Intellectual Property

India is a member of the World Trade Organisation (WTO) and a signatory to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). In the last few years India has modified its IP laws to ensure adequate protection for IP owners. Both the legislature and the judiciary are active in enacting and enforcing IP rights.

Patents

Pursuant to the TRIPs Agreement, India has amended its patent legislation on three occasions. The Patents Amendment Act 2005 and the Patent Rules 2005 have incorporated several changes to the patent legislation to fulfil India’s WTO obligations to allow, for example, product patents. Some of the key changes introduced by the act are outlined below.

Introduction of product patents

The act introduced product patents for inventions relating to food, drugs and chemicals by replacing the process patent regime which existed under the old Patents Act.

Restrictions on new use

The act provides that the mere discovery of a new form of a known substance that does not enhance the known efficacy of the substance cannot be patented. It must involve one or more inventive steps resulting in a new product or one new reactant to fit the criteria of patentability.

Software patenting

The act does not provide for the patenting of a computer program which is an algorithm per se, or mathematical methods or business methods.

Exclusive marketing rights

The act repealed the provisions concerning exclusive marketing rights and mailbox applications as a result of the introduction of the product patent regime. However, there are transitional provisions in this regard.

Pre-grant and post-grant opposition

The act provides for both pre-grant and post-grant oppositions. Furthermore, it specifies a time period for both – one year from the date of publication in the case of post-grant opposition and six months in the case of pre-grant opposition.

Compulsory licensing

Previously, compulsory licensing was confined to India. However, the act now provides for compulsory licensing for the export of pharmaceutical products to countries that do not have the requisite manufacturing facilities. For this, the recipient countries should also provide for compulsory licensing or should issue a notification to that effect.

Patent infringement

The new act provides that an applicant enjoys the same rights and privileges as a patent holder in the period between publication of the application and grant of the patent. However, infringement proceedings can be initiated only after the grant of a patent.

Request for examination

Under the act, when an application is published, a request for examination must be filed within 36 months of the date of priority of the application or of the date of filing of the application, whichever is earlier (as specified under the Patent Rules 2005). In the case of WTO or mailbox applications, the deadline to file the request for examination is 36 months from the date of application or date of priority, or 12 months from January 1 2005.

Publication of applications

Eighteen months after the date of application or the date of priority, whichever is earlier, all patent applications are published as per the provisions of the act and the rules. The act provides for expediting publication upon request.

Assignment

Under the old act, it was mandatory to register with the patents office all transactions concerning a patent (eg, assignments, mortgages, licences, shares in the patent, creation of any interest in patent) within six months of the date of execution of the document concerning the transaction. The new act requires only that such transactions be executed in writing, and sets out no registration requirements.

Approval for foreign filing

The act requires an Indian resident to obtain written permission from the controller of patents six weeks prior to filing a foreign patent application, unless a corresponding application is filed in India.

Implications

The new act clarified various ambiguities that existed under the earlier patent law and simplified some of the procedural requirements.

In cases of patent infringement, an infringement suit can be filed. A court may grant an injunction, award damages, direct an account of profits to be produced or order seizure, forfeiture or destruction of the infringing goods, materials and tools used to create the infringing goods.

Trademarks

India enacted the Trademarks Act 1999 and the Trademarks Rules 2002 (effective September 15 2003) to ensure adequate protection for domestic and international brand owners, in compliance with the TRIPs Agreement. Pursuant to the Trademarks Act, service marks can be registered. The act states that a trademark includes the shape of goods, their packaging and colour combinations. Further, the Trademarks Act gives protection to well-known trademarks and provides for the registration of convention applications, for which the priority deadline is six months. The term of a trademark has been increased to 10 years, renewable upon expiration.

As a measure to protect international proprietors, the Trademarks Act has defined a ‘well-known mark’ as a mark well known to a substantial segment of the public using such goods or receiving such services. Further, the Trademarks Act has increased the grounds on which trademark infringement can be claimed, such as likelihood of confusion, likelihood of dilution or disparagement of a registered trademark, comparative advertising and spoken use. The term ‘use’ has been expanded for the purpose of ascertaining infringement. If a trademark is not registered in India, a foreign trademark owner can initiate a passing-off action against the potential infringer.

The Trademarks Act provides statutory protection to well-known trademarks, which were protected under the common law.

The Trademarks Act defines a ‘well-known trademark’ as follows: “‘Well-known trademark’, in relation to any goods or services, means a mark which has become so well known to the substantial segment of the public which uses such goods or receives such services that the use of such mark in relation to other goods or services would be likely to be taken as indicating a connection in the course of trade or rendering of services between those goods or services and a person using the mark in relation to the first mentioned goods or services.” (Section 2(1) of the Trademarks Act.)

Furthermore, this definition should be read in conjunction with Sections 11(6) to 11(10) of the Trademarks Act, which specify the relevant factors to be considered by the registrar of trademarks when determining whether a particular mark is well known.

