Carbon Credit – For Environmental Management

Monika Bhardwaj, B.Com (Hons.), ACS
Anand Wadadekar, M.A (Eco), MBA, AMFI

Environmental Management:

Environmental management is not merely managing the environment but it’s the management of human interaction with; and impact upon the environment in order to conserve the environment for mankind’s sake. Managing environment is the biggest issue these days which is being faced by everyone everywhere across the globe. Initially, the Environmental Law was perceived as one of the most important tools of environmental management. However, Protection of environment from degradation has now not just remained a legal issue but a management issue as well.

It is observed that mere compliance of environmental law on paper does not result in effective control of pollution. An alternate paradigm for pollution abatement for more effective methods of environmental control beyond traditional "command-and-control (CAC)" style regulation is to use economic instruments (EIs) or market-based instruments (MBIs). Introduction of market based instruments will help to reduce emission of pollutants, pollution and will surely increase social responsibility of industries. Eco-taxes, tradable emission limits and negotiated agreements are some of the types of instruments which can be used effectively and efficiently.

In India, environmental management is largely carried out at the state level. This is true for natural resources such as forests and land as well as for air, water quality and solid waste pollution.

Green and Grey Products:

Almost every product has multiple environmental impacts. The products and their manufacturing processes, consume energy, use renewable and non-renewable material and generate emissions. A product is ‘green’ when its environmental and societal performance, in production, use and disposal, is significantly improved and improving in comparison to conventional or competitive product offerings, i.e. they are sustainable from the environmental point of view. A Green Product is environmentally preferable and leaves minimum environment footprints.

When a product is unsustainable from the environmental point of view, it is termed as ‘grey’.

Market Based Instruments (MBI) for Environmental Benefits:

“Market Based Instruments refer to the environmental policies which encourage change in technology, behaviour or products through financial incentives like subsidies, taxes, price differentiation or market creation.”

CARBON CREDIT - As one of the most effective MBI:

What does Carbon Credit mean?

A permit that allows the holder to emit one ton of carbon dioxide; Credits are awarded to countries or groups that have reduced their green house gases (GHG) below their emission quota.

Its goal is to stop the increase of carbon dioxide emissions. The Kyoto Protocol presents nations with the challenge of reducing greenhouse gases and storing more carbon. A nation that finds it hard to meet its target of reducing GHG could pay another nation to reduce emissions by an appropriate quantity. The carbon credit system was ratified in conjunction with the Kyoto Protocol.

For example, if an environmentalist group plants enough trees to reduce emissions by one ton, the group will be awarded a credit. If a steel producer has an emissions quota of 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit from the environmental group.

The carbon credit system looks to reduce emissions by having countries honor their emission quotas and offer incentives for being below them.

Simply put, one carbon credit is equivalent to one tonne of carbon dioxide or its equivalent greenhouse gas (GHG). Carbon credits are “Entitlement Certificates” issued by the United Nations Framework Convention on Climate Change (UNFCCC) to the implementers of the approved Clean Development Mechanism (CDM) projects.

Indian Initiatives for Environmental Management:

Comparing the globally placed carbon trade, India seems nowhere near.

However, Policy Statement for Abatement of Pollution, 1992 by the Government favours the use of MBIs for pollution control, wherever feasible. In the recent years, compulsion to comply with Euro II emission norms is a very confident step towards controlling air pollution.

It has now become essential for companies to make environmental considerations as a part of their business decision making.

The enactment of the Information Technology Act, 2000 has enabled the industry to kick-start the use of electronic mode as a valid legal medium for carrying out its business operations which were until now done compulsorily on paper. This includes initiatives like MCA e-filing, Income Tax e-filing, SEBI Reporting and other electronic communications via, emails and video conferencing.

What we professionals can do?

India is still not a signatory to the Kyoto Protocol, which in a way, is a road-block for effectively carrying out environmental management by the industries. Currently companies like Jindal Stainless, Essar Steel, Hyderabad Chemicals, Paschim Hydro Energy P. Ltd, The Andhra Pradesh Paper Mills Ltd, have been making use of market based instruments like Carbon Credits in their businesses.

It is a need of the hour for Company Secretaries, Chartered Accountants, Lawyers, Cost Accountants and other Management professionals to put up their say in the management of their respective organisations (financial, manufacturing or services) and be a part of the decision making more proactively & aggressively.

At the organisation level:

1. The various industry Chambers like FICCI, ASSOCHAM, CII should take-up the issue of introducing market based instruments like Carbon Credits through a legal framework with the Government. These trade organizations can also come up with some award program to the Companies which religiously follow the norms. Such award program will work as a motivating factor in the industry to adopt the norms suo-moto.

2. Introduction of corporate-run carbon funds

3. Introduction of Government-run carbon programmes.

4. We, professionals, should stress upon and make the company management aware of the benefits of such market based instruments

5. Awards like ‘Best Green Idea’ for employees coming up with suggestions; ideas, ways, etc. should be introduced.

6. Ask the management of our respective organisations to take help of the MBIs wherever feasible.

7. Computer-based entrance tests for educational courses.

8. Organizations can also come up with policies for reducing wastes like for encouragement of use of metal water bottle in the organization in place of plastic water bottles which is sanitary, easy to clean and is capable of being used over and over.

