Month: July 2021

Management Notes

Operations of Insurance Companies

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The most important insurance company operations consist of the following:

  • Ratemaking
  • Underwriting
  • Production
  • Claim settlement
  • Reinsurance

Insurers also engage in other operations, such as accounting, legal services, loss control, and information systems.

Rating and Ratemaking

  • Rating is a process of multiplying a rate determined by actuaries by the number of exposure units, and then adjusting by various rating plans.
  • In life insurance, the actuary determines the premiums for life and health insurance policies and annuities also determine the legal reserves a company needs for future obligations.
  • In property and casualty insurance, actuaries also determine the rates for different lines of insurance and also determine the adequacy of loss reserves, allocate expenses, and compile statistics for company management and for state regulatory.

Rating and Ratemaking

  • Ratemaking refers to the pricing of insurance and the calculation of insurance premiums.
  • A rate is the price per unit of insurance.
  • An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.
  • The person who determines rates and premiums is known as an actuary. An actuary is a highly skilled mathematician who is involved in all phases of insurance company operations, including planning, pricing, and research.

Underwriting

  • The insurer’s underwriting policy is determined by top-level management in charge of underwriting.
  • The underwriting policy is stated in detail in an underwriting guide that specifies the lines of insurance to be written; territories to be developed; forms and rating plans to be used; acceptable, borderline, and prohibited business; amounts of insurance to be written; business that requires approval by a senior underwriter; and other underwriting details.

Insurance Service Operations services

Operating model enhancement: Assessing process, technology, and organization and performance management against other insurers as well the company’s own strategy and goals to help transform its operating model, including shifting of fixed costs to variable, shedding non-differentiating processes and technology, and increasing focus on growth, distribution, and product innovation objectives.

Streamlining legacy processes and supporting technologies: Identifying ways to help improve customer service, employee morale, and cost efficiencies by upgrading policy administration and other systems, streamlining processes, and creating an efficient customer experience across product lines and distribution channels.

Performance benchmarking: Evaluating carrier performance against industry leaders to identify areas for potentially improving operations and customer service quality while managing costs.

Improved inforce management: Leveraging data and analytic tools and techniques to support cross-sell and up-sell programs, help improve retention, and enhance risk selection capabilities.

Strategic underwriting: Helping insurers create a base of profitable customer relationships by executing more effective risk selection and sound underwriting decisions that help balance risk and price. We also help carriers grow the business by identifying potentially profitable and high-risk customer segments using predictive tools and analytic models.

Claims cost containment: Streamlining and automating claims administration, devising ways to anticipate potential claim losses, enhancing processes for managing third-party suppliers, creating processes to help improve litigation results, and employing advanced fraud detection processes to help mitigate losses.

Enterprise cost management: Developing sustainable, cost-effective approaches to managing resources in alignment with the company’s strategic goals, as well as striving to refine processes, simplify the organization, rationalize infrastructure, and improve spend management.

Potential bottom-line benefits

  • Improve profitability
  • Reduce operating expenses by up to 20 percent
  • Increase process standardization and compliance
  • Improve system reliability and accuracy
  • Lower underwriting loss ratios by up to 7 points in an 18- to 24-month time frame
  • Reduce claims costs through improved claims management
  • Improve system reliability and accuracy
  • Enhance the customer experience (for both policyholders and distribution partners)
  • Increase ability to adapt to changing customer demands
Management Notes

Role of Insurance in Economic Development and Social Security

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The world we live in is full of uncertainties and risks. Individuals, families, businesses, properties and assets are exposed to different types and levels of risks. These include risk of losses of life, health, assets, property, etc. While it is not always possible to prevent unwanted events from occurring, financial world has developed products that protect individuals and businesses against such losses by compensating them with financial resources. Insurance is a financial product that reduces or eliminates the cost of loss or effect of loss caused by different types of risks.

Apart from protecting individuals and businesses from many kinds of potential risks, the Insurance sector contributes significantly to the general economic growth of the nation by providing stability to the functioning of businesses and generating long-term financial resources for the industrial projects. Among other things, Insurance sector also encourages the virtue of savings among individuals and generates employments for millions, especially in a country like India, where savings and employment are important.

Spreads Risk: Insurance facilitates moving of risk of loss from the insured to the insurer. The basic principle of insurance is to spread risk among a large number of people. A large population gets insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of corpus of funds collected from the millions of policyholders.

Promotes Economic Growth: The Insurance sector makes a significant impact on the overall economy by mobilizing domestic savings. Insurance turn accumulated capital into productive investments. Insurance also enables mitigation of losses, financial stability and promotes trade and commerce activities those results into sustainable economic growth and development. Thus, insurance plays a crucial role in the sustainable growth of an economy.

Provides Safety and Security to Individuals and Businesses: Insurance provides financial support and reduces uncertainties that individuals and businesses face at every step of their lifecycles. It provides an ideal risk mitigation mechanism against events that can potentially cause financial distress to individuals and businesses). For instance, with medical inflation growing at approximately15% per annum, even simple medical procedures cost enough to disturb a family’s well-calculated budget, but a Health Insurance would ensure financial security for the family. In case of business insurance, financial compensation is provided against financial loss due to fire, theft, mishaps related to marine activities, other accidents etc.

Provides Support to Families during Medical Emergencies: Well-being of family is important for all and health of family members is the biggest concern for most. From elderly parents to newborn children, medication and hospitalization play important role while ensuring well-being of families. Rising medical treatment costs and soaring medicine prices are enough to drain your savings if not well prepared. Anyone can fall victim to critical illnesses (such as heart attack, stroke, cancer etc.) unexpectedly. And rising medical expense is of great concern. Medical Insurance is a policy that protects individuals financially against different type of health risks. With a Health Insurance policy, an insured gets financial support in case of medical emergency.

Generates Long-term Financial Resources: The Insurance sector generates funds by way of premiums from millions of policyholders. Due to the long-term nature of these funds, these are invested in building long-term infrastructure assets (such as roads, ports, power plants, dams, etc.) that are significant to nation-building. Employment opportunities are increased by big investments leading to capital formation in the economy.

