1. What is a Copyright?
Ans. A copyright is an intellectual property which protects original works of authorship including literary, dramatic, musical, artistic, cinematographic, photographic and sound recording works. It protects the ideas expressed in a tangible form but, it does not protect only ideas. The protection starts only when the idea is expressed on a tangible form.
2. What are the works which are registrable under the Copyright Act, 1957?
Ans. All original published or unpublished literary, artistic, dramatic, musical, sound recording and cinematograph films are registrable under the Copyright Act, 1957.
3. What rights are given under copyright protection in India?
Ans. Copyright confers on its owners the following rights to:
- Reproduce the work;
- Issue copies of the work to public;
- Perform the work in public;
- Communicate the work;
- Make any translation of the work;
- Make any adaptation of the work;
- Make cinematographic film or sound recording in respect of the work.
4. Is copyright registration mandatory?
Ans. No. Copyright is secured automatically upon creation of the work in a tangible form. However, formal registration is recommended as registration of copyright and the entries made therein serve as prima facie evidence in a court of law when there is a dispute relating to the ownership of copyright. Registered works are eligible for statutory damages if work rights get infringed by a third party. It also makes the process of licensing and/ or assignment of the registered work much easier.
5. Where can copyright application be filed in India?
Ans. With effect from August 01, 2014, all Copyright applications are to be filled online by visiting the website of copyright office at www.coyright.gov.in or as an alternative, to be sent by Speed Post/ Registered Post in the format prescribed.
6. Who can file a copyright application?
Ans. The copyright becomes the property of the author who creates the work. Therefore, only the author, or those deriving their rights through the author e.g. his/her assignee or legal heir, can rightfully claim copyright in the said work.
7. Can there be a work copyrighted as a ‘work of joint authorship’?
Ans. Yes. A work can be protected and copyrighted as a ‘work of joint authorship’. It means a work which is created by two or more authors in collaboration where contribution of one author is not distinct from the contribution of the other author or authors.
8. What Protection is available for Software Programmes in India?
Ans. A Computer Software or a Software Programme can also be registered as a ‘literary work’ under the Copyright Act, 1957. In order to do this, along with the application for registration of Copyright for software products, ‘Source Code’ of the programme has to be submitted.
9. What is copyright infringement?
Ans. If any person exercises any exclusive rights of the copyright owner, without taking their permission, they are liable for copyright infringement.
10.What is the term of copyright in India?
Ans. The duration granted for works of Copyright varies depending on the type of work.
Literary or musical works: Lifetime of the Author + 60 years
Cinematographic films, photographs & computer programmes: 60 years
11. Is there an international protection for copyright?
Ans. There is no international protection provided to Copyrights that will automatically protect an author’s writings across the globe. Protection against an unauthorized use in a particular country depends as per the laws stipulated in that country.
Since, India is a member of Berne Convention and Universal Copyright Convention, Indian Copyright Owners can protect their copyright to a large extent.
12. What are the major Government fee applicable for Copyright?
|Type of Application||INR|
|For a license to republish a Literary, Dramatic, Musical or Artistic work (Sections 31, 31A,31B* and 32A)||5000/work|
|For a license to communicate any work to public by broadcast Section 31 (1) (b)||40000/applicant|
|For a license to republish cinematograph film (section 31)||15000/work|
|For a license to republish sound recording||10000/work|
|For a license to perform any work in public||5000/work|
1. What is a trademark?
A trademark is a recognizable sign, design, or expression which identifies specific products or services from the products and services of others. It is a symbol, word, or words legally registered or established by use as representing a company or a product.
2. What is the function of a trademark?
Ans. A trademark generally performs four functions, under modern business conditions:
- It guarantees its quality;
- It identifies goods/or services and its origin;
- It advertises the goods/services;
- It creates an image for the goods/services.
3. Who can apply for a trademark?
Ans. Whoever claims to be proprietor of a trademark used or proposed to be used by him, may file for trademark in writing and prescribed manner for registration,
4. How to file a trademark?
Ans. Process of filing/ registering a trade mark:
- Applicant may submit the trademark application himself or approach a trademark agent or attorney and authorize them for representation;
- Conduct a trademark search before filing of the trademark application;
- The application can be filed online with the necessary fee or by submitting a physical copy to the Trademark Registry;
- The Trademark Registry will allot a unique number to the application which will work as an identity of the trademark application.
