Can a proprietor have more than one business establishment? Which law governs sole proprietor business?
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Category Archives: Governance and Responsibility
REGISTRATION OF MICRO, SMALL AND MEDIUM ENTERPRISES
Government of India issued a comprehensive notification defining, classifying and registering, Micro, small and medium enterprises superseding four previous notifications including that of 1st June 2020. In this post, we will discuss the notification.
Company Affirmation of Readiness towards COVID-19
Companies Affirmation of Readiness towards COVID-19 Form is a simple web form. It can be filed from anywhere. There is no requirement of DSC and does not involve payment of any fee.
The purpose is to make companies and partnerships aware of unprecedented time and to ensure their better contribution to fighting this virus.
MY EXPERIENCE OF WORK FROM HOME
Work form Home is buzzword world over this month and Second half of March 2020 in India. We all are preparing for this to the extent possible. I am sharing my eight years of experience of work from home, hereunder:
I opted “work from home” in June 2012 and officially working from Home and later Home Office since 5th July 2012 the day I got my Certificate of Practice. Though, this was actually not my first experience nor something new for Indian. Indian Professionals, particularly Doctors, Vaidya, Haqims, Advocates, Vakils, Pleaders, Letter writers, deed writers, Landlords and even big traders has a history of work from home or have home offices. Though we please those were the days, noting changes except in favour of home office. Technology is the biggest enabler for work from home and lack of self-discipline is a hurdle. Let us start work from home.
Posted in Governance and Responsibility, Truth of Our Time
Tagged Corona, COVID-19, Work From Home
Aside
I m participating in #JanataCurfew on Sunday 22 March 2020 Are you? I will observe it on Saturday 21 March 2020 also.
THE ECOSYSTEM OF LAW
How to read the ecosystem of law is the basic question all practitioners of procedural laws raise time to time. This is not the same question students of law raise in schools or lawyers in courts. This is not all about interpretation and cracking of a law code hidden behind words. Here, I am trying to reply with reference to my bread and butter – the Companies Act, 2013 and The Insolvency and Bankruptcy Code, 2016.
Further Discussion on Manufacturing Activities in LLP
I recently published here a post analysing the law relating to manufacturing activities in a limited liability partnership. I, presently, have a strong view that manufacturing is not permitted under the present framework of the law. The parliament in its wisdom included trading as a permitted business for LLPs but not manufacturing under Section 2(e). According to my views, the Parliament may bring an amendment to include manufacturing as a permitted business for LLP. Any Office Memorandum issued by the Ministry or its withdrawal may not give LLPs permission to do the business of manufacturing without an amendment to the Act.
This blog post generated a debate. In this post, I reproduced a consolidation of all these discussions I was part:
MANUFACTURING ACTIVITIES IN LLPs
Presently on the website of Ministry of Corporate Affairs, in news and update section following update is displaying prominently –
Manufacturing & allied activities were restricted in LLPs vide OM No. CRC/LLP/e-Forms dated 06.03.2019. This OM invoking the restriction regarding manufacturing & allied activities has been withdrawn with immediate effect.
As this office memorandum is now withdrawn officially we will not refer the same in this post but we will surely discuss the law.
Corporate Law – Post Election
Unless a general election is crucial there is no purpose to conduct such a huge exercise. The best part of democracy is to give the opportunity for new ideas. Without going to any political prediction we will discuss possible post-election scenario after 23rd May 2019. This may help us to be prepared for the volatility of corporate law in India.
PROCEDURE UNDER THE SARFAESI ACT, 2002
Shreesh Chadha
4th Year BALLB Student,
Jindal Global Law School
Sonipat
In the Statement of Object and Reasons of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002(hereinafter SARFAESI,2002 or Act,2002), it is stated that the recovery of loans was a slow process which consequently resulted in the “mounting levels of Non-Performing Assets”. This act provides for the realization of any security interest in the favour of any secured creditor “without the intervention of the court or tribunal”[1]. This has resulted in a speedy recovery of Non- Performing Assets.
Under this act secured creditors (banks or financial institutions) have many rights for enforcement of security interest under S. 13 of SARFAESI Act, 2002. If the borrower of financial assistance makes any default in repayment of the loan or any instalment and his account is classified as Non-Performing Asset by a secured creditor, then secured creditor may require before the expiry of the period of limitation[2]by written notice. The Impugned Act, does not cover a certain class of assets, for example, any asset other than a non-performing asset, or unsecured loans, loans below ₹100,000 or where remaining debt is below 20% of the original principals stated in S. 31 of the SARFAESI Act,2002.
