Unsettled Conundrum: Biased Treatment by an Unbiased Code

Over the period, the jurisprudence on the Insolvency and Bankruptcy resolution in India has evolved quite a lot, but there still exist certain grey areas, which could be the factor for the biased way of treatment to the parties involved in the rescue process of the company hit by Insolvency or Bankruptcy. One such factor which is pervasively present in most of the issues raised in association to this code is the favourable framework of the code for a type of Creditor, and not so favourable framework that it extends to another type of creditor and the debtor.

The Companies Act 1956[1], can be said to be the parent legislation of the Insolvency & Bankruptcy code[2] (hereinafter, IBC), under which the companies, by volition, concurred to be wound up, unlike the case in the IBC, where, the Financial Creditor[3]/ Operational Creditor[4] files for the resolution process at NCLT. The free volition scenario is there indeed, but only on paper, in a large number of cases. Due to this, the essential function of the code, which is to resurrect the dying company, nullifies, as the financial state of the company gets worse after the invocation of the company insolvency resolution process.

The first instance where the unfair treatment could be witnessed is if we see the wordings of section 7[5], section 8[6] and section 9[7] of the IBC. Section 7[8] states that, in case of default, the application by the Financial Creditor could be made to the NCLT where the details of the same will be provided and if the adjudicating authority[9] is convinced of the fact that the default exists, then the direction can be given for the initiation of the insolvency resolution process. Now, this is in stark contrast to the case which is made by virtue of section 8[10] and section 9[11], cumulatively of the IBC. In case of the operational creditor[12], a demand notice[13] is required to be provided to the Corporate Debtor[14], who is then required to revert within the span of ten days, apprising the presence of any dispute[15] regarding the claim[16]. In absence of the dispute[17] being present, the adjudicating authority[18] is bound to initiate the resolution process. But, in case of the presence of the dispute[19], or any fallacy in the application, the adjudicating authority[20] can ask the applicant to rectify the same within the span of seven days. This shows the lack of communication in the case where the Financial Creditor[21] files an application for the initiation of CIRP and puts the Corporate Debtor’s right to save itself prior to the initiation of the resolution process in peril. The same state has also been spawned by a plethora of judicial pronouncements, for instance, in Sree Metaliks Limited & Anr v. Union of India,[22] the Calcutta High Court stated in its dictum that-

proceedings before NCLT are adversarial in nature and such proceedings have drastic consequences, hence, person(s) cannot be condemned unheard. even though the application of principles of natural justice are not expressly provided, they can and should be read into in, therefore, the NCLT would be bound to afford the right to reasonable opportunity of hearing in an application under section 7 of the code.[23]

In yet another case of Starlog Enterprises Ltd. v. ICICI Bank Ltd.[24], the NCLAT held that,

it is imperative for the adjudicating authority to adopt a cautious approach in admitting insolvency applications and also ensuring adherence to the principles of natural justice.[25]

Apart from all the aforementioned arguments, it is also pertinent to observe, considering the current scenario of the discourse that, the legislation is silent on the part where the adjudicating authority[26] is required to decide and grant the hearing to the Corporate Debtor[27]. In addendum, the code has a non-obstante clause under section 238[28] which gives the code an overriding power over any other legislation. This negates the strict applicability of the provision of Civil Procedure Code[29] and the principle of natural justice which is encapsulated in Section 424[30] of the Companies Act- 2013[31].

Secondly, there is not any intelligible basis on which the distinction between the Financial Creditor[32] and the Operational Creditor[33] is made in the code. An instance of the same is that the Financial Creditor[34] has the right to preside over the meetings of the Committee of Creditors[35] (hereinafter, COC) and exercises the vote in commensuration to the amount disbursed as loan to the debtor. In juxtaposition, the Operational Creditor[36] has no such right. The fundamental possibility of the situation is completely overlooked that, the Operational Creditor[37] might have a claim[38] which could be of a huge monetary value.

Furthermore, the code does not create an obligation on the adjudicating authority[39] to look into the veracity and genuineness of the claim made by the Financial Creditor[40], unlike in the case of the Operational Creditor[41], where the ascertainment of the amount, veracity and genuineness of the claim[42] is paramount and mandatory. This, again, is without any basis and rationale. This unfair treatment is meted out to two parties here,

  1. Corporate Debtor[43]– As he has got no say to avert the resolution process, even though the claims made might not be that of an actual amount. The only consideration made in this by virtue of section 7[44] is, that there is a default made by the debtor and it subsists. This has been well put forth by the Supreme Court in the case of Innoventive Industries Ltd. ICICI Bank[45], where the court said-

It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.[46]

  1. Operational Creditor[47]– As the division between the procedures in case of the two types of creditors is not in the same line. The Operational Creditor[48] has to go through a lot of checks before getting the claim [49]sorted, and also does not get cast the vote in the meeting of the COC.