9. Organizations can also encourage use of reusable lunch bags / cups etc. in their cafeteria / lunch rooms which helps in avoiding use of plastic / paper, use of hand towels in toilets and lunch rooms instead of paper towels and electric dryers.

• Multi-Commodity Exchange (MCX) has taken a pioneering effort to launch Carbon Credit Futures in India in January 2008 and has been recognized as India’s First Green Exchange. This has enabled Indian owners of Clean Development Mechanism (CDM) projects under the Kyoto Protocol to sell the carbon credits they have earned, at the correct market prices without having to negotiate or bargain. This has done away with many of the problems Indian SMEs faced in the global carbon credits market.

• Further, National Commodity and Derivatives Exchange (NCDEX) also launched a futures contract for carbon credit issued under United Nations Framework Convention on Climate Change on its exchange platform in April 2008. NCDEX is the second exchange in the country after MCX which started carbon credits futures.

However, the number of trades has dwindled on the NCDEX

The industry participation does not quite look encouraging right now, however looking at the growing environmental concerns across the globe, the carbon credits trading is sure to catch momentum in the years to come.

On individual level, we professionals can contribute in the following way:

1. We, professionals, can help our respective organizations in implementing effective waste management systems. We can also assist in registering our manufacturing units under Indian Green Building Council and products under Bureau of Energy Efficiency voluntarily; though for some the registration is mandatory.

2. Internal policies may also help in encouraging paperless communications, use of common transport etc. as far as possible. Such policies may atleast ensure minimum use of paper (double side printing), avoidance of wastage and re-cycling of waste paper and therefore, saving trees – a natural resource.

3. We can also assist in encouraging our fellows in full utilization of software applications, for example execution of daily work in soft copies rather than printing (Eg. Excel Macros for data processing, analysis, etc.). This way, we will solve two problems i.e. space for storage of physical records and availability/ accessibility of all records at a centralized server hence, reducing dependence on human factor. We all are aware that most of the official communications can be done through email/video conferences. We professionals can advise our managements / fellow employees to adopt such practices.

4. We, professionals, need to refer to many laws for which we purchase bulky books every year. Here, we can purchase CDs instead of those books, which will reduce substantial use of paper and storage and will be easy to use.

5. We can also adopt and advise good practices of reducing carbon footprint for example using CNG gas in our cars, maximum use of public transport system.

6. We can advise our managements to come up with policies to reduce wastages, be it paper, electricity or any other. Policies on travels can also be modified to discourage air travel at all levels of management. A small change can add a big thing to the concept of “Go Green”.

Conclusion:

According to industry estimates, Indian companies are expected to generate at least $8.5 billion at the going rate of $10 per tonne of CER. Tata Sponge Iron Ltd got a CDM certificate from the UN for its waste heat recovery project in Orissa. Reliance Energy already has energy efficiency and process development CDM projects.

It’s the need of the hour to think very seriously on reducing environment loss by religiously following & implementing and innovating techniques & ways to contain the same. This is a high time to call a revolution for reducing carbon footprint in order to preserve what’s left of the ozone layer, which is a protective layer between sun’s harsh ultra violet rays and the living beings. Otherwise, the day is not far when the world will be full of hunger; sun burnt, blind people, scary sounds and many more incurable diseases.

CYBER CRIME

Everyone who works on a computer must be familiar with the term “Cyber Crime”. Initially, when man invented computer and then the technology for communicating between computers was evolved, he would have never thought that the cyber space he is creating could be flooded with any crime i.e. cyber crime. But now almost all of us might have heard the term computer crime, cyber crime, e-crime, hi-tech crime or electronic crime which is nothing but an activity done with a criminal intent in cyber space. Simply put, it is an activity which is generally criminal in nature, where a computer or network is the source, tool, target, or place of a crime. To say in one line, “Cyber crime refers to all the activities done with criminal intent in cyberspace.”

Such crime involves an information technology infrastructure, including illegal access (unauthorized access), illegal interception (by technical means of non-public transmissions of computer data to, from or within a computer system), data interference (unauthorized damaging, deletion, deterioration, alteration or suppression of computer data), systems interference (interfering with the functioning of a computer system by inputting, transmitting, damaging, deleting, deteriorating, altering or suppressing computer data), misuse of devices, forgery (ID theft), and electronic fraud.

This article intends to give an overview of Cyber Crimes since in e-life (of which we all are a part of) conventional crimes like extortion, forgery etc. are being done with the help of computers; which most of us are using for online monetary transactions.

In today’s e-Age, 'Crime' has extended itself beyond physical assault or mental torture; now it also affects our e-life. E-Life means our existence & living in the cyber world. Every one of us is a part of this cyber world, directly or indirectly, since computers & internet are now an integral part of our personal & professional life. Just like any other invention, Computers & Internet are a boon to human kind if used in a right way and to the advantage of the society. However, as we all know, everything has its pros and cons and so computers & internet are not an exception. If we consider ‘Cyber Crime’ as virus then it won’t be untrue to say this virus is corrupting man’s significant development (computers and internet) which is responsible for developing civilized society for men. Cyber Crime is a menace all over the world and is the one of the most difficult & challenging to detect & investigate. You will find it interesting to note that even the official website of the Cyber Crime Investigation Cell of Crime Branch Mumbai quotes "The invisible criminal is dangerous than the visible one".

