Showing posts with label Rishabh Gupta. Show all posts
Showing posts with label Rishabh Gupta. Show all posts

Sunday, October 27, 2013

Dawn for REITs in India: SEBI issues consultative paper on Draft SEBI (Real Estate Investment Trust) Regulation, 2013

SEBI has finally released the CONSULTATIVE PAPER on the draft regulation for paving the way for the introduction of Real Estate Investment Trust (REIT) in India. SEBI had, in 2008, issued the first draft regulation for introduction of REITs but since then nothing happened. Finally, SEBI has woken up and issued a consultative paper in order to introduce REITs.

Now, let’s understand what exactly REIT is and how it functions. Real estate investment trusts (“REITs”) allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Further, these REITs are publicly traded on recognized stock exchanges. Globally, REITs have been a key driver towards development of the real estate sector, by providing a platform for retail and institutional investors to invest in real estate properties, with the benefits of a regulated structure and risk diversification. The opportunity to take an interest in completed and yield generating real estate assets with the option to obtain regular flow of income from REITs, makes them a popular instrument amongst investors.

STRUCTURE OF REIT IN INDIA

The draft regulation envisage a REIT as a trust set up under the provisions of the Indian Trust Act, 1882 which would raise funds through an initial public offer and be listed on stock exchanges. Further, REITs are required to invest at least 90 % of their funds in completed and rent generating properties. Also, the roles and responsibilities of various key parties to a REIT such as Trustee, the sponsor, the manager and the Principal Valuer appointed by manager are set out in detail.

Thursday, October 17, 2013

SEBI finally releases Draft Regulation on Consent Order i.e. SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013

SEBI has finally issued draft regulation on Consent order i.e. SEBI (Settlement ofAdministrative and Civil Proceedings), Regulations 2013. Now, before moving on to discuss the main features of the draft regulations, certain important point needs to be discussed here. The need to have a regulation for consent and settlement order became increasingly necessary following the promulgation of the Securities Law Amendment Ordinance, 2013. Now, I shall bring out one important fallacy currently prevailing in matters relating to Consent orders passed by SEBI.
[Image Source- Click here]

The Ordinance granted statutory approval and sanction to the consent orders of the SEBI passed over the several past years from any challenge. It may be recalled HERE that the legal basis for guidelines relating to consent order was challenged before the Delhi High Court. However, the PIL was not successful. Thus, it appears that to overcome this and other related concern that the securities ordinance has specifically inserted Section 15JB to empower SEBI to settlement of proceedings with retrospective effect from 20th April, 2007. Also, the first GUIDELINES relating to consent order was issued on 20th April, 2007.

Now, the newly inserted SECTION 15JB (2) states that SEBI ‘may’ agree to a proposal for settlement on such terms “as may be determined by the Board in accordance with the regulations made under this Act

SECTION 15JB (3) further reads as follows:-
“The settlement proceedings under this section shall be conducted in accordance with the procedure specified in the regulations made under this Act.

Interestingly, no such Regulations, as mandated, have ever been framed for the settlement proceedings. Only guidelines were issued in the form of Circular by the SEBI. It seems that the earlier Guidelines relating to consent order are liable to be set aside as not being Regulations. Therefore, the SEBI has finally come up with the draft regulations to overcome this difficulty.

Now, we shall move on to discuss the salient features of the Draft regulations released by SEBI.

Saturday, October 5, 2013

Modifications in the existing Buy Back Regime: SEBI’s new ‘Buy Back of Securities (Amendment) Regulations, 2013’

SEBI has recently amended the existing buy back regime (Buy Back of Securities Regulations, 1998) concerning the securities market vide notification dated 8th August, 2013. Thus, the new buy back regime has kicked in by the way of SEBI (Buy Back of Securities) Regulations,2013. Various changes have been introduced in the new regulations to ensure that there is lower volatility in the capitals market. Further, the new regulations has taken a substantial amount of flexibility and leeway, the companies earlier enjoyed concerning the time lines attached to open market purchase of the securities.
Now, before moving on to discuss the changes and modifications introduced in the new buy back regime, a little understanding of what exactly is ‘buy back of securities’ would be useful.  

