might have made without any analysis. This memorandum is created by the RP. [35] There is a time limit and a manner in which the memorandum has to be submitted by the RP. [36]

Resolution Plan

The Resolution Plan is one of the most important aspects of the whole CIRP. This Resolution Plan is made with the objective of maximizing the value of assets of the corporate debtor. [37] The contents of the Resolution Plan as mentioned by the regulations must adhere to. [38]

This resolution plan is submitted by a Resolution Applicant [39] and must be in conformity with provisions of the Code [40] in order to be approved by the NCLT for the resolution of the corporate debtor.

After RP has verified the Resolution Plan in accordance with the provisions of the Code [41], he has to present the Plan to CoC to obtain its approval. [42] If the Plan is approved by the CoC [43], the Plan is forwarded to NCLT, which decides whether the Plan is fit to be approved or not. [44]

Approval/Rejection of Resolution Plan

The Resolution Plan has to be approved by the CoC [45] as well as the NCLT [46] in order to continue the business of the corporate debtor as a going concern and prevent its liquidation. Thus, there are two situations that can occur if either CoC or NCLT approves or rejects the Resolution Plan.

(a) When Resolution Plan is Rejected/Disqualified

(i) If the NCLT does not receive a resolution plan [47]

(ii) If the Resolution Plan is rejected by RP on account of it being in non-conformity with the provisions of the Code. [48]

(iii) If the Plan has not been able to obtain at least 66% of the voting share of the CoC, and if there is no other alternative to resort to within the specified period, the NCLT will have no other option except proceeding with the liquidation of the corporate debtor. [49]

(b) When the Resolution Plan is approved

(i) If the Resolution Plan is approved by at least 66% of the voting share of the CoC and is submitted to the NCLT by the RP within the prescribed time limit. [50]

Contingent Situations with respect to the Resolution of Insolvency

(a) When insolvency is resolved

If the Resolution Plan is accepted, the corporate debtor will be prevented from liquidation and maximum efforts will be put in order to revive the business and pay off the debts of the creditor of the corporate debtor. It is to be noted that if the approval of the NCLT is obtained, then the period of moratorium ceases to exist. [51]

(b) When insolvency is not resolved

If the Resolution Plan is rejected [52], or if there is a mutual agreement by the members of the CoC to liquidate the business of the corporate debtor [53], then the NCLT has no other option but to give the order to liquidate the business of the corporate debtor. This decision by the CoC to liquidate the business of the corporate debtor must be taken before submitting the resolution plan to the NCLT.

Process of Liquidation

1. After NCLT has passed the order for liquidation, a liquidator is appointed [54] who consolidates [55] and verifies the claims of all the creditors. [56] He has the power to accept or reject the claims [57] provided he give sufficient reason for doing so. Further, he has to determine the value of claims. [58]

2. The assets that can be liquidated in order to satisfy the claims of the debtors are called ‘Liquidation Estate’. Provisions of the Code contain a list of assets of the corporate debtor that can be liquidated.[59]

3. After all the assets are liquidated, they are to be distributed in accordance with the priority of claims as mentioned in the Code. [60] When the proceeds obtained from the liquidation of such assets are distributed, the liquidator has the responsibility to make an application to the NCLT for the dissolution of the Corporate Debtor. [61]

4. When the application for the dissolution of the corporate debtor is approved by the NCLT, the corporate debtor is dissolved and ceases to exist. [62]

References

[1] Section 2(62), Companies Act, 2013.

[2] Section 2(62), Companies Act, 2013; Section 2(n), Limited Liability Partnership Act, 2008 r/w Section 2(a), Insolvency and Bankruptcy Code, 2016.

[3] Section 64(C), Limited Liability Partnership Act, 2008.

