Right to be forgotten: When privacy trumps freedom of speech

Source: mashable.com

In the EU, a citizen has the right to be forgotten. This right basically gives you the right to withdraw personal data. Very recently the EU extended this right against search engines like Google. So if your personal data is up on Google, you can ask them to disable links to such information, of course subject to a few conditions.

The European Court of Justice recently read the right to be forgotten within the realm of the 1995 Data Protection Directive. This case has gained immense popularity as it directed the search engine, Google, to remove links which impinged on the complainant's right to privacy.

Before we discuss the case, it is pertinent to understand, very briefly the data protection law that exists in the European Union (EU). The EU in its Data Protection Directive, 1995 expressly protects an individual's right to privacy with respect to processing of personal data. This directive is considered a milestone in the field of privacy laws. The growing dependency on technology and uneven enforcement of the directives forced the EU commission to formulate a new privacy law. Thus, in the year 2012, the commission proposed the new data protection regulation which aims at being a one stop shop for all matters concerning the protection of private data.

The commission's proposal seeks to modernize the 1995 directives such that the right to personal data is protected in the future. They focus on: reinforcing individuals’ rights; strengthening the EU internal market; ensuring high level of data protection in all areas, including police and criminal justice cooperation; ensuring proper enforcement of the rules; and setting global data-protection standards.[1] These regulations basically aim at empowering individuals to take control over their data and ensure that their personal data is protected.  The European Commission will also strengthen individuals’ right to be forgotten.

EU decision on the right to be forgotten

A Spanish citizen, Mario, lodged a complaint against a daily newspaper and Google Spain. Mario in his complaint urged the court to order Google to remove a link of a newspaper article concerning the public auction of his repossessed home. He contended that as this news is old and does not pertain to his current status in society, it infringed his right to privacy. It is relevant to note here, that Mario did not contend that the information is untrue or inaccurate, he merely stated that as the auction notice has no relevance to his present state of affairs and the continued existence of such information violated his right to privacy. He also urged the Court to order the newspaper to no longer keep within its possession such information. The Court recognized the right to be forgotten and ordered Google to deactivate links regarding the auction notice. However the Court struck a balance between the right to privacy and freedom of the media. While the Court ordered Google to delete access to the information deemed irrelevant but it did not rule that the underlying newspaper archive needs to be changed in the name of data protection.

The EU directives impose an obligation on 'controllers' to ensure protection of personal data and also undertake erasure of irrelevant and infringing data. A controller has been defined under the directives to mean a natural or legal person, public authority, agency or any other body which alone or jointly with others determines the purposes and means of processing personal data. The following paragraphs will highlight how the court equated Google to be a controller.

• Applicability of EU directives to search engines: The court ruled that Google is a controller as it performs the function of processing personal data. Processing of personal data has been defined to mean any operation or set of operations which is performed upon personal data such as collection, recording, organisation, storage, adaption or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, blocking, erasure or destruction.  A search engine, like Google, processes personal data as it collects data which it subsequently retrieves, records and organizes within the framework of its indexing programmes, stores on its servers and, as the case may be discloses and makes available to its users in the form of lists of search results. 

• Right to be forgotten under the 1995 Directives: While reading into an individual's right under Article 12 of the directives, the Court held that individuals have the right to ask search engines to remove links which are inaccurate, inadequate, irrelevant or excessive. The court held that a case by case assessment must be made and the economic interests of the search engine must be weighed vis-a-vis the complainant's right to be forgotten. The court also clarified that this right is not an absolute right and will have to be balanced with other fundamental rights, such as the freedom of media.

The judgment does not clarify how search engines should implement this ruling, which has left Google in a fix. However, Google has introduced erasure forms. Complaints received by them are processed and the appropriate action will be taken. Google has indicated that it received over 12,000 removal requests on day one and over 41,000 requests by day four. Other search engines are also closely monitoring these developments and making the required changes to their privacy policy in order to implement this judgment.

Indian Legal System:

The right to privacy in India is protected under Article 21 of the Constitution of India. This right is not an absolute right and is subject to reasonable procedures established by law. There are no precedents which have interpreted the right to be forgotten as a subset of the right to privacy. Indian law only address direct infringement of privacy and does not give people the right to remove irrelevant and unnecessary information without approaching a court or tribunal. The right of erasure arises only once it is established that the material impinges upon the right to privacy by the relevant court of law.

The Information Technology Act, 2000 and the rules thereunder also do not expressly provide for the right to be forgotten. The only provision which can be read to include the right to be forgotten is the intermediary's duty to remove content which is infringing in nature[2]. This can be read broadly to include the right to be forgotten as the aggrieved can approach the intermediary and prove how the data is infringing in nature. The final decision rests with the intermediary. The other data protection rules merely provide the right to review information given and request for amendments and alterations. These rules do not expressly guarantee the right to be forgotten.

