Corporate knowledge upgrade - January 2025 Part 2

1. Draft Digital Personal Data Protection Rules 

Framed with simplicity and clarity, the rules are designed to empower citizens in a rapidly growing digital economy. They seek to protect citizens’ rights in accordance with the DPDP Act, while achieving the right balance between regulation and innovation, so that the benefits of India’s growing innovation ecosystem are available to all citizens and India’s digital economy. They also address specific challenges like unauthorised commercial use of data, digital harms and personal data breaches.

Data Fiduciaries must provide clear and accessible information about how personal data is processed, enabling informed consent. Citizens are empowered with rights to demand data erasure, appoint digital nominees, and access user-friendly mechanisms to manage their data. The rules empower citizens by giving them greater control over their data. Provisions for informed consent, the right to erasure and grievance redressal enhance trust in digital platforms. Parents and guardians are empowered to ensure online safety for their children.

India’s model strikes a unique balance between fostering innovation and regulation to protect personal data. Unlike restrictive global frameworks, these rules encourage economic growth while prioritizing citizen welfare. Stakeholders view this as a new global template for data governance. The framework envisages lesser compliance burden for smaller businesses and startups. An adequate period would be provided so that all stakeholders, from small enterprises to large corporates, may transition smoothly to achieve compliance with the new law.

2. ITC-ITC Hotels demerger:

Monday, January 6, 2025, marks an important day for ITC shareholders. It’s the ‘record date’ that decides who will be eligible to receive shares of ITC Hotels when it gets listed on the NSE and BSE. This follows the long-awaited demerger of ITC Hotels, which took effect on January 1, 2025. The ITC stock will remain part of the indices for three trading days. However, if it reaches the circuit limit on the first two days, its removal from the indices will be postponed by three additional days.

3. SEBI eases rules for brokerages on settling client accounts lying dormant for 30 days

SEBI has eased the rules around settlement of accounts of brokerages' clients who have not traded over the last 30 days. Existing directions from the SEBI directed brokerages to settle such accounts within 3 working days. In a circular issued on January 6, 2024 SEBI has said that brokerages can settle the funds in such accounts on the upcoming settlement dates of monthly running account settlement cycle, as notified by the exchanges in the annual calendar.

What it means?

For the clients having credit balance, who have not done any transaction in the 30 calendar days since the last transaction and any amount of such client’s funds is lying with member for more than such 30 calendar days, the entire credit balance of client shall be returned to the client by TM, on the upcoming settlement dates of monthly running account settlement cycle (irrespective of settlement cycle preferred by the client) as stipulated by stock exchanges. However, if the client trades after 30 calendar days and before aforesaid upcoming settlement dates of monthly running account settlement cycle, the settlement of account of client shall continue to be done by the Trading member as per the preference of quarterly/monthly as indicated by the client for running account settlement.

4. RBI releases Draft Formats of Financial Statements of Co-operative Banks 

 In terms of Section 29, read with Section 56 of the Banking Regulation Act, 1949, co-operative banks are required to prepare a balance sheet and profit and loss account as on the last working day of the year in the Forms set out in the Third Schedule of the Banking Regulation Act, 1949. These forms were notified in 1981. Since then, there have been several developments in the financial market as well as accounting standards and practices. The Reserve Bank has, accordingly, undertaken a comprehensive review of the formats of the financial statements of the co-operative banks and has released draft formats of the revised Forms and their schedules together with instructions for the compilation of the balance sheet and profit and loss account.