[4] Section 238, Insolvency and Bankruptcy Code, 2016.
[5] Section 2, Insolvency and Bankruptcy Code, 2016.
[6] Section 2(a) r/w Section 255, Insolvency and Bankruptcy Code, 2016.
[7] Section 3(7) r/w Section 3(8) and Section 3(23), Insolvency and Bankruptcy Code, 2016.
[8] Section 5(7) r/w Section 7, Insolvency and Bankruptcy Code, 2016.
[9] Section 5(20) r/w Section 8 and Section 9, Insolvency and Bankruptcy Code, 2016.
[10] Section 5(5)(a) r/w Section 10, Insolvency and Bankruptcy Code, 2016.
[11] Section 3(11), Insolvency and Bankruptcy Code, 2016.
[12] Section 3(10), Insolvency and Bankruptcy Code, 2016.
[13] Section 3(12), Insolvency and Bankruptcy Code, 2016.
[14] Section 4, Insolvency and Bankruptcy Code, 2016.
[15] Section 5(8), Insolvency and Bankruptcy Code, 2016.
[16] Section 5(21), Insolvency and Bankruptcy Code, 2016.
[17] Section 5(14) r/w Section 12(1), Insolvency and Bankruptcy Code, 2016.
[18] Section 12(3), Insolvency and Bankruptcy Code, 2016.
[19] First Proviso of Section 12(3), Insolvency and Bankruptcy Code, 2016.
[20] Section 13(c) r/w Section 16, Insolvency and Bankruptcy Code, 2016.
[21] Section 17 and Section 18, Insolvency and Bankruptcy Code, 2016.
[22] Section 5(15) r/w Section 20(2)(c), Insolvency and Bankruptcy Code, 2016.
[23] Section 20, Insolvency and Bankruptcy Code, 2016
[24] Section 13(a) r/w Section 14, Insolvency and Bankruptcy Code, 2016.
[25] Section 13(b) r/w Section 15, Insolvency and Bankruptcy Code, 2016.
[26] Section 5(12), Insolvency and Bankruptcy Code, 2016.
[27] Section 18(b), Insolvency and Bankruptcy Code, 2016. r/w Regulation 12(1), IBBI (CIRP) Regulations, 2016.
[28] Regulations 12(3), 16, and 17(1), IBBI (CIRP) Regulations, 2016.
[29] Section 21(2) and Section 21(3), Insolvency and Bankruptcy Code, 2016.
[30] Section 22, Insolvency and Bankruptcy Code, 2016.
[31] Section 28, Insolvency and Bankruptcy Code, 2016.
[32] Section 24(6), Insolvency and Bankruptcy Code, 2016.
[33] Section 24, Insolvency and Bankruptcy Code, 2016.
[34] Section 5(10), Insolvency and Bankruptcy Code, 2016.
[35] Section 29(1), Insolvency and Bankruptcy Code, 2016.
[36] Regulation 36, IBBI (CIRP) Regulations, 2016.
[37] Regulation 37, IBBI (CIRP) Regulations, 2016.
[38] Regulation 38, IBBI (CIRP) Regulations, 2016.
[39] Section 5(25), Insolvency and Bankruptcy Code, 2016.
[40] Section 30, Insolvency and Bankruptcy Code, 2016.
[41] Section 30(2), Insolvency and Bankruptcy Code, 2016.
[42] Section 30(3), Insolvency and Bankruptcy Code, 2016. r/w CIRP Regulation 39(2) & 39(3).
[43] Section 30(4), Insolvency and Bankruptcy Code, 2016 r/w Regulation 39(3), IBBI (CIRP) Regulations, 2016.
[44] Section 30(6), Insolvency and Bankruptcy Code, 2016. r/w Regulation 39(4) & 39(5), IBBI (CIRP) Regulations, 2016.
[45] Section 30(4), Insolvency and Bankruptcy Code, 2016. r/w Regulation 39(3), IBBI (CIRP) Regulations, 2016.
[46] Section 31, Insolvency and Bankruptcy Code, 2016.
[47] Section 30(6), Insolvency and Bankruptcy Code, 2016.
[48] Section 30(2), Insolvency and Bankruptcy Code, 2016.
[49] Section 33(1), Insolvency and Bankruptcy Code, 2016.
[50] Section 30(6), Insolvency and Bankruptcy Code, 2016.
[51] Section 31(2), Insolvency and Bankruptcy Code, 2016.
[52] Section 33(1), Insolvency and Bankruptcy Code, 2016.
[53] Section 33(2), Insolvency and Bankruptcy Code, 2016.
[54] Section 34, Insolvency and Bankruptcy Code, 2016.
[55] Section 38, Insolvency and Bankruptcy Code, 2016.
[56] Section 39, Insolvency and Bankruptcy Code, 2016.
[57] Section 40, Insolvency and Bankruptcy Code, 2016.
[58] Section 41, Insolvency and Bankruptcy Code, 2016.
[59] Section 36, Insolvency and Bankruptcy Code, 2016.
[60] Section 53, Insolvency and Bankruptcy Code, 2016.
[61] Section 54, Insolvency and Bankruptcy Code, 2016.
[62] Section 302, Companies Act, 2013.

