Sunday, 9 July 2017
SUMMARY JUDGEMENT IN COMMERCIAL CASES
It
is not unheard of that a case when instituted in India seeking recovery of
money may take several years before the party suing for recovery is actually
able to receive the money claimed. Such scenario inevitably deters several
companies from approaching the court, thus leading to settlements at far lesser
amounts for which the company would have otherwise pursued.
Owing
to growing concern for cost effective and faster resolution of commercial disputes,
the Commercial Courts, Commercial Division and Commercial Appellate Division of
High Courts Act, 2015 (“Act”) was
introduced.
Post
promulgation of the Act, the trade and commerce sector of the country has
become very hopeful. This is because the Act has now put into place much needed
processes to ensure that cases are decided in a time bound manner. The
procedure for conducting a suit filed before a civil court is governed by the
Code of Civil Procedure, 1908 (‘CPC’).
To ensure that in commercial disputes where time is of essence, be it either
for recovery of money basis a contract or for that matter intellectual property
right cases for infringement of trademarks/copyright/patents, the CPC has been
suitably amended to incorporate provisions which are likely to make delay and
latches a thing of the past.
One
of the crucial amendments which have been brought into the CPC by the Act is
the insertion of Order 13A for summary judgment. Order 13A of the amended CPC
provides that disputes which are of commercial nature and as such recognized as
commercial dispute under the Act, shall be disposed off by the commercial court
established under the Act without a full-fledged trial. The provision entitles
the plaintiff or the defendant in a suit, to show as to why the claim of the
defense as the case may be, is not likely to succeed. Upon filing an application
under this Order, the plaintiff shall have to establish that there are no
triable issues and that the Defendant has no real prospect in successfully
defending the claim. To such an application, the defendant then shall be
afforded an opportunity to show to the court that there are triable issues
which are required to be inquired into and for which evidence is necessary. Upon
hearing the arguments of both the parties, if the court is of the opinion that
the defendant is not likely to succeed in defending the claim of the plaintiff,
the court shall pass a judgment in favour of the Plaintiff.
While
Order 13 A introduces a new perspective for deciding commercial disputes,
however, provisions such as Order 13 A existed much prior, in the CPC in the
form of Order 37. A suit filed under Order 37 of CPC provides that if a suit
for recovery is filed on the basis of admitted debt, the same shall be tried
summarily. Similarly, in a suit under Order 37 of CPC, the defendant is given
an opportunity to plead existence of triable issues and plead the leave to
defend the suit. The only difference between Order 13A and Order 37 is such
that an Order 37 suit is applicable only to debts which are admitted, while on
the other hand Order 13A can be invoked and is available to all kinds of suit,
subject to the fact that the dispute should be a commercial dispute recognized
by the Act.
Provisions
like Order 13 A is likely to be a game changer in suits filed for infringement
of intellectual property rights. This is because, in a suit for enforcement of
intellectual property rights, the plaintiff who usually claims to be the
proprietor or owner of the intellectual property rights is more concerned with
enforcement of its rights and restrain upon availability of
spurious/counterfeit or infringing product/services. The newly inserted
provision is likely to save the intellectual property rights owner from going
through the entire ordeal of the trial and secure protection of its rights
without delay.
Recently,
the Delhi High Court in the case of ‘Ahuja Radios vs. A Karim bearing CS(COMM)
35/2017” passed a summary judgment upon an application filed in a suit alleging
infringement of trademark. It is however interesting to note that in the said
case, the plaintiff did not press for damages. A necessary understanding for
releasing the claim for damages would be that in the event the plaintiff would
have pleaded for damages, then it would have had to lead evidence to show the
extent of loss which it suffered, thus negating the entire reasoning behind
filing of such an application. While the judgment is worth appreciating and has
been analyzed by many, the said cardinal aspect of release of damages was left
out. Therefore, in a suit for infringement of intellectual property rights,
claim for damages may have to be released when an application under Order 13A
of CPC is filed, unless of-course the plaintiff has documentary evidence to
prima facie establish the quantum of damages.
NOTE ON EXEMPTIONS TO PRIVATE COMPANIES
(As per MCA Notification
dated 13-06-2017)
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SECTION
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POSITION BEFORE NOTIFICATION
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POSITION AFTER NOTIFICATION
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Chapter I
Section 2 (40)
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Earlier,
only one person companies, small companies and dormant companies were
exempted from including cash flow statement in their financial statements.
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In
addition to other classes of companies exempted under the Act, the notification
exempts the private companies (if such
private company is a start-up) from including the cash flow statements in
its financial statements.
