Article – Page 9

Independence of Resolution Professionals

Authored by Abhirup Dasgupta, Partner and Ishaan Duggal, Associate

The framework for bankruptcy and insolvency resolution in India is guided by the Insolvency and Bankruptcy Code, 2016 (IBC), which governs the provisions pertaining to the re-organization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.

As per the provisions of the IBC, if a company commits a default of a minimum value of INR 1 crore, then its financial creditor, operational creditor or such company itself may initiate the Corporate Insolvency Resolution Process (CIRP) under Chapter II of Part II (Insolvency Resolution and Liquidation for Corporate Persons) of the IBC.

In simple terms, the IBC regime propounds a shift from the ‘debtor in control’ regime to a ‘creditor in control’ regime and provides a mechanism wherein a neutral person is appointed by the Hon’ble National Company Law Tribunal (NCLT) known as the Interim Resolution Professional (IRP), who may be later confirmed as Resolution Professional (RP), to manage the corporate debtor as a going concern along with the committee of creditors for a period of 180 days (which may be extended to maximum 330 days and in exceptional cases, even beyond the said period). During this period, the RP and the committee of creditors attempt to resolve the insolvency of the corporate debtor by handing over the corporate debtor to a buyer entity known as the resolution applicant for a consideration from which the committee of creditors and other creditors recover their dues. In case the RP and the committee of creditors fail to do so, then the corporate debtor is destined to undergo liquidation.

Role of the Resolution Professional

In terms of the definition under the IBC, the RP is an insolvency professional appointed to conduct the CIRP of the corporate debtor and plays an instrumental role by wearing many hats while conducting the CIRP.

In the matter of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors.[1] the Hon’ble Supreme Court of India elucidated upon the role of the RP and observed that it is the responsibility of the RP to manage the affairs of the corporate debtor as a going concern, appoint and convene meetings of the committee of creditors to decide upon resolution plans, and collect, collate and finally admit claims of all creditors, which must be examined for payment by the RP and be finally negotiated by the committee of creditors.

In furtherance of Section 7(3)(b) of the IBC, when a financial creditor files an application for initiation of CIRP against a corporate debtor, then along with such application, the financial creditor has to provide the name of the insolvency professional proposed to act as an IRP of the corporate debtor. Section 9(4) of the IBC relaxes this requirement in case of applications for initiation of CIRP by operational creditors.

IBC Regime: Resolution Professional should be unbiased

With the undeniable significance of the role played by the RP, comes the necessity of the RP being unbiased and fair while conducting the CIRP in a transparent manner. This was also recognized by the Bankruptcy Law Reforms Committee[2] wherein the Committee observed that “As the RP plays a key role in the life-cycle of the insolvency resolution process – from the time of the acceptance of the application, the design and agreement of the repayment plan, to the final execution of the plan – it is possible that unfair conduct of the RP jeopardises the interests of either party”.

The IBC regime attempts to thwart any such element of bias on the part of the RP to seep into the CIRP by articulating clear eligibility criteria to be fulfilled by an insolvency professional for appointment as the RP of a corporate debtor. These eligibility criteria are mentioned under Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). An insolvency professional is considered to be independent if he is eligible to be appointed as an independent director on the board of the corporate debtor under Section 149 of the Companies Act, 2013.

In addition to the above, a RP must make disclosures at the time of his appointment in accordance with the code of conduct which lists down various requirements such as demanding an insolvency professional to necessarily act with objectivity in his professional dealings, ensuring that his decisions are made without the presence of any bias, conflict of interest, coercion, or undue influence of any party, whether directly connected to the insolvency proceedings or not. This code of conduct has been provided under the First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IP Regulations).

Further, in terms of Sections 7(5), 8(5), 10(4) and 16(2) of the IBC, it is imperative that no disciplinary proceedings are pending against the proposed RP. These requirements are sacrosanct to ensure fairness by the RP in spearheading the CIRP.

Judicial intervention

Time and again, the judiciary has been called upon to interfere in the CIRP and adjudicate upon the eligibility of insolvency professionals to be appointed as RPs.

One such instance is the judgment dated July 16, 2018 in the matter of State Bank of India vs. Ram Dev International Ltd[3] wherein the Hon’ble National Company Law Appellate Tribunal, New Delhi (NCLAT) was called upon to decide if the proposed RP was ineligible on the ground that he was on the panel of erstwhile State Bank of Hyderabad, which merged with the State Bank of India (SBI), which is one of the members of the committee of creditors of the corporate debtor. The NCLT opined that the aforesaid made the proposed RP ineligible for appointment as the RP of the corporate debtor. However, SBI contended before the NCLAT that the proposed RP was not on the payroll of the bank and is not an employee – he is a on the panel of lawyers which is generally maintained by the banks, Public Sector Undertakings and Governments, who cannot be treated to be employee of the bank. After hearing the parties, the NCLAT observed that if a RP is empanelled as an advocate/company secretary/chartered accountant with one or other financial creditor, then that cannot be a ground to reject the proposal, if otherwise there is no pending disciplinary proceeding or it is shown that the person is an interested person being employee or on the payroll of the financial creditor. In the present case, the NCLAT held that as the NCLT had failed to take into consideration the aforesaid fact and was required to approve his name as the RP of the corporate debtor.

In this context, a recent judgment dated May 22, 2020 passed by the NCLAT in the matter of State Bank of India vs. M/s Metenere Ltd^[4] is quite relevant albeit laying down a contrary ratio to the previous judgment. In this matter, the question for consideration before the NCLAT was whether an ex-employee of a financial creditor can be appointed as the RP of a corporate debtor. The corporate debtor contended that the proposed IRP worked with SBI, the financial creditor which initiated the CIRP, for 39 years before his retirement in 2016. Hence, there was an apprehension of bias and the proposed IRP was unlikely to act fairly. The corporate debtor submitted that the proposed IRP was still taking pension from SBI which falls within the definition of ‘salary’ under the Income Tax Act, 1961 and is an interested person being an ex-employee and on the payroll, thus rendered ineligible under the IBC to act as an IRP. SBI, being a Financial Creditor, contended that the IBC does not prescribe any disqualification for an ex-employee of a financial creditor from being appointed as an IRP. It was further submitted by SBI that the RP has no adjudicatory powers and only acts as a facilitator in the CIRP. Lastly, it was contended that the proposed IRP is not on any panel of SBI or handling any portfolios and has no role in decision making committee of the bank. After hearing the submissions, the Appellate Tribunal was of the considered opinion that the apprehension of bias expressed by the corporate debtor qua the appointment of the proposed IRP could not be dismissed offhand and the NCLT was justified in seeking substitution of the proposed IRP to ensure that the CIRP was conducted in a fair and unbiased manner.

