The author is a B.Com. LL.B. Candidate, IV Year, School of Law, University of Petroleum & Energy Studies, Dehradun.
This article analyses the recent Nirav Modi fraud case that subsequently led to the introduction of Fugitive Economic Offenders Ordinance, 2018 (FEO Ordinance) which aims at punishing the persons accused of financial crimes in India who have left India like Vijay Mallya, Nirav Modi, etc. The article initially establishes a base of facts as took place in the case and then explains the role of Letters of Undertaking (LoU) in the whole set up. It further discusses the regulations governing such bank guarantees and the gaps which were observed in the present case. It also throws light on the recently emerged SWIFT transactions and auditors’ duties with respect to bank guarantees.
Along with the introduction of the FEO Ordinance, the Union Cabinet of India, on March 1, 2018, approved the setting up of an independent regulator of auditors named the National Financial Reporting Authority (NFRA). The powers of this authority have also been described further in the article by comparing the same with the institutions existing prior to such Authority.
The author is a B.A. LL.B. (Hons.) Candidate, III Year, National Law Institute University, Bhopal.
The Indian economy is facing a major challenge with a rise in the number of non-performing assets (NPAs) and defaulters. The accumulation of NPAs with creditors has a deleterious effect on the economy, thereby discouraging the positive flow of credit in the economy. The government and the Reserve Bank of India (RBI), time and again, keep formulating different policy-measures and regulations to curb this prevalent problem. Keeping in line with the same, in 2016, the NDA government came up with the Insolvency and Bankruptcy Code (IBC). The IBC has several peculiar features that make it stand apart from other legislations aimed at solving the menace of NPAs and defaulters before it. The objective of IBC is to boost the overall economic health of the country. The RBI was given power through the Banking Regulations (Amendment) Ordinance, 2017 to direct the banks for initiating insolvency resolution. From there on, the RBI, through its regulations and policies, began to meticulously implement the IBC. Within a month, RBI recognized twelve accounts for insolvency resolution and instructed public sector banks to frame a plan for the potential defaulters. Thereafter, in a crucial step, the RBI discarded other resolution- mechanisms to rely solely and completely on the IBC for the same. This was heralded as a much-needed step in the direction of creditor-protection. Likewise, the judiciary has also supported the IBC through its various pronouncements and decisions, giving the widest possible interpretation to the Code for its effective implementation. As a result of this, India took a massive leap by moving from 130th to 100th rank in the “Ease of Doing Business” index of the World Bank in 2017. Specifically under the head of ‘insolvency resolution’, the country took a leap of 33 points. Thus, the commendable step taken by the government and RBI on this front is showing a positive effect and will certainly show a positive result on the balance sheet of the country as well.
Chandni Bhatia & Ayush Chaturvedi
The authors are B.A. LL.B. (Hons.) Candidates, V Year, Dr. Ram Manohar Lohiya National Law University, Lucknow.
The advent of the Insolvency and Bankruptcy Code, 2016 (“Code”) was much awaited and has been highly appreciated by the investors. It has proved to be fruitful in facilitating the ease of doing business in India by empowering creditors and making certain essential changes in the priority list.
However, the implementation of the Code has not been entirely smooth and requires amends in order to make the structure work with its entire efficiency. The article deals with these points and lays down the issues regarding the same. While doing so, the article also mentions the changes brought about by the recent bankruptcy code amendment ordinance.
The first issue that the article talks about is the lack of adequate manpower and infrastructure. With only 11 benches of the National Company Law Tribunal and combined strength of 26 judges, handling more than 2500 cases under the Code is a difficult task.
The article proceeds to look into the issue under section 29A which provides for disqualification of certain persons from becoming resolution applicants but fails to define the term ‘person acting jointly or in concert’ mentioned therein which has led to fierce litigation in this short span.
Another issue is the role of the guarantors under the Code and whether a creditor can proceed against a guarantor of corporate debtor after institution of corporate insolvency resolution process while under the moratorium.
The article further analyses the status of homebuyers as financial creditors under the Code and the recently released draft intending to introduce a chapter on cross-border Insolvency in the Code. The article concludes with the authors summarising the abovementioned issues and laying down the current status of the effectiveness of the Code.
