Essar Steel India v. RBI†: A case comment

Introduction
Essar Group is an Indian conglomerate into manufacturing, services and retails sectors. The group has operational presence across 29 countries having 45,000 employees across the world. The Group’s core interest lies in steel and energy sector, Essar Steel being the flagship company of this group.

Reserve Bank of India (RBI) vide their press note dated 13-6-2017 had directed banks to initiate insolvency proceedings before National Company Law Tribunal (NCLT) under Section 9 of the Insolvency and Bankruptcy Code, 2016 against 12 companies including Essar Steel India Ltd. (Essar) and accordingly proceedings were initiated by consortium of banks led by State Bank of India (SBI) which is leading the consortium.

Background
Essar challenged the aforementioned press note by filing a writ petition† before Gujarat High Court Bench at Ahmedabad, citing failure of the consortium of banks to accept the package of debt restructuring, proposed and approved by the Board of Directors of Essar. Essar further challenged authority of RBI to issue directions to NCLT, as interpretation of last line of Para 5 implied that NCLT is a subordinate authority to RBI, which is constitutionally wrong. Para 5 of the Circular read as below:

The Reserve Bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts. Such cases will be accorded priority by the National Company Law Tribunal (NCLT).
RBI apologised to the Court for such poor drafting and they have issued a corrigendum dated 3-7-2017 correcting this mistake by deleting last line of Para 5.

Essar accused that RBI has blindly followed a process to shortlist companies based on classification, which is in contravention of Articles 14 and 19 of the Constitution of India. It was accused that the classification on the basis of total outstanding amount being more than Rs 5000 crores and percentage of classified NPAs to be more than 60% is arbitrary and irrational.

RBI in response submitted that Essar account was a non-performing account (NPA) even prior to 31-3-2016 with total outstanding amount to the tune of Rs 31,671 crores and the RBI directives are reasonable which make classification valid under Article 14, because the press release and the directives to banks issued by RBI were for giving effect to the economic policy contained in the IBC i.e. Insolvency and Bankruptcy Code as well as the Ordinance and the order.

RBI further submitted that the focus was on cases which have the twin criteria of being the largest and longest standing NPAs. Such classification is based on an intelligible differentia i.e. both quantum (Rs 5000 crores and 60% NPA) as well as length of outstanding (at least fifteen months i.e. from 31-3-2016).

SBI i.e. Respondent 2 in response submitted in the court that they have a statutory right to proceed against any corporate debtor with or without directions from RBI if they qualify requirements under Section 7 of the IBC. SBI denied that appointment of IRPs would hamper working of the petitioner since company is managed by executives and not their Board of Directors. SBI lead Consortium Bank denied that they had accepted any proposal from Essar and alleged that Essar has approached the court with unclean hands.

Standard Chartered Bank (SCB) i.e. Respondent 3 in response submitted that they are a company incorporated in the United Kingdom and are governed by the prudential regulatory authority of United Kingdom hence, it is not a banking company under Sections 5(c) and (d) of the Banking Regulation Act, 1949. SCB further contented that it is not a member of JLF (Joint Lenders’ Forum) and they had statutory rights to proceed against petitioners and did not need RBI’s directions.

Verdict
The Court refused to grant any relief to Essar with respect to their prayers to quash the said proceedings filed under Section 9 of the IBC and said that NCLT may be directed to set aside all the proceedings. The Court also observed that NCLT, Respondent 4 cannot be directed to restrain from proceedings against Essar, as such writ of prohibition may be issued only in the rarest of rare cases or when inferior court exceeds its jurisdiction, or proceeds under a law which is itself ultra vires or unconstitutional. Since IBC is not unconstitutional, this prayer was also rejected by the court.

Conclusion
This High Court decision is a major relief for financial institutions who got wary of the prospects of recovery from twelve biggest loan defaulters of India. This decision also establishes statutory right of banks to initiate proceedings against loan defaulters before appropriate forum with or without guidelines from RBI.

† Essar Steel India Ltd. v. RBI, 2017 SCC OnLine Guj 995, decided on 31-07-2017.

SEBI Circulars cannot be challenged in SAT: Rules Supreme Court of India

Supreme Court: The Court has ruled that administrative circulars issued by the Securities and Exchange Board of India (SEBI) cannot be challenged before the Securities and Appellate Tribunal (SAT).

The Supreme Court passed this judgment when it was hearing an appeal filed by SEBI against a SAT order in a case relating to National Securities Depository Ltd. (NSDL).

Background
NDSL and SEBI were at odds over an administrative circular captioned ‘review of dematerialization charges’ issued in 2005, debarring the depository from levying fees/charges on rendering service to the investors who hold Demat accounts with the depository. The grievance of the appellant (NDSL) was that it is a company and the law permits it to make profits and distribute the dividend to its shareholders. SEBI, without any justification, interfered with its functioning, NSDL had argued.

