Introduction &Disclaimer:

This is only an attempt to keep in pace with the changes in Law. Keeping in mind the varied interest of individuals we have tried to cover as much as possible, however we do not holdout that this update covers all changes in the field of law affected during the period and the reader may exercise discretion in that regard.

The legal update is divided broadly into two sections:

1. Important Decisions;
2. New or Amendment to existing Legislation.

• B&T AG v. Ministry of Defense

The Supreme Court in the instant case held that the period of limitation in cases concerned with Article 137 of the Constitution of India is three years, commencing from when the right to apply accrues. The Bench further stated that the cause of action is pertinent for calculating the limitation period for instituting an action. The party must, therefore, be mindful of when a cause of action arises. If a party delays sending a notice seeking reference under the Arbitration Act of 1996 due to a lack of clarity as to when the cause of action arose, the claim can become time-barred. In terms of the cause of action, if an infringement of right occurs at a particular time, the whole cause of action is said to have arisen then and there. Thus, the appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act is not permissible beyond the period of limitation.

• KC Ninan v. Kerela State Electricity Board

The Supreme Court in the instant case held that, while the bar of limitation under Section 56(2) of the Electricity Act, 2003 restricts the remedy of disconnection, the licensee is entitled to recover electricity arrears through civil remedies or in exercise of its statutory power under the conditions of supply.

• IndiaBulls Asset Reconstruction Co. Ltd. v Ram Kishore Arora

The Supreme Court reiterated what the NCLAT had observed, to say that the ‘project-wise resolution’ may be started as a test to measure the success of a resolution. The result of the impugned order was that except for the specified project, all other projects of the corporate debtor were to be kept as ongoing projects and the construction of all other projects were to be continued under the supervision of the IRP with the ex-management, its employees, and workmen.

• Vistra Itcl (India) Ltd v. Dinkar Venkatasubramanian

The Court noted that the Insolvency and Bankruptcy Code (Amendment) Act, 2019 has been introduced to ensure that the operational creditors under the resolution plan should be paid the amount which they are entitled to, in the event of liquidation of the Corporate Debtor under Section 53 of the IBC. The Court held that, the amount payable under the resolution plan to the operational creditors should not be less than the amount payable to them under Section 53, in the event of liquidation of the Corporate Debtor.

• Shree Vishnu Constructions v. Engineer in Chief Military Engineering Service

The Supreme Court held that the law prevailing prior to the Amendment Act, 2015 shall be applicable in a case where the notice invoking arbitration is issued, prior to the Amendment Act of 2015.

• Union of India v. Deloitte Haskins and Sells LLP

The Supreme Court held that on the principle of joint and severe liability, the auditors and the entire firm including partners shall be liable and therefore can be subjected to Section 140(5) and the consequences mentioned in Section 140(5) of the Act, 2013.

• Maheshwar Pandey v. State of Bihar

The Supreme Court observed that service rendered as work charged after regularization of service under the Work Charged Establishment Revised Service Conditions (Repealing) Rules, 2013 and Circular shall be counted for qualifying service for pension as per Rule 5(v) of 2013 Rules.

• Ritu Chhabaria v. Union of India

The Supreme Court observed that the right of default bail under Section 167(2) of the CrPC was not merely a statutory right, but a fundamental right that flows from Article 21 of the Constitution of India.

• Subhash Chand Gupta v. Bhavesh Texo Fab (P) Ltd

The NCLAT opined that the Adjudicating Authority has committed on error in admitting the Section 9 application as the same has to be considered and decided based on material facts regarding the debt and default In the present case, there is a debt which remained unpaid by the Corporate Debtor to the Operational Creditor.

• Ashwini Kumar Upadhyay v Union of India

The Delhi High Court opined that to ensure that there is a smooth transition of Rs. 2000 denomination banknotes, which continue to be a legal tender till September 2023 i.e., for four months, banks have provided facilities for conversion of these banknotes to other denomination banknotes.

• Rajeev Gupta v. Standard Chartered Bank (Singapore) Ltd.

The NCLAT remarked that once a document has been relied upon and not objected to, it cannot be rejected or ignored.