The author is a B.A. LL.B. Candidate, IV Year, ILS Law College, Pune.
Although the 2007-08 financial crises wreaked havoc across the board, it also served as a catalyst for change. Overwhelmed by the financial ramifications of their impudent behaviour, many financial institutions found themselves on the verge of going bust. Their lack of preparedness in dealing with such a financial catastrophe put billions of dollars’ worth of bank deposits at risk. Although the financial institutions were bailed out by the taxpayers’ money, it exposed the hollowness in their incumbent insolvency mechanisms.
To prevent such a situation from recurring, several economies have revamped their insolvency mechanisms for financial institutions. Taking cognizance of its hypersensitive financial sector, the Indian government has also tabled the Financial Resolution and Deposit Insurance Bill before the Parliament.
Although certain provisions of the Bill have received a hostile response from the media, this article seeks to separate the facts from fiction. This article seeks to highlight certain significant provisions of the Bill which merit the readers’ attention. Further, this article would also mention the criticisms and recommendations forwarded to the drafting committee by other regulatory stakeholders. While the Bill adopts a two-pronged approach to protect the interests of financial institutions and their associated depositories, its success hinges on how well it reconciles the interests of all the affected stakeholders.
Ishita Chaudhary & Vanshika Taneja
The authors are B.A. LL.B. Candidates, Vivekananda Institute of Professional Studies, Guru Gobind Singh Indraprastha University, Delhi
This paper seeks to critically analyse the role of various amendments to the Companies Act, 2013 (hereinafter referred to as “the Act”), namely the Companies (Amendment) Act, 2015 and the Companies (Amendment) Act, 2017, and allied laws in promoting ease in doing business. In view of increasing emphasis on adherence to norms of good corporate governance, Companies Law assumes an added importance in the corporate legislative milieu, as it deals with structure, management, administration and conduct of affairs of Companies.1 The enactment of the Companies Act, 2013, was the most significant reform which introduced various changes in the company law in India. However, the implementation of the same was met with various difficulties. In order to overcome them, various amendments were made in the Act. These amendments thus focus upon the flaws and faults which were observed in the bare text of the Act and were aimed at widening and enlarging the scope of the provisions of the Act, to make company law free from ambiguities. Thus, the authors have attempted to explain the present position of the amended provisions in this paper. This paper is thus an analysis of the amendments that are aiding the businesses by adopting a liberal and progressive corporate governance mechanism.
Shree Shishya Mishra* & Aishwarya Surana**
*The author is a B.A. LL.B. Candidate, V Year, Alliance University, Bengaluru.
**The author is a B.B.A. LL.B. Candidate, V Year, Alliance University, Bengaluru.
This paper tries to highlight the effect of different financial crimes on the ease of doing business in India with the help of statistics provided by recognized databases. The paper also delves deeper into the impediments faced by businesses in functioning smoothly which arise due to incidents of financial crimes in India such as the Satyam scam and the Punjab National Bank fraud case. These cases along with a few others have been discussed at length to bring to the light the lacunae in the present system and to show that the aftermath of the regulation introduced due to an upsurge in the financial crimes further restricts the ease of doing business in India. The paper also tries to extract evidences from instances occurring abroad so as to prove the generality of the offences and the consequences which remain the same across the globe. Attempts have been made to provide suggestions to deter the incidents of financial crimes and to strengthen the regulations. The primary aim of the paper is to provide for affirmative action to the businesses against such crimes, thereby bridging the gap between the regulations brought and the ease of doing business.
The author is B.A. LL.B. (Hons.) Candidate, V Year, Amity Law School, Guru Gobind Singh Indraprastha University, Delhi.
The Financial Resolution and Deposit Insurance Bill, 2017, or FRDI Bill was aimed at providing a mechanism and framework for resolution of certain categories of financial service providers that might be in distress, and for resolving bankruptcy in banks, insurance companies and other financial establishments. Since, there is no comprehensive and integrated legal framework for resolution and liquidation of financial firms in India presently, in order to have a systematic resolution of all financial firms — banks, insurance companies and other financial intermediaries— this Bill had been introduced.