The Shah Committee Report, 2012 proposed that the new privacy law in India must give more powers to individuals. In one of its recommendations it proposed that individuals should have the right to be forgotten. The Report suggested that access to personal information held by a data controller; should be able to seek correction, amendments, or deletion such information where it is inaccurate; be able to confirm that a data controller holds or is processing information about them; be able to obtain from the data controller a copy of the personal data. The leaked privacy bill 2014 bill is very similar to the EU directive and extends the right to privacy to all residents of India. It imposes obligations on persons in control of data to ensure that privacy of data is maintained and also extends the right to erasure of data on residents.

It will be interesting to see how this right will be read in the Indian context.

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[1] http://ec.europa.eu/justice/data-protection/document/review2012/factsheets/1_en.pdf

[2] Rule 3, Information Technology (Intermediaries Guidelines) Rules, 2011

Death penalty: Hearing at review stage, permitted!

"The magic of the spoken word, the power of the Socratic process and the instant clarity of the bar-Bench dialogue are too precious to be parted with" - Krishna Iyer., J

Picture Source: Dominica Weekly

TheHon'ble Supreme Court of India upheld the right of a death penalty convict to a hearing at the review stage before the Supreme Court of India. The constitutionality of Order XXXVIII of the 1950 Supreme Court Rules read with Order XI Rule 1 was discussed. These rules state that all review cases should be heard by a bench of at least three learned Judges. This was reduced by the Supreme Court Rules 1966 to two Judges by Order VII Rule 1. Further, in 1978 a new sub-rule (3) was added to Order XL of the Supreme Court Rules providing that all review applications could now be disposed of and heard by circulation - that is without oral argument.

The petitioners urged that the impugned order of the Supreme Court Rules, 1996 be declared unconstitutional inasmuch as persons on death row are denied an oral hearing. It was further contended that the hearing of cases in which death sentence has been awarded should be by a bench of atleast 5 Supreme Court judges.

The respondents echoed the judgment of the Constitutional bench in Eshwara Iyer and stated that judges apply their mind while disposing review petitions in their chambers. It was further contended that the judiciary is overburdened and other jurisdictions also don't provide for hearings at the review stage.

The decision of the Court rests on the principles of Article 21 of the Constitution of India. It aims at upholding the right to life which is the spirit behind this provision of the Constitution. The Court by providing a dynamic interpretation of its decision in Eshwar Iyer held that death penalty convicts form a separate class of convicts. The Court went on to state that that death penalty is awarded in rarest of rare cases and two differently trained judicial minds may apply a different set of rules while determining the case which can seriously impact the convicts right to life under Article 21 of the Constitution of India. Therefore in cases of death penalty, limited oral hearing must be made a precondition at the review stage.

The Court further clarified that the right to limited hearing will be applicable in pending review petitions and future petitions. It will also apply where a review petition is already dismissed but the death sentence is not executed so far. In such cases, the petitioners can apply for the reopening of their review petition within one month from the date of this judgment. However, in those cases where even a curative petition is dismissed, it would not be proper to reopen such matters.

On the point of the number of judges hearing the petition where death penalty is awarded the Court held that in all cases in which death sentence has been awarded by the High Court in appeals pending before the Supreme Court, only a bench of three Hon’ble Judges will hear the same. This is for the reason that at least three judicially trained minds need to apply their minds at the final stage of the journey of a convict on death row, given the vagaries of the sentencing procedure outlined above. At present, the Court is not persuaded to have a minimum of 5 learned Judges to hear all death sentence cases.

However in the dissenting judgment Chelameswar., J stated that it has never been held, either in this country or elsewhere, that the rule of audi alteram partem takes within its sweep the right to make oral submissions in every case. It all depends upon the demands of justice in a given case. Eswara Iyer’s case clearly held that review applications in this Court form a class where an oral hearing could be eliminated without violating any constitutional provision. Therefore no separate oral hearing needs to be provided at the state of review.

This is an excellent example of how the judiciary has carved a niche exception to an already established rule. The majority very clearly extends this privilege to death penalty convicts only, whose right to life is protected under the Constitution of India. It is an established norm that this punishment is provided in rarest of rare cases and a rock solid reason must exist for this punishment to stand ground. Hence, in order to remove all possibilities of error this decision of the Supreme Court reinforces the convicts right to life and hearing.

Surinder Koli, the Nathiri killer, will be the first to enjoy the benefits of this judgment as he has filed for a review and his will be the first petition to heard in open court.

STOP: Mirror Mirror on the wall, who's the fairest of them all!?

