Pitfalls Faced by Business While Pursuing Commercial or Regular Lease

As we all know that for any kind of business we necessarily need four things, i.e, land, labour, capital and entrepreneurship. Land comes as the first and foremost important factor of production. Place at times becomes an identity of any kind of entity. It becomes a starting point, where the production process starts or becomes a landmark where people come to seek services.

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Digital Signature – validity in India

By Achyutha Bharadwaj,  Flywork.io Team, Flywork.io.

At this time of lockdowns and restrictions, as traditional ways of executing documents is getting more and more difficult, the significance of digital signature increases. Is digital signature recognized under Indian Law? Can all documents be executed using digital signatures? Read on to find the answers.

Almost every business entity has been digitized, people are shopping online more often than in malls, this creates a question in the mind whether signing of cheques and other official documents can be done online as well. The answer is yes. With so many start-ups coming up, the technological and commerce industry is growing rapidly and this raises the need to make it convenient for individuals, companies, etc. to fulfill and execute contracts with just the use of their fingertips. This has been made possible by the Information Technology Act, 2000 (“IT Act”) along with a couple of other legislations, in the form of digital or electronic signatures (e-signatures). A digital signature is simply an alternative way for a user/subscriber to authenticate any electronic record, through either an e-signature or any other authentic electronic technique. 

Digital signatures, which are viewed as a subset of electronic signatures, are liked for certain business/organisational exchanges, for example, e-documenting with the Ministry of Corporate Affairs, and merchandise and administration charge filings. The Second Schedule of the IT Act has incorporated a method for electronic authentication through the electronic signatures and it also helps determine Aadhar e-KYC (Know your Customer) authentications as an electronic authentication method and strategy. A lot of banks and financial institutions are using online methods for verification of the customer – e-signatures become very necessary in order to authenticate the entire transaction and the process itself, as it is extremely necessary to affirm  the personality of an individual or check the accuracy of the data. 

The IT Act permits the utilization of an electronic or digital signature for 

  • recording any structure, application or archive with any administration authority; 
  • issue of any permit, license or endorsement by the public authority; and
  • receipt or instalment of cash in a specific way, in electronic structure. 

Following conditions should be met for  an electronic signature to be considered reliable:

  • It must be unique to signatory;
  • While putting the signature, the signatory must have control over the data used to generate the electronic signature;
  • Alteration to the affixed electronic signature, or to the document to which the signature is affixed, should be detectable;
  • An audit trail of steps taken during the signing process should be available
  • The signer certificates must be issued by a certifying authority (CA) recognized by the Controller of Certifying Authorities appointed under the IT Act (Second Schedule).

 
The public authority may make rules endorsing the way where electronic records and electronic signatures are acknowledged for these reasons. For example, Rule 7 of the Companies (Registration Offices and Fees) Rules, 2014 indicates that each application, fiscal summary, outline, return, affirmation, reminder, articles, specifics of charges, or some other points of interest or report or any notification, will be documented in PC coherent electronic structure in pdf. Further, Rule 8 specifies that an e-structure should be verified utilizing Digital Signature; and the Central Board of Direct Taxes have told strategy for documenting e-TDS/e-TCS and different structures utilizing digital signatures.
 
Although digital signatures are widely accepted in India through governing laws, the following documents must be signed with a traditional signature, physically:

  • A power-of-attorney.
  • A trust.
  • A negotiable instrument (other than a cheque) 
  • Any contract for sale or conveyance of immovable property or any interest in such property.
  • A will.

Thus, it is clear that although e-signatures can be extremely helpful to quicken the process of verification, it cannot be used in all places as it can be seen above. This is, of course, due to identity thefts, forging documents, or notarization which can only be completed by an enrolled public accountant under their signature and seal. Therefore, legislations must make ways for smooth verification through digital signatures in all forms of transactions/business by ensuring that there is complete authenticity in the same. 

Let the qualified curated professionals at Flywork.io assist you to resolve any legal and allied issues. For more details visit us at Flywork.io.

Can one import oxygen for later or immediate use?

By: Adil Zawahir, Flywork.io Team, Flywork.io.

With the onset of the unprecedented second wave of Covid- 19 pandemic and scarcity of oxygen in the country, the question of oxygen import gains importance. Read on, as the  Flywork.io team answers this very important question for you.