WHAT IS THE PROCEDURE FOR SALE/AUCTION THAT THE SECURED CREDITOR NEEDS TO FOLLOW?
The procedures laid down in the SARFAESI Act,2002, as well as the Security Enforcement (Rules), 2002, are mandatory, and no divulgence from the same is permitted, as held by the Hon’ble Supreme Court of India.[3] The procedures to be followed under the Act,2002 are stated hereinbelow.
Procedure of Physical Possession of the secured asset:
- If the borrower defaults in repayment, under S. 13(2) a demand notice is to be sent by Secured Creditor to the borrower to discharge his liabilities. Such notice persists for 60 days. The demand notice shall contain details and amounts of the amount payable by the borrower.[4] This demand notice can also be objected to by the borrower, which should be replied by the secured creditor within 15 days, and the reply should enumerate the reasons for non-acceptance of such objection. This position was clarified by the Hon’ble Supreme Court of India[5]and later amended into the SARFAESI Act, as S. 13 (3A).
- When the 60 day period concludes, without any discharge by the Borrower, actions can be taken by the Secured Creditor as enumerated under S. 13 (4)- wherein they can take possession of the secured assets, take over the management of the asset, appoint any person to manage the secured asset, require any person who has acquired any of the assets from the borrower to pay the secured creditor.
- The actions under S. 13 (4) are appealable as enumerated in S. 17- 18. Therefore, the borrower can appeal the actions of the secured creditor in Debt Recovery Tribunal, DRAT, writ in High Court and SLP in Supreme Court.
Procedure of Sale and Auction under the SARFAESI Act,2002:
- A Sale Notice is required in the case of auctioning off of the secured asset if inviting tenders from the public, or by way of public auction. This sale notice shall be published in 2 leading newspapers, on the website of the secured creditor, and as per the Directions of the Ministry of Finance directions, upload the tender notice on tender.gov.in.
- The sale notice or possession notice should be effectively served, I.e. in 2 newspapers in circulation in the area as provided for in the SECURITY INTEREST (ENFORCEMENT) RULES,2002.
- More particularly, the procedure for an auction of immovable assets is given in Rule 8, Security Interest (Enforcement) Rules,2002. the methods of sale of the immovable secured assets include:
(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty.[6] (after the possession of the asset by a Bank or Financial Institution, they might be willing to sell it to an appropriate buyer through a private deal with a third party)
Procedure regarding payment by purchaser:
The first step is determining the Reserve Price which is the minimum fair market value of the immovable asset as stipulated by the authorized officer, followed by the relevant notice according to the obligations enumerated in Rule 8 (6). The bidding process for public auction shall be done in accordance with Rule 9, Security Interest Rules, 2002 wherein the bidder shall deposit:
(1) Earnest money deposit (at the time of bidding)
(2) 25 per cent of the accepted sales price (including EMD) after successful bidding
(3) 75 per cent of the balance amount within 15 days of the auction.
Upon completion of the above, the sale certificate shall be issued to him. Otherwise, any sale by any other method other than public auction shall be on terms and conditions as decided by the parties.[7]It is also mandated under the Security Interest Rules,2002 that the amount of sale shall not be less than the reserved price.
àWHAT ARE THE OTHER REMEDIES AVAILABLE TO SECURED CREDITORS?
Section 14 of the Act, 2002 provides a provision for the assistance of the Chief Metropolitan Magistrate andDistrict Magistrate in taking possession of the property. According to the Hon’ble High Court of Madras has held that this provision should be given a purposive interpretation in consonance with the Statement of Objects and Reasons of the SARFAESI Act,2002. It was held that the purpose of this provision is to aid the secured creditor of obtaining possession of the asset as soon as possible, and convert a Non-Performing Asset into a source of recovery for the amount due, and transfer the secured asset to a willing third party.[8]
However, it is pertinent to mention that all the rights and interests of symbolic and/or physical possession guaranteed to the secured creditor under the Act,2002 extinguish after the sale to the third party is complete. From the date of the registration of the sale deed, the secured creditor does not have any remedy or course of action under S. 13 or S. 14 of the SARFAESI Act,2002.
In instances where the secured creditor is unable to claim possession over the secured asset after the expiry of the period of the demand notice under S. 13(2) of the Act,2002 specifically due to tenancy rights that might exist over the said asset, the rent or any other amount which might become due on the said secured asset from the lessee to the borrower (if any) becomes due to the secured creditor. This position was enumerated in S. 13 (4) of the Act,2002, and was solidified by the Hon’ble Supreme Court [9].
