KANTH AND ASSOCIATES

Copyright © 2014 Kanth and AssociatesDISCLAIMER- Kanth and Associates newsletter is for private circulation only. It does not purport to be or should

not be treated as professional advice or legal opinion. Kanth and Associates also disclaim any responsibility and hereby accept no liability for consequences of any person acting or refraining to act on the basis of any information contained herein.

KANTH AND ASSOCIATESAttorneys and International Legal Consultants

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NEWS ALERTS

CORPORATE, CAPITAL MARKET, ECONOMY & FOREIGN TRADE

External Commercial Borrowings (ECB) from Foreign Equity Holder – Simplification of Procedure

As per the extant External Commercial Borrowings (ECB) policy, ECBs from direct foreign equity holders (FEHs) are considered both under the automatic and the approval routes, as the case may be. ECBs from indirect equity holders and group companies and ECBs from direct FEH for general corporate purpose are, however, considered under the approval route. Further, any request for change of the ECB lender in case of FEH requires RBI's approval.

The Reserve Bank of India (RBI), as a measure of simplification of the existing procedure, vide Circular dated 16.05.2014, has decided to delegate powers to Authorized Dealer banks to approve the following cases under the automatic route:

1. Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors from indirect equity holders and group companies.

2. Proposals for raising ECB for companies in miscellaneous services from direct / indirect equity holders and group companies. Miscellaneous services mean companies engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility.

3. Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors for general corporate purpose. ECB for general corporate purpose (which includes working capital financing) is, however, permitted only from direct equity holder.

CONTENTS

— News AlertsCorporate, Capital Market, Economy & Foreign Trade 1

Judgments 3

— Article 5

3Legislations

Right To Be ForgottenBy Mr. Syed Zomael Hussain, Associate, K&A

4. Proposals involving change of lender when the ECB is from FEH – direct / indirect equity holders and group company.

Other aspects of the ECB policy such as eligible borrower, recognized lender, permitted end-use, amount of ECB, all-in-cost, average maturity period, pre-payment, ECB liability: equity ratio, refinance of existing ECB, reporting arrangements, etc. shall remain unchanged.

The aforementioned changes will come into force with immediate effect.

The foreign nationals have been facing a lot of difficulties while filing Incorporation form (INC-7) due to mandatory requirement of submission of PAN details of intending Directors at the time of filing the application for incorporation. In view of the aforementioned, it has been clarified vide Circular dated 22.05.2014 that PAN details are mandatory only for those foreign nationals who are required to possess “PAN” in terms of provisions of the Income Tax Act, 1961 on the date of application for incorporation. Where the intending Director who is a foreign national is not required to compulsorily possess PAN, it will be sufficient for such a person to furnish his/her passport number, along with undertaking stating that provisions of mandatory applicability of PAN are not applicable to the person concerned.

Applicability of PAN requirement for foreign nationals at the time of filing application for incorporation


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Increase in limit of cash investment in mutual funds

Prior RBI approval required in cases of acquisition/ transfer of control of NBFCs

Cash transactions in Mutual Funds are presently permitted to the extent of Rs.20,000/- per investor, per mutual fund, per financial year as per the Circular dated 13.09.2012 issued by Securities Exchange Board of India (SEBI). SEBI, vide its Circular dated 22.05.2014, in partial modification to of the aforesaid circular, has decided to increase the limit of cash transactions in mutual funds from the existing limit of Rs.20,000/- per investor, per mutual fund, per financial year to Rs.50,000/- per investor, per mutual fund, per financial year, subject to (i) compliance with Prevention of Money Laundering Act, 2002 and Rules framed there under, the SEBI Circular(s) on Anti Money Laundering (AML) and other applicable AML rules, regulations and guidelines and (ii) sufficient systems and procedures in place.

With regard to investment/trading in Securities by employees of Asset Management Companies and Trustees of Mutual Funds, SEBIs circular dated 08.05.2001 and Circular dated 11.07.2003, on guidelines for Investment/Trading in Securities by Employees of Asset Management Companies (AMCs) and Trustees of Mutual Funds were in place.

Considering that since the issuance of aforesaid guidelines, liquid schemes have emerged as a distinct category of Mutual Fund scheme having features similar to that offered by Money Market Mutual Fund (MMMF) schemes, thus, in partial modification to aforesaid circulars, it has been decided that - (a) Liquid schemes have been added along-with MMMF schemes in list of securities to which the aforesaid guidelines do not apply; (b) Along with MMMF schemes, transaction in Liquid schemes shall be exempted from being reported by employees to compliance officer within 7 calendar days from the date of transaction; (c) In the aforesaid guidelines, there is a mention of various situations wherein employees of AMC & Trustees of Mutual Funds shall not purchase or sell units of any schemes, term 'liquid scheme' shall be included along side MMMF schemes.

