Saturday, June 19, 2010
Saturday, June 5, 2010
IS SHAREHOLDER’S DEMOCRACY AN ILLUSION AND STOCK MARKET INVESTORS LIABLE FOR CORPORATE FRAUD WITH NO REMEDY.
IS SHAREHOLDER’S DEMOCRACY AN ILLUSION AND STOCK MARKET INVESTORS LIABLE FOR CORPORATE FRAUD WITH NO REMEDY.
Can the law be interpreted in such a manner, so as to empowers a group of persons (directors of the company) to act in their absolute discretion to the complete deterrent to the common shareholders and investors. Can it be interpreted in such a manner so as to empower the directors to manipulate the share prices. Can it be interpreted in such a manner so as to empower the directors to turn down the shareholder’s consent. Does shareholder’s democracy has lost its relevance in corporate legislation. Does the concept of “ Corporate Governance “ does not take in its sweep the fair corporate practices which results in enhancement of shareholder’s wealth.
The evolvement of different types of organization for conducting business, with the passage of time, has resulted in the present form of formation of companies with limited liabilities empowering common mass to participate in the business venture without exposing them to risk of unlimited liability. This departure from the partnership form of business (which has unlimited liability of members) was so welcomed that in today’s world the major portion of the world trade in being conducted in form of companies (Private / Public).
Since there is capital participation from large numbers of persons in the company form of organization, the question which arose for consideration is – How to manage its affairs? This is very pertinent as all the contributors of the capital could not be permitted to take part in the management as it may result in chaos and confusion. A similar set of Rules, which is being adopted in
The Management Powers has been specifically described under the Companies Act, 1956. It is true that the powers of management rests or lies with its capital contributors. But since it is impossible to take the consent of all the capital contributors therefore the first and foremost distinction which has been made under the Act is the different types of resolutions which can be passed. Matters of Routine nature can be passed with Majority decision ( Votes in favour is more than against it) but at the same time matter of vital importance needs to be passed with Special Resolution ( Votes in favour is at least thrice than the votes against it).
Besides, management powers have been clearly described between the Directors and Shareholders. The Act itself provides that certain resolution can be passed by the only by the shareholders. Nonetheless, the residuary powers lies with the directors (Section 291 of the Companies Act). But the question which is to be considered is – can the Board of directors in colorable exercise of its powers, suppressed collective decision of the shareholder’s of which they are representative or in any view of the matter, they are bound to act in accordance with the shareholder’s decision. Can the elected representative who is supposed to represent and protect the interest of the persons who have elected them i.e. shareholders, act contrary to the resolution passed by the shareholders. Can he act as an appellate authority to sit over and decide as to whether the decision deserves to be implemented or not and then act accordingly. Or is it their duty to abide by the shareholder’s resolution and do all things which is required to be done to give furtherance thereto. The oblivious answer seems that the directors are bound to give effect to the shareholder’s decision and has no choice in the matter.
These issues came before the Securities Appellate Tribunal in the matter of D Link Vs. SEBI (decided on 14-7-2008). In this matter, Shareholder’s have passed a resolution for the buyback of the shares of the company. Since the company was a listed company the passing of the resolution of buyback of shares by the company was a price sensitive information and was intimated to the stock exchange. It is Important to mention that the information of the passing of resolution of buyback effects the prices of the shares. As a natural consequence the prices of share have increased upto the level of the prescribed buyback price level and even more thereafter. Though inspite of the passing of Shareholder’s resolution, the company did not buybacked its shares. The said company not even intimated SEBI that it will not buyback its shares inspite of passing of Special resolution to the effect. For this act S.E.B.I after enquiry and adjudication came to the conclusion that the company has never an intention to buyback its shares and announcement for the purpose was only to mislead the investors. SEBI further debarred the said company from buying, selling or dealing in the securities in any manner directly or indirectly for a period of one month.
On appeal the judgment of S.E.B.I was set aside and the Hon’ble Securities Appellate Tribunal Came to the following conclusion :-
- Company is not under an obligation to buyback its shares / securities even if its shareholders have passed special resolution authorizing it to buyback its shares.
- Even where the shareholders pass a special resolution, authorizing the company to buyback its shares , it does not become obligatory on the part of the company to buyback its shares, as resolution passed u/s 77 A of the Companies Act, is only an enabling provisions authorizing the company to buyback its shares, if it so desires.
- Regulation 19 (1) (d) of the buyback regulation clearly indicates that once the company has issued letter of offer or public announcement to its shareholders to buyback its shares, it cannot withdraw it.
- Company is not under an obligation to buyback its shares until and unless it has issued letter of offer or public announcement to its shareholders to buyback its shares.
- Even after the shareholder’s approval, the board of directors can choose not to go forward with the buyback.
- It cannot be inferred that the company has no intention to buyback its shares only because (1) it has not appointed a merchant banker to go ahead with the buyback ( 2) not made any public announcement to the effect (3) has not made any offer to the shareholders to buyback its shares.
- The decision to buyback or not, rests with the board of directors of the company and they are the best judge of it.
- Even the company is not required to report to SEBI or even in its director’s report that it has not buybacked its shares inspite of passing of special resolution by the shareholders, in their directors report u/s 217 (2B) of the Companies Act, if the company has not issued letter of offer or public announcement to its shareholders to buyback its shares
MECHANISM OF SHARE MARKET
Share market, economically is said to be near perfect market, where prices are determined by the interplay of the forces of demand and supply. It is also affected by various information like, political, general economic conditions, sectorial information and company specific information. The news that the Board or directors of company are calling for a meeting of shareholder’s to consider buyback of shares itself affects the price of the script very much. Therefore, the news of passing of resolution of buyback by the shareholder’s is bound to affect the price of the script to large extent. Needless, to act that all future trade (in respect of price) gets adjusted eyeing proposed maximum price of buyback. In such an event if the company does not buyback its shares at all, completely ignoring the shareholder’s resolution, is it not a foul play ? not only with the shareholder’s but also the investors who have purchased / sold the script, keeping in view this information of buyback generated by the company itself. How can the directors empowered to play foul in this fashion and dupe the money of lakhs of investors who have traded in the script believing in the information of buyback. In any view of the matter, How can the directors be permitted to act in the aforementioned fashion. If not curbed with iron hands, such practice will be adopted by the directors to manipulate the market in accordance with their own whims and fancies at the cost of common investors.
