Case BriefsHigh Courts

Rajasthan High Court: Sanjeev Prakash Sharma, J., allowed a petition which dealt with the issue as to whether the third child born to the petitioner on account of failure of the ligation operation can be said to come within the ambit of memorandum dated 01-06-2017 to deny the ACP to the petitioner for three years.

The wife of the petitioner had undergone a ligation operation however the said operation was unsuccessful and she gave birth to a girl child. The petitioner already had two male children making the total to three. State Authorities had denied the petitioner to grant ACP thereafter.

Counsel for the petitioner, Mr Tanveer Ahamad submitted documentary proof to show that the third child cannot be said to have been born with deliberate intentions and was born on account of failure of operation which cannot be treated to come within the ambit of the Memorandum dated 1-6-2017. It was further informed that petitioner submitted a certificate issued from a Doctor who had conducted the concerned Tubal Ligation operation on applying and also produced relevant proof of registration relating to the admission of petitioner for the concerned operation. Counsel further submitted that petitioner’s case cannot be said to be one where a third child was born out of willingness of the parents and that the third child was born after a period of 12 years of the earlier child and in such circumstances, the submission of the petitioner cannot be doubted.

The Court after perusing all the documents came to a conclusion that it cannot be said that the certificate was ambiguous or suspicious and the authorities ought to have taken a pragmatic view. The Court then perused the memorandum and found that it was apparent that an employee who has more than two children on or after 1-6-2002 shall not be granted next ACP for three years from the date on which his/ her ACP becomes due and it would have a consequential effect on the subsequent financial upgradation. The Court however noticed that circular does not take into consideration the circumstances which may have arisen in the birth of a third child.

The Court explained that in the present case, the child was born on account of the

failure of the ligation operation and getting an operation done showed the intention of the couple not to have a third child. However, on account of failure, if a child was born, they cannot be penalized for the same. The Court held that these were exceptions to the rule and has to be taken into consideration.

The very purpose of the rule is to deter Government servants from having a third child. However, if a third child is born, without there being any deliberate intent, the circular would not come in way to deprive the concerned individual of the benefits which are available under the service rules.

The Court allowing the petition opined that any child born after 1-6-2002 to a couple already having two children cannot be denied ACP by applying the memorandum by a blanket order. The circumstances need to be examined and exceptions to be taken into consideration.

The Court directed the respondents to grant ACP to the petitioner on completion of 20 years of service from the date it became due without applying the circular dated 1-6-2017 and arrears of salary to be released.[Rajveer Sharma v. State of Rajasthan, 2021 SCC OnLine Raj 756, decided on 13-01-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Gujarat High Court: The Division Bench of Vineet Kothari and B.N. Karia, JJ., took up a petition which dealt with the parties not only filing Civil Suits, Writ Petitions, and Letters Patent Appeals under Article 226 of the Constitution but also going for forum shopping.

The Writ petition was dismissed by the order dated 06-10-2010. In Letters Patent Appeal, this Court had initially passed the status quo order on 13-12-2010 which came to be modified after detailed hearing on 17-02-2021.

The assets of the Defaulter Company –  GPPML were taken over by GSFC in the exercise of its statutory powers under Section 29 of the SFC Act, 1951 and sold away to SIL at a price which was the subject matter of challenge.

Detailed interim orders passed in the matter leading to the proposed order passed by the Court for facilitating the transfer of all the proceedings to the National Company Law Tribunal (NCLT), Ahmedabad, which is the expert fact-finding Tribunal constituted under the provisions of the New & Special Law viz. Insolvency and Bankruptcy Code, 2016 in terms of the decision of the Supreme Court in the case of Action Ispat and Power (P) Ltd. v. Shyam Metalics and Energy Ltd., (2021) 224 Comp Cases 35 (SC) where it was held that the winding up Court or the Company Court should transfer the winding up proceedings to NCLT, not only at the initial stage, but even in the mid stage of winding-up proceedings, unless the winding-up proceedings have reached a stage where it would be irreversible and making it impossible to set the clock back and then only that the Company Court must proceed with the winding-up, instead of transferring the proceedings to NCLT under IBC provision.

The Court noticed that the auction purchaser – SIL not only was involved in litigation before this Court, and entered into an alleged OTS (One Time Settlement) with GSFC which is with a doubtful integrity to say the least and is under a serious contest by left out Secured and Unsecured Creditors, but SIL also approached the Hon’ble Delhi High Court by way of writ petitions merely because it had a namesake registered office of the Company in Delhi also, whereas its industry in question is in Gujarat.

The Court stated that scattering the litigation in various Forums is the root cause of multiplicity of litigation and amounts to misuse and abuse of process of law and by sheer passing of the different orders which may or may not be conflicting orders inter-se by different Forums, who apparently would have the competent jurisdiction to be seized of those proceedings and passed those orders, ultimately may result in an utter messy confusion of the things and unresolved problems for long time. Such malpractices deserve to be seriously checked by enacting some kind of filters where the parties to one lis essentially are restricted to one competent Forum to avoid any such chance of conflicting orders and forum shopping.

The hurried One Time Settlement of GSFC with SIL in favour of which even the major part of the auction price was converted into a term loan by GSFC and in the repayment of which, SIL defaulted, still instead of again taking over the assets and re-auctioning them, GSFC chose, for the reasons best known to it to enter into One Time Settlement with SIL at a mere Rs.60 lakhs and that is a matter to be looked into by the NCLT. The said SIL is also said to have stopped its production activities and the assets of GPPML sold to it under Section 29 way back in the year 1990 are still in disuse or are not being used for any productive activity and that is not only a wastage of assets for the creditors and other stakeholders, but also a national waste.

The Court was of the view that NCLT would be the best suited Forum in these circumstances to the concerned and connected issues in this case.[Lalitaben Govindbhai Patel v. Gujarat State Financial Corpn., 2021 SCC OnLine Guj 1077, decided on 26-07-2021]


Suchita Shukla, Editorial Assistant has reported this brief.


Appearance:

For the Appellants: Mr Sandeep Singhi and Mr AS Vakil

For the Respondents: Mr BH Bhagat, Mr RD Dave, Mr Pranav G Desai, Mr Abhijit P Joshi, Mr Nandish Y Chudgar and Mr Devang D Trivedi

Op EdsOP. ED.

Introduction

Third-party funding (TPF) of litigation is one of the hottest discussion topics in India given the usurious cost of litigation. As the name indicates, it involves an entity/person who is not concerned with, or involved in a dispute between two (or more) parties funding the costs of conducting a litigation by one of the parties. A more scientific and comprehensive definition is the one suggested by the Task Force of the International Council for Commercial Arbitration and Queen Mary University of London in their April 2018 Report, which takes into account multiple models of funding:[1]

The term “third-party funding” refers to an agreement by an entity that is not a party to the dispute to provide a party, an affiliate of that party or a law firm representing that party,

(a) funds or other material support in order to finance part or all of the cost of the proceedings, either individually or as part of a specific range of cases; and

(b) such support or financing is either provided in exchange for remuneration or reimbursement that is wholly or partially dependent on the outcome of the dispute, or provided through a grant or in return for a premium payment.

As the definition demonstrates, the benefactor is not impelled by considerations of altruism, but by a possibility of a profit, or gaining the asset in dispute. The profit, too, is made by either obtaining a share in the eventual sum awarded, or a fixed figure to be paid in the event of a successful outcome.

The concept, as outlined above, is bound to cause some discomfort in the minds of any student or practitioner of law. This is because a diligent student or practitioner of law will be quick to draw an analogy to a prohibited practice in Indian law – that of contingent fee arrangements, where a lawyer agrees to represent a party in a dispute subject to being paid a share in the amount eventually awarded. While contingent fee arrangements are legal in many other countries, it is still strictly frowned upon in India, with such agreements not only being illegal, but also capable of inviting disciplinary action against the practitioner concerned. This approach of Indian law seems justified given the experiences of countries like the United States, where lawyers are termed “ambulance chasers”, when they pursue victims of accidents to represent them on a contingent fee basis.

It is worthy recounting here the observations of the Supreme Court in “G” Senior Advocate, In re[2], where a practitioner had entered into a contingent fee arrangement with his client for 50% of the monies recovered to be his fees. When the agreement was defended by the practitioner drawing reference to the practice in parts of the United States of America, the Court observed:

  1. We see no reason why we should import what many feel is a mistake, even in the country of its origin, from another country and seek to perpetuate their error here when a sound and healthy tradition to the contrary already exists in our Bar. The reasons for exacting these high standards in this country, where ignorance and illiteracy are the rule, are even more important than they are in England where the general level of education is so much higher….

TPF transactions, however, do not involve funding from advocates or solicitors, and to such extent, do not run afoul of the above observations. Much of the legitimacy for TPF transactions in India is presently claimed from an observation by the Supreme Court in Bar Council of India v. A.K. Balaji[3]  that there appears to be no prohibition to TPF so long as they are not lawyers. The obiter observation is merely suppositional, with the Supreme Court not having any occasion to consider the issue. Thus, such obiter cannot be considered binding but merely directional. Though a similar observation has been made by the Supreme Court in the judgment in “G”  Senior Advocate, In re[4], it is submitted that the observations, as in the A.K. Balaji decision[5], are obiter as well.

History – Maintenance and Champerty

To consider the legitimacy of TPF transactions in the context of extant laws in India, one needs to first understand the concept of maintenance and champerty. Briefly put, maintenance, in its modern form, is when a third-party cause or promotes unwanted litigation by causing or supporting a person to sue another. Champerty is an aggravated form of maintenance where the third party funds a party to enable such party to sue another, in return for funds if the litigation were successful. As is apparent from the definitions, champerty and TPF transactions are significantly similar to each other, since both involve an unrelated person funding a party to initiate or continue to prosecute a dispute, in return for monetary consideration. It is thus essential to consider the law of champerty and assess whether TPF transactions stand the test of prohibition against champerty.

Dating back to as early as the year 1275, champerty was a common feature in the first two Statutes of Westminster,[6] as well as the articles upon the Charter.[7] It was initially intended to prevent powerful lords, noblemen and officers of the courts from funding or maintaining disputes that they otherwise had no interest in. The observations of Lord Mustill, speaking for a unanimous House of Lords in Giles v. Thompson,[8] on the history of champerty is particularly instructive in this regard:

the crimes of maintenance and champerty are so old that their origins can no longer be traced, but their importance in medieval times is quite clear. The mechanisms of justice lacked the internal strength to resist the oppression of private individuals through suits fomented and sustained by unscrupulous men of power. Champerty was particularly vicious, since the purchase of a share in litigation presented an obvious temptation to the suborning of justices and witnesses and the exploitation of worthless claims which the defendant lacked the resources and influence to withstand. The fact that such conduct was treated as both criminal and tortious provided an invaluable external discipline to which, as the records show, recourse was often required.

