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Litigation Lounge

Sabarimala temple-entry controversy: Explained by myLaw

What is the #Sabarimala temple entry controversy all about? What are the legal and constitutional complications? Which fundamental rights are in conflict here? And how do we decide whose rights should prevail? We explored all these questions to give you a clearer picture. Watch below and don’t forget to let us know what you think.

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Corporate Lounge

Why SEBI has jurisdiction over GDRs that impact Indian securities markets

DeekshaSinghEarlier this month, the Supreme Court decided on the jurisdiction of the Securities and Exchange Board of India (“SEBI”) in relation to Global Depository Receipts (“GDRs”). Let us take a closer look at GDRs and the Court’s decision in Securities and Exchange Board of India v. Pan Asia Advisors Ltd.

What are GDRs?

GDRs are instruments created by a foreign depository outside India and authorised by a company making an issue of such depository receipts. A depository can be any company, bank, or institution that holds and facilitates the exchange of securities. Depositories issue receipts for the securities deposited with them, which then function as negotiable financial instruments that can be traded on a stock exchange.

Let us look at how this works. Each GDR represents a certain number of equity shares of an Indian company, which are listed on an Indian stock exchange. A local custodian in India holds the underlying equity shares on behalf of the depository. The depository issues these GDRs, which are then listed and traded on the foreign exchanges. The underlying equity shares are not traded on the Indian stock exchange until the GDR holder redeems the depository receipts. Until then, they are merely held by the local custodian.

The GDR holder may redeem the GDRs and obtain the underlying equity shares. The terms of the redemption will depend on the terms of the deposit agreement between the issuer, the GDR holder, and depository issuing the GDRs. The GDR holder however, should be eligible to hold the underlying equity shares according to the foreign exchange laws in India, namely, the Foreign Exchange Management Act, 1999 and the regulations made under it, in order to redeem the GDRs and obtain the underlying equity shares.

In India, the Ministry of Company Affairs has issued the Companies (Issue of Global Depository Receipts) Rules, 2014 (“GDR Rules”) to govern the issue of GDRs. The GDR Rules provide that any GDR issue must comply with the GDR Rules and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, which was notified by the Ministry of Finance.

SEBI v. Pan Asia Advisors Ltd. – the facts

In this case, issued GDRs were all converted into the underlying equity shares of the issuing companies, which were then sold in large deals to several buyers, such as stock brokers. The stock brokers would in turn sell the shares to other investors.

After investigation, the SEBI found that the issuing companies, the lead manager to the GDRs, the foreign institutional investors (“FIIs”), and the stock brokers were all acting as a group. They were able to maintain the share price of the company through these transactions. No information was communicated to outside investors who may have paid a high price based on the issuance of GDRs by the companies and large holdings maintained in them by FIIs.

SEBI held that this was an instance of market manipulation and exercising its quasi-judicial function, passed an order restraining the parties from participating in the capital markets.

The Securities Appellate Tribunal (“SAT”) overturned the SEBI’s ruling on the ground that SEBI does not possess jurisdiction to regulate GDRs. SEBI appealed the matter. The issue was whether the SEBI has the jurisdiction to initiate action against the lead managers to the GDRs issued outside India.

The Supreme Court’s decision

The Supreme Court of India

The Supreme Court of India

The Supreme Court looked at the process involved in a GDR issuance. It recognised that while the deposit of the ordinary shares with the custodian takes place in India, the actual issue and trading of the GDRs takes place outside India.

Since the GDR does not come into existence unless the underlying shares are issued, Indian law does apply. This also leads to the conclusion that GDRs would fall within the definition of “securities” under section 2(h) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”).

The Supreme Court then looked at the powers of the SEBI under the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003. After finding that the SEBI has extensive powers to protect the interests of investors in the securities markets, the Supreme Court noted that the alleged actions of the parties involved in the transactions adversely affected the Indian securities markets. It observed that “… the violation complained of by the appellant is with reference to such of those provisions contained in SEBI Act, 1992 vis-`-vis the underlying shares of GDRs. Therefore, we are unable to see any violation of exercise of its jurisdiction since the underlying shares of GDR were created and dealt with as well as traded in the stock market of Indian Territory.

It further relied on the case of GVK Industries Limited v. Income Tax Officer and stated that in order to proceed “in exercise of any extra territorial aspect, which has got a cause and something in India or related to India and Indians in terms of impact, effect or consequence would be a mixed matter of facts and of law, then the Courts have to enforce such a requirement in the operation of law as a matter of law itself.