[Image Source-taxmantra.com]
Buy Back of securities basically means the purchase of securities by a company from its existing shareholders. Thus a company purchases backs its own share in order to reduce the number of shares in the market. Buy back of shares is usually done by a company due to of following reasons-

i.            Return surplus cash to the shareholders
ii.   Support share price during periods of temporary weakness
iii.         Increase the underlying share value
iv.          To increase the value of shares still available (by reducing the supply)
v.      To eliminate any threats by shareholders who may be looking for controlling stake(hostile takeover)

Now, we shall discuss the modifications and amendments introduced by the new Buy Back of Securities, Regulations 2013.

Sunday, September 29, 2013

Any 'THIRD PERSON' other than an Intermediary could also be held liable for "Front Running": Securities Appellate Tribunal (SAT)

In a landmark judgment (Vibha Sharma & Anr. v. SEBI) passed by the Securities Appellate Tribunal (SAT) on 4th Sept. 2013, the tribunal has held that even a “third person” other than an intermediary could also be held liable for ‘front running’ under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“FUTP Regulations”). This case is of immense importance as SAT has finally clarified the position of law on matters concerning front running by third persons. Also, the ruling of SAT in the instant case is significant for the reason that SAT had on the contrary, in 2012, in the case of "Dipak Patel" held that only intermediary could be held liable for the offence of front running and not third person under the FUTP regulations.
Now, before moving on to discuss the reasoning of the tribunal, let’s first comprehend what exactly is “front running”. Front running means buying or selling of securities ahead of a large order so as to benefit from the subsequent price move. This denotes persons dealing in the market, knowing that a large transaction will take place in the near future and that parties are likely to move in their favour[1]. Now, this can be best understood through an illustration: Stockbrokers and traders often have access to inside information regarding the investment plans of their firm. Brokers and traders might be lured to use this insider information to make investments that benefit them personally. Suppose a stockbroker at an investment bank has learned that his bank's executive board will purchase 100,000 shares of Company XYZ stock in the coming week. Knowing that this large purchase will push up the price of the stock, the stockbroker purchases 100 shares of Company XYZ for his personal account, hoping to profit from the price jump.
Now, we shall discuss the facts, arguments advanced by both the parties and the tribunal’s reasoning for holding the appellants guilty of ‘front running’.

Wednesday, September 25, 2013

Delhi High Court rejects the applicability of ‘HOT NEWS’ Doctrine in India

In a landmark case (Akuate Internet Service & Anr v. Star India & Anr.) ,decided on 30th August 2013, concerning the applicability of ‘hot news’ doctrine in India, the Delhi High Court replied in negative and concluded that hot news doctrine does not apply in India. The basic question before the Court was ‘is there a copyright or any other kind of right, such as right to protect ‘hot news’ in the scores in a cricket match’?
[Image Source: SpicyIP]
Background
In 2012, by an Agreement, BCCI granted exclusive broadcasting rights to Star TV to disseminate the information/content emanating from the cricket matches. Also, other copyrights emanating from recording of the live match too were assigned which included the right to record, reproduce, broadcast, etc. Later on, Cricbuzz, Idea Cellular and ONMOBILE started SMS services providing contemporaneous ball-by ball coverage of live cricket matches. Star TV India (plaintiff) filed three suits against Piyush Agarwal (Cricbuzz), Idea Cellular and ONMOBILE (Defendants)
Issues
Now, the main point of dispute in the instant case was the ‘mobile distribution rights’ granted by BCCI (Board of control for cricket in India) to STAR TV. These rights were a part of the exclusive broadcasting rights and other related rights in respect of cricket matches such as right to record, reproduce and broadcast the match events. The plaintiff objected to the defendants’ dissemination of ball-by-ball and minute-by-minute match information and alerts through live score cards, score alerts and match updates.