As India faces a crisis against the rising number of COVID-19 cases, there has been an acute shortage of availability of medical Oxygen. One may wish to procure Oxygen for their friends and family in dire need in the light of the same. What does the law say with regards to buying and storing medical Oxygen in these testing times?

On 24 April 2021, the Government waived the Customs Duty and Health Cess for a period of three months. This applies to the import of medical oxygen and various other oxygen related equipment. And to fast-track the passage of such imports related to medical Oxygen, the Central Board of Indirect Taxes and Customs (CBIC) has also asked importers to submit a single-page online form describing the intended use of the import in case there are difficulties faced in getting an immediate customs clearance. The CBIC also tweeted the same on their Twitter handle. The tweet reads, “Attention Importers! In case of any difficulty faced regarding imports of Covid19 related equipment or medicaments, please provide details on the link for expediting customs clearances.”

Thus, there are no restrictions on the import of medical Oxygen into the country. However, there are other legal hurdles involved.

As per a Supreme Court decision, Medical Oxygen falls within the ambit of Section 3(b)(i) of the Drugs and Cosmetics Act, 1940. And as per the National List of Essential Medicines 2011, Oxygen is included under “anaesthesia”. This means that the Drug Controller General of India is responsible for the approval of licenses of specified categories of drugs, including manufacturing of Medical Oxygen as per Drugs and Cosmetic Act, 1940 and the Gas Cylinder Rules, 2016 under which filling, ownership, transport, and import of such gases is regulated.
Rule 29 of the Gas Cylinder Rules, 2016 prescribes that in the event of a gas cylinder filled with compressed gas being imported, it shall be done so only in accordance with the conditions of a license granted under the Rules as well as other provisions of the Foreign Trade (Development and Regulation) Act, 1992. Similarly, Rule 31 also states that “Every person desiring to import cylinders filled with any compressed gas or intended to be so filled shall produce personally or through his agent, before the Commissioner of Customs his licence for the import of such gas cylinders.”

Hence, we can see that a license is mandatory for the import of medical Oxygen.

Lastly, the Central Government is well within its powers to place restrictions to prevent hoarding of drugs such as medical Oxygen in times of emergency and in public interest. This has clearly been stated under Section 26B of the Drugs and Cosmetics Act. Such a restriction has not been placed as yet, but may well be set in the near future. If one plans to store medical Oxygen, they may find legal relief under the proviso to Section 10 of the Drugs and Cosmetics Act, which states that the prohibition on import of drugs shall not apply to imports in small quantities for personal use. This however is subject to a prescription by a registered medical practitioner and one must also make an application using Form MD-20 confirming that it is for bona fide personal use.

During these testing times, storing a valuable resource such as medical Oxygen could be detrimental to others who may be in immediate need of it. 

Let the qualified curated professionals at Flywork.io assist you to resolve any legal and allied issues. For more details visit us at Flywork.io.

Fast track insolvency procedure

By Achyutha Bharadwaj,  Flywork.io Team, Flywork.io.

Closure of a business in an efficient, timebound manner and with less burden on the owners is the aim of the Fast Track Insolvency Process under the Insolvency and Bankruptcy Code. Read on to know more and for any issues related to the closure of your business, connect with Flywork.io.

Introduction:

When a company/business debtor (Corporate Debtor) is unable to continue daily operations in a business, he/she files for insolvency, which further results in formation of plans to repay the creditors, employees, workmen, etc. The maximum number of days needed to complete the resolution procedure under the Insolvency and Bankruptcy Code, 2016 is 270 days. This is not very practical for business/companies which have a smaller line of business, as the creditors involved in a small-business enterprise is low compared to that of a bigger company. Faster settlement would lure buyers to small businesses and start-ups, the majority of which do not last long. Thus, in order to eliminate the unnecessary delay induced by a small-scale company's insolvency the Government introduced a quicker option to complete the Corporate Insolvency Resolution Process (CIRP), i.e., Fast-track Insolvency Procedure under the Sections 55-58 of the IBC, 2016 read with the Insolvency and Bankruptcy Board of India (Fast track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.