The aforementioned judgment will have great impact on the Indian Securities Market. With the aforementioned proposition and example now its very easy to fool investors and deprive them from their hard earned money. The modus operadi will be :- Convene the Meeting of Board of Directors and call for the meeting of Shareholder’s for passing the resolution of buyback of shares. Convene the Shareholder’s meeting and get the resolution for buyback of the shares passed. Deal in the shares and earn crores of rupees in pursuance thereof at the cost of investors. Thereafter, don’t buyback the shares and take shelter under the aforestated judgment.
Is the proposition of law as pronounced in the SAT judgment “ D – Link Vs. SEBI“ ( decided on 14-7-2008) not contrary to the principals of Shareholder’s Democracy. How can the directors act contrary to the shareholder’s decisions, whom they represent. How can they be empowered to overrule it and act otherwise. Does this not afford the directors to deal with manipulative share transactions at the cost of investors and shareholders.
CONCLUSION
With the passing of the aforestated judgment and lying down the aforementioned proposition of law, the chances of corporate fraud, at the cost of shareholders, have increased multiple time and in fact the abovestated modus operandi has been legalized, though it may be based on sound legal proposition. This, unfortunately, will have grave consequences, on Indian Stock Market.
WRITTEN BY :-
PRAVEEN AGRAWAL
A.C.S, LL.B,
ADVOCATE ON RECORD,
SUPREME COURT OF
PH # 98117 02850
EMAIL dokania100@gmail.com
COMPROMISE & SETTLEMENT
COMPROMISE & SETTLEMENT – APPLICABILITY OF PRINCIPAL OF BEING HEARD BEFORE HOLDING REQUISITE MEETING UNDER SECTION 391 – 394 OF THE COMPANIES ACT, 1956
INTRODUCTION
With the liberation of economy, empowering entry of foreign players more vigorously, the provisions of Section 391 – 394 of the companies Act, 1956 which speaks of compromise and settlements with creditors and / or shareholders ( and is not restricted to the provisions of merger and amalgamation as commonly understood) gained further importance. The last decade has seen phenomenal rise in the amalgamations, mergers and demergers. In the scenario, the question Whether there any requirement to give notice to the concerned persons i.e. shareholders and / or creditors before
LEGAL PROVISIONS
The provisions of Section 391 – 394 of the Companies Act, 1956 deals with compromise and settlement. They are wider in terms and includes all kinds of compromises and settlement entered into by the company with the (1) Creditors and (2) Shareholders. Company Court Rules also contains elaborate provisions regarding the same.
The Relevant rules are as under :-
67. Summons for directions to convene a meeting.- An application under section 391(1) for an order convening a meeting of creditors and/ or members or any class of them shall be by a Judge’s summons supported by an affidavit. A copy of the proposed compromise or arrangement shall be annexed to the affidavit as an exhibit thereto. Save as provided in rule 68 hereunder, the summons shall be moved ex parte. The summons shall be in Form No. 33, and the affidavit in support thereof in Form No. 34.
73. Notice of meeting.- The notice of the meeting to be given to the creditors and/or members, or to the creditors or members of any class, as the case may be, shall be in Form No. 36, and shall be sent to them individually by the Chairman appointed for the meeting, or, if the Court so directs, by the company (or its Liquidator), or any other person as the Court may direct, by post under certificate of posting to their last known address not less than 21 clear days before the date fixed for the meeting. It shall be accompanied by a copy of the proposed compromise or arrangement and of the statement required to be furnished under section 393, and a form of proxy in Form No. 37.
74. Advertisement of the notice of meeting.- The notice of the meeting shall be advertised in such newspapers and in such manner as the Judge may direct, not less than 21 clear days before the date fixed for the meeting. The advertisement shall be in Form No. 38.
79. Petition for confirming compromise or arrangement.- Where the proposed compromise or arrangement is agreed to, with or without modification, as provided by sub-section (2) of section 391, the company, (or its Liquidator, as the case may be), shall, within 7 days of the filing of the report by the Chairman, present a petition to the Court for confirmation of the compromise or arrangement. The petition shall be in Form No. 40.
Where a compromise or arrangement is proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies, or for the amalgamation of any two or more companies, the petition shall pray for appropriate orders and directions under section 394.
Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid, it shall be open to any creditor or contributory as the case may be, with the leave of the Court, to present the petition and the Company shall be liable for the costs thereof.
Where no petition for confirmation of the compromise or arrangement is presented, or where the compromise or arrangement has not been approved by the requisite majority under section 391(2) and consequently no petition for confirmation could be presented, the report of the Chairman as to the result of the meeting made under the preceding rule shall be placed for consideration before the Judge for such orders as may be necessary.
80. Date and notice of hearing.- The Court shall fix a date for the hearing of the petition, and notice of the hearing shall be advertised in the same papers in which the notice of the meeting was advertised, or in such other papers as the Court may direct, not less than 10 days before the date fixed for the hearing.
The reading of the above rules demonstrates that the rights of the shareholders and creditors are sought to the protected by the abovementioned statutory Rules inasmuch as the said rules provides for a confirmation by the company court by way of petition (of which notice of hearing is required to be advertised in the newspapers) enabling the shareholders / creditors to raise their objection, if any, after the special resolution is passed in favor of the scheme. ( Rule 79 & 80).
Rule 67 of The Company Court Rules especially provides that the order of convening meeting ought to be passed ex parte. The said Rules are enacted in exercise of the powers conferred by Section 643(1)(2) of the Companies Act, 1956 and hence have force of an Act passed by the Parliament. Though it is essential that the Court while issuing such summons is required to apply its mind to checklist indicated in Rule 69 and it needs to be prima facie satisfied about the genuineness and bonafides of the application. The court further needs to consider all the aspects before giving a sanction to the scheme. The said rules further provides for ex parte hearing because if hearing is required to be given to contributors, creditors and share-holders, then the entire scheme of Section 391 (which is a Code by itself) would become unworkable.
It has been held in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. 1997 (1) SCC 579 that
When a scheme ( under section 391 – 394 ) is put forward by a company for the sanction of the Court in the first instance the Court has to direct holding of meetings of creditors or class of creditors or members or class of members who are concerned with such a scheme and once the majority in number representing three-fourths in value accord their approval to any compromise or arrangement, and once such compromise is sanctioned by the Court, it would be binding to all creditors or class of creditors or members or class of members, as the case may be including dissenting creditors or class of creditors or dissenting members or class of members.
Before sanctioning the scheme Court has to be satisfied that all the relevant matters mentioned in the proviso to sub-section (2) of that section has been disclosed to the voters so that the parties concerned can take an informed and objective decision whether to vote for the scheme or against it.
Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant.
