INSOL International. Collection of Practical Issues Important to Small Practitioners - India. July Small Practice Issues Technical Series

Transcription

1 INSOL International Collection of Practical Issues Important to Small Practitioners - India July 2015 Small Practice Issues Technical Series

2 Collection of Practical Issues Important to Small Practitioners - India Contents i Acknowledgement ii Introduction 1 1. How to find information about IPs in India? How are practitioners in your country organised? What are the associations to contact & what do these associations do? Where do you go to get the information either when you are looking for someone, or looking for 1 a solution? 1.4 Are there lists of (qualified / certified) IPs available? How can these lists be accessed? 1 2. Cross-border issues important to small practitioners Information about available insolvency laws that apply to cross-border cases How to enforce claims abroad / how to do it / whom to get advice from? What are the key criteria to consider when tracing and recovering assets in a 2 foreign jurisdiction? 2.4 What rights and / or powers does a foreign insolvency officer have to act directly in a third 2 country? 2.5 Are there State aid supported proceedings available in your country that foreign IPs can use? 2 3. Marketing of small practices What are the marketing strategies that are used by the practitioners? How do IPs raise and manage the cost of marketing? What are the effective marketing tools? 3 4. Financing options for small businesses Are there viable financial options for smaller businesses from conventional financing sources? 3 5. How do practitioners get remunerated What are the available models to determine fees percentage based or time based? 3 6. Litigation and funding litigation Funding causes of actions - Who are the best funders? Are there alternatives to litigation, for example arbitration or mediation? 3 7. Licensing and regulation of IPs How are IPs regulated? Who can become an IP or which professionals regularly work as IPs? What kind of work is carried out by IPs in your country? Who appoints an IP? Is an IP who gets a court appointment as an administrator allowed to do advisory work as well? 4 8. Compliance issues Tax requirements relevant to small practices Money laundering and financial crimes The right to access information Corporate governance Regulatory authorities Disciplinary matters and the complaints systems in operation 5 9. Best practices 5 INSOL International 6-7 Queen Street, London, EC4N 1SP Tel: +44 (0) Fax: +44 (0) Copyright No part of this document may be reproduced or transmitted in any form or by any means without the prior permission of INSOL International. The publishers and authors accept no responsibility for any loss occasioned to any person acting or refraining from acting as a result of any view expressed herein. i

3 Acknowledgement INSOL International is pleased to present a country study on India under its Small Practice Technical Papers Series focusing on A Collection of Practical Issues Important to Small Practitioners. The paper was written by Dr. K.S.Ravichandran, KSR & Co Company Secretaries LLP, India. INSOL International sincerely thanks Dr. Ravichandran for writing this excellent paper which provides very useful information to our members seeking information about India. July 2015 ii

4 Collection of Practical Issues Important to Small Practitioners - India By Dr. K.S.Ravichandran, KSR & Co Company Secretaries LLP, India Introduction India has a robust and time tested insolvency law. The insolvency laws relating to incorporated companies are stated in the Companies Act 1956 and the new Companies Act Only certain provisions of the new Act have come into force relating to mergers, compromises, arrangements, the revival and rehabilitation of sick companies and the winding up of companies. The insolvency laws dealing with the insolvency of natural persons are found in the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act The Union of India has 29 States and in accordance with the provisions of the Indian Constitution, legislative powers are divided between the Central Government and the State Governments. Power to legislate on corporate law and insolvency issues is with the Parliament and power to administer such laws enacted by the Parliament is with the Central Government which administers such laws through Ministries created for such purposes. The Ministry of Corporate Affairs administers corporate and insolvency laws. In the hierarchy of courts, the Supreme Court of India is the apex court and almost every State has a High Court which administers and adjudicates on matters relating to corporate insolvency. The jurisdiction of a particular high court over a company is decided on the basis of its registered office address even where the company has its operations, facilities and units in different States across the country and / or abroad whether through its subsidiaries and / or joint ventures. 1. How to find information about IPs? 1.1 How are practitioners in your country organised? In India, practitioners are corporate lawyers and a small number of company secretaries. 1.2 What are the associations to contact & what do these associations do? INSOL India alone can help find those professionals who are engaged in corporate insolvency practice. 1.3 Where do you go to get the information either when you are looking for someone, or looking for a solution? Generally professionals, directors, members, creditors, employees, workers and companies approach corporate lawyers or company secretaries for insolvency advice. 1.4 Are there lists of (qualified/certified) IPs available? How can these lists be accessed? There is no recognised professional institution for those who are practicing corporate insolvency law and there are no professionals called insolvency practitioners. There was an initiative a decade ago to establish a Society for Insolvency Practitioners of India (SIPI) pursuant to which SIPI was formed and registered as a Society as per laws in force in India. However, there was no headway made thereafter. 2. Cross-border issues important to small practitioners 2.1 Information about available insolvency laws that apply to cross-border cases India has not yet enacted any law to deal with cross-border insolvency. Hence the UNCITRAL Model Law on Cross-Border Insolvency remains only as a guide. The views expressed in this report are the views of the author and not of INSOL International, London. 1

