Topical Issues in the Regulation of E-commerce in India 1 Topical Issues in the Regulation of...

CONTENTS

page 1 Topical Issues in the Regulation of E-commerce in India

page 5 Indian LLP - Now More Attractive for Foreign Investors

page 6 Insolvency And Bankruptcy Code: Heralding A New Dawn In Corporate Insolvency

page 8 Targeting Indian IT: Trends in Recent U.S. Congressional Action

page 12 Ten Essential Legal Rights of Women

page 13 Fewer Headaches for Big Pharma: Using Data Management Systems to Lower Cost and Risk

page 16 Two Indian Parties Can Now Have A Foreign Seat Of Arbitration – Will This Hold?

page 19 Professional eBooks are Leading to a Paradigm Shift in Legal Research

page 20 Recent Decisions Of The United States Supreme Court Limits Reach Of The U.S. Courts In Addressing Matters Arising Abroad

1 | U.S. – INDIA BUSINESS COUNCIL WINTER 2016

Rohitashwa Prasad and Gerald Manoharan are Partners, and Nidhi Sahay is a Senior Associate, with J. Sagar Associates, Advocates and Solicitors. Views of the authors are personal.“India's ecommerce market to breach $100 billion mark by FY20: Goldman Sachs”, The Economic Times, October 26, 2015. http://economictimes.indiatimes.com/industry/services/retail/indias-ecommerce-market-to-breach-100-billion-mark-by-fy20-goldman-sachs/articleshow/49532128.cms“Future of E-Commerce – Uncovering Innovation”, Assocham. http://www.assocham.org/upload/event/recent/event_1113/Background_Paper_Future_of_e-Commerce_web.pdf

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Topical Issues in the Regulation of E-commerce in India by: Rohitashwa Prasad, Gerald Manoharan, and Nidhi Sahay*

According to a recent report by Goldman Sachs, the e-commerce market in India is expected to breach the $100 billion mark by the financial year 2020.1 Factors such as accelerating internet access and penetration of mobile phones and robust investment have driven the growth of this industry, and if current projections are anything to go by, India is on route to becoming the world’s fastest growing e-commerce market.2 In this article we are highlighting certain topical issues in the sector in the areas of FDI regulations, competition law, consumer law and data privacy by looking at the existing state of laws and certain key recent developments.

I. FDI in E-CommerceThe single most topical issue governing the interplay of the FDI Policy3 and e-commerce is the question whether e-commerce companies should be treated as retailers engaged in B2C commerce selling directly to the customers or as wholesalers undertaking B2B trading between business entities.

We are pleased to present the latest issue of the Newsletter of the US-India Business Council’s Legal Services Executive Committee. In this edition, our authors tackle another group of diverse, wide-ranging, and critical topics. These include a consideration of the regulation of e-commerce in India; the attractiveness of the LLP as a vehicle for doing business in the country; U.S. Congressional action relating to the Indian IT sector; essential legal rights of Indian women; how data management systems can reduce risk for Big Pharma; the prospect of two Indian parties having a foreign seat for an arbitration; how professional e-books are shifting paradigms in legal research; and how recent decisions of the U.S. Supreme Court are limiting the reach of the U.S. Courts in addressing matters arising abroad. As always, we hope that you enjoy the newsletter, and find it valuable, and we thank our contributors for their submissions. Your comments, ideas and future submissions are always welcome!

Thomas E. Butler | LeClairRyan | Editor-in-Chief

Ralph C. Voltmer | Covington & Burling | USIBC Legal Services Executive Committee Co-Chair

Haigreve Khaitan| Khaitan & Co. | USIBC Legal Services Executive Committee Co-Chair

Legal Services Newsletter


India’s current FDI Policy permits FDI up to 100% in e-commerce activities engaged in B2B e-commerce under the automatic route.4 However, no FDI is permitted in e-commerce companies engaged in single brand retail trading5 or multi brand retail trading.6 Although FDI in single brand retail and multi brand retail has been liberalised7, FDI in B2C e-commerce companies continues to be restricted.

As a consequence, e-commerce companies with foreign investments, as a measure of economic sustenance, in some sense have developed, the “marketplace model”, in which the e-commerce companies themselves do not carry out any retail transactions or directly sell anything to a purchaser by provide a platform, instead, for third party sellers to sell their goods to the purchasers. In other words, e-commerce companies with foreign investment cannot undertake an inventory based model, wherein they are the owners and sellers of the goods being offered to the end customers.

Indian E-commerce operators like Flipkart, Snapdeal, Myntra and many other e-commerce businesses successfully migrated and implemented the marketplace model to generate foreign investments. And alarmed at the prospect of how this model can add financial heft to e-commerce companies, certain powerful retailers’ trade bodies, such as, the Retailers Association of India (“RAI”), the All India Footwear Manufacturers and Retailers Association (“AIFMRA”), the Confederation of All India Traders (“CAIT”) have mounted a legal challenge to the use of this model for generating FDI. These associations have alleged that the marketplace model was created to evade FDI norms and that e-commerce companies are in fact engaging in B2C retail trading whilst benefitting from FDI which is allowed only for B2B businesses.

In a writ petition filed in the Delhi High Court, RAI and AIFMRA have argued that e-commerce companies act as retailers because the payment, delivery, returns and refund are all handled by these companies and that the various

e-commerce websites have been continuously dodging the question of FDI violations by camouflaging their business as a “marketplace” when in reality a sale through online fora is akin in character to a sale made by a physical retailer.8 Also, since e-commerce companies are taxed as retailers by the central government as well as several state governments, the petition argues that they should be treated as retailers for FDI purposes as well. CAIT has also raised similar objections in a complaint sent to the Secretary of DIPP, wherein it has alleged that Amazon, Flipkart and Snapdeal are indulging in B2C retail trading on the grounds that if the ownership of the inventory is not held by these companies, they cannot offer ‘sale’ or ‘discounts’ in totality on their online portals. They have argued that the above establishes that they are not marketplaces and as such openly flout the FDI policy. The Ministry of Commerce and Industry has requested the Enforcement Directorate (“ED”) and RBI to investigate and examine if e-commerce companies are indeed engaging in retailing activity.9

Fundamental to the above dispute is the fact that there is no clear definition of e-commerce and the FDI Policy is silent on the marketplace model. Recognizing this, Nirmala Sitharaman, the Union Commerce Minister, hasd said that the government will soon come out with a definition of e-commerce, which will be helpful in resolving the disputes over controversial issues such as taxation and foreign investment.10 However, industry experts have been quoted as saying that this is likely to be insufficient and the problem can only be resolved by coming up with a definition of “marketplace” and clear classification therein.11 But, on the marketplace issue, the Government’s position has been ambiguous in the sense that whilst on the one hand the DIPP has taken the position in the Delhi High Court that the FDI Policy does not recognize the marketplace model, on the other hand, for quite some time it has given the impression that it was not keen on defining what marketplace actually means.12 Subsequently, there has been movement on this very important policy issue, and the Press Trust of India

FDI in India is regulated under the Foreign Exchange Management Act, 1999 (“FEMA”). The Department of Industrial Policy and Promotion (“DIPP”), Ministry of Commerce and In-dustry, Government of India formulates the FDI Policy, including periodic amendments, and the Reserve Bank of India (“RBI”) in turn makes conforming amendments to the FEMAPara 6.2.16.2.1 of the Consolidated FDI Policy of 2015, (“Consolidated FDI Policy 2015”). E-commerce activities is defined as the activity of buying and selling by a company through the e-commerce platformPara 6.2.16.3 of the Consolidated FDI Policy 2015Para 6.2.16.4 of the Consolidated FDI Policy 2015100% FDI is allowed in single brand retail and 51% FDI is allowed in multi brand retail, subject to the conditions mentioned in the FDI Policy“Govt faces more questions on FDI in e-commerce”, Live Mint, December 2, 2015. http://www.livemint.com/Politics/lPrE8sCkWZ0y4d7OrcJMEL/Govt-faces-more-questions-on-FDI-in-ecommerce.html“Commerce ministry asks RBI, ED to probe if e-tailers flouted FDI norms”, Live Mint, November 1, 2015. http://www.livemint.com/Industry/j48aYioITWp6LYEURl0PPI/Com-merce-ministry-asks-RBI-ED-to-probe-if-etailers-flouted.html“Government to come out with definition of ecommerce: Nirmala Sitharaman”, Economic Times, November 15, 2015. http://articles.economictimes.indiatimes.com/2015-11-15/news/68297195_1_e-commerce-activities-fdi-norms-current-fdi-policyIbid“Govt drops idea of defining online marketplace”, Live Mint, January 8, 2016. http://www.livemint.com/Industry/W7yv5rR8y6gv8XdvpQnCkL/Govt-drops-idea-of-defining-online-marketplace.html

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has reported that the Government is considering permitting 100% FDI in the marketplace model, in which case it is expected that clear definitions and detailed guidelines would form part of the policy.13 So, the last word on this still remains to be written.

II. Competition Law and E-commerceUnder the Competition Act, 2002, the Competition Commission of India (“CCI”) is charged with the mandate of acting against anti-competitive agreements and abuse of dominance. Whilst we are yet to see the first truly detailed landmark ruling from CCI over competition law concerns in e-commerce, CCI has dealt with several aspects ranging from analysis of exclusive agreements14 to allegations of predatory pricing15 to regulation of distribution channel16.

None of these cases have so far gone past the preliminary enquiry threshold. Going forward the competition law scrutiny of e-commerce can be expected to adopt two distinctive approaches. Firstly, CCI can seek to examine the online as well as brick and mortar retail players as part of the same market.17 Analyzing e-tailers and retailers as part of the same market makes it more likely for big e-commerce firms to be hauled up for abuse of dominance at the behest of the traditional retailers in the future. Alternatively, the CCI can view e-tail as a case of disruptive innovation bringing structural changes in the trade and not as an alternative distribution channel in the same product market.18 This will limit the potential challenges from the brick and mortar industry and give rise to intra industry litigation wherein smaller e-commerce companies would possibly take on the market leaders for abuse of dominance.