Even the presence of the Information Utility[50], in case of the Financial Creditor[51], also does no good, for two reasons, essentially:

  • The presence of default is the only criterion which is needed to be looked into, irrespective of the dispute on the claimed amount, before initiating the resolution process.
  • Procuring the authentic information might be difficult as sharing information from the digital database exposes oneself to the risk of data privacy and data theft, making it impossible for the parties to the suit to ascertain the genuineness of the claims made.

One of the reasons provided, usually for such a distinction, bases itself on the findings of the report of the Bankruptcy Committee[52] chaired by Dr. T. K. Viswanathan, which submitted that the claim of financial creditors is usually left uncontested. There is indeed a paradigm shift in the insolvency law in India and the unification and adherence to this law is remarkable, but, leaving such loopholes on the basis of mere assumptions and probabilities makes it detrimental for the ones who do not find themselves landing in the aforementioned set. The law, in such changing times, needs to be accommodative of all the possible permutations and combinations of probabilities which might emerge. Though the hope for the same is zilch as there cannot be an all-embracing law possible, but an attempt to reach near the same could be made.

[1] Companies Act, 1956

[2] Insolvency and Bankruptcy Code, 2016

[3] Code, Id. at Sec. 5 (7)

[4] Code, Id. at Sec. 5 (20)

[5] Code, Id. at Sec. 7

[6] Code, Id. at Sec. 8

[7] Code, Id. Sec. 9

[8] Id. 5

[9] Code, Id. at Sec. 5 (1)

[10] Supra 6

[11] Supra 7

[12] Supra 4

[13] Code, Supra at Sec. 8(2) Explanation.

[14] Code, Supra at Sec. 3(8)

[15] Code, Supra at 5(6)

[16] Code, Supra at 3 (6)

[17] Id. 15

[18] Id. 9

[19] Id. 15

[20] Id. 9

[21] Supra 3

[22] Sree Metaliks ltd. v. Union of India, [2017]140CLA30(Cal), (Calcutta High Court).

[23] Debangsu Basak, J. Sree Metaliks ltd. v. Union of India, [2017]140CLA30(Cal).

[24] Starlog Enterprises ltd. v. ICICI Bank ltd., [2017]142SCL1, (National Company Law Appellate Tribunal)

[25] Sudhanshu Jyoti Mukhopadhaya, J. Starlog Enterprises ltd. v. ICICI Bank ltd., [2017]142SCL1

[26] Supra 9

[27] Supra 14

[28] Code, Supra at Sec. 238

[29] Civil Procedure Code, 1908

[30] Sec. 424, Companies Act, 2013

[31] Companies Act, 2013

[32] Supra 3

[33] Supra 4

[34] Supra 3

[35] Code, Supra at Sec. 21 (2)

[36] Supra 4

[37] Supra 4

[38] Supra 16

[39] Supra 9

[40] Supra 3

[41] Supra 4

[42] Supra 16

[43] Supra 14

[44] Supra 5

[45] Innoventive Industries ltd. v. ICICI Bank ltd., (2018)1SCC407, (Supreme Court of India).

[46] R. F. Nariman, J., Innoventive Industries ltd. v. ICICI Bank ltd., (2018)1SCC407

[47] Supra 4

[48] Supra 4

[49] Supra 16

[50] Code, Supra Sec. 3(21)

[51] Supra 3

[52] Insolvency and Bankruptcy Board of India, The Report of Bankruptcy Law Reforms Committee, (2015), available at http://ibbi.gov.in/BLRCReportVol1_04112015.pdf (Last visited on May 11, 2018)


ABOUT THE AUTHOR

Shivam Sharan

IMG_20180605_102806_156

Shivam Sharan is a second-year law student at NALSAR University of Law, Hyderabad. Although he has no particular area of interests as such in the legal field, but he likes to keep experimenting with new things and is open to edification by way of exploration. Apart from his work, he likes painting and listening to music.

Human Settlement on Mars – Is It Legally Feasible?

Elon Musk’s recent announcement about colonising of Mars raises the crucial questions on the appropriation of outer space by private companies.[1] With the turn of the century, many countries have authorised private companies to invest in space programme most prominent of them being the United States.[2]

SpaceX was founded by Elon Musk in 2002 with the ambitious aim to revolutionise space technology and an ultimate goal of taking humans to live on other planets. Recently, Musk publicly revealed his proposed plan to humanize Mars[3]. He has further stated in interviews that by creating life-sustaining modules, which when placed on Mars, humans could actually exist in the otherwise naturally hostile environment of Mars. The proposal may seem to come straight out of a science fiction movie but the tremendous leap in technology and widespread acceptance artificial intelligence brings the possibility closer to becoming a reality.

