Category Archives: India

Observations/Recommendations on Personal Data Protection Bill, 2018

A historic military data sharing pact, COMCASA was inked yesterday by India-US at the 2+2 bilateral summit. As per the pact, high-end encrypted communication and satellite data would be shared giving Indian military access on platforms installed by the US. This is said to give us real-time information about the movements of other army troops and is said to be safer and more secure than the system India is currently using. The pact was signed amidst security concerns being raised for which a legal framework is put in place for the transfer or sharing of data. The US has also agreed that the data obtained by them through these systems agreeable through the pact would not be shared with a third party without consent. The Data Protection Bill which is under due consideration around the same time however gives the Government extensive freedom to process personal data for necessity and security reasons.

Around few months before the landmark judgment wherein the Hon’ble Supreme Court has asserted ‘Right to Privacy’ to be a fundamental right, the Government had announced demonetization, encouraging the country to be on the path of being a digital economy. Digitalization would involve a lot of data to be shared, escalating the risk of it being misused or manipulated. How are we supposed to digitize to connect globally and also safeguard our fundamental right of privacy the same time?Laws on ‘Data Protection’ have been long-awaited and requisite at this moment.

In July 2018, the TRAI chief RS Sharma had challenged the twitterati to show him that the government claimed secure Aadhar number could by misused by posting his 12 digit number on social media. This came with the statement that a person’s Aadhar details are safe and secure and there are no privacy concerns. However, in no time, the post that was heavily shared, his personal details were dug out and leaked by the ethical hackers who made the payment of 1 Re in his account via Aadhar enabled payment service only using apps like PayTM. The UIDAI contested that the personal details were in the public domain and were not obtained by misusing his Aadhar number. The Supreme Court is yet to decide on the constitutionality fate of the Aadhar that is under challenge through various petitions.

This was happening against the backdrop of the various consultations on the data privacy and protection that were being carried out by ‘The Expert Committee headed by Justice B.N. Srikrishna’. A report and a draft Bill were submitted to the Ministry of Electronics and Information Technology by the Expert Committee. After various consultations and studying the privacy laws globally for over a year, the draft bill, nonetheless, seems to be in line with the GDPR (General Data Protection Regulation) adopted by the European Union recently. The said Regulations itself are in their nascent stage and would be subject to a lot of modifications as per the current global technological and data privacy need. In such a scenario, the draft Bill which is quite similar to GDPR though positively drafted, there is little understanding of the technology, is quite ambiguous and unclear in certain areas. It would necessarily require a lot of fixations and revisions before the final draft can be cleared by the Ministry. Thus, further consultations and opinions of the general public, organizations, stakeholders, third parties or recipients of the data may be welcomed to have a fair understanding of the global technological advancements and the mass data shared before finalizing on the Bill.

Need of a data privacy law: Most of us would have noticed or felt our emails being read secretively by technological giants like Google. Say for example, if you plan a trip and intend to stay at some hotels with prior bookings online, you receive a mail confirming your itinerary. The technological advancement is so extensive that your very own google calendar reminds you of the date when you have to travel or check in.

It has been laid down by the Supreme Court in Puttaswamyv. UOI, that privacy is a fundamental right. By the country being in the path of becoming an absolute digital economy, the laws have to keep pace with the developing technology and thus it was imperative for a comprehensive data privacy and protection law to be passed.

The Bill is extra territorial and extends to any business, systematic activity or activity where the data fiduciaries or data processors are not present within the territory of India but the data processing and profiling is carried on within the territory of India. This is a welcome move where the scope of the forthcoming privacy Act would be extended.

Observations on the Draft Bill:

The current draft of the Bill is ambiguous and unclear in many areas and thus it would lead to a lot of confusions if the Bill is passed as it is without a much needed clarity.

a) Segregation of personal data & sensitive data: The draft Bill includes comprehensive definitions of personal data and sensitive data and separates these two. Personal data as per the said Bill means any data which can directly or indirectly identify the natural person whereas a list is being provided as being sensitive personal data which also includes intersex status, religious or political beliefs or affiliations.

The Bill doesn’t talk about how the already existing mass volume of data of the data principal (natural person to whom the data relates) be segregated into personal and sensitive data. This is an added burden on the data fiduciaries (the one who alone or in conjunction with others determines the purpose and means of processing of personal data) and data processors (the one who processes the personal data on behalf of data fiduciary but doesn’t include an employee of the data fiduciary).

Also, how such segregation would serve the purpose of privacy or protection from unrequited surveillance. Sensitive data, say for example religious beliefs, biometrics, political affiliations or health data can also be collected through google searches or a combinations of various other factors.

As reported in New York Times, a man walked into a Target company store demanding the reason of a mail with coupons for baby clothes and cribs being sent to his teen daughter. The manager was baffled and had no explanation. Conversely, it later came out to be that the man’s daughter was in fact pregnant. The digital world knew way before her father could have an inkling of it. How eerily accurate Target was in data mining their shopping details and sending exact coupons to people knowing what they need and would make them happy. Such sensitive information is reached at through various other details. 

b) Ownership of data: There have been a lot of debates as to who would be the owner or custodian of the data that is being collected, shared and processed in such a high volume. The draft Bill is silent on this issue. This is in stark contrast to the TRAI recommendations that find the users as the primary owners of the data and the rest being mere custodians.

c) Anonymisation: As per the Bill, personal data may be irreversibly processed converting it into a form in which the data principal cannot be identified. The Act doesn’t apply to the processing of anonymised data and thus the provisions of the Act need not be complied with in case of anonymised data. The companies dealing with analytics or research where data mining takes places of huge volumes of data can process and analyze their anonymised data without fear of any repercussions. However the Bill clearly states that anonymisation has to meet the standards set by the Authority. How far it can remain anonymised where the source data is not deleted is a food for thought as the source data can be used to identify the anonymised data. The Bill doesn’t talk about regular audits or reviews to check whether standards have been met for the data to be anonymised or whether the source still contains the personal data of the data principal.

d) Data Deletion: Sec 10 of the Bill states that the personal data which is no longer required for the purpose for which it was collected, must be deleted in a manner as may be specified unless such retention is explicitly mandated or necessary under law. Such data if not deleted regularly, would be at a huge risk of being misused. There’s always a higher chance for the data to be not deleted and used for purposes for which the data principal hasn’t given his consent. The Bill doesn’t put a larger emphasis on this vital aspect involved in data protection.

e) Consent: It is specifically stated in the Bill that the data of a data principal cannot be processed without his consent given no later than at the commencement of the processing. Such consent has to be free, informed, specific, clear and capable of withdrawn. Also, once the data principal wishes to withdraw his consent, the Bill hasn’t specified about what needs to be done with data that was collected prior for processing.