On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court will not sanction a scheme merely because the said resolution has been passed by the requisite majority or in other words the court is not just a rubber stamp and have no power to refuse to sanction the said scheme. Before sanctioning the scheme the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. Where the sanctioned scheme falls within the vice of any of the aforestated the court will refuse to sanction the scheme.
Though the constitutional validity of the Rule 67 of the Company Court Rules on the ground of being violative of the Principals of Natural Justice has not been challenged and decided, but the decision of Hon’ble Supreme Court of India in the matter of Miheer H. Mafatlal v. Mafatlal Industries Ltd. 1997 (1) SCC 579 provides sufficient grounds for upholding the same.
Similar View was taken by the Hon’ble Bombay High Court in the matter of Sakamari Steel & Alloys Ltd. in 51 Company Cases page 266, wherein it was held that that Section 391(1) is not a sign-post but a check-post, and it is a duty of the Court to examine the genuineness and the bonafides of the Scheme.
Hon’ble Supreme Court of India in the matter of Chembra Orchids Produce Ltd & Ors. Vs. Regional Director of Company Affairs and Others reported in 2009(1) SCALE 1, 2009(1 )JT 412 upheld the above proposition of law and concluded that there is no requirement for grant of opportunity of being heard before issuance of notice for holding the meeting of creditors / shareholders and non issuance of notice is also not violative of the principals of natural justice.
WRITTEN BY
PRAVEEN AGRWAL
B COM, A C S , LL B
ADVOCATE ON RECORD
SUPREME COURT OF
DDA FLAT NO 36 E, POCKET 1,
MAYUR VIHAR – 1,
LIMITED LIABILITY PARTNERSHIP ACT, 2008 – AN OVERVIEW
LIMITED LIABILITY PARTNERSHIP ACT, 2008 – AN OVERVIEW
Much awaited and talked about “Limited Liability Partnership Act, 2008” ultimately received the assent of the President of India on 7th January 2009. This piece of legislation is especially useful and beneficial to small traders, businessman and professionals. It has opened up an altogether new vista for the small entrepreneurs, service providers and professionals who are afraid of various compliances of the bulky Companies Act, 1956.
As far as professionals are concerned (Lawyers, Chartered Accountants, Company Secretaries, Cost & Works Accountants) , it has really opened a new arena as almost all the professional bodies restrict conducting of the professional practice in corporate umbrella, though partnership form of organization is not prohibited. Thus, with the enactment of the LLP Act such professionals and small entrepreneur can take almost all the major benefits of Corporates but at the same time will not be subject to the vagaries of various compliances of the Companies Act, 1956.
The Limited Liability Partnership Act, 2008 has all the tapping of a Corporate Entity i.e. all the benefits of Private / Public Limited Company ( Except to approaching the Capital market and also issuance of various corporate debt and equity instruments ) are available to a Limited Liability Partnership Firm ( LLP Firm).
BENEFITS AND ADVANTAGES
The major Characteristics and benefits of LLP Firm are as under :-
Unlike a Traditional partnership firm (TP Firm ) ( Partnership Firm under the Partnership Act, 1932 ) whose constitution changes with every incoming or outgoing partner ( i.e. when ever a partner is inducted or retires), LLP Firm is a corporate entity and incoming and / or outgoing of a partner does not effect its existence. This provision is of great relevance for all practical purposes, as with every change in constitution of TP Firm various licenses / approvals issued by the various authorities and departments to TP Firm technically needs to be re-approved as TP Firm has ceased to exists and a new consisting of almost the same partners came in existence. Whereas since a LLP Firm is a corporate entity, all these exercises needs not to be done. [ Section 3(1) ]
LLP Firm can acquire / dispose off property in its own name, and can sue and be sued in its own name. Whereas in a TPF, since the Firm is not an entity all these activities has to be done in the individual name of partners and not in the name of the TPF. [ Section 14]
As the name itself suggest, the liability of partners in LLP Firm is limited , unlike in TP Firm where the liability of partners are unlimited and their personnel properties are also liable for the debts of the firm , irrespective of their share in the Partnership Firm. This feature is a unique feature , which was found only in the case of Private / Public Limited / Society / Co-operative Society. [ Section 3(2), 27(3)(4), 28(1) ]
To ensure that the basic feature of partnership is retained and the LLP firm after incorporation does not convert itself to a sole proprietorship firm, the Act provides that LLP Firm should continue to have 2 partners, and if the business is carried out for more than 6 months with only one partner, the liability of LLP firm will become unlimited. [ Section 6 ]
The Act also provides a procedure for the formation of LLP Firm. Any two or more persons can incorporate LLP Firm by applying the same with the Registrar, alongwith Incorporation document, Prescribed Fees and an certificate that the various formalities under the act has been complied with. Interestingly, such certificate is also required under the companies Act for the incorporation of Private / Public Limited Company where the same may be issued by a professional or the proposed director of the said company. But this provision is more stringent in LLP Firm – where it is required from a professional i.e. Advocate, CA, CS, ICWA AND ALSO by one of the subscribers to the incorporation document. [Section 11 & 12]
However, unlike in a partnership firm where there is no restriction on the choice of name, LLP Firm’s name needs to be approved from the Registrar. The Registrar will not approve the name if (1) it is similar / identical with the name of another LLP Firm (2) Undesirable. Besides, if by mistake a LLP Firm is registered by the similar / identical / undesirable name, Central Government may direct for the change of name of LLP Firm which needs to be complied within 3 months. [ Section 15, 16 & 17]
It is difficult to find out from the name of a firm as to whether it is a partnership Firm or sole proprietorship Firm, as the Partnership Act, 1932 does not provides for addition of any specific word in case of TP Firm. But an LLP Firm can en easily distinguished from other form of organization as it is compulsory for the LLP Firm to include the words “ LLP” or “ Limited Liability Partnership” at the end of its name. [ Section 15]
In case of LLP Firm any partner can retire from the partnership after giving 30 days notice to other partners of his intension to retire. But if notice of his retirement is not delivered to the Registrar, the liability of the outgoing partner towards the third party who has entered into contract with the LLP firm while he was partner, does not cease, until and unless the said third party has the notice of his retirement. Since , practically it is impossible for a outgoing partner to give such a notice to all the third parties, it is specifically provided under the act that if such a notice is delivered to the registrar, the obligations of the outgoing partner ceases. [ Section 24 ]
The basic and cardinal principal of TP Firm is “Mutual Agency” i.e. a concept in which every partner is the agent as well as the principal of the other partners. By the applicability of this principal a debt taken / payment made to a partner in the capacity of the partner or a contract entered by a partner in the capacity of the partner, not only binds the firm but also other partners individually and personally. E.g. bank debt in the name of firm, based on the documents signed by Mr. X can be recovered by Mr. A ( another partner) even from his personnel property, even though he has not signed the document,. This concept of “Mutual Agency” is not available in LLP Firm and the partners are agents only of the Firm and not of other partners. [ Section 26 ]