5 2.2 How to enforce claims abroad / how to do it / whom to get advice from? If any party, whether in India or abroad, whether a member or creditor or otherwise, is interested in making a claim in the winding up, such a person may make an application to the court. If there are any claims abroad, the Official Liquidator or any party who is interested in the winding up may apply to the court for the enforcement of claims or recovery of assets. An application can even be made to make an application to the courts and tribunals in a foreign country / jurisdictions for relevant purposes. An overseas debtor of a company in winding up in India or a contributory situated outside India may be traced through the Indian courts and the courts will issue the necessary orders and clearance to bring such things within the winding up in conjunction with the laws in force in other jurisdictions. Any asset in the form of shares or other securities located abroad or other properties may be brought within the winding up through an appropriate legal action initiated by the Official Liquidator or any other person interested in the winding up. If an overseas creditor is interested in submitting a claim, such a claim may be submitted to the Official Liquidator when claims are invited. Without permission of the court under the supervision of which the winding up takes place, no disposition of the assets of the company under winding up is possible nor will any such disposition be valid unless it had taken place with the sanction of the court. A vendor of a property or any other party who has lent monies to the company in winding up in India or any other person interested in the winding up or in the properties in India or abroad of the company in winding up, may make an application to the court. 2.3 What are the key criteria to consider when tracing and recovering assets in a foreign jurisdiction? It is important to provide the relevant supporting documents to establish title to assets or interests or rights of the company in winding up over specified assets. 2.4 What rights and / or powers does a foreign insolvency officer have to act directly - in a third country? A foreign insolvency officer may make an application to the court for the appointment of a commissioner for a specified purpose or may apply to the court for assistance in any investigation or for the production of documents. The foreign insolvency officers may, without applying to the court, issue public notices through advertisements in print media inviting objections or information or may take the necessary steps to investigate the matter independently and apply to the court wherever necessary. 2.5 Are there State aid supported proceedings available in your country that foreign IPs can use? No. The cost of initiating proceedings is not a major issue in India. Even small investors or creditors are able to bring applications before the Court. An overseas creditor can make an application to the court for an order for the winding up of the debtor company. 3. Marketing of small practices 3.1 What are the marketing strategies that are used by the practitioners? The websites of individual practitioners or those of firms which will explain about their credentials. There may be professionals who are experts and who are invited to speak at seminars, workshops and conferences and who also write a lot of articles in legal journals. Apart from the same, there is no marketing strategy. Certain firms may sponsor such events. Otherwise, marketing is by word of mouth. Professionals are regulated and are prohibited from soliciting business and from direct marketing and placing advertisements. 3.2 How do IPs raise and manage the cost of marketing? There is no major marketing or expenditure. 2

6 3.3 What are the effective marketing tools? As stated above, conferences, seminars, workshops and writing articles are the effective marketing tools. 4. Financing options for small businesses 4.1 Are there viable financial options for small businesses from conventional financing sources? There are no special financial options for small businesses. Professionals may obtain bank loans for setting up their practice or buying equipment. No loans are available for any marketing activity or publicity. 5. How do practitioners get remunerated? Professionals in India do not generally charge clients on a time spent basis or on a percentage basis. However, some professionals in major cities such as Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Kolkata, Pune, and Coimbatore have started to charge on a time spent basis. 5.1 What are the available models to determine fees percentage based or time based? Time based rates are increasingly accepted. Percentage based fees are not acceptable. 6. Litigation & funding litigation 6.1 Funding causes of actions - Who are the best funders? Those who are interested in acquiring the business or business assets or intangible properties or creditors who are interested in acquiring the business of the insolvent company are the best people to fund litigation. No direct funding from any specialised agencies is available. No loans are possible in times of uncertainty. 6.2 Are there alternatives to litigation, for example arbitration or mediation? Although possible, they are very few and do not apply to all types of cases except in relation to litigation in which the company in winding up may be a necessary party or proper party and the contracts in question provide for resolutions of disputes through arbitration or mediation. Arbitral or conciliation proceedings will take place in accordance with the provisions of the arbitration agreement in question. The Arbitration and Conciliation Act, 1996 applies to both domestic and international commercial arbitrations. 7. Licensing and regulation of IPs 7.1 How are IPs regulated? As of now there are no statutory provisions, therefore IPs are not regulated. 7.2 Who can become an IP or which professionals regularly work as IPs? Currently, there are no provisions in force. The Companies Act, 2013, the relevant provisions of which have not yet come into force, recognises private liquidators, known as Company Liquidators. Company Liquidators are appointed from a panel of professionals maintained by Central Government under sub-section (2) of Section 275 of the Companies Act, The panel will consist of chartered accountants, advocates, company secretaries, cost accountants or firms or bodies corporate having such chartered accountants, advocates, company secretaries, cost accountants and such other professionals as may be notified by the Central Government or from a firm or a body corporate of persons having a combination of such professionals as may be prescribed and having at least ten years experience in company matters. 3