 Children’s data if collected has to have a parental consent after age verification as per the Bill. However, this has to be looked at as most of the social media sites have profiles of children created by them. The Bill is also silent about any retrospective action in such cases.

f) Data Auditors: The Bill gives the freedom to the data fiduciaries to have their own policies and conducts of their audits for compliance. The data auditor will evaluate the compliance. But, at the same time, the Bill also lays down that where the Authority is of the view that data processing is carried out by any data fiduciary in a way that it could cause harm to the data principal, order can be passed to conduct an audit by appointing an Auditor. As the new data privacy and protection regime plays out, timely planning/action will help organizations continue their business as usual and enhance their business reputation-NASSCOM. How mandatory the auditing process is, under what conditions do the companies need to get it done suo-moto, periodicity thereof, and what all would be checked/evaluated as part of the auditing process is not clearly laid out which we hope the final Act would. 

g) Collection limitation and Purpose limitation: The data collected should be limited as per the requirement and used only for the purpose for which it was required. The data fiduciary is under an obligation as per the Bill to state the purposes for which the data is being collected. However, this is never the scene. Even if the companies do mention the purpose, the same is very high level and can include multiple actions, part of which may be allowed by the data principal and other may not be. Therefore, it should be mandated that the data fiduciary has to give in specific purpose for which the data would be used. Albeit, the Bill talks about periodical review of the data it is silent about the usage of data that would be considered to be redundant.

h) Privacy by Design: 29 talks about privacy by design and expects the data fiduciary to design their business, technical systems, innovations that it can anticipate, identify and avoid harm to the data principal. This is something which cannot be done as the data fiduciaries cannot be expected to bring about a change in their overall design and structure their business model once again. 

i) Transparency: Sec 30 of the draft Bill discusses about transparency being an important requirement in the processing of the personal data. The Aadhar Act which lays down the laws relating to the biggest data repository in the country is required to be amended, as per the submitted Report by the committee. The Bill does not seem to mention its findings about the same. Transparency in data processing is one of the major provisions of the draft Bill, where Aadhar itself may fall short of. No one knows where the data collected through Aadhar has been processed or stored or where the servers are. However, by providing such exemptions to the State for its functions and for welfare in the Bill, Aadhar may escape from the clutches of the other provisions of the Data Protection Act.

j) Security Safeguards: The data fiduciary and the data processor shall have to implement security safeguards like encryption, de-identification or the steps to protect personal data they are processing. End-to end encryption is one of the strong ways to avoid data breach and for risk management in companies where the data at the source gets encoded with a key. This data when transferred to the destination can be decoded only with its correct/decryption key. De-identification, which is stated as another security safeguard, may not be as effective as encryption. One of the widely used social application, Whatsapp now claims end-to-end encryption which means no one in between can read the messages when transferred to the person we are communicating with, not even Whatsapp.

The Guardian and The New York Times had reported in March 2018, that 50 million facebook profiles were harvested for Cambridge Analytic a in what could be one of the biggest data scandals. It is alleged that such huge volume of data was collected through an app, this is your digital life, and of the friends in the facebook list of those who have signed up for the app. Facebook doesn’t have an end-to-end encryption as the data of the users are being read and processed by its servers for data analysis. This is the reason why you see relevant ads or any of your recent searches appearing on your facebook.

k) Data Localizing/Mirroring: As per the Bill, personal data to which the Act applies also has to be stored on a server or data centre in India. An obligation has been laid down on the Central Government to notify certain categories data as critical personal data which can only be processed and stored in a server or data centre in India. Thus, there is still confusion as to which categories of data would fall under this clause. If location of a data principal is considered to be a critical personal data, then companies like Uber, Ola would probably not be able to operate in India or the data stays only in their servers or data centres in India.

Data mirroring is an added responsibility and would lead to extra expense and doubling-up the volume of data to be stored by the data fiduciaries. These data which is stored in servers or data centresin India along with the places out would have to be regularly backed up in tapes to prevent its safety and storage in India. The Report of the Committee tries to provide its reasons as to why at least one serving copy has to be stored in India. This is at variance with the global character of digitalization and connecting globally through technology.

One reason that attracts attention is data mirroring being required for the development of artificial intelligence (AI) which again would raise wide concerns over data privacy.

l) Offences: Industry perspectives may need to be looked into while finalizing the Bill. Currently, as we understand, all offences have been attached with a blanket criminality by making them cognizable and non-bailable. This may be a risky proposition as it can damage the reputation of a data fiduciary if the complaint is found to be false and frivolous, and may be a concerning obstacle to carry out business and for individuals. It may eventually create a lot of hullabaloo in the time to come if not reviewed and modified.

m) Government bodies exempted: The Bill seems to be in favor of the State and the Central Government. Wide exceptions are being given to them in terms of data collection, storage and processing. Though it has held the Government also accountable being one of the biggest stakeholders, the vast exemption frees them from their liability at the same time. The Bill lays down that the Government can process any personal data for any functions of the Government and can notify certain categories of personal data for which no data mirroring is required purely on the grounds of necessity and strategic interests of the State.

n) Accountability: The Bill as per Sec. 11 holds only the data fiduciary accountable for complying with all its obligations and be able to demonstrate that all of its data processing is in accordance, whereas not much accountability has been put on the data processors who would be equally or more involved in the process of handling mass data volume of the data principal.

o) RTI: The Report said that neither the right to privacy, nor the right to information is absolute and the two will have to be balanced against each other in certain circumstances.  The Second Schedule in the draft Bill talks about the amendment to Section 8(j) of the RTI Act, 2005. With this amendment, no disclosure of personal data under RTI shall be made if the same is said to cause harm to the concerned individual. This amendment was not warranted as the RTI Act has properly evenhanded the privacy rights of the public servants and the public interest in disclosure of such an information. The amendment has increased the scope of rejection in disclosing personal information.

