Taking a closer look at the new Minimum Public Shareholding regime in Listed Companies

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

Recently, the new minimum public shareholding of 25 % in all the private sector listed companies has kicked in thus, mandating all the private sector held listed companies to mandatorily offering at least 25% of the shares to the public. Thus a number of companies notably Tata Communications and Wipro have taken steps to increase their public stake using methods such as offering existing shares to the public, selling promoter shareholding, and issuing fresh shares to the public. But in the backdrop of this, around 105 listed companies failed to comply with the minimum public shareholding norm of 25% as mandated under the Securities Contracts Regulations (Rules), 1957 ("SCR Rules") within the stipulated deadline of June 3, 2013. Therefore, the current scenario pertaining to enforcement of minimum shareholding regime would be discussed and lastly a brief analysis of Gillette case would be provided in order to comprehend why SEBI rejected the Gillette’s scheme/plan to offload its share to meet the new minimum shareholding requirement.

All listed companies in India are regulated through three securities acts/rules which are-

a.       The Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)

b.      The Securities Contracts (Regulation) Act, 1956 (‘SCRA Act’)

c.       The Securities Contracts (Regulation) Rules, 1957 (‘SCR Rules’)

BACKGROUND

The requirement to maintain a minimum public shareholding of 25% of each class or kind of equity shares or convertible debentures issued by a listed company was always provided under Rule 19(2) (b) of “Securities Contract Regulation Rules (SCCR)”[1]. Regulators have always been advocating for introduction of minimum public shareholding in listed companies for the reason that it aids in ensuring liquidity in the market and discovery of fair price. Further, the availability of requisite floating stock ensures reasonable market depth and trims down susceptibility of listed securities to market manipulation.

Therefore, in furtherance of the aforementioned objectives, SEBI amended Rule 19(2)(b) of SCR Rules and added Rule 19(A)[2] to the SCR Rules vide the Securities Contracts (Regulation) (Amendment) Rules, 2010 thereby expressly obligating all listed companies to maintain at all times at least 25% of minimum public shareholding. SEBI also obligated all non-compliant listed companies to increase their public shareholding to 25% by June 3, 2013 through any of the following methods prescribed by SEBI:

1. Issuance of shares to the public through prospectus.

2. Offer of sale of shares held by promoters through prospectus.

3. Offer for sale by promoters on the floor of stock exchanges.

4. Institutional Placement Programme ("IPP")

5. Rights issue/bonus issue to public shareholders, with promoters and promoter group shareholders forgoing their rights entitlement/bonus entitlement.

6. Any other method as approved by SEBI on a case to case basis

Now, based on the information provided by the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), 105 listed companies have still not complied with minimum public shareholding requirement as required under the provisions of Regulation 19(A) and Regulation 19 (2) (b) of the Securities Contract (Regulation) Rules, 1957. SEBI has primarily attributed the non-compliance to the promoters and directors of the defaulting listed companies. Also, according to SEBI, the promoters and directors often take advantage of their excess shareholding to the disadvantage of the public shareholder as quite often only promoters and directors’ interests are taken into account thus excluding the interest of the public shareholders. Further, such non-compliance by some companies puts the promoters/promoter groups of compliant companies at a disadvantageous position in comparison to the promoters/ promoter group of the non-compliant companies.

 PENALTIES FOR NON-COMPLAINT LISTED COMPANIES

Thus pertaining to the current situation prevailing, concerning the minimum shareholding requirement, and with an aim to restore the balance between the public and non-public shareholding and removing the disproportionate advantage arising out of the non-compliance, the SEBI has directed the following actions[3]-

1.      Voting rights and corporate benefits like dividend, bonus shares, split, etc. in respect of the excess of the proportionate promoter/promoter group shareholding would be frozen till compliance with the minimum public shareholding requirement is achieved.

2.      The promoters/promoter group and directors of non-compliant companies are barred and prohibited from dealing in securities of such companies, whether directly or indirectly. However, they are allowed to deal in securities for the sole purpose of complying with the minimum public shareholding requirement.