You may be wondering why one should know about Cyber Crime?

Most of us are using internet and computers for online transactions where we transmit personal information and possibly do monetary transactions. If your personal information goes in wrong hands and you become bankrupt or you start receiving absurd mails or your e-mail account gets flooded with unwanted mails; means you have become a victim of Cyber Crime.

Cyber Crime has various forms which may include hacking (illegal intrusion into a computer system without the permission of owner), phishing (pulling out the confidential information from the bank / financial institutional account holders by deceptive means), spoofing (getting one computer on a network to pretend to have the identity of another computer in order to gain access to the network), cyber stalking (following the victim by sending e-mails or entering the chat rooms frequently), cyber defamation (sending e-mails to all concerned / posting on website the text containing defamatory matters about the victim), threatening (sending threatening e-mails to victim), salami attacks (making insignificant changes which go unnoticed by the victim), net extortion, pornography (transmitting lascivious material), software piracy (illegal copying of the genuine software / programs), email bombing, virus dissemination (sending malicious software which attaches itself to other software), IPR theft, identity theft, data theft, etc.

Hacking, destroying files and data through spreading virus are the largest number of offences in the cyber world.

"Russia, China and Brazil are world leaders in cyber crime. India is fast emerging as a major hub of cyber crime, however our legal system is already in place to tackle this menace of cyber crime and to control it and punish the guilty. Cyber Crime, which we may define as “an unlawful act wherein the computer is either a tool or a target or incidental to the crime”, has both civil as well as criminal remedies.

So let’s talk about the remedies available against such crimes. In India, the offence of Cyber Crime is covered under Information Technology Act 2000 and under the Indian Penal Code.

Cyber Crime Cells have been established by law in major cities. These Cells function directly under the Commissioner of Police of respective cities. Central Bureau of Investigation (CBI) already has a cyber crime wing operational since 1999.

The Government has established “The Cyber Regulations Appellate Tribunal” under the Information Technology Act, 2000. The Tribunal has the same powers as are vested in a Civil Court for requiring the discovery and production of documents, receiving evidence on affidavits. But the decisions of the Tribunal can be contested by the High Court. The Information Technology Act not only applies to the offence committed in India, but it can also be used to bring offenders from foreign countries to India for trial.

Powers of Cyber Crime Cells:

Any police officer, not below the rank of a Deputy Superintendent of Police, or any other officer of the Central Government or a State Government authorised by the Central Government in this behalf may enter any public place and search and arrest without warrant any person found therein who is reasonably suspected or having committed or of committing or of being about to commit any offence under this Act.

Punishment for Cyber Crime:

A person found guilty of cyber crime shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.

Salient features of the Information Technology (Amendment) Act, 2008:

The Information Technology (Amendment) Act, 2008 was enacted in October 2009.

The term “digital signature” has been replaced with “electronic signature” to make the Act more technology neutral. A new section has been inserted to define “communication device” to mean cell phones, personal digital assistance or combination of both or any other device used to communicate, send or transmit any text video, audio or image. A new section has been added to define “cyber café” as any facility from where the access to the internet is offered by any person in the ordinary course of business to the members of the public.

There is an addition of several new offences into the Act. Section 66 has now been expanded to include sections 66A, (offensive messages) 66B, (Receiving stolen computer) 66C, (Identity theft), 66D (Impersonation), 66E (Voyeurism) and 66 F (Cyber Terrorism). Section 67 has been expanded to include Sections 67A (Sexually explicit content), 67 B (Child Pornography),

In short about Cyber Terrorism:

Cyber terrorism is the premeditated use of disruptive activities, or the threat thereof, against computers and/or networks, with the intention to cause harm or further social, ideological, religious, political or similar objectives, or to intimidate any person in furtherance of such objectives.

Cyber terrorism can have a serious large-scale influence on significant numbers of people. It can weaken countries' economy greatly, thereby stripping it of its resources and making it more vulnerable to military attack.

CS. Monika Bhardwaj

Class Action Lawsuit

This article has been selected and published in the Souvenir released on the ocassion of the 37th National Convention of Company Secretaries held in Hyderabad  on 5-7th November 2009.

Class Action lawsuits have recently made to the front page news, more particularly in western countries. The reason being the sudden fall (bankruptcy) of financial industry giants like Freddie Mac, Wachovia, AIG to name a few and the consequent losses suffered by large number of investors amounting to millions of dollars.

What is this ‘Class Action’ all about?

‘Class Action’, which is also known as ‘Representative Action’, is actually a form of lawsuit where a large group of people collectively bring a claim to the court through a representative.