A father who is struggling financially is saddened to have a dark skinned daughter instead of a son. The depressed girl upon using the fairness cream gets a job as a flight attendant and has changed the tide for her father. The Ministry of Information pulled down this ad as it promoted discrimination on the basis of colour.

This aim of the ministry has been codified by the Advertising Standards Council of India by through the 'Advertising for Skin Lightening or Fairness Improvement Products Guidelines, 2014'. These guidelines emphasize that advertisements should not deride race, caste, colour, creed or nationality.

The guidelines state that no advertisement of a fairness product shall reinforce negative social stereotyping on the basis of skin colour. Specifically, advertising should not directly or implicitly show people with darker skin, in a way which is widely seen as, unattractive, unhappy, depressed or concerned. These ads should not portray people with darker skin, in a way which is widely seen as, at a disadvantage of any kind, or inferior, or unsuccessful in any aspect of life particularly in relation to being attractive to the opposite sex, matrimony, job placement, promotions and other prospects. It also provides that the ad mustn't associate darker or lighter colour skin with any particular socio-economic strata, caste, community, religion, profession or ethnicity. Further the ad should not perpetuate gender based discrimination because of skin colour.

PC: www.respectwomen.co.in

These guidelines not only promote equality but attempt to uproot racism which runs deep in India's history. 

Fixing Indian Arbitration

The Law Commission of India’s Troubleshooter Report

It is no secret that for all the international jurisprudence establishing arbitration as an effective, cost efficient, prompt and necessarily independent system of resolving a wide range of disputes, the Indian experience has been rather different. Even after the Supreme Court’s decision in BALCO, India remains a jurisdiction where the Courts routinely read down the sacrosanct bar on judicial intervention, parties almost without exception challenge awards with significant success, high arbitrator fees and courts stifle arbitration and fairly non-committal towards institutional arbitration.  In its 246th Report the LawCommission of India has recommended amendments to the Arbitration and Conciliation Act 1996 (‘Act’) to address some of the concerns plaguing the law governing arbitration in India. In this post we discuss some of the salient suggestions. In the interest of brevity we have dispensed with a comprehensive section-by-section analysis.

I.                   Boost for Institutional Arbitration

In an attempt to boost institutional arbitration the Commission has recommended addition of Explanation 2 to Section 11(6A) to lay down a general mandate for Courts should encourage the adjudication of disputes by reference to institutionalized arbitration. In view of certain institutional rules such as those contained in Rule 26 and Schedule I the SIAC Rules 2013, the Commission has recommended widening of the definition of ‘arbitral tribunal’ to also include emergency arbitrator.

II.                Section 2

In another suggestion the Commission ,in complete endorsement of the decision in Chloro Controls (I) P. Ltd[1] in addition to its proposed amendment to Section 8, has recommended that all reference to ‘party ’ in the Act also includes persons who derives his interest from such party. Several other changes have been recommended to Section 2 in order to capture the import of the judgement in  BALCO.[2] Further, in what is set to be a point of great debate the Law Commission on page 39 of its report recommends:

“Also insert the following proviso [after subsection 2(2)] “Provided that, subject to an express agreement to the contrary, the provisions of sections 9, 27, 37 (1)(a) and 37 (3) shall also apply to international commercial arbitration even if the seat of arbitration is outside India, if an award made, or that which might be made, in such place would be enforceable and recognized under Part II of this Act.”

Article 1(2) of the UNCITRAL Model Law which provides that “The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State." It would be over optimistic to expect that this will indeed clarify the law. With interim measures of foreign seated arbitrations back in the domain of the Indian Courts, albeit non-exclusively, the core issue of judicial overreach is likely to remain.

Interim Orders by a Foreign Court supervising Arbitration

The Commission could have tried to resolve the problem which exists insofar as there is no clarity as to the exact mode of enforcement of interim orders passed by a foreign court having supervisory jurisdiction over arbitration. Since an interim order is by nature not final and conclusive, lawyers have for long struggled to find a method of enforcing an interim measure issued by a foreign court in relation to an arbitration initiated under its jurisdiction. Any attempt to enforce such an interim order will fall foul of Section 44A of the CPC since the order will not qualify as a ‘judgement’ or ‘decree’. The other roundabout method for a party is to initiate contempt proceedings in the foreign court on the ground of non adherence to the initial interim order and subsequently attempt to enforce the judgement (not the underlying order but  the subsequent judgement holding contempt) under Section 13 and Section 44 of the CPC. Clearly, both these avenues are ineffective. While the Commission recognizes this problem, a clear remedy seems to have been left out. The Commission might have benefited by giving the issue more attention.

