Government as a Contracting Party

Sibani Panda, Research Associate

A Contract is an agreement enforceable by law which offers personal rights, and imposes personal obligations, which the law protects and enforces against the parties to an agreement. The general laws of contract is based on the conception, which the parties have, by an agreement, created legal rights and obligations, which are purely personal in their nature and are only enforceable by action against the party in default ((Moitra’s Law of Contract & Specific Relief; 5th ED; Page 4)).

Section 2(h) of the Indian Contract Act, 1872 defines a contract as “An agreement enforceable by law”. The word ‘agreement’ has been defined in Section 2(e) of the Act as ‘every promise and every set of promises, forming consideration for each other’. So contract is a promise enforceable by law and the promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another one who is accepting. If one party fails to keep the promise, then the other is entitled to the legal recourse ((Contract.”Encyclopedia Britannica from Encyclopedia Britannica 2006 Ultimate Reference Suite DVD)).

A Government contract is a species of genus contract and is governed by Indian Contract Act, 1872. The Indian Contract Act, 1872 does not prescribe any form for entering into contracts. A contract may be oral or in writing. It may be expressed or be implied from the circumstances of the case and the conduct of the parties. Any contract to which Government is a party is considered to be a Government contract but the position is different in respect of Government Contracts in India. A contract entered into by or with the Central or State Government has to fulfill certain formalities as prescribed by Article 299 of the Indian Constitution.

In the case of State of Bihar v Majeed ((AIR 1954 SC 786)), the Hon’ble Supreme court held that “It may be noted that like other contracts, a Government Contract is also governed by the Indian Contract Act, yet it is distinct a thing apart. In addition to the requirements of the Indian Contract Act such as offer, acceptance and consideration, a Government Contract has to comply with the provisions of Article 299. Thus subject to the formalities prescribed by Article 299 the contractual liability of the Central or State Government is same as that of any individual under the ordinary law of contract.”

Article 299 lays down three conditions which the contracts made in the exercise of the executive power of the Centre or a State must fulfill to be valid:

  • The contract must be expressed to be made by the president or the Governor as the case may be;
  • These contracts made in the exercise of the executive power are to be executed on behalf of the President/Governor as the case may be; and
  • The execution must be by such person and in such manner as the President or the Governor of the case as the case may be, may direct or authorize.

There is hardly any distinction between a contract between private parties and Government contract so far as enforceability and interpretation are concerned yet some special privileges are accorded to the Government in the shape of special treatment under statutes of limitation ((Navrattanmal v State of Rajasthan , AIR 1961 SC 1704)). Some privileges are also accorded to Government in respect of its ability to impose liabilities with preliminary recourse to the courts. A private contract is only just to provide supplies or services but Government contract may provide livelihood and is an instrument for implementation of Governmental policies ((Ram Lal v State of Punjab AIR 1966 Pun 436)).

Though overriding the contractual obligations by a private party would amount to a breach of contract and render him liable for damages yet a similar Governmental step being necessary in public interest will not be wrongful and would not amount to a breach and will not render the Government liable to any damage. No party, once a contract is entered into, can change any provision of the contract. Such an act will result in breach of contract and can be a cause for damage ((Union of India V Anglo Afgan Agencies AIR 1968 SC 718)). However Government can unitarily at any point of time change the contract citing executive necessity.

PRINCIPLES UNDERLYING GOVERNMENT CONTRACTS

  • REASONABLENESS: The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterize every State Action, whether it be under the authority of law or in exercise of executive power without making of law. The state cannot , therefore , act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational an non- discriminatory. The action of the Executive Government should be informed with reason and should be free from arbitrariness. It is settled law that the rights and obligations arising out of the contract after entering into the same is regulated by terms and conditions of the contract itself ((Y.Konda Reddy v State of A.P.,AIR 1997 AP 121)). In a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness and justice demand ((M/s. Hindustan Sugar Mills v State of Rajasthan, AIR 1981 SC 1681)).
  • PUBLIC INTEREST: Appearance of public justice is as important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism ((Shri Sachidanand Pandey v State of W.B., AIR 1987 SC 1109)). State owned or public owned properties are not to be dealt with at the absolute discretion of the executive. Certain principles have to be observed in accordance with the public interest.
  • EQUALITY, NON-ARBITRARINESS:  Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is violative of Article 14. The principle of reasonableness is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omni-presence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14 ((Maneka Gandhi v Union of India, AIR 1978 SC 597)).
  • CONTRACTUAL LIABILITY: In order to protect the innocent parties, the courts have held that if government derives any benefit under an agreement not fulfilling the requisites of Article 299(1), the Government may be held liable to compensate the other contracting party under S.70 of the Indian Contract Act, on the basis of quasi-contractual liabilities, to the extent of the benefit received. Section 70 lays down three conditions namely:
    1. a person should lawfully do something for another person or deliver something to him;
    2. in doing so, he must not intend to act gratuitously; and
    3. the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof.

If under a contract with a government, a person has obtained any benefit, he can be sued for the dues under Section 70 of the Act though the contract did not confirm to Article 299 ((State of Orissa v Rajballav, AIR 1976 Ori 79))and if the Government has made any void contracts, it can recover the same under Section 65 of the Indian Contract Act ((Pannalal v Deputy Commissioner, AIR 1973 Sc 1174; see also Union of India v J.K Gas Plant, AIR 1980 SC 1330.)).

CONCLUSION:

States cannot act arbitrarily while entering into contractual relationship with a third party and the action of the State must conform to some standards which is rational and non discriminatory. The action of the Government should be informed with reason and should be free from arbitrariness. The states, while entering into contracts must comply with all the legal requirements fairly and without any unfair procedure, and its action is subject to judicial review under Article 14 of the constitution. The doctrine that the powers must be exercised reasonably has to be reconciled with the no less important doctrine that the Court must not usurp the discretion of the public authority which the Parliament has appointed to take the decision. Within the bounds of legal discretion is the area in which the deciding authority has genuinely free discretion. If it passes the boundary, then it acts ultra vires. The decisions which are extravagant or capricious cannot be legitimate. But if the decision is within the confines of reasonableness, it is no part of the Court’s function to look further into its merits.

Specific Performance of Contracts

Abhinav Gaur, Research Associate

Every contract broaches an obligation upon each party to such contract, to either do or not to do something. Upon breach of such obligation created by a promise to an act/omission under the agreed terms of contract, is raised a right upon the Promisee to get compensated for losses incurred due to such breach by the Promisor and simultaneously is raised another obligation upon the Promisor to compensate for such losses.

Here comes the role of the Specific Performance of Contract, where a question arise, what if a Promisee would want Promisor to compensate not monetarily but, by doing what he was supposed to do as per the contract, in other words, what if performance of contract is more significant and money for breach totally insignificant to compensate the Promisee? What if there is no ‘strait-jacket formulae’ to quantify the damage incurred by any such breach by the Promisor. The Specific Relief Act comes to the rescue and answers all such questions by providing for Specific Performance of Contracts.

A decree of Specific Performance, is through which a court directs the defendant to perform the contract according to its terms, in other words, it is an order of court taken by a plaintiff directing the defendant to perform the contract according to its terms.

Specific Performance: The Indian Outlook

The Indian Law follows the trails of common law, wherein the right to specific performance is not out rightly available to promisee on breach by promisor, but is an exceptional right and is exercised by courts on their discretion.

Under the following circumstances, the specific performance is granted:

  1. Where non-performance of such contracts, of which compensation is not an adequate remedy ((Section 10, The Specific Relief Act));
  2. where enforcement of the terms of the contract is not difficult, expensive or ineffective ((Section 14, The Specific Relief Act));
  3. where the plaintiff’s conduct does not disentitle from seeking the equitable relief ((Section 16, The Specific Relief Act));
  4. where the court on its discretion, considers it fit to grant specific performance ((Section 20, The Specific Relief Act)).

In common law system, specific performance is an order directed against the defendant. The order requires him to perform the contract, else suffer consequences in the nature of contempt. In civil law systems, the remedy is wider. It is the process by which them promisee receives the performance of the promise given to him. Thus the promisees can have the defect cured or the substitute at the expense of the promisor. The order therefore aims at the result, rather than a direction to the debtor.