Wednesday, September 18, 2013

Companies Act, 2013: Independent Directors

In this post, important changes relating to introduction of Independent Directors (IDs) in the new Companies Act, 2013 would be discussed. [For an analysis & discussion of M&A and Corporate Restructuring in the ‘new act’, kindly click here].

Now, the primary role of corporate governance is always to ensure the independence of the board of directors (BOD) in a company. Independent directors on the board predominantly enhance the monitoring and supervising of the management and the promoters of a company. Thus is turning immensely helps in protecting and safeguarding the interests of the public shareholders. The new Companies Act, 2013 on one hand bestows independent directors with greater say in corporate governance & on the other hand places greater demand from them. Now, the relevant provisions concerning IDs in the new act are Section 149, 150 and Schedule IV. The primary features concerning Independent directors (IDs) in the new Companies Act, 2013 are as follows-

Number of Independent Directors
The new Companies Act, 2013 requires all the listed companies to have at least 1/3rd independent directors on their board. But this provision of the Act is a slight departure from clause 49 of the listing agreement. Clause 49 of the Listing agreement issued by SEBI requires that at least 50% of the Board of Directors (BOD) must comprise of Independent Directors in case the chairperson is in an executive capacity or a promoter or related to a promoter. Now, one thing which must be noted is that the listed companies will be required to comply with the more onerous of the two requirements, while others can merely comply with the company law. The consequences of violation may also be different under company law and securities regulation i.e. under clause 49 of the listing agreement.

Thursday, September 12, 2013

Companies Act, 2013: What's in the box for Mergers & Amalgamations (M&A) and Corporate Restructuring?

The Companies Bill, 2012 has finally become the Companies Act, 2013. See the official Gazette Notification here. Further, we already had an overview of the Companies Bill, 2012 here. But it must be noted that all the substantive sections are yet to be notified in due course of time by the Central Government. Only section 1 of the Act has come into effect, and section 1(3) provides:-

This section shall come into force at one and the remaining provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of the Act shall be construed as a reference to the coming into force of that provision.

Thus, the substantive sections would be notified by the Government later. Now, I would be delineating, in this post, the key provisions relating to Mergers & Acquisitions in the new Companies Act, 2013. The new Companies Act, 2013 has sought to streamline and make M&A more smooth and transparent. The newly added provisions have made it easier for companies to implement ‘Schemes of Arrangement’ (mergers & acquisitions (M&A), de-merger, corporate debt restructuring etc) and at the same time impose checks & balances to prevent abuse of these provisions.

Now, the key provisions relating to M & A transactions and corporate restructuring are as follows-

Monday, September 9, 2013

Securities Law Amendment Ordinance, 2013: Why SEBI should use its new power with much restraint & caution

As we have already discussed here the wide powers conferred upon SEBI by the virtue of Securities Law Amendment Ordinance 2013, I shall be discussing, in this post, as to why the newly unfettered powers granted to SEBI must be exercised with great caution and restraint. Further, the powers which are handed over to SEBI by way of an Ordinance are sought to be vested permanently by the Parliament. Thus, an analysis of some anomalous amendments emanating in Securities Law Amendment Ordinance 2013 would follow now.


Now the Ordinance has proposed five fundamental and essential changes to the prevailing statutory framework of securities regulations in India. The five changes, as introduced, are listed below-

I.       Giving explicit statutory recognition to the process of Consent Order.
II.    Widening of regulatory net for Collective Investment Schemes (CIS) and Ponzi Schemes
III.  According statutory approval and sanction for taking away fraudulent and ill gotten gains from the violators commonly known as disgorgement.
IV. Granting search and seizure powers to SEBI
V.    Enhancement of power to seek information pertaining to its investigative role.

Wednesday, August 28, 2013

The Real Estate (Regulation and Development) Bill, 2013

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha. He can be contacted at rishabh.a.09@gmail.com] 

The Real Estate Regulation and Development Bill, 2013 has been approved by the Union Cabinet on June 4, 2013 after much delay and deliberation. The bill has yet to be approved by the Parliament i.e, Lok Sabha and the Rajya Sabha. After this, the bill would become statute once it receives the presidential assent. Separate Real Estate Bills have been formulated by Maharashtra and Haryana State Governments. Therefore, when enacted, the Central Act would prevail over any State legislation and any provisions repugnant to the Central Act would be void. 