Relevant factors to be considered

While determining whether a trademark is well known, the registrar should consider any relevant facts, including the following:

•   the knowledge or recognition of the alleged well-known mark in the relevant section of the public, including knowledge obtained as a result of promotion of the trademark;

•   the duration, extent and geographical area of any use of that trademark;

•   the duration, extent and geographical area of any promotion of the trademark, including advertising or publicity and presentation at fairs or exhibition;

•   the duration and geographical area of any registration or any publication for registration of that trademark, to the extent that it reflects the use or recognition of the trademark; and

•   the record of successful enforcement and the extent to which any court or registrar has recognised the trademark as well known (Section 11(6) of the Trademarks Act).

These criteria are not exhaustive, but are indicative and illustrative guidelines to assist the registrar in determining cases. The decision will depend upon the facts and circumstances of each case.

Based on the foregoing, it will be the responsibility of a trademark owner to prove that the mark is well known. One way to prove this would be by demonstrating the degree of knowledge or recognition of the mark in the relevant section of the public using consumer surveys or opinion polls. In addition, awareness of a trademark in India can be proved by promotion of the mark through advertising in print and electronic media.

In a recent case in which a foreign trademark owner that had filed a trademark application initiated action against an Indian party whose trademark application was pending registration for the same mark, the Supreme Court observed that the mere fact that the foreign mark owner had not been using its trademark in India would be irrelevant if it were the first in the world market. In deciding the case, the court also observed that the intention of the foreign proprietor to use the trademark in India will be a decisive factor in such situations (Milmet Oftho Industries v Allergan Inc, MANU/SC/0512/2004).

In a suit alleging trademark infringement or passing off, a court may grant an injunction, award damages, direct an account of profits to be produced or issue an order requiring delivery of the infringing labels and marks for destruction or erasure. In addition, in respect of an infringement or passing-off action, a court can grant an ex parte injunction along with an interim order for discovery of documents, preservation of infringing goods or other evidence. Furthermore, the court can restrain the defendant from disposing of or dealing with assets in a manner that may adversely affect the plaintiff’s ability to recover damages or avail of any other pecuniary remedies that may be finally awarded to the plaintiff in the suit.

The Trademarks Act has implemented criminal remedies over and above the civil remedies that were previously available. It has also given more powers to the courts. As a result, applying false trademarks or trade descriptions and selling goods or providing services with such descriptions is an offence under the Trademarks Act. Any police officer (not below the rank of deputy superintendent of police or equivalent) can search and seize articles bearing infringing trademarks or labels without a warrant. Further, the Trademarks Act has increased the punishment for these offences to a term of not less than six months up to a maximum of three years. Moreover, offenders may be subject to a fine of between Rs50,000 (US$1,087) and Rs200,000 (US$4,348).

In India, if a trademark owner does not use a trademark in respect of the goods or services for which the mark has been registered, it may lose its rights over the trademark. This is even more significant since the introduction of service marks registration. The Trademarks Act provides for removal of a registered trademark for continuous non-use for a period of five years and one month in respect of the goods or services for which it was registered.

As a result of these new grounds for infringement, in a recent case the Delhi High Court prohibited Colgate Palmolive India Ltd from broadcasting an advertisement that disparaged a similar product sold by Dabur India Limited. The court held that an advertisement which was contrary to honest practices in industrial or commercial matters, and which also challenged the reputation of the registered trademark of the plaintiff, amounted to infringement of the plaintiff’s registered trademark under the provisions of the Trademarks Act. The court also held that even an indirect reference to another proprietor’s trademark in a disparaging advertisement would constitute infringement of that trademark.

Domain names

As a result of the Internet’s popularity, the Indian courts have dealt with a large number of domain name disputes in the last few years and the courts have consistently applied the law relating to passing off to domain name disputes.

In a recent case the Supreme Court of India held that domain names are subject to the legal norms applicable to other intellectual property. While restraining a subsequent proprietor from using another proprietor’s registered domain name, the Supreme Court considered various definitions under the Trademarks Act and held that a ‘domain name’ is a word or name that is capable of distinguishing the subject of trade or service made available to potential users of the Internet. Satyam Infoway Ltd, a leading IT services company and one of India’s largest internet service providers, has been the registered proprietor of several domain names, including ‘sify.net’, ‘sifymall.com’ and ‘sifyrealestate.com’, since June 1999. It claimed that the word ‘sify’ was a word invented by using elements of its corporate name. Another company, Sifynet, which started an internet marketing business using the domain names siffynet.net and siffynet.com in June 2001, was restrained from using these domain names (Satyam Infoway Ltd v Sifynet Solutions Pvt Ltd, 2004 53 SCL 26 (SC)).

Copyright

In India, copyright exists only in the form or expression of a work and not in the idea. The term of copyright is the lifetime of the author plus 60 years from the calendar year following the year of the author’s death.