5. What are the different types of trademarks?
- Devices or symbols;
- Any name, which is not unusual for trade to adopt as a mark;
- An invented word or a dictionary word or words;
- Letters or numerals or any combination thereof;
- Combination of colors or even a single color in combination with a word;
- Shape of goods or their packaging;
- Marks constituting a 3- dimensional sign;
- Sound marks when represented in conventional notation.
6. What are the benefits of registering a trademark?
Ans. The registration confers upon the owner the exclusive right to use the trademark in relation to the goods or services and to indicate so by using the symbol (R), and seek any relief of infringement in a court of law in the country. The exclusive right is however subject to any condition entered on the register such as limitation of area of use etc.
7. What is office objection in trademark?
Ans. In case the logo or word mark is very similar to an already existing mark, or it causes confusion or hurts religious sentiments, the Trademark Office can raise objections to such an application. A response to this objection must be filed within a month from the date of receiving of the examination report from the Trademark Office. If you fail to do so, the Registrar can abandon the application.
8. What is opposition in trademark?
Ans. A third party may file an opposition for a similar trademark published in the journal or if the proposed trade mark is non- distinctive. Such an opposition has to be filed within four (4) months of the date of advertising. This leads to the trade mark status in the trade mark registry website as ‘opposed’. The third party then becomes the ‘opponent’.
9. Can a trademark be licensed/ assigned to someone?
Ans. Yes. A registered mark, or a mark for which an application to register has been filed can be transferred or sold. Written assignments may be recorded in the Indian Trademark Registry for a fee.
10. How to protect trademark in foreign countries?
Ans. To protect the trademark in a foreign country, it needs to be registered in that country. This process has been simplified since India became a member of the Madrid Protocol. To protect the trademark in any country where protection is sought, that particular country should also be a member of the Madrid Protocol. The Madrid system for the international registration of trademarks provides one single and cost-effective procedure for the registration of a mark in several territories. In order to file an international application under the Madrid Protocol, there should be a corresponding trademark application filed in India. If one wishes to obtain registration in a country which is not a member of the Madrid Protocol, separate national trademark application has to be filed directly in their respective country.
11. Is it possible to use the mark while the registration is pending? How to use the same?
Ans. Registration of trademarks in India is not mandatory therefore, a trademark can be used even if it is pending registration. It can be used even if it is filed and proposed to be used. However, in certain cases where the trademark is non-distinctive or similar to another, the Trademark Office may pass an order remove the mark and the applicant may have to stop continuing its use.
What are the formalities and government fees for major trademark transactions?
|Type of application||Individual/ Start-up/Small Enterprise||All other cases|
|Application for registration||4500||9000|
|Application for expedited registration (for each class and each mark)||20000||40000|
|On Notice of opposition (for each class opposed or counterstatement filed)||2700||2700|
|Renewal of registration||9000||9000|
|Application for assignment or transfer||9000||9000|
|Request to include the mark in the list of well-known trademarks (per mark)||100000||100000|
1. What is a Patent?
Ans. A Patent is a statutory right conferred by the government for an invention granted for a limited period of time to the patentee, in exchange of full disclosure of his invention and for excluding others, from making, using, selling, importing the patented product or process without his consent.
2. Does Indian Patent give protection worldwide?
Ans. Several individual patents should be obtained in each country where the applicant requires protection of his invention. There is no patent valid worldwide. Patent protection is territorial right and therefore it is effective only within the territory of India. However, filing an application in India enables the applicant to file a corresponding application for same invention in convention countries, within or before expiry of twelve months from the filing date in India.
3. Is it possible to file international application under Patent Cooperation Treaty in India?
Ans. It is possible to file an international application under Patent Cooperation Treaty in India in the Patent Offices located at Kolkata, Chennai, Mumbai and Delhi. All these offices act as Receiving Office for International application.
4. What can be patented? What is the criteria for a patent?
Ans. Any invention which is new and involves an inventive process and is capable of industrial application can be patented. An invention to become patentable, it should meet the following criteria –
- It should be novel;
- It should have inventive step or process and must not be obvious;
- It should be capable of industrial application; further
- It should not fall within the provisions of section 3 and 4 of the Patents Act, 1970.