With the evolution of a stronger and more independent judiciary, as well as quality of legal ethics, the need to prosecute persons for the offences of champerty and maintenance were obviated. However, the civil consequences remained even after Parliament repealed champerty as an offence, with issues arising on considerations of contracts being contrary public policy.[9] An analysis of the evolution of champerty in the United Kingdom is beyond the scope of this essay.[10] It is, however, apparent that the primary concerns of the law in respect of champerty arises from the fact that it causes the maintenance of litigation that would ordinarily not be maintained, by a person who has no greater interest than the financial benefits that will accrue to them from a successful outcome.

Position in India on Maintenance and Champerty

In India, however, maintenance and champerty were never made offences, largely because the circumstances that existed in mediaeval England did not obtain in the courts operated by the East India Company (and later by the Crown). Nonetheless, the law, as with England, remained relevant to consider validity and enforceability of agreements on questions of public policy and morality.[11] The law in this regard, set by a few decisions in the late 19th century by the Judicial Committee of the Privy Council, remains unchanged till date, and are particularly instructive of how courts viewed champerty.

The earliest occasion when the Judicial Committee had occasion to consider the issue was in G.F. Fischer v. Kamala Naicker,[12] where it had to consider whether an agreement must not be enforced merely because it was champertous in nature. Observing that the Sudder Adawlut was perhaps overzealous in assessing whether the agreement was champertous when the parties were not even at issue on the same, the Judicial Committee nonetheless laid the principal test for assessing whether a champertous agreement violates public policy in the following terms:[13]

The Court seem very properly to have considered that the champerty, or, more properly, the maintenance into which they were inquiring, was something which must have the qualities attributed to champerty or maintenance by the English law: it must be something against good policy and justice, something tending to promote unnecessary litigation, something that in a legal sense is immoral, and to the constitution of which a bad motive in the same sense is necessary….

Thus, the Judicial Committee, in effect, imported principles of champerty and maintenance from England to India, albeit for the limited purpose of assessing whether an agreement is void on considerations of public policy. This was further expounded upon by the Judicial Committee in Ram Coomar Coondoo v. Chunder Canto Mookerjee,[14] where the Court, in considering a TPF transaction, held:

Their Lordships think it may properly be inferred from the decisions above referred to, and especially those of this tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.

The Committee, however, went on to clarify in the very next paragraph:

But agreements of this kind ought to be carefully watched, and when found to be extortionate and unconscionable, so as to be inequitable against the party; or to be made, not with the bona fide object of assisting a claim believed to be just, and of obtaining a reasonable recompense therefor, but for improper objects, as for the purpose of gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy, — effect ought not to be given to them.[15]

The above decisions were regularly followed by the various courts in India, to assess whether agreements where a third party financed litigation fall on the right side of morality. Since there may be situations where a litigant has a genuine cause of action, but is unable to proceed due to lack of funds, a champertous agreement in such a situation may be valid, indicating that not every champertous agreement will be considered as being against public policy. Nonetheless, however salutary the principles laid down may be, the reality of champertous and maintained litigations were bleak in pre-Independence India, especially given the socio-economic conditions and the state of literacy.[16]

While much discussion can and may be had on what transactions may amount to an unenforceable champertous agreement, the law is silent on the issue that is being considered in the present essay: how best to govern and control such agreements. Even the recommendation of the Civil Justice Committee,[17] which was at great pains to narrate the ills of champerty in British India, was merely to offer a remedy to the uninformed and illiterate victim of speculative champertous agreements to avoid such agreements. Even extant provisions of law[18] and decisions[19] deal only with the aspect of enforceability or otherwise of such agreements, and not the regulation thereof.

A TPF transaction, no matter how it may be structured, is in essence?? of a dealing in a right to sue, inasmuch as it empowers a third party to control and take decisions in a litigation, and also obtain benefit under the litigation. It is pertinent to note that under Section 6(e) of the Transfer of Property Act, 1882, a mere right to sue cannot be transferred. This derives from the salutary principles prohibiting champertous agreements.[20] An agreement made to defeat a provision of law is in itself unlawful and cannot be enforced. Historically, the maxim ubi jus ibi remedium[21] was understood in reverse in common law. Courts dispensing the Crown’s justice had pre-written writs that were drawn up for specific purposes, such as compelling a person to pay damages. The system of having pre-written writs soon devolved into forms of actions, with assumpsit[22] and indebitatus assumpsit[23] rapidly growing as popular writs.

Tempered by equity and eventually abolished by successive Judicature Acts, the concept of writs, and of forms of actions played a significant role in enabling the modern lawyer to determine what is known as the right to sue. What is of significance of the modern rights is that a party is expected, even till date, to take a conscious decision to exercise and enforce their right against another, for the law to help vindicate their right. Thus, for instance, sleeping over one’s right results in claims becoming barred, and having to dispel presumptions of acquiescence. So too is a person expected to bear the fee of initiating their action, as a compensation to the Court for its service, howsoever meagre it be.

Thus, a clear image emerges regarding modern rights, which is that they are always accompanied by the right to sue. The right to sue has its own set of socio-economic as well as legal factors attached to its exercise or non-exercise thereof. It would be quite myopic to contend that the right to sue can be exercised by a person merely by being funded by another, with absolutely no application of mind by the person exercising such right. A person with a right to sue may choose to not sue, if only to avoid indulging in speculative litigation, which likelihood is highly reduced if no restrictions are placed on TPF transactions.

Thus, a TPF transaction is not merely champertous in its nature, it deals with the very basis of modern civil justice delivery system – the right to sue and enforce such right. Transactions of such nature, though they may be beneficial in certain instances, ought to not be enforced without any law governing it. It is submitted that appropriate legislation of TPF is absolutely essential. Such legislation ought to, at the first instance, compel parties to disclose the factum of the litigation being funded by a third party. Clear guidelines that are more detailed than the presently existing “public policy” principles must be adopted for discriminating permissible from impermissible TPF transactions. A counterparty must have a right to seek summary disposal by calling upon the Court to consider whether the TPF transaction is above board and genuine, and not merely speculative litigations. Indian courts cannot bear the burden of a surge in litigation when the backlog and case disposal schedule make interim relief the new means to a sometimes-unjust end.

We hope that this practice does not commence given the interest being shown in this area before a framework for its use has been implemented. The Government should seriously consider such an initiative. TPF is not per se bad but its champertous nature requires careful handling and strict regulation. After all, public policy is amorphous but ever improving as society develops.

The author would like to thank Madhura Ajit Zende for her contribution to this article. Madhura is an associate of ASA Legal Services LLP and is based in Mumbai.


* Practicing Advocate in Delhi and other places in India.

** Experienced lawyer with over 20 years of experience at various law firms. Currently, heads Ashwin Mathew & Associates, a commercial law firm in Mumbai.

[1] <https://cdn.arbitration-icca.org/s3fs-public/document/media_document/Third-Party-Funding-Report%20.pdf>
(last accessed on 5-2-2020).

[2] (1955) 1 SCR 490.

[3] (2018) 5 SCC 379.

[4] Supra note 2, para 11.

[5] Supra note 4.

[6] Statute of Westminster, 3 Edw. 1, c. 25 and 13 Edw. 1, c. 49.

[7] 28 Edw. 1, c. 11

[8] (1994) 1 AC 142, 153 : (1993) 2 WLR 908 (HL).

[9] See Giles v. Thompson, (1994) 1 AC 142 :  (1993) 2 WLR 908 (HL).

[10] For a comprehensive analysis of the history and evolution of the law of champerty, see Winifield, P.H., The History of Conspiracy and Abuse of Legal Procedure, Cambridge University Press, 1921, particularly Ch. VI.

[11] A survey of the early decisions of subordinate courts on the issue can be found in Ram Coomar Coondoo v. Chunder Canto Mookerjee, 1876 SCC OnLine PC 19 :  (1876-77) 4 IA 23, 40-44.

[12] 1860 SCC OnLine PC 2 : (1859-61) 8 Moo IA 170.

[13] Id., 187.

[14] 1876 SCC OnLine PC 19: (1876-77) 4 IA 23, 47.

[15] Ibid.

[16] See Ch. 43 of the Report of the Civil Justice Committee, 1924-1925 for a detailed discussion of the extensive speculative and champertous litigations that were observed in courts.

[17] Ibid.

[18] See the amendments by High Courts of Bombay, Gujarat, Madhya Pradesh and Allahabad in Order 25 of the Code of Civil Procedure, 1908 whereby courts are empowered in those States to compel third-party financiers to furnish security for costs.

[19] See S.V.R. Mudaliar v. Rajabu F. Buhari, (1995) 4 SCC 15.

[20] Per K.K. Mathew, J. in Union of India v. Sri Sarada Mills Ltd., (1972) 2 SCC 877. The majority does not express any opinion on this, and differs from Mathew, J’s opinion on facts.

[21] Translates to “where there is a right, there is a remedy”.

[22]A promise by which someone assumes or undertakes an obligation to another person. The promise may be oral or in writing, but it is notunder seal. It is express when the person making the promise puts it into distinct and specific language, but it may also be implied because the law sometimes imposes obligations based on the conduct of the parties or the circumstances of their dealings. Taken from Assumpsit legal definition of assumpsit (thefreedictionary.com).

[23] That species of action of assumpsit, in which the plaintiff alleges in his declaration, first a debt, and then a promise in consideration of the debt, that the defendant, being indebted, he promised the plaintiff to pay him. The promise so laid  is, generally, an implied one only. Taken from ibid.

Case BriefsHigh Courts

Madhya Pradesh High Court: The Division Bench of Sujoy Paul and Shailendra Shukla, JJ., dismissed a petition which was filed challenging the order passed by the specified authority under M.P. Lok Parisar (Bedakhali) Adhiniyam, 1974.

The petitioners categorically averred that said Adhiniyam was not applicable to the agricultural land of the petitioners. In paras-2 & 3 of petition, the petitioners had not disclosed that they had previously filed any litigation in this regard. On a specific query from the Bench as to why proper disclosure was not made regarding WA No.185/2012, counsel for the petitioners repeatedly and vehemently urged that it was not necessary because the subject matter was different.

The Court reminded that as per High Court of MP Rules 2008, a prescribed format of writ petition was mentioned, wherein as per para-2, the litigant was required to give declaration as under:-

“A declaration that no proceeding on the same subject matter has been previously instituted in any Court, Authority or Tribunal. If instituted, the status or result thereof, along with copy of the order.”

