December 29, 2017
The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 ORDINANCE IN FORCE. (Bill Introduced in Lok Sabha) (yet to be passed by parliament)
Highlights of the Bill
The Bill prohibits certain persons from submitting a resolution plan in case of defaults.
These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others.
Further, it bars the sale of property of a defaulter to such persons during liquidation.
Key Issues and Analysis
The Bill prohibits certain persons from submitting resolution plans or participating in the liquidation process.
One argument may be that these persons may be considered undesirable to take charge of the company.
However, this may reduce competition among applicants and result in lower recoveries for creditors.
A company that is liquidated ceases to exist, and the background of persons bidding for its assets may be irrelevant.
December 22, 2017
The Specific Relief (Amendment) Bill, 2017
The Specific Relief (Amendment) Bill, 2017 was introduced in Lok Sabha by the Minister of Law and Justice, Mr. Ravi Shankar Prasad on December 22, 2017.
The Bill seeks to amend the Specific Relief Act, 1963. The Act sets out the remedies available to parties whose contractual or civil rights have been violated.
The Act sets out two main remedies to a party whose contract has not been performed:
(i) the party may ask the court to compel performance of the contract (specific performance); or
(ii) the party may seek monetary compensation instead of performance.
Specific performance: Under the Act, specific performance is a limited right, which may be given by the court at its discretion, in the following circumstances: (i) when monetary compensation is inadequate; or (ii) when monetary compensation cannot be easily ascertained. The Bill seeks to remove these conditions and permit specific performance by courts as a general rule.
The Act contains a list of persons (i) who may seek specific performance and (ii) against whom specific performance may be sought. This list includes: (i) a party to the contract; or (ii) a company resulting from the amalgamation of of two existing companies. The Bill adds a new entity to the list of parties. It now includes a limited liability partnership (LLP) formed from the amalgamation of two existing LLPs, one of which may have entered into a contract before the amalgamation.
Substituted performance: The Bill gives an affected party (i.e. a party whose contract has not been performed by the other party) the option to arrange for performance of the contract by a third party or by his own agency (substituted performance). The affected party has to give a written notice of atleast 30 days before obtaining such substituted performance. The costs in connection with such performance may be recovered from the other party. After obtaining substituted performance, specific performance cannot be claimed.
Injunctions: Under the Act, courts can grant preventive relief (injunctions) to parties. The Act provides circumstances in which injunctions cannot be given, for example, to stop a party from filing a complaint in a criminal matter. The Bill additionally seeks to prevent courts from granting injunctions in contracts related to infrastructure projects, if such an injunction would hinder or delay the completion of the project.
These projects can be categorized under the following infrastructure sectors and their sub-sectors: (i) transport; (ii) energy; (iii) water and sanitation (iv) communication (such as telecommunication); and (v) social and commercial infrastructure (such as affordable housing). The central government may amend the list through notification.
Special Courts: Under the Bill, certain civil courts may be designated as Special Courts by the state government, in consultation with the Chief Justice of a High Court. These courts will deal with cases related to infrastructure projects. Such cases must be disposed off within 12 months from the date of receipt of summons by the defendant. This period can be extended by the courts for another six months.
Recovery of possession: The Act permits the following persons to file a suit for recovery of possession of immovable property: (i) a person put out of possession (dispossessed person); and (ii) any person claiming through such dispossessed person. The Bill additionally permits a person through whom the dispossessed got possession of the immovable property, to file a suit for recovery.
December 15, 2017
The Financial Resolution and Deposit Insurance Bill, 2017 (Bill Introduced in Lok Sabha) (yet to be passed by parliament) was introduced in Lok Sabha during Monsoon Session 2017. The Bill is currently being examined by a Joint Committee of the two Houses of Parliament. It seeks to establish a Resolution Corporation which will monitor the risk faced by financial firms such as banks and insurance companies, and resolve them in case of failure. For FAQs explaining the regulatory framework under the Bill, please see here.
Over the last few days, there has been some discussion around provisions of the Bill which allow for cancellation or writing down of liabilities of a financial firm (known as bail-in).
There are concerns that these provisions may put depositors in an unfavourable position in case a bank fails. In this context, we explain the bail-in process below.
What is bail-in?