Bangalore University B.com Notes

Cyber Crimes Offences and Penalties

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Offences

Cyber offences are the illegitimate actions, which are carried out in a classy manner where either the computer is the tool or target or both.

Cyber-crime usually includes the following:

  • Unauthorized access of the computers
  • Data diddling
  • Virus/worms attack
  • Theft of computer system
  • Hacking
  • Denial of attacks
  • Logic bombs
  • Trojan attacks
  • Internet time theft
  • Web jacking
  • Email bombing
  • Salami attacks
  • Physically damaging computer system.

The offences included in the I.T. Act 2000 are as follows:

  • Tampering with the computer source documents.
  • Hacking with computer system.
  • Publishing of information which is obscene in electronic form.
  • Power of Controller to give directions.
  • Directions of Controller to a subscriber to extend facilities to decrypt information.
  • Protected system.
  • Penalty for misrepresentation.
  • Penalty for breach of confidentiality and privacy.
  • Penalty for publishing Digital Signature Certificate false in certain particulars.
  • Publication for fraudulent purpose.
  • Act to apply for offence or contravention committed outside India Confiscation.
  • Penalties or confiscation not to interfere with other punishments.
  • Power to investigate offences.

Receipt of stolen property: Section 66B of the IT Act prescribes punishment for dishonestly receiving any stolen computer resource or communication device. This section requires that the person receiving the stolen property ought to have done so dishonestly or should have reason to believe that it was stolen property. The punishment for this offence under Section 66B of the IT Act is imprisonment of up to 3 (three) years or a fine of up to Rs. 1,00,000 (Rupees one lac) or both.

Identity theft and cheating by personation: Section 66C of the IT Act prescribes punishment for identity theft and provides that anyone who fraudulently or dishonestly makes use of the electronic signature, password or any other unique identification feature of any other person shall be punished with imprisonment of either description for a term which may extend to 3 (three) years and shall also be liable to fine which may extend to Rs. 1,00,000 (Rupees one lac)

Obscenity: Sections 67, 67A and 67B of the IT Act prescribe punishment for publishing or transmitting, in electronic form:

(i) Obscene material

(ii) Material containing sexually explicit act, etc.

(iii) Material depicting children in sexually explicit act, etc. respectively.

The punishment prescribed for an offence under section 67 of the IT Act is, on the first conviction, imprisonment of either description for a term which may extend to 3 (three) years, to be accompanied by a fine which may extend to Rs. 5,00,000 (Rupees five lac), and in the event of a second or subsequent conviction, imprisonment of either description for a term which may extend to 5 (five) years, to be accompanied by a fine which may extend to Rs. 10,00,000 (Rupees ten lac). The punishment prescribed for offences under sections 67A and 67B of the IT Act is on first conviction, imprisonment of either description for a term which may extend to 5 (five) years, to be accompanied by a fine which may extend to Rs. 10,00,000 (Rupees ten lac) and in the event of second or subsequent conviction, imprisonment of either description for a term which may extend to 7 (seven) years and also with fine which may extend to Rs. 10,00,000 (Rupees ten lac).

Hacking and Data Theft: Sections 43 and 66 of the IT Act penalise a number of activities ranging from hacking into a computer network, data theft, introducing and spreading viruses through computer networks, damaging computers or computer networks or computer programmes, disrupting any computer or computer system or computer network, denying an authorised person access to a computer or computer network, damaging or destroying information residing in a computer etc. The maximum punishment for the above offences is imprisonment of up to 3 (three) years or a fine or Rs. 5,00,000 (Rupees five lac) or both.

Management Notes

Cyberspace, Digital Signature

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Cyberspace

Cyberspace is a concept describing a widespread interconnected digital technology. “The expression dates back from the first decade of the diffusion of the internet. It refers to the online world as a world ‘apart’, as distinct from everyday reality. In cyberspace people can hide behind fake identities, as in the famous The New Yorker cartoon.” The term entered popular culture from science fiction and the arts but is now used by technology strategists, security professionals, government, military and industry leaders and entrepreneurs to describe the domain of the global technology environment, commonly defined as standing for the global network of interdependent information technology infrastructures, telecommunications networks and computer processing systems. Others consider cyberspace to be just a national environment in which communication over computer networks occurs. The word became popular in the 1990s when the use of the Internet, networking, and digital communication were all growing dramatically; the term cyberspace was able to represent the many new ideas and phenomena that were emerging.

As a social experience, individuals can interact, exchange ideas, share information, provide social support, conduct business, direct actions, create artistic media, play games, engage in political discussion, and so on, using this global network. They are sometimes referred to as cybernauts. The term cyberspace has become a conventional means to describe anything associated with the Internet and the diverse Internet culture. The United States government recognizes the interconnected information technology and the interdependent network of information technology infrastructures operating across this medium as part of the US national critical infrastructure. Amongst individuals on cyberspace, there is believed to be a code of shared rules and ethics mutually beneficial for all to follow, referred to as cyberethics. Many view the right to privacy as most important to a functional code of cyberethics. Such moral responsibilities go hand in hand when working online with global networks, specifically, when opinions are involved with online social experiences.

While cyberspace should not be confused with the Internet, the term is often used to refer to objects and identities that exist largely within the communication network itself, so that a website, for example, might be metaphorically said to “exist in cyberspace”. According to this interpretation, events taking place on the Internet are not happening in the locations where participants or servers are physically located, but “in cyberspace”. The philosopher Michel Foucault used the term heterotopias, to describe such spaces which are simultaneously physical and mental.

Firstly, cyberspace describes the flow of digital data through the network of interconnected computers: it is at once not “real”, since one could not spatially locate it as a tangible object, and clearly “real” in its effects. There have been several attempts to create a concise model about how cyberspace works since it is not a physical thing that can be looked at. Secondly, cyberspace is the site of computer-mediated communication (CMC), in which online relationships and alternative forms of online identity were enacted, raising important questions about the social psychology of Internet use, the relationship between “online” and “offline” forms of life and interaction, and the relationship between the “real” and the virtual. Cyberspace draws attention to remediation of culture through new media technologies: it is not just a communication tool but a social destination and is culturally significant in its own right. Finally, cyberspace can be seen as providing new opportunities to reshape society and culture through “hidden” identities, or it can be seen as borderless communication and culture.

