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A clean slate theory in Insolvency and Bankruptcy Code, 2016

The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. The IBC was enacted and came into force on 28 May 2016; however, some of the sections were made effective on various dates to implement in a systematic manner. Some of the parts have not even been notified till date, e.g. bankruptcy process for partnership firms and individuals.

Ramit Mehta

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corporate insolvency

The present article is an attempt to lay down certain preliminary thoughts on the Clean slate theory of Insolvency and Bankruptcy Code, 2016 and legal issues and impact that have erupted on account of the approval of the Resolution Plan by Committee of Creditors.

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 is a special law, which has been ordained for the purpose of bringing out an industry from distress and to ensure that its assets do not go to waste by liquidation. IBC is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.The Insolvency and Bankruptcy Code was passed by Lok Sabha on 5thMay 2016 and by Rajya Sabha on 11thMay 2016 and thereafter received the assent of the President of India on 28thMay 2016.

The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. IBC was enacted and came into force w.e.f. 28th  May 2016, however, some of the sections were made effective on various dates to implement in a systematic manner. Some of the parts have not even been notified till date e.g. bankruptcy process for partnership firms and individuals.

SCENARIO PRECEDING IBC

That prior to the promulgation of the IBC, the bankruptcy and insolvency legal regime was more like the adversarial legal system and tilted in favour of debtors. The Era before IBC was having various scattered laws relating to insolvency and bankruptcy which caused inadequate and ineffective results with undue delays. Moreover previous experiments that had failed and adverted to certain judgments to show that the failure of previous acts were due to enormous delays in disposal of cases. Previous Acts are:- The Sick Industrial Companies (Special Provisions) Act, 1985 for revival of sick companies ,Companies Act for liquidation and winding up of the company, SARFAESI – (Securitization and reconstruction of financial assets and enforcement of security interest) Act for security enforcement and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993for debt recovery by banks and financial institutions.

Due to Ineffective implementation, conflict in one of these laws and the time-consuming procedure in the aforementioned laws, made the Bankruptcy Law Reform Committee to draft and introduce Insolvency and Bankruptcy Law bill.

HOLY GRAIL OF IBC AND ITS METHODOLOGY

The Preamble of the Code states that it is “An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto ” To enable this, detailed timelines have been prescribed in the Code.

The Insolvency and Bankruptcy Code has been a big sigh of relief for MSMEs which would, ensure faster debt recovery or liquidation process through the Corporate Insolvency Resolution Process (CIRP) or through liquidation of defaulting debtor entity. This law has simplified winding up process in respect of companies, which was earlier fragmented due to multiplicity of statutes as well as forums.

One of the main purposes of this code is to empower the creditor wherein he or she can get back the dues through the Corporate Insolvency Resolution Process (CIRP) or through liquidation of defaulting debtor entity. The Insolvency and Bankruptcy code at present can only be triggered if there is a minimum default of Rs 1 Crore. This process can be triggered by way of filing an application before the National Company Law Tribunal (NCLT). The process can be initiated by two classes of creditors which would include financial creditors and operational creditors. But for the application to be admitted, the creditor will have to show that a requisite default is ascertainable.

Another important aspect that has to be seen in respect of Insolvency and Bankruptcy Code is that at present only companies (both private and public limited company) and Limited Liability Partnerships can be considered as defaulting corporate debtors. This code also contains provisions in respect of individual insolvency, but these provisions have not been notified they have consequently not come into force yet. Therefore cases relating to unpaid debts against individuals and partnership firms would fall outside the purview of this code.

TIME-BOUND PROCEDURE

Speed is of essence for the working of the bankruptcy code, for two reasons. First, while the calm period can keep an organisation afloat, without the full clarity of ownership and control, significant decisions cannot be made. Without effective leadership, the firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only answer. Second, the liquidation value tends to go down with time as many assets suffer from a high economic rate of depreciation. From the viewpoint of creditors, a good realisation can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay. This same idea is found in FSLRC’s treatment of the failure of financial firms. The most important objective in designing a legal framework for dealing with firm failure is the need for speed.

That Section 12 of the IBC provides a strict timeline for the completion of the entire resolution process.At the stage of admission of an application for initiating insolvency proceedings, the Code provides 14 days’ time to the NCLT to make a decision regarding admission or rejection and before rejecting an application the NCLT is required to provide 7 days’ time to the applicant to rectify defects in the application, if any.

A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree. For small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.

The Code stipulates fixed timelines to ensure timely resolution for corporate debtors, for the benefit of all stakeholders. Judicial interpretation has, by and large, promoted this objective by mandating that various parts of the timeline be adhered to and mandating that the outer time-limit provided in section 12 cannot be extended. However, certain time periods may be excluded from the calculation of the total time periods for the insolvency resolution process, including time taken in litigation.

MANTLE OF THE RESOLUTION PROFESSIONAL

The role of the resolution professional in the revival of the corporate debtor is stated in detail in several Sections of the IBC read with the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The ball starts rolling with the Adjudicating Authority, after admitting an application under either Sections 7, 9 or 10, ordering that a public announcement of the initiation of the CIRP together with calling for the submission of claims under Section 15 shall be made. For this purpose, the Adjudicating Authority appoints an interim resolution professional in the manner laid down in Section 16. In the public announcement of the CIRP, under Section 15(1), information as to the last date for submission of claims, as may be specified, is to be given; details of the interim resolution professional, who shall be vested with the management of the corporate debtor and be responsible for receiving claims, shall also be given, and the date on which the CIRP shall close is also to be given.

Under Section 17 of the Code, the management of the affairs of the corporate debtor shall vest in the interim resolution professional, the Board of Directors of the corporate debtor standing suspended by law. Among the important duties of the interim resolution professional is the receiving and collating of all claims submitted by creditors and the constitution of a Committee of Creditors.

Under Section 20 of the Code, the interim resolution professional is to make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

At the first meeting of the Committee of Creditors, which shall be held within 7 days of its constitution, the Committee, by majority vote of not less than 66% of the voting share of financial creditors, must immediately resolve to appoint the interim resolution professional as a resolution professional, or to replace the interim resolution professional by another resolution professional.

Under Section 23(1), there solution professional shall conduct the entire CIRP and manage the operations of the corporate debtor during the same. Importantly, all meetings of the Committee of Creditors are to be conducted by there solution professional, who shall give notice of such meetings to the members of the Committee of Creditors, the members of the suspended board of directors, and operational creditors, provided the amount of their aggregate dues is not less than 10% of the entire debt owed. Like the duties of the interim resolution professional under Section 18 of the Code, it shall be the duty of the resolution professional to preserve and protect assets of the corporate debtor including the continued business operations of the corporate debtor. For this purpose, he is to maintain an updated list of claims; convene and attend all meetings of the Committee of Creditors; prepare the information memorandum in accordance with Section 29 of the Code; invite prospective resolution applicants; and present all resolution plans at the meetings of the Committee of Creditors .

Under Section 29(1) of the Code, the resolution professional shall prepare an information memorandum containing all relevant information, as may be specified, so that a resolution plan may then be formulated by a prospective resolution applicant.

Under Section 30of the Code, the resolution applicant must then submit a resolution plan to the resolution professional, prepared on the basis of the information memorandum. After this, the resolution professional must present to the Committee of Creditors, for its approval, such resolution plans which conform to the conditions referred to in Section 30(2) of the Code. If the resolution plan is approved by the requisite majority of the Committee of Creditors, it is then the duty of the resolution professional to submit the resolution plan as approved by the Committee of Creditors to the Adjudicating Authority – see Section 30(6) of the Code.

The aforesaid provisions of the Code are then fleshed out in the2016 Regulations. Under Chapter IV of the Regulations of 2016,claims by operational creditors, financial creditors, other creditors, workmen and employees are to be submitted to the resolution professional along with proofs thereof.

Thereafter, under Regulation 13, the resolution professional shall verify each claim as on the insolvency commencement date, and thereupon maintain a list of creditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid list.

After receipt of the resolution plans in accordance with the Code and the Regulations, the resolution professional shall then provide the fair value and liquidation value to every member of the Committee of Creditors Under Regulation 36-A, the resolution professional shall then publish brief particulars of the invitation for expression of interest in Form G of the Schedule.

The resolution professional, once he receives a proposed resolution plan, must then conduct due diligence based on the material on record, in order that the prospective resolution applicant complies with Section 25(2)(h) of the Code (which, inter alia, requires prospective resolution applicants to fulfil such criteria as may be laid down, having regard to the complexity and scale of operations of the business of the corporate debtor) and other requirements as may be specified in the invitation for expression of interest. Once this is done, the resolution professional shall issue a provisional list of eligible prospective resolution applicants to the Committee of Creditors, and after considering any objection to their inclusion or exclusion, shall then issue the final list of prospective resolution applicants to the Committee of Creditors.

