Category: CS Professional

Trademarks – Intellectual Property Rights Laws and Practices Important Questions

Question 1.
With reference to the relevant legal enactments, write short notes on the following :
(v) Well-known trademark
Answer:
A Well Known trademark in relation to any goods or services means a mark that has become so popular among the public which uses such goods or services such that the use of such mark in relation to other goods or services, would be likely to be taken as indicating a connection between the goods & services and the first-mentioned goods or services.

Question 2.
With reference to the relevant legal enactments, write short notes on the following:
(iii) Collective trademark
Answer :
Collective trademark – A collective trademark means a trademark distinguishing the goods or services of members of an association of persons, which is the proprietor of the mark, from those of others. The application for registration of collective mark should be accompanied with Regulations for use of the collective mark, specifying persons authorized to use the mark, conditions of membership, conditions for use of mark including sanctioning against misuse and other prescribed matters.

Question 3.
With reference to the relevant legal enactments, write short notes on the following:
(iv) Inherently distinctive marks
Answer:

• A trademark acting as a sign that is capable of distinguishing the goods or services of one trading entity from another, at the very least it has to be the inherently distinctive mark.
• In the case of Imperial Tobacco Co. of India v. The Registrar of Trade Marks, AIR 1977 Calcutta 413 the Calcutta High Court held that the essential conditions of a trademark in relation to goods proposed to be registered are (1) distinctive or (2) if not distinctive, or capable of distinguishing the goods as aforesaid, there may be some inherent qualities or distinguishing characteristics in the mark itself which may mark it so distinctive or capable of such distinguishing the goods of the applicant from others.

Question 4.
(a) Distinguish between the following:
(i) ‘Certification trade marks’ and ‘collective trade marks’.
Answer:
Certification trade mark – The certification trademark in relation to goods means the mark which is used to show that the goods on which the mark appears are certified by some competent person in respect of certain characteristics of the goods such as origin, mode of manufacture, quality, etc. A certification trademark can be used in addition to the user’s own trademark on his goods.
Collective Trade Marks:
Please refer 2011 – Dcc (1) (C) (iii) on page no. 189

Question 5.
(a) Distinguish between the following:
(ii) ‘Trade mark’ and ‘certification trade mark’.
Answer:
The distinction between Trade Mark and Certification Trade Mark the term Trademark has been defined under Section 2(1 )(zb) of the Trade Marks Act, 1999 as to mean a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include the shape of goods, their packaging, and combination of colors; and

(i) A registered trademark or a mark used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right as proprietor to use the mark; and

(ii) In relation to other provisions of the Act, a mark used or proposed to be used in relation to goods or services for the purpose of indicating or so to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right, either as proprietor or by way of permitted user, to use the mark whether with or without any indication of the identity of that person and includes a certification trademark or collective mark.

Certification Trade Mark:
Section 2(1 )(e) of the Trade Marks Act, 1999 defines the term certification trademark as to mean a mark capable of distinguishing the goods or services in connection with which it is used in the course of trade which is certified by the proprietor of the mark in respect of origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics from goods or services not so certified and registrable as such in respect of those goods or services in the name, as proprietor of the certification trademark, of that person.

Question 6.
(a) Distinguish between the following :
(ii) ‘Registered proprietor of a trademark’ and ‘registered user of a trademark’.
Answer:
The registered proprietor of a trademark means the person for the time being entered in the register as proprietor of the trademark. In other words, a registered proprietor is simply the person whose name appears in the register containing the name of the owner/proprietor of the trademark. According to to- the provisions of Section 37 of the Trademark Act, the proprietor has an absolute right to assign the trademark, and thus as a consequence the person to whom such rights to use the trademark arise becomes the ‘registered user’ of the trademark.

1. Section 49 Provides for the registration as a registered user.
2. Section 50 deals with the power of the registrar to vary or cancel registration as a registered user on the ground that the registered user has used the trademark otherwise than in accordance with the agreement or used in such a way that is likely to cause confusion or registered user has failed to disclose any material fact.
3. Section 50 empowers the registrar to require the proprietor to confirm at any time during the continuation of registration as a registered user whether the agreement on the basis of which registered user was registered is still in force and if the reply does not receive within 1 month then remove the name from the register.
4. Section 52 recognizes the right of the registered user to take proceedings against infringement.

Question 7.
(a) Distinguish between the following:
(iv) ‘Infringement of trade mark’ and ‘passing off.
Answer:
Infringement of trade-mark:
Section 29 of the Act states that a registered trademark is infringed by a person who, not being the registered proprietor of the trademark or a registered under thereof using by way of permitted use, uses in the course of trade a mark which is identical with, or deceptively similar to, the trademark, in relation to any goods in respect of which the trademark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trademark. Accordingly, in order to constitute an infringement, the act complained of must fulfill the following requirements:

1. the mark used by the person must be either identical with or deceptively similar to the registered trademark;
2. the goods in respect of which it is used must be specifically covered by the registration;
3. the use made of the mark must be in the course of trade in areas covered by the registration,
4. the user must be in such a manner to render it likely to be taken as being used as a trademark. Whenever misuse of a trademark occurs, the proprietor can either, file a civil suit or file a criminal complaint under Sec. 134, suit for infringement, etc., to be instituted before District Court of the Act. After examination of the complaint and in some cases after verification by the complainant, the Court issues an order directing the Crime Branch of the Police to search and seize offending goods, labels, and other materials.

Wherever there is a slavish imitation of a trademark, it is advantageous to resort to criminal complaints rather than undergo the long and cumbersome process of a civil suit. The advantage of a criminal complaint is that it. has immediate effect i.e., the premises of the suspected parties manufacturing, storing, selling, or offering for sale spurious goods, can be raided and the spurious goods can be seized. The problem involved in filing a criminal complaint is to obtain the cooperation of the enforcement authorities for timely and effective action.

A criminal complaint can be filed even if a trademark is not registered. If the complainant can prove to the satisfaction of the Court that his mark enjoys sufficient reputation, the Court will issue a search and seizure order. By and large, in practice, a Magistrate is not inclined to grant the relief unless the complainant’s mark is registered.

Passing off:

• Passing-off is the infringement of a trademark, which is done in a manner where the trademark is not only deceptively similar to the trademark of other companies but also creates confusion for customers.
• Factors that are considered while deciding on action for passing off include the nature of the trademark, degree of resemblances between the trademark, etc.

Question 8.
(a) Distinguish between the following:
(iii) ‘Assignment of a trade mark’ and ‘transmission of a trade mark’ under the Trade Marks Act, 1999.
Answer:
1. Section 37 entitles the registered proprietor of a trademark to assign the trademark for any consideration for such assignment. Section 39 provides that an unregistered trademark may be assigned or transmitted.

2. Section 40 contains restrictions on assignments or transmission of trademarks where multiple exclusive rights would be created in more than one person in relation to the same goods & services.

3. The assignment is not deemed to be invalid if having regard to the limitation imposed, the goods are to be sold in different markets – either within India or through export.

4. Certification trademark can only be assigned with the consent of the registrar.

Question 9.
(a) Distinguish between the following:
(iv) ‘Trade mark’ and ‘certification trade mark’.
Answer:
The distinction between Trade Mark and Certification Trade Mark The term Trademark has been defined under Section 2(1 )(zb) of the Trade Marks Act, 1999 as to mean a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include the shape of goods, their packaging, and combination of colors; and

(1) A registered trademark or a mark used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right as proprietor to use the mark; and

(2) In relation to other provisions of the Act, a mark used or proposed to be used in relation to goods or services for the purpose of indicating . or so to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right, either as proprietor or by way of permitted user, to use the mark whether with or without any indication of the identity of that person and includes a certification trademark or collective mark.

Certification Trade Mark:
Section 2(1 )(e) of the Trade Marks Act, 1999 defines the term certification trademark as to mean a mark capable of distinguishing the goods or services in connection with which it is used in the course of trade which is certified by the proprietor of the mark in respect of origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics from goods or services not so certified and registrable as such in respect of those goods or services in the name, as proprietor of the certification trademark, of that person.

Question 10.
The attempt of the following :
(iv) What are the acts which do not amount to infringement of a trademark under the Trade Marks Act, 1999?
Answer:
Following are the acts which do not amount to infringement of a trademark under Section 30 of the Trade Marks Act, 1999

1. If there is some restriction or limitation when the trademark is registered and if the trademark is used in a manner that is outside the scope of registration.
2. In relation to part or accessories of goods/products.
3. To indicate the kind of quality of the product.

Question 11.
(c) Explain the provisions of the Trade Marks Act, 1999 regarding infringement of registered trademarks.
Answer:
Section 29 enumerates the grounds which constitute an infringement of a trademark. When a trademark is used by a person who is not entitled to use such a trademark under the law, it constitutes infringement. A trademark is infringed if :

• The mark is identical and is used in respect of similar goods or services.
• The mark is similar to registered trademark and there is an identity of goods & services covered by trademark.
• The trademark is identical and is used in relation to identical goods or services and that such use is likely to cause confusion on the part of the public. Advertising of a trademark to take unfair advantages also constitute an infringement of a trademark. Where the registered trademark consists of words, the spoken use of such words as well as a visual representation for promoting the sale of goods would constitute an infringement of the trademark.

Question 12.
(a) What are the circumstances under which a registered trademark is deemed to be infringed under the Trade Marks Act, 1999.
Answer:
Please refer to 2008 – Dec [4] (c) on page no. 196

Question 13.
(c) Mention the provisions of the Trade Marks Act, 1999 relating to the assignment and transmission of registered trademarks.
Answer:
Please refer 2012 – Dec [3] (a) (iii) on page no. i94

Question 14.
(c) Discuss the provisions of the Copyright Act, 1957 relating ‘ to infringement of copyright.
Answer:
Section 51 of the Copyright Act, 1957 contemplates a situation in which copyright shall be deemed to be infringed. This Section says that a copyright is infringed when any person without a license granted by the owner of the l copyright or the Registrar of Copyright or in contravention of the conditions of a license so granted or of any condition imposed by a competent authority, does

1. Anything for which the exclusive right is conferred upon the owner of the copyright, or

2. Permits for profit any place to be used for the communication of the work to the public where such communication constitutes an infringement of the copyright in the work unless he was not aware and had no reasonable ground for believing that such communication would be an infringement of copyright.

3. When any person (i) makes for sale or hire or lets for hire or by way of trade display or offers for sale or hire, or (ii) distributes either for the purpose of trade or to such an extent as to affect prejudicially the owner of the copyright, or (iii) by way of trade, exhibits in public, or (iv) imports into India any infringing copies of the work.

However, the import of one copy of any work is allowed for private and domestic use of the importer. Explanation to Section 51 clarifies that the reproduction of literary, dramatic musical, or artistic work in the form of cinematograph film 1 shall be deemed to be an infringing copy.

Question 15.
(v) State the absolute grounds for refusal of registration of trademarks.
Answer:
The absolute grounds for the refusal for registration are

• The trademark is devoid of any distinctive characteristics.
• The trademark designates the kind, quality, quantity, etc.
• The mark has become customary in the current language.

Question 16.
Telly Toy brought into the market a play toy named “Jump Bhola”, a spring balance, in which children can stand on and jump. It became very popular among the kids. The spring was, however, made up of plastic, and hence it had many practical problems. Mera Khilona, another competitor company, came up with a similar toy with a different name “Jump Bheem” made of a material that solved all the practical problems that “Jump Bhola”, had.
Keeping the above in view, answer the following:
(1) Can Mera Khilona claim patent protection for its product?
(2) Assuming that Mera Khilona adopted the same logo and style of writing as that of Telly Toy, can Mera Khilona claim trademark protection for its product?
Answer:
(1) What is Patent
A patent is an exclusive right granted to a person who has invented a new and useful article or an improvement of an existing article or a new process of making an article. The exclusive right is to manufacture the new article invented or manufacture an article according to the invented process for a limited period. During the term of the patent, the owner of the patent, i.e. the patentee can prevent any other person from using the patented invention.

The invention must be New and Useful It is a fundamental principle of Patent Law that a patent monopoly is granted only for inventions that are new and useful and which have industrial application. This is embodied in the definition of “invention”. The question of whether a particular invention is new and useful is often extremely difficult to decide as it depends upon the state of the prior art in the particular field which includes prior publication on the subject and prior user.

Invention
As per Section 2(1 )(j) of the Patents Act, 1970: ‘Invention’ means a new product or process involving an inventive step and capable of industrial application.
Under Section 2(1)(ja) of the Patents Act, 1970: ‘Inventive step’ means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both, and that makes the invention not obvious to a person skilled in the art.
As per Section 2(1 )(l) of the Patents Act, 1970: New invention’ means any invention or technology which has not been anticipated by publication in any document or used in the country or elsewhere in the world before the date of filing of a patent application with complete specification, i.e. the subject-matter has not fallen in the public domain or that it does not form part of the state of the art.

Subject — Matter of Invention
The question of whether there is an invention is a question of fact in each case. A new and useful application of an old principle may be a good subject matter. An improvement on something known may also afford subject -matter; so also a new combination of different matters already known. A patentable combination is one in which the component elements are so combined as to produce a new result or to arrive at an old result in a better or more expeditious or more economical manner.

Improvements
The definition of the invention includes within its scope any new and useful improvement of any manner of manufacture, article, or substance whether patented or otherwise. But the improvement in order to be patentable must independently satisfy the test of the invention.

In the present case, M/s Mera Khilona come up with the same Toy but with a material that solved the pre-existing practical problem, and hence with improvements qualifying the test of invention Mera Khilona can claim Patent in the present matters.
(ii) The law of trademark, practically all over the world is based on three broad concepts:

(1) Distinctiveness or distinctive character or capable of distinguishing,
(2) Deceptive similarity or similarity or near resemblance of marks and
(3) Same descriptive or similarity of goods. The purpose of the Act, as stated in the preamble, is to provide for the registration and better protection of trademarks for goods and services and to prevent the use of fraudulent marks. In consonance with this object the following fundamental principles of trademark law are embodied in the various provision of the Act:

Since registration confers on the proprietor a kind of monopoly right over the use of the mark, which may consist of a word or symbol legitimately required by other traders for bona fide trading or business purposes, certain restrictions are necessary on the class of words or symbols over which such monopoly right may be granted. This principle is recognized in the qualifications for registration laid down in Section 9. Registration of a trademark should not interfere with the bona fide use by other persons of names or words in ordinary usage. This principle is embodied in Section 13 and Section 3.

Property rights in a trademark acquired by use are superior to similar rights obtained by registration under the Act; this is clear from the preamble which refers to “better protection of trademarks”, thereby necessarily implying the existence and availability of some protection under common law. It, therefore, follows that prior users of trademarks should be protected against any monopoly rights granted under the Statute. This principle is enacted in Section 34.

There are obviously two main interests to be protected when a mark is presented for registration. There is first the interest of the public. A trademark ought not to be registered if its use will be apt to mislead that public as to the origin of the goods they are purchasing.
There are also the interests of other existing traders who are entitled to object if the use of the trademark proposed for registration will be calculated to enable the applicant’s goods to be passed off on the public as such other traders goods. These interests are protected by
Sections 9 and 11. In view of the above M/s Mera Khilona will not be able to claim trademark protection for its products as it is likely to create confusion among the general public and customers as the conflicting trademark being in the same business.

Question 16.
Explain ‘deceptive similarity of a trademark’ with example.
Answer:
The deceptive similarity of Trade Mark is that given Jwo trademarks are such as to their nature that it is likely to deceive the public or case confusion. The following examples will clarify the position of deceptive similarity :

• Lakshmandhara and Amrit Dhara are deceptively similar.
• “Simul” is likely to cause confusion and is Deceptively similar to “Cibatul”.
• “Trevicol” was held to have Phonetically deceptive similarity to “FEVICOL”.
• In Cadila Healthcare Ltd. Vs. Cadila Pharmaceutical LTD., the Supreme Court held that in an action for passing off on the basis of an unregistered trademark generally for deciding the question of deceptive similarity the following factors are to be considered:
• The nature of the marks i.e. whether the marks are word marks or. label marks or composite marks, i.e. both words and label works.
• The degree or resegnbleness between the marks, phonetically similar and hence similar in idea.
• The nature of the goods in respect of which they are used as trademarks;
• The similarity in the nature, character, and performance of the goods of the rival traders;
• The class of purchasers who are likely to buy the goods bearing the marks they require, on their education and intelligence and a degree of care they are likely to exercise in purchasing and/or using the goods;
• The mode of purchasing the goods or placing orders for the goods; and
• Any other surrounding circumstances which may be relevant in the extent of dissimilarity between the competing marks. Weightage to be given to each of the aforesaid factories depends upon facts of each case and the same weightage cannot be given to each factor in every case.

Note: “In answers to the questions based on the case study, the students may write any other alternative answer with valid reasoning.”

Question 17.
What rights are conferred by registration of a Trade Mark?
Answer:
Registration of a Trade Mark confers the following rights on the registered proprietor:
(1) It confers on the registered proprietor the exclusive right to the use of the Trade Mark in relation to the goods or services in respect of which the Trade Mark is registered.

(2) If the Trade Mark consists of several matters, there is an exclusive right to the use of the Trade Mark taken as a whole. .

(3) It entitles the registered proprietor to obtain relief in respect of infringement of the Trade Mark in the manner provided by the Trade Marks Act, 1999 when a similar mark is used on (a) same goods or services, (b) similar goods or services, (c) in respect of dissimilar goods or services.

(4) Registration of a Trade Mark forbids every other person (except the registered unregistered permitted user) to use or to obtain the registration of the same Trade Mark or a confusingly similar mark in relation to the same goods or services or the same description of goods or services in relation to which the Trade Mark is registered.

(5) After registration of the Trade Mark for goods or services, there shall not be registered the same or confusingly similar trademark not only for the same goods or services but also in respect of similar goods or services.

(6) Moreover, after registration of the Trade Mark for goods or services, there shall not be registered the same or confusingly similar trademark even in respect of dissimilar goods or services.

(7) Registered Trade Mark shall not be used by anyone else in business papers and in advertising. The advertising should not be detrimental to the distinctive character or reputation of the Trade Mark.

(8) There is a right to restrict the import of goods or services marked with a Trade Mark similar to one’s Trade Mark.

(9) There is a right to restrain the use of the Trade Mark as a trading name or part of trade name or name of business concern dealing in the same goods or services.

Question 18.
(a) ‘Passing off is a common tactic to use a similar trademark.

1. Describe the typical actions and trademark violation in ‘passing off an action of publicizing a body called ‘The University of Universal Learning’.
2. Is it possible to resort to ‘passing off the petition in an unregistered trademark?
3. Does the Trade Marks Act, 1999 govern an act of ‘passing off? If yes, why, and if no, why not?

Answer:
(1) A cause of action for passing off is a form of intellectual property enforcement against the unauthorized use of a mark which is considered to be similar to another party’s registered or unregistered trademarks, particularly where action for trademark infringement based on a registered trademark is unlikely to be successful (due to the differences between the registered trademark and the unregistered mark). Passing off is a form of common law, whereas statutory law as such provides for enforcement of registered trademarks through infringement proceedings.

Passing off and the law of registered trademarks deal with overlapping factual situations, but deal with them in different ways. Passing off does not confer monopoly rights to any names, marks, get-up. It does not recognize them as property in its own right. Instead, the law of passing off is designed to prevent misrepresentation in the course of trade to the public.

A civil suit can be initiated under the law of passing off in respect of an unregistered trademark. The suit for passing off can be initiated either in the District Court or in the High Court depending on the valuation of the suit. The suit can be at the place where the rights holder or one of the rights holders actually and voluntarily reside or work for gain or carries on business. In the given case, a civil suit can be initiated against the University of Universal Learning for the action of passing off.

(2) The Indian trademark law statutorily protects trademarks as per the Trade Marks Act, 1999 and also under the common law remedy of passing off. The passing off is a common law of tort that can be used to enforce unregistered trademark rights. Passing off action arises when an unregistered trademark is used by a person who is not the proprietor of the said trademark in relation to the goods or services Of the trademark owner. It is a tort and actionable under common law.

Section 27 of the Trade Mark, 1999 provides that no infringement action will lie in respect of an unregistered trademark but recognizes the common law rights of the trademark owner to take action against any person for passing off their goods/ services.

Section 134 of the Trade Marks Act, 1999 provides that no suit for passing off arising out of the use by the defendant of any trademark which is identical with or deceptively similar to the plaintiff’s trademark, whether registered or unregistered shall be instituted in any court inferior to a District Court having jurisdiction to try the suit.

(3) As per Section 11 (3) of the Trade Marks Act, 1999, a trademark shall not be registered if, or to the extend that, its use in India is liable to be prevented:

• by virtue of any law, in particular, the law of passing off protecting an unregistered trade mark used in the course of trade; or –
• by virtue of law of copyright.

Section 134 of the Trade Marks Act, 1999 provides that no suit for passing off arising out of the use by the defendant of any trade mark which is identical with or deceptively similar to the plaintiff’s trade mark, whether registered or unregistered shall be instituted in any Court inferior to a District Court having jurisdiction to try the suit. Further Section 135 states that the relief which a Courl may grant in any suit for infringement or for passing off referred to in Section 134 includes injunction (subject to such terms, if any, as the Court thinks . fit) and at the option of the plaintiff, either damages or an account of profits, together with or without any order for the delivery up of the infringing labels and marks for destruction or erasure.

With the above provisions, it can be clearly understood that the action of passing off has been taken care in the provisions of Trade Marks Act, 1999. Since, there is very minute difference between passing off and infringement and in the common parlance the passing, off and infringement is supposed to one and the same thing. Therefore, the Act has to take care the provisions of passing of. The difference between action in passing and action in infringement had been clearly explained by the Hon’ble Supreme Court in the case of Kaviraj Pandit Durga Dull Sharma v Navratha Pharmaceutical Laboratories, AIR 1965 SC 980.

Question 19.
“There is no legislation which explicitly refers to dispute resolutipn in connection with domain names. This, however, does not mean that domain names are not to be legally protected to the extent possible under the laws relating to passing-off.” Discuss.
Answer:
There is no legislation, which explicitly refers to dispute resolution in connection with domain names. Although the operation of the Trade Marks Act, 1999 itself is not extra territorial and may not allow for adequate protection of domain names, yet this does not mean that domain names are not to be legally protected to the extent possible under the laws relating to passing off. Passing off is a form of tortuous action based on the object to protect the goodwill that a trader has in his name, unlike an action for infringement of a trademark where a trader’s right based on property in the name as such. The law of passing off applies whenever there is the prospect of confusion between marks or where there is the prospect of confusion of identity through the unauthorized use of similar marks.

The protection of domain names in India has been in some ways, a favourable one, because the Courts in India have been more patient towards the concept of providing legal protection to domain names as that to trademarks through the instrument of passing off. Domain names serve the same functions as a trademark and are not mere addresses or like finding a number on the internet and therefore, it is entitled to equal protection as trademarks. Domain names are entitled to the protection as trademark and trademark law applies to the activities on internet and the mere fact that the petitioner has no registered domain name by itself may not stand in the way of passing off action.

Question 20.
Only a registered trade mark owner can give notice of opposition. Discuss.
Answer:
As per provisions of Section 21 of the Trade Marks Act, 1999 this statement is not correct. Section 21 (1) provides that ‘.‘any person may, within four months from the date of the advertisement or re-advertisement of an application for registration, give notice in writing in the prescribed manner and on payment of such fee as may be prescribed by the Registrar, of opposition to the registration”. Therefore, there is no requirement of the person submitting his opposition to the registration of a trademark to be the registered owner of such trademark. Having commercial or personal interest is also not necessary. Moreover, his bonafides are also immaterial for the purposes of submitting opposition to the grant of a trademark.

The opponent does not necessarily have to be a registered proprietor of a trademark. He can be a purchaser, customer or a member of the public likely to use the goods. The rationale behind this is that the opponent is not only representing himself but the public at large because having two similar marks in the market can only result in confusion amongst the public at large.

Every opposition shall be filed in compliance with the provisions of Section 21 in relevant format and form, along with prescribed fees.

Question 21.
Read the following case and answer the questions given at the end:
One Shri Rama Krishna Bahadur the appellant in the present case, trading aS M/s Om Perfumery, Makerganj, Mahatma Gandhi Road, Bhubaneshwar made an application to the Registrar of Trade Marks to register a trademark by Digitally signed by name “RAMAYAN” with the device of crown in Class 3 in respect on incense sticks (agarbattis, dhoops) and perfumeries etc.,

One Shri Laxman Singh the respondent herein, was a dealer for the sale of the products of the appellant and was also trading as M/s Badshah Industries, Shitkohra, Purohit Colony, Bhubaneshwar. The respondent herein filed a Notice of opposition to oppose the registration of aforesaid trademark under Sections 9, 11(a), 11(b), 11(e), 12(1), 12(3) and 18(1) of the Trademarks Act, 1999 claiming that the impugned mark, being the name of a religious book, cannot become the subject matter of monopoly for an individual.

The appellant was in the business of manufacturing, trading and marketing of incense sticks since 1981 and the respondent was a dealer of the appellant. The goods under the trademark “RAMAYAN” have been advertised by him through various means including the publication of cautionary notices in newspapers, extensive use, wide advertisement and the excellent quality of the products. The trademark “RAMAYAN” and the carton in which the products are sold has become distinctive in such a manner that use of the same or similar trademark or carton by any other person will cause confusion and deception in the trade and amongst the public. The sale was done through a network of dealers and distributors. The respondent was one of the dealers of the appellant. After the termination of dealership, the respondent started selling incense sticks under the trademark “RAMAYAN” written in the same style and manner.