Cyberspace brings in many uses. It lets you do everything possible through the internet. Be it education, military, finance, or even education today everything is connected to what is known as cyberspace. There is not a single sphere in our life that is not connected to social media.

The internet has made it efficient to store and to handle data. It has made man’s life organized and more systematic. Be it for e-banking or booking tickets or even to work online, cyberspace is everywhere.

Private hands mostly develop and maintain cyberspace infrastructure. We are all online but no international or centralized authority contains what occurs on the internet or how cyberspace is managed and structured. There are submarine cables that transmit the data making use of fiber optic technology. These submarine cables are the major carriers of data and they transmit lots of data cheaply and quickly.

Digital Signature

A digital signature is a mathematical technique used to validate the authenticity and integrity of a message, software or digital document. It’s the digital equivalent of a handwritten signature or stamped seal, but it offers far more inherent security. A digital signature is intended to solve the problem of tampering and impersonation in digital communications.

Digital signatures can provide evidence of origin, identity and status of electronic documents, transactions or digital messages. Signers can also use them to acknowledge informed consent.

A digital signature is a mathematical scheme for verifying the authenticity of digital messages or documents. A valid digital signature, where the prerequisites are satisfied, gives a recipient very strong reason to believe that the message was created by a known sender (authentication), and that the message was not altered in transit (integrity).

Digital signatures are a standard element of most cryptographic protocol suites, and are commonly used for software distribution, financial transactions, contract management software, and in other cases where it is important to detect forgery or tampering.

Digital signatures are often used to implement electronic signatures, which includes any electronic data that carries the intent of a signature, but not all electronic signatures use digital signatures. In some countries, including Canada, South Africa, the United States, Algeria, Turkey, India, Brazil, Indonesia, Mexico, Saudi Arabia, Uruguay, Switzerland, Chile and the countries of the European Union, electronic signatures have legal significance.

Digital signatures employ asymmetric cryptography. In many instances, they provide a layer of validation and security to messages sent through a non-secure channel: Properly implemented, a digital signature gives the receiver reason to believe the message was sent by the claimed sender. Digital signatures are equivalent to traditional handwritten signatures in many respects, but properly implemented digital signatures are more difficult to forge than the handwritten type. Digital signature schemes, in the sense used here, are cryptographically based, and must be implemented properly to be effective. They can also provide non-repudiation, meaning that the signer cannot successfully claim they did not sign a message, while also claiming their private key remains secret. Further, some non-repudiation schemes offer a timestamp for the digital signature, so that even if the private key is exposed, the signature is valid. Digitally signed messages may be anything representable as a bitstring: examples include electronic mail, contracts, or a message sent via some other cryptographic protocol.

There are several reasons to sign such a hash (or message digest) instead of the whole document.

For efficiency

The signature will be much shorter and thus save time since hashing is generally much faster than signing in practice.

For compatibility

Messages are typically bit strings, but some signature schemes operate on other domains (such as, in the case of RSA, numbers modulo a composite number N). A hash function can be used to convert an arbitrary input into the proper format.

For integrity

Without the hash function, the text “to be signed” may have to be split (separated) in blocks small enough for the signature scheme to act on them directly. However, the receiver of the signed blocks is not able to recognize if all the blocks are present and in the appropriate order.

Management Notes

Digital Signature Certificate, Procedure, Types, Benefits

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Digital Signature Certificate (DSC) is an electronic credential issued by a Certifying Authority under the Information Technology Act, 2000. It serves as a secure digital key that authenticates the identity of an individual or organization while conducting online transactions. A DSC ensures confidentiality, integrity, and authenticity of electronic records by encrypting data and verifying the sender’s identity. It is commonly used for e-filing of income tax, GST, company filings, e-tendering, and secure email communication. DSCs are issued in different classes (Class 1, 2, and 3) depending on the level of security and purpose of use.

Procedure of Digital Signature Certificate:

  • Application Submission

The first step in obtaining a Digital Signature Certificate (DSC) is submitting an application to a licensed Certifying Authority (CA). Applicants need to fill out the prescribed DSC form available online or offline, providing personal details such as name, address, email, mobile number, and proof of identity. The form must be signed and accompanied by supporting documents like PAN card, Aadhaar card, or passport. A recent passport-size photograph is also required. The completed application is then submitted to the CA either physically or through an online portal for further verification and processing.

  • Document Verification

After submission, the Certifying Authority (CA) verifies the applicant’s documents to confirm their authenticity. Identity proof, address proof, and other supporting records are cross-checked against government databases. If applied through Aadhaar-based eKYC, the process becomes faster with OTP verification. Otherwise, the CA may request self-attested documents and in-person verification. The applicant may also be asked to provide additional information if discrepancies arise. This step is crucial as it ensures that only genuine individuals or organizations receive the DSC. Upon successful verification, the application moves forward for approval and digital certificate generation.

  • Payment of Fees

Once documents are verified, the applicant must pay the prescribed fee to the Certifying Authority (CA) for issuing the DSC. The fee varies depending on the type and class of DSC (Class 1, 2, or 3) and the validity period (one, two, or three years). Payment can usually be made online through net banking, debit/credit cards, or UPI. In case of offline application, demand drafts or cheques may also be accepted. The payment confirmation is sent to the applicant, and only after successful fee processing does the CA initiate the process of issuing the Digital Signature Certificate.

  • DSC Download and Installation

After approval, the Certifying Authority generates and issues the Digital Signature Certificate (DSC). The applicant receives a USB token (crypto-token) or secure software file containing the DSC. The token is password protected, ensuring only authorized access. The applicant installs the DSC in their system using the provided drivers or software. Once installed, the DSC can be used for e-filing, secure digital communication, and authentication of online transactions. The validity period of the DSC starts from the date of issuance, after which renewal is required. Thus, the process completes with secure installation for authorized usage.