Section 14 of The Specific Relief Act, 1963, puts certain limitations on the grant of specific performance, which are as follows:

  1. a contract, non-performance of which can be justified by an adequate relief in form of money, however an agreement to execute mortgage deed can be enforced;
  2. a contract which runs into a minute details or extensive details;
  3. a contract which involves performance of a continuous duty, which court cannot supervise ((Nathu Lal v Munni Lal AIR 1927 Lah 898; Vipin Bhimani v Sunanda Das AIR 2006 Cal 209; Karri Venkatareddy v Kollu Narasayya (1908) 1 IC 384 (Mad); Ramchandra Ganesh Purandhare v Ramchandra Kondaji Kate (1898) 22 Bom 46; K M Jaina Beevi v M K Govindaswami AIR 1967 Mad 369));
  4. a contract dependent on personal qualifications or volition of the promisor ((Makharia Brothers v State of Nagaland AIR 1999 SC 3466; Najibulla Sardar v Harimohan Mitra AIR 1932Cal 481; In the matter of Gunput Narain Singh (1875) 1 Cal 74; Vidha Ram Misra v Managing Committee Shri Jai Narain College AIR 1972 SC 1450; Nandganj SihoriSugar Co Ltd v Badri Nath Dixit AIR 1991 SC 1525));
  5. a contract which can be terminated by any party as per the terms of the contract ((Pratibha Singh v Shanthi Devi Prasad AIR 2003 SC 643));
  6. Contract is such that otherwise from its nature, the court cannot enforce specific performance of its material terms ((Mohunta Bhagwan Das v Surendra Narain Singh (1917) 42 IC 521; Naresh Chandra Roy v Union of India AIR 1987 Cal 147)).

Inadequacy Test

Inadequacy test is a test on which Plaintiff has to stand to the satisfaction of the court in a way to show and justify that the compensation as a relief would not give him adequate relief. Only because of this test, the remedy of specific performance becomes exceptional. Specific performance of a contract can be claimed in two cases: firstly when compensation cannot be ascertained; and when compensation would be inadequate ((Section 10, Specific Relief Act)).

As per the explanation to Section 10 of the Act, two rebuttable presumptions operate upon the question of inadequacy:

1. in cases of contracts to transfer immovable property, there is a presumption that compensation will not be adequate;

2. in cases of contract to transfer movable property there is a presumption that compensation is an adequate remedy.

The court has to consider not his personal disability or inability, but whether obtaining substitutein the market is objectively possible. The word “adequately” implies adequate in the opinion of the court based on the facts proved on record, though the plaintiff may consider it to be inadequate ((Brij Ballabh Das v Mahabir Prasad AIR 1924 All 529.)).

Furthermore, the goal of compensation requires that an effort be made to determine the value the promisee places on the promisor’s performance, as distinct from what the promisee, or anyone else, has offered to pay for it. The court may reply on the evidence that goods are not available in India, and can be procured only from abroad ((Hemraj Kapoor v Seventeen Textile Traders (India) AIR 1961 Pat 318 (temporary injunction refused on the principles of specific performance).)).

The need to prove that no substitute is available is primary to exercise the remedy of specific performance but any substitute must correspond to the promisee’s need. It must serve the purpose of the promisee. Arguendo, if exactly same goods are available from alternative sources, these might not substitute where the reputation or brand of the promisor is important or the goods are not available on comparable or convenient terms or warranties, or their supply will be incompatible with other commitments. These may be difficult to locate, their availability may involve such delay as to disrupt the promisee’s business, their price may be substantially higher than the contract price, or alternative manufacturers may not have comparable reputations for quality.

Thus, what has to be seen is that the promisee must not suffer due to promisor’s non-performance and the essence of every contract must be kept.

Conclusion and Critique

In light of various judgments and judicial pronouncements it has been time and again observed that the ‘inadequacy test’ has done more of harm than the relief, and the reason is its exceptional nature.

It is indeed not readily available to the promisee but on the contrary promisee who is already suffering because of promisor’s non-performance, is made to further suffer because it has to satisfy court by standing the inadequacy test.

I propose that inadequacy test must be ruled out, since without it plaintiff will have to show the existence of a valid contract, its terms and subsequent breach by the defendant, and also, he will be able to seek the relief of his choice. If plaintiff chooses the remedy by way of specific relief, the onus would be on the defendant to show that substitutes or alternatives are available, if any. The reason to it being more just would be that the burden of proof would shift to the ‘contract breaker’.

Certainly, such a change would bring a paradigm shift in the volition of contract makers and would also encourage performance of contracts.

One Person Company: Indian Corporate World Setting New Milestones

Abhinav Gaur, Research Associate

Existing Companies Act, 1956 has been amended on August 29, 2013 through new Companies Act. Old bill was too complex and many representations were made to the Govt. to simplify it and incorporate present days requirements.    In this new Bill, in addition to number of amendments new law of ONE PERSON COMPANY has also been made. However, this Person Company (OPC) provision is already in practice in other countries like Singapore, China and USA.

ONE PERSON COMPANY

One-person company means a company, which has only one member. According to clause 2(62) of the Companies Act, 2013 it is such a corporate entity which has only one share holder. In this company legal and financial liabilities are limited to the company only.

Important features of OPC are as under:

  • It is formed as a private limited company and has only one person as a member.
  • Such company must bear “ONE PERSON COMPANY” under it’s name.
  • OPC should be formed for lawful purposes and should have minimum 1 director.
  • The annual return of such company must be signed by a Company Secretary. In case, there is no Company Secretary, it can be done by one director
  • One Person Company, small company and dormant company shall be deemed to have complied with the provisions if at least one meeting of the board of directors has been conducted once in six months and gap between the two meetings must not be less than 90 days.
  • Whenever one person company enters into a contract with the member of the company who is a director also, shall inform the registrar about every such contract within 15 days of approval of the board.
  • The financial statements shall be approved by the board and signed by the only one director, for submission to the auditor for their report.

FORMATION

To form an OPC, person has to give a name and legal identity to the proposed company under which business is to be carried on. Nominate has to be made with written consent as a nominee to the OPC. Nominee will be the default and ad hoc member in case of the existing sole member’s death or disability. This provision ensures perpetuity and continuity to the life of the Company. The golden rule of “members may come and go, but the Company must live on” holds good. Finally, OPC should bear the letters “OPC” in brackets after its registered name, wherever it may be printed, affixed or engraved.

RELAXATIONS IN COMPLIANCE REQUIREMENTS

The act contains certain relaxations in the case of an OPC which are more in the nature of the form of the organization like:

  • Minimum number of directors for an OPC is one and the maximum is 15.
  • There is no requirement of the appointment of first director as the sole member shall be deemed to be the first director.
  • Provisions relating to AGM and EJM are not applicable to OPC.
  • Only one director needs to sign the annual returns to be submitted to the registrar of companies.

DIFFERENTIAITNG PARAMETRES FROM A SOLEPROPRIETORSHIP

  • OPC is a separate legal entity from the owner whereas in the case of proprietorship organization both these merge into one.
  • In case of OPC, liability of the owner is limited, whereas in a proprietorship owner is liable for all the liabilities of the business entity he creates.
  • In case of sole proprietorship, Financial ratings and debt obligations are determined by the standing of the owner individual. However, In case of OPC this will be different as it is a separate legal entity.
  • OPC will have a separate legal entity for tax purposes different from the owner which is not the case with sole proprietorship form of business.

 

OPC IN OTHER COUNTRIES

Number of countries permits“One Person Company” kind of a corporate entity. In October 2005, China introduced it in which the promoting individual is both the director and the shareholder. Pakistan permits one person to form a single-member company by filing with registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director. In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC). In China also one person is allowed to apply for opening a limited company with a minimum capital of 1 Lac Yuan. Chinese Act prescribes that owner should pay the investment capital at one time and bars him from opening a second similar company. In several  countries, the law governing companies enables a single-member company to have more than one director and grants exemptions to such companies from holding AGMs, though records and documents are to be maintained. The concept is also very popular in Singapore.

ADVATANGES

OPC concept will bring the un-organized sector of proprietorship into the organized version of a private limited company. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited. This will open all options for Indian entrepreneurs, with pros and cons, and leave it in the hands of such promoters to decide the best options. It will help many foreign companies, which just need to appoint nominees for the sake of a minimum two members, when in India they form a wholly-owned subsidiary. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The concept will boost the flow of foreign funds into India, as the requirement for a nominee shareholder would be done away with. However, the mandatory clause that a resident Indian director should be on the board could act a bottleneck.