The Court observed that in the instant case, neither in relevant para nor in the entire petition, had the petitioners disclosed regarding filing of said WA, wherein it was already held that public premises authority under the Lok Parisar Bedakhali Adhiniyam was competent to take action in relation to an agricultural land. Thus, suppression was relating to “subject matter” and is a serious suppression of fact.

The Court dismissed the petition and held that “a litigant must approach the Court with clean hands, clean mind, clean objective and clean heart. Suppression of fact or half disclosures of fact are growing tendencies to pollute the stream of justice. Litigation in the Court is not a “game of chess”.

Petitioner however at the last stage wanted to withdraw the petition with liberty to file a properly constituted petition disclosing all relevant facts so the Court in the interest of justice permitted them to do so.[Shyamlal v. State of M.P., 2021 SCC OnLine MP 503, decided on 09-03-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Allahabad High Court: The Division Bench of Dr Kaushal Jayendra Thaker and Gautam Chowdhary, JJ., has requested the Registrar (Listing) through the Registrar General to place the matter before the Chief Justice that periodical listing of matters be taken up in the High Court so that those who are in jail for more than 10 or 14 years, where the appeals are pending, may at least get their appeal heard which are mainly jail appeals. The Court was deciding an appeal filed by the appellant who was in jail for 20 years. The Court reversed the conviction recorded against the appellant.

“Since 20 years, the accused is in jail.”

It was expressed by the Court that the most unfortunate aspect of the instant litigation was the same being preferred through jail.

The appellant challenged the decision passed by the Court of Sessions Judge, Lalitpur, whereby he was convicted under Section 376 IPC. Further, the appellant was convicted under Section 3(2)(v) read with Section 3(1)(xii) of the Scheduled Castes and Schedules Tribes (Prevention of Atrocities) Act, 1989 and Section 506 IPC.

Prosecution case was that the prosecutrix was raped by the accused-appellant. On disclosing the incident to the family, they did not report the same to the police station due to being threatened. Later, however, the victim along with her father-in-law and husband went to the police station to report the same.

Analysis, Law and Decision

The Court noted that the Trial Judge brushed aside the fact that the report was lodged three days later, but did not give any credence to this fact and decided to go through the merits of the case.

Further, the Court noted that although there were concrete positive signs from the oral testimony of the prosecutrix as regards the commission of forcible sexual intercourse; however, the medical officer opined both in ocular as well as her written report that the prosecutrix was having five months pregnant and no definite opinion about rape could be given.

In view of the above, the Court added that there were no injuries on the private part of the lady, who was a fully grown-up person and was pregnant.

Adding, the Court stated that even if it went as per the version of the prosecutrix that the accused had gagged her mouth for ten minutes and had thrashed her on ground, there would have been some injuries to the fully grown lady on the basis of the body. However, according to the doctor’s opinion, there were no signs of forcible sexual intercourse.

In such view of the discussion, the Court was of the opinion that the chain of the incident goes to show that the prosecutrix was not raped as would be clear from the provision of Section 375 read with Section 376 IPC.

The Court held that the Trial Judge did not make any finding as to the fact of how the commission of offence under Section 376 IPC was made out. The Trial Judge had materially erred as he did not discuss what was the evidence that the act was committed because of the caste of the prosecutrix. The reasoning of the lower Court Judge were against the record and perverse as the Judge without any evidence on record on his own has felt that the heinous crime was committed because the appellant had captured the will of the prosecutrix and because the police officer had investigated the matter as an atrocities case which would not be undertaken within the purview of Section 3(2)(v) of Atrocities Act and had recorded conviction under Section 3(2)(v) of Act, which cannot be sustained.

Hence, in view of the above discussion, the Court held that the appellant was wrongly convicted resulting in reversing the impugned decision.

While concluding, the Court noted that the State of U.P. even after 14 years of incarceration does not even send the matter to the Magistrate for re-evaluation of the cases for remission as per mandate of Sections 432 and 433 CrPC.

“Sections 433 and 434 CrPC enjoins a duty upon the State Government as well as Central Government to commute the sentences as mentioned in the said section. We are pained to mention that even after 14 years of incarceration, the State did not think of exercising its power for commutation of sentence of life imprisonment of the present accused and it appears that power of Governor provided under Article 161 of the Constitution of India are also not exercised though there are restriction to such power to commute sentence. The object of Sections 432 read with Section 433 of the CrPC is to remit the sentence awarded to the accused if it appears that the offence committed by him is not so grave.”

In the Court’s opinion, in the instant case, the appellant should have been entitled to remission. The factual scenario in the present case would show that had the Government thought of taking up the case of the appellant as per jail manual, it would have been found that the case of the appellant was not so grave that it could not have been considered for remission/commutation.

Seeing the sorry state of affairs, the Court requested the Registrar (Listing) through the Registrar General to place the matter before the Chief Justice that periodical listing of matters be taken up in the High Court so that those who are in jail for more than 10 or 14 years, where the appeal have been pending, may at least get their appeal heard which are mainly jail appeals.[Vishnu v. State of U.P., 2021 SCC OnLine All 133, decided on 28-01-2021]

Case BriefsHigh Courts

When youth of the country is gripped in the specter of unemployment, the arbitrary and whimsical stand of such kind of agency, like respondent 4, has compelled the unemployed persons in litigation which is avoidable if proper application of mind is genuinely made to the controversy” – A.C. Rao, J.

Gujarat High Court: A.C. Rao, J. while allowing the present petition has highlighted the mindset of Government agencies, to engage in vexatious litigation and not following the repeated orders of the Courts hence, overburdening the judicial system.

Petitioner who was a Graduate in Veterinary Science and Animal Husbandry and was duly registered under the Gujarat Veterinary Council had applied for the post of Veterinary Officer in Gujarat Animal Husbandry Service which was conducted by State Public Service Commission(GPSC). It was the case of the petitioner that he belonged to the Scheduled Tribe category and was waitlisted at no. 1. still was denied the post, when eventually another candidate from the same category resigned within 1 yr of service. The petitioner submitted that according to the Resolutions provided by GPSC, whenever such kind of post fell vacant within one year on account of the eventualities mentioned, the post was to be filled in, from that particular category from which it had fallen vacant and resolution thus have full effect in case of the petitioner.

GPSC contended that resolution was essentially pertaining to Medical or Educational Department and therefore, cannot be utilized for other services. The respondent-State further contended that State had sent the recommendations to GPSC and it was the said authority that did not recommend the petitioner’s case. On the other hand, GPSC submitted that the representation of the petitioner was duly examined by the authority however, they found petitioner unfit since the candidate who had resigned had served for 1 year on the said post.

Advocate K.B. Pujara appearing for the petitioner vehemently contended that the stand taken by the respondent GPSC to discriminate against the petitioner and by deviating from applicable policy, the alleged stand was examined on several occasions by this Court, and the said stand was negated repeatedly.

Issue no 1. Whether the stand of the GPSC, which was reflected in the impugned communication, was just and proper?

The Court was not pleased by the stand of the GPSC and found that the reason for denial of appointment was per-se contrary to their policies. The policy was undisputedly applicable in the case of the petitioner. It was held that the stand of the respondent was unreasonable, arbitrary, capricious and not substantive in the eyes of law.

Issue no. 2.:  Whether the case of the petitioner was within the parameters of the policy of operating the waitlist ?

Court found that the stand of the petitioner has been examined by several Benches, the policy, undisputedly applies to the petitioner and it is the GPSC who has given a whimsical interpretation.

Hence, in the above-mentioned view, the petition was allowed.[Chirag Kishorbhai Joshi v. State of Gujarat, 2020 SCC OnLine Guj 2467, decided on 23-12-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Andhra Pradesh High Court: Battu Devanand, J., observed that:

It is the duty of the Courts to see that the senior citizens shall be given priority for early disposal of their cases whether those are civil or criminal or service or any type of litigation to enable them to enjoy the fruits of litigation during their life time.

Petitioners sought decree in favour of them and against defendants 4 and 9 in light of the following reliefs:

  • sale deed, dated 18-03-2002 executed by defendant 4 in favour of defendant 9 in relation to the schedule property does not bind the plaintiffs and defendants1 to 7 after the lifetime of defendant 4 as she is entitled to collect rents from it and live and for consequential relief of permanent injunction restraining the defendants 4 and 9 for disturbing the status quo by inducting defendant 9 into the scheduled house as the purchase of the same under above sale deed.
  • for the partition of the plaint schedule house by passing a preliminary decree into six shares and allot two such shares to the plaintiffs
  • for past profits from the 9th defendant since 04-06-2003 in a sum of Rs 2000 per month x 14 = Rs 28,000 and from the 8th defendant at Rs 900 per month x 14 = Rs 12,600;
  • for a direction for ascertainment of mesne profit on those portions from the date of suit till the date of realization from the defendants 8 to 9 respectively.

Analysis and Decision

Bench stated that the request of the petitioners, who are the senior citizens, has to be considered positively and their hope towards this institution has to be proved to meet the ends of justice.

The year 1999 was observed as “International Year of Older Persons”. In view of the “National Policy for Older Persons” adopted by the Government of India, the High Court of Andhra Pradesh at Hyderabad issued a Circular directing all the Judicial Officers in the State to identify and dispose of matters in which persons above “65 years” of age are involved, on a priority basis.

Circulars were issued in which specific instructions were issued to give priority to the cases relating to senior citizens for expeditious disposal.

Dealy of 9 Years

Bench observed that petitioners filed the suit in the year, 2002 and it was decreed in the year 2010 and the petitioners filed an interlocutory application on 07-02-2011 as per the docket proceedings of I.A.No. 565 of 2011. It was adjourned time to time and pending till date. As such, it is clear that the said interlocutory application is pending before the Court below for more than 9 years which is very unreasonable and contrary to the procedure contemplated under law.

It is not sufficient to respect and honour the senior citizens in the late evening of their life by giving some concessions in bus, rail and Airfares and giving priority in allotting lower births in the trains and comfortable seats in buses.

The real respect and honour to the senior citizens is to render speedy justice to them for which they would have a legitimate expectation.

Court cited the Supreme Court’s decision in Rajinder Singh v. Prem Mal, (2007) 11 SCC 37, wherein it was held:

“People in India are simply disgusted with this state of affairs, and are past loosing faith in the judiciary because of the inordinate delay in disposal of cases. We request the authorities concerned to do the needful in the matter urgently to ensure speedy disposal of cases if the people’s faith in the judiciary is to remain.”

In view of the above, Court directed the Additional District Judge to dispose of the matter s expeditiously as possible. [Pelluri. Venkata Hanumantha Krishna Murthy Sharma v. Pelluri. Venkata Lakshmi Narasimha Rao, 2020 SCC OnLine AP 1750, decided on 07-12-2020]

Op EdsOP. ED.