The Reserve Bank of India (RBI), vide its Notification dated 26.05.1014, has issued directions to all the non-banking financial companies (NBFCs), both deposit accepting and non-deposit accepting, stating that prior

written permission of RBI shall be required for: (a) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise; (b) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC; (iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC; (d) Before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs. Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the Company is located. Further, any transfer of shares in violation of this notification would result in adverse regulatory action including cancellation of Certificate of Registration.

The Reserve Bank of India (RBI), vide its Circular dated 19.05.2014, has decided to notify a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008, as an “Indian Party” under clause (k) of Regulation 2 of the e Notification No.FEMA.120/RB-2004 dated 07.07.2004. Accordingly, an LLP, may henceforth undertake financial commitment to / on behalf of a Joint Venture/ Wholly Owned Subsidiary abroad in terms of the extant FEMA provisions under Regulation 6 (and regulation 7, if applicable) of the said Notification. The necessary amendment to the said Notification has been issued vide Notification No.FEMA.299/2014-RB dated 24.03.2014, which is effective from the date of publication in the Gazette i.e. 07.05.2014. The Authorized Dealer (AD) banks shall report the financial commitment/s undertaken by an LLP in Form ODI Part I and II and also other reporting (APR, disinvestments, etc.) as per the extant reporting requirements.

The Reserve Bank of India (RBI) has asked banks not to penalize account holders for not maintaining minimum balance in their inoperative accounts. RBI had

Overseas Direct Investments – Limited Liability Partnership (LLP) as Indian Party

RBI asks banks to stop penalty for not keeping minimum balance




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announced its intention in a recent policy statement. It is advised that henceforth banks are not permitted to levy penal charges for non-maintenance of minimum balances in any inoperative account. Banks should also not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to basic savings bank deposit accounts. However they should restore the services when the balances improve to the minimum required level. Basic savings bank deposit accounts are those that banks have mandated to offer without any minimum balance requirement. RBI had also said that banks should limit the liability of customers in electronic banking transactions in cases where banks are not able to prove customer negligence. Banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. At present, each bank has its own policy with regard to non-maintenance of minimum balances. RBI has also directed banks to calculate interest rate paid on savings banks on the daily minimum balance instead of the earlier practice of paying interest on quarterly balances.

The Central Government, in exercise of the powers conferred by sub-section (2) of Section 1 of the Narcotic Drugs and Psychotropic substances (Amendment) Act, 2014, has appointed 01.05.2014, as the date on which the provisions of the said Act shall come into force. The said Act was enforced vide Notification dated 30.04.2014 issued by the Department of Revenue, Ministry of Finance.

The Hon'ble Supreme Court, in a recent case, has directed all the criminal courts in the country dealing with Section 138 cases to follow the said procedures for the speedy and expeditious disposal of such cases and has issued the following directions:

LEGISLATIONS

JUDGMENTS

Narcotic Drugs and Psychotropic substances (Amendment) Act, 2014

Revised guidelines in cheque bounce cases under Section 138 of Negotiable Instruments Act, 1881: SC



(1) The Magistrate/Judicial Magistrate, on the day when the complaint under section 138 of the Negotiable Instruments Act is presented, shall scrutinize the complaint and, if the complaint is accompanied by the affidavit, and the affidavit and the documents (if any) are found to be in order, take cognizance and direct issuance of summons.

(2) The Magistrate/Judicial Magistrate should adopt a pragmatic and realistic approach while issuing summons. Summons must be properly addressed and sent by post as well as by e-mail address got from the complainant. The Court, in appropriate cases, may take the assistance of the police or the nearby Court to serve notice to the accused. For notice of appearance, a short date may be fixed. If the summons is received back un-served, immediate follow up action be taken.

(3) The Court may indicate in the summon that if the accused makes an application for compounding of offences at the first hearing of the case and, if such an application is made, the Court may pass appropriate orders at the earliest.

(4) The Court should direct the accused, when he appears to furnish a bail bond, to ensure his appearance during trial and ask him to take notice under Section 251 Code of Criminal Procedure to enable him to enter his plea of defence and fix the case for defence evidence, unless an application is made by the accused under section 145(2) for re-calling a witness for cross-examination.

