Author Archives: novojuris

Space: Liabilities in India and other countries

Millions of pieces of space debris litter the space, be it defunct satellites (average lifespan of a satellite is 5-8 years) or the intentional destruction of satellites through anti-satellite missile testing (ASAT) demonstrated successfully by United States (US), Russia, China, and India (March, 2019). Disaster occurs when any debris travelling at high speeds strikes a working satellite/spacecraft, or falls back on earth.  There are mechanisms for tracking of more than 5,00,000 (Five Lakh)  space debris, so that liability can be fixed on the owner of the debris, while there are millions of smaller debris which cannot be tracked. Some examples of damage due to space debris include, damage of French satellite by debris from a rocket exploded a decade ago in 1996 and the destruction of functioning US Iridium satellite by collusion with a defunct Russian satellite in 2009. Countries have also developed certain mission control manoeuvres to avoid collision of debris with the spacecraft or satellites.

Space Law:

Liabilities related legislations are few in number. United Nations (“UN”) has published treaties governing space laws, requiring the member countries to ratify the treaties and to legislate suitable space laws in their respective countries. The five most important treaties of the UN are:

No. United Nations Treaties Ratification
1. 1967: Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (“Outer Space Treaty”) To note that India, USA, UK, France, China etc. have ratified.*
2. 1968: Agreement on the Rescue of Astronauts, the Return of Astronauts and the Return of Objects Launched into Outer Space (“Rescue Agreement”)
3. 1972: Convention on the International Liability for Damage Caused by Space Objects (“Liability Convention”)
4. 1976: Convention on Registration of Objects Launched into Outer Space (“Registration Convention”)
5. 1979: Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (“Moon Agreement”) To note that India and France have signed, while China has ratified. However, US, UK, Russia have not signed.*

*Countries that we have been reading for our compare and contrast.

Of the above 5 (five) treaties, the 1972 Liability Convention imposes a duty on nations/countries (“States”) to be responsible to the public activities undertaken as a sovereign country.  The Liability Convention mandate that the States are equally liable for both public as well as private activities undertaken on its soil, i.e., States need to take legislative action to regulate space activities on its soil, as they are liable to answer internationally for private space activities violating international space law. In case an Indian citizen launches a spacecraft from outside India say France, then it appears that both France and India are considered launching States.

A State can exercise three types of jurisdiction to attract liability for space activities as shown below:

  1. Territorial Jurisdiction: Most of the operations of the space are conducted at ground control stations by way of remote controlled activities. Whether to make a rocket shed its first stage or to make a telecommunications satellite to change frequencies by ground control stations, it will allow States to control activities in outer space, by way of control over the territorial sovereignty. Further, territorial jurisdiction also plays an effective role over launch activities.
  2. Personal Jurisdiction: Since a person’s nationality cannot be lost due to operation from a foreign soil, the State can exercise personal jurisdiction based on the control over any incorporated company or company headquartered in their territory.
  3. Registration Jurisdiction: No space object can be launched without registration by States. That is a sovereign right to exercise jurisdiction over even the earlier two territorial and personal jurisdictions.

Potential Liability: While certain other States have already framed the regulations for potential liability, India is still in the process of legislating, per below table of comparison on liabilities:

Country Description of State Law on Space
India ·       Under the Draft Space Activities Bill, 2017, Section 8(2)(h) proposes third party insurance

·       Section 12 mandates indemnification of Central Government subject to a quantum to be decided by the Government.

·       Section 13 proposes punishment with imprisonment of not less than 1 year but up to 3 years or with fine of not less than one crore rupees and for continuing offences with a fine of INR 50 Lakhs per day for not obtaining a license.

·       Section 25(2) proposes that any IP rights created onboard a space object shall be deemed to be property of Central Government

USA Section 16 of the Commercial Space Launch Act, 1984 mandates obtaining liability insurance under a license issued for an amount as is considered necessary by the Secretary of United States.
UK Section 10 of Outer Space Act 1986, mandates indemnification to Her Majesty’s government in the United Kingdom against any claims brought against the government in respect of damage or loss arising out of activities carried on by the licensee.
France Article 13 of the French Space Operation Act, 2008, mandates absolute liability for damage on ground and in air space for third party liabilities, while the liability is on a fault basis for damaged caused in outer space.  Further, there is a limitation for the term of liability up to one year from the date of fulfilment of obligations mentioned in the license.