For
the purposes of this document, start-up companies shall refer to the
companies incorporated under the Companies Act, 2013 (“Act”) and recognized as a start up as per the notification issued
by DIPP.
|
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Chapter V
Section 73 (2)
(a) to (e)
|
Vide
notification dated June 05, 2015, private companies accepting monies from its members not
exceeding 100% of aggregate of paid up
share capital and free reserves and filing the details of monies so received
with the Registrar of Companies (“ROC”),
were exempted from complying with the conditions listed in Section 73 (2) (a)
to (e), listed below:
(a)
Issue
of circular in the prescribed format;
(b)
Filing
of circular in (a) above with the ROC;
(c)
Deposit
of not less than 15% of the amount of deposits in a scheduled bank account;
(d)
Provision
of deposit insurance;
(e)
Certification
that the company has not committed any default in repayment of deposits;
(f)
Provision
of security for due repayment of deposits and interest thereon.
|
The
current notification substitutes the exemption provision in the notification
dated June 05, 2015 with the current exemption provision which exempts the
following classes of private companies from complying with the conditions
listed in Section 73 (2) (a) to (e) of
the Act, provided that such companies file the details of monies so accepted
with the ROC-
(A) which accept monies from its
members, not exceeding 100% percent of aggregate of the paid up share
capital, free reserves and securities premium account; or
(B) which is a start-up, for 5
years from the date of its incorporation; or
(C) which fulfils all of the
following conditions, namely:-
(a) which is not an associate or
a subsidiary company of any other company;
(b) if the borrowings of such a company
from banks or financial institutions or body corporate is less than twice of its paid up share
capital or fifty crore rupees, whichever is lower; and
(c) the company has not defaulted
in the repayment of such borrowings subsisting at the time of accepting deposits
under this section.
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Chapter VII
section 92 (1) (g)
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Every
company is required to prepare an annual return in the prescribed format
containing inter alia the details
of remuneration of directors and key managerial personnel (“KMP”).
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By
means of this notification, private companies which are small companies are
required to disclose only the aggregate amount of remuneration drawn by
directors instead of the details of remuneration of directors and KMP, in its
annual return.
|
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Chapter VII
section 92 (1)
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The
annual return of a one person company and a small company are required to be
signed by the company secretary or where there is no company secretary, by
the director of such companies.
|
Proviso (1) to section 92(1)
of the Act has been substituted to the following effect:
In
addition to one person company and small company, a private company which is
a start-up would also be required to get its annual return signed by the
company secretary or where there is no company secretary, by the director of
such company.
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Chapter X
Section 143 (3)
(i)
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Section
143(3)(i) requires the auditor to comment upon the presence, adequacy and
effectiveness of the internal financial controls system in the company, in
his report.
|
The
provision contained in section 143(3)(i) will not apply to the following
classes of private companies:
A. one person or a small
company; or
B. which has turnover of less
than rupees 50 crores as per latest audited financial statement or which has
aggregate borrowings, from banks or financial institutions or any body
corporate, at any point of time during the financial year less than rupees 25
crores.
|
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Chapter XII
Section 173 (5)
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One
person companies, small companies and dormant companies are deemed to have complied
with the provisions of section 173 of the Act, if it has held at least one
meeting of the board of directors in each half of the calendar year and the
gap between the two meetings is not less than 90 days.
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Section
173(5) of the Act has been substituted to include a private company (if such
private company is a start-up) within its scope. Accordingly, a start up
private company will be deemed to have complied with the provisions of
section 173 of the Act, if it has held at least one meeting of the board of
directors in each half of the calendar year and the gap between the two
meetings is not less than 90 days.
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|
Chapter XII
Section 174 (3)
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Earlier,
as per section 174(3) of the Act, only the uninterested directors present at
the meeting, were counted towards the quorum of the meeting.
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Section
174(3) of the Act will apply to the private companies with the exception that
the interested director would also be counted towards quorum in such meeting
after disclosure of his interest pursuant to section 184 of the Act.
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The
exceptions, modifications and adaptations provided in the above table will be
applicable to private companies which have not committed a default in filing
its financial statements or the annual return with the ROC.
COMPOSITE SUIT – A PATH LESS TAKEN
A
composite suit essentially refers to a suit wherein different causes of action
are joined in order to form a single suit. Order II Rule 3 of the Code of Civil
Procedure, 1908 deals with joinder of causes of action i.e. a suit wherein the plaintiff
can unite one or more causes of action against the same defendant. The second
part of the rule deals with the case where several plaintiffs can join their
causes of actions against the same defendant or defendants.