SHORTCOMINGS AND AMBIGUITIES

Formation of OPC appears to be easy but one person will still have to ensure statutory compliances like filing of returns, auditing of accounts. OPC’s in the field of finance may also face issue like to meet the minimum capital requirement which in a way has nothing to do with the companies act.   Other issues which could confront may include taxation related issues like tax on capital gains on conversion of proprietorship to OPC, remuneration to director, deemed dividends and stamp duty on transfer of business to OPC. The issues will get clear when the concepts evolve more and the required rules are prescribed.  We have to wait for clarity in cases like a reverse process of converting an OPC in  proprietorship. So a lot of issues have to be kept in mind which can be analyzed only after the growth of this concept in our nation.

CONCLUSION

OPC will give greater flexibility to an individual or a professional to manage his business and enjoy the benefits of a company. Company law experts see a rise in registrations of one-person companies once the Bill is enacted into law. The concept of OPC will also help many foreign companies, which need to appoint a minimum of two nominees now when they form a wholly-owned subsidiary. OPC will open the avenues for more favorable banking facilities, particularly loans, to such proprietors. In addition to it, this concept will boost flow of foreign funds in India as the requirement of nominee shareholder would be done away with.

The main issue thus remains that this is completely new concept and not just an extension of the existing concept of sole proprietorship form of business

Comparative Analysis of Meetings under Companies Act, 2013 & Companies Act, 1956

Tanya Agarwal, Research Associate

Meetings play a vital role in functioning and governance of a company. The Companies Amendment Act 2013 which came into force a month ago has improvised the earlier provisions relating to company meetings. The concept of statutory meeting and filing of statutory report under Section 165 of the Companies Act of 1956 has been dropped. In this Article, the author has compared the provisions related to company meetings in 1956 Act and 2013 Act.

General Provisions of Meetings

Notice of General Meetings- Section 102 of the Companies Act, 2013 vis-a-vis Section 173 of Companies Act, 1956

Section 102 clarifies that material facts are those that enables members to understand the meaning, scope and implications of the items of business and to take decision thereon.

Section 102 (2) also requires disclosure of not only the names of the interested parties but also the nature and extent of interest of directors, managers, key managerial personnel and relatives of directors, manager in the explanatory statement to be annexed for every special business in the notice calling general meetings.

The proviso to sub-section (2) requires mention of the extent of the interest of every promoter, director, manager or key managerial personnel in any other company to be affected by the proposed resolution if they hold two percent in that other company. The 1956 Act required such a disclosure if director, manager or secretary holds twenty percent or more in such other companies.

Quorum For The Meeting

Under the 1956 Act, the quorum requirement for public companies was five members personally present unless a higher quorum is stipulated by articles of association. Section 103 of the 2013 Act requires that-

5 members personally present if the number of members as on the date of meeting is not more than 1000

15 members personally present if the number of members as on the date of meeting is more than one thousand but up to 5000

30 members personally present if the number of members as on the date of the meeting exceeds 5000;

If the meeting of could not be held due to want of quorum then, Section 103 (2) will be applied regardless of what articles of company provide. However, under Section 288 of 1956 Act articles of association prevailed over the Act in such a case.

Proviso to Section 103 (2) is also a new requirement added by the amendment. It requires that in case of an adjourned meeting or of a change of day, time or place of adjourned meeting the company shall give not less than three days notice to the members either individually or by publishing an advertisement in the newspapers.

Proxies

Third Proviso to Section 105 (1) of 2013 Act empowers the Central Government to prescribe a class or classes of companies whose members shall not be entitled to appoint another person as a proxy.

Fourth proviso to Section 105 (1) of 2013 Act provides that a person appointed as proxy shall act on behalf of such member or number of members not exceeding fifty and such number of shares as may be prescribed.

However, the 1956 Act did not provide for these limitations in relation to appointment of proxies

Pro-Technology Provisions

Section 101 of the 2013, Act permits that notice of the general meetings of the company can be given through electronic mode.

Section 108 of the 2013 Act enables the members of prescribed class or classes of companies to exercise vote through electronic means.

The ordinary resolutions ((Section 114(1) Companies Act 2013))and special resolutions ((Section 114(2)(c) Companies Act 2013))may be passed by electronic voting. Votes casted electronically as well as votes by postal ballot shall be counted for the purpose of determining whether ordinary or special resolution has been passed.

Annual General Meeting

As the name signifies, it is an annual meeting of the body of the members. Section 166 of the old Companies Act, 1956 which required first AGM to be held within 18 months of its date of incorporation has been done away with. Also, the Second Proviso to Section 166(2) ((Section 166(2)Companies Act, 1956 provided that: (a) a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and (b) a private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the members thereof, fix the times as well at the place for its annual general meeting.))has been dropped by the 2013 Act.

Under Section 96 (1) the first annual general meeting shall be held within a period of nine months from the date of closing of the first financial year of the company and in other cases within a period of six months, from the date of closing of the financial year. There are two provisos to section 96 –

Firstly, if a company holds its first annual general meeting as aforesaid, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation. Secondly, the Registrar may, for any special reason, extend the time within which any annual general meeting, other than the first annual general meeting, shall be held, by a period not exceeding three months.

Section 166 merely mandated calling of AGM during business hours without defining business hours. Section 96 defines business hours would mean between 9 am and 6 pm.

Section 166 provided that AGM cannot be called on a public holiday but new companies act allows it to be called on a public holiday but not on a national holiday. The intention behind Section 96(2) was to facilitate widest participation by the shareholders and make possible holding of such meetings as early as possible including on Sundays ((The Parliamentary Committee Report on the Companies Bill, 2011, available at http://www.scribd.com/doc/99565110/Parliamentary-Committee-Report-Lok-Sabha-on-Companies-Bill-2011. (Last visited 17th October, 2013).)). National holiday means and includes a day declared as such by the Central government.

The jurisdiction has now been vested in Tribunal ((Section 97(1) Companies Amendment Act, 2013))instead of Central government ((Section 167(1) Companies (Second Amendment) Act, 2002. The 2002 amendment vested power in the tribunal in case of revival of a sick industrial company.))in case if any default is made in holding the annual general meeting of a company.

Board Meetings

Provisions akin to the meetings of the Board are incorporated in Chapter XII of the 2013 Act. According to section 173 (1) of the 2013 Act every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation. Board meetings should be held at least four times in a year and the gap between two consecutive board meetings cannot be more than one hundred and twenty days ((Section 285 of the Companies Act, 1956 dealt with Board meetings.)).

Participation in Meetings through electronic mode

Although, the Companies Act, 1956 was silent on this issue, Ministry of Corporate Affairs through its General Circular No. 28/2011 laid down certain rules regarding the participation by directors in meetings of board through electronic mode. Moreover Section 173(2) permits the participation of directors in a meeting of the Board through video conferencing or other audio visual means ((Provided that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audio visual means.)). The audio- visual means should not only be capable of recording and recognising the participation of the directors but also recording and storing of such proceedings along with date and time.

Notice of the Meeting

In contrast to Section 286 of the Companies Act, 1956 the amendment specifies the period of notice. Section 173(3) mandates that to validly hold a Board meeting, seven days’ notice in writing should be given to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.

However, Board meeting can also be called at a shorter notice to transact urgent business but at least one independent director should be present at the meeting. If the independent directors are absent from such meeting then decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director.

A penalty of twenty five thousand shall be imposed on the officer of the company who fails to discharge his duty of giving notice.

Quorum for the meeting

Though the quorum requirement ((Under both Section 287 Companies Act, 1956 and Section 174(1) of Companies Act, 2013 the quorum for a meeting of the Board of Directors of a company shall be one third of its total strength or two directors, whichever is higher.))still remains the same but now participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum ((Section 174(1) Companies Amendment Act, 2013)). Section 174(2) has been added by the 2013 Act which states that:

The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.

Passing of Resolution by Circulation

Section 289 of the 1956 Act which dealt with passing of resolution by circulation has been modified to great extent by 2013 Act. The1956 Act, required approval by all the directors, or all the members of the Committee in India. On the other hand, section 175(1) of the 2013 Act provides that approval should be by a majority of the directors or members (of the committee), who are entitled to vote on the resolution.  The phrase ‘in India’ been omitted in Section 175 to allow participation by foreign directors as well.