Therefore, within the 4 walls of the Act,2002 the secured creditor is well protected if the correct procedure is followed. The SARFAESI Act,2002 is one such legislation that genuinely removes unnecessary and frivolous litigation from the courts, and provides safeguard against the initiation of such litigation at the option of both, the defaulting borrower as well as the secured creditor.
(Views express in this post are of the author, this blog do not take any responsibility.)
E-mail of auther- shreeshchadha @ gmail.com
[1] S. 13 (1), SARFAESI Act, 2002.
[2] S. 36,SARFAESI Act,2002.
[3]ITC Limited v. Blue Coast Hotels Ltd. &OrsCIVIL APPEAL Nos. 2928-2930 OF 2018.
[4] S 13 (3), SARFAESI Act,2002.
[5]Mardia Chemicals Ltd. v. Union of IndiaTransfer Case (civil) 92-95 of 2002.
[6] Rule 8 (6), Security Interest Rules,2002.
[7] Rule 8(8), Security Interest Rules,2002.
[8]Kathikkal Tea Plantations v. State Bank of IndiaMANU/TN/1926/2009.
[9]Harshad Govardhan Sondgar v. International Asset Reconstruction((2014) 6 SCC 1).
AishMGhrana – Law Governance Responsibility
Dear readers,
Happy New Year 2019!
Year-end is the time to look back and to be happy from your achievement and learn from your mistakes. We always motivate and improve ourselves with this happiness and learning.
1st Jan 2019: Featured post on IndiBlogger, the biggest community of Indian Bloggers
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Aishwarya M Gahrana & Associates, New Delhi
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Posted in Truth of Our Time
Debt reconstruction of Venezuela Sovereign and PDVSA bond: Legal problem in reconstruction
Shrashank Tripathi, 4th Year, B.Com LL.B. (Hons.),
Faculty of Law, Dr Shakuntala Misra National Rehabilitation University, Lucknow
Venezuela is one of the most prosperous countries in Latin America for decades, their oil reserve is significantly large in comparison to other countries nevertheless they are currently in the biggest economic crises of the 21 century. Venezuela economy is built on oil, which accounts for more than 90% of country export, 30% of GDP, its foreign reserve and imports of consumer goods are also substantially based on oil exchange. Venezuela former President Hugo Chavez is a firm believer of socialist economy and “Bolivarian revolution” he adopted a new Constitution in 1999 and form favourable fiscal and monetary policy in pursuance of achieving his so-called 21st Century Socialist economy model.
Venezuela is oil abundant country since 1913 and always use its oil resource to leverage its economy, Hugo Chavez was benefited from the oil boom, when he took office in 1999, oil was $10 a barrel and reaching the peak of $133 a barrel in July 2008. On average oil account 60 per cent of government revenue, Chavez spent a substantial amount of government revenue on social welfare scheme and does not invest capital on other industry, he even does not create any sovereign reserve as a backup for oil price crash. When oil price falls sharply in the International market it exposes Venezuela economic mismanagement and drives the country to hyperinflation.
Economic mismanagement is one of the biggest reasons behind Venezuela economic turmoil, Venezuela heavily relies on oil revenue and the government never tries to diversify their economy. Government Nationalization scheme is another reason for the current crises, Chavez administration wanted to get concentrated and unified power on every industry of the economy so they nationalize telecom, oil, agricultural and other major industry. After nationalization after nationalization labour productivity is declined by 59 per cent and corruption is also increased in every sector. Simultaneously Chavez borrowed external debt to fulfil their fiscal deficit and on investment on the social scheme. Chavez sells oil to Caribbean countries on below market price under the PetroCaribe program and also borrowed money against future oil export. Chavez expects oil price will continue to rise in near future and he can negotiate welfare expenses through oil revenue.
When oil price starts declining in the International market, Government revenue is also starting decreasing to fulfil this gap of revenue and expenditure Chavez start borrowing external debt irrespective of the fact that Venezuela does not have any means for the repayment of debt. On 2013 Hugo Chavez dies because of cancer and his successor Nicola Maduro entered into the office, he inherited an economy with many loopholes and with a big problem, rather than solving he inflate problem with the overvaluation of currency and with printing new currency. Venezuela economy is now in debt trap Venezuela debt represent 50 % of international reserve, until recently Maduro Government had committed to repaying its debt in spite of the fact that they have limited resources and foreign reserve, fearing the legal challenges from creditor in US jurisdiction and seizure of Venezuela assets in the United States, including CITGO (oil company owned by PDVSA), oil shipments, and cash payment for oil.