The Assistant Registrar of Trade Marks, after holding that the impugned trademark consists of device of crown and the word “RAMAYAN” is capable of distinguishing the goods and is not included in the list of marks not registrable under the Act, by order dated 31s’ March, 2004, dismissed the application filed by the respondent.

Taking in to account the trademark, being the name of a religious book, cannot be a sufficient ground for refusal of registration under Section 9(2) of the Act and is not based on evidence’ on record that the feelings of any section of the Hindus having been hurt by its use in relation to incense sticks. Further it was submitted that the Assistant Registrar of Trade Marks rightly held that the impugned trademark consists of device of crown and the word is capable of distinguishing the goods of the appellant and the trademark is not included in the list of marks not registrable under the Act. It was further claimed that it has already been proved before the Court of Assistant Registrar that the appellant was using the trademark since 1981 and hence, is the prior user in comparison to the respondent.

Being aggrieved by the other passed by the Assistant Registrar, the respondent preferred an appeal before the Intellectual Property Appellate Board. On January 10th, 2005 the Board, set aside the other passed by the Assistant Registrar of Trade Marks (31-03-2004). Aggrieved by the other passed by the IPAB (10-01 -2005), the appellant has filed this appeal by way of special leave before the Supreme Court of India. Appellant contended that it was unfortunate the Board, misconstrued the observations of the Standing Committee in the 8th Report on the Trade Marks Bill, 1993. It was also contended that the Board erred in law while setting aside the judgement of the Assistant Registrar of Trade Marks while holding adversely about its distinctiveness, the mark causing deception and not having been used in an honest manner.

The respondent contended that the impugned mark, being name of a religious book, cannot become the subject matter of monopoly for an individual. He further contended that the mark “RAMAYAN” is not a distinctive mark and is devoid of any distinctive character. The mark is capable of distinguishing the goods of one person from those of another. It was also contended that the mark “RAMAYAN” is not registrable since it is name of a famous and well known religious book. It was also claimed that more than 20 traders in Patna and many more are using the trademark and thus it has become public juris. It was further submitted that the impugned mark is identical with the respondent’s mark “BADSHAH RAMAYAN” which is pending registration and the impugned registration will cause harassment to other traders and purchasing public would be bound to be confused and deceived. He further added that his application for the registration of the same trademark claiming user since 5tM November, 1986 is pending for registration.

The Court observed that the word “RAMAYAN” represents the title of a book written by Maharishi Valmiki and is considered to be a religious book of the Hindus in our country. Thus, using exclusive name of the book “RAMAYAN”, for getting it registered as a trademark for any commodity could not be permissible under the Act. If any other word is added as suffix or prefix to the word “RAMAYAN” and the alphabets or design or length of the words are same as of the word “RAMAYAN” then the word “RAMAYAN” may lose its significance as a religious book and it may be considered for registration as a trademark.

However, in the present case, the Court finds that the appellant had applied for registration of the word “RAMAYAN” as a trademark. It also finds that in the photographs, after adding “OM’s” to the word “RAMAYAN”, at the top and in between “OM’s and RAMAYAN”, the sentence, “Three Top Class Aromatic Fragrance”, is also written. Thus, it is not a case that the appellant is seeking the registration of the word “OM’s RAMAYAN” as a trade mark. Further, from the photographs, it also find that the photographs of Lord Rama, Sita and Lakshman are also shown in the label, which is a clear indication that the appellant is taking advantage of the Gods and Goddesses which is otherwise not permitted.

There are many holy and religious books like Quran, Bible, Guru Granth Sahib, Ramayan etc., to name a few. The answer to the question as to whether any person can claim the name of a holy or religious book as a trade mark for his goods or services marketed by him is clear ‘NO’. In relation to the artistic work said to have been created, there is not doubt that both the marks are identical in design, colour, scheme and the reproduction of photographs is in such a manner that an ordinary buyer would reasonably come to a mistaken conclusion that the article covered by one brand can be the article covered by the other. Both the parties have claimed to be manufacturing units engaged .in certain goods.

The respondent claimed that though he had been in the business since 1980, he had developed and published the artistic work in 1986 and has also been using the mark as a trademark and claiming use since 1986 whereas the appellant herein claimed use of the trademark since 1987. However, by filing an application to the concerned authority, the appellant has claimed the use since 1981. Further, in various pleadings in the Title Suits filed by the respondent herein, the appellant herein has admitted the use and publication of the artistic mark of the respondent before the date of claim of the first use by the appellant, that is, 1987. From these facts, it is clear that the respondent herein was using the artistic mark earlier in point of time to that of the appellant herein.

In view of the foregoing discussion, the Supreme Court of India do not find any irregularity in the order passed by the Intellectual Property Appellate Board consequently, the appeal fails and is accordingly dismissed.

Questions:
(a) Analyse the judgement of the Supreme Court. Find out the reasons and provisions of law applied by the Court in giving such judgement.
(b) Do you agree with the order passed by the Assistant Registrar of Trademarks Registry? Explain the concept of domain names mentioned under trademarks law.
(c) Examine the requisites for registration, duration and renewal of trademark as per trademark legislation.
(d) Discuss in brief various kinds of mark and mention the provisions in relation to registered user under the Trademarks Act, 1999.
Answer:
(a) In the present case, the Supreme Court of India while taking into
account the following facts upheld the judgement of the I PAB:

1. The court observed that the word “RAMAYAN” represents the title of a holy book written by Maharishi Valmiki and is considered to be a religious book of the Hindus in our country. Thus, using exclusive name of the book “RAMAYAN”, for getting it registered as a trade mark for any commodity coutd not be permitted under the Act. If any other word is added as suffix or prefix to the word “RAMAYAN” and the alphabets or design or length of the words are same as of the word “RAMAYAN” then the word “RAMAYAN” may lose its significance as a religious book and it may be considered for registration as a trade mark.

2. In the present case, the court finds that the appellant had applied for registration of “RAMAYAN” as a trade mark for his business. It also finds that in the photographs, after adding “OM’s” to the word “RAMAYAN”, at the top and in between “OM’s and RAMAYAN”, the sentence, “Three Top Class Aromatic Fragrance”, is also written. Thus, it is not a case that the appellant is seeking the registration of the word “OM’s RAMAYAN” as a trade mark. Further, from the photographs, it also found that the photographs of Lord Rama, Sita and Lakshman are also shown in the label which is a clear indication that the appellant is taking advantage of the Gods and Goddesses which is otherwise not permitted.

3. There are many other holy and religious books like Quran, Bible, Guru Granth Sahib, Ramayan etc., to name a few. According to the Court, no person can claim the name of a holy or a religious book as a trade mark for his goods or services.

4. In relation to the creation of artistic work, there is no doubt that both the marks are identical in design, colour, scheme and the reproduction of photographs is in such a manner that an ordinary buyer would reasonably come to a mistaken conclusion that the article covered by one brand is the article covered by the other. Both the parties have claimed to be the manufacturing units in respect of certain goods.

5. The impugned mark, being the name of a religious book, cannot become the subject matter of monopoly for an individual.

6. Further, the respondent claimed that though he had been in the business since 1980, he had developed and published the artistic work in 1986 and has also been using the mark as a trademark and claiming use since 1986 whereas the appellant herein claimed use of the trademark since 1987. However, by filing an application to the concerned authority, the appellant has claimed the use since 1981.

Section 9 and 11 of the Trade Marks Act, 1999 prohibits the registration of certain marks as trade mark. In case of a mark which hurts the religious sentiments of any class or section of the citizens of India has been laid down as an absolute ground for refusal of registration of a trade mark under section 9(2)(b) of the Act. It comes under the absolute grounds for refusal of registration of a trade mark. Section 11 deals with the relative grounds and section 12 states regarding honest concurrent use or other special circumstances. These two sections also deal with certain exceptions to the main rule. The only question before the SC was whether the “registration of the word Ramayan as a trade mark, being the name of a Holy Book of Hindus, is prohibited under Section 9(2) of the Trade Marks Act, 1999“

Answering this question the court emphatically held “The answer to the question as to whether any person can claim the name of a holy or . religious book as a trademark for his goods or services marketed by him is clearly NO”. Also the court very specifically adds that if there was a – prefix or a suffix to the word Ramayan which was of the same “length of the word Ramayan then Ramayan may lose its significance as a religious book and it make be considered for registration as a trademark”.

(b) No, the order passed by the Assistant Registrar is not proper. The impugned trade mark consists of device of crown and the word “RAMAYAN” is capable of misleading, causing confusion and deception in the minds of the public.

Concept of Domain Names:
Domain names are the human-friendly forms of Internet addresses. A domain name is a unique name that identifies a website. For example, the domain name of the Tech Terms – v Computer Dictionary is “techterms.com.” Each website has a domain name that serves as an address, which is used to access the website. Whenever we visit a website, the domain name appears in the address bar of the web browser. Some domain names are preceded by “www” (which is rid! pall of the domain name), while others omit the “www” prefix. All domain names have a domain suffix, such as, .com, .net, or .org. The domain suffix helps identify the type of website the domain name represents. For example, “.com” domain names are typically used by commercial website, while “.org” websites are often used by non-profit organizations. Some domain names end with a country code, such as “.dkl (Denmark) or “.se” (Sweden), which helps identify the location and audience of the website.

When we access a website, the domain name is actually translated to an IP address, which defines the server where the-website is located. This translation is performed dynamically by a server called the Domain Name Server (DNS). Domain names are formed by the rules and procedures of the Domain Name System (DNS). Technically, any name registered in the DNS is a domain name.

It is common-place for traders to have their electronic mail address’ and use the same in respect of their goods /services as trade names. In other words, the domain name is being used as a trade name or trade mark, and the Registrar will, subject to the usual criteria of the Act, permit domain names to be registered as trademarks, if otherwise registerable.

Elements of the domain name such as “.com” or “.co.in” are considered to be totally non-distinctive, much in the same way as “Ltd” and “Pic”. As . a general rule, one should consider whether the remainder of the mark is descriptive or non-distinctive; if so, there is likely to be an objection under Section 9(1) (a) of the Act.
The rights to take rigorous and drastic actions against any infringement cases connected with the registered and protected domain name within the Indian jurisdictions, are essentially covered by these rights granted to the registrant of domain name by any regional Trademarks Office of India. In this connection, the opinion and judgment of the law courts of India, essentially including the Apex Court, are expressed explicitly during the handling of many domain-name related law cases, particularly the cases of Satyam Infoway Ltd. Vs Sifynet Solutions Pvt. Ltd, and the Tata Sons Ltd. vs Manukosuri and Others.

(c) Within three months of the publication of the trade mark in-the Trade Marks Journal, should the trade mark not be opposed by a third party, it will proceed for registration and the Trade Marks Registry will accordingly issue a registration certificate.

Requisites of Registration:
The registration of a trade mark confers upon the owner the exclusive right to the use of the registered trade mark and indicate so by using the symbol (R) in relation to the floods or services in respect of which the mark is registered and seek the relief of infringement in appropriate courts in the country. The exclusive right is however subject to any conditions entered on the register such as limitation of area of use etc. Also, where two or more persons have registered identical or nearly similar mark due to special circumstances such exclusive right does not operate against each other.

The register of trade mark currently maintained in electronic form contains inter alia the trade mark the class and goods/ services in respect of which it is registered including particulars affecting the scope of registration of rights conferred or disclaimers, if any; the address of the proprietors; particulars of trade or other description of the proprietor; the convention application date (if applicable); where a trade mark has been registered with the consent of proprietor of an earlier mark or earlier rights, that fact.

The Trade Marks Act, 1999 does not expressly list any requisites for registration of a Trade Mark. The requirements for registration and the definition of trade mark have converged. Instead of detailing requisites for registration, grounds for refusal are listed in Section 9(1), (2) and (3) and Section 11 which conversely are requisites for registration.

Most of the substantive law laid down by the Trade & Merchandise Marks Act, 1958 remains valid and would hold the field in respect of administering the provisions of Trade Marks Act, 1999.

From previous operation of trade mark law, four categories of trade marks were made out i.e., names, signatures, words and other distinctive marks. Most of the principles relating thereto would hold good under the new dispensation too.

Now any mark which is a trade mark may be registered for any goods or services if it is not hit by any of the two categories of grounds for refusal or other specific prohibitions. The first requisite is that it should be a trade mark within the meaning of Trade Marks Act, 1999 which concept itself imports many conditions as has been mentioned earlier in the legal concept of trade mark. There emerge, many conditions from the definition of trade mark in Section 2(1)(zb). The identification and distinguishing functions performed by the trade mark must be fulfilled by the mark sought to be registered as a trade mark under the Act.
The next pre-requisite distinctive character emerges from the presence of words “capable of distinguishing goods of one person from those of others” in the definition of trade mark in Section 2(1 )(zb). A mark shall be trade mark only if, in addition to fulfilling other conditions in the definition of trade mark, it also satisfies the requirement of being a distinctive character. That distinctive character may be inherent or an acquired one. Purpose the Trademark System serves

• It identifies the actual physical origin of goods and services. The brand itself is the seal of authenticity.
• It guarantees the identity of the origin of goods and services.
• It stimulates further purchase.
• It serves as a badge of loyalty and affiliation.
• It may enable consumer to make a life style or fashion statement. Capable of Distinguishing the Goods or Services: A mark which has a direct reference to the character or quality of the goods/services is considered as inherently not capable of distinguishing. If the reference to the character or quality is only indirect or suggestive,, the mark may be considered as possessing sufficient degree of inherent capacity to distinguish.

Thus, the legal requirements to register a trade mark under the Act are: – j The mark should be capable of being represented graphically. It should be capable of distinguishing the goods or services of one undertaking from those of others.
Duration and Renewal of Trademark: Trade mark protection in India is perpetual subject to renewal of the registration after every 10 years. The application for renewal can be filed six months before the expiry of the validity period of the trademark.

Section 25 of the Act allows registration of a trade mark for a period of 10 years. In keeping with the generally accepted international practice and to reduce the work-load of the Trade Marks Office, section 25 allows renewal of registration for successive periods of 10 years, from the date of the original registration or the last renewal. With a view to facilitating ‘ renewal of registration, section 25(3) provides for a grace period of six months for payment of renewal fee after expiry of registration, subject to the payment of the prescribed surcharge. Sub-section (4) provides for restoration of the trademark to the register and renew of the registration on payment of renewal fees.

Unlike patents, copyright or industrial designs, trade mark rights can last indefinitely if the owner continues to use the mark and seek its renewal. However, if a registered trade mark is not renewed, it is liable to be removed from the register. An application for restoration of the expired trademark can filed to the Registrar within one year from the expiration of the last registration of the trademark under Section 25(4) of the Trademark Act, 1999 accompanied by the prescribed fee. The Registrar shall while considering the request for restoration of the expired trademark look at the interest of other affected persons.

Upon the restoration of the expired trademark, a notice must be sent by ( the Registrar to proprietor regarding such restoration and the same must be advertised in the official Journal. After the advertisement is made in the Trademark Journal regarding the restoration of the expired trademark, the Registrar invites for objection against restoration. If no such objection is made then the trademark is restored in the register for the next 10 years. In case of any objection, the Registrar conducts hearing and after hearing both the parties it passes a decision on whether to restore the trademark or not.

If somebody else applies for registration of the expired trademark, then the proprietor has to file an objection against the third party who has applied for registration of the expired trademark.

Restoration of an expired trademark protects the proprietor from duplicity and enables to maintain the exclusivity of the brand. If the expired trademark is not restored then the brand opens up in the market and can be exploited by anyone.- Thus, in order to protect the rights of the proprietor that are attached with the trademark, it is necessary to restore the trademark. Thus, it can be said that the Trademark Act, 1999 and Trademark Rules of 2002 (further amended in 2013) provides the liberty to the proprietor of the trademark that even if the trademark has expired he can file an application for restoration of the expired trademark at any point of time only if the Registrar has not issued a notice to the proprietor in FORM 03.

Should the rights holder of a trade mark come across a trade mark that is deceptively similar to their mark and which has been published in the Trade Marks Journal, they can oppose to the grant of the impugned mark within three months of the publication of the journal. A trader acquires a right of property in a distinctive mark merely by using it upon or in connection with his goods irrespective of the length of such user and the extent of his trade. Priority in adoption and use of a trade, mark is superior to priority in registration [Consolidated Foods Corporation v. Brandon & Co. Pvt. Ltd., AIR 1965 Bom 35].

In Ramdev Food Products (P) Ltd. v. Arvind Bhai Rambai Patel, 2006 (8) SCC 726, the Apex Court held that the registration of trade marks is envisaged to remove any confusion in the minds of the consumers. If, thus, goods are sold which are produced from two sources, the same may lead to confusion in the mind of the consumers. In a given situation, it may also amount to fraud on the public. A proprietor of a registered trademark indisputably has a statutory right thereto.

In the event of such use by any person other than the person in whose favour the trade mark is registered-, he will have a statutory remedy iri terms of section 21 of the Trade & Merchandise Marks Act, 1958. Ordinarily, therefore, two people are not entitled to the same trade mark, unless there exists an express licence in that behalf.
Further the Supreme Court in Commissioner of Income-tax v. Finlay Mills Ltd., AIR 1951 SC 464, held that the expenditure incurred on registration of trade mark is capital expenditure thus allowable to deduction under the Income-tax Act.

(d) Kinds of Trademark: Trademarks can be divided into the following categories: Service Mark is the same as a trade mark except that it identifies and distinguishes the source of a service rather than a product. Normally, a mark for goods appears on the product or on its packaging, while a service mark appears in advertising for the services. It includes service oriented establishments, such as, banking, communication, education, finance, insurance, boarding, lodging, construction, repairs etc.

Certification Trade Mark means, a mark capable of distinguishing the goods or services in connection with which it is used in the course of trade which are certified by the proprietor of the mark in respect of its origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics from goods or services not so certified and registrable as such under Chapter IX in respect of those goods or services in the name, as proprietor of the certification trade mark, of that person (Section 2(1 )(e) of the Act). Example are AGMARK, HALLMARK, 151 Market al.

Collective Markis a trade mark which distinguishes the goods or services of members of an association of persons not being a partnership within the. meaning of the Indian Partnership Act, 1932 which is the proprietor of the mark from those of others. It is provided for the benefit of members of an association of persons (but not partnership) and such inclusion of ‘collective mark’ is intended to benefit the traditional Indian family trademarks [Section 2(1 )(g)].

Well-Known Trademark as per Section 2(1)(zg) of the Trade Marks Act, 1999 refers to a trade mark which in relation to any goods or services, means a mark which has become so to the substantial segment of the public which uses such goods or receives such services that the use of such mark in relation to other goods or services would be likely to be taken as Indicating a connection in the course Of trade or rendering of services between those goods or services and a person using the mark in relation to the first-mentioned goods or services. A mark, which has been designated as a well-known mark, is accorded stronger protection.

The Act casts an obligation on the Registrar to protect a well-known mark against an identical or similar trade mark.

Unconventional Trademarks: Unconventional trademarks are those trademarks which get recognition for their inherently distinctive feature. Unconventional trademarks include the following categories:

Colour Trademark : If a particular colour has become a distinctive feature indicating the goods of a particular trader it can be registered as a trademark. For example, Red Wine.

Sound Marks: Signs which are perceived by hearing and which is distinguishable by their distinctive and exclusive sound canbe registered as sound marks. For example, Musical notes.

Shape Marks: When the shape of goods, packaging have some distinctive feature it can be registered. For example, Ornamental Lamps. Smell Marks : When the smell is distinctive and cannot be mistaken for an associated product it can be registered as a smell mark. For example, Perfumes. On the whole, a trademark is an important means to protect the goodwill and reputation of a Business. While filing a trademark, the applicant can choose any aforementioned types of trademarks based on the nature of mark.

Provisions Related to Registered User under Trade Marks Act, 1999 Provisions relating to registered users are discussed in sections 48 to , 54 of the Act. Section 50 empowers the Registrar to vary or cancel registration as registered user on the ground that the registered user has used the trade mark otherwise than in accordance with the agreement or in such a way as to cause or likely to cause confusion, or deception or that the proprietor/registered user misrepresented or has failed to disclose any material facts for such registration or that the stipulation in the agreement regarding the quality of goods is not enforced or that the circumstances have changed since the date of registration, in such a way that at the date of such application for cancellation they would not j have justified registration of the registered user, etc.

However, Registrar has been put under an obligation to give reasonable . opportunity of hearing before passing orders for cancellation of registration. Section 51 empowers the Registrar, at any time during the continuance of the registration of the registered user, by a notice in writing, to require the registered proprietor to confirm to him within one month, whether the agreement on the basis of which registered user was registered is still in force, and if such confirmation is not received within a period of one month, the Registrar shall remove the entry thereof from the Register in the prescribed manner. The Act also recognises the right of registered user to take proceedings against infringement.

Section 54 provides that the registered user will not have a right of assignment or transmission. However, if is clarified that where an individual registered user enters into partnership or remains in a reconstituted firm, the use of the mark by the firm would not amount to assignment or transmission.

Question 22.
Read and analyze the following case study and answer j the questions given at the end : A Dutch SME produces their additives in China under the name Roi Jaguar. Their General Manager in China is tasked with making sure that the brand is protected in accordance with Chinese law. At one point, the Chinese General Manager leaves the company. Soon after he leaves, the Dutch SME discovers a very similar product on the Indian market called Roi Lynx. Both brands thus exist with the same word followed by the name of a species of big cat.

After some research, the Dutch SME, finds out that after quitting the job, its former General Manager has started competing against it with very similar products. Also, after consulting the China IPR SME Helpdesk, the SME finds out that the former General Manager has registered the trademarks of the company in China in his own name instead of under the Dutch company in v China.

The situation escalates due to some other related outstanding issues for which the former General Manager still demands certain payments. The Dutch company refuses, so the former General Manager goes to the local Authority of Industry and Commerce (AIC) and shows them the trademark certificate of Roi Jaguar, which results in the AIC confiscating the infringing products of the Dutch SME that carry the name Roi Jaguar. As the Chinese trademark registration is in the name of the former General Manager, and the Dutch SME does not have the legal right to the name Roi Jaguar, the former General Manager legally closes down the business of the Dutch SME with regard to the brand Roi Jaguar.

The Trademark registration carried out by the former General Manager was done in bad-faith due to his existing relationship with the Dutch SME. The Dutch SME thus filed for a trademark cancellation as the trademark was registered in bad faith, and then subsequently applied for the trademark itself.

After first having filed the trademark cancellation, which temporarily stopped infringement of the Roi Jaguar trademark, the Dutch SME continued to produce the product, but under a different product name. Before the new product name was used, the company checked that there were no conflicting trademarks that had already been registered in China, with regard to additives for that new name. The Dutch SME then registered the wordmark, logo and the Chinese character name of the new product. Once the cancellation was concluded and the trademarks was applied for in the Dutch SME’s name, the Dutch SME was able to put its products under the Roi Jaguar name back on the market.
Lessons learned
• Be on top of trademark registrations in China, and make sure the registration of the trademarks is conducted in your own company name.*
• Draft your contracts with care and with the assistance of legal professionals and translators to make sure that all terms, conditions and obligations are clear for both parties.
Questions:
(a) How was the former General Manager successful in legally closing down the business of the Dutch SME with regard to the brand Roi Jaguar in China?
(b) Explain how was Dutch SME able to put its products under the Roi Jaguar name in Chinese market.
(c) If tomorrow the Dutch SME operates in India by registering its trademark in India and someone infringes its trademark, then how will the Dutch SME get relief in suits for infringement/passing off under the Indian law quoting relevant case law, if any.
Answer:
(a) After quitting his job the former General Manager of the Dutch SME had started competing against it with very similar products. When Dutch SME consulted the China IPR SME Helpdesk, the SME discovered the fact that the General Manager had got the trademark of the company in China registered in his own name instead of getting it registered in the name of the Dutch company in China.

The former General Manager went to the local Authority of Industry and Commerce (AIC) and showed them the trademark certificate of Roi Jaguar registered in his own name, which resulted in the AIC confiscating the infringing products of the Dutch SME that carried the name Roi Jaguar. As the Chinese trademark registration was in the name of the former General Manager, and the Dutch SME did not have the legal right to use the trade mark of Roi Jaguar, the former General Manager succeeded in getting the business of the Dutch SME closed down legally with regard to the brand Roi Jaguar.

The case study points out in the lessons learned that in China, (i) Be on top of trademark registrations in China, and make sure that the registration of the trademark is carried out in your own company’s name, (ii) Draft the contracts with care and with the assistance of legal professionals and translators to make sure that all terms, conditions and obligations are clear for both the parties.

(b) The system of international registration of Trade Marks is governed by the Madrid Agreement and Protocol, which are open to any State which is a party to the Paris Convention for the Protection of Industrial Property. The * system of international registration has several advantages for trademark owners. The Trade Mark registration carried out by the former General Manager in his own name was done in bad-faith and with mala fide intentions taking advantage of his existing relationship with the Dutch SME. The Dutch SME thus filed for a Trade Mark cancellation as the Trade Mark was registered in bad faith, and then subsequently applied for the Trade Mark in its name itself.