So with regard to the limited question of jurisdiction, the Supreme Court concluded that the SEBI has jurisdiction over GDR issues that impact the Indian securities markets. It sent the matter back to SAT for a decision on the merits of the case.

The specific facts of the case could have affected the Supreme Court’s decision. This transaction in question was not just a GDR issue. A series of allied transactions allegedly caused adverse consequences for Indian investors. The scope of this judgment may therefore be somewhat limited. However, it serves to clarify that just because a GDR issue is carried out entirely outside India does not mean that it is outside the SEBI’s territorial jurisdiction.

Deeksha Singh is part of the faculty at myLaw.net.

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Trek to Everest Base Camp – Part 1

It was the month of April, and Delhi had become a cauldron. Tired of the circadian rhythm of city life and its dull quotidian routines, I yearned for some fresh mountain air. Borrowing a leaf from the colonial handbook, I decided to head for the mountains. My last sojourn to the Himalayas had been over two years ago, when I had wandered along the Sikkim-Bhutan Himalayas with fellow vagabond “The Shome”, and I could feel the itch again.

Kathmandu Valley seen from a Dornier 228.

Kathmandu Valley seen from a Dornier 228.

Mount Everest had fascinated me for a long time. Aside from its most obvious distinction of being the tallest peak on earth, referred to as the ‘third pole’, it has provided the scrim for some of the most fantastic stories of struggle and achievement; and not too infrequently, tales of doom and despair. It has the ability to inspire and terrorise at the same moment. Men the likes of Hillary-Norgay, Mallory-Irvine, Messner, and others had pitted their strength and wits against the mountain and forever etched their names on its slopes.

Mount Everest lies east of Kathmandu along the Sino-Nepalese border in the Sherpa valley of Solu-Khumbu region. There are two versions of the trek to the base camp of Everest. The original twenty-one day protracted route beginning from Jiri, lies a bone-shattering twelve hour bus journey to the east of Kathmandu. The more concise route beginning from Lukla (2860 metres), excises around a weeks worth of walking from the itinerary. The Lukla route has become popular during the last four to five years due to the existence of an airport housing a small short take-off and landing (STOL) strip, which provides a direct air-link with Kathmandu airport. However, the Lukla airport (renamed the Tenzing-Hillary airport around 2008) is not one for the faint-hearted and regularly features on lists detailing the most dangerous airports and landing strips in the world. The airport’s alarmingly small runway, which was recently asphalted, services small helicopters and twin turbo prop aircrafts, mostly Dorniers and Otters.

I booked my ticket to Kathmandu, packed my rucksack, negotiated my way around the lack of a passport, and soon found myself sitting in a quaint little café on a beautiful Saturday morning in the backpacker ghetto of Thamel in Kathmandu, a once unmissable stop on the world flower-power map of the 1970s. Following a government crackdown on this bohemian hovel in the late 1980s however, its beatnik status has withered. Thamel still survives as the unparalleled first stop for weary travellers in Kathmandu looking for cheap accommodation and food.

The resident touts of Thamel immediately sized me up to be a seeker of drugs, alcohol, women, or some combination thereof, and I was bombarded with propositions as I made my way into the back alleys looking for a place to stay. Finally, having rid myself of the pesky intercessors, I found a nice inexpensive room in Jochhen, or old Thamel. A quick shower later, I divested myself of my bags and plunged into the inchoate alleys pullulating with sights, smells, and a sea of humanity.

Kathmandu, despite its wonted pollution, population, and chaos, is a beautiful city filled to the brim with touristic sites and places of interest. I was not however, interested in any of those at the time and only had the trek in my mind. Even though I had managed to arrive in Kathmandu, I was still quite far away from being in a position to undertake my trek. I was still in lacking in provisions, permits, and tickets.