SAT in September 2006 had ruled that the term “order” in SEBI Act is extremely wide, and can be applied in all three types of orders— administrative orders, legislative orders, and quasi-judicial orders. Thus, it ruled in favour of NSDL.

Verdict
SEBI challenged SAT’s verdict in the Supreme Court and secured a reversal. The Supreme Court, in the order passed on March 7, said that only “quasi-judicial” orders and decisions are a “subject of SAT”.

“Administrative orders such as circulars issued under the SEBI Act are obviously outside the appellate jurisdiction of the tribunal,” said the SC order.

Conclusion
The clarification and restriction to the scope of SAT will clearly bring down the number of cases before the Tribunal. One cannot approach SAT cause the same will now have jurisdiction only over orders passed by SEBI in a quasi-judicial capacity. [National Securities Depository Ltd. v. SEBI, 2017 SCC OnLine SC 256, decided on 07.03.2017]

Ready Recknor on filing Trademarks under the new 2017 Rules

TRADE MARK FILING READY RECKONER – 2017 RULES
Trademark Registration is a process that takes around 1-2 years to obtain registration in a case, without any objections or oppositions. However, the time period can be longer if an opposition has been filed by a third party.

SEARCH

  • Look for classification of goods and services at the WIPO website (NICE Classification). (Rule 20).
  • In order to avoid a third party opposition, it is pertinent to conduct a ‘public search’ in the online Trade Mark Registry at http://www.ipindia.nic.in/ by providing the trademark name and class to find out if similar marks have already been registered or filed.

WHAT CANNOT BE TRADEMARKED

  • Marks which do not have a distinctive character.
  • Marks which are descriptive. Meaning which describe the goods or service in terms of the quality, quantity, shape or geographic indication.
  • Marks that have become customary in the language or region.
  • Well Known marks. Well known marks are marks which a substantial portion of the population relates to particular goods or services and the use of the mark in relation to any other goods or services would cause confusion in the minds of the people. Ex. ‘BAJAJ’, ‘BATA’, ‘BENZ’, etc.
  • Marks which are deceptive, hurt religious sentiments, Gods/Godesses, surnames, obscene.

SELECTION OF TM OFFICE

  • There are five Trade Mark Offices (TMO) distributed in accordance with Geographical Zones in India viz. New Delhi (North), Mumbai (West), Chennai (South), Kolkata (East), Ahmedabad (States of Gujarat, Rajasthan, and Union Territory of Diu Daman, Dadra & Nagar Haveli).
  • Depending on the location of your office, if any, in India or your authorized agent’s office if there are no offices in India, please select the appropriate Trademark Registrar Office.

FORMS AND FEES

    TM-A

  1. For application for registration of a Trade mark other than a collective or a certificate mark. Physical filing: 5,000 (Fees for Individuals, Small Enterprise, Startup) 10,000/- (In all Other Cases)
    • E-filing: 4,500 (Fees for Individuals, Small Enterprise, Startup) 9,000 (In all Other Cases).
  2. For application from any Convention Country other than a collective or a certification mark.
    • Physical filing: 5,000 (Fees for Individuals, Small Enterprise, Startup) 10,000 (In all Other Cases)
    • E-filing: 4,500 (Fees for Individuals, Small Enterprise, Startup) 9,000 (In all Other Cases)
  3. Application for registration of trademark as series for specification of goods or services included in one or more than one classes.
    • Physical filing: 5,000 (Fees for Individuals, Small Enterprise, Startup) 10,000 (In all Other Cases)
    • E-filing: 4,500 (Fees for Individuals, Small Enterprise, Startup) 9,000 (In all Other Cases)
    TM-M

  1. On application for expedited process of an application for the registration of a trademark.
    • Physical filing: Not allowed.
    • E-filing: 20,000 (Fees for Individuals, Small Enterprise, Startup) 40,000 (In all Other Cases)
  2. On application for: Extension of time, or certified copy, or Amendment of trademark application, or inspection of document.
    • Physical filing: 1,000. E-filing: 900.

TM-O

  • On a notice opposition or application for rectification of register.
  • Physical filing: 3,000/-. E-filing: 2,000/-

TM-R

  • Application of Renewal of a Trademarks.
  • Physical filing: 10,000.
  • E-filing: 9,000.

REQUISITES OF TRADEMARK FILING
A trademark registration application must contain the following information:

  • Logo or the Trademark (in colour if the logo has been designed in any specific colour);
  • Name and address of the applicant;
  • If the applicant is a partnership firm, the names of all the partners. Also mention whether any minor is a partner;
  • If the applicant is a company, the country or state of incorporation;
  • If the mark contains or consists of non-English words, a translation of those words into English is required;
  • Address for service of communication;
  • Select Classification or Category of goods or services;
  • Date from which Trademark is proposed to be used or has been in use;
  • Description of the goods or services for which registration is required;
  • Power of attorney in the format as prescribed in Form 48, simply signed by the applicant (no legalization or notarization is required). Indian applicants should execute the same in a Rs.100 stamp paper.