The aforesaid are some of the initial observations or concerns that have been raised with respect to the draft Bill. A detailed study has to be done also taking into consideration the industry perspectives so that these loopholes can be fixed. The Privacy Act or the Data Protection Act would always be subject to amendments as it has to keep pace with the ever changing and advancing technological expansion.

Author: Anuja Nair, Senior Associate-Media & Entertainment, Litigation,  at  Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at anuja@khuranaandkhurana.com.

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Pharmaceutical Patents a Threat to India’s Drug Industry?

The Indian Pharmaceutical industry is one of the largest, ranked fourth in the world in respect to the production volume. Over the last three decades, the industry’s growth has resulted from no existence to a world leader in terms of production of high quality generic drugs.

 Prior to 2005, no patent was granted on medicines in India, which resulted in the growth of the generic drugs manufacturing industry that helped treatment diseases like HIV/AIDS, tuberculosis, cancer, etc. around the world. This made India the prey of the larger pharmaceutical companies like the U.S. and Europe who believed that the patent protection for such drugs is necessary for further innovation.

 As according to Medicines Sans Frontieres (MSF) report, “Sick people around the world depend on Indian producers to manufacture affordable generic versions of new medicines.” This has changed since after India became a signatory to WTO (World Trade Organisation).

Now, a large number of generic drugs are being patented in India including vaccines making it difficult for the industry to produce life-saving medicines. Various patient groups note that India’s ‘strict’ patent regime was one of the reasons why drugs are available at affordable prices in India. Cancer Patients Aid Association (CPAA) Chairman and Chief Executive, Y.K. Sapru quoted, “interventions and patent challenges by patient groups have helped to reduce the prices of many drugs. Still, cancer drugs like Herceptin are available in India only at a very high cost,” he says.

Whole game changed after the judgment was passed in the case of Pfizer Products granting the patent to produce such vaccine until 2026 damaging the country’s drug industry. It gave the company exclusive rights to distribute vaccines in India and blocked the manufacturing of such drug.

Also in the case of Novartis, after losing a 6-year legal battle where the Supreme Court concluded that small changes to its Leukaemia drug, Glivec did not deserve a new patent for the same as it would lead to “ever-greening” of such patents.

 Matthew Rimmer, a professor of Intellectual Property and Innovation at the Queensland University of Technology believes that the Trump Administration is pressuring India about generic drug manufacturing as they have strong views about Intellectual Property and trade.

 The U.S. market is pushing India to play by its rules but India does not want to yield ground to U.S. negotiators. CEO’s like Ian Read and other U.S. – based Pharma majors are worried that India allows the domestic companies to launch cheaper medicines under the clause of “compulsory licensing” under the Patents Act. It is pertinent to note that the U.S. companies call this practice, a patent violation while the Indian government calls it a legitimate right. Before the arrival of the patent regime in 2005, it was easier for Indian pharmaceutical companies to imitate the drugs discovered by MNC’s at a much cheaper price but since the new regime, the Indian companies have to rethink and invest more on Research & Development.

 The question that persists is whether India should change its Patent Policy for Pharma practices in the world market or it should continue with the same approach that is beneficial to a larger section of people who can have access to life saving drugs as well as drugs of huge importance, at much affordable price, which in my opinion is a much larger issue.

Author: Ms. Tushita Dogra, intern at Khurana & Khurana, Advocates and IP Attorneys. Can be reached at swapnils@khuranaandkhurana.com

 References:

[1]http://www.abc.net.au/news/2017-09-28/what-india-pfizer-patent-decision-means-for-region-health/8981206
[2]https://www.usitc.gov/publications/332/EC200705A.pdf
[3]http://www.journals.uchicago.edu/doi/abs/10.1086/596603?journalCode=edcc

The Take of Supreme Court over Abuses, Falsehoods on Social Media

With a view to express opinion, belief and thought, every citizen of India is bestowed with the right of freedom of speech and expression guaranteed under Article 19 of the Indian Constitution. This right has been most distinguished in the matters where citizens have been able to raise voice against the unjust, express ideas freely and expose the discriminatory and corrupt practices of the government which nothing but intends to deceive people with malice and fraudulent practices. Running parallel are also the reasonable restrictions which can be imposed upon the citizens to protect the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence.

Recently, there has been an expressed concern over abusive and derogatory comments on social media as uncharitable comments, trolls and aggressive reactions on almost every issue, including judges and judicial proceedings came under the scanner of the Supreme Court which expressed concern over it agreeing that regulating them was necessary and also opined that people doing so should face the consequences. In furtherance the apex court also disapproved and expressed anguish over a statement made by a senior advocate and former Supreme Court Bar Association President that most of the judges are pro-government. The issue mainly arose after Samajwadi Party leader Azam Khan termed the Bulandshahr gang rape act as “an outcome of political conspiracy”. Consequently a petition was filed against him in the apex court by the survivor’s family following his remarks. The court referred the matter to a constitution bench and said the larger bench would be at liberty to frame questions for adjudication, including the issue of social media. Emphasizing the need to regulate social media to restrain people from posting objectionable and abusive posts, senior advocates Fali Nariman and Harish Salve, who assisted the court as amicus curiae, narrated their own ugly experiences with trolls to a bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud. The renowned counsels expressed the abusiveness faced on twitter handles and claimed that government functionaries so assorted to the mediums claimed that it was their personal view was in need of some urgent regulation. Justice Chandrachud, perhaps a follower of social media, expressed concern over the untamed online space stating that wrong information pertaining to even court proceedings were posted and circulated. The bench further added that one of the observations made during the hearing on the Rohingya matters was projected as if an order was delivered and it became a subject matter of debate.

Initially during the old times the right to privacy could be infringed by the state only, but in recent times it has emanated from private parties also. India, which is broadly a country of immigrants and many religions, castes, languages, ethnic groups, etc. needs to adopt essential measures for being united and ensuring prosperity along with tolerance and equal respect to all communities living in the nation. Majority population being illiterate and ignorant, the real question to the media is whether to lift up the intellectual level of our people by propagating rational and scientific ideas, or whether it should go down to that low level and seek to perpetuate it? A person’s reputation is linked to his fundamental right and that has to be respected by all is the universal principle that must be advocated by all.