The Bill specifies various tools to resolve a failing financial firm which include transferring its assets and liabilities, merging it with another firm, or liquidating it. One of these methods allows for a financial firm on the verge of failure to be rescued by internally restructuring its debt. This method is known as bail-in.
Bail-in differs from a bail-out which involves funds being infused by external sources to resolve a firm. This includes a failing firm being rescued by the government.
How does it work?
Under bail-in, the Resolution Corporation can internally restructure the firm’s debt by:
(i) cancelling liabilities that the firm owes to its creditors, or
(ii) converting its liabilities into any other instrument (e.g., converting debt into equity), among others.
Bail-in may be used in cases where it is necessary to continue the services of the firm, but the option of selling it is not feasible.
This method allows for losses to be absorbed and consequently enables the firm to carry on business for a reasonable time period while maintaining market confidence.
The Bill allows the Resolution Corporation to either resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.
Do the current laws in India allow for bail-in? What happens to bank deposits in case of failure?
Current laws governing resolution of financial firms do not contain provisions for a bail in. If a bank fails, it may either be merged with another bank or liquidated.
In case of bank deposits, amounts up to one lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the absence of the bank having sufficient resources to repay deposits above this amount, depositors will lose their money. The DICGC Act, 1961 originally insured deposits up to Rs 1,500 and permitted the DICGC to increase this amount with the approval of the central government. The current insured amount of one lakh rupees was fixed in May 1993.
The Bill has a similar provision which allows the Resolution Corporation to set the insured amount in consultation with the RBI.
Does the Bill specify safeguards for creditors, including depositors?
The Bill specifies that the power of the Corporation while using bail-in to resolve a firm will be limited. There are certain safeguards which seek to protect creditors and ensure continuity of critical functions of the firm. [Order of priority under liquidation]
When resolving a firm through bail-in, the Corporation will have to ensure that none of the creditors (including bank depositors) receive less than what they would have been entitled to receive if the firm was to be liquidated.
Further, the Bill allows a liability to be cancelled or converted under bail-in only if the creditor has given his consent to do so in the contract governing such debt. The terms and conditions of bank deposits will determine whether the bail-in clause can be applied to them.
August 12, 2017
The Banking Regulation (Amendment) Bill, 2017 passed in both houses
The Banking Regulation (Amendment) Bill, 2017 was introduced in Lok Sabha by the Minister of Finance, Mr. Arun Jaitley, on July 24, 2017. It seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to stressed assets. Stressed assets are loans where the borrower has defaulted in repayment or where the loan has been restructured (such as by changing the repayment schedule). It will replace the Banking Regulation (Amendment) Ordinance, 2017.
Initiating insolvency proceedings: The central government may authorise the Reserve Bank of India (RBI) to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
Issuing directions on stressed assets: The RBI may, from time to time, issue directions to banks for resolution of stressed assets.
Committee to advise banks: The RBI may specify authorities or committees to advise banks on resolution of stressed assets. The members on such committees will be appointed or approved by the RBI.
Applicability to State Bank of India: The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks.
August 01, 2017
The Right of Children to Free and Compulsory Education (Amendment) Bill, 2017
The Right of Children to Free and Compulsory Education (Amendment) Bill, 2017 was introduced by the Minister of Human Resource Development, Mr. Prakash Javadekar in Lok Sabha on April 10, 2017. The Bill amends the Right of Children to Free and Compulsory Education Act, 2009 by extending the deadline for teachers to acquire the prescribed minimum qualifications for appointment.
Under the Act, if a state does not have adequate teacher training institutions or sufficient number of qualified teachers, the provision to possess minimum qualifications is relaxed for a period not exceeding five years i.e. till March 31, 2015.
The Bill further adds to this provision by stating that those teachers who do not possess the minimum qualifications as on March 31, 2015 will acquire the minimum qualifications within a period of four years i.e. by March 31, 2019.
July 24, 2017
The Admiralty (Jurisdiction and Settlement of Maritime Claims) Bill, 2016 passed in parliament.
The Admiralty (Jurisdiction and Settlement of Maritime Claims) Bill, 2016 seeks to consolidate the existing laws on civil matters of admiralty jurisdiction of courts, admiralty proceedings on maritime claims, and arrest of ships.