TRADEMARK REGISTRATION PROCESS
Upon filling the application, the TMO will issue an official receipt with the filing date along with a reference number to the application.

The application is then formally examined, that is whether it is inherent registrable and if any similarity, including phonetically and visually with existing marks. Accordingly, an official examination report is issued indicating either “acceptance” or “objection”, as the case maybe.

  1. In the event of objection on the examination report, it is necessary to file a response within a month of receipt of such objection the failure of which will result in instant abandonment but in most cases, a show cause hearing with the examiner is poste.
  2. Pursuant to a hearing if the argument is accepted, below step3 & 4 follows.
  3. In the event the mark is accepted as it, a letter of acceptance is issued, pursuant to which the mark is advertised in the Trade Marks Journal.
  4. If there are no third-party oppositions are received within 4 months from the date of advertisement in the Trade Marks Journal, then the trademark registration certificate is issued.
  5. Once the certificate is issued, the mark needs to be renewed every 10 years.
  6. In the event of any third-party opposition, after due hearing of the applicant and consequential refusal of application, then either a review or the remedy in step 9 is available to the applicant.
  7. Instead if the application is refused, or abandoned by the examiner with reasons, then a right to appeal to the Intellectual Property Appellate Board (IPAB) shall vest with the applicant.

Latest news and proposed changes to The Insolvency and Bankruptcy Code, 2016

The Union Cabinet has cleared the ordinance for making changes to the Insolvency and Bankruptcy Code (“IBC”).

The Ministry of Corporate Affairs (“MCA”) has set up a fourteen (14) member panel, Insolvency Law Committee, headed by Corporate Affairs Secretary, Injeti Srinivas, to identify issues and suggest ways for due implementation of the law.

It is proposed that the ordinance for amending the IBC will be presented in the winter session of Parliament and will be tabled for approval within six (6) months.

The exact nature of the amendment and its scope will be known only after the text of the ordinance is available after the president gives his assent.

IBC was passed by Parliament last year and became operational from December, 2016. It provides for a market-determined and time-bound insolvency resolution process, implemented by MCA. However, a set of concerns had emerged regarding promoters who are willful defaulters in loan default over an extended period of time or have a history of fraud, from buying the assets of the company for cheap during the resolution process. These willful defaulters are those who may have diverted funds for other purposes or siphoned off the money and deliberately avoided repayment of loans despite having the resources to do so.

IBC currently, does not specify the kind of buyers who can bid for stressed assets of companies that are undergoing bankruptcy proceedings. As a result, promoters who had defaulted on loans have access to reacquire their companies at a discounted price, pursuant to lenders deciding to let go a part of the money they are owed, and banks which are forced to swallow loan losses. An amendment focusing on this will ensure that such attempts of backdoor entry in the guise of resolution applicants will be intercepted.

It is estimated that approximately 3,500 cases have been filed for insolvency, out of which around 300 have been admitted to National Company Law Tribunal (“NCLT”), the arbitration authority for cases filed under IBC.

The first batch of twelve (12) large defaulters, referred by the Reserve Bank of India (“RBI”) in June, constitute a fourth of the total Non-Performing Assets (“NPAs”) that the banks have been tackling. This could signify that the promoters of these twelve (12) big loan default cases currently under the scrutiny of RBI for resolution, may not be able to bid for their company’s assets during the resolution process. Presently, these companies have been put on hold by the Resolution Professionals, and a case is only put forward once it receives the approval of the NCLT.

As determined by the adjudicating authority, the proposed ordinance will bar willful defaulters, undischarged insolvents and disqualified directors, besides those who have engaged in preferential, undervalued or fraudulent transactions. This will also include promoters who control or are a part of the management of such persons’ accounts which are classified as NPAs, beyond a particular time period.

The ordinance will provide a robust due diligence framework to aid the Committee of Creditors to assess the credibility of the applicant and then approve a resolution plan. It further shall prescribe an eligibility criteria for prospective resolution applicants, on the basis of the size of their business, and will hand over the power to the Insolvency and Bankruptcy Board of India (“IBBI”) to specify other norms if required. IBBI had earlier amended regulations governing the corporate insolvency resolution process to ensure that creditworthiness and credibility of a resolution applicant, including promoters, are taken into account by the Committee of Creditors, as part of due diligence prior to approval of a resolution plan. However, an amendment to the code was needed as curbs on promoters bidding would not have held up in courts otherwise.

Apart from this, certain matters regarding tax efficiency and compliances which stands crucial to the due processes, may also require reconditioning.