• Dhananjay Seth v. Union of India

The Patna High Court directed the Banks/Financial Institutions who were respondents in the present case to henceforth, exercise their power to seize and repossess the vehicle only in accordance with the provisions of the SARFAESI Act and the Rules framed thereunder and the RBI guidelines. The Court further directed the Superintendent of Police of all the districts in the State of Bihar, to ensure that within their jurisdiction no recovery agent of the Bank and Financial Institution might take the law into their hands, intercept the vehicles on way and takes possession of the vehicle in default without an order of the competent court of law. Further, the Court stated that since the action of the Banks/Finance Companies were found illegal, the petitioners in the present case should be entitled for the cost of litigation. Accordingly, the Court directed that each of the respondents, that is, Banks/Financial Institutions would be liable to pay a sum of Rs. 50,000 as cost of litigation to the respective petitioners.

• Shapoorji Pallonji And Company Private Limited v. Union of India

The Delhi High Court held that by the time the instant petition was filed before the Court, the respondent had failed to nominate an arbitrator and its right to do so cannot be forfeited since the DRC reported a failure of conciliation only on 02-05-2023. The Court concluded that: It shall be open to the petitioner to address a fresh communication indicating the name of its nominee arbitrator. While doing so, it would also be open to the petitioner to reiterate the name as suggested and contained in its communication of 27-01-2023. Upon receipt of the said intimation, it would be open to the respondent to nominate its arbitrator. The two nominated arbitrators may, in turn, then proceed to appoint a presiding arbitrator. It shall be open to the respondent to nominate an arbitrator who possesses the qualifications as prescribed in Clause 25. However, if it chooses not to do so, the two nominated arbitrators would then be entitled to appoint a presiding arbitrator who meets the qualifications as stipulated in Clause 25.

• NuFuture Digital (India) Ltd. v. Axis Trustee Services Ltd

While dismissing the instant appeal, NCLAT upheld the Adjudicating Authority’s order rejecting the appellant’s plea seeking the dismissal of S. 7 application and held that the S. 7 application is not barred by S. 10-A.  The NCLAT held that the application preferred by the Financial Creditor under S. 7 IBC was not hit by S. 10-A as the defaulted amount included for the calculation in the S. 7 application did not pertain to the period covered by S. 10-A IBC.

Part-II

NEW RULES/ LEGISLATIONS AND AMENDMENTS TO RULES AND LEGISLATIONS

1. CBDT proposes changes to Rule 11UA in respect of ANGEL TAX and proposes to notify Excluded Entities

An amendment to the Finance Act of 2023 has been introduced so as to bring the consideration received from non-residents for issue of shares, under the ambit of Section 56(2)(viib) of the Income-tax Act, 1961. The said provision, provides that, in case a consideration for issue of shares exceeds the Fair Market Value (FMV) to be chargeable to income-tax under the head “Income from other sources.”

The Key points are as follows:

• Proposed changes in Rule 11UA:
  • Currently, Rule 11UA prescribed two valuation methods for valuation of shares, namely: Discounted Cash Flow (DCF) and Net Asset Value (NAV) method for resident investors. Thus, 5 new valuation methods are sought to be added to the list.
  • In terms of consideration received by a company for the purpose of issue of shares from any non-resident entity as notified by the Central Government, the price of equity shares corresponding to such consideration must be as the FMV of the equity shares for resident and non-resident investors.
  • The valuation report by the Merchant Banker herein, would be acceptable provided if it is of a date not more than 90 days prior to the date of issue of shares which are the subject matter of valuation.

2. Competition Amendment Act, 2023

The Ministry of Corporate Affairs notified the enforcement of certain provisions of the Competition (Amendment) Act, 2023 (CAA 23) with effect from 18 May 2023.