Conclusion

The role of IRP/RP is critical to the entire CIRP process and the IBC regime has laid down comprehensive safeguards to ensure that the CIRP is conducted by a fair and unbiased IRP/RP. However, the Metenere judgment sets a dangerous precedent and warrants a revisit. The NCLAT has proceeded to uphold an apprehension of bias without thoroughly clarifying the underlying rationale. A one size fits all approach – wherein there could be an inherent apprehension of bias just because the proposed IRP/RP was once working with a financial creditor or the corporate debtor – nullifies the relevance of the disclosures given by the IRP/RP and undermines the oversight role of the Insolvency and Bankruptcy Board of India (IBBI). Additionally, such inherent presumption of bias would open the floodgates for similar litigations wherein the corporate debtor (erstwhile directors, promoters) would impugn the appointment of RPs on similarly presumptuous grounds, which could impact ongoing as well as concluded CIRPs adversely. Hence, it is imperative that a cautious case to case approach is adopted, without any inherent presumption of bias.

[1] 2019 SCC Online SC 1478

[2] The report of the Bankruptcy Law Reforms Committee, Volume I: Rationale and Design (November 2015)

[3] Company Appeal (AT) (Insolvency) No. 302 of 2018

[4] Company Appeal (AT) (Insolvency) No. 76 of 2020

Force Majeure: Impact on Leave and License Agreements

Authored by Rahul P Jain, Khushboo Rupani, Mahafrin Mehta and Asiya Khan

The on-going COVID-19 pandemic which has resulted in the lockdown of all the states and its machinery has given rise to the recognition of the event as a ‘force majeure’ event. Even the Government of India has recognized it as being covered under the term ‘Natural Calamity’ as provided in Force Majeure clause incorporated in its Manual for Procurement of Goods, 2017 and thus it is irrevocable.

One of the worst affected sectors is the Real Estate sector specifically in context with the leave and licenses agreement (LLA) for both residential and commercial. A lot of licensees are either people working in white and blue-collar jobs (being affected to the extent that they are being asked to take a full pay cut or no salary or furloughed or terminated or benched) or are start-up business/business running into losses (on account of statutory restriction put on by Government of India or State Government, as the case may be). This has in turn drastically effected the capacity to pay rent/licensee fees/compensation etc in such a situation. Many individuals or companies who have entered into a LLA are now finding it difficult to pay the rent/licensee fees/compensation. Through this article, we shall talk about the impact of Force Majeure clauses in a Leave and License Agreement.

A license is a personal right granted to a person to do something upon immovable property of the grantor i.e. the Licensor does not amount to the creation of interest in the property itself. It is purely a permissive right to use and occupy the immovable property and is personal to the grantee i. e the Licensee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided. Further, the rights and duties are determined by the terms and conditions of the contract entered by parties, unlike a lease which is governed by the Transfer of Property Act, 1882. The license, when granted has no other effect than to confer liberty upon the licensee to go upon the land, which would otherwise be unlawful.

Most property rental agreements contain such ‘force majeure’ clauses. Residential, Hotel & Restaurant and retail businesses that pay the highest rentals tend to incorporate force majeure clauses in their contracts which would suspend rent payment should any force majeure event occur. However, in the absence of a force majeure clause, the parties may still claim termination of a contract, as an agreement to do an act which becomes impossible after the contract is made, is void. This principle is known as ‘Doctrine of Frustration’.

A license is deemed to be revoked where the property is destroyed or by superior force so permanently altered that the licensee can no longer exercise his right. This provision is similar to the provision set out in Section 108(B)(e) of Transfer of Property Act, 1882 (which governs Lease Deeds) the common ingredients being ‘the property should be destroyed or permanently altered or rendered unfit’. Thus, even a licensee may find it challenging to take recourse to Section 62(d) of the Act, as the present lockdown or pandemic would not result in the destruction or permanent alteration of the property, but only stop it for using or occupying the said property, giving rise to the invocation of Force Majeure Clause r/w Section 32 of ICA, 1872 (if the clause exists) or Doctrine of Frustration r/w Section 56 of ICA, 1872.

The application of the term force majeure depends completely on how the parties choose or agree to define it in their contract. When the event occurred and where the parties are in dispute as to the interpretation of the force majeure clause, the Court would give weightage and focus to what has been agreed exclusively by the parties in the contract and not allow a party to protect itself from a liability arising out of an event, which was not intended in the contract.

However, if the force majeure clauses in leave and license agreements do not contemplate natural calamity or Government directions such as relating to the present lockdown or pandemic itself, then the licensees may find it challenging to claim suspension of their obligations, under Section 32 of ICA, 1872 as the main ingredient for invocation of the said section are (a) Description of the event in a force majeure clause; (b) There is the default in performance of the obligation of the contract, due to occurrence of the event. (c) The default is due to the event being beyond the control of the party invoking the clause and not due to his shortcomings. (d) The parties are required to see whether there is complete impossibility of performing the obligation or if there is only a temporary change in circumstance, which can be cured by an alternative, which may have been stipulated in the agreement. (e) The force majeure clause may not be automatically triggered at the happening of an event but can be invoked only after a point, where the parties have no other alternative to mitigate the loss despite having made all the efforts to allocate the risk, depending on the terms and conditions of the agreement.

Licensees may also face challenges to take recourse to Section 56 of the Indian Contract Act i.e. the Doctrine of Frustration, as the present impossibility caused through the lockdown or pandemic is not permanent and shall not frustrate the entire contract or absolve parties obligations but merely give a time extension to perform the agreement. However, the parties may attempt to show the frustration of contract under Section 56 of the Act by taking a plea that the lockdown prevents them from making use of the licensed premises to run their business, for which purpose the license has been obtained. Since the premises cannot be used for the purpose for which the contract was entered into, it may be argued that the contract stands frustrated. Hence, a licensee, in particular, may seek termination of the agreement based on Doctrine of Frustration” except in case the licensee continues to store its goods in the premises or is residing in the premises and during such period the licensor is not free to make any use or benefit of the premises, as per his volition.