Author: Mr. Diwadkar Sayali Manish, intern at Khurana & Khurana, Advocates and IP Attorneys. Can be reached at anirudh@khuranaandkhurana.com.

References:

[1]https://timesofindia.indiatimes.com/india/sc-concerned-over-abuses-falsehoods-on-social-media-agrees-there-should-be-curbs/articleshow/60959972.cms

[2]http://www.thehindubusinessline.com/info-tech/social-media/abuse-of-social-media-platforms-comes-under-supreme-court-lens/article9889190.ece

[3]http://www.worldnews.easybranches.com/regions/india/sc-concerned-over-abuses-falsehoods-on-social-media-agrees-there-should-be-curbs-338137

M/s. Sunwhite Infrastructure Pvt Ltd. V. Kindle Developers Pvt Ltd, CP No. 40 (ND)/17 (decided on 23.08.2017)

Facts

The petition was filed by M/s Sunwhite Infrastructure Pvt Ltd (hereinafter referred to as “the petitioners”) against Kindle Developers Pvt Ltd (hereinafter referred to as “the respondents”) Sec 241[1] and Sec 242[2] of the Companies Act, 2013 alleging acts of mismanagement and oppression prejudicial to the interests of the company as well as the stakeholders. The respondent company, engaged in the business of real estate development was incorporated in March 2011 with a paid up capital of Rs. 1 Lakh of which the petitioner acquired a 40% shareholding from respondent No. 3. The petitioners alleged that upon the representation of the respondents that they had been allotted a plot by Greater Noida Authority for development of a group housing project and were in need of financial assistance, the petitioners extended a loan of Rs. 6 Lakh to the respondents upon the following conditions:

  1. The loan was to be repaid within the period of one year.
  2. The respondent undertakes not to borrow any further money from third parties without the petitioners consent.

However, due to the failure of the respondents to repay the loan within the time specified, the petitioners filed a suit for permanent and prohibitory injunction in Court of Civil Judge, Delhi to restrain the defendants from parting, selling or creating rights of third parties over the allotted land. An order of injunction was passed against the respondents by the said Judge. The present petition was filed subsequently against the acts of oppression and mismanagement by the respondents who failed to appear despite being served and were, thus, proceeded ex parte.

Contentions of the Petitioner

The petitioners in the present petition contend that:

  1. In complete disregard of the loan agreement entered into by the petitioners and the respondents, the respondents not only defaulted on the payment but also took further loans from various third parties.(Para 5)
  2. The defendants were defrauding investors by siphoning off the funds collected from prospective buyers without engaging in any significant construction work. The petitioners also entered into record the audited balance sheet of the defendants for 2015-2016 reflecting advances of Rs. 157 crores collected for booking of flats against which very little construction was completed.(Para 5)
  3. The petitioners further alleged that statutory compliances were not carried out on time, no Annual General Body meeting had been conducted since Sept, 2014 and books and accounts of the defendant company were not available for inspection to the petitioners.(Para 6)
  4. It is also contended by the petitioner that in complete contempt of the order of Civil Judge, Delhi, which restrained them from altering the management of the company, respondent no. 4 & 5 were appointed as Additional Directors by the respondent company. Such appointment is otherwise illegal as well due to it not being ratified by the remaining management. (Para 6)

Issues

  1. Whether there has been oppression and mismanagement by the respondent company?
  2. Whether the appointment of additional directors is in violation of the order of civil judge, Delhi?

Judgement

The NCLT held that there had been no oppression of the petitioners in their capacity as shareholders and that their grievance was misplaced as they were aggrieved in capacity of creditor whose entitlement under a loan agreement was violated  for which the appropriate remedy would lie in a civil forum. It observed that, “The non-payment of a creditor could not be held as oppressive to the shareholder. The order of Civil Court Judge restraining the respondent from alienating the said property was enough to secure the interest of the creditor” (Para 9d).

It was held that allegations of siphoning off of funds by the respondents were largely uncorroborated and unsubstantiated and on the basis of the material placed on record, it was not possible for the Tribunal to conclude whether the advances justified the quantum of work done (Para 9a). On absence of any cogent material, the Bench was unable to accept allegations of siphoning off of funds, duping of prospective buyers or direct an investigation into the affairs of the company.

Secondly, with regard to non-availability of books & accounts of the respondent company, it was observed that there was nothing to show that the petitioners ever made any effort to inspect the same which they, as shareholders of the company, had a right to do. (Para 9b)

The NCLT held that insofar as the appointment of the Additional Directors was concerned, the appropriate form to deal with such appointment was the Court of Civil Judge, Delhi who has passed the impugned order restraining the respondents from doing so. (Para 9c)

Lastly, in response to the allegations that no AGM had been held since Sept, 2014, and that statutory compliances have not been complied with, the Bench held that as shareholders with 40% equity in the respondent company, the petitioners were well within their rights to requisition the management to convene a meeting to discuss any agenda or matter they thought fit. (Para 9e)

Directions

The NCLT gave the following directions:

  1. The Bench directed the respondents to hold AGM for defaulting years as well as the Financial Year ending on 31.03.2017 in exercise of provisions of Sec97[3] of the Companies Act, 2013, holding, the allegation of non-compliance with statutory requirements would, in absence of any defence by respondents, be tantamount to mismanagement. (Para 13)
  2. The respondents were also directed to lay before members, all Financial Statements, Annual Returns, Directors Report etc followed by filing them with the Registrar of Companies as statutorily required as well as paying all taxes required by Government. (Para 14)
  3. Lastly, though observing that courts should not ordinarily interfere with the management, with due regard to the fact and circumstances of the present case, the Bench directed the appointment of an independent Observer/ Administrator to oversee proper convening of the AGM and ensuring that all statutory requirements are complied with. The Bench also remarked that failure to comply with any of the directions would invite penal consequences under the Act. (Para 15 & 16)

 

Author: Ms. Noyonika Mukherjee, Intern at Khurana & Khurana, Advocates and IP Attorneys. Can be reached at   anirudh@khuranaandkhurana.com.