However, to prevent the corporate façade from being instrumental in corporate frauds and the wrongdoers escaping their personnel liability under the shield of corporate entity, the Act specifically provides that in case of any act being carried out either by the LLP Firm or any of its partners with an intent to defraud its creditors, the liability of the LLP Firm / partner will become unlimited for all or any of the debts of the LLP Firm. [ Section 30 ]
Another marked distinction between the TP Firm and LLP Firm is whereas there is no requirement of any compulsory audit of accounts of Traditional Partnership firm ( except under the Income Tax Law and that too after crossing of minimum prescribed turnover), LLP Firm needs to get its accounts audited compulsorily in accordance with the rules framed thereunder, irrespective of any minimum turnover. [ Section 34 ]
Though the LLP Act has tried to incorporate many basic characteristics of corporate entity, but none the less, the very concept of Traditional Partnership has been retained. The basic concept is the partnership agreement is based on the Mutual Trust and confidence and therefore in a partnership firm an outsider cannot be permitted to be inducted as a partner even if any one of the partners oppose the same. This concept has been incorporated in the LLP Firm also. The LLP Act though empowers transfer by a partner of whole / part of his / her rights in LLP Firm to an outsider , but by retaining the basic characteristics it restrict the purchaser of such rights of a partner in participating in the management or conducting the partnership business or availing any information concerning the transactions of LLP Firm. Whereas in a Private / Public Limited Company any shareholder who purchases the shares of the Private / Public Limited Company has the right to take part in the management of the said company to the extent of his shares and there is no restriction in it. [ Section 42 ]
To ensure that the regulations of the LLP Firm is in order, the act empowers the Central Government to apply the various provisions of the Companies Act , to the present Act after a notification. [ Section 67 ]
Keeping in view the changing technological scenario, the Act empowers for the fling of various returns and documents via internet. [ Section 68 ]
The most important piece of the whole Act is the First Schedule which provides for the mutual duties and liabilities of Partners. Where there is a partnership agreement, the same will prevail. But where there is none, the provisions of First Schedule of the Act will apply which provides for equal sharing of profits and losses of the company and compulsorily reference to arbitration in case on inter se partners dispute. [Section 23 Read with First Schedule ]
CONCLUSION
By the enactment of this piece of legislation, a new era in the business organization has been established by the Government. Now, even small entrepreneur can take all the advantages available to corporate without being required for stringent compliances. A welcome step, in any case.
PRAVEEN AGRAWAL,
ACS, LLB
ADVOCATE ON RECORD,
SUPREME COURT OF
PH # 98117 02850
LEGAL ISSUE FOR REAL ESTATE INDUSTRY
LEGAL ISSUE FOR REAL ESTATE INDUSTRY
The old proverb defining the essentials for life goes on saying “ Roti, Kapda aur Makan.” Nothing more is required to say about the importance of Real estate sector in the Economy. During the last 50 odd years, the real estate sector have made rapid development, making a sufficient contribution in the Indian economy. But have we given it, its due place in the Indian economy. Have our outlook of real estate players have came out of the old concept of “ Thekedars.” Unfortunately, no.
Though government of almost all states have formed development authorities in their respective state for the development of real estate in the state, but the overall situation is not improving, for the reason that the demand for real estate is much higher than the rate of construction by these development authorities. Eleventh Five Year plan has estimated the urban housing shortage of 24.7 million units with 99% of the shortage pertaining to Economically Weaker Sections (EWS) and Lower Income Group (LIG). Here the crucial role of private players in the real estate sector comes into play. At the present rate of growth, these development authorities will not be able to meet the real estate (housing, infrastructure and commercial) requirement of the citizens of this country.
Inspite of all these odds, the facts remains that the real estate contribute a lot in the Indian economic growth. However, there are certain legal impediments which keeps on checking its rate of growth and there is an urgent need for the legislature to review them in the light of changed circumstances.
PRESENT LEGAL FRAMEWORK
STAMP DUTY ISSUE
Till few years down the line, taking loan on the real estate was not a healthy sign. But now, the situation has changed. A major portion of the new house/ shop owners are people who have availed the credit facilities for the same. With the increase in the quantum of credit by the financial institutions, the legal complications now continue to hit much larger number of persons. There is also a need for simplification thereof, with the increase in quantum thereof. If we take the quantum of stamp fees payable while creating a mortgage deed, it varies from 2% to 5%. The resultant is that since the mortgage by deposit of title deed is valid, generally bankers resort to this method. Unfortunately, this system of mortgage has its own disadvantages which have serious repercussions. In this type of mortgage, the factum of mortgage of property is not registered with the sub registrar and hence it is almost impossible to find out whether or not it is created by a third person / outsider, who may be interested in purchasing the property. This creates an added risk to both the bankers and the subsequent purchaser of the property. Even the method of newspaper advertisement inviting general public to inform the intended purchaser, by a person having any interest in the property may not serve the purpose because, this is not treated as the conclusive method by the Courts.
Besides, even at the time of financing a new property, this rate of stamp duty imposes an additional burden on the purchaser, resulting in lowering down his purchasing power by 10 – 20%. This is so, as the person availing the housing loan is to invest only 15 - 20% of the total cost. And therefore if he has to share an additional burden of 2 – 5%, this will result in lowering down his cash in hand to be invested in property and consequently the total quantum of his investment ( Personal + Loan funds).
Now, there is an urgent need for the change of rates at which the mortgage deed is required to be stamped, for the benefit of general public at large and to control and curb the dishonest dealing in the property trade on the basis of false title deeds. If the rate of % of stamp duty payable on the mortgage deed is reduced to a fixed amount of say Rs. 1,000/= to Rs. 5,000/= ( based on some kind of slab). All the financial institutions will restore to the creation of mortgage by the registered mortgage deed. This will result in one hand enhancement of the revenue collection to the government, as by creating of mortgage by deposit of title deed, nothing substantial comes to the public exchequer and on the other hand and more important, it will also reduce the cases of sale of immoveable property by creation of false document of title, whereas the original is already mortgaged to the financial institution.
LAND ACQUISITION
The development authorities created by the respective state government is created with the purpose of achieving the planned growth of the cites and further to ensure that the housing needs of the people of this country are met. In almost all the development authorities Act, the power to acquire land for the purpose of development is bestowed on them. This power has been bestowed on them to ensure that there is no dearth of land for the development. The fact remains that inspite of these powers, development authorities are not able to keep pace with growing housing requirements.
