India's Business set-up Bottlenecks

Building a factory in India is not for the faint hearted. 

Even if a company is fortunate and manages to buy land - which, by the way, is becoming more and more difficult, expensive and time-consuming due to complex laws, people's rising expectations and local politics - that is just a start. 

A manufacturing company in India, on average, has to comply with nearly 70 laws and regulations. Apart from the multiple inspections, it has to file around 100 returns in a year, according to a 2013 report by consultancy firm Deloitte. 

Then there is the double maze of tax and labour laws that can be a big pain even in the best of times. Poor infrastructure does not help either. 

Will the NDA government, whose economic programme hinges on boosting the manufacturing sector, be able to bring about the required change? 

Will it be able to debottleneck the process of setting up and running a factory in the country so that its plan to create millions of new jobs in manufacturing sees the light of day? 

Problems in acquisition of land, delays in environmental and other clearances and infrastructure bottlenecks have taken a toll. 

In the past five years (2011 to 2015), new projects have seen a marked reduction of 44 per cent from the period between 2006 and 2010. The value of stalled projects more than tripled during the period. 

Worse, straddled with huge distressed assets, core sector companies are more concerned about avoiding default rather than making fresh investments. 

As a result, India's investment-to-gross domestic product ratio has fallen for five straight financial years now. 

The NDA government has tried to correct this through a massive increase in investments to build infrastructure. It is likely to follow this policy in the coming Budget, too.

Source -http://www.businesstoday.in/magazine/features/indias-manufacturing-hub-plan-is-in-a-host-of-problems/story/229415.html 

Kingfisher Woes Show Need for Bankruptcy Law: Corporate India - Businessweek

Kingfisher Woes Show Need for Bankruptcy Law: Corporate India - Businessweek:
By Karthikeyan Sundaram
Source - http://www.businessweek.com/news/2012-10-31/kingfisher-woes-show-need-for-bankruptcy-law-corporate-india

Kingfisher Airlines Ltd. (KAIR), controlled by liquor tycoon Vijay Mallya, is struggling to resume services after five straight years of losses and mounting debt forced it to ground planes. India’s bankruptcy laws aren’t helping.
The carrier can’t emulate U.S. airlines that have gone through court-led Chapter 11 restructuring, as India doesn’t have any similar procedures for service providers. Under the existing law, a government body only oversees rehabilitation of companies with licenses to run factories.

Kingfisher’s troubles highlight how India’s corporate laws have failed to keep pace with growth and emergence of new businesses in Asia’s third-biggest economy. Lack of a modern legal framework makes it slower for struggling companies to renegotiate debts and cut cost, said Jai Pathak, partner-in- charge at Gibson, Dunn & Crutcher LLP. in Singapore.
“India needs a comprehensive bankruptcy law that will allow financially distressed companies to revive faster,” Pathak said. The existing system doesn’t “provide a framework by which companies can take preventive measures to avoid a further downward spiral.”

Current rules allow companies that operated for at least five years and holding a factory license to approach the Board for Industrial and Financial Reconstruction if accumulated losses equal or exceed their net worth. The recourse is available under the Sick Industrial Companies (Special Provisions) Act of 1985.

‘Outdated Tool’
Under the Indian Companies Act of 1956, firms can voluntarily wind up operations or a court can order their closure. In a court-ordered shutdown, an official liquidator will be appointed to oversee the process and distribute the proceeds from sale of assets to creditors.

“BIFR is the most outdated tool available under law in India,” Kishor Ostwal, managing director at CNI Research Ltd. in Mumbai, said. “There are examples where companies have applied for rehabilitation and it has taken several years for even the plan to be approved. It’s next to impossible.”

BIFR took almost four years to approve a rehabilitation plan for Windsor Machines Ltd. (WML), which was declared a ‘sick’ company in June 2006. By the time the revival plan got approval from the agency in April 2010, the company had made quarterly profits.

World Ranking
India ranked 116 among 185 economies when it comes to ease of resolving insolvency, according to Doing Business 2013 data published by International Finance Corp. and the World Bank. The nation’s ranking fell from 109 in 2012. India scored 132 for the overall ‘ease of doing business’ in the latest report published last month.

In 2001, as an alternative to the BIFR process, India’s central bank allowed companies and their creditors to enter into a debt recast arrangement to help businesses return to financial health. The mechanism was limited to firms that had borrowed more than 200 million rupees ($3.7 million) from a group of lenders.

