9th Annual NLSIR Symposium 2015-16 – Goods and Services Tax: The Changing Face of Fiscal Federalism in India

[The following announcement is being posted on behalf of the National Law School of India Review]
The National Law School of India Review (NLSIR), the flagship journal of the National Law School of India University (NLSIU), Bangalore is pleased to announce the 9thAnnual NLSIR Symposium on Goods and Services Tax: The Changing Face of Fiscal Federalism in India scheduled to be held on 14-15 May, 2016 at the International Training Centre, National Law School of India University, Bangalore. This year, the Symposium seeks to engage with the topical issue of the Goods and Services Tax (GST) regime that is proposed to be introduced by the Constitution (122nd Amendment) Bill, 2014. Having been stalled for a significant period of time, the passing of the Bill is now imminent, and the far reaching changes that it makes to the indirect taxation regime in India make it a ripe topic for detailed critical examination. Given the novelty of many of the proposed changes, the Symposium seeks to promote an informed discussion among various stakeholders regarding the impact and legal implications of such changes.
Confirmed speakers for the Symposium include Mr. Arbind Modi (Joint Secretary, Tax Policy and Legislation, Ministry of Finance), Dr. M. Govinda Rao (Member, Fourteenth Finance Commission), Mr. N. Venkataraman (Senior Advocate, Supreme Court of India), Mr. Upendra Gupta (Additional Commissioner Member, CBEC (GST Cell)), Mr. Sudhir Krishnaswamy (Faculty, Azim Premji University), Mr. Alok Prasanna Kumar (Senior Resident Fellow (Vidhi Center for Legal Policy). Ms. Jayashree Parthasarathy (Partner, BMR & Associates LLP), Mr. Karthik Sundaram (Associate Partner, Economics Law Practice), Mr. Madhukar N. Hiregange, C.A., (Partner, Hiregange & Associates, Bangalore), Mr. TR Venkateswaran (Indirect Tax Director, PwC) and Mr. B. Sriram, Partner (Tax and Regulatory Practice, E&Y) among others.
This year, the discussions will be divided into four panels:
Session I: Constitutional Challenges and Concerns
(Forenoon, May 14, 2016, Saturday)
Session II: Understanding the Dual GST System  
(Afternoon, May 14, 2016, Saturday)
Session III: Integrated Goods and Services Tax (IGST) 
(Forenoon, May 15, 2016, Sunday)
Session IV: Procedural Hurdles and Concerns in Implementing GST
(Afternoon, May 15, 2016, Sunday)
Registration fee for the Symposium is Rs. 500 for professionals and Rs. 250 for students. The payment has to be made at the venue. All those interested are requested to register at: https://docs.google.com/forms/d/1flQ1Zv86UPCAjLOlmYglY5WK_iDhj6DR3r7kPxMKqXU/viewform
For more details visit our Facebook page at https://www.facebook.com/events/997877953621577/
For further information, please contact Ashwini Vaidialingam (Chief Editor):+91-9663370310; Kaustav Saha (Deputy Chief Editor): +91-9916707621 or email us at mail.nlsir@gmail.com.

Filling in the Gaps in the Insolvency and Bankruptcy Code – Cross Border Insolvency