The pandemic has created a severe financial burden on the country and its citizens. The inability to pay the licensee fee/lease rent by a licensee/lessee is a very possible reality, thereby rendering them not able to fulfill the conditions of the Agreement/Deed that they are legally bound to. This will in turn lead to a high amount of litigations in the courts. It is pertinent to note that even if the force majeure clause includes Acts of God or natural calamity then, it needs to be tested if the courts would consider the Pandemic as an Act of God/natural calamity and allow lessees/licensees to suspend their obligations. While interpreting the contracts, the courts are free to take a view based on equity and exercise their inherent powers, as the law which has evolved through various judgments, including the judgments mentioned herein, have never dealt with an unprecedented situation, similar to the present pandemic/ lockdown.

The best way to approach this situation would be for both the parties to the Agreement to sit across the table and come to a workable solution to tackle this unprecedented situation, by (a) deferring of payment of license fee for a few months until the lockdown is lifted, (b) reduction of the amount of license fee for a few months by adjusting the same in the future payable license fee, (c) payment of the suspended license fee by way of feasible installments in the forthcoming months, (d) adjustment of license fee from the security deposit with further understanding to repay the security deposit at a later stage, etc. may help to ease off the burden of the licensees, while, ensuring inflow of income to the licensors.

Applicability of Arbitration Clauses in disputes arising out of Leave and License Agreements

Authored by Rahul P Jain, Khushboo Rupani and Mahafrin Mehta

Arbitration is an alternate dispute resolution mechanism voluntarily chosen by the parties to get their civil/commercial disputes adjudicated upon. It is a well-settled law that an Award passed by an arbitral tribunal can be enforced in the same manner as a Decree passed by an Indian Court. It is pertinent to note that the Arbitration and Conciliation Act, 1996 (A&C Act) does not prima facie exclude a category of disputes which are to be treated as non-arbitrable. However, in case of certain categories of disputes, the Courts refuse to refer the parties to arbitration under Section 8 of the A&C Act.

A license is a personal right granted to a person to do something upon immovable property of the grantor i.e. the Licensor and does not amount to the creation of interest in the property itself. It is purely a permissive right to use and occupy the immovable property and is personal to the grantee i. e the Licensee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided.

Section 52 of the Indian Easement Act, 1882 (Act) defines License as:

“Where one person grants to another, or to a definite number of other persons, a right to do or continue to do, in or upon immovable property of the grantor, something which would, in the absence of such rights, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.”

The essential features of a license are a license is not connected with the ownership of land/property but creates only a personal right or obligation; A license cannot be transferred or assigned; License is purely permissive right, express or implied, and not by adverse exercise or in any other way; It only legalizes a certain act which would otherwise be unlawful and does not confer any interest in the property itself in or upon or over which such an act is allowed to be done.

As per the amended Section 41 of the Presidency Small Causes Court Act, 1882 (PSCC Act), the small causes court shall have exclusive jurisdiction to try all suits/proceedings between a licensor and licensee, or a landlord and tenants, relating to the recovery of possession of any immovable property and/or to the recovery of the license fee or charges or rent. However, the same will not be applicable to suits/proceedings arising out of certain Acts i.e Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the Bombay Government Premises (Eviction) Act, 1955, the Bombay Municipal Corporation Act, the Bombay Housing Board Act, 1948.

The Courts have recognized a distinction between disputes involving rights in rem and those involving rights in personam. It ruled that disputes concerning rights in personam may be decided by a private forum such as an arbitral tribunal but those concerned with rights in rem should be decided by a public court.

The case of A. Ayyasamy v. A. Paramasivam carved out the following two categories of disputes which may not be subject to arbitral proceedings: (i) Disputes falling within the exclusive jurisdiction of a special court under a special statute; and, (ii) Disputes which are generally considered by the courts as appropriate for decision by public fora, for instance, disputes pertaining to rights in rem.

Typically, disputes between Licensor and Licensee under L&L Agreement are in the following areas:

Damage caused to the premises, fittings or misuse thereof & Delay in payment of rent & Unpaid dues and utility bills:

In the matter of Himangni Enterprises v Kamaljeet Singh Ahluwalia, the Hon’ble Supreme Court dismissed the argument that the Delhi Rent Act, 1995, was not applicable to the dispute by virtue of Section 3(1) (c) of the A&C Act and hence it could be referred to arbitration. The Court ruled that the mere preclusion of the application of the Delhi Rent Act did not mean that the A&C Act would automatically apply to the dispute. In such a situation, the rights of the parties would be governed by the Transfer of Property Act, 1882. Further, in the event the exemption in Section 3(1) (c) ceased to apply, the Act would become applicable to the premises. The Court placed its reliance on Natraj Studios (P) Ltd. (supra) and Booz Allen (supra) and ruled that it has already been established that tenant-landlord disputes are non-arbitrable.

However, recently in the matter of Vidya Drolia v. Durga Trading Corp, the Hon’ble Supreme Court has referred the question of arbitrability under the Transfer of Property Act to the Larger Bench, holding that judgment in Himangni Enterprises is required to relook. It observed that there is nothing in the TP Act that shows that a dispute as to the determination of lease cannot be decided by arbitration. It was noted that grounds u/s.111 whether r/w s.114 or 114A can be raised before an arbitrator.

Eviction Proceedings and recovery of possession:

While the law is clear on disputes arising above are governed by special statutes such as the Rent Control Act e.g. In Maharashtra, Section 24 of the Maharashtra Rent Control Act 1999 governs such dispute and as such the jurisdiction to entertain such disputes lie before the Competent Authority. As per Section 44 of the Maharashtra Rent Control Act 1999, the order passed by the Competent Authority is non-appealable and only a revision is allowed before State Government.

In the matter of Natraj Studios (P) Limited Vs. Navrang Studios, a landlord had filed a suit for eviction in the Small Causes Court, Bombay, and the tenant had filed an application under Section 8 of the A&C Act based on the arbitration clause contained in the L&L Agreement between the parties. The Hon’ble Supreme Court rejected the said application filed by the tenant and held, that the suit filed by the landlord for an eviction, was maintainable. It was further held that the disputes of such nature cannot be referred to the arbitrator. The relationship between the parties is that of licensor-landlord and licensee-tenant and the dispute between them relating to the possession of the licensed premises, therefore, the Small Causes Court alone has the jurisdiction and the arbitrator has none to adjudicate upon the dispute between the parties.

In Booz Allen & Hamilton Inc v SBI Home Finance Limited a Division Bench of the Hon’ble Supreme Court laid down a range of disputes to be non-arbitrable including ‘eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction’.