(5) The Court concerned must ensure that examination-in-chief, cross-examination and re-examination of the complainant must be conducted within three months of assigning the case. The Court has option of accepting affidavits of the witnesses, instead of examining them in Court. Witnesses to the complaint and accused must be available for cross-examination as and when there is direction to this effect by the Court.


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Judge entitled to alter verdict until judgment is signed & sealed: SC

SEBI can seek call data, but must act with care: Bombay HC

In a case relating to prosecution of police personnel for alleged dereliction of duty, the High Court dictated an order in open Court and acquitted the petitioner. However, later, the said order was recalled by the Court suo moto on the ground that the issue required to be examined further. The petitioner challenged the order of recall on the ground that once the order had been dictated in open court, a review or recall is not permissible in view of Section 362 Code of Criminal Procedure which provides that a judgment or order passed in a criminal case cannot be reviewed or recalled once it has been pronounced and signed. The Supreme Court dismissed the Appeal and held that up to the moment the judgment is delivered Judges have the right to change their mind. There is a sort of 'locus paenitentiae' and indeed last minute alterations often do occur. Therefore, however much a draft judgment may have been signed beforehand, it is nothing but a draft till formally delivered as the judgment of the Court. Only then does it crystallize into a full fledged judgment and become operative. It follows that the Judge who “delivers” the judgment, or causes it to be delivered by a brother Judge, must be in existence as a member of the Court at the moment of delivery so that he can, if necessary, stop delivery and say that he has changed his mind. If he hands in a draft and signs it and indicates that he intends that to be the final expository of his views it can be assumed that those are still his views at the moment of delivery if he is alive and in a position to change his mind but takes no steps to arrest delivery. However one cannot assume that he would not have changed his mind if he is no longer in a position to do so. The mere signing of the draft does not necessarily indicate a closed mind. The Court felt it would be against public policy to leave the door open for an investigation whether a draft sent by a Judge was intended to embody his final and unalterable opinion or was only intended to be a tentative draft sent with an unwritten understanding that he is free to change his mind should fresh light drawn upon him before the delivery of judgment.

According to a Bombay High Court ruling, the Securities and Exchange Board of India (SEBI) can seek call data records of any person against whom an investigation is being carried out from telecom service providers. The

Court said although SEBI is empowered to call for information from persons associated with the securities market under the SEBI Act, it must exercise caution as this power is capable of misuse and can violate a person's right to privacy. It is made clear that such a power cannot be exercised by SEBI for conducting a fishing enquiry. It cannot be a blanket power to hunt out information without any pending inquiry or investigation. This power can only be exercised by SEBI in respect of any person against whom any investigation or inquiry is being conducted. Further, such information can be called for only by an officer duly authorized by SEBI to call for information with regard to call data records from the telecom service provider. Additionally, before calling for such information, the opinion of the authorized officer should be recorded in the file. Call data records are an important evidence for SEBI'S investigation, especially in cases relating to insider trading and frauds. Last year, the Indian Council of Investors had filed a Public Interest Litigation asking the Court to restrain SEBI from calling for call data records and details of tower location from telecom service providers. It alleged that the action of SEBI violates and infringes the fundamental right of privacy of an individual and was also prohibited under the Indian Telegraph Act. The Court accepted SEBI's stand that the power in SEBI to call for the call data records from the telecom service providers was always available and in case there was any doubt or ambiguity, the same is removed by the Securities Law (Amendment) Ordinances issued in 2013 and 2014.

In one of the first major cases interpreting the provisions of the Companies Act 2013, the Bombay High Court has rejected a request for permission to seek shareholders' nod for their proposed merger through electronic voting and postal ballot. Both parties to the merger requested the High Court to dispense with the requirement of holding a physical meeting of shareholders, and instead let them conduct the meeting by way of an electronic voting and postal ballot, as purportedly mandated under the new provisions of the Companies Act. The High Court declined the request and reiterated the importance of physical meetings in corporate democracy and the right of shareholders to discuss and deliberate actions proposed to be undertaken by the company. The Court further recommended that until the issues raised by the High Court on the exclusion of physical shareholder

Postal ballot & e-voting cannot dispense general meeting: Bombay HC


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meetings are finally settled, no company should insist upon a postal-ballot-only-meeting. The High Court also held that all provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of a physical meeting do not apply to court-convened shareholder meetings. At such meetings, provision must be made for shareholders to allow them to vote through postal ballots or electronic voting, in addition to the voting right at the physical meeting.