Kingfisher in 2010 restructured 77.2 billion rupees of debt it had run up by ordering aircraft and buying a budget carrier. It can seek a second round of debt recast if a majority of its lenders agree, said Avinash Gupta, head of financial advisory services at Deloitte Touche Tohmatsu India Pvt. The carrier has been seeking more loans and investments at least for a year after losses widened and debt swelled to 86 billion rupees.
Shares of the airline gained 4.4 percent to 13.15 rupees at 9:51 a.m. in Mumbai today. Kingfisher shares have slumped 38 percent this year, compared with a 20 percent gain in the benchmark Sensitive Index. (SENSEX)

Lengthy ProcessDebt restructuring may offer little help for distressed companies because of the lengthy procedures, said Thomas Britt, a Hong Kong-based partner at Debevoise & Plimpton LLP.
“Negotiations with creditor banks take place in a time- consuming Reserve Bank of India-supervised process and only after the company has reached a state of severe financial crisis, if not a complete collapse,” Britt wrote in an e-mail. That makes “the prospects remote for that company’s return to financial health and viability.”
India’s Civil Aviation Minister Ajit Singh said he will push for an overhaul of the bankruptcy laws to help companies like Kingfisher restructure operations. He didn’t say what changes he is seeking in the rules.
“It’s not just the owner who suffers, it’s also the employees, the creditors and the consumers,” Singh said in an interview in New Delhi on Oct. 27. “Reform of the companies law will not only offer protection from creditors, but also from labor unions and other agencies.”

Prakash Mirpuri, spokesman at Kingfisher Airlines, didn’t respond to an e-mail seeking comments.

Delta, American
India’s aviation regulator suspended Kingfisher’s license on Oct. 20 after the carrier failed to provide a plan to resume operations that were halted Oct. 1 because of a strike by pilots and engineers. The employees resumed work last week after management promised to pay their salary dues. The carrier will soon prepare a “comprehensive” revival plan, Mallya said in New Delhi Oct. 30.

In the U.S., carriers including Delta Air Lines Inc. have used bankruptcy protection to restructure debt and shed costly pension and retiree benefit plans in the years after the 2001 terrorist attacks. In November last year, American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements. With the filing, American became the final large U.S. full-fare carrier to seek court protection from creditors.

India has been planning to update company laws for almost a decade. A new Companies Bill that proposes to replace the 1956 Act with easier restructuring rules has been in the works since at least 2004. The Bill needs to be passed by parliament. Its previous versions have been introduced in parliament at least three times.

Absence of bankruptcy laws means Mallya has very few options to revive Kingfisher unless he wins investments, said Pathak at Gibson, Dunn & Crutcher. He can either seek to restructure the debt or try to reach a compromise with the carrier’s creditors after getting approvals from a high court.

“Had Kingfisher been a U.S. carrier, the natural choice for it would have been to seek Chapter 11 bankruptcy protection,” CNI Research’s Ostwal said.


To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


'via Blog this'

The Commercial Division of High Courts Bill, 2009

The Commercial Division of High Courts Bill, 2009.


What this Bill aims to do is to create a special division within existing High Courts to fast track commercial disputes that are assessed beyond a 'specified value'.


After this Bill becomes the law (after it is passed by the Rajya Sabha), the Supreme Court will be compulsorily burdened with appeals from Orders passed by High Courts under the new law. The Supreme Court cannot summarily reject appeals because a right of appeal has been furnished to the litigant.

Section 13 of this Bill says:

13. (1) In respect of suits of the category referred to in sub- section (1) of section 4,
section 5, section 11 and clause (i) of section 12, an appeal shall lie to the Supreme Court
against any decree passed by the Commercial Division.
(2) An appeal shall lie to the Supreme Court against the orders of the Commercial
Division referred to in clauses (a) to (w) of Rule 1 of Order XLIII of the Code of Civil
Procedure, 1908.
Explanation.— In this section, the word “decree” shall include all decrees which are
to be treated as decrees for purposes of Rule 4 of Order XXI, Rule 58 and Rule 103 of Order
XXI of the Code of Civil Procedure, 1908.


Full text of the Legislation here... in PDF fomat,


From - http://lawandotherthings.blogspot.com/

Summary :-

The Commercial Division of High Courts Bill, 2009 was introduced in the Lok Sabha on December 16, 2009 by the Minister of Law and Justice, Shri Veerappa Moily. The Bill was passed by the Lok Sabha on December 18, 2009 and is pending in the Rajya Sabha.