In Central Warehousing Corporation v Fortpoint Automotive Pvt. Ltd, it was held by the Hon’ble Bombay High Court that Section 5 of the A&C Act cannot affect the laws for the time being in force by virtue of which certain disputes may not be submitted to arbitration, as stipulated in Section 2(3) of the said Act¹² and that Section 41 of the Act of 1882 falls within the ambit of Section 2(3). Thus, even if the Licence Agreement contains the Arbitration Agreement, the exclusive jurisdiction of the Small Causes Court under Section 41 of the PSCC Act is not affected. An Arbitration Agreement in such cases would be invalid and inoperative on the principle that it would be against public policy to allow the parties to contract out of the exclusive jurisdiction of the Small Causes Courts.

Premature termination of rent agreement or mutual termination of the agreement:

In the matter of Ashok Thapar v. Tarang Exports (P) Ltd, Hon’ble Bombay High Court has held that an Arbitration Clause survives even when the Leave and Licence Agreement was mutually terminated. After analyzing SMS Tea Estate (P) Ltd. v. Chandmari Tea Co. (P) Ltd. and Magma Leasing and Finance Ltd. v. Potluri Madhavilata, It was held that once parties have intended to refer their dispute to the Arbitrator, then any dispute relating to such agreement must necessarily go to Arbitrator, even if agreement containing such a clause gets terminated by mutual consent.

Return or forfeiture of security deposit:

A dispute arising on account of the above and if the L & L Agreement contains an Arbitration clause then the same can be invoked and the recovery of a security deposit under a Leave and License Agreement can be procced with. In absence of an Arbitration clause in the L & L Agreement, then a Summary Suit under Civil Procedure Code, 1908 is a step available to the Licensee.

In A.S Patel Trust & Ors. Vs. Wall Street Finance Ltd, the Bombay High Court was of the view that any proceedings filed for recovery of the security deposit is not an action in rem but is action in personam and thus Section 41 of the PSCC Act will not be applicable and an Arbitrator will have the jurisdiction to adjudicate upon the subject dispute.

In the matter of RMC Readymix (I) Pvt. Ltd. Vs. Kanayo Motwani, the Hon’ble Bombay High Court has held that a claim for refund of the security deposit as stipulated under an L&L Agreement will not be covered under the provisions of Section 41(1) of the PSCC Act and a summary suit can be filed for the same.

Resolving disputes through alternate dispute mechanisms, such as arbitration are preferred options over litigation in India, especially property-related disputes which have a reputation to continue for years, even decades. Although arbitration agreements are held to be binding over the parties to such agreements, they are held to be void when a statute gives exclusive jurisdiction to a forum to try certain disputes. However, resolving disputes in courts continues to be a prolonged process, and parties in dispute will have to wait for many years for the outcome. Thus, these judgments put to rest the much-debated issue of the validity of arbitration clauses in the L&L Agreement.

HSA Insights – CCI’s approval of acquisition of 9.99% stake in Jio Platforms by Jaadhu Holdings

Execution of foreign award in India

Authored by Rahul P Jain, Khushboo Rupani and Mahafrin Mehta

Being time efficient, procedural, and enforceable, arbitrations as a means of dispute resolution has gained traction in the past two decades across the globe. Having an arbitration clause in commercial contracts, arbitration has become the preferred mechanism for resolving commercial disputes, especially in cross border transactions. In this note, we shall focus on the execution/enforcement of foreign Arbitral Awards in India. For the execution of a foreign award, the successful party has to move an application (a single application shall hold good for enforcement as well for the execution of foreign award) by way of a petition to the court of competent jurisdiction for the enforcement of the award and if the court is satisfied that the award is enforceable then, the foreign award can be proceeded to be executed just like a decree of the court by virtue of the objective laid down in the Arbitration & Conciliation Act, 1996 (Arbitration Act) itself, which states that every final arbitral award shall be enforced in the same manner as a decree of the court. The execution of a decree is governed by Order 21 of the Code of Civil Procedure, 1908.

Section 44 of the Arbitration Act defined a foreign award as an award passed in foreign countries, which are signatories to either the New York Convention or the Geneva Convention; and the Government of India has issued a notification in the official Gazette declaring the said foreign country to be the territory to which the above conventions applied. It is to be noted that a notification under section 44 (b) is passed by the Government of India’s on its satisfaction that reciprocal provisions have been made in the country in which the award is passed.

Section 47 of the Arbitration Act provides that every application for the enforcement of a foreign award under the act shall be accompanied with the original award or the copy of the award as authenticated as per the requirement of the country in which it is made; the original arbitration agreement or a copy of arbitration agreement; And any evidence that is necessary to prove that the award that is rendered is foreign in nature; In case the award is in the local language of the country in which the award is made then an English translation of the award is to be accompanied with the application. The translation is to be verified by the consulate of the country in which it is made.

Section 48 of the Arbitration Act list out the conditions when the Foreign Award cannot be enforced, which include arbitration agreement was not valid under the law to which parties to the agreement were subjected to and parties were not under some legal incapacity in the country in which the said award is made; party to arbitration was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or the party was unable to present the case; the same deal with the differences not contemplated in the submission to arbitration or contains decision on matters beyond the scope of submission to arbitration; the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made; the subject-matter of the difference is not capable of settlement by arbitration under the law of India; the enforcement of the award would be contrary to the public policy of India. If the award is not subject to any of the above conditions, then the Court would order for execution of the said Award.

The limitation period for enforcement of a foreign award would be the limitation period for execution of decrees, as is provided under Schedule I- item 136 of Limitation Act, 1963 i.e., twelve years from when the decree or order becomes enforceable or where the decree or any subsequent order directs any payment of money or the delivery of any property to be made at a certain date or at recurring periods, when default in making the payment or delivery in respect of which execution is sought, takes place: Provided that an application for the enforcement or execution of a decree granting a perpetual injunction shall not be subject to any period of limitation.

Considering the above we can say that there exists is a thorough procedure for the enforcement of foreign arbitral awards in India. To enforce a foreign award effectively and expeditiously in India the award holder should get the award certified by a court in whose jurisdiction the Arbitration took place (i. e competent court). In the first stage, the Court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that foreign award is enforceable it can suo-moto proceed to take further effective steps for execution of the same. There arises no question of making the foreign award as a rule of court/decree again. It can be said that our legal system has a well-established procedure for the enforcement of foreign awards in India.