Proviso to Section 175(1) has added another situation which didn’t exist earlier. In case, less than one-third of the total number of directors of the company for the time being required that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.

Section 175(2) which requires that the resolution passed by circulation shall be noted at a subsequent meeting of the Board or the committee was not there under 1956 Act.

Additional Concepts under the 2013 Act

Small Company/ Dormant Company – According to Section 173(5) board meeting is required to be held at least once in each half of a calendar year and the gap between the 2 meetings is not less than 90 days. This does not apply for one person companies which have only one director on its board of directors.

One Person Company –  According to Section 122(3)  any business which is required to be transacted at an annual general meeting or other general meeting of a company by means of an ordinary or  special resolution, it shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting.

Comply with Secretarial Standards – Section 118 (10) provides that every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980, and approved as such by the Central Government.

Tampering of Minutes – According to Section 118(12) of Companies Act, 2013 if a person is found guilty of tampering with the minutes of the proceedings of the meeting he shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than 25,000 but which may extend to one lakh.

Conclusion

The Companies Amendment Act, 2013 has made an attempt to ensure that company meetings are carried out effectively and transparently. It also recognises the technological advancements by legalizing participation in meeting through audio-visual means, electronic voting and other similar provisions. Though it has not completely changed the provisions existing in the old Act but has brought major changes by dropping the requirement of statutory meeting, classifying quorum in case of public companies. The 2013 Act has also recognized the concept of One Person Company and has enacted separate provisions with respect to meetings. The provisions requiring independent directors to hold at least one meeting in a year without attendance of non-independent directors and members of management can be called as a positive step towards better governance. To sum up, 2013 Act has to some extent been successful in introducing as well as enhancing the provisions related to company meetings as per the need of hour.

Companies Act 2013 – A Milestone in Indian Corporate Regime

Abhinav Gaur, Research Associate

The Companies Bill, 2009 for the first time was introduced on August 3rd 2009.  On August 31, 2010 the Standing Committee presented its report on the Bill. Later, in the winter session of 2011, the central
government withdrew this Bill. Thus, on December 2, 2011, the Bill was re-introduced. The Bill was finally after few Amendments was passed in the Lok Sabha on 18 December 2012. The Companies Bill 2012
was passed in Rajya Sabha on 8 August 2013 (during the monsoon session of the parliament).  With the President’s assent, the Companies Bill 2012 became the Companies Act, 2013.

The Companies Act 2013 although craved its existence for too long years, but better late than never, this Act has been amended several times after extensive debates on its applicability. This Act has given a new hope to the Indian Corporate sector to revive with ever-growing challenges, both domestic and international.

To throw some light, on its few extensively important provisions, under mentioned is a brief of the same.

  • Definition of a Private Company has been changed as the maximum numberof members in a Private Company has been increased from 50 to 200.
  • Small company has been defined as a company other than a public company:-
    • having a paid-up share capital of which does not exceed fifty lakhrupees or such higher amount as may be prescribed notexceedingRs.5crore or
    • having turnover of which does not exceed two crore rupees or suchhigher amount as may be prescribed not exceeding twenty crore rupees.[section 2(85)].
    • Furthermore, various relaxations in terms of reporting requirement, board meetings and procedure for mergers/ amalgamations have been introduced.
    • Substantial additional information, like principal business activities, remuneration of directors and key managerial personnel, etc is required to be given in the Annual Return of a company. Also, in case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in Whole time in practice.
    • A listed company shall not appoint:-
      • An individual as auditor for more than one term of five consecutive years.
      • Hire a law firm to audit for more than two terms of five consecutive years.
      • Auditor appointed shall continue to hold office up till the conclusion
        of 6th meeting.
      • Financial Year of any Company shall end on March 31 and only exceptionis for companies, which are holding / subsidiary of a foreign entity,which require consolidation outside India, they can have a differentfinancial year, but with the approval of Tribunal.
      • The bill provides for establishment of a National Company Law Tribunal and National Company Law Appellate Tribunal consisting of body of technical and judicial members from various fields.
      • The provision relating to the mandatory transfer of profits to reserves for dividend declaration out of profits has been ruled out.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • The declaration of interim dividend can be out of surplus profits or out of current year’s profits. However, if in case the Company has incurred loss up to preceding quarter during the year, the interim dividend cannot be declared out at a rate higher than the average dividend declared by the Company during immediately preceding 3 financial years.
      • Minimum rate of Interest on inter corporate loans to be prevailing rate of interest on dated government securities. Private Companies maynot be able to grant interest free loans.
      • There has to be a minimum of 1 year gap between 2 buy-backs of an unlisted company, whether approved by board of directors or shareholders.
      • Merger and Amalgamation between two small companies have been simplified without requiring the Court process. Also, Merger and Acquisition between an Indian Company and Foreign Company or vice versa has been possible with the permission of RBI. Until now, merger of listed company with unlisted company entailed listing of the unlisted company. However, under the present Act (2013), the unlisted company has an option to continue as unlisted company subject to payment of cash to existing shareholders of listed
        transferor company in accordance with determined valuation.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • Board has to ensure to spend 2% of average profits of last 3 years on CSR. Applicable to Companies having net-worth of INR 500 crore or more or Turnover of INR 1,000 crore or more or net profit of INR 5 crore or more. Company also required constituting CSR committee.

Thus, with changing times and also the needs, it is hoped that the new Companies Act opens up new avenues to success and prosperity for Indian Companies as well as boost up Indian Economy.

Regulatory Regime for Oil and Gas Industry in India

Abhinav Gaur, Research Associate

India has always had a rich and long history in Oil & Gas sector. Primarily, oil was struck at Makum in Assam in the year 1867. Then, first oil discovery put to commercial benefit was made in Digboi in 1889. In the times of pre-independent India, the Assam Oil Company and Attock Oil Company were the only oil companies producing oil in the country, with minimal exploration input. It is interesting to note that while the Industrial Policy Statement of 1948 was being framed, the development and sustenance of petroleum industry in the country was pointed out to be of utmost necessity ((Profile Of The Indian Oil & Gas Sector, http://www.ibef.org/download/oilandgas_16May_08.pdf)).

Oil and Natural Gas Commission was constituted in 1956. Government of India in July 1991worked to liberalize economic policy, by means of deregulating and de-licensing the core sectors, inter alia, petroleum sector with partial disinvestments of government equity in Public Sector Undertakings and other measures. Various researches suggest that Indian oil and gas sector is one of the six core industries in India and has very significant forward linkages with the development entire economy ((S. Parashar, “Legal Aspect of Oil and Gas Sector” available at http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3b9928f3-1807-4916-b783-33b3c38992db&txtsearch=Subject:%20Oil%20And%20Gas (last viewed on 20 August 2013).)).

CURRENT SCENARIO

India’s domestic consumption of petroleum products had increased by 965 MMbbl in 2009-10, to 1.03 Bbbl in 2011-12. India has 4% of world’s sedimentary basins.

A brief of a report on E&P activity by three of the leading oil and gas operators (ONGC, CAIRN Energy, and Reliance Industries) in India conducted by World Oil online ((PramodKulkarni, http://www.worldoil.com/March-2013_regional_report_india.html))suggests that India’s role in the global oil and gas arena is that of a major importer. Geopolitics and economic uncertainties have made even that role increasingly complex and difficult. Sanctions against Iran have forced India to begin the process of diverting imports from Iran to other countries, such as Saudi Arabia. While Qatar is a major supplier of LNG for India, two other sources appear to be Australia and U.S.

Oil and Gas sector is divided into three parts: upstream, midstream and downstream.Theupstreamoil sector is a term commonly used to refer to the searching for and the recovery andproductionofcrude oilandnatural gas. The upstream oil sector is also known as the exploration and production (E&P) sector. The upstream sector includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring thecrude oiland/or rawnatural gasto the surface.The midstream industry processes, stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (LNGs, mainly ethane, propane and butane) and sulphur. Generally midstream is clubbed with downstream industry.The downstream sector includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies. The downstream industry touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, natural gas and Propane.

POLICIES AND REGULATIONS

The policies framework of oil and gas sector has forever been as dynamic as its demand in market, and thus, over the years various policies have been implemented by the Government to regulate and develop it. The Petroleum Act to control issues relating to import, transport, storage, production, refining and blending of petroleum was already in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and production of Oil & Gas.