References:

[1] Sec 241, Companies Act, 2013 provides that any member may apply to the Tribunal who complains that the affairs of the company are  being conducted in a manner prejudicial to public interest, interest of the company or is prejudicial/oppressive to him or any member of the company OR any material change has taken place in the management/ control of the company by reason of which it is likely that affairs of the company will be conducted in a manner prejudicial to interests of the company, any members or any class of member. The Central Government can also apply to the Tribunal for an order under this section.

[2] Sec 244, Companies Act, 2013 provides that an application may be made under Sec 241 by any member- (a) in case of a company having a share capital, not less than 100 members or not less than 1/10th of total members or any members(s) holding not less than 1/10th of issued share capital provided that have paid all calls/sums due on their share;(b) in case of company not having share capital, not less than 1/5th of total members. The Tribunal may, on an application, waive any of the requirements.

[3] Sec 97, Companies Act, 2013 provides that the Tribunal may, on the application of any member of the Company, call or direct calling of an AGM and give such ancillary/consequential directions as it thinks expedient, if any default is made in made in holding the AGM under Sec 96, provided that the directions may include a direction that one member of the company present in person or proxy shall be deemed to constitute a meeting. A general meeting held in pursuance of the above may be deemed to be an annual general meeting.

Online Disputes and Forum Jurisdiction

The Delhi high court on 3rd January, 2018 in Impresario Entertainment & Hospitality Pvt. Ltd. vs S&D Hospitality[1], took a different view with respect to the Internet jurisdiction[2].

In the above case, plaintiff sought permanent injunction against the defendants who was running a restaurant at Hyderabad, under  the impugned trademarks ‘SOCIAL’ and ‘STONE WATER’ and its services were available through Zomato. The court held that the plaintiff would have to produce material prima facie to show that some commercial transaction using the website was entered into by the Defendant through the app- ZOMATO, within the forum state and that the specific targeting of the forum state by the Defendant resulted in an injury or harm to the plaintiff within the forum state.

Defendants contended that this Court has no territorial jurisdiction to entertain the present suit  as the defendant neither has his registered office within the jurisdiction of the said Court nor carries on any business within the jurisdiction of this Court. Mere existence of a website without proof of ‘the effect’ does not clothe this Court with territorial jurisdiction to entertain the present suit. Returning the plaint, the court held that a mere hosting of a website that is  accessible by anyone within the jurisdiction of the court is not sufficient for this purpose[3].

Convinced with the Defendant’s contention, the Court Further relied on Banyan Tree Holding (P) Limited v. A. Murali Reddy and Anr[4] which held that a passive website, with no intention to specifically target audiences outside the State where the host of the website is located, cannot vest the forum court with jurisdiction. The Hon’ble Court also observed that for the purposes of a passing off or an infringement action (where the plaintiff is not located within the jurisdiction of the court), the injury on the plaintiffs business, goodwill or reputation within the forum state as a result of the Defendant’s website being accessed in the forum state would have to be shown.

Earlier, the stance of the court was a bit different  in the case of World Wrestling Entertainment v. M/S Reshma Collection & Ors[5]– The Delhi High court had held that the mere website of the party referring to various goods  is not an offer but an invitation to an offer, just as a menu in a restaurant. The invitation, only if accepted by a customer in Delhi, becomes an offer made by the customer in Delhi for purchasing the goods “advertised” on the website of the appellant/plaintiff. Further, it held that mere accessibility of website in a forum state which ‘solicits’ its business, through which Defendant’s goods and services are sold, is enough to raise cause of action and in determining the personal jurisdiction in Delhi.

Legal Provisions in Regard to Jurisdiction

The Code of Civil Procedure, 1908 contains the provisions under section 20 with respect to institution of the suits where defendant resides or cause of action arises . It reads as : Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction –

  • The defendant, or each of the defendants where there are more than one, at the time of the commencement of the Suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
  • any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or 
  • the cause of action, wholly or in part, arises.”

[Explanation]: A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.

Section 62 [6] provides that every suit or other civil proceeding in respect of the infringement of copyright in any work or the infringement of any other right conferred by this Act shall be instituted in the district court having jurisdiction.

 Learned author Mulla in the Code of Civil Procedure, 18th Edn., has observed that under clauses (a) to (c) of section 20, plaintiff has a choice of forum to institute a suit. The intention behind Explanation to section 20 of the Code of Civil Procedure is that once the corporation has a subordinate office in the place where the cause of action arises wholly or in part, it cannot be heard to say that it cannot be sued there because it did not carry on business at that place. The linking of the place with the cause of 12 action in the Explanation where subordinate office of the corporation is situated is reflective of the intention of the Legislature and such a place has to be the place of the filing of the suit and not the principal place of business. Ordinarily the suit has to be filed at the place where there is principal place of business of the corporation.

The Indian Courts have always followed the parent legislation – Civil Procedure Code, 1908 and have  constantly tried to harmonize the technological advancement with the statute. Therefore, in the following caselaws, the courts have explained Section 20 of the CPC with reference to IPR and internet jurisdiction.

Indian Performing Rights Society Ltd. v. Sanjay Dalia & Anr The Supreme Court of India interpreted section 62 of the Copyright Act, 1957 and section 134(2) of the Trade Marks Act, 1999 with regard to the place where the plaintiff can institute a suit. Wherein it observed that “The very intendment of the insertion of provision in the Copyright Act and Trade Marks Act is the convenience of the plaintiff. The rule of convenience of the parties has been given a statutory expression in section 20 of the CPC as well. The interpretation of provisions has to be such which prevents the mischief of causing inconvenience to parties.”

Banyan Tree Holding (P) Limited vs A. Murali Krishna Reddy & Anr. on 23 November, 2009– The division bench of the Delhi High Court held that “Under clauses (a) to (c) of section 20 CPC, a plaintiff has a choice of forum and cannot be compelled to go to a place of business or residence of the defendant and can file a suit where the cause of action arises.”