Deployment of blockchain technology to minimize investment risks in India’s power sector

Authored by: Nived Veerapaneni

The power sector in India has historically been plagued with several challenges that have stymyied investment, innovation and growth. One of the primary concerns voiced by a range of industry stakeholders pertains to weak enforcement of contracts, which creates financial and operational distress that often end up being litigated. The Government of India has also recognized power sector’s concerns around contract enforceability and attempted to address these in the Draft Electricity (Amendment) Bill, 2020, wherein a statutory authority known as the ‘Electricity Contract Enforcement Authority’ is proposed to be set up with the sole responsibility of enforcing power contracts.

Blockchain-based smart contracts are increasingly being seen as a potential solution to help alleviate these concerns, especially in light of them being self-executable, immutable, and transparent. It is imperative to understand certain fundamentals of blockchain technology before we delve into its applicability to the power sector. Broadly speaking, blockchains are underpinned by Distributed Ledger Technology (DLT), which is a manner of record-keeping whereby information is recorded and stored across multiple & identical data stores (ledgers) and is possessed by each of the parties to a transaction. Two core aspects of DLT are as follows:

Peer-to-peer based record: Traditionally, record-keeping has been an activity undertaken by a centralized/nodal entity where the risk associated is limited to a single point of failure that could either emanate from genuine technical difficulties or malicious attacks/malpractices such as tampering. In contrast, DLT enables transactions and data to be recorded, shared, and synchronized in a digital form across a distributed network of various counterparties and participants, making it more resistant to failure.

Removing possibility of ‘double spend’: DLT ensures that the same asset/resource cannot be sent/promised to multiple parties at the same time. Different transactions on the same asset are proposed or initiated by different members (nodes) to ensure correct sequencing of transactions, which also prevents bad or improper transactions.

Blockchain is a type of DLT which employs cryptographic and algorithmic methods to create and verify continuously growing, append-only data structures (blocks) that take the form of a chain (blockchain). New additions to the blockchain can be initiated by nodes which creates a new block of data and information of this new block is time-stamped and shared across the entire network in an encrypted form. Thereafter, all network participants would collectively determine the validity of such block by a pre-determined algorithm-based validation method (consensus mechanism). Once validated, the block is added to the respective blockchain ledger of each participant. In this way, each network member/stakeholder has the complete identical copy of the entire ledger on a real-time basis. Further, these ‘blocks’ cannot be retroactively changed, deleted or amended as a snapshot of each block is contained in its subsequent block. Hence, the blockchain so created becomes immutable and resistant to malicious attacks or malpractices.

Smart contracts based on this technology will not rely on external authorities such as intermediaries to enforce their terms, and can be defined as self-executing contracts, wherein, the pre-negotiated terms of the agreement are directly written into the lines of the code. This codified agreement, once deployed, exists across a distributed, decentralized blockchain network making it immutable, thus eliminating any scope of human error/intervention.

Interestingly, pilot programs employing the use of blockchain technology are already being tested in India to develop peer-to-peer solar power trading platforms. One such instance is BSES Rajdhani Power and Power Ledger partnering with each other to enable residents of a gated community with rooftop solar plants to sell excess solar power to their neighbors, instead of letting it spill into the grid. Another example is Uttar Pradesh Power Corporation and Uttar Pradesh New & Renewable Energy Development Agency partnering with Power Ledger to enable certain government buildings and prosumers to carry out peer-to-peer transactions for the trading of surplus solar rooftop power. Notably, this appears to be India’s first blockchain-based power venture to have received regulatory approval as it has been approved by the Uttar Pradesh Electricity Regulatory Commission.

While blockchain-based smart contracts are being experimented for automation of peer-to-peer transactions in select microgrids, its potential can also be explored for automating and enforcing traditional power procurement arrangements between procuring utilities and power generating companies. By way of an example, the first step towards deploying a blockchain-based smart contract in the power sector could be the pre-negotiated code which is proposed to govern the transaction and is approved by the regulator. Once the code is approved and deployed, the smart contract could potentially automate the entire power procurement process by undertaking activities such as scheduling, dispatch, sale and payment for electricity on a real-time basis, which could potentially reduce the volume of litigations on account of outstanding payments. While this is a very basic example, it is noteworthy that smart contracts based on private permissioned blockchains are extremely scalable and can be coded in such a way that it fits any foreseeable situation.

Blockchain technology is still at an initial phase of development all over the world and the challenges which may crop up, especially from a policy and regulatory perspective, are as yet unknown. However, such smart contracts could indeed be a small step towards reducing risk in India’s power sector.

Execution of decrees in India

Authored by Rahul P Jain, Maaz Hashmi, Khushboo Rupani and Mahafrin Mehta

The expression ‘execution’ means enforcement or implementation of the order or judgment passed by the Court. A Decree means an operation or conclusiveness of a judgment and the execution of a Decree is complete when the decree-holder gets satisfied as to its enforcement against the judgment-debtor i.e. receiving of the awarded amount or property, as the case may be. It is the medium by which a decree-holder compels the judgment-debtor to carry out the mandate of the Decree. To take the benefit of a decree, execution proceedings – an Application under Order XXI of the Code of Civil Procedure, 1908 (CPC) have to be filed before the appropriate court/authority within 12 years from the date of Decree.

Different types of Decrees include Preliminary Decree, Final Decree, Partly Preliminary and Partly final, Consent Decree, Ex-parte Decree, Decree passed in appeal, Decree on a compromise petition, and Conditional Decree – Decree with inbuilt conditions forming part of the Decree. The general rule as laid down under Section 38 of CPC is that ‘the Decree may be executed either by the court which passed it or by the court to which it is sent for execution. The words ‘Court which passed the Decree’ includes courts which passed the Decree (court of the first instance) and courts of the first instance in appellate Decree. The executing court cannot question the validity of a Decree or entertain an objection as to the legality or otherwise of the Decree. It must take the Decree as it stands and executes it according to its terms. The executing court must abide by the directions contained in the Decree.

It is true that an executing court cannot question the Decree and has to execute the Decree as it stands, however, this principle has no operation when the objection is based on the effect of the provision of the Act, which deprived the party of his proprietary rights. In these circumstances, the executing Court can refuse to execute the Decree holding that, it has become inexecutable on the account of change in the law. There are, however, some cases where the executing court can go behind the Decree such as Nullity of Decree, Ambiguous Decree and Decree made without jurisdiction. Once the Decree is obtained, depending on the nature of the case, the Decree-holder can choose its mode of execution of the Decree under Section 51 – 54 of the CPC.