III. Consumer Protection Laws and E-CommerceThe Consumer Protection Act, 1986 (“CPA”) guarantees and protects the rights of consumers vis-à-vis providers of goods and services in India. Since in India most of the e-commerce websites work on the marketplace model, as such an ambiguity existed whether they can be considered to be service providers for the purposes of CPA. This ambiguity on the applicability of CPA to online transactions was cleared in a written reply by the Minister of State for Consumer Affairs, Food and Public Distribution wherein he stated that all business transactions by consumers, whether online or otherwise, is covered under the CPA and complainants can approach various consumer fora provided under the CPA for resolution of their grievances.19 It needs to be borne in mind that the CPA had been enacted to deal with consumer issues that arise when a consumer physically interacts and purchases the goods or services from a seller. The CPA neither contemplates the various issues that may arise out of online transactions due to their impersonal nature nor does it provide any separate mechanism for addressing grievances that could arise from an online business transaction.20 A new law as envisaged in the Consumer Protection Bill, 2015 has been introduced to address the growing complexity of the business landscape with the expansion of e-business across India.21 The Consumer Protection Bill, 2015 seeks to replace the 30-year-old CPA and proposes to set up a regulatory authority which will have powers to recall products and initiate class action suit against defaulting companies, including e-tailers.22 Although the Consumer Protection Bill, 2015 may seem to be a step in the right direction, many consumer advocacy groups want a separate law that is specifically

“DIPP pushes for 100% FDI in marketplace e-tail”, Business Standard, February 10, 2016. http://www.business-standard.com/article/economy-policy/dipp-pushes-for-100-fdi-in-marketplace-e-tail-116021000042_1.htmlIn the case of Mohit Manglani v. Flipkart India Private Limited & Ors. Case No. 80/2014, CCI ruled that an exclusive distribution agreement for a book did not cause appreciable adverse effect on competition“Flipkart in trouble? Complaint filed with CCI”, IndianOnlineSeller.com, November 6, 2014. http://indianonlineseller.com/2014/11/flipkart-in-trouble-complaint-filed-with-cci. As per newsreports Confederation of All-India Traders (CAIT) has filed information against Flipkart alleging predatory pricing. It is pertinent to note that under S.4 of the Competi-tion Act a case for predatory pricing can only be made out against a dominant entity. In Mohit Manglani’s case (Supra), CCI while examining the conduct of several leading online retailers has held that none of them are dominantIn the case of Ashish Ahuja v. Snapdeal.com through Mr. Kunal Bahl, CEO & Ors., Case No. 17/2014, the CCI refused to interfere with an exclusive distribution channel involving Snapdeal and Sandisk stating that there were enough substitutes available both for the product and the platformIn Ashish Ahuja’s case (Supra), the CCI while analyzing the market for portable small-sized consumer storage devices held that, “The Commission also notes that both offline and online markets differ in terms of discounts and shopping experience and buyers weigh the options available in both markets and decides accordingly. If the price in the online market increase significantly, then the consumer is likely to shift towards the offline market and vice versa. Therefore, the Commission is of the view that these two markets are different channels of distribution of the same product and are not two different relevant markets.”“Competition Commission of India watching e-commerce”, Business Standard, November 30, 2015. http://www.business-standard.com/article/economy-policy/competi-tion-commission-of-india-watching-e-commerce-115113000620_1.html“Online business transactions are covered under Consumer Protection Act”, Ministry of Consumer Affairs, Food & Public Distribution, Government of India, July 8, 2014. http://pib.nic.in/newsite/PrintRelease.aspx?relid=106174“E-Commerce and Consumer Rights: Applicability of Consumer Protection Laws in Online Transactions in India”, Kanika Satyan, July 2, 2015. http://papers.ssrn.com/sol3/pa-pers.cfm?abstract_id=2626027“What A New Consumer Protection Law Will Mean For E-Commerce Companies, Online Shoppers”, The Huffington Post, October 13, 2015. http://www.huffingtonpost.in/abhishek-agarwal/what-a-new-consumer-prote_b_8284044.html“Cabinet approves new Consumer Protection Bill that seeks to replace 29-year-old law”, First Post, July 29, 2015. http://www.firstpost.com/business/cabinet-approves-new-con-sumer-protection-bill-seeks-replace-29-year-old-law-2370466.htmlSupra n.21

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targeted at the e-commerce sector in order to protect the rights of internet consumers in India.23

IV. Privacy and Data ProtectionOne of the foremost challenges that the massive amount of data generated online presents is that of safeguarding the privacy of those who engage in online purchasing resulting in the disclosure of their confidential personal information. As part of online transactions, e-commerce firms inevitably gain direct or indirect access to user information. The information typically comprises directly of users’ personal and certain financial information and indirectly of personal choices and preferences and patterns of search. The combination of current business practices, consumer fears, and media pressure has combined to make privacy protection a problem for e-commerce. The e-commerce industry is confronted with a multitude of challenges, of which maintaining security of user data is arguably one of the most formidable ones in the wake of exponential increase in cybercrime. Further, it is not unusual to use the data gathered while providing services and selling products for completely unintended purposes.

As it happens, the right to privacy is not specifically recognized under any Indian legislation, and is only recognized judicially. So far as data protection is concerned, S.43A of the Indian Technology Act, 2000, (“IT Act”) provides for award of compensation for failure to protect data. Further, Information Technology (Reasonable security practices and procedures and sensitive data or information) Rules, 2011 lay down the legal framework relating to ‘sensitive personal data or information’. The IT Act and the rules framed thereunder impose civil criminal liability on persons if they are in breach of privacy and confidentiality. Although the IT Act and the rules thereunder have tried to provide a backbone to the data privacy issues faced by users and e-commerce companies alike, the legal framework still needs to evolve to address the many challenges plaguing the sector. One of the biggest challenges that an e-commerce company faces is unauthorized access to the users’ personal information and further, the misuse of such information. The fact that most of the servers containing confidential private information are located outside territorial jurisdiction of India’s courts is yet

another problem area. In addressing the need for separate privacy legislation, the Government of India has introduced a draft privacy bill, which has been pending before the Ministry of Personnel since 2011, awaiting comments from stakeholders and further discussion with the concerned ministries. In its most current form, the draft bill proposes an overhaul of the data privacy framework in India, whereby the collection, storage, processing and transfer of data would be assessed for compliance through the lens of privacy principles, with enhanced penalties for any violations of privacy.

One of the key commercial-legal pre-requisites for successful operations of any e-commerce company is to have secure payment gateways for electronic transactions. A payment gateway authenticates and routes payment details in a secure environment between various parties and related banks. In an attempt to overcome the inability of sellers in verifying if the actual card holder is the customer making the purchase in e-commerce transactions (and associated risks, such as fraud), RBI has introduced a dual authentication process for online transactions in India. It has mandated, firstly, that all “Card Not Present” (“CNP”) transactions should be additionally authenticated based on information not available on the card and an online alert be sent to the cardholder for such transactions , and secondly, that this additional authentication requirement would apply to all CNP payments made for purchase of goods sold and services provided within India, and such transactions should be settled in Indian currency and the acquisition of such transactions should be through a bank in India. While these regulations virtually closed the doors on Indian residents from accessing and closing online purchases from foreign e-market places, the dual authentication process can be said to have given credence and enforceability to online contracts.

V. ConclusionOne counterintuitive way of explaining the phenomenal growth of e-commerce in India can be the seeming absence of regulations. However, such an analysis would neither be complete nor accurate. The regulatory landscape governing e-commerce is evolving, albeit not at the desired pace. So far,

The Supreme Court of India has recognized the right to privacy in Kharak Singh v. State of U.P. and People’s Union of Civil Liberties v. the Union of India (AIR 1963 SC 1295) as part of ‘right to life’ under Article 21 of the Constitution of IndiaRule 3, Information Technology (Reasonable Security Practices and Procedures and Sensitive Data or Information) Rules, 2011Chapter XI, IT Act. “Privacy and Security Issues in E-Commerce”, Mark S. Ackerman and Donald T. Davis Jr. http://econ.ucsb.edu/~doug/245a/Papers/ECommerce%20Privacy.pdf “Payment and Settlement Systems”, RBI. https://www.rbi.org.in/scripts/PaymentSystems_UM.aspx; Also see: RBI Notification dated February 18, 2009, https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=4844; Ibid Apart from the IT Act which provides for norms of data security, the conventional set of laws such as the Indian Contract Act, 1872 governs e-commerce in India

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the Indian legal system has regulated e-commerce under the same set of laws which regulate the offline world of commerce.30 The conventional wisdom has been that when it comes to e-commerce only the via media changes, the key players and products remain the same, and as such we do not need a separate set of laws to regulate e-commerce. However, increasingly the policy makers have sought to address the various regulatory facets of e-commerce such as the issues of FDI norms, competition law, data privacy and the evolution in consumer protection laws in a focused manner. Also, we expect that in the coming months, India would seek to definitively address issues of net neutrality, which will lay down the framework for strategic alliances between Internet Service Providers and e-commerce websites.31 India’s stand on these issues is important not merely from a domestic regulatory perspective; but as widely noted by experts, it is also likely to shape the debate in other countries as well.32

“Net neutrality debate rages”, The Hindu, April 15, 2015. http://www.thehindu.com/business/net-neutrality-debate-rages/article7102338.ece“Foreign Media on Zuckerberg’s India Backlash”, NDTV, December 30, 2015. http://www.ndtv.com/india-news/foreign-media-on-zuckerbergs-india-backlash-1260732

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Indian LLP - Now More Attractive for Foreign Investorsby Himanshu Mandavia*

The Indian economy has been on a growth path since 1991 and the legislative framework has been liberalized gradually to serve as a catalyst for growth. The traditional legal system in India has been modeled on the lines of British legislation based on colonial history and many of the corporate laws witness an influence from its history. However, as India has progressed, it has tried to keep pace with the overall globalization of the world and has drawn ideas from other parts of the world as well. One such legislation is the Limited Liability Partnership (‘LLP’) Act 2008. While traditional partnerships had been one of the most popular form of doing business for small-sized ventures and family enterprises, the company form had been preferred by modern and relatively larger businesses. The Limited Liability Partnership Act 2008 (‘LLP’), which became effective from 31 March, 2009, was introduced with the idea of providing an alternative vehicle with features of a limited liability as in a company, along with the flexibility of a traditional partnership.

The LLP option in India was made available to Foreign Investors when Foreign Direct Investment (‘FDI’) in LLP was first permitted with prior approval from the Foreign Investment Promotion Board (‘FIPB’) vide Press Note No. 1 of 2011 dated 20 May 2011. FDI in LLP has been allowed only in sectors falling under the Automatic Route where 100% FDI is permitted without any sectoral restrictions or performance related conditions (most sectors are thus eligible for this option). The requirement to obtain prior Government approval for FDI in LLP has now been relaxed vide Press Note 12 of 2015 dated 24 November 2015 and several other relaxations have also been introduced in the FDI policy with respect to downstream investments into and downstream

investments by an Indian LLP. Further, the determination of ‘ownership’ and ‘control’ of LLP for downstream investments and sectoral caps has also been clarified in the said Press Note.

In the earlier FDI regime which required prior FIPB approval, while one did see quite a number of foreign investors approaching the FIPB and also getting approvals, there were many others who were hesitant to go through a regulatory approval process and preferred to use the company structure, which did not require any approvals. However, the recent liberalization will allow foreign investors to access the LLP route in the same manner as a company structure in most eligible sectors and this would enable them to compare the two options purely on commercial and tax aspects.

An LLP is a body corporate and requires a minimum of two partners who can be any individuals, company, another LLP or body corporate, etc. There is no ceiling for the number of partners. Every LLP is required to have at least two designated partners who are individuals (including nominees of body corporate), and at least one of them being resident in India (who has stayed in India for at least 182 days in the preceding financial year). From a corporate regulations perspective, the formation and regulation of an LLP in India is governed by the rules, provisions, and regulations provided in the LLP Act of 2008 and the LLP Rules of 2009 as amended from time to time. The governing body for LLPs is the Ministry of Corporate Affairs (‘MCA’), Government of India, unlike traditional partnerships, which are governed by the Registrar of Partnerships in each state.

There is no prescribed minimum capital requirement for each partner. Unlike a company structure, which is subjected to

Himanshu Mandavia is a seconded India partner at India’s KPMG’s New York office.

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various compliances and restrictions such as related-party transactions, managerial remuneration, corporate social responsibility, etc., there are no such conditions that apply to LLPs under extant law. Features similar to a company structure such as perpetual existence and limited liability for partners of the LLP, also make this structure attractive. Even from an Income-tax perspective, the LLP provides some useful advantages over an Indian company structure. In India, as the LLP is considered a taxable entity (unlike certain other countries where an LLP may be a tax-transparent entity), the income flowing to partners is non-taxable. In view of same, there is no distribution tax on the LLP or withholding tax on the Partners when a LLP distributes income to its partners unlike an Indian company, which is liable for dividend distribution tax when it declares / pays dividends to its Shareholders. This is an effective saving of approx. 20%, which is the dividend distribution tax applicable on dividends declared/paid by Indian companies to its shareholders including non-residents. Further, considering that the creditability of vidend distribution tax levied by Indian companies for foreign shareholders is not quite clear, a tax-free distribution from an LLP is more advantageous for a foreign investor.