In Icon Health And Fitness, Inc vs Sheriff Usman And Anr. – the Delhi High Court assumed jurisdiction under Clauses (a) and (b), stating that the defendants ‘carried on business’ in Delhi. The entirety of the Court’s reasoning for the above is contained in two sentences – “Though the defendants are not residing in Delhi, however, the defendants are offering their fitness apps and brands through App Store, Google Play Store and e-commerce portals like http://www.amazon.in which can be accessed and operated from all over the country, including from Delhi. Thus, it can be said that the defendants are carrying on business or working for gain at Delhi and this Court has territorial jurisdiction to try and decide the present suit as per section 20 of the CPC, 1908

Conclusion

At the outset, the Court does not subscribe to the view that mere accessibility of the Defendants website in Delhi would enable this Court to exercise jurisdiction. However, a passive website, with no intention to specifically target audiences in the forum State where the host of the website is located, cannot vest the forum court with jurisdiction.[7] The Court in Impresario Entertainment & Hospitality Pvt. Ltd. vs S & D Hospitality, took a very balanced stand and logically differentiated the concept of ‘mere presence of website’ and ‘targeting the forum state’. Thus, it is appreciated that the Court is not rigid and is flexible in providing a reasonable and tenable judgments by considering different facts and circumstances. Hence, it can be seen that the Indian Judiciary is swiftly moving towards a new jurisprudence on internet jurisdiction, in accordance to section 20 of CPC.

Author: Mr. Himanshu, Intern at Khurana & Khurana, Advocates and IP Attorneys. Can be reached at   anirudh@khuranaandkhurana.com.

References:

[1] Decided on: 3rd January, 2018 ; CS(COMM) 111/2017

[2] The Code of Civil Procedure, 1908, S-20 (c) – Other suits to be instituted where defendants reside or cause of action arises.

[3] Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414

[4] CS (OS) No. 894/2008

[5] https://indiankanoon.org/doc/71641182/

[6] The Copyright Act, 1957, Section-62-Jurisdiction of court over matters arising under this chapter.

[7] Banyan Tree Holding (P) Ltd

Patent (Amendment) Rules 2017

Department of Industrial Policy and Promotion (DIPP) has amended Patent Rules 2003 with effect from 1st December 2017 called as the Patent (Amendment) Rules, 2017. The definition of “startup” under rule 2(fb) has been substituted with a new definition. A more liberal definition of startup has been incorporated that can allow domestic as well as foreign entities to claim benefits such as fast-track mechanism and lower fee for filing patents.

According to the Patent (Amendment) Rules, 2017:

“Startup” means

(a) an entity in India recognized as a startup by the competent authority under Startup India Initiative.
(b) In case of a foreign entity, an entity fulfilling the criteria for turnover and period of incorporation/ registration as per Startup India Initiative and submitting declaration to that effect.

Explanation: In calculating the turnover, reference rates of foreign currency of Reserve Bank of India shall prevail.[1]

According to the Patents (Amendment) Rules, 2016 startups were defined as entities which are working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property where more than five years have not been lapsed from the date of incorporation/registration with a maximum turnover of INR 25 crore per year.[2] However, according to the Patent (Amendment) Rules, 2017, a startup can be any Indian entity recognized as a startup by the competent authority under the Startup India Initiative or a foreign entity that fulfils criteria for turnover and period of incorporation/registration as per Startup India Initiative.

Under Startup India Initiative an entity shall be considered as a Startup, if it fulfils following criteria:

1. incorporated as a private limited company or registered as a partnership firm or a limited liability partnership in India;
2. incorporated or registered in India not prior to seven years, however for Biotechnology Startups not prior to ten years;
3. turnover for any of the financial years since incorporation/ registration has not exceeded INR 25 crores;
4. has not been formed by splitting up or reconstruction of a business that was already in existence; and
5. working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.[3]

In view of the foregoing, it can be concluded that the period of incorporation/registration that was 5 years under 2016 rules has been extended to 7 years (10 years in case of biotechnology startups) by the 2017 rules. Also, foreign companies can now claim benefits if they fulfill above mentioned criteria for turnover and period of registration as per Startup India Initiative. Further, to claim benefits for filing patents, Indian entity should be recognized as a startup by a competent authority under Startup India Initiative, whereas foreign entity may provide equivalent documents as an evidence for fulfilling criteria for turnover and period of incorporation/registration as per Startup India Initiative along with a declaration to that effect.

[1] http://www.egazette.nic.in/WriteReadData/2017/180577.pdf

[2] http://www.ipindia.nic.in/writereaddata/Portal/IPORule/1_42_1_Patent__Amendment_Rules

[3] Notification Number G.S.R. 501 (E), https://startupindia.gov.in/notification.php#

Mobilox Innovations Private limited vs. Kirusa Software Private Limited

The much debated question with respect to the interpretation of what amounts to “existence of a dispute” has been finally answered by the Supreme Court in the (Mobilox vs. Kirusa) judgment. The interpretation of “existence of dispute” was seen in the context of initiation of CIRP of corporate debtors under the Insolvency and Bankruptcy Code, 2016.

The Corporate Insolvency Resolution Process (CIRP) can be initiated by the operational creditor in cases of payment default, through an application filed in the NCLT. Prior to such application, a demand notice (demanding the payment of the amount) needs to served upon the corporate debtor under Section 8 (1) of the Insolvency and Bankruptcy Code, 2016.

FACTS

The appellant (Mobilox) was engaged in a Star TV program “NachBaliye” conducting telephonic voting mechanism. The appellant engaged the respondent company (Kirusa) for providing various services relating to the TV program, and the parties also executed a non-disclosure agreement. The NDA stipulated certain conditions such as confidentiality obligations towards Mobilox. During the time period Kirusa raised necessary monthly invoices for the rendered services. However, Mobilox informed Kirusa about the payments that were subsequently withheld due to breach of the NDA obligations.

Kirusa senta demand notice to Mobiloxunder Section 8 of the Insolvency and Bankruptcy Code, due to non- payment. Mobilox’s response to the demand notice stated that there was a bona fide and serious dispute between the parties, inclusive of the breach of obligations mentioned under the NDA.

NCLT

Kirusa subsequently filed an application before the NCLT, Mumbai under section 9 for the initiation of Corporate Insolvency Resolution process (CIRP) of Mobilox. NCLT rejected the application on the grounds that Mobilox had issued a notice of dispute to the operational creditor.