The procedure of Execution (Approximate timelines)

A written application is to be filed in the court that originally passed the decree or the court to which it has been transferred for execution. It shall contain all the essential information such as suit number, name of parties, date of the decree, any appeal preferred or pending, amount due, name of the person against whom execution is sought, and most importantly the mode in which the assistance of the court is required. On filing the Application a lodging number is given for raising of defects – Time limit three weeks from the filing of Application, defects are raised by the registry.
On raising of defects, the Decree holder must remove all defects and get the same certified by the registry – Time limit one week from raising of the defect by the registry.
After the executing court has satisfied itself that all defects if any have been cured in the application and has provisionally evaluated, without prejudice to the right of the parties, the correct amount for the execution of the decree concerning the value of the immovable property, it finally gives a number to the Application for further movement. On obtaining of a final number to the Application, process or a show-cause notice is issued by the registry to the judgment debtor, only if, the execution petition is filed after 2 years of the passing of the decree, or is against a legal representative or assignee or receiver where DH is declared to be insolvent – Time limit two weeks from date of the final number.
Where the person to whom notice is issued under rule 22 does not appear or does not show cause to the satisfaction of the court why the Decree should not be executed, the court shall order the Decree to be executed, by the issuance of Warrant of Sale and/or Warrant of Attachment. Where such person offers an objection to the execution of the decree, the court shall consider such objection and make such order as it thinks fit – Time limit is about four weeks to eight weeks for the hearing to take place and decision of the registry.
Once after the court has decided upon the claims or objections (if any), raised by the judgment debtor, against the execution of a decree, the DH shall move an application requesting attachment of immovable property preceding the sale. Though sale can take place without attachment, this shall further help in protecting the interests of the Decree Holder – Time limit is about two weeks from the decision on claims/objection if any and/or final numbering of the Application, whichever is applicable.
Once the Warrant of Attachment is issued, the same be drawn in writing and posted at a conspicuous place adjacent to the immovable property in question, and also at collector’s office if the said property is a land paying revenue to the government. Besides affixing Warrant of Attachment, it shall be publicly proclaimed with the beating of drums and other means. – The time limit is two weeks from the issuance of the Warrant of Attachment.
Based on the report submitted by the bailiff of Sheriff office, the registry shall issue a Warrant of Sale order in the name of the bailiff to publicly auction as per the details mentioned in the warrant on the date and place specified and report back to court with an endorsement certifying how sale has been executed or the reason why it has not been executed. – The time limit is two weeks from the submission of the report.

Execution of Foreign Decrees in India:

A foreign Decree or judgment needs to be conclusive in nature. Section 13 of the CPC lays down the test for conclusiveness of a foreign judgment or decree, which says that a foreign judgment would be conclusive in all cases except the following:

When a court of competent jurisdiction has not pronounced it
When it has not been pronounced on the merits of the case
When it has been based on a wrong view of international law or a refusal to recognize the law of India in cases in which such law is applicable
When the proceedings carried out while obtaining the judgment are opposed to natural justice
When such a judgment has been obtained by fraud
When it sustains a claim that had been based on a breach of any law in force in India

Thus, a foreign judgment or Decree shall have to pass the seven tests mentioned above. Otherwise, such foreign judgment or Decree cannot be enforced in India as it will not be regarded as conclusive if it fails any of these tests.

There can be various challenges that can come in the ways for executing a Decree smoothly. The challenges that can be faced by the Decree holder are as follows:

Obstructionist proceedings: The provisions contained in Sections 51 to 74 of the CPC deal with the substantive law relating to the execution of a Decree. The numerous rules of Order XXI of the CPC take care of different situations, providing effective remedies not only to the Decree holder, auction purchaser, and Judgment-debtors but also to obstructionists claiming independent rights, title, and interest in the property. If a third-party is effected by the execution of a Decree, such a third party can make an application to the executing Court to resolve its grievances.
Defect in the process of the execution: There can be procedural defects as the application is not properly filed or some details are missed. These are curable defects and the same can be rectified failing which the decree cannot be executed.
Defect in serving the Notice under Order XXI Rule 22: The Notice should be sent to the person against whom the decree is to be executed only if the application for execution is filed after 2 years from the decree. It is mandatory to send a notice as it is a show-cause notice whereby a date is fixed as the person against whom the decree is to be executed should explain as to why the decree should not be executed against him. The notice has to be properly served on the party against whom the decree has to be executed failing which the execution cannot proceed.

It can be summarized that Order XXI of the CPC is an independent code in itself and it not only provides a procedure to be followed by the decree-holder to get the fruits of the Decree but also gives an opportunity to the judgment debtor or the third party/ objection petitioner, to raise the grievances or objection in the execution proceeding itself.

Filing of criminal complaints to settle civil disputes

Authored by Chinmay J Mirji and Charitha V

The last few years has witnessed a significant hike in the number of frivolous criminal complaints being filed to settle civil disputes. Majority of civil disputes related to family inheritance, partitions, property, will execution, disputes between two companies or disputes resulting from a contract between two parties – the general tendency is to lodge a criminal complaint against the opposite party in addition to the filing of civil suits or initiation of arbitration proceedings.

This mechanism of settling civil disputes has been increasingly used for recovery of the alleged outstanding amount payable by one party to another in the course of business transaction bound by contracts. The delay in adjudication of civil disputes has led to converting civil disputes into criminal cases. Further, the quick relief offered by a criminal prosecution as opposed to a civil dispute encourages the litigant to initiate false and vexatious proceedings.

This growing trend of converting pure civil disputes into criminal cases has drawn flak from the courts of India and the same has been upheld by the Hon’ble Apex Court. A summary of the judgments passed by the Hon’ble Apex Court is set out below:

Govind Prasad Kejriwal Vs. State of Bihar & Anr: In the judgement dated January 31, 2020, the apex court has observed that ‘It cannot be disputed that while holding the inquiry under Section 202 of CrPC, the Magistrate is required to take a broad view and a prima facie case. However, even while conducting/holding an inquiry under Section 202 of CrPC, the Magistrate is required to consider whether even a prima facie case is made out or not and whether the criminal proceedings initiated are an abuse of process of law or the Court or not and/or whether the dispute is purely of a civil nature or not and/or whether the civil dispute is tried to be given a colour of criminal dispute or not. As observed hereinabove, the dispute between the parties can be said to be purely of a civil nature. Therefore, this is a fit case to quash and set aside the impugned criminal proceedings.’ Therefore, the underlying principle observed by the Hon’ble apex court is that filing a criminal complaint to settle civil disputes is nothing but an abuse of process of law and the Court.
The Commissioner of Police & Ors Vs Devender Anand & Ors: The Hon’ble apex court vide order dated August 8, 2019 has observed that ‘Even considering the nature of allegations in the complaint, we are of the firm opinion that no case is made out for taking cognizance of the offence under Section 420/34 of IPC. The case involves a civil dispute and for settling a civil dispute, the criminal complaint has been filed, which is nothing but an abuse of the process of law.
M/S Indian Oil Corporation Vs M/S Nepc India Ltd. And Ors: The Hon’ble apex court vide order dated July 20, 2006 has concurred with its order passed in the matter of G. Sagar Suri v. State of U.P, that, ‘it is to be seen if a matter, which is essentially of civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law.’ The bench comprising of Justice H.K. Sema and Justice R V Raveendra while deciding an appeal filed by Indian Oil Corporation, challenging an order of the Madras High Court quashing criminal cases filed by it against NEPC India have sent out a clear warning that ‘Any effort to settle civil claims and disputes which does not encompass any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.’ . Further, the bench has observed that ‘While no one with a legitimate cause or grievance should be prevented from seeking remedies in criminal law, a complainant who initiates or persists with a prosecution being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable at the end of such misconceived criminal proceedings.’
Binod Kumar Vs. State of Bihar: The Hon’ble apex court reiterated the principle of law that criminal proceedings are not to be used as a shortcut for civil remedies and since no case of cheating is made out in any of the FIRs, the petitions are allowed and FIRs was quashed.

The conclusions drawn from all the above-mentioned judgements, essentially stipulates that courts have time and again deprecated the initiation of false criminal proceedings in cases having the elements of a civil dispute. Despite several warning and judgements passed by the Hon’ble apex court against using criminal complaints as a weapon to settle civil disputes, there has been no change in the number of criminal cases being filed. However, it becomes essential to not let such frivolous criminal complaints act as a bargaining weapon to attain a speedy settlement or to get the desired results. Criminal complaints are not to be used as a means to intimidate people to achieve their goals of settling civil disputes. It becomes the duty of the counsels to help uphold the principle of natural justice in the view of the judgements passed by the Hon’ble apex court and make sure that civil disputes given the colour of criminal offence should be quashed and the guilty must be held accountable for abusing the process of law and the courts.

Analysis of the Major Port Authorities Bill, 2020

Authored by Rahul P Jain, Maaz Hashmi and Asiya Khan

The Major Ports Trusts Act came into force in the year 1963 for the constitution of port authorities for major ports in India and to enable the smooth functioning of such ports and to vest the administration, control, and management of such ports in such authorities. With fast-paced growth in trade and the development of private ports, the major ports are facing severe competition. The regulation of tariff by the Tariff Authority under the Major Port Trusts Act, 1963, and their administrative control by the Central Government are some of the critical factors hindering the growth and development of the Major Ports.

Major Ports Authority Bill (Bill) was introduced in the Lok Sabha on March 12, 2020, with an idea that it’s not to privatize major ports but to give them more powers to take decisions in a competitive market. The Bill aims to enable and empower the Major Ports of Chennai, Cochin, Deendayal (Kandla), Jawaharlal Nehru (Nhava Sheva), Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, V.O. Chidambaranar (Tuticorin) and Visakhapatnam, to function with greater autonomy and decision-making power and by modernizing and giving more liberty to the Major Ports by revamping the institutional framework of the Major Ports. The Bill repeals the Major Ports Trusts Act, 1963, and strikes to provide an opportunity to the Major Ports to offer better services and management with effective and new legislation, i.e. the Major Port Authorities Bill, 2020. The bill provides for the following key features:

The Bill is concise consisting of only 76 sections instead of 134 sections, to reduce ambiguity and overlapping of provisions
The Bill aims to reduce the number of members from the present 17-19 members to 11-14 members
It constitutes The Board of Major Port Authority for each Major Port in place of the Board of Trustees, which shall consist of a Chairperson, a Deputy Chairperson, one member each from the concerned State Government in which the Major Port is situated, Ministry of Railways, Ministry of Defence, Customs-Department of Revenue, not less than two and not exceeding four Independent Members, one member not below the rank of Director nominated by the Central Government, ex officio, and two Members representing the interests of the employees of the Major Port Authority shall be members of the Board. Further, to enable the autonomy of the Board of Major Port Authority, they are entrusted with the following among other responsibilities-
- - - To use its lands, property, assets, and funds as it may deem fit for the benefits of the Major Port
    - To create a master plan independent of any local or State Government regulations of any authority whatsoever in respect of any development or infrastructure established or proposed to be established within the limits of the port and the land appurtenant thereto
    - To enter into and perform contracts necessary for the performance of its functions under the proposed legislation
    - To make necessary rules and regulations for the smooth operation, development, and planning of the Major Ports
    - To fix tariff except in natural interest, security and emergency arising out of inaction and default

The Bill provides for the composition of the Adjudicatory Board consisting of a Presiding Officer and two other members, as may be appointed by the Central Government on the recommendations of the Selection Committee consisting of the Chief Justice of India or his nominee, the Secretary of the Department dealing with Shipping and such other persons as may be prescribed. Other than the tariff setting, the Adjudicatory Board will carry out the functions as stated below:
- - - It will continue to carry out function by the erstwhile Tariff Authority for Major Ports, arising from the Tariff Guidelines of 2005, 2008, 2013, 2018 and 2019 and tariffs orders issued by the said Authority
    - It will do the Adjudication of disputes arising amongst the Major Ports, PPP (Public-Private Partnership) concessionaires or captive users for dedicated berth within the framework of their concession agreements and to pass orders after considering and hearing all the parties involved in the dispute
    - The Adjudicating Board will appraise, review the stressed Public-Private Partnership projects as referred by the Central Government or the Board, and suggest measures to revive such projects
    - It will look into the complaints received from port users against the services and terms of service rendered by the Major Ports or the private operators operating in the Major Ports and pass necessary orders after hearing the parties concerned
    - It will look into any other matter relating to the operations of the Major Port, as may be referred to it by the Central Government or the Board, and to pass orders or give suggestions, as the case may be
    - It will lay down the procedure to be adopted by the Adjudicatory Board while discharging its functions, as well as other matters related to funding, accounts, and audit of such Board

It is a welcome move by the Government of India towards maximum utilization of the Ports assets in India along with providing a mechanism for regulation, operation, and planning of Major Ports in India and to vest the administration, control, and management of such ports upon the Boards of Major Port Authorities and for matters connected therewith or incidental thereto. It is also a step towards Decentralizing decision making and infusing professionalism in the governance of major ports by Imparting faster and transparent decision making thereby benefiting the stakeholders and better project execution capability.