When we study the origins and functioning of the Indian credit recovery infrastructure, it can be seen that originally the only remedy was suits under the provisions of CPC[1] which was long and cumbersome. Here, the process had two parts i.e. debt adjudication which end in a judgment/decree followed by execution proceedings under Order 21 CPC for recovery of decreed amount. Later, with the enactment of the RDBFI Act, 1993[2], DRTs[3] were established as exclusive forums for speedy adjudication and recovery of debts due to Banks and Financial Institutions (FIs). As per the RDBFI Act, DRTs had the power to issue a Recovery Certificate certifying the amount payable by the debtor after debt adjudication in a summary procedure. This amount was thereafter recovered by the Recovery Officer attached to DRT as per the procedure of recovery of tax under Schedule II of the Income Tax Act, 1961. So, the design was to speed up the recovery once the debt adjudication by DRTs. Although, the RDDBFI Act gave 180 days for disposal of recovery applications, cases have been pending for many years due to prolonged hearings. Almost 70,000 cases involving more than Rupees 5 lakh crore were pending in DRTs as of April 2016[4]. Majority of the delay is at the debt adjudication stage with long drawn processes and adjournments in DRTs. It was for overcoming this hurdle and to further speed up recovery that the SARFAESI Act[5] was enacted. This Act give the Banks and FIs the power to recover their debts classified as non-performing assets by various modes including taking possession and sale of the security, without approaching any Court or Tribunal. Interestingly, the SARFEASI Act dispenses the requirement of debt adjudication and the debt amount stated by the creditor in their demand notice issued under Section 13(2) is conferred sanctity to trigger recovery actions under the Act. When we read through the provisions of the aforesaid Acts and the procedure laid down by them for recovery, it is clear that one of the major causes for delay in securing recovery was the time taken for ascertaining the debt amount payable[6].

Most of the litigation in money recovery laws are in the nature of disputes on the amount claimed for recovery by the creditors. This kind of litigation and resultant delay in recovery can be avoided if there is a mechanism for collection, collation, authentication and dissemination of information regarding debts/defaults by independent third parties that are reliable as evidence of debt/default.

The law-makers of the country seem to have appreciated this point while enacting the Insolvency and Bankruptcy Code, 2016 (IBC) which in its Chapter V under Part IV talks about ‘Information Utilities’ (IUs) which is a first of its kind in the world. In this regard, it is significant to note the following statements in the Report of the Bankruptcy Law Reforms Committee[7]:

“Under the present arrangements, considerable time can be lost before all parties obtain this information. Disputes about these facts can take up years to resolve in court. Hence, the Committee envisions a competitive industry of information utilities who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay.”

This article attempts to understand the concept and working of IUs as contemplated under the IBC regime and its utilities in securing the objectives of IBC.

What is ‘Information Utility’?

IUs are entities that would act as data repositories of financial information which would receive, authenticate, maintain and deliver financial information pertaining to a debtor with a view to facilitate the insolvency resolution process in a time-bound manner. IU maintains an information network which would store financial data like borrowings, default and security interests among others of debtors for providing such information to businesses, financial institutions, adjudicating authorities, insolvency professionals and other stakeholders.

As per Section 3(21) of IBC, ‘Information Utility’ is defined as a person registered with the IBBI[8] under Section 210. Furthermore, as per Section 209 of IBC, a person shall be eligible to carry on business as IU only if a certificate of registration is obtained from the IBBI. As per Section 210 of IBC, a certificate of registration shall be issued to an entity to function as IU if all the technical formalities are completed as prescribed by the IBBI.

Historical perspective of ‘Information Utilities’

The setting up of IUs was preceded by a regime of Credit Information Companies (CICs) and Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) that provided credit-related information services including details of security interests.

In his Budget speech made in  Parliament on 28th February 1994, the then Finance Minister of India announced that Reserve Bank of India (RBI) would put in place arrangements for circulating names of defaulting borrowers among the Banks and FIs. The purpose of the same was to alert them and to put them on guard against the borrowers who have defaulted in their dues to other lending institutions. Pursuant to the above announcement, a Working Group was set up under the Chairmanship of Mr N.H. Siddiqui (Chief General Manager, RBI) which submitted its Report in 1999 recommending the establishment of CICs[9]. Accordingly, Credit Information Bureau (India) Ltd. (CIBIL) was incorporated in August 2000. Later, pursuant to the enactment of the Credit Information Companies (Regulation) Act, 2005[10], three other CICs have also been set up in India[11]. Further, in 2013, RBI constituted another Committee under the Chairmanship of Mr Aditya Puri (Managing Director, HDFC Bank) to examine the reporting formats used by CICs and other related issues. This Committees’ report led to the standardisation of data formats for reporting corporate, consumer and MFI[12] data by all credit institutions and streamlining the process of data submission by credit institutions to CICs[13]. In 2015, all credit institutions were directed by RBI to become members of all the CICs and submit current and historical data about specified borrower to them and to update it regularly.

Later, in the year 2011 the then Finance Minister declared in his budget speech about creation of a central registry of equitable mortgages. Pursuant to the same, the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) was established to maintain and operate a registration system for the purpose of registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest over property, as contemplated under the SARFAESI Act. CERSAI is providing a platform for filing registrations by the Banks and FIs with an option for other lenders and the public to search its database.

The idea to establish IUs appears to be an outcome of the research and efforts to set up a hybrid model unique to India by incorporating the best features of CICs, CERSAI and other similar agencies across the world that are engaged in financial information services.

How an ‘Information Utility’ can be created under IBC?

As per Section 196 of IBC, IBBI is entrusted with the power to grant, renew, withdraw, suspend or cancel registration to IUs. This provision further empowers IBBI to make regulations for registration and matters connected therewith. In exercise of the said power, IBBI has notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017[14] (“the IU Regulations”) which provide detailed regulations for registration and working of IUs.

As per Regulation 3 of the IU Regulations, registration can be applied by any public company having a minimum net worth of fifty crore rupees and; (a) whose sole object is to provide core services and other services under the IU Regulations, and discharge such functions as may be necessary for providing these services; (b) its shareholding and governance is in accordance with Chapter III of the IU Regulations; (c) its bye-laws are in accordance with Chapter IV of the IU Regulations; (d) its promoters, directors, key managerial personnel, and persons  holding more than 5%, directly or indirectly, of its paid-up equity share capital or its total voting power, are fit and proper persons[15].

A person eligible for registration as aforesaid may make an application to IBBI in Form A of the Schedule to the IU Regulations, along with a non-refundable application fee of five lakh rupees. After due enquiry as contemplated under the IU Regulations, IBBI shall issue a Certificate of Registration in Form B of the Schedule within sixty days of receipt of the application excluding the time taken for removal of difficulties and for obtaining additional documents, if any. Such certificate of registration is valid for a period of five years from the date of issue and it may be renewed by filing an application for renewal at least six months before the expiry of its registration along with the renewal fees of five lakh rupees. IUs are also required to pay annual fee of fifty lakh rupees to IBBI, within fifteen days from commencement of the financial year. However, no annual fee shall be payable in the financial year in which an IU is granted registration or renewal[16].

The shareholding pattern and governance of IUs should be in compliance to the requirements under Chapter III of the IU Regulations. Furthermore, all changes in the shareholding and voting power of IUs are to be reported to the IBBI. As per Regulation 8 of the IU Regulations, no person shall at any time, directly or indirectly, either by itself or together with persons acting in concert, acquire or hold more than 10% of the paid-up equity share capital or total voting power of an IU. However, there are certain exemptions to the said restriction as follows:

  • None of the restrictions on shareholding are applicable to the holding of shares or voting power by the Central Government or a State Government[17].
  • A government company, stock exchange, depository, bank, insurance company and public financial institution either by themselves or together in concert, acquire or hold up to 25% of the paid-up equity share capital or total voting power of an IU[18].
  • Holding up to 51% of paid-up equity share capital or total voting power of an IU by a person directly or indirectly, either by itself or together with persons acting in concert, is allowed up to 3 years from the date of its registration[19], if the IU is registered before 30th September, 2018.
  • Indian companies (i) which are listed on a recognised stock exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than 10% of the paid-up equity share capital, may hold up to 100% of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration[20], if such IU is registered before 30th September, 2018.

Importance and Utility of Information Utilities

The Bankruptcy Law Reforms Committee (BLRC) led by Mr T. K. Viswanathan which designed the IBC, visualised four pillars of supporting institutional infrastructure to make the processes under IBC to work efficiently. They are:  (1) a private industry of IUs, (2) a private industry of Insolvency Professionals (IPs) with oversight by private insolvency professional agencies (IPAs), (3) adjudication infrastructure at the National Company Law Tribunal (NCLT) and DRT, and (4) a regulator i.e.  IBBI[21]. As noted rightly by the BLRC, IU is a very significant institution for the successful operation of the processes under IBC.

IBC was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of the value of assets of such persons[22]. Section 12 of IBC thus mandates that the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor (CD) must conclude within 330 days[23] from the insolvency commencement date which includes (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to 90 days of such CIRP period granted by the adjudicating authority, and (c) the time taken in legal proceedings in relation to the CIRP of the corporate debtor. This ambitious time-limit prescribed for concluding CIRP appears to be based on an assumption that information relevant for the process will be easily accessible to the parties involved viz. creditors, adjudicating authorities, insolvency resolution professionals, etc. This assumption appears to be based on the confidence of the framers of the law in the idea of IUs envisaged under IBC. As the timelines specified by IBC are strict, they can be met only if the IUs stand ready to provide all relevant information quickly.

The relevant financial information in this stage includes the details of the default, disputes on the same, other financial information of debtors such as records of its debt, liabilities at the time of solvency, assets over which the security interest is created by debtor, timely records of its default and its financial statements of preceding years. Furthermore, it is quintessential for the adjudicating authority to ascertain the existence of default as claimed by the applicant and such existence would decide the fate of the application for CIRP.

As per the scheme of IBC, once CIRP gets initiated against any  corporate debtor, the management of its affairs vest in the Interim Resolution Professional (IRP) and thereupon all the powers of its Board of Directors stands suspended and the same is exercised by the IRP. During such phase, there is every possibility for the Resolution Professionals to face non-cooperation from the management and the suspended Board of the  corporate debtor in disseminating relevant financial information. In these circumstances, an independent and reliable third party which is a repository of validated information regarding debt/default that is capable of providing the same quickly can add significant value to the process.