After first having filed the Trade Mark cancellation application, which temporarily stopped the activity of infringement of the ‘Roi Jaguar’ trademark, the Dutch SME continued to produce the product, but under a different product name. Before the new product name was used, the company checked that there were no conflicting Trade Marks that had already been registered in China, with regard to additives for that new name. The Dutch SME then got registered the word mark, logo and the Chinese character name of the new product in its own name. Once the cancellation was concluded and the Trade Mark was applied for in the Dutch SME’s name, the Dutch SME was able to put its products under the ‘Roi Jaguar’ trade name back in the market.

(c) The relief in the suit could be realized under Civil Litigation. It says that a suit can be instituted either under the law of passing off or for trade mark infringement under the Trade Marks Act, 1999 depending on whether the Trade Mark is unregistered, pending registration or registered respectively. Meaning thereby, if the Trade Mark is not registered in India then the remedy available is under the ‘Law of Passing off’ and if the Trade Mark is registered then the statutory remedy available under the Trade Marks Act, 1999 can be availed. The important aspects of the legal action are as follows:

• Jurisdiction and Venue: The suit for passing off and/or infringement can be instituted either in the District Court or in the High Court depending on the valuation of the suit and the pecuniary jurisdiction of the Courts. Apart from the pecuniary jurisdiction, the other aspect which needs to be taken care of while deciding the ( appropriate forum for the suit is the territorial jurisdiction of the Court. The suit can be filed in the Court which has territorial jurisdiction over the place where the rights holder or one of the rights holders actually and voluntarily reside or work for gain or carry on its business.

• Elements of the Complaint: In the complaint, the rights holder is required to demonstrate that: (a) the alleged infringing act involves a mark that is identical or similar to a trade mark of the rights holder;

(b) the infringing representation of a trade mark is being, used in connection with goods or services and might lead to confusion in the mind of general public regarding the origin of the infringing goods/services; (c) the unlawful act interfered with the trade mark holder’s rights of exclusive use of the trade mark and caused the rights holder consequent economic loss.

Section 135 of the Trade Marks Act, 1999 expressly stipulates that the relief which a Court may grant in any suit for infringement or for passing off referred to in Section 134 includes injunction (subject to such terms, if any, as the court thinks fit) and at the option of the plaintiff, either damages or an account of profits, together with or without any order for the delivery up of the infringing labels and marks for destruction or erasure.
According to Section 28(1) of the Act, the registration of a trade mark ensures exclusive right to the registered proprietor to use of the registered trade mark and the right to obtain relief in respect of infringement of the trade mark. Only a registered proprietor or registered user can institute a suit for infringement against an identical or deceptively similar mark to his registered trade mark according to Section 27(1).

A registered trade mark owner does not have an exclusive right to operate the identical/ nearly similar mark against another registered trade mark owner.
In the landmark judgement Clinique Laboratories LLC and Another vs. Gufic Limited and Another, the Court held that a suit for infringement by a registered trade mark owner/proprietor is certainly maintainable against another registered trade mark owner/proprietor. It was further held that Section 124(5) of the Act also allows the grant of an interim injunction in such suits for infringement.

Question 23.
Please read the Case below carefully and answer the questions at the end in detail: PayPal Accuses Paytm of Trademark Infringement in India:
On November 18, 2016, PayPal Inc. filed an objection at the Indian Trademark Office accusing Paytm, an Indian mobile wallet company, of trademark infringement. The objection comes at the heels of the recent windfall made by the latter on account of a cash-strapped nation moving rapidly towards a cashless normal.
For six. years, Paytm had been steadily becoming a household name in middle-class India – until it really hit the jackpot on November 8,2016 when the Indian Prime Minister Narendra Modi announced demonetization of currency notes of ? 500 and 11,000 – invalidating overnight 80% of the country’s cash in circulation.

The drastic move was taken to tackle the vast amounts of unaccounted “black” money in the Indian economy that was being used for bribery, corruption, tax evasion and for funding separatists and terrorists – and has since invoked strong emotions, both in favor and against, from the media, politicos and citizens across the country.
A direct consequence to the demonetization has been an unprecedented increase in electronic transactions – with Paytm being at the forefront. Adding over half a million users a day, Paytm saw its daily transactions grow from 2.5 million to over 7 million a day and a 10-fold increase in the amount of money added to Paytm accounts in the first 14 days after the demonetization was announced.

Rapid growth in that short a time earns Paytm not only great profits and valuation, but also the attention of global competitors like PayPal. In its complaint, PayPal accused Paytm of having “slavishly adopted the,two-tone blue color scheme” of PayPal’s own logo in entirety, and especially where “The first syllable in each mark is in dark blue color and the second syllable in a light blue Color”. Further, PayPal also noted that “both marks begin with the term ‘PAY’ which consumers tend to remember more than the second syllable, with the marks being of similar length.”

The Indian Trademark law requires an applicant to publish-and advertise their logo for a period of 4 months in which objections can be raised by third parties. Paytm applied for a trademark registration on duly 18,2016 – which means its four month window expired on November 18,2016. PayPal’s last- day complaint has thus raised many an eyebrow on why a company like PayPal – with ample legal resources at hand – would wait right until the end of the window to file the complaint. Needless to say, it was only after the demonetization that PayPal felt threatened (read jealous) by the rise of Paytm in a market that until now has been ignored, underserved and/or underperformed by PayPal. It must be noted that PayPal had not registered its own trademark in India until after the demonetization -a fact that Paytm’s lawyer will undoubtedly cite at trial.

Notwithstanding the timing and PayPal’s motivations, the complaint and the subject matter do raise a few important points. The names PayPal and Paytm are similar to the extent both start with the word “Pay” – however given that both companies operate in the electronic transactions space, PayPal would have a tough time winning the argument based on just the word “Pay” in the name. In fact, there is precedent strongly in favor of Paytm here. In Micronix India Vs. Mr. J.R. Kapoor, for example, the Supreme Court observed that micro-chip technology being the basis of many of the electronic products, the word “micro” has much relevance in describing the products and therefore no one can claim monopoly over the use of the said word. Applying the same logic in this case, the word “Pay” has little distinctive relevance in the market to which PayPal and Paytm cater.

PayPal’s stronger argument lies in the use of a similar color combination. Even a brief look at the two logos betrays that similarity between the two. The color tones while not identical – are undoubtedly similar – the first syllable is a darker shade of blue while the second syllable is light blue. Technically, the Paytm logo uses color codes #042e6f (dark blue) and #00baf2 (light blue) while PayPal uses #002d8b (dark blue) and #009bel (light blue) – so one could argue that the colors are not exactly identical. The difference is more easily seen if you compare just the colors side by side. It will remain to be seen if the difference is big enough for consumers and more importantly for the Court.

The Indian Trademark Law does protect colors to the extent the colors or combination of colors confer a distinctive characteristic to a product or service. Schedule 10 of the Trede Marks Act, 1999, pertains specifically to use of colors:

(1) A trade mark may be limited wholly or in part to any combination of colors and any such limitation shall be taken into consideration by the tribunal having to decide on the distinctive character of the trade mark.

(2) So far as a trade mark is registered without limitation of color, it shall be deemed to be registered for all colors. PayPal will undoubtedly argue that the differences in the two sets of colors is minimal and inconsequential to the consumer’s eye – an ordinary consumer will not be able to discern the difference and naturally confuse between the two logos. This approach gives more weight to the overall look and feel of the brand – and at least partly abandons the question on whether PayPal has a trademark right over use of the particular colors.

It also opens up the discussion to whether the whole package – name, font and colors – used by Paytm and PayPal are similar enough for ordinary consumers in India to be deceived into buying the wrong product. Consumer perception can be a tricky territory for PayPal, especially after Paytm’s customer base increased manifold over the last five weeks. The key question the Court should ask is: Would an ordinary consumer intending to use PayPal be confused into using Paytm instead?

The fact of the matter is that ordinary consumers like regular workers, grocers and Uber drivers use and hear the word Paytm all day every day – most of which would not even know about PayPal. PayPal’s foray into India has been limited largely to eBay shoppers, freelancers and IT software developers that are exposed to global economy much more than the ordinary consumer – which means that if PayPal and/or Paytm were to conduct a survey, it would likely result strongly in favor of Paytm.
However, had PayPal chosen to file a trademark infringement lawsuit before the demonetization move was announced (or perhaps anytime in 2011 -2014) when Paytm had not yet established its household name status, it would have been a much easier battle (albeit also bearing much less rewards). PayPal would however be much better placed to win this dispute in virtually any other country (If and when Paytm expands its operations in those countries) – where PayPall still is recognized as a global payments leader.
Questions:

(a) What prompted PayPal file complain on last day against Paytm though it had ample legal resources but waited until the end of the window?
(b) It Paytm and PayPal branding similar? Would you way PayPal & Paytm . have similar trademarks? What is the extent of similarity?
(c) Can colors or color combinations be trademarked in India? Would an ordinary consumer be confused?
(d) Does Paytm deceive consumers away from PayPal? Are Paytm and PayPal Competitors? Does arm to decide consumers to use Paytm?

Answer:
(a) The relevant facts of the case (in brief) need to be analyzed before really answering the question as to what prompted PayPal file the complaint on the last day against Paytm though it had ample legal resources and still it waited till the end of the window. The facts are, that on November 18, 2016, Paypal Inc. had filed an objection at the Indian Trademark Office accusing Paytm of trademark infringement. The timings of filing of the objection is interesting since it has come very soon after the windfall business gains made by Paytm on account of the change in the cash-strapped nation moving rapidly towards a cashless normal.

It is further stated that for six years (since its incorporation) Paytm had steadily become a household name in India i.e.. inhabited largely by the middle class till it got benefited and hit the jackpot on November 8.2016 when the Indian Prime Minister, Shri. Narendra Modi announced the decision of demonetization of currency notes in the denominations of ? 500 and ? 1,000 respectively, thereby invalidating overnight 80% of the country’s cash currency in circulation. It is important to note that the said move was taken by the Government of India to tackle the problem of vast amounts of unaccounted “black” money operating in the Indian economy which was being inter alia used for illegal purposes like bribery, corruption, tax evasion and for funding separatists and terrorists as well, and thus the measure invoked strong emotions, both in favor as well as against the decision from all quarters including the media, the politicos arid the citizens across the country. This also proves that Paytm got naturally benefited from this move being one of the only few players operating in the Indian market.

As per the facts, the direct consequence of demonetization was that there was an unprecedented increase in electronic transactions — with Paytm being the beneficiary was in the forefront. As per the statistics available, there was an addition of over half a million users per day, and Paytm also saw its daily transactions grow from 2.5 million to over 7 million a day and a 10-fold increase in the amount of money added to Paytm accounts in the initial first 14 days after the demonetization was announced.

Rapid growth in that short a time earned Paytm not only great profits and valuation, but also the attention of global competitors like PayPal. In its complaint, as per the facts available, PayPal has accused Paytm of having “slavishly adopted the two-tone blue color scheme”of PayPal’s own logo in entirety, and especially where “The first syllable in each mark is in dark blue color and the second syllable in a light blue color”. Further, PayPal also noted that “both marks begin with the term ‘PAY’ which consumers tend to remember more than the second syllable, with the marks being of similar length.”

Needless to say it was only after the demonetization that PayPal felt threatened (read jealous) by the rise of Paytm in a market that until now had been ignored, underserved and /or underperformed by PayPal. Another important fact is that PayPal had not registered its own trademark in India until after the demonetization and thus its intention to carry out a huge business in India is suspect.

Coming to the position of law on the subject, it is important to note that while the law, Limitation Act, 1963 in particular, prescribes different limitation periods for filing of different suits, appeals and applications in the court of law (for their respective causes of action), it does not prohibit one from filing the same even on the last day of the end of period of limitation. Furthermore, it is only in cases wherein the limitation period is not prescribed by the statute that the court is to look into the facts of * the case to ascertain if there were bottlenecks or an unreasonable delay. Therefore, in the facts of the case, PayPal is entitled to file its objections/ complaint even on the last day of the period of limitation and all facts provided by the other party are extraneous to the issue at hand. No adverse inference can be drawn from the said facts against PayPal. The objection being filed within the period of limitation (prescribed period) merits consideration (by the Tribunal) from the limitation standpoint.

(b) The names ‘PayPal’ and ‘Paytm’ are undoubtedly similar but the similarity is to the extent that both start with the word “Pay” and relying only on the fact that both companies operate in the electronic transactions space, PayPal would have a tough time winning the argument based on the presence of just the word “Pay” in both the names. In fact, the precedent provided in the facts of the case is strongly in favor of Paytm here. Thus, in the case of Micronix India v. JR Kapoor, MAN U/SC/1166/1994 : 1994 Supp (3) SCC 215:1994 (3) SCALE 732, the Supreme Court had observed that “micro-chip technology being the base of many of the electronic products, the word “micro” has much relevance in describing the products. Further, the word ‘micro’ being descriptive of the micro technology used for production of many electronic goods which daily come to the market, no one can claim monopoly over the use of the said word.” Applying the same logic to the case at hand, the word “Pay” has little distinctive relevance in the market to which PayPal and Paytm cater.

In the given set of facts, PayPal has also argued and insisted on the use of a similar color combination by Paytm as that of PayPal to make a case for non-grant of Trade Mark rights to Paytm. It is however provided in the facts of the case that even a brief look at the two logos betrays such similarity between the two. The color tones, while not identical, are undoubtedly similar the first syllable is a darker shade of blue while the second syllable is light blue.

It is further provided in the facts that, technically speaking, the Paytm logo uses color codes #042e6f (dark blue) and #00baf2 (light blue), while PayPal uses #002d8b (dark blue) and #009be1 (light blue). Therefore, one could argue that the colors are not exactly identical. The difference is thus more easily seen if one compares just the colors side by side. From the legal standpoint, section 2(h) of the Trade Marks Act, 1999 defines the term ‘Deceptively similar’ as: ‘A mark shall be deemed to be deceptively similar to another mark if it so nearly resembles that other mark as to be likely to deceive or cause confusion.’ Further, Section 11 of the Trade Marks Act, 1999 lays down the relative grounds for refusal of registration wherein it is stated that ‘a trade mark shall not be registered if, because of (a) its identity with an earlier trade mark and similarity of goods or services covered by the trade mark; or (b) its similarity to an earlier trade mark and the identity or similarity of the goods or services covered by the trade mark, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association with the earlier trade mark.

In the facts of the case, PayPal had not registered its trade mark in India prior to the application for registration by Paytm. Furthermore, it is stated that the Ordinary consumers like regular workers, grocers and uber drivers use and hear the word Paytm throughout the day on daily basis and most of which would not even know about Paypal. Paypal’s foray into India has been limited largely to eBay shoppers, freelancers and IT software developers that are exposed to global economy, which means that if Paypal and Paytm were to conduct a survey, it would likely result strongly in favor of Paytm.

Taking the aforementioned facts and the law into consideration, it is very difficult to conclude that the branding of Paytm and Paypal are similar or to say that both have similar trademarks. The similarity between the two is not substantial to cause the customer of one brand to confuse it with the other one.

(c) The Indian Trademark Law (Trade Marks Act, 1999) does protect colors to the extent the colors or combination of colors confer a distinctive characteristic to the trade mark applied.to the product or service. Section 10 of the Trade Marks Act, 1999, pertains specifically to use of colors. It lays down that:

A trade mark may be limited wholly or in part to any combination of colors and any such limitation shall be taken into consideration by the tribunal having to decide on the distinctive character of the trade mark.’ So far as a trade mark is registered without limitation of color, it shall be deemed to be registered, for all colors.
In the facts of the present case, PayPal can argue that the difference in the two sets of colors is minimal and inconsequential to the consumer’s eye, thus, an ordinary consumer will not be able to discern the difference and shall naturally be confused between the two logos. This approach, however, gives more weight to the overall look and feel of the brand and at least partly abandons the question on whether PayPal has a trademark right over use of the particular colors. Thus, in my opinion, it is not the correct approach or a fair reading of the Trade Mark Law in India.

It also opens up the discussion as to whether the whole package name, font and colors, used by Paytm and PayPal, are similar enough for ordinary consumers in India to be deceived into buying the wrong product. In the facts of the case, it has been clearly provided that the difference between the colors in the two trademarks is more easily seen if one compares just the colors side by side. Therefore, it is clear that though color and color combinations can be a subject matter of Trade Mark in India, in the facts of the present case, it is highly unlikely that the consumers may trapped into the error of confusing Paytm’s trade mark as that of Paypal’s trade mark.

(d) The answer to the question regarding Consumer perception wrt the services provided by Paytm and Paypal is really subjective. However, the key question the court should ask itself is: Has the expansion of business by Paytm in India been on account of any misconception in the minds of the customers as to the real identity or the origin of Paytm and has there been any confusion in the minds of the customers between the business of Paytm and PayPal. In short, would the consumers confuse Paytm as Paypal while deciding to avail its services.

As provided in the facts, ordinary consumers like regular workers, grocers and Uber drivers use and hear the word Paytm throughout the day on daily basis. Most of them would not even know about PayPal. As further provided, PayPal’s foray into India has been limited largely to eBay shoppers, freelancers and IT software developers that are exposed to global economy much more than the ordinary consumer – which means that if PayPal and / or Paytm were to conduct a survey, it would likely result strongly in favor of Paytm.

However, had PayPal chosen to file a trademark infringement lawsuit before the demonetization move was announced (or perhaps anytime in 2011-2014) when Paytm had not yet established its household name status, it would have been a much easier battle (albeit also bearing much less rewards). PayPal would however be much better placed to win this dispute in virtually any other country (if and when Paytm expands its operations in those countries) where PayPal is still recognized as a global payments leader. Thus, it is not correct to say that Paytm has either deceived consumers away from Paypal or that Paytm and Paypal are competitors in the Indian market.

Question
Read the following case study carefully and answer the questions given at the end :
Facts of the case : The plaintiff XYZ Ltd. is a Company publicly listed, organized and existing under the laws of USA, having its registered office at New York. Mr. ABC is duly authorised to sign, verify and institute the present suit. The plaintiff’s group of companies is one of the world’s most famous and well-known hotel and resort chain group using the trademark sleeping cat and its device. The plaintiff’s flagship company sleepingcat Resort was launched in 1994 in Lacuna Phuket under the trademark sleepingcat and its device.

Hence, the mark is inherently distinctive of the business and products of the plaintiff and the continuous use of the trademark sleepingcat by the plaintiff group since the year 1994 has created goodwill and reputation in the said mark that is associated with the plaintiff and the plaintiff alone. The plaintiff Group’s services and products underthe trademarks sleepingcat and its device have been widely promoted inter alia through print and audio-visual media including television programmes, advertisements, articles and write-ups appearing in leading newspapers, magazines, journals, etc. all of which enjoy a wide viewership, circulation and readership all over the world. Many of these forms of media also have a substantial reach and circulation in India and are viewed by millions of Indians who travel abroad or who subscribe to the same in India every year.

In addition, many people from all over the world including India access the plaintiff Group’s websites: www.sleepingcat.com,www.sleepingcatspa.com,www.sleepingcatgallery.com, www.sleepingcatresorts.com that have been registered since as early as 1996 and become acquainted with the plaintiff Group’s business, services and products which further contributed to the reputation and notoriety of the mark sleepingcat and its device of the plaintiff. The plaintiff Group, being prior in the adoption and use of the mark sleepingcat and its device, is its proprietor and thus, entitled to the use of these marks under common law rights, to the exclusion of all others. Apart from having common law rights in the mark sleepingcat and its device, the plaintiff also has statutory right in the same. It is submitted that the plaintiff has registered or has sought to register the mark sleepingcat and its device in more than 30 countries of the world. The plaintiff-is, thus, the registered owner of the trademark sleepingcat as well as the device in various countries.

The defendant Mr. X is the Managing Director of defendant No. 2 which is sleepingcat Tours and Travels (Pvt.) Ltd. having its office at Dadar, Mumbai and at Regal Building, Parliament Street, New Delhi. It is the case of the plaintiff against the defendant that sometime in 2004 it came to the knowledge of the plaintiff that the defendants had applied for registration of the mark sleepingcat under the Trademarks Act, 1999.

The plaintiff had filed opposition against the purported registration applications in 2004. The said application were thereafter abandoned in February 2005 since the defendants failed to file any counter statements to the oppositions filed by the plaintiffs predecessor in-title and thus, the cases were closed. In June, 2005 the defendants filed an application with trademark office seeking registration of the mark sleepingcat with device, opposition to which was filed by the plaintiff in May 2006 and September 2006 respectively. While the said applications were under contest before the trademarks registry, the defendant used the trademark for advertising his services. It adopted the website www.sleepingcattours.com which was created on 16th August 2003. The plaintiff filed the suit against the defendant use of the trademark on 15th January 2019. It plead to the court that:

(1) The adoption of the mark sleepingcat and its device by the plaintiff is much prior to the filing of the application for registration of the mark sleepingcat and its device by the defendants and also much prior to the alleged use of it by the defendants.

(2) It is submitted that the defendants belong to the same trade/industry and therefore, there exists every reason for the defendants to have been aware of the plaintiffs marks and also the goodwill and reputation of the said marks worldwide.

(3) The plaintiff submits that there is no way in which the defendants could have honestly or by sheer coincidence adopted such a well known mark for their goods, except for ulterior gains. The conduct of the defendants is totally dishonest and is solely motivated to create mass deception and confusion by running a trade/business under an identical trademark. The defendants! activities are clearly motivated to encash upon the hard earned reputation and goodwill of the plaintiff’s well known and recognized trademark sleeping cat and its device.

The following defence were raised by the defendant:
(1) The plaintiffs have no area of operation from India nor do they have any office in India, while the defendants are a company incorporated within India and have their area operations in India and have been actively conducting business since 1996 without any interruption. The plaintiffs are only trying to take advantage of the goodwill and reputation of the defendants and to encash on the presence of the defend ants’ business which the defendants have established for the last 12 years in India and abroad under the trademark of sleepingcat and its device.

(2) The defendant No. 2 is one of the leading tour and travel companies including camping and adventure sports and lay special emphasis on providing services to suit the clients and to provide such hospitality designed to fit into its natural surrounding, using indigenous resources as far as possible which may reflect the landscape and architecture of the area of travel and also catering to all such needs of clients visiting India and taking the advantage of the facilities and other opportunities available in India with regards to well known tourists spots in India.

(3) The plaintiffs are conducting a business of hotels, resorts and spas while the defendants are primarily conducting services relating to travel and tourism in India through their company and the trademark sleepingcat and its device. There is no trade connection between the business of the plaintiff and the defendants.
Questions :

1. Can an unregistered mark entitle to trademark protection?
2. What are the essential ingredients of ‘passing off?
3. Does the court have jurisdiction in the given case?
4. Is the current suit barred by limitation?

Answer:
(1) The trademark rights arise automatically as a result of using a mark on the goods or services. Registration of Trademark is not mandatory.
An “unregistered trademark” is one which does not possess legal benefits. But in some cases, an unregistered trademark may get common law benefits.
Unregistered marks are defined as marks which are not registered in relation to goods or services (that is names, marks or logos used in relation to a business) under the Trade Marks Act, 1999. Though under Section 27 of Trade Marks Act, 1999. no action for infringement is allowed for unregistered trademarks, it can still be protected by means of common law tort of passing off.

To succeed in such an action, it is necessary to establish that unregistered mark has comparable goodwill or reputation in connection with the product, service or business with which it is used. The facts of the given case are similar to that of. Choice Hotels International Inc. vs. M Sanjay Kumar and Another decided by the Delhi High Court on 9 February, 2015 The legal position emerging from the above case may be summarised as under:

(1) As per Section 29(5) of the Trade Mark Act, 1999 relates to a ‘ situation where (i) the infringer uses the registered trademark “as his trade name or part of his trade name, or name of his business concern or part of the name, of his business concern” and (ii) the business concern or trade is in the same goods or services in respect of which the trade mark is registered.

(2) This is in the nature of a per se or a ‘no-fault’ provision which offers a higher degree of protection where both the above elements are shown to exist. If the owner/proprietor of the registered trade mark is able to show that both the above elements exist then an injunction order restraining order the infringer should straightway follow. As per Section 29(5) of the Trade Mark Act 1999 there is no requirement to show that the mark has a distinctive character or that any confusion is likely to result from the use by the infringer of the registered mark as part of its trade name or name of the business concern.

(3) Although, in a situation where the first element is present and not the second then obviously the requirement of Section 29(5) is not fulfilled. Where the registered trade mark is used as part of the corporate name but the business of the infringer is in goods or services other than those for which the mark is registered, the owner
or proprietor of the registered trade mark is not precluded from seeking a remedy under Section 29(4) of Trade Mark Act 1999 if the conditions attached to Section 29(4) are fulfilled.

(4) Given the object and purpose of Section 29(1) to (4), Section 29(5) cannot be intended to be exhaustive of all situations of uses of the registered mark as part of the corporate name. Section 29(5) cannot be said to render Section 29(4) otiose. The object of Section 29(5) was to offer a better protection and not to shut the door of Section 29(4) to a registered proprietor who is able to show that the registered mark enjoying a reputation in India has been used by the infringer as part of his corporate name but his businesses in goods and services other than that for which the mark has been registered.