Under Regulation 36-B, the resolution professional shall issue the information memorandum, evaluation matrix, as defined by Regulation 2(h)(a)3and a request for resolution plan within the time stated. Importantly, the resolution professional shall endeavour to submit the resolution plan approved by the Committee of Creditors to the Adjudicating Authority, at least15 days before the maximum period for completion of CIRP, alongwith a compliance certificate in Form H of the Schedule.

ROLE OF THE COMMITTEE OF CREDITORS IN THE CORPORATE RESOLUTION PROCESS

That the commercial intelligence of the Committee of Creditors decides to whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee, and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. Hence, Section 21(2) of the Code mandates that the Committee of Creditors shall comprise all financial creditors of the corporate debtor.

Regulation 18 to 26 of the 2016 Regulations deal with meetings to be conducted by the Committee of Creditors. Regulation 39(3) fleshes out Section 30(4) of the Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants.

The importance of the majority decision of the Committee of Creditors is stated in Section 31(1) of the Code. Thus, what is left to the majority decision of the Committee of Creditors is the “feasibility and viability” of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.

MAJOR AMENDMENTS IN IBC, 2016

That time by time through rapid amendments in 4 years, many issues were dealt with and made this code at par with global standards. The recent amendments sought to fasten the process of resolution and liquidation. The major amendment is that now instead of 270 days the resolution now needs to be completed within 330 days. The reason for prolonging the period is because in litigation lots of time is exhausted and resolution process cannot be completed within time period and courts through their discretion used to extend the time limit which makes the provision redundant. But now the time period of 330 days also includes litigation time within which the resolution process has to compulsorily completed. After the said period the company’s assets will have to go for liquidation. Amongst all this is the most important amendment.

More power is given to Committee of Creditors (CoC) in terms of making decisions on the distribution of funds to various creditor categories. Under the code, financial creditors have a priority over operational creditors in case of distribution under a resolution plan. But, the Code was silent on distribution to creditors other than financial and operational creditor, the Committee of Creditors have now power to decide how claims will be distributed on the basis of commercial consideration. The purpose of the amendment was to apply Section 53 rationally and not blanketly. Section 53 talks about distribution of proceeds from the sale of the liquidation assets shall be distributed in a particular order of priority as provided in the section.

Voting threshold is reduced from 75% to 50% for the decisions of Committee of Creditors (CoC). So, if more than half of these creditors who are present approve a plan, it will be considered that the entire class of creditors has approved it. Whereas certain key decisions like appointment of resolution professional, approval of the resolution plan and increasing time limit for insolvency resolution process threshold has been reduced from 75% to 66%.

Under Real Estate Projects, homebuyers are now part of financial creditors. Now as per section 7, which is on Initiation of corporate insolvency resolution process by financial creditor, homebuyers are also categorised as financial creditors. The government has also addressed a longstanding demand of homebuyers who have filed cases against builders for non-delivery of flats.

The amendment adds a clarification that a plan will be binding on all stakeholders including the central and any state government or a local authority which has dues from a corporate debtor. 

The amendment has also sought to reduce delays at the beginning of insolvency proceedings initiated by financial creditors by requiring NCLT benches to explain why an application has not been admitted or rejected within fourteen days.

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The proposed amendments also seek to enhance the flexibility available to applicants by clarifying that a resolution plan may include corporate restructuring programmes such as mergers, demergers and amalgamation.

The government was taking care of the interest of home buyers and the requirement of minimum number of home buyers in the IBC has been included to avoid «frivolous litigations” and to remove bottlenecks and streamline the corporate insolvency resolution process. It aims to provide protection to new owners of a loan defaulter company against prosecution for misdeeds of previous owners. The government has added a clause to Section 7 of the IBC that at least 100 individuals or 10 per cent of creditors such as homebuyers have to come together to initiate corporate insolvency proceedings under the amendments to the Insolvency and Bankruptcy Code (IBC).Moreover 30 days time has been prescribed by the amendment for cases where a single homebuyer has taken a company to insolvency, to comply with the revised criteria from the time of the commencement of the Act.

The Amendment provides that the company will not be liable for any offence committed prior to the insolvency resolution process, if there is a change in the management or control of the company. Under the Code, the insolvency resolution process commences when the Insolvency Resolution Professional (IRP) is appointed.  The amendment states that the IRP must be appointed on the date of admission of the application by NCLT, which will be considered as the insolvency commencement date.

The Central Government in exercise of the powers conferred by the proviso to Section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), has increased the threshold for initiation of Corporate Insolvency Resolution Process (‘CIRP’) under the Insolvency and Bankruptcy Code (‘IBC’) against the erring companies from Rupees 1 lakh to Rupees 1 crore, vide MCA Notification No. S.O.1205(E). The decision was made in view of the lockdown announced by the Prime Minister to prevent the widespread of COVID-19. The increase in the trigger amount will supposedly benefit small companies and particularly the MSMEs (medium, small and micro enterprises) which are struggling during this lockdown period. This action will save a lot of businesses which are already facing a threat of default and thus avoid large scale insolvencies.

The Central Government has recently exempted all Covid-related debt from the definition of default under the insolvency and bankruptcy code (IBC) and suspended any fresh initiation of insolvency for up to a year.

RECENT CASE LAWS

That recently Rajasthan High court in the case of Ultratech Nathdwara Cement Ltd. Vs Union of India & ors. has held that as per the amended Section 31 of the IBC referred to supra, the Central Govt., State Govt. or any other local authority to whom, a debt in respect of payment of dues arising under any law for the time being in force are owed, have been brought under the umbrella of the resolution plan approved by the adjudicating officer which has been made binding on such governments and local authorities. The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case maybe. It has been further stated that the reply given by Hon’ble the Finance Minister (in relation to the amendment in section 31) emphatically conveys that the revival of the dying industry is of primacy and to secure this objective, the government would be ready to sacrifice, leaving its interest finally in the hands of the resolution professional and the COC as the case may be. Precedence in the Scheme of the Act is given to secure the interest of the financial creditors. It is clear that the financial creditors have to be given precedence in the ratio of payments when the resolution plan is being finalized. It is the financial creditors who are given right to vote in the COC whereas, the operational creditors viz. Commercial Taxes Department of the Central Government or the State Government as the case may be, have no right of audience. The purpose of the statute is very clear that it intends to revive the dying industry by providing an opportunity to a resolution applicant to take over the same and begin the operation on a clean slate. For that purpose, the evaluation of all dues and liabilities as they exist on the date of finalization of the resolution plan have been left in the exclusive domain of the resolution professional with the approval of the COC. The courts are given an extremely limited power of judicial review into the resolution plan duly approved by the COC.

CONCLUSION

To wrap up, it is imperative to note that the failure of some business plans is integral to the process of the market economy. When business failure takes place, the best outcome for society is to have a rapid renegotiation between the financiers, to finance the going concern using a new arrangement of liabilities and with a new management team. If this cannot be done, the best outcome for society is a rapid liquidation. When such arrangements can be put into place, the market process of creative destruction will work smoothly, with greater competitive vigour and greater competition. In view of the above discussion and in humble opinion of the author, the interpretation of Section 31 of IBC was always clear that the resolution plan once approved by the Hon’ble NCLT is binding on all stakeholders. However, it was only on account of never ending claims and demands of tax authorities of unpaid taxes , the legislature conspicuously introduced a clarificatory amendment in Section 31 of the IBC through Insolvency and Bankruptcy Code (Amendment) Act, 2019 to include the words “including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,” and the said provision ensures that the successful resolution applicant starts running the business of the corporate debtor with a “Clean Slate”. Moreover the importance of the insolvency resolution process is that not only is the corporate debtor to be put back on its feet, but that the resolution applicant whose plan is accepted must be able to start on a fresh slate. Thus, for creating a robust IBC, the need of hour is to provide progressive statesmanship rather than narrow and myopic interpretations.

AUTHORED

RAMIT MEHTA

Advocate

Rajasthan High Court, Jodhpur

Managing Partner, Mehta Chambers (Law offices).

Dated:- 28.11.2020

Disclaimer:- This article is only intended for informational purposes, and is not intended to provide and does not constitute, legal advice. Please seek legal advice for specific query on the points discussed above.

________________________________________

Reference:-

The Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code (Amendment) Act, 2020.

Insolvency and Bankruptcy Board of India.

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Ministry of Corporate Affairs.