An LLP that is claiming tax holiday or tax deductions under certain specific provisions could be subject to a minimum tax rate of 18.5% plus applicable surcharge and cess under the Alternate Minimum Tax (‘AMT’) provisions if AMT is higher than normal income-tax. The differential credit between AMT and normal income-tax is eligible for carry–forward and set-off in subsequent ten years to the extent normal tax is higher than AMT in those later years.

Any interest on capital paid to any partners by the LLP or remuneration paid by the LLP to its individual partners can be claimed as a tax deduction (subject to certain limits under the income tax rules and restrictions under foreign exchange regulations for non-resident partners). These incomes would then be correspondingly taxable for the partners. Additionally, there are certain specific provisions that apply for introduction and withdrawal of assets in a partnership/LLP or for profit distribution to partners, which can provide some tax planning opportunities. There are also rules surrounding carried forward of business losses, etc. on change in ownership of LLP/partnership.

In fact, since existing companies are also permitted to convert into LLPs, foreign investors who have already set up Indian subsidiaries can also evaluate moving to the LLP structure. The conversion of an existing company into a LLP can have some potential tax implications depending on the balance sheet of the company. However, there could be certain

alternatives available for migration of existing business into a new LLP in a tax-efficient manner.

As in all cases, there are certain challenges in the LLP structure as well. For example, an LLP cannot be listed unlike a company, it cannot raise overseas debt, etc. There are also certain industries where some of the Government policies have still not been synchronized with the LLP legislation and where a company structure is still insisted upon. However, considering the advantages listed above, this structure does merit evaluation in most cases.

To sum up, the LLP structure presents an attractive option here onwards to foreign investors whenever they are looking at investing in India -- especially in situations where the Indian entity is likely to generate significant cash which needs repatriation back to the investing jurisdiction.

Insolvency And Bankruptcy Code: Heralding A New Dawn In Corporate Insolvency by Divyanshu Pandey, Sidharrth Shankar, and C.V. Sikrant*

The World Bank estimates that it takes more than four years to wind up an ailing company in India, almost twice as long as it does in China. The recovery of debts, too, is stuck at just 25.7 cents on the dollar, which is amongst the worst in emerging market economies. As per the recent World Bank’s ease of doing business rankings, India ranks as the 136th best country for ease of conducting insolvency proceedings. It is in this backdrop that one realizes that there is a need to have a robust law governing the insolvency of corporates in India.

India does not have a unified bankruptcy law, but an assortment of legislations that govern the matters of corporate insolvency and bankruptcy. Laws such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the Sick Industrial Companies Act, 1985 (SICA), the Recovery of Debt Due to Banks and Financial Institutions Act of 1993 (RDB Act), and the corporate debt restructuring mechanism of Reserve Bank of India, have been in place for quite some time, but have largely seen to be devoid of any considerable

Divyanshu Pandey and Sidharrth Shankar are Partners and C.V. Srikant is an Associate with J. Sagar and Associates, Advocates and Solicitors. Views of the authors are personal.

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success as they focused mainly on recovery of debt. The primary reason why these laws have not been successful is due to the fact that the judicial process and the timelines involved in recovery of debt make it difficult for the creditors to get anywhere near the money they had provided, even after explicit default on loans by the corporate debtors.

With the clear intention of overhauling the entire process of doing business in India, the NDA Government recently moved the draft of the Insolvency and Bankruptcy Code, 2015 (‘Insolvency Code’) before the lower house of the parliament. The idea behind the Insolvency Code is to simplify the maze surrounding corporate insolvency and create a unified system to reduce conflicts among creditors. This piece attempts to briefly provide an overview of insolvency process that has been proposed under the Insolvency Code.

I. The Stakeholders

The Insolvency Code provides for insolvency and bankruptcy of individuals, companies, partnerships and limited liability partnerships. The Insolvency Code involves not only the creditors as the stakeholders in the insolvency process, but also includes the corporate debtor as a stakeholder. Most significantly, the Insolvency Code classifies the creditors of the company into financial creditors (such as banks and bond holders) and operational creditors (trade creditors).

II. The Insolvency Resolution Process

The Insolvency Code proposes an insolvency resolution process (‘IRP’) in respect of corporate debtors. An IRP can be initiated by (a) a debtor who has defaulted on dues; or (b) lenders and creditors (secured or unsecured) to a debtor and the employees of the debtor. As per the IRP, any creditor with an undisputed debt can initiate a corporate insolvency resolution process by making an application to the National Company Law Tribunal (‘Tribunal’) with jurisdiction over the corporate. Further, even a debtor can itself file for initiation of an IRP when it has defaulted on loans. If the tribunal admits the application within a prescribed time, the control and management

of the affairs of the company automatically vests in the hands of an insolvency resolution professional appointed by creditors. The Insolvency Code provides for the powers, duties and obligations of the insolvency resolution professional while undertaking the IRP. The insolvency resolution professional is required to, amongst other things, protect and preserve the value of the property of the corporate debtor and manage the affairs of the corporate debtor as a going concern.

The most important aspect governing the IRP is that the entire process must be completed within a period of 180

days from the date of admission of application by the Tribunal. The said 180 days period can subject to a one-time extension of a maximum of 90 days. Considering that the time involved in IRP is of essence, the aforementioned timelines prescribed for closing the IRP is extremely significant from the perspective of the both the creditors and the debtors and maximizing the value for all the stakeholders.

The Insolvency Code entrusts with the insolvency resolution professional, the obligation to formulate a ‘resolution plan’ for resolution on the basis of relevant information including information related to the financial position of the corporate debtor and disputes involving the corporate debtor. The ‘resolution plan’, upon formulation, is required to be submitted to the Tribunal for its consideration. In the event the Tribunal accepts the ‘resolution plan’, then then the insolvency resolution process will be undertaken as per the resolution plan and provisions of the resolution plan become applicable and binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the IRP.

In the event the resolution plan is rejected by the Tribunal, or if the resolution plan is not submitted before the Tribunal within the specified time limit, or if the committee of creditors resolve to liquidate the corporate debtor (during the IRP process but before formulation of resolution plan), or if the corporate debtor violates the terms of the resolution plan, then the Tribunal can order liquidation of the corporate debtor.

It is significant to note that the Insolvency Code views liquidation as a secondary step to be activated upon the failure of insolvency resolution process, with the primary concern being the revival of the operations of the corporate debtor undergoing insolvency resolution through the IRP.

III. Fast Track Corporate Insolvency

One of the highlights of the Insolvency Code is that for the purposes of IRP, it creates room for differentiation between corporates in terms of their income and asset size. It is on the basis of this differentiation that the Insolvency Code proposes to set out a fast track corporate insolvency process for those corporates whose income, asset size and amount of debt is below a certain prescribed threshold. The said fast track insolvency process is proposed to be completed within a period of 90 days (subject to further extensions) from its inception as against a period of 180 days for the regular IRP.

Considering that India is witnessing a boom in start-ups especially in the e-commerce sector, it is quite possible that some of these start-ups will not be able to sustain the


competition in the market, and thereby will be forced to close their operations or undertake drastic measures to make the operations viable.

IV. Liquidation Process

As discussed above, the idea behind the liquidation process is that liquidation will be resorted only when the IRP fails. When the Tribunal order for liquidation, the liquidator assumes all the powers vested in the management of the corporate for undertaking the liquidation process. The Insolvency Code proposes to empower a liquidator to form an estate of the assets of the corporate debtor, which will be utilized to discharge the claims against the corporate debtor. The liquidator will be empowered to receive, verify, consolidate and value the claims in respect of discharge of liabilities of the corporate debtor. Upon distribution of the assets of the corporate debtor in the manner provided for in the Insolvency Code and upon an application made before the Tribunal, the Tribunal can order dissolution of the corporate debtor.

V. Independent Regulators

The Insolvency Code provides for setting up of an ‘Insolvency and Bankruptcy Board of India to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of companies, partnership firms and individuals. Further, the Insolvency Code prescribes for the registration of insolvency professional agencies with the Insolvency and Bankruptcy Board of India. The insolvency professional agencies are touted to act as self-regulatory agency empowered to enroll insolvency professionals as its members.

Vi. Conclusion

With the present Union Government clearly intending to make marked improvements in the overall experience of doing business in India, the Insolvency Code is clearly a much needed reform that will go a long way in addressing one of the most acute problems in relation to investor confidence about having effective insolvency process. The significance of the Insolvency Code lies in the fact that it proposes to be single point legislation governing corporate insolvency and bankruptcy, thereby eliminating multiplicity of laws governing similar matters. The Insolvency Code also clearly demarcates the authority governing corporate insolvency (i.e. the Tribunal) as against the authority governing insolvency of individuals and partnerships (i.e. debt recovery tribunals).

As stated above, the Insolvency Code clearly highlights the intention of the government to make the entire corporate insolvency a time bound process, thereby adding adequate protection to the creditors, employees and the shareholders of

Targeting Indian IT: Trends in Recent U.S. Congressional Actionby Scott Fitzgerald and Alexandra Branzburg*

On December 18, 2015, President Obama signed the 2016 Consolidated Appropriations Act (the “Bill” or “Omnibus Appropriations Bill”), which provides discretionary funding for the U.S. government through the conclusion of the fiscal year. The full 2,009-page bill increases funding for national defense and domestic priorities. In addition, as part of the FY 2016 appropriations legislation, Congress has reauthorized and expanded the fees that certain high-volume H-1B and L-1 visa employers must pay.

Specifically, the Bill’s Section 411, “9-11 Response and Biometric Entry-Exit Fee,” subjects high volume H-1B and L-1 employers to increased fees when sponsoring workers for these visa classifications if they are “50/50 companies.” A “50/50 company” is one that has 50 or more employees in the U.S., of which more than 50 percent are present in the U.S. in H-1B or L-1 nonimmigrant status.

The legislation calls for 50/50 companies to pay a $4,000 filing fee with each H-1B petition and extension, as well as a $4,500 fee with each individual L-1 petition, extension and blanket L application (up from $2,000 and $2,500, respectively). These fee increases were authorized for 10 years, through September 30, 2025, and became effective upon enactment. The money generated by these fee increases will be used to fund a Department of Homeland Security biometric entry-exit tracking system, as well as to fund portions of the James Zadroga 9/11 Health and Compensation Reauthorization Act, which was included in the Omnibus Appropriations Bill.

Scott Fitzgerald is a partner and Alexandra Branzburg, an associate at the Boston office of Fragomen. The views in the article are those of the author. The authors would like to thank Nadia Pereira for her assistance with the article.

*

a corporate. The Insolvency Code also recognizes the need to have a specialized set of insolvency resolution professionals to deal with various matters concerning corporate insolvency. The year 2016 appears to be promising for Indian corporate sector and the passage of Insolvency Code into law will definitely herald into a new era for corporates in India and restore confidence of investors.


These provisions of the Bill raise serious questions about a disproportionate impact on Indian Information Technology (IT) companies. As reported by the Press Trust of India (PTI), “while the specific provisions of the spending bill [have] no mention of Indian IT companies, the language of the bill has been written in such a way that it would have a big impact on Indian IT companies” (Times of India, 2015). As indicated, these increased fee provisions will impact only those companies with at least 50 percent of their employees in H-1B or L-1 status, which are almost exclusively Indian IT service companies (Mark, 2015). Since the information technology service sector is vital to India’s economy, this Congressional action is highly contentious in its targeting of Indian IT firms.