Article 14-15 limits the claim for compensation from French Government to a fixed ceiling of 60 Million Euro and the private space operator is liable to reimburse for indemnifications exceeding 60 M Euro

The Department of Space is under the Prime Minister’s Office in India and there is a dire need to bring in a robust legislation to monitor and register private space activities. Even in the absence of any specific laws, the States are liable for any potential losses that may occur due to any damage caused by its citizens. With numerous space explorations being undertaken by private sector the world over, India too should encourage private space explorations and at the same time, also limit the liability on the exchequer.

Maharashtra Factories Rules Amendment on Sanitary Napkins

Maharashtra Labour Department vide Notification dated October 1, 2019 has notified the Maharashtra Factories (Amendment) Rules, 2019 by addition of two clauses in Rule 45 of the Maharashtra Factories Rules, 1963, mandating employers to maintain adequate quantity of sanitary napkins in the women’s toilets for their use.  The used napkins should be collected in disposable bins with lids and their disposal should be per the procedure approved by the Inspector of Factories.

Source: https://app.box.com/s/rvtui6s0hd53l66lvditz44f4e2cbpve

Notification of Karnataka State on Rights of Persons with Disabilities Rules, 2019

The Karnataka Government vide Gazette Notification dated September 5, 2019, notified the Karnataka State Rights of Persons with Disabilities Rules, 2019 framed under the Rights of Persons with Disabilities Act, 2016, by repealing the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) (Karnataka) Rules, 2003. Inter-alia, every establishment like a company or a firm is mandated to publish equal opportunity policy for persons with disabilities and to display the equal opportunity policy on their website or at a conspicuous place in their premises.  Further, any private establishment employing twenty or more persons should act upon a complaint of discrimination on the ground of disability received from an aggrieved person and should inform the person in writing as to how the act/omission is a proportionate means of achieving a legitimate claim.

Source: http://gazette.kar.nic.in/5-9-2019/Part-4A-(Page-2503-2554).pdf (Page 31-52)

Draft Amendment to Geographical Indications of Goods (Registration and Protection) Rules, 2002

Ministry of Commerce and Industry vide Gazette Notification No.G.S.R. 645(E) dated September 12, 2019, notified the draft Geographical Indications of Goods (Registration and Protection) (Amendment) Rules, 2019, inviting objections from public. Inter-alia, the amendment proposes to shorten the procedure of applying for registration of geographical indication by omitting certain clauses. The proposed draft amendment is summarized in the below table:

Rule Present Position Proposed Amendment
56(1) Application for registration as an authorized user was to be made in Form GI-3 jointly by the producer and the registered proprietor. Rule is proposed to be substituted to remove joint application by the registered proprietor, and mandating the producer to only forward a copy of the application to the registered proprietor and intimate the Registrar of the due service of the same.
59(1) Registration Certificate in Form GI-3 was to be issued by the Registrar upon receipt of a request with prescribed fee. Rule is proposed to be substituted to remove references of Form GI-3, receipt of request and payment of prescribed fees.
59(2) Registrar has to specify all particulars required under Section 6(1) in the register for authorized user. Requirement for the Registrar to specify priority date and appropriate office of Registry is proposed to be omitted.
59(3) Any request for duplicate or further copies of registration was to be made in Form GI-7 along with an un-mounted representation of the geographical indication as shown in form of application for registration. Proposed to omit accompaniment of un-mounted representation of the geographical indication as shown in form of application for registration.
Sch. I Fees of 500 is payable for application/renewal of registration of an authorized user of a geographical indication Proposed to remove payment of fees.
Sch. II Request for issuance of registration certificate is to be made in Form-GI-3. Proposed to omit the procedure of requesting for issuance of certificate by deletion of entry in Schedule-II and renaming entry 3C as 3B.
GI-3 Form consists of three entries A for application, B for request for certificate issuance, and C for renewal Proposed form consists of only two i.e. entries A for application and B for renewal.