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ARTICLE

RIGHT TO BE FORGOTTEN

By Mr. Syed Zomael Hussain, Associate, K&A

The development of right to privacy has become all the more pertinent in the present age of ever expanding and burgeoning online data growth and the resultant urge of many to utilize this boon and to share more information with others. The result of this intent has been a spurt of data including personal data which remains stored over the web. Accordingly, the right to privacy in relation to such data stored on the servers of the web becomes a matter of concern in view of lack of control over such data. Accordingly, an offshoot of the right to privacy appears to be the right to be forgotten especially in relation to the personal data stored over the web.

The inception of the 'Right to be Forgotten' can be found in French law, which recognizes le droit à l'oubli or the “right of oblivion” a right that allows a convicted criminal who has served his time and been rehabilitated to object to the publication of the facts of his

1conviction and incarceration. Besides, the common law also secures to each individual the right of determining, ordinarily, to what extent his thoughts, sentiments, and emotions shall be communicated to others. Under our system of government, he can never be compelled to express them and even if he has chosen to give them expression, he generally retains the power to fix the limits of the publicity which shall be given to them. The existence of this right does not depend upon the particular method of expression adopted.

A recent judgment of the European Union Court of Justice (“CJEU”) upholding the “Right to be Forgotten” in the matter of Google Spain SL and Google Inc v Agencia Española de Protección de Datos and Mario Costeja Gonzalez dated 13/05/2014 is a landmark instance of not only safeguarding human privacy but

also assuring a right to every individual as to the extent to which he wishes to make information about him available on the internet. The case involved a dispute arising out on the fact that, when an internet user entered Mr Costeja González's name in the Google search engine (“Google”), he would obtain links to two pages of La Vanguardia's newspaper, of 19 January and 9 March 1998 respectively, on which an announcement mentioning Mr Costeja González's name appeared for a real-estate auction connected with attachment proceedings for the recovery of social security debts.

CJEU relied on relevant Articles (as discussed below) of the Directive 95/46/EC of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (“Directive”), to arrive at the conclusion. The key issues that were addressed in this judgment were: (a) the material scope of the Directive, i.e., whether it applies to search engines (b) the territorial scope of the Directive, i.e., whether it applies to Google Spain, given that the parent company is based in Silicon Valley (c) the responsibility of search engine operators (d) the concept of the 'Right to be Forgotten', i.e., the right of an individual to insist that his or her history be removed from accessibility via a search engine.

Google's contention that it's activity does not fall within the meaning and scope of the Article 2(b) and 2(d) on the fact that search engines process all the information available on the internet without effecting a selection between personal data and other information or neither it has the knowledge of those data to exercise control over the data, the CJEU was of the considered opinion that the operator of a search engine 'collects' such data which it subsequently 'retrieves', 'records' and 'organises' within the framework of its indexing programmes, 'stores' on its servers and, as the case may be, 'discloses' and 'makes available' to its users in the form of lists of search results in accordance with the definition of Article 2(b) as stated below:

“2(b) processing of personal data' ('processing') shall mean any operation or set of operations which is performed upon personal data, whether or not by automatic means, such as collection, recording, organization, storage, adaptat ion or a lterat ion, retr ieval, consultation, use, disclosure by transmission, dissemination or otherwise making available,

alignment or combination, blocking, erasure or destruction” [ Article 2(b) of the Directive]

Whereas it is a controller as it is the search engine which determines the purposes and means of that activity and thus of the processing of personal data that it itself carries out within the framework of that activity and which must, consequently, be regarded as the 'controller' in respect of that processing pursuant to Article 2(d) of the Directive as provided below:

“2(d) 'controller' shall mean the natural or legal person, public authority, agency or any other body which alone or jointly with others determines the purposes and means of the processing of personal data; where the purposes and means of processing are determined by national or Community laws or regulations, the controller or the specific criteria for his nomination may be designated by national or Community law” [ Article 2(d) of the Directive]

While determining the territorial scope of the directive, the CJEU emphasized on Recital 19 (which defines 'establishments') of the preamble to the Directive read with Article 4 of the Directive and concluded that, even if the search engine is operated by Google Inc which is based in California and that Google Spain's activities were limited to advertisements, such activities are inextricably linked since the activities relating to the advertising space constitute the means of rendering the search engine at issue economically profitable and therefore would attract the relevant provision of the Directive on the account that “the processing is carried out in the context of the activities of an establishment of the controller on the territory of the Member State”.[Article 4(1)(a) of the Directive]

However, what has grabbed the attention of the world audience and big tech companies is CJEU's ruling on the very case based on Article 12(b) and Article 14 of the Directive which forms basis of what is popularly known as “Right to be Forgotten”. The CJEU accepts the arguments that the Directive's requirements that personal data must be retained for limited periods, only for as long as it is relevant, amounts to a form of 'Right to be Forgotten', however the Court clearly guides the national court to the conclusion that the data subject's rights have been violated.