Typically,
a composite suit could be referred to as a class action lawsuit in which one or
more group of persons or plaintiffs file a case on behalf of a large number of
injured parties, commonly referred to as the ‘class’. Class action suits are
also known as multi-district litigation or mass tort litigation. Though class
action suit is not understood or interpreted in the strictest sense in India,
the Indian judiciary has relaxed the criterion or requirements for locus standi in certain types of suits
especially those which are filed under Article 32 or 226 of Indian
Constitution. A classic example of such a case was and more popularly known as
the Bhopal Gas Tragedy case where the Government of India acting as parens
patraie, aggregated all the claims of the victims and initiated a legal
proceedings against Union Carbide Corporation (respondent). With the advent of the Companies Act, 2013, class
action suits have now been formally recognized in India. In terms of Section
245 of the Companies Act, 2013 the members, depositors of a company can file
class action suits against the company, its directors, auditor, expert advisor,
consultant etc.
The
advantage of such type of suits is that primarily, the multiplicity of
litigations is obviated. This, in turn, saves the time of the courts and
facilitates accelerated dispensation of justice. Class Action Suits become
desirable where the defendant party enjoys a higher status and it becomes
impossible for the victim to file a suit against the other party in spite of
suffering grave injuries.
However,
like all good things, a composite suit also suffers from a number of
disadvantages. Firstly for a composite suit to be maintainable, the cause of
action has to be under the jurisdiction of the same court where the suit is
supposed to be filed. For instance, if A has to file a composite suit against B
with respect to matters ‘x’, ‘y’ and ‘z’, then all these three causes of action
should come under the court’s jurisdiction to try such matter before which the
suit is preferred. This has been highlighted in the case of Dabur India Ltd. v.
K.R. Industries[1],
where the Delhi High Court didn’t have the jurisdiction to try ‘passing off’ and hence, inclusion of that, lead to the
appeal being dismissed.
Abolition of Foreign Investment Promotion Board
Foreign
Investment Promotion Board (“FIPB”)
was set up in early 1990s to consider the foreign direct investment (“FDI”) proposals requiring government approval.
FIPB, housed in the Department of Economic Affairs (“DEA”), Ministry of Finance, offered a single window clearance
system for disposing off the FDI applications falling under the approval route
in India.
Abolition
of FIPB was proposed in the budget of 2017-18 in light of the following
circumstances and the proposal was finally approved by the government on May
24, 2017:
i.
More
than 90% of the foreign direct investments were under the automatic route; and
ii.
Reduction
in number of sectors requiring government approval. A total of 11 sectors under
the approval route have been notified in this regard.
Subsequent
to the abolition of FIPB:
1. The
administrative ministries/departments will be entrusted with the responsibility
of dealing with:
(a) the
foreign direct investment proposals requiring government approval;
(b) monitoring
of compliance of conditions subject to which such approvals would have been
granted;
(c) RTI
applications and appeals pending with the FIPB Secretariat; and
(d) all
the past, present and future litigations and liabilities, in various courts and
adjudicatory forums. An affidavit to this effect will be filed in all such
pending and ongoing cases.
2. Department of Industrial Policy
and Promotion (“DIPP”) will majorly be
responsible for the following:
(a)
FDI
by non-resident investors (“NRIs”)
and export oriented units (“EOUs”);
(b) applications
relating to issue of equity shares for import of capital
goods/machinery/equipment;
(c)
applications
for issue of equity shares against pre-incorporation expenses;
(d) identification
of administrative ministry/department in case there is a doubt about the
administrative ministry/department concerned;
(e) oversight
of FIPB portal; and
(f) development
of a standard operating procedure with detailed guidelines ensuring uniformity
of approach across sectors in consultation with the administrative
ministries/department.
3.
Applications
involving investments from countries of concern would require approval from the
Ministry of Home Affairs;
4.
Foreign
investments into core investment companies or investment companies engaged in
investment in capital of Indian companies will be processed by DEA,
irrespective of the sector in which the investment is made;
5.
Any
decision of a competent authority to reject or subject an application to
conditions not provided in the FDI policy, would require the consent of DIPP;
6.
During
the transition period, the Secretary, DEA and the Secretary DIPP will meet
quarterly to discuss the pendency of proposals with the government.
7. Procedurally:
(a)
The
control of FIPB portal will be transferred by DEA to DIPP within four weeks;
(b)
All
the pending cases on FIPB portal will be transferred to the respective
administrative ministry/department by DIPP;
(c)
The
aforesaid administrative ministry/department will be given an access to the
FIPB portal for processing the applications pending before them;
(d)
The
administrative ministry/ department will seek the approval of the
Minister-in-charge / Cabinet Committee on Economic Affairs (CCEA);
(e) Ordinarily FDI applications,
including those related to NRls, EOUs, food processing, single and multi brand
retail trading, should be decided in sixty days.
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