[The following post is contributed by Aparna Ravi, who is a Bangalore-based lawyer and was a member of the Bankruptcy Law Reforms Committee. The views expressed here are personal.]
One issue that is conspicuous by its absence in the Insolvency and Bankruptcy Code, 2016 (IBC), that recently got past both houses of Parliament and is now awaiting presidential assent, is cross border insolvency.  The Report of the Joint Parliamentary Committee on the IBC notes this absence, but its proposal — that the government address cross border issues by entering into bilateral agreements with other countries — is very limited.  This blog post considers how India could go about incorporating cross-border insolvency issues into its domestic legal framework, including the advantages of adopting the UNCITRAL Model Law on Cross-Border Insolvency and the issues to be considered if India were to adopt a version of the Model Law.
Cross-Border Insolvency in the IBC
Cross border insolvency issues arise when a company in financial distress has assets, business operations or creditors in more than one country.  Such cases typically involve one or a combination of three situations. First, the insolvent company may have a number of foreign creditors who want to ensure that their rights are protected even though they may not be based in the country where the insolvency resolution is taking place.  Second, an insolvent company may have assets located in another jurisdiction, which its creditors may want to access as part of the insolvency proceedings. Finally, insolvency proceedings with respect to the same debtor may be commenced and ongoing in more than one country.  The last situation is particularly common when corporate groups face financial difficulties and proceedings against different legal entities within the group are commenced in different jurisdictions.
The IBC deals with the first situation discussed above by implication, as it does not discriminate between domestic and foreign creditors.  By including “persons not resident in India” in the definition of persons and, as a consequence, in the definition of creditors, the new legislation permits foreign creditors to commence and participate in the proceedings under the IBC. Foreign creditors also have the same rights as similarly situated domestic creditors regarding distribution of assets on the liquidation of an insolvent company.
The second and third situations are not dealt with in the IBC, which currently lacks any mechanism for cooperation between jurisdictions or for an Indian court or tribunal to seek the assistance of a foreign court or insolvency authority when an insolvency proceeding may have implications across national borders. The Joint Parliamentary Committee’s Report introduced two new clauses (Sections 234 and 235) to address these situations. Section 234 states that the Central Government may enter into bilateral agreements with other countries for purposes of enforcing the IBC. Section 235 allows the relevant court or tribunal in India to issue a letter of request to a foreign court or tribunal seeking its assistance in situations where a debtor’s assets may be located abroad. While these two clauses are an acknowledgment of the existence of cross border concerns in insolvency, they, in essence, postpone consideration of substantive provisions on cross border insolvency to bilateral agreements with other countries.
Are Bilateral Agreements the Way Forward? 
Bilateral agreements can and have in the past been used to deal with cross border insolvency concerns. In fact, even before procedural frameworks for cooperation were embedded in domestic laws or treaties, courts in different jurisdictions developed protocols to cooperate with each other in specific cross border insolvency cases. Such a protocol was first developed between the English and American courts in 1991 during the insolvency proceedings of Maxwell Communications Corporation, a U.K.-based media corporation with significant assets in the U.S.[1]This case involved simultaneous Chapter 11 proceeding in the U.S. and an administration proceeding in the U.K.  The courts developed a cooperation protocol on the basis that information flow and cooperation between the two proceedings was essential for an efficient resolution of the insolvency and the preservation of the debtor’s estate. 
However, bilateral agreements take time to negotiate and need to be negotiated individually with different countries, an extremely laborious process. Cross border insolvency treaties are also difficult to negotiate as different countries have wide variations in their substantive insolvency law regimes. Further, there could well be situations where a country’s bilateral agreement with one country varies substantially from its agreement with another country, which could lead to uncertainties in implementation.
The UNCITRAL Model Law
The UNCITRAL Model Law does not seek to harmonize substantive insolvency laws across jurisdictions, but instead sets out a procedural framework for information exchange, cooperation and coordination in cross border insolvencies. As it is a model legislation rather than a treaty or convention, countries may adopt it into their domestic laws with any changes that they see fit. It has intentionally been drafted with flexibility so that it can be adopted by countries with vastly different substantive laws on insolvency. Since its endorsement by the U.N. General Assembly in 1997, 41 countries, including the U.S, the U.K., Canada, Australia and Japan, have adopted the Model Law. 
The proceedings that fall within the scope of the Model Law are collective proceedings under the insolvency law of any state which have the purpose of reorganization or liquidation of the debtor. With respect to such collective insolvency proceedings, the Model Law contains four types of provisions:
(1)       Provisions regarding access of foreign creditors and foreign insolvency representatives to domestic insolvency proceedings.
(2)       Provisions regarding the recognition of foreign insolvency proceedings and the granting of certain reliefs:  A foreign proceeding may be recognized either as a “foreign main proceeding” (a proceeding taking place where the debtor has its “centre of main interest) or as a “foreign non-main proceeding” (a proceeding other than a foreign main proceeding taking place in a state where the debtor has an “establishment”). The types of relief that are then granted depend on whether a proceedings has been recognized as a main or non-main proceeding.
(3)       Provisions regarding cooperation and direct communication between courts and insolvency representatives in one state with their counterparts in a foreign state.
(4)       Provisions dealing with the conduct of concurrent insolvency proceedings of the same debtor in more than jurisdiction.
Adopting the Model Law would hold several advantages for India as opposed to relying on bilateral agreements alone. First, it is a widely accepted standard that has already been adopted by other countries and one with which foreign creditors are familiar. Adopting the Model Law would, therefore, bring much needed certainty for foreign creditors on the rules of access and recognition of foreign insolvency proceedings. Second, it would be much quicker to adopt and would save the cumbersome process of negotiating bilateral agreements, at least with those countries that have already adopted the Model Law. Further, India would be permitted to make any changes to suit its particular needs when enacting legislation based on the Model Law. The Model Law itself foresees such changes, including the exclusion of certain kinds of institutions and exceptions based on public policy. It is perhaps for these reasons that two prior committees that looked into insolvency law reform in India – the Eradi Committee in 2005 and the N.L. Mitra Committee in 2001 – also recommended that India adopt the Model Law with suitable modifications, though this was never carried out.
At the same time, there are some issues that will need to be looked into carefully if India were to consider adopting the Model Law into its domestic legislation. Below is a non-exhaustive list of such considerations:
(1)       COMI: As many of the recognition, coordination and cooperation provisions in the Model Law hinge on whether an insolvency proceeding is a foreign main or non-main proceeding, the determination of a debtor’s “centre of main interests” or “COMI” assumes special significance. However, COMI may not always be easy to determine, particularly when it comes to multinational corporations that may have assets and business operations in a number of jurisdictions. The Model Law does not define COMI, but states that there is a rebuttable presumption that COMI is the location of the debtor’s registered office.[2]As the Model Law does not provide guidance on the factors that could rebut this presumption, courts have provided a wide range of interpretations on what constitutes COMI.[3]
In this context, it would be useful if the Indian legislation that adopts the Model Law spells out some of the factors that could help determine COMI. In particular, while COMI could be presumed to be the place of incorporation of the debtor, this presumption should be rebuttable based on factors such as the principal place of the debtor’s economic activities and operations and the location of its assets. Such provisions could help minimize the confusion over the determination of COMI and also provide guidance to Indian courts and tribunals making this determination.
(2)       Reciprocity: A key feature of the Model Law is that it is not based upon a principle of reciprocity between States. There is no condition or requirement that a foreign representative wishing to access facilities under the Model Law must be from a state which has itself enacted the Model Law. Thus, if India were to incorporate the Model Law in its original form into its domestic legislation, a foreign representative from a state that has not enacted the Model Law could gain access to Indian insolvency proceedings. However, an Indian representative would not similarly gain access to foreign insolvency proceedings in that state under the Model Law, though there may be other provisions in the laws of that state enabling access.  While a few countries have included a reciprocity requirement in adopting the Model Law, many others have adopted it in its original form with the hope that more countries would adopt the Model Law in coming years.
(3)       Interaction with Other Laws and Capital Control Requirements: An important and rather India-specific issue is how adopting the Model Law would affect domestic capital control laws, such as the Foreign Exchange Management Act and RBI capital control requirements. For example, while it is all very well to say that foreign creditors would be entitled to the same distribution rights as domestic creditors, their ability to receive cash or assets located in India would depend on a host of other laws or regulations. This is most likely an issue that would have to be considered afresh as most developed countries that have already adopted the Model Law do not have similar capital control requirements.        
The issues noted above and probably many others must be carefully reviewed in determining how to adopt the Model Law to suit India’s specific needs.  However, these are not reasons against adopting the Model Law, but rather areas where the Model Law may need to be tweaked to ensure its implementation is effective. The Model Law provides a good starting point as India considers adopting cross-border issues into its domestic legislation by, at the least, providing a robust procedural framework for addressing the complexities that arise in cross border insolvencies.   
– Aparna Ravi

