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Key Clauses of a Shareholders Agreement

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This blog post is written by Ms. Ritu Sajnani, Senior Legal Counsel, Coinswitch, Ex-AZB & Partners and Cyril Amarchand Mangaldas.

A Shareholders’ Agreement (“SHA”) seeks to regulate the relationship between the shareholders and the issuer company (the “Company”) itself. SHA particularly governs the rights, obligations, ownership of shares, privileges, voting and various protective provisions of the said shareholders.  

Key Clauses

  1. Board of Directors: This clause deals with the responsibilities, rights, duties, and obligations of the Board of Directors (“Board”). It also includes the composition of the Board which prescribes the manner of appointment, the rights vested with the promoters to alter the Board size, and the voting rights of shareholders pursuant to the process of removal and replacement of directors.
  2. Board proceedings: This clause stipulates the frequency of the Board meetings, the time interval permitted between both two meetings, the sitting fees of the directors, and the mode of carrying out the Board proceedings. The details regarding the appointment of chairman, constitution of a valid quorum for a Board meeting, the matters in which the quorum requirement is exempted or relaxed, etc. are also listed in this clause.

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  1. Committees: This clause envisages those circumstances wherein the Board might have delegated powers to committees of specific directors and/ or officials for specific tasks. It also states aforementioned provisions like quorum and decision making to such delegated committees.
  2. General Meetings: This clause provisions for the calling of a general meeting along with the mandate of holding a certain number of meetings each year, the quorum required for conducting these meetings and consequently, passing resolutions, sending notice particulars, and provision for holding an extraordinary general meeting.
  3. Reserved Matters: This clause refers to a set of matters that mandate an additional layer of obtaining consent from a specific group of persons, in order to have a legally binding effect. A violation of this clause, or the failure to obtain the requisite consents, would render any decision made, action taken or resolution passed as void and invalid.
  4. Exit: This clause confers an obligation upon the Company and its founders to provide a full exit with a stipulated exit period to its investors. Typically, exit can be in any of the following ways:

a) Initial Public Offering (“IPO”): In the event an exit is in the form of an IPO, this clause directs that it shall only be undertaken with the prior written consent of the investors’ majority, in consultation with independent merchant bankers and the statutory guidelines in force.

b) Company Sale: This clause envisages a situation wherein the Company fails to undertake a qualified IPO – in the event of which, it must typically undertake a company sale on the terms and conditions (including pricing) approved by the investors’ majority.

c) Third Party Sale: In the event, the Company fails to provide an exit in the stipulated exit period by way of an IPO or Company Sale, then the investors’ majority shall, by issuing a notice to the Company (Exit Notice), at any time subsequent to the expiry of the exit period, have the right to require the Company to appoint a merchant banker acceptable to them, to find a buyer for the shares held by the investors at a price that is the higher of: (i) Preference Amount; or (ii) Fair Market Value as on the date of the Third Party sale.

d) Buy Back: In the event, the Company fails to provide an exit in the stipulated exit period by way of an IPO or Company Sale or through Third Party Sale, then upon request of the investors’ majority, the Company, at its discretion, may propose by way of a notice (Buy Back Notice), to buy the shares held by its investors (on a pro-rata basis) at a price that is the higher of: (i) Preference Amount on an as-if-converted basis; or (ii) Fair Market Value as on the date of the Buy Back Notice, subject to applicable law in lines with the approval of the investors’ majority.

e) Drag Along Right: In the event, the Company fails to provide an exit in the stipulated exit period by way of an IPO or Company Sale or Third-Party Sale or through buy back or in case of default, the investors’ majority shall have the right and not an obligation to cause the transfer of all shares held by other investors or employees to a bona fide third party (not being an affiliate of any of the dragging investors) at the same price and same terms and conditions as may be offered to the dragging investors by the drag purchasers. 

  1. Event of Default: It is a non-obstante clause wherein in the event of breach, the other parties shall be entitled to seek specific performance and such other rights and remedies as are available to them under applicable law.
  2. Transfers: This clause fundamentally lays down the legal contours of transfer of shares by shareholders and investors by placing certain restrictions and conferring certain privileges. A transfer undertaken in violation of the agreement would be null, void and not binding on the parties and Company or any of the parties. Typically, the clause on transfers includes the following:

8.1 Right of First Offer (“ROFO”): A ROFO is a contractual obligation pursuant to which any investor intending to sell its share to a third person can only exercise such right after providing the right to purchase said shares to the promoter entity. The clause comprehensively regulates the procedure and manner in which the promoter entity may exercise their right. On the other hand, a Right of First Refusal provides non-selling shareholders with the right to accept or refuse an offer by a selling shareholder after the selling shareholder has solicited an offer for their shares from a third-party buyer.

8.2 Pre-emptive Right: This clause confers a contractual obligation upon the Company by virtue of which, in the event the said Company is desirous of issuing new equity shares, this clause mandates that the Company must provide the existing investors a right to participate in the proposed issuance by subscribing a quantum necessary to maintain their pro-rata shareholding in the Company on a fully diluted basis. 

8.3 Tag Along Rights of Investors: In the event, a promoter entity or its affiliates desire to transfer all or part of the equity securities held by them to another person, this clause confers a contractual right and not a mandatory obligation upon the investors to transfer its equity shares at the same price, terms and conditions, on a pro-rata basis, to the proposed transferee. 

8.4 Fall Away: This clause is a non-obstante clause which typically states that if the investors and/or its affiliates collectively cease to hold a prescribed number of equity securities or their shareholding falls below a certain threshold, typically all rights conferred upon them in the SHA will immediately and automatically cease to have effect.

  1. Value Protection/ Anti-Dilution Rights: In the event, the Company intends to issue securities to any third party other than its existing shareholders, which has the effect of lowering the investor’s entry valuation or dilute their effective shareholding in the Company, this clause imposes an obligation upon the Company to take all steps necessary to ensure that the investor is adequately compensated and/or steps are undertaken by the Company in a form and manner satisfactory to the investor.
  2. Most Favorable Clause: This clause confers an obligation upon the promoter entity that the Company shall not, without prior consultations with the investors, induct any new investor in the Company on terms which are more favorable than the existing shareholders’ rights granted to them under the transaction documents.
  3. Information and Inspection Rights: This clause imposed an obligation upon the Company to furnish necessary documents like audited and unaudited consolidated financial statements, monthly reports, any updates on functioning and operations on the Company’s business, including any breach of representations and warranted to the investors for their perusal.
  4. Liquidation Preference: This clause provides how the total proceeds from a liquidity event, shall be distributed between holders of relevant securities.

Due Diligence in the Mergers and Acquisitions transactions

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This blog post is written by Kartik Singh, a final year law student from National Law University, Odisha. He was a participant of our Mergers & Acquisitions Course. He is also an Incoming Associate at Trilegal law firm. 

What is Due Diligence?

Due diligence is essentially a background check to ensure that the parties to a deal have the information they need to proceed with the transaction. It is an examination and risk assessment of an anticipated commercial transaction. A thorough investigation is necessary to uncover misrepresentation and fraudulent activity in a significant business transaction. Due Diligence is the process through which interested parties who are planning to enter into a business deal exchange, review, and evaluate sensitive, legally binding, financial, and other material information. The phrase “due diligence” frequently refers to the thorough investigation and study carried out before signing a contract or starting a business with a party.