III.              Delay in the Arbitral Process

In its report the Commission seems to be generally concerned in Court based delays in arbitration matters, while particularly disturbed with the effect the decision by the Tribunal in White Industries[3] which exposed the far reaching consequences of inordinate delays in a jurisdiction with over 70 BITs most of which impose obligations of some variant of access to effective and prompt judicial process for investors. The Commission has therefore recommended some novel changes. In its opinion, restricting relevant ‘Court’ in case of international commercial arbitration involving foreign parties would be desirable owing to the expectation that commercially oriented judges would hear the matter expeditiously.  This would reduce what has been christened the “Investment Treaty risk.” While the concern is properly guided, there is no clarity as to how a change in the Court of supervision would directly reduce timelines in the backdrop of reports where where High Courts routinely perform below expectation due to a large number of pending cases. Policy measures such as training of judges to act with a heightened level of commercial orientation would perhaps be more effective. The Commission has however recognized that this suggested change cannot be a standalone remedy to counter the seemingly inherent malaise of delay so inherent in the current judicial process relating to arbitration. It has recommended that there is an urgent need to increase the threshold for judicial at both the pre and post award stage.

    A. Pre Judicial Intervention

In a concise manner the Commission expresses its disappointment that while the Supreme Court had the opportunity to clearly answer the question as to the scope and nature of permissible pre-arbitral judicial intervention, keeping in mind the bar under Section 5 of the Act, it framed the question in rather ineffective and infructuous manner focusing rather on the orthodox distinction between ‘judicial’ and ‘administrative’ power under Section 11 referring to a series of judgement culminating in SBP v. Patel Engineering[4] and the consequent clarification in  National Insurance Co. LTd v. Boghara Polyfab Pvt Ltd.[5] which divided this controversial matrix of precedent and laid down that the law in three distinct buckets, if you may. First, the category of issues which the CJI is obligated to decide. Under this category enquiry must be conducted as to whether the appropriate High Courts has been approached, whether there is an arbitration agreement and whether the party approaching the Court under Section 11 is party to such an agreement.  The second category includes issues such as whether the claim is a live claim and whether the parties concluded the transaction by satisfaction of rights and obligations. These issues in the second category are those over which the CJI/ designate may decide. The third category are those which must necessarily be left for the Tribunal to decide. These include questions of whether a claim is covered by an arbitration clause, and the merit of such claims.

The Commission simplistically refers to the desirability of extending these tests to Section 8 and Section 45 instead of restricting it only to Section 11. The Commission deserves merit to have pointed out that there exists no logical rationale to suggest that the scope and nature of judicial intervention on pre award stage should change on the fact that a party, which may intend to defeat the arbitration agreement refuses to appoint an arbitrator in terms of the agreement (covered by Section) or moves a proceeding before a judicial authority in spite of existence of such an arbitration agreement. (typically such cases in appear in relation to Section ). For a party intending to defeat the arbitration agreement, both the refusal to appoint arbitrator or initiation proceedings in Court serve the same purpose and therefore should not be subject to varying levels of judicial intervention. Therefore the Commission has recommended that Section 8 and Section 11

Section 8 and Section 11

The bar against bifurcation of claims under arbitration agreements so widely encompassed in  Sukanya Holdings[6] and so artfully skirted in Chloro Control is a valid subject of concern for the commission. To narrow down the effect of Sukanya Holding which stated that where all parties to a dispute are not parties to arbitration, the reference to the arbitration must be rejected. The Commission suggests adding of proviso to Section 8 stating that reference in such cases may only be rejected where all the parties are “necessary parties” to the action.  The term “necessary parties” has however not been defined.

The Commission also addresses the core question as to the depth of permissible judicial enquiry into the validity of the arbitration agreement. It recommends that if the authority is of the opinion that there is a prima facie arbitration agreement then it should refer the matter to the Tribunal and if the authority concludes that a valid agreement does not exist, such determination would be final and not prima facie. Similar amendments are proposed in Section 11 as well.  

Section 9 and Section 17

Perhaps the vehicle of abuse in many contracts containing arbitration, Section 9 of the Act per the recommendation of the Commission must be amended to have a 60 day limit to initiate arbitration proceedings where a party has obtained an injunction over subject matter covered by the arbitration agreement. Evidently, this is a legislative counter to the tendency of parties to obtain a Section 9 injunction and continue to take benefit of the same perpetually, without taking any steps taken to proceed with arbitration. However, the Commission is rather vague insofar as it recommends that the following clause be included

“(2) Where, before the arbitral proceedings, a Court grants any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within 60 days from the date of such grant or within such shorter or further time as indicated by the Court, failing which the interim measure of protection shall cease to operate.

