Guarantor’s liability under the Insolvency and Bankruptcy Code- What Supreme Court has held?

Introduction

On 21st May, 2021, the Hon’ble Supreme court held in a case of Lalit Kumar Jain V. Union Of India, that the existence or conclusion of corporate insolvency resolution process (CIRP) against a principal borrower will not function as a bar to initiation of insolvency process of personal or corporate guarantors to corporate debtors. In other words, credits have full right to trigger insolvency resolution process against the personal or corporate gurators even when the principal borrower is undergoing CIRP simultaneously. There are other significant issues which need to be kept in mind while examining this issue. In this blog, we will analyze the judgment delivered by the Supreme Court of India.

Contract of Guarantee and its relevance under IBC

According to section 126 of Indian Contract Act, 1872, a contract of guarantee refers to a contract, wherein a natural or an artificial person guarantees or ensures to perform the promise or to discharge the liability of a third party (known as principal borrower) in case of his default, to another person known as creditor. It is to be noted that in case of default by the principal borrower, the liability of the guarantor is co-extensive and not alternative with that of a principal borrower. It means that the creditor can directly sue the guarantor instead of the principal borrower first for the amount due under the contract. Furthermore, the guarantor, after making the payment due to the creditor, is invested with all such rights that the creditor had against the principal borrower i.e. the guarantor can recover the said amount from the principal borrower, also known as the doctrine of subrogation.

It is worth mentioning that if the principal borrower (a corporate entity) defaults on debt of the creditor, then the creditor can also initiate CIRP against the borrower in addition to the guarantor. It gives the right to the creditor to initiate insolvency proceedings against the guarantor. 

The Central Government, through the notification dated 15th November, 2019, (“Impugned Notification”) inter alia made certain provisions of Part III of IBC (pertaining to insolvency resolution of individuals and partnership firms) applicable only to personal guarantors to corporate debtors. This notification, effective from 1st December, 2019, gave the creditors the right to initiate insolvency resolution of personal guarantors to corporate debtors. Since this exposed a lot of guarantors, majorly promoters, to extensive liabilities, they challenged the constitutional validity of the Impugned Notification, which was finally decided by the Supreme Court on 21st May, 2021.

Analysis of the Judgment

Section 1 (3) of IBC-

One of the contentions that petitioners put was pertaining to the excessive use of the power by the executive vide section 1 (3) of IBC, as according to them this section is an instance of conditional legislation which only grants the power to the executive to designate the time when the law would come into force and not the subject to which it would apply.

In this the Apex court has relied on the judgement of SBI V. Ramkrishnan stated that there is a stage to stage process of operationalizing different provisions of IBC.

Liability and Rights of Guarantor

The Petitioners argued that once the resolution plan of the corporate debtor/ principal borrower is approved it is binding on all stakeholders to proceed insolvency proceedings against the guarantors. They also contend that post approval of the resolution plan claims of personal guarantor against the borrower gets extinguished and he/she has no means to recover that debt. 

However the supreme court has held that discharging the principal borrower from the debts of the creditor does not mean that it also discharges the guarantors liability. 

Moratorium under section 101

Insolvency proceedings can be initiated against the personal guarantors as per section 34 and 35 of IBC. The petitioners contended that this application triggers an interim moratorium and moratorium against the guarantor, which has the effect of staying the CIRP against the corporate debtor. 

The apex court has stated  that the moratorium provisions under Sections 96 and 101 are only in relation to those debts, for which the guarantor has given his/her guarantee, and not against the guarantor. 

NCLT as the adjudication authority for personal guarantors

The petitioners also argued that making NCLT as the adjudicating authority for insolvency resolution of personal guarantors, as opposed to other individuals, is an exercise of legislative power which is not supported by any provision of law. In reply, the Respondent stated that Section 2(e) of the IBC was amended in 2018 to reflect that IBC applies to a separate entity i.e. personal guarantors to corporate debtors, as opposed to just individuals. Furthermore, the Respondent also focussed on purposive interpretation of IBC, saying that if guarantors, which are mostly the promoters/directors of the corporate debtor, are kept out of the CIRP, then it would lead to an unjustifiable conclusion of CIRP, and the guarantors would have to be proceeded against separately and therefore, a single adjudicating authority i.e. NCLT has been accorded for both the entities.