The Bill is aimed at regulating the largely unregulated real estate housing sector. It envisages the creation of a Real Estate Regulatory Authority [hereinafter “Authority”] and an Appellate Tribunal which would act as a watchdog for the housing sector, predominantly towards safeguarding and protecting consumer interests. Also, creation of the tribunals would act as an effective redress mechanism for any disputes. 

The Real Estate Bill envisages providing effective and efficient regulatory framework and environment in the real estate sector which is laced with illegal and black money, corruption, land mafias and red tapism. 

Monday, August 19, 2013

The new Companies Bill, 2012: An Overview


[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha. He can be contacted at rishabh.a.09@gmail.com]

The much awaited Companies Bill, 2012 has been finally approved by Rajya Sabha on 8th August, 2013. The bill was passed in Lok Sabha in December 2012 after detailed deliberations and discussions. It is now on the verge of becoming an act post presidential assent and notification in the Gazette of India.

The new Companies Bill, 2012, once effective, would replace the fifty-six year old legislation, the Companies Act, 1956, the primary legislation for incorporation, governance and operation of the corporate bodies in India. Further, the Bill envisages to create a simplified and effective framework for regulation and functioning of corporate bodies in India.

The new companies Bill, 2012 is a very welcome step as it has brought in numerous positive steps in streamlining the overall framework pertaining to corporate law. While the existing Companies Act, 1956 has 658 sections, the new Companies Bill, 2012 would have 470 clauses which are divided into twenty-three (23) chapters and has seven (7) schedules. Thus, in this post, an overview of the important and substantial changes as well as introduction of new provisions would be discussed like One-Person Company, new compliance regime for private companies, Corporate Social Responsibility, Mergers & Acquisitions (M&A), Corporate Governance and Class Action Suits.

1.                  MERGERS &ACQUISITIONS (M&A)

Numerous changes have been proposed in the new Companies Bill, 2012 to make the procedure for mergers and amalgamations (M&A) simpler and efficient. The approval of the National Company Law Tribunal (NCLT) for the fast-track mergers has been done away with in the new bill if it is a merger between two small companies, between a holding and subsidiary company, or between any other companies as may be prescribed.

Further, the new Companies Bill, 2012 says any contract or arrangement between two or more persons on transfer of securities shall be enforceable as a contract. Private equity (PE) investors, who until now have been unable to enforce strict conditions in their agreements with promoters, will be able to use clauses such as 'tag along' and 'drag along' mentioned in the shareholder agreement. A 'tag along' clause helps protect a minority shareholder as he can sell his stake along with the majority shareholder, while a 'drag along' clause gives right to a majority shareholder to force a minority shareholder to sell stake[1].

The new law also allows an Indian company to merge with a foreign company, making cross-border mergers and acquisitions easier. Earlier, only foreign companies were allowed to merge with Indian companies. Also, the bill will make it easier for promoters to restructure, merge or acquire companies because only those shareholders who own more than 10% stake or have more than 5% of the total debt will have the power to oppose any scheme of arrangement[2].

Tuesday, July 30, 2013

Taking a closer look at the new Minimum Public Shareholding regime in Listed Companies

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

Recently, the new minimum public shareholding of 25 % in all the private sector listed companies has kicked in thus, mandating all the private sector held listed companies to mandatorily offering at least 25% of the shares to the public. Thus a number of companies notably Tata Communications and Wipro have taken steps to increase their public stake using methods such as offering existing shares to the public, selling promoter shareholding, and issuing fresh shares to the public. But in the backdrop of this, around 105 listed companies failed to comply with the minimum public shareholding norm of 25% as mandated under the Securities Contracts Regulations (Rules), 1957 ("SCR Rules") within the stipulated deadline of June 3, 2013. Therefore, the current scenario pertaining to enforcement of minimum shareholding regime would be discussed and lastly a brief analysis of Gillette case would be provided in order to comprehend why SEBI rejected the Gillette’s scheme/plan to offload its share to meet the new minimum shareholding requirement.