Reserve Bank of India Act, 1934

The functions and establishment of RBI are laid down in the RBI Act which provides the RBI to manage its own constitution, incorporation, capital management, business, and functions. The RBI is also conferred with the power to regulate the monetary policy of India.

Companies Act, 2013

CA, 2013 mainly regulates the Related Party Transactions (transactions with affiliates). Compliance with the SEBI (LODR) is also necessary for banks which are listed companies. Related parties include:

(i) Directors (or their relatives);
(ii) Key managerial personnel (or their relatives);
(iii) Subsidiaries;
(iv) Holding companies; and
(v) Associate companies.

There are separate thresholds and approval requirements (by the Board of Directors and/or shareholders) for entering into an RTP. Further, disclosure of these RTPS in the annual accounts is a must and must be abiding the Indian generally accepted accounting principles. All transactions between a bank and a subsidiary or mutual fund sponsored by it should be on an arms-length basis.

Consumer Protection Act, 2019 (CPA. 2019)

The relationship between a bank and its customer is considered to be of a consumer and service provider, and thus CPA becomes applicable. This is an alternative and speedy remedy to approaching courts. A three-tier mechanism has been established to deal with complaints:

(i) District Forum: Operating at the district level with complaint value up to Rs. 2 million.

(ii) State Commission: Operating at the state level with complaint value between Rs. 2 million and 10 million. It is also an appellate authority for orders passed by the District Forum.
(iii) National Commission: Operating at the national level with complaint value more than Rs. 10 million. It is also an appellate authority for orders passed by State Commission. An appeal from the order of the national commission can be directed to the Supreme Court of India.

Banking Regulation Act, 1949 (BRA, 1949)

The framework for supervision and regulation of all banks is provided by the Banking Regulation Act, 1949. This legislation further confers the power to RBI to regulate the business operations of banks and also grant them licenses.

In addition, banks are prohibited from entering into certain RPTs under the BR Act. For example, a bank cannot give loans or advances to, or on behalf of, or remit any amounts due to it by:

(i) Any of its directors (or spouse or minor children of such a director);

(ii) Any partnership firm in which any of its directors is interested as a partner, manager, employee or guarantor;

(iii) Any company or subsidiary or holding company of a company in which any of its directors is interested as a director, managing agent, manager, employee or guarantor, or in which a director (together with its spouse and minor children) holds the interest of more than 500,000 rupees or 10 percent of the paid-up capital of the company, whichever is lower; and

(iv) Any individual with respect to whom a director is a partner or a guarantor.

(v) An approval from the board of the bank will be required for any loans given to relatives of any directors of that bank or directors or relatives of directors of any other bank.

Foreign Exchange Management Act, 1999 (FEMA, 1999)

FEMA and its rules were made with the purpose of regulating and monitoring cross-border activities of banks that are administered by RBI. The primary legislation for the control of exchange is FEMA.

Bankers Books Evidence Act, 1891 (BBE, 1891)

The Act is applicable in the event where the judge orders a party to inspect and take copies of the books of the bank.

Negotiable Instruments Act 1881 (NI Act, 1881)

Banks deal with various negotiable instruments in order to provide banking services to their customers. These can include Cheques, Demand Drafts, Bill of Exchange, etc. The duties and responsibilities of a paying bank, as well as collecting such Negotiable Instruments, are governed by the NI Act. Legal protection under NI Act can only be availed if the banks have adhered to the provisions laid down by the Act.