Here, the Apex Court agreed with the contentions of the Respondent and held that the 2018 amendment to the provisions of IBC were meant to carve out a separate exception for a certain class of individuals i.e. personal guarantors to corporate debtors. This is the reason why Section 60 of IBC was amended to make NCLT as the single adjudicating authority for coordinating the insolvency resolution processes of corporate debtors and personal/corporate guarantors to such debtors.

Conclusion

The apex court in its decision on one hand clarified the route for insolvency regime of personal guarantors to corporate debtors, but on the other hand has also exposed personal gurators to huge liabilities. 

Filing of Design Applications in India

Design registration is done of a appearance of a product which could be shape, configuration, pattern, ornamentor composition of lines or colours applied to any article whether in two dimensional or three dimensional or in both forms, by any individual process or means, whether manual, mechanical, or chemical, separate or combined. Whether a finished article or a could be judged through eyes, but does not include any mode or principle of construction or anything which is in substance a mere mechanical device.

The requirement for an article to be registered are as follows-

Following are the requirements which an applicant requires to fulfill before an application for registration of a Design-

  1. A Design should be Novel and original.
  2. It should not be available in the public domain prior to its application for Design registration.
  3. The article must be capable of being manufactured and sold separately.
  4. The article should not involve any mode or principle of construction which is a mere mechanical process i.e. the shape in which all the features are designed are dictated solely by the function it performs.
  5. The article for Design registration must be distinctive and can be judged solely by the eye.
  6. The article of Design which is applied should be used for a commercial purpose to increase its market value.
  7. It should not be against morality or against the public order of the country.
  8. It should not contain any property mark, Trademark or any artistic work in it.
  9. Any design which is not merely a mechanical contrivance and meets the criteria for registration apart from its functionality may qualify for Design registration.
  10. Any modification in the already registered Design registration would not be granted registration. For a design registration the modifications should be substantial and not minimal.

Once the requirements for Design registration are met, the next step is to proceed with the formalities of application for Design registration with the controller of Design, Kolkata. Section 5 of the Design registration Act, 2000 prescribes the procedure for obtaining a Design registration. The application for Design registration must contain the following-

a) Application duly filled in on Form 1 along with the prescribed fees, stating name & full address, nationality of the applicant. If the Applicant is not a natural person the legal status and the place of incorporation.

b) Name of the article to which the design is to be applied.

c) Class & Sub Class of the article embodying the design is applied under the Locarno Classification.

d) Representations illustrating the views of the article wherein the originality lies. The representations can be in the form of photographs or drawing figures showing the perspective, front, rear, top, bottom and side views of the article (2 copies of each view) If the design is to be registered in more than one class, a separate application shall be filed for each class.

e) A statement of novelty and disclaimer (if any) in respect of mechanical action, trademark, word, letter, numerals should be endorsed on each representation sheet and should be duly signed and dated.

f) When colour combination is the essence of a design as applied to an article, the same shall be clearly depicted in the representation.

After examination of the application by the Design Office at Kolkata, objections, if any, are raised thereto. On removal of the objections, the certificate granting copyright in registered design is issued by the Design Office. The duration of the registration of a design is initially ten years from the date of registration but in uses where claim to priority has been allowed, the duration is ten years from the priority date. This initial period of registration may be extended by a further period of 5 years on an application made in Form-3 accompanied by a fee of Rs. 2,000/- to the Controller before the expiry of the said initial period of Copyright.

The statutory fees for applying Design registration in India is- 

  1. Rs. 1000- For Natural Person
  2. Rs. 2000-  For Small entities.
  3. Rs. 4000- For other than Natural person or institutions or business entities.

Once payment and other formalities are done, the application would undergo examination. The examiner will determine whether the application is under prescribed format or not, attached documents including representation sheets are correct or not. If there is any discrepancy in the article then the examiner would raise an examination report to the applicant. The applicant usually has 6 months from the date of filing of the application.

If the examiner is satisfied with the response then the examiner will accept the application and will publish it and issue a certificate to the applicant. If the examiner is not satisfied with the response then the application will be for the hearing. 