The disproportionate impact on the Indian IT sector has raised concerns among many, including the Prime Minister of India, Narendra Modi. The Prime Minister recently addressed these concerns directly with President Barack Obama, stating the negative impacts such increased fees will have on the Indian IT industry and the larger India-US relationship (PMO India 2015).

Nevertheless, the Omnibus Appropriations Bill is but one example of how recent Congressional action disproportionately impacts Indian IT business. For years, Indian and Indian-American IT companies with operations in the U.S. have been targeted by punitive measures advanced by proposed and enacted legislation (Matloff, 2013). Recent examples include “The H-1B and L-1 Visa Reform Act of 2015” introduced by Senators Durbin and Grassley, the “American Jobs First Act of 2015” of Senators Cruz and Sessions, and proposed legislation by Senators Nelson and Sessions, all introduced in recent months.

“The H-1B and L-1 Visa Reform Act of 2015” (S. 2266) was introduced by Senators Dick Durbin (D-Illinois) and Chuck Grassley (R-Iowa) on November 10, 2015. Of the many provisions contained within the bill, one of the most controversial rules would bar 50/50 companies from sponsoring additional work visa applications, which would be extraordinarily damaging to their U.S. business (O’Connor 2015). H-1B and L-1 reform initiatives are not novel efforts for Senators Durbin and Grassley, who have sponsored similar bills in past Congressional sessions. In response to such initiatives, Som Mittal, the former President of the National Association of Software and Services Companies (NASSCOM) trade association, noted, “the stated objective…is to prevent fraud and visa abuse, however several of the provisions … are against the principals of free trade and are creating trade barriers.” Mr. Mittal went on to state that the provisions contained within such initiatives “[target] Indian companies

and [restrict] their ability to compete in the US marketplace” (NASSCOM Pressroom 2009). The enactment of such legislation would also jeopardize the work of American clients who rely on the skilled professionals of Indian IT companies. In effect, as stated by Mr. Mittal, “both U.S. and India industry would suffer” from such legislation (Herbst, 2009).

Another provision of the “H-1B and L-1 Visa Reform Act of 2015” would, if enacted, prioritize the annual allocation of H-1B visas. According to the language of the proposed legislation, H-1B visas will be allocated according to nine (9) ranked categories of potential beneficiaries. Allocation will first prioritize graduates who have earned an advanced degree in the fields of science, technology, engineering, or mathematics (STEM) from an accredited U.S. institution of higher education. The rankings of the additional eight (8) classifications include the following: offer of Level 4 Wages according to the Occupational Employment Statistics survey; U.S. graduates with advanced degrees in a non-STEM field; offer of Level 3 wages in the occupation; graduates with a Bachelor’s degree in STEM from a U.S. institution; non-STEM Bachelor degree graduates in the U.S.; Schedule A Occupations; petitions filed by “employers meeting…criteria of good corporate citizenship and compliance with the immigration laws,” and all other petitions. The proposed preference system is putatively aimed at retaining advanced degree holders and graduates from U.S. institutions, high-earning employees, and those with needed skills, as defined by the U.S. Department of Labor. As a result, many IT workers with foreign degrees would be relegated to the two lowest preference categories of S. 2266. This ranking would ultimately make it harder for Indian IT firms to benefit from the H-1B program. Once again, this novel ranking structure disproportionately targets Indian IT companies, and is yet another example of the trend of Congressional attacks against them. (H-1B and L-1 Visa Reform Act of 2015, S.2266, 114th Cong. §. 104(2)(B) (2015).

In December 2015, Senators Ted Cruz (R-Texas) and Jeff Sessions (R-Ala) introduced the “American Jobs First Act of 2015” (S.2394), legislation with proposed reforms that would, if enacted, excessively harm the ability of Indian IT companies to provide skilled, needed labor in the United States. Key highlights of the Bill include provisions to prevent employers from hiring an H-1B worker within two years of an employee strike, employer lockout, layoffs, or other involuntary employee terminations (Press Office, 2015). The Bill, if enacted, would also require a minimum wage of $110,000 for H-1B workers (Press Office, 2015). While allegedly intended to limit abuse of the H-1B program, the “American Jobs First Act of 2015” could make H-1B visas financially unviable for Indian companies that rely on highly skilled foreign technology-


sector workers (Press Trust of India in The Hans India, 2015). Furthermore, the Bill, if passed, would also suppress the ability of these companies to move skilled labor according to demand. As the leading users of the H-1B visa, Indian IT companies would be excessively and negatively impacted as they seek to provide skilled workers to various onsite, and often, short-term engagements. Senator Cruz’s sponsorship of the “American Jobs First Act of 2015” stands in stark contrast to his earlier H-1B visa stance as demonstrated through his proposed amendments to the 2013 “Border Security, Economic Opportunity, and Immigration Modernization Act” known colloquially as the “Gang of Eight” immigration bill. Senator Cruz’s amendment sought to “encourage economic growth and create new jobs in America” by increasing the annual limit of H-1B visas “from 65,000 to 325,000 – a five-fold expansion” (Kapur, 2015).

“The Protecting American Jobs Act” (S. 2365) introduced by Senators Bill Nelson (D-Fla) and Senator Jeff Sessions (R-Ala) in November 2015 also takes direct aim at the H-1B visa program, and, by extension, the Indian IT firms who rely on this critical visa category to provide skilled labor. The proposed law would, if enacted, reduce the number of H-1B visas available from 65,000 to 50,000 for the regular H-1B cap. The additional 20,000 visas reserved for individuals with at least a master’s degree from an accredited U.S. college or university would cap the total number of H-1B visas at 70,000 during each federal fiscal year (Penton, 2015).

These recent examples of proposed legislation, and the relevant provisions of the appropriations bill, demonstrate a trend within the U.S. Congress to restrict the H-1B and L-1 visa classifications. However, these Congressional actions also disregard the contributions made by the Indian IT companies to the U.S. economy. A NASSCOM study released in September 2015 notes that Indian IT companies contributed $22.5 billion in taxes to the U.S. Treasury between 2011 and 2013 and supported over 411,000 jobs in the U.S., including 300,000 jobs for U.S. citizens and permanent residents during that time (Mendonca et al. 2015). These huge contributions of Indian IT companies to U.S. revenue, job creation and the provision of highly skilled and needed labor stand in stark contrast to Congressional action targeting this industry sector. So, where do we go from here?

Given the hostile environment of recently enacted and proposed legislation affecting the Indian IT sector, certain high-volume H-1B and L-1 employers may consider restructuring their internal organizations. Pursuant to the Omnibus Appropriation Bill’s Section 411, 50/50 calculations include all individuals who are employed by the petitioning entity and who are physically located in the U.S. This

calculation is all encompassing and does not differentiate between full-time or part-time employees, or whether employees are paid on U.S. or foreign payroll. The petitioning employer is defined, in part, by the relevant sections of the U.S. Code of Federal Regulations and its Internal Revenue Service Tax identification number, more commonly known as the Federal Employer Identification Number (FEIN). See 8 CFR 214.2(h)(4)(ii). Employers looking to affect the 50/50 calculation could consider consolidating multiple subsidiaries and/or affiliates under one FEIN, if the combination of these different entities would offset the 50/50 calculations. Of course, this strategy could pose an insurmountable burden to companies from a tax and business perspective.

One more obvious solution for 50/50 employers to avoid the H-1B and L-1 fee increases, as well as the impact of other recently proposed legislation, would be to hire more U.S. citizens and lawful permanent residents. In fact, one stated intent of the recent legislation outlined above is to alter the hiring practices of large Indian IT companies to protect the U.S. workforce. Increasing the number of U.S. citizens and permanent residents employed by these companies would be a welcome result in the eyes of many legislators. However, in practice, this shift in hiring strategies may not be practicable. This holds especially true for large IT consulting companies that place workers onsite at client locations to gather business requirements and implement large-scale technology solutions. Within the IT consulting domain, workers are often reassigned to new onsite client locations across the U.S. multiple times each year. These “roving” IT consultants and, where relevant, their accompanying dependent family members must be willing to relocate their homes upon each principal beneficiary’s reassignment to a new worksite. Furthermore, there is a talent gap present within the U.S. tech industry which makes it difficult to hire well-qualified candidates who are willing to relocate frequently. As mentioned in WIRED’s article, “Tech Workers Are Way Picky About The Cities They’ll Work In,” Indeed, a job search website, reviewed the statistics of their job seekers and employer data “ to unearth another reason tech job openings are going unfilled. In a new report, the site finds that although employers are actively listing tech jobs throughout the US . . . job hunters are searching for them in just a few cities . . .” (2015). Due to the roving nature of the large IT consulting business model, asking U.S. workers to relocate to various cities across the U.S. poses more challenges in recruitment for large IT consulting firms compared to other types of IT companies.

To further the discussion above, 50/50 companies could also seek to increase the number of U.S. citizens and lawful permanent residents within their U.S. workforce by sponsoring


employees for employment-based permanent residence in the U.S. Efforts by Indian IT companies to obtain U.S. permanent residence (i.e. a “Green Card”) on behalf of their employees, however, have long been stymied by per-country caps on immigrant visa availability. Pursuant to the Immigration and Nationality Act (INA), there is a total annual allotment of 140,000 visas for employment-based permanent residents. Section 202 of the INA prescribes that the per-country limit for the worldwide preference visas is set at 7% , regardless of the size of the country. See INA§ 202 (8 U.S.C. 1151). As a result, countries with higher immigrant visa volumes, including India, China, and the Philippines, experience extensive backlogs. As of January 2016, U.S. Citizenship and Immigration Services (USCIS) is processing employment-sponsored immigrant visas for Indian foreign nations in the second preference category (Members of the Professions Holding Advanced Degrees or Persons of Exceptional Ability) for cases where a Labor Certification Application was filed in February 2008, and third preference category (Skilled Workers, Professionals, and Other Workers) for cases where a Labor Certification Application was filed in May 2004. As a result, employers and their Indian foreign national employees must currently wait at least eight (8) or twelve (12) years, depending on preference category, respectively, to be eligible for U.S. permanent resident application processing. Clearly, Indian 50/50 companies are faced with an uphill battle as they seek to increase the number of U.S. citizens and lawful permanent residents within their U.S. workforce.

Another unfortunate yet inevitable byproduct of these Congressional initiatives will be a move by these companies to increase their offshore ratios. Specifically, since the 50/50 calculations only include individuals who are physically located in the U.S., large Indian IT companies could strategize ways to reduce their U.S. workforce and increase the use of resources in India and elsewhere. In response to a similar legislative environment in 2011, the Economic Times of India reported that “India’s top outsourcing firms plan to reduce the amount of work performed onsite by their staff travelling on temporary visas in the US, as they battle increased immigration scrutiny…[a]t least three CEOs at the country’s top 10 technology firms confirmed they plan to reduce onsite work by up to 5% …and handle traditional onsite projects such as managing takeover of existing outsourcing contract among other activities through videoconferencing” (Mishra, 2011). Similar reductions in onsite placement in the U.S. may seem more desirable from an Indian IT business perspective and may be pursued as they continue to face an increasingly hostile environment in sponsoring H-1B and L-1 applications. The repercussions of Indian IT companies reducing staff in the U.S. could have a significant negative impact for the

domestic economy, which would hurt U.S. tax revenues, slow economic growth and result in certain deleterious consequences to U.S. companies retaining Indian IT services.