The short question is, If the government cannot meet and provide the basic amenities of even housing to the general public for the living, are the citizens of this country bound to live in this curse only because the development authorities are not able to keep pace with the growing housing demands. Why shall the general public of this country be compelled to continue to live their life without a shelter in inhuman condition. Is it not the duty of the government to endeavor to provide all the support to the institutions, companies and individuals who are ready and willing to support the government in this mammoth task. Why shall the concessions and exemptions which are available to the development authority be not available to the private builders who are ready and willing to carry out the developmental work in accordance with the governmental plans. It is also an undisputed position that the demand supply gap cannot be bridged without the help of real estate companies.
Out of the many difficulties which real estate companies have to face, in carrying out its function is the difficulty with dealing with the landowners and their respective brokers. Land ownership in
Abandonment of the project at this stage has its own cost and therefore, the most practical solution is to go ahead with the project. But getting ahead is also not easy, as the subsequent owners realizing the position of the real estate company, sells their land only on exorbitant price and not otherwise. The consequence is increase in the project cost and the additional burden has to be shifted to the consumer. Whereas development authorities don’t have to face such a situation and they acquire the land at the fair market price. Land price, which is a substantial cost of the total project cost, therefore plays a important role in the pricing difference in the private and development authority sale price.
Government ought to develop some mechanism to make available land to the private players in the same manner in which they are made available to the development authorities. They however, may impose certain conditions as to the manner in which the developmental work needs to be carried out, including but not limited to % of Free / green space, % of constructed space, % to be reserved for the economically weaker class of persons, % of FAR, and so on. But at the same time, it must not take away the competitive edge and should leave the market forces of demand and supply to the determination of prices of those structures which are left over after satisfying the basic governmental policy.
DISPUTE RESOLUTION
With the newer and complex scheme being launched by the real estate companies, the chances of dispute between the buyer and the real estate company are increasing on the fast pace. Keeping an eye on these disputes, most of the agreements of real estate companies are containing an arbitration clause. The basic purpose of inclusion of arbitration clause in these agreement is quick and fair disposal of the dispute between the parties in comparison to ordinary civil courts, which generally takes a fairly long period. For this reason only the interference of the courts was also kept at minimal, not only during the arbitration proceedings, but also in the matters of granting of right appeal to the aggrieved party. Courts, of late, further understanding the specific need of the commercial world has also permitted an officer / advisor of the parties to be an arbitration, provided that the parties agrees to it and the said person conduct the arbitration fairly. In nutshell the principle that if the parties by their consent has chosen a particular person to be a judge in their case, the court will not question their choice and that person will be permitted to act, irrespective of the fact that the said person may not be even well in legal system. In other words, the courts interference in the arbitration matter was supposed to be minimal.
In this respect, it is important to mention that the need for early disposal of commercial disputes has been long felt. Legislature has realized the fact that in commercial world, a spin effect of vicious circle may be felt if the disputes are not resolved quickly and in effective manner. The disputes arising in the real estate industry also falls in this category. Their importance is further increased by the fact that in Indian senario , majority of real estate buyers treat it as a long term buy which is expected to last for decades, if not generations, and therefore, a quick and effective system of dispute resolution is the need of the hour.
Arbitration Act, 1940 has several bottle necks which resulted in the completely new enactment of Arbitration and Conciliation Act, 1996. However, recent judgment of Hon’ble Supreme Court in the matter of “National Insurance company Vs. Vs Boghara Polyfab Pvt Ltd” held in 2008 that whether or not there is a full and final settlement arrived between the parties is an arbitrable dispute and there is a requirement of the appointment of arbitrator for the adjudication of this issue. The implication thereof is that there is a need for the adjudication by an arbitrator even if the real estate company settles its dispute with its buyer and there is a full and final settlement receipt / document / agreement signed between the two. Therefore the better course of action will be instead of getting a full and final discharge from the concerned person (which may potentially initiate litigation), it is advisable that if there is an arbitration clause, let the arbitrator hold 2-3 sittings are thereafter, give an award on the merits of the case or in terms of the compromise filed before him by both the parties. Having done so, the real estate companies will be safe otherwise, the other side may take recourse under this judgment and initiate arbitration proceedings even after receiving full and final settlement amount. Nut, unfortunately this will involve time and money, but in the light of the ratio laid down by the Hon’ble Supreme Court in the aforementioned matter, this seems to be safe course of action.
CONSUMER CASES
Besides, this another disturbing area is the consumer cases. It is unfortunate that in many instances, these cases are filed to exhort the real estate companies. These consumer courts are also not bound by the provisions of Civil Procedure Code and the evidences tendered by the consumer is given an edge in comparison to the evidence tendered by the real estate companies. The lust for filing the consumer complaints are many (1) negligible court fees is payable (2) comparatively quick disposal of cases (3) No requirement to engage a counsel and therefore not costly (4) Benches are generally consumer prone. In these factual setup it is important that the real estate companies tries to avoid these consumer cases to the maximum possible extent. Arbitration clause in the agreement is a good means to do so. Even after the arbitration clause, if a consumer complaint is filed , the defense of arbitration clause has to be taken on the very first date. If the companies submits themselves to the jurisdiction of the consumer courts, inspite of arbitration clause, consumer courts may pass appropriate orders.
The legal system, needs these changes to meet the changing demands of commercial world, in general, and real estate industry, in particular and until the laws are streamlined, the industry cannot run on the fast track path.
Written By :-
Praveen Agrawal,
B Com, LLB, ACS
Advocate on Record,
Supreme Court of
DDA flat no 36 E, Pocket 1
Mayur Vihar – I,
Phone 9811702850
DIRECTORS VICARIOUS CRIMINAL LIABILITY - END OF NIGHTMARE
DIRECTORS VICARIOUS CRIMINAL LIABILITY - END OF NIGHTMARE
Are directors Vicariously liable for the acts of the company done through the instrumentally of its officers and employees situated throughout the length and bregth of this vast country, even though they may not have any knowledge of the same ? Can they be made accused in criminal offences on the basis of vicarious liability concept and be compelled to face the hardships of criminal trials ( which may be scattered throughout the country ) and in which obtaining Bail ( which is the complete discretion of the
CONCEPT OF VICARIOUS LIABILITY OF DIRECTORS
The concept of vicarious liability is not a new concept but a time honored concept and has been one of the most acceptable legal concepts. Putting it simply this concept says that the person who has the ultimate control over the affairs, control and management of things will be held vicariously liable of the act if the same is done by his employee, servant and / agent. In other words, a master is vicariously liable for the acts of his servant to an outsider, if the outsider suffers any loss. In such case the outsider can directly sue the master for damages, though he has suffered loss due to the acts of the servant and not master. This concept ha been extensively used in the civil law in contrast to the criminal law, where the offence is directly attributable to the person committing it. The use of the concept of vicarious liability has not found much role to play in the criminal law. But here we will concentrate on the use of the concept in criminal law alone.