The provision dilutes the efficacy of what could have been a strict legislative deadline for commencement of proceedings and retains judicial discretion, which if routinely exercised in the proper manner in the first place would have not given rise to the problem in the first place.

The Commission has also recognized in relation to Section 17, that in India interim orders of the Tribunal are routinely rendered ineffective. The proposed amendment would give the tribunal the same powers as a civil court in relation to the interim measures.  Read with the amendment in Section 9, parties would be left with no option but to approach only the tribunal once the tribunal is constituted. The proposed amendment would also grant the tribunal the authority to grant interim relief even after the award has been rendered.

  B. Post Award Judicial Intervention

Section 34 (Setting aside of an award)

The Commission recommends to resolve the seemingly age-old problem of the interpretation of the grounds stated in Section34 for the setting aside of an award.  It recommends amendments to counter the widening of the words “morality or justice” used in the otherwise clear judgement in Renusagar by replacing it with a higher threshold of  the award being in “in conflict with the most basic notions of morality or justice” In an additional explanation suggested the commission seeks to bar erroneous application of law and re-appreciation of evidence as grounds for setting aside of awards. These were the grounds used in Saw Pipes[7]  to successfully set aside an award

Section 36 (Enforcement of Award)

The Commission took a cue for the Apex Courts observations in National Aluminium Company Ltd v. Pressteel & Fabrications (P) Ltd and Anr[8] where the Court stated that amendments to Section 36 was necessary to ensure that parties intending to defeat the arbitration do not get an automatic stay on enforcement by the mere filing an application of Section 36.   

Section 37

There exists a bar on second appeal from orders appealed under Section 37. However, inconsistencies in relation to parties succeeding in filing letters patent appeal where the Letters Patent Act of various high courts have not been suitably amended to conform with the provision in Section 37. The Commission has therefore recommended that Section 37 be amended to also bar letters patent appeals in addition to ordinary second appeals.

IV.              Other Salient Recommendation of the Law Commission

The Law commission has recommended a variety of other changes some of which are as follows:

1. Amendment to Section 16 in order to counter the effect of the Apex Court’s decision in N Radhakrishnan v. Maestro Engineers[9]  which restricted the authority of the tribunal to rule on questions of fraud, corruption etc.
2.  Amendment to Section 20 to provide for parties to agree to the seat and venue of arbitration instead of the ambiguous “place of arbitration” The amendment would recognize the distinction between the legal seat of arbitration and the venue of arbitration.
3. Amendment to  Section 23, by addition of  an Explanation which clarifies that the defence may set up a counter claim and such will be heard by the arbitral tribunal even if exceeds the terms of reference to the Tribunal as long as the claim is covered within the scope of the arbitration agreement.  The rationale for such a suggestion is self evident.
4. Amendment in Section 24 requiring that hearings and presentation of evidence be done on continuous days to avoid parties seeking unnecessary adjournments which drive up the cost of arbitration.

A significant and perhaps underestimated change suggested by the Commission is the addition of Section 6A which would lay down a regime for costs with a higher than expected adherence to the ‘costs follow the event’ regime. The effect of this clause is most likely to invisible since the purport of this amendment would lie in its significant effect on legal strategy by parties, many of whom have until now benefited without consequence from tactics which inflate the costs of arbitration.  If the amendment is actually made, a significant decline in the filing of frivolous claims may also be expected.

Having delved into the recommendations of the Commission, one can only hope that at the least, the significant suggestions be adopted by means of relevant amendment to the Act.

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[1] Chloro Controls (I) P. Ltd.v. Severn Trent Water Purification Inc. and Ors., (2013) 1 SCC 641

[2] Bharat Aluminium Company and Ors. etc. v. Kaiser Aluminium Technical Service, Inc. and Ors. etc., (2012) 9 SCC 552]

[3] White Industries Australia Ltd v. Republic of India, UNCITRAL, Final Award (November 30,2011)

[4] (2005) 8 SCC 618

[5] (2009) 1 SCC 267

[6] Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr., (2003) 5 SCC 531

[7] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705

[8] (2004) 1 SCC 540

[9] (2010) 1 SCC 72)

The Curious Case of Bitcoins - Part II

In our previous post, we have highlighted the negative attitude of the Reserve Bank of India towards the use of BITCOINS. However it is important to note that BITCOINS are not illegal per se. There is tremendous scope for these trading units to be legalized in India. In this post we seek to highlight the possible ways in which these units can be legalized.

CURRENCY

 'Currency' is defined as " currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.[1]" The definition gives the government wide powers to expand the scope of the definition. This power can be used to include BITCOINS as a currency. However as of now, a BITCOIN is not a currency as it does not satisfy the requirement mentioned in the definition.