Finally, the recently enacted legislation’s impact on the Indian IT sector may prompt the Indian Government to launch a dispute on behalf of Indian IT workers with the World Trade Organization (WTO). This would not be a new course of action for the Indian government, which formally approached the WTO seeking consultations with the U.S. on increased H-1B and L-1 visa fees in late 2011. These conversations remained active until early 2012. Should the Indian government seek to address trade grievances in relation to the FY 2016 Appropriations Bill, it will have to prove that Indian IT companies are being subject to de facto discrimination by U.S. policy. While the rejection or acceptance of visa applications is at the discretion of the issuing country, the manner of this determination can be challenged under the WTO’s General Agreement on Trade in Services (GATS). In pursuing this course of action, India must “establish factually whether Indian companies are being discriminated against and unfairly targeted” (Sen, 2012). As reported in The Hindu, India will discuss their concerns with the U.S. over the recent decision to increase H-1B and L-1 visa fees; however, India “will also consider retaliatory measures and even explore the possibility of dragging the U.S. to the World Trade Organisation’s dispute settlement body, but only if talks fail to amicably resolve the issue” (2015). Should India pursue this course of action, the US government must be prepared to address claims regarding the discriminatory nature of recent Congressional action and its unfair trade practices that run counter to the WTO’s GATS (ICTSD, 2012).

The implications of the FY 2016 Omnibus Appropriations Bill and recent congressional action on the Indian IT services industry are far reaching. Not only will this trend in legislation disproportionately target Indian IT companies, but it will also hold larger significance for India-U.S. trade relations. We will continue to monitor such Congressional action and any action taken in response to dispute the visa fee increases authorized by the recent U.S. Appropriations Bill.

References

8 CFR 214.2(h)(4)(ii).

INA§ 202 (8 U.S.C. 1151).

AB Wire. “India Could Haul US to WTO over Arbitrary Fee Hike for H-1B Visa, L1 Visa.” The American Bazaar. December 28, 2015. Accessed December 30, 2015. http://www.americanbazaaronline.com/2015/12/28/india-could-haul-us-to-wto-over-arbitrary-fee-hike-for-h-1b-visa-l1-visa/.

Alba, Davey. “Tech Workers Are Way Picky About The Cities They’ll Work In.” Wired.com. September 15, 2015. Accessed December 29, 2015. http://www.wired.com/2015/09/tech-workers-way-picky-cities-theyll-work/.


Basu, Nayanima. “India to Resume Visa Fee Hike Dispute with US in WTO.” India toRe-sume Visa Fee Hike Dispute with US in WTO. November 4, 2013. Accessed December 30, 2015. http://www.business-standard.com/article/economy-policy/india-to-resume-visa-fee-hike-dispute-with-us-in-wto-113110400825_1.html.

Flinders, Karl. “IBM India staff reductions are sign of shift in outsourcing sector.” Com-puterWeekly.com. October 2014. Accessed January 4, 2015. http://www.computerweek-ly.com/feature/IBM-India-staff-reductions-are-sign-of-shift-in-outsourcing-sector

H-1B and L-1 Visa Reform Act of 2015, S.2266, 114th Cong. §. 104(2)(B) (2015).

Herbst, Moira. “Work Visa Bill Threatens Indian Outsourcers.” Bloomberg Business Week. June 3, 2009. Accessed December 27, 2015. http://www.businessweek.com/bwdaily/dnflash/content/jun2009/db2009062_581634.htm

International Centre for Trade and Sustainable Development. “India to Challenge Visa Fees at WTO: Official - News Archive.” International Centre for Trade and Sustainable Development. April 11, 2012. Accessed December 30, 2015. http://www.ictsd.org/bridges-news/bridges/news/india-to-challenge-visa-fees-at-wto-official.

Kapur, Sahil. “Where Donald Trump and Ted Cruz Completely Disagree on Immigra-tion.”Bloomberg.com. August 20, 2015. Accessed December 27, 2015. http://www.bloomberg.com/politics/articles/2015-08-20/where-donald-trump-and-ted-cruz-com-pletely-disagree-on-immigration.

Mendonca, Jochelle, Neha Neha Alawadhi, and Priyanka Sangani. “US Senators Intro-duce Legislation to Cut H1B Visas by 15,000.” Times of India-Economic Times. Decem-ber 10, 2015. Accessed December 27, 2015. http://articles.economictimes.indiatimes.com/2015-12-10/news/68930617_1_h-1b-visas-h-1b-visa-holders-h1b.

Mark, Michelle. “H-1B, L-1 Visa Fees: Indian Companies May Soon Pay $2,000 To Sponsor Skilled Foreign Workers.” International Business Times. December 15, 2015. Accessed December 27, 2015. http://www.ibtimes.com/h-1b-l-1-visa-fees-indian-com-panies-may-soon-pay-2000-sponsor-skilled-foreign-workers-2226053.

Matloff, Norman. “Stop Blaming Indian Industry for H-1B Visa Abuse.” LiveMint.com. August 27, 2013. Accessed December 27, 2015. http://www.livemint.com/Opinion/h9T-mT75U7UL9vCwgHMpSeM/Stop-blaming-Indian-industry-for-H1B-visa-abuse.html.

McLain, Sean. “India’s Outsourcing Firms Change Direction as ‘Cloud’ Moves In. ” The Wall Street Journal. July 12, 2015. Accessed January 4, 2015. http://www.wsj.com/articles/indias-outsourcing-firms-change-direction-as-cloud-moves-in-1436740981

Mishra, Pankaj. “TCS, Infosys, Wipro and Others Planning to Reduce Onsite Work by up to 5%.” Timesofindia-economictimes. December 22, 2011. Accessed January 5, 2016. http://articles.economictimes.indiatimes.com/2011-12-22/news/30546681_1_on-site-border-security-bill-h1b-visa-fee.

NASSCOM Pressroom. “US H-1b Proposal Is against Free Trade Principles.” US H-1b Proposal Is against Free Trade Principles. 2009. Accessed December 27, 2015. http://www.nasscom.in/US-H-1b-proposal-is-against-free-trade-principles-56324.

Nikova, Nelli, and Victoria M. Garcia. “Immigration Issues Included in the Omnibus Appropriation Bill.” Bracewell & Giuliani LLP. December 18, 2015. Accessed December 27, 2015. http://www.lexology.com/library/detail.aspx?g=9d704d27-62c3-48b1-821c-70b8987ccc85.

O’Connor, Cozen. “Legislation Proposed to Reform H-1B and L-1 Visa Programs.” Legislation Proposed to Reform H-1B and L-1 Visa Programs. November 30, 2015. Accessed December 27, 2015. http://www.lexology.com/library/detail.aspx?g=9ffb-bc94-4d6d-4bcc-85c4-a6a5c0a1c6ea.

Penton, Kevin. “Bill Would Reduce H-1B Visas, Give High-Paying Jobs Priority.” Law360. December 9, 2015. Accessed December 27, 2015. http://www.law360.com/arti-cles/735968/bill-would-reduce-h-1b-visas-give-high-paying-jobs-priority.

Press Office. “Cruz, Sessions Introduce the American Jobs First Act of 2015 – [Press Release].” US Senator for Texas - Ted Cruz. December 10, 2015. Accessed December 27, 2015. http://www.cruz.senate.gov/?p=press_release&id=2553.

Press Trust of India. “H1-B Visa Holders in US May Get a Salary Hike, US Senate Tables Bill.” The Hans India. December 12, 2015. Accessed December 27, 2015. http://www.thehansindia.com/posts/index/2015-12-12/H1-B-visa-holders-in-US-may-get-a-salary-hike-US-senate-tables-bill-192624.

Press Trust of India. “US Doubles H-1B Visa Fee, Modi Had Raised Concern With Obama.” The Quint. December 16, 2015. Accessed December 27, 2015. http://www.thequint.com/india/2015/12/17/us-doubles-h-1b-visa-fee-modi-had-raised-concern-with-obama-indian-it-companies.

Press Trust of India. “US to Double H-1B, L1 Visa Fee to up to $4,500 for Indian Firms - Times of India.” The Times of India. December 17, 2015. Accessed December 27, 2015. http://timesofindia.indiatimes.com/tech/tech-news/us-to-double-h-1b-l1-visa-fee-to-up-to-4500-for-indian-firms/articleshow/50212961.cms.

Prime Minister’s Office India (PMO India). “US President Barack Obama Calls up the PM; Thanks for His Positive Role and Leadership in the Successful Outcome of CoP-21.” PMIndia.gov.in. December 16, 2015. Accessed December 27, 2015. http://pmindia.gov.in/en/news_updates/us-president-barack-obama-calls-up-the-pm-thanks-for-his-posi-tive-role-and-leadership-in-the-successful-outcome-of-cop-21/?comment=disable.

S., Arun. “IT Sector Worried; India to Take up Visa Fee with U.S.” The Hindu. December 28, 2015. Accessed December 30, 2015. http://www.thehindu.com/news/national/it-sector-worried-india-to-take-up-visa-fee-with-us/article8034442.ece.

Ten Essential Legal Rights of Womenby Archana Sasan*

As women grow into an economic and political powerhouse in the international arena, the rights and opportunities that have been provided for all of us in the Constitution are also gaining prominence. Additionally, women have taken the centre stage by gradually moving into the workforce and getting career-oriented. However, mental, physical and sexual harassment, misogyny and gender inequality continue to be a way of life for many of them. It is in this context that her awareness of the legal rights, mandated by Indian law, gains significance.

Right to Equal Pay According to provisions under the Equal Remuneration Act, one cannot be discriminated against on the basis of sex when it comes to salary or wages.

Right Against Harassment at Work The enactment of the Sexual Harassment of Women at Workplace Act gives you the right to file a complaint against sexual harassment.

Right to Anonymity Victims of sexual assault have a right to anonymity. To ensure that her privacy is protected, a woman who has been sexually assaulted may record her statement alone before the district magistrate when the case is under trial, or in the presence of a female police officer.

Right Against Domestic Violence The act primarily looks to protect a wife, a female live-in partner or a woman living in a household like a mother or a sister from domestic violence at the hands of a husband, male live-in partner or relatives. She or anybody on her behalf, can file a complaint.

Right to Maternity-related Benefits Maternity benefits are not merely a privilege of the working woman, they are a right. The Maternity Benefit Act ensures that the new mother does not suffer any loss of earnings following a period of twelve weeks after her delivery, allowing her to rejoin the workforce.

Right Against Female Feticide It is a duty imposed on every

Archana Sasan is the Executive Director and Legal Chief Ethics Officer at Dell International Services India Private Limited.

*

Sen, Amit. “India May Move WTO against US on Both Visa Fee Hike & Rejections.” Time-sofindia-economictimes. April 21, 2012. Accessed December 30, 2015. http://articles.economictimes.indiatimes.com/2012-04-21/news/31379055_1_visa-fee-hike-l-1-l1.

Ye Hee Lee, Michelle. “Ted Cruz’s Claim That He Has ‘never Supported Legalization’ of Undocumented Immigrants.” Washington Post. December 18, 2015. Accessed January 5, 2016. https://www.washingtonpost.com/news/fact-checker/wp/2015/12/18/ted-cruzs-claim-that-he-has-never-supported-legalization-of-undocumented-immigrants/.


citizen of India to allow a woman to experience the most basic of all rights ¬— the right to life. The Conception and Pre-Natal Diagnostic Techniques (Prohibition of Sex Selection) Act (PCPNDT) ensures her right against female foeticide.

Right to Free Legal Aid All female rape victims have the right to free legal aid, under the Legal Services Authorities Act. It is mandatory for the Station House Officer (SHO) to inform the Legal Services Authority, who arranges for the lawyer.