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI, 1993)

The banks (and other financial institutions) which are registered with RBI have the duty to provide loans to legal entities and other borrowers (individuals). They also have the power to recover these loans or any unpaid amount, including interest and part of any loan or if the debts become Non-Performing Assets (NPA). This recovery can be made by approaching the appropriate Judicial forum.

Payment and Settlement Systems Act, 2007 (PSS Act, 2007)

All the modes of payment systems used in India are governed and regulated by the PSS Act, 2007. The RBI has been conferred with the power to direct and regulate the payment systems as well as its participants in India. The Act also governs and regulates activities which involve payment and settlement of the transaction in substitute of paying or settling a transaction by cash or other means of physical movement of payment instruments to settle a transaction.

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI, 2002)

Documentation enables a bank to determine the borrower, capacity, security, and type of charge created. This documentation also serves as a piece of evidence in recovery proceedings before a court of law. This documentation also helps in determining the limitation period as well as enables the banks to enforce their rights under the SARFAESI Act, 2002, and also initiate recovery proceedings in Debt recovery Tribunals.

Banking Ombudsman Scheme 2006 (BOS, 2006)

If there is any dispute existing between as bank and its customers, then they are adjudicated under the BOS, 2006. The Banking Ombudsman is an authority appointed by RBI and is quasi-judicial in nature. It deals with customer complaints against banks with relation to lack of services rendered by them and facilitates resolution through mediation or passing an award.

Insolvency and Bankruptcy Code, 2016 (IBC, 2016)

RBI has the power to issue directions to any banks in the matter to commence the insolvency resolution process under IBC, 2016 with relations to any default in loan. However, this can only be done when the RBI is authorized by the Central Government to issue such directions.

If banks have provided a person with any loan, they fall within the ambit of Financial Creditor and constitute the Committee of Creditors for taking a decision on the Resolution Plan and resolution Process in order to revive the entity or take further actions of liquidation or bankruptcy.

Complexities between RDDBFI, SARFAESI, and IBC

IBC, 2016 is a more streamlined procedure of dealing with stressed assets as it unifies all the laws related to dealing with bankruptcy. The Code focuses on ‘Creditor-in-control’ rather than ‘Debtor-in-possession’. It has been designed in such a way that it unites the provisions of the SARFAESI, The RDDBFI, the Code of the Civil Procedure, etc.

S. No.	Basis of Difference	RDDBFI	SARFAESI	IBC
1.	Trigger Amount	The default of Rs. 10 Lakh or more	Amount of default as owed to a secured creditor	Minimum default of amount of Rs. 1 Lakh to file an application
2.	Timeline	More than 2 Years	1-2 Years	180-330 Days
3.	Types of Creditors Covered	Secured & Unsecured	Secured	Operational and Financial Creditor which include secured and unsecured creditor

“Cyber terrorism could also become more attractive as the real and virtual worlds become more closely coupled”

- Dorothy Dennings

Introduction

One of the most misunderstood and confusing terms in Cyber laws are Cyber-terrorism, cybercrime, and cyber warfare. The difference between them is not known by masses which often leads to miscommunication of information. Cybercrimes are crimes conducted in cyberspace, and cyber warfare means actions by a nation-state to penetrate other nation’s computers or networks for the purposes of causing damage or disruptions [1], still, the term cyber-terrorism has a different take. Dorothy Denning, a professor of computer science gave one of the best definitions of cyber-terrorism to ever exist, defining Cyber terrorism as “The convergence of cyberspace and terrorism.

The main essence of the word includes all the unlawful attacks as well as the threat of committing such attacks against the computers in order to compel the government or its people to pursue a political or social objective.

Another requirement is that the attack must generate fear among the people, or create a situation of violence against individuals or property. This can include attacks that result in death, severe economic breakdown, and explosions, and attacks against critical infrastructures.” [2]

Indian Scenario

Narrowing down to the Indian scenario, according to reports, the easiest way to attack India is through the cyber networks. Although it is cost-intensive but will spare the cyber-terrorists of risking manpower and, the impact of such an attack will be immense on the national economy and infrastructure. Cyber Terrorism is a crime that has emerged in recent times in India. Well, the laws through the implementation of the Information Technology Act, 2000 was a big step towards creating punishment for such offences. [3] But due to the ever-changing and ever-evolving nature of the internet, the laws have become more or less ineffective. There is a need for innovative laws and global standards on preventive action.