Applicants whose Design is registered can mention Registered, RD on their Design mark.

Registration of design not only prevents your design from infringement but also increases the market value of an article. It’s a valuable protection to seek especially in product based industries thriving on new Designs such as Toy companies, Mobile phone manufacturers, Jewellery Designers, Cars manufacturers and so on, as these industries are ever evolving.

Hire the experts from BIAT Legal LLP today to get your Design registration.

Copyright in Fictional Characters- Idea or Expression?

Fictional characters like Ironman, Batsman, Mickey Mouse, James Bond, Harry potter are not just characters but are cultural heuristics. All of us in day to day life connect ourselves with these characters on a personal level, and also sometimes get inspired by these characters. These characters are irreplaceable to such an extent that the work loses its plot and all that remains is the mere “idea”. A classic example of this is Captain America from Marvel studios and Salma Khan in Dabbang.

Fictional characters or the work of fiction have the ability to connect themselves to the lives of the reader in a manner that engages them both emotionally and mentally. Suzzane Keen said that “even though readers know perfectly well that fictional characters are make-believe, they go on caring about them, lending them the bodies that they do not possess, feeling with them in an emotional fusion that paradoxically calls into embodiment a psychic corporeality vouched for in readers’ own bodily responses.” 

Now the question arises why there are restrictions in providing copyright protection to these fictional characters. The reason behind this is as per conventional idea of copyright which basically confers such exclusive right only when a literary work is not a mere idea but is reduced in a manner that it can be called an “expression of idea”, fictional characters are merely the ideas in the mind of the author.

Copyright registration protects the original and creative works of the author and not the mere idea, expression, methods of operation or mathematical concepts. The law is stringent upon the principle which protects only the expression of the ideas so formulated but not the general idea that belongs to the public domain which forms only an element of work or some concepts which underlies such work. 

The infamous case revolving around the protection to Batmobile which although wasn’t a personality intrinsically but a high-tech automobile of the character Batman developed by DC Comics, led to the pronouncement of three tests for the aim of determining whether a personality is copyrightable or not. The tests were as follows:

the character must possess both physical and conceptual traits;

  • the character “must be “sufficiently delineated” to be recognizable because an equivalent character whenever it appears” – to the extent appearance of the character changes, the attributes must be consistent and identifiable; and
  • the character must be “especially distinctive” and “contain some unique elements of expression.”

The position in India with reference to the copyright-ability of a fictitious character is not any different and therefore the Indian Courts have demonstrated an identical stance. The infamous daily soap, as we all know, called “Kyun Ki Saas Bhi Kabhi Bahu Thi” was denied relief when another daily soap “Kyun Ki Saas Bhi Kabhi Bahu Banegi” portrayed a uniform character, on rock bottom that the character wasn’t merchandised enough to understand public recognition and went on to observe that “the characters to be merchandised must have gained some public recognition, that is, achieved a kind of an independent life and public recognition for itself independently of the primary product or independently of the milieu/area during which it appears.”

I, for one, don’t accept as true with this judgment of the court primarily because the show was iconic and thus the characters like Mihir and Tulsi were popular enough to be recognized independently. However, the Court recognized that the character of Salman Khan, i.e., Chulbul Pandey in Dabangg was entitled to protection and went on to observe that “But on the overall principle that the character is exclusive and thus the portrayal of that character, as also the “writing up” of that character in an underlying literary work is capable of protection are some things that i feel I can safely accept. it might be, I think, stretching it too far to say that such a completely developed and uniquely depicted character because it’s ‘merely a character’, falls wholly outside the realm of all protection.”

Similarly, within the case of Raja Pocket Books v. Radha Pocket Books, the Court recognized that fictional characters were actually copyrightable. During this case, the character in question was that of “Nagraj”, which was copied by Defendant and represented in his comic books as “Nagesh”, was provided relief on the bottom that the 2 characters were deceptively similar. The Court by taking into consideration the principles of comparison adopted in R.G. Anand, went on to observe that “Nagraj and Nagesh having the same meaning, namely, Kingsnakes; Colour of comics is additionally green, gauntlets are ripped in both cases, functionally, both are capable of doing same and similar work, namely, scaling the walls and thus the roofs alike, hurling snakes, causing the objects to melt and thus the snakes capable of returning back and merging within the body of the character. For the aim of climbing, both use the same material, namely, rope within the type of a snake.”