(5) A passing off action is maintainable in the case of a well-known mark even if the goods and services being dealt with by the parties are not similar. The, owner of an unregistered trademark may be abte to prevent use by another party of an infringing mark pursuant to the common law tort of passing off. The action against passing off is based on the principle that ‘a man may not sell his own goods under the pretence that they are the goods of another man’. Passing off is a species of unfair trade competition by which one person seeks to profit from the reputation of another in a particular trade or business.

(b) The three fundamental components of passing off are Reputation, Misrepresentation and Damage to goodwill. These three elements are also called as the Classical Trinity, as restated by the House of Lords in the case of Reckitt & Colman Ltd vs. Borden Inc. It was stated in this case that in a suit for passing off the plaintiff must establish firstly, goodwill or reputation attached to his goods or services. Secondly he must prove misrepresentation by the defendant to the public i.e. leading or likely to lead the public to believe that the goods and services offered by him are that of the plaintiff’s. Lastly he must demonstrate that he has suffered a loss due to the belief that the defendant’s goods and services are those of the plaintiff’s.

Among the three, one of the essential components of passing off’ is goodwill. The classic case of passing off as it existed since its genesis v., always insist the existence of goodwill of a merchant in order to give him a locally enforceable right to sue for passing off. This has^een explained by Kerly’s in his book called Law of Trade Marks and Trade Names, wherein the concept of goodwill has always been categorized as local in character and the learned author observed thus:- “Since an essential ingredient of passing off is damage to goodwill, he (the Plaintiff) must show that he had, at the date when the Defendants started up, in this country not merely a reputation but goodwill capable of being damaged. Goodwill, however, is local; it is situated where the business is.

Hence, a foreign claimant may have a reputation in this Guntry-from travelers or periodicals of international circulation or. increasingly, from exposure on the Internet-yet still fail in an action for passing off because he has here no business and so no goodwill. Such cases have been not uncommon in recent years, and have caused considerable difficulty. Where there is a substantial reputation here, our courts will often accept minimal evidence that a business exists here, but there has to be some”.

This meaning of goodwill and the insistence of localized business has been the traditional concept of passing off which sometimes is called as classic case of passing off. Although, this concept of passing off has undergone changes due to advent of technology and modernization. For the said reason the tendency to insist localized goodwill has been transformed into proving the reputation of a global character. All this would mean that courts entertaining the case of passing off can discount the localized existence of goodwill and the business in the territory-specific if the substantial nature of reputation has been proved which, has some kind of nexus in the territory where the protection is sought and the said concept in the modern language is called trans-border reputation whereas the goodwill is always local in character, the concept of reputation is dynamic and is all-encompassing.

The reputation of a person can transcend boundaries by virtue of its advertisement in the newspapers, media circulation, expatriate reputation due to cultural kindness, and all other relevant factors which connect one country’s business with that of another. This has been aptly explained by the Division Bench of this Court in the case of N. R. Dongre vs. Whirlpool Corporation, AIR 1995 Delhi 300 wherein the

concept of trans-border reputation was approved in the following words:-
Thus a product and its trade name transcend the physical boundaries of a geographical region and acquire a trans-border or overseas or extraterritorial reputation not only through the import of goods but also by its advertisement. The knowledge and the awareness of the goods of foreign trade and its trademark can be available at a place where goods are not being marketed and consequently not being used. The manner in which or the source from which the knowledge has been acquired is immaterial.
To prove the passing off action under the Trade Marks Act, 1999, the following points need to be proved:

• The owner has to prove that there is a similarity in the trade names.
• The defendant is deceptively passing off his goods as those of the owners.
• It is leading to confusion in the minds of the customers (whether a person of average intelligence and of imperfect recollection would be confused).
• The nature of the activity and the market consumption of the goods of the parties to the passing off action must be the same.
• Use of the same trademark or trademark by the defendant must be likely to injure the business reputation of the plaintiff.
• Misrepresentation and loss or damage of the goodwill are also, essential components for a successful passing-off action. This needs to be proved by the plaintiff for an interlocutory injunction,

(3) The plaintiffs have no area of operation from India nor do they have an office in India, while the defendants’ area of operation is a company incorporated in India and have their area operations in India and have been actively conducting business since 1996 without any interruption. The plaintiffs are only trying to take advantage of the goodwill and reputation of the defendants and to encash on the presence of the defendant’s business which the defendants have established for the last 12 years in India and abroad under the trademark of sleeping cat and its device.

Defendant No. 2 is one of the leading tour and travel companies including camping and adventure sports and lay special emphasis on providing services to suit the clients and to provide such hospitality designed to fit into its natural surroundings, using indigenous resources as far as possible which may reflect the landscape and architecture of the area of travel and also catering to all such needs of clients visiting India and taking the advantage of the facilities and other opportunities available in India with regards to well-known tourist spots in India.

The plaintiffs are conducting a business of hotels, resorts, and spas while the defendants are primarily conducting services relating to travel and tourism in India through their company and the trademark sleeping cat and its device. There is no trade connection between the business of the plaintiff and the defendants. The defendants are carrying on their business in India. The plaintiffs neither actually nor voluntarily reside and/or carry on business nor personally work for gain within the territorial jurisdiction of the Courts in India.

Section 135 of the Trade Marks Act, 1999 states that plaintiff centric jurisdiction to the parties. In the given case the plaintiff is offering his products and services for sale in India through the Internet. Further, the plaintiff has filed the case by making itself available to the court in India, therefore, this Court has jurisdiction to entertain and decide the present suit.

By inserting section 134(2) of the Trademarks Act, 1999 the Legislature has brought the trademarks law in tandem with the provisions under the Copyright Act. In section 62(2) of the Copyright Act as well as in Section 20 of the Code of Civil Procedure to enable the plaintiff to sue one who infringed his copyright within whose local limits he carried on business at the time of institution of the suit or other proceedings. The expression “carries on business” as provided under Section 62(2) and Section 134(2) of the Copyright Act and Trademarks Act respectively is restricted not only to the principal place of business but also covers branches or branches wherever the business is carried on.

In Ultratech Cement & Ann/. Dalmia Cement Bharat Limited the Bombay High Court held that even if one of the plaintiffs has place of residence or carries on business within the jurisdiction of the Courts, the Court is entitled to entertain the suit. The Court has further held that even if no cause of action arises at a subordinate place of business the plaintiff is still entitled to file a suit for infringement and passing off within the jurisdiction of the Court. There is a divergence from Section 20 of the CPC wherein the suits related to trademarks can be filed even in a place other than the principal place of business i.e. where a branch’s office is situated, even if no cause of action arises.

(4) It has been decided in many cases that such statutory right cannot be lost merely on the question of principles of delay, laches or acquiescence. It was also held that a mere delay after knowledge of infringement does not deprive the registered proprietor of a trademark of his statutory rights or of the appropriate remedy for the enforcement of those rights so long as the said delay is not an inordinate delay.

It is now well settled that an action for passing off is a common law remedy being an action in the substance of deceit under the Law of Torts. Wherever and whenever a fresh deceitful act is committed the person deceived would naturally have a fresh cause of action in his favor. Thus every time when a person passes off his goods as those of another he commits the act of such deceit. Similarly whenever and wherever a person commits a breach of a registered trademark of another he commits a recurring act of breach, or infringement of such trade mark giving a recurring and fresh cause of action at each time of such infringement to the party aggrieved.

The present suit .is not barred by limitation. Generally limitation period is for 3 years from the start of the cause of action. Article 88 and Section 22 of the Limitation Act, 1963 are to be read conjointly, it clearly provides that in case of a continuing breach of contract or in the case of a continuing tort, a fresh period of limitation begins to run at every moment of the time during which the breach or the tort, as the case may be, continues.

In the given case, admittedly, the defendants are subsequent users of the trademark SLEEPING CAT and SLEEPING CAT device. It is a continuous cause of action. The passing off is one of the facets of tort. In case both the provisions are read, prima facie it appears to the court that the suit is not barred by limitation.
In Timken Company v. Timken Services Private Ltd., the Delhi High Court held that if a new deceitful act is committed, the deceived party would naturally have a fresh cause of action in its favor. Hence, every time a party passes its goods oft as those of another it commits an act of infringement. Similarly, whenever a party breaches another party’s registered trademark, it commits a recurring act of breach or infringement of that mark, giving rise to a fresh cause of action to the aggrieved party.

CS Professional Intellectual Property Rights Laws and Practices Notes

Indian Patent Law – Intellectual Property Rights Laws and Practices Important Questions

Question 1.
With reference to the relevant legal enactments, write short notes on the following :
(i) Company Secretary as a patent agent.
Answer:
A person shall be qualified for a patent agent if the person is

• Citizen of India
• Completed the age of 21 years
• Has obtained a degree in science, engineering, or technology
• Passed the prescribed qualification exams or worked for not less than ten years as an examiner or discharged the functions of the controller. In the light of the above legal provisions, if a Company Secretary who fulfills the above conditions, satisfy the condition then he will be eligible to act as a patent agent.

Question 2.
With reference to the relevant legal enactments,’ write short notes on the following :
(ii) Element of ‘novelty’ in an invention
Answer:
One of the pre-requisite for anything to be regarded as an invention is something having an inventive step. Novelty means anything new or strange which is thus an indispensable part of anything to be construed as.

Question 3.
With reference to the relevant legal enactments, write short notes of the following :
(vi) Contents of the complete specification
Answer:
The specification is the description of the invention. The specification can be provisional or complete. The contents of the complete specification are

1. Describe the invention, its operation, its use, and methods.
2. It must disclose the best method of performing the invention.
3. Ends with a claim defining the scope of the invention.
4. Must provide technical information on the invention.
5. A declaration as to the inventorship of the invention.

Question 4.
With reference to the relevant legal enactments, write short notes on the following:
(iii) Term of patents
Answer:

1. Provisions relating to the term period of patents are covered under section 53 of the Patents Act 1970.
2. The term period of patents is 20 years from the date of filing the application for the patent.
3. However, nonpayment of renewal fees may result in the cessation of the patent.

Question 5.
With reference to the relevant legal enactments, write short notes on the following :
(iv) Restoration of lapsed patents
Answer:
Section 60 to 62 deals with provisions relating to the restoration of lapsed patent, it provides that where the patent has ceased to have effect by reasons of failure to pay any renewal fees within the period prescribed then the patentee may within eighteen months from the date on which the patent ceased to have an effect, make an application for restoration of the patent. If the controller is satisfied that the failure to pay fees was unintentional he may advertise the application. Any person interested may oppose the restoration and after considering the opposition, the controller will make appropriate orders.

Question 6.
With reference to the relevant legal enactments, write short notes on the following:
(v) Patent agent
Answer:
A person shall be qualified for a patent agent if the person is

• Citizen of India
• Completed the age of 21 years
• Has obtained a degree in science, engineering, or technology
• Passed the prescribed qualification exams or worked for not less than ten years as an examiner or discharged the functions of the controller. In the light of the above legal provisions, if a Company Secretary who fulfills the above conditions, satisfy the condition then he will be eligible to act as a patent agent.

Question 7.
With reference to the relevant legal enactments, write short notes on the following:
(v) Inventive step
(vii) General principles applicable to working of the patented invention.
Answer:
(v) Inventive step

• The inventive step has been defined in Section 2(1) (ja) of the Patents Act, 1970.
• Inventive step means a feature of an invention, that involves technical advance as compared to the knowledge or having economic significance or both that makes the invention which is not obvious to a person skilled in the art.

(vii) General principles applicable to working of patented invention Some of the principles applicable to working of the patented invention covered in Section 83 of the Patents Act, 1970 are as under:

• Patents are granted to encourage inventions.
• Patents are not granted to merely enable patentees to enjoy a monopoly.
• Patents granted do not prohibit Central Government from taking measures to protect public health.
• The benefit of the patented invention should be available at reasonable prices to the public.
• Patents granted should act as an instrument to promote public interest especially in sectors of vital importance.
• Patent rights should not be abused by the patentee.

Question 8.
(a) Distinguish between the following :
(iii) ‘Invention’ and ‘patentable invention’ under the Patents Act, 1970.
Answer:
Section 2(j) of the Patent Act defines an invention as to mean a new product, or process involving an inventive step and capable of Industrial application. The term ‘inventive step’ has been defined under the Patent Act as to mean. a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both that makes the invention not obvious to a person skilled in the art.

Any invention or technology which has not been anticipated by publication in any document or used in the country or elsewhere in the world before the date of filing of a patent application with complete specification, i.e. the subject matter has not fallen into the public domain or that it does not form part of the state of the art, which is registered with Controller of Patent is a patentable invention.
Section 3 enumerated the list of inventions that are not patentable.

Question 9.
(a) Distinguish between the following :
(iii) ‘Invention’ and ‘patentable invention’ under the Patents Act, 1970.
Answer:
Please refer 2008 – June [3] (a) (iii) on page no. 86

Question 10.
(a) Distinguish between the following :
(iii) ‘Provisional specification’ and ‘complete specification’ under the Patents Act, 1970.
Answer:
A provisional specification is a document, which contains a description regarding the nature of an invention. The description, however, does not contain the details regarding the invention. Also, it does not contain the claims. The provisional specification is filed to claim the priority date of an invention. The advantage of a provisional specification is that it can be filed as soon as the patent is conceived and for the recorded priority date. But the application is only examined after the complete specification has been filed.

Section 9 of the Patents Act, 1970 stipulates that where an application for a patent (not being a convention application or an application filed under PCT designation India) is accompanied by a provisional specification, a complete specification shall be (filed within twelve months from the date of filing of the application, and if the complete specification is not so filed, the application shall be deemed to be abandoned.

The complete specification is the document, which contains a detailed, description of the invention along with the drawings and claims. Also, the description regarding prior art is included in the complete specification. Section 10 dealing with contents of Specifications provides that every specification, whether provisional or complete, shall describe the invention and begin with a title sufficiently indicating the subject matter to which the invention relates. Every complete specification is required to

1. fully and particularly describe the invention and the operation or use and I the method by which it is to be performed;
2. disclose the best method of performing the invention which is known to the applicant and for which he is entitled to claim protection;
3. end with a claim or claims defining the scope of the invention for which protection is claimed; and
4. be accompanied by an abstract to provide technical information on the invention.

Question 11.
(a) Distinguish between the following:
(iii) ‘Patent’ and ‘patent of addition’.
Answer:

• Patent means a patent granted under the Patent Act, 1970.
• A patent is a grant from the government that confers on the grantee, for a limited period of time, the exclusive privileges of making, selling, and using the invention for which the patent has been granted and also of authorizing others to do so.
• A patent gives its owner a monopoly right to make & sell the subject matter of the patent for a defined period of time.

Patent of addition:

• Patent of Addition is a patent for an improvement in, or modification of an invention for which invention, a patent has already been applied for or granted.
• A patent of addition will remain in force as long as the patent for the original invention remains in force.

Question 12.
(a) Distinguish between the following :
(iv) ‘Patent’ and ‘patent of addition’.
Answer:
Please refer 2010 – June [3] (a) (777) on page no. 88

Question 13.
(a) Distinguish between the following:
(iii) ‘Invention’ and ‘patentable invention’.
Answer:
Please refer 2008 – June [3] (a) (iii) on page no. 87 .

Question 14.
(a) Distinguish between the following:
(ii) ‘Surrender of a patent’ and ‘revocation of a patent ‘ under the Patents Act, 1970.
Answer:
Surrender of patents:

• A surrender of patents has been provided in Section 63 of the Patents Act, 1970.
• As per the provisions of the Act, the patentee of the patentee can offer to surrender his patent, at any time by giving notice to the controller.
• The Controller shall publish the offer in the prescribed manner, once the offer is made by the patentee.
• Any person within the prescribed period after such publication may give notice of opposition to the controller.
• If the controller is satisfied after hearing the patentee & any opponent, he may accept the offer & by order revoke the patent.

Revocation of Patents:

• ‘Revocation of patents’ has been covered in Section 64 of the Patents Act, 1970.
• As per the provisions of the Act, a patent may be revoked by any person, Central Government.
• If the Central Government is satisfied that a patent is for an invention relating to atomic energy for which no patent can be granted, it may direct the controller to revoke the patent.

Question 15.
Attempt the following :
(ii) Explain the provisions of the Patents Act, 1970 regarding the restoration of lapsed patents.
Answer:
Please refer 2010- Dec [1 ] [C] (iv) on page no. 84

Question 16.
(a) Mention any five inventions which are not patentable under the Patents Act, 1970.
Answer:
Inventions not patentable under The Patents Act, 1970
Section 3 of the Patents Act, 1970 provides that the following are not inventions and hence not patentable:

• an invention which is frivolous or which claims anything obviously contrary to well established natural laws;
• an invention the primary or intended use or commercial exploitation of which could be contrary to public order or morality or which causes serious prejudice to human, animal or plant life or health or to the environment;
• the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any property or mere new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant;
• a substance obtained by a .mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance;
• the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way;
• a method of agriculture or horticulture;
• any process for the medicinal, surgical, curative, prophylactic diagnostic, therapeutic or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products;
• plants and animals in whole or any part thereof other than micro¬organisms but including seeds, varieties, and species and essentially biological processes for production or propagation of plants and animals;
• a computer program per se other than its technical application to industry or a combination with hardware;
• a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works and television productions;
• a mere scheme or rule or method of performing mental act or method of playing the game;
• a presentation of information;
• topography of integrated circuits;
• an invention which in effect, is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known components or components.

Section 4 prohibits the grant of patent in respect of an invention relating to atomic energy falling within Sub-section (1) of Section 20 of the Atomic Energy Act, 1962.

Question 17.
(a) Mention five important grounds for opposition to the grant of patents.
Answer:
Section 25 provides that any person, can apply for the opposition of grant of a patent on the following ground:

1. That the applicant had wrongfully obtained the whole or part of invention 1 from him or the person from whom he claims.
2. That the invention has been published before the priority date of the claim.
3. That the invention claimed is publicly known or used.
4. That the invention claimed does not involve any inventive step.
5. That the invention is not patentable under the Act.
6. That the complete specification does not describe the invention properly.
7. That the complete specification is provided after the specified time.

Question 18.
Client XYZ has approached you for getting a patent on a drug for curing insomnia. What are the steps involved ¡n registering the patent? Describe with examples.
Answer:

1. Prior art on the subject must be examined to find out the “novelty”. Patent searches have to be organized.
2. Similarly, the innovative part has to be seen along with .with usefulness.
3. Disclosures and publication of the discovery must be in place.
4. Claims must be prepared along with detailed specifications, drawings, and manufacturing process.
5. The drug must also be physically available to establish its identity.
6. The patent office will examine the claims and publish the results for objections.
7. Finally, the patent will be granted and duly registered.

Question 19.
‘There are two kinds of opposition in the grant of patent.’ Discuss the provisions of Pre grant opposition and procedure followed in such situation as per the Patent legislation.
Answer:
There are two types of opposition to the grant of a patent as per the Patent Amendment Act, 2005. They are:

• Pre-Grant Opposition
• Post-Grant Opposition.

Pre-Grant Opposition
Section 25 of the Act deals with opposition to the grant of a patent and provides that where an application for a patent has been published but a patent has not been granted, any person may, in writing, represent by way of opposition to the Controller against the grant of a patent on the following grounds and the Controller on request of such person shall hear him and dispose of the representation in the prescribed manner and specified time. The grounds of the Pre-Grant opposition are as follows :

(1) That the applicant for the patent or the person under or through whom he claims, wrongfully obtained the invention or any part thereof from him or from a person under or through whom he claims;

(2) That the invention so far as claimed in any claim of the complete specification has been published before the priority date of the claim –

1. In any specification filed in pursuance of an application for a patent made in India on or after the 1 st day of January 1912; or
2. In India or elsewhere, in any other document:
   Provided that the ground specified in sub-clause (ii) shall not be available where such publication does not constitute an anticipation of the invention by virtue of sub-section (2) or sub-section (3) of section 29;

(3) That the invention so far as claimed in any claim of the complete specification is claimed in a claim of a complete specification published on or after the priority date of the applicant’s claim and filed in pursuance of an application for a patent in India, being a claim of which the priority date is earlier than that of the applicant’s claim;

(4) That the invention so far as claimed in any claim of the complete specification was publicly known or publicly used in India before the priority date of that claim.

Explanation:
For the purposes of this clause, an invention relating to a process for which a patent is claimed shall be deemed to have been publicly known or publicly used in India before the priority date of the claim if a product made by that process had already been imported into India before that date except where such importation has been for the purpose of reasonable trial or experiment only;

(5) That the invention so far as claimed in any claim of the complete the specification is obvious and clearly does not involve any inventive step, having regard to the matter published as mentioned in clause (b) or having regard to what was used in India before the priority date of the applicant’s claim;

(6) That the subject of any claim of the complete specification is not an invention within the meaning of this Act, or is not patentable under this Act;

(7) That the complete specification does not sufficiently and clearly describe the invention or the method by which it is to be performed;

(h) That the applicant has failed to disclose to the Controller the information required by section 8 or has furnished the information which in any material particular was false to his knowledge

(8) That in the case of convention application, the application was not made within twelve months from the date of the first application for protection for the invention made in a convention country by the applicant or a person from whom he derives title;

(9) That the complete specification does not disclose or wrongly mentions the source or the geographical origin of biological material used for the invention;

(10) That the invention so far as claimed in any claim of the complete specification is anticipated having regard to the knowledge, oral or otherwise, available within any local or indigenous community in India or elsewhere.

The grounds for both pre and post-grant opposition are identical and there is nothing to preclude a pre-grant opponent from subsequently filing a post-grant opposition. However, despite the similarities, there are also several procedural differences between the two types of opposition. The primary difference between pre-grant and post-grant opposition is that though pre-grant proceedings may be initiated by “any person”, but only a “person interested” can institute a post-grant opposition.

The Indian Patents Act defines a “person interested” as including a person engaged in, or in promoting, research in the same field as that to which the invention relates. Moreover, the Indian Patents Act does not explicitly allow the opponent to be heard in a pre-grant opposition. The opponent has to make a request for a hearing and the rules do not detail how a hearing is to be conducted. The opponent’s right to be heard solely depends upon the discretion of the Controller, who decides the same based upon the merit of the opposition. Additionally, the rules are also not clear whether the opponent will be heard in the presence of the applicant.

Opposition Proceedings
Rule 55 dealing with opposition by representation against the grant of a patent requires the representation for opposition under section 25(1) to be filed at the appropriate office within a period not exceeding three months from the date of publication of the application under section 11A of the Act, or before the grant of a patent, whichever is later and includes a statement and evidence, if any, in support of the representation and a request forbearing if so desired.

The Controller has been empowered to consider such representation only when a request for examination of the application has been filed. On consideration of the representation, if the Controller is of the opinion that application for patent shall be refused or the complete specification requires amendment, he shall give notice to the applicant to that effect. On receiving the notice the applicant shall, if he so desires, file his statement and evidence if any in support of his application within one month from the date of the notice.

On consideration of the statement and evidence filed by the applicant, the Controller may either refuse to grant a patent on the application or require the complete specification to be amended to his satisfaction before the patent is granted. After considering the representation and submission made during the hearing if so requested, the Controller shall proceed further simultaneously either rejecting the representation and granting the patent or accepting the representation and refusing the grant of a patent on that application, ordinarily within one month from the completion of above proceedings.

In the case of Novartis Ag v. Natco Pharma Ltd. on 25 January 2006, an application for the patent was filed in India on 17th July 1998 by Novartis AG, Switzerland, claiming Switzerland’s priority date of 18th July 1997. Upon publication, the grant of the patent was opposed by Natco Pharma Ltd., India on 26,h May 2005.

The grounds for opposition were:

• Anticipation by prior publication
• Lack of inventive step
• Non-patentability under section 3(d)
• Wrongfully claiming the priority

The title compound was already known in a US patent (filed in 1993). The US patent claimed a pharmaceutically acceptable salt of the base compound. Another Document, “Nature Medicine” (5th May 1996) also described the title compound. Also, the claimed salt inherently existed in the most stable form of salt. Hence, the claims of the application for the product and process in respect of the title compound stood anticipated by prior publications.

Additionally, based on section 3(d) the product claim amounted to a mere discovery of the new form of the known substance. Further, the application had claimed Swiss priority, but Switzerland was not a convention country on the date of filing in Switzerland. Hence, no priority of Swiss application could be claimed in respect of the Indian application. In view of the above findings and arguments, the Controller ruled that the above patent application cannot proceed for grant of patent.

Question 20.
To qualify for the grant of a patent under the Patents Act, 1970, the invention must be non-obvious. But determining whether an invention is non-obvious is one of the most difficult tasks in patent law. Discuss.
Answer:
For the purposes of grant of a Patent to an invention, determining as to whether an invention is non-obvious or not, i.e. determining whether it involves an inventive step or not, is one of the most difficult tasks in the Patent law. The mere coalition of two or more things without the exercise of inventive ingenuity is not a subject matter for a patent. It is an invention if the process or manufacture of an article requires some ingenuity or has an inventive step.

However, simplicity is not necessarily an objection to securing a patent for an invention. Even if the product and/or the process may be perfectly simple and very common, yet there may be an invention, if the inventor has developed a variant, which will render it more useful. After all, a disposable razor, a safety pin, and a retractable tape measure all seem obvious now, yet none of these items were obvious at the time they were invented. The point of view from which it needs to be ascertained as to whether a particular invention is ‘non-obvious’ or not is that of a person skilled in the particular art to which the invention relates.