5.Who can apply for a patent?
Ans.A patent application can be filed either by true and first inventor or his assignee, either alone or jointly with any other person. However, legal representative of any deceased person can also make an application for patent.
6. How can I apply for a patent?
Ans. A patent application can be filed with Indian Patent Office either with complete specification or with provisional specification along with the requisite fee. In case the application is filed with provisional specification, then one has to file complete specification within 12 months from the date of filing of the application. There is no extension of time to file complete specification after expiry of said period.
7. When should the application for patent be filed?
The application should be filed before publication of the invention and till then it should not be disclosed or published as such a disclosure of invention prior to the publication is detrimental to the novelty of that invention. Only under certain conditions, there is grace period of 12 months for filing application even after publication.
8. Are all the patent applications kept secret?
Yes. All the patent applications are kept secret up to 18 months from the date of filing and then they are published in the Official Journal of the Patent Office which is published every week and also available on the IPO website.
9. What applications are not published in the journal?
Ans. Following applications are not published:
- Application in which secrecy direction is imposed;
- Application which has been abandoned;
- Application which has been withdrawn 3 months prior to completion of 18 months.
10. Is there any provision in the law for early publication?
Ans. Yes, the applicant can make a request for early publication. Apart from inventions relating to atomic energy or defence, any invention can be published by requesting for early publication and providing the requisite fee. The Patent Office publishes such application within a period of one month.
11. Can patent application be examined automatically?
Ans. No. The patent application cannot be examined automatically after its filing. The examination is done only after receiving a request for examination either from the applicant or from a third party.
12. When can a person file a request for examination?
Ans. The request for examination can be filed within a period of 48 months from the date of filing of the application.
13. Is there any provision for early examination?
Ans. No. There is no provision for filing a request for early examination. However, applications filed under Patent Cooperation Treaty can review the same under National Phase and accept your express request for examination with the prescribed fee.
14. When is an application considered abandoned?
Ans. When the applicant fails to meet the requirement within 12 months, or fails to submit the necessary documents for compliance within the stipulated period, the application is considered abandoned.
15. Is there a provision for a time extension beyond 12 months?
16. What are the various stages involved in the grant of patent?
- Filing the application for grant of patent;
- Request for examination;
- Examined by the Patent Office;
- First Examination Report issued with corrections to be made by the applicant (if any);
- All corrections to be made and submitted within the time prescribed;
- Patent is granted and notified in the Patent Office Journal after meeting all the requirements by the applicant.
17. Does one need to go to the Indian Patent Office for work relating to patent application?
Ans. No. Generally, all communications with the Patent Office are done through writing. However, during prosecution stage and with prior appointment, interviews relating to patent application is possible with the examiners.
18. Where are all the information relating to patent application published/notified?
Ans. The information is published in the Patent Office Journal which is issued every Friday. This is also available in electronic form on the website of the Patent Office.
19. Can one use the words ‘Patent Pending’ or ‘Patent Applied For’?
Ans. Yes. A patent applicant can use these terms for the products after filing his application to ensure that the public is aware that a patent application has been filed in respect of that invention.
20. How can one find out that an invention is already patented?
Ans. Any person can perform a preliminary search on Patent Office website in the Indian patent database of granted patents or Patent Office journal published every week or by searching in the documents kept in the Reference Room at the Patent Office, which contains Indian patents arranged according to international patent classification system as well as in serial number. It is open to the general public from Monday to Friday, except Gazette holidays.
21. What is the term of patent?
Ans. The term of patent in India is 20 years from the date of filing of the patent application. In case of applications filed under Patent Cooperation Treaty the term of 20 years begins from International filing date.
22. Is there a renewal fee for patent?
Ans.Yes. Every patentee has to maintain the patent by paying a renewal fee for every year. There is no renewal fee for the first two years. The renewal fee is payable only from the third year. Such fee can be paid either every year or in lump sum.
23. When a patent can be restored after its cessation?
Ans. A request for restoration of patent can be filed within 18 months from the date of cessation of patent along with the prescribed fee. After receipt of the request the matter is notified in the official journal for further processing of the request.