This form of lawsuit finds its origin in United States and is predominantly tried in their federal / state courts. In United States, such claims are governed by Federal Rules of Civil Procedure, more particularly Rule 23. Later on Class Action Fairness Act of 2005 was introduced which expanded federal jurisdiction over many large class-action lawsuits (where amount in controversy exceeds $5 Million) and mass actions taken in the United States. It is pertinent to note here that Class Action Fairness Act contains carve-outs for, inter-alia, shareholder class action lawsuits which are covered by Private Securities Litigation Reform Act of 1995 which imposes new Rules on securities class action lawsuit to curtail frivolous claims that are also known as “strike suits”.

It is observed that mainly the class action lawsuits are filed either by a large number of consumers who suffer losses due to some illegal claims made by companies about their products (which we may term as “Consumer Class Action”) or by employees of a Company adopting discriminating hiring or illegal salary practices (which may be termed as “Employee Class Action”) or by large number of investors who suffer losses due to erroneous decisions or actions taken by the management of a Company wherein they had invested their hard earned money (which may be termed as “Shareholder Class Action”).

This article primarily focuses on “Shareholder Class Action” lawsuits. We have made an attempt to understand the concept & its existence in western countries and have tried to relate to the Indian context.

What exactly are ‘Shareholder Class Action’ suits?

Generally it is observed that when a Company’s management plays fraud or take erroneous policies with mala-fide intensions and consequently, the share prices falls or the Company becomes bankrupt; the most hit class of people are its shareholders who losses mainly on account of finance and to recover such losses they collectively file Class Action. Most class actions seek to recover shareholder losses relating to falling share prices or, in the worse case scenario, insolvency. History has witnessed that shareholder class action litigation results more from a company's stock price movements than from the actual commission of fraud by the corporation.

It is interesting to note here that it’s not necessary that such Class Actions are filed only against the Companies; sometime they are also initiated against the errant management including the Directors and other officers. But the class of shareholders must comprise of those shareholders that have suffered common injury or injuries. When one joins a class action suit, he / she have to forgo his / her right to file an individual suit against the Company.

One may find that Shareholder Class Action may either become jury trials or may be settled prior to trials through mediation and settlement. In mediation, the damages and compensation are agreed to by the defendant company. In Jury Trials, the compensation is awarded through a judgment wherein if the compensation is a huge amount the defendant company may opt for appeal. The appeal process may take years and then the concerned plaintiff/s have to wait for long to get compensation and in such cases if the Company declares bankruptcy, the plaintiffs may never get a compensation then.

“The shareholders of a Company, which is in administration, can make claims against the administrator for continuous breach of disclosure guidelines and misleading and deceptive statements and conduct of the Company and such shareholders can be ranked equally with the unsecured creditors rather than making them stand in the queue after the creditors. Accordingly, the shareholders who buy shares in a Company, which becomes bankrupt shortly, relying on the misleading statements or incomplete disclosure by the Company will have an action as a creditor against the liquidator or administrator for any loss suffered as a result of that reliance.” - Federal Court in Sons of Gwalia Limited (Administrators Appointed) v Margaretic.

In Satyam Computer Services case, twelve class action suits have been filed so far and more are expected against the Company and the Managing Director including the other members of errant management of the Company by US Law firms on behalf of purchasers of Satyam’s American Depository Receipts. In the same fiasco, the global audit firm PwC, along with its international and India unit, was also charged with class action for having "recklessly disregarded" a multi-year massive fraud by the management of Satyam. The suit was filed on behalf of the purchasers of the American Depository Receipts of Satyam between January 6, 2004 and January 6, 2009.

Some recently seen Class Action suits are on Freddie Mac, Wachovia, Fannie Mac.

In United States, the law which deals with Class Action suits is “Class Action Fairness Act of 2005”.

Types of Class Action Suits:

Apart from share-holder Class action suits, there are some other types as well. Class Action lawsuits may be filed for matters relating to Dangerous consumer products, Unauthorized telephone charges, Unpaid overtime, Unauthorized Web loyalty charges, Unauthorized disclosure of credit card information, Illegal debt collection practices, Predatory lending practices, Excessive loan servicing charges, Unfair credit reporting, Pharmaceutical liability, Product liability.

Scenario in India:

We have observed that in India, class action lawsuits may be compared to Public Interest Litigations (PILs) allowed under Civil Procedure Law, wherein an individual or a group of individuals are allowed to file a complaint. Such litigations are mainly used in consumer complaints and rising environmental & cultural concerns; generally limited to protection of fundamental rights and are meant for protection of public interest. Such litigations can be initiated either by the Court itself or by a public spirited individual/s that represent the victim/s. In such cases, generally victims are unable to approach courts due to financial disability or otherwise. One may find that in India, though the principles of class action suits by shareholders against managements have been upheld by various Courts in the past, these are yet to be reflected in law.