President Maduro on November 2, 2017, announced that they would seek to restructure of its debt, Government would try to restructure their Sovereign bond and PDVSA bond these two bond amount 60 % of the whole Venezuela external debt and restructuring of the same would be a very cumbersome task. Economist speculate that administration will try only to restructure their Sovereign bond, not PDVSA bond because of two reasons firstly Venezuela oil is sold by PDVSA and if in the stage of negotiation any bondholder sue PDVSA then it might affect the whole economy, and secondly Sovereign bond does not have collective action clause that permits a super-majority of holders (75%) to agree to a restructuring and that decision become binding on minority bondholder, so in absence of this clause restructuring of PDVSA bond would inevitably be a messier affair. But my view is contrary, because of several reasons are given below.
If the government goes for the restructuring of PDVSA bond then they had more bargaining power because indentures may be amended with the consent of only with a bare majority of holder, so government had more option and they will also engineer the terms of a new bond (which represent the restructuring condition) as per the requirement of specific bondholder. PDVSA bond also contain change in obligator clause, as per Section 10.02 of PDVSA bond obligation of the payment can be changed with the consent of a simple majority of the holders of each series of bonds, so if some creditor opposed the restructuring process then government may change the obligation for payment from PDVSA to a newly incorporated company let’s call it “New Infra”. Minority bondholder will join the restructuring process seeing that New Infra is an entity that lacks resources to make any payments. PDVSA bondholder also has limited individual enforcement rights, Standard U.S style trust indentures vest the primary responsibility for enforcing the indenture, the exception to this rule is that bondholder only sue for his principal and interest amount only after the due date, the enforcement of accelerated amounts remains the responsibility of the trustee. So PDVSA bondholder sues only on the event of default and only for their respective amount. Taking these things into consideration Venezuela can restructure their PDVSA bond.
The government also needs to restructure their sovereign bond, the good news with sovereign bind is that they have the collective action clause so the decision of the majority of bondholder will be binding on the minority bondholder and they have to agree with the restructuring condition. It is speculated that Venezuela in the restructuring will use the principle haircut technique in the restructuring but in my view, the country economy is not in the situation to leverage the debt so they should ideally go for the extension of the maturity period.
Countries like China and Russia may also impose hurdle in the restructuring process, USA already imposes economic sanction on Venezuela and stop their citizen from accepting any kind of new bond in the restructuring process. Venezuela is going through big economic crises and only recover from this situation if they get financial assistance from international organizations like IMF. Venezuela also needs to apply the process of debt restructuring more wisely.
Email id- (shrashank123 @ gmail.com)
Posted in Truth of Our Time
Tagged Hugo Chavez, Nicola Maduro, restructuring, Venezuela
Happy Diwali
Ease of Doing Business Report 2019 – Corporate Law Perspective
Once upon a time falling in the line of World Bank was not fine for at least half of the world. The scenario is changing. There is a rumour that economies not only reforms but also window dress it.
India placed this year at the 77th place with 67.23 EODB scores. Unlike a layman, this EODB score concerns the exports. When we talk about this ranking is a rating of Delhi and Mumbai, not any other place. It might possible other states/cities doing better and not reflected in the report.
“India also focused on streamlining business processes. Under its National Trade Facilitation Action Plan 2017-2020, India implemented several initiatives that improved the efficiency of cross-border trade, reducing border and documentary compliance time for both exports and imports (figure 1.9). Enhanced risk-based management now allows exporters to seal their containers electronically at their own facilities; as little as 5% of shipments must undergo physical inspections. India also invested in port equipment, strengthened management and improved electronic document flow. By implementing the Single Window Clearance System in Delhi and the Online Building Permit Approval System in Mumbai during the second half of 2017, India also continued to streamline and centralize its construction permitting process. Regarding getting electricity, newly-adopted regulations from the Delhi Electricity Regulatory Commission require that electrical connections be completed within 15 days of the application’s acceptance. To comply with this regulation, Tata Power Delhi Distribution deployed more personnel as well as tracking tools and key performance indicators to monitor each commercial connection.” {Page 12}
A print version of the report may be downloaded from here.
SPICe added to the report
The report mentioned that India is among nation who improved by making it easier to start a business. India made starting a business easier by fully integrating multiple application forms into a general incorporation form.
Starting a Business
The starting a business ranking is fairly poor despite mentioning of SPICe in the report. The starting a Business rank among 190 economies is 137. On the scale of 100, the score for incorporation is 80.96. Starting a business in India involves 10 procedures involving 16.5 days. It cost 14.4% of per capita income of Indians. It means it is still not easy to start a formal business for an average Indian. This fact cause concern as there is no legal requirement of minimum capital for a business.