24. What are the major Government fee applicable to patent?
|Type of Application||Natural Persons INR||Other Than Natural Persons (Companies)|
|Small Entity INR||Other Than Small Entity INR|
|Application for grant of patent||1600||4000||8000|
|Early Publication fee||2500||6250||12500|
|Request for examination of patent application||4000||10000||20000|
|For every extra sheet over 30 sheets||160/ sheet||400/ sheet||800/ sheet|
|For every claim over 10 claims||320/ claim||800/ claim||1600/ claim|
|Request for publication||2500||6250||12500|
|Request for Amendment of before grant||800||2000||4000|
What is the definition of Design?
Design means only the features of shape, configuration, pattern or ornament or composition of lines or colour or combination thereof applied to any article whether two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the finished article appeal to and are judged solely by the eye, but does not include any mode or principle or construction or anything which is in substance a mere mechanical device, and does not include any trade mark, as defined in clause (v) of sub-section (1) of section 2 of the Trade and Merchandise Marks Act, 1958, property mark or artistic works as defined under Section 2(c) of the Copyright Act, 1957.
What is meant by an article under the Designs Act, 2000?
Section 2 (a) of Designs Act, 2000 defines article any article of manufacture and any substance, artificial, or partly artificial and partly natural and includes any part of an article capable of being made and sold separately.
Why register designs?
The primary objective is to protect new or original designs created and applied to particular article to be manufactured by Industrial Process or means. The purpose of registration is to ensure that the creator or artisan of the design is not deprived of his bona fide reward by other people applying it to their goods. The registration of a design confers upon the registered proprietor a ‘Copyright’ in the design for the period of registration.
Are labels or cards considered as an article for the purpose of registration of design?
No. An article must have its existence independent of the designs applied to it. Design with respect to label is not registrable. So the design as applied to an article should be integral with the article itself.
What is a Register of Designs?
The Register of Designs is a document maintained by The Patent Office. It comprises of the design number, class number, date of filing and reciprocity date, name and address of the proprietor and it is open for public inspection on payment of the prescribed fee & extract from register may also be obtained on request with the prescribed fee.
What is the term of registration of a design? Can it be extended?
The term of the registration of a design is 10 years from the date of registration. This initial period of registration may be extended by a further period of 5 years on an application made and accompanied by the prescribed fee to the Controller before the expiry of the initial period of 10 years.
What is the date of registration?
The date of registration is the date of filing of the application. In case of registration of design with priority, the date of registration is the date of making an application in the reciprocal country.
Can the registration of a design be cancelled?
The registration of a design can be cancelled any time after the registration through a petition for cancellation in the form prescribed along with the fee to the Controller of Designs on the following grounds:
- The design is not new or original or
- The design has been previously registered in India or
- It has been published in India or elsewhere prior to the date of registration or
It is not a design as defined under clause (d) of section 2 of the Designs Act, 2000.
What is piracy of a design?
Piracy of a design is the application of a design or its imitation to any article in the class of articles in which the design has been registered, for the purpose of sale or of such articles without the written consent of the registered proprietor. Publication of such articles and the unauthorized application of the design is piracy of that design.
Is the article needed to be made by an industrial process or means prior to applying for registration of design?
No. It is not required to first produce the article and then make an application. Design is a conception of a shape or pattern which can be applied to an article by industrial process or means.
When should one file for the registration of design?
The application should be filed at the earliest as the first to file the application is considered for registration of design.
Is it possible to make an application for the same design by the same applicant again if the earlier application was abandoned?
Yes. The same applicant can apply again as there is no publication of the abandoned application made by the Patent Office. However, it is only possible if the applicant does not publish the said design either.
Is the right of ownership transferable?
Yes. Such right is transferable through assignment, agreement, transmission with terms and conditions in writing or by operation of law. An application in the prescribed form along with prescribed fee for registration of the transfer documents is to be made by the beneficiary to the Controller within 6 months from the date of execution of the instruments. An original/notarized copy of the instrument is to be enclosed with the application.
Are the registered designs open for public inspection?
Yes. The registered designs are open for public inspection pursuant to publication of the same in the Official Journal. A request should be made for inspection of the registered design in the prescribed form along with the prescribed fee.
Is it necessary to file the application through a professional?
No. The applicant can himself file the application for registration of design or go to a professional (i.e. patent agent, legal practitioner, etc.). Applicants residing outside India have to mandatorily go through a professional residing in India for filing the application.