Flaws in Cyber-Laws in India

India has gradually been shifting from traditional to e-governance, which can be observed from the fact that sectors like income tax, visa, and passports have been transformed into electronic form. This proves that India has started to rely heavily on technology. Other instances where we can see the reliance on technology are banking and financial institutions, travel sectors, e-commerce, and stock markets. Due to this, these sectors are considered to be lucrative targets to create havoc in the country. The damage done can be catastrophic and irreversible. [4]

An individual is considered to be the smallest and most essential element to create a nation, and any crime against the individual should be considered as an important aspect for the government to maintain law and order. There is a wide range of attacks and vulnerabilities which can be considered as a crime against the Nation. The most important among them are:

1. Challenges faced by the Administration [5]

With almost all the countries adopting the e-governance infrastructure, India is also doing the same in the shape of e-administration.

The most important goal of e-governance is to make it easy for the citizens to interact with the offices of administration and to share the information with reliability and transparency. The main essential of democracy is that the people have the power to govern themselves and to do this effectively, they must be aware of every aspect of human society such as social, political, and economic issues. This form of governance thus becomes the primary target of terrorists to destroy the communication system.

When compared to other tangible damages that are caused by the activities of traditional terrorists this would be more disastrous. Thus terrorists have the ability to obtain the information illegally which has been protected from public access and in the interest of the nation.

2. Denial of Services Attack (DDoS)

The main ability of the network system is the availability of the system when required. When it comes to the administration or the government, the network has to be secure and robust with appropriate network information security due to the fact that it contains the data which are in the interest of the Nation and if this data is accessed by an unwanted entity, it can create a dangerous situation for the whole country. The online security experts in India thus suggest that online security stems should be strengthened because DDoS and defacing a site attach are the most used attacks.

3. Damage and Disruption of Networks

The primary objective of the actions resorted to by cyber terrorists is to damage or disrupt the networks, which helps in diverting the attention of the security agencies giving them extra time to make their task comparatively easier. This process can involve combinations of many many other attacks, such as virus attacks, tampering with electronic devices, or hacking. Due to this, around 6000 websites originating in India were defaced in 2009. [6]

Challenges to Indian Cyber Security and Cyber Laws

There are a lot of reasons which have resulted in India’s cyber-security to such vulnerability to cyber-terrorism even after implementation of laws such as IT Act, 2000 and existing counter-cyber security initiatives such as National Informatics Centre (NIC), Indian Computer Emergency Response Team (Cert-In), National Information Security Assurance Programme (NISAP), and Indo-US Cyber Security Forum (IUSCSF). Some of the reasons are mentioned as follows:

(a) Not only at the individual level but also at institutional levels, there is a deficiency of awareness and the culture of cyber-security.
(b) Lack of trained and qualified manpower to implement the counter-measures.
(c) Too many information security organizations which have become weak due to ‘turf wars’ or financial compulsions.
(d) A weak IT Act which has become redundant due to non-exploitation and age-old cyber laws.
(e) No e-mail account policy especially for the defense forces, police, and the agency personnel.
(f) Cyber-attacks have not only come from terrorists but also from neighboring countries inimical to our National interest.