After getting lost at least thrice in Thamel market, I zeroed in on some travel agents and got busy organising permits and tickets. The travel agent while doing so also undertook an unsolicited audit of my preparation and back-up plans. “Are you trekking with a group?” No; “Are you trekking with a guide?” No; “Porters?” No; “Do you have travel insurance?” No; “Do you have any friends and family in Nepal?” No; “Do you know there are no roads in the Solu-Khumbu area?” Yes I do; “Are you carrying any altitude sickness medicine with you?” No; “Do you know there are virtually no hospitals in the region?” Well, now I do; “Are you willing to reimburse any expenses incurred in the eventuality of a helicopter rescue?” Umm… I guess so; “Do you know that there are no ATMs or banks anywhere on the trek?” Yeah, so I have heard; “Are you carrying enough cash? Do you know a bottle of water can cost up to 300 NPR on the trek?”; I think I’ll drink from the tap! After being catechised in this manner, I finally walked out of his office with a ticket to Lukla and an Individual Trekker’s Permit. I had another day of planning in hand and after that I’d be on my way to the Everest.

The next day was spent mostly in combing the market for essential gear such as gloves, jackets, thermals, a sleeping bag, and other requirements. After at least three shopping trips to the market, I finally spread everything around my room and started to pack carefully. I resisted my natural urge to just dump everything into my bag in a giant indistinguishable ball of “stuff” and instead packed diligently, maintaining a healthy centre of balance and utility. I finished packing and lay in my room to wait for either sleep or the electricity whichever came first.

The next morning, I awoke in a state of panic. I had woken up at eight in the morning for an eight-thirty flight. I hurriedly gathered my pack and hailed a cab for the domestic airport. I urged the driver to hasten through the morning traffic and violate every possible traffic rule on the way. I reached the domestic airport at about eight-thirty, dashed to the check-in counter, and hoped for the best. The lady at the check-in counter gave me a perfunctory look and informed me that due to inclement weather in Lukla and Kathmandu, all flights had been grounded and that there would be a delay in departures. For the first time since morning, a smile appeared on my face, and I settled into a broken chair at the extremely chaotic airport.

As the hours ticked by however, my initial delight turned to trepidation. The airport was filled with trekkers and climbers on their way to Everest, and the exasperation on their faces was palpable. Most had flown almost halfway across the world, arranged finances, put jobs on hold, and annoyed spouses and girlfriends in order to be able to undertake this trek, and the wait was clearly killing. Lukla is notorious for its mercurial weather and it is not unheard of that passengers have to wait for days on end sometimes, in order to have a clear weather window to fly in or out.

Finally, after about eight hours of waiting, the speaker cackled with the words I had been waiting for. “Passengers please note; Agni Airways Flight 112 to Lukla Airport is now ready for takeoff, Thank you”. I hauled my bags and finally made my way to the aircraft. My steed was a picayune Dornier 228 twin-turbo prop STOL aircraft, which had been bought by the present company from Tasmania Airlines.

A few minutes later, the aircraft’s propeller engines sputtered to life, and the aphid-like craft barrelled down the Tribhuvan airstrip and took off eastwards for the twenty-five-minute flight to Lukla. The Dornier slowly groaned over terraced green-top mountains and paddy fields. The craft can accommodate around twelve people with two pilots and one Namaste (a rather cheeky local term for the air hostess!). Soon the treacherous Lukla airstrip came into view, and a white-knuckled landing later, I was standing at the tiny Tenzing-Hillary Airport surrounded by magnificent views of the Kusum Kangru (6369 metres) range.

Lukla airport (above) is frequently rated among the world's most dangerous.

Lukla airport (above) is frequently rated among the world’s most dangerous.

At Lukla village

At Lukla village

Lukla is a small village and like most other villages that one encounters along the trek, is completely geared to cater to the horde of trekkers passing through. A great advantage that the Everest base camp trek offers solo trekkers is the option to stay in teahouses and simple lodges all through the route. Accommodation is simple and inexpensive, usually consisting of small bunks with rooms separated by thin plywood. This is a boon for trekkers who like to travel solo, but don’t really want to deal with the hassle of setting up camp every night and worrying about food and water after a hard days walk. Even though the accommodation is cheap, the food on the other hand can seem exorbitant, with prices steadily increasing as you head up the trail. This however, is due to the fact that since there are no roads in the region, almost everything has to be flown in at Lukla and then carried onwards on foot.

It was already pretty late and I had no option but to stay in Lukla for the night and begin my trek early in the morning. I took a small room in a friendly teahouse, ate some dinner, and logged out for the night. The trailhead was just at the end of Lukla town, marked by a small concrete arch dedicated to Pasang Lhamu Sherpa, the first Nepalese woman to climb the summit of Everest. The trail runs along the Dudh-kosi river and switches over it many times. It descends to the town of Phakding (2600 metres) while crossing numerous mani walls and images of Buddhist deities and scriptures etched onto various boulders.