VICARIOUS LIABILITY IN STATUTE BOOKS
Nonetheless this concept found some favour in special statues where Director’s of the company has been held vicariously liable for the acts of the company e.g., under the various sections of the Companies Act, 1956 directors are vicariously liable for the offence committed by the company under the act. The Companies Act either makes the director personally liable in many of the sections or they became liable being an “officer in default “as per section 5 of the Act. The common paraphrasing which is found in various section of the companies Act states that if an offence is attributable to connivance or neglect on the part of the director or other officers of the company, he shall be deemed to be guilty of the offence and shall be liable to be proceeded accordingly.
Though the concept of vicarious liability has been incorporated in some other Acts also, but the common thread which runs through all of them is that they make vicariously directors liable for non compliance of the statutory provisions e.g., failure to deposit Tax, Provident Fund etc., or failure to file the periodic return with the concerned Government Department / Authority.
USE OF DOCTRINE OF VICARIOUS LIABILITY IN CRIMINAL LITIGATION
But 1989 has seen a phenomenal change for the corporate world in respect of the concept of vicariously liability. Provisions of Section 138 under the Negotiable Instruments Act has been incorporated and the bouncing of cheque was made a criminal offence,(which was earlier a civil offence in which recovery of money in cheque bouncing cases was a lengthy process) with the intent of making the cheque (which is a Negotiable Instruments) truly acceptable in the commercial world. Needless to add that the other negotiable instruments does not possess the same status which has been conferred to cheque under section 138 of the Negotiable Instruments Act.
Not only this but the concept of vicarious liability has also been incorporated by Section 141 of the Negotiable Instruments Act , 1881 making the directors, manager , secretary and other officer of the company liable if the offence is attributable to any neglect on their part, thereby incorporating the concept of vicarious liability.
The fall out of the above is that it has opened a flood gate of Criminal litigations under Section 138 & 141 of the Negotiable Instruments Act, 1881 in which directors are also made parties (Accused). The issue has also been settled by the Hon’ble Supreme Court of India in line of Judgments which states that Directors are liable u/s 138 & 141 of the Negotiable Instruments Act, 1881. But, since the offence is bailable i.e., one can seek bail as a matter of Right, much heat is not felt by the Corporate World, although the rigors of Criminal Procedural law has to be undergone. In such cases normally, the relief obtainable from the various High Courts are exemption from Personnel appearance by the directors before the Ld Trial Court. The impact is because of the exemption from personal appearance, the rigors of Criminal Procedural Law has been diluted to the large extent.
Inspite of the above remedies available with them, the corporates in many cases, try to settle the score, so as to save their directors and top officials from the embarrassment of passing through the rigorous criminal recourse. Settlement of the cases in this manner would not have been possible in the absence of the criminal procedure. Such is the karishma of Criminal Procedure.
Interestingly, with the passage of time another situation has cropped up and Criminal Complaint u/s 406, 409, 420 of the Indian Penal Code and other allied sections are also being filed with the Courts against the directors and other senior officials taking the recourse of vicarious liability concept , in which Directors are being implicated as an accused. The courts are also taking cognizance of these complaints against the Directors.
IMPACT ON CORPORATES OF THE DOCTRINE
The above situation, though in the process of evolution, have already started hitting many companies and which are being faced with the filing of the criminal complaints under the provisions of Section 406, 420 IPC and other allied sections against the directors based on Doctrine of Vicarious Liability, though the personal involvement of directors are not visible even from the complaint. The Hon’ble Courts, after taking cognizance in such cases, are issuing summons for the appearance of the accused including Directors. Since, the rigors of Criminal Procedures requires taking of Bail at the first instance before the accused can proceed to defend himself and since these sections are non Bailable i.e Accused ( Directors ) cannot claim Bail as a right, and the same is the entire discretion of the Court. Directors generally don’t want to take the risk of “Regular Bail” in which he is to appear before the court and take Bail as if the Bail is not granted by the Court he has to go behind the bars. The only recourse open is filing of petition, in majority of cases, for quashing or grant of anticipatory Bail (or arrest Stay in UP) before the Hon’ble High Court, which does not find much favour with the High Court(s) , as the offence complained is of “non bailable” nature.
The burning question is can a director be held liable on the basis of his vicariously liable only because he is responsible for conducting the affairs of the company in these criminal proceedings where the offences complained are non bailable, though the personal involvement of directors is not visiable even from the complaint. Are the courts justified in issuing summons against the directors of the company on the basis of concept of vicarious liability for an offence said to be committed by the company or any of its officers. Does it not amounts to the gross misuse of the Judicial Process ? Is Judicial process be permitted to be misused to pressurize the Directors to sit on the Negotiation Table and settle the dispute, if any, to the advantage of the complainant and to their gross disadvantage ? In other words, Is the Courts justified in taking cognizance against the Directors based on the doctrine of vicarious liability ?
THE WINDS OF CHANGE
Hon’ble Supreme Court of India has given a wind of relief to the Corporate World by holding that the concept of Vicarious liability of Directors cannot be extended to directors, for offence committed by the company or its officers. Hon’ble Supreme Court of India held that those statues which has no Section which is on lines of Section 5 of the Companies Act, 1956 or Section 141 of the Negotiable Instruments Act, 1881 which provides for the vicarious liability of directors, Doctrine of Vicarious liability cannot be incorporated in those statues. Admittedly, Indian Penal code does not contain any provision which provides for the vicarious liability of directors and therefore Magistrate’s Courts cannot take cognizance against the Directors based on vicarious liability concept, if nothing is visible from the complaint. .