Sections 55 to 58 of the Code of 2016 were added to resolve the issue of undue delay in insolvency proceedings involving small businesses; the fast-track insolvency procedure takes 90 days to complete from the insolvency filing date. The time period for settlement can be extended only once by the Adjudicating Authority upto a period of 45 days, if it thinks fit, subject to support by voting share of at least 75% of the Committee of Creditors.

 

Process:

The following is the procedure to be followed under the Insolvency and Bankruptcy Code, read with the Insolvency and Bankruptcy Board of India (Fast track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 –

 

 

Sl. No.

Step

Explanation

  1.  

Appointment of Resolution Professional 

Only an Insolvency Professional (IP) who has no relationship with the corporate debtor is qualified to be appointed as a resolution professional. In order to be appointed as a resolution professional, the insolvency professional must be self-sufficient/independent. At the time of his nomination, the insolvency professional must declare his independence at the time of appointment.

 

  1.  

Public Announcement 

After being named as an interim resolution professional, the insolvency professional must make a public statement within three days of his appointment. The public notice must be distributed in one English and one regional language newspaper that is commonly distributed in the location of the corporate debtor’s registered office and principal office. A corporate debtor’s website and the board’s website would both have the same official announcement.

 

  1.  

Claims – Submission, Verification and Proof of claims 

 

The interim resolution professional shall provide 10 days to provide proof of claim. Operational creditors, financial creditors, workmen, employees, and other creditors must provide evidence of their statements in the specified forms, along with any additional documentation or clarifications.
When applications are submitted, the resolution professional must validate them within seven days of the claim submission deadline. After that, the resolution professional will create a list of creditors.

 

  1.  

Formation of a committee of Creditors 

The resolution professional would assemble a group of creditors made up of the corporate debtor’s financial and operational creditors, which shall be known as the Committee of Creditors (CoC). The CoC will constitute only operational creditors if the corporate debtor has no financial debt or if the financial creditors are an associated party (related party) of the corporate debtor.

 

  1.  

Meeting of the committee of creditors 

Within seven days of filing the paper, the resolution professional must call the first meeting of the newly formed committee of creditors. Following that, the committee will meet at any time if and when it is required. After receiving a vote of 33 percent voting share, the resolution professional will call a meeting of the committee at the request of committee members. The meeting notice must be sent at least seven days before the scheduled meeting date. The meeting notice must be in writing and sent to members either by hand, by speed post, or online.

 

  1.  

Conduct of the fast-track process 

Under Section 26-29 of the Regulations, the Resolution Professional, within seven days of his appointment, must select a registered valuer to determine the liquidation value of the corporate debtor. After personally checking the inventory and fixed assets of corporate debtors, the registered valuer shall apply an indicative liquidation value.

 

  1.  

Formation, approval and submission of the Resolution Plan 

The resolution plan must include the steps that must be taken to put it into action. The resolution plan must be written with the requisite mandatory material in mind. 

Under the time frame, the resolution applicant must apply the drafted resolution plan to the resolution professional. The resolution professional would then present the shortlisted resolution plans to the Committee of Creditors, for approval. The committee has the authority to approve any resolution proposal, with or without changes, as it sees fit.

The resolution applicant must apply the authorized resolution plan, along with all appropriate certifications, to the adjudicating authority. On receipt of the resolution plan, the adjudicating authority must issue an order approving or refusing the resolution plan.

 

 

 

 

 

Conclusion:

However, the fast-track process does have a few setbacks, for example, failure to complete the Fast-track procedure within 90 days (or with an extension of 45 days, depending on the approval of the Adjudicating Authority) will lead to initiation of liquidation process, which is disadvantageous to the corporate debtor, i.e., it destroys organizational capital and renders resources idle till reallocation to alternate uses. Another challenge regarding the procedure is whether 90 days is sufficient for the entire CIRP to be completed as the efficiency of the same depends on the resolution plans, approval by the CoC, etc. 

The Fast-Track Corporate Insolvency Resolution Process is a great initiative to target a particular segment of corporate debtors against which creditors or the corporate debtor himself may begin insolvency proceedings. The time limit is often set in such a way that less complex cases can be solved in a short amount of time, allowing adjudicating officials to devote more time to more complex cases.

Let the qualified curated professionals at Flywork.io assist you to resolve any legal and allied issues. For more details visit us at Flywork.io.