[1] In re Maxwell Communications Corporation plc, 170 BR 802, 802 (Bankr SDNY 1994).
[2] Model Law, Article 16(3).
[3] See, for example, the European Court of Justice ruling in Eurofood IFSC Ltd., EU: Case C-341/04, 2006 WL 1142304, ¶ 17 (May 2, 2006) in contrast to the U.S. Bankruptcy Court’s judgment in Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325 (SDNY 2008). 

The Need for a Dividend Disclosure Policy

[The following guest post is contributed by Soham Roy & Akhil Nene, who are 5thyear students at the National Law University Odisha]
In a recent Board meeting, SEBI provided an in-principle nod to mandating the top 500 listed companies in India (according to market capitalization) to disclose a dividend disclosure policy. Such a policy may include circumstances under which their shareholders can or cannot expect dividend, financial parameters that will be considered while declaring dividends, internal and external factors that would be considered for declaration of dividend, policy as to how the retained earnings will be utilized, and provisions with regard to various classes of shares.
Lately, this issue has gained a lot of importance because of excessive payments of dividends just before an initial public offering (IPO) of shares. In 2015, as Inter Globe Enterprises was readying for an IPO, it trebled the value of its dividend in 2015 over what it paid in the previous year. Inter Globe Enterprises increased its dividend expenses per share from Rs. 12,299 for year ended 2014 to Rs. 35,169 for the year ended 2015. This decision was taken by Inter Globe Enterprises eleven days before it filed its Draft Red Herring Policy (DHRP) with SEBI.
The larger question here is the importance of dividend payment for investors. Very simply put, there are essentially two ways in which investors obtain returns: dividend and capital gain. The declaration and payment of dividend is one of the most important decisions for a company as the company has to strike a balance between the percentage of earnings it should utilize to finance its operations and the percentage it should use to distribute dividends to shareholders. This decision has ramifications on the business as the payment of large dividends reduces the ability of the company to fund large projects and often under such circumstances the company will be forced to access the capital markets to fund such projects.
Under Indian company law, there is complete discretion in the hands of the board of directors as to whether dividend is to be paid or not, and also as to the amount of dividend to be paid.  Research on dividend policy has also shown that dividend policy per se will have an impact on the price of a company’s stock price independent of earnings.[1] Therefore, announcement of a dividend policy can only be helpful for investors to make investment decisions. Spelling out a clear dividend policy will help investors make a more informed choice. 
However, the proposal to extend it to only top 500 listed companies by market capitalization is not welcome. Mandatory disclosure of dividend policy should also be extended to companies who are in the process of making an IPO. Another concern is that companies might circumvent this policy of mandatory disclosure by using broadly drafted statements, which will leave a lot of discretion in the hands of the Board. 
In November 2015, the Financial Reporting Council’s (hereinafter FRC) Financial Reporting Lab had come out with the report titled “Lab project report: Disclosure of dividends – policy and practice” which relates to the dividend disclosure policies and how it can be made more relevant for the investors. This was undertaken because many of the FTSE 350 companies in their annual reports failed to provide information relating to distributable profits. As Stated in the Lab project report: “Only 23 FTSE Companies disclosed the distributable profits balance (of the parent company) in their 2014 annual report and accounts (annual report)”. This report was made with the contributions from 19 companies and 31 investors. The aim of this report is to investigate into the issues and to look at the best practice.
The report states the methods by which the dividend disclosures can be improved by the companies. The main aim of the report is to facilitate the listed companies to provide relevant information to the investors. The FRC in its report has also identified the issues that relate to determining the profits levels and the profits that the company can legally distribute and also that the kind of disclosure that is made would be dependent on the level of resources a company has compared to its proposed dividends.
It was stated by the investors that they wanted the companies to disclose the circumstances under which the companies would pay special dividends or buy back shares and to show the step taken by them is in the interest of the shareholders.
All investors consider that the disclosure of dividend resources, i.e. cash and the amount of the company’s reserves legally available for distribution under company law (distributable profits), is helpful in circumstances where the ability of the company to pay dividends is, or might be, insufficient relative to the level of dividends indicated by the policy. Some investors believe that distributable profits are always required to be disclosed. The FRC understands that as per the Companies Act 2006 the companies are not required to separately identify the distributable profits on their balance sheet.
We can conclude that the report tries to facilitate the investor’s issues in following ways:
1.         The report provides all the listed companies with some guidance on disclosure of dividends and distributable profits; it is applicable to all the listed companies and does not depend upon their size.
2.         In the report it is noted that when the companies disclose information relating to dividends they usually do so by spreading over the financial statements, shareholder information sections and the strategic report. To avoid that, the companies must link the dividend disclosures to important information which is included in the annual report and also include the risk disclosures as was requested by the investors; this would go on to make the annual report much more concise and clear and would also help avoiding the repeating of information and that would also increase coherence.
SEBI should use this report and prescribe certain guidelines to ensure that companies do not try to circumvent the policy by using broadly drafted policy and generic disclosures. The purpose of this disclosure is not to coerce companies to make dividend payments, but it is to ensure that investors make more informed choices.
– Soham Roy & Akhil Nene