Class Action Vs. PIL

Interestingly, it can be observed that though both Class Action lawsuits and Public Interest Litigations allow a large number of plaintiffs to bring collective suits that relate to same cause of action by way of representation as opposed to conventional lawsuit wherein the plaintiff represent himself only; still these both differ from each other. Like in Class Action lawsuits the plaintiff’s attorney charges contingency fees; which means no fees in case of failure and in case of success it is directly related to the amount of compensation / award (whether awarded in a judgment or received through settlement) and hence the risk of success or anxiety to succeed gets shifted from plaintiff to his Attorney, which is not so in Public Interest Litigations since as per Indian law, lawyers are not permitted to charge contingency fees. Another difference is in Class Action lawsuits, US Law requires each party to bear its own cost of litigation irrespective of the result of the lawsuit and hence even if plaintiff losses, he is not required to pay the defendant his cost of litigation. However, as per Indian law the courts may ask payment of such cost by the losing party. Actually, these differences alone acts as a deterrent to use class action mechanism in India, the way it is used in US and other European Countries. Further, PILs can only be filed against public bodies / regulatory bodies / state in High Court or Supreme Court under Article 226 or 32 of the Constitution respectively however; the Class Action lawsuits can be filed even against the private bodies. For establishment of Class Action litigation there must be a legal injury to the plaintiff however in PIL such injury / damage is not necessary.

Shareholder Class Action and Indian Corporate

In India, the need to codify class action litigation in Indian law had been recommended by J J Irani Committee which submitted its report to Ministry of Company Affairs on May 31, 2005. One may find that after the Satyam Fiasco, the greater need to encourage class action litigations has been felt in India. The provisions contained for representative suits in Section 397 and 398 in the existing Companies Act, 1956 for oppression and mismanagement may be termed alike US Class Action.

However, there is no specific provision for class action litigations under existing Indian Companies Act.

Interestingly the proposed Companies Bill 2009 however contains few provisions for class action lawsuits. Clause 32 of the Bill states that “A suit may be filed or any other action may be taken under Section 30 or Section 31 by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.” Similarly Clause 215 and Clause 216 propose to provide for a class action mechanism. Once enacted, these provisions will enable the shareholders of a Company to hold the errant companies and their management responsible for the wrong-doing.

Recently, on May 19, 2009 the Securities and Exchange Board of India (SEBI) also notified SEBI (Investor Protection and Education Fund) Regulations, 2009 according to which SEBI will establish an Investor Protection and Education Fund which will be used inter-alia, for “aiding investors’ associations recognized by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed” – clause 5 (2) (d) of the Regulations. Such aid will be subject to certain conditions as stipulated under Regulation 6. This amendment is a path-breaking one and is believed to set shareholder activism in India. Through this an attempt is being made to provide incentive to class action litigations. Though a regime has started yet much is needed to make such litigations successful in India. In order to make the system functional lot of issues need to be settled which pertains to procedural as well as legal aspects. The procedure need to be clearer in terms of approach. Several amendments are still expected in Securities Law of the country so as to avoid abuse of process.

Benefits of Class Action Suits:

Class action lawsuits are beneficial from various angles.

Firstly, they enable aggregation of large number of individualized claims into one, which is cost effective for claimants and also avoids unnecessary repetition of lawsuit pertaining to common questions of law and fact. It provides an edge to small shareholders to come together and claim damages for the wrong-doing; at the same time lessen the burden on courts.

Secondly, it encourages bringing of claims that are very minimal when you see them individually but are considerable when seen collectively. Small recoveries normally discourages individual when compared to the litigation cost involved. This is the most efficient way of penalizing the wrongdoer and deterring him to repeat his wrongdoing in future where his wrongdoing has caused a significant loss / injury to a number of persons.

Thirdly, it also avoids conflict in rulings passed by different court on same question of facts and law. Fourthly, it provides relief to all individuals (plaintiffs) comprised in the class by way of single judgment or single settlement.

“Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.” – Preamble to the Class Action Fairness Act of 2005 of United States.

Impact of Class Actions on the ‘Performance’ of an investment portfolio:

In United States, mutual funds may file class action lawsuits on behalf of its investors, with an option given to them to opt in or out of the participation in the lawsuit.

If a company goes bankrupt or goes bust due to any reason suddenly, the stock price of that company falls drastically and if a portfolio holds the shares or securities of that company, then the return on investment obviously gets impacted, since the portfolio value drops to an extent of the quantity of the units held in the portfolio, going by the logic that more weightage the security has in the portfolio, the more will be loss of return. Mutual Funds have no control over this situation and have to report the ‘understated’ rate of return which is caused due to the fall in price of the security.

Now here, two scenarios arise. When the stock price falls drastically, as explained above, the portfolio gives a low rate of return in that particular month or period of months. Now since the class action lawsuit takes long time to reach the settlement, it happens that when the shareholders get compensated for their losses, there is an inflow of funds into the portfolio, which may be huge. Now this un-expected flow of funds causes the return of the portfolio to shoot up, since the portfolio value increases as compared to the previous month or period’s portfolio value. This flow of funds causes the portfolio to get overstated.

Therefore, due to class actions we have two scenarios: One, which makes the return to quote ‘understated’ and second, which makes the return to quote ‘overstated’.

The mutual fund industry is in a debate, whether to include and use this inflow of funds arising out of the result of the settlement, for performance of the portfolio or to give the funds, back to the investor?

Criticisms / Pitfalls:

The Class Action Lawsuits are subject to several criticisms as well. One among them is the large fees for attorney who normally charge conditional / contingency fees which is proportionate (normally a higher percentage of compensation / award money) leaving behind very small portion of money with class members and the second being the time taken for a final judgement, which may take years.