Conclusion

In the words of Tyrion Lannister, Game of Thrones, “there’s nothing more powerful than an honest story.” Copyright protection of fictitious characters must be acknowledged as an exercise so as to balance the interests of the general public also as if the authors and authors are, therefore, advised to form their characters distinctive.

Having said that, it should be better to possess one, uniform standard of copyright, instead of using graphic characters as compared with authors who choose representation during a literary form, as a rather easier path through the waves of copyright legislation, as they’re all fictional characters at the highest of the day and can therefore be placed under one screen to guard them in legal order. This type of inequity should be remedied by the courts because it makes it unnecessarily difficult to follow the road to owning one’s own work.

The Cinematograph (Amendment Bill), 2021; the debate of rights Vs Piracy

The Ministry of Information and Broadcasting recently introduced an amendment in the Cinematograph (Amendment) bill, 2021. The amendment was introduced to tackle the menace of film piracy. This bill was introduced after the Cinematograph (Amendment) Act, 2019 which faced many backlash from the industry experts. The controversy arises in the amendment of the bill in the year 2019 because there was a provision in it that provides revisionary powers to the Central government. Which says that even if the film is passed by the CBFC (Censor Board) even then the government can redirect the chairman of CBFC to reexamine it. Further there were several other provisions which were not compatible with the existing anti piracy provisions under the Copyright Act, 1957. In this blog we will discuss the incongruency that exists between the laws and highlight the provisions which could undermine the fundamental rights.

Why was the Amendment Proposed?

In the past The Central Board of Film Certification has come down very harshly in the release of the fim like “Haider”(2014), Udta Punjab (2016), Lipstick under my Burkha (2017) etc. these films tries to address sexuality, feminism, revolution etc. which CBFC considered too bold to be released in public and therefore the film was released after heavy cuts in the film. The question arises here that what is the need for amendment if the menace is decade long? Now the answer to this question lies in the recent controversy which arises after the release of Amazon Prime’s web series “Tandav” which was met with severe public outrage. The series was targeted and blamed for “misrepresenting” Hindu gods and hurting the religious sentiments which further led to a plethora of FIRs being filed. The present amended bill could be seen as a direct result of this controversy.

The proposed Amendment: Analysing the Effects

In the previous amendment of 2019, section 7 (4) of the act was overriding the Copyright Act. The section penalized recording a film or sound recording being played or displayed, without the permission of the copyright owner, in the ‘exhibition facility’. The same provision seems to have been replaced by Section 6AA, which even though has different wordings, the effect more or less remains the same. It states:

“6AA. Notwithstanding any law for the time being in force, no person shall, without the written authorization of the author, be permitted to use any audio/visual recording device in a place to knowingly make or transmit or attempt to make or transmit or abet the making or transmission of a copy of a film or a part thereof

Explanation.- For the purposes of this subsection, the expression “author” shall have the same meaning as assigned to it in clause (d) of section 2 of the Copyright Act, 1957.”

The amendment made compulsory to take authorization from the copyright owner mandatory posing another set of significant challenges. The Copyright Act empowers the producer of the film to be the author of copyright. However he may further delegate or assign his rights that would assign the rights to the third party. In such a case whoever wants to record the film has to take permission from the said author or with the stakeholders failing which could land him in legal trouble.

Issues with Amendment Act; Rational Nexus and Punishments

Section 7 (1A) of the act lays down the punishment and penalties in contravention of section 6AA which ranges from 3 months to 3 years of imprisonment and fine of Rs. 3 lakh rupees which may extend to 5% of the audited gross production cost of the film.the provision was not preventing first time offenders from being subjected to the same punishment as repeated offenders. Punishing first time offenders with the same punishment and penalty with the repeated offenders is ethically and morally wrong. Section 63 of the copyright Act talks about the crime of Piracy. The punishment under section 63 is imprisonment ranging from 6 months to 3 years and fine upto Rs. 50,000/- to 2 Lakhs. However, the amendment added severity to the punishments which were against the interstate of public.