5. Competition Commission approves the acquisition of certain shareholding of Pegatron Technology India Pvt. Ltd. (Pegatron India) by Tata Electronics Pvt. Ltd. (TEPL) and the transfer of TEL Components Pvt. Ltd. (TEL)’s business undertaking to Pegatron India

Before reading :

1. TEPL is a TATA Sons owned company

2. TEL is a wholly owned subsediary of TEPL

3. PEGATRON  Technology is getting acquired by TEPL

4. TEL business is getting transfered to PEGATRON

5. Business scenario - TATA becomes largest manufacturer of Apple.

The Proposed Combination involves the following steps: (a) TEPL proposes to acquire the majority shareholding of Pegatron India in 2 tranches, (b) A wholly owned subsidiary of TEPL (i.e., TEL) proposes to transfer its business undertaking to Pegatron India. TEPL is a wholly owned subsidiary of Tata Sons Private Limited with expertise in manufacturing highprecision components for large customers. It manufactures smartphone enclosures (i.e., the frame of the phone on which other components/sub-assembles of a smartphone are assembled) for smartphones. TEPL, through its wholly owned subsidiary Tata Electronics Systems Solutions (formerly known as Wistron Infocomm Manufacturing (India) Private Limited), is also engaged in the provision of electronics manufacturing services (EMS) for smartphones.

6. SEBI INVESTMENT ADVISOR GUIDELINES ( same provisions for Research Analysts)

SEBI, vide this circular, has specified the guidelines under the amended SEBI (Investment Advisers) Regulations, 2013 and prescribed that a research analyst, who is an Individual or partner-ship firm, registered under the SEBI (Research Analysts) Regulations, 2014, may be considered eligible for grant of certificate of registration as Investment Advisers under the Investment Advisers Regulations provided that it shall comply with the rules/regulations/reporting requirements under each of these regulations viz. Investment Advisers Regulations and Research Analysts Regulations separately.

Further, provides that, an applicant engaged in any activity or business or employment permitted by any financial sector regulator or an activity under the purview of statutory self-regulatory organisations such as ICAI, ICSI, ICMAI etc. shall be considered eligible for registration as parttime Investment Advisers.

7. IndiaAI and Microsoft join hands to harness Artificial Intelligence’s potential for inclusive development and economic transformation

 IndiaAI, an Independent Business Division (IBD) under the Digital India Corporation, has signed a Memorandum of Understanding (MoU) with Microsoft to drive the adoption and development of artificial intelligence (AI) in India. This strategic partnership is aligned with the core objectives of India AI Mission.

The key highlights of the collaboration are as under:

• Microsoft, in partnership with IndiaAI, will skill 500,000 individuals, including students, educators, developers, government officials, and women entrepreneurs, by 2026.

• Establish "AI Catalysts," a Center of Excellence, to promote rural AI innovation in Tier 2 and Tier 3 cities and equip 100,000 AI innovators and developers through hackathons, community building, and an AI marketplace.

• Set up AI Productivity Labs in 20 National Skill Training Institutes (NSTIs)/NIELIT centers across 10 states to train 20,000 educators and empower 100,000 students with foundational AI courses in 200 Industrial Training Institutes (ITIs).

CASE laws corner

1.  Bernard Francis Joseph Vaz and others …Appellant(s) vs. Government of Karnataka and others …Respondent(s)

Property of a person shall not be deprived except in accordance with the procedure established by law

Judgement Hon’ble Supreme Court in a land acquisition case inter alia observed that right to property ceased to be a Fundamental Right by the Constitution (Forty-Fourth Amendment) Act, 1978, however, it continues to be a human right in a welfare State, and a constitutional right under Article 300-A of the Constitution.

Article 300- A of the Constitution provides that no person shall be deprived of his property save by authority of law. The State cannot dispossess a citizen of his property except in accordance with the procedure established by law.

Supreme Court in the case of Vidya Devi v. State of Himachal Pradesh and Others (2020) observed that in a democratic polity governed by the rule of law, the State could not have deprived a citizen of their property without the sanction of law. It was further observed that the State being a welfare State governed by the rule of law cannot arrogate to itself a status beyond what is provided by the Constitution.

Supreme Court in the case of Ultra-Tech Cement Ltd. v. Mast Ram and Others 2024 observed that the Government as a welfare State ought to have proactively intervened in the matter with a view to ensure that the requisite amount towards compensation is paid at the earliest. It was further observed that the State cannot abdicate its constitutional and statutory responsibility of payment of compensation by arguing that its role was limited to initiating acquisition proceedings. It was, therefore, observed that the delay in the payment of compensation, in accordance with law, to the land owners after taking away ownership of the subject land from them is in contravention to the spirit of the constitutional scheme of Article 300-A and the idea of a welfare State.