An invention which has an inventive step, however small, but having regard to the condition of the state-of-the-art in-the particular field on the date of filing or the priority date of the application for patent, whichever is earlier constitutes a step forward and maybe a subject matter for a patent. Thus, one must review the score and content of the prior art existing in the particular field to determine if the invention is non-obvious. Secondly, consideration must be given to the differences or enhancement carried out between the Prior Art and the Invention at hand. Thirdly, as already stated, if the invention would be obvious to a person having primary skill in the art to which the invention pertains, it cannot be patented.

The Supreme Court in the case of Bishwanath Prasad Radhey Shyam v. Hindustan Metal Industries interpreted the term inventive step. In this case, the Court opined that ‘obviousness’ has to be strictly and objectively judged. The test laid down by the Court to determine obviousness was: ‘Had the document been placed in the hands of a competent craftsman (or engineer as distinguished from a mere artisan), endowed with the common general knowledge at the ‘priority date’, who was faced with the problem solved by the patentee but without knowledge of the patented invention, would he have come up with the invention in question

Simply put, according to the test, what has to be determined is whether at the time the invention was made, any other person skilled in the same field as the invention could have come up with the same invention if faced with the same problem.

Question 21.
Many life-saving drugs are patented by multinational pharmaceutical companies and many times there is a shortage of these medicines in the market. In this context explain the working of the patented invention and can government issue license for the protection of the general public.
Answer:
Section 83 of the Patents Act, 1970 deals with general principles applicable to working of Patented Invention. It provides that in exercising the powers conferred for working of Patents and Compulsory Licenses, regard shall be had to the following general considerations, namely:

(1) That patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;

(2) That they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article;

(3) That the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations;

(4) That patents granted do not impede protection of public health and nutrition and should act as an instrument to promote public interest especially in sectors of vital importance for socio-economic and technological development of India;

(5) That patents granted do not in any way prohibit Central Government in taking measures to protect public health;

(6) That the patent right is not abused by the patentee or person deriving title or interest on patent from the patentee, and the patentee or a person deriving title or interest on patent from the patentee does not resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology;

(7) That patents are granted to make the benefit of the patented invention available at reasonably affordable prices to the public.

Compulsory Licenses
The provisions for Compulsory Licenses are made in the Patents Act, 1970 to prevent the abuse of grant of Patent as a monopoly and to make the way for commercial exploitation of the invention by any interested person. According to Section 84 of the Patents Act, 1970, any person interested can make an application for grant of a compulsory license for a Patent after three years from the date Of grant of that Patent on any of the following grounds:

1. That the reasonable requirements of the public with respect to the patented invention have not been satisfied, or
2. That the patented invention is not available to the public at a reasonably affordable price, or
3. That the patented invention is not worked in the territory of India.

An application for Compulsory License may be made by any person notwithstanding that he is already the holder of a license under the Patent and no person shall be estopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price by reason of any admission made by him, whether in such a license or otherwise or by. reason of his having accepted such a license.

Thus, while law confers some exclusive monopoly rights upon the individuals (Patent Holders) in respect of their inventions as a credit or reward for the time, efforts, and capital spent by them in coming up with such an invention, it equally draws a balance by making provisions thereby ensuring that grant of such a right does not run counter to the interest of society / general public and thus in case there is a shortage of any life-saving drug which is a subject matter of Patent by a Multinational Corporation, the Government is entitled to direct such Patent Holder or itself grant the right to a potential player to carry on production of such life-saving product to ensure that there is no short supply of it in the public.

Question 22.
(a). Ajit developed a method of hedge against price fluctuation in the energy market. He used a simple concept of mathematics and a familiar statistical approach to achieve the above purpose. Ajit termed it as an innovative procedure to calculate the risk at this competitive time. Advise him on the patentability of his innovation (6 marks)
Answer:
As per the Patents Act, 1970 the condition of patentability has to be satisfied. The criteria are threefold, i.e., Novelty, Inventive Step and Industrial Applicability. However, section 3 of the Act list out the invention’s nonpatentable subject matter.

Section 3 (k) provides that mathematical or business methods or a computer program perse or algorithms are not inventions and therefore not patentable. Mathematical methods are considered to be the act of mental skill. A method of calculation, formulation of equations, finding square roots, cube roots and all other methods directly involving mathematical methods are therefore not patentable.

With the development in computer technology, mathematical methods are used for writing algorithms and computer programs for different applications and the claimed invention is sometimes camouflaged as one relating to the technological development rather than the mathematical method itself. A mathematical method is one which is carried out on numbers and provides a result in numerical form and not patentable.

If low-quality business methods or mathematical methods are allowed to be patentable, it may damage the public perception of the patent system. It may create enormous monopoly power much more than the cost of so-called invention. In the given problem since it is a simple concept of mathematics and familiar

Question 23.
Sitca Healthcare (hereinafter referred as ‘Applicant’) filed a divisional patent application on 11,h May, 2007 numbered as 00077/NP/2007 for an invention “CRYSTAL MODIFICATION OF ACTIVE PHARMACEUTICAL INGREDIENT’ for the patent application number 00072/N P/2007 having German Priority patent application number 1404/97dated 10th June, 2003.

It was observed during the substantial examination that claims 1-10 of parent application were reproduced verbatim in the claimed invention as claims 1-10. If the subject matter of any claimed invention relates to more than one invention, applicant can file further application any time before the grant of patent u/s 16(1) of the Patents (Amendment) Act, 2005.

Since claims of the claimed invention and claims of the parent application are verbatim, hearing was offered to the applicant to decide the allowability of divisional status to the claimed invention u/s 16 of the Act. The Applicant replied that the Controller can offer hearing for deciding the divisional status only after sending a gist of objections to the applicant and giving him an opportunity to file a reply. He further stated that the Controller cannot decide the divisional status unless examined and passed through sections 12,14 and 15 of the Patents Act. There is no such direction or any other guiding principle laid down in the Act as to how a Controller should proceed with divisional status of an application.

The Controller observed that application shall define distinct subject matter when compared with claims of parent Application, which is first and foremost requirement to qualify as divisional application u/s 16 of the Act. Once claims of the claimed invention fulfil the requirement forthe divisional application u/s 16, it can be further allowed for substantial examination, which will save time and effort of the patent administration and also it is logical to approach as well. Since the subject matter of claims 1 -10 is verbatim with claims 1 -10 of the parent application, there is no need for conducting a substantial examination to assess the novelty, inventive step and other patentability criteria for the present application.

The applicant claims the same set of claims submitted in the parent application in different multiple further applications. The Controller further observed that the reason for filing such a divisional application is to prosecute once again the same set of claims already claimed in the abandoned parent application and also to extend the life of the application.

If the subject matter of claims of the further application is not distinct with the claims of the parent application, the divisional status shall not be granted. It is, therefore, wilful attempt to obtain multiple patents for a single subject matter through many further applications by misusing the provision of section16 of the Act. Even though each and every component of the claims 1-10 of the divisional application is verbatim with the claims 1-10 of parent case, the intention of the applicant by hook or crook is to extend the life of the application utilizing divisional route, that too, on the last date of submitting a reply to first examination report (FER) of the parent case.

There were 10 claims at the time of filing the claimed invention where claims 1-9 related to ‘modification A of the compound’1-(2, 6-difluorobenzyl) – 1H- 1,2,3-triazole-4-carboxamide (namide)’ (hereinafter referred as ‘product Claims’) and claim 10 related to a pharmaceutical preparation.

On 15th July 2011, the applicant amended originally filed 10 claims into 12 claims by filing Form-13 u/s 57 and u/s 81(1) of the Act and Rules. The applicant amended ‘modification A of the compound name in all the claims 1-10 into ‘crystal modification A of the compound named and also added two new claims relating to ‘method of preparing A of the compound named which is neither claimed in the International application nor in the National Phase application.

In response to the FER, the applicant further amended claim 11 by incorporating many additional features including identity and quality of the solvent for recrystallization, filtration conditions necessary to generate a suspension with initial crystal, stirring time, and temperature. The patent application was opposed by way of pre-grant representation u/s 25(1) of the Act, by Indian Pharmaceutical Alliance, a Society registered under Societies Registration Act, 1860 (hereinafter referred as ‘Opponent’). After the hearing notice was served, the Applicant further amended all the ‘product claims’ into ‘21 method claims as a method for preparing crystal modification A of the compound named. In the earlier amendment, the applicant introduced new matter in claims 11 & 12 ‘method of preparing A of the compound named but the later amendment converted all the claims into ‘method for preparing crystal modification A of the compound name, the principal claim.

The applicant submitted a set consisting of 13 method claims which they desired to rely on during the hearing, (hereinafter referred to as ‘amended claims’). The patent agent for the applicant submitted that Rule 55 (5) of the Patents Rules, 2003 gives power to the Controller to require the complete specification to be amended to his satisfaction during the opposition, before proceeding to refuse the application. The patent agent for the applicant submitted that amendment of claims is a primary right conferred upon the applicant by the Patents Act and it is possible to amend the claims to avoid overlapping with the citations, and the Controller should require the same rather than proceeding to reject the application. It is further submitted that the amended claims on file now fall well within the scope of Section 59.

The patent agent submitted that it is well-accepted fact that ‘product claims’ cover in its scope the process of its manufacture as well and therefore the amendment made to claims of this application satisfies Section 59 of the Act in that the amendment is made by way of ‘disclaimer1 wherein the scope of the product is disclaimed and the claims are now restricted to the process of its preparation. Also that the scope of the claims is not extended and no new subject matter is added. The process claims are well supported by the description especially on page 2 and last 3 lines, page 3 and 2nd para, and in examples 1,2, 3, 4, and 5.

Keeping the above in view, prepare your arguments for opponents of the patent, covering division of patent, right of opposition under the Patents Act, and the legal provisions applicable to modification of specification.
Answer:
Issues in the present case

1. Can the Applicant Impose, upon Controller to have and accept the division application?
2. Does the applicant have the right to amend the patent specification and how?
3. Can the applicant amend the specification by replacing product claims into process claims in compliance with the provisions of the Patent Act 1970?

The opponents would respectfully like to draw the kind attention of the Learned Controller towards the following findings and facts in the matter of the finally amended claims. Section 16 of Patent Act, 1970 dealt with the power to Controller to make orders respecting the division of application. A person who has made an application for a patent under this Act may, at any time before the grant of the patent, if he so desires, or with a view to remedying the objection raised by the controller on the ground that the claims of the complete specification related to more than one invention, file a further application in respect of an invention disclosed in the provisional or complete specification already filed in respect of the first-mentioned application.

Since claims of the claimed invention and claims of the patent application are verbatim. There is no such direction or any other guiding .^principle laid down in the Act, as to how the controller should proceed with the divisional status of an application. The further application shall define distinct subject matter when compared with claims of parent application, which is the first and foremost requirement to qualify as divisional application u/s 16 of the Act.

Applicant cannot claim the same set of claims claimed in the parent application in different multiple further applications. It is observed that the reason for filing such a divisional application is to prosecute once again the same set of claims. If the subject matter of claims of the further application is not distinct from the claims of the parent application, the divisional status shall not be granted.

The case of LG Electronics Inc. Vs Controller of Patents, Hon’ble Intellectual Property Appellate Board (IPAB) held that the applicant cannot take undue advantage of Section16 for extending to prosecute the same subject matter. Section 57 deals with the Amendment of application and specification or any document relating thereto before the Controller.

1. Subject to the provisions of Section 59, the Controller may, upon application made under this section in the prescribed- manner by an applicant for a patent or by a patentee, allow the application for the patent or the complete specification or any document relating thereto to be amended subject to such condition, if any as the Controller thinks fit: Provided that the Controller shall not pass any order allowing or refusing an application to amend an application for a patent or a specification or any document relating thereto under this section, while any suit before a Court the infringement of the patent or any proceeding before the High Court for the revocation of the patent in pending, whether the suit or proceeding commenced before or after the filing of the application to amend.

2. Every application for leave to amend an application for a patent or a complete specification or any document relating thereto under this section shall state the nature of the proposed amendment and shall give full particulars of the reasons for which the application is made.

3. Any application for leave to amend an application for a patent or a complete specification or a document related thereto under this section made after the grant of patent and the nature of the proposed amendment may be published.

4. Where an application is published under sub-section (3), any person interested may, within the prescribed period after the publication thereof, give notice to the Controller of opposition thereto and where such a notice is given within the period aforesaid, the Controller shall notify the person by whom the application, under this section is made and shall give to the person and to the opponent, an opportunity to be heard, before he decides the case.

5. An amendment under this section of a complete specification may be or include, an amendment of the priority date of a claim.

6. The provisions of this section shall be without prejudice to the rights of an applicant for a patent to amend his specification or any other document related thereto comply with the directions of the Controller issued before the grant of a patent.

In general amendments to patents and application are governed by Section 57 of The Indian Patents Act, which stipulates that the applicant should state the nature of the proposed amendment and shall give full particulars of the reasons for which the amendment is made without the addition of new subject matter. The applicant of subject application has never stated in their reply why they wish to amend the claims and applicant addition of the claims which are not filed initially or originally can not be allowed.
Therefore, the new final set of claims was filed.

Section 59 provides Supplementary provisions as to amendment of application or specification.

1. No amendment of an application for a patent or a complete specification or any document relating thereto shall be made except by way of disclaimer correction or explanation and no amendment thereof shall be allowed except for the purpose of incorporation of actual fact and no amendment of a complete specification shall be allowed, the effect of which would be that the specification as amended would claim or describe matter, not in substance disclosed or shown in the specification before the amendment, or that any claim of the specification as amended would not fall wholly within the scope of a claim of the specification before the amendment.

2. Where after the date of grant of patent any amendment of the specification or any other documents related thereto is allowed by the Controller or by the Appellate Board or the High Court, as the case may be.

• The amendment shall for all purposes be deemed to form part of the specification along with other documents related thereto;
• The fact that the specification or any other documents related thereto has been amended shall be published as expeditiously as possible; and
• The right of the applicant or patentee to make amendment shall not be called in question except on the ground of fraud;

3. In construing the specification as amended, reference may be made to the specification as originally accepted.
Section 59 is quite clear that first whatever amendments made by the applicant shall fall within the scope of a claim of the specification before the amendment.

Further, no amendment shall be made except by way of disclaimer, correction, or explanation and no amendment thereof shall be allowed, except for the purpose of incorporation of actual fact. Now question is that the weather, the further addition of the claims which have not been filed initially or originally can be allowed.

Further, According to the Intellectual Property Appellate Board (IPAB) decision (Order No. 189/201, M/s Diamcad N V Vs. The Assistant . Controller of Patents and Design, Chennai) dated 3rd August 2012, amendment of claims which is not within the scope of the claimed filed initially are not allowed.

Therefore, the present set of claims which are different and additions over the claims as originally filed cannot be allowed in accordance with the provisions of Section 57 and 59 of the Indian Patent Act 1970.

Hence it is respectfully submitted that the subject application should be straight away rejected on the basis of the non-compliance with the mandatory provisions of Section 57 of the Indian Patent Act for not providing reasons for the amendment.

Also, Section 59 provides that no effect of amendment can be given of any part of the specification including claims if the amended matter would not fall wholly within the scope of the original claims filed.

Question 24.
Sorafenib Tosylate is a compound patented by Bayer Corporation (Bayer), a renowned USA-based developer and manufacturer of innovative drugs. It is marketed as NEXAVAR (the Drug) and is used in the treatment of advanced stages of kidney cancer and liver cancer. The drug is a life-extending drug and not a life-saving drug. It can increase the life of a kidney cancer patient by 4-5 years and that of a liver cancer patient by 6-8 months.

Bayer was granted a patent as well as regulatory approval for importing and marketing the Drug in India in the year 2008. Bayer does not hold manufacturing approval in Indian but has only a marketing and import license. Natco Pharma (Natco) filed an application in July 2011 under section 84(1) of the Patents Act, 1970 for grant of Compulsory Licence (CL) in respect of Sorafenib Tosylate covered under Bayer’s patent. In its application, Natco proposed to se|l the drug at a price of INR 8,800 (about USD 175) for one month of therapy as against Bayer’s INR 2,80,428 (about USD 5,600) for one month therapy.

The Controller of Patents (Controller), upon noting that 3 years had elapsed since the grant of patent and being satisfied that a prima facie case existed, issued an order for publishing the CL application in the official journal. Upon this, Bayer filed its opposition to the CL application. Each party filed its respective evidence. The parties were given a hearing by the Controller.

Natco urged that as per GLOBOCAN 2008, there were 20,000 patients of liver cancer and 8,900 cases of kidney cancer in India. Assuming 80% of patients needed the Drug treatment, approximately 23,000 patients required the Drug. According to the Form – 27(statement of working of Patents) filed by Bayer, they imported no units in 2008 and approximately 200 bottles in 2009 and no further units in 2010. Hence, the reasonable demand or requirement of the public was not being met. Natco argued that Bayer did not manufacture the Drug in India but imported it and that it was exorbitantly priced and usually out of stock and available only in pharmacies attached to a few hospitals in metro cities. Bayer launched the product worldwide in 2006 and made thumping sales to the tune of USD 2,454 million dollars. Thus, the insignificant number of bottles imported in India showed Bayer neglectful conduct.

Bayer responded by demonstrating that the actual number of patients of kidney and liver cancer requiring treatment was 8,842 and not 23,000. The Drug was being made available by Bayer to all cancer treatment centers in India. This objection was dismissed by the Controller on the basis that as per Form-27 filed by Bayer at the Patent Office, Bayer had imported grossly inadequate quantities of NEXAVAR in the previous 3 years, which was ample material that a prima facie case had been made out. Furthermore, the Controller observed that the number of patients needing the Drug would be much higher than 8,842 and that as per Bayer’s own numbers they had been able to supply the Drug to not more than 200 patients which is a mere 2% of the 8,842 patients who, according to Bayer’s own estimate needed the Drug. He ruled that Bayer’s conduct was not justifiable as it was already marketing the drug worldwide since 2006.

The next argument advanced by Natco was that the price of the patented product was too high and therefore, the patented invention was not available to the public at reasonably affordable prices. The exorbitant pricing was an abuse of its monopolistic rights and amounted to unfair and anti-competitive practice. Bayer countered this by contending that innovative drugs cost significantly more than generics since the innovator’s costs included R&D expenses which generics did not incur as they merely copied the drugs. The higher price included the costs of failed projects also which accounted for nearly 75% of total R&D cost. According to Bayer, it took an investment of more than €2 billion to bring a new medical entity (NME) to the market.

Also, the price being charged by Bayer was comparable to other oncology drugs of innovation-based companies. Replacing innovative drugs with generics would in the long – run damage, patients as originators also provided for the education of doctors and pharmacovigilance which generics did not. Only the patentee, being the innovator and having invested in the R&D would be able to determine what would constitute a ‘reasonably affordable price’ for the Drug. The term ‘reasonable’ should be construed as to mean reasonable for both the patients and the patentee and a ‘reasonable’ price is needed to factor in R&D costs and reasonable commercial gain.

Bayer argued that ‘public’ denoted different sections of the public – rich class, middle class, and poor class. A blanket CL-that gave the patented product at the same price to all sections of the public was not reasonable, amounted to treating ‘unequal as equal’, and was discriminatory. A CL would lower the price of a patented product even for people who could pay – which could not be the intention of the Legislature. One of the ways by which people afford medical treatment is medical insurance. ‘Affordability’ should be determined by asking whether the patient could afford insurance coverage or not. ‘ The Controller in his decision agreed with Bayer that public included different sections of the public, but also observed, that Bayer was free to have offered differential pricing to different classes, but chose not to. The Controller partially disagreed with Bayer that in determining reasonableness, both the Patentee and the public needed to be factored in, but observed that “reasonably affordable price has to be construed predominantly with reference to the public”.

The Controller added that the sales by Bayer during the previous 4 years constituted only a fraction of the requirement of the public and came to the conclusion that lower sales had been due to the high price of the patented product. Therefore, the Controller held that the Drug was not available to the public at a ‘reasonably affordable price’. Natco advanced another argument that the patented invention was not worked by Bayer in the territory of India. Natco pointed out to the Controller that since the Drug was being imported, it was not being commercially worked in India. Bayer responded by contending that the ‘working’ requirement of

Section 84(1 )(c) of the Patents Act, 1970 did not mean that the patented product had to be locally manufactured. According to Bayer ‘working’ of a patent would mean that there should be a supply of the patented product in the territory of India. Bayer also argued that it had centralized its manufacturing in Germany for reasons of economies of scale and for maintaining high quality.

The Controller relied on the Paris Convention, TRIPS Agreement, the unamended Patents Act of 1970, and in particular Sections 84(7), 83(b) and 90(2) thereof to come to the conclusion that importation would not amount to working of a patented product. He observed that the term ‘work the invention’ did not include imports as a CL holder had to necessarily work the patent by manufacturing the patented invention in India.

The Controller granted a non-exclusive and non-assignable CL to Natco, solely for the purpose of making, using, offering to sell and selling the Drug for the purpose of treating kidney and liver cancer patients within the territory, of India, adding that the Drug would have to be manufactured by Natco in its own manufacturing facility only and not outsourced.

Thereafter, Bayer filed an appeal challenging the order of the Controller before the Intellectual Property Appellate Board (IPAB). The IPAB, in March 2013, dismissed the appeal and upheld the decision of the Controller. However, in the order, IPAB raised the rate of royalty to be paid by Natco to Bayer from 6% to 7%. Bayer challenged IPAB’s order before the High Court of Bombay by way of a writ petition.

The High Court examined the relevant provisions of the Act and upheld IPAB’s order and ruled that in respect of medicine the adequate extent for meeting the demand of the drug should be 100%. It further held that dual pricing could be applied to meet the requirement of the public and not for making available the drug at a reasonably affordable price.
In the light of the aforesaid case and the relevant provisions of the Indian Patent Act (as amended), answer the following:

1. Under what circumstances can CL be granted?
2. In considering the application for CL, what factors are required to be taken into account by the Controller?
3. While settling the terms and conditions of a CL, what factors does the controller secure?
4. Is manufacture in India the sole method of working a patent in the territory of India? Do you agree with the Controller’s decision on this question?
5. Under what exceptional circumstances can CL be granted for the export of patented pharmaceutical products?

Answer:
(1) The provisions for compulsory licenses are made to prevent the abuse of patent as a monopoly and to make the way for commercial exploitation of the invention by an interested person. According to Section 84 of the Patents Act, 1970, any person interested can make an application for grant of a compulsory license for a patent after three years from the date of grant of that patent on any of the following grounds:

• that the reasonable requirements for the public with respect to the patented invented have not been satisfied or
• that the patented invention is not available to the public at a reasonably affordable price or
• that the patented invention is not worked in the territory of India.

An application for a compulsory license may be made by any person notwithstanding that he is already the holder of a license under the patent and no person shall be estopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price by reason of any admission made by him, whether in such a license or otherwise or by reason of his having accepted such a license.

The Controller on being satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or the patented invention is not worked in the territory of India or the patented invention is not available to the public at a reasonably affordable price may grant a license upon such terms as he may deem fit.

(2) The factors which are required to be taken into account by the Controller while considering the application for Compulsory Licence are as under:

• the nature of the invention, the time which has elapsed since the sealing of the patent, and the measures already taken by the patentee or any licensee to make full use of the invention.
• the ability of the applicant to work the invention to the public advantage;
• the capacity of the applicant to undertake the risk in providing capital and working the invention, if the application were granted.
• as to whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period as the Controller may deem fit.

Still, the Controller is under no obligation to take into account matters subsequent to the making of the application. It has been clarified that the reasonable period shaH be construed as a period not ordinarily exceeding a period of 6 months.

(3) Section 90 of Patents Act, 1970 provides that in settling the terms and conditions of a compulsory license, the Controller shall endeavor to secure that:

• the royalty and other remuneration, if any, reserved to the patentee or other person beneficially entitled to the patent, is reasonable having regard to the nature of the invention, the expenditure incurred by the patentee in making the invention; or in developing it and obtaining a patent and keeping it in force and other relevant factors;
• the patented invention is worked to the fullest extent by the person to whom the license is granted and with reasonable profit to him;
• the patented articles are made available to the public at reasonably affordable prices;
• the license granted is a non-exclusive license;
• the right of the licensee is a non-assignable;
• the license is for the balance term of the patent unless a shorter term is consistent with the public interest;
• the license is granted with a predominant purpose of supply in the Indian market and the licensee may also export the patented product if need be in accordance with Section 84 (7) (a) (iii) of the Act.
• in the case of semiconductor technology, the license granted is to work the invention for public non-commercial use.
• in case the license is granted to remedy a practice determined after the judicial or administrative process to be anti-competitive, the licensee shall be permitted, if need he, to export the patented product.

Section 90 (2) provides that no license granted by the Controller shall authorize the licensee to import the patented article or an article or substance made by a patented process from abroad where such importation would, but for such authorization, constitute an infringement of the rights of the patentee.

(4) The Controller is of the view that the patented product will be considered to be worked in India only if the patentee manufactures the patented product in India within a reasonable time. But an issue arises as to whether the import of a patented product can also be considered, as working the patent in the territory of India.