IBBI has now strengthened the role of IUs by allowing it to access the data of MCA-21[24] database and CERSAI portals to speed up the process of debtor default authentication[25]. By ensuring access of MCA-21 and CERSAI portal data to an IU, IBBI is also providing the mechanism for quick and reliable data for all the stake-holders in the processes under IBC. It may also be noted that RBI has directed all the Scheduled Commercial Banks (Including RRBs), small finance banks, local area banks, non-banking financial companies and all the co-operative banks of the country to put in place appropriate systems and procedures for submission of financial information to IUs[26].

Functions of ‘Information Utility’ as contemplated under the IBC

As per Section 213 of IBC, IUs shall provide services which include core services to any person, if such person complies with the terms and conditions of the IU Regulations. Furthermore, as per Section 3(9) of IBC, “core  services” means – (a) accepting electronic submission of financial information; (b) safe and accurate recording of financial information; (c) authenticating and verifying financial information submitted by person; and (d) providing access to information stored with IUs to persons as may be specified.

As per Section 3(13) of IBC, “financial information”, in relation to a person, means one or more of the following categories of information, namely:  (a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c) records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified.

Section 214 of the IBC elaborate the functions to be performed by IUs for the purpose of providing core services. The major obligations of IUs as per Section 214 can be summarised as follows:

  • Acceptance of financial information in electronic form from persons who are under obligation to submit the same under IBC and also from other persons who intend to submit the same. This acceptance is to be in such form and manner as specified under the IU Regulations.
  • Authentication of the financial information so received by all the parties concerned.
  • Storage of the financial information received as aforesaid in a universally accessible format after the same is duly authentication by all the parties concerned.
  • Providing the financial information stored by it as aforesaid to any person who intend to access such information in such manner as may be specified by the IU Regulations.
  • Publication of such statistical information as may be specified by the IU Regulations.

While performing aforesaid obligations, IUs are required to meet such minimum service quality standards as may be specified by IBBI and they are also required to ensure systems to facilitate inter-operatability with other IUs[27]. As per Section 215 of IBC, while it is mandatory for the financial creditors[28] to submit financial information and information relating to assets in relation to which any security interest has been created; submission of information is optional for the operational creditors[29]. Insolvency professionals also may submit reports, registers and minutes in respect of any insolvency resolution, liquidation or bankruptcy proceedings to an IU for storage[30].

Significance of Information Utility in the operation of processes under IBC

As per the scheme of IBC, a CIRP can be triggered by the corporate debtor itself or by the financial or operational creditors of such corporate debtor[31]. Application for CIRP by a financial creditor is governed by Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016[32].  The application is to be filed as per Form 1 of the said Rules along with the record of the default recorded with the IU or such other record or evidence of default as may be specified. As per Part V of the said Form 1, record of default with IU is listed among the documents acceptable as evidence of default. Upon submission of application, NCLT is required to ascertain the existence of default from the records of an IU or on the basis of other evidence furnished by the financial creditor. It is significant to note that this activity is to be completed by NCLT within fourteen days of the receipt of application. This timeline can be met only if such ascertainment can be done from the records of an IU. Furthermore, upon initiation of CIRP when public announcement is made by the IRP calling for claims, financial creditors may submit their claims along with sufficient proof of such claims. In this regard, it may be noted that the records available with an IU is accepted as a proof of existence of debt due[33].

Whereas, application for CIRP by operational creditors is governed by Section 9 of the IBC read with Rules 5 & 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. On the occurrence of a default, operational creditors are required to deliver either a demand notice of the unpaid debt to the debtor as per Form 3 of the said Rules or a copy of an invoice attached with a notice in Form 4. On receipt of notice, the debtor may, within 10 days, bring to the notice of the creditor about any pre-existing dispute on such debt and get out of the clutches of IBC. On expiry of 10 days from the said notice, if the payment is not done by the defaulter, the operational creditor can file application for CIRP in Form 5 of the aforesaid Rules. As per the aforesaid Forms 3 and 5, record of default with IU is listed as one of the documents to prove the debt. Furthermore, upon initiation of CIRP when the public announcement is made by the IRP calling for claims, operational creditors may submit their claims along with records available with IU which are acceptable as proof for the debt.

Similarly, in an application for CIRP by corporate applicants and in the claims submitted by the other categories of claimants/creditors including workmen, records with IU is accepted as proof of such debt/default. Furthermore, as per IBC and the Rules, the records with IUs can be accessed and relied by the adjudicating authority as evidence for the default/debt in their proceedings. Hence, IUs play a very significant role in enabling timely completion of the processes under IBC.

Operating Procedure of ‘Information Utility’ under IBC

IBC provides little guidance on how IUs are to function, leaving the details to subordinate regulation. Section 240 of IBC empowers the IBBI to make regulations by notification with regard to the registration of IUs, their functioning and on matters connected thereto. The IU Regulations were notified in exercise of this power in order to prescribe the details on how IUs shall operate to meet their objectives as contemplated under IBC.

As per the IU Regulations, a person shall register itself with an IU for submitting information to; or for accessing information stored with any of the IUs. Upon such registration, IU shall verify the identity of the applicant and assign him with a unique identifier and intimate the same to him. A person registered once with an IU shall not register itself with any IU again. A registered user may submit information to any IU and not only to the IU with which he is registered. Different parties to the same transaction may use different IUs to submit, or access information in respect of the same transaction and a user may access information stored with an IU through any IU[34].

A user can submit information of debts or defaults to the IU[35] and on receipt of the same, IU is to assign a unique identifier to the information and intimate the same to the user along with an acknowledgement. In the case of information of default, IU is to expeditiously undertake the process of authentication and verification of the information of default. For this purpose, IU is to deliver the information of default to the debtor seeking confirmation of the same within the specified time. If the debtor fails to respond, IU is to send three reminders giving 3 days’ time in each case for the debtor to respond. If the debtor do not respond even after three reminders as aforesaid, the information is deemed to be authenticated[36]. In case if the debtor confirms the information of default, the information is treated as authenticated and green colour is assigned to the status. If the debtor disputes the information of default the information is treated as disputed and red colour is assigned to the status. Whereas, in cases where the debtor does not respond even after three reminders, the information is‘Deemed to be authenticated’ and yellow colour is assigned to the status. After recording the status of information of default, IU is to communicate the status of authentication in physical or electronic form of the relevant colour, as aforesaid, to the registered users who are- (a) creditors of the debtor who has defaulted; (b) parties and sureties, if any, to the debt in respect of which the information of default has been received[37].

IUs are required to store the information received by it in their facilities located in India and they shall allow the following persons to access the information stored with it- (a) the user which has submitted the information; (b) all the parties to the debt and the host bank[38], if any, if the information is regarding record of debts or assets or instances of default by a person against any debt; (c) the corporate person and its auditor, if the information is of liabilities of a person during solvency or balance sheet and cash-flow statements of the person; (d) the insolvency professional; (e) the adjudicating authority; (f) the IBBI; (g) any person authorised to access the information under any other law; and (h) any other person who the persons referred to in (a), (b) or (c) have consented to share the information.

Provisions to ensure protection of the data with Information Utilities

As per the provisions of IBC, data entrusted with the IUs by the users are to be held as a custodian and hence they shall not have ownership over the data available with them. As such, it is one of the most important duties of the IUs to ensure safety of the data and its protection from unauthorised interferences and data theft. To ensure safety of the data, the IU Regulations prescribe the following to be complied by the IUs:

  • Establish adequate procedures and facilities to ensure that its records are protected against loss or destruction and adopt secure systems for information flows.
  • Storage of all information in a facility located in India shall be governed by the laws of India.
  • Not to outsource the provision of core services to a third-party service provider.
  • Not to use the information stored with it for any purpose other than providing services under these Regulations, without the prior approval of the Board.
  • Not to seek data/details of users except as required for the provision of services under IBC[39].
  • Adequate arrangements, including insurance is to be made for indemnifying the users for losses that may be caused to them by any wrongful act, negligence or default of the IU, its employees or any other person whose services are used for the services[40].
  • Appoint external auditor having relevant qualifications to audit its information technology framework, interface and data processing systems every year. The auditor’s report along with the comments of the Governing Board of IU is to be submitted to the IBBI within one month from the receipt of the same[41].
  • Establish an appropriate risk management framework in line with the Technical Standards[42].
  • Declare a Preservation Policy providing for the form, manner and duration of preservation of information stored with it; and details of the transactions of the IU with each user in respect of the information stored with it[43].
  • Inspection by the IBBI with such periodicity as may be considered necessary[44]. Disciplinary actions can be taken by IBBI including imposition of penalty under Section 220(3) of IBC.

Evidentiary Value of Information with Information Utilities

Authenticated information stored by IUs with regard to a debt or its default amounts to admission of such debt and default thereto by and between the parties to such debt or default. In the light of this fact, evidentiary value of information with IUs can be appreciated by referring to certain provisions of the Evidence Act, 1872. As per Section 65-B of the Evidence Act, information contained in any electronic record shall be deemed to be a document and shall be admissible in the court of law. Furthermore, Section 31 of the Evidence Act state that admissions are not conclusive proof of the matters admitted, but they may operate as estoppels under the provisions hereinafter contained.  In the context of information with IUs, Section 115 of the Evidence Act is significant, which state as follows:  “When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

When we examine the provisions of IBC with regard to IUs as explained in the preceding paragraphs of this article, it can be noted that the adjudicating authorities are given the option to accept records with IUs as proof/evidence of debts and defaults. This is on the basis of estoppel which would operate against the parties as per the aforesaid provisions of the Evidence Act. In Swiss Ribbons Pvt. Ltd. v. Union of India[45], constitutional validity of the various provisions of IBC was considered by the Supreme Court of India. One of the arguments in the matter was that IBC provides for private information utilities not only to collect financial data, but also to check whether a default has occurred or not. It was also argued that certification of debt/default by IUs is in the nature of a preliminary decree issued without any hearing and without any process of adjudication. On this ground along with others, the constitutional validity of IBC was challenged in this matter. However, the  Supreme Court of India upheld the constitutional validity of IBC and on the basis of statements made by the then Attorney General of India, declared at para 57 of the judgment that the record of default with IU is only a prima facie evidence of default, which is rebuttable by the  corporate debtor. So, the records with IUs are not conclusive proof and they are only a prima facie evidence of default, which is rebuttable by the corporate debtor.

Conclusion

It can be concluded that creation of IU is definitely a step towards ensuring an information-rich environment for the working of IBC. IUs certainly provide an infrastructure which ensure relevant financial information of debtors easily accessible at anytime from anywhere. This infrastructure undoubtedly empower the creditors and lenders to make informed choices and also provide essential financial information enabling time-bound insolvency resolution process. While, the purpose of setting up the above regime of IUs was to reduce information asymmetry; IUs not only reduce information asymmetry, but it is also enable the processes of IBC to meet the strict timelines prescribed. It can also be seen that the IUs are significant as they provide for improved credit risk assessment and improve the recovery processes. Though there is no doubt about the significance of the IUs; it may take a while before they become relevant as expected. As the first step, IBBI has registered National E-Governance Services Limited (a Union Government company) as the first IU of the country on September 25, 2017. Being sanguine about the developments thus far, we can expect that the data available with the IUs will grow in terms of quantity and quality over a period of time making them an important pillar in the overall resolution process.


