PREFERENCE SHARES: GUIDING LIGHT FOR FUNDING

PREFERENCE SHARES: GUIDING LIGHT FOR FUNDING

ABOUT PREFERENCE SHARES;

Preference share capital means that part of the issued share capital of the company which carries a preferential right with respect to:

(a) Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate; and

(b) Repayment of capital at the time of liquidation.

VOTING RIGHTS OF PREFERENCE SHAREHOLDER

As per the provisions of Section 47 of the Act, a preference Shareholder can vote only those matters which would directly affect them, however, where the Company fails to pay dividend to them for a period of 2 year or more then they become entitled to vote on every matter placed before the members of the Company. It should also be noted that the Company is not bound to pay dividend to preference shareholders every year. They have only preferential rights to receive dividend whenever Company declares a dividend.

ISSUE OF PREFERENCE SHARES:

Section 55 of the Act and Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014, contain the provisions relating to the issue of the Preference Shares, wherein, Company can issue either redeemable or convertible preference shares only and Tenure of the preference shares shall be 20 years, within that period Company has to redeem or has to convert in to equity shares, if convertible.

ISSUE OF PREFERENCE SHARES ON PREFERENTIAL BASIS

Section 62(1)(c) of the Act and Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 defines the legal framework on preferential shares and Company can only issue shares to 50 persons at a time and only to 200 persons in a financial year, in private placement.

VALUATION OF SHARES AND INCOME TAX ACT

When a Company issues its shares at a price exceeding the fair Market Value then such excess amount will be treated as income of the Company and chargeable to tax under the head income from other sources.

WHY PREFERENCE SHARES

This capital structure doesn’t carry voting rights, therefore, working and control of founder or promoter remains protected with no interference, apart from that for any startup raising funds through preferential shares is recommended as the performance based on preference share investment not only enhances the trust of investors but accelerates the valuation at large, majority of the successful start up have preference share as the prime player in their investment.

“Timing, perseverance, and ten years of trying will eventually make you look like an overnight success.”         ― Biz Stone

©CS Narendra Singh©Ductus Legal

PANDEMIC AND DEVELOPMENT OF INNOVATIVE PRODUCT DESIGN

 

PANDEMIC AND DEVELOPMENT OF INNOVATIVE PRODUCT DESIGN

Dear Reader

In the present scenario FMCG Companies, Industrial Units, Pharmaceutical Companies and Companies involved in manufacturing of Goods can develop any novel design for any goods, wherein, said design can be protected as Intellectual Property Rights. For instance any design of face mask or apparatus or device or machinery or vehicle or product bottle can be intellectually protected in accordance to the legal framework.   

ABOUT DESIGN LAW:

Any product which involves novelty in shape and configuration can be protected under the Design Act, 2000, wherein, law provides protection to such articles that are to be manufactured and marketed commercially. For example; any apparatus of geyser developed by any Company, any medical device or apparatus, any machinery design, any design of Consumer Durable goods such as Air conditioner, Washing Machine, any design of product bottle or any related product. Design as per the law can be shape or configuration or pattern or ornaments or composition.

HOW TO PROTECT YOUR PRODUCT DESIGN

The development of your product and novelty in shape or configuration or pattern is the prior condition to protect your design, an application for the protection of design can be filed before the Controller General of Patents and Designs, and it takes around 6 to 12 months to get any design registered, if not objected or opposed, further, protection is granted for ten years once your design is registered. However, novelty and originality are the two prior conditions to get your design registered.

PRODUCT DESIGN IS READY BUT ACTUAL SAMPLE IS YET TO PREPARE

In such an instance, you can immediately register your design drawing as CopyRight and once your product is ready, you can apply for the Design Registration, however, post registration of Design, you are required to surrender CopyRight Registration. Though, practically there are methods to file a design application directly.

WHAT IS SOMEONE IS INFRINGING YOUR PRODUCT DESIGN

You can initiate the proceeding of injunction or piracy and for recovery of damages before the relevant commercial court, further, you can assign the rights of production to other parties for similar design through assignment or license against consideration in the nature of royalty.

“Intellectual property is a key aspect for economic development.”-Craig Venter

LOCK DOWN AND YOUR INTELLECTUAL PROPERTY

Dear Readers

The present time is an opportunity to develop or improve your product or service and formulate the relevant strategy, to push your product or service in the following tenure i.e. post pandemic period. One can easily access and understand the significance of Digital Media, Technology and Artificial intelligence, present circumstances clearly stipulates that future belongs to these new methodologies of business.