Minority Protection
This is good news. Our ranking is fairly good at 7th place with a score of 80. It can be understood that most economies are not doing fair on minority protection. So, it may not be our best efforts but the poor performance of most economies.
The extent of disclosure index (0–10) 8
The extent of director liability index (0–10) 7
Ease of shareholder suits index (0–10) 7
The extent of shareholder rights index (0–10) 10
The extent of ownership and control index (0–10) 8
The extent of corporate transparency index (0–10) 8
Resolving Insolvency
Insolvency is a very interesting phenomenon presently in India. Our improved rank is 108, a number which Indians love. Insolvency Resolution Score is 81.85. An average time for insolvency resolution is one year presently. This is quite embracing as against the promised 180 days. However, we are facing many practical issues and teething troubles.
Cost of Insolvency resolution is 3.5% of the estate evolved. Recovery rate is 85.3 cent in the Dollar.
In India the establishment of debt recovery tribunals reduced nonperforming loans by 28% and lowered interest rates on larger loans, suggesting that faster processing of debt recovery cases cut the cost of credit.
A recent study using Doing Business data showed that insolvency resolution is one of the main drivers behind “missing” corporate bond markets in many economies. More borrowers gain access to credit in economies with a robust legal system that supports the use of movable assets as collateral and a well-developed credit information sharing system.
Other major reform related to business
India (Delhi) issued a regulation prescribing new electricity charges.
India introduced the Maharashtra Goods and Services Tax Act 2017 and the Delhi Goods and Services Tax Act 2017, which unified all sales taxes into one new tax called the Goods and Services Tax (GST).
Performance on corporate law front
Overall performance on corporate law front is not satisfactory. We can notice that last year insolvency related score and rating were improved due to the introduction of the law. Practical implementation of the same was not so satisfactory. Same is also true for incorporation of a company or starting a business.
Targeted reforms
This is unfortunate that government across economies trying to improve their ease of doing business ranking and not taking a holistic approach on reforms. Various segments which might need attention but not directly related to the ranking are not taken care of.
Anyway it is good to see reforms.
Effective Provisions of the Companies Amendment Act 2017 w.e.f. 13 June 2018
With Four Notifications; S.O. 351(E) dated 23rd January 2018, S.O. 630(E) dated 9th February 2018, S.O. 1833(E) dated 7th May 2018 and S.O. 2422(E) dated 13th June 2018 most provisions of the Companies (Amendment) Act, 2017 (1 of 2018) come into force. Here is a bird’s eye view.
Tracking of Directors
After numerous many leakages of sensitive information on faulty governance and unearthing of scam, Government is facing firework from ruling party and its parent organisations. The friendly government of corporate houses with allegedly better relationship with corny – capitalists business organisations, once again looking towards corporate jungle for next round of its killing hunt. As per primary level media reports, Ministry of Corporate Affairs preparing for additional information from directors to nab them at first sounding of the alarm bell. This is in public domain now; government is going to ask passport information of directors who are a citizen of India. This news is bigger than it appears in earlier newspaper reports.
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AishMGhrana BLOG RANKED AS ONE OF THE TOP 40 INDIAN LAW BLOGS
Among Top 40 Indian Law Blogs
We are extremely proud to announce to our readers that this Blog – AishMGhrana Law Governance Responsibility – has been ranked as one of the Top 40 Indian Law Blogs, published by Feedspot. This list is based on, among others, the quality and consistency of posts, social media presence. The entire list can be accessed here.
This blog already among Top Hundred Law blogs globally.
We are extremely grateful to our readers for their encouragement and support, without which we couldn’t have reached here. We hope to perform even better this year and achieve many more milestones.
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Posted in Truth of Our Time
Rechristening the ICSI
Like Olympics, world cups and leap year, another thing sure to happen is some party talk around rechristening the ICSI. Usually, this informally happens just before leap year for a single reason already in public. This event occasionally gets formal. There are similar reasons used every time for acceptance and refusal of the exercise. Most company secretaries with humble backgrounds have an issue with term “secretary” and other with restrictive term “company”.
‘Withdrawal’ of Secretarial Standards 1 & 2
In post “Technical Fault in issuance of Secretarial Standards” posted long ago, I humbly made certain observations on notifications of two Secretarial Standards which was approved by Central Government and specified by the Institute of Company Secretaries of India (ICSI). A surprise notification of withdrawal published on 17th august 2017 come in support of my prima facie views. This withdrawal is effective with effect from 30th September 2017. Here, a discussion.
AishMGhrana 