Right Not to be Arrested at Night A woman cannot be arrested after sunset and before sunrise, except in an exceptional case on the orders of a first class magistrate.

Right to Dignity and Decency In the event that an accused is a woman, any medical examination procedure on her must be performed by or in the presence of another woman.

Right to Property The Hindu Succession Act allows women and men equal share in inheritance, thereby setting new rules and regulations.

Fewer Headaches for Big Pharma: Using Data Management Systems to Lower Cost and RiskBy Ramesh Purohit and Amanda Lee, J.D.*

Pharmaceutical companies today operate in an environment of continuous research and development. According to the California Biomedical Research Association (CBRA), pharmaceutical companies spend approximately $350 million and well over a decade developing a new drug and making it available to patients.1 During many phases of this development process, they encounter big data and information management challenges that can create obstacles in meeting deadlines and budgetary goals. The varied data in these phases may include large amounts of information from scientific research and massive unstructured data sets on diseases like cancer, HIV, and malaria.

According to CBRA, drug development includes preclinical research lasting three and half years to determine what germs, viruses or bacteria cause a disease. After preclinical research, a pharmaceutical company files an Investigational New Drug Application (IND) with the Food and Drug Administration (FDA), and it becomes effective if approved within 30 days. A pharmaceutical company then begins testing the potential drug in humans, a process of three

phases of clinical trials to confirm if the drug is safe and effective; this may take another three years. Thereafter, a pharmaceutical company files a new drug application (NDA) with the FDA and it takes a minimum of six months to review the application. If the FDA approves the NDA, the drug is made available for prescription; though the pharmaceutical company remains responsible for submitting periodic Phase IV Clinical Trial reports to determine if there are still any long-term side effects. This whole process is not only time-consuming and costly but laden with potential delays.

According to the Center for Drug Evaluation and Research (CDER) at FDA, 19 new drugs were approved as of July 2014,2

and industry analysts estimate 30 new drug filings each year. Since new ideas are no one’s monopoly, the process of getting new molecular entities and innovative drugs to market is fraught with risk of litigation.

For litigation readiness and to commercialize their intellectual property, it is necessary for pharmaceutical companies to utilize data management systems and electronic discovery technologies to securely preserve knowledge repositories and efficiently retrieve and present crucial evidence to get vindicated in a court of law.

For litigation readiness and to commercialize their intellectual property, it is necessary for pharmaceutical companies to utilize data management systems and electronic discovery technologies to securely preserve knowledge repositories and efficiently retrieve and present crucial evidence to get vindicated in a court of law.

Game-Changing Legislation

Most often, the new drug discovery process is invariably a long, time-consuming, and expensive exercise. Researchers spend years finding new drugs and medications; then have to wait for years to earn a financial return that is dictated by the patent term and the related laws on technology transfers and commercialization of patents. In the case of the pharmaceutical industry, large-scale litigations frequently occur as the drug patent nears its expiration date. The high cost of these litigations complicates the situation. In addition to often-rigorous and expensive pretrial discovery and claim

Ramesh Purohit and Amanda Lee are members of the Strategic Accounts Team, supporting global business development at Capital Novus.California Biomedical Research Association, Fact Sheet: New Drug Development Process, http://ca-biomed.org/pdf/media-kit/fact-sheets/cbradrugdevelop.pdf.New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products of 2014, Center for Drug Evaluation and Research at Food and Drug Administration (July 2014), http://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/default.htm.

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construction hearings, patent infringement litigation costs frequently include awards for damages or settlement deals such as “pay-for-delay” deals, which offer compensation to generic manufacturers if they delay production of a generic version of the drug at issue.

All of these elements combined with the original cost of development make most drugs expensive. Industry analysts believe that the prices may be inflated to compensate the original manufacturer for the highly probable issues that occur toward the end of the patent cycle. We are witnessing an increasing trend of a need for new drugs, an ever-growing amount of uncontrolled electronic information, and rapid development in global generic industry. The following legislations help explain the surge in patent litigations, as well as the escalating need for e-discovery readiness in order to better handle the big data and litigation support issues.

All of these elements combined with the original cost of development make most drugs expensive. Industry analysts believe that the prices may be inflated to compensate the original manufacturer for the highly probable issues that occur toward the end of the patent cycle. We are witnessing an increasing trend of a need for new drugs, an ever-growing amount of uncontrolled electronic information, and rapid development in global generic industry. The following legislations help explain the surge in patent litigations, as well as the escalating need for e-discovery readiness in order to better handle the big data and litigation support issues.

1. The Hatch-Waxman Act of 19843

The Drug Price Competition and Patent Term Restoration Act, generally referred to as the Hatch-Waxman Act, streamlined the process for approval and marketing of generic drugs. This streamlined process meant that generic manufacturers could develop and test a product with a much lower risk of an infringement action by a patent holder. Paragraph IV of the law also provided a mechanism for Abbreviated New Drug Application (ANDA), which allows generic manufacturers to expedite the approval process for generic drugs.4 The generic version is considered the equivalent of the original drug as it has exactly the same chemical formula, same dosage, intended use, effects and side effects, route of administration, risks, safety, and strength corresponding to original drug.

Generic drugs are comparatively low-priced because the manufacturers did not need to invest as much on research, development, and marketing of the drug as the original manufacturer. This led generics to be considered inexpensive and affordable, not only in

developed economies but also in developing and poor countries around the world where an extremely low-priced medication is the only accessible remedy for sickness and disease.

2. Agreement on Trade-Related Aspects of Intellectual Property (TRIPs)5

The passage of TRIPs in 1995 by the World Trade Organization (WTO) made the manufacturing and reverse-engineering of patented drugs illegal. This was an attempt to set minimum standards of protection for all member countries, to create a cross-border system of enforcement, and to offer a clear dispute resolution process.6

The Unintended Consequences of Good-Faith Legislation

The growing number of Hatch-Waxman litigations not only gave rise to unstoppable court cases, but also triggered a surprising trend in which many such lawsuits would end in a compromise. The mutual settlement between a generic and a brand-name company involve “reverse payments.” Rather than a payment made from the alleged infringer to the patentee, these payments are from the patentee to the alleged or potential infringer. This type of settlement is known as a “pay-for-delay” agreement because the patentee is asking the generic manufacturer to delay their production of a generic and in turn offering to compensate some of the profits that the generic manufacturer would have made on the generic during the delay time.

These agreements can be controversial, and can open pharmaceuticals up to antitrust actions. In testimony before the United States Senate, the FTC testified about ending the anticompetitive “pay-for-delay” settlements in the pharmaceuticals industry.7 The FTC Chairman said that anticompetitive “pay-for-delay” agreements violate the antitrust laws and undermine the goals and spirit of the Hatch-Waxman Act, which seeks to prevent weak patents

Drug Price Competition and Patent Term Restoration Act, 21 U.S.C. §355 (2012), http://www.gpo.gov/fdsys/pkg/USCODE-2012-title21/pdf/USCODE-2012-title21-chap9-subchapV-partA-sec355.pdf.Eric W. Guttag, A Primer on Paragraph IV Certifications: Into the Belly of the Hatch-Waxman Beast Part I, IP Watchdog (April 3, 2013), http://www.ipwatchdog.com/2013/04/03/a-primer-on-paragraph-iv-certifications-into-the-belly-of-the-hatch-waxman-beast-part-1/id=38384/.The Agreement on Trade Related Aspects of Intellectual Property Rights, Marrakesh Agreement Establishing the World Trade Organization, April 15, 1994, Annex 1C, http://www.wto.org/english/docs_e/legal_e/27-trips.pdf.Overview: The TRIPs Agreement, World Trade Organization (accessed on July 18, 2014), http://www.wto.org/english/tratop_e/trips_e/intel2_e.htm.See Pay-for-Delay: When Drug Companies Agree Not to Compete, Federal Trade Commission (last visited July, 10, 2014), http://www.ftc.gov/news-events/media-resources/mergers-and-competition/pay-delay.

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from obstructing the development of lower-cost, generic drugs and that consumers, federal and state governments, and purchasers of prescription drugs—all of whom are already struggling to contain the escalating health-care costs—pay a substantial price for drugs as a result of these deals. The U.S. Supreme Court in FTC v. Activis, Inc. has since ruled that these settlements were not immune from antitrust review because such “pay-for-delay” agreements keep the low-priced generic drugs off the market and thus fall under a restrictive trade practice.8 This decision allows the FTC to pursue pharmaceutical companies who participate in such agreements under antitrust law.

While Hatch-Waxman led to increasing numbers of patent infringement litigation as well as antitrust litigation, TRIPs has been a relatively effective check-and-balance instrument for the global patent regime, since it gave some rights and exemptions to member nations. However, these rights and exemptions have also led to some disagreements as well.

The Global Scenario

Another unintended consequence of these two regulations has been visible in the changing pattern of generic and brand manufacturing. In order to replace the sales lost from complying with TRIPs, several pharmaceutical companies in low-cost countries have increased manufacturing and export of generic drugs to buyers from the United States and Western Europe. Due to the high-growth markets in China, Brazil, Russia, and India, pharmaceutical companies have now entered into research and development agreements, mergers and acquisitions, and strategic alliances, which include contract manufacturing agreements with low-cost suppliers in developing countries. The global market share for generics has grown sharply to 70%, up from 10% in 1984, and the FDA estimates that 50% of generic drug production is by brand-name companies.

Regulators like the FDA and FTC continue investigating cases and filing lawsuits against generic and brand-name companies alike. The FDA states that 40% of finished drugs come from overseas, and 80% of active ingredient manufacturers are located outside the U.S. Further, half of all medical devices are imported. The growth in imports has been rapid and promises to accelerate. To ensure the safety of drugs and pharmaceuticals from specific areas, the FDA has established permanent offices in China, India, Europe, Latin America, Middle East, North Africa, and Sub-Saharan Africa.9 The FDA views this as furthering its goal of being able to inspect manufacturing and testing facilities prior to granting drug approval and marketing rights.

One particular country that has seen enormous growth in

the pharmaceutical industry is India, where generic drug manufacturing has grown approximately 40% annually. One result of this growth can be seen in two landmark cases. In one case, the Indian government issued compulsory licenses to Indian generic pharmaceutical firms for two cancer drugs patented by industry leading European and U.S. multinational companies. In the other, the Indian Supreme Court rejected the grant of a patent to a multinational pharmaceutical company for an innovative cancer drug that is patented elsewhere, including in the United States. Thus by raising the bar for patents and issuing compulsory licenses, India encourages its generic manufacturers to produce and export low-cost generics, as brand-name patented drugs are apparently unaffordable. The U.S. Department of Commerce advisory from India states that in the face of such obstacles, American companies are reevaluating their business models in India.

Growing Potential for Data Management Services

A common thread in the lifecycle of a new drug is the explosion of information and confidential data, and the need to navigate through the morass of information during initial research, product innovation, and throughout the patent process from application through infringement litigation. Solutions developed to manage and analyze electronically stored information (ESI) could assist pharmaceutical companies to more effectively organize, understand, and utilize the volumes of data involved in drug development. Most pharmaceutical companies currently maintain electronic records and heavily rely on automation and informatics in all activities related to: research and development; laboratory notebook data from preclinical research; case report forms and trial master files from clinical research activities; e-NDAs; information from laboratory instruments, diagnostic devices, electronic data capture tools, electronic patient diaries, and electronic data transfers from external partners; and the multitude of digital files generated by numerous devices and applications in the lifecycle of a drug.