Hon’ble Supreme Court in the recent Judgment of S K Alagh Vs State of UP 2008 (2) SCALE 523 held that :-
19. As, Admittedly, drafts were drawn in the name of the company, even if appellant was its Managing Director, he cannot be said to have committed an offence under section 406, of the Indian Penal Code. If and when a statues contemplates creation of such a legal fiction, it provides specifically therefore. In absence of any provision laid down under the statute, a director of a company, or a employee thereof cannot be held to be vicariously laible for an offence committed by the company itself . (Sabitha Ramamurthy and Another Vs. R B
20. We may in this regard, notice that the provisions of the Essential Commodities Act, Negotiable Instruments Act, employees’ Provident Fund ( Miscellaneous Provisions) Act, 1952 etc have created such vicarious liability. It is interesting to note that Section 14 A of the 1952 Act specifically creates an offence of criminal breach of trust in respect of the amount deducted from the employees by the company. In terms of the said explanation appended to section 405 of the Indian Penal Code, a legal fiction has been created to the effect that the employer shall be deemed to have committed an offence of criminal breach of trust. Whereas a person in charge of the affairs of the company and in control thereof has been made vicariously liable for the offence committed by the company alongwith the company, but even in case falling under section 406 of the Indian Penal code vicarious liability cannot be extendable to the directors of officers of the Company. ( Makshud Saiyeed Vs State of
in the light of this recent prouncement by the Hon’ble Supreme court, the law as is settled is that Since the Doctrine of vicarious liability has not been incorporated under the provisions of the Indian Penal Code, the doctrine of vicarious Liability cannot be incorporated therein only because it finds place in the Companies Act, 1956, Essential Commodities Act, Negotiable Instruments Act, and / or Employees’ Provident Fund ( Miscellaneous Provisions) Act, 1952 etc.
CONCLUSION
Such criminal complaints are liable to be quashed qua the directors and / or its officers by the respective High court in terms of the Above Judgment of the Hon’ble Supreme Court of India.
Written By :-
Praveen Agrawal,
B Com, LLB, ACS
Advocate on Record,
Supreme Court of
B 73, Shekhar Apartment,
Mayur Vihar – I Extension,
Phone 9811702850
DESIGNS ACT – AN OVERVIEW
Are Designs (which is the brainchild of its author) is capable of being registered as such ( as an idea, which obviously is the Intellectual property of the maker / author thereof) , under the Law existing in
Designs – Meaning thereof
What is a Design ? Does the imagination in the mind of the author of a particular idea / design can be recognized as a Design in the eyes of law? Or it gets its recognisaiton only on being transformed on the piece of paper.
The Word “design” is defined u/s 2 (d) of the Designs Act, 2000 as under:-
" (d) "design" means only the features of shape, configuration, pattern, ornament or composition of lines of colours applied to any article whether in two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the finished article appeal to and are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substance a mere mechanical device, and does not include any trade mark as defined in clause (v) of sub- section (1) of section 2 of the Trade and Merchandise Marks Act, 1958 (43 of 1958) or property mark as defined in section 479 of the Indian Penal Code (45 of 1860) or any artistic work as defined in clause ) of section 2 of the Copyright Act, 1957 (14 of 1957);"
The Important characteristics of Designs as made out of the definition are :-
It has to be applied to any article either in two dimensional or Three dimensional from or both.
Such an application ought to be by an industrial process.
The impact of Design ought to be such that it is capable of being judged solely by the eyes.
It is worth mentioning here that the basic difference between the Trade Mark and a design is that design forms an integral part of the product itself whereas in not necessarily part and parcel of the product itself.
It is also not out of context to mention here that by minor modification of the existing design, no new design comes into existence. But where the modification of an existing design is of such a magnitude that the basic characteristics of the existing design is lost ( though the new design may contain some portion of the existing design) and the outcome is a design which is capable of being markedly distinguishable, a new design is said to be created.
Designs – Whose Property ?
Whose property is the design ? is it the property of the person who has conceived the idea and penned it down or is it the property of the person who has commercially exploited the same with the consent of the author. This question seeks significance as the commercial benefit goes to the person who is the owner of the same.
The Word “ Proprietor” of Design has been defined under the Act as under :-
" Section 2 (J) "proprietor of a new or original design".-
(i) where the author of the design, for good consideration, executes the work for some other person, means the person for whom the design is so executed;
(ii) where any person acquires the design or the right to apply the design to any article, either exclusively of any other person or otherwise, means, in the respect and to the extent in and to which the design or right has been so acquired, the person by whom the design or right is so acquired; and
(iii) in any other case, means the author of the design; and where the property in or the right to apply, the design has devolved from the original proprietor upon any other person, includes that other person."
The Act thereby confreres the proprietorship or ownership status not only on the person who has conceived the idea of the design but also on the person who has been using it with the approval or consent of the owner / author thereof. More importantly, the act confers the power of ownership to the person, who though has not conceived the idea but was the employer by whatsoever named called, of the author and the author for consideration has executed the design in the favour of his employer. By the said definition the legislature has tried to cut short the controversy generally raised by the employees after leaving the employment that though they are the proprietor of the design made by them during their service tenure for their employer. Thus the act has recognized both the person who has conceived the idea and developed the design and also the person who has commercially exploited the same, subject to the explanations given above.
Commercial Impact of Designs & Need for protection thereof.
Designs , a neglect portion of commercial law, is slowly gaining importance and momentum but still we lack far behind in this branch of law as compared to the developed world where this branch of law together with other Intellectual property has gained much significance and importance.
In today’s commercial world the importance and impact of Designs cannot be overruled. Design are those integral part of the product which forms part of the product itself in comparison to the trade mark which does not necessarily constitute the products part itself. Designs make the manufacturer’s product distinguishable from other competitive products. Design, at several times, influence the consumer’s determination and desire to buy or not to buy the particular product. Consumers who wish to purchase an article for use are often influenced in their choice not only by practical efficiency but the appearance. Common experience shows that not all are influenced in the same way. Some look for artistic merit. Some are attracted by a design which is a stranger or bizarre. Many simply choose the article which catches their eye. Researches shows that designs do certainly influence the sale. And therefore there is a desire in the corporate world to find out and constantly improve its existing design so as to push up the sales figure upwards. It is worth mentioning here that generally, an advertisement only draws the consumer to the product whereas the design and its outlook plays an important role in converting the desire of the consumer into the demand and consequent sale thereof.
It can be said that though there may be different reasons for engraving a design on a product but one article with a particular design may sell better than one without it: then it is profitable to use the design. And much thought, time and expense may have been incurred in finding a design which will increase sales.
Keeping this commercial importance of the Designs the Designs Act was enacted to protect novel designs devised to be applied to articles to be manufactured and marketed commercially. Designs Act is distinguished from the Patent Act which Protects invention. It is also different from the copyright act which aims to protect the copying of the original artistic effort in producing a work which is copyright protected. The primary concern of the Design Act is what the finished article is to look like and to prevent the manufacture and sale of article of a design not substantially different from the registered design. The emphasis therefore is upon the visual image conveyed by the manufactured article.