India is a signatory to both the Berne Convention and the Universal Copyright Convention. Therefore, in the event of copyright infringement of a work that is not copyrighted in India, authors in member states of the aforesaid conventions will benefit from protection on a reciprocal basis in India.

A copyright holder is entitled to the remedies of injunction, damages and account of profits against an infringer. A sub-inspector of police who suspects the infringement or possible infringement of copyright can seize all copies of a work and the materials used to make infringing copies without a warrant, and produce them before a magistrate.

If a person knowingly and for gain or in the course of trade or business infringes or abets in the infringement of the copyright in any work or other right conferred by the copyright law, he is liable to be imprisoned for a term of between six months and three years, and to pay a fine of between Rs50,000 (US$1,037) and Rs200,000 (US$4,150). Where an offender uses an infringing copy of a computer program, he is liable to be punished with imprisonment of between seven days and three years and a fine of between Rs50,000 (US$1,037) and Rs200,000 (US$4,150). If the offender proves that the infringement was not for gain or in the course of trade or business, the court may not impose imprisonment but can order a fine of up to Rs50,000 (US$1,037).

If a person knowingly makes or possesses plates to make infringing copies, or publishes a sound recording or video film without the required particulars, he or she can be fined and imprisoned for up to two years.

Most multinational companies actively pursue these criminal options. As a result, software piracy in India has fallen from 90 per cent to 60 per cent, and music piracy has also been reduced.

Copyright comes into existence together with the work, and registration of a copyright is the only clear evidence of acceptance of a copyright.

Although the Indian courts do not usually award very high damages, the Delhi High Court recently awarded damages of about Rs2 million (US$46,500) to the Microsoft Corporation in a software piracy case, which is one of the highest damages awards in this type of case. In addition, the court permanently stopped the defendants from carrying out any infringement or passing-off activities of Microsoft products, copyrights or trademarks. The court also ordered the defendants to deliver up all pirate copies of Microsoft software, including the equipment used to copy the software and all other infringing materials in the defendant’s possession.

Furthermore, in awarding damages the court observed that it would be futile to direct the defendants to render accounts because they were carrying on this business surreptitiously. This is a new trend in the Indian judiciary, as opposed to the usual practice of issuing directions to render accounts, which are generally ineffective as the infringers do not maintain proper accounts. This case is a landmark in India’s software piracy case law, not just because of the very high damages awarded, but also because the court decided the case very quickly and based on evidence adduced by affidavits; this is unusual as litigation proceedings are generally lengthy in India.

Although India does not have specialised IP courts, Indian civil courts are pro-IP rights owners and have handed down landmark rulings in trademark and patent cases. Further, on September 15 2003 India set up the Intellectual Property Appellate in Chennai, which decides registration-related matters involving IP rights.

Duties of Director of a company

A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

The definition of Director given in this clause is an inclusive definition. It includes any person who occupies the position of a director is known as Director whether or not designated as Director. It is not the name by which a person is called but the position he occupies and the functions and duties which he discharges that determine whether in fact he is a Director or not. So long as a person is duly, appointed by the company to control the company's business and, authorized by the Articles to contract in the company's name and, on its behalf, he functions as a Director.

The Articles of a company may, therefore, designate its Directors as governors, members of the governing council or, the board of management, or give them any other title, but so far as the law is concerned, they are simple Directors.

Duties of a Director

There is no exhaustive list defining the duties of the Board of Directors towards the company and shareholders. But based on the analysis of the provisions of the Companies Act, 1956 with regards to a director, some general duties of a Director are mentioned herein:

To file return of allotments: a company must file with the Registrar, within a period of 30 days, a return of the allotments, stating the specified particulars. Failure to file such return shall make the Directors liable as 'officer in default'. A fine, up to Rs.500 per day, till the default continues may be levied.

Not to issue irredeemable preference shares or shares, redeemable after 20 years: A company cannot issue irredeemable preference shares or preference shares, redeemable beyond 20 years. Directors, making any such issue, may be held liable as 'officer in default' and, may be subject to a fine, up to Rs.1, 000.

To disclose interest: A Director, who is interested in a transaction of the company, must disclose his interest to the Board. The disclosure must be made at the first meeting of the Board, held after he has become interested. This is because a Director stands in a fiduciary capacity with the company and, therefore, he must not place himself in a position in which his personal interest conflicts with his duty.

A company is not debarred from entering into a contract in which a Director is interested. It only requires that such interest be disclosed. An interested Director should not take part in the discussion on the matter of his interest. His presence shall not be counted for the purpose of quorum for that item. He shall not vote on that matter. If he does vote, his vote shall be void. Non-disclosure of interest makes the contract avoidable and not void. However, the concerned Director may be subjected to fine, up to Rs. 5,000.

Duty to attend Board meetings - A number of powers of the company are exercised by the Board of Directors in their meetings, held from time to time. Although, a Director may not be able to attend all the meetings, but, if he fails to attend three consecutive meetings or, all meetings for a period of three months, whichever is longer, without permission of the Board, his office shall, automatically, fall vacant.