2018 (9) SCALE 597

(2019) 2 SCC 1

(2019) 4 SCC 17

Civil Appeal No. 8766-67 of 2019 Committee of Creditors of Essar Steel India Ltd. Vs Satish Kumar Gupta & Ors. (SC)

DB Civil Writ Petition No. 9480/2019 Ultratech Nathdwara Cement Ltd. Vs Union of India & ors. (Rajasthan High Court)

DB Civil Writ Petition No. 6324/2019 Electrosteel Steels Limited vs state of Jharkhand & ors.(Jharkhand High Court)

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Legally Speaking

‘Dependent’ mother-in-law of a deceased can maintain motor accident claim petition: SC

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In a cogent, convincing, commendable, courageous and composed judgment titled N Jayasree & Ors vs Cholamandalam Ms General Insurance Company Ltd in Civil Appeal No. 6451 of 2021 (Arising out of S.L.P. (C) No. 14558 of 2019) in exercise of its civil appellate jurisdiction delivered most recently on October 25, 2021 has minced no words to observe that a motor accident claim petition filed by mother in law who was dependent on her deceased son in law is maintainable. We saw earlier how in this very noteworthy case, the Kerala High Court had ruled that mother in law of the deceased is not a legal representative under Section 166 of MV Act and thus not entitled to maintain the claim petition. While overruling what was held by the Kerala High Court and holding that she is a “legal representative” under Section 166 of the Motor Vehicles Act, the Bench of Apex Court comprising of Justice S Abdul Nazeer and Justice Krishna Murari observed quite rightly and candidly that, “It is not uncommon in Indian Society for the mother-in-law to live with her daughter and son-in-law during her old age and be dependent upon her son-in-law for her maintenance.”

To start with, this judgment authored by Justice S Abdul Nazeer for himself and Justice Krishna Murari sets the ball in motion by first and foremost putting forth in para 2 that, “This appeal is directed against the judgment dated 09.08.2017 passed by the High Court of Kerala at Ernakulam in MACA No. 1560 of 2013. Through the impugned judgment, the High Court scaled down the amount of compensation payable to the present appellants and thereby modified the award dated 26.04.2013 passed by the Motor Accident Claims Tribunal, Kottayam (for short ‘MACT’) in OP(MV) No. 843 of 2011.”

As we see, the Bench then discloses in para 3 that, “The appellants filed the aforesaid claim petition before the MACT seeking compensation on account of the death of N Venugopalan Nair in a motor vehicle accident which occurred on 20.06.2011. Appellant no. 1 is the wife of the deceased, appellant nos. 2 and 3 are his daughters and appellant no. 4 is his mother-in-law.”

To be sure, the Bench then states in para 4 that, “There is no dispute as to the occurrence of the accident and the liability of the respondent-insurer to pay the compensation. In view of this admitted position, it is unnecessary to narrate the factual aspects of the accident.”

Briefly stated, the crux of para 5 is that, “The deceased was aged 52 years at the time of the accident. The MACT took the annual salary of the deceased as Rs. 8,87,148. To this, the MACT applied a multiplier of ‘11’ and deducted one-fourth (1/4th) of the income towards his personal expenses for the purpose of calculation of the compensation under the head of loss of dependency. A total sum of Rs. 73,18,971/ (Rupees seventy three lakhs eighteen thousand nine hundred seventy one only) was awarded towards loss of dependency. The MACT awarded a total sum of Rs. 74,50,971/ (Rupees seventy-four lakhs fifty thousand nine hundred seventy one only) towards compensation with interest @ 7.5 percent per annum from the date of the claim petition till the date of realization.”

To put things in perspective, the Bench then discloses in para 6 that, “However, the High Court held that appellant no. 4 was not a legal representative of the deceased. Further, the High Court held that the MACT ought to have applied split multiplier for the assessment of the dependency compensation. The High Court fixed monthly income of the deceased as Rs. 40,000/ (Rupees forty thousand only) and deducted one-third (1/3rd) of the income towards his personal expenses. It applied multiplier ‘7’ for calculating dependency compensation for the post-retiral period and, for the pre-retirement period, a multiplier of ‘4’ was applied. Accordingly, the High Court awarded compensation of Rs. 23,65,728/ (Rupees twenty-three lakhs sixty-five thousand seven hundred twenty-eight only), towards loss of dependency for pre-retiral period and a sum of Rs. 22,40,000/ (Rupees twenty-two lakhs forty thousand only) towards loss of dependency for post-retiral period. A sum of Rs. 1,00,000/ (Rupees one lakh only) was awarded towards loss of consortium, Rs. 25,000/ (Rupees twenty-five thousand only) towards funeral expenses, and Rs. 80,000/ (Rupees eighty thousand only) towards loss of love and affection. In total, a sum of Rs. 48,39,728/ (Rupees forty-eight lakhs thirty-nine thousand seven hundred twenty-eight only) was awarded as compensation by the High Court.”

Quite significantly, the Bench then hastens to add in para 10 that, “The provisions of the Motor Vehicles Act, 1988 (for short, “MV Act”) gives paramount importance to the concept of ‘just and fair’ compensation. It is a beneficial legislation which has been framed with the object of providing relief to the victims or their families. Section 168 of the MV Act deals with the concept of ‘just compensation’ which ought to be determined on the foundation of fairness, reasonableness and equitability. Although such determination can never be arithmetically exact or perfect, an endeavor should be made by the Court to award just and fair compensation irrespective of the amount claimed by the applicant/s. In Sarla Verma (Smt.) and Ors. vs. Delhi Transport Corporation and Anr. (2009) 6 SCC 121, this Court has laid down as under:

“16. … “Just compensation” is adequate compensation which is fair and equitable, on the facts and circumstances of the case, to make good the loss suffered as a result of the wrong, as far as money can do so, by applying the well-settled principles relating to award of compensation. It is not intended to be a bonanza, largesse or source of profit.”

It is worth noting that the Bench then observes in para 14 that, “The MV Act does not define the term ‘legal representative’. Generally, ‘legal representative’ means a person who in law represents the estate of the deceased person and includes any person or persons in whom legal right to receive compensatory benefit vests. A ‘legal representative’ may also include any person who intermeddles with the estate of the deceased. Such person does not necessarily have to be a legal heir. Legal heirs are the persons who are entitled to inherit the surviving estate of the deceased. A legal heir may also be a legal representative.”

More specifically, the Bench then adds in para 15 that, “Indicatively for the present inquiry, the Kerala Motor Vehicle Rules, 1989, defines the term ‘legal representative’ as under:

“Legal Representative” means a person who in law is entitled to inherit the estate of the deceased if he had left any estate at the time of his death and also includes any legal heir of the deceased and the executor or administrator of the estate of the deceased.”

What’s more, the Bench then concedes in para 17 that, “It is settled that percentage of deduction for personal expenses cannot be governed by a rigid rule or formula of universal application. It also does not depend upon the basis of relationship of the claimant with the deceased. In some cases, the father may have his own income and thus will not be considered as dependent. Sometimes, brothers and sisters will not be considered as dependents because they may either be independent or earning or married or be dependent on the father. The percentage of deduction for personal expenditure, thus, depends upon the facts and circumstances of each case.”

Broadly speaking, the Bench then envisages in para 16 that, “In our view, the term ‘legal representative’ should be given a wider interpretation for the purpose of Chapter XII of MV Act and it should not be confined only to mean the spouse, parents and children of the deceased. As noticed above, MV Act is a benevolent legislation enacted for the object of providing monetary relief to the victims or their families. Therefore, the MV Act calls for a liberal and wider interpretation to serve the real purpose underlying the enactment and fulfil its legislative intent. We are also of the view that in order to maintain a claim petition, it is sufficient for the claimant to establish his loss of dependency. Section 166 of the MV Act makes it clear that every legal representative who suffers on account of the death of a person in a motor vehicle accident should have a remedy for realization of compensation.”

Most commendably and also most significantly, the Bench then could not refrain itself from holding in para 21 that, “Coming to the facts of the present case, the fourth appellant was the mother-in-law of the deceased. Materials on record clearly establish that she was residing with the deceased and his family members. She was dependent on him for her shelter and maintenance. It is not uncommon in Indian Society for the mother-in-law to live with her daughter and son-in-law during her old age and be dependent upon her son-in-law for her maintenance. Appellant no. 4 herein may not be a legal heir of the deceased, but she certainly suffered on account of his death. Therefore, we have no hesitation to hold that she is a “legal representative” under Section 166 of the MV Act and is entitled to maintain a claim petition.”