What are the requirements for registration of design?
- The design should relate to features of shape, configuration, pattern or ornamentation applied to an article.
- The design should be applied to any article by any industrial process.
- The design should be new or original which isn’t previously published or used in any country before the date of application for the registration. The novelty should be in the application of a known shape or pattern to a new subject matter.
- The features of the design in the finished article should appeal to and are judged by the eye. Therefore, the design must appear and should be visible on the finished article for which it is meant.
What are the major Government fee applicable to design?
|Application||Natural Person||Other Than Natural Persons (Companies)|
|Small Entity INR||Other Than Small Entity|
|Application for registration||1000||2000||4000|
|Application for claim to proceed as an applicant or joint applicant||500||1000||2000|
|Inspection of a registered design||500||1000||2000|
|Notice of intended exhibition or Publication of an unregistered Design||500||1000||2000|
|Inspection of Register of Design||250||500||1000|
|Application for renewal of Design||2000||4000||8000|
Why is the protection of plant varieties important?
The process of plant breeding is long and expensive therefore, it is imperative to have an effective system of plant variety protection with the goal to encourage the development of new varieties of plants for the benefit of the society. Especially in India, breeding of new varieties lead to improved rural income and overall economic development of the farmers.
Can a new and distinct plant found growing in nature be protected?
No. Plant variety present in the wilderness cannot be registered. But, any traditionally cultivated plant variety undergone the process of domestication/improvement through human 2 interventions can be registered and protected provided it fulfills certain criteria.
What is the term of protection of a registered plant variety?
The term of protection of registered varieties is different for different crops which are as follows:
For trees and vines – 18 years;
For other crops – 15 years;
For extant varieties – 15 years from the date of notification of that variety by the Central Government under section 5 of the Seeds Act, 1966.
How many applications can a person file?
A person can file up to a maximum of three applications per day.
Can the application for registration of plant varieties be made through a professional/agent?
Yes. A farmer or a breeder can themselves apply for registration or get it through their agent.
Who can apply for the registration of a plant variety?
Application for registration of a variety can be made by:
- Any person claiming to be the breeder of the variety;
- Any farmer or group of farmers or community of farmers claiming to be breeder of the variety;
- Any person authorized to make application on behalf of farmers;
- Any successor of the breeder of the variety;
- Any assignee of the breeder of the variety who has the right to make such application; and
- Any university or publicly funded agricultural institution claiming to be breeder of the variety.
Is it necessary to submit the seed/propagating material before registration?
Yes. An applicant has to submit a fixed amount of seed sample with prescribed germination percentage, physical purity and phyto-sanitary standards. The applicant also has to submit a seed quality test report along with the seed/propagating material
What is the process and procedure for certification of seeds?
- Receipt and scrutiny of application;
- Verification of seed source, class and other requirements of the seed used for raising the seed crop;
- Inspections to verify conformity to the prescribed field standards;
- Supervision of post-harvest stages including processing and packaging;
- Seed sampling and analysis, undergoing genetic purity test and/or seed health test, in order to conform to the prescribed standards; and
- Grant of certificate and certification tags, tagging and sealing.
What are Genetically Modified transgenic seed?
Through the application of biotechnology, Genetically Modified seed is developed wherein a specific gene from other genus is inserted by genetic manipulation to make it resistant against certain characteristics like insect pests.
How are the IPR issues being dealt in India with respect to seeds sector?
The department has enacted legislation known as Protection of Plant Varieties and Farmers’ Rights Act, 2001 to protect plant breeder’s rights. The main objectives of the legislation are to,
- facilitate the growth of seed industry in India through domestic and foreign investment which will ensure the availability of high quality seeds to Indian farmers; and
- stimulate investments for research and development both in the public and the private sectors for developing new plant varieties and by ensuring appropriate returns on such investments.
What happens to the seeds received by the Authority?
The seed samples received by the Authority are systematically tested for its purity and germination. A part of the seed sample is sent to the test center for conduct of DUS tests and a part of it is kept by the Authority in the National Gene Bank to maintain the seed samples of the registered varieties for their entire protection period.
Can any person get access to the seed samples of the registered variety or a variety undergoing process of DUS tests?