Due diligence-driven transactions have a better likelihood of succeeding. By improving the calibre of data available to decision-makers, due diligence aids in making educated decisions. The buyer can feel more certain that their expectations for the deal are accurate thanks to due diligence. Purchasing a business without performing due diligence elevates the risk to the purchaser significantly in mergers and acquisitions (M&A). To provide the buyer confidence, due diligence is carried out. Due diligence, however, could also work in the seller’s favour because a careful financial analysis might actually show that the seller’s company is worth more than was previously believed. As a result, it is usual for sellers to create their own due diligence reports before possible purchases.

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Need for a Due Diligence Report

In the framework of M&A activities, for instance, or to protect the value chain or to conform with restrictions and with laws on the combating of money laundering, bribery, and corruption, due diligence risk and adherence check tools assist businesses in protecting their interests. When it comes to due diligence, the adage “discovering skeletons in the closet before the deal is preferable than discovering them later” is applicable. The data gathered throughout this procedure must be published because it is essential for making decisions. The due diligence report clarifies how the business intends to increase profits (monetary as well as non-monetary).

It acts as a quick reference for realising the situation at the moment of buying, sale, etc. Getting a clear image of how the organization will function in the future is the ultimate goal. The main objective of this report is to accurately portray the firm’s future operations to the dealing party. Prior to the purchase being finalised, the primary objective of due diligence is to spot any warning signs. It assists in identifying potential threats in the future. For making decisions, the data obtained for this report is essential. The company might be able to negotiate if it finds any flaws during the due diligence process. The report aids the organisation in understanding how the target wants to generate additional revenue. It serves as a doomsayer, for instance, when determining the state of affairs at the time of sale or purchase.

When is Due Diligence Required?

The following transactions entail the requirement of conducting by the parties involved:

  • Mergers and Acquisitions (M&A): Both the buyer and the seller’s perspectives are taken into account when performing due diligence. The seller concentrates on the previous experience of the buyer, the financial capabilities to complete the deal, and the ability to uphold commitments made, whereas the consumer investigates the financials, litigation, patents, and a wide range of important information.
  • Partnership: Business alliances, business collaborations, and other types of partnering are subject to due diligence.
  • Joint Ventures: Reputation of the combined company is an issue when two businesses join forces. It is crucial to comprehend the other company’s position and assess whether their resources are adequate.
  • Public Offer: Decisions about public issues, disclosures in a prospectus, post-issue compliance, and similar problems are involved during the making of a public offer. Normally, these would demand careful consideration and thus, the process of due diligence is required.

Elements of Due Diligence Report

The various elements of a due diligence report are as follows:

  • Financial Information: It comprises looking over copies of the last five years’ worth of audited financial statements, along with all associated notes and management’s analysis and comments.
  • Corporate Records: A target company’s primary formation documents, such as the articles or certificate of incorporation and bylaws, are reviewed by legal counsel. Consider that the target company is a corporation or that the operating agreement and certificate of organisation, along with any changes, are a limited liability company.
  • Debt: This involves analysing the seller’s debt in terms of loans, notes, cash advances, and security agreements; evaluating the lender relationship; and performing ongoing commercial code checks with each daughter company.
  • Employment and Labor: This section includes the full names of all executives, employees, and directors, as well as information about pensions, stock plans, profit sharing, deferred pay, and other benefits or non-salary compensation. It also includes information about any ongoing labour and employment law cases.
  • Legal: It includes copies of documents submitted to government authorities, including reports and licences, as well as information on any environmental duties and details of any legal disputes.
  • Technology: The evaluation of the technology available to the organisation is a crucial issue to take into account. A required evaluation is one that helps determine future course of action.
  • Agreements: All contracts made by the corporation and its subsidiaries, such as leases on real estate, partnerships, joint ventures, and agreements governing the marketing, commission, sales, and distribution of goods, among other important contracts.
  • Effect of Synergy: The result of synergy Making decisions is aided by the creation of synergy between the target firm and the current business.

Types of Due Diligence

  • Business Due Diligence: It entails investigating the participants to the deal, the prospects of the company, and the calibre of the investment. It entails a thorough investigation of the parties involved in a transaction, the future profitability of the firm, and the investment’s standard.
  • Financial Due Diligence: Here, financial, operational, and commercial hypotheses are verified. The acquiring business can now acquire a company with much less difficulty, which is a tremendous relief. Here, a thorough review of accounting principles, audit procedures, tax compliance, and internal controls is conducted. It provides the acquiring company with a clear image of the value of the acquisition.
  • Legal Due Diligence: It mostly concentrates on legal dangers, other legal matters, and the legal implications of a transaction. It looks for any legal obstacles or red flags. It encompasses both intra-corporate transactions and transactions between corporations. This diligence includes the currently existing documentation as well as several regulatory checklists.

Conclusion

The impacts and usefulness of a due diligence report are clear from the points above. Another compliance, carried out by numerous due diligence report service providers in India, is how the companies must follow the process. Companies must implement the aforementioned procedures in order for the transactions to be feasible; otherwise, it may be difficult for both sides to effectively finish the project agreement.

The due diligence report should give you the amount of assurance you want regarding the possible investment and any associated risks. The report needs to be able to give the acquiring firm enough information to prevent the signing of any onerous contracts that might compromise the current return on investment. No specific rule oversees this process because it is more of a diligence method than a compliance attempt. Each business must complete this crucial phase in order to make investments and assess its overall health.

Metaverse: An Era

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This blog post is written by Ms. Ritu Sajnani & Ms. Aastha Vyas.

The concept of Metaverse

Metaverse = Meta + Universe!

Metaverse is a virtual environment made with the help of technologies like blockchain, computer vision, pervasive computing, scene understanding, and ubiquitous interfaces. The physical, virtual, and human worlds are all combined in the metaverse’s design.

Although metaverse produces a virtual world that is parallel to the real world, unlike the real world, it is not constrained by the laws of space and time because it exists in its own space and time. It enables overcoming the limitations of both times—by going back in time and moving toward the future—and of actual space—by traveling across space in the metaverse. 

By allowing users to create content through recommendations and customised avatars, Artificial Intelligence contributes to improving the metaverse ecosystem. 

In the meantime, technologies like blockchain assist with the monetization of content and avatar trade. In the metaverse, digital assets like Non-Fungible Tokens (“NFTs”) serve as a barter commodity that may also be exchanged for fiat money.

Features of Metaverse

Our physical and digital lives are seamlessly combined in the metaverse, creating a single, virtual society where we can work, play, unwind, do business, and interact. That said, the majority of conceptions of the metaverse make use of avatars, virtual reality, augmented reality, and a vast network.