Suggestions/Measures to counter Cyber-Terrorism

While the threat is imminent and evergrowing with the new technologies, still there are some measures which can be taken up by common people as well the Government:

(a) Need to create awareness among the general public about the dangers of cyber terrorism. The counter cyber-terrorism bodies should follow an aggressive strategy and engage academic institutions.
(b) Joint efforts by all Government agencies including defense forces to attract qualified skilled personnel for implementation of countermeasures.
(c) The organizations dealing with cybersecurity should be given all support and no bureaucratic dominance should be allowed.
(d) Agreements relating to cybersecurity should be given the same importance as other conventional agreements.
(e) More investment in this field including finance and manpower.
(f) Indian agencies working after cybersecurity should also keep a close vigil on the developments in the IT sectors of our potential adversaries.
(g) The use of digital signatures, encryption of data, security audit, and cyber forensics should also be focused on as a subject matter of creating awareness.
(h) E-discovery investigation should also be given support to prevent cases of cyber crimes, corruption, and serious frauds. [8]
(i) Bleeding edge technology to keep up with modern measures against cyber threats.
(j) Laws should meet requirements made by modern technology developments.
(k) With a combination of knowledge and expertise, a counter-cyber terrorism team can build an effective strategy for preventing cyber-terrorist incidents.
(l) More international co-operations are necessary for the eradication of the threat. [8]

Conclusion

India is growing a lot in the IT sector with a lot of aspects of the governance and other sectors being computerised which have helped India develop but has also made it more vulnerable to cyber-attacks and cyber-terrorism. The current measures for these kinds of imminences are not enough. The rights steps have to be taken to help the country avoid any future threats that the country is prone to.

References

[1] Clarke, Richard A., Cyber War, Harper Collins (2010), ISBN 9780061962233.

[2] Chaubey, Prof. R. K., Introduction to Cyber Crimes and Cyber Laws, Kamal Law House (Reprint 2015)

[3] Praveen Dalal, Cybercrime and Cyberterrorism: Preventive Defense for Cyberspace Violations, Computer Crime Research Center (March 10, 2006).

[4] Integrated Defence Staff, Gov. of Inda, Cyber Security in India, Link

[5] Sharma Vakul, E-governance & Information Technology Act, 2000 (Information Technology Law and Practice Cyber Law & E-Commerce) Universal Law Publishing Co. Pvt. Ltd.

[6] New India Express, Hackers take a heavy toll on Indian websites, Link

[7] Insights on India, Cyber Security Related Issues: Comprehensive Coverage, Link

[8] Vladimir Golubev, Problems of Counteraction to Computer Crimes and Cyber Terrorism, Computer Crime Research Center, March 16, 2004.

Introduction

In developing countries like India where the problem of unemployment is great, there is a chance of exploitation of labourers being poor and having no bargaining capacity. In such circumstances, the employer may offer the labourer wages even below the subsistence level resulting thereby into starvation of labour, Therefore, the legislature thought fit to control the unfair practices of the employer of paying wages below the subsistence level to the employees. As per the Minimum Wages Act, 1948 every employer is bound to pay the minimum wages to his employees. These wages are said to be statutory wages. Even public works ostensibly initiated by the government for the sole purpose of providing employment are subject to this Act.

The Validity of the Act

In the case of Shamrao v. State of Bombay, the constitutionality of the Act was challenged by the employers to be violative of fundamental freedom under Article 19(1)(g) of the Constitution of India. But the Supreme Court held that the Act is constitutional as per the provisions of Directive Principle of State Policy embodied under Article 43 of the Constitution of India. The same was held in the V. Unichonoy v. State of Kerala, and Golmohammad Tatyasaheb v. State of Bombay.

It was argued that this Act is violative of Article 14 as the provision in question, that is, section 3(3)(iv) of this Act was not in contravention to the equal protection clause of the constitution. This was decided in the case of Bhikusa Yamasa Kshatriya v. Sangamner Akola Bidi Kamgar Union.

In the case of N.M. Wadia Charitable Hospital v. State of Maharashtra, it was held that fixing different minimum wages for different localities is permitted under the constitution and under the labour laws.

Object and Scope

To provide for fixing minimum rates of wages in certain employments. The employments are those which are included in the schedule and are referred to as ‘Scheduled Employments’. The Act extends to the whole of India.

Purports to achieve is to prevent exploitation of labour and for that purpose empowers the appropriate Government to take steps to prescribe minimum rates of wages in the scheduled industries. In an underdeveloped country which faces the problem of unemployment on a very large scale, it is not unlikely that labour may offer to work even on starvation wages.