Under the aegis of administrative control of the Ministry of Oil and Natural Gas, The Directorate General of Hydrocarbons (DGH) was set up in April 1993, as an upstream advisory and technical regulatory body to help the promotion of effective management of domestic oil and gas resources by not compromising with the environmental safety, technological and economic aspects of upstream activities. In September 2006, the DGH was designated as an authority or agency to exercise statutory powers to carry out its functions under the Oil Fields (Regulation and Development) Act, 1948.

Hydrocarbon Vision 2025exuberates upon regulatory policy which aims to guide the policies relating to the hydrocarbons sector for the next 25 years. The policy addresses issues such as E&P, refining, marketing, external policy, oil security, tariff and pricing, and restructuring and disinvestment. Also, ensures that an optimal mix of energy resources is made available to the consumer at fair price. Eleventh Year Plan, this plan was developed on the premise that availability and access to energy are considered as catalysts for economic growth. The envisaged growth of the economy at 9% in the Eleventh Plan cannot be achieved without a commensurate increase in the availability of energy. The policy issues that need to be addressed in the petroleum and natural gas sector relate to oil and gas security, pricing of petroleum products, pricing of domestically produced natural gas and its allocation to the power and fertilizer industry, ensuring competition and open access in the pipeline transportation and distribution grid, and conservation of petroleum products and natural gas.New Exploration Licensing Policy (NELP),the most prominent features of the facilities offered by the Government inter alia include, such as, no signature, discovery or production bonus by the bidder; income tax holiday for seven years from the start of commercial production, no customs duty on imports required to be payable for petroleum operations, biddable cost recovery limit up to 100 per cent, royalty to be payable by the contractor on ad voleram basis, freedom to the contractor for marketing of oil and gas in the domestic market, fiscal stability provision in the contract and incentive for deepwater exploration with only half of the royalty payable in the initial seven years from the beginning of commercial production.

FOREIGN INVESTMENT POLICY IN OIL AND GAS SECTOR

NELP has kept the Indian oil and gas fields open for investment in domestic private and foreign entrepreneurs under its framework. Foreign Direct Investment has been made permitted upto 100% in discovered small and medium sized fields, of course through competitive bidding, petroleum products and pipeline sector, permitted for natural gas/LNG pipeline with prior government approval, through automatic route in infrastructure related to marketing and marketing of petroleum products, market study.

For actual trading and marketing, minimum of 26% Indian equity is required over 5 years.

REGULATORY BODIES

Petroleum and Natural Gas Regulatory Board

The Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April, 2006. Consequently, Government has set up in October, 2007, the Petroleum and Natural Gas Regulatory Board (PNGRB) to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas, excluding production of crude oil and natural gas. The aim is to protect the interest of consumers and entities engaged in specific activities relating to petroleum, petroleum products and natural gas and to ensure uninterrupted and adequate supply of these products in all parts of the country and to promote competitive markets and for matters connected therewith or incidental thereto.

Directorate General of Hydrocarbon

The Directorate General of Hydrocarbons (DGH) was established under the administrative control of Ministry of Petroleum & Natural Gas by a Government of India Resolution in 1993 to promote sound management of the Indian petroleum and natural gas resources having balanced regard to the environment, safety, technological and economic aspects of the petroleum activity and to review the exploration programmes of companies and advise the Government on the adequacy of these programmes.18

Following are the functions of DGH :

“(a) To provide technical advice to the Ministry of Petroleum and Natural Gas

(b) To review the exploration programmes of companies

(c) To reassess the hydrocarbon reserves discovered and estimated by the operating companies in discussion with them;

(d) To advise the Government on the offering of acreages for exploration to companies as well as matters relating to relinquishment of acreages by companies;

(e) to review the development plans for commercial discoveries of hydrocarbon reserves proposed by the operating companies.

(f) To regulate the preservation, upkeep and storage of data and samples pertaining to petroleum exploration, drilling, production of reservoirs etc.

LAWS PERTAINING OIL AND GAS INDUSTRY

• Upstream Sector

The upstream sector is also known as the Exploration and Production of Oil and Gas. Following are the laws which are directly related to the upstream sector.

Constitution of India: Entry 53 of List I

“Regulation and development of oilfields and mineral oil resources; petroleum and petroleum products”

Constitution of India: Entry 25 of List II

“Gas and Gas Works

Oilfields (Regulation and Development) Act, 1948

Basic enabling statute for licensing and leasing of petroleum and gas blocks by the appropriate government. Covers mineral oils which are defined as including natural gas and petroleum [S.3(c)]. Mining lease is defined exhaustively to cover all forms of exploring and exploiting mineral oils and all purposes connected thereto [S.3(d)]

Empowers central government to make rules with regard to mining leases [S.5]

Also empowers central government to make rules for the development of mineral oil [S.6]

Petroleum and Natural Gas Rules, 1959

Rules provide framework for grant of exploration licenses and mining leases

Salient features of the Rules :

Prohibition on prospecting and mining except under a license or lease granted under the rules [Rule 4]

Central Government has the power to grant licenses or leases in respect of any land vested with it or minerals underlying the ocean within the territorial waters or the continental shelf [Rule 5(i)]

State government has power to grant license or lease over lands vested with it [Rule 5(ii)]

Person obtaining exploration license obtains the exclusive right to a lease for producing (i.e. extracting) oil/gas over any part of area covered in license

Territorial Waters, Continental Shelf, Exclusive Economic Zone And Other Maritime Zones Act, 1976

Article 297 of the Constitution vests resources found in these areas with Central government. No exploration in the Continental shelf and exclusive economic zone permitted without Central Government’s permission

• Downstream

Land acquisition Act, 1894

The law deals with the acquisition of land for Public purpose. The Act is a general Act which deals with the procedure and the conditions under which a land can be acquired.

The only requirement is that the land can only be acquired for public purpose as per Section 3(f) of the Act.

The Petroleum Act, 1934

The act deals with import, transport, storage, production, refining, and blending of petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act the rules regarding the above specified activities were separate for separate States. This Act brought about uniformity in this field.

The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act, 1962

The Act provide for the acquisition of right of user in land for laying pipelines for the transport of petroleum and minerals.

Section 3- Publication of notification for acquisition, Section 5 Hearing of objections

Petroleum and Natural Gas Regulatory Board Act, 2006

The Act provide for the establishment of Petroleum and Natural Gas Regulatory Board to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to promote competitive markets and for matters connected therewith or incidental thereto.

Comparative Analysis of Companies Act, 1956 and Companies Act, 2013

Sibani Panda, Research Associate

The new Companies Bill has received the President’s assent on August 29, 2013 and the Companies Act, 1956 which was replaced by the recent companies act has brought about some drastic changes in several areas of company administration and management.

OVERVIEW OF THE COMPANIES ACT, 1956 AND THE COMPANIES ACT, 2013

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HIGHLIGHTS OF THE COMPANIES ACT, 2013

  • The Act, of 2013 has 470 sections as against 658 Sections in the Companies Act, 1956.
  • The entire Act has been divided into 29 chapters.
  • Many new chapters have been introduced such as Registered Valuers (ch.17); Government companies (ch. 23); Companies to furnish information or statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal (ch. 27); Special Courts (ch. 28).
  • The Act is forward looking in its approach which empowers the Central Government to make rules, etc. through delegated legislation (section 469 and others).
  • The Companies Act, 2013 is the result of detailed consultative process adopted by the Government.

COMPARATIVE ANALYSIS

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Indigenous Knowledge in Environmental Protection and Intellectual Property: Striking a balance

Evangelia Linaki, Research Associate

In view of the International Day of the World’s Indigenous Peoples on 9 August, it is a good opportunity to reflect on the contribution of Indigenous Peoples and the major current challenges they have to face. One hotly debated issue is that of the protection of indigenous knowledge under the Intellectual Property (IP) regime. In other, words, is IP law capable of providing the holders of indigenous knowledge with the required protection and, if not, is it flexible enough to accommodate the new challenges? Within this framework, this research paper will try to deal with such question within the context of environmental protection. As a first step, there will be an effort to identify the characteristics of the term “indigenous knowledge”, whereas an overview of the contribution of Indigenous Peoples to the effort of protecting the environment will be given. Subsequently, the several tendencies as to the role of IP with regard to the protection of indigenous knowledge will be outlined and, instead of a conclusion, speculations on the possible conflict between indigenous knowledge protection and the human right to a healthy environment will be provided.