Disclaimer:

The author does not claim authority or expertise over this subject. The article merely aims at highlighting the facts about Class Action Lawsuits, derived from the information available in public domain. Readers are advised not to consider anything mentioned in the article as a legal advice. Care has been taken while writing this article; however errors or omissions cannot be completely ruled out.

CS. Monika Bhardwaj

E-COMMUNICATION – A Serious Thing

This article aims to highlight that communications done through electronic mode are now recognized by Indian Law and hold true as an 'evidence' as well as 'contractual liability'.

Internet and electronic communications has now become an integral part of our day to day life, from SMS to emails to chats to blogging, you just cannot imagine a single day without communicating through electronics. The young generation today is just crazy of this 'tool' and why not, since it gives us faster way to communicate things and this is not just true for youngsters but for we professionals too and for that matter, everybody. Internet has become such a necessary ingredient in our lives and we all have become addict to it to such an extent that it would not be unrealistic to say for today’s generation "Eat Internet, Think Internet and Sleep Internet".

The credit for popularity of the internet goes to e-communication whether it’s Emails, Chats, Blogging, SMS, voicemail, teleconferencing and video-conferencing or in whatever mode, since such methods have made life easy especially when you need to communicate fast, effectively and have to take decisions quickly.

It is interesting to note that many of e-communication methods were invented for fun like chats or just to communicate without any sincerity attached to them and therefore till now chats, blogging, etc. were regarded as simply a fun activity by many of us; a tool to express anything under sun and let the world know. However, things have quite changed now and these things are no more a fun activity.

Now you may be wondering, what may be included in e-communication?

E-communication may comprise of e-mails including its attachments (whether an image or a text), SMS, voicemail, chat history, web cam recording, postings on blog (s), discussion on e-forums etc.

With the advent of Information Technology Act 2000, legal recognition has been granted to electronic records and for that sake to electronic communication. Section 4 of this Act says “Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is- (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference.” Hence, a combined reading of Information Technology Act 2000 and various provisions of Indian Evidence Act 1872 establishes the fact that electronic records can be exhibited and admitted as evidence.

A recent Supreme Court judgment has also made it clear that blogging is a legal communication and the bloggers can be nailed for their defamatory views expressed / contents posted on their blogs. Even disclaimers will not provide any escape to the bloggers. Accordingly the previously mentioned modes of electronic communication can also make one liable for libel or even prosecution for the contents used therein. Hence, it will not be safe to use disgraceful language or express your frustration with the use of harsh words. You never know when that same language will render you liable and you will need to provide explanations and justifications for it. So it’s better to take precautions while communicating electronically.

Now the question arises, what care needs to be taken for electronic communication to avoid any liability?

Its very simple actually, while you communicate; before sending the message just go through it as if it was to be made public and the whole world would read it or hear it, by this, you will automatically come to know what impression that communication will make if it will be presented to a third party.

If you are not careful in communicating, you may be liable for hurting public sentiments, for libel and / or for prosecution under Indian Penal Code. Even your chats can be used against you.

E-mails form a vital record in corporate world. Hence, before shooting a mail to your co-worker or your customer, just look at the consequences if the same mail is forwarded to your manager. You may even render your organization liable.

Hence, the next time you communicate electronically, don’t take it as a fun activity or regard it as a mere tool to express yourself, since your communication can be admitted as ’evidence’ in a case against you. So be careful.

However, don’t take a negative impression that e-communication can only render a person liable, through e-communication you may also escape your liability by well informing / alarming your customers including your management, by giving timely advises which your profession expect out of you. Your communication is valid under law and it will save you in an allegation that you failed in performing your duties.

© Monika Bhardwaj

'Email Etiquettes'

Here are some Email Rules which we should follow in our day-to-day email communications; office or personal.
We call them 'Email Etiquettes'.

1. Indent: Keep your mail in Left Indent format. This is the American style and currently being followed.
Alignment: Keep as 'Justified'.

2. Recipients: If you are sending a message to more than one person, it is advisable to keep the recipients in 'Bcc' instead of 'To'. Also in such case, address the recipients by 'Hi', 'Hello', 'Greetings', etc.
If the recipient is a female, address as 'Ms. X' (this is irrespective of the female being married or single). Same applies to a male recipient.
Do NOT use 'Good Morning' and alike, since you never know at what time of the day the recipient may read your message.

3. Font style, Font size: Most preferred font style and size is 'Verdana 10 pt'. If you wish to have give a colour, it should not be anything else than black, blue.

4. Spell Check: Please use the Spell check facility in your mailbox without fail. Every email service provides this useful facility.

5. Length of a paragraph: Avoid extending one paragraph above 5 lines.

6. Avoid using 'Smileys' unnecessarily, especially in official communications.

7. Apply your brains while 'Replying to All'. If not necessary, avoid 'Reply All' function.

8. Signatures (for official purpose only): It is advisable to keep a pre-designed signature for your outgoing mails. When composing a mail at first place, it is advisable to use the full signature details. While replying to mails, reduce your signature details by half.
Signature should have: Your name (first and last only), Designation, Department Name, Organisation Name & Address, Contact details (direct or reception or cell).