Types of Digital Signature Certificate:

  • Class 1 Digital Signature Certificate

Class 1 DSC is the basic type of digital signature certificate, primarily used to verify a person’s identity against their email ID and username. It is issued to individuals for securing communication in environments where the risk of data compromise is minimal. Class 1 DSC provides basic assurance of the validity of user credentials but cannot be used for official government filings or high-value transactions. It is suitable for securing email communication, logging into low-risk portals, and ensuring basic data integrity. Since it offers limited authentication, it is less commonly used compared to higher classes of DSC.

  • Class 2 Digital Signature Certificate

Class 2 DSC is a higher-level certificate used for verifying both an individual’s or an organization’s identity against a pre-verified database. It is mandatory for individuals who need to file documents with government portals like the Ministry of Corporate Affairs (MCA), Registrar of Companies (ROC), and for filing income tax returns. Class 2 DSC ensures more reliable authentication than Class 1 and is commonly used by business professionals, company secretaries, and chartered accountants. However, after 2021, the Controller of Certifying Authorities (CCA) phased out Class 2 certificates, merging their purposes into Class 3 DSC for greater security.

  • Class 3 Digital Signature Certificate

Class 3 DSC is the highest level of digital signature certificate, offering the most secure form of authentication. It is mandatory for individuals and organizations participating in e-tendering, e-procurement, and online auctions. Issued only after thorough in-person or video verification, Class 3 DSC provides a high degree of trust and ensures data integrity in sensitive transactions. It is widely used by vendors, contractors, and companies dealing with government departments and large organizations. Since it supports high-value transactions, it safeguards against fraud and unauthorized access, making it the most trusted form of DSC for critical business processes.

  • DGFT Digital Signature Certificate

The DGFT DSC is a special type of Class 3 Digital Signature Certificate issued to organizations and exporters registered with the Directorate General of Foreign Trade (DGFT). It enables exporters and importers to access DGFT’s online portal, file license applications, and conduct foreign trade transactions securely. With DGFT DSC, businesses can save time, reduce paperwork, and prevent fraud in trade-related filings. The certificate also allows users to digitally sign electronic documents and ensure secure communication with the DGFT. Since international trade involves sensitive data, DGFT DSC is crucial for maintaining security and efficiency in import-export business operations.

Benefits of a Digital Signature Certificate:

  • Enhanced Security

A Digital Signature Certificate ensures high-level security in online transactions and communications. It uses encryption technology to protect sensitive data from tampering, unauthorized access, or forgery. The unique digital keys associated with a DSC authenticate the sender’s identity and guarantee that the document has not been altered after signing. This prevents cybercrimes such as identity theft and data manipulation. Businesses and individuals can rely on DSCs to maintain confidentiality and integrity while sharing critical information. Thus, DSC provides a secure digital environment, making it highly trusted for financial transactions, government filings, and corporate operations.

  • Legal Validity

Under the Information Technology Act, 2000, digital signatures are legally recognized in India, giving DSCs the same validity as physical signatures. Documents signed with a DSC hold evidentiary value in courts of law, making them legally binding. This helps organizations and individuals sign contracts, agreements, and applications without needing physical presence or paperwork. Since DSCs cannot be easily forged, they provide authenticity and credibility to digital transactions. Legal recognition also promotes digital adoption in business and governance, reducing disputes over authenticity. Hence, DSCs serve as a trusted legal instrument for digital documentation and online transactions.

  • Time and Cost Efficiency

Using a DSC eliminates the need for physical paperwork, travel, and manual signatures, thereby saving significant time and costs. Businesses can instantly sign and share electronic documents online, ensuring faster decision-making and execution. For government filings like income tax returns, GST, or MCA compliance, DSC reduces delays by enabling direct and secure submissions. Similarly, companies involved in global trade can save time by using DSCs for online license applications and import-export documentation. This streamlined process reduces administrative burdens, postage costs, and manual errors. As a result, DSCs contribute to operational efficiency and cost-effective business practices.

  • Authentication and Identity Verification

A DSC verifies the identity of individuals and organizations in online transactions, ensuring that only authorized persons can access and sign documents. It acts as a trusted digital identity, providing assurance to recipients that the signer is genuine. By preventing impersonation or unauthorized use, DSCs help establish accountability in digital communications. Government agencies, banks, and corporate portals rely on DSC authentication to protect against fraud and identity theft. For organizations, it safeguards sensitive operations like e-tendering and online bidding. Thus, DSC strengthens trust between parties and facilitates secure business and government interactions.

  • Global Acceptance

Digital Signature Certificates are not only recognized in India under the IT Act, 2000, but also widely accepted in many countries across the world. They comply with global standards of authentication and encryption, making them suitable for international trade, cross-border contracts, and multinational business transactions. Exporters and importers use DSCs for foreign trade filings with DGFT and other global authorities. This universal acceptance allows businesses to operate smoothly on a global scale while ensuring authenticity and security. Hence, DSCs bridge trust in international dealings, empowering businesses to expand securely in the digital economy.

Bangalore University B.com Notes

IPR in abroad

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While many countries have some form of IPR protection, the degree to which IPR is protected varies greatly. For economists, IPR protection represents a trade-off between the benefits of innovation and the costs of exclusivity. Property rights encourage the development of new technologies, products, music, and other creative output. Exclusivity, however, protects IP owners from competition and, in some cases, can grant monopoly power. For this reason, IPR protection is always limited in either the length or scope of protection. After expiration, for example, the knowledge embodied by a patent enters the public domain.

The U.S. has a relatively well-defined IPR policy that is enforced and protected by its applicable laws. However, this is not the case for many of its trading partners around the world. In particular, developing countries often lack any substantial IPR protection. In a recent report, the Organization for Economic Co-operation and Development (OECD) estimated that “international trade in counterfeit and pirated goods could account for up to US$200 billion in 2005.” (OECD 2007) This amount does not include any counterfeit products produced and consumed in the same country or counterfeit digital products sold over the Internet. Consequently, the U.S. and other developed countries have called on other, often less-developed, nations to adopt IPR protection or increase its current protection in order to stop counterfeiting and piracy.

The US government’s Office of the United States Trade Representative (USTR) monitors intellectual property rights around the world and fights IP theft because IP theft impacts the 18 million Americans whose livelihood depends on IP protection. United States Trade Representative, “USTR Releases 2010 Special 301 Report on Intellectual Property Rights.