(To be continued.)

 

(Jiten Mehra is a New Delhi-based advocate.)

All images are courtesy the author.

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Curriculum can be tweaked to teach mediation theory and have practical sessions

AbhinavSekhri_NationalLawSchoolofIndiaUniversity

At every district court in Delhi today, you can see banners urging litigants to consider alternate methods for dispute resolution. Section 89 of the Code of Civil Procedure, 1908 empowers a court to send parties for an out of court settlement where it appears possible. Such a settlement may be arrived at through arbitration, conciliation, judicial settlement, or mediation. The preferred method, judging by the frequency of the banners, is mediation. Given the clear systemic importance given to this method, one must ask whether law schools are acting on this cue. I spoke with Suveni Bhagat, an associate at Khaitan & Co. Excerpts from our conversation follow.

Abhinav Sekhri: What was your exposure to mediation activities in law school?

Suveni Bhagat: I was the Joint Convenor of the Alternate Dispute Resolution (“ADR”) Board of my college for a year during college and actively participated in ADR activities like client counselling, negotiation, and mediation. I also undertook a course on negotiation and conflict resolution during my exchange spell at the Singapore Management University. Organisational experience apart, my first participation in a mediation competition came at the International Academny of Dispute Resolution (“INADR”) Mediation Competition organised by NLIU Bhopal in 2011. The INADR delegates from the USA undertook a two-day training programme for us, and I found out later that they are also involved in training the mediators at various district courts in India.

AS: How much value, according to you, does the law school environment attach to mediation activities as against other co-curricular ones? Where does it rank?

Suveni Bhagat

Suveni Bhagat, associate at Khaitan & Co.

SB: Well, while mooting and debating had independent activity-based committees across law schools, I wasn’t aware of ADR having the same standing. The ADR Board at NLS Bangalore was also part of another committee when I was the Joint Convenor. I think that is also a product of the nascent stage of the relationship between law schools and ADR competitions. There are very, very few mediation competitions organised in India and most of them had their first edition just 2-3 years ago. The growing popularity of these activities is bound to change that. Another thing I found problematic was the way in which students considered these activities ‘easy’ requiring little skill, as opposed to something like mooting. Of course you don’t need to read tons of cases for mediation, but there is a different kind of skill involved. Persuasion requires training and practice. The good mediators know a lot of different techniques and approaches, and are quick on their feet because they go through a lot of practice scenarios.

AS: What (if any) opportunities did the law school academic curriculum offer to students for learning mediation skills, both regular courses and credit courses?

SB: We did have a course on ADR in our third year. However, around 75% of that course was dedicated to arbitration, and the rest was spent on negotiation and mediation. We did have mock negotiation sessions, but not for mediation. I think the course did not provide any insight on mediation as a skill and how it works in practice. During my time at law school, there weren’t any credit courses on mediation.

AS: Currently, most law schools offer a course on court litigation. Do you think the current focus on imparting litigation skills should be relaxed to help students learn mediation skills?

SB: Not necessarily, because at least at NLS, that course taught various practical aspects of the entire legal process. But certainly I think the curriculum can be tweaked a bit to teach mediation theory and have practical sessions. The practical sessions are key, because mediation involves so much more than pure legal knowledge. It is more about handling advocates and their clients, trying to understand their requirements and resolve the issue, without imposing or forcing your own solution on them. This could be well supplemented with an increase in mediation competitions, which always do well to garner student interest.

AS: How do you think students would benefit from this skill-set in their different potential workplaces?

SB: I think the very obvious benefit would be to understand the role of the mediator and more Mediationimportantly, the role of an advocate in a mediation. Considering cases are sometimes referred by the court to mediation, I think it would definitely be useful for law students to know the role of an advocate in mediation is different from that in court, and that the approach has to be different in order to get the best results for the client. Moreover, I think possibly the most important skill set that students can learn from mediation and negotiation is to approach issues with a win-win attitude, as opposed to a win-lose attitude, as in many cases there are joint gains that can be reaped. Splitting the difference, as is commonly suggested by many people, is an approach that actually undermines the results that can be achieved for both parties involved. One of the other important things that it teaches is to focus on the problem at hand, and not the people, so you can avoid ego issues getting in the way of resolving a conflict. The important understanding that negotiation should be not be based on positions but on interests (the classic fight over an orange example) and that it is imperative that you separate the problem from the people to achieve the best results. Further, the skill set developed as a result of training in mediation regarding handling people and figuring out the solution would be useful in any potential workplace, as it would help in not only dealing with an opposite counsel or party, but also your own client and organisation. Overall, I definitely think that mediation training helps you achieve a more well-rounded approach to dealing with conflicts and the acquired skill set would definitely benefit students in their varied potential workplaces.