For litigation preparedness and regulatory compliance, both the parties in dispute and the investigating agencies need to identify all available ESI, including databases containing a myriad of information on research and development, general manufacturing practices, quality assurance, labeling,

Federal Trade Commission v. Activis, Inc., 570 U.S. ___ (2013), http://www.supremecourt.gov/opinions/12pdf/12-416_m5n0.pdf.FDA’s International Posts: Improving the Safety of Imported Food and Medical Products, Food and Drug Administration (updated March 31, 2010), http://www.fda.gov/forconsumers/consumerupdates/ucm185769.htm.

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marketing and risk management. In a typical intellectual property litigation, pharmaceutical companies follow a schedule for initial disclosures, infringements and invalidity contentions, claim construction proceedings, expert witnesses and settlement motions, and they count on experienced e-discovery and litigation support providers throughout the process. For instance, a company might provide large amounts of information to the opposing counsel, perhaps in an attempt to overwhelm them. In such circumstances pharmaceutical companies often engage e-discovery providers who have experience in dealing with digital data, including documents and metadata, as well as web analytics and review—a sufficiently complex operation that is absolutely outside the core competencies of pharmaceutical companies. An experienced provider would help the company organize and navigate the abundant information, helping find the needed information more quickly and cost-effectively.

Experienced e-discovery and data management vendors can also assist pharmaceutical companies in safeguarding data. In multiparty and multinational patent litigation, clients invariably demand protection for confidential information, including protecting patient health information and complying with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other applicable government regulations. Privacy regulations can vary greatly by nation and region, and an experienced vendor will not only be aware of these variances, but have processes and documentation in place to meet the requirements of different regions.10 These providers must be able to defend the processes they use in court, showing that they fully comply with governing law. Such compliance can include arranging for regional processing to keep data within a specific geographic location as well as designing a secure architecture to safeguard the PII and confidential client data.

Conclusion

Cutting-edge technologies like intelligent technology assisted review (TAR) solutions and predictive analytics are the tools that can help pharmaceutical companies not only tackle prolonged litigation but also expedite the drug development process by facilitating easier navigation of big data, thus saving time and money. Since the FDA now operates beyond American borders and approves processing facilities of

For example, Capital Novus is US-EU Safe Harbor Self-Certified (http://safeharbor.export.gov/companyinfo.aspx?id=23343), and ISO 9001:2008 and 27001:2005 certified (http://www.capitalnovus.com/about-us/certifications-compliance-and-contracts). Capital Novus also has data centers in Paris, Hamburg, London, India, Tokyo and the United States.

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Two Indian Parties Can Now Have For A Foreign Seat Of Arbitration – Will This Holdby Neerav Merchant*

The often debated question of whether two (or more) Indian parties can opt for a foreign seat of arbitration has surfaced again. The Madhya Pradesh High Court (the “MP HC”) has, in the case of Sasan Power Limited v. North American Coal Corporation (the “Sasan Case”), held in the affirmative. The Sasan Case pertains to a dispute which arose from the termination of a contract, facts of which are briefly stated below:

I. Sometime in 2009, Sasan Power Limited (“Sasan Power”), an Indian company engaged in the business of generating electricity through an electric power plant in Sasan, Singrauli District, Madhya Pradesh, India, entered into an “Association Agreement” (the “Agreement”) with the North American Coal Corporation (“NACC-US”), an American company, for the purposes of mine development and operation. The Agreement, inter alia, provided that the governing law would be that of the United Kingdom, and any disputes touching the Agreement would be resolved by arbitration under the rules of the International Chamber of Commerce (“ICC”) with the seat being London.

II. Sometime in 2011, NACC-US assigned all its rights and liabilities under the Agreement to its Indian subsidiary, North American Coal Corporation India Private Limited (“NACC-India”).

Neerav Merchant is a partner in the Mumbai office of Majmudar & Partners.*

international suppliers in host countries, it is in the interest of global pharmaceutical companies to utilize advanced and innovative technology solutions for information management and much-needed litigation support. When the right technology solution is deployed and an experienced provider is used, the efforts will enhance savings, which in turn will enable more affordable medication and lower healthcare service costs for consumers.


III. In 2014, certain operational disputes arose as regards the activities stipulated under the Agreement, and NACC-India terminated the Agreement and filed a request for arbitration with the ICC claiming a compensation of INR18,259,301.

IV. In response, Sasan Power filed its objection to the initiation of the arbitration by NACC-India.

V. Additionally, Sasan Power filed a suit before the District Court in Singrauli (the “District Court”) seeking an anti-arbitration injunction to restrain NACC-India from continuing the arbitration proceedings filed with the ICC. The District Court granted the interim injunction. Apparently, the injunction was granted by the District Court qua NACC-India, although this is not fully clear from the MP HC’s decision.

VI. Thereafter, NACC-US filed another request for arbitration with the ICC, and consistent with its previous stance, Sasan Power again opposed the request for arbitration and applied to the District Court for an extension of the interim injunction granted in its favour qua NACC-US. The District Court extended the interim injunction.

VII. Subsequently, NACC-India filed an application with the District Court, under Section 451 of the Arbitration and Conciliation Act, 1996, (the “1996 Arbitration Act”) requesting a dismissal of the suit filed by Sasan Power. In addition, NACC-India filed an application for revocation of the interim injunction under which NACC-India was restrained from continuing with the arbitration instituted before the ICC.

VIII. The District Court allowed the applications filed by NACC-India and vacated the interim injunction. In addition, the suit filed by Sasan Power was also dismissed, and the parties were directed to have the dispute resolved through the mutually agreed arbitration procedure under the Agreement. Aggrieved by the foregoing decision of the District Court, Sasan Power filed an appeal before the MP HC.

In the appeal, Sasan Power, inter alia, argued that the judgment of the District Court ought to be overturned on the ground that the arbitration clause in the Agreement (after being assigned to NACC-India) automatically stood invalidated as two (2) Indian parties could not (allegedly, under India’s public policy) be permitted to choose a foreign seat of arbitration. According to Sasan Power, the order of the District Court dismissing the suit was premised on an invalid arbitration clause and lacked legal sanctity.

On the other hand, NACC-India, inter alia, argued that the judgment of the District Court merited no intervention. NACC-India’s contention rested on the foundation that two Indian parties could choose a foreign seat for arbitration and, as such, neither the public policy of India nor any rule embodied in the 1996 Arbitration Act, was violated.

After hearing various submissions made by both sides, the MP HC ruled in favour of NACC-India and upheld the decision of the District Court.

Our Comments on the MP HC’s Findings

There is no bar (express or implied) either under the Arbitration Act or any other Indian law which prohibits two (or more) Indian parties from choosing a foreign seat of arbitration. In fact, the Arbitration Act provides ample room for parties to act autonomously in this regard.

The arguments advanced by Sasan Power before the MP HC were based on the decision of a single judge of the Supreme Court of India (the “Supreme Court”) in TDM Infrastructure v. UE Development India Pvt. Ltd. ((2008) 14 SCC 271) (the “TDM Case”). In the TDM Case, all the parties to the arbitration agreement were Indian, and the seat of arbitration was New Delhi. Here, it was, inter alia, held that when the seat of arbitration is within India and if all the parties to the arbitration agreement are Indian, the parties cannot derogate from the substantive laws of India; an admittedly correct restatement of the law contained in Section 28(1) of the 1996 Arbitration Act. Therefore, the Supreme Court did not have to decide on the issue whether it was permissible for two Indian parties to choose a foreign seat, and this matter remained open. The TDM Case veered more towards deciding the application of Section 28(1) of the 1996 Arbitration Act based on the nationality of the parties in view of the prima facie facts placed before the Supreme Court, and did not have any application or correlation to the facts and circumstances of the Sasan Power case before the MP HC.

As a contra, NACC-India premised its submissions before the MP HC by relying on the decision of the Division Bench of the Supreme Court in Atlas Export Industries v. Kotak and Co. (AIR 1999 SC 3286) albeit under the Arbitration Act, 1940 (“1940 Arbitration Act”), wherein it was held that an arbitration agreement between Indian parties was not void for

Section 45 of the Arbitration Act makes it mandatory for a judicial authority to refer the parties (before it) to arbitration, if the subject matter of the proceeding before it happens to be the subject matter of an arbitration agreement between the parties. The referral can be refused by the judicial authority only if it finds the arbitration agreement to be invalid or incapable of being performed.

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want of conformity with Indian public policy merely because it provided for the arbitration to be conducted abroad.

Relying on: (i) the decision of the Supreme Court in the case of Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. ((2011) 8 SCC 333) which draws a comparison between the 1996 Arbitration Act and the 1940 Arbitration Act and concludes that there is not much difference in the two (2) statutes; and (ii) the law of precedence as provided by the Supreme Court in the case of R. Antulay v. R.S. Nayak ((1988) 2 SCC 602), the MP HC followed the Supreme Court’s decision in Atlas Exports and concurred with the argument propounded by NACC-India.

It is also relevant to note that in Reliance Industries Limited v. Union of India (AIR 2014 SC 3218), all the parties to the arbitration agreement were Indian; however, the seat of arbitration was London. In this case, no arguments were raised as regards the impermissibility of two (2) Indian parties choosing a foreign seat of arbitration. Further, even the Supreme Court did not make any observation on this issue. If the idea of having a foreign seated arbitration between Indian parties was so averse to the collective conscience of the Indian State, then the Supreme Court would have certainly taken cognizance and would have recorded its demurral. That, however, has not been the case, as yet.

Therefore, until there is a decision from the Supreme Court ruling to the contrary or the Parliament makes legislative changes declaring that, by law, foreign seated arbitrations between Indian parties are illegal, in our view, Indian parties can choose a foreign seat of arbitration.

Notwithstanding, it is hereby clarified that if a contract (whose terms are to be performed in India) is exclusively entered into between Indian parties, then the substantive law governing such contract must mandatorily be Indian law. This is because a contract cannot be performed in India in (possible) violation of its own laws (as was decided in the case of Societa Anonmina Lucchesse Olli E Vini Lucca v. Gorakhram (AIR 1964 Mad 532).) In other words, even if the arbitration (between two Indian parties) is to be seated outside India, the governing law of such contract cannot be a foreign law. Although the MP HC is silent on this issue in the Sasan Case, in our view, the MP HC ought to have clarified on this point as well, especially because the Agreement between Sasan Power and NACC-India, despite having to be performed in India, was governed by English law. This raises doubts about the eventual enforcement of the award in India, and it is quite likely that an Indian court may refuse to enforce the award because the enforcement of the award may be seen as a submission of the Indian legal system qua the Indian entities

to a foreign law. In other words, if a court enforces the award, it will, effectively, endorse the application of the laws of a foreign country to a contract to be performed in India and purely between Indians. Such an endorsement may run contrary to the sovereignty of India, which requires that the performance of contracts between Indian parties on its soil must mandatorily be governed by its own laws.

Therefore, although NACC-India may have succeeded in its case before the MP HC; the success may only be transitory.

Implications

This decision of the MP HC is a welcoming one for foreign entities that have subsidiaries incorporated and controlled in India. Such Indian subsidiaries of foreign entities can choose to elect a foreign seat of arbitration when contracting with an Indian party.