  • The fact that there are multiple virtual worlds emerging to enable people to deepen and extend social connections virtually is one of the key elements of Metaverse. This is accomplished by enhancing the web with a three-dimensional, immersive overlay to produce experiences that are more real and organic.
  • As a result, interoperability will be a characteristic of the metaverse. Users would be able to move their avatars and other data, such as digital assets, between metaverse apps in an interoperable metaverse, regardless of whether those metaverses share ownership or management.
  • The metaverse will pose fresh and challenging legal challenges relating to intellectual property rights, digital security, privacy and identity—as well as self-sovereignty—as will any breakthrough technical advancement.

The Metaverse Economy

Building a smart city involves fulfilling the daily needs of people in terms of entertainment, video games, remote work, education, tourism, and social networking. Now with the growing applications all are being used as examples of metaverse applications to build a Metaverse Economy. The COVID-19 pandemic bought about the widespread use of smartphones and the internet. 

The advancement of blockchain technology and the expansion of Web 3.0 have all contributed to the emergence of the metaverse. Although many tech businesses are looking into new projects, gaming is thought to be the gateway to the metaverse. Brands are utilising the flexibility that gameplay offers to interact with in-game environments for audience growth and exposure through Metaverse storefronts and NFTs. The gaming industry is already working with sectors like music, fashion, cosmetics, sports, and education to incorporate their brands into the gameplay.

Indian business: The game changers

By releasing its most current collection, “Romance of Polki,” on April 7, 2022, Tanishq became the first Indian jewellery company to establish itself in the Metaverse. Three dimensional designs were made visible to the general public by scanning a QR code.

A similar action was done by the travel agency MakeMyTrip, which also launched virtual holiday NFTs.

Mahindra and Mahindra has introduced NFTs, which are themed on their legendary “Thar” car.

Metaverse and Data Privacy

The metaverse has a global reach and makes its features available to users wherever they may be, so it cannot be confined to a single or small number of data privacy laws. In many instances, the same data or even the same person will be subject to multiple privacy laws. For instance, the EU General Data Protection Regulation (“GDPR”) permits any company, no matter where it is situated in the globe, to be subject to its provisions if it provides goods or services to EU residents or keeps track of their behaviour.

Thus, European users of a metaverse run by a U.S. corporation may utilise their GDPR rights. That EU data subject might be in a virtual nightclub there with a Californian and a Japanese national. Physically, everyone is still in their homes, each with a different level of privacy. The option of privacy legislation in the metaverse is still years away since privacy law has not yet caught up to national and international borders.

Depending on whatever privacy regime is in effect, different rights and obligations apply. In accordance with the GDPR, the controller is required to reveal the details such as the controller’s name and contact information, the reasons for the processing, the legal justification, and the recipients of the personal data. Additionally, under certain conditions, the person may seek access to all information gathered, its correction, or its erasure.

Anytime a person uses a service or makes a purchase—like purchasing NFTs in a metaverse—their data is gathered and kept. For instance, a company that sells goods and services should be aware that it may be the recipient of numerous requests for the exercise of data subject rights that it must abide by.

The jurisdictional challenges

Given that users of Metaverse are likely to come from various backgrounds, countries, and regions, it is crucial to consider which country’s laws would govern the virtual world and Metaverse ecosystem. In a borderless virtual environment, jurisdiction will be even more ambiguous, a significant worry for many government organizations.

There still needs to be more clarity around the authorities’ position on this matter, with a lot more coming in the future. The only workable solution is to collaborate and create laws jointly. The regulations must change in reaction to shifting dynamics, adding a variety of measures to address new problems and offer the world remedies.

Regulatory Challenges: A point of concern

With the emergence of the metaverse, intellectual property rights will face a new problem. In order for the Animation, Visual Effects, Gaming, and Comics industries to prosper, ownership of art and properties in the real world is a different realm from that in the virtual world. NFTs may raise legal questions over rights to and ownership of Intellectual Property (“IP”). 

To prevent IP theft, care must be taken to understand the conditions and smart contracts that are a component of the NFTs transaction.

With the growing advancements, it is necessary to have equipment that will deal with the issues arising from metaverse technology, among them, the protection of privacy.  This will further involve having privacy regulations, laws related to payment governing this aspect, and IP regulations and protections. Even though the concept of metaverse is evolving across the globe, how only time will tell us to what extent India brings laws governing the virtual world. 

Metaverse: A step ahead into the future 

Primary Directions in which the metaverse is advancing includes; Hardware, infrastructure, content, community, and currency. 

International organisations working in the fields of technology and communication have begun developing rules for upholding standards in light of the extensive coverage of technologies that the metaverse requires. The blockchain will be the most crucial piece of technology needed for the metaverse to take off. The first set of global blockchain standards was released in 2019 by the International Telecommunication Union. The Institute of Electrical and Electronics Engineers (“IEEE”) standards for Data Format for Blockchain Systems were published by IEEE in 2020 to promote standardisation. Meanwhile, other nations are attempting to establish laws governing the metaverse and similar technologies.  India too in this race has taken its first movie in the direction by drafting the National Strategy on Blockchain, and by rolling out the 5G testbed, has started testing the testing quantum communication technology. 

By developing the National Strategy on Blockchain, India has also made the first move in that direction.

Conclusion

When it comes to ensuring the secure operation of this new platform, there is a legal gap in front of us. Regulators must step in now, while Metaverse is still in its infancy, before the technology improves. If they wait, it will be more challenging to regulate after there is a higher level of user dependence.

Although disruptive technologies like VR, AR, blockchain, etc., have enormous potential in their applications, there is still doubt over how they will affect established legal systems. Undoubtedly, regulating new technologies would be challenging and call for revising current legal frameworks.

Tips to ace your interview!

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This blog post is written by Ms. Ritu Sajnani & Ms. Varsha Gupta.

 

The type of interview you’ll have truly depends on the company and the position you’ve applied for, but candidates can typically anticipate a phone or video interview as well as a panel interview, which may be done by a combination of Senior Partners, Senior Associates and Associates.

You might be asked a variety of questions during a law job interview, ranging from general questions about your career thus far, to specific questions about the company you’re interviewing for and the law, to questions that test your abilities and competences, as well as questions about your commercial awareness. You could also be asked questions that gauge how well you handle the unexpected.

THE KNOWLEDGE AND EXPERTISE THAT THE FIRM APPRECIATES

You must first understand the qualifications that the employer values in a candidate. This gives you an opportunity to present yourself as the ideal applicant for the job. Read between the lines of the employer’s job listings to learn the talents and experience they appreciate. To obtain a sense of the kind of employees the employer seeks, you can also locate information on their career page. Additionally, speak with any present workers and find out from them what their employer values most in the workplace.

KNOW EVERYTHING ABOUT THE WORKPLACE WELL

Employees who occupy critical positions within an organization are considered its key players. The first stage is to start by doing research on the business or firm, its founders, promoters, key management, and partners. This enables you to learn more about the company, its operations, revenues, growth strategies, and future prospects. With this information, you can also pose factual queries. This will also help you identify the important actors in the organisation. You may learn more about the most recent news and updates about the organisation from this excellent source. Doing your research about the company you want to work for shows that you’re dedicated and willing to go the extra mile – two qualities which will no doubt make you a valuable asset to any team!