The policy of the Act is to prevent the employment of such sweated labour in the interest of the general public and so in prescribing the minimum rates, the capacity of the employer need not be considered.

What is being prescribed is minimum wage rates which a welfare State assumes every employer must pay before he employs labour. This Act aims to ensure not only bare physical subsistence but also maintenance of health and decency.

It ensures and secures adequate living wages to the labourer in the interest of the general public. To keep the family of the labourer living and to add to his efficiency and ensure a decent standard of life and full of employment of leisure and social and cultural opportunities.

What are Wages?

The meaning of the term ‘wages’ is defined under Section 2(h) of the Act. It means all remunerations capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes house rent allowance.

There are some exceptions to this definition. The term wages under this Act does not include:

The value of any house accommodation, a supply of light, water medical;
The value of any other amenity or any service excluded by the general or social order of the appropriate Government;
Contribution by the employer to any Pension Fund or Provides Fund or under any scheme of social insurance;
Any traveling allowance or the value of any traveling concession;
Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment;
Any gratuity which is payable on discharge.

In the year 1948, the Tripartite Committee on Fair Wages was appointed by the Central Advisory Council. The said committee had laid down a certain criterion for minimum wages. Such criterion provides 5 elements that have to be considered while fixing the minimum wages. These are as follows:

3 consumption units per earners
Minimum food requirement of 2700 calories per average adult;
Cloth requirement of 72 yards per annum per family;
House rent corresponding to the minimum area provided under the Government’s Industrial Housing Scheme;
Fuel, lighting and other miscellaneous items of expenditure to constitute 20% of the total minimum wage.

Adding to it, the Appropriate Government has the power to fix the minimum rates of wages. It can fix the minimum rates of wages either:

by the hour; or
by the day; or
by the month or
by such a large wage period as may be prescribed.

What is Employment?

The act recognizes Scheduled Employment. The meaning of the term ‘scheduled employment’ is defined under Section 2(g) of the Act. It means employment specified in the Schedule or any process or branch of work forming part of such employment. The schedule is divided into two parts namely, Part I and Part II. When originally enacted Part I of Schedule had 12 entries. Part II relates to employment in agriculture. It was realized that it would be necessary to fix minimum wages in many more employments to be identified in the course of time. Accordingly, powers were given to the appropriate Government to add employments to the Schedule by following the procedure laid down in Section 21 of the Act. The State Government and Central Government have made several additions to the Schedule and it differs from State to State.

Who is an Employee?

The meaning of the term ‘employee’ is defined under Section 2(i) of the Act. It means any person who is employed for hire or rewards to do any work, skilled or unskilled, manual or clerical in scheduled employment in respect of which minimum rates of wages have been fixed; and includes an outworker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale purpose of the trade or business of that other person where the process is to be carried out either in the home of the out-worker or in some other premises, not being premises under the control and management of that person; and also includes an employee declared to be an employee by the appropriate Government.

The definition does not include any member of the Armed Forces of the Union.

Who is an Employer?

The meaning of the term ‘employer’ is defined under Section 2(e) of the Act. It means any person who employs, whether directly or through another person, or whether on behalf of himself or any other person, one or more employees in any scheduled employment in respect of which minimum rates of wages have been fixed under this Act and includes:

In a factory where there is carried on any scheduled employment in respect of which minimum rates of wages have been fixed under this Act, any person named under clause (f) of sub-section (1) of Section 7 of the Factories Act, 1948, as manager of the factory;
In any scheduled employment under the control of any Government in India in respect of which minimum rates of wages have been fixed under this Act, the person or authority appointed by such Government for the supervision and control of employees or where no person of authority is so appointed, the Head of the Department;
In any scheduled employment under any local authority in respect of which minimum rates of wages have been fixed under this Act the person appointed by such authority for the supervision and control of employees or where no person is so appointed, the Chief Executive Officer of the local authority;
In any other case where there is carried on any scheduled employment in respect of which minimum rates of wages have been fixed under this Act, any person responsible to the owner of the supervision and control of the employees or for the payment of wages. A person who engages workers through another, like a contractor would also be an employer.

This act does not include Wages payable by an employer to a member of his family who is living with him and is dependent on him under Section 26(3).