NCLAT

An appeal against the order of NCLT was subsequently filed by Kirusa stating that mere dispute to the demand notice by the operational creditor does not amount to a valid ground for rejection of application under Section 9 of the ‘I & B Code’. The question before the Appellate Tribunal was with respect to the clarification of meaning of “dispute” and “existence of dispute” for the purposes of application under Section 9 of the Insolvency and Bankruptcy Code.

Section 8 provides for the requirements which should be complied with prior to filing an application under Section 9 of ‘I & B Code’.

Under Section 8 (2) of the I & B Code, once the demand notice is served upon the corporate debtor by the operational creditor, the corporate debtor needs to inform the creditor about the payment of the debt or dispute if any, within 10 days of receiving the notice.

Section 9 enshrines the right to file an application for the initiation of corporate insolvency resolution process after the expiry of 10 days from the date of delivery of demand notice.

NCLAT allowed Kirusa’s appeal on the groundthat the reply to the Demand Notice by the Mobilox cannot be seen within the purview of Section 8(2) and Section 5(6) of the Insolvency and Bankruptcy Code. It stated that the defense raised by Mobilox was vague and motivated as the debt demanded was not in connection with the non-disclosure agreement. Further NCLAT stressed upon the interpretation of “dispute” stating the a dispute would not be limited to only arbitration proceedings or suits but shall include any proceedings initiated before any tribunal, consumer court, labour court etc.

SUPREME COURT

Mobilox went in appeal before the Hon’ble Supreme Court against the order passed by NCLAT.

OBSERVATIONS

1. The Hon’ble Supreme Court allowed the appeal by Mobilox, while interpreting the expression “existence of a dispute” under Section 8(2) (a) of the Insolvency and Bankruptcy Code. The Hon’bleSupreme Court was of the opinion that the breach of NDA was sufficient to construe the existence of a dispute to invalidate the CIRP application filed by the operational creditor.

2. Interpretation of Section 8 (2) (a): “The word “and” occurring in Section 8 (2) (a) must be read as “or”. According to the earlier interpretation,the Code provides that a dispute between operational creditor and corporate debtor would only be valid if a suit or an arbitration proceeding with respect to the dispute has been filed prior to the receipt of demand notice. The Supreme Court was of the opinion that such an understanding shall lead to “great hardship” as the corporate debtor would then be able to stave off the bankruptcy process provided a dispute is already pending in a suit or arbitration proceedings”. An important point was highlighted by the Hon’bleSupreme Court stating that, if the “and” mentioned under Section 8(2)(a) is not read as “or”, such persons shall be excluded from the ambit of Section 8 (2) and application of CIRP shall be easily obtained which was not the intent of the legislature.

3. Pre-existing Dispute: The Hon’bleSupreme Court held that the existence of the dispute and/or suit or arbitration proceeding necessarily be “pre-existing”, that is to say, it should exist prior to receipt of the Demand Notice.

4. Plausible Contention Test: The Hon’ble Supreme Court while deciding the matter scrutinized the background of IB Code. It observed that the Insolvency and Bankruptcy Bill 2015 defined “dispute” as “a bona fide suit or arbitration proceedings”. However, when the Bill was passed the term “dispute” under Section 5 (6) was dropped from the definition. The Supreme Court stressed upon the interpretation that the previous jurisprudence with respect to the definition “dispute” does not apply to the current IB code. Instead the Hon’bleSupreme Court provided a new test “plausible contention” to determine the “existence of dispute”.

5. Questions to be seen by the Adjudicating Authority while examining any application under Section 9 of the I &B Code
6. Whether there is an “operational debt” of more than One Lakh?
7. Whether the documentary evidence provided with the application shows the debt is due and payable and has not yet been paid?
8.Whether there is an existence of a dispute between the concerned parties or any record of pendency of suit or arbitration proceeding filed before the receipt of Demand Notice.?

If any one of the conditions is not satisfied, NCLT must reject the application.

CONCLUSION

There appears to be no doubt that the interpretation with respect to “dispute” and “existence of a dispute” has been quite in debate since the inception of IB Code. Conflicting interpretations have been provided by different benches of NCLT. However, a conclusive ruling by the Supreme Court has finally provided a settled position.

It would be interesting to note as to how various NCLT’s would interpret and apply this landmark ruling relating to “plausible contention” test. Moreover, the Supreme Court has been vigilant to highlight the strict adherence to the time lines provided under the Code. The Supreme Court has clarified the object of the code keeping in mind the legislative intent. The court through this judgment has provided a balance between the rights of the creditors and also the remedies to the debtor companies.

Author: Tarun Gaur, 5th year student at ILNU, Nirma University, intern at Khurana and Khurana, Advocates and IP Attorneys and can be reached at info@khuranaandkhurana.com.

References:

[1] Interpreting The Nature Of The Notice Under Section 8 Of The Insolvency And Bankruptcy Code, 2016

[2] http://www.livelaw.in/supreme-court-finally-interprets-existence-dispute-ibc-mobilox-v-kirusa

[3] http://www.livelaw.in/key-takeaways-nclat-judgment-kirusa-vs-mobilox

[4] http://ibbi.gov.in/webadmin/pdf/order/2017

Khurana & Khurana Opens DELHI (Jangpura) Office

Khurana & Khurana, Advocates and IP Attorneys (K&K) along with its IP Asset Management Practice, IIPRD, upon successful completion its 10 years of practice,are happy to announce that they are opening up their 7’th branch Office in Jangpura, Delhi  w.e.f  2nd January 2018, in wake of its growing Intellectual Property (IP) and Commercial Litigation Practice, and with an intent of expanding its services verticals across Corporate and Tax Practices in the coming couple of years. The Delhi Office would also cater to IP/Patent professionals based in Delhi/Gurgaon and wanting to work out of the Delhi Office, with Greater Noida continuing to remain the main practice location for the firm.

Khurana & Khurana (K&K) is a leading Legal 500, MIP, IAM, Asia-IP, Acquisition-INTL, Corp-INTL, and Chambers & Partners recommended/ranked full service IP Law Firm in India with exclusive affiliate offices in Bangladesh, Vietnam, USA, Myanmar, and Nepal, and represents Indian and International clients ranging from small start-ups to Fortune 10 companies through its team of over 110 professionals spread across 7 offices in India and focusing on all aspects of IP, Commercial Law, and Media/Entertainment Matters. With 10 years of firm completion, K&K is looking forward to its next level of growth and the next 10 years would help K&K further refine its underlying positioning in the market.