• Key Points:
  • The definition of “relevant product market” now formally recognizes supply-side substitutability as a consideration when delineating relevant markets.
  • A definition of the term “party” has been introduced to refer to a broad set of stakeholders including consumers, trade associations, information providers, opposite parties, and persons or enterprises that may have been impleaded by the CCI to join proceedings.
  • Ahead of the enforcement of the detailed framework for “settlements” and “commitments”, the definition of the terms themselves have been notified.
  • With respect to anti-competitive horizontal agreements under Section 3(3), “hub-and-spoke cartels” have finally received statutory recognition. Now, any party that participates or intends to participate in an anti-competitive horizontal agreement may be found liable under Section 3(3) – irrespective of whether the party is engaged in an identical or similar trade as the remaining participants.
  • The phrase “exclusive supply agreement” under Section 3(4)(b) has been rechristened “exclusive dealing agreement” and the definition has been updated to expand its scope.
  • Agreements between an enterprise and an end-consumer has been explicitly excluded from the scope of vertical agreements under Section 3(4).
  • “Meeting competition” will now be available as a valid defense to justify the imposition of unfair and discriminatory conditions. Reliance on the defense was earlier restricted to cases involving imposition of discriminatory conditions alone.
  • A much-anticipated provision which sets a limitation period of 3 years for filing an information (i.e. complaint) has been enforced. Such limitation period will start from the date on which the cause of action arose, however, delays may be condoned if sufficient cause can be demonstrated.
  • The factors to analyze whether an agreement has caused an appreciable adverse effect on competition (AAEC) in India have also been updated. Now, under Section 19(3)(d), the CCI shall give due regard not only to “benefits” to consumers but also “harm” caused to them.
  • The factors to delineate relevant market have also been revised by the incorporation of certain geographic market considerations such as inclusion of costs associated with switching supply or demand to other areas.
  • As reported earlier, the DG’s powers of investigation have been strengthened significantly by the amendment. The DG, during its investigation, may now depose under oath in-house legal counsels, bankers, and auditors of parties under investigation. The DG may also call for information from any person other than a party and retain relevant documents for a period of at least 180 days.
  • The CCI may now penalize parties which fail to comply with its orders passed under Sections 6, 43, 44 and 45 which deal with the power of the CCI to regulate combinations, and the power to impose penalties for failure to comply with the orders of the CCI or DG.
  • The ceiling limit for penalties under Section 44, which is used to penalize parties for making false statements or for omission to furnish material information, has been increased from INR 10 million (i.e., ~ USD 120,760) to INR 50 million (i.e. ~ USD 603,804).
  • Now, an appeal can be preferred against an order of the CCI before the National Company Law Appellate Tribunal (NCLAT) only after a mandatory deposit of 25% of the penalty imposed by the CCI.
  • Section 22: The right of the Chairperson, CCI to have a casting vote during proceedings has been removed.
  • Section 26(2A): The CCI now has the power to reject / dismiss cases which involve substantially the same facts and issues that have already been decided by the CCI in a previous order.
  • Section 35: Parties may call upon experts from the fields of economics, commerce, international trade or from any other discipline to provide an expert opinion and appear before the CCI in a case.
  • Section 53Q: In case of non-compliance with any of the orders of the NCLAT, the NCLAT can initiate contempt proceedings against the person under Section 53U.
  • Section 59A: Provides for compounding of any offence punishable under the Competition Act, 2002, excluding the offences punishable with imprisonment only or imprisonment with fine by the NCLAT or any other court.
  • Sections 63, 64 and 64A: Provide rule and regulation making power including on the new topics of deal value threshold, exemption to open market purchases, settlements, commitments, meaning of turnover and income for the purposes of calculating penalty, and leniency plus. Section 64A lays down the process of issuing regulations and involves various stages such as – publishing draft regulations for public comments, publishing a statement responding to such public comments and periodically reviewing such regulations.
  • The upper limit of penalty on merging parties who provide materially false statements or omit material particulars has been increased from INR 10 million to INR 50 million. This amplification aligns with the evolving regulatory landscape and underscores the importance of accuracy and transparency in merger transactions.
  • Hub and spoke cartels: Now the definition of cartelizing parties includes facilitators. Previously, only agreements related to price fixing, production control, and collusive bidding between enterprises or persons engaged in identical or similar businesses were presumed to adversely affect competition. However, now common agents (hubs) who control other players (spokes) within the same horizontal level are also covered. This broader scope seeks to address concerns around hub and spoke cartels, ensuring more comprehensive coverage under the Act.
  • Section 3(4) of the Act has been modified to encompass all arrangements between persons and enterprises, extending beyond agreements solely between firms at different stages of the supply/distribution chain. This amendment reflects the CCI’s experience in anti-trust enforcement and promotes fair competition across various vertical arrangements.
  • Limitation Period for information: The CCI, subject to condonation, need not entertain complaints where the cause of action arose prior to 3 years or more from the date of complaint. However, the CCI retains the authority to condone delays in exceptional circumstances. 
  • Pre-deposit requirement for appeals to the NCLAT: Now the parties must make a pre-deposit of 25% of the penalty imposed by the CCI to file an appeal before the National Company Law Appellate Tribunal (NCLAT). This change significantly impacts litigation dynamics, as it raises the stakes and emphasizes the importance of carefully assessing potential penalties before initiating appeals.

3. Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2023

The Ministry of Corporate Affairs vide its notification dated May 15, 2023, substitute the existing sub-rules (5) and (6) of rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. These amendments imply specific timelines for government authorities such as the registrar of companies and the official liquidator to provide their observations or confirmation to a scheme of merger under section 233 of the Companies Act, 2013 read with rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

• Key Points:
  • Sub-rule (5): In accordance with section 233 (2) and (3) of CA 2013 read with the substituted sub-rule 5, once the registrar of companies and the official liquidator receive the scheme of merger, they are required to object or provide suggestions to the central government (power delegated to the regional director), within 30 (thirty) days from the receipt of the scheme. Where the objection/suggestion is not received from the registrar and the official liquidator within the said period of 30 (thirty) days and the central government is of the view that the scheme is in the interest of the public or creditors, the central government has been empowered to issue a confirmation order on such scheme within 15 (fifteen) days of the expiry of the said period of 30 (thirty) days. Before the said amendment, there were no time limits specified under sub-rule (5) for the registrar and the official liquidator to provide their objections or suggestions to the scheme.
  • In addition to the above, MCA has also introduced a deemed approval provision under the substituted sub-rule (5), wherein if the central government fails to issue the confirmation order within 60 (sixty) days of the receipt of the scheme, then it will be deemed that the central government has ‘no objection’ to the proposed scheme and accordingly, the central government will be obliged to issue the confirmation order.
  • Sub-rule (6): If the central government is of the view that the objection/suggestion received from the registrar and official liquidator is not sustainable and that the scheme is in the interest of public or creditors, then it will issue the confirmation order within 60 (sixty) days of the receipt of the scheme. However, if the central government is of the view that the scheme is not in the interest of the public or creditors (whether on the basis of such objections or otherwise), then it may file an application before the Tribunal, within 60 (sixty) days of the receipt of the scheme, requesting the Tribunal to move the scheme under section 232 of CA 2013 and not under section 233.
  • MCA has also introduced a deemed approval mechanism under the substituted sub-rule (6), wherein if the central government does not provide any confirmation order or file an application to the Tribunal within 60 (sixty) days of the receipt of the scheme, then it will be deemed that the central government has ‘no objection’ to the scheme and accordingly, the central government will be obliged to issue the confirmation order.

4. Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2023.

On 10-5-2023, the Ministry of Corporate Affairs notified the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2023 to amend the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. The provisions came into force on 10-5-2023.

• Key Points:
  • Rule 4 relates to “Application for removal of name of company” which says that an application for removal of name of a company under Section 248(2) will be made to the Registrar, Centre for Processing Accelerated Corporate Exit in Form No. STK-2 along with fee of Rs. 10000.
  • The company cannot file an application unless it has filed overdue financial statements and overdue annual returns up to the end of the financial year in which the company ceased to carry out its business operations.
  • Where the Registrar’s action has already been initiated against the Company, it can only file the application for removal of names, after filing pending financial statements and annual returns.
  • A Company will not be allowed to file an application for removal of names once the Registrar has issued notice for publication.