However, the suggested proposal is in violation of a cardinal principle of international law solidified in Article II of the Outer Space Treaty. Outer Space Treaty[4], entered into force in 1967, is the most seminal legal treatise in international space law describing the rights and duties of the spacefaring states. Article II reads as:

            “Outer space, including the Moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other mean”

This clearly states that space resource is a common resource of the humankind and state cannot stake its claim over such resource. This principle of non-appropriation is the very fundamental of law governing state activities over the common heritage of mankind.[5] Proposals claiming to colonize Mars go directly against the concept.

Appropriation signifies setting apart of property for to the exclusion of others. The claim by one state to use space property would de facto exclude other states from using the same property. Moreover deriving benefits from such exclusive use will also exert jurisdiction and authority over such property. Thereby such setup resembles territorial national boundaries as they exist on Earth.

Further analysis of Musk’s plan brings out another facet of space law incorporated in article IX of the Outer Space Treaty. Article IX prohibits any state party to conduct space activities that result in harmful contamination of outer space and other celestial bodies.[6] As proposed, colonisation of Mars would require heating up of the Martian atmosphere by an increase in CO2 and changes in the atmospheric pressure.

Such adverse altering of the environment would causing damage to Mars and also injure the interests of the entire world as Mars has an abundant repository of resources otherwise crucial for human existence[7]. Such activities cannot be precluded on the grounds that a private party outside the ambit of state is conducting such activity.[8]

Therefore, it is highly improbable that as when such a proposal is materialised by the SpaceX, it would fair through easily without any international opposition.

[1] https://www.wired.com/story/musks-new-mars-plan/.

[2] https://www.theverge.com/2016/8/3/12361256/moon-express-private-mission-spaceflight-us-government-approved.

[3] https://www.liebertpub.com/doi/pdf/10.1089/space.2017.29009.emu.

[4] 1967 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the Moon and Other Celestial Bodies, 610 UNTS 205 (1967).

[5] Declaration of Principles Governing the Sea-Bed and the Ocean Floor, and the Subsoil Thereof, beyond the Limits of National Jurisdiction, A/RES/25/2749., Article 2; Report Of The United Nations Conference On The Human Environment .A/CONF/ 11 4/Rev 1; Chapter VIII (41).

[6] Article IX “… States Parties to the Treaty shall pursue studies of outer space, including the Moon and other celestial bodies, and conduct exploration of them so as to avoid their harmful contamination and also adverse changes in the environment of the Earth resulting from the introduction of extraterrestrial matter and, where necessary, shall adopt appropriate measures for this purpose…”.

[7] https://www.space.com/16895-what-is-mars-made-of.html.

[8] Article VII Outer Space Treaty.


ABOUT THE AUTHOR

Rashi Sharma

Headshot_rashi_sharma

Rashi Sharma is a first-year student at the National Law Institute University, Bhopal. Having developed a strong proclivity towards commercial and business laws from very early on, she engages in extensive research in the field. Additionally, she is a keen reader on international politics. She has an immense love for sports particularly basketball.

 

Consumer Protection Bill, 2018 – An overview

The Consumer Protection Bill, 2018 was recently introduced in Lok Sabha which replaces the Consumer Protection Act, 1986. The Bill is a step towards the ease of provision of an effective and efficient institution and settlement of disputes to ordinary consumers.

Today’s consumer market has gone through radical changes since the enactment of the Consumer Protection Act, 1986. The Act introduced international trade, the emergence of global supply chains and the development of e-commerce which has led to a contemporary and modern system for the deliverance and supply of goods and services from the hands of the producers to the consumers. Consequently, due to several shortcomings of the provisions of the established Act, the disposal of cases had not been up to speed which is why the Bill has introduced the Central Consumer Protection Authority (CCPA) which would have powers to take immediate action to investigate consumer rights violations, remove misleading advertisements and recall unsafe goods and services to be prohibited or discontinued.

The Bill covers both online and offline transactions, including teleshopping and multi-level marketing. According to the Bill, consumer rights includes the right to be protected against the marketing of goods, products and services that pose a hazard to life and property, the right to be informed about the quantity, quality, purity, potency, price and standard of goods and services, the right to be assured of access to a variety of goods and services at competitive prices and also, the right to seek redressal against unfair trade practices or the exploitation of consumers. The Bill also provides for product liability in case of any personal injury, death or damage of property has been caused from a product.

For redressal and compensation, mediation has been provided as a means of alternate dispute resolution to simplify and speed up the process of dispute adjudication for the ordinary consumer where consumer mediation cells are to be established and attached to their respective district, state and national commissions. A monitoring cell is also proposed to be set up to oversee the functioning of the State consumer commissions which is to be constituted by the president of the National Consumer Disputes Redressal Commission.

The CCPA would have powers to intervene in unfair trade practices and enforce an action for recall, refund and return of products so as to prevent the detriment of the consumer and in turn empower the ordinary man.