Indigenous knowledge

The definition of indigenous knowledge, sometimes referred to as “traditional knowledge”, is nowhere to be found and even within the context of IP can have several interpretations ((Brush, Stephen B., Indigenous Knowledge of Biological Resources and Intellectual Property Rights: The Role of Anthropology, 93 American Anthropologist 653, at 660 (1993).)). For the purposes of IP, it is important, though, to decide what kind of products of the mind would fall within this term and for this reason one should bear in mind the definition enshrined in the Draft Articles on the Protection of Traditional Knowledge, in which the 24th session of the World Intellectual Property Organisation (WIPO) Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC) resulted. According to draft Article 1, traditional knowledge should encompass “know-how, skills, innovations, practices, teachings and learning” developed by indigenous communities ((Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore, The Protection of Traditional Knowledge: Draft Articles Rev. 2, 26 April 2013, available at http://www.wipo.int/edocs/mdocs/tk/en/wipo_grtkf_ic_24/wipo_grtkf_ic_24_facilitators_document_rev_2.pdf (accessed 18/8/2013).)). Indigenous knowledge is considered to be dynamic, evolving, intergenerational, in codified, oral or other forms, associated with fields such as agricultural, environmental, healthcare, indigenous and traditional medical knowledge, biodiversity, traditional lifestyles, natural and genetic resources, know-how of traditional architecture and construction technologies ((See id.)).

Indigenous knowledge and the environment

One of the features that compose the identity of Indigenous Peoples is their connection with their land to the point that the environment itself can demonstrate the kind of relationship and interaction that exist between the environment and such peoples ((Mwaura, Peter (ed.), Indigenous Knowledge in Disaster Management in Africa, at 29 (2008), available at http://www.icsu.org/icsu-africa/news-centre/news/Appendix9IndigenousBookletUNEP.pdf (accessed 18/8/2013) and Drahos, Peter, When Cosmology meets Property: Indigenous People’s Innovation and Intellectual Property, 29 Prometheus (Routledge) 233, at 236-239 (2011).)). Even one of the few legally binding instruments concerning Indigenous Peoples Rights – the International Labour Organisation Convention No. 169 on Indigenous and Tribal Peoples – obliges States-parties to respect the relationship of those peoples with their lands or territories ((International Labour Organisation (ILO), Convention concerning Indigenous and Tribal Peoples in Independent Countries (No. 169), Article 13 (1989), available at  http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO:12100:P12100_ILO_CODE:C169 (accessed 18/8/2013).)). However, the non-binding but of great importance Declaration on the Rights of Indigenous Peoples incorporates in its preamble the recognition of the urgent need to respect and promote the rights of Indigenous Peoples, especially those stemming from their lands, territories and resources ((A/61/L.67 and Add.1 (2008), Para. 7 of the Preamble, available at http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf  (accessed 18/8/2013).)).

Due to such close relationship with the environment, Indigenous Peoples have developed several practices and methods, which aim at the preservation of specific resources but have wider positive repercussions on the holistic protection of ecosystems ((See Mwaura, supra note 4, at 33-34)). The contribution of Indigenous Peoples can only be clarified through examples. A first example is that of a technique of fire management in the Arnhem Land, Australia. In short, the Indigenous Peoples of the area tend to burn several patches throughout the dry season, when the moisture of the grass has fallen, with the aim of stimulating the further growth of the grasses without posing any fire danger to people, trees or insects ((See Drahos, supra note 4, at 240.)). It has been estimated that such practice contributes to the overall preservation of the environment, such as in terms of biodiversity and rare fauna ((See id., at 240-241)).

The knowledge held by Indigenous Peoples has proved to be valuable for the isolation of specific compounds within biological resources ((An example is the identification by the Bela community of the special resistance to diseases of a specific kind of wild rice growing in Mali, which in turn helped researchers isolate and clone a gene conferring this kind of resistance to rice plants (World Intellectual Property Organisation (WIPO), Intellectual Property and Traditional Knowledge, Booklet No. 2, at 6, 9, available at http://www.wipo.int/export/sites/www/freepublications/en/tk/920/wipo_pub_920.pdf (accessed 18/8/2013).)), whereas knowledge on sustainable irrigation can be found in Oman and Yemen through the aflaj traditional water system, as well as on migration patterns of several species in the Hudson Bay region ((See id., at 5.)). Additionally, the simple tools used in cultivation and land clearing contributes to the preservation of large forests and protects against soil erosion in several parts in Africa, whereas the method of controlled grazing ensures that vegetation is not overexploited ((See Mwaura, supra note 4, at 35-36, 40.)).

What is certain is that the well-being and existence of Indigenous Peoples is dependent upon the environment in which they live and conduct their activities and, for this reason, they are highly interested in sustainable development and environmental preservation for the present and future generations ((Jones, G’Nece, The Importance of Indigenous Knowledge and Good Governance to Ensuring Effective Public Participation in Environmental Impact Assessments, International Society of Tropical Foresters, Special Report March 2012, at 6, available at http://www.istf-bethesda.org/specialreports/Jones/Indigenous_Knowledge_and_EIAs.pdf (accessed 18/8/2013).)).

Indigenous knowledge and IP

In a nutshell, what is sought from indigenous populations consist is the recognition and respect of the rights of the holders of indigenous knowledge ((See WIPO, supra note 10, at 11)), as well as the prevention of unilateral and non-consensual exploitation and appropriation of such knowledge by third parties ((Zerda-Sarmiento, A. and Forero-Pineda, C., Intellectual Property rights over ethnic communities’ knowledge, 54 International Social Science Journal  99, at 103 (2002).)). Moreover, especially within the context of environmental protection, Indigenous Peoples are concerned with the potential misinterpretation of the information they provide ((Stevenson, Marc G., Indigenous Knowledge in Environmental Assessment, 49 Arctic 278, at 283 (1996).)). The core problem was concisely articulated by an Aboriginal artist in Australia, Wandjuk Marika, in 1976, who saw his art reproduced on towels without his permission: “We are only asking that we be granted the same recognition, that our works be respected and that we be acknowledged as the rightful owners of our own works of art ((Anderson, Jane, The Making of Indigenous Knowledge in Intellectual Property Law in Australia, 12 International Journal of Cultural Property 1, at 7 (2005).)).”

Indeed, IP law does not make any reference to Indigenous Peoples and it was only in 1998-1999 that WIPO carried out fact-finding missions in several parts of the world to report on all the relevant issues on Traditional Knowledge and IP ((World Intellectual Property Organisation (WIPO), IP Needs and Expectations of Traditional Knowledge: WIPO Report on Fact-Finding Missions on Intellectual Property and Traditional Knowledge (1998-1999), at 16-17 (2001).)). Within this report, it is acknowledged that IP law is not capable of protecting several forms of traditional knowledge for the most fundamental reason that “knowledge or information is not per se protectable under IP ((See id., at 215-216.)).”

Within the same spirit, it has been suggested that IP law is not the most suitable regime to provide the required protection to indigenous knowledge, because IP rights concern commodities, whereas indigenous knowledge refers to practices and innovations that take place at the open environment, produce intangible results, such as the preservation of biodiversity and the environment, and are, thus, difficult to be measured in terms of economical revenues ((See Drahos, supra note 4, at 243.)). Moreover, this issue, in general terms, reflects, is owed to and brings to the surface the conflict between the subjective character of indigenous knowledge and the objective standards of protection that IP law aims at promoting and consolidating ((Maskus, Keith E., Reichman, Jerome H., International Public Goods and Transfer of Technology under a Globalised Intellectual Property Regime, at 541 (2005).)).

At a more practical level, as far as patents are concerned ((A patent is an exclusive right granted for an invention, being a product or process that offers a new technical solution to a problem. (See WIPO Report, supra note 18, at 35-38).)), it has been suggested that this system does not seem to benefit Indigenous Peoples in view of the fact that it does not allow co-extensive ownership over a resource ((See Drahos, supra note 4, at 244-245.))and exclusiveness over a resource might not be feasible within an indigenous community, where everything is usually shared or, for example under the method of shifting cultivation, farmers move from one part of land to another. Furthermore, from an income perspective, the patentees receive only minor revenues ((See id.)). In addition, it has been pointed out that the patent system fails to provide indigenous knowledge with the long-term protection it requires due to the fact that such system, on the one hand, was not created to protect forms of intellectual products whose value cannot be measured in terms of money and, on the other, because the protection lasts for a certain time ((Marinova, Dora, Raven, Margaret, Indigenous Knowledge and Intellectual Property: A Sustainability Agenda, 20 Journal of Economic Surveys 587, at 592 (2006).)). Lastly, patents can even pose a danger to indigenous knowledge in the case in which such knowledge has been used and made public, disguised in scientific or other terms, since patent protection cannot be provided once knowledge is found in the public domain ((See id., at 594.)).