PRODUCT OR SERVICE AND INTELLECTUAL PROPERTY RIGHTS

Your product or services turn into brand with the reputation and goodwill it attains in market and law provides you the recourse to protect your intellectual property, wherein, an intellectual property can be your Trade Mark, CopyRight, Design, Geographical Indication, Patents. India has its separate legal framework for every sort of Intellectual Property Rights.

TRADE MARK AN IPR RIGHT

You can protect your Company’s or venture Name or Logo, your product Name or Logo or colour combination, your services Name or Logo or Colour as “Trade Mark” in accordance to the Trade Marks Act, 1999, Read with Rules, 2017. Your Balance Sheet may reflect monetary value of Intellectual Property Right you are having within the organisation. In most of the circumstances of due diligence, registration of your Trade Name is the most important criteria not only for valuation but to conclude whether enough steps were taken to protect intellectual property. For FMCG Industry, Cosmetic Industry, Pharmaceutical Industry. Hospitality Industry trade mark carry is nothing less than basic necessity for the success of business.

HOW TO REGISTER A TRADE MARK

You can file an application for registration of trade mark before the Intellectual Property Board of India, Ministry of Commerce and Trade through Trade Mark Attorney or Advocate, the registration process of trade mark application takes around 6 to 9 months provided your application is not objected or opposed.

WHAT IF SOMEONE IS COPYING YOUR TRADE MARK

You can file a Commercial suit for infringement for damages as well as to restrain the other party from utilizing the stated Trade mark and in certain circumstances you can also initiate the criminal proceedings.

WHAT IF YOU DON’T HAVE TRADEMARK REGISTERED BUT SOMEONE IS COPYING

In such instances, you can initiate the proceedings of passing of before the commercial court and can still claim damages as well as restrain the other party from using a similar name for goods or services.

“Every Trade Mark you Build adds to the financial value of your business, much more than your tangible assets”
― Kalyan C. Kankanala, Fun IP, Fundamentals of Intellectual Property Rights

©Dixit Mehta ©Ductus Legal

PANDEMIC, DIGITIZATION AND COPYRIGHT LAW

Dear Readers

The digitization of economy and appreciation of business modules such as Ed-tech companies, virtual classes and learning modules, music applications (Savaan, Ganaa etc), architecture firms, original work created over social media and modules such as videos, photographs, articles or other creative work or development of computer software or mobile applications has made it significantly important to understand the intellectual property right of “Copy Right” and the law prevailing in India. Further, present circumstances of pandemic has concluded the future direction of business belongs to digital medium, India has seen a sharp rise in virtual mode of learning, Digitalisation of economy, development of computer or mobile applications at large scale, webinars and almost every medium of business is blending its business approach with digitalisation and accordingly there is swift need to restrict the plagiarism and infringement of original work.

COPYRIGHT AN IPR RIGHT

CopyRight usually represented through © symbol, grants protection over the literary work or dramatic work or Photography or Painting or any other Artistic work or Sound Recording or Audio Recording or Video Recording or any musical work or cinematograph film or  Computer Programme or any writing work be an article or book (Computer Applications or Software). The CopyRight Act, 1957 read with CopyRight Rules, 2013 states down the legal framework with respect to the protection of your Copyrighted work. CopyRight grants you an exclusive right to use the work unless rights assigned through license or transfer of right.

HOW TO REGISTER A COPYRIGHT

You can file an application for registration of CopyRight Office, Government of India, through an advocate or attorney, the process of registration takes around 5-9 months provided not objected. It is to be observed that registration of Copyright may not be mandatory as the right subsist within the author from the date of creation of work; however, registration of CopyRight is the prima facie evidence of the exclusive right in favour of the author. Further, Copy Rights grants an exclusive right to the author, wherein, some instance right extends to 60 years, no one can claim copyright over the work which is open in the public domain.

WHAT IF SOMEONE IS INFRINGING YOUR WORK

You can file a Commercial suit for infringement for damages as well as to restrain the other party from utilizing the stated CopyRight, Further, Section 63 of CopyRight law states that infringement of CopyRight is punishable offence with imprisonment which may extend to three years.

COPYRIGHT UNDER SOUND RECORDING, CINEMATOGRAPH AND MUSICAL WORK

Copyright act empowers the societies registered with the CopyRight board like India Performing Right Societies to register copyright and grant license therein, any organisation utilising the original work of author for monetary gain is not allowed to utilise the work, unless, granted through license, wherein, one can procure the license through societies, therefore, all places, which are using the work not in public domain is required to obtain the license unless exempted under section 52 of the act. Government, through notification, has clarified that no license is required for utilizing the sound recording in religious or marriage functions.