9. Avoid sending mails on official email addresses if you have the recipients personal email address. Many corporates consider 'sending to and receiving of mails from external media as Risk issue'.

10. If you have said 'Please find attached', ensure that you attach and re-check the attached document, before sending.

11. Hitting the 'SEND' button should be the last task. Do not hurry in sending the communication, since once sent, it's gone for forever.

12. Avoid being unnecessarily 'informal in formal communications' and 'vice-versa'.

13. Do not write a mail when you are in a hurry. If you are not able to reply in detail, just reply as "Will get back to you soon".

Happy Emailing ! ! !

- CS. Monika Bhardwaj

Co-Relating Economics and Law

Monika Bhardwaj, B.Com (Hons.), ACS
Anand Wadadekar, M.A Economics, MBA

This article makes an attempt of co-relating or linking Economics and Law – an out of the world unestablished & rare combination/concept as you may term it.

Sanjay and Deepak co-incidentally met in a restaurant some months after they completed their graduation in Commerce. And a conversation started...

Sanjay: Hey, Deepak! How’s you buddy? How’s life?

Deepak: Hey, Sanjay! What a pleasant surprise to see you here! I am fine, thank you! Life is cool… How about you?

Sanjay: I am doing well! Just got myself admitted to ICSI’s Company Secretary course and also simultaneously registered for Masters in Economics (M.A) from our University.

Deepak: What? CS course and Economics together, how can Economics and Law be studied together? There is no co-relation between the two. These two are completely different fields. To me, this sounds weird, Sanjay! Don’t you feel so? I feel you should pursue either hardcore Economics or hardcore Law.

Well, I am doing 3 years LL.B from our University itself. I have got highly interested in law.

Sanjay: I knew you would react this way and would feel this weird. Actually anybody would have reacted the same way as you did. I understand!

Deepak: I am sorry, Sanjay! Still can you please explain me your thought behind taking such decision of pursuing Economics and CS together? What do you have in mind exactly?

Sanjay: Yes sure! Hey but don’t get bored ok while I am explaining 

Deepak: Hey not at all!

Sanjay: See, as we all know and studied, Economics is the study of human behaviour in relation to the unlimited wants and scarce means to satisfy them. But then, any Law emerges taking into consideration the same human behaviour. Economics tries to make a balance between the unlimited wants and scarce means and Law tries to avoid and penalize the human act which results from the same desire of satisfying unlimited wants but scarce means i.e. Frauds and Scams.

Co-existence of Economics, Commerce and Law makes for a complete economic atmosphere. I feel Economics & Law need to go hand-in-hand in order to make the whole system work smoothly and efficiently and to get the desired results from the economic activity.

We need to understand that any economic activity to derive desired results should be backed and complimented by favourable legal environment.

Deepak: Sorry to interrupt you! Can you give me an example?

Sanjay: A classic example can be given of The Industrial Policy of 1991. Liberalization of the legal compliances and deregulation proved to be a boon for industries and that resulted in increased economic activities, growth and progress, the fruits of which we are witnessing now. New legislations were enacted by the Government and amendments to the existing ones were done to accommodate the changes proposed in the Industrial Policy. Likewise, the Companies Amendment Act, 2000 which brought some forward looking provisions like Postal Ballot Voting, Buyback of shares, Directors Responsibility Statement, etc. and ten-fold increase in penalties for non-compliance, has proved to be a boon for the shareholders. Shareholders are now assured of transparency, corporate governance which will lead to increase in confidence in companies, their goods and services and thereby results in increased demand and ultimately increase in economic activity.
Do you agree, Deepak?

Deepak: Oh yes, I agree!

Sanjay: Economic phenomenon – National and International – also initiates changes in the legal structure of a country. If the laws are extremely or unnecessarily stringent, then the transition to the particular economic change may become difficult and ultimately the country suffers.
A classic example can be given of Globalisation, GATS & WTO. Globalisation being an economic phenomenon, to reap the benefits, favourable legal enactments was necessary. So legislations like Limited Liability Partnership Act (LLP), New Company Law, New Foreign Direct Investment (FDI) norms were required. In other words, introduction of a global economic phenomenon brings about changes as well as the need of new amendments in the legal structure.
See, Under the GATS, the countries signatory to the Agreement are advised to reform their policies so as to allow foreign education institutions, foreign service providers, etc to establish a place of business in their country. In order to allow them, the country needs to amend its concerned laws and give the foreign entities the required legal status to work. The US wants India to amend the Intellectual Property Laws and so as to place them at par to the global practices. This will benefit the country immensely.

Deepak: Ok! I got! These examples were on macro level. I am not able to understand how we as individuals or future professionals benefit from this co-relation.

Sanjay: You are right! The above examples were on macro level. If we now think on a micro level, the relation between Economics and Law still exists.