(Abhinav Sekhri is an advocate practising in Delhi.)

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Football clubs to start living within their means

Malaga CF, a football club that plays in Spain’s La Liga, was banned from European competitions for twelve months by the Union of European Football Associations (“UEFA”) in December 2012, for violating its Financial Fair Play regulations. The Court of Arbitration for Sport has now upheld the ban. Daniel Geey, a European sports lawyer, spoke with us about these regulations.

Please scroll below to read the edited transcript of Mr. Geey’s talk.

While the UEFA Club Licensing and Financial Fair Play Regulations (“FFP Regulations”) have been in the news, there are domestic financial fair play regulations that are in place in the United Kingdom for the English Premier League, the U.K.’s top football league, and the Football League, the league below the top division.

UEFA is the governing body for a number of European football competitions and regulates them through rules that football clubs have to adhere to. In around 2009, UEFA made it necessary for clubs to live within their means. There was consultation with clubs through the European Club Association, the sole representative body of football clubs in Europe; players through FIFPro, a representative body of football players; national leagues; and other vested stakeholders in football to ensure that everyone had a say in how the regulations would be drafted.

The crux of the regulations is set out in the UEFA licensing criteria document, which includes what is called “the break-even criteria”, arguably the most controversial part of the FFP Regulations. It also sets out the aim of these regulations, which is primarily to ensure that clubs are breaking even.

In the widest sense, “break-even” is a situation where a club’s revenues equal its costs. There are a number of classes of revenues and costs that have to be considered for the calculation of revenues and costs for FFP compliance. Revenues, for instance, may include amounts received from another club for player transfers, stadium ticket attendances, television revenue, and other commercial sponsorships and arrangements. On the other side, a club’s costs include payments made to other clubs for transfers, wages, and other commercial and administrative expenses. Such classification of revenues and costs are important because a number of costs are excluded under the FFP Regulations to incentivise clubs to invest in the long-term and strategic elements and asset base of a club. The FFP Regulations therefore aim for greater rationality of club spending so that clubs organically grow their own revenues. This way, clubs are not completely beholden to either benefactor owners or mortgages on the club and to match their costs with revenues.

Malaga’s troubles

Very recently, Malaga Football Club lost an appeal before the Court of Arbitration for Sport (“CAS”) against a ban on its participation in European competitions for the next season. It was established before the CAS that at the time the club made its licensing application, it had payments overdue to other clubs, tax authorities, and players. UEFA had originally withheld prize money after it asked for additional information to ensure that those overdue payments had been made. Later, they also banned Malaga from next season’s competition. The CAS has now upheld this ban.

Benefactor owners and related sponsorship transactions

Manchester City, an English football club and Paris Saint-Germain, a French club, have entered into very large sponsorship deals with companies that some believe, are connected to the clubs. There is speculation that the reason for these sponsorship deals is to ensure that the club’s revenues are increased in order to cover their costs and comply with FFP. UEFA would have to, sooner rather than later, examine whether these transactions are “related-party transactions”. If so, FFP compliance would become more difficult.

FFP Regulations are now operational

For “break-even” purposes, the FFP Regulations are now in force. This will be based on clubs submitting their 2011-12 and 2012-13 accounts for the 2013-14 season. These two accounting periods will determine whether a club has complied with FFP Regulations.

Lesser sanctions

It is not correct to suggest that if a club breaches FFP Regulations, they will automatically be banned from European competitions. UEFA can choose from a number of sanctions that are proportionate to the behaviour that has occurred. “I am not convinced that for every instance of an FFP ‘break-even’ breach, that club will be automatically banned from European competitions.”

Not strict break-even

In the first monitoring period, which is this season, clubs can show up to forty-five million Euro in losses and still participate in European competitions. That figure is driven down in each subsequent season that a club has to submit its accounts for. In the next season, it is forty-five million Euros over three seasons, and in the season after that, it goes down to thirty million Euros over three seasons.

 

You can follow Mr. Geey on Twitter here or write to him on info@danielgeey.com.

 (Aju John is part of the faculty at myLaw.net)