Whereas Google argued that, by virtue of the principle of proportionality, any request seeking the removal of


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information must be addressed to the publisher of the website concerned because it is he who takes the responsibility for making the information public The CJEU countered by directing the application of Article 12(b) of the Directive which provides the right to obtain from the controller, as appropriate, the rectification, erasure or blocking of data, the processing of which does not comply with the provisions of Directive 95/46, in particular because of the incomplete or inaccurate nature of the data. Further, the CJEU also stated that the controller has the task of ensuring that personal data are processed 'fairly and lawfully', that they are 'collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes', that they are 'adequate, relevant and not excessive in relation to the purposes for which they are collected and/or further processed', that they are 'accurate and, where necessary, kept up to date' and, finally, that they are 'kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the data were collected or for which they are further processed'. In this context, the controller must take every reasonable step to ensure that data which do not meet the requirements of that provision are erased or rectified.

The provisions under the Directive permits the processing of personal data where it is necessary for the purposes of the legitimate interests pursued by the controller or by the third party or parties to whom the data are disclosed, except where such interests are overridden by the interests or fundamental rights and freedoms of the data subject in particular his right to privacy with respect to the processing of personal data

It is not easy to comprehend the extent of the outcome of the CJEU judgment, where it is viewed by some that the judgment has the potential to create a kind of “EU internet” separate from the global internet, while there are others who view that the judgment threatens 'Freedom of Speech and Expression'. On the other hand the immediate implication of the CJEU ruling on the contrary has accorded an opportunity to people like an ex-politician who is seeking re-election, a man convicted of possessing child abuse images and a doctor seeking to remove negative reviews from patients, are reported to be among the first to send takedown notices to Google. So not everyone who might conceivably be embarrassed by such old information will complain to Google, but a considerable number are

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likely to do so. Google's liability extends to responding to such individuals, but not to completely changing the way it processes personal data in the absence of such complaints.

In India, the Right of Privacy has been specifically been interpreted by the Courts in Article 21 of the Constitution of India. In Unni Krishnan v State of Andhra Pradesh 1993 AIR 2178, the Supreme Court, while judging that several unenumerated rights fall within Article 21 since personal liberty is of widest amplitude has also held 'Right to Privacy' to be an integral part of Article 21. In addition to the same, the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 grants protection to individuals on sensitive information and data published on the internet. The Rules mandates company's operating as a 'processor' or 'controller' to set up privacy policies or obtain consent in writing from the provider of the sensitive personal data or information regarding purpose of usage before collection of such information and to retain information for a period as may be required. However, no provision as yet is present which expressly speaks about the right to forgotten.

The aforesaid judgment has clearly endeavored to provide another dimension to the right to privacy which may however, also be subject to enforcement issues in the absence of appropriate technical means and the costs involved in enforcement of such rights.

References:

1. Jeffrey Rosen, The Right to Be Forgotten, Stanford Law Review, vol-64, Feb.13, 2012; [http://www. stanfordlawreview.org/online/privacy-paradox/right-to-be-forgotten] last accessed on 16/05/2014;

2. Warren and Brandeis, The Right to Privacy, Havard Law Review, vol-iv, Dec.15, 1890; [http://groups.csail.mit. edu/mac/classes/6.805/articles/privacy/P rivacy_brand_warr2.html] last accessed on 16/05/2014;

3. Google Spain SL and Google Inc v Agencia Española de Protección de Datos and Mario Costeja Gonzalez, Case-C-131/12, dated 13/05/2014;

4. Ibid

5. Ibid

6. Dr. Christopher Kuner, The Court of Justice of EU's Judgment on the “Right to be Forgotten” : An International Perspective, May 2014; accessed at [http://www.ejiltalk. org/the-court-of-justice-of-eus-judgment-on-the-right-to-be-forgotten-an-international-perspective/]; last accessed on May 26, 2014;

7. Mark Stephens, Only the Powerful will benefit from the 'Right to be Forgotten', The Guardian, May 18, 2014; acces sed a t [h t tp ://www.theguard ian .com/ commentisfree/2014/may/18/powerful-benefit-right-to-be-forgotten]; last accessed on May 26, 2014.

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