All listed companies in India are regulated through three securities acts/rules which are-

a.       The Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
b.      The Securities Contracts (Regulation) Act, 1956 (‘SCRA Act’)
c.       The Securities Contracts (Regulation) Rules, 1957 (‘SCR Rules’)

BACKGROUND

The requirement to maintain a minimum public shareholding of 25% of each class or kind of equity shares or convertible debentures issued by a listed company was always provided under Rule 19(2) (b) of “Securities Contract Regulation Rules (SCCR)”[1]. Regulators have always been advocating for introduction of minimum public shareholding in listed companies for the reason that it aids in ensuring liquidity in the market and discovery of fair price. Further, the availability of requisite floating stock ensures reasonable market depth and trims down susceptibility of listed securities to market manipulation.

Therefore, in furtherance of the aforementioned objectives, SEBI amended Rule 19(2)(b) of SCR Rules and added Rule 19(A)[2] to the SCR Rules vide the Securities Contracts (Regulation) (Amendment) Rules, 2010 thereby expressly obligating all listed companies to maintain at all times at least 25% of minimum public shareholding. SEBI also obligated all non-compliant listed companies to increase their public shareholding to 25% by June 3, 2013 through any of the following methods prescribed by SEBI:

1. Issuance of shares to the public through prospectus.
2. Offer of sale of shares held by promoters through prospectus.
3. Offer for sale by promoters on the floor of stock exchanges.
4. Institutional Placement Programme ("IPP")
5. Rights issue/bonus issue to public shareholders, with promoters and promoter group shareholders forgoing their rights entitlement/bonus entitlement.
6. Any other method as approved by SEBI on a case to case basis

Now, based on the information provided by the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), 105 listed companies have still not complied with minimum public shareholding requirement as required under the provisions of Regulation 19(A) and Regulation 19 (2) (b) of the Securities Contract (Regulation) Rules, 1957. SEBI has primarily attributed the non-compliance to the promoters and directors of the defaulting listed companies. Also, according to SEBI, the promoters and directors often take advantage of their excess shareholding to the disadvantage of the public shareholder as quite often only promoters and directors’ interests are taken into account thus excluding the interest of the public shareholders. Further, such non-compliance by some companies puts the promoters/promoter groups of compliant companies at a disadvantageous position in comparison to the promoters/ promoter group of the non-compliant companies.

 PENALTIES FOR NON-COMPLAINT LISTED COMPANIES

Thus pertaining to the current situation prevailing, concerning the minimum shareholding requirement, and with an aim to restore the balance between the public and non-public shareholding and removing the disproportionate advantage arising out of the non-compliance, the SEBI has directed the following actions[3]-

1.      Voting rights and corporate benefits like dividend, bonus shares, split, etc. in respect of the excess of the proportionate promoter/promoter group shareholding would be frozen till compliance with the minimum public shareholding requirement is achieved.

2.      The promoters/promoter group and directors of non-compliant companies are barred and prohibited from dealing in securities of such companies, whether directly or indirectly. However, they are allowed to deal in securities for the sole purpose of complying with the minimum public shareholding requirement.

3.      The shareholders forming part of the promoter/ promoter group and directors of non-compliant companies are prohibited from holding any new position as director in any listed company, till the minimum public shareholding requirements have been complied.

It is worth mentioning here that not only does the SEBI’s order restrict the promoter/ promoter group/ directors from holding new positions in the non-compliant companies, but it also extends to any company listed on any stock exchanges in India.

SEBI has also clarified that the Order is without prejudice to its right to take any other action which it deems apt and befitting against the promoters of non-compliant companies including the following:

1. Levying monetary penalties under adjudication proceedings;
2. Initiating criminal proceedings;
3. Moving scrip to trade-to-trade segment; and
4. Excluding scrip from F&O segment.