In conclusion, we saw how aptly the Apex Court also ably cited the earlier judgments in Hafizum Begum (Mrs) vs Mohd. Ikram Heque (2007) 10 SCC 715 and Gujarat State Road Transport Corporation Ahmedabad vs Ramanbhai Prabhatbhai (1987) 3 SCC 234 and Montford Brothers of St Gabriel and Anr. vs United India Insurance (2014) 3 SCC 394 to put across what is held brilliantly in para 21. So we thus see that the Bench finally allowed the appeal. In other words, the claim of dependent mother-in-law who was dependent on her deceased son-in-law claim was upheld and thus she was held entitled to maintain motor accident claim petition. Very rightly so!

To put things in perspective, the Bench then discloses in para 6 that, “However, the High Court held that appellant no. 4 was not a legal representative of the deceased. Further, the High Court held that the MACT ought to have applied split multiplier for the assessment of the dependency compensation. The High Court fixed monthly income of the deceased as Rs. 40,000/ (Rupees forty thousand only) and deducted one-third (1/3rd) of the income towards his personal expenses. It applied multiplier ‘7’ for calculating dependency compensation for the post-retiral period and, for the pre-retirement period, a multiplier of ‘4’ was applied. Accordingly, the High Court awarded compensation of Rs. 23,65,728/ (Rupees twenty-three lakhs sixty-five thousand seven hundred twenty-eight only), towards loss of dependency for pre-retiral period and a sum of Rs. 22,40,000/ (Rupees twenty-two lakhs forty thousand only) towards loss of dependency for post-retiral period. A sum of Rs. 1,00,000/ (Rupees one lakh only) was awarded towards loss of consortium, Rs. 25,000/ (Rupees twenty-five thousand only) towards funeral expenses, and Rs. 80,000/ (Rupees eighty thousand only) towards loss of love and affection.”

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ARYAN KHAN DESERVES BAIL, NOT JAIL

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“Courts must be alive to the need to safeguard the public interest in ensuring that the due enforcement of the criminal law is not obstructed. The fair investigation of crime is an aid to it. Equally, it is the duty of courts across the spectrum-the district judiciary, the High Courts, and the Supreme Court to ensure that the criminal law does not become a weapon for the selective harassment of citizens. Courts must be alive to both ends of the spectrum-the need to ensure the proper enforcement of criminal law on the one hand and the need, on the other, of ensuring that the law does not become a ruse for targeted harassment. Liberty across human eras is as tenuous as tenuous can be. Liberty survives by the vigilance of her citizens, on the cacophony of media, and in the dusty corridors of courts alive to the rule of (and not by) law. Yet, much too often, liberty is a casualty when one of these components is found wanting”, the Supreme Court had categorically observed in the Arnab Goswami case a year ago. Not only this, but the Apex Court had also reiterated its view that bail should be a rule and jail an exception. “As judges, we would do well to remind ourselves that it is through the instrumentality of bail that our criminal justice system’s primordial interest in preserving the presumption of innocence finds its most eloquent expression”, the Court had demonstrated the collective judicial approach regarding grant of bail to the accused persons given the presumption of innocence. Unfortunately, the Special NDPS Court of Bombay forgot these jurisprudential principles when it refused bail to Aryan Khan week.

The Special NDPS Court of Bombay has denied bail to Aryan Khan in a case that is based on weak evidence. It is nothing but a complete departure from the Supreme Court’s guidelines laid down in several cases. Admittedly, Aryan Khan’s innocence or guilt can only be proved through a trial. On 2 October this year, Aryan was detained by the Narcotics Control Bureau in a drug bust on a cruise ship even though no drugs were found in his possession. The NCB has not yet collected any substantive evidence against him except the WhatsApp chats. There is no evidence to suggest that he was consuming drugs at the time of his arrest by the NCB. No blood test was conducted. He has no previous criminal history. The NDPS law distinguishes between a drug consumer and peddler and forbids treating the former as hardened criminals. Sadly, the NCB is treating him like a hardened criminal. The NCB has charged Aryan and his friends with “conspiracy” under the NDPS law without any solid evidence on record. Also, to justify his arrest, the NCB has applied a unique theory of “conscious possession” because it recovered 6-gram charas from his friend. How can the NCB shift the liability to Aryan Khan if his friend has possession of drugs? The term “conscious possession” is not defined under the NDPS Act. The Courts hardly believe this jurisprudence of conscious possession. Thus, the whole case of the NCB is based on WhatsApp chats which can be used only in the trial, not in a bail adjudication. The WhatsApp chats are used by the NCB against Aryan Khan without a certificate under Section 65-B of the Evidence Act. This is why the Court should not rely on WhatsApp chats blindly and should give the benefit of doubt to Aryan Khan.

This is not the first time when the NCB arrested a person relying mainly on WhatsApp chats. The NCB has also done it in some other cases. Last year, the NCB had arrested Rhea Chakraborty in a drug case based on WhatsApp chats. After a month, she was released by the Bombay High Court when the NCB failed to convince the Court to reject her bail application. She was booked under Section 27 A of the NDPS Act, being involved in financing drugs and she had faced a severe media trial. “She is not part of drug dealers. She has not forwarded the drugs allegedly procured by her to somebody else to earn monetary or other benefits”, the High Court had categorically observed while releasing her on her bail. Not only this, but the Bombay High Court had also dismissed the NCB’s charges as “highly disproportionate” and “extremely unreasonable”. The High Court did not approve the NCB’s argument that “celebrities” should be treated harshly and made an example of, saying that no actor must “incur any special liability” in the eyes of the law. It seems the NCB did not take any lessons from Rhea Chakraborty’s case and arrested Aryan Khan without sufficient evidence. Many people believe that he is also paying price for being a celebrity and son of a famous Bollywood actor. This is a dangerous trend that undermines people’s faith in the criminal justice system. Keeping a young man in jail merely based on WhatsApp chats is nothing but a gross misuse of criminal law. Aryan Khan belongs to a well-respected family who deserves bail subject to reasonable conditions. He is a young man who needs to be allowed an opportunity to live a dignified life. Putting him in jail will not serve any purpose. He deserves an opportunity to defend his case being a free citizen and the Court should adopt a humane attitude while dealing with his bail application. In an exclusive interview with India Today, former Attorney-General for India Mukul Rohatgi has also opined that Aryan Khan deserves to get bail.

Given the above discussion, it is submitted that criminal law should not be used as a weapon to harass citizens. All citizens should be treated equally and law enforcement agencies should arrest those who commit criminal offences based on solid evidence, not on inconclusive pieces of digital chats, etc. An arrested person faces a difficult situation in Indian society. The Supreme Court has rightly stated in some cases that a great ignominy, humiliation, and disgrace are attached to arrest. Arrest leads to many serious consequences not only for the accused but also for his family and friends. Mostly, the people do not make any difference between arrest at a pre-conviction stage and post-conviction stage. This is why the arresting power must be used cautiously, not according to the whims and fancies of the law- enforcement agencies and the Courts should decide the bail applications expeditiously. The time has come when the judiciary should stand up for protecting the personal liberty of people and the law-enforcement agencies should investigate the cases professionally. Let me conclude this piece with these insightful words of Justice V. R. Krishna Iyer in the Babu Singh case: “The correct legal approach has been clouded in the past by focus on the ferocity of the crime to the neglect of the real purposes of bail or jail and indifferent to many other sensitive and sensible circumstances which deserve judicial notice. The whole issue, going by decisional material and legal literature has been relegated to a twilight zone of the criminal justice system. Courts have often acted intuitively or reacted traditionally, so much the fate of applicants for bail at the High Court level and in the Supreme Court, has largely hinged on the hunch of the bench as on the expression of ‘judicial discretion’. A scientific treatment is the desideratum. The Code is cryptic on this topic and the court prefers to be tacit, be the order custodial or not. And yet, the issue is one of liberty, justice, public safety, and burden on the public treasury, all of which insists that a developed jurisprudence of bail is integral to a socially sensitized judicial process…Personal liberty deprived whom bail is the value of our constitutional system recognised under Article 21 that curial power to negate it is a great trust exercisable, not casually but judicially, with a lively concern for the cost to the individual and the community. To glamorise impressionistic orders as discretionary may, on occasions, make a litigative gamble, decisive of a fundamental right. After all, the personal liberty of an accused or convict is fundamental, suffering lawful eclipse only in terms of “procedure established by law”. The last four words of Article 21 are the life of that human right”.

Lokendra Malik, Sr Advocate, Supreme Court of India

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DECODING THE CONCEPT OF BAIL UNDER THE NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES ACT (NDPS), 1985

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The Narcotics Drugs and Psychotropic Substances Act (NDPS ACT) 1985 was enacted within the year 1985, with a view to consolidate and amend the law concerning narcotic drugs, incorporating stringent provisions for control and regulation of operations concerning narcotic drugs and psychotropic substances.