A Director's duties also include the following:

• To convene Statutory, Annual General Meeting (AGM) and also Extraordinary General Meetings;

• To prepare and place at the AGM, along with the balance sheet and, profit and loss account, a report on the company's affairs, including the report of the Board of Directors;

• To authenticate and approve annual financial statement;

• To appoint first auditor of the company;

• To appoint cost auditor of the company;

• To make a declaration of solvency in the case of a Members' voluntary winding up;

It is difficult to describe the duties of directors in general terms, whether by way of analogy or otherwise. The nature of duties of director would depend not only on the nature of the company's business but also on the manner in which the work of the company is distributed between directors and other officials. A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.

In case of a Non Executive Director: A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so. However an Executive Director needs to give constant attention and take active interest in the affairs of the Company.

In respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director, is in the absence if grounds for suspicion justified in trusting that officer to perform such duties honestly. A director must of necessity trust the officials of the company to perform properly and honestly the duties allocated to those officials.

When presenting their annual reports and balance sheet to their shareholders and when recommending the declaration of a dividend, directors ought not to be satisfied as to the value of their company's assets merely by the assurances neither of their chairman, nor with the experience or the belief of the auditor howsoever competent and trust worthy he is. All in all, there is no difference between legal and equitable duties of directors. If the directors act within their power with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company. They discharge both their legal as well as equitable duty to the company. The directors are not liable for all mistakes they make, although if they had taken more care they might have avoided them.

What are the Liabilities of the Directors of a company towards the company?

The liability of a Director to the company may arise from:

Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty. Most of the powers of Directors are powers in trust and, therefore, should be exercised in the interest of the company and, not in the interest of the Directors or, any section of members. Thus, in a case where the Directors, in order to forestall a take-over bid, transferred the unissued shares of the company to trustees, to be held for the benefit of the employees, and an interest-free loan from the company was advanced to the trustees to enable them to pay for the shares, it was held to be a wrongful exercise of the fiduciary powers of the Directors.

Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act, Memorandum and Articles of Association, since these lay down the limits to the activities of the company and, consequently, to the powers of the Board of Directors. Further, the powers of the Directors may be limited in terms of specific restrictions, contained in the Articles of Association. The Directors shall be held, personally, liable for acts beyond the aforesaid limits, being ultra vires the company or the Directors. Thus, where the Directors pay dividends or interest out of capital, they will be liable to indemnify the company for any loss or damage, suffered due to such act.

Negligence: As long as the Directors act within their powers with reasonable skill and care, as expected of them as prudent businessmen, they discharge their duties to the company. But, where they fail to exercise reasonable care, skill and diligence, they shall be deemed to have acted, negligently, in discharge of their duties and, consequently, shall be liable for any loss or damage, resulting there from. However, error of judgment will not be deemed as negligence. The Directors cannot be absolved of their liability for negligence by any provisions in the Articles of Association.

Mala fide acts: Directors are the trustees for the money and property of the company, handled by them, as well as for exercise of the powers, vested in them. If they dishonestly or in a mala fide manner, exercise their powers and perform their duties, they will be liable for breach of trust and, may be required to make good the loss or damage, suffered by the company by reason of such mala fide acts. They are also accountable to the company for any secret profits they might have made in course of their performance of duties on behalf of the company. Directors can also be held liable for their acts of 'misfeasance', i.e., misconduct or willful misuse of powers. However, misconduct, which is not willful, shall not amount to 'misfeasance'.

Where a Director misapplies or misappropriates the money or properties of the company or, has been guilty of breach of trust or misfeasance, the Court may order him to repay the money or, restore the property or, to pay compensation.

Can a Director be made liable for the acts of his Co-Directors?

A Director is the agent of the company, except for matters to be dealt with by the company in General Meeting and, not of the other members of the Board. Accordingly, except in one instance, nothing done by the Board can impose liability on a Director, who did not participate in the Board's action or, did not know about it. To incur liability, he must either be a party to the wrongful act or, later acquiesce (consent) to it. Thus, the absence of a Director from a meeting of the Board does not make him liable for the fraudulent act of a co-Director, on the ground that he ought to have discovered the fraud, except where he had the knowledge or, he was a party to confirm that action.

Where a Director is made liable for the acts of a co-Director, he is entitled to contribution from the other Directors or co-Directors, who were a party to the wrongful act. However, where the Director, seeking contribution alone, benefited from the wrongful act, he is not entitled to contribution.

Board's powers and restrictions thereon

General powers of Board

(1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:

Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting

Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.
Certain powers to be exercised by Board only at meeting.