No. Every person looking to get access to the seed sample which is registered or undergoing tests has to get permission from the Authority or the breeder of the variety.
Can a person apply for registration of a variety which is already present in the market?
Any variety which is already present in the market, but for not more than a year, can be applied for registration as a new variety.
What are the exemptions provided under the PPV & FR Act, 2001?
Farmers shall be entitled to produce, save, use, sow, re-sow, exchange, share or sell his farm produce including seed of a variety protected under the PPV & FR Act, 2001.
Researchers have the liberty to use the registered variety for conducting experiments and further, use the same for the purpose of creating other varieties.
What is a geographical indication?
A geographical indication is a sign to specify a product belonging to a specific geographical place and having certain qualities of its place of origin or a reputation that is due to that origin. There is a clear relation of the product to its place of production since, the qualities depend on the geographical place of production.
What is the benefit of registration of geographical indications?
A geographical indication right confers legal protection of the use of such right and prevents its unauthorized use by a third party whose product does not conform to the applicable standards.
Although, a registered geographical indication does not entitle the holder of such right to prevent another person from making a product using the exact techniques which are stipulated in the quality standards for that indication.
Who can apply for the registration of a geographical indication?
Any person, producer, organization or authority established by or under the law can apply for the registration of a geographical indication provided that the applicant shall represent the interest of the producers of that product.
Who can use the registered geographical indication?
Only an authorized user has the exclusive right to use the geographical indication.
Can registration of geographical indication be denied on certain grounds?
Yes, Registration of geographical indication can be denied if,
- its use causes or likely to cause confusion or deceive or in contrary to law;
- it contains scandalous or obscene matter;
- it is likely to hurt religious susceptibilities of any class or section of citizens of India;
It is a generic term;
- It is falsely represented by persons claiming that goods originated in another territory, region or locality as the case may be;
- It is otherwise disentitled to get protection of court.
What is the subject matter covered under geographical indication?
Geographical indication is used to identify agricultural, natural and manufactured goods. Some of the examples being Nagpur Orange, Darjeeling Tea and Kanchipuram Silk Sarees.
What is the term of a geographical indication?
The registration of a geographical indication is valid for a period of 10 years.
Can a geographical indication be renewed?
Yes. It can be renewed for a further period of 10 years each time, from time to time.
What happens to the registered geographical indication if it is not renewed?
If a registered geographical indication is not renewed it can be removed from the register.
Who is an authorized user?
Any person who is a producer of the goods in respect of which a geographical indication can apply for registration as an authorized user.
Is the registration of a geographical indication mandatory?
No. The registration of a geographical indication is not mandatory. However, this registration helps provide a better legal protection and facilitates an action against an infringement.
Can a registered geographical indication be assigned or transmitted?
No. A geographical indication cannot be the subject matter of assignment, transmission, licensing, pledge, mortgage or such other agreement since, it is a public property belonging to the producers of the concerned goods. When an authorized user (owner of that geographical indication) dies, his right goes to his successor in title.
What results in infringement of a geographical indication?
An unauthorized user using a geographical indication that suggests that such goods originate in a geographical area other than its true place of origin, which misleads the public with regard to the geographical origin of those goods. Further, in case the use of geographical indication results in an unfair competition including passing off in respect of registered geographical indication. And lastly, if the use of another geographical indication results in false representation to the public that the goods originated in a territory in respect of which a registered geographical indication belongs.
Can a registered geographical indication or a registered authorized user be removed from the register?
Yes. The Appellate Board or the Registrar of Geographical Indications has the power to remove the geographical indication or an authorized user from the register and take necessary action against that user on receipt of an application by an aggrieved party.
Can a geographical indication be used as a trademark?
No. The very nature of a geographical indication and trademark differs. Trademark refers to something registered or established to represent a product or the company and on the contrary, geographical indication identifies goods of a particular characteristic attributable to its geographic origin.
What are the major Government fee applicable to geographical indication?
|Type of application||INR|
|Application for registration in one class||5000|
|Application for registration in one class from a convention country||5000|
|Application for registration of one product in different classes||5000 for each class|
|Application for registration of one product in different classes from a convention country||5000 for each class|
|Application for registration of an authorized user of a registered indication||500|
|Application for renewal||3000|
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.