READ THE PROFILE OF THE INTERVIEWER

The best way to prepare for an interview is to familiarize yourself with the person who will be conducting it. By taking the time to learn about them, you’ll be able to connect with them on a more personal level and start a meaningful conversation. This will give you an advantage throughout the interview process. While it may be difficult to identify the interviewer, a little research will usually uncover their identity.

First, try to locate the person’s name in the email you received regarding the interview. If you can’t find any information, ask for the interviewer’s name in your email response to the sender. Once you have the interviewer’s name, look them up on LinkedIn. Doing this research will help you to learn more about the interviewer’s background, role within the organisation, and perhaps even some shared hobbies – all of which will come in handy during your conversation.

KNOW YOUR JOB PROFILE

It’s important to understand the role you would play if hired, and you can learn a lot about a company by doing your research beforehand. This way, you’ll be more prepared for the interview, and you’ll have a better idea of what the company does, who their clients are, and what kind of work they do. You can usually find this information on a company’s website – take a look at their services, blog, case studies, and news section to get a better understanding of their work. You can also check out their press releases and events to see what they’re up to lately. Doing your research will help you be more confident and knowledgeable in the interview process, and it may just help you land the job!

KNOW YOUR CV

Be knowledgeable about all aspects of your resume as you will be grilled on these topics during your interview. Highlight the sections of your resume that you want to emphasize the most and be prepared to speak in-depth about them. Focus on your strong points; we all have certain areas we are particularly knowledgeable about and weak points in other areas. By preparing to speak about your strengths, you will be able to avoid your weaknesses and make a more positive impression overall.

ORGANIZE YOUR PAPERWORK

Even if you submitted your application using a digital version of your resume, it’s always a good idea to carry hard copies of all your supporting documentation with you in case the interviewer requires them for quick access. Take a printout of your cover letter and CV. Place all of your significant papers, such as certificates, mark sheets, IDs, and photos, in a folder. Be sure to have them ready as well if the HR has requested that you bring any specific documents, such as pay stubs, a letter of resignation from your previous employment, or bank statements. Having all of these documents readily available will show that you’re prepared and organized, two qualities that any employer would want in their employees.

ASK THE INTERVIEWER THOUGHTFUL QUESTIONS

Most interviewers will give you the chance to ask questions and clarify any doubts you may have. During the interview, keep a note of the questions you want to ask the interviewer. Towards the end of the interview, you can ask any questions you may have about the job, the firm, or any other matter. 

BE HONEST

Honesty is always the best policy! Your interviewer will be able to tell based on your answers whether or not you have strong moral principles, and this does matter in the grand scheme of things. If you don’t know the answer to a question, it’s perfectly fine to say so. What isn’t okay is trying to guess answers or just throwing random information out there in hopes that something will stick. Even though no one can be an expert in everything, it’s better for a candidate to admit their limitations and learn from them than it is for someone to try to bluff their way through an interview.

KNOW YOUR AREA OF PRACTICE 

Know the legal and current events that are taking place in your field of expertise and that particular area of practice, as well as the legal theories that underpin those events.

Be familiar with the fundamentals of law; questions about the Contract Act, Companies Act, Civil Procedure Code, Arbitration Act, Registration Act, Transfer of Property Act, etc., which are all significant laws, may be asked of you. Depending on the kind of place you are applying to, the actual laws may change.The IPC, CrPC, and Evidence Act will undoubtedly be brought up if you are working with a criminal lawyer, whereas the Arbitration Act and CPC will likely come up more if you are looking for a position with a corporate litigation team. Be ready to respond to inquiries concerning legal compliances, labour and employment law, and contract law if you submit an application for an in-house legal team.

You’ll be on the right track if you concentrate on the regulations that have the greatest effects on business!

ONLINE INTERVIEWS

If the interview is conducted online, please accept the calendar invitations and install the programme on which the interview-meeting is scheduled. Please bring headphones, a quiet setting, and a backup internet connection to the interview. In case your primary internet connection stops working or hangs for whatever reason, keep a backup device nearby. Make sure your video is on during the interview so there are fewer distractions and you can connect with the interviewer more easily. Your username should be professional, and please use a professional email address as well.

CONDUCT MOCK INTERVIEWS

No matter how well you think you’ve prepared, it’s only natural to feel some level of stress or anxiety leading up to your interview. This is where mock interviews come into play – they can help you shake off some of the nerves by simulating an actual interview setting. You can ask a friend or family member to act as the interviewer, or if you’re having trouble finding someone, you can always practice in front of a mirror. For an added level of feedback, try recording the entire mock interview so you can review it afterwards and identify any areas that need improvement.

Company Law in a Nutshell

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Company Law in India

Company law is a compendium of legislative measures, rules, and regulations that govern the formation, structure, management, operation, administration, and compliance of companies. The Companies Act, 2013 (the “Act”), – which replaced the erstwhile Companies Act, 1956 – along with circulars, orders, rules, amendments, forms, and notifications together encompass the company law in India. 

 

Company – Meaning, Nature, Characteristics

A company is a separate legal entity or legal person (a.k.a. Artificial Legal Person) that has its own corporate personality independent from that of its members. It is legally competent like a natural person to own property, incur debts, borrow money, have a bank account, have transferable shares, employ people in its name, enter into contracts, sue, or be sued independently. However, in certain cases, the courts may examine a company from beyond the purview of its corporate personality and begin to look at the members or managers directly, termed as the ‘lifting of the corporate veil’.

 

Company v/s Partnership Firms and Limited Liability Partnership

Partnership firms are often confused to have similar characteristics as a company. However, unlike a company’s distinction from its members as a legal person, a partner is an agent of the partnership firm whose liability is unlimited and the partner cannot independently dispose of the property or contract with the firm or transfer their shares without the other partner’s consent. Furthermore, the process of dissolution, accounting, and auditing of a partnership firm differs from that of a company.

 

On the other hand, a limited liability partnership is a blend of both, a company and a partnership firm. It is a separate legal entity like a company but functions in consonance with the contractual agreement between the partners with flexible compliance and governance like a partnership firm. 

Kinds of companies

Companies in India are incorporated when a certain number of persons sign a memorandum for any lawful purpose, with or without limited liability, and contractually agree to comply with the requirements of the Act. These companies can be divided into various kinds on the basis of the following categories:

  1. Based on incorporation: Statutory Company, Registered Company
  2. Based on members: Private, Public, One Person Company
  3. Based on liability: Limited by shares, Limited by guarantee, Unlimited
  4. Based on control: Associate or Joint Venture Company, Holding and Subsidiary Company

A company can further be classified into Foreign Company, Government Company, and Section 8 Company.

Incorporation of a Company

The formation and incorporation of a company begin with the registration of at least one suitable name, in order of preference, with a maximum of six other options, followed by the filing of documents like a declaration of compliance, notice of situation of the registered office, and particulars of the director(s), etc. post the name approval. A company’s incorporation is incomplete without drafting and stamping the Memorandum and Article of the Company. These two documents are vetted by the Registrar of Companies (the “RoC”) having jurisdiction over the proposed registered office of the company. RoC further issues a certificate of incorporation, and a Corporate Identity Number, post which the companies are required to maintain copies of all documents and information.