 

References:

  1. Sections 55 to 58 of the Insolvency and Bankruptcy Code, 2016 and 
  2. Insolvency and Bankruptcy Board of India (Fast track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.

IBC Amendment and IBBI Regulations on Pre-Packaged Insolvency Resolution Process come as boon to MSMEs.

By: Adil Zawahir, Team Flywork.io, Flywork.io.

The pandemic and the restrictions have unequivocally created challenges in starting a business, running a business moreover in closing a business. Here is an overview on the new scheme introduced by the government to easy closure of MSMEs. Need any assistance in the closure of your business, then contact us at  Flywork.io.

The Central Government, on April 4 2021, by way of an Ordinance titled ‘Insolvency and Bankruptcy Code (Amendment) Ordinance 2021’, amended the Insolvency and Bankruptcy Code 2016 (IBC) to introduce the concept of Pre-Packaged Insolvency Process (PPIP). The Ordinance inserts a new chapter (III-A) to the IBC and provides for making an application for initiating PPIP with regards to a micro, small or medium enterprise (MSME) in light of the impact that the pandemic has had on businesses, financial markets and economies all over the world. The Ordinance is a welcome step towards the resolution of insolvent MSMEs. The objective of the Ordinance states that the PPIP for MSMEs has been introduced to provide them with an efficient alternative insolvency resolution process that will achieve value maximization in a quicker and cost-effective manner while causing the least disruption to the business.

Due to the simpler corporate structure of the MSMEs, Corporate Insolvency Resolution Process (CIRP) for reorganization is considered a tedious task which when dragged out leads to disruption in business. To overcome this problem, the PPIP mechanism has been introduced which will function as a hybrid framework blending both formal and informal processes within the basic mechanism of the IBC.

On 9th April 2021, the Insolvency and Bankruptcy Board of India notified the PPIP regulations for MSMEs. The regulations detail the forms that stakeholders are required to use, and the manner of carrying out various tasks as part of the pre-pack resolution process. It also provides details about various aspects, including eligibility criteria to act as a resolution professional, identification and selection of authorised representative, competition between the base resolution plan and the best resolution plan. 

The process can be initiated by the corporate debtor (CD) who will have to serve notices of a meeting to all unrelated financial creditors five days in advance, in order to seek their approval. The regulations prescribe at least 66% approval from the creditors. The Creditors will then have seven days to raise their objections to the notice of claims submitted to the resolution professional by the CD.

The resolution professional must necessarily be independent of the CD. This means the resolution professional and all partners and directors of the insolvency professional entity, of which they are a partner or director, have to be independent of the corporate debtor. If the concerned insolvency professional entity or any of its partners or directors represent any of the stakeholders, the person will be ineligible for being appointed as a resolution professional.

Another highlight of the PPIP is that it enables the management of affairs of the corporate debtor to continue to be in the hands of the Board of Directors or partners of the CD. This is in stark contrast to the CIRP, where the resolution professional is handed the reigns along with the assistance of the financial creditors. Creditors still have the option to initiate bankruptcy proceedings against the MSMEs under the CIRP.

After approval from the unrelated creditors, the CD will proceed with filing an application before the National Company Law Tribunal (NCLT) to initiate the PPIP, after taking a mandate from the directors and shareholders. The plans must be submitted within 90 days and the NCLT must approve of such plans within 30 days. The whole process will be completed within 120 days as opposed to the 270 day time period prescribed for the CIRP. Once the application is admitted by NCLT, the CD will itself first provide a Base Resolution Plan and if such plan is unsatisfactory, the resolution professional will publish an invitation for resolution plans within 21 days of the commencement of formal proceedings.

The Pre-Packaged Insolvency Resolution Process makes the debtor the only person capable of triggering the bankruptcy process. This scheme will yield faster resolution than the CIRP and will also reduce litigation, triggered by defaulting promoters, while simultaneously cutting costs. The process is also expected to run smoother due to the requirement of 66% approval from unrelated creditors. If the NCLT infrastructure is improved by the government, this ordinance is a welcome step in the corporate world as it will genuinely lift the weight off the shoulders of MSMEs.

Let the curated and highly skilled professionals at Flywork.io assist you to solve all your legal issues. To know more visit Flywork.io.