As far as copyright system is concerned ((Copyright provides the author of literary, musical, architectural, artistic, audiovisual works and maps drawings with the right not to allow reproduction, adaptation, translation, broadcasting or performance of his work. The rights are vested in the author automatically and subsist for a period of 50 years after the death of the author. (See WIPO Report, supra note 18, at 34-35).)), it should be mentioned that it was India who proposed at the 1967 Stockholm Diplomatic Conference for the revision of the Berne Convention for the Protection of Literary and Artistic Works the inclusion of folkloric works within the list of items to be protected by the Convention, but due to the inability of agreement on the definition of the term “folklore” this idea was abandoned ((Zografos, Daphne, Intellectual Property and Traditional Cultural Expressions, at 12-14 (2010).)). It has been pointed out that, just as with patents, copyright cannot provide protection for intellectual works that have already been published and can be found in the public domain ((Ricketson, Sam, The Berne Convention for the Protection of Literary and Artistic Works: 1886-1986, at 315 (1987).)), whereas the Berne Convention itself does not provide the chance to Indigenous Peoples to exercise their rights directly ((See Zografos, supra note 28, at 14.)).

However, there have been suggestions regarding the possible adjustment of IP laws or the use of existing IP frameworks. As for copyright, it has been suggested that the copyright duration should be adapted, as well as the notion of ownership, in order to recognise collective ownership – which could become possible through the abatement of the requirements for joint authorship ((Carpenter, Megan M., Intellectual Property Law and Indigenous Peoples: Adapting Copyright Law to the Needs of a Global Community, 7 Yale Hum. Rts. & Dev. L.J. 51, at 63, 67-68, 70-71 (2004).)). Additionally, trademarks seem to provide a good solution, as their acquisition costs less, does not require scientific expertise and there is no exclusive use of a resource or a spot ((See Drahos, supra note 18, at 246.)). Lastly, another alternative could be that of voluntary accreditation or certification of indigenous knowledge ((See id., at 247.)), with the tangible example of the multinational cosmetics company Aveda Corporation and the exporter of Australian sandalwood oil Mt. Romance, who agreed to grant $50.000 each to the Kutkabubba Aboriginal community for sharing their knowledge and land ((See Marinova & Raven, supra note 25, at 599-600.)).

Any analysis on this issue would remain incomplete without reference to the works of the WIPO IGC. After the conduct of fact-finding missions in 1998-1999, the IGC was created in 2000 with the aim of hosting and promoting negotiations, which will culminate in the adoption of one or more legal instruments on the protection of Traditional Knowledge ((WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC), available at http://www.wipo.int/tk/en/igc/ (accessed 18/8/2013).)). Since 2000, negotiations are still ongoing with regard to the the Draft Articles on the Protection of Traditional Knowledge. In a nutshell, the direction embraced so far is that of positive and defensive protection, where the former refers to the recognition and right of the holders of traditional knowledge to exercise rights with regard to action or remedies against misuse of such knowledge and the latter to the prevention of illegitimate IP rights on traditional knowledge ((See WIPO Handbook, supra note 10, at 12.)). Criticism, though, has come from the indigenous representatives, who requested further enhancement of their participation in the procedures; the definition of traditional knowledge has been criticised for lack of clarity, whereas ownership by Indigenous Peoples is thought to create implications with regard to the notion of public domain and the right to knowledge ((Janke, Terri, Iacovino, Livia, Keeping Cultures Alive: Archives and Indigenous Cultural and Intellectual Property Rights, 12 Arch Sci 151, at 157 (2012).)).

Final Remarks: A Human Rights Perspective

One of the aims of IP law is to balance the authors’ rights and the rights of the public ((See WIPO Report, supra note 18, at 32.)). Within the given context, does the protection of indigenous knowledge interfere with the right of every individual to a healthy environment?

It should be mentioned that such human right cannot be found in any of the legally binding international human rights instruments, such as the International Covenant on Civil and Political Rights ((UN A/HRC/22/43 (2012), at 6.)). However, this should not mean that such a right does not exist, since it was first formulated on an international level with Principle 1 of the 1972 Stockholm Declaration on Human Environment and it is established under many regional instruments, such as the African Charter and the Additional Protocol to the American Convention on Human Rights ((See id. For more information on the right to a healthy environment see also UN A/HRC/19/34 (2011), Giorgetta, Sueli, The Right to a Healthy Environment, Human Rights and Sustainable Development, 2 International Environmental Agreements: Politics, Law and Economics 173 (2002), Boyd, David R., The Implicit Constitutional Right to Live in a Healthy Environment, 20 RECIEL 171 (2011) and Postiglione, Amedeo, Human Rights and the Environment, 14 The International Journal of Human Rights 524 (2010).)).

With regard to the abovementioned question, it is suggested that such conflict cannot be presumed, as the Indigenous Peoples are highly interested in preserving an environment upon which their survival and everyday life is dependent. Since such peoples already conduct their activities with due caution to environmental preservation, they simultaneously contribute to the enjoyment of the human right to a healthy environment by every individual. As it was mentioned, this happens exactly because their practices have a holistic impact on the environment. In conclusion, from this perspective, there does not seem to be a real need for balancing between authors’ rights and public interests, since indigenous knowledge, even when accredited to an indigenous population, has immediate impact on environmental preservation.

The issue encompasses a number of complex questions and the solution to indigenous knowledge protection should not only be sought in IP regimes but under other branches of international law, such as International Human Rights Law.

Limited Liability Partnership: India’s Touching New Milestones

Author: Abhinav Gaur, Research Associate

The concept of Limited Liability Partnership has been a recent phenomenon in India, introduced in India by way of the Limited Liability Partnership Act, 2008. A Limited Liability Partnership, popularly known as LLP is an amalgamation of the advantages of both the limited liability of a Company and dynamics of a Partnership into a single form of organization with low compliance costs. The LLP concept stands witness to developments and adaptations in many other countries like United Kingdom, USA, various Gulf countries, Australia and Singapore.

In an LLP a partner is not responsible or liable for another partner’s misconduct or negligence. In an LLP, all partners have limited liability for each individual’s protection within the partnership, as to that of the shareholders of a limited company. However, unlike the company shareholders, the partners have the right to manage the business substantially and directly. An LLP also restricts and limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP’s employees or other agents.

Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

LLP STRUCTURE: A BOON

The concept of L.L.P. in India certainly has innumerable advantages over proprietorships, partnerships and limited companies, as elaborated below.

  • Limited Liability: The most attractive and most looked for benefit of trading/doing business via LLP is the limited liability conferred upon the partners. As a sole trader or partnership business, personal assets of the proprietor or partners is always at risk in the event of a failure of the business, but this is not the case when business is an LLP structure. Unlike proprietorship and partnership, if an LLP becomes insolvent and is wound up, only the assets of the LLP are used to clear its debts. The partners of LLP have no personal liabilities and are not made bankrupt.
  • No Audit Requirements: Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.
  • Legal Entity/Status or Recognition: An LLP is a legal entity, a juristic person established under the Act. It has its existence separate from its partners. Corporate entity status enables LLP to be taken more seriously than a proprietorship/partnership status does.
  • Taxation: LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is lower than that of companies, which pay a 33.99% tax on profits. The tax will be imposed only on 10% or 40% of the LLP’s income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. So, there will be no double taxation of income. Unlike Private or Public Companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax.

But, few disadvantages which are associated with this utopian model are:

  • LLP cannot raise funds from Public.
  • Any act of the partner without the other may bind the LLP.
  • Under some cases, liability may extend to personal assets of partners.
  • No separation of Management from owners.

FORMATION OF AN LLP

Pre-requisites for registering a LLP

  • Minimum 2 Partners  (Individual or body corporate)

Partner of LLP can be consisted of Companies incorporated in and outside India LLP incorporated in and outside India Individuals Resident in and outside India.

  • Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India.

A person or nominee of a body corporate, intending to be appointed as      who is appointed as designated partner of LLP should hold a   Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.