* BA LLB (Hons.), LLM, currently working as Manager-Legal with Hindustan Petroleum Corporation Limited at Zonal Administrative Office, Chennai.

[1] Civil Procedure Code, 1908 (Act  5 of 1908).

[2] Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act  51 of 1993).

[3] Debts Recovery Tribunal.

[4]Indu Bhan, “Long Due – Banks can now confiscate security in case of a loan default”, Financial Express, August 19, 2016, available at https://www.financialexpress.com/opinion/long-due/351486/, last visited on 15.05.2020.

[5]Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act  54 of 2002).

[6] Prasanth V. Regy and Shubho Roy, “Understanding Judicial Delays in Debt Tribunals”, Paper No. 195 in the Working Paper Series of National Institute of Public Finance and Policy at New Delhi, May 2, 2017, available at https://www.nipfp.org.in/media/medialibrary/2017/05/WP_2017_195.pdf, last visited on 15.05.2020.

[7] Government of India, “Report of the Bankruptcy Law Reforms Committee” (Ministry of Finance, November 2015).

[8] Insolvency and Bankruptcy Board of India established under Section 188 of the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).

[9]Reserve Bank of India, “Report of the Working Group to explore the possibilities of setting up a Credit Information Bureau in India” (Department of Banking Operations and Development, October 1999)

[10] Credit Information Companies (Regulation) Act, 2005 

[11] Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited have been granted Certificate of Registration by RBI.

[12]Monetary Financial Institutions.

[13]Reserve Bank of India, “Report of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies”, (Department of Banking Operations and Development, January 2014)

[14] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017

[15]As per Explanation to Regn. 3 of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, a person is considered as fit and proper, if he (a) is having integrity, reputation, character and financial solvency (b) has never been convicted by a Court for an offence or sentenced to imprisonment for a period less than 6 months, and (c) has not suffered any restraint order issued by financial sector regulator or adjudicating authority.

[16] IBBI (Information Utilities) Regulations, 2017, Regns. 5 and 6.

[17]Id, Regn.  8(3).

[18]Id,  proviso to Regn. 8(1)

[19]Id, Regn. 8(2)(a).

[20]Id,  Regn. 8(2)(b).

[21]Supra Note 7.

[22]Government of India, “Report of the Working Group on Information Utilities” (Ministry of Corporate Affairs, January 2017).

[23] This cap of 330 days was brought by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (w.e.f. 16-8-2019).

[24]MCA-21 is an e-Governance initiative of Ministry of Company Affairs (MCA), Government of India that enables an easy and secure access of the MCA services to the corporate entities, professionals and citizens of India. It is designed to fully automate all processes related to the enforcement and compliance of the legal requirements under the Companies Act, 1956, the New Companies Act, 2013 and the Limited Liability Partnership Act, 2008. Its database will contain the master data and the charges registered on companies and LLP.

[25]Insolvency and Bankruptcy Board of India, Circular No. IBBI/IU/025/2019 dated 07-09-2019.

[26] Notification No: DBR.No.Leg.BC.98/09.08.019/2017-18 dated December 19, 2017 issued by Reserve Bank of India, available at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11189&Mode=0, last accessed on 16.05.2020.

[27] Insolvency and Bankruptcy Code, 2016 (31 of 2016), Ss. 214(d) and (h).

[28] As per Section 5(7) of IBC, “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. Eg. – Banks and financial lenders.

[29] As per Section 5(20) of IBC, “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Eg. – Suppliers and vendors.

[30]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 38.

[31] Insolvency and Bankruptcy Code, 2016 (31 of 2016), S.6.

[32] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

[33]Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regn. 8(2)(a)

[34]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Chapter V (Regns.17 to 27).

[35]Id, Form C of the Schedule.

[36]Deemed authentication was inserted by Notification No. IBBI/2019-20/GN/REG046 dated 25/07/ 2019. Prior to this, there was no option for deemed authentication when debtor do not respond to notice for authentication.

[37] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 21.

[38] Host bank means the financial institution hosting the repayment account.

[39] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 30.

[40]Id, Regn. 31.

[41]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn 34.

[42]Id,  Regn. 33.

[43]Id, Regn. 35.

[44]Id,  Regn.37.

[45] 2019 SCC OnLine SC 73.

Case BriefsSupreme Court

Supreme Court: The bench of SK Kaul and Indu Malhotra, JJ has recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. It suggested that a council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

Writing two postscripts, the Court said that it was forced to do so on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee. The Court said that it hoped that both the aspects meet consideration at an appropriate level.

Postscript 1:

The Indian legal system is reeling under a docket explosion. The Government and public authorities are active contributories to this deluge. To top it, a number of litigations arise inter se the Government and its bodies and, thus, the only question, as stated in the beginning, is which pocket of the Government will be benefitted?

The Central Government and the State authorities have been repeatedly emphasising that they have evolved a litigation policy. Our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this Court, so that there is no responsibility in the decision-making process – an unfortunate situation which creates unnecessary burden on the judicial system.

“The object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments. Undoubtedly, this is complete wastage of judicial time and in various orders of this Court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain this certificate of dismissal.”

  • In 1988, the 126th Law Commission of India Report titled ‘Government and Public Sector Undertaking Litigation Policy and Strategies’ debated the Government versus Government matters which weighed heavily on the time of the Courts as well as the public exchequer.
  • In 2010, the National Litigation Policy (for short ‘NLP’) was formulated with the aim of reducing litigation and making the Government an efficient and responsible litigant. Five (5) years later it reportedly saw a revision to increase its efficacy, but it has hardly made an impact.
  • In 2018, the Central Government gave its approval towards strengthening the resolution of commercial disputes of Central Public Sector Enterprises (for short ‘CPSEs’)/ Port Trusts inter se, as well as between CPSEs and other Government Departments/Organisations. The aim was and is to put in place a mechanism within the Government for promoting a speedy resolution of disputes of this kind, however it excluded disputes relating to Railways, Income Tax, Customs and Excise Departments. This now been made applicable to all disputes other than those related to taxation matters.
  • Insofar as non-taxation matters are concerned, the Administrative Mechanism for Resolution of CPSEs Disputes was conceptualised to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes. It has a two-tiered structure. At the first level, commercial disputes will be referred to the Committee comprising Secretaries of the Administrative Ministries/Departments to which the disputing parties belong and the Secretary, Department of Legal Affairs. In case the two disputing parties belong to the same Ministry/Department, the Committee will comprise Secretary of Administrative Ministry/Department concerned; the Secretary, Department of Legal Affairs and the Secretary, Department of Public Enterprises. If a dispute is between a CPSE and a State Government Department/Organisation, the Committee will comprise of the Secretary of the Ministry Department of the Union to which the CPSE belongs, the Secretary, Department of Legal Affairs and the Chief Secretary of the State concerned. Such disputes are ideally to be resolved at the first level itself within a time schedule of three (3) months, and in the eventuality of them remaining unresolved, the same may be referred to the Cabinet Secretary at the second level, whose decision will be final and binding on all concerned.

The Court, however, noticed that one of the main impediments to such a resolution, plainly speaking, is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement.

“In order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to the settlement so that such apprehensions do not come in the way of arriving at a settlement.”

It was hence, noticed that a serious thought should be given to the aspect of dispute resolution amicably, more so in the post-COVID period.

Postscript 2:

This part dealt with the issue of matters pertaining to CPSEs and Government authorities insofar as taxation matters are concerned, because they are consistently sought to be carved out as a separate category of cases. One of the largest areas of litigation for the Government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%.

The Court was of the opinion that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.

“Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down.”

  • In 1971 that a report was submitted by the Direct Taxes Enquiry Committee recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration with the aim to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes.
  • In 1993, a scheme of Advance Ruling was brought into effect, with the introduction of a new Chapter in the Income Tax Act, 1961. A quasi-judicial tribunal was established as the Authority for Advance Rulings (AAR) to provide certainty and avoid litigation related to taxation of transactions involving non-residents.
  • The scope of the transactions on which an advance ruling can be sought from the AAR has gradually increased to now include both residents and non-residents, who can seek the same for issues having a substantial tax impact. Chapter XIX-B of the IT Act deals with advance rulings and it has been defined in Section 245N(a) of the 43 IT Act. These rulings are binding both on the Income Tax Department and the applicant, and while there is no statutory right to appeal, the Supreme Court has held that a challenge an advance ruling first lies before the High Court, and subsequently before the Supreme Court. The advance ruling may be reversed in the event a substantial question of general public importance arises or a similar question is already pending before the Supreme Court for adjudication.

The Court, however, noticed that the ground level situation is that this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four years!

“There is obviously lack of adequate numbers of presiding officers to deal with the volume of cases. Interestingly, the primary reason for this is the large number of vacancies and delayed appointments of Members to the AAR. In view of the time taken, the very purpose of AAR is defeated, resulting in the mechanism being used infrequently as is evident from the everincreasing tax related litigation.”

Noticing a significant development in Section 245N of the IT Act, the Court said that in 2000, public sector companies were added to the definition of ‘applicant’, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of Rs. 100 crore or more.

“Insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and we do believe that it is time to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!”

Referring to the international scenario where there has been an incremental shift towards mature tax regimes adopting advance ruling mechanisms, the bench noticed that the increase in global trade puts the rulings system at the centre-stage of a robust international tax cooperation regime. The Organisation for Economic Cooperation and Development (OECD) lists advance rulings as one of the indicators to assess trade facilitation policies, making it an aspirational international best practice standard.

The Court, hence, said,

“The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process.”

The Court concluded by referring to the legal legend Mr. Nani A. Palkhivala, who while addressing a letter of congratulations to Mr. Soli J. Sorabjee on attaining his appointment as the Attorney General on 11.12.1989 referred to the greatest glory of Attorney General as not to win cases for the Government but to ensure that justice is done to the people. In this behalf, he refers to the motto of the Department of Justice in the United States carved out into the Rotunda of the Attorney General Office:

“The United States wins its case whenever justice is done to one of its citizens in the courts.”

The Court said that the Indian citizenry is entitled to a hope that the aforesaid is what must be the objective of Government litigation, which should prevail
even within the Indian legal system. In the words of Martin Luther King, Jr.,

“We must accept finite disappointment, but never lose infinite hope.”