7 7.3 What kind of work is carried out by IPs in your country? INSOL International Small Practice Issues - India Corporate lawyers and company secretaries advise in relation to all types of legal matters relating to insolvent and/or solvent companies. Currently, there are no restrictions. 7.4 Who appoints an IP? There are no provisions. If the relevant provisions of the Companies Act, 2013 referred to above come into force, the National Company Law Tribunal (NCLT) will appoint Company Liquidators. 7.5 Is an IP who gets a court appointment as an administrator allowed to do advisory work as well? Currently there are no such provisions that allow IPs to act in a dual capacity. 8. Compliance issues 8.1 Tax requirements relevant to small practices Normal provisions relating to taxation of incomes apply. If the practice is undertaken in the form of a partnership or limited liability partnerships, there will be no tax on distribution of post-tax profits to partners as per their profit sharing ratio. Currently, foreign law firms are not allowed to practice in India although there is no restriction, however, in the provision of advisory services alone. Services rendered by law firms and firms of professionals such as company secretaries also incur a service tax which is of the Goods and Services Tax category. 8.2 Money laundering and financial crimes These offences are dealt with in accordance with foreign exchange laws and anti-money laundering laws and criminal laws. Apart from general penal laws, special provisions do exist under the Companies Acts 1956 / 2013 for prosecuting directors and other officers of companies for money laundering and financial crimes. Similarly professionals engaged in any such crimes will be liable for professional misconduct too. 8.3 The right to access information Access to information about debtor companies is available through the electronic inspection of records at the Ministry of Corporate Affairs, and with the permission of the court or as the case may be the Official Liquidator or Company Liquidator. After the presentation of a petition for the winding up of a company, any person interested in the winding up may obtain requisite information. 8.4 Corporate governance During the period of revival under the existing Sick Industrial Companies (Special Provisions) Act, 1985 regime or the dispensation for revival of sick companies under the Companies Act, 2013, directors are liable to prosecution by regulatory authorities under the relevant legislation for offences involving any misfeasance, fraudulent preference or any other violation of fiduciary duties. During the period of the winding up, the corporate powers of the board will cease and vest in the Official Liquidators or the Company Liquidators. Section 276 of the Companies Act, 2013 empowers the NCLT to remove the Official Liquidator or Company Liquidator on the following grounds: a) misconduct; b) fraud or misfeasance; c) professional incompetence or failure to exercise due care and diligence in performance of his powers and functions; 4

8 d) inability to act as provisional liquidator or as the case may be, Company Liquidator; and e) conflict of interest or lack of independence during the term of his appointment that would justify removal. If the NCLT is of the opinion that any liquidator is responsible for causing any loss or damage to the company due to fraud or misfeasance or failure to exercise due care and diligence in the performance of his or its powers and functions, the NCLT may recover or cause to be recovered such loss or damage from the liquidator and pass such other orders as it may think fit. 8.5 Regulatory authorities Registrar of Companies, Regional Directors operating under the Ministry of Corporate Affairs and Official Liquidators attached to the respective high courts. Bar Council of India Institute of Company Secretaries of India; Institute of Chartered Accountants of India; National Company Law Tribunal [yet to be established] National Financial Regulatory Authority [yet to be established] 8.6 Disciplinary matters and the complaints systems in operation Complaints against unethical practices or professional misconduct arising from negligence or otherwise, in the case of lawyers will lie before the Bar Council of the respective State and in the case of company secretaries or chartered accountants will lie before the disciplinary directorate of the Institute of Company Secretaries of India or the Institute of Chartered Accountants of India. 9. Best practices A Code of Conduct for lawyers as well as company secretaries exists. As insolvency practice takes place substantially with the assistance of court at one or other stage, lawyers play an active role, whether acting for the Official Liquidator or for any other interested party such as the debtor or creditor or workers or any director or for an on behalf of secured creditors or banks or financial institutions, and they are bound by rules of the bar council of India. 5

9 AlixPartners LLP Allen & Overy LLP Alvarez & Marsal Baker & McKenzie LLP BDO LLP BTG Global Network Cadwalader Wickersham & Taft LLP Chadbourne & Parke LLP Clayton Utz Cleary Gottlieb Steen & Hamilton LLP Clifford Chance Davis Polk & Wardwell LLP De Brauw Blackstone Westbroek Deloitte Dentons DLA Piper EY Ferrier Hodgson Freshfields Bruckhaus Deringer LLP Goodmans LLP Grant Thornton Greenberg Traurig LLP Hogan Lovells Huron Consulting Group Jones Day Kaye Scholer LLP King & Wood Mallesons Kirkland & Ellis LLP KPMG LLP Linklaters LLP Morgan, Lewis & Bockius LLP Norton Rose Fulbright Pepper Hamilton LLP Pinheiro Neto Advogados PPB Advisory PwC Rajah & Tann Asia RBS RSM Shearman & Sterling LLP Skadden, Arps, Slate, Meagher & Flom LLP South Square Weil, Gotshal & Manges LLP White & Case LLP 6