 

Source: http://egazette.nic.in/WriteReadData/2019/212426.pdf

 

Amendment of Patent Rules, 2003 with emphasis on a Start-up

Ministry of Commerce and Industry vide Gazette Notification No.G.S.R. 663(E) dated September 17, 2019, notified the Patents (Amendment) Rules, 2019, effective from the date of notification in the gazette.  Inter-alia, the amendment abolishes the requirement of filing original documents after submitting scanned copies and includes a start-up and a female person to the list of eligible persons for requesting for expedited examination.

Following is the summary of the changes:

Rule Earlier Position Amended Position
6(1A) Patent agent to submit documents by electronic means and in addition to submit original documents within 15 (fifteen) days. Rule 6 (1A) is substituted to remove the mandatory filing of original documents by the patent agent.  Now patent agent to submit original document only if asked by the Department.
7(1) Small entity was to file Form-28 with every document for which fee is prescribed. Second proviso to the rule is amended to include a ‘start-up’ to file Form-28.
24C(1) Small entity could file a request for expedited examination of application in Form-18A. New sub-clauses are added for filing of Form-18A for expedited examination, which include:

  • a ‘start-up’
  • a female applicant in case of single or joint applicants who are natural persons
  • a government institution/company
  • applicant under an arrangement pursuant to agreement between Indian Patent Office and a foreign Patent Office
Sch.I Entry number 48 provides the transmittal fee payable for international application. A new entry 48A is inserted whereby no fee is payable for transmittal fee for international application through e-PCT filing.
Sch.I Entry number 49 provides the fee payable for preparation of certified copy of priority document and transmission of the same to the International Bureau of World Intellectual Property Organization. A new entry 49A is inserted whereby no fee is payable for preparation of certified copy of priority document and e-transmission through WIPO DAS.
Sch. II Form-18A which provides for request for expedited examination of application for patent The form is amended to substitute paragraph 3 with additional grounds for request for examination and addition of paragraph 4 mentioning documents to be mandatorily submitted as evidence of eligibility for availing expedited examination.

 

Source: http://egazette.nic.in/WriteReadData/2019/212575.pdf

Amendment of Apprenticeship Rules, 1992 to mandate engagement of apprentices by certain establishments

Ministry of Skill Development and Entrepreneurship vide Gazette Notification No.G.S.R.686 (E) dated September 25, 2019, notified the Apprenticeship (Amendment) Rules, 2019 with, inter-alia, below changes:

  1. 7 (seven) definition clauses are inserted, which includes ‘degree apprentice’, and ‘fresher apprentice’
  2. The period of apprenticeship is increased from maximum 2 (two) years to maximum 3 (three) years
  3. A new rule is added to exempt applicability of any labour laws to an apprentice and to consider an apprentice as a trainee and not a worker
  4. Every establishment employing 30 (thirty) or more number of workers shall compulsorily engage apprentice [earlier it was not obligatory to engage apprentices for an establishment with 40 (forty) or more workers]
  5. Ratio of apprentices to workers in a financial year is increased from 10% to 15% and a minimum of 5% is to be reserved for fresher apprentices and skill certificate holders
  6. Minimum rates of stipend payable to apprentices are increased from INR 4984 per month to INR 9,000 per month for graduate apprentices or degree apprentices
  7. Prohibition of engaging trade apprentices between 10 pm to 6 am is removed for apprentices above the age of eighteen. For those below eighteen, working hours to be between 8 am to 6 pm only.
  8. Schedule-I Group 35 is amended to include computer hardware and network technician

Source: http://egazette.nic.in/WriteReadData/2019/212757.pdf

Valuation of shares: Choosing the Valuer

Valuation in early stage companies should be market driven, as in, there is an investor willing to invest and a company which is primed to grow. The discussion between them should be the guiding factor.

However, this point is highly regulated and the valuation has to be proven to the satisfaction of the tax officers. Such discretionary powers are causing heart-burn.

Due to the many changes, there is confusion of which valuation method to use, who to take the valuation certificate from, etc.

Prior to October 2017, any practising chartered accountant having an experience for more than 10 years or a merchant banker, was recognised to determine the valuation of the shares.