[National Co-operative Development Corporation v. Commissioner of Income Tax, 2020 SCC OnLine SC 733, decided on 11.09.2020]

Op EdsOP. ED.

Interest republicae ut sit finis litium, meaning it is in the interest of the State that there should be an end to litigation. In pursuance of this objective, the Indian legal regime adopted various alternative forms of adjudicatory mechanism. The capital market regulator, Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) introduced the consent mechanism efficacy of which has been discussed in this article.

Concept

The Code of Civil Procedure, 1908 and the Criminal Procedure Code, 1973 enumerate concepts of ‘compromise’ and ‘compounding of offences’ respectively. Similarly, under Section 15-JB[1] of the Securities and Exchange Board of India Act, 1992 is vested with the power to settle cases of securities law violation in the capital market. The idea was adopted from the success of its US counterpart, the Securities and Exchange Commission. Initially, the consent mechanism was proposed vide circular, Circular No. EFD/ED/Cir-1/2007 that enumerated the Guidelines for Consent Orders, introduced in 2007. The mechanism has evolved over the past years to take the form of the Settlement Regulations, 2018.[2]

The consent mechanism may be defined as “a proceeding in which the regulator and the alleged violator, may at any stage of the proceeding negotiate a settlement in lieu of administrative/civil proceeding, in the process saving cost, time and efforts for the parties involved. The mechanism does not require admission or denial of findings.”

Interpreting settlement orders

To test the proposition in respect of the success of this mechanism, a few cases of settlement have been analysed. The vital question that arises is “Where the interest of investors is at stake, is settlement a viable solution?”

The recent settlement order passed by SEBI in the matter of HDFC AMC (hereinafter referred to as ‘the applicant’) provides insight to the above question. The applicant was served with a show-cause notice for violation of the SEBI (Mutual Funds) Regulations, 1996.  The applicant had invested in the debt instruments of Essel group of companies through its various mutual fund schemes. As per the show-cause notice, the investment made did not adhere to the (Mutual Funds) Regulations, 1996 as it failed to maintain proper due diligence that led to the loss of the unit-holders. In furtherance of the notice, the applicant filed a settlement application with SEBI and the High Powered Committee (constituted under the Settlement Regulations, 2018) agreed to settle the matter. As a part of the settlement terms, the applicant ensured that the unit-holders were compensated along with redressal of their complaints. Further, it was agreed that the settlement amount would be paid by the funds of the applicant.

Certainly, the above order was in the interest of the investors and the regulator. The alleged violations were committed in May 2019, and within a span of a year, the settlement process has been concluded. Settlement in the present case indeed served as an expeditious solution contrary to the prolonged administrative/legal proceedings.

One major concern that has hindered the growth of the settlement mechanism is the conundrum surrounding the settlement of serious offences like insider trading and fraudulent unfair trade practices. It is pertinent to note here that such offences were a part of the initial guidelines issued under the circular in 2007. Subsequently, the amended Settlement Regulations, 2014 removed serious offences based on the severity of such offences. However, the Committee set up under the chairmanship of Justice Dave that drafted the Settlement Regulations, 2018, undertook an alternative approach by vesting discretion with the Board to decide based on facts and circumstances of each case than make it principle based by creating an absolute bar to settle such offences.

The question that requires attention is that “Has the discretion vested with the Board regarding the nature of offences to be settled been exercised wisely by it?”

On observation of previously adjudicated cases that have been settled, it was noticed that only those cases where market interests and market impact was limited and loss to the investors was minuscule, were taken through the settlement route. In  Abhay Gandhi and Kiran Abhay Gandhi, the CEO of Ranbaxy Laboratories Limited, was charged under the  Prohibition of Insider Trading Regulations, 2015[3] for selling shares while in possession of Unpublished Price Sensitive Information, the matter was settled by remitting an amount of Rs Thirty-five lakhs, that would have been evaluated considering the profit made by the applicants, the multiplier for deciding penalty as provided in  Chapter VI[4] of the Settlement Proceedings Regulations, 2018.    

Settlement – An Antidote to Litigation?

On considering the above proposition, it raises two further questions.

1. Will SEBI in all cases allow the settlement process?

2. Is the settlement mechanism a full proof mechanism where the interests of SEBI, stakeholders and investors can be balanced?

To answer the former, the essential grounds for the basis of the settlement are laid down exhaustively under the purview of Regulation 10 of the Settlement Regulations, 2018. The Board established under Section 5 of the Act may reject matters for settlement that have a wide impact on investors, are repetitive in their defaults or the person making the application is a wilful defaulter. SEBI has adopted a stringent approach in accepting applications for Consent Orders. For instance, NSE was alleged to have deals with brokers and unduly favouring and assisting them in unauthorised trading, and it applied for settlement. SEBI rejected the NSE settlement application and ordered disgorgement by asking them to pay over INR 1000 Crores.

After the infamous IL&FS scam where credit rating agencies were under the scanner for not changing the credit rating of the instruments before the default, SEBI based on a reasoned order categorically stated that the matter involved wide market impact including an adverse effect on the interest of the investors thereby questioned the integrity of the market, and rejected ICRA’s application for settlement.   

To answer the latter, no mechanism can be a panacea, it comes with its fragilities. In the author’s opinion, the biggest drawback of this mechanism is that it may undermine the problem which may in a certain point of time be the tip of the iceberg. To illustrate, in the case of Yes Bank, it was charged for violating the disclosure norms prescribed in Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that required the disclosure of material information.

Yes Bank as per the settlement order made selective disclosure of divergence and partially concealed the report the issued by RBI and its settlement then, concluded the matter but all those along with a gamut of other issues including a liquidity crisis and failure of the corporate governance bounced back together and led to its collapse. Therefore, in certain cases, it may not be possible for the regulator to see through and understand the actual reasons behind the violation, divergence. 

The way ahead

The increasing role of the consent mechanism can be witnessed from the fact that an average of ten settlement orders were passed in the year 2019. It is evident that the Settlement Regulations, 2019 have ushered a fresh air in the arena of ‘Consent Orders’. Certain key features of the regulations are that transparency is ensured by vesting limited discretion with the Board. The penalty payable by the applicant is derived based on a comprehensive multiplier on consideration of the number of defaults, the stage of proceedings along with the stage at which settlement is introduced. It will not be a misnomer to say that capital market regulations in India have evolved tremendously along with the market and provided an effective adjudication process that serves the need of the hour. In cases where all three chords of prompt action, investor interest, and effective enforcement are struck, it is only then the underlying objective of consent orders will be achieved in its essence.


*Legal professional, with an avid interest in Securities Law and previously worked with KPMG as a part of the Forensic Investigation Team.

[1] Section 15-JB, Securities and Exchange Board of India Act, 1992    

[2] Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018

[3] The SEBI (Prohibition of Insider Trading) Regulations, 2015 

[4] Ch. VI, SEBI (Settlement Proceedings) Regulations, 2018  

Hot Off The PressNews

Supreme Court: The Court has sought Centre’s response on a PIL seeking direction from the Government to immediately restore high-speed internet  services and fixed landline phone services across all hospitals and medical establishments in Jammu and Kashmir. A bench headed by Chief Justice Ranjan Gogoi issued a notice to the Centre and tagged the matter along with other related pleas in connection with the Kashmir issue.

On September 11, an advocate named Satya Mitra had filed the plea on behalf of doctor Sameer Kaul and one Salim Jahangeer Kirmani. The petition also sought direction to the central government to desist and refrain in future from blocking or suspending internet and fixed landline phone services in hospitals and medical establishments, along with mobile phone services of doctors and other staff members working in hospitals and medical establishments in Jammu and Kashmir.

The court sent to constitution bench a plea filed by Kashmir Times Executive Editor Anuradha Bhasin seeking the removal of communication blockade in Jammu and Kashmir after the abrogation of provisions under Article 370 and free movement of journalists in the region.

On August 13, Bhasin had moved the plea, claiming Kashmir Times was not published owing to the curbs on communication services and movement. She had alleged that a bar was put on journalists’ rights provided under the different provisions of the Constitution.
The court also sent to constitution bench a PIL filed by child rights expert Enakshi Ganguly and Professor Shanta Sinha, alleging illegal detention of children in Jammu and Kashmir in the wake of abrogation of Article 370.

The court will commence hearing on the pleas relating to Article 370 from Tuesday.

On August 5, the Centre had abrogated Articles 370 and 35A of the Indian Constitution and the Parliament had passed the Jammu and Kashmir (Reorganisation) Act, 2019, bifurcating the former state into two Union Territories – Jammu and Kashmir and Kashmir) with legislature and Ladakh without one. Following this, a batch of petitions was filed in the top court challenging the
move.

(Source: ANI)


More from Supreme Court on Article 370

SC seeks report from J&K HC CJ on claims about people being unable to approach HC

SC asks Central govt to restore normalcy in Jammu & Kashmir

5-judge bench to begin hearing in plea challenging J&K Reorganisation Bill from tomorrow

Won’t rush into passing any direction on removal of restrictions on the media in J&K: SC

No urgent hearing on plea challenging J&K Reorganisation Bill

Also read

Parliament passes the J&K Reorganisation Bill, 2019!

The Jammu and Kashmir Reservation (Amendment) Bill, 2019– What it says?

Rajya Sabha approves the Jammu and Kashmir Reservation (Second Amendment) Bill, 2019!

Jammu and Kashmir Reorganisation (Amendment) Bill, 2019 — Passed by Rajya Sabha; Formation of J&K as a Union Territory!

Hot Off The PressNews

Supreme Court: Terming as “very very serious” the claim that people are finding it difficult to approach the Jammu and Kashmir High Court, the 3-judge bench of bench of Ranjan Gogoi, CJ and S A Bobde and S A Nazeer, JJ has decided to verify it by asking the Chief Justice there to “forthwith” submit a report in this regard.

“If you are saying so, we are bound to take serious note of it. Tell us why it is very difficult for people to approach the high court. Is anybody stopping the people from going to high court? Then it is a very very serious issue,”

The Court said that it will verify the claim after senior advocate Huzefa Ahmadi appearing for two child rights activists claimed that it is very difficult for the people in the state to access the high court there.

The CJI said he would himself visit Srinagar, if required, and he would also speak to the chief justice of high court about this.

“It is stated by Huzefa Ahmadi, senior counsel for the petitioners, that access to the high court of Jammu and Kashmir is seriously affected by the present situation in the state. We request the chief justice of the high court to submit a report on the above issue forthwith,”

Taking note of Ahmadi’s submissions, the CJI said, “You are saying that you cannot go to the high court. We have called for a report from Chief Justice of the high court. If required, I will myself go there.” He further said:

“We must know if there is denial of access to justice. I will personally talk to the chief justice of the high court after this matter is over because what you have said is very very serious thing.”