It was introduced in the Lok Sabha on August 10, 2017, and was under the consideration of the Joint Committee of the Parliament which had been asked to submit its Report to the Parliament by the last day of the Budget Session, 2018, during which it was withdrawn by the government. But, now, that the Bill has been withdrawn by the government, it is imperative to understand the nature and characteristics of the said Bill in order to determine the reasons behind such withdrawal and the present scenario. Although, the drafters of the Bill suggested that the Bill will promote ease of doing business in the country, improve financial inclusion, increase access to credit, and encourage discipline among the financial service providers by putting a limit on the use of public money to bail-out distressed entities, there are many questions that have arisen regarding its functioning. The key issues in the Bill were the establishment of the uniform body called Resolution Corporation, its powers, the Deposit Insurance Coverage Limit, the provision of bail-in, and the lack of autonomy of the Systematically Important Financial Institutions (SIFI). All these issues oblige us towards answering the question as to whether the Resolution Corporation will resolve complications or not.
Wajahat Monaf Jilani
The author a B.A.LL.B. Candidate, IV Year, Faculty of Law, Aligarh Muslim University, Aligarh.
The Insolvency and Bankruptcy Code, 2016 heralded a new and fresh approach towards insolvency resolution in the country. Justice A.K Sikri has identified two conflicting interests that face an insolvency regime. On the one hand, there is the interest of the creditors, while on the other there is the issue of restructuring or reviving of the insolvent company. Further, in balancing these two conflicting interests, lies the paramount economic interest of the nation, which can only be achieved if the interest of all the parties is safeguarded.
Ever since it was introduced, being a completely new system, the Insolvency and Bankruptcy Code has faced its fair share of challenges. As a result, a fresh jurisprudence has emerged. This paper seeks to examine the legal issues faced, identify the possible solutions, and discuss the reforms made. It takes into account the report of the Insolvency Law Committee, the Insolvency & Bankruptcy (Amendment) Ordinance, 2018 and the Insolvency & Bankruptcy (Second Amendment) Act, 2018 from the perspective of efficient working of the Code as well as the suitability of the reforms in creating an atmosphere of ease in doing business and achieving the purposes of the Code. While many red flags were raised with regards to the functioning of the code, the author has focussed on the more pertinent issues. In doing so and for the sake of understanding, the author has chosen to trace the history of the problem, various legislative and judicial interventions up to its present status.
Akshay Douglas Gudinho
The author is an LL.B. Candidate, III Year, Symbiosis Law School, Pune.
The concept of International Financial Services Centres (IFSC) was introduced in India in 2007 by the High Power Expert Committee’s report on making Mumbai an International Financial Centre (MIFC report). Historically speaking, the MIFC report provides that London originated as the first IFSC augmented inter alia by the rapid growth in technology and the free flow of capital across borders; this ushered in the age of universal capital convertibility. Disrupted by the two World wars, New York rose to the pedestal as the dominant IFSC. The historical account in the MIFC report provides a market oriented explanation of an IFSC over IFSCs developing as strategic infrastructural projects that serve as investment hubs primarily for the derivative market of foreign securities.
The first legal enactment for IFSCs in India was announced in the 2016-17 budget speech where the Honourable Finance Minister, Mr. Arun Jaitley, provided tax concessions to units operating in IFSCs.2 The said concessions have been included in the Finance Act, 2018. IFSCs are initiatives to incentivize the exchange of foreign securities in India where the financial services sector accounts for 5% of the GDP.3 Gujarat International Finance Tech (GIFT) in Gandhinagar, Gujarat holds the title of the first IFSC to be set up in India. Apart from tax incentives and regulatory exemptions, an IFSC can be best described as a commercial haven catering essentially to non-residents in commodities of foreign currencies.
It is thus an exemplification of Ease of Doing Business policy for those who intend to operate in the form of an IFSC. The paper shall be restricted to the regulatory framework and the benefits of setting up businesses in an IFSC. The paper shall not deal with the potential success or failure of the GIFT initiative.