The USTR evaluates countries and rates them according to how those countries enforce IP rights. The Special 301 Report is an annual review of the global state of IPR protection and enforcement issued by the USTR. The worst offenders are put on a “Priority Watch List.” The countries on the 2010 Priority Watch list are China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Pakistan, Thailand, and Venezuela. China, which has been on the Watch List before, continues to be on the list not only because of IP theft and counterfeiting but also because of government practices that severely restrict the market for foreign goods while giving favored treatment to “indigenous innovation. “United States Trade Representative”.

Management Notes

Plant Varieties and Layout Design

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Plant Varieties

The objective of this act is to recognize the role of farmers as cultivators and conservers and the contribution of traditional, rural and tribal communities to the country’s agro biodiversity by rewarding them for their contribution and to stimulate investment for R & D for the development new plant varieties to facilitate the growth of the seed industry.

The Plant Variety Protection and Farmers Rights act 2001 was enacted in India to protect the New Plant Variety; the act has come into force on 30.10.2005 through Authority. Initially 12 crop species have been identified for regt. i.e. Rice, Wheat, Maize, Sorghum, Pearl millet, Chickpea, Green gram, Black gram, Lentil, Kidney bean etc. India has opted for sui- generic system instead of patents for protecting new plant variety. Department Agriculture and Cooperation is the administrative ministry looking after its registration and other matters.

Layout Design

Industrial designs refer to creative activity, which result in the ornamental or formal appearance of a product, and design right refers to a novel or original design that is accorded to the proprietor of a validly registered design. Industrial designs are an element of intellectual property. Under the TRIPS Agreement, minimum standards of protection of industrial designs have been provided for. As a developing country, India has already amended its national legislation to provide for these minimal standards.

The essential purpose of design law it to promote and protect the design element of industrial production. It is also intended to promote innovative activity in the field of industries. The existing legislation on industrial designs in India is contained in the New Designs Act, 2000 and this Act will serve its purpose well in the rapid changes in technology and international developments. India has also achieved a mature status in the field of industrial designs and in view of globalization of the economy, the present legislation is aligned with the changed technical and commercial scenario and made to conform to international trends in design administration.

This replacement Act is also aimed to enact a more detailed classification of design to conform to the international system and to take care of the proliferation of design related activities in various fields.

Semiconductor Integrated Circuit means a product having transistors and other circuitry elements, which are inseparably formed on a semiconductor material or an insulating material or inside the semiconductor material and designed to perform an electronic circuitry function.

The aim of the Semiconductor Integrated Circuits Layout-Design Act 2000 is to provide protection of Intellectual Property Right (IPR) in the area of Semiconductor Integrated Circuit Layout Designs and for matters connected therewith or incidental thereto. The main focus of SICLD Act is to provide for routes and mechanism for protection of IPR in Chip Layout Designs created and matters related to it. The SICLD Act empowers the registered proprietor of the layout-design an inherent right to use the layout-design, commercially exploit it and obtain relief in respect of any infringement. The initial term of registration is for 10 years; thereafter it may be renewed from time to time. Department of Information Technology Ministry of Communications and Information Technology is the administrative ministry looking after its registration and other matters.

Management Notes

Authorities and Enforcement Mechanism in IBC 2016

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NCLT and DRT are judicially constituted special bodies for adjudicating resolution of matters related to insolvency and bankruptcy. NCLT appeals lies to National Company Law Appellate Tribunal (NCLAT) and after NCLAT, the party can appeal to the Supreme court of India. Similarly, for DRT, appeals lie to the Debt Recovery Appellate Tribunal and then to the supreme court of India. NCLT and DRT are separate tribunals. NCLT is for companies and limited liability partnerships and DRT is for unlimited liability partnerships and sole proprietors.

Section 13 (Declaration of moratorium and public announcement) provides that the Adjudicating Authority shall:

(a) Declare a moratorium for the purposes referred to under Section 14.

(b) Cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15.

(c) Appoint an interim resolution professional in the manner as laid down in Section 16. A public announcement is to be made immediately after the appointment of the interim resolution professional.

Section 14 (Moratorium) provides that on the insolvency commencement date, the Adjudicating Authority shall declare a moratorium prohibiting

(a) The institution or continuation of suits or proceedings against the corporate debtor including execution of a judgment, decree, order, etc.

(b) Transferring, encumbering alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest.

(c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(d) Recovery of any property by an owner or lessor where such property is occupied by, or in the possession of the corporate debtor. Section 16 provides for the appointment and tenure of an interim resolution professional.

The resolution professional has to work under the broad guidelines of the committee of creditors (or “COC”- in terms of Section 21 of the Code). The CoC includes all the financial creditors of the corporate debtor, except all related parties and operational creditors. Further, Section 22 of the Code provides that the CoC has to appoint the resolution professional. This resolution professional can also be the interim resolution professional. A vote of 75% of the voting share shall determine the decisions of the committee to opt for either a revival or liquidation (Section 30). The decision of the CoC is binding not only on debtors, but also on all the other creditors. Different types of revival plans include fresh finance, sale of assets, haircuts (i.e. acceptance by creditors of amounts lower than what is due to them), change of management etc. The committee should approve the resolution plan forwarded by the creditor. Only upon approval does the resolution professional forward the plan to the adjudicating authority for final approval. The resolution plan has to be approved by the NCLT; while doing so, it can consider objections to the resolution plan by any party interested in voicing such objections (i.e. operational creditors, financial creditors, etc).

There can also be no enforcement of securities, sale or transfer of assets or termination of essential contracts against the debtor. The next step is appointment of an Interim Resolution Professional under Section 16 of the Code.

After the commencement of corporate insolvency resolution, the NCLT orders a moratorium on the debtor’s operations for the period of 180 days. This is termed as a ‘calm period’ during which no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can take place against the debtor.

Management Notes

Insolvency of Individuals and Partnership firms

indiafreenotesby indiafreenotes0

The Insolvency and Bankruptcy Code 2016 recently completed its second anniversary successfully. In these two years, the harvests through the IBC process proved to be extremely satisfactory. The entire scenario of the debtor creditor relationship changed after the implementation of the Code.