Article 27 of the TRIPS provides that there would be no discrimination in respect of patented products whether legally manufactured or imported. The same view is also apparent from Form 27 prescribed under the Act and the Patent Rules. The patentee has to file a statement in Form 27 with the Controller regarding the working of the patent in India. In the aforesaid form the patentee while giving details of working of the patented drug in India, has to make a declaration of working in India of the patented product under two classifications namely manufacture in India and imported from other countries.

The working of a patented invention in the territory of India has to be considered by reading Section 83 of the Act which provides for legislative guidelines to predict the meaning of the words “worked in the territory of India”. The following guidelines of Section 83 are germane to the discussion:

• the patent is not granted to enable the Patentee to enjoy a monopoly for the importation of the patented article;
• the technological knowledge must be transferred and disseminated to the mutual advantage of producers and users of technological knowledge;
• the patent right should not be abused by the patentee by indulging in activities that unreasonably restrain trade or adversely affect the international transfer of technology.

The legal position is that the patentee is required to make some efforts to manufacture the patented product within the territory of India. Manufacture in India is not the sole method of working a patent in India. A patent can be worked in India by importing the patented article in adequate quantity and supplying it. Still, working by import can be accepted only after the patentee provides satisfying reasons for not manufacturing the patented product in India.

(5) Section 92 A of the Patents Act, 1970 inserted by The Patents (Amendment) Act, 2005 postulates compulsory license for the export of patented pharmaceutical products in certain exceptional circumstances. It states that CL shall be available for manufacture and export of patented pharmaceutical products to any country having insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product to address public health problems, provided CL has been granted by such country or such country has, by notification or otherwise allowed the importation of the patented pharmaceutical products from India Sub-section (2) authorizes

the Controller, on receipt of an application in the prescribed manner, to grant, on such terms and conditions as he may specify, a CL solely for manufacture and export of the concerned pharmaceutical product to such country under such terms and conditions as may be specified and published by him. Explanation appended to Section 92A defines the pharmaceutical products as to mean any patented product or product manufactured through a patented- process, of the pharmaceutical sector needed to address public health problems and shall be inclusive of ingredients necessary for their manufacture and diagnostic kits required for their use.

Question 25.

Read the case given below and answer the questions given at the end: This case is between US-based multinational Bristol-Myers Squibb and a mid-sized Mumbai-based company BDR Pharma over ‘Dasatinib’, an anticancer drug.

Bristol-Myers is the exclusive owner of Dasatinib and its derivatives by the claims of Patent No. IN203937 In India. The patent is valid and subsisting and has a term of 20 years from 12,h April 2000 in India. It enjoys patent protection in several other countries such as United States, Australia, New Zealand, Japan, etc. Chronic Myeloid Leukemia (CML), one of the most common forms of leukemia, arises from the excessive production of abnormal stem cells in the bone marrow which eventually suppress the production of normal white blood cells. The development of imatinib mesylate, a small-molecule tyrosine kinase inhibitor (TKI), was the first rationally designed drug for CML.

Bristol-Myers product Dasatinib was approved by the US Food and Drug, Administration on 28th June 2006. It is presently sold in approximately 50 countries throughout the world. Marketing approval for Dasatinib was also granted by the Drug Controller General of India (DCGI) on 30th August 2006. Apart from the above patent, Bristol-Myers also made a patent application. in India for crystalline monohydrate form of Dasatinib. The said application is numbered 4309/DELNP/2006 dated 4th February 2005 and is currently pending before the Indian Patent Office. The monohydrate form of Dasatinib has been granted patents in 45 countries and is an improvement patent of the Indian Patent No. IN203937.

Cause of Action and Grounds: In December 2008, Bristol-Myers received ( information that Mumbai-based company, BDR Pharma had applied to the DCGI for the marketing approval for Dasatinib. It sent a ‘cease and desist letter to BDR Pharma on 12th January 2009 asking them to restrain from infringing its Patent No. IN203937. In view of the apprehension that the defendant may infringe the plaintiff’s exclusive right of the patent, the plaintiff j filed a suit in the nature of a quia timet action against the defendant on 3rd December 2009 for the infringement of IN203997.

The defendant has not launched the product in the market, hence, no loss or irreparable harm will be caused to BDR Pharma if it is restrained from doing activities that they have not yet commenced. BDR Pharma admitted that the defendant is intending to launch the generic version of Dasatinib only if the DCGI grants license to the defendant to manufacture under the provisions of Drugs and the Cosmetics Act, 1940. Patent Licencing: On 5th May 2013 the Controller of Patents considered the compulsory license application filed by BDR Pharma arid opined that the BDR Pharma had not made out a prima facie case for grant of a license as the applicant (BDR Pharma) did not make efforts to obtain a license from the patentee on reasonable terms and conditions and relegated the applicant to approach the plaintiff for a voluntary license.

By letter dated 13th March 2012, Bristol-Myers, the patentee raised certain queries on BDR Pharma’s application for voluntary license such as ‘facts which demonstrate an ability to consistently supply a high volume of the API, Dasatinib, to the market’, ‘facts showing your litigation history or any other factors which may jeopardize Bristol-Myers Squibb’s market position’, ‘quality-related facts and in particular compliance with local regulatory standards and basic GMP requirement’, ‘quality assurance system due diligence’, ‘commercial supply terms’, ‘safety and environmental profile’ and ‘risk of local corruption’;

BDR Pharma argued that the drug in question is important in the treatment of Leukemia and is exorbitantly priced at? 1,67,000 for a month’s course, putting it beyond the reach of the majority of the Indian population. Therefore, the public interest lies in compulsory licenses with a royalty being given to Bristol-Myers. Blood cancer patients have a right to get the drug at a low price.

Ever since the launch of Dasatinib in India. Bristol-Myers has addressed the access and affordability needs of the patients by an aggressive commercial Patient Access Program (PAP) through which prices of the drug are reduced to a fraction of the MRP. This has evolved over time thereby consistently reducing the cost of drugs to patients. The program is available through a third-party service provider, for the self-paying patients prescribed ‘Dasatinib’ by an Oncologist. The service provider through a centralized call center delivers the drug to the prescribed patients at their doorstep anywhere in India with no additional delivery cost.

BDR Pharma Defense:
BDR Pharma claimed that the Dasatinib patent is invalid as it doesn’t pass the non-obviousness test and that in any event, the public interest lies in granting an alternative remedy such as ongoing royalties instead of an injunction. The arguments for invalidity of the patent were stated under section 3(d). Under section 3(d) of the Patents Act, 1970, BDR Pharma said that Dasatinib is a mere derivative of a previously-known compound and that Bristol-Myers is ‘evergreening’ the patents by patenting minor modifications to previously patented inventions. The other aspect is that of efficacy. The compound should display enhanced efficacy over the previously known compound.

BDR Pharma further contended that it is a quia timet injunction, i.e. based on an expectation of harm rather than actual harm. A quia timet action is a bill in equity. It is an action preventive in nature and a species of precautionary justice intended to prevent apprehended wrong or anticipated mischief. According to Section 83 read with Section 90(d) of the Patents Act, 1970, the patent has to be worked in India by the manufacture and not by import.

BDR Pharma submitted that the same principles would apply in respect of the Indian law and thus, in the absence of a definition of commercial scale, natural and ordinary meaning should be given to the expression. It said that in terms of the said treaties the general principles set out are that, a patentee must manufacture the product in that country and it should not also be a mere improvement.

In light of the above, answer the following questions:

(1) In this case, BDR Pharma has not actually infringed the Bristol-Myers patent by way of manufacture or trade. The Court has, nevertheless, given an injunction against BDR Pharma not to work the patent. Explain the provisions under which the injunction was given.

(2) The question of public interest in compulsory licensing on grounds of the high price of the drug is relevant. How can BDR Pharma work the Bristol- Myers patent to undercut the high prices of Dasatinib? Give suggestions.

(3) What do you understand by ‘evergreening’? Discuss this in the above case in the context of efficacy.

(4) Who grants patents? What is the role of the Drug Controller General of India (DCGI) in the patent process, does it grant patents? While giving approval for marketing a drug, does it consider patent status?

Answer:
(a) Provisions of Patents Act, 1970 under which injunction was granted are as under:
Section 106 of the Patents Act, 1970 deals with the power of the Court to grant relief in cases of groundless threats of infringement proceedings.

Section 106 states that:
(1) Where any person (whether entitled to or interested in a patent or an application for a patent or not) threatens any other person by circulars or advertisements or by communications, oral or in writing addressed to that or any other person, with proceedings for infringement of a patent, any person aggrieved thereby may bring a suit against him praying for the following reliefs, that is to say:

1. a declaration to the effect that the threats are unjustifiable;
2. an injunction against the continuance of the threats and
3. such damages, if any, as he has sustained thereby;

(2) Unless in such suit the defendant proves that the acts in respect of which the proceedings were threatened constitute or if done, would constitute, an infringement of a patent or of rights arising from the publication of a complete specification in respect of a claim of the specification not shown by the plaintiff to be invalid, the Court may grant to the plaintiff all or any of the reliefs prayed for.

Explanation: A mere notification of the existence of a patent does not constitute a threat of proceeding within the meaning of this section. Section 108 of the Patents Act, 1970 deals with reliefs in suits for infringement.

Section 108 provides that:
(1) The reliefs which a Court may grant in any suit for infringement include an injunction (subject to such terms, if any, as the Court thinks fit) and, at the option of the plaintiff either damages or an account of profits.

(2) The Court may also order that the goods which are found to be infringing and materials and implement, the predominant use of which is in the creation of infringing goods shall be seized, forfeited or destroyed, as the Court deems fit under the circumstances of the case without payment of any compensation.

Section 114 of the Patents Act, 1970 deals with relief for infringement of partially valid specifications.

Section 114 states that:
(1) If in proceedings for infringement of a patent it is found that any claim of the specification, being a claim in respect of which infringement is alleged, is valid but that any other claim is invalid, the Court/Tribunal may grant relief in respect of any valid claim which is i infringed:
PROVIDED that the Court shall not grant relief except by way of 1 injunction save in the circumstances mentioned in sub-section(2).

(2) Where the plaintiff proves that the invalid claim was framed in good faith and with reasonable skill and knowledge, the Court shall grant relief in respect of any valid claim which is infringed subject to the discretion of the Court as to costs and as to the date from which damages or an account of profits should be reckoned, and in exercising such discretion the Court may take into consideration the conduct of the parties in inserting such invalid claim in the specification or permitting them to remain there.

(b) The grounds which are available for the person interested while seeking an application for the compulsory licensing or revocation of the patent on the ground of nonworking of the patent could be argued before the relevant authority as a matter of defense to the suit for infringement as the civil court hearing the suit for infringement cannot transgress within the domain of the authority/controller/Central Government which are | distinct functionaries having their powers and consideration specially defined under the specific provisions of the Act.

Under the World Trade Organization TRIPs Agreement, Compulsory Licenses are recognized in order to overcome barriers in accessing affordable medicines and on other grounds of non-workable of suit patent as per conditions prescribed under Section 83 and 84 of the Act. This is a case of quia timet. There is a fear that BDR will infringe in the future since they have made applications for a compulsory license to DGCI.

Quia Timet Action, it is settled law that such action is maintainable. If a party fears or apprehends, who may obtain an injunction to prevent some threatened act being done which if done, would cause him substantial damage and which money would not be an adequate or sufficient remedy. In a quia time action, in the absence of evidence if a strong case is made out against the defendants, after valid justification, the interim order may be passed by the Court. BDR should apply to a patent authority for compulsory license in the public interest on grounds of high price. The license will, however, be given to all Indian parties and not just BDR.

It is an admitted position that BDR has not yet launched the generic version of Dasatinib commercially in the market. This may be another option. Hence, if the patent is valid and BDR has not been able to establish the prima-facie credible defense, the case of infringement is made out. Under the said, circumstances, the public interest is an exception to the patent; otherwise, the rights granted under Section 48 by the Sovereign towards monopoly would be undermined. The plea of public interest may be invoked once the Court would find that prima-facie the case of credible defense is made out.

(3) In the case of Novartis AG Vs. Union of India & Ors (Civil Appeal Nos. 2706-2716 of 2013 Arising out of SLP(C) Nos. 20539-20549 of 2009, decided by Supreme Court on 1st April 2013, AIR 2013 SC 1312,1313), the Supreme Court held that the primary purpose of Section 3(d), as is evidenced from the legislative history, is to prevent “evergreening” and yet to encourage incremental invention.

“Evergreening” is a term used to label practices that have developed in certain jurisdictions wherein a trifling change is made to an existing product, and claimed as a new invention. The coverage/protection afforded by the alleged new invention is then used to extend the patentee’s exclusive rights over the product, preventing competition. By definition, a trifling change, or in the words of the section “a mere discovery of a new form of a known substance”, can never ordinarily meet the threshold of novelty and inventive step under clauses(j) and (ja) of Section 2(1). An invention cannot be characterized by the word “mere”. The word “invention” is. distinct from the word “discovery”.

As per Section 3(d) of the Patents Act, the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, the machine or apparatus unless such known process results in a new product or employs at least one new reactant is not an invention.

Section 3(d) provides an explanatory clause to make it more clear which reads as follows:

Explanation:
For the purposes of this clause, “salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers complexes, combinations and other derivatives of known substance shall be considered to be the same substance unless they differ significantly in properties with regard to efficacy”. In a case in relation to a pharmaceutical substance, the Madras High Court held that efficacy means therapeutic efficacy. It was held that:

• going by the meaning for the word “efficacy” and “therapeutic”…. what the patent applicant is expected to show is, how effective the new discovery made would be in healing a disease having a good effect on the body? In other words, the patent applicant is definitely aware as to what is the “therapeutic effect” of the drug for which he had already got a patent and what is the difference between the therapeutic effect of the patented drug and the drug in respect of which patent is asked for.”

“Due to the advanced technology in all fields of science, it is possible to show by giving necessary comparative details based on such science that the discovery of a new form of a known substance had resulted in the enhancement of the known efficacy of the original substance and the derivatives so derived will not be the same substance, since the properties of the derivatives differ significantly with regard to efficacy.” (Novartis AG Vs. Union of India, W.P. No. 24760/06). Efficacy means “the ability to produce a desired or intended result”. Hence, the test of efficacy in the context of Section 3(d) would be different, depending upon the result the product under consideration is desired or intended to produce. In other words, the test of efficacy would depend upon the function, utility, or purpose of the product under consideration.

(4) Controller of Patents grants patent.
Drug Controller General of India (DCGI) does not grant patents. It lays down the standards and quality of manufacturing, selling, import, and distribution of drugs in India as well as acting as an appellate authority in case of any dispute regarding the quality of drugs. There is no linkage between Patents Act and the Drugs and Cosmetics Act in India.

The objective of the Drugs and Cosmetics Act is to regulate the import, distribution, manufacture, and sale of drugs and the Act does not impose any obligation under any provision on the Drug Controller General to deny marketing approval to a person based on the existence of Patent rights. Patents Act and Drugs and Cosmetics Act are two independent statutes and no linkage can be established between them in the absence of an express provision. Indian legislature stayed away from bringing about a Patent linkage with respect to regulatory approval of drugs.

CS Professional Intellectual Property Rights Laws and Practices Notes

Debt Funding – Indian Non-Fund Based – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Distinguish between the following: Letter of Guarantee and Bank
Answer:
“Letter of Guarantee”:
Letter of Guarantee (also known as “Letter of Credit”) referred to as a documentary credit acts as a promissory note from a bank. Letter of Guarantee represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. The letter of credit ensures the payment will be made as long as the services are performed.

Letters of credit are especially important in international trade due to the distance involved and potentially differing laws in the countries of the businesses involved. In these transactions, it is not always possible for the parties to meet in person. The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped.

“Bank Guarantee”:
Bank Guarantees insure both parties in a contractual agreement from credit risk. For instance, a construction company and its cement supplier may enter into a new contract to build a mall. Both parties may have to issue bank guarantees to prove their financial stance and capability. In a case where the supplier fails to deliver cement within a specified time, the construction company would notify the bank, which then pays the company the amount specified in the bank guarantee.

Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary unlike a letter of credit the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.

While letters of credit are used mostly in international trade agreements, bank guarantees are often used in real estate contracts and infrastructure projects. Both bank guarantees and letters of credit work to reduce financial risk.

Question 2.
Explain the conditions under which a bank can grant non-funded facilities to customers, (not availing facility from any bank in India)
Answer:
Banks can grant non-funded facilities including partial credit enhancement to customers, not availing fund based facility from any bank in India under following conditions:

• Banks are to ensure that the borrower has not availed any fund based facility from any bank operating in India. At the time of granting non-funded facilities, bank to obtain declaration from the customer about the non-funded credit facilities already enjoyed by them from other banks.
• Banks are to undertake similar credit appraisal as for fund based facilities.
• Credit information relating to such facility shall be mandatorily be furnished to the Credit Information Companies.

Question 3.
Y Ltd, an Indian Company opened irrevocable letter of credit for 6 Million Swedish Kroner in favour of Z Ltd. for import of two pulsed rectifiers. Z Ltd. the Swedish Company shipped only one pulsed rectifier but invoiced for two pulsed rectifiers. Bill of Lading also stated that the packing contains two pulsed rectifiers. Based on the documents the Indian Bank remitted the amount to the Banker of Z Ltd. and debited the account of Y Ltd. Y Ltd. wants to hold the Indian Banker responsible for wrong payment against the short shipment. Will Y Ltd. succeed?
Give your assessment with reasons.
Answer:
The foreign Letter of Credit is subject to Uniform Customs and Prac-tices for Documentary Credit (UCPDC 600) as per the guidelines of International Chamber of Commerce (ICC). According to which LC is not payment against goods but only payment against documents.

As far as the Bank is concerned, the documents as called for in the Letter of Credit have been presented by the seller and there is no internecine discrepancy among the documents. Because of this he will not be held liable for short shipment of the goods physically.
Therefore, Indian Company will not succeed.

Question 4.
On the basis of following information, calculate the limit for Letter of Credit (LC) for the financial year 2019-2020 of M/s Madhukar Enterprises:

Answer:

Question 5.
Discuss any five types of letter of credit?
Answer:
Following are various types of Letter of Credit:
1. sight Credit: In this Letter of credit, documents are payable at sight/upon presentation, Le., Payment is made to the seller immediately (maximum within 7 days) after the required documents have been submitted.

2. Confirmed Credit: A confirmed letter of credit is one when a banker other than the Issuing bank, adds its own confirmation to the credit. In case of confirmed letter of credits, the benehciary’s bank would forward the LC to the confirming banker with a request to add their confirmation. The liability of the confirming bank is same as the issuing bank.

Note: Only Irrevocable letter of credit can be confirmed

3. Transferable Credit: A Transferable letter of credit is one in which a benehciary can transfer his rights to third party/parties in whole or in part (in that case the unused portion can be transferred back to the original benehciary). Such letter of credit should clearly indicate that it is a ‘Transferable’ letter of credit. Transferable Letter of Credit is transferrable only once.

4. Red Clause Letter of Credit: In case of red clause letter of credit, the issuing bank will make an advance payment to the exporter Le. the seller before the seller ships the goods to the importer Le. buyer. This is usually done to provide aid to the seller in the form of working capital to purchase raw material, processing and packaging of goods, etc.

Note: Red clause letter of credit is an advance payment letter of credit.

5. Green Clause Letter of Credit: Green Clause Letter of Credit provides the advance not only for the purchase of raw materials, processing and packaging of goods, etc. but also for pre-shipment warehousing at the port of origin and insurance expense.

In normal situations, the advance under this letter of credit is granted only after the purchased goods are stored in bonded warehouses. This type of letter of credit is usually used in transactions related to commodity market such as wheat, rice, gold, etc.

Note: Green clause letter of credit is an extension of red clause letter of credit.

Question 6.
What are the various types of Bank Guarantee?
Answer:
Three types of Bank Guarantee discussed below:

1. Financial Guarantee helps the bank’s customer to bid for the contract without depositing actual money. In case, the contractor does not take up the awarded contract, then the government department would invoke the guarantee and claim the money from the bank.

Example: Banker issues guarantee in favour of a government department against caution deposit or earnest money to be deposited by bank’s client. At the request of his customer, in lieu of a caution deposit/earnest money, the banker issues a guarantee in favour of the government department

2. Performance Guarantee
Performance Guarantees are issued by banks on behalf of their clients. In performance guarantee bank issue on behalf of his client to assure the third party to com­plete some work on time or as per the terms of contact between the parties.
If the work is not completed as per the term of contract then the third party can request the bank to invoke the bank guarantee and make payment for default.

3. Deferred Payment Guarantee (DPG)
It is clear from the name of the Bank guarantee that under this guarantee, the banker guarantees payments of instalments spread over a period of time.
The banks undertake to make payment of instalments payable by the buyer of capital goods such as machinery, on long term credit given by the supplier.

Question 7.
Write Short Note on: “Standby Letter of Credit (SLOC)”.
Answer:
“Standby Letter of Credit (SLOC)”:

• Standby letter of credit is a lender’s guarantee of payment to an interested third-party in the event the client defaults on an agreement.
• Standby letters of credit are formal documents that specify the duties and obligations of each party and serve as an act of good faith. The bank issuing the SLOC performs general underwriting duties to ensure the financial credibility of the party seeking the letter of credit. Afterwards, it sends a notification to the bank of the party requesting the letter of credit (typically a seller or creditor).

Example: An exporter sells goods to a foreign buyer who guarantees pay-ment in 30 days. When no payment is received by the deadline, the exporter presents the SLOC to the buyer’s bank to receive payment.

Question 8.
Explain any two documents handled under Letter of Credit?
Answer:
Two important documents handled under Letter of Credit are broadly classified as:

• Bill of Exchange: Bill of exchange is drawn by the beneficiary (exporter) on the LC issuing bank. When the bill of exchange is not drawn under a LC, the drawer of the bill of exchange (exporter), draws the bill of exchange on the drawee (importer). In such a case, the exporter takes credit risk on the importer.
• Bill of Lading (B/L): The B/L is the shipment document, evidencing the movement of goods from the port of acceptance (in exporter’s country) to the port of destination (in importer’s country). It is a receipt, signed and issued by the shipping company or authorized agent. It should be issued in sets (as per the terms of credit).

Question 9.
Discuss about five parties involved in Letter of Credit Finance?
Answer:
Following five parties involved in letter of credit finance:

• Applicant: The buyer/importer of goods: This person has to make payment of letter of credit to the issuing bank if the documents are in accordance with the terms and conditions of LC.
• Issuing Bank: Importer’s or buyer’s bank who lends its name or credit, is issuing Bank. It is liable for payment of LC in case the documents are received by it from the nominated or negotiating bank and the documents are in terms of letter of credit. This bank gets 5 days to check the documents.
• Beneficiary: The party to whom the credit is addressed i.e. seller or the exporter or the supplier of the goods. It gets payment against documents as per LC from the nominated bank within validity period of negotiation maximum 21 days from date of shipment.
• Reimbursing Bank: Third bank which repays settle or funds the negotiating bank at the request of its principal, the issuing bank.
• Confirming Bank: The bank adding confirmation to the credit, which undertakes the responsibility of payment by the issuing bank and on his failure, to pay. The confirmation is added on request of the opening bank.

Question 10.
When application for the issue of bank guarantee is received then what aspects are examined and satisfied by Bank?
Answer:
Whenever an application for the issue of bank guarantee is received bank examines & satisfy about the following aspects:

• Margin.
• Need of the bank guarantee & whether it is related to the applicant’s normal trade/business.
• Whether the requirement is one time or on the regular basis.
• Nature of bank guarantee (Le. financial or performance).
• Applicant’s financial strength/capacity to meet the liability/obligation under the bank guarantee in case of invocation.
• Past record of the applicant in respect of bank guarantees issued earlier.
• Present outstanding on account of bank guarantees already issued.
• Collateral security offered.

Question 11.
Illustrate the specimen for assessment of Limit of Bank Guarantee (without financial figures)?
Answer:
The Specimen Illustration for assessment of Limit of Bank Guarantee is as follows:

Question 12.
What is the purpose of issuing Performance Bank Guarantee?
Answer:
Following are purpose of issuing Performance Bank Guarantee:

• For securing any claims by the buyer on the seller arising from default in delivery or performance of the terms of the contract (example construction, assembly, execution).
• For Execution of Long Term Infrastructure Projects such as Seaports, Airports, Road Construction, Bridges, Sanitation and Sewerage Projects, Telecommunication Services, Construction of Educational Institutions and Hospitals, Generation/Transmission/Distribution of Power, etc.
• For Due performance of a specific contract undertaken by a customer in favour of Government Bodies/Others.
  Example: Construction of Roads, Buildings Dams, Civil Work, etc.
• For Due performance of an equipment/project after completion for a specific period due to possible defects appearing after delivery during warranty period of the equipments.

Corporate Funding and Listings in Stock Exchanges Notes

International Listing – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Write down the criteria to get listed on Singapore Exchange Ltd. (SGX).
Answer:
The criteria for getting listed on Singapore Exchange Ltd. (SGX) main board are as follows:
1. Meeting With Accredited Issue Managers: Meeting with accredited Issue Managers for the purpose of sharing company’s plans and learn how to get listed.

2. Appoint An Accredited Issue Manager The Issue Manager will manage the listing application of the company (including recommendations on the appointment of other professionals required).