Some of the significant company documents and records that have been detailed in the Act are Memorandum of Association, Articles of Association, Prospectus, Share Certificate, Share Warrant, and Statutory Registers.

Directors and Key managerial personnel

A company’s values and standards are maintained through strategic planning, performance reviews, and robust financial, human resource, and risk management. It requires entrepreneurial leadership demonstrated by the Board of Directors. The constitution of the Board, its powers, restrictions, and appointment of directors are elaborated in the Act. The Act also mandates appointment of Key Managerial Personnel (the “KMP”) by certain classes of companies, as the collective in charge of its operations, and decision-making. Section 2(51) of the Act defines KMP of a company to include the Chief executive officer, manager or managing director, Company Secretary, Whole-time director, Chief financial officer, and such other officers, designated by the Board as KMP but are not more than one level below the directors in whole-time employment or as may be prescribed.

 

Corporate Finances

Corporate finances are the funds or capital that play a great role in the establishment of the company, operating business activities, decision-making, and long-term planning for the company’s future. The issuance of rights shares, employee stock options, preferential allotments, buy-back of shares, and shares with differing voting rights are only a few of the ways to generate capital. It entails a number of approvals, disclosures, filings, and record-keeping requirements that must be met in accordance with Chapter IV of the Act read with the Companies (Share Capital and Debentures) Rules, 2014. 

Company Administration and Corporate Governance

The Act with the Companies Rules provides a robust framework for corporate governance and administration, thus, including, but not limited to, the independent directors’ qualifications and responsibilities, mandatory appointment of a female director, and creation of specific committees such as the CSR Committee, the Audit Committee, the Nomination and Remuneration Committee, and the Stakeholders Relationship Committee. The provisions further dilate the scope, conduct, and essentials of board meetings, General Meetings, and Shareholder Meetings for the efficient functioning of the companies.

Accounts, Financial Statements & Audits

All kinds of companies are mandated to maintain a “Book of Accounts” which forms the basis of the financial statements of the company for annual return filing.  It inter alia includes records maintained in respect of the company’s business transactions, trade of goods and services, and assets and liabilities. The achievement of a company’s business goals, accurate financial reporting on its operations, preventing fraud and asset theft, and lowering its cost of capital ultimately depend on maintaining an efficient system of internal controls. 

Corporate Social Responsibility

India became the first country in the world to have statutorily mandated Corporate Social Responsibility (“CSR”) for certain companies with the enactment of the Act. It strengthens India’s corporate philanthropy by mandating social welfare for companies, whether private limited or public limited, to spend at least 2% of the average net profits made during the 3 immediately preceding financial years, within the defined activities and parameters. Section 135 of the Act read with the CSR Rules sets out a logical framework for the companies to comply with for the formation of the CSR committee, their roles and objects, and the parameters to be adopted for compliance.

Company Processes

A company in its lifetime undergoes various changes and processes. It may experience a compromise demanding vigorous dispute resolution through a compromise plan, arrangement of the rights and obligations of the company’s shareholders, restructuring the capital structure by transfer of assets, amalgamation through mergers and acquisitions, and finally, the winding up of a company, either voluntary or mandatory, to terminate the existence of the company and asset management. All corporate law issues arising during the lifetime of a company are adjudicated by quasi-judicial bodies like National Company Law Tribunal, National Company Law Appellate Tribunal, and other Appellate Tribunals and Special Courts in India.

 

Did you know that the first provision for registration of joint stock companies in India was made in 1850, based on the English Joint Stock Companies Act 1844? It is intriguing to see how far the company laws in India have come since then!!

 

Tips to make the most out of your Legal Internships

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This blog post is written by Ms. Ritu Sajnani & Ms. Varsha Gupta.

A legal internship is a fantastic way to get your foot in the door of the legal industry. Although law school provides you with a great foundation of knowledge, you will mostly develop practical legal skills on the job. An internship is therefore a priceless chance for networking and practical learning. 

Most employers want to see that you have some real-world experience, so an internship is the perfect way to show them what you’re capable of. And since an internship is also a great opportunity to network, you just might end up with a job offer before you even graduate!

In this blog, we’ll show you how to make the most of your legal internship and get ahead in your career as a lawyer.

START BY BEING PUNCTUAL

Arrive on time in the morning, be there for meetings when they start, and finish projects by the due date. Give it your all because internships are just for a brief & specified amount of time. Be prepared to arrive at work early and stay late. As an intern, you must respect your co-workers by being punctual because you are both a guest in a strange setting and a colleague on whom others must rely.

 

DOING THE WORK PROPERLY 

Be flexible with the kinds of duties that are given to you. If you are asked to complete a seemingly unimportant task, such as gathering facts, recording data, or conducting research on a simple legal matter, take this opportunity to demonstrate your skills and commitment. This may lead to further involvement in the transaction and more opportunities for employment. 

Of course, the best way to guarantee that you will be given additional work is to do the initial task well.

SHOW YOUR INVOLVEMENT

As an intern, it’s important to be enthusiastic about your work if you want to make a good impression on both your fellow interns and supervisors. Enthusiasm is contagious, so spreading your excitement about your work can benefit the company as a whole. If you want to be hired after your internship, exhibit the traits of an enthusiastic intern within the brief time you have to make a good impression. This means being motivated and excited about your work, and requesting inclusion in professional workshops and meetings. Showing your enthusiasm will help you stand out and make a positive impact.

ASKING THE RIGHT THING AT THE RIGHT TIME

We understand that you might have a lot of questions, and as a law intern, it’s important to be mindful of how you phrase them to your seniors. Before asking, consider the situation carefully and try to take action on your own first. If you still have questions after taking those preliminary steps, ask them in batches and be as specific as possible. This is better than repeatedly approaching your senior with ambiguous inquiries because they’ll appreciate that you tried to handle the situation on your own first and that you’re being mindful of their time. Additionally, asking specific questions in batches shows that you’re organized and that you value their time – two qualities that are essential in the legal field.

BUILDING CONNECTIONS – VERY IMPORTANT!

As you move on from your internship and enter the professional world, it is important to maintain the relationships you built during your time as an intern. Connect with your coworkers on LinkedIn or other social media platforms, and keep them updated on your work and life. 

Additionally, take some time to review your internship experience by reading the essay you wrote at the start of the internship and writing a new essay that reflects on how many of your objectives were accomplished.

BE EFFICIENT

It is a common misconception that you should already know what kind of work you want to do or be assigned to. The truth is, it is perfectly fine to be open to learning and trying new things. A key part of being a professional is being able to adapt and learn from experiences. 

An error that people often make is wanting to do the task as quickly as possible in order to appear good and take on more work. This couldn’t be further from the truth. You should always prioritize quality over quantity.

ABSORB AND ACT

Be a sponge. Your aim as an intern should be to take in every opportunity event that comes your way. You want as much experience “lawyering” in your internship as you can get from a legal skills’ perspective. As an intern, you can take notes and be more prepared for times when your actions will directly affect a case if you attend these sessions.