After the enforcement of the Code, the creditors are not required to chase the debtor but it’s the debtor who chases the creditors. After the entry of the code, the NCLT has become a trusted forum with high credibility.

With the coming of Code into execution numerous cases commenced to be filed before NCLT due to NCLT became overcrowded and therefore seeing alarming situation the capacity of NCLT was further enhanced within due time and matter under this legislation were disposed off expeditiously in time bound manner.

The major points of difference between the insolvency proceedings of corporate persons and individuals & partnership firm is that the application by corporate persons is filed with NCLT whereas application by individuals & partnership firms is filed with DRT.

Adjudicating Authority

In relation to insolvency matters of individuals and firms, the Adjudicating Authority shall be the Debt Recovery Tribunal (DRT) having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business

or personally works for gain – section 179(2) of Insolvency Code, 2016.

“Adjudicating Authority” means the Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – section 79(1) of Insolvency Code, 2016.

However, in case of personal guarantors to corporate debtors, NCLT will be ‘adjudicating authority’ as per section 60 of Insolvency Code.

Powers of Adjudicating Authority (DRT)

The Debt Recovery Tribunal shall have overriding jurisdiction to entertain or dispose of (a) any suit or proceeding by or against the individual debtor (b) any claim made by or against the individual debtor (c) any question of priorities or any other question whether of law or facts, arising out of or in relation to insolvency and bankruptcy of the individual debtor or firm under this Code – section 179(2) of Insolvency Code, 2016.

Firm: “Firm” means a body of individuals carrying on business in partnership whether or not registered under section 59 of the Indian Partnership Act, 1932 (9 of 1932) – section 79(16) of Insolvency Code, 2016.

Claim: “Claim” means (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, un-matured, disputed, undisputed, secured or unsecured – section 3(6) of Insolvency Code, 2016 [definition notified and effective from 1-11-2016].

Period of moratorium to be excluded for purpose of limitation

While computing the period of limitation specified for any suit or application in the name and on behalf of a debtor, the period during which there was moratorium shall be excluded – section 179(3) of Insolvency Code, 2016.

Civil court not to have jurisdiction

Civil court or any authority shall not have jurisdiction to entertain any suit or proceedings in respect of any matter on which DRT or DRAT have jurisdiction under Insolvency Code, 2016 – section180(1) of Insolvency Code, 2016.

No injunction shall be granted by any court, Tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on DRT or DRAT under the Insolvency Code, 2016 – section180(2) of Insolvency Code, 2016.

Appeal against order of DRT

Appeal against order of DRT shall be filed with DRAT (Debt Recovery Appellate Tribunal) within 30 days. This period can be extended by further 15 days by DRAT if sufficient cause is shown – section 181 of Insolvency Code, 2016.

Appeal to Supreme Court

An appeal from an order of DRAT can be filed before Supreme Court within 45 days only on question of law. This period can be extended by further 15 days by Supreme Court if sufficient cause is shown – section 182 of Insolvency Code, 2016.

Debtor

The concerned debtor may by invoking Section 94 of the Code file an application for initiating insolvency proceedings in respect of himself. The application may either be submitted personally by the concerned debtor or through the resolution professional.

In the scenario where the debtor is a partner of a firm then in such a situation the concerned debtor may make an application for initiating insolvency proceedings with the approval of all or majority partners. While making application for initiating insolvency proceedings, the concerned debtor is required to comply with the perquisites thereafter he becomes eligible for making application for initiating the insolvency proceedings. The prerequisites that need to be complied prior to making an application are as follows:

  • The debtor should not be an undischarged bankrupt;
  • The debtor should be undergoing fresh start process in relation to his debts;
  • No insolvency resolution proceedings should be in process in relation to the debts against the debtor;
  • The debtor should not be undergoing bankruptcy proceedings
  • No insolvency resolution proceedings should have been admitted during the preceding twelve months to be counted from the date on which a fresh application is filed for invoking insolvency resolution process.

By Creditor

A creditor for initiating insolvency resolution process in respect of individuals & partnership firm may make an application for the same either by himself, through a consortium with other creditors or through resolution professional. In the scenario where the debtor is a partnership firm then the creditor can make an application against either of the partners or the firm.

The application as made by the creditor(s) shall contain the required attachments as are prescribed in the Code. The creditor shall also furnish a copy of the application as filed to the debtor for hid reference. The creditor shall while making the application ensure that the application in the appropriate format as prescribed in the Code.

Interim Moratorium

On an application being filed by either of the aforesaid, an interim moratorium shall come into force from the date on which application for initiating insolvency proceedings is made and thereafter shall cease to have an effect on the date of admission of the application by DRT.

Appointment of Resolution Professional

The Resolution professional is the key person in the insolvency resolution process. He may be said to be the driver of the entire proceedings that fall within the ambit of the insolvency resolution process.

Pre-existing Resolution Professional

There may be scenarios where application for initiating insolvency resolution process is filed by the Resolution Professional on behalf of the debtor or creditor as the case may be. Under this state the adjudicating authority i.e. DRT shall direct the board (IBBI) to verify that as on date there is no disciplinary proceeding pending against the proposed resolution professional. The verification shall be directed to conducted by the board within a period of seven days from the date of receipt of application. The board shall on receipt of direction report its decision i.e. recommending appointment or rejection of resolution professional to the directing adjudicating authority within seven days of receipt of direction.

Fresh Appointment

In the cases where application for initiating insolvency proceedings is filed by the debtor or creditor without the involvement of resolution professional then in such situation the adjudicating authority shall direct the board to nominate a resolution professional who can drive forward the initiated insolvency resolution process. On receipt of the aforesaid direction, the board shall nominate a suitable resolution professional within a period of ten days. The board while nominating resolution professional shall verify that no disciplinary proceedings are currently pending against the proposed resolution professional.

The adjudicating authority shall via order appoint the resolution professional as recommended or nominated above to drive forward the insolvency proceedings. The appointed resolution professional shall be provided a copy of the insolvency resolution process application as received by the adjudicating authority from the debtor or creditor.