Designs Act- the Basic Framework
The Basic Purpose of the Act , as stated above is protect novel designs devised to be applied to articles to be manufactured and marketed commercially, so as to prevent the manufacture and sale of article of a design not substantially different from the registered design.
With this objective the act provides for the registration of the designs, conferring the rights to the proprietor(s) to exclusively manufacture the goods with the designs, procedure of cancellation of registration on the happening of certain events, and also prohibition of registration of certain designs.
Registration Provisions
Section 5 deals with the application for registration of designs. Section 6 deals with the registration to be in respect of particular article. Section 7 deals with publication of particulars of registered designs. Section 9 deals with the certificate of registration which reads as under :
" 9. Certificate of registration.-
(1) The Controller shall grant a certificate of registration to the proprietor of the design when registered.
(2) The Controller may, in case of loss of the original certificate, or in any other case in which he deems it expedient, furnish one or more copies of the certificate."
Section 10 imposes a statutory duty on the Patent officer to maintain the Register of Design in the prescribed form and further provides that the register of designs shall be prima facie evidence of any matter by this Act directed or authorized to be entered therein.
Section 11 deals with copyright on registration which reads as under :
" 11. Copyright on registration. -- (1) When a design is registered, the registered proprietor of the design shall, subject to the provisions of this Act, have copyright in the design during ten years from the date of registration.
(2) If, before the expiration of the said ten years, application for extension of the period of copyright is made to the Controller in the prescribed manner, the Controller shall, on payment of the prescribed fee, extend the period of copyright for a second period of five years from the expiration of the original period of ten years."
Section 12 deals with restoration of lapsed designs and provides that the lapsed designs can be restored within 1 year from the date on which the design ceased to have effect.
Prohibition / Cancellation of Registration
To ensure that the provisions of the act is not misused the act contains specific provisions for the prohibition of the registration of certain designs and also for cancellation of the designs already granted. Section 4 of the act contains provisions in respect of the prohibition of registration of certain designs as follows :-
" 4. Prohibition of registration of certain designs.- A design which-
(a) is not new or original; or
(b) has been disclosed to the public anywhere in
(c) is not significantly distinguishable from known designs or combination of known designs; or
(d) comprises or contains scandalous or obscene matter, shall not be registered."
The detail discussion of the provision of Section 4 of the Act are being contained in the forthcoming paragraphs and hence the same is not being discussed here.
Section 19 of the Act deals with cancellation of registration which reads as under:
" 19. Cancellation of registration.- (1) Any person interested may present a petition for the cancellation of the registration of a design at any time after the registration of the design, to the Controller on any of the following grounds, namely:-
(a) that the design has been previously registered in
(b) that it has been published in
(c) that the design is not a new or original design; or
(d) that the design is not registerable under this Act; or
(e) that it is not a design as defined under clause (d) of section 2.
(2) An appeal shall lie from any order of the Controller under this section to the High Court, and the Controller may at any time refer any such petition to the High Court, and the High Court shall decide any petition so referred."
Designs Rule, 2001 – Rule 29 deals with the procedure how the cancellation of the registration can be made and a detailed provision has been made in the Rules for implementation of Rule 29 of the Rules of 2001.
WHAT IS REGISTRABLE – THE DESIGN ITSELF OR ITS USE IN RESPECT OF A COMMODITY ?
The Moot Question is Are Designs (which is the brainchild of its author) is capable of being registered as such ( as an idea, which obviously is the Intellectual property of the maker / author thereof) , under the Law existing in
The Above Issue has been discussed at length by the Hon’ble Supreme Court of India in the matter of “Bharat Glass Tube Limited Vs. Gopal Glass Works Limited” by a Judgment dated 01/05/2008 by a bench consisting of Hon’ble Justice A.K.Mathur & Altamas Kabir JJ., wherein the Lordships were pleased to lay down the law on the aspect as follows:-
· The sole purpose of the Design Act is protection of the intellectual property right of the original design for a period of ten years or whatever further period extendable. The object behind this enactment is to benefit the person for his research and labour put in by him to evolve the new and original design. This is the sole aim of enacting this Act.
· if design is not new or original or published previously then such design should not be registered. It further lays down that if it has been disclosed to the public anywhere in India or in any other country by publication in tangible form or by use or in any other way prior to the filing date, or where applicable, the priority date of the application for registration then such design will not be registered or if it is found that it is not significantly distinguishable from known designs or combination of known designs, then such designs shall not be registered.
· The Act also also provides that registration can be cancelled under section 19 of the Act if proper application is filed before the competent authority i.e. the Controller that the design has been previously registered in India or published in India or in any other country prior to the date of registration, or that the design is not a new or original design or that the design is not registerable under this Act or that it is not a design as defined in clause (d) of section 2.
· The new and original design when registered is for a period of ten years. Such original design which is new and which has not been available in the country or has not been previously registered or has not been published in
· The burden of Proof lies on the on the complainant ( who claims that the registration of deigns ought to be cancelled ) to show that the design was not original or new.
· A conjoined reading of these the provisions makes it clear that a particular shape or a particular configuration is to be registered which is sought to be produced on any article which will have visual appeal. Such design once it is registered then it cannot be pirated by any other person.
· The expression ' new or original' in this context has to be construed that whether this design has ever been reproduced by any other company on the glass sheet or not ( article or not).
· This proprietorship of this design was acquired by this respondent from the German company and there is no evidence on record to show that these rollers were used for designing them on the glass sheets in
· That Application From shows that shows that for name of the article on which the design is sought to be transcripted has to be mentioned at the time of registration.
· The concept of design is that a particular figure conceived by its designer in his mind and it is reproduced in some identifiable manner and it is sought to be applied to an article. Therefore, whenever registration is required then those configuration has to be chosen for registration to be reproduced in any article.
· The idea is that the design has to be registered which is sought to be reproduced on any article. Therefore, both the things are required to go together, i.e. the design and the design which is to be applied to an article.
· In the present case, the design has been reproduced in the article like glass which is registered. This could have been registered with rexin or leather. Therefore, for registration of a particular configuration or particular shape of thing which is sought to be reproduced on a particular article has to be applied.
· One has to be very cautious unless two articles are simultaneously produced the Court then alone the Court will be able to appreciate.
· Even if the design is proved to be registered in a Foreign Country but its use to the article specific is not proved then the same will not be a ground for the cancellation of designs registration in
Thus we can conclude that the it is the use of the design for a particular article which is registrable and not the deigns in isolation itself and the burden of proof always lies on the party who is seeking the cancellation and not on the party in whose favour the registration is granted.
Subscribe to:
Posts (Atom)