Admiralty laws deal with cases of accidents in navigable waters or involve contracts related to commerce on such waters. The Bill repeals laws such as the Admiralty Court Act, 1861, the Colonial Courts of Admiralty Act, 1890.
Key features of the Bill include:
Admiralty jurisdiction: The jurisdiction with respect to maritime claims under the Bill will vest with the respective High Courts and will extend up to the territorial waters of their respective jurisdictions. The central government may extend the jurisdiction of these High Courts. Currently admiralty jurisdiction applies to the Bombay, Calcutta and Madras High Courts. The Bill further extend this to the High Courts of Karnataka, Gujarat, Orissa, Kerala, Hyderabad, and any other High Court notified by the central government.
Maritime claims: The High Courts may exercise jurisdiction on maritime claims arising out of conditions including: (i) disputes regarding ownership of a vessel, (ii) disputes between co-owners of a vessel regarding employment or earnings of the vessel, (iii) mortgage on a vessel, (iv) construction, repair, or conversion of the vessel, (v) disputes arising out of the sale of a vessel, (vi) environmental damage caused by the vessel, etc.
The Bill defines a vessel as any ship, boat, or sailing vessel which may or may not be mechanically propelled.
While determining maritime claims under the specified conditions, the courts may settle any outstanding accounts between parties with regard to the vessel. They may also direct that the vessel or a share of it be sold. With regard to a sale, courts may determine the title to the proceeds of such sale.
Priority of maritime claims: Among all claims in an admiralty proceeding, highest priority will be given to maritime claims, followed by mortgages on the vessel, and all other claims. Within maritime claims, the highest priority will be given to claims for wages due with regard to employment on the vessel. This would be followed by claims with regard to loss of life or personal injury in connection with the operation of the vessel. Such claims will continue to exist even with the change of ownership of the vessel.
Jurisdiction over a person: Courts may exercise admiralty jurisdiction against a person with regard to maritime claims. However, the courts will not entertain complaints against a person in certain cases. These include: (i) damage, or loss of life, or personal injury arising out of collision between vessels that was caused in India, or (ii) non-compliance with the collision regulations of the Merchant Shipping Act, 1958 by a person who does not reside or carry out business in India. Further, Courts will not entertain action against a person until any case against them with regard to the same incident in any court outside India has ended.
Arrest of vessel: The courts may order for the arrest of any vessel within their jurisdiction for providing security against a maritime claim which is the subject of a proceeding. They may do so under various reasons such as: (i) owner of the vessel is liable for the claim, (ii) the claim is based on mortgage of the vessel, and (iii) the claim relates to ownership of the vessel, etc.
Appeals: Any judgments made by a single Judge of the High Court can be appealed against to a Division Bench of the High Court. Further, the Supreme Court may, on application by any party, transfer an admiralty proceeding at any stage from one High Court to any other High Court. The latter High Court will proceed with the matter from the stage where it stood at the time of the transfer.
Assessors: The central government will appoint a list of assessors qualified and experienced in admiralty and maritime matters. The central government will also determine the duties of assessors, and their fee. Typically, assessors assist the judges in determining rates and claims in admiralty proceedings
APRIL 01, 2017
Govt. enforced provisions of Maternity Benefit (Amendment) Act, 2016 from April 1, 2017
MINISTRY OF LABOUR AND EMPLOYMENT NOTIFICATION New Delhi, the 31st March, 2017
In exercise of the powers conferred by sub-section (2) of section 1 of the Maternity Benefit (Amendment) Act, 2017 ( 6 of 2017), the Central Government hereby appoints—
(i) the 1st day of April, 2017 as the date on which the provisions of the said Act, except sub-section (5) of section 3: and
(ii) the 1st day of July, 2017, as the date on which sub-section (5) of section 3 of the said Act, shall come into force.
MCA enforced certain provisions of Insolvency and Bankruptcy Code, 2016
MINISTRY OF CORPORATE AFFAIRS NOTIFICATION New Delhi, the 30th March, 2017
In exercise of the powers conferred by sub-section (3) of section 1 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby appoints the 1st April, 2017 as the date on which the provisions of the following sections of the said Code shall come into force:—
(1) section 59;
(2) section 209 to section 215 (both inclusive);
(3) sub-section (1) of section 216; and
(4) section 234 and section 235