BE CREATIVE

Before seeking help from a Partner or Associate, it is important to do your own research and give yourself time to think about a possible solution. You can start by looking for resources on internal websites or asking other interns for help. It is key that your coworkers see you as someone who is resourceful and independent, rather than someone who gives up when faced with a challenge. By taking the time to solve problems on your own, you will show that you are a valuable member of the team.

ACCEPT ADDITIONAL LABOUR WITHOUT BEING ASKED

Taking on new and important tasks is a great way to stand out as an intern. Not only will you be remembered for your hard work, but you’ll also be appreciated by your supervisors.

Internships require a lot of work, so it’s important to make the most of your time in the company. That means being punctual and producing high-quality work. But it also means going above and beyond what is expected of you. By taking on new initiatives and tasks, you’ll show that you’re willing to put in the extra effort to get the job done right.

Learn to crack M&A Deals as a Corporate Lawyer

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This blog post is written by Ms. Ritu Sajnani. 

What do you mean by the term M&A?

Mergers and acquisitions (“M&A”) are transactions in which two businesses combine in some way or the other. Although the terms ‘mergers’ and ‘acquisitions’ are used interchangeably, they have distinct legal meanings. A merger is the joining of two companies of similar size to form a new single entity. As opposed to this, an acquisition occurs when a bigger corporation buys a smaller one, taking over that smaller company’s operations. 

One of the key facets of corporate finance is M&A. The general justification for M&A is that integrating two different companies together generates more value than doing it individually. Companies regularly evaluate opportunities through the merger or acquisition pathway in order to optimize wealth.

Major reasons to participate in an M&A Deal

  • Growth: In most instances, inorganic expansion through M&A is a faster approach for a company to boost revenues than growing organically. Instead of taking the risk of creating the same capabilities internally, a business can benefit by acquiring or merging with a business that has the most recent capabilities. 
  • Synergies: Synergy, which is most frequently used in M&A, is the extra value generated by a deal. When a transaction has synergy, it signifies that the combined value of the new business will exceed the combined value of the parts working independently. 
  • Tax benefits: When one business/company generates a substantial amount of taxable income and another experiences tax loss carryforwards, tax benefits are examined. The acquirer can use the tax losses to reduce its tax obligation by purchasing the business/company with the tax losses. 
  • Increased market share: A new product is introduced to one firm’s existing brand portfolio as a result of the merger. The union gives business owners access to a wider client base, which helps them in gaining a large market share.

Check out our M&A Law Certificate Course taught by Top Corporate Lawyers now!

Things you need to know before kick-starting work on an M&A Deal!

As an M&A lawyer, you are required to wear multiple hats. That of a good draftsman, that of a diligent mind, and most importantly – of a good negotiator. M&A deals require you to be meticulous on top of every step – be it, in understanding the context of the deal, carrying out the lengthy diligences, or achieving closing. 

Following are the Must-Have Skills that an M&A lawyer needs to possess: 

  1. Negotiation: It won’t be simple at all when we’re talking about negotiating an M&A deal. One side, the buyer, would consistently seek the best conditions and lowest price. The seller, on the other end, would undoubtedly want to reap the rewards of his labour and maximise his sale price, and certainly, with generous conditions as well.  A settlement or agreement is reached through the mutual discussion and structuring of the terms of a transaction known as negotiation. When it comes to M&A, negotiation is the most crucial component. It is at this point that the agreement either comes together as anticipated by the negotiators or breaks down. The signing of a letter of intent is the first step in the protracted process of negotiation, which often lasts until the very end of the deal. A purchase or merger is solely the result of negotiations. M&A transactions frequently cost hundreds or even thousands of crores, and a skilled negotiator is capable of changing the game.
  2. Due diligence: Due diligence is the procedure of acquiring and confirming essential information about a business or a person to enable the parties to make an informed decision. Due diligence is beneficial to both sides in any M&A scenario. The term “due diligence” refers to a thorough investigation of all important business factors like the financial, operational, tax, commercial, tax, IT, integrity, health and safety, and regulatory aspects. The evaluation of the business’s assets, liabilities, and other aspects is considered by a potential buyer as a thorough appraisal of the enterprise.
  3. Problem-solving: It is crucial to be able to absorb and analyse complicated information and understand the challenges they raise on a practical level. The next stage is to come up with a legitimate and practical solution. One essential attribute that any commercial lawyer must have is the ability to solve problems. A smart commercial lawyer must be able to detect and spot potential deal-killers as well as engage in firefighting when it comes to issues raised by transactional specifics. 
  4. Hold over theoretical concepts: It’s also advised to have a thorough awareness of current legal changes and statutes. The majority of laws are opaque amalgamations of difficult language that demand in-depth understanding. The law changes from time to time, and the lawyer is expected to be aware of any new notifications issued by regulatory authorities, formalities that have been implemented and ways to get over any obstacles that may arise while applying the law. 
  5. To know your client: Understanding the deal’s backdrop and your client’s motivation for engaging in that M&A deal is crucial at the very beginning of the transaction. The only way you will be able to present your client’s important request is if you are aware of their goals. As a lawyer, it is always your responsibility to make sure that your client benefits from the arrangement in all respects and is satisfied with it.

Deal Table: Dos and Don’ts

If you want to make that deal work in your favour, keep an eye out for a few things that will help you. 

  • First and foremost, maintain composure; otherwise, you risk making a mess of yourself and losing control of the situation. 
  • You must treat the other party with the utmost respect and courtesy. It’s your obligation to communicate your points and agenda across the table in a precise and understandable manner. 
  • Being an excellent listener should always be a priority. Always listen to what the other person is saying. 
  • Always be well-prepared and diligent because doing so will enable you to close a number of clauses in your transaction agreements. 
  • Ensuring that your client’s request is met is one of your main duties as an M&A lawyer. 
  • Time is of the essence when it comes to M&A, therefore you should always be proactive and prompt. 

So roll up your sleeves and get ready to be a terrific M&A lawyer NOW!

Check out our M&A Law Certificate Course taught by Top Corporate Lawyers now!

How to Write a Legal Brief?

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This post is written by Ms. Ritu Sajnani.

When it comes to establishing a lawyer’s personal brand image, there are two components that stand out above the rest. The first is convincing speaking, and the second is persuasive writing. 

A strong grasp of the language can help to make your argument undisputable. It takes skill to craft a convincing brief that will enable the judge to swiftly understand your opinion and the supporting evidence you are using to support the desired relief. 

We do know one thing about Indian court judges: they are exceptionally busy. The lack of time also brings persistent efficiency that enables them to comprehend the open and hidden fundamentals of every case. It is a lawyer’s responsibility to prevail and prevail quickly during the few minutes of the hearing. 

Let’s understand what is (Legal) Brief: 

A brief is a document drafted by lawyers, containing facts, reasoning, and arguments in relation to a case, that are required to be presented in court. It is a written statement prepared by attorneys and submitted to a court outlining the facts and justifications to rule in one person’s favour. To convince the court that a client’s argument is stronger than the opposition. 

A legal brief must be produced with the utmost precision and accuracy.

The purpose of a legal brief must be obvious, and it must be written rationally and concisely to explain the client’s justification for filing the matter, the desired outcome, and the reasons the court should support the client’s position. 