• The Bill seeks to allow a High Court to constitute a commercial division of that High Court for adjudicating commercial disputes. The Judges of the division shall be High Court judges nominated by the Chief Justice of the High Court.
• The Bill specifies the types of cases that can be allocated to the commercial division of a High Court. It includes all commercial disputes of specified value pending in the High Court and appeals against orders of subordinate courts, interlocutory applications, revision application all of which are of specified value. Commercial disputes pending in subordinate courts shall be transferred to the commercial division of the High Court having jurisdiction over such courts.
• A “commercial dispute” is defined as any dispute between merchants, bankers and traders over a transaction such as interpretation of documents, export or import of merchandise, carriage of goods, distribution and licensing agreements, intellectual property, and any dispute notified by the central government.
• The commercial division shall have jurisdiction over certain commercial disputes of specified value under the Arbitration and Conciliation Act, 1996.
• The Bill defines “specified value” as the value of the subject matter of the commercial dispute which is Rs 5 crore or above as notified by the central government.
• The Bill outlines the manner in which specified value of the subject matter of a commercial dispute shall be determined.
• If there is a dispute over whether a case is a commercial dispute case or not or there is dispute over the specified value, such cases shall be decided by the commercial division of the High Court in which the case is pending.
• The commercial division of a High Court shall follow the procedure specified in the Code of Civil Procedure, 1908 except in cases provided under the Act. But certain prescribed procedures have to be followed in every case such as filing documents, affidavits, requisite fee, and counter claims of defendants.
• The commercial division may appoint an advocate with 20 years or more experience at the Bar or a judicial officer in the rank of Senior Civil judge as Commissioner to record statements in cross-examination and re-examination of parties and witnesses.
• The commercial division shall pronounce judgment within 30 days of the conclusion of argument.
• A single judge sitting in the commercial division may hold case management conferences, fix a time schedule for finalization of issues, cross-examination of witnesses, filing of submissions, record of evidence of cross-examination. However, any objection as to the admissibility of any evidence shall be decided by the Bench of two judges sitting in the commercial division.
• All decrees of the commercial division can be appealed in the Supreme Court.

From the FINANCIAL EXPRESS :-

The government plans to establish a new mechanism for speedy resolution of large commercial disputes between corporates. The law ministry has moved a Cabinet note that proposes to set up a separate division in every high court for a speedy resolution of such disputes. Once the mechanism is in place, vexatious corporate disputes, like the Birla-Lodha case or the more recent RIL-RNRL case, which generally drag on for years, would be decided in a shorter time span.

Now, the Company Law Board is the arbiter of shareholder disputes and mismanagement issues related to corporates. The CLB, however, has no mandate to cover commercial disputes like the RIL-RNRL stand-off over K-G basin gas. The proposed National Company Law Tribunal would take over the CLB’s functions, but would still not hear commercial disputes, which will remain with civil courts.
The law ministry has proposed that all commercial disputes with a threshold value of Rs 1 crore and above would be handled by the proposed commercial division in high courts. This implies that high courts would be relieved of the burden of dealing with corporate cases. The high courts now deal with all cases ranging from criminal to civil to corporate matters.
Any commercial disputes pending before the district and other subordinate courts would also be transferred to the commercial divisions in high courts. “It would speed up the disposal of corporate cases as district courts would have no jurisdiction in such cases,” the Cabinet note said.
Sources said ministries like commerce & industry, corporate affairs and finance have given their consent to the law ministry’s proposal, which has now been sent to the Prime Minister’s Office for comments.

Once the Cabinet approves the plan, the government would have to move a Bill in Parliament to bring about the statutory change.
A high-level committee on law, headed by the department of legal affairs in the law ministry, has noted that without an effective mechanism for speedy resolution of corporate commercial disputes, progress in corporate India would be retarded.
The committee has also observed that foreign investors in India must be assured that the Indian courts are as fast as the courts in the most developed countries.
The law ministry has taken cue from England in making the proposal. In England, commercial court is a division of the high court, which tackles corporate disputes. In the US, in states like New York, Delaware, Philadelphia and Maryland, commercial courts have been established. Even Nepal has recently set up commercial benches in courts.
According to the proposed Bill, “the Commercial Division of High Courts Bill, 2009”, a dispute that is not a commercial dispute will be deemed to be a commercial dispute if the immovable property involved in the dispute is used in trade or put to commercial use.
Every commercial division will have judges of high court nominated by the chief justice of the high court. And all suits relating to commercial disputes pending in the courts subordinate to the high court would be transferred to the new commercial divisions. All commercial disputes pending in the high court would be transferred to the commercial division. An appeal against the order and decree passed by the commercial division will go before the Supreme Court.

