#BulletinBoard – February 06, 2019 (Government to set up working group to find solution for angel tax conundrum and more)

Government to set up working group to find solution for Angel Tax Conundrum

The Department for Promotion of Industry and Internet Trade (“DPIIT”) has proposed to set up a committee consisting of leading start-up related associations (such as NASSCOM, Indian Angel Network amongst others) (“Working Group”) with the intention of providing guidelines on angel tax.

Section 56(2) of the Income Tax Act, 1961, more commonly referred to as angel tax imposes a tax when a company issues shares at a price that is more than its fair market value. The difference is treated as income from other sources.

It has been reported that the Working Group will look into a host of possible solutions in order to resolve the issues surrounding angel tax. The solutions range from defining what a start-up is and excluding them from angel tax to completely scarping Section 56(2) of the Income Tax Act, 1961.

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The step taken by the DPIIT is a step that will be welcomed by the start-up ecosystem. When it has been reported by the Indian Private Equity and Venture Capital Association (IVCA) that more than 70% (Seventy Percent) of start-ups have received angel tax notices, it is critical that the DPIIT resolves this issue in order to ensure that there is no hindrance to the growth of the start-up ecosystem in India.

Directors who receive remuneration will be treated as “employees” under ESI Act: rules SC

The Supreme Court (“SC”), in the case of Employees State Insurance Corporation v. Venus Alloy Pvt. Ltd held that directors of any company who receive any remuneration will be treated as an “employee” as defined in the Employees’ State Insurance Act, 1948 (“ESI Act”). Companies, will therefore, have to make the necessary contributions for the remunerations paid to their directors.

The SC, while arriving at this decision relied on the case of Employees State Insurance Corporation v. Apex Engineering Pvt Ltd where the SC held that a director, while performing a managerial function, could also be treated as an employee of the Company and could carry out such dual capacity.

In the present case, the directors of Venus Alloy Pvt. Ltd were given a remuneration of INR 3,000 per month. The SC held that such a remuneration would fall under the definition of wages, as defined under Section 2(22) of the ESI Act. The SC, accordingly, directed Venus Alloy Pvt. Ltd to make the requisite contribution.

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  • This judgement will be applicable only on those entities that fall within the ambit of the ESI Act. Currently, the ESI Act is applicable on all entities which have more than 10 (it is 20 people for entities located in the Maharashtra and Chandigarh) employees with a salary of less than INR 21,000 per month.
  • This ruling will create an additional expense for new start-ups which till now, had not paid any contribution for the remuneration paid to directors. This is because it is commonly thought that directors do not fall under the ambit of “employees” under the ESI Act, and therefore, there is no need to pay any contribution.

NCLT cannot look into the justness of rejecting a resolution plan under the IBC: rules SC

The Supreme Court (“SC”), in the case of K. Sashidhar v. Indian Overseas Bank & Anr ruled that the National Company Law Tribunal (“NCLT”) does not have the jurisdiction to look into the reason behind which a resolution plan was rejected by the Committee of Creditors (“CoC”).

A resolution plan is a proposal that aims to resolve the corporate debtor’s insolvency issues and its inability to pay off its debts. As per the Insolvency and Bankruptcy Code, 2016 (“IBC”), all resolution plans needs to be approved by at least 75% of the CoC.

The SC, in this case, held that the IBC has not given the NCLT the authority to look into the reasons behind which the CoC has rejected the resolution plan. The SC further held that it is not necessary for the CoC to put its reasons for rejecting the resolution plan in writing. The SC held that the NCLT has not been given the authority to question the commercial wisdom of the CoC.

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  • This judgement of the SC can have both a positive impact, as well as a negative impact on the functioning of the IBC. On one hand, as the NCLT will not have the right to question the reasoning behind the rejection of the resolution plan, it will make the entire process more time efficient as the NCLT will not spend time looking into why the resolution plan was rejected.
  • However, this can lead to delays in actually resolving the insolvency issue as the NCLT will not be able to direct the CoC to rethink the resolution plan or force the CoC to accept the resolution plan. Therefore, upon rejection of the resolution plan, if a new resolution plan is to be prepared, that will take additional time and will therefore, delay the resolution process.

Delhi HC awards compensation of INR 3.85 crores for continuous trademark infringement

The Delhi High Court (“Delhi HC”), in the case of Whatman International Limited (“Plaintiff”) v. P Mehta & Ors (“Defendants”), directed the Defendants to pay the Plaintiff a sum on INR 3.85 crores for continuous violation of the Plaintiff’s trademark for a period of more than 25 years.

The Plaintiffs, who manufacture and sell filter paper, in this case, had contended that their trademark “WHATMAN” has acquired a secondary meaning in trade, as it has been used by the Plaintiff for more than 250 years. The Plaintiff, therefore, sought punitive damages from the Defendants.

The Delhi HC further held the Defendants guilty of contempt, as they continued to sell infringe on the Plaintiff’s trademark despite several warnings issued by the Plaintiff.

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  • This is one of the few instances whereby courts have recognised the concept of continuous infringement of trademark and have accordingly, provided punitive damages to the victim. This is an important step taken by the courts as the damages awarded for continuous damages will be higher than cases of a single infringement. Courts, can now, take this judgement as a bench mark whilst dealing with similar cases of continuous infringement
  • Another important observation of the Delhi HC was that it held the Defendants guilty of contempt for continuing to use the Plaintiff’s trademarks despite repeated warnings. This will hopefully be a deterrent against any person who plans on continuing to infringe someone else’s trademark despite receiving a warning from the owner of the trademark.

 

 

 

 

Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.

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