Now, you must be wondering what a brief look like or what is the subject matter it contains.

So, let’s see what are the contents of a legal brief:

  • Title & citation: The title page is the very first page of your brief. It contains the case name, case number, and the name of the court in which it will be put forth. Whereas citation means, to quote a relevant legal source such as a constitution, statute, previous judgements, etc for the benefit of the court.
  • Table of contents: This page will contain all the headings and subheadings you have used in your brief along with their page numbers. A well-designed table of contents must be included in the legal brief so that the judge may easily refer to any section without difficulty.
  • Table of authorities: The table of authorities lists all the legal evidence that is cited to support a claim or assertion. It functions similarly to a bibliography and aids the court and opposing counsel in locating the original publication of any case law, report, decision, or statute.
  • Statement of facts: A statement of facts is a description of the facts provided from the client’s perspective that also contains a broad explanation of the client’s case.
  • Summary of the issues: This is a crucial part of any brief. We can consider it as a strategic staging or presenting of facts in a way that addresses the legal issues in a case.
  • Arguments: Arguments are the aspects of the case that persuade the judge to rule in favour of your client. Legal research is used to back up arguments, which are presented in an engaging and constructive way.
  • Conclusion: It is basically a summary of the entire brief. A legal brief must have a summary that gives background information on the subject and calls attention to key arguments and facts.

Here are a few things to keep in mind to make your brief much stronger: 

One of the most crucial tools Indian attorneys employ to strengthen their clients’ positions and refute the claims made by the opposing counsel is a legal brief. Lawyers who are proficient in writing and drafting can engage with clients and the court more effectively and build a stronger legal business for themselves. 

  • Know your client well – You must be completely knowledgeable about your client’s case in order to represent them. You are required to conduct an in-depth study on the subject so that you can later produce legal documents that will be advantageous to your client.
  • Honest arguments – There are duties associated with practising law. It is in your best interests as a responsible attorney to create arguments that are factually accurate, true, and authentic. Being dishonest won’t help you advance in your legal career.
  • Precision of facts – You should always be precise when you are putting in the statements of facts in your brief. Long and lengthy paragraphs are not appreciated when we consider drafting a brief. It should always be to the point.
  • Systematic drafting – A legal brief needs to be written as concisely as possible and shouldn’t be overly long. It needs to be well-organized and well-reasoned! A legal brief must include a central subject that should outline the entire course of the case’s occurrences.
  • Use of good grammar – Clear and effective communication depends on good grammar. The effect of your brief can be greatly increased by using proper punctuation. It is not enough to simply be understood; you also want to be trustworthy. A neat and well-written document will be chosen by the judge to better comprehend the case than the average draft from your opposition, particularly in Indian courts where the majority of attorneys fail to pay enough attention to grammatical details in both speaking and writing.
  • Strong summary – A brief should contain a thorough overview that highlights all the key pieces of evidence and the cases key concerns.

Contract Law Doctrines You Must Know!

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This blog post is written by Ms. Ritu Sajnani & Ms. Sarah Rizvi. 

Relevance of Common Law doctrines

Contracts are an indispensable part of trade and commerce. In India, the law governing contracts is formulated on the principles of English Common Law and the Indian Contract Act, enacted by the British in 1872. The Indian Contract Act, 1872 (the “Act”) embodies general rules and principles pertinent to all business agreements, transactions, or deals. 

In simple words, a doctrine is a principle involved in the interpretation of the policy. There are certain doctrines under the Act which form pillars of the Contract Law in India and have been extensively followed in practice, some of which are elucidated below:

1. Doctrine of Consideration

The doctrine of consideration is the foremost principle codified under the Act. Section 2(d) of the Act states that, “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. 

Thus, for consideration to be considered lawful, it must proceed at the desire of the promisor only. Furthermore, consideration doesn’t necessarily have to be adequate in nature, although it must be real in nature and not impossible or illusory or unlawful, in the past, present or future. 

However, there may be certain circumstances in which it would not be appropriate to apply the principle of consideration to satisfy the basic motives of the law. Section 25 of the Act regulates such situations, and states that, “Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law”. Section 25 further details these circumstances to include an agreement made on account of natural love and affection or between near relatives, a binding promise to pay for a past voluntary service, or a time-barred debt, or an agreement for a completed gift.  

2. Doctrine of Restitution

The word ‘restitution’ is derived from the Latin term ‘restituere’ which means ‘restore’ or ‘establish again’.  It is imperative that when a contract is rendered void, neither party is obligated to execute it. However, the principle of restitution becomes applicable if following a valid contract, one party fails to perform his or her part of the contract or the contract becomes void due to an unanticipated event. Under such circumstances, the party which received a benefit from the other is required to return or restore or compensate the other party for the benefit received.

Section 65 of the Act recognizes the principle of Restitution and defines it as, “When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”

Furthermore, the doctrine of restitution is not applicable in cases where there is no agreement or contract between the parties, if the agreements are void-ab-initio, or if are entered with persons incompetent to contract.

3. Doctrine of Frustration

Frustration of the contract occurs when the object of the contract is yet to be accomplished, and the contract’s fulfillment is rendered impossible due to external reasons beyond the parties’ control and contemplation. It covers both the impossibility to complete the contract and the impossibility to satisfy the object for which the contract was executed. 

Section 56 of the Act embodies the Doctrine of Frustration and states as below:

  • An agreement to do an act impossible in itself is void
  • A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

The doctrine of frustration is based on the maxim ‘Lex non cogit ad Impossibilia’, which means that ‘Law does not compel the Impossible’. It suspends the rights and liabilities of the parties to the contract, unless one of the parties was aware of or after reasonable diligence, might have known about the impossible or the unlawful. In such instances, the promisor is required to make compensation to such promisee for any loss which such promisee sustains through the nonperformance of the promise.

4. Doctrine of Privity of Contract

In contracts, the terms such as restrictive covenant, non-compete, confidentiality and non-disclosure obligations are frequently used to impose obligations on the contracting parties’ affiliates, agents, relatives, etc. 

The Doctrine of Privity is based on the common law principle that the rights and obligations of a contract can only be imposed on the parties to the contract and no third person would be entitled to or bound by the contract to which he is not an original party.

Thus, the three essentials of this Doctrine are:

  • The third party cannot enforce the contract if he is not a party to that contract
  • The third party cannot be held liable under a contract if he is not a party to that contract
  • The third party cannot receive any benefit if he is not a party to that contract

5. Doctrine of Ratification

Ratification and its effect are explained under Section 196 of the Act as “Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effect will follow as if they had been performed by his authority.”

Section 196-200 of the Act establishes this Doctrine, and can be interpreted as the principle which deals with acts performed by an agent on behalf of an unauthorized principal. In short, an adherence occurs whenever an adhering Party expressly accepts liability for unauthorized transactions purportedly carried out on its behalf. There is no obligation not to communicate this intention to third parties or representatives. Explicit ratification is self-explanatory. However, implied approval occurs when either the principal’s actions or circumstances suggest that the principal approves of the agent’s actions.

6. Doctrine of Estoppel

Promissory estoppel is a doctrine in contract law that stops a person from going back on a promise even if a legal contract does not exist.