Bail are often understood as a procedure by which a judge or magistrate sets free someone who has been arrested or imprisoned, upon receipt of security to make sure the released prisoner’s later appearance in court for further proceedings. The money set by the judge is within the sort of a bail, it’s set after hearing the fees and determining the quantity appropriate for the circumstances.

NDPS Act categorizes the offences into Three Categories: –

Small Quantity: –As per section 37 of the NDPS Act, 1985 all the offences falling under the act are cognizable and non-bailable. Meaning thereby, if we pass section 37 of the NDPS Act,1985 even the matters concerning small quantity are non-bailable.Hon’ble Delhi High Court for the first time in Minnie Khadim Ali Kuhn vs State Nct Of Delhi & Ors. on 8 May, 2012 has held that the matter involving small quantity are bailable regardless of the very fact that it’s mentioned within the NDPS ACT, 1985 that each one offences are cognizable and non-bailable.

Intermediate Quantity (less than commercial)

For the offences falling under the intermediate or but commercial quantity stringent provisions of section 37 aren’t attracted and therefore the offences under the said category are governed by Section 437 of the Code of Criminal Procedure,1973 i.e. general principles for grant of bail as applied in other cognizable and non-bailable offences.

Commercial Quantity

Commercial quantity offences are punishable with not but 10 years and there’s an embargo of Section 37 of the NDPS, 1985 in thus far because the bail in commercial quantity is concerned.

THE DETAILED BREAKDOWN OF SECTION 37 IS AS FOLLOWS:

1. The section states every offence punishable under the Act shall be cognizable.

2. No person accused of an offence punishable for [offences under section 19 or section 24 or section 27-A and also offences involving commercial quantity] shall be released on bail or on his own bond, unless the following conditions are met.

3. For granting bail, the following conditions are to be met,

(i) There are reasonable grounds for believing that the accused isn’t guilty of such offence.

(ii) That he’s unlikely to commit any offence while on bail.

The jurisdiction of the court to grant bail is circumscribed by the provisions of Section 37 of the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act). The scheme of Section 37 reveals that the exercise of power to grant bail isn’t only subject to the restrictions contained under Section 439 of the Code of Criminal Procedure (CrPC), but is additionally subject to the limitation placed by Section 37, which begins with a non-obstante clause.

CONSIDERATIONS FOR GRANTING BAIL UNDER NDPS ACT:

Before granting bail, the Court is named upon to satisfy itself that there are reasonable grounds for believing that the accused is innocent of the offence which he’s not likely to commit any offence while on bail, the allegations of the fact, the police report have to be closely examined before recording a finding as to whether the conditions given under the said section, are fulfilled or not.

Powers of the High Court under Sec. 439 of CrPC are curtailed in any way except that they are to be exercised with embargo and conditions as laid down under Sec. 37 of the Act.Ordinarily, on a bare reading of these provisions, it would look as if the Court is to adopt a negative approach and to decline bail but when the legislature have required the court to record a finding of its satisfaction of certain facts, the duty is bestowed upon the court is in positive terms. Grant of Bail could be a rule and its rejection an exception.

GROUNDS FOR CANCELLATION OF BAIL:

What has been stated in Section 37 of the Act would be applicable, accordingly when the question of release on bail is considered. But once an accused has been released on Bail, the normal criminal law would spring into action and bail would be open to be cancelled only on the grounds on which Bail can be otherwise cancelled.The important grounds for cancellation of Bail are:i. Where the accused misuses his liberty by getting involved in similar criminal activity,ii. Interferes with the course of investigation,iii. Attempts to tamper with evidence or witnesses,iv. Likelihood of fleeing, etc.

HOW COURTS HAVE DEALT WITH THE MATTERS PERTAINING TO BAIL?

The bench of DY Chandrachud and BV Nagarathna, JJ has elaborately discussed the principles governing the grant of bail, especially in cases under the NDPS Act and has held that, “the test which the High Court and this Court are required to apply while granting bail is whether there are reasonable grounds to believe that the accused has not committed an offence and whether he’s likely to commit any offence while on bail. Given the seriousness of offences punishable under the NDPS Act and so as to curb the menace of drug-trafficking within the country, stringent parameters for the grant of bail under the NDPS Act have been prescribed.”

In the case of Union of India v. Shiv Shanker Kesar, (2007) 7 SCC 798Holding that bail may be cancelled if it has been granted without adhering to the parameters under Section 37 of the NDPS Act, the Court observed,“The expression used in Section 37(1)(b)(ii) is “reasonable grounds”. The expression means something quite clear grounds. It connotes substantial probable causes for believing that the accused isn’t guilty of the offence charged and this reasonable belief contemplated successively points to existence of such facts and circumstances as are sufficient in themselves to justify recording of satisfaction that the accused isn’t guilty of the offence charged.The word “reasonable” has in law the clear meaning of reasonable in reference to those circumstances of which the actor, called on to act reasonably, knows or need to know. It is difficult to offer a particular definition of the word “reasonable”.

In the ultimate analysis it’s a matter of fact, whether a specific act is reasonable or not depends on the circumstances during a given situation. (Municipal Corpn. of Greater Mumbai v. Kamla Mills Ltd. [(2003) 6 SCC 315]The court while considering the appliance for bail with regard to Section 37 of the Act isn’t called upon to record a finding of acquitted. It is for the limited purpose essentially confined to the question of releasing the accused on bail that the court is named upon to ascertain if there are reasonable grounds for believing that the accused isn’t guilty and records its satisfaction about the existence of such grounds. But the court has to not consider the matter as if it’s pronouncing a judgment of acquittal and recording a finding of acquitted.”

CONCLUSION

Section 37 of the NDPS Act works as an interference when it comes to offences related to medicines. It’s necessary because it leads to the creation of fear among people that if they commit a crime under this Act, they won’t be granted bail. On the other hand, this provision occasionally becomes draconian as innocent people get jugged. Therefore, the bar needs to borrow an exemplary principle to insure justice. he Narcotic Drugs and Psychotropic Substances Act, 1985 was enacted with the objective of controlling and regulating the transportation, usage and/or consumption of these illicit substances.

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Let’s analyse the new information technolgy 2021 rules for social media

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INTRODUCTION

Social Media firms in India have to comply with the New Information Technology ((Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 which was released by the Government of India on 21 February, 2021. These rules have been framed in exercise of powers conferred under Section 87 (2) of the Information Technology (IT) Act, 2000.Social Media Firms were given three months to implement these new Information Technology Rules by the Government. In 2000, Information Technology was limited to electronic document, e-signature and digital authentication of records. Social Networking Firms arrived in India in 2005. Internet access at home by people of India has increased since 2010 and the cost of data per Gega Byte was also decreased with the introduction of 4G internet.

There is an urgent need to look into this matter so the Government of India has passed new rules under IT Act, 2000 and introduced Section 69A(2), 79(2)(c) and 87 in the Act. New Information Technology(Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 has replaced the IT Rules, 2011. These new IT Rules, 2021 has directed social media platforms to strictly adhere to the guidelines but currently no social media firm has complied with the IT Rules 2021. AS we all know, every action has a positive and negative aspect and similar is applicable in this instance too. This article gives a bird’s eye view on the New IT Rules 2021, its advantages and glaring ambiguities which appears to be in conflict with the fundamental rights and basic principles of a democratic country.

WHY THERE IS A NEED OF NEW INFORMATION TECHNOLGY RULES, 2021

New Information Technology Rules 2021 is set to empower the ordinary social media users and the main goal of the IT Rules are on the protection of women and children, false spreading of fake news and misuse of social media. Social media has become an integral part of an individual’s life.As we all know that, the engrossment of each individual on these social media platforms have massively increased and thereby lead to the emerging of new challenges like offence against women and children, threat to the security and integrity of the state etc.With such a large user base, tech firms cannot afford to overlook new and developing concerns such as the continuing dissemination of false news, widespread abuse of platforms to post manipulated photos of women, deep fakes, and other content that threatns the dignity of a women and poses a security risk. Since 2020, there are around more than 25000 videos of child sexual abuse content which is circulated on the social media platforms.

In India, there is no regulatory authority to monitor and manage the offensive content on the social media firms and hence, the government decided to put these intermediaries on the same pedestal like Press Code and Program Code under CableTelevision Networks Regulation and Central Film Certification Board.Considering such arising difficulties,In Tehseen S. Poonawalla v/s Union of India case, Supreme Court guided the public authority to control and stop dispersal of explosive messages and recordings on different web-based media stages which tend to induce violence or mob lynching. In 2017, Court saw that the public authority may outline essential rules to stop child pornography, rape and rape images,recordings and sites in content hosting platforms and other applications. So, after considering all the concerns and keeping in mind the Supreme Court directions in case laws, Government implemented New Information Technology Rules, 2021 to get rid of these serious concerns.