3. Assessment Period:

• Issue Manager work closely with the company to decide on a suitable structure and method of offering of your company’s securities.
• Issue Manager will guide you in preparing the listing application of company.

4. Stage 1: Submission of Section (A) of the Listing Ad-missions Pack :

• The preparation for the listing application begins.
• At this stage, the company may want to familiarise yourself with the Mainboard Rules available online.

5. Stage 2: Submission of Section (B) of the Listing Ad-missions Pack:
After SGX has informed the Issue Manager that it may proceed with Stage 2 of the application, the Issue Manager can submit Section (B) of the Listing Admissions Pack together with the full listing application (including the relevant undertakings and confirmations required under the Mainboard Listing Manual and the prospectus /shareholders’ circular).

Time Frame for Response: SGX is committed to provide response within four weeks from the commencement of Stage 2.

6. Approval: Validity of ETL Letter: Once the submission is approved, SGX will issue an ETL letter which is valid for three months.

7. Lodgement of Documents & Public Exposure: The company can now lodge the preliminary prospectus on

• MAS website, the Offers and
• Prospectuses Electronic Repository and Access (OPERA) for public feedback for at least a week.

8. Registration of Documents & Launch of Offer (IPO): The company can now register the final prospectus on OPERA pending public feedback or changes and approval from MAS.

9. Confirmation of Allotment & Trading Commences:

• After closure of Offer Period: Allocation of the subscriptions will commence and company’s securities will be allotted and credited to successful investors.
• Welcome Ceremony: A welcome ceremony will be held at SGX to commemorate the listing of company’s securities, culminating in a countdown to the first trades of company’s securities

Question 2.
Briefly explain the concept of market segmentation.
Answer:

• In simple language, “Market segmentation” is the practice of dividing a large market into segments with similar needs.
• International listing enables firms to divide foreign investor markets into segments which are easy to access.
• Companies seek to list internationally because they anticipate gaining from a lower cost of capital because of greater availability of their stocks to foreign investors as well as accessibility to these stocks may be restricted due to international investment barrier.
• The market Segmentation facilitates firms to bifurcate the different foreign investor markets into segments for easy accessibility resulting in fetching investors providing capital at the lower cost in comparison to domestic market.
• The concept of “Market Segmentation” plays an important role in segregation of large market into small parts having similar require-ments/needs.

Question 3.
Explain briefly the Professional Securities Market and the provisions relating to listing of Depository Receipts thereon.
Answer:
Professional Securities Market (PSM):

• Professional Securities Market is an innovative, specialised market designed to suit the specific needs of issuers.
• Professional Securities Market facilitates the raising of capital through the issue of specialist debt securities or depositary receipts (DRs) to professional investors.
• Professional Securities Market enables issuers to enjoy the benefits of a flexible and pragmatic approach to regulatory requirements.

Provisions relating to Listing of Depository Receipts on PSM:

• Depository Receipts are typically held in US dollars.
• Depository Receipts issued by a depository bank.
• Several forms of Depository Receipts can be listed and traded in London including Global Depositary Receipts (GDRs) and American Depository Receipts (ADRs).

The admission of Depository Receipts to the PSM involves a two-step simultaneous process:
A company submits its ‘Listing Particulars’ to the UK Listing Authority while also applying to the Exchange for admission of its Depository Receipts to trading on PSM i.e. creation of trading platform.

Trading platform: All DRs admitted to the PSM are traded on the International Order Book (IOB), the world’s leading electronic order book for DRs.

Question 4.
Explain the requirements and process for listing of Shares/GDRs on the Euro MTF.
Answer:
Listing Requirements: In order to list on the Euro MTF, a security must fulfil the following criteria among other things:

• Minimum capital of € 1,000,000 or equivalent value in other currencies.
• Minimum public free float of 25%
• Securities should be eligible for clearing and settlement.
• Securities should be freely negotiable and fungible.

Listing Process:
File a prospectus: To begin the listing process, the following documents to be sent to LuxSE:

• A copy of your prospectus.
• Application form.
• Undertaking letter.
• Articles of association.
• Existing agreements/conventions.
• The last three annual financial reports (if published).

Prospectus Review: A first set of comments on a complete draft prospectus will be sent to you within a maximum period of three business days from the date of receipt of the filed application. Additional comments following submission of an updated draft prospectus will be provided within a maximum of two business days after submission.

Final submission: Listing can take place after receipt of the following items:

• Final version of the prospectus.
• First listing price.

Fees:

• All fees are to be paid to Luxembourg Stock Exchange (LuxSE) and are priced in Euros.
• The fee structure will vary depending on whether or not you are a “recently established company”, i e. a company that has not published or registered annual accounts for the three previous financial years.

Continuing Obligations:
After listing and admission to trading, issuers must fulfil specific reporting obligations.
For example, issuers must file information and scheduled corporate events with LuxSE.

LEI Code: The LuxSE is obliged to collect a ‘Legal Entity Identifier’ (LEI) code from any issuer operating on its regulated market (Bourse de Luxembourg) and on its Multilateral Trading Facility (Euro MTF) and communicate it to the relevant supervisory authorities.

Question5.
Bring out the differences between Bourse de Luxembourg (BdL Market) and Euro MTF Market.
Answer:
Following are difference between Bourse de Luxembourg (BdL Mar-ket) and Euro MTF Market:

Question 6.
Explain the role of “Nomads.”
Answer:
“Nomads” are corporate finance advisers approved by the London Stock Exchange to act in this capacity.

To obtain approval as Nomad, a firm must meet the eligibility criteria set out in the Alternative Investment Market (AIM) Rules for Nominated Advisers.

“Nomad” is responsible for

• advising and guiding a company on its responsibilities in relation to its admission to Alternative Investment Market (AIM).
• its continuing obligations once on market.

To accomplish this role, the “Nomad” will:

• Undertake extensive due diligence to ensure a company is suitable for Alternative Investment Market (AIM).
• Provide guidance throughout the flotation process.
• Prepare the company for being on a public market.
• Help prepare the Alternative Investment Market (AIM) admission document.
• a Confirm appropriateness of the company to the Exchange.
• a Act as the primary regulator throughout a company’s time on Alternative Investment Market (AIM).

The Nominated Adviser (Nomad), broker and other advisers play a central role in a company’s admission to Alternative Investment Market (AIM). It is important that a company is confident that it can establish a good working relationship with the appointed Nomad as they will be working closely together at admission and on an ongoing basis.

Question 7.
Explain the benefits to a company from listing its security on an international stock exchange.
Answer:
Following are the benefits to a company from listing its security on an International Stock Exchange as discussed below:
1. Increased Market Liquidity: Cross-border listing enables companies to trade its shares in numerous time zones and multiple currencies results in increase in issuing company’s liquidity and develop more ability to raise capital.

2. Market Segmentation: Market segmentation is the practice of dividing a large market into clear segments with similar needs. International listing enables firms to divide foreign investor markets into segments which are easy to access.

3. Capital needs and growth opportunities: Companies in emerging markets need to use international listing to raise capital to continue to grow beyond their home market.

4. Wider share-holder base :

• International listing provides access to a larger pool of potential investors (both retail and institutional).
• Wider shareholder base are less risky.

5. Secure Clearing: A stock exchange provides a reliable and secure clearing mechanism. Listing on a foreign stock exchange is possible only after creating robust and advance clearing system.

6. Better Investor Protection:

• Companies need to comply with the provisions of all the regulatory aspects of the listing of those countries where sought to be listed.
• In nutshell, Investors will find themselves more protected and comfortable to invest in these companies.

Question 8.
Discuss two listing processes at Singapore Exchange Limited (SGX)?
Answer:
Following are two listing processes at Singapore Exchange Limited (SGX):

1. Mainboard Listing Process:

• Mainboard Listing process caters to the needs of established enterprises.
• Mainboard Listed companies enjoy the prestige of an established market place and access to the widest range of institutional and retail investors.

2. Catalist Listing Process:

• Catalist Listing process caters to the needs of fast-growing enterprises.
• Companies seeking a primary listing on the Catalist must be brought to list by authorised sponsors via an Initial Public Offering (IPO) and reverse takeover.

Note: There are various conditions in respect of Market Capitalisation, Pre-tax profit, Offer size, Public float etc. which need to be fulfilled by the company desirous to listed at SGX.

Question 9.
What are four segments that cater for a range of businesses and securities in the main market of London Stock Exchange?
Answer:
The Main Market has four segments that cater for a range of businesses | and securities:
1. Standard: Subject to EU minimum standards and part of the Official List open to shares and debt securities.

2. Specialist Fund Segment: Specialist Fund Segment designed for highly specialised investment entities that wish to target institutional, highly knowledgeable investors or professionally advised investors only.

3. Premium:

• The Part of the FCA’s (Financial Conduct Authority’s) is a financial regulatory body in the United Kingdom) Official List.
• This segment is home to some of the world’s largest corporations that are subj ect to the highest standards of regulation and governance.

4. High Growth Segment: High Growth segment is designed for equity securities of high growth, revenue generating businesses that are over time seeking to become Premium listed companies.

Question 10.
Write Short note on: “Professional Securities Market (PSM)”.
Answer:
“Professional Securities Market (PSM)”:

• Professional Securities Market (PSM) is an innovative and specialised market designed to suit the specific needs of issuers.
• Professional Securities Market (PSM) facilitates the raising of capital through the issue of specialist debt securities or depositary receipts (DRs) to professional investors.
• Professional Securities Market (PSM) help companies to raise capital without the additional cost of following a retail equity regime.
• Professional Securities Market (PSM) enables issuers to enjoy the benefits of a flexible and pragmatic approach to regulatory require-ments, as a listed exchange-regulated market.

Question 11.
List the laws that govern the Securities Industry in US.
Answer:
Following are list of laws governing the Securities Industry in US

• Securities Act of 1933.
• Securities Exchange Act of 1934.
• Trust Indenture Act of 1939.
• Investment Company Act of 1940.
• Investment Advisers Act of 1940.
• Sarbanes-Oxley Act of 2002.
• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
• Jumpstart Our Business Start-ups Act of 2012.
• Rules and Regulations.

Question 12.
Write Short Note On: “US Securities and Exchange Commission”.
Answer:
“US Securities and Exchange Commission”:

• The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
• SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.
• SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.
• The Chairman of the SEC represents the agency as a member of the Financial Stability Oversight Council (FSOC).
• SEC requires public companies to disclose meaningful financial and other information to the public.
• SEC works closely with many other institutions including Congress,
  other federal departments and agencies, the self-regulatory organizations, state securities regulators, and various private sector organizations.

Corporate Funding and Listings in Stock Exchanges Notes

FEMA and Other Economic and Business Legislations – Multidisciplinary Case Studies Important Questions

Question 1.
Mr. Basu desires to draw foreign exchange for the following purposes:
(i) Payment related to ‘Call back services’ of telephones.
(ii) USD 1,20,000 for studies abroad on the basis of estimates given by the foreign university.
(iii) USD 25,000 for sending a cultural troupe on a tour of Europe.
Advise him, whether he can get foreign exchange and, if so, under what conditions.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The Rules stipulate some prohibitions and restrictions and drawal of foreign, exchange for certain purposes.

In the light of provisions of these rules, the answer to the given problem is as follows:
(i) Rule 3 prohibits drawal of foreign exchange for payments related to call back services of telephones. Therefore, payment related to ‘call back sendees’ of telephone is prohibited.

(ii) As per Rule 5, of FEMA (Current Account Transactions) Amendment Rules, 2015, Individuals can avail foreign exchange facility within the limit of USD 2,50,000 for meeting expenses for studies abroad.

Provided that for the purposes mentioned above the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme as provided in Regulation 4 to FEMA Notification 1 /2000-RB, dated the 3rd May, 2000 if it is so required by a country of the university. Thus, in light of above rule withdrawal of USD 1,20,000 does not require any approval of RBI.

(iii) As per Rule 4, Drawal of foreign exchange for cultural tours requires the prior approval of the MHRD (Department of Education and Culture). Therefore, Mr. Basu can obtain USD 25,000 for sending a cultural troupe on a tour of Europe with the prior approval of Central Government. However, no approval of the Central Government is required if the payment is made out of the funds held in Resident Foreign Currency Account.

Question 2.
Mr. Sekhar resided in India for a period of 150 days during the financial year 2007-2008 and thereafter went abroad. He came back to India on 1 st April, 2008 as an employee of a business organisation. What would be his residential status under. Foreign Exchange Management Act, 1999 during the financial year 2008-2009?
Answer:
Provisions, relating to ‘Person’ and ‘Person resident in India’ As per Sec. 2(u) – “Person” includes:

• an individual,
• a Hindu undivided family,
• a company,
• a firm,
• an association of persons or a body of individuals, whether incorporated or not,
• every artificial juridical person not falling within any of the preceding sub-clauses and;
• any agency, office or branch owned or controlled by such person;

As per Sec. 2(v) – “Person resident in India” means:
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include –

(A) a person who has gone out of India or who stays outside India, in either case –

• for or on taking up employment outside India, or
• for carrying on outside India a business or vocation outside India, or
• for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than:

• for or on taking up employment in India, or
• for carrying on in India a business or vocation in India, or
• for any other purpose, in such circumstances as would indicate his, intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Present Case:
According to the provisions of Section 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

In the given case, Mr. Sekhar has resided in India for a period of only 150 days, i.e. less than 182 days, during the financial year 2007-2008. Hence he cannot be considered as a “Person Resident in India” during the financial year 2008-2009 irrespective of me purpose or duration of his stay.

Question 3.
Mr. Atul an Indian National desires to obtain Foreign Exchange for the following purposes :
(a) Remittance of US Dollars 10,000 for payment for goods purchased from a party situated in Nepal.

(b) US Dollars 10,000 for remitting as commission to his agent in U S. A. for sale of Commercial plot situated near Bangalore, consideration in respect of which was received by Mr. Atul by way of foreign currency inward remittance amounting to US Dollars 1,00,000.
Advise him. if he can get the Foreign Exchange and under what conditions for making the above remittances.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The rules stipulate some restrictions on drawal of foreign exchange for certain purposes. This rule prohibits drawal of foreign exchange in respect of any transaction with a person resident in Nepal or Bhutan.

However in the case of transaction with a person resident in Nepal and Bhutan, the prohibition may be exempted by RBI subject to such term and condition as it may consider necessary. Again Rule 5 requires prior approval of RBI for release of exchange exceeding US$ 2,50,000 or its equivalent in one calender year for one or more private visits to any country except Nepal and Bhutan.

(a) Thus, in light of above provisions Mr. Atul cannot obtain or can obtain if RBI exempt from such prohibition US$ 10,000 for goods purchased from a party situated in Nepal without prior approval of RBI.

(b) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India, exceeding 5% of the inward remittance or US$ 25,000 whichever is higher requires the prior approval of Reserve Bank of India. For persons other than individuals. As per FEMA (Current Account Transactions)Amendment Rules, 2015.

The Amendment Rules, 2015 further states that prior approval of RBI is not required for any Current Account Transaction apart from those mentioned if it is within the prescribed limits of USD 2,50,000. Thus in light of above Mr. Atul does not require prior approval of RBI.

Question 4.
A Company incorporated in United Kingdom established a branch at Chennai. What is the residential status of the Chennai branch? The Chennai branch proposes to purchase some immovable property at Chennai for the purpose of its business. Is it a ‘Capital Account Transaction’ within the meaning of Sec. 2(e) of the Foreign Exchange Management Act, 1999? Are there any restrictions under the Foreign Exchange Management Act, 1999 in respect of such acquisition?
Answer:
Residential Status: Residential Status of an individual for a particular financial year is determined with reference to his residence in India in the immediately preceding financial year.
Provision Relating to Person and Person Resident in India Please refer 2009 – May [11] (i) on page no. 271 Present Case:
The Chennai branch of a company incorporated in United Kingdom is a person resident in. India’ since it falls under the clause an office, branch or agency in India owned or controlled by a person resident outside India. Capital account transaction:

Meaning of Capital Account Transaction [Sec. 2(e)] – Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes the following transactions as specified in Sec. 6(3):

• Transfer or issue of any foreign security by a person resident in India.
• Transfer or issue of any security by a person resident outside India
• Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India.
• Any borrowing or lending in foreign exchange in whatever form or by whatever name called.
• Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India.
• Deposits between persons resident in India and person resident outside India.
• Export, import or holding of currency or currency notes.
• Transfer of immovable property outside India other than a lease not exceeding 5 years by a person resident in India.
• Acquisition or transfer of immovable property in India, other than a lease not exceeding 5 years, by a person resident outside India.
• Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred:
  (a) by a person resident in India and owed to a person resident outside India; or
  (b) by a person resident outside India.

Note : Sec. 6(3) is omitted by Finance Act, 2015 with effect from a date yet to be notified.

Liberalised Remittance Scheme – allow remittances by a resident individual upto USD 2,50,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 2,50,000 for the financial year by the amount already remitted.

The permissible capital account transactions by an individual under LRS are:

• opening of foreign currency account abroad with a bank;
• purchase of property abroad;
• making investments abroad;
• setting up wholly owned subsidiaries and Joint Ventures abroad;
• extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc. [FEMA (Current Account Transaction) Amendment Rules, 2015].

Present Case:
(i) Investment by person resident in India in foreign Securities is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction [(viz., Foreign Exchange Management (Investment in Foreign Securities by a person resident in India) Regulations, 2000)].

(ii) Foreign currency loans raised in India and abroad by a person resident in India is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

(iii) Export, import and holding of currency/currency notes is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

(iv) Trading in transferable development rights is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage in trading in Transferable Development Right (TDRs) (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000).

(v) Investment in a Nidhi Company is prohibited since no person resident, ofitside India shall made investment in India in any entity which in engaged, or proposes to engage as Nidhi company (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulation, 2000).

Permissible Capital Account Transactions (Sec. 6):
1. The Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business.

2. A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

3. A person resident outside India may, hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

FEMA (Current Account Transactions) Amendment Rule, 2015 – Under Liberalised Remittance Scheme allow remittances by a resident individual upto USD 2,50,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 2,50,000 for the financial year by the amount already remitted. The permissible capital account transactions by an individual under LRS are:

• opening of foreign currency account abroad with a bank;
• purchase of property abroad;
• making investments abroad;
• setting up wholly owned subsidiaries and Joint Ventures abroad;
• extending loans including loans in Indian Rupees to Non – resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc.

Present Case : Chennai Branch may as per Sec. 6 purchase immovable property in India.

Question 5.
Attempt:
(a) Examine the provisions of Foreign Exchange Management Act, 1999 and advise whether the approval of Central Govt, is needed in the following cases:
(i) X wants to remit certain sum of money out of lottery winnings.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The Rules Stipulate some prohibitions and restrictions and drawal of foreign exchange for certain purposes.

Present Case :
In the light of provisions of these rules, the answer to the given problem is as follows:

• Rule 3 prohibits remittance out of lottery winnings.
• Therefore X should not remit any amount out of lottery winning.

Question 6.
Attempt:
(a) During the financial year 2010-11 Mr. Bhattacharyya resided in India for a period of 180 days and thereafter went abroad. On 1st April, 2011 Mr. Bhattacharyya came back to India as an employee of a business organization. Decide the residential status of Mr. Bhattacharyya during the financial year 2010-11 and 2011-12 under the provisions of the Foreign Exchange Management Act, 1999.
Answer:
Provisions Relating to Persons and Persons Resident in India:

As per Sec. 2(u) “Person” includes:

• an individual,
• a Hindu undivided family,
• a company,
• a firm,
• an association of persons or a body of individuals, whether incorporated or not,
• every artificial juridical person not falling within any of the preceding sub-clauses and;
• any agency, office or branch owned or controlled by such person;

As per Sec. 2(v), “Person resident in India” means:
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include:
(A) a person who has gone out of India or who stays outside India, in either case:

• for or on taking up employment outside India, or
• for carrying on outside India a business or vocation outside India, or
• for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than:

• for or on taking up employment in India, or
• for carrying on in India a business or vocation in India, or
• for any other purpose, in such circumstances as would indicate his, intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Considering the provisions of the two section, the residential status is as follows:
(i) NNM Ltd. as well as the New York branch of NNM Ltd. is a ‘person’. Therefore, the residential status under FEMA shall be determined for each of them separately. NNM Ltd. is incorporated in India. Therefore, it is a ‘person resident in India. NNM Ltd. (a person resident in India) has established a branch outside India. Therefore, the New York branch of NNM Ltd. falls under the clause ‘an office’, branch or agency outside India owned or controlled by a person resident in India and so the New York branch is a ‘person resident in India.’

(ii) DDI Ltd. (a foreign company) does not fall under any of the clauses of the definition of a ‘person resident in India’. Therefore, DDI Ltd. is a ‘person resident outside India’. The Kanpur branch of DDI Ltd. is a person resident in India’ since it falls under the clause ‘an office, branch or agency in India owned or controlled by a person resident outside India’.

(iii) The Singapore branch of DDI Ltd., through not owned, is controlled by the Kanpur branch. The Singapore branch is a ‘person resident in India’ since it falls under the clause ‘an office, branch or agency outside India owned or controlled by a person resident in India’.

Present Case:
Mr. Bhattacharyya did not reside in India during the year 2010-2011 for more v titan 182 days and his residential status during the next year, i.e 2011-2012 is non-resident even though he stayed in India from 1st April, 2011 as an employee. His residential status in 2010-2011 cannot be ascertained as his stay in India during the previous year 2009-2010 is not known.

Question 7.
Attempt:
A person aggrieved by an order made by the Special Director (Appeals) desires to file an appeal against the said order to the Appellate Tribunal but the period of limitation of 45 days as prescribed in Sec. 19(2) of the ‘ Foreign Exchange Management Act, 1999 has expired. Advise.
Answer:
The Appellate Tribunal is the second appellate authority which has original appellate jurisdiction as well as revisionary jurisdiction. An appeal can be filed with the Appellate Tribunal against the order made by:

• Special Director (Appeals); or
• an Adjudicating Authority other than an Assistant Director of Enforcement or a Deputy Director of Enforcement.

Time limit for filing the appeal. The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority or the Special Director (Appeals) (Excluding the time required in obtaining a copy of the order). However, if sufficient cause is shown, the Appellate Tribunal may condone the delay. Thus, the person can make an appeal to Appellate Tribunal even after a delay i.e. expiry of 45 days if Appellate Tribunal is satisfied that there was sufficient cause for not filing it within that period.

Question 8.
Mrs. Chandra, a resident outside India, is likely to inherit from her father some immovable property in India. Are there any restrictions under the provisions of the Foreign Exchange Management Act, 1999 in acquiring or holding such property? State whether Mrs. Chandra can sell the property and repatriate outside India the sale proceeds.
Answer:
Inheritance by Non Resident of Property in India:
As per Sec. 6(5) of the FEMA, 1999, a person resident outside India may hold, own transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

Present Case:
Mrs. Chandra may acquire or hold immovable property following the provisions laid down under Sec. 6(5) as her father was resident in India. Mrs. Chandra can even sell the property and repatriate outside India the sale proceeds of such immovable property.

Repatriation of sale proceeds : A person referred in Sec. 6(c) of the set or his successor shall not except with the prior permission of Reserve Bank, repatriate outside India the sale proceeds of any immovable property.

Present Case :
Mrs. Chandra can sell the property and repatriate outside India the sale proceeds only with the prior permission of RBI.

Question 9.
Attempt:
Mr. Kishore resided in India during the Financial Year 2009-2010 for less than 182 days. He came to India on 1st April, 2010 for business. He closed down his business on 30th April, 2011 and left India on 30th June, 2011 for the purpose of employment outside India. Decide the residential status of Mr. Kishore during the Financial Years 2010-2011 and 2011-2012 under the provisions of the Foreign Exchange Management Act, 1999.
Answer:
As per Sec. 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

Residential Status in Financial Year 2010-11:
In the given chse, Mr. Kishore resided in India for less than 182 days during the financial year 2009-10. Hence, he cannot be considered as a “Person Resident in India” during the financial year 2010-11.

Residential Status in Financial Year 2011-12:
During the financial year 2010-11, Mr. Kishore resided in India for more than 182 days. Normally, he would have been resident in India during the financial year 2011-2012 but as he left India on 30^th June, 2011 for the purpose of taking up employment outside India, he would cease to be resident in India from the date of his departure from India i.e. 30^th June, 2011. Therefore, Kishore cannot be called a person resident in India during the entire financial year 2011-2012.

Question 10.
Examine with reference to the Provisions of the Foreign Exchange Management Act, 1999 and the rules made thereunder whether foreign exchange can be drawn for the following purposes:
(i) Mr. Gopal, a cine artist in India proposes to organize a cultural programme at Dubai and requires to draw foreign exchange US$ 1,00,000 for this purpose.

(ii) Mr. Shah proposes to visit United States on a business tour and for this purpose he wants to draw foreign exchange US$ 40,000 for meeting expenses.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) (now amended) Rules, 2000.The Rules stipulate some prohibitions and restrictions and drawal of foreign exchange for certain purposes.

In the light of provisions of these rules, the answer to the given problem is as follows:
(i) Cultural Programme: Foreign exchange for meeting expenses of cultural tour can be withdrawn by a person after obtaining permission from the Government of India, MHRD (Department of Education and Culture) Thus, Mr. Gopal can withdraw US $ 1,00,000 after obtaining permission from the Government of India. However no approval is required if payment is made out of fund held in RFC Account.