In the industry, management strategies & policies are definitely based & taken on the basis of Economics, irrespective of what type of the organization or sector it is. The implementation of these policies and strategies has to be in the given framework of the law at that particular time. Legal professionals who have studied Economic Laws like MRTP, Competition Act, IPR, Environmental Laws, etc. can well contribute in the strategy and policy making process, provided they have a firm base of knowledge in Economics. Legal professionals can have an edge over others in the management cadre. Knowledge of Economics will enable them to innovate new ideas, strategies and since they are already masters in Laws*, they can put those ideas and strategies to use. They can think whether any legal provision is a deterrent to the implementation of the said policy or strategy and provide solution to that, on the basis of their legal knowledge.

See Deepak, changes in the economic situations bring about changes in legal policies of a country. Knowledge of both – Economics & Law – can bring about a change in how an organization works.

So Deepak, tell me was I able to throw some light on your doubts?

Deepak: Well, buddy! With such an excellent explanation, you have almost convinced me of the relation between Economics & Law. Such combinations are rare, indeed!

Sanjay: Thanks Deepak! Just to give you a live example. We have a person before us, who is a master in law* and also has expertise in Economics. He is none other than our country’s former Finance Minister, Mr. P Chidambaram. He was a hardcore Lawyer first and was a person who shaped our economy through fiscal policies.

So can we still say, “There can’t be a co-relation between Economics and Law?”

• The phrase ‘Masters in Law’ does not necessarily mean any education masters’ degree. Here it is taken as a qualitative concept.

© Authors

SEBI & RBI Amendments

SEBI & RBI Amendments:

Securities and Exchange Board of India (SEBI) vide SEBI/CFD/DIL/LA/1/2009/24/04 dated April 24, 2009 has made amendments to the ‘Listing Agreement’:

Amendment No 1:

SEBI asks companies to declare dividend on a per share basis only.
Insertion of clause 20A - Listed companies shall declare their dividend on per share basis only

For instance, a company having shares of face value Rs 2, and declaring a dividend of Rs 2, will have to say that it has declared a dividend of Rs 2 per share and not a dividend of 100%.

Impact:

Very beneficial for the common man and shareholder to understand the exact amount of dividend he/she is supposed to receive. This Amendment will bring uniformity in the manner of declaring dividend among listed companies. Since face value of shares differs from company to company and the company announcement saying 'dividend declared at 100%' does not exactly give a clear picture of the amount of the dividend to the shareholder. This Order from SEBI will surely help in removing the confusions among the shareholder and also from the investment aspect, investors will be placed at a better position in respect of his/her investments. Though it may be somehow inconvenient to companies declaring dividend for example if the face value of their shares is Re.1 and they declare Re. 0.50 it will not give exact indication on sharing profitability (return), which is 50% as compared to declaration when made on percentage basis. But for the sake of understanding and bringing similarity / uniformity, the order sounds good, since now there is no liberty to the companies to declare dividend as per their discretion on per share / percentage / on any other basis.

Amendment No. 2:

SEBI reduces the timelines for the notice period by listed companies for all corporate actions like dividend and bonus, to name a few.
Amendments to Clause 16 and Clause 19 - The notice period for record date has been reduced to 7 working days and for board meeting has been reduced to 2 working days.

Impact:

It is very beneficial for all the stakeholders including the companies & shareholders. It will mitigate the chances of manipulation in share prices by providing less time to the concerned elements. For companies, it will help in reducing the chances of insider trading and provide flexibility in terms of time for taking internal decisions. The closure time for trading window under insider trading regulations will also get reduced. This will ensure faster dividend and bonus share delivery to the shareholders.

RBI Circular:

Payment of interest on 'daily basis' by banks on savings back account

At present, the interest (3.5 per cent per annum) is calculated on the minimum balance held in the account from the 10th of each month to the last day of that month. So, if a bank customer has Rs 1 lakh in his savings account one day and then Rs 100 another day, the minimum balance taken for calculation of interest in the period would be Rs 100.

But, from April 1, 2010, the interest paid on the savings account will be on the daily minimum balance. In other words, even the Rs 1 lakh balance in the savings account will earn the customer interest, even if it is withdrawn later.

As per the new directive issued by RBI, only commercial banks will need to follow this new method of interest payment on savings accounts. Commercial banks include all banks other than co-operative ones.

Impact:

The Circular is in the best interest of bank account holders and would like to term it as ‘path-breaking’. Customers were at loss due to the previous method of calculation of interest. Where banks charge interest for loan taken for every day (like in case of credit card), the Circular is very justified to make the customers benefit, since banks use their deposits and earn from it on daily basis because of the Money Multiplier mechanism. This will definitely motivate people to hold more money in their savings bank accounts. This means that the money will start earning higher interest even as it remains liquid and safe.

RBI Circular:

Banking Companies (Nomination) Rules, 1985 – Acknowledgement of Nomination and indicating the Name of the Nominee in Pass Books / Fixed Deposit Receipts

Impact:

This is yet another investor friendly order from the RBI. This will ensure security and record keeping for the customer. Any investment done should ideally have a nominee registered. This will also ensure that banks also do not get into unnecessary formalities at the time of maturity or pre-mature withdrawal, since the nominee details will be available with both – the bank and the customer.

CS. Monika Bhardwaj

Anand Wadadekar