[1]Law and Economics of Dividend Policy-Daniel R. Fischel, Virginia Law Review, Vol. 67, Issue 4 (May 1981), pp. 699

Interim Dividends – Is the Confusion Clearing?

[The following guest post is contributed by Siddharth Rajaand Neeraj Vyas, who are Founding Partner and Associate respectively of Samvad Partners. Views are personal, and comments are welcome]
The concept of ‘interim dividend’ was only introduced into the Indian companies statute in 2000 — that was legislative recognition of a move that had started to develop and gain acceptance within Indian corporates, especially in the 1990s.  A move that essentially postulated freedom to a Board of Directors (in contrast to the shareholders in general meeting) to declare a dividend in the interregnum between two ‘regular’ (so to speak, although the word is not used in the statute) dividend declarations which typically take place at annual general meetings of shareholders, year-on-year. 
The Companies (Amendment) Act of 2000, amending the Companies Act, 1956 (the “1956 Act“), made it clear that the Board of an Indian company may declare an ‘interim dividend’, which had to then be segregated into a separate bank account for the only purpose of making the payment of such ‘interim dividend’ — importantly, the terms under which such an ‘interim dividend’ could be declared and paid was the same as applicable to dividends itself.  As a result, one of the key conditions governing both ‘interim dividend’ and ‘dividend’ under the 1956 Act was the need to declare and pay the same only out of profits.
The Companies Act, 2013 (the “2013 Act“) had further refined the construct of ‘interim dividend’, but the wording of the provisions has left a lot to be desired — something the Report of the Companies Law Committee of February 2016 notes as ‘disharmony’, while suggesting ameliorative measures that are certainly welcome.  But, some of the suggested changes or comments on clarifications to be made, especially in the Companies (Declaration and Payment of Dividend) Rules, 2014 (the “Dividend Rules“), are yet to see the light of day, currently, whether in draft or final form.
Dividends:    Section 123 of the 2013 Act (earlier — although entirely the same as — Section 205 of the 1956 Act) deals with the declaration of dividends.  Section 123(1) inter alia provides that dividend can only be declared or paid by a company for any financial year out of profits for that year, or out of the profits of any previous financial year(s), arrived at after providing for depreciation.  
Furthermore, no dividend can be declared or paid by a company out of its reserves other than free reserves (emphasis added), but, subject in those cases, to the fulfilment of certain conditions.  In other words, the Further Proviso to Section 123(1) provides that, in cases of losses (or, what the provision calls, ‘absence of profits’) or the inadequacy of profits in any financial year, the company in question may only declare a dividend out of the accumulated profits earned by it in previous year(s) and transferred by it to the reserves, subject to the procedure and conditions laid down in the rules prescribed by the Central Government in this regard (namely, Rule 3 of the Dividend Rules).
Interim Dividends: The concept of ‘interim dividend’, as contrasted with that of a ‘dividend’ dealt with above, is provided for in Section 123(3) of the 2013 Act — the Board of a company may declare an ‘interim dividend’ during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.  
The only restriction statutorily provided on interim dividends (in the Proviso to this Section 123(3)) is a ceiling on the maximum rate of any such interim dividend in case the company in question has incurred a loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of such interim dividend — the ceiling in that case, is a rate no higher than the average dividends declared by the company during the immediately preceding three financial years.
Scope of Application ofthe Dividend Rules; whether applicable toSection 123(3):
Based on a combined and harmonious reading of the provisions of the main statute itself and the Dividend Rules properly constructed, the view, we think, is inescapable that Rule 3 of the Dividend Rules does not apply to the concept of an ‘interim dividend’ as in Section 123(3) of the 2013 Act.
The Dividend Rules, by its very terms, have been promulgated in exercise of powers conferred on the Central Government under Section 123(1) of the 2013 Act — its applicability is, therefore, confined to that Section 123(1) relating to ‘dividends’ and, cannot and, indeed, does not extend in its application to Section 123(3) of the 2013 Act dealing with ‘interim dividends’. 
This position is further borne out by the express provisions of the Further Proviso to Section 123(1) of the 2013 Act that clearly references and provides for the Dividend Rules having effect in the case of declarations of ‘dividends’ (as opposed to, and not as regards, ‘interim dividends’), proposed to be paid out of accumulated profits earned in previous years and transferred to reserves, but where there is inadequacy or absence of such profits in the financial year of such proposed dividend (note, not ‘interim dividend’) declaration.  
Moreover, Rule 3 of the Dividend Rules provides for the procedures and conditions to be followed when dividends are to be paid out of the free reserves (emphasis added), whereas Section 123(3) of the 2013 Act (unlike the Dividend Rules, as delegated legislation, which is subject to the principal statute) deals with the declaration of interim dividend (emphasis added) from out of the surplus in the profit and loss account, as well as the profits of the company for that particular financial year in which such interim dividend is sought to be declared.