Brief analysis of Gillette case- Why SEBI rejected its method of meeting minimum shareholding requirement

The facts are such that Procter & Gamble India Holdings BV (P&G) is a promoter of Gillette having 75.9% voting rights. The Poddar group is the Indian promoter of Gillette with 12.9% voting rights. The total promoter holding is in excess of the 75% permitted by the public shareholding norms. Therefore, Gillette’s proposed that Poddar group would first transfer 4% of its shares to P&G. Thereafter, the Poddar group would be categorized as an ordinary public shareholder as it would lose all its rights as a promoter (including by virtue of termination of rights under the shareholders agreement and articles of association). This approach was opposed by SEBI on the ground that it violates the spirit of the public shareholding norms in that the promoter holding would, in fact, be increased rather than diluted in the process.

Thus, it basically involved reclassification of a top company executive as non-promoter entity and the proposed scheme of shareholding arrangement to meet the norms was rejected by the SEBI and further on appeal rejected by the SAT (Securities Appellate Tribunal).

Further, taking action against promoters of Gillette India for non-compliance to minimum public holding norms, the Securities and Exchange Board of India's (‘SEBI’) ordered freezing of all corporate benefits arising out of their stake in the company. Also, it has restrained the promoters and directors from taking up any new position as director in any listed company.

Thus, given that stringent penalties have been imposed on the Gillette, it would be very interesting to see what scheme the company comes up with to meet the new mandatory minimum requirement. Also, the Gillette case would serve as a reprimand for the non-complaint listed companies to soon prune out their shareholding. So, lastly sooner rather than later, all the listed companies would cut down their shareholding to the minimum 25% public shareholding.




[1] Rule 19(2)(b) of SCR Rules:
(i) At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or

(ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees:

Provided that the requirement of post issue capital being more than four thousand crore rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub-rule 2 of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement:

Provided further that the company, referred to in sub clause (ii), shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India.

[2] Rules 19(A) of SCRR:
(1) Every listed company [other than public sector company] shall maintain public shareholding of at least twenty five per cent: Provided that any listed company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India.

Friday, July 26, 2013

Securities Amendment Ordinance, 2013: More powers to SEBI to tackle fraudulent schemes

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

Recently, the Securities Amendment Ordinance 2013 has been approved by the Union Cabinet and promulgated by the President of India to give Securities Exchange Board of India (SEBI) more regulatory powers to tackle widespread fraudulent investment schemes across the country. Among various other pertinent things, the ordinance grants jurisdiction to SEBI to effectively regulate various collective investment schemes (CIS) which were allegedly run by the Saradha Group. Thus, before outlining the features of the Securities Amendment Ordinance, it would be very pertinent to know what exactly happened in Saradha scam and then the features of the Ordinance would be discussed as to how it tries to plug in the regulatory and enforcement loopholes.

Saradha group activities and the subsequent scam

     The Saradha group was allegedly running a vast array of collective investment schemes (CIS). Under the scheme, agents were appointed and recruited from the local rural communities and these agents were supposed to collect money from the people by issuing secured debentures and redeemable preferential bonds on commission basis.  Thus, using this scheme huge amount of money was raised by over 100 companies under the Saradha Group. While all along this multi crore scam was taking place, SEBI completely failed to tackle and stop the scam from perpetuating even when it had detected a foul play by the Saradha Group way back in 2009.  Add to this, there were over multitudes of companies which were running similar fraudulent collective investment schemes (CIS), chit funds and multi level marketing scam which the SEBI has utterly failed to regulate and keep a check on their functioning. This in turn has duped a wide number of innocent investors mostly from rural areas.

The Securities Amendment Ordinance, 2013: Features

This perceptible regulatory gap is now sought to be addressed through the ordinance route. The Ordinance seeks to address the visible regulatory gap currently prevailing pertaining to CIS, chit funds scams.  The Ordinance brings out noteworthy changes, predominantly on the enforcement powers and authorities of SEBI. Also, there has been a substantial change relating to the expansion of the ambit and scope of collective investment schemes (CIS).