On 18 October 2017, the Ministry of Corporate Affairs (MCA) mandated that the valuation report has to be obtained from a Registered Valuer[1] in certain cases. This entailed that any company issuing securities under section 42 or section 62(1) (c) of the Companies Act 2013 (the Act), would require the valuation report from Registered Valuer, who is registered with the Insolvency and Bankruptcy Board of India as per Companies (Registered Valuers and Valuation) Rules, 2017 (“Registered Valuer Rules).

However, in terms of Rule 11 of the Registered Valuer Rules, there was a transitional arrangement until 31 January 2019, to get a valuation report from a practising CA with 10 years experience.

In addition to these requirements and conditions, the Central Board of Direct Taxes (CBDT) on 24 May 2018 amended the Rule 11 UA of Income Tax Rules, 1962, by omitting the words “or an accountant” from rule 11UA (2)(b). This change meant that the valuation report has to be obtained only from a merchant banker.

Now comes the difficulty with compliance. Compliance under section 42 of the Act and Rule 11 UA is difficult, since there are very few merchant bankers, who are Registered Valuers too.

As a result, many investors ask the companies to get valuation certificates from all the different valuers.

Scenario 1: Requirement of valuation certificate from both Merchant Banker and Registered Valuer

Any company which is not a start-up India registered[2] and issuing equity shares/preference shares to persons who are residents in India (excluding SEBI registered funds) and such issuance is under Private Placement basis. As this issuance entails compliance under section 42, 62(1) (c) of the Act and section 56(2) of the Income Tax Act 1961, the valuation report from both merchant banker and registered valuer is mandatory.

Scenario 2: Requirement of valuation certificate only from Merchant Banker.

Any company which is not a start-up India registered and issuing equity shares/preference shares as rights issue under section 62(1) (a) (Rights Issue) of the Act either to persons residents in India or persons residents outside India, then valuation report from merchant banker is sufficient.

Scenario 3: Requirement of valuation certificate only from Registered Valuer

Under the following circumstances, the valuation report from Registered Valuer is sufficient:

(a) Any company which is not a start-up India registered and issuing debentures on private placement basis in terms of section 42, 62(1) (c) of the Act;

(b) Any company which is a start-up India registered and issuing equity shares /preference shares/ debentures;[3]

To present this as a checklist:

Type of Company Scenarios Valuation Report Requirement
Merchant Banker & Registered Valuer Only Merchant Banker Only Registered Valuer who is a Chartered Accountant
Start-up India registered Company (see point below) Issuance of Equity Shares/Preference Shares (Private Placement Basis) X X Yes
Issuance of Equity Shares/Preference Shares (Rights Issue) X

 

X Yes
Issuance of Debentures X X Yes
Other Companies Issuance of Equity Shares/Preference Shares (Private Placement Basis) Yes X X
Issuance of Equity Shares/Preference Shares (Rights Issue) X Yes X
Issuance of Debentures X X Yes

 There are several open points.

Question on applicability of section 56(2)(x)

An open point on valuation report from merchant banker in case of issuance of shares by start-up India registered companies, still requires clarification. This is because, section 56(2)(x) of the Income Tax Act, 1961 mandates to a person who receives shares from a company to get the valuation report from a merchant banker. While the start-up company is exempted only under section 56(2)(viib), receipt of such shares by a person is not exempted. This point still requires clarification from CBDT.

Other open questions:

While it seems that the requirement of valuation report is clear under various enactments, there is still ambiguity in terms of say: (a) whom to approach in case of a person who received shares from Startup India registered company; (b) how to deal when there is difference in fair market value arrived by Registered Valuer and merchant banker. This might require approaching a valuer who is recognised under Companies Act and Income Tax Act, who is both a Registered Valuer and a merchant banker.

Happy to hear your thoughts.

___________

[1] Registered Valuer means a person registered with the Insolvency and Bankruptcy Board of India in accordance with Registered Valuer Rules.

[2]  Companies registered with Department for Promotion of Industry and Internal Trade as Start-up.

[3] Start-up companies are exempted from section 56(2)(viib) of Income Tax Act 1961 pursuant to notification from CBDT dated 11 April 2018.