SECURITY

The Securities Contracts (Regulation) Act, 1955 defines securities to include[2] -

"(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities;”

The law again gives the power to the government to include 'such other instruments' as securities. Therefore there is scope for bitcoins to be termed as securities. If the government does take this decision to qualify BITCOINS as a security, it would give birth to a plethora of regulations and guidelines issued by SEBI.

However currently BITCOINS doesn't qualify as a security as it doesn't fall under any of the permissible heads mentioned in the definition.

COMPUTER PROGRAMME

The Indian Copyright Act, 1957, defines the term "computer programme[3]" as "a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result." BITCOIN is a code which facilitates the transfer of bitcoin currency from one account to the other. Therefore BITCOINS can be regulated as a computer programme under the existing legal regime. As computer programmes are movable goods, therefore BITCOINS can also be categorized as a movable good.

Keeping in mind the growing popularity of BITCOINS across the globe, it will be interesting to see how the Government of India will regulate these virtual currencies in India.

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[1] S 2(h) of the Foreign Exchange Management Act, 1999 

[2] S. 2(h) of the Securities Contracts (Regulation) Act, 1955

[3]S. 2(ffc) of Indian Copyright Act, 1957

Crowdfunding

Crowdfunding is a method of raising funds from multiple investors over the web for a specific project, business venture or a social cause. The United States of America and the United Kingdom are seen as dominant players in this kind of funding. Crowdfunding has developed as an alternative means of raising funds, especially for start-ups and SMEs. Another reason for the popularity of this form of fund generation is the financial crisis in 2008 which resulted in restricted fund allocation by banks thereby giving rise to the need for an alternative method of funding.

Funding through this method has grown exponentially especially with innovative start-up companies. Max Gunawan’s startup managed to raise close to $600,000 in a span of 30 days through the process of crowdfunding. Julie Urman, a video game developer, raised close to $9 Million within a span of 30 days.

There are multiple types of crowdfunding:

1. Donation crowdfunding: As the name suggests it involves generation of funds for charity and philanthropic purposes.
2.  Reward crowdfunding: A form of funding which is dependent on a future of existing reward as consideration.
3. Peer-to-Peer lending: Is an online platform where lenders and borrows are matched for unsecured loans and the interest rate is determined or set by this platform.
4. Equity Crowdfunding: As the name suggests, funds are generated with equity of the funded company as consideration.

The United States and the United Kingdom have regulations on crowdfunding. India has seen the growth of this kind of funding, but it still stands unregulated. Recently SEBI released a consultation paper on crowdfunding which discusses the methods, risks and advantages of this form of funding. It provides a comprehensive note on the regulations in other countries and pinpoints the regulations which can affect crowdfunding in India. The provisions of the Companies Act, 2013 and various SEBI Regulations such as ICDR has been discussed.

Crowdfunding can be categorized as a form of private placement, therefore the provisions of the Companies Act, 2013 are attracted. Advertisements by companies raising money through private placements is prohibited and securities cannot be issued to more than 200 persons. However, QIBs and employees availing the employee stock option by companies are excluded. Further such offers can be made only to such persons whose names are recorded by the company prior to the invitation to subscribe.

However, as mentioned above, Companies Act, 2013 provides a window for making private placement offers to Qualified Institutional Buyers (QIBs) and the 'limit of 200' is not applicable to such QIBs. QIBs are the entities such as a MF, Foreign Portfolio Investor (FPI), AIF, Scheduled Commercial Bank, IRDA registered Insurance company etc. as defined in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. This exception can therefore be exploited in order to generate funds under crowdfunding. 

Given the high-level of risks associated with this new way of fund-raising activity, SEBI has proposed that only 'accredited investors' be allowed to participate in crowdfunding activities. Such investors would include institutional investors, companies, HNIs and financially-secure retail investors advised by investment advisors or portfolio managers. SEBI has clarified that no regulations are under construction and this consultation paper is merely a medium to understand and garner public opinion on crowdfunding. 

Transgender, a New Gender: Recognizing the T in LGBT

On 15th April 2014 the Supreme Court of India gifted India with the recognition of a new gender – Transgender. By allowing the petition filed by National legal Services Authority, the Court held that trans-genders have the right to equality under Article 14 and the right to live with dignity under Article 21.