Offences and Penalties

The offences and penalties recognized by this Act have been dealt with under Section 22. They are listed as below:

Any employer who pays to any employee less than the minimum rates of wages fixed for that employee’s class of work or less than the amount due to him under the provisions of this Act or contravenes any rule or order made under Section 13, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to 500 rupees or with both.
While imposing any fine for an offence under this section the court shall take into consideration the amount of any compensation already awarded against the accused in any proceedings taken under section 20.
It is further stipulated under Section 22A of the Act that any employer who contravenes any provision of this Act or of any rule or order made thereunder shall if no other penalty is provided for such contravention by this Act be punishable with fine which may extend to five hundred rupees.

Fixation and Revision of Rates of Wages

The government under the Minimum Wages Act, 1948 has made it mandatory to provide the workers working in a factory with minimum wages. Therefore, Section 3(1)(a) of this act states the Fixation of Minimum Rates of Wages. This will help the employees to get their hard-work paid appropriately.

The appropriate Government may fix the minimum rates of wages payable to employees employed in an employment specified in Part - I or Part - II of the Schedule and in employment added to the Schedule. The Government may review the minimum rates of wages and revise the minimum rates at intervals not exceeding five years.
The appropriate Government may fix a minimum rate of wages for time and for piece rate. However different wage rates may be fixed for different scheduled employments, different classes of work in the same scheduled employment, for adults, adolescents, children and apprentices and for different localities and for any one or more of the wage periods, viz., by the hour or by the day or by the month or by such larger period.

Minimum Rate of Wages

Any minimum rate of wages fixed or revised may consist of:

A basic rate of wages and a special allowance.
A basic wage rate with or without the cost of living allowances and the cash value of concessions in respect of supplies of essential commodities at concessional rates.
An all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of concessions.

Procedure for Fixing and Revising Minimum Wages

The appropriate Government may appoint an advisory Board for advising it, generally in the matter of fixing and revising minimum rates of wages.
The Central Government may appoint a Central Advisory Board for the purpose of advising the Central and State Governments in the matters of the fixation and revision of minimum rates of wages.

Dearness Allowance

The Dearness Allowance (DA) is a cost of living adjustment allowance paid to Government employees, Public sector employees (PSE) and pensioners. It is payable to monthly, daily and piece-rate earners. The respective State Governments issue the Cost of Living Index number every six months for each and every scheduled employment.

For calculation, DA is divided into two separate categories: Industrial Dearness Allowance and Variable Dearness Allowance.

Industrial Dearness Allowance (IDA) applies to the Public sector employees of the Central Government. The Industrial Dearness Allowance for public sector employees undergoes quarterly revision depending on the Consumer Price Index to help offset the impact of rising levels of inflation.

Variable Dearness Allowance (VDA) applies to the employees of the Central Government. It is revised every six months according to the Consumer Price Index to help offset the impact of rising levels of inflation. VDA in itself is dependent on three different components as given below.

Base Index – remains fixed for a particular period.
Consumer Price Index – impacts VDA as it changes every month.
Variable DA amount that has been fixed by the Government remains fixed unless the government revises the basic minimum wages.

The following formula is being used by the Central Government to calculate the dearness allowance for the Central Government Employees, after implementing the recommendations of the 7th Pay Commission, from July 1st, 2016 onwards. The formula is:

Dearness Allowance% = (Average of AICPIN for the past 12 months – 261.4) * 100 / 261.4

Dearness Allowance% = (Average of AICPIN for the past 3 months – 126.33) * 100 / 126.33

AICPIN stands for the All India Consumer Price Index. Dearness allowance is calculated from the AICPIN value, once the AICPI(IW) for a particular month is published by the Government. AICPIN is issued by the Ministry of Labour and Employment, which are revised periodically.

The dearness allowances are revised by the government twice a year. It was increased by the Central Government from 15% to 17% when was revised in July 2019.

The minimum rates of wages include the basic rates and Variable Dearness Allowance. The revised rates of Variable Dearness Allowance on the basis of the average Consumer Price Index for Industrial Workers.

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