VNC Not so automatic FDI from China to India

Yesterday (i.e. on April 22, 2020), the Indian Government came out with the FEMA NDI Amendment Rules (FDI Amendment). These rules govern matters concerning inflow of foreign exchange and foreign direct investment into India and this comes after the government issued Press Note 3 of 2020 on April 18, 2020 (Press Note). Post the Press Note, a notification was expected, and it has now come in the for form this FDI Amendment, which will govern such matters concerning investments into India with effect from April 22, 2020. The theme under both, the Press Note and the FDI Amendment is the same and requires entities from all countries which share a land border with India, to seek ‘prior approval of the Indian Government’ before making any investment in an Indian entity. Since the Press Note was released, there was some expectation of a possible exception being brought about in the FDI Amendment, however, none happened. This requirement of a ‘prior approval’ also applies to any beneficial owner based out of these neighboring countries. India shares its land border with China, along with Afghanistan, Bangladesh, Bhutan, Myanmar, Nepal and Pakistan.

Since then, there has been a lot of noise about this move by India and in light of the lockdown due to Covid-19, the internet is flooded with questions and doubts. This piece along with a Q&A section below explains the position under the FDI Amendment.

Factually, over the last decade or more, maximum investment has flown into India from China versus any other country. Therefore, primarily, the FDI Amendment seems to add an additional layer of screening for investments emanating from China. As per the Indian government department, DPIIT, during the 2000 to December 2019 period, of the total FDI received from these neighbouring countries, China contributed approximately about 99% of FDI, a large portion of which went to Start-ups. In the recent years, Chinese VC Funds have increasingly been a source of funds for Indian Start-ups. This is evident from the fact that during April 2000 to March 2018, FDI inflow from China grew at a CAGR of 23%, showcasing an exponential growth. As per reports, 18 out of the first 30 unicorns in India are funded by Chinese. Indian companies who have significantly benefitted from Chinese support include Snapdeal (US$700 million), Udaan (US$600 million), Ola, Paytm and Swiggy (US$500 million each), Flipkart (US$300 million), BigBasket (US$250 million) Zomato (US$200 million), etc.

Until this amendment, excepting in the prohibited or sensitive sectors, India had allowed investments from all these seven countries including China, under the automatic route, however, with additional lawyers of scrutiny in various circumstances, for Pakistan and Bangladesh.

The intention showcased by the Indian Government in the FDI Amendment is to curb opportunistic takeovers and acquisitions of Indian companies due to the current pandemic, however, the language seems to require a prior approval for all kinds of investments which shall include fresh investment into India, or a follow-on investment, or even a transfer of existing shareholding to another company based out of the above countries.

Various industry bodies including companies and investors in India and China have already reached out to the government seeking various types of clarification on the Press Note as well as the FDI Amendment.

Answers to some of the common yet critical Questions being asked, are as follows:

Is Chinese FDI into India prohibited?

What is important to note is that this FDI Amendment does not suggest a ban or prohibition on investments from China. Instead, it suggests the requirement of a government approval prior to brining in any investment from China. Typically, such kind of government approval takes between six to eight weeks to get processed. In case the investment is in any sensitive sector (such as defence, telecom, information and broadcasting etc.), there could be an additional time frame of another six to eight weeks. This will certainly add to the timelines of a transaction and may also increase, although marginally, the cost of making an investment due to the involvement of an approval process.

Is there any criteria on the basis of which a application will be evaluated for approval?

Currently, no such criteria has been laid down under the FDI Amendment. Typically, such process involves providing sufficient details about the target company, the investor and details about the investment amounts, stakes, process and timelines in the application. Ideally, these applications should be drafted by lawyers.

Does this impact only FDI or does it include investments under FPI, AIF and VC routes?

The intention of the Government through the Press Note as well as the subsequent FDI Amendment seems to be to cover any form of investment, be it under the FDI, FPI, VC or AIF route. A subsequent Notification by the Indian Government is expected in the coming weeks, which may bring out the finer details of what all is explicitly covered and what could be excluded. Currently, all forms of investments seem to be covered under the ambit of this FDI Amendment and therefore will require a prior approval of the government.

Will an existing Chinese investor also require approval to further capitalise its subsidiary?

Yes, as per the current FDI Amendment, an existing investment from China will also require a prior approval to further capitalise its subsidiary. There are no exceptions provided under the FDI Amendment for existing shareholders. Therefore, a follow-on investment by existing shareholders from China (regardless of past commitments under written contracts or business plans) will also require approval and therefore, investors should factor in additional time for transactions.

Will this cover greenfield investments also or only brownfield investments?

The FDI Amendment will be applicable to any kind of an investment, be it greenfield or brownfield. And therefore, even if it is an investment into India for starting a fresh business (greenfield) or it is a buy-out of existing Indian business (brownfield), both will require an approval of the government prior to making such investment.

Are there any minimum or maximum threshholds that are allowed with prior approval?

No, there are no threshholds which are allowed. Therefore, even 0.1% stake will require a prior approval.

A Chinese company has a UK subsidiary. Will the UK subsidiary also require prior approval for making investment into India?

Yes, if a beneficial owner of any investor is based out of China, its investment will also require a prior approval. Currently, the term ‘beneficial owner’ has not been explained under the FDI Amendment. While there is currently no clarity on the same, however, it is likely that the meaning under the (Indian) Companies Act, 2013 will need to be borrowed for the purposes any assessment.

Will investment from Hong Kong or Macau also require a prior approval?

While the FDI Amendment does not specify this, however, it is likely that the intent is to cover investments from Hong Kong or Macau also under the government approval route. In fact, investments from Taiwan may also be affected, however, specific clarity on this must be sought from the Government of India.

Is there any exclusion for smaller investments in Indian Start-ups?

No, there is no exclusion for making investments in Indian Start-ups. Any investment in any Indian Start-up will require a prior approval of the government.

If certain corporate actions were already initiated by the Indian company for an investment from China, will that be allowed?

No, even if all corporate actions in the line-up for an investment were completed, if the FDI has not been brought in yet, it will not be allowed unless a prior approval of the government is sought. However, any past investments already made by a Chinese company will not be impacted.

Article Type: Article