Circumstances under whichinterim dividendcan be declared and paid:
Now, unfortunately, Section 123(3) of the 2013 Act is not happily worded as regards the use of the word ‘and’ in the phrase ‘….declare interim dividend during any financial year out of the surplus in the profit and loss account AND out of profits of the financial year in which such interim dividend is sought to be declared’.
The Parliamentary Standing Committee on Finance (2009-10; headed by Mr. Yashwant Sinha), in its 21st Report of August 2010 on the then Companies Bill, 2009 suggested the inclusion of what eventually became Section 123(3) of the 2013 Act — with one important drafting clarification relevant for our current purposes, which, unfortunately, was garbled in the 2013 Act itself as brought into force: the two criteria for the declaration of an interim dividend, namely, (i) from out of the surplus in the profit and loss account, and (ii) from out of profits of the financial year in which such interim dividend is sought to be declared, the Standing Committee suggested should be separate, i.e., by the use of the words ‘as well as’, which is not the same as ‘and’ in these circumstances.
Indeed, the Report of the Companies Law Committee of February 2016 appointed to further review and examine and suggest changes to the 2013 Act notes that the use of this word ‘and’ is at “disharmony with the provisions of sub-section 1(a), which provides for the declaration of dividend out of the profits of the company for that financial year, OR [our emphasis] the profits of the company from any previous financial year(s) (subject to deduction of depreciation and other conditions), OR BOTH THE AMOUNTS [our emphasis].”
The Committee’s recommendation in this regard has been accepted in full — such that the 2016 Amendment Bill to the 2013 Act that is currently pending in Parliament, expressly provides an amendment in Sub-section 3 to Section 123 of the 2013 Act as follows (all emphasis supplied):
“The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till the holding of the annual general meeting out of surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.”
The suggested elimination of the word “AND”, and its substitution by “OR”, is welcome, as is the construct to declare interim dividends out of profits in the ongoing financial year until the quarter preceding the date of declaration of such interim dividend.
The Committee further “…felt that once Rule 3 is aligned with the provisions of the Act, it would be clear that in case a company declares dividend out of surplus i.e. accumulated credit balances of Profit and Loss Account which has not been transferred to reserves, the provisions of the [2013] Act and Rule 3 would not be applicable (our emphasis).  The Committee recommended harmonization of Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014 and Section 123 of the [2013] Act to provide clarity on the issue”.
Clarity continues to be elusive on this aspect; but hopefully we may see a change in the Dividend Rules soon.
In effect, therefore and until the 2013 Act and the related Rules are modified as above, the current Section 123(3) (read with its Proviso) is, in our view, to be interpreted as follows:
1)    In order to be able to declare an interim dividend it is not necessary that BOTH criteria for the declaration of such an interim dividend in Section 123(3) of the 2013 Act be present — in other words, a company can validly declare an ‘interim dividend’ in terms of Section 123(3) if it has a surplus in its profit and loss account; it can also (or in the words of the Parliamentary Standing Committee on Finance, “as well as”) declare validly such an ‘interim dividend’ out of the profits of the financial year in which such interim dividend is sought to be declared.
2)    The only stipulation then on the declaration of such an interim dividend is as regards the rate of such interim dividend — that rate cannot be higher than the average dividends declared during the immediately previous three financial years, if the company has incurred a loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of such interim dividend.  The Proviso is so drafted as to cover the situation when interim dividends are declared during the financial year in question; the only caveat being that that rate of interim dividend cannot exceed a certain stipulated threshold if there are losses up to the previous quarter, thereby implying the ability of a company to declare such interim dividends during any quarter.
This leads to two probable situations: 
Firstly, situations wherein the company has surplus in its profit and loss account and also has profits in the said financial year.  In such cases, the Proviso does not apply and the board of directors can declare any interim dividend.  The only issue that remains to be touched upon here is the quantum of any such dividend — the statute by the use of the words “out of” or “from” profits or free reserves (as the case may be) clearly prevents any excessive dividends of either type that are not matched by the amounts of such profits or free reserves.
Secondly, situations wherein the company has incurred losses during the current financial year up to the end of the quarter immediately preceding the date of declaration of the interim dividend (or even for the full year), but has had a surplus in the profit and loss account during the quarter in question.  In such cases, as per the Proviso, the rate at which dividend is declared cannot be higher than the average dividends declared by the company during the preceding three financial years.  But, that position does not invalidate the interim dividend declaration. 