(1) The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board :-

(a) the power to make calls on shareholders in respect of money unpaid on their shares;

(b) the power to issue debentures;

(c) the power to borrow moneys otherwise than on debentures;

(d) the power to invest the funds of the company; and

(e) the power to make loans

[Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e) to the extent specified in sub-sections (2), (3) and (4) respectively, on such conditions as the Board may prescribe:

Meetings of Board

Board to meet at least once in every three calendar months
In the case of every company, a meeting of its Board of directors shall be held at least once in every [three months and at least four such meetings shall be held in every year] :
Provided that the Central Government may, by notification in the Official Gazette, direct that the provisions of this section shall not apply in relation to any class of companies or shall apply in relation thereto subject to such exceptions, modifications or conditions as may be specified in the notification.]

Notice of meetings

(1)   Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.

(2)   Every officer of the company whose duty is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to 100[one thousand rupees].

General meetings of the Company

Annual general meeting

[(1) Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year;

Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.]

(2) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate:

Provided that the Central Government may exempt any class of companies from the provisions of this sub-section subject to such conditions as it may impose:
Provided further that-

(a)    a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and

(b)   a private company which is not subsidiary of a public company, may in like manner and also by a resolution agreed to by all the numbers thereof, fix the time as well as the place for its annual general meetings.]

Contents and manner of service of notice and persons on whom it is to be served

(1) Every notice of a meeting of a company shall specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat.

(2) Notice of every meeting of the company shall be given-

(i) to every member of the company, in any manner authorised under the Act

(ii) to the persons entitled to a share in consequence of the death or insolvency of a member, by sending it through the post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by giving the notice in any manner in which it might have been given if the death or insolvency had not occurred; and

(iii) to the auditor or auditors for the time being of the company, in any manner authorized under the Act in the case of any member or members of the company:
Provided that where the notice of a meeting is given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company, the statement of material facts referred to need not be annexed to the notice as required by that section but it shall be mentioned in the advertisement that the statement has been forwarded to the members of the company.

(3) The accidental omission to give notice to, or the non-receipt of notice by, any member or other person to whom it should be given shall not invalidate the proceedings at the meeting.

Explanatory statement to be annexed to notice

(1)   For the purposes of this section-

(a)    in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exemption of business relating to (i) the consideration of the accounts, balance sheet and the reports of the Board of directors and auditors, (ii) the declaration of a dividend, (iii) the appointment of directors in the place of those retiring, and (iv) the appointment of, and the fixing of the remuneration of the auditors; and

(b)    in the case of any other meeting, all business shall be deemed special.

(2) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular [the nature of the concern or interest], if any, therein, of every director and the manager, if any:

Provided that where any item of special business as aforesaid to be transacted at a meeting of a company relates to, or affects, any other company, the extent of shareholding interest in that other company of every director and the manager, if any, of the first mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than twenty per cent of the paid-up share capital of the other company.]

(3) Where any item of business consists of the according of approval to any document by the meeting, the time and place where the document can be inspected shall be specified in the statement aforesaid.

Quorum for meeting

(1)     Unless the articles of the company provide for a large number, five members personally present in the case of public company, and two members personally present in the case of any other company,shall be the quorum for a meeting of the company.

(2)     Unless the articles of the company otherwise provide, the provisions of sub-sections (3), (4) and (5) shall apply with respect to the meetings of a public or private company.

(3)     If within half an hour from the time appointed for holding a meeting of a company, a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved.

(4)     In any other case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the Board may determine.

(5)     If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall be a quorum.

Chairman of meeting

(1) Unless the articles of the company otherwise provide, the members personally present at the meeting shall elect one of themselves to be the chairman thereof on a show of hands.
(2) If a poll is demanded on the election of the chairman, it shall be taken forthwith in accordance with the provisions of this Act, the chairman elected on a show of hands exercising all the powers of the chairman under the said provisions.
(3) If some other person is elected chairman as a result of the poll, he shall be chairman for the rest of the meeting.

Proxies

(1)   Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself; but a proxy so appointed shall not have any right to speak at the meeting:

(2)   The instrument appointing a proxy shall-

(a)    be in writing; and

(b)   be signed by the appointer or his attorney duly authorised in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.

(3)   An instrument appointing a proxy, if in any of the forms set out shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the articles.

(4)   Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days' notice in writing of the intention so to inspect is given to the company
Voting to be by show of hands in first instance

At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 179, be decided on a show of hands.
178. Chairman's declaration of result of voting by show of hands to be conclusive.

A declaration by the chairman in pursuance of section 177 that on a show of hands, a resolution has or has not been carried, or has or has not been carried either unanimously or by a particular majority, and an entry to that effect in the books containing the minutes of the proceedings of the company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes cast in favour of or against such resolution.

Minutes of proceedings of general meetings and of Board and other meetings

Every company shall cause minutes of all proceedings of every general meeting and of all proceedings of every meeting of its Board of directors or of every committee of the Board, to be kept by making within [thirty] days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered.

(1A) Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting in such books shall be dated and signed-

(a) in the case of minutes of proceedings of a meeting of the Board or of a committee thereof, by the chairman of the said meeting or the chairman of the next succeeding meeting;
(b) in the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within the aforesaid period of [thirty] days or in the event of the death or inability of that chairman within that period, by a director duly authorised by the Board for the purpose.