Fundamental components of promissory estoppel are as below:

  • There must be an existence of a lawful relationship or a relationship anticipated to exist between the two parties. 
  • It must be clearly displayed that a reasonable promise was made between the two parties which ultimately led the aggrieved party to presume that some kind of action needs to be taken. 
  • Aggrieved party’s reliance on the promise made must be displayed clearly – on account of which, the aggrieved party took some action.
  • Damage: The aggrieved party who relied upon the promise so made must suffer some damage or loss. 
  • It must be clearly demonstrated that it was unjust for the promisor to break the promise. 

7. Doctrine of Unjust Enrichment

When a person has been unfairly benefitted at the expense of the other person, it is called ‘unjust enrichment’. 

Essentials of this Doctrine:

  • The defendant has been enriched by the unjust benefit
  • This enrichment has taken place at the expense of the plaintiff
  • The enrichment which has been acquired is unjust or unfair

Section 68 of the Act states the remedies to unjust enrichment. Typically, in the cases related to unjust enrichment, the court directs the unfairly benefitted person to give back all the benefits which he/she acquired unfairly or to give compensation. The defendant is obliged by natural justice and equity to pay back.

Highlights of the Digital Personal Data Protection Bill, 2022

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This blog post is written by Ms. Ritu Sajnani. 

Significance of Data Protection and its Journey so far

Privacy is as important as any other Human Right, as it forms a part of a person’s identity. Given this, the Government has been making efforts to protect the digital data of persons. The journey of Digital Personal Data Protection Bill, 2022 released on November 18, 2022 (“Draft Bill 2022”) dates back to August, 2017 when the Supreme Court recognised Privacy as a Fundamental Right and constitution of Justice BN Srikrishna Committee to frame data protection norms. 

Subsequently, several iterations of this bill were introduced by the Ministry of Electronics and Information Technology:

  • Personal Data Protection Bill, 2018 on July 27, 2018;
  • Personal Data Protection Bill, 2019 on December 11, 2019 (“2019 Bill”); and
  • Personal Data Protection Bill, 2021 on December 16, 2021 (“2021 Bill”)

On August 3, 2022, the Parliament withdrew the 2019 Bill with an intent to introduce a more comprehensive framework of data protection. Finally, the Draft Bill 2022 was released – which is open for public consultation till December 17, 2022.

The Draft Bill 2022, if passed, will replace the already present data protection law under Section 43A of the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data of Information) Rules, 2011.

Key takeaways from the Draft Bill 2022 

  • Meaning and scope of Personal Data

The 2019 and 2021 Bills categorized personal data into sensitive personal data and critical personal data etc. Such categorization has been removed in the 2022 Draft Bill. Personal data is now referred to as ‘data about an individual who is identifiable by or in relation to such data’. Further, the Draft Bill 2022 only considers ‘Automated Personal Data’ and does not apply on non-automated processing of personal data, offline personal data, personal data processed by an individual for any personal/ domestic purpose, and personal data about an individual record of which exists for at least 100 years.

  • Extraterritorial Application 

The data transfer provisions have been simplified in the Draft Bill 2022. The provisions of this Bill not only apply to personal data within the territory of India, but also to processing of such data outside the territory of India, if such processing is in connection with any profiling of or activity of offering goods or services to data principals in India. 

  • Data transfer

Data transfer may only be allowed to certain countries, subject to the Central Government’s terms and conditions, which it may notify, after assessment of necessary factors.

  • Consent-led approach

Consent is now required to be given freely, specific, informed, explicit and unambiguous. Additionally, forms of procuring consent should be translated into all languages mentioned in the 8th schedule of the Indian Constitution. A data principal has the right to give, manage, review, and withdraw the consent provided to the data fiduciary. The concept of deemed consent has also been introduced which is brought in circumstances like an emergency, purposes related to employment, and fair and reasonable purpose as may be prescribed by the Central Government and where the data principal voluntarily provides such data to the data fiduciary and it is reasonably expected that the same would be provided.

  • Personal Data of Children

Parental consent has been made compulsory before processing any personal data belonging to a child. A data fiduciary is obligated not to undertake any such processing likely to cause harm to the child. Additionally, undertaking tracking or behavioral monitoring of children or targeted advertising directed at children is prohibited.

 

  • Data Protection Board of India (“Board”)

The Data Protection Authority has been replaced by the Data Protection Board of India and the functions, composition and powers of the Board are different from the 2019 and 2021 Bills. Furthermore, the Board does not have an ability to initiate subordinate legislation. The main functions of the Board include determining of non-compliance, imposition of penalties, conducting enquiries, directing parties to resolve complaints through ADR methods, and directing adoption of response measures in case of personal data breach. It is pertinent to note that powers related to implementation of the law are proposed to be prescribed by the Government through Rules, most of which, under the earlier Bills, were with the Data Protection Authority. 

  • Penalties 

The Draft Bill 2022 does not provide for any criminal penalties, but a financial penalty of up to INR 500 crores for each instance of non-compliance, depending on various factors. Further, the Draft Bill 2022 does not provide for compensating data principals whose personal data has been compromised, however prescribes a penalty of up to INR 10,000 for registering a false complaint of furnishing false particulars or suppressing any material information. 

  • Grievance Redressal  

A data principal has now been provided with a right to grievance redressal with a data fiduciary. A complaint can also be registered with the Board in the event no satisfactory response is received from the data fiduciary. 

  • Duties of Data Principal and Data Fiduciary

Duties of a data principal have been introduced in addition to all the rights provided under the 2019 and 2021 Bills. These inter alia include compliance with all applicable laws, providing all material information while applying for any document and furnishing only such information verifiably authentic while exercising the right to correction or erasure. Further, the data fiduciary too has obligations like notifying the Board and each affected data principal about data breaches.

  • Significant Data Fiduciary and Data Protection Officer

The role of a significant data fiduciary is unchanged from that of the earlier Bills. These fiduciaries are required to comply with additional obligations like appointing a Data Protection Officer and Independent Data Auditor, and undertaking data protection impact assessments. 

Data Protection Officer is a person responsible to the board of directors / governing body of the Significant Data Fiduciary and is also the point of contact for the grievance redressal mechanism set up by the Significant Data Fiduciary. 

  • Exemptions

State instrumentalities, in the interest of sovereignty and integrity of India, security of the state, friendly relations with foreign states, and maintenance of public order, are exempted from compliance. 

India’s time to take the leap!

The 2019 and 2021 Bills were bulky and hard to implement. The Draft Bill 2022 also has some flaws like constitutional consistency and ability to work alongside global privacy laws, and has taken a slightly doctrinal approach which creates a hindrance for it to be a full-proof law. 

However, the Draft Bill 2022 is more simplified and has better enforceability than the earlier Bills. There is a hope that there will be a huge reduction in privacy breach, leakage of data and related offences in the country once this law comes into force. The implementation of this law will give the digital business a new outlook towards data processing. The trust among people in online platforms and digitalization will increase and this will further lead to connecting better with the rest of the world.

Many nations in the world have had data protection laws for a long time and it is now India’s time to take the leap!