OVERVIEW OF NEW INFORMATION TECNOLOGY RULES 2021

Government of India made new guidelines under Information Technology Rules 2021 for social media intermediaries as they believed that it was the need of the hour. The new guidelines are:

* Social Media Divided in two groups on the basis of the number of users i.e.

SOCIAL MEDIA INTERMEDIARIES (LESS THAN 50 LAKH USERS)

Significant Social Media Intermediaries(More than 50 lakh users or 5 million registered users.

Here, Social Media companies are referred as Intermediaries as they create link between the people.

* Due diligence to be followed by the intermediaries to be extra cautious that they allow their user to post on their handle.If social media firms don’t follow this guideline then they end up in loosing their immunity under Safe Harbour Provisions defined in Section 79 of the Information Technology Act. Section 79 of the IT Act function both as an immunity and a restrictive provision for social media companies.

*Social Media firms mandatory appoint a Grievance Redressal Officer who will act as a mediator between Government of India and social media. These grievance officer acknowledge any complain received from the government within 24 hours and resolve it within 15 days from its receipt.

*Social Media firms had to ensure online safety and dignity to the users thereby removing or disable the access of content which exposes the private area of an individual or show some individual in partial or full nudity or some sexual act or si in the nature of impersonation including morphed images within 24 hours of receiving complaint. The complaint can be filed either by an individual or any other person on his/her behalf.

* Social Media Firms should appoint a Chief Compliance Officer, Nodal Contact Person and Resident Grievance Officer and they should be resident of India. Government had instructed the intermediaries to publish new monthly compliance report which contains all the details about complaints received and action taken.

*Government has instructed Significant Social Media Intermediaries to provide information of the first originator in case if the content which is posted threatns the sovereignty and integrity of India, security of the state, disturbs friendly relations with any country, disturbs public order by incite riots, or any kind of offence in relation with rape, sexually explicit material or child sexual abuse material. Social media is bound to give the information of the first originators to Indian Law Enforcement Agencies in these particular cases.

*Government had instructed intermediaries to remove unlawful information upon receiving an court order or being notified from appropriate government if it threatens the sovereignty and integrity of India, security of the state, disturbs friendly relations with any country, disturbs public order by incite riots, or any kind of offence in relation with rape, sexually explicit material or child sexual abuse material.

PROS AND CONS OF IT RULES 2021

The new IT Rules also known as the “Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code )Rules , which was issued by the government contains some advantages & some disadvantages. Let’s discuss them in brief.

PROS

IT Rules 2021 curbs the problem which is created by the rapid growth of child pornography, hate speech, spread of misinformation and digital bullying on the platform of Digital World. These rules empowers the government to regulate the uncensored media platforms such as Netflix, Amazon Prime, The Wire, The Print, WhatsApp, Telegram. In order to regulate social media content, the government can ask the platform to disclose the originator of the message as per the new IT Rules. It also removes the bad content and helps people in gaining accurate knowledge through social media and also keeps children away from watching sensitive content which will have negative impact on them. OTT platforms will self-classify contents into five age-based categories: U(Universal), U/A 7+(yrs), U/A 13+, U/A 16+ and A(adult). There will also be parental lock for any content classified as U/A 13+ or above. It provides guidelines for setting up of dispute resolution mechanism for the removal of content. It removes non-consensual intimate pictures within 24 hours and also releases compliance reports to increase transparency.

CONS

One of the main disadvantage of new IT Rules 2021 is that it infringes the fundamental right to privacy of many users on social media platform as it allows the intermediaries to break end-to-end encryption of WhatsApp to track the “first originator “of the information whenever asked by the government under Section 69A of the IT Act[Rule 4(2)]. These rules also curtail the fundamental right to free speech of the digital news media because of the involvement of the government. There is excessive control over digital news and OTT content.

NEW IT RULES VIS A VIS ARTICLE 19 OF INDIAN CONSTITUTION

The new IT Rules 2021 was made with aim to protect citizens from cybercrime and digital bullying, but on the contrary rules end up in violating the fundamental right to privacy and freedom of speech and expression guaranteed under Article 19 of the Indian Constitution. After the New IT Rules were passed Government gave a time period of three-months to comply and share the details of the compliance with the new IT Rules. But some social media platforms and digital news entities are against the law as according to them it violates the privacy of the customers and restricts their freedom of speech and expression. And hence, the case was filed against the Government in the Delhi High Court by Whatsapp on the ground that new rules violates the user’s privacy. Some Digital News Media like The Wire, LiveLaw and The Quint also challenged the new Intermediary Guidelines and Digital Media Ethics Code.

Whatsapp has raised its serious concern regarding the provision of “traceability”. As per the provision, the social media intermediary is required to identify the “first originator of information” of messages when required to do so by the authorities. For this to be done , the intermediaries will have to break the end-to-end encryption, which in turn weakens the security and privacy of its users.

As per, Sec 3 & Sec 4 of the new IT rules, the intermediaries will have to remove the online content when asked by the government through notice. This will violate the right to free speech under Article 19 of the Indian Constitution, as now the government will regulate all online speech & any discussion against government will be muted.

Twitter has also expressed its concern with regard to the violation of free speech by the new rules. It put forth a condition that if the new rules will be guided by principles of transparency and freedom of expression under the rule of law, then only it will comply with the law.

The new IT Rules 2021 has both the positive and negative impacts on the society. But violating the fundamental right to privacy & freedom of speech can hamper the democracy of the country.

New Information Technology Rules 2021 is set to empower the ordinary social media user and the main goals of the IT Rules are the protection of women and children, stop spreading of fake news and misuse of social media. Social media has become an integral part of an individual’s life.

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Enforcement of foreign arbitral awards in India

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Arbitration proceedings in India were primarily governed by three main legislations namely the Indian Arbitration Act 1940, the Arbitration (Protocol and Convention) Act 1937 and the Foreign Awards (Recognition and Enforcement) Act 1961. The purpose of enacting the mentioned legislations was to comply with international standards of recognition and enforcement. This would ensure that India progressed in its goal towards becoming a pro-arbitration regime. Having ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 as well as the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927, it was incumbent upon India to enact appropriate legislation to implement the provisions of these Conventions in letter and spirit. This resulted in the enactment of The Arbitration and Conciliation Act, 1996 (hereinafter the Arbitration Act) – the sole statutory instrument governing the recognition and enforcement of arbitral awards in the Indian subcontinent. The comprehensive 1996 Act replaced the previous three legislations and bolstered India’s strategic position as a hub for International Commercial Arbitration (hereinafter ICA).

Arbitration proceedings can often be mired with a number of issues brought about by a conflict in jurisdiction, thereby making unlikely for parties to resort to litigation owing to the complexity of such disputes. The impact of the arbitration proceedings is also determined by the agreement, mutually agreed to by the parties, governing the dispute as well as the powers vested with the tribunal to settle issues related to jurisdiction – where the awards may be recognised and subsequently enforced. Parties to such a dispute are often reluctant to rope in the judiciary of their respective domestic jurisdictions as it would result in a loss of autonomy of the arbitration tribunal to the judiciary. The very purpose of creating such an alternate dispute resolution mechanism was to prevent intrusion by the judiciary. Arbitration was to serve as a forum for the fast-tracked settlement of commercial transactions between (mostly) private parties.

In this article, I shall examine whether the intention of reducing judicial interference in the enforcement stage, of arbitral awards, has remained intact. I shall specifically limit my piece to the 1996 Act that deals with the enforcement of foreign awards in India.

Analysing the scope of International Commercial Arbitration in India

Before delving into judicial trends regarding the enforcement of foreign awards, it is important to mention that Part II of the 1996 Act is following the prescribed guidelines of the New York and Geneva Conventions, thereby effectuating the same. India is not a signatory to any treaty that mandates that the country recognise the enforcement of foreign awards. Had India been a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States [(Washington, 1965) hereinafter ICSID Convention], the circumstances would have been different as it would have to adhere to its provisions and ensure that foreign arbitral awards are recognised and enforced by its domestic statutes.

It is of utmost importance to lay down the purview of ICA and what proceedings and substantial laws can be brought within its scope. ICA refers to arbitral proceedings pertaining to issues emerging out of legal alliances – contractual or otherwise, that are deemed commercial within Indian law or in which at least one of the disputing parties is a person who is now a citizen of, or continually resides in, any nation apart from India; or a corporate entity that is established in any nation apart from India. The Supreme Court, in the case of R. M. Investment Trading Co. Pvt. Ltd. v. Boeing Co, dealt with the parameters defining a commercial transaction. In its judgment, the Court went on to highlight the practice that influences the framework of business relationships, emphasizing that international commerce is more than just the movement of commodities with contemporary complexities. The Supreme Court decided, in accordance with the same reasoning, that a commercial purchase is deemed to be the advisory service for advertising sales and therefore any conflict of this sort arises.