The main advantage of submitting to a foreign seat (for e.g., Singapore, London, Paris, etc.) is the efficiency, sophistication and the state-of-the-art infrastructure provided by those jurisdictions for holding and conducting institutional arbitrations. Moreover, choosing a foreign seat can also help in avoiding frivolous litigation before Indian courts, which can be time consuming. Besides this, challenging the arbitral award under Section 34 (in Part- I) of the 1996 Arbitration Act impedes the enforcement of the arbitral award because Section 36 (in Part-I) of the 1996 Arbitration Act provides for a self-operating stay on the execution of an award if such a challenge is made. On this issue, the Arbitration and Conciliation (Amendment) Ordinance, 2015 (the “Arbitration Ordinance”) promulgated by the President of India on 23 October 2015 has altered this position to some extent. The Arbitration Ordinance, which amends the 1996 Arbitration Act, provides that a challenge to the arbitral award under Section 34 of the Arbitration Act will per se not operate as a self-operating stay on the enforcement of the award. There are other changes that have been brought about by the Arbitration Ordinance, which we will cover in our next update.

It should be noted that the Arbitration Ordinance which has been promulgated by the President of India during the recess of the Parliament will lapse if it is not accepted/passed by both houses of the Parliament within a period of six (6) weeks from the start of its next session. This essentially means that, if the Arbitration Ordinance is not passed/accepted by the Parliament within the requisite time, it will lapse; thus reviving the position that existed prior to the Arbitration Ordinance. On the other hand, if the Arbitration Ordinance is passed by the Parliament, this will certainly improve the arbitration regime in India; boost the sentiment of foreign investors; and make India an arbitration friendly jurisdiction. However,


to make India a truly world-class arbitration hub, in addition to statutory changes, we require (i) institutional rules, (ii) arbitration centers and institutions, (iii) an eminent panel of arbitrators associated with institutions, and (iv) sophisticated infrastructure and facilities. The government and the Indian legal fraternity will have to focus on all of this if it wants to improve the ease of doing business in India.

Our disputes partner, Neerav Merchant, has discussed the Sasan Case on a leading business news channel. The YouTube link of the show is available https://www.youtube.com/watch?v=KHD 8Mduig2E

Disclaimer

All the information and legal commentary provided in this write-up is for illustrative purposes only and should not be regarded or relied upon as legal advice. While the content provided is accurate as at the date of first publication, laws and regulations change frequently. Any reliance on the information contained in this write-up is solely at the user’s own risk. Specific legal advice should always be obtained before acting upon any information or commentary provided in this write-up. Further, the recipients of this write-up should not act, or refrain from acting, based upon any or all of the contents of this write-up. Please contact us on [email protected] for any clarifications.

Professional eBooks are Leading to a Paradigm Shift in Legal Researchby Rakesh Sainik and Eric Gonzalez*

An important difference between fiction and professional content is that while the former is read cover to cover in the case of latter professionals work with them in bits and pieces. This key difference in usage pattern becomes a deciding factor on how professional content should be served. Researchers have always spent years reading and browsing electronic publications for various reasons, such as the ability to access international publications, speed, and updated content. Topping this off with interactive usage and personalization makes any such value proposition extremely attractive.

Today professionals are looking beyond just linked content, new features like note making and global search are increasing their productivity as never before and this applies to professionals from all streams be it medical, tax

& accounting, finance or legal. This in turn has created demand for professional grade eReaders which are device independent. We will shortly examine the evolution of digital content and the scope for professional eBooks.

I. Digital Content Market in India

EBooks are well poised to be a major business in short to medium term. Nielsen recently published a report of the India Book Market, which showed that Books account for 15% of eCommerce in the country, which is great! What is even more surprising is that the Publishing Market in India has been valued at $3.9 billion and pegging growth at 20% annually. This positions India among the largest English-language book markets in the world. A growing literacy rate, estimated to reach 90% in 2020, government spends on education, digital initiatives, and outsourcing of publishing services to India, are all identified as the strengths of the Indian publishing industry. For example, Indian state Kerala has recently achieved 100% mobile density and an astonishing 75% E-Literacy; so Kerala has been “officially” declared as India’s first “Digital State”.

An interesting observation in the report is that, dedicated eReading devices have not found many buyers in India whereas PCs, smartphones, or tablets have been found to be the preferred devices for reading eBooks in India. This is a global trend now, dedicated eReader sales are declining globally towards tablets, and above all, large-screen Smartphones.

II. eBooks in Legal Research – A Strategic Decision

eBooks have become a reality in mid to large sized Law Firm. Many firms have already taken steps towards this digital world as they have seen the value eBooks can bring in their daily activity. Some early adopters Firms have already deployed full eBook resources and stopped buying Print books. There are lots of benefits in switching to eBooks; a Print library needs space, which is expensive in key locations, a recent survey pegs the total cost of keeping one book in an open library stack at $4.26 per year which included estate, maintenance, and the logistics of lending. This doesn’t account for the time both Librarians and Lawyers spend annually performing research across Print books and Magazines.

Similarly let us take the case of an Institution with hundreds of students- catering to all of them through Print is a never ending exercise whereas consider the proposition of providing

Rakesh Sainik and Eric Gonzalez are at Thomson Reuters.*


Recent Decisions Of The United States Supreme Court Limits Reach Of The U.S. Courts In Addressing Matters Arising Abroadby Thomas E. Butler and Nicole A. Sullivan*

Introduction

On December 1, 2015, the Unites States Supreme Court ruled that a California resident who had been injured in an accident in Austria could not bring suit against the Austrian state-run railroad in a United States court. In so doing, the Court issued another ruling limiting access to the United States courts to redress alleged wrongdoing that occurred entirely overseas.

In OBB Personenverkehr AG v. Sachs, the Plaintiff, Ms. Sachs, had purchased a Eurail pass from a Massachusetts-based internet site, which allowed her access to OBB and several other European railroads. While using the pass to travel on OBB, Ms. Sachs suffered horrific injuries when she slipped on an OBB platform and was run over by a train. Ms. Sachs brought a lawsuit in a California federal court seeking damages for her injuries and asserting various claims, including negligence, strict liability, and failure of OBB to warn of a potentially dangerous condition that existed on the train platform.

OBB sought dismissal of the case under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605 (“FSIA”). The FSIA is a federal statute that generally grants immunity to foreign sovereigns from facing lawsuits in courts located in the United States. A notable exception to the immunity granted by the FSIA is for claims “based upon a commercial activity carried on in the United Stated by [a] foreign state.” Ms. Sachs claimed that her lawsuit was “based upon” her purchase of a Eurail ticket in the Unites States and that, as a result, the immunity granted to the foreign sovereign by the FSIA did not apply here.1

Ms. Sachs’ lawsuit was dismissed by the lower court and that dismissal was affirmed by the Ninth Circuit Court of Appeals. However, an en banc panel of that Court reversed and reinstated the lawsuit. OBB then sought and was granted permission to appeal to the United States Supreme Court.

The United States Supreme Court Reverses the Ninth Circuit

In its December 1 decision, a unanimous Supreme Court reversed the Ninth Circuit and dismissed the lawsuit. In so deciding, the Court focused its attention on the “based upon” language included in the FSIA. The Court reasoned that an action is “based upon” the particular conduct that is the so-called “gravamen” of the suit at issue. Put another

Thomas Butler and Nicole Sullivan are partners at LeClairRyan in New York City.The parties agreed that OBB, the Austrian state-owned railroad, was a “foreign sovereign” for purposes of the FSIA.

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hundreds of titles to thousands of students over secure network. The logistical ease, administrative efficiency achieved and the extensive coverage gained are just too critical to be ignored. The possibilities with eBooks are endless and we are only seeing the tip of the iceberg. eBooks will allow breaking many barriers that Print books have historically raised up: space constraints (specially in all commercial capitals where real estate is always at super premium), difficulty to manage a Print library across different local and international offices, content update issues, not being able to create personal notes and lastly mobility. Travelling with 4-5 books running into 1000 pages is quite unwieldy.

Few years back Thomson Reuters launched a Professional grade eBook platform named “Thomson Reuters ProView™”, which is helping all these customers (Law Firms, Accounting Firms, Governments, Universities, etc.) to quit Print books and start being efficient in an eBook environment. Thomson Reuters ProView™ was built with this professional usage in mind, and nowadays has a countless number of features that makes this change an easy task. Obviously, like in any other disruptive evolution it is time taking, but with multiple iterations and feedback from the professional community we now have a class leading solution which can take care of your entire eBooks requirement.

For starters have you ever thought about performing a search across your entire Print library at a time? Or, transferring your personal notes across editions of the same book? Thomson Reuters ProView™, will do that for you and much more. A dozen more such revolutionary features makes Proview the product which will help legal professionals make that much required shift from print to digital.


way, the lawsuit is “based upon” the grouping of facts most essential to the underlying claims. Having so determined, the Court held that the conduct most relevant to Ms. Sachs’s suit, the “gravamen,” clearly occurred abroad. All of Ms. Sachs’s claims turned on conduct that took place in Austria, including the allegedly dangerous condition of the platform and any wrongful conduct by the railroad that actually led to her injuries. In so ruling, the Court rejected the broad interpretation of the commercial activity “exception” to the FSIA that had been advocated by Ms. Sachs.

Earlier Supreme Court Decisions Also Limit Access to U.S. Courts

The OBB ruling followed several other recent Supreme Court decisions that also placed limitations on the ability of parties to sue in the United States courts to redress wrongdoing that took place entirely abroad. In Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), the Supreme Court considered whether Section 10(b) of the Securities Exchange Act of 1934 had a so-called “extraterritorial” effect, and therefore whether Australian investors who had purchased securities of an Australian bank in Australia could maintain suit in a U.S. court for purported violations of the Act stemming from the bank’s purchase and operation of a U.S.-based mortgage company. The Court cited the “long-standing principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” The Court held that the focus of the Securities Exchange Act is not upon the place where the alleged “deception” that is the source of the claim originated but rather upon the purchase and sale of securities in the Unites States. As a result, the Court held that only cases where the purchase or sale is made in the United States itself, or involved a security listed on a domestic exchange, meet this requirement. The Court therefore determined that the Australian investors were precluded from maintaining suit in the United States under the Exchange Act, due to its lack of “extraterritorial” effect.

In Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), the Supreme Court held that the Alien Tort Statute likewise did not have extraterritorial effect. The Alien Tort Statute is a federal law that permits federal courts to exercise jurisdiction over suits brought by aliens to redress torts committed in violation of the law of nations or United States treaties. The Court again noted the presumption against extraterritorial application of U.S. law and held that the Alien Tort Statute, which lacked indicia of an intention that it would have extraterritorial effect. As a result, the statute did not apply outside of the United States, and the claims by the plaintiffs, former residents of Nigeria, who contended that

Royal Dutch Shell had worked with Nigerian government forces to violate the law of nations in Nigeria could not be pursued in a U.S. federal court.

Finally, in Daimler A.G. v. Bauman, 134 S. Ct. 746 (2014), the court held that a California federal court did not have general personal jurisdiction over Daimler A.G. The case involved claims that Daimler, a German company, had assisted Argentinian government forces in committing atrocities in Argentina in the 1970s. In rejecting the expansion of jurisdiction to allow these claims to go forward in the Unites States, the court focused on the fact that Daimler was neither incorporated in the State of California, nor did it have a principal place of business there. Noting the lack of a strong connection to the United States, the Court held the federal courts lacked jurisdiction over Daimler, and that a lawsuit challenging conduct that took place entirely abroad could not be pursued in the U.S. courts

Conclusion

The aforementioned cases, each of which was decided without a dissent, broadly suggest reluctance on the part of the Supreme Court to increase access to U.S. courts and U.S. law to redress conduct that has taken place largely overseas, as well as a heightened concern on the part of the Court with principles of comity. Whether or not this is a trend that will continue of course remains to be seen, but these four decisions certainly indicate hesitancy on expanding the role of the U.S. Courts as arbiter of matters with little direct connection to the United States.

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