The Ordinance has formulated amendments to the three securities laws in India, which are (i) the SEBI Act, 1992, (ii) the Securities Contracts (Regulation) Act, 1956 and (iii) the Depositories Act, 1996. The key changes are as follows:

I.         Collective Investment Schemes

The scope of the CIS has been clarified in order to avert any uncertainty pertaining to SEBI’s domain over new methods of raising funds from the investors.

Under section 11AA of the SEBI Act, which details the parameters of a CIS, it is now stated that “pooling of funds under any scheme or arrangement” involving a corpus of Rs. 100 crores or more shall be deemed to be a CIS whether or not it is registered with SEBI. Hence, registration with SEBI is not a precondition and pre-requisite for such scheme to fall within the regulatory purview of SEBI.

II.         Enforcement Methods and Remedies

There have been many instances where although the SEBI has been successful in getting favourable conviction against the defaulters, quite often the enforcement has been very liberal and not desirable at all. The recent Sahara case aptly portrays the enforcement difficulties faced by the SEBI even when the former has been successfully convicted.  There have been considerable hindrances and log jams in enforcing the Court’s order against the persons guilty of non-compliance. These are sought to be rectified by the Ordinance by granting specific powers to SEBI to attach the violators’ property, bank accounts, and also the arrest and detention of the violator.

III.         Special Courts

One of the chief and pertinent sections of the Ordinance is that it seeks to establish a special court in order to ensure that cases involving securities regulation which go to the court are handled in a timely manner. However, the fact remains that visibly there has been no track record of criminal prosecution of securities offenders that may act as a deterrent. But again, as we have seen the constitutional challenge to the NCLT (National Company Law Tribunal) formed under the aegis of Companies Act, it remains to be seen whether such impediments would be faced by the securities law special court in its establishment and functioning.

IV.         Investigative Powers

Additional powers have been conferred upon the SEBI under Section 11C of the SEBI Act which deals with investigation of the fraudulent practices. The additional powers of search and seizure, recording of statements under oath would further strengthen the currently available powers of SEBI.

Furthermore, this ordinance has tried to resolve a bone of contention in various insider trading cases by conferring upon SEBI the right to call for information and record relevant information, including telephone data records. Thus this negates the requirement of direct evidence which is rarely available. Also, international developments like the conviction of Rajat Gupta and Rajaratnam in insider trading cases also demanded that SEBI ought to granted more power. The conviction of these persons in U.S. was obtained on the basis of call records.

Also, the power of SEBI is extended to obtaining information from international sources through regulators in other countries with whom it has entered into an arrangement for sharing of information.

Lastly, the Securities Amendment Ordinance has endeavoured to bring in worthy steps forward in fostering greater stringent regulations in securities, predominantly in the area of effective enforcement.

Saturday, July 20, 2013

Understanding D.U. Copyright Conundrum: What the Court Should Do

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

The on-going litigation between a group of leading publishers and a small photocopying shop attached to Delhi University has all the elements of a legendary 'fair dealing' debate in copyrighted works. This case holds paramount significance in mapping the future of use of copyrighted books and materials for affordable dissemination of knowledge in schools and colleges.

BRIEF FACTS OF THE CASE

A small photocopying shop, Rameshwari photocopy services, attached to Delhi University is entrusted by the university with complying extracts from various copyrighted books and materials. Now, the Oxford and the Cambridge publishing houses have alleged that by photocopying the copyrighted books and materials, the photocopying shop and the Delhi University have violated their copyright. Allegedly, the publishing houses have sued for copyright infringement. 

THE TWO LEGAL QUESTIONS INVOLVED

Generally, matters involving copying materials from copyrighted sources involve two fold tests in order to ascertain whether the copied material is permitted or not.

1.      Is the dealing ‘fair’?
2.      Is the copying done for a permissible purpose?

Copyright law in India and all across the world recognize that sometimes using/reproducing/distributing parts of a copyrightable work, without making payments to the copyright holder, are necessary and permissible. This is the essence of 'fair dealing'.