(1B) In no case the minutes of proceedings of a meeting shall be attached to any such book as aforesaid by pasting or otherwise.]

(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.

(3) All appointments of officers made at any of the meetings aforesaid shall be included in the minutes of the meeting.

(4) In the case of a meeting of the Board of directors or of a committee of the Board, the minutes shall also contain-

(a) the names of the directors present at the meeting; and

(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring in, the resolution.

(5) Nothing contained in sub-sections (1) to (4) shall be deemed to require the inclusion in any such minutes of any matter which, in the opinion of the chairman of the meeting-
(a) is, or could reasonably be regarded as, defamatory of any person;

(b) is irrelevant or immaterial to the proceedings; or

(c) is detrimental to the interests of the company.

Explanation.- The chairman shall exercise an absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in this sub-section.

A resolution will be taken to be passed at the Board meeting if a majority of the Directors give their consent to the same.

Mergers & Takeover

Businesses were competitive locally expanded to the national arena. Competitiveness in the national arena is now forcing business to go global. The days of regional differentiation are over. Old strategies that professed “Small is Beautiful” or offered lessons on how companies could “survive in a niche” are no longer viable. Yes it is true that there are still micro-cosmos that thrive at the small business level and there is a new generation of savvy entrepreneurs who will develop and continue to fuel healthy business in the shadows of corporate juggernauts well into the future. One of the most important situations that they eventually face is the key to their survival: acquire or be acquired. In other words the only optimal size is big- grow bigger than last year, grow larger and faster than the competitors. Stagnation or slow growth is a sure recipe for disaster.

Globalization is a strong force that enables industrial consolidation. During the Asian economic crisis in 1997 and 1998, global organizations such as International Monetary Fund, The World Bank and the WTO assisted and encouraged countries including Thailand, South Korea andIndonesia to restructure their financial institutions and open up their economies by reducing trade barriers. A direct result of these policies was that global financial services companies began to acquire and buy equity stakes in financial service players in each of these economies. From 1998 to 2000, Thailand experienced a wave of acquisition activity. Globalization has had a number of drivers including advances in information and communication technology, advances in travel, the reduction of barriers to trade and the growth of overseas markets that could no longer be ignored. What characterizes the current business environment is that we now see all industries are potentially global, and see all industries taking part in the game.

The fact to be noticed is that why are there are so many mergers and takeovers happening at such a rapid pace?

“The history of the world, my sweet, is who gets eaten and who gets to eat.” – SWEENEY TODD

There are a variety of drivers and motivating factors at play in the M&A world. Apart from personal glory (or greed), M&A deals are often driven by many justifiable market-consolidation, expansion or corporate diversification motives. And, of course, ever present as an inspirational force in M&A is the old reliable financial, generally tax related motivation.

Expansion is one of the primary reasons to cross the borders as the national limits fail to provide growth opportunities. One has to look outside its boundaries and play out in the global arena to seek new opportunities and scale new heights. With the habit of creating an empire it becomes difficult for these entrepreneurs to stay within its limits. The simple fact is that most key players in many markets have already extracted a significant proportion of the available value from the domestic resources. They have improved profitability through better cost management and through efficiency gains realized after domestic consolidation.

Another reason is to gain monopoly, the company which has been acquired by the acquirer is always a company which is trembling financially but had something to offer the acquiring company. It may be the market share or intellectual capital or other reasons but one thing that the acquirer looks is for is the untapped resources to be exploited which can lead the company a step higher in the ladder of success.

Globalization is a key to help in the rapidity of the M&A as it is globalization that integrates world economies together and many nations have opened themselves, the countries have made laws and regulations that attract new companies to come into the country and make it easy for the companies to easily perform their operation of M&A.

There are also new forces in play that make cross-border expansion more feasible and capable of creating value. For example, international deregulation is removing old barriers. Institutional investors are taking a more global perspective. Customer profiles across markets are becoming more homogeneous.

At this point a question that arises, what are the legal implications to a cross border merger and takeover?

“The decisions of the courts on economic and social questions depend on their economic and social philosophy” - THEODORE ROOSEVELT

The answer to this question needs has been dealt in many dimensions of law .

International law prescribes that in a cross-border merger, the target firm becomes a national of the country of the acquirer. Among other effects, the change in nationality implies a change in investor protection, because the law that is applicable to the newly merged firm changes as well. More generally, the newly created firm will share features of the corporate governance systems of the two merging firms. Therefore:
· Cross-border mergers provide a natural experiment to analyse the effects of changes–both improvements and deteriorations, in corporate governance on firm value.

· FDI plays an important role with the cross border mergers and takeovers as they are followed by sequential investment by foreign acquirer sometimes large especially in special circumstances such as that of privatization.

· Cross border M&A can be followed by newer and better technology (including organizational and managerial practices) especially when acquired firms are reconstructed to increase the efficiency of their operations.