Submission of Report by Resolution Professional

On receipt of the application as filed initiating for insolvency resolution process, the appointed resolution professional shall examine the application as submitted by the debtor or creditor within a span of ten days to be counted from the date of his appointment. Once the submitted application has been examined the resolution professional shall then prepare a report thereby recommending his decision as to whether the submitted application should be admitted or rejected.

The resolutions professional may for arriving at decision ask the debtor to prove repayment of the debts that are being claimed to be unpaid by the creditors. The report as compiled by the resolution professional shall clearly highlight the reasons based on which the decision related to admission or rejection of submitted application is undertaken. The resolution professional shall furnish a copy of his report to the concerned debtor or creditor as well.

Decision of Adjudicating Authority

Once the adjudicating authority receives the report as submitted by the resolution profession, it shall thereafter within a period of fourteen days pass an order either admitting the application or rejecting the same as, as it feels appropriate. In the scenario where application, as submitted for initiating insolvency resolution process, is admitted by the adjudicating authority, then the adjudicating authority may vide instructions conduct negotiations between the debtor and creditors to finalize a repayment plan.

The adjudicating authority shall furnish a copy of its order admitting or rejecting the application; report of resolution professional as submitted to the adjudicating authority and application as initially submitted for initiating insolvency resolution process to the creditor within a period of seven days from the date of passing the aforesaid order.

Moratorium Period

On the application for insolvency resolution process being admitted by the adjudicating authority, a moratorium period shall come into force and thereafter it shall terminate at the end of one hundred and eighty day commencing from the date on which application for insolvency resolution process is admitted by the adjudicating authority or the date on which order is passed by adjudicating authority on repayment plan. The similar situation as that of interim moratorium shall prevail during the moratorium period in relation to the debtor as well as his pending legal actions and debts.

Public Notice and Inviting Claim from Creditors

The adjudicating authority shall after admitting the application for initiating the insolvency resolution process issue a general public notice within a period of seven days from the date of passing order for the sake of inviting claims form all the creditors’ within a period of twenty-one days from the date of public notice.

The aforesaid notice shall be published in one English and one vernacular language newspaper. The notice shall also be affixed in the premises of adjudicating authority and shall also be displayed on the website of the adjudicating authority.

Registration of Claims of Creditors

The resolution professional is the sole authority where the claims are required to be registered by the creditors. Forgetting the claim registered the creditors may use of the following medium of communication: electronic communication; courier; speed post or registered post. 

Preparation of List of Creditors

After the invitation and registration of claims received from creditors, the resolution professional shall collate a list of creditors based on the information received from application as filed by debtor for initiating fresh start process and claims received from creditors. The resolution professional shall make best efforts to draft the said list within thirty days from the date of notice.

Repayment Plan

The debtor shall in collaboration with the resolution professional draft a layout of repayment plan which shall contain a proposal to creditors to restructure their debts. The repayment plan shall also authorize or grant the resolution professional various powers like: carrying on business off debtor on his behalf; realization of assets of debtor and administration or disposal of assets of the debtor.

Resolution Professional’s Report on Repayment Plan

The resolution professional shall after successfully draft of repayment plan submit the same along with report to the adjudicating authority within a period of twenty one days to be counted from the last date of submission of the claims.

The report as drafted by the resolution professional shall also highlight the date; time and place of the meeting if there appears need to summon meeting of creditors. While fixing date of meeting it should be note that date of meeting should not be less that fourteen days and at the same time not more than twenty eight days to be counted from the date of submission of report. Also while booking calendar for convening meeting the convenience and availability of creditors shall also be taken into consideration.

Calling Meeting of Committee of Creditors

The resolution professional shall after preparation of his report on repayment plan call meeting of committee of creditors by issuing a prior notice in this regard atleast fourteen days in advance to the finalized date of meeting.

The notice of the aforesaid meeting shall be provided to all the creditors mentioned in the list of creditors as chalked out by resolution professional. The notice of the meeting shall incorporate within it the address of adjudicating authority to whom the repayment plan along with the report of resolution professional on repayment plan was served supported by required annexures.

Convening Meeting of Committee of Creditors

The meeting once called shall be conducted in accordance with the procedures and provisions as are highlighted in the Code. During the course of the convened meeting the creditors may vide their decision approve, modify or reject the repayment plan as drafted by the resolution professional.

In the convened meetings creditors shall be eligible to vote in proportion to the voting share as assigned to them. The proportion of voting share shall be determined by the resolution professional. The secured creditors shall also be eligible to participate and vote in the convened meeting.

Seeking Approval of Creditors on Repayment Plan

The approval of creditors is a must requirement for carrying on any business on behalf of the debtor. In this regard approval of majority of creditors representing three fourth in value of the creditors that were present in person or via proxy at the convened meeting of committee of creditors is a mandatory requirement for seeking approval of repayment plan or any subsequent modification in the repayment plan therein.

Report of Convened Meeting of Creditors 

Once the meeting of creditors has been duly convened for seeking approval of the creditors, it shall the duty of the resolution professional to compile a report of the duly convened meeting of the creditors. The report as compiled above shall include the minute-to-minute details of all decisions and discussion that were made during the convened meeting.

Decision of Adjudicating Authority on Repayment Plan

On receipt of the report of the duly convened meeting of creditors, the adjudicating authority shall thereafter vide its decision either approve or reject the repayment plan. The adjudicating authority shall form its decision on the basis of the report of the convened meeting of creditors as received by it from the resolution professional.

The decision of the adjudicating authority as passed shall also contain the directions for implementing the approved resolution plan. In the scenario where the repayment plan is approved by the adjudicating authority then the approved repayment plan shall be in effect as if it was proposed by the debtor and thereafter the plan shall be binding on the creditors as mentioned in the repayment plan and also on the debtor.

Implementation of Repayment Plan

The repayment plan once approved by the committee of creditors and adjudicating authority shall come into force and thereafter commence to be in implementation. On coming of the repayment plan into execution it shall be the sole responsibility of the resolution professional to monitor the implementation and execution of the approved repayment plan.

If any hindrances arise in the smooth execution of the repayment plan then the resolution professional is free to approach the adjudicating authority for seeking the required directions that will enable the smooth execution of the approved repayment plan. On being satisfied by the plea as raised by the resolution professional the adjudicating authority shall pass the necessary directions in this regard.