One of the significant benefits of ICA is its cross-border enforceability. In other terms, an award made in one nation can be easily transferred to others and executed. The predominant cause of this convenience of compliance is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, that has over one hundred ratified states as of today. The New York Convention requires all international arbitral awards to be recognized if they follow such minimum prerequisites.

The term “intervention” may never seem to be sufficient because arbitration is a legal process founded on the sovereignty of the stakeholders and is accepted by statute as an acceptable method of settling conflicts. As a result, the function of the judiciary must be confined to assisting the arbitral tribunal in achieving the goal of resolution. The sovereignty of the stakeholders to consent on the “laws of the proceedings” is perhaps the main basic concept guiding the Model law. This appreciation of the stakeholders’ rights is the culmination of public policy tailored to international practice, as well as the acknowledgement that arbitration is based upon on stakeholders’ arrangement. While it has been identified that judiciary have all the authority to overturn arbitral awards if they violate any constitutional clause, are patently unconstitutional, or violate India’s policy decisions.

Recognition & Enforcement of Arbitral Awards in India

There have been primarily two main distinctions among enforcing an international award and enforcing a domestic award. As previously mentioned, a domestic award would not necessitate a request for compliance. Once the challenges (if any) are overruled, the grant will be executed as a decree of its own. An international award, on the other hand, must go via a compliance process. The group demanding enforcement must submit an appeal for the same. If the court determines that the international award is enforceable, this becomes a court order which is effective as such. Another distinction among the domestic and international regimes is that contrary to domestic awards, there is no allowance for reserving a foreign award. Where it comes to international awards, courts in India can only impose them or fail to implement them; they cannot leave them away. An attempt was made by the Supreme Court to fill this ‘gap’ in the latest decision of Venture Global where the court ruled that it is lawful to set aside an international award in India using the terms of Section 34 of Part I of the Act.

Two conditions must be met in preparation for an international award to be recognized (for the purposes of the Act). First, it should comply with disagreements resulting from a contractual arrangement (whether contractual or not) that is deemed commercial under Indian law. The second scenario is more important: the nation at which the award was granted should be one that the Government of India has designated as a state to which New York Convention extends. Thus far, only just few nations have indeed been told, and so only awards made in those countries are recognized as international awards and legally binding in India.

The reasons for contesting an arbitral award can vary amongst nations. Nevertheless, this does not grant judges in the administering territories concurrent authority. A straightforward interpretation of the Act’s scheme and rules leads to the presumption that such concurrent authority is prohibited in the case of Convention Awards. In the landmark judgment of Bhatia International v. Bulk Trading S.A. and Anr, the parties to a multi-jurisdictional agreement agreed to resolve the disagreement by arbitration under the laws of the International Chambers of Commerce, Paris, with Paris as the lex arbitri. Concerned about the enforceability of Non-Convention Awards, that is, awards that are not recognised for compliance under Section II of the Act, the international party appealed to Indian courts for temporary steps dependent on a provisional award to protect the assets of the Indian applicant to the Arbitration.

In conclusion, the Indian Supreme Court ruled that Part I of the 1996 Act, that provides validity to the UNCITRAL Model Law by granting authority to an Indian judiciary to administer temporary steps notwithstanding the fact that the arbitration was conducted out beyond India, was unconstitutional. Academics and theoretical stalwarts have been outraged by the Supreme Court’s ruling. It has also been asserted that perhaps the Bhatia declaration of court did not provide Convention Awards under Part I. This renders the decision in the Bhatia dispute much more daunting to align with a straightforward interpretation of the law. If national awards are known as non-international awards and international awards are not national awards, the definitions of both domestic and international awards are inadequate. The system of compliance under the Act’s two Parts necessitates a difference among the two awards. Domestic awards which are rendered the focus of proceedings in India pursuant to Section 34 of the Act may be applied as if they were a decision of an Indian Court pursuant to Section 36 of the Act. International Awards should be carried out as a decision by an overseas judge.

It is worth noting that in many recent cases involving an international party, the Supreme Court has reiterated the decision of the Court in Bhatia and maintained that “the requirements of Part-I of the 1996 Act will be equally relevant to enforcement of foreign arbitral awards held beyond India, except some of the said requirements are specifically exempted by arrangement.” These proceedings show the Indian courts’ proclivity to intervene with both national and international arbitral awards. Although this contingency can be avoided, it is likely to incorporate arbitration clauses in the arrangement. Therefore, it is also not relevant if the conditions of dispute there under section 34 of the Act as well as section 48 of the Act are all the same. This debate is important to the legitimate assumption that an international award is legitimate and obligatory upon acceptance by the appropriate agency in India. 

Furthermore, Section 48 (1) (e) of the Act states unequivocally that international awards must be binding under the constitution of the country where even the ‘challenging jurisdiction’ is asserted. This simply indicates a distinction among ‘challenging jurisdiction’ and ‘enforcement jurisdiction’. The regulations pertaining to the legal enforcement of foreign arbitral should address dual public policy objectives: first, restricting the judiciary’s review of the substance of the case and the arbitral tribunal’s decision thereunder in giving effect to the shareholders’ preference of dispute resolution; and the second, indicating the judiciary’s intrinsic supervisory preferences in modifying the arbitral tribunal’s ruling. In the field of multinational business transactions, the former takes precedence over the latter.

The underlying cause of all difficulties in enforcing/challenging awards has resulted from the judiciary’s ever-expanding authority to examine the awards, whether domestic or foreign. Increased judicial intervention, that results in the acceptance of a vast number of claims which could never be heard in the first instance, is another vice which impedes the resolution of business conflicts, thus slowing the country’s economic learning and expansion. Another major drawback that has been raised as a result of the Act’s reading would be that the time frame for enforcing the arbitral award is not specified. By not imposing a deadline on the execution of awards, one discovers that the excessive irregularities in arbitral proceedings are no special from those countless awaiting legal proceedings, thereby undermining the Act’s very clauses. Arbitration is seen as a lengthy legal procedure by the stakeholders and adjudicators, who are often former judges, who rely on lengthy and regular continuances to prolong the process entirely.

Conclusion

The aspects of efficiency and expense are the distinguishing features of the process and are frequently cited as the chief factors of why arbitration significantly outperforms litigation as a viable option for resolving disputes, notably in commercial matters. It should be noted that these flaws have the potential to thwart the advancement of foreign trade and economic arbitration, but with the increasing influx of foreign of industry, this may have a negative impact on our economy. Another way to reduce the chance of judicial interference is to arrange for an approving body, which restricts the participants’ right to appeal to the court system for the nomination under Section I of the Act.

The current era of globalization has resulted in the economy’s market and operational circumstances highlight the benefit of arbitration as a conflict settlement mechanism over lawsuits, particularly in terms of multinational conflicts. The 1996 Act was passed in order to facilitate rapid and premium dispute settlement. A review of how this mechanism works in India shows that arbitration as an entity is still emerging and has not yet been successful in meeting the ever demands of the global market that are essential to commercial growth. A world trade and trade arbitration scheme has been proposed that promotes foreign trade and commerce by decreasing the possibility of future economic conflicts being resolved by national courts. Regardless of the unanswered issues that haunt the proposed model organisation, sensible individuals do not want the hassle of seeing future conflicts resulting from their dealings challenged in court before several rather separate upper ranks, including the arbitral entity, the courts at the seat of the arbitration, and the court at the position of compliance.

It is worth noting that in many recent cases involving an international party, the Supreme Court has reiterated the decision of the Court in Bhatia and maintained that “the requirements of Part-I of the 1996 Act will be equally relevant to enforcement of foreign arbitral awards held beyond India, except some of the said requirements are specifically exempted by arrangement.” These proceedings show the Indian courts’ proclivity to intervene with both national and international arbitral awards. Although this contingency can be avoided, it is likely to incorporate arbitration clauses in the arrangement. Therefore, it is also not relevant if the conditions of dispute there under Section 34 of the Act as well as Section 48 of the Act are all the same. This debate is important to the legitimate assumption that an international award is legitimate and obligatory upon acceptance by the appropriate agency in India. 

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Legally Speaking

TECHNOLOGICAL INTERVENTION IN CLINICAL LEGAL EDUCATION DURING THE PANDEMIC

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INTRODUCTION

Former Justice Dharmadhikari once said that the “Legal education makes lawyer an expert who pleads for all like the doctor who prescribes for all, like the priest who preach for all and like the economist who plan for all.” However, during the covid 19 legal education has seen the wrath of pandemic and as a consequence from classroom to courtroom has witnessed the new normal that is virtual platform. Legal education which is clinical in nature was adversely affected during the pandemic. However, India’s IT sector and its abilities to bridge the gap that was created by pandemic was effective to deal with the situation.