The Bill is a necessity in the Indian legal system as currently, the task of preventing or taking action against unfair trade practices is not vested in any particular authority. It is a necessary change because it looks at the interests of the consumers in a more efficient and better way as the Bill would aid the ordinary consumer in standing up against unfair trade practices as well as claim their rights as a consumer whenever they are exploited with the help of the Central Consumer Protection Authority (CCPA). This would help to raise the position of India in comparison to the rest of the world when it comes to the protection of consumer’s rights.


ABOUT THE AUTHOR

Hamma Singh

Hamma Singh

Hamma Singh is a third-year law student at Dr. Ram Manohar Lohiya National Law University, Lucknow. Having an avid interest in human rights, animal rights and sports law, she has a substantial experience in blogging, creative writing and legal writing. With a desire to work for the conservation of the environment, she wishes to contribute towards animal welfare and protection. Books, puzzles, swimming and tennis are her other interests.

 

Role of Teachers in POCSO Act, 2012

In a survey that was conducted by the Women and Child Development (WCD) in the year 2007 had shocking revelations for India. The survey showed that 53.22 % children reported having faced some form of sexual abuse in which 52.94% were boys and 47.06% girls. And about 69.0 % of children that were surveyed went through one or more forms of physical abuse[1].

Now, the perpetrators could the parents, family members, neighbours, teachers or an unknown person but mostly the perpetrator was a person who had authority over the child. Another disturbing fact that the child feared to report the abuse because of the fear of social stigma, fear that the person would accuse the child instead or some other factor that would not be in favour of the child or the family.

Authorities in schools, especially teachers, play a major role in a child’s life. That’s why when Protection of Children from Sexual Offences Act was passed in the year 2012, Section 5 (f)[2] and Section 9 (f)[3] included anyone being on the management or staff of an educational institution to have been committed an aggravated form of sexual assault.

A child starts to spend half of his or her days in a school by the age of seven. Now teachers should maintain a clear and open communication line with the children so that in case of any incident the child is not in fear to report it. Now the management also should take in mind that the child also can be abused by the authority of the teacher has over the child. Thereby the authorities also should have counsellors to whom the children can feel free to approach. A teacher should always remember that just as a child spends a lot of time with the parents so does the child with the teacher.

Various guidelines regarding the same have been passed on to schools since then, the major one is the POCSO circular, 2015 by the Central Board of Secondary Education (CBSE).  The circular points out how the child deserves the right to access an environment that is safe, protective and conducive to overall development[4]. Major guidelines expected by the schools to follow were –

  1. The teachers, management and all the employees were bound by the Act[5] that they had to report any instance of child abuse as in Section 19(1) and 21.
  2. In-house induction sessions should be held with a module on gender sensitization. Every person who works in the school or in management or owners of the school should be told about the punishment which is higher as per the provisions of the Act. Teachers, in general, should be trained to handle when a child reports such a case and what should be done. Teachers should also have a close observation performance and psychological behaviour of the students as most of the times signs include sudden disinterest on the part of the children in participating or disinterest to study etc. The school management is also required to create awareness programs and necessary workshops from time to time as averting such offences is the primary aim of the management.
  3. The classes and the school in entirety should promote harmonious environment and inclusiveness.
  4. In Residential Schools training programs should be provided to the wardens and personal care and guidance to the girl children with a female matron for their dormitories.
  5. School Complaints Committee consisting of Principal/Vice- Principal, one male teacher, one female teacher, one female student, one male student and one non-teaching staff member must be set up to serve as complaints and Redressal body. An improved response system and alert administrative machinery are required to take immediate action on reported cases of misbehaviour. Also, suggestion/complain box should be provided in each school and any time a complainant on sexual offence is received the same should be acted upon immediately. The school should have CCTV cameras in main areas.
  6. Informal conversations should be held in form of discussions or activities or by observations with the students which can be helpful to notice if something is alarming.

By this, we can conclude that teachers may not able to stop such offences completely but may be able to reduce such offences and also bring the offenders in the light of law. Rather than waiting for some heinous crime to take place, it is the duty of every citizen to give every child an environment in which the child can grow mentally and physically without any fear. It is the right of every child.

[1] Study on Child Abuse INDIA 2007

[2] Section 5(f) – Aggravated penetrative sexual assault POCSO 2012

[3] Section 9(f) –Aggravated sexual assault POCSO 2012

[4] CBSE Circular Protection of Children from Sexual Offences (POCSO) 2012

[5] POCSO, 2012


ABOUT THE AUTHOR

Anita Thomas

IMG_20180514_201905

Anita Thomas is currently pursuing her third-year BBA LLB at Symbiosis Law School. She has a passion for research work and paper presentations. Her main area of interest is Family law and wants to advocate more in the area of Child rights. She also wants to learn more about Media law and work in a production house one day.

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