“Moral rights form the essence of copyright law. When they conflict with economic rights, moral rights must always prevent”    ― Kalyan C. Kankanala 

©Dixit Mehta ©DuctusLegal

POST PANDEMIC SCENARIO; MERGER AND ACQUISITION

POST PANDEMIC SCENARIO; MERGER AND ACQUISITION

Dear Reader

The present epidemic has disrupted the supply chain, affected the manufacturing capacity, national and global payment circle is at halt and pandemic will substantially reduce the spending capabilities of consumer at large across the globe, wherein, the effect of all circumstances will largely reflect in businesses monetary flow and their valuation, all these scenario will promote the Merger of businesses or acquisition of Businesses.

ABOUT MERGER & ACQUISITION;

These are the transactions through which ownership or control of Companies or units are transferred or consolidated with the other Companies or entities. For example; Merger of Vodafone and Idea, Acquisition of Flipkart major equity by Wal-Mart, It can be also expressed as the process of combining two Companies with the objective to achieve synergy and to strengthen the business of Transferee Company.

LEGAL FRAMEWORK OF MERGER AND ACQUISITION IN INDIA

Merger and acquisition in India is governed by the Companies Act, 2013, The Competition Act, Indian Stamp Act, SEBI Guidelines, Foreign Exchange Management Act, 1999, Income Tax Act, 1961 and based up on the nature of transaction various regulatory bodies are involved in the process of any merger such as Registrar of Companies, Competition Commission of India, National Company Law Tribunal, Reserve Bank of India, Income Tax Department, Securities and Exchange Board of India. In Merger there is majorly no financial involvement but the swipe of equity shares, however, acquisition has involvement of financials. Valuation is the significant factor in any sort of merger or acquisition, wherein, value is assessed based up on the various factors such as present books of accounts, assets of business, capital of business, good will, and supply chain network, warehouses, manufacturing capacity, stock in trade, future growth prospects and related factors.

M&A ESSENCE POST PANDEMIC

The survival of many businesses may turn out to be a big challenge post pandemic, therefore, merger can be a solution to strengthen the client base, utilisation of manufacturing capacity, warehouse network, marketing network and eradication as well as reduction of unnecessary cost, utilisation of patents, encouragement of innovation, therefore, merger will bring the synergy and may strengthen the survival, apart from this factor, equity shares of private or public company may have the lowest valuation on account of pandemic impact, therefore, it can be a genuine merger or acquisition opportunity and also Merger can be the next regime for “Sustainable Business Development”.

“Mergers generate substantial synergies”

                                                                   -Roger Altman

COVID-19 PANDEMICE AND BURDEN OF COMMERCIAL RENTALS

Dear Readers

The Pandemic has put forth the whole nation on standby mode, however, cycle of monthly rentals is not on hold or under moratorium, though, for few categories of households central and state government has given the directions to the relevant District magistrate, regarding, no household can put forth pressure on the tenants. Commercial rent is one of the substantial part of operational expense for any business and for the start-up this category of operational expenses substantially impacts not only the smooth working but in some instance endanger the existence of business.

RENT LAW IN INDIA:

The terms of rented property is governed by the “Rental Agreement” signed between the Landlord and Tenant (Herein Means Company or LLP or Proprietor). Rent law is governed by the Rent Control Act and each state has its own rent law, for instance Rent Control Act (1958) Delhi. The law is guiding force on fair rent and protects the interest of tenant not only from eviction but from the unfair hardship. However, applicability of Rent Control Act is subject to certain conditions and parameters as defined law, among them one of the parameter is Rent Control Act is not applicable to the premises that have been let out to banks, public sector undertakings or any corporation established by or under any state or central act, foreign missions, multinational companies, and international agencies. Further, premises let out to private limited and public limited companies having a paid-up share capital of one crore rupees or more do not come under the ambit of Rent Control Acts. Nevertheless, State Stamp Act and Transfer of Property Act, Commercial Courts Act, Insolvency and Bankruptcy Law (However if rental to be paid are less than one crore) are also applicable law subject to the circumstances and terms of tenancy.