1.      ‘Fair Dealing’ enshrined in Section 52 of the Indian Copyright Act, 1957

The fair use doctrine is recognized as a valid defense to copyright infringement in most countries including India, where Section 52 of the Copyright Act permits one to “fairly deal” with any copyrighted work for “private or personal use including research”. Section 52 (1) (i) of the Copyright Act, 1957 as amended in 2012 reads as follows-

52. Certain acts not to be infringement of copyright. – (1) the following acts shall not constitute an infringement of copyright, namely:

(i) The reproduction of any work-
i.                    By a teacher or pupil in the course of instruction; or
ii.                  As part of the questions to be answered in an examination
iii.                In answers to such questions;

Now, from the bare reading of the aforesaid provision, it is clear that as far as the reproduction for the purposes defined in point (i) to (iii) above is concerned, the same is  exempted from the purview of infringement. Thus, Section 52 (1) (i) of the Copyright Act would clearly reveal that any such reproduction whatsoever is justifiable as non-infringing work.

2.      Copying done for the permissible purpose

Firstly, it needs to be ascertained as to how much the Delhi University/ photocopying shop has copied. Secondly it also needs to be seen whether the extracts copied is permissible under the Indian copyright law or not?

A very comprehensive and exhaustive analysis done by SPICYIP blog[1] points out that the extracts which have been copied by the Delhi University/photocopying shop comes out to meager 10 % of the entire book/ material. The fact that it is well within the ‘global standard’ of 10% cements up the DU stand.

It is now apt to say that the court ought to declare that extracts copied from copyrighted books/materials constitute as non-infringing given that S.52(1)(h)(i) of the Indian Copyright Act does not lay down any quantitative limit on permissible reproduction. In my opinion, the court should allow for the permissible copying of the copyrighted material up to 20% keeping in mind the socio-economic conditions of India.

LESSONS FROM CANADIAN COPYRIGHT CASE

At this point, it is very imperative to analysis the recent Canadian Supreme Court decision on the issue of ‘fair dealing’ and ‘permissible purpose’ pertaining to copying extracts from the copyrighted books and materials.

Analysis of Alberta (Education) v. Canadian Copyright Licensing Agency (Access Copyright), 2012 SCC 37] Case-

In this particular, the Canadian Supreme Court has ruled that copying extracts from the copyrighted books/materials do not constitute infringement as it is protected under the aegis of ‘fair dealing’ and ‘permissible purpose’ if the extracts from a part of teaching materials. Now, the relevance of this case in Indian context is discussed.

The Indian Copyright Act provides as follows:

(1) The following acts shall not constitute an infringement of copyright, namely: 
      (a) A fair dealing with any work, not being a computer programme, for the purposes of- 
 (i) Private and personal use, including research; 
 (ii) Criticism or review, whether of that work or of any other work;

Similar exceptions are also found in the section 29 of the Canadian Copyright statute. Thus, in this particular Canadian case, the Supreme Court of Canada ruled that copying extracts for teaching purposes does not constitute infringement.

Now, we may refer to Sec. 52 (1) (a) of the Indian Copyright Act which provides for ‘fair dealing’ together with the recent Canadian decision to aptly examine the scope in the Indian copyright act.
Sec. 52(1) (a) (i) particularly refers to ‘private use’ whereas the Canadian statute uses the term ‘private study’. The Canadian decision held that the interpretation of the word ‘private study’ should not mean that users should view the copyrighted works in utmost isolation. Thus the Canadian case basically says that whether the study is done alone or in group, copying extracts for teaching purposes would clearly fall within the ‘permissible limits’ and hence non-infringing per se. Therefore, similar line of argument could also be taken by the DU/photocopying shop to defend their stance.

Unfortunately, in the backdrop of the pertinent arguments advanced, the Delhi High Court has granted an interlocutory order restraining the photocopying shop and the university from further copying and circulating the course packages or the extracts compiled from the books. Thus, it is highly desirable upon the Hon’ble Court that it should allow the photocopying of extracts from the books/materials and vividly lay down a sound foundation for a ‘fair dealing’ and ‘permissible purpose’ in copyrighted books/materials.