  • Digital Signature Certificate

All forms for registration of LLP shall be filed online after signing digitally and for this purpose, one of the designated partners shall take digital signature certificate.

  • LLP Name

Name gives a face to a business, under name and seal of which it    operates its businesses and is recognized in the market. Thus, it     should be ensured selected name should satisfy LLP Name Guidelines of Ministry of Corporate Affairs.

  • LLP Agreement

Like partnership, partners of LLP can frame agreement for defining their terms, profit sharing ratio etc. The basic contents of Agreement are, Name of LLP, Name of Partners and Designated Partners, and Form of contribution, Profit Sharing ratio and Rights and Duties of             Partners. In case no agreement is entered into, the rights & duties as    prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of Companies.

  • Registered Office

The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. A registered office is required for      following purposes. At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered   office with the Registrar of Companies.

Registration of an LLP

The procedure is a five step process, as elucidated below: 

Step- I The number of partners of the LLP should be as stated above.

Step- II The partners should obtain DPIN and Digital Signatures.

Step-III After the finalization of name, an application of name availability has to be filed in form 1 with www.llp.gov.in for approval. It is to be noted that the selection of name is subject to Guidelines issued by MCA.

Step-IV LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days. If no agreement is framed, provisions of Schedule I of the LLP Act shall be applicable.

Step- V The following documents along with required attachments has to be filed with www.llp.gov.in; Form 2, 3, 4.

Above said documents are required to be filed after signing digitally. After verification, registrar will register all documents and issue Certificate of Incorporation.

CONCLUSION

The passing of the Limited Liability Partnership Act, 2008 is a proof of the fact that India is vigilantly ready to meet new dynamics of market across the globe. India from time to time have stood witness to the fact that it is the   recognition of the changing needs of the businesses in today’s times, that keeps an economy flourish not only domestically but also flex its muscles internationally.

If it Act is implemented properly, the introduction of the LLP will provide a helpful new option for professional partnerships which are anxious about their exposure to liability. In view of the growth of Indian Service industry in recent times, LLPs would further contribute to the growth of the service industry and a large number of existing companies, public as well as private, are expected to convert into LLPs with a view to have access to the benefits of the LLP. The Government of India has made an Endeavour to create a facilitating environment for entrepreneurs, service providers and professionals to meet the global competition; however it needs to be seen how far the change is useful.

Copyright infringement and protection

Author: Abhinav Gaur, Research Associate

The first Copyright Act (India) was passed in the year 1914. Currently, the Copyright Act, 1957 governs the copyright law in India. The original Act of 1957 was amended several times like in the year 1983, 1984, 1992, 1994, and recently in 1999.

Section 16 of the Act provides that, ‘no copyright exists in any work, except as provided in the Act’.

The moral basis for protection under Copyright law rests in the Eighth Commandment: “Thou shall not steal”. Philosophy of the Copyright law is: ‘The law does not permit one to appropriate to himself, what has been produced by the labor, skill and capital of the another’.

COPYRIGHT

A copyright is an intangible property, like the trademarks. The subject matter of copyright, the thing which is indeed protected is called ‘work’. Copyright exists in India in various forms:

(a) original literary, dramatic, musical and artistic works

(b) cinematograph film, and

(c) sound recording ((Section 13 Copyright Act 1957)).

No other work, except for the ones above stated, is entitled to copyright protection and entitlement under the Act.

Section 14 of the Act boils down the definition of a Copyright for the purposes of the Act, which is that a Copyright, means the exclusive right to do or authorize the doing of acts in respect of a work or any substantial part thereof.

PROTECTION UNDER THE COPYRIGHT

The under mentioned are the acts, which can be given a copyright:

  • Literary, dramatic or musical work: The owner of copyright has an exclusive right to the reproduction of the work in any material form including the storing of it in any medium by electronic means, to issue copies to the public, to perform or communicate the work to the public, to make cinematograph or sound recording in respect of the work, to translate or make any adaptation of the work ((Section 14 (a)Copyright Act 1957)).
  • Computer programs: As an addendum to the above right, the owner has an exclusive right to sell or give on hire, or offer for sale or hire any copy of the program. The Copyright (Amendment) Act, 1999 has added one more right; i.e., to sell or give on commercial rental or offer for sale or for commercial rental any copy of the program ((Section 14 (b)Copyright Act 1957)).
  • Cinematograph film: A producer of cinematography has an exclusive right to make copy of the film including photograph of any image forming part thereof, to sell or give on hire, or offer for sale or hire any copy of the film, to communicate the film to the public ((Section 14 (d)Copyright Act 1957)).
  • Sound recording: A composer of a sound recording has an exclusive right to make any other sound recording embodying it, or offer for sale or hire any copy of the film, to communicate the film to the public ((Section 14 (e)Copyright Act 1957)).

Often the rights conferred by section 14 upon the author of such work are referred to as the economic rights, because any exploitation of such work by himself or by licensing it for royalty may bring economic benefit to the author.

The fundamental object to come up with the copyright law was to encourage authors, composers and artists to createoriginal works by giving them exclusive right for limited period to reproduce the work for the benefit of the public. Nonetheless, it is a negative right to prevent others from copying their work.

Further, the Act also recognizes moral rights of the author, which exist with the author even after assignment of the work ((Section 57 Copyright Act, 1957)). These rights are also known as the author’s special rights, which are to claim authorship of the work; and to restrain and claim damages in respect of any distortion, mutilation, modification or other act in relation to the work, which is done before the expiration of the term of copyright, if such distortion would be prejudicial to his honor or reputation.

INFRINGEMENT

Above we have discussed the concept of copyright with ‘works’ to which a copyright may be given. Now, we shall understand what if such rights to such works are infringed.

If any of the acts specified in Section 14 relating to the work is carried out by a person other than the owner or without license from the owner or a competent authority under the Act it constitutes infringement of copyright ((Section 51Copyright Act 1957)).

The acts, which constitute infringement, depend upon the nature of the work done. Secondary infringement such as making for sale or hire of, exhibition in public by way of trade of, distribution – infringing copies – is also prohibited and punishable under the Act.

ACTS, WHICH DO NOT CONSTITUTE INFRINGEMENT OF COPYRIGHT

Not all acts committed leads to a copyright infringement. Section 51 gives an exhaustive list of such acts which leads to an infringement of a copyright. On the other hand, Section 52 lays down the exhaustive list of all such acts which does not constitute the infringement of copyright, per se.

To name a few, such permitted acts can be classified as: fair dealing, educational purpose, library and archive use, usage associated with public administration, certain acts carried out by lawful users of computer program.

In respect of computer programs, acts like allowing lawful users to make back-up copies, to decompile program in limited circumstances, to copy and adapt programs in ways consistent with lawful use, are permitted and are not conceived as an infringement of copyright per se.

Creation of a similar work does not infringe the copyright, if it is created independently without copying the original work.

REMEDIES

The Copyright Act lays down the provisions for protection of the work, by conferring certain exclusive rights to the author. The Act provides for civil remedies ((Section 55 Copyright Act 1957))by the way of seeking injunction/damages and this remedy is given to an ‘owner’  ((Section 17 Copyright Act 1957))and not to a ‘prospective owner’. Injunction is an equitable remedy, by way of judicial discretion, depending upon case to case ((R. M. Subbiah v. N. Sankaran Nair, AIR 1979 Mad 56)). If the plaintiff succeeds at the trial in establishing infringement of copyright, he will normally be entitled to a permanent injunction to restrain future infringements ((K. P. M. Sundhram v. M/S RP Mandir, AIR 1983 Del 461; Hawkins Cookers Ltd v. Magicook Appliances Co., 2002 (25) PTC 713 (Del); Himalaya Drug Co. v. Sumit, 2006 (32) PTC 112 (Del); Diamond Comic Pvt. Ltd. v Raja Pocket Books, 2005 (31) PTC 378 (Del).)).

The Act also provides for compensatory civil remedies against infringement of copyright, by awarding damages. The purpose of awarding damage is restoration to the plaintiff as if no damage had been done or as to what his position was before infringement took place. The court ((Microsoft Corporation v. K. Mayuri, 2007 (35) PTC 415))has observed that in cases of blatant infringement, an award of damage may be passed under following three heads:

(a) Compensatory or Actual Damages;

(b) Damages to Reputation;

(c) Punitive Damages.