IIPRD, on the other hand, is an established IP Asset Management Practice with a diversified business practice focusing on Patent support Matters ranging from executing mandates from Patent/IP Analytics to Litigation/Prosecution Assistance to Licensing Support for Global Corporates, Licensing Firms, and Law Firms, along with providing services in the domain of Commercialization, Valuation, Licensing, and Technology Transfer Matters.

K&K and IIPRD have completed 10 years of exemplary services. Excellence is our IP services, has given us an up thrust for expansion to Trademark and Copyright domains as well. With the vision of providing dynamic services and expanding our roots geographically, we are proudly opening our Delhi Branch.

Delhi Branch Office Address:

K-16, Jangpura Extension,

New Delhi – 110014, India

Appointment of Chairman of the Intellectual Property Appellate Board

IPAB is one of the most important IP tribunals in the country and was established by the Central Government by notifying in the Official Gazette on 15.07.2003. IPAB is an administrative body that has appellate jurisdiction over the decisions of the Controller of Patents, Registrar under the Trade Marks Act, 1999, and the Geographical Indications. However, IPAB has no statutory powers for trial infringement proceedings.

After the retirement of the Chairman of IPAB, K.N Basha on 13th May 2016, IPAB was run by only one member i.e. Mr.  Sanjeev Kumar Chaswal (Technical Member of Trade Mark) leaving behind other two posts vacant namely Vice-Chairman and Technical Member (Patents). This situation left IPAB almost non-functional for an year, leading to backlog of almost about 50,000 applications, due to which India was put under Priority watch list by US. Trade Representative.

As a result of which writ petitions were filed in Delhi as well as in Chennai, in order to fill up the vacant seats so as to make IPAB functional. This resulted in an expedited appointment of the Chairman, however, other positions are yet to be appointed. Therefore, through the Notice dated 1st January 2018 issued by IPAB (here) in accordance to the order dated 29.12.2017 of Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), Shri Justice Manmohan Singh has been appointed as the Chairman of the said Board.

Justice Manmohan Singh is a well renowned persona in the field of IPR, who practiced the over 10 years and served as the Additional Judge of High Court of Delhi from 11th April, 2008- 21.09.2016.

As to who appointed the present Chairman and the constitutionality thereof are still contentious issues as the Madras High Court had upheld that the selection committee for appointing members of IPAB, shall have a predominant role of the Judiciary rather than of the Executive. Further, pointed that while appointing the ‘chairperson’, the recommendation of the Chief justice of India must be given ‘due consideration’. The concerned High Court,  elaborately explained and also struck down various parts of Section 85[1] of the Trade Mark Act, 1999 in order to upheld the ‘Doctrine of Separation of Power’[2], thereby making the IPAB, a constitutionally valid Judicial body.

However, it is alleged that this appointment has been made under Tribunal, Appellate and other Authorities (Qualifications, Experience and other conditions of Service of Members) Rules, 2017. The said Act provides for composition of the selection committee that consists of Chief Justice of India or his nominee, two secretaries to the Government of India and two experts nominated by the Central Government, leading to greater dominance of Executive rather than judiciary in the appointment procedure of the Chairperson. This blatantly violates the judgement of the Madras High Court as mentioned earlier.

Moreover, let’s wait whether the said appointment of Justice Manmohan Singh will be challenged on the ground of constitutionality or not, keeping in mind the rulings held by the Hon’ble High Court of Madras.

Author: Ms. Pratistha Sinha, Intern at Khurana and Khurana Advocates and IP Attorneys and can be reached at anirudh@khuranaandkhurana.com.

References: 

[1] Qualifications for appointment as Chairman, Vice-Chairman, or other Members.

[2]Shamnad Basheer vs Union Of India on 10 March, 2015, W.P.No.1256 of 2011; The petition challenged the constitutional validity of the eligibility criteria, appointment of the members of IPAB

Louboutin’s ‘Red Sole’ Declared as a Well-Known Trademark by Delhi HC

The news of famous French fashion designer Christian Louboutin’s ‘red sole’ shoes with their sky heel stiletto and iconic red sole often regarded as the fashion statement has recently been in the limelight for being declared as a well-known trademark by Justice Mukta Gupta, Delhi High Court, but very few know the story behind the iconic red sole until now. After dissecting Christian Louboutin’s Rizzoli book, it was discovered that while starting off his career as a landscape gardener, it was actually the nail polish that gave Louboutin his inspiration. The renowned reputation of the ‘RED SOLE’ trademark has not been hidden from anyone and is spilled over into India from various countries around the world and consumers are well aware of this goodwill and reputation.

The luxury shoe brand had recently moved the High Court seeking a permanent injunction to restrain the traders, i.e. ‘Kamal Family Footwear’ and ‘Adra Steps’ in Delhi’s Karol Bagh from manufacturing and selling or in any manner, the shoes using his trademarked sole or the design which is deceptively similar or identical to his distinctive design as shown below.

shoe

The Court observed that the Christian Louboutin’s red sole has been a well-known luxury brand with presence in over 60 countries including India and has been using its ‘red sole’ trademark extensively and continuously since 1992.

In the suit which proceeded ex parte, Justice Mukta Gupta observed as follows: “The plaintiff’s trademark is internationally recognizable and has extensive usage in India. The ‘RED SOLE’ trademark also enjoys trans-border reputation in India by virtue of a variety of factors including tourist travel, in-flight magazines, Internet and broadcasting of various films and television programmes…….”

The Court referred to Hindustan Unilever Limited Vs. Reckitt Benckiser India Limited and finally directed two footwear traders to pay compensation of Rs. 10 lakh to the luxury brand owner for infringing the trademark for over a year and a half and decreed the suit by permanently injuncting the defendants from manufacturing, selling, marketing and advertising foot-wears with the trademark ‘RedSole.’

Author: Rashi Gahlaut,  Trademark Associate at Khurana & Khurana Advocates and IP Attorneys can be reached at  rashi@khuranaandkhurana.com.

Source: 

[1] hfttp://lobis.nic.in/ddir/dhc/MUG/judgement/12-12-2017/MUG12122017SC7142016.pd