Siddharth Raja & Neeraj Vyas

National Company Law Tribunal Constituted: A Phased Induction

Although the Companies Act, 2013 was enacted nearly three years ago, significant parts of the legislation were not brought into force. These related to the role of the National Company Law Tribunal (NCLT). Although the NCLT was conferred legislative status as early as 2002 (under the Companies Act, 1956), it did not see the light of day as it was mired in litigation. After two judgments of the Supreme Court in Union of India v. R. Gandhi(2010) and Madras Bar Association v. Union of India (2015) paved the way for its constitution, the Government took steps to establish and implement the tribunal system for company law.
Yesterday, the Ministry of Corporate Affairs (MCA) issued a notificationconstituting the NCLT with effect from the same date (1 June 2016). The NCLT would have eleven benches at various locations around the country, with the principal bench being at New Delhi. Several further provisions of the Companies Act, 2013 that relate to the NCLT have been notified. Accordingly, the Company Law Board (CLB) stands dissolved.
A reading of the notification suggests that not all provisions of the Companies Act, 2013 relating to the NCLT have been notified. The NCLT would expand to its full capacity only over a period of time. Several provisions notified include matters relating to oppression, class actions and other miscellaneous roles and functions assigned to the NCLT under the Act. Most of these powers were hitherto being exercised by the CLB. In other words, this exercise largely undertakes the transition from the CLB to the NCLT.
However, absent in the transition are powers that are currently being exercised by the High Courts, on matters such as amalgamations, capital reductions, winding up, etc. These matters under the Companies Act, 2013 Act have not yet been notified and hence would continue to be within the purview of the High Court. It appears that the Government has sought to undertake a phase induction of the NCLT, and it is likely that the NCLT will begin exercising jurisdictions of these matters only after it becomes fully operational.

In any event, the constitution of the NCLT represents the dawning of a new era from the perspective of corporate law practice and enforcement in the Indian context. It is a space to watch out for in the near future.