Supreme Court further observed that acquisition of land for public purpose is undertaken under the power of eminent domain of the government much against the wishes of the owners of the land which gets acquired. It was, therefore, observed that when such a power is exercised, it is coupled with a bounden duty and obligation on the part of the government body to ensure that the owners whose lands get acquired are paid compensation/awarded amount as declared by the statutory award at the earliest.

2.  Tajinder Singh Bhathal (Appellant) Vs MRF Limited and others (Respondent) NCLAT, Chennai Bench

Brief Facts: The dispute in the given case pertains to transmission of shares of the appellant. Appellant filed a civil suit on 24.01.2020 in Civil Court. The said suit remained pending and during its pendency, the Appellant instituted the proceedings, by way of a company petition preferred before the Ld. Adjudicating Authority on 28.07.2021. The company petition under Section 59 of the Companies Act, 2013 was dismissed by the NCLT on 10.08.2022 due to the pendency of the civil suit. The civil suit was also dismissed as the same was withdrawn by the appellant on 13.08.2022.

Thus, the Appellant has been deprived of pursuing any of the remedies because of the dismissal of the company petition by the impugned order of 10.08.2022 and because of the civil suit being dismissed on 13.08.2022 as withdrawn. There after appellant appeal to the NCLAT. Judgement NCLAT inter-alia observed that it is a settled preposition of law constitutionally mandated, that a right to judicial remedies is a right which is safeguarded by Article 21 of the Constitution of India, and under this right, nobody could be deprived of availing the judicial remedies before the competent Court of Law for redressal of his grievances, which in the instant case falls to be within an ambit of Section 59 of the Companies Act 2013. But the same was denied by the Ld. Adjudicating Authority on account of the pendency of the civil suit, but we cannot ignore the fact which has been brought on record, that when this company appeal was being considered, it is a fact which is not denied, that on the withdrawal memo was filed in the civil suit except that the Lok Adalat dismissed the suit as withdrawn only on 13.08.2022 after the Company Petition got dismissed. A scenario has emerged where the Appellant has, lost both of his legal remedies to pursue the matter.

A right to judicial remedy, is a right envisaged under the Constitution, which cannot be deprived of, merely because of a minor procedural error or procedural technicalities and because of the fact that, the application for withdrawal of the suit was considered subsequently, by the Hon’ble Civil Court on 13.08.2022 for which the Appellant cannot be held responsible. NCLAT stated that even the subsequent order passed in the suit on the withdrawal application, will too have a similar effect of overriding the restrictions contained under Section 430 of the Companies Act., 2013

As of now, while considering the appeal there is no pending suit as such. If that be the situation the Appellant ought to be permitted to resort to the process of redressal of his grievances permissible by way of a process known to law and that would be by way of the preferring of the company petition under Section 59 of the Companies Act, 2013.  NCLAT is of the view that owing to the implications of the order passed on 13.08.2022, since in the light of the undertaking given by the Appellant before the Ld. Adjudicating Authority to withdraw the suit, the same has been withdrawn though marginally at a later stage, in that eventuality, minor procedural technicalities should not create any hurdle as such against the Appellant for, depriving him for all times to come, from resorting to his judicial remedies.

3.  Indiabulls Real Estate Limited & Ors (Appellants) Versus Department of Income Tax (Respondent) National Company Law Appellate Tribunal (NCLAT)

 Merger Scheme Approved by Overwhelming Majority of Shareholders Indicates Fairness & Soundness of the Scheme

Brief Facts

NCLT rejected the Merger Scheme citing the valuation discrepancies raised by the Income Tax Department and failure to meet the mandatory guidelines.

Judgement

Hon’ble NCLAT inter alia observed that it has been held in Cetex Petrochemicals Ltd., re, (1992) that the approval by overwhelming majority is a symbol of the soundness of the scheme. The court would not interfere. It cannot substitute with its wisdom the collective wisdom of the shareholders.