(ii) As per Rule 5 of FEMA (Current Account Transactions) Amendment Rules, 2015, individuals can avail foreign exchange facility for meeting expense relating to travel for business or attending conferences or specialised training within the limit of USD 2,50,000 only. Any additional remittance in excess of above limit requires prior approval of RBI. Hence, Mr. Shah can obtain USD 40,000 for business tour to United States without prior approval of RBI.

Question 11.
Mrs. Kavita, an Indian National desires to obtain foreign exchange for the following purpose:
(i) Remittance of US Dollar 30000 for payment for goods purchased from a party situated in Japan.
(ii) Remittance of US Dollar 50000 out of winnings on a lottery ticket.
Advise her if she can get the foreign exchange and under what condition?
Answer:
As per Section 5 of the Foreign Exchange Management Act, 1999, certain rules have been made for drawal of foreign exchange for current account transactions.

(i) Remittance to JAPAN, such remittance is prohibited and the same is Included in first schedule to the Foreign Exchange Management Rules 2000. Hence, Mrs. Kavita cannot withdraw Foreign Exchange for this purpose.

(ii) Remittance out of lottery winnings, such remittance is prohibited and the same is included in first schedule to the Foreign Exchange Management Rules 2000. Mrs. Kavita cannot withdraw the foreign exchange for this purpose.

Question 12.
Attempt:
(a) (i) Mr. P has won a big lottery and wants to remit US Dollar 20,000 out of his winnings to his son who is in USA. Advise whether such remittance is possible under the Foreign Exchange Management Act, 1999.
Answer:
Rule 3 read with Schedule I for rules on FEMA (Current Account Transactions Amendment) Rules, 2015 provides that remittance out of income from:

Lottery winnings or
Racing/riding etc. or any other hobby are transactions for which drawal of foreign exchange is prohibited.

Present Case:
Thus, Mr. P cannot remit US Dollar 20,000 out of his winning, to his son in USA.

Question 13.
Mr. Rohan, an Indian Resident individual desires to obtain Foreign Exchange for the following purposes:
(A) US $ 1,20,000 for studies abroad on the basis of estimates given by the foreign university.
(B) Gift Remittance amounting US$ 10,000.
Advise him whether he can get Foreign Exchange and if so, under what condition(s)?
Answer:
(A) Please refer 2008 – Nov [10] (ii) on page no. 270
(B) As per FEMA (Current Account Transactions) Amendment Rules, 2015 Gift Remittance amounting USD 10,000 does not require prior approval of RBI.

However, prior approval of RBI shall be required where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Question 14.
Mr. B has won a big lottery and wants to remit US Dollar 25,000 out of the winnings to his son who is in USA. Advise whether such remittance is possible under the Foreign Exchange Management Act, 1999.
Answer:
Rule 3 read with Schedule I for rules on current account transactions under the Foreign Exchange Management Act, 1999 provides that remittance of income from: Lottery winnings or Racing/riding etc. or any other hobby are transactions for which drawal of foreign exchange is prohibited. Thus, Mr. B cannot remit US Dollar 25000 out of his winning, to his son in USA.

Question 15.
Attempt the following:
(a) India Exports Limited engaged in the export of software products to U.S. One party in U.S. to whom the company exported certain products failed to pay the amount due for these exports resulting into non-repatriation of amount to India. The Adjudicating Authority on coming to know about this, levied a penalty on India Exports Limited under the provisions of Foreign Exchange Management Act, 1999. The company seeks your advice as to which authority, to whom it can make an appeal against the decision of Adjudicating Authority. State also, the time limit within which the appeal can be lodged.
Answer:
Sec. 17 and 19 of FEMA, 1999 provide for appeals against orders of Adjudicating Authority. If Adjudicating Authority is Assistant Director of the Enforcement or Deputy Director of Enforcement, appeal will lie to Special Director (Appeals). Further appeal shall lie with Appellate Tribunal of Foreign Exchange. However, if the adjudicating authority is senior to the Assistant- Director of Enforcement or Deputy Director of Enforcement, then the appeal shall lie directly to the Appellate Tribunal.

Under FEMA, two appellate authorities have been constituted. These are as follows:

1. Special Director
2. Appellate Tribunal

Appeal to Special Director (Appeals (Sec. 17):

Appeal with the Appellate Tribunal (Sec. 19):

Thus : TKM Exporters of Delhi can make an appeal either to special Director (Appeals) or Appellate Tribunal. It may be noted that Tribunal is final fact finding authority and no appeal lies against it.

Question 16.
Mr. Sekh, resided fora period of 150 days in India during the Financial Year 2013-2014 and thereafter went abroad. He came back to India on 1^st April, 2014 as an employee of a business organization. What would be his residential status during the Financial Year 2014-2015 under Foreign Exchange Management Act, 1999.
Answer:
According to the provisions of Section 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

In the given case, Mr. Sekh has resided in India for a period of only 150 days, i.e. less than 182 days, during the financial year 2013-2014. Hence he cannot be considered as a “Person Resident in India” during the financial year 2014-2015 irrespective of the purpose or duration of his stay.

Question 17.
Indian Software Ltd. seeks to export software to its client in Indonesia. In this regard:
(i) Explain the procedure to be adopted for export of software under the Foreign Exchange Management Act, 1999 and also state the period within which export value is to be realised.

(ii) Explain the position in case of delay in receipt of payment from its client.
Answer:
(i) Procedure for the export of the software under the FEMA, 1999 read with FEM (Export of goods and services) Regulation 2015. Declaration of Exports [Regulation 3]:
Regulation 3(1) provides – that in case of exports taking place through Customs manual ports, every exporter of goods or software in physical form or through any other form, either directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish to the specified authority, a declaration in one of the forms set out in the Schedule and supported by such evidence as may be specified, containing true and correct material particulars including the amount representing.
a. the full export value of the goods or software;

b. if the full export value is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods or the software in overseas market, and affirms in the said declaration that the full export value of goods (whether ascertainable at the time of export or not) or the software has been or will within the specified period be, paid in the specified manner.

Declarations shall be executed in sets, of such number as specified – It may be noted that in respect of export of services to which none of the Forms specified in the Regulations apply, the exporter may.export such services without furnishing any declaration, but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of such export, and to repatriate the same to India in accordance with the provisions of the Act, and these Regulations, as also other rules and regulations made under the Act. Realization of export proceeds in respect of export of goods/software from third party should be duly declared by the exporter in the appropriate declaration form.

Indication of Importer-Exporter Code Number [Regulation 5] – The importer-exporter code number allotted by the Director General of Foreign Trade under Section 7 of the Foreign Trade (Development & Regulation)Act, 1992 shall be indicated on all copies of the declaration forms submitted by the exporter to the specified authority and in all correspondence of the exporter with the authorised dealer or the Reserve Bank, as the case may be.

Authority to whom declaration is to be furnished and the manner of dealing with the declaration [Regulation 6] – Regulation 6 deals with the authority to whom declaration is to be furnished and the manner of dealing with the declaration.

Declaration in Form EDF:
(i) The declaration in form EDF shall be submitted in duplicate to the Commissioner of Customs.

(ii) After duly verifying and authenticating the declaration form, the Commissioner of Customs shall forward the original declaration form/data to the nearest office of the Reserve Bank and hand over the duplicate form to the exporter for being submitted to the authorised dealer.

Declaration in Form SOFTEX:
(i) The declaration in Form SOFTEX in respect of export of computer software and audio/video/television software shall be submitted in triplicate to the designated official of Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Special Economic Zones (SEZs) in India.

(ii) After certifying all three copies of the SOFTEX form, the said designated official shall forward the original directly to the nearest office of the Reserve Bank and return the duplicate to the exporter. The triplicate shall be retained by the designated official for record.

Duplicate Declaration Forms to be retained with Authorised Dealers: On the realisation of the export proceeds, the duplicate copies of export declaration forms viz. EDF and SOFTEX shall be retained by the Authorised Dealers.

Evidence in support of declaration [Regulation 7] – The Commissioner of Customs or the postal authority or the official of Department of Electronics, to whom the declaration form is submitted, may, in order to satisfy themselves of due compliance with Section 7 of the Foreign Exchange Management Act and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, require such evidence in support of the declaration as may establish that –
(a) the exporter is a person resident in India and has a place of business in India;

(b) the destination stated on the declaration is the final place of the destination of the foods exported;

(c) the value stated in the declaration represents –

• the full export value of the goods or software; or
• where the full export value of the goods or software is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods in the overseas- market.

It may be noted that ‘final place of destination’ means a place in a country in which the goods are ultimately imported and cleared through Customs of that country.

Manner of payment of export value of goods [Regulation 8] – Unless otherwise authorised by the Reserve Bank, the amount representing the full export value of the goods exported shall be paid through an authorised dealer in the manner specified in the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 as amended from time to time.

It may be noted that re-import into India, within the period specified for realisation of the export value, of the exported goods in respect of which a declaration was made under Regulation 3, shall be deemed to be realisation of full export value of such goods.

Period within which export value of goods/software/services to be realised [Regulation 9] – In terms of Regulation 9(1), the amount representing the full export value of goods/software/services exported shall be realised and repatriated to India within nine months from the date of export, provided :

(a) that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen months from the date of shipment of goods;

(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months or fifteen months, as the case may be.

Regulation 9(2)(a) provides – that where the export of goods/software/services has been made by Units in Special Economic Zones (SEZ) /Status Holder exporter/ Export Oriented Units (EOUs) and units in Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) as defined in the Foreign. Trade Policy in force, then notwithstanding anything contained in sub-regulation(l), the amount representing the full export value of goods or software shall be realised repatriated to India within nine months from the date of export.

Provided further – that the Reserve Bank, or subject to the directions issued by the Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months.

As per Regulation 9(2)(b) – the Reserve Bank may for reasonable and sufficient cause direct that the said exporter/s shall cease to be governed by sub-regulation(2);

Provided that no such direction shall be given unless the unit has been given a reasonable opportunity to make a representation in the matter. Regulation 9(2)(c) states that on such direction, the said exporter/s shall be governed by the provisions of sub-regulation(l), until directed otherwise by the Reserve Bank. It may be noted that the “date of export” in relation to the export of software ir other than physical form, shall be deemed to be the date of invoice covering such export.

Submission of Export Documents [Regulation 10] – The documents pertaining to export shall be submitted to the authorised dealer mentioned in the relevant export declaration form, within 21 days from the date of export, or from the date of certification of the SOFTEX form:

Provided that, subject to the directions issued by the Reserve Bank from time to time, the authorized dealer may accept the documents pertaining to export submitted after the expiry of the specified period of 21 days, for reasons beyond the control of the exporter.

(ii) Delay in Receipt of Payment [Regulation 14] – Where in relation to goods or software export of which is required to be declared on the specified form and export of services, in respect of which no declaration forms has been made applicable, the specified period has expired and the payment therefor has not been made as aforesaid, the Reserve Bank may give to any person who has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such directions as appear to it to be expedient, for the purpose of securing,

• the payment therefor, if the goods or software has been sold and
• the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof into India as the circumstances permit, within such period as the Reserve Bank may specify in this behalf;

Provided that omission of the Reserve Bank to give directions shall not have the effect of absolving the person committing the contravention from ‘the consequences thereof.

Question 18.
Answer the following :
Forex Dealers Ltd. is an Authorised Person within the meaning of Foreign Exchange Management Act, 1999. Reserve Bank of India issued certain directions to the said Authorised person to file certain returns which it failed to file. You are required to state the penal provisions to which the said Authorised Person has exposed itself.
Answer:
In accordance with the provisions of the Foreign Exchange Management Act, 1999 as contained in Section 11(3), where any authorized person contravenes any direction given by the Reserve Bank of India.under the said Act or fails to file any return as directed by the Reserve Bank of India, the Reserve Bank of India may, after giving reasonable opportunity of being heard, impose on Authorised Person a penalty which may extend to ten thousand rupees and in the case of continuing contraventions with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues.

Since as per the facts given in the question, the Authorized person, namely, Forex Dealers Ltd., has failed to file the return as directed by the Reserve Bank of India, according to the above provisions.it has exposed itself to a penalty which may extend to ₹ 10,000 and in the case of continuing

contraventions in the nature of failure to file the return, with an additional penalty which may extend to ₹ 2,000 for every day during which such Contravention continues.

Question 19.
Ms. LOMIA a resident outside India, is likely to inherit from her father some immovable property in India. Are there any restrictions under the provisions of the Foreign Exchange Management Act, 1999 in acquiring or holding such property?
State, whether Ms. Lomia can sell the property and repatriate outside India the sale proceeds.
Answer:
As per Sec. 6(5) of FEMA, 1999, a person resident-outside India may hold, own transfer or invest in India currency, security or any immovable property situated-in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

In the present case; Ms. Lomia may acquire or hold immovable property following the provisions laid down under Sec. 6 (5) as her father was resident in India. Ms. Lomia can even sell the property and repatriate outside India the sale proceeds of such immovable property.

Question 20.
Ms. Ashima daughter of Mr. Mittal (an exporter), is residing in Australia since long. She wants to buy a flat in Australia. Since she is unmarried, she wants to make her father Mr. Mittal a joint holder in that flat, for which entire proceeds are to be paid by her.
(i) What are the provisions of FEMA governing such type of transaction?
(ii) Can Mr. Mittal join her daughter in acquiring such a flat in Australia?
(iii) Mr. Mittal, wants to receive advance payments against his exports from a buyer outside India. What are the relevant provisions?
Answer:
(i) As per Schedule I to Sec. 6, under Sec. (2) of The Foreign Exchange Management (Permission Capital Account Transaction) Regulations, 2000,
1. A person resident in India may acquire immovable property out side India:

• By way of gift or inheritance from a person referred to in sub-section (4) of Sec. 6 of the FEMA or referred to in clause (b) of regulation 4 acquired by a person resident in India on or before 8th July, 1947 and continued to be held by him with the permission of Reserve Bank.
• By way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the foreign exchange management (Foreign Currency accounts by a person resident in India) Regulation, 2015.
• Jointly with a relative who is a person resident outside India, provided there is no outflow of funds from India.

2. A person resident in India may acquire immovable property outside India, by way of Inheritance or gift from a person resident in India who has acquired such property in accordance with the foreign exchange provision in force at the time of such acquisition.

3. A Company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, in accordance with the direction issued by the Reserve Bank of India from time to time.

(ii) On the grounds of above regulations, Mr. Mittal can join her daughter in acquiring such flat in Australia.

(iii) Advance payment against export:
The following are the provisions governing the advance payments against exports: Where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that:

• the shipment of goods is made within one year from the date of receipt of advance payment;
• the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
• the documents covering the shipment are routed through the authorised dealer through whom the advance payment is received.

Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment or towards, no remittance towards refund of un-utilised portions of advance payment or towards payment of interest, shall be made after the expiry of the period of one year, without the prior approval of the RBI.

Notwithstanding anything contained in clause (i) of sub-regulation (1), an exporter may receive advance payment where the export agreement itself duly provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment.

Question 21.
Mr. T. Raghava has secured admission in a reputed and recognized university in Germany, for the study of higher and technical education, outside India. After arrival in Germany, he has gone ill and wants medical treatment facility in a reputed German hospital. He desires to apply to the Government of India for availing the additional remittance beyond the limit approved for foreign currency exchange facility. He has already enjoyed the permitted facility of foreign exchange for studies abroad, for the said financial year. Decide the following as to the facts given in the question as per the provisions of the Foreign Exchange Management Act, 1999:
(i) As an individual, to what extent Mr. T. Raghava may avail foreign exchange facilities for higher and technical study in Germany.

(ii) Can Mr. T. Raghava avail the facility of additional remittance in foreign exchange, beyond the limit, for the medical treatment.
Answer:
1. Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawl is a current account transaction. However, Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed as per Sec. 5. The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amended Rules, 2015. The Rules stipulate some prohibitions and restrictions on drawl of foreign exchange for certain purposes. In light of such regulations.

2. Any release of foreign exchange for studies abroad does not require any approval if the foreign exchange drawn does not exceed the estimate 2,50,000 per academic year. Any drawl of foreign exchange exceeding the above limits requires the approval of Reserve Bank of India.

3. Any release of foreign exchange for meeting expenses for medical treatment abroad does not require any approval if, the expenses of medical treatment do not exceed the estimate from doctor in India or hospital/doctor abroad. However, foreign exchange exceeding the estimate from the doctor in India or hospital/doctor abroad require the prior approval of Reserve Bank of India. Any person may release foreign exchange upto US$ 2,50,000 for medical treatment without any estimate of doctor and without any prior approval of Reserve Bank of India.

Present case:
1. In this case, Mr. T. Raghava has taken admission in Germany and after this he goes ill and wants to draw foreign exchange from India for medical treatment. However, he has already enjoyed his facility of foreign exchange limit for studies abroad. So as per above regulations, Mr. T. Raghava can draw foreign exchange to the limit specified. So answer to his queries has been given as follows:
(i) Mr. Raghava can drawn foreign exchange upto US$ 2,50,000 for higher and technical study in Germany. However, foreign exchange exceeding the estimate from the limit as above., he requires to take prior approval of Reserve Bank of India.

(ii) Remittance for Medical Treatment: Remittance of foreign exchange for medical treatment abroad requires prior permission or approval of RBI where the individual requires withdrawal of foreign exchange exceeding USD 2,50,000. The Schedule also prescribes that for the purpose of expenses in connection with medical treatment, the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalized Remittance Scheme, if so required by a medical institute offering treatment. Such amount shall be reduced from USD 2,50,000 by the amount so remitted.

Therefore, Mr. T. Reghava can draw foreign exchange exceeding USD 2,50,000 by taking prior permission/approval of RBI.

Question 22.
Bharat Computer Hardware Ltd. received an advance payment for export of high-tech hardware to a business concern in Singapore by entering into an export agreement to supply the hardware within six months from the date of receipt of advance payment. The shipment of hardware was made after 9 months and the documents covering the shipment were routed through an authorized dealer through whom the advance payment was received.

Examine whether Bharat Computer Hardware Ltd. has discharged its obligation in accordance with the provisions of The Foreign Exchange Management Act, 1999? Is it possible to receive advance payment where the export agreement provides for shipment of goods within 15 months from the date of receipt of advance payment? Also identify the maximum rate of interest payable on the advance payment under the said Act.
Answer:
1. As per the provisions of the Foreign Exchange Management Act, 1999, where an exporter receives advance payment (with or without interest), from a buyer/ third party named in the export declaration made by the exporter, outside India, the exporter shall be under an obligation to ensure that:
(i) the shipment of goods is made within one year from the date of . receipt of advance payment;

(ii) the rate of interest, if any, payable on the advance payment does not exceed the rate of interest London Inter – Bank Offered Rate, (LIBOR) + 100 basis points and

(iii) the documents covering the shipment are routed through the authorised dealer through whom the advance payment is received; Provided that in the event of the exporter’s inability to make the shipment, partly or fully within one year from the date of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest shall be made after the expiry of the period of one year, without the prior approval of the Reserve Bank.

a. In this case, Bharat Computer Hardware Ltd., an exporter export the shipment of hardware after 9 months and the documents covering the shipment were routed through an authorized dealer through whom the advance payment was received. So here yes company has validly discharged its obligation in accordance with the provisions of the Foreign Exchange Management Act, 1999.

b. Provision further provides that, an exporter may receive advance payment where the export agreement itself duly provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment. It is possible to receive advance payment where the export agreement provides for the shipment of goods within 15 months from the date of receipt of advance payment.

c. Maximum rate of interest payable on the advance payment shall be London Inter – Bank Offered Rate (LIBOR) + 100 Basis points.

Question 23.
Ramesh Kumar and Jainendra Singh (respondants) had asked following information from RBI under the Right to Information Act, 2005:

• Details of the reports pertaining to investigation and audit carried out by RBI and details of past 20 years investigation with respect to cooperative banks.
• Details of the report sent by RBI to the Finance Ministry with respect to FEMA violations committed by several commercial banks.
• Details of the inspection reports of apex cooperative banks.
• Details of the loans taken by the industrialists that have not been repaid and about the names of the top defaulters who have not repaid their loans to public sector banks.
• Details of the show cause notices and fines imposed by the RBI on various banks.

RBI refused to provide the requisite information on the grounds of economic interest, commercial confidence, fiduciary relationships with other banks and the public interest. Is the refusal by the RBI tenable? Give reasons in support of your answer.
Answer:
In the given case refusal by RBI is not tenable.
The given case is similar to the case of Reserve Bank of India vs. Jayantilal n. Mistry[SC] Transferred Case (Civil) No. 91 of 2015 (Arising out of Transfer Petition (Civil) No. 707 of 2012) along with batch of petitions [Decided on 16/12/2015], In this case Supreme Court inter-alia held that in the instant case, the RBI does not place itself in a fiduciary relationship with the Financial institutions (though, in word it puts itself to be in that position)

because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the Banks Act in the interest of each other. By attaching an additional fiduciary label to the statutory duty, the Regulatory authorities have intentionally or unintentionally created and in terrorem effect.

RBI is a statutory body set up by the RBI Act as India’s Central Bank. It is a statutory regulatory authority to oversee the functioning of the banks and the country’s banking sector. RBI has been given powers to issue any direction to the banks in public interest, in the interest of banking policy and to secure proper management of a banking company. It has several other far-reaching statutory powers.

RBI is supposed to uphold public interest and not the interest of individual banks. RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximize the benefit of any public or private sector bank, and thus there is no relationship of ‘trust’ between them. RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks. It is duty bound to comply with the provisions of the RTI Act, and disclose the information sought by respondents herein.

In the present case, we have to weigh between the public interest and fiduciary relationship (which is shared between the RBI and the Banks). Since, RTI Act is enacted to empower the common people, the test to determine limits of S. 8 of the RTI Act is whether giving information to the general public would be detrimental to the economic interests of the country? To what extent should the public be allowed to get information?

In the context of above questions, it had long since come to our attention that the Public Information Officers (PIO) under the guise of one of the exceptions given under S. 8 of RTI Act, have evaded the general public from getting their hands on the rightful information that they are entitled to.

And in this case the RBI and the Banks have sidestepped the general public’s demand to give the requisite information on the pretext of “fiduciary relationship” and “economic interest”. This attitude of the RBI will only attract more suspicion and disbelief in them. RBI is a regulatory authority should work to make the banks accountable to their actions.

The ideal of ‘Government by people’ makes it necessary that people have access to information on matters of public concern. The free flow of information about affairs of Government paves way for debate in public policy and fosters accountability in Government. It creates a condition for ‘open governance’ which is a foundation of democracy.

Question 24.
Zom entered into a buyer’s agreement with EMANKI Land Developers Private Limited in the year 2015. As per the agreement the possession of flat was to be handed over in January 2018. The company was deferring the handing over of flat for almost a year. In January 2019, Zom filed a consumer complaint before the NCDRC against the Company praying for delivery of possession of the flat, adjustment of excess payment and compensation for deficiency in service. As the agreement also provided for an arbitration clause providing for settlement of disputes between parties under the Arbitration and Conciliation Act, 1996, the Company filed an application under Section 8 of Act for referring the matter to arbitration. Will the Company be successful in having an arbitration in respect of said matter?
Answer:
The present case is similar to the case of Emaar MGF Land Limited v. Aftab Singh [SC] Review Petition (C) Nos. 2629-2630 of 2018 in Civil Appeal Nos.23512-23513 of 2017. The Supreme Court in the series of judgments considering the provisions of Consumer Protection Act, 1986 as well as Arbitration and Conciliation Act, 1996 laid down that complaint under Consumer Protection Act being a special remedy, despite there being an arbitration agreement the proceedings before Consumer Forum have to go on and no error is committed by Consumer Forum on rejecting the application.

There is reason for not interjecting proceedings under Consumer Protection Act on the strength an arbitration agreement by Arbitration and Conciliation Act, 1996. The remedy under Consumer Protection Act is a remedy provided to a consumer when there is a defect in any goods or services. The remedy under the Consumer Protection Act is confined to complaint by consumer as defined under the Act for defect or deficiencies caused by a service provider, the cheap and a quick remedy has been provided to the consumer which is the object and purpose of the Act.

The amendment in Section 8 of the Arbitration and Conciliation Act, 1996 cannot be given such expansive meaning and intent so as to inundate entire regime of special legislations where such disputes were held to be not arbitrable. Something which legislation never intended cannot be accepted as side wind to override the settled law. The submission of the petitioner that after the amendment the law as laid down by this Court in National Seeds Corporation Limited is no more a good law cannot be accepted.

The words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” were meant only to those precedents where it was laid down that the judicial authority while making reference under Section 8 shall entitle to look into various facets of the arbitration agreement, subject matter of the arbitration whether the claim is alive or dead and whether the arbitration agreement is null and void. The words added in Section 8 of the Arbitration and Conciliation Act, 1996 cannot be meant for any other meaning.

In the event a person entitled to seek an additional special remedy provided under the statutes does not opt for the additional/special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded in arbitration. It is only the case where specific/ special remedies are provided for and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration. Hence, no error has been committed by the NCDRC.

Hence, it can be concluded that the consumer disputes are not arbitrable.

Multidisciplinary Case Studies CS Professional Notes