FORCE MAJEURE AND RENT AGREEMENT (FOR COWORKING SPACE ALSO)

As the present circumstance is an epidemic and lockdown is in persistence, therefore, you can rely on force majeure clause for the delay in payment of rent or can terminate the agreement from immediate effect, wherein, you can protect your right over your assets within the premises. Further, in case of termination, you can claim possession of property equal to the amount of security you have paid or can claim your security in certain circumstances. The service of notice to your landlord is the premeditated condition to utilize the said clause or Doctrine of frustration.

STRATEGIES TO COMBAT THE OPERATIONAL COST

1. Start ups can lend or Share their Work Space Chairs with other Start ups in order to attain fuller utilization of resources as well as to overcome the rental cost challenge with the objective to tackle the economy circumstances post pandemic.
2. The small companies can strategies their work space limited to home for following three months.
3. A joint representation should be given to the Start up India, Ministry of Commerce, Ministry of Corporate Affairs, Ministry of Finance regarding aid packages and direction in respect of commercial rent.

                   “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”    —Jimmy Dean

COVID-19 (CORONA) PANDEMIC, FORCE MAJEURE AND DISPUTES

ABOUT FORCE MAJEURE:

Force majeure is a French term meaning “greater force.” The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that derive their legal systems from the Napoleonic Code. This clause relieves one or both parties from liability to perform contract obligations when performance is prevented by an event or circumstance beyond the parties’ control and force majeure events may include fire, flood, civil unrest or terrorist attack or lock down. The purpose of a force majeure clause is two-fold: it allocates risk and puts the parties on notice of events that may suspend or excuse service. The intention of a force majeure clause is to save the performing party from consequences of something over which it has no control. Force Majeure is an exception to what would otherwise amount to a breach of contract.

COVID-19 AND FORCE MAJEURE CLAUSE:

Covid-19 has been declared as Pandemic across the world and has caused tragic human losses and at the same time widespread economic disruptions have been caused as a result of the unprecedented measures taken to control the viral outbreak: workplace shutdowns, disruption of production, port closures, and suspension of air travel. Therefore, failure to perform the contractual obligation in such circumstances empower the parties to rely on the Force Majeure clause in their contracts, however, the scope of clause depends upon the contents of clause incorporated in the contract.

The disruption to supply chains due to the Covid-19 outbreak would be considered a force majeure as notified by the Ministry of Finance, Government of India. Further, the ministry has stated that this clause can be invoked wherever appropriate, subject to due procedure being followed. For non-government and other contracts, where a contract contains a force majeure clause, the yardstick is whether the Covid-19 outbreak would fall within the scope of the clause.

WHAT IF YOUR CONTRACT DOESN’T HAVE FORCE MAJEURE CLAUSE:

The absence of a force majeure clause may result in reliance on the Doctrine of Frustration as set forth in the Indian Contract Act, 1872, which states that an agreement to do an impossible act is void. The provision also relieves a party from the discharge of their duties in the event of an intervening act which renders the performance of the contract impossible or unlawful.

HOW TO EXERCISE THE CLAUSE:

The application of law and contention of Force Majeure, depends upon the wording of clause in your contract, wherein, first line of action will be to serve the notice to the other party, wherein, delay in performance of contract or failure to perform contract or termination in contract can be the possible conclusion. All contracts related to goods or services or supply of goods or services or any other contract which is impossible to perform on account of the present circumstances may fall in the shield of Force Majeure, however, the applicability of clause depends upon the facts and circumstances along with wording of agreement.

WHICH INDUSTRY CAN USE THE SHIELD OF FORCE MAJEURE

Any industry, provided it is able to establish the impossibility in performance, for instance; Real Estate Builders for delay in handing over possession, Pharmaceutical Companies for failure in performance, E-commerce on account of failure to perform the internal obligation towards the vendors as well as delay in delivery or failure therein, FMCG Industries on account of non availability of raw material, Cosmetics Industries, Oil and Gas industries, Energy Industries including renewable, Insurance Claims, Every contract wherein time is the essence of contract, international contracts, however, in all circumstances the other party is required to serve the notice.

“Force majeure means all circumstances independent of the will of man, and which it is not in his power to control, and such force majeure is sufficient to justify the non-execution of a contract. Thus war, inundations and epidemics are cases of force majeure; … [and also] a strike of workmen.”

                                                                          – (Lebeaupin Vs. Crispin, [1920] 2 K.B. 714 at 719)

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COMPILED AND WRITTEN BY:               

S M MAJUMDAR, SENIOR ASSOCIATE, INTERNATIONAL LAW

(JD US Law (IL), LL.M, M.Com, MBA – Fin.(UK), AClArb.)

     (A Nasscom certified Data Privacy Professional (DCPP))

 

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