The bench warned however that if the allegations are found to be incorrect then the petitioners should be ready to face the consequences.

The Court was considering a public interest litigation (PIL) seeking the Supreme Court’s intervention on the issue of detention of children in Kashmir. During the hearing, the bench referred to the prayer made in the petition and said that petitioners have themselves said that children be produced before the juvenile justice committee of the high court. Ahmadi, however, said it is very difficult to approach the high court in the state.

Solicitor General Tushar Mehta, appearing for Jammu and Kashmir, told the bench that all the courts in the state are functioning and even the Lok Adalats have been conducted there. When Mehta said that he wanted to make statement in the court on the issue, the bench said,

“We do not want anybody to make any statement. We will look into it. If people are not able to approach the high court, then we will have to look into it.”

The petition has been filed by child rights activists Enakshi Ganguly and Professor Shanta Sinha against the alleged illegal detention of children in Jammu and Kashmir in the wake of revocation of Article 370 and bifurcation of state. The plea has contended that all persons below the age of 18 years who have been detained be identified through an age census. Seeking directions that illegally detained children be produced before the Juvenile Justice Committee of the high court, the plea has also sought compensation from them.

Last month, Parliament had passed the Jammu and Kashmir (Reorganization) Act, 2019, bifurcating the state into two Union Territories — Jammu and Kashmir with legislature and Ladakh without it. Following this, a batch of petitions were filed in the top court challenging it.

(Source: PTI)


Also read:

Parliament passes the J&K Reorganisation Bill, 2019!

The Jammu and Kashmir Reservation (Amendment) Bill, 2019– What it says?

Rajya Sabha approves the Jammu and Kashmir Reservation (Second Amendment) Bill, 2019!

Jammu and Kashmir Reorganisation (Amendment) Bill, 2019 — Passed by Rajya Sabha; Formation of J&K as a Union Territory!

Case BriefsHigh Courts

Orissa High Court: A Single Judge Bench of Dr A.K. Rath, J., allowed the petition which challenged the order of the trial court whereunder the application of the plaintiffs filed under Order 1 Rule 10 CPC to implead the wife of Defendant 1 was rejected.

The facts of the case were that the plaintiffs-petitioners had instituted the suit for permanent injunction and recovery of possession impleading the wife of the defendant as Defendant 2.

The contention of Mr A.P. Bose, Advocate for the petitioners, was that a part of the suit land had been alienated to the wife of the defendant. The said fact came to the knowledge of the plaintiffs after the written statement was filed. The hearing of the suit had not begun. The intervenor was a necessary party to the suit.

The counsel for defendants Mr S. Udgata, submitted that the written statement was filed in the year 2011. But then, the petition for impleadment was filed after a gap of five years. The intervenor was neither necessary nor proper party to the suit.

The Court relied on the case of Razia Begum v. Sahebzadi Anwar Begum, AIR 1958 SC 886, wherein the Apex Court had held that it is firmly established as a result of judicial decisions that in order that a person may be added as a party to a suit, he should have a direct interest in the subject matter of the litigation whether it raises questions relating to movable or immovable property. The suit scheduled land had been alienated to the wife of the defendant. In view of the same, the intervenor was a necessary party to the suit thus the petition was allowed. [Ramesh Chandra Sahoo v. Ranjit Kumar Singh, 2018 SCC OnLine Ori 436, decided on 19-12-2018]

Case BriefsForeign Courts

Constitutional Court of South Africa: A Single Judge Bench comprising of Mogoeng, CJ. Dlodlo, Goliath, Petse, AJ, Froneman, Jafta, Khampepe, Madlanga, and Theron, JJ., unanimously granted the applicants rescission in terms of the Uniform Rules of Court and granted leave to intervene to applicants in the trial.

This application was filed for leave to appeal against an order of Supreme Court Appeal where a refusal of rescission and dismissal of an application for leave to intervene by the High Court of South Africa was upheld. The issue before the Court was whether rescission and leave to intervene should have been granted.

Facts of the case are that a group of individuals acquired a company to use the same as a vehicle for commercial opportunities for the benefit of black people. Applicants were shareholders of this company. The company was converted into a public company in order to open up the shareholding to more than 50 persons. It was renamed NC Housing Services and Development Co. Ltd. Due to failure to file annual company returns ROC removed the name of the company from companies register. Later company wanted to sell its major asset for which they applied for re-registration and were subsequently re-registered. A dispute arose between the applicants and the second and third respondents, regarding the proportion of shares owned by the various shareholders.

The respondent filed an application in High Court against the company where the matter was referred to Trial. High Court held that the shareholders could not have been a party in trial as they could not have personally fought the case as they were representative directors. Supreme Court of Appeal held that although the applicants had been participating in the proceedings both as directors and as shareholders, the resolution passed by them barred them from participating in the litigation due to their failure to have set aside the above resolution.

Therefore, this Constitutional Court held that when an individual shareholder is presented as “shareholder” in court proceedings, he becomes party in the litigation in his personal capacity. Orders of the Supreme Court of Appeal and High Court of South Africa were set aside. Court granted rescission in terms of the Uniform Rules of Court and leave to appeal to intervene in the trial. [Morudi v. NC Housing Services and Development Co. Ltd. , (2018) ZACC 32, dated 25-09-2018]

Case BriefsSupreme Court

Supreme Court: Abhay Manohar Sapre, J. speaking for himself and his brother Judge Uday U. Lalit, gave judgment in a civil appeal arising out of matrimonial dispute whereby the appellant challenged the decree of divorce passed by family court and affirmed by High Court of Jharkhand.

The appellant-wife was married to the respondent-husband, and they had a daughter born out of the wedlock who was of marriageable age. The parties married in 1997, but their relations were not cordial from soon after the marriage. This led to the filing of a divorce petition by the husband against the wife on grounds of cruelty and desertion. The Family Judge dissolved the marriage and the decree was confirmed by the High Court.  Aggrieved thus, present appeal was filed by the wife.

The Supreme Court heard the parties and perused the record. It was noted that the parties were living separately for more than a decade. All attempts to conciliation through mediation had failed. There was absolutely no chance of them living together to continue their marital life.  While referring to Naveen Kohli v. Neelu Kohli, (2006) 4 SCC 558 and Sanghamitra Ghosh v. Kajal Kumar Ghosh, (2007) 2 SCC 220, the Court held that in order to ensure that parties may live peacefully in future and their daughter would be settled properly, a quietus must be given to all litigation between the parties. Consistent with the broad consensus arrived at between the parties, the Court directed the husband to pay Rs 10 lakhs towards permanent alimony and maintenance to the appellant and the daughter. [Manju Kumari Singh v. Avinash Kumar Singh,2018 SCC OnLine SC 739, dated 25-07-2018]

Case BriefsForeign Courts

Supreme Court of Canada: While considering the issue regarding the powers of investigation of the syndic that whether the assistant syndic of the Chambre de l’assurance de dommages (the syndic) was empowered to demand from the Insurer the production of documents subject to litigation privilege, for inspection, the Bench of McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown, JJ., held that Section 337 of the Act Respecting the Distribution of Financial Products and Services is a general production provision that does not specifically indicate that the production must include records for which privilege is claimed, thereby not abrogating litigation privilege attached to a document. It was further observed that, “Although litigation privilege is distinguishable from solicitor-client privilege, it is nevertheless a class privilege and gives rise to a presumption of inadmissibility for a class of communications, namely those whose dominant purpose is preparation for litigation. Thus, any document that meets the conditions for the application of litigation privilege will be protected by immunity from disclosure unless the case is one to which one of the exceptions to that privilege applies.”

In the instant case, the appellant, an assistant syndic of the Chambre de l’assurance de dommages asked the respondent to send her a complete copy of its claim file with respect to one of its insured. The syndic based this request on Section 337 of the Act Respecting the Distribution of Financial Products and Services (ADFPS). However the insurer expressed its inability to present certain documents, citing that they were either covered by solicitor- client privilege or by litigation- privilege. The appellant contended that the aforesaid provision is sufficient to lift the privilege, because it created an obligation to produce ‘any document’.

Perusing a plethora of case laws on the development of law of litigation privilege in Canada, the Court referred to its previous decision in Blank v. Canada (Minister of Justice), 2006 SCC OnLine Can SC 39 : 2006 SCC 39, to highlight the present position vis-à-vis litigation privilege, which states that solicitor-client privilege and litigation privilege are distinct. However that Court observed that, “litigation privilege is subject to clearly defined exceptions, not to a case-by-case balancing test. In the context of privileges, the exercise of balancing competing interests is associated with case-by-case privileges, not class privileges. The exceptions that apply to solicitor-client privilege are all applicable to litigation privilege. These include the exceptions relating to public safety, to the innocence of the accused and to criminal communications.” It was further stated that litigation privilege can be asserted against third parties, including third party investigators who have a duty of confidentiality, therefore the insurer can very well assert the litigation privilege against the syndic, which cannot be lifted by Section 337 of ADFPS. [Lizotte v. Aviva Insurance Company of Canada, 2016 SCC OnLine Can SC 35 : [2016] SCC 52, decided on 25.11.2016]

Case BriefsSupreme Court

Supreme Court: Stating that the virus of seeking adjournments needs to be controlled in order to avoid the abuse of the process of law, the bench of Dipak Misra and R. F. Nariman, JJ said that such act causes colossal insult to justice and to the concept of speedy disposal of civil litigation.

In a suit relating to recovery of possession, the examination- in-chief continued for long and the matter was adjourned seven times. The defendant sought adjournment after adjournment for cross-examination on some pretext or the other as if it was his right to seek adjournment on any ground whatsoever and on any circumstance. The Court said that a counsel appearing for a litigant has to have institutional responsibility and the professional ethics decries such practice. It was further reiterated that it is desirable that the recording of evidence should be continuous and followed by arguments and decision thereon within a reasonable time. That apart, the Courts should also constantly endeavour to follow such a time schedule so that the purpose of amendments brought in the Code of Civil Procedure are not defeated.

Quoting the saying of Gita “Awake! Arise! Oh Partha” for guidance of trial courts, the Court said that in the cases where the Judges are little proactive and refuse to accede to the requests of unnecessary adjournments, the litigants deploy all sorts of methods in protracting the litigation and it is not surprising that civil disputes drag on and on. The misplaced sympathy and indulgence by the appellate and revisional courts compound the malady further. The Court, hence, directed the defendant to deposit Rs, 50, 000 to the State Legal Service Authority, Karnataka within 8 weeks of this order and it was further made clear that if the amount is not deposited, the right of defence to examine its witnesses shall stand foreclosed. [Gayathri v. M. Girish, 2016 SCC OnLine SC 744, decided on 27.07.2016]