Civil Court's Jurisdiction - Companies Bill, 2009? - Corporate Law Articles - Chartered Accountants India,Taxpayers, CAs India, CA india ,ICAI, Compan

Civil Court's Jurisdiction - Companies Bill, 2009? - Corporate Law Articles - Chartered Accountants India,Taxpayers, CAs India, CA india ,ICAI, Company Secretary ,CS, Cost Accountants, MBA, Finance Professionals

by Durga Rao

We all aware that there is no express provision barring the Civil Courts to entertain certain company disputes under the Companies Act, 1956. We have been seeing the cases where the Civil Court entertains Company disputes if there is no specific remedial measure before the Company Law Board or the Company Court. The issue of Civil Court’s Jurisdiction to entertain certain company matters is also supported by the Constitutional Courts on the ground that there is no specific bar under the existing Companies Act, 1956 barring the Civil Courts in entertaining Company matters and on the ground that the Companies Act, 1956 do no provide all remedial measures to all the shareholders before the Company Law Board or the Company Court.

It is true that adjudicating a company dispute requires specialization and the Civil Court may not effectively adjudicate a Company dispute. We are all aware of the inevitable complications under Company Law. Laudably, an effort has been made to bar the Civil Court’s jurisdiction to entertain company matters in the Companies Bill, 2009 or in the proposed new Companies Act replacing Companies Act, 1956.

Section 391 of the Companies Bill, 2009 dealing with the Civil Court’s Jurisdiction is extracted below:

“391. No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force by the Tribunal or the Appellate Tribunal”.

The object of section 391 in the proposed Companies Act is to exclude the Civil Courts in entertaining company disputes and to avoid the jurisdictional ambiguity. Under the existing Companies Act, 1956, shareholders who are qualified to approach the Company Law Board under section 397/398 may choose to approach the Civil Court rather the Company Law Board.

In CDS Financial Services (Mauritius) Limited Vs. BPL Communications Limited and others, (2004) 121 Comp Cases 375, it was held that “when there is no express provision excluding the jurisdiction of the Civil Courts, such exclusion can be implied only in cases where a right itself is created and the machinery of enforcement of such right is also provided by the statute. If the right is traceable to the general law of contracts or it is a common law right, it can be enforced through the Civil Court, even though the forum under the statute also will have jurisdiction to enforce that right. Sections 397, 398 and 408 of the Companies Act, 1956, do not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections is to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies”.

Now, with the express bar under section 391 of the proposed act, if a remedy is available before the National Company Law Tribunal etc. then, no Civil Court can entertain a suit.

But we need to address an issue as to what is the situation if a particular relief is not available to the shareholders before the National Company Law Tribunal or under the new Companies Act?

Under such circumstances, despite section 391 in the proposed Companies Act, it may be very difficult to bar the Civil Courts in entertaining Company Disputes or it may be difficult to lay down a proposition that no shareholder can approach the Civil Court against the managerial personnel, the management or the Company.

It is true that the Civil Court may not be effective like the proposed National Company Law Tribunal, but, when a remedy is not provided before the Tribunal, the shareholders will obviously be approaching the Civil Courts and it may even be supported by the Constitutional Courts in future.

It is true that the Civil Courts jurisdiction is effectively barred under certain enactments like Securitization Law and it is not usual to see a Civil Court to entertain a dispute under Securitization Act upon which the Debt Recovery Tribunal shall have jurisdiction. It is possible under the Securitization Law in view of the limited scope of the subject matter. Under Securitization Law, it is only about the determination of debt or the legality of the action taken by the Bank under the Act. Only the Bank, the borrowers, the guarantors and in some cases a third party, is interested in a securitization case, but, that is not the case with a Company litigation. The Company Law Board, Company Court or the National Company Law Tribunal as the case may be should consider many issues before passing an order in a Company dispute.

In my opinion, it is very difficult to bar the Civil Court’s jurisdiction as intended with section 391 of the proposed Company’s bill or the new act.

In order to achieve the objective of barring the Civil Court’s Jurisdiction effectively, we need a detailed provision barring the Civil Court’s Jurisdiction and there should be a provision similar to section 151 of C.P.C in the proposed Companies Act giving liberty to the shareholders or the members to approach the Tribunal for the relief which is not specifically provided under the Act. If there is such an arrangement under the proposed Act, the National Company Law Tribunal shall decide the maintainability of the applications or the petitions and can pass appropriate orders.

I am sure that it is very difficult to bar the Civil Court’s Jurisdiction as intended with section 391 of the proposed bill or the proposed new Companies Act. There tend to be lot of litigation on the issue of Civil Court’s Jurisdiction even after the new Companies Act coming into force replacing Companies Act, 1956.

Note:

I have expressed my opinion on the issue and I am aware of the complications in Company Law.

by Durga Rao on CACLub India