The Court defined Transgender to mean a person whose gender identity, gender expression or behavior does not conform to their biological sex. Transgender are persons who do not identify with their sex assigned at birth, which include Hijras/Eunuchs and they do not identify themselves as either male or female. Hijras are not men by virtue of anatomy appearance and psychologically, they are also not women, though they are like women with no female reproduction organ and no menstruation. Since Hijras do not have reproduction capacities as either men or women, they are neither men nor women and claim to be an institutional “third gender”. Among Hijras, there are emasculated (castrated, nirvana) men, non-emasculated men (not castrated/akva/akka) and inter-sexed persons (hermaphrodites). Transgenders also include persons who intend to undergo Sex Re-Assignment Surgery (SRS) or have undergone SRS to align their biological sex with their gender identity in order to become male or female. Further, there are persons who like to cross-dress in clothing of opposite gender, i.e transvestites.

Gender Identity and Sexual Orientation

The Court differentiated between gender identity and sexual orientation. Gender identity refers to each person’s deeply felt internal and individual experience of gender, which may or may not correspond with the sex assigned at birth, including the personal sense of the body which may involve a freely chosen, modification of bodily appearance or functions by medical, surgical or other means and other expressions of gender, including dress, speech and mannerisms. Gender identity, therefore, refers to an individual’s self-identification as a man, woman, transgender or other identified category. While sexual orientation refers to an individual’s enduring physical, romantic and/or emotional attraction to another person. It includes within its ambit transgender and gender-variant people with heavy sexual orientation and their sexual orientation may or may not change during or after gender transmission which also includes homosexuals etc.

By keeping in mind the above difference and identifying the need to adhere to international obligations under the UDHR, ICESCR, ICCPR and Yogakarta Principles the Supreme Court of India recognized the need to protect the rights of transgenders.  Due to the absence of suitable legislation protecting the rights of the members of the transgender community, they are facing discrimination in various areas and hence the necessity to follow the International Conventions to which India is a party and to give due respect to other non-binding International Conventions and principles. Constitution makers could not have envisaged that each and every human activity be guided, controlled, recognized or safeguarded by laws made by the legislature the Court relied on the following points while guaranteeing the much needed rights:

Article 14: Article 14 of the Constitution of India ensures equal protection and therefore imposes a positive obligation on the states to ensure the same. Article 14 does not restrict the word ‘person’ and its application only to male or female. Hijras/transgender persons who are neither male/female fall within the expression ‘person’ and, hence, entitled to legal protection of laws in all spheres of State activity, including employment, healthcare, education as well as equal civil and citizenship rights, as enjoyed by any other citizen of this country.

Article 15 & 16: prohibit discrimination against any citizen on certain enumerated grounds, including the ground of ‘sex’. In fact, both the Articles prohibit all forms of gender bias and gender based discrimination. Both gender and biological attributes constitute distinct components of sex. The discrimination on the ground of ‘sex’ under Articles 15 and 16, therefore, includes discrimination on the ground of gender identity. The expression ‘sex’ used in Articles 15 and 16 is not just limited to biological sex of male or female, but intended to include people who consider themselves to be neither male or female.

 Article 19: Provides that all persons have the freedom of speech and expression. Therefore no restriction can be put on the basis of appearance, dressing, words or any other form. However this is subject to Article 19(2). Gender identity lies at the core of one’s personal identity, gender expression and presentation and, therefore, it will have to be protected under Article 19(1)(a) of the Constitution of India.

Article 21: Article 21 protects the dignity of human life, one’s personal autonomy, one’s right to privacy, etc. Right to dignity has been recognized to be an essential part of the right to life and accrues to all persons on account of being humans. Recognition of gender forms the essence of human dignity. Legal recognition of gender identity is, therefore, part of right to dignity and freedom guaranteed under our Constitution.

Keeping in mind the above points the Supreme Court held that Hijras, Eunuchs, be treated as “third gender” for the purpose of safeguarding their rights under Part III of Constitution of India. The Court directed the Central and State Governments to recognize this new gender identity, treat them as socially and educationally backward classes of citizens and extend all kinds of reservation in cases of admission in educational institutions and for public appointments. Further steps must be taken operate separate HIV Sero-survellance Centres since Hijras/ Transgenders face several sexual health issues and steps must be taken to address the problems being faced by Hijras/Transgenders such as fear, shame, gender dysphoria, social pressure, depression, suicidal tendencies, social stigma, etc. and any insistence for SRS for declaring one’s gender is immoral and illegal. Lastly, the Court insisted on proper steps should be taken measures to provide medical care to Transgenders in the hospitals and also provide them separate public toilets and other facilities.

In our opinion this is a remarkable judgment and addresses the need of the hour – recognition of alternate genders. This judgement, understandably contains a disclaimer stating that the issue of constitutionality of Section 377 of IPC is finally settled in NAZ foundation and therefore reserves its opinion on the same. It is interesting to note that the Supreme Court in its judgement in NAZ relied on a binary understanding of the term ‘gender’ while categorizing homosexual intercourse as “against the order of nature”. This presumption of the existence of only two genders must affect the understanding of the Court as to the true meaning of the “order of nature”.