· Cross border M&A leads to employment opportunity over time only when the sequential investments take place and if the linkages of the acquired firm are retained or strengthened.

The value of cross-border mergers and acquisitions (M&A) grew over 700% during the 1990’s to a value of $720 billion in 1999 (United Nations, 2000). Differences in tax and financial reporting policies across countries lead to a number of different opportunities, motivations and risks, yet there have been few empirical studies that have investigated how differing accounting and tax policies across countries affect cross-border M&A decisions.

Cross-border takeover bids are complex transactions that may involve the handling of a significant number of legal entities, listed or not, and which are often governed by local rules (company law, market regulations, self regulations, etc.). Not only a foreign bidder might be disadvantaged or impeded by a potential lack of information, but also some legal incompatibilities might appear in the merger process resulting in a deadlock, even though the bid would be ‘friendly’. This legal uncertainty may constitute a significant execution risk and act as a barrier to cross-border consolidation.

In some cases, legal structures are not only complex but also prevent, de jure or de facto, some institutions to be taken over or even merge (in the context of a friendly bid) with institutions of a different type. Such restrictions are not specific to cross-border mergers, but could provide part of the explanation of the low level of cross-border M&As, since consolidation is possible within a group of similar institutions (at a domestic level) whereas it is not possible with other types of institutions (which makes any cross-border merger almost impossible).

In some countries, the privatization of financial institutions has sometimes been accompanied by specific legal measures aimed at capping the total participation of non-resident shareholders in those companies or imposing prior agreement from the Administration (i.e. golden shares). Some of such measures were clearly discriminatory against foreign institutions, when it came to consolidation.

The European Court of Justice has indicated that such measures were not justified by general-interest reasons linked to strategic requirements and the need to ensure continuity in public services when applied to commercial entities operating in the traditional financial sector. Tax problems also occur and it is one of the ways to get out of tax hassles as when a strong company acquires a financially poor company the amount of profit earned is less in the first year therefore the tax burden on the company will be less.

Mergers and acquisitions are complex processes. Despite some harmonised rules, taxation issues are mainly dealt within national rules, and are not always fully clear or exhaustive to ascertain the tax impact of a cross-border merger or acquisition. This uncertainty on tax arrangements sometimes require seeking for special agreements or arrangements from the tax authorities on an ad hoc basis, whereas in the case of a domestic deal the process is much more deterministic.

In a pending case (Marks & Spencer), the European Court of Justice has been asked whether it is contradictory to the EC treaty to prevent a company to reduce its taxable profits by setting off losses incurred in other member states, while it is allowed to do so with losses incurred in subsidiaries established in the state of the parent company.

Specific domestic tax breaks may favour specific, non-harmonised products or services, with the result that every institution has to provide this service or product if it wants to remain competitive. In such a situation, a merger between two entities located in that domestic market may yield synergies of scale, whereas it will be more difficult to exploit comparable synergies for a foreign institution taking over a domestic one, while not being entitled to the tax break in their home state.

In some cases, there may be discriminatory tax treatments for foreign products or services, i.e. products or services provided from a Member State different from the one where it is sold. Therefore, a cross-border group will be at a disadvantage when trying to centralise the “industrial functions” (e.g. asset management functions) as in the case of overall domestic group. Since the latter may keep all its value chain within the country and still benefit from synergies.

The impact of taxation on dividends may influence the shareholders’ acceptance of a cross-border merger. Even though a seat transfer or a quotation in another stock market might be justified for economic reasons, groups of shareholders could be opposed to such an operation if it implies higher non-refundable withholding tax, and thus lower returns on their investments.

What are the challenges in cross-border mergers and acquisitions ?

“Marriage of two lame ducks will not give birth to a race horse.”

The exponential rise in stock prices, due to mergers and acquisitions will have a ripple effect on the whole economy, technology innovation, market roll ups and mergers in addition to splits, spin offs and even corporate breakdown, may happen at speeds never encountered before. Along with this will come uncharted innovations in information technology and knowledge management and an explosion of new services, new products, new industries and new markets? The convergence of all this interconnectedness, interoperability and the value chain rationalization will turbo charge corporate development to a speed that will make unwary executives dizzy.

These all are the management challenges and whatever it takes, management must step up to the challenge. This mends learning to manage the knowledge and information while staying in the driver’s seat.

Executives will also confront perhaps the biggest bugaboo of all, complacency. The old watchword about fighting the lethargy that comes with contentment will be revived in the future throughout history, long term market dominance has characteristically bred complacency among industry leaders. Few can stay lean, mean hungry once the corporate coffers are brimming with success and profit.