BACKGROUND OF LEGAL EDUCATION IN INDIA

Laws for the regulation of professional legal education in India are made by the parliament of India with reference to entry 66, 67 & 78 of List I laid down by the Constitution of India, which includes two regulatory bodies which are The Bar Council of India (BCI) as a regulating the standards of the legal profession and The University Grants Commission as an umbrella organization for all institutions of higher education.

The 184th Report of Law Commission of India in year 2002 suggested for harmonious construction of UGC & BCI powers & regulation of legal education in India. All the issue relating to admissions, practice, ethics & standards are addressed by BCI in consonance with state bar councils. The powers of BCI are also envisaged under Advocates Act, 1961 under Section 7 which states that the functions of BCI in India shall be to promote legal education and to lay down standards of such education in consonance with the Universities in India imparting legal education and the State Bar Councils and to recognize Universities whose degree in law shall be a qualification for enrolment as an advocate and for that purpose to visit and inspect Universities.

While exercising the powers given under Advocates Act, BCI has successfully done many reforms in Legal education owing to its dynamic nature and introduction of five years integrated degree program in Law in 1982 was one such step ahead of this transformation. This system has since been gradually adopted in various Universities and Colleges and NLS Bangalore was first to establish the course in 1987. Apart from this, BCI conducts examination for enrollment of advocates in bar. It is also responsible to maintain the essence of legal education by conducting various seminars by eminent jurists, publishing journals of legal interest and most importantly by organizing legal aid to the poor.

LEGAL EDUCATION IN COVID-19 – A SUFFERING BEYOND MEASURE

Education is a machinery which must go on irrespective of the uncertainties which come to its way. The coronavirus pandemic has stretched its tentacles into diverse facets of life. The COVID-19 pandemic has not stopped at national borders. It has affected people regardless of nationality, level of education, income or gender. The education has been hard hit by this pandemic. Legal sector is no exception. In fact, it is the most effected owing to its dynamic nature and has exposed to inherent problems.

A huge misalignment has been seen in resources and needs. The COVID-19 and resultant lockdown pushed the students into the trap of worldwide online learning for the continuity of education. While the educational communities have made concerted efforts to maintain learning continuity during this period, children and students have had to rely more on their own resources to continue learning remotely through the Internet, laptops, mobiles and what not. Teachers also had to adapt to new pedagogical concepts and modes of delivery of teaching, for which they may not have been trained ever.

This online infrastructure lacked where students and various college in rural and underdeveloped areas struggled as they didn’t have any access to these modern and costly affairs of online learning. Students in metropolitan cities adapted as quickly as it was introduced with a little hope of those staying in rural areas. However, there are many institutions, though recognized by the Bar Council of India (BCI), where majority of not so privileged students with bright legal acumen are studying and aspiring to be part of bar and bench. They might have faced a huge problem to access the online classes or may be cannot afford the cost of technology. This digital divide may be attributed to multiple factors – lack of infrastructure in terms of access to internet, absence or dearth of computers in schools, inability of underprivileged students to procure computers, and lack of digital literacy amongst both teachers and students.

CLINICAL LEGAL EDUCATION DURING COVID-19

“Practical training outperforms theories”. This quote by Roscoe Pound – an eminent jurist strikes onto the clinical nature of education in different aspects. Education is a radiance that shows the mankind the right path to move forward.

With the changing trends of legal education, Clinical (Practical) teaching has become an integral part of it in developed countries. Clinical Education becomes integral part of legal curriculum when BCI introduced four practical papers to improve standards in legal education in late 90’s. It was introduced as a kind of extension to the course and classroom teaching but gradually it has emerged as a centre of attraction in legal field. Just like medical, law has also expanded its prospectus to practical training before stepping into the profession. It includes moot courts, real world case studies, Court judgment analysis, Internships. Internships has emerged an easy way out to understand the practical approach of law through Courts, Bars, law firms and Commissions.

According to BCI guidelines, the infrastructure of a law school must include a well-organized library, Computers, internet connections, moot court set-up so that the budding lawyers could make the most out of the subject which is extremely vast and dynamic. Owing to all this, continuing with legal education in Coronavirus stood as a massive challenge all over. The essence of Clinical education was not at all being fulfilled in the pandemic.

TECHNOLOGICAL INTERVENTION IN COVID

Technology has played a vital role throughout the COVID and is serving fuel to all the sectors of economy. During the pandemic, remote learning became a lifeline for education but the opportunities that digital technologies offer go well beyond a stopgap solution during a crisis. The majority of the activity present in this educational category includes teaching, learning, communicating, and transitioning from face-to-face to online. Digital technology offers entirely new answers to the question of what people learn, how they learn, and where and when they learn. Biggest challenge is to utilize this valuable time. Technology seems to be the only answer.

Today around 1.5 billion students are learning online due to the COVID-19 situation across the globe. While schools and colleges are temporarily closed for quarantine, learning continues. It’s just that it is a different kind of teaching. Students are being educated using technology. This is being done through a variety of online courses, electronic textbooks, meeting platforms like Zoom and Google meet and Google Classrooms or other applications. Various webinars were being hosted on various legal topics, various workshops on legal education, national and international seminars through webinars what not even the online internship programmes were offered by legal firms. Also, many legal firms came up to form the structure for conducting online certificate courses on various law subjects. It is true from the contemporary scenario that law teaching is not merely a methodology but technology. Law schools and Universities in future will be constrained to offer e-courses in law.

Gradually, evaluation methods also shifted to online platform. Various law universities developed their own method of examination through online mode by introducing MCQ based evaluation exams rather than subjective, evaluative assignments, developing their own proctored online exam mechanism. More weightage was allotted to internal assessment through various PSDA activities such as moot court presentation, VIVA, project presentation etc. But again, everything comes to its way posing some challenges. In India, we have a diverse set of states and cities, at different levels of income and development. The spread, use and availability of technology is the key, as is the availability of online learning materials, as well as devices and the level of internet connectivity at home. The impact of the challenge is so much that the traditional role of a law teacher is fast reaching extinction. Hence, low key digitalization and uneven distribution of resources became obstacle in the smooth functioning of online education system.

WAY FORWARD: STRENGTHENING LEGAL EDUCATION

The pandemic situation highlights some of the unfortunate reality of legal education. The changing paradigm lead in by the information revolution is bound to place a greater responsibility and pose new challenges on the teacher and the student. The gap that has been created between legal education and practical training needs to be reduced. The need for technology induced revolutionary changes as well as innovative teaching techniques to cover a wide range of topics was posed by pandemic. There is a need to teach not only the domain knowledge but also the skills associated with the profession and most importantly the attitude required succeeding in the profession. E-learning platform needs to be established by legal institutions to bridge existing gap of theory and practice as an all-time substitute for physical learning.

The present pandemic can be treated as a positive time to think, re-think and change the curriculum of legal education at all levels of legal institutions so that the future lawyers would be able to stand as a confident figure before the society and the courts and judiciary also may achieve the objective of becoming “Smart/E-Court and digitization”. No doubt, classroom teaching clubbed with clinical learning serves the best purpose of legal education but there is need for all the stakeholders of the profession to equip with the technology which would in turn raise the standards of legal education. There is a need for regulatory authorities and concerned stakeholders to move forward for the integration of technology and restructure legal education with phenomenal change. Hence, online education cannot be completely kept aside post-pandemic in order to shape it up for new challenges and opportunities.

CONCLUSION

Summing up the discussion, Legal education has come up to be an important facet of society owing to its vibrant nature and its growth all over the world. BCI and UGC being the pivot of the legal area, needs to recognize the opportunity to look into the future and introduce multifarious dimensions to the subject considering possible threats in future. Alike, USA and China who have already indulged into the regular learning through online platform in some ratio to which extent it’s functioning well and have emerged as the inspiration to the world.

This crisis should better be utilized to analyze the shortcomings of mechanism under which legal education functions, demonstrating the areas in which it excels and where it failed. Effective learning out of school has clearly placed greater demands on students’ autonomy, capacity for independent learning, and before that a need to develop reliable and accessible infrastructure for online and remote learning. Hence, it’s time to expand the wings of education beyond the four walls of traditional learning methodology.

Abhinav Kumar is the awardee of ICSSR Special Call for Studies Focusing on Social Science Dimensions of Covid-19 Coronavirus Pandemic. Views expressed is entirely that of the author.

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