Appellate Tribunal held that in the present case the valuation of shares and determination of Fair Equity Share Exchange Ratio has been done by experts, and the method of valuation used, namely, Discounted Cash Flow Method is universally accepted as a valid recognised method for valuation of shares. Whatever discrepancy was noticed regarding acquisition of land by the joint venture partner, which was not in the knowledge of the amalgamating companies at the time valuation was done, has subsequently been set right by revision of profit-sharing ratio of Cornerstone Project which has ensured that there is no variation in the cash flow in the project.

Statutory Auditors have confirmed that the Scheme is in compliance with applicable Indian Accounting Standards. The Scheme has been approved by overwhelming majority of nearly 100% shareholders and 100% of the creditors, and that the Scheme has already been approved by Ld. NCLT, Bengaluru with reference to the Transferor Companies.

Hon’ble NCLAT noted the judicial guidance that approval by overwhelming majority of shareholders indicates fairness of the Scheme, and that in normal course, the Tribunal should not interfere in the valuation done by the experts using one of the standard prescribed valuation methods. Further, Appellate Tribunal also noted that no objection was raised against the Scheme by the Regulatory bodies like Competition Commission of India, Central Government through Regional Director, MCA, Registrar of Companies, Security Exchange Board of India, Bombay Stock Exchange, and National Stock Exchange. Also noted that Income Tax Department had initially raised the objection but had later left the approval of the Scheme at the discretion of the Tribunal, stating that in case scheme is approved, Revenue’s interests be protected. The Revenue’s interests are protected in the Scheme and as noted in para – 11 supra the Transferee company has undertaken to bear the tax liabilities, and the proceedings, against the Transferor companies can be continued against the transferee company.

4. Sanjay Dutt & Ors. {Appellant(s)} Versus The State of Haryana & Anr. {Respondent(s)}2025

 A company may be held liable for the wrongful acts of its employees, the liability of its directors is not automatic. It depends on specific circumstances, particularly the interplay between the director’s personal actions and the company’s responsibilities.

Order

Hon’ble Supreme Court in the above stated case quashed the criminal proceedings initiated against three corporate officials (Appellants) in a case involving alleged environmental damage. Apex Court said that while a company may be held liable for the wrongful acts of its employees, the liability of its directors is not automatic. It depends on specific circumstances, particularly the interplay between the director’s personal actions and the company’s responsibilities. A director may be vicariously liable only if the company itself is liable in the first place and if such director personally acted in a manner that directly connects their conduct to the company’s liability. Mere authorization of an act at the behest of the company or the exercise of a supervisory role over certain actions or activities ofthe company is not enough to render a director vicariously liable. There must exist something to show that such actions of the director stemmed from their personal involvement and arose from actions or conduct falling outside the scope of its routine corporate duties. Thus, where the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect.

There has to be a specific act attributed to the director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company.

Further, Supreme Court observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made an accused, if the statute provides for such liability and if there is sufficient evidence of his active role coupled with criminal intent. The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening criminal liability on an officer of a company, there is no presumption that every officer of a company knows about the transaction in question.

5. Sanjay Sharma versus Kotak Mahindra Bank Ltd. & Ors. Supreme Court

The registration of the sale deed for an immovable property is essential to complete and validate the transfer.

In this case, the Supreme Court has laid down when the transfer in an Immovable property completes.

The court said that: Section 54 of the Transfer of Property Act, 1882, defines a “sale” as the transfer of ownership in exchange for a price that is either paid, promised, or part-paid and part-promised. This provision further describes the manner in which a sale is effected.

It stipulates that, in the case of tangible immovable property valued at one hundred rupees or more, the transfer can be made only through a registered instrument. The use of the term “only” signifies that, for tangible immovable property valued at one hundred rupees or more, a sale becomes lawful only when it is executed through a registered instrument. Where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred, and consideration is paid without such registration. The registration of the sale deed for an immovable property is essential to complete and validate the transfer. Until registration is effected, ownership is not transferred.