But the biggest challenge to a cross border merger and takeover are the cultural issues. According to KPMG study, “83% of all the mergers and acquisitions failed to produce any benefit for the shareholders and over half actually destroyed value”. Interviews of over 100 senior executives involved in these 700 deals over a two year period revealed that the overwhelming cause of failure is the people and the cultural differences. Difficulties encountered in mergers and acquisitions are amplified in cross cultural situations, when companies involved are from two or more different countries. Up to the point in the transaction, where the papers are signed, the merger and acquisition business is predominantly financial valuing of the assets, determining the price and due diligence. Before the ink is dry, however this financially driven deal becomes a human transaction filled with emotions and trauma and survival behaviour, the non linear, often the irrational world of human beings in the midst of changes. In the case of international mergers and acquisition, the complexity of these processes is often compounded by the differences in national cultures. People living and working in different countries react to the same situation or events in a very different manner. Therefore a company involved in an international merger or acquisition needs to consider these differences right from the design stage if it is to succeed.

Individual preoccupation on “How is it all going to impact me?” weakens the commitment to the job at hand. This in turn translates people looking in for work in other companies. Often a firm in midst of transition loses its own talent, strengthening the competition. In countries where people identify largely with groups; people tend to look for support within their group. In France and Italy people caught in midst of mergers and acquisition often turn to unions. If unions cannot provide answers because they have been excluded from the negotiation process, they are likely to go on strikes. These strikes may do much more damage to organisation than any other factor.

Employees’ reluctance within the target company of a cross-border deal might also pose a threat to the successful outcome of the transaction. Indeed, employees may not accept to be managed from another country. A public opposition to the project may influence analysts’ assessment.

Cross-border mergers may imply a change in the place of quotation, or even in the currency of quotation. Shareholders’ acceptance of quotation changes may be limited, even all risks or tax impacts are eliminated. Indeed, the place of quotation may have an important symbolic value.

Given that cross-border mergers are complex and need to overcome a number of execution risks (as evidenced in this document), there might be an impact on shareholders’ and analysts’ apprehension of failure risk when it comes to cross-border mergers.

Consumers may mistrust foreign entities, meaning that all parameters being equal, a local incumbent may have an advantage over a competitor identified as foreign. This explains why foreign institutions often prefer to keep a local brand.

Of course, some of these challenges are not new-but the penalties for mis-steps will be greater and swifter than in the past. There are no longer any safe havens.It is expected that by 2010 there won’t be 50-60 undisputed global industry leaders as they exist today; there will be hundreds, each in its respective industry. Companies in such dominant positions will deal with high volumes of merger transactions- perhaps 10 or more per year. The companies will have to keep in mind that cross border mergers are not only business proposals but a corporate marriage of both the entities which require deeper and insightful solutions. The merger and acquisition activity in the past few years have become quite predictable and this trend is going to grow parallel with the desire and competetiveness of the society. Now let time be the emperor and decide the fate of this growing trend.

Source : ,http://www.legalserviceindia.com/article/l80-Mergers-&-Takeovers.html

Implementation of Supreme Court Order

While the landmark judgment of the Supreme Court on civil services could go a long way in allowing the bureaucracy to function without fear of political interference, civil servants doubt whether there is the political will to implement it. On Thursday, the Supreme Court directed the Centre and the state governments to fix a minimum tenure for bureaucrats and to issue service rules to ensure all instructions are recorded in writing to protect civil servants from “wrongful and arbitrary pressure exerted by the administrative superiors, political executive, business and other vested interests.”

“This judgement applies to all central services, not just the IAS. We have been saying for last 15-20 years that the laws should be appropriately amended so that civil servants can work without fear or favour. Now our main concern is that the judgment should be complied with both in letter and spirit,” said Sanjay Bhoos Reddy, secretary, IAS officers’ association. While Thursday’s Supreme Court judgment has been compared to the 2006 judgment on police reforms (Prakash Singh Versus Union of India) which has remained on paper, experts say, the SC directives on civil services is simpler to implement. According to the IAS officers’ association, implementing the SC order will require a couple of amendments to the relevant All India Service Rules, which the Centre is empowered by Parliament to make. But even when amendments are issued by the Centre, their implementation can be held up by states that are unwilling to comply. And so, while the necessity of a minimum tenure has already been endorsed by the Centre by amending the relevant All India Service Rules, notifications have been issued only in13 states that have accepted the amendment. As per the annual report 2011-2o12 of the Ministry of Personnel, Public Grievances & Pensions, the 13 states include Karnataka, Himachal Pradesh, Haryana, Andhra Pradesh, Jharkhand, Orissa Chhattisgarh, Goa and six of the north eastern states. But with the Supreme Court now setting a three month deadline for the Centre and the state governments to “issue appropriate directions to secure providing of minimum tenure of service to various civil servants,” there is renewed expectation that the truant states such as Uttar Pradesh, Bihar, Gujarat, Punjab who’ve put up stiff resistance to fixing a minimum tenure will now have to fall in line. “These administrative reforms can take place the day that the government has the will. If the government decides, it will happen 24 hours, otherwise it will not happen in 24 years,”said Reddy.

Source:ttp://www.firstpost.com/india/implementation-of-sc-order-on-bureaucracy-might-see-hurdle-1207097.html?utm_source=ref_article