Conclusion

The issues with the amended bill were endless, and the punishment was even extended with the severity of the amendment introduced. In its present state, the bill could incorporate amendments that shall add to the distress of people. Thus, the need of the hour is to not rely solely on stringent ways of dealing with the issue of piracy but rather developing and implementing systematically reformed provisions. The change needs to be brought in order to ensure that the menace of film piracy is dealt with without encroaching on the borders of freedoms enshrined by the constitution

Five Tips to Keep in Mind while registering Trademarks in India

When Shakespeare said “What’s in the name” he was not talking about the present day scenario. Today, a name can cost you a fortune, and the easiest way to protect your name is by Trademark registration

Trademark is one kind of intellectual property in choosing the name and getting it registered. This can be a word, symbol, logo, slogan, symbol or any kind of label. The Trademark registration of a brand name is an absolute intangible asset that will help your business to prosper and grow. 

Trademarks are registered under the Controller General of Patents, Designs and Trademarks under the Trademarks Act, 1999 and provide an exclusive right to the owner of the trademark to sue for damages when any form of infringement of trademark occurs. 

The term for a Trademark is for 10 years after that renewal of the same needs to be done by filing a form along with the prescribed fees. Once the Trademark application is filed the Applicant can use the ™ symbol over its mark, and once it gets registered the applicant can use the ® symbol over its mark.

Tips to Keep in mind while Registering for a Trademark

There are few things which need to be kept in mind while registering for a Trademark. To ease the process it is always recommended to hire a professional for registering your Trademark.

Followings are the tips which should kept in mind-

  1. Choose your trademark Wisely- Before registration of your Trademark, the applicant ust makes sure that the name which he is using is distinctive in nature and is able to distinguish your business.  The name should not be duplicated or copied from anywhere, even a near resemblance to any existing brand in your work field is a hurdle for your application. 
  2. Whether Logo should be a coloured logo or Black and White- This is a very common question which people asks that whether the applied logo should be a coloured logo or should be black and white, so here is the answer that you can register your logo in any colour whether in black and white or the coloured one. However, there should be specific colours which are to be applied for its registration and the same coloured logo is to be used for its application, but you can use any coloured logo while trading if the applied logo is in balck and white colour. Typically, startups and businesses with rapidly changing trends adopt this approach. It helps them to be cost effective. Before choosing you must consult a professional to help in this matter.
  3. Class and Description to support long term goals- The first step while choosing the name is to pick the appropriate class for Trademark. The Trademark registry has 45 classes for goods and services. Based on your business activity you must choose the appropriate class for your goods and services. If you find more than one related class then you can apply under multiple classes for registration. Thisalso applies for the description provided in the application. Each class applies to the specific description of goods and services. You must choose the class before the Trademark application, because after filing you cannot amend the Trademark classes. 
  4. Trademark Search- The applied Trademark whether a word mark or a device mark must be available. To check its availability one must do a Trademark search before applying for the Trademark registration. It is best to have professional opinion through an extensive search report. Professionals compare the application with thousands of applications under the same class and trade description. The search covers a database of all applications before ™ registry across India. If you are applying for multiple classes then one must check availability of the name in every class. If you have not done a public search before filing the mark then you can find difficulties to clear the application. Any resemblance from other marks would increase the chances of objection to come from Trademark registry or from third parties or its owners.
  5. Claiming User Date is important- if you are applying for Trademark registration but you are using your mark from prior date then it is necessary to claim the user date by filing an user affidavit along with the Trademark application. Trademark registration in India follows the rule of prior to use and not first to claim. To claim the user date you must support documents like invoices, newspaper ads, documents supporting online presence or other registration certificates.

Conclusion

Trademark registration is the vital step for every business. So it is necessary to access the application from all aspects. You cannot change the application after filing, especially for the aspects discussed above. Therefore, you must have an expert’s hand to file your Trademark registration application to assist and advise you on many levels of the application. 

The team of BIAT Legal LLP gives you such support. The experts ensure the best quality and hassle free services all time at affordable charges.