Completion of Repayment Plan

The resolution professional shall make his best endeavours to complete the execution of repayment plan within the prescribed time limits in time bound manner. In this connection the resolution professional shall after the successful completion of repayment plan furnish the prescribed documents to the persons who are covered under the horizon of repayment plan and to the adjudicating authority as well.

The resolution professional shall ensure that the documents are furnished within duration of fourteen days from the completion of the repayment plan. If the resolution professional is unable to furnish the same within due time then in such a scenario he may approach the adjudicating authority for seeking extension in the time limit for furnishing the same. Once the adjudicating authority is satisfied then it shall grant an extension of not more than seven days to comply with the requirement.

Discharge Order

On time-bound and successful implementation of the approved repayment plan the resolution professional shall approach the concerned adjudicating authority for seeking a discharge order for debts as are mentioned in the repayment plan.

The resolution professional may approach the adjudicating authority for seeking discharge order only if the approved repayment plan provides for early discharge or discharge on completion of repayment plan. The, discharge order as granted by the adjudicating authority shall also be furnished to the board for its record.

The insolvency resolution process is the initial step that can be taken against the defaulting individual & partnership firms. On successful completion of insolvency resolution process or during the course of the insolvency resolution process an application can be made for a bankruptcy order.

Management Notes

Need for Insolvency and Bankruptcy Code: Social, Legal, Economic and Financial Perspectives

indiafreenotesby indiafreenotes0

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was issued on 28-12-2019. This has been converted into Insolvency and Bankruptcy (Amendment) Act, 2020 w.r.e.f. 28-12-2019.

The purpose is to give the highest priority in repayment to last mile funding to corporate debtors to prevent insolvency, in case the company goes into corporate insolvency resolution process or liquidation, to prevent potential abuse of the Code by certain classes of financial creditors, to provide immunity against prosecution of the corporate debtor and action against the property of the corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions, and in order to fill the critical gaps in the corporate insolvency framework.

As per preamble to the Insolvency Code, the purpose of this Act is as follows:

  • Consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals
  • In a time, bound manner
  • For maximisation of value of assets of such persons
  • To promote entrepreneurship
  • Availability of credit
  • Balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues
  • Establish an Insolvency and Bankruptcy Board of India (IBBI)

Introduction of this Code has done away with overlapping provisions contained in various laws:

  • Sick Industrial Companies (Special Provisions) Act, 1985
  • The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
  • The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  • The Companies Act, 2013.

The provisions of the Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following entities:

  • Any company incorporated under the Companies Act, 2013 or under any previous law.
  • Any other company governed by any special act for the time being in force, except in so far as the said provision is inconsistent with the provisions of such Special Act.
  • Any Limited Liability Partnership under the LLP Act 2008.
  • Any other body being incorporated under any other law for the time being in force, as specified by the Central Government in this regard
  • Partnership firms and individuals

The major amendments are as follows:

  • Immunity from prosecution of corporate debtor for offence committed prior to CIRP, if there is change of management [section 32A(1)]
  • Protection to property of corporate debtor in relation to offence committed prior to CIRP, if there is change of management [section 32A(2)]
  • Scope of ‘interim finance’ enhanced to provide for last mile funding to prevent insolvency [section 5(15)]
  • Minimum number of applicants under section 7(1) in case of numerous small financial creditors (like holders of public deposits or debentures or home buyers).
  • Licenses, quotas, essential supplies cannot be cut during period of moratorium, so long as current dues are paid [section 14]
  • Corporate debtor can file CIRP against another corporate debtor [section 11]
  • Insolvency Professional must be appointed on the insolvency commencement date itself [section 16(1)]

Social Perspectives

From a social efficiency point of view bankruptcy proceedings cannot be mingled with other legal cases, as illustrated by the arguments above. The following section focusses on some of the salient features of the Code which explicitly or implicitly address the issues raised in the preceding section.

  • To consolidate and amend the laws relating to re-organization and insolvency resolution of corporate persons, partnership firms, and individuals.
  • To fix time periods for execution of the law in a time-bound settlement of insolvency (i.e. 180 days).
  • To maximize the value of assets of interested persons.
  • To promote entrepreneurship
  • To increase the availability of credit.
  • To balance all stakeholder’s interest (including alteration). Balance to be done in the order of priority of payment of Government dues.
  • To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law.
  • To establish higher levels of debt financing across a wide variety of debt instruments.
  • To provide painless revival mechanism for entities.
  • To deal with cross-border insolvency.

Legal Perspectives

Legal framework: complex, fragmented. No concept of time value of money.

  • Insufficient institutional capacity: courts, professional services, information systems. No capacity to deal with the demands of a growing economy. Laws such as RDDBFI and SARFAESI did not improve recovery.
  • Unclear priority between laws and between fora. Conflicts are decided by litigation. Lack of clarity causes delays.
  • Arbitrage: differential access, varied procedures. Forum shopping. Stacked in favour of banks and FIs.
  • Economic Perspectives.

Concern

  • Low predictability of resolution
  • High pendency
  • High cost, poor recovery.

In failure, limited liability should be respected.

  • Limited liability company is a contract between equity and debt.
  • As long as debt obligations are met, equity owners have complete control, and creditors have no say in how the business is run.
  • When default takes place, control is supposed to transfer to the creditors; equity owners have no say.
  • Speed of resolution is important so that capital and labour can be put back to work quickly.
  • Insolvency and bankruptcy resolution should be an economic decision; not a judicial decision

A combination of limited liability and strong insolvency process allows firms to undertake risky ventures while protecting creditors’ rights. The bargain:

  • Firms’ shareholders accept disclosure
  • They agree to work with lenders in insolvency
  • In return their liability gets capped

Financial Perspectives

The rise of limited liability needs to be accompanied by:

(a) Strong recovery laws

(b) Strong insolvency law

Where lenders can enforce repayment, there is:

(1) Higher credit access

(2) At lower price

(3) With longer maturity

(4) Lower collateral requirement

(5) From a greater number and variety of lenders

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