The Securities Laws (Amendment) Ordinance, 2014: Re - Promulgated

The President of India re - promulgated The Securities Law Ordinance 2014. SEBI has been given the power to rely on telephone records for the purposes of investigation and evidence collection. The following post will discuss the powers of SEBI under the ordinance.

The Securities and Exchange Board of India Act, 1992 was enacted to provide for the establishment of a board to protect the interests of investors in securities and to promote, develop and regulate the securities market[1]. Under the ordinance, SEBI is empowered to call for information, conduct investigations, inquiries and audits.[2] It can call for relevant information and records from any person including any bank and any other authority, board or corporation established or constituted by or under the Central or State Acts.[3]

The Board is empowered to investigate, if it has reasonable grounds to believe that the securities transaction is detrimental to investors or the securities market and if any person has violated the provisions of the Act.[4] The Investigating authority, appointed by the Board, is empowered to do the following:

 1. Require any intermediary or person to furnish such information, produce records, books, registers or other documents before it[5]. The Authority will be permitted to keep such records for a period of six months only[6].

2.  If the Investigating Authority has reason to believe that any person or enterprise to whom a notice has been issued or might be issued, (1) has omitted or failed to provide the information; (2) would not provide the information and not produce the required documents or, (3) would destroy, mutilate, alter, falsify or secrete the information or documents, then the Chairman may authorize the Investigating Authority to do any of the following[7]:

a.       Enter and search the building, place, vessel, vehicle or aircraft where the information is expected to be kept.

b.      Break open the lock of any door, box, locker, safe almariah where the keys are not available.

c.       Search any person.

d.      Require any person who is found to be in possession or control of any books of accounts or documents which are maintained in electronic form to provide the facility to investigate such books and documents.

e.       Seize any books and documents.

f.       Place identification marks and extract copies of books and documents.

g.      Record on oath the statement of any person in possession or in control of such books and documents.

    3. The Board must make regulations in relation to search and seizure. The regulations must provide the procedure to be followed by Authorized Officers for obtaining ingress into any building, place, vessel, vehicle or aircraft. It must also provide the procedure for ensuring safe custody of any books, documents or assets seized.[8] The books and documents seized under the Act must be returned after the conclusion of the investigation.[9]

      The re - promulgated ordinance is in almost all respects identical to the earlier issued ordinance. However it does contain some significant changes. One of the most significant of them compared to the earlier ordinance is the provision providing  SEBI with the power to supersede an order issued by an adjudicating officer where it considers ” that the order is erroneous to the extent that it is not in the interest of the securities market.” [New provision Section 15-I (3)] However the power of the SEBI extends only to increasing the quantum of penalty. This presents a difficult situation, where the adjudicating officer under the act being under an implied obligation to act fairly may be overruled on the point of amount of compensation by one of the parties appearing before the Officer. This, in addition to the fact that the Adjudicating Officer is appointed from the ranks of SEBI under Section 15-I is a matter of concern in assessing the independence of the adjudicating officer. Given that the already existing remedy to approach the SAT remains unscathed the overriding powers of the SEBI represents an additional adjudication stage. One must however note that the overriding powers of the SEBI are restricted to enhancement of the penalty and does not extend to overruling questions of whether or not a violation has occurred.

The other significant change is the fact that a safeguard has been put in place vide an amendment in Section 11C (8) requiring written reasons for authorizing a search and seizure operation.

In addition to addressing the investigative powers of SEBI relating to offences under the SEBI Act the ordinance covers provisions for settlement of administrative and civil proceedings as well as establishment of special courts as amendments to the SEBI Act, 1992. The ordinance also contains amendments to the Securities Contract Regulation (Regulation) Act, 1956 and Depositories Act, 1996 which enable SEBI to exercise similar investigative powers offences prescribed the respective acts.

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[1] Preamble, Securities and Exchange Board of India Act, 1992

[2] Section 11(2)(i), Securities and Exchange Board of India Act, 1992

[3] Section 11(2)(ia), The Securities (Amendment) Second Ordinance, 2013

[4] Section 11C, Securities and Exchange Board of India Act, 1992

[5] Section 11C(3), Securities and Exchange Board of India Act, 1992

[6] Section 11C(4), Securities and Exchange Board of India Act, 1992

[7] Section 11C(8), Inserted vide The Securities Laws (Amendment) Second Ordinance, 2013

[8] Section 11C(9), Inserted vide The Securities Laws (Amendment) Second Ordinance, 2013

[9] Regulation 11C(10), Securities and Exchange Board of India, 1992 (Refer: The Securities Laws (Amendment) Second Ordinance, 2013.