3.      The shareholders forming part of the promoter/ promoter group and directors of non-compliant companies are prohibited from holding any new position as director in any listed company, till the minimum public shareholding requirements have been complied.

It is worth mentioning here that not only does the SEBI’s order restrict the promoter/ promoter group/ directors from holding new positions in the non-compliant companies, but it also extends to any company listed on any stock exchanges in India.

SEBI has also clarified that the Order is without prejudice to its right to take any other action which it deems apt and befitting against the promoters of non-compliant companies including the following:

1. Levying monetary penalties under adjudication proceedings;

2. Initiating criminal proceedings;

3. Moving scrip to trade-to-trade segment; and

4. Excluding scrip from F&O segment.

Brief analysis of Gillette case- Why SEBI rejected its method of meeting minimum shareholding requirement

The facts are such that Procter & Gamble India Holdings BV (P&G) is a promoter of Gillette having 75.9% voting rights. The Poddar group is the Indian promoter of Gillette with 12.9% voting rights. The total promoter holding is in excess of the 75% permitted by the public shareholding norms. Therefore, Gillette’s proposed that Poddar group would first transfer 4% of its shares to P&G. Thereafter, the Poddar group would be categorized as an ordinary public shareholder as it would lose all its rights as a promoter (including by virtue of termination of rights under the shareholders agreement and articles of association). This approach was opposed by SEBI on the ground that it violates the spirit of the public shareholding norms in that the promoter holding would, in fact, be increased rather than diluted in the process.

Thus, it basically involved reclassification of a top company executive as non-promoter entity and the proposed scheme of shareholding arrangement to meet the norms was rejected by the SEBI and further on appeal rejected by the SAT (Securities Appellate Tribunal).

Further, taking action against promoters of Gillette India for non-compliance to minimum public holding norms, the Securities and Exchange Board of India's (‘SEBI’) ordered freezing of all corporate benefits arising out of their stake in the company. Also, it has restrained the promoters and directors from taking up any new position as director in any listed company.

Thus, given that stringent penalties have been imposed on the Gillette, it would be very interesting to see what scheme the company comes up with to meet the new mandatory minimum requirement. Also, the Gillette case would serve as a reprimand for the non-complaint listed companies to soon prune out their shareholding. So, lastly sooner rather than later, all the listed companies would cut down their shareholding to the minimum 25% public shareholding.

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[1] Rule 19(2)(b) of SCR Rules:

(i) At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or

(ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees:

Provided that the requirement of post issue capital being more than four thousand crore rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub-rule 2 of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement:

Provided further that the company, referred to in sub clause (ii), shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India.

[2] Rules 19(A) of SCRR:

(1) Every listed company [other than public sector company] shall maintain public shareholding of at least twenty five per cent: Provided that any listed company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India.

[3] http://www.sebi.gov.in/sebiweb/home/detail/25897/yes/PR-Interim-Order-in-the-matter-of-Non-Compliance-of-the-requirement-of-Minimum-Public-Shareholding-by-the-Listed-Companies-in-Private-Sector

Securities Amendment Ordinance, 2013: More powers to SEBI to tackle fraudulent schemes

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

Recently, the Securities Amendment Ordinance 2013 has been approved by the Union Cabinet and promulgated by the President of India to give Securities Exchange Board of India (SEBI) more regulatory powers to tackle widespread fraudulent investment schemes across the country. Among various other pertinent things, the ordinance grants jurisdiction to SEBI to effectively regulate various collective investment schemes (CIS) which were allegedly run by the Saradha Group. Thus, before outlining the features of the Securities Amendment Ordinance, it would be very pertinent to know what exactly happened in Saradha scam and then the features of the Ordinance would be discussed as to how it tries to plug in the regulatory and enforcement loopholes.

Saradha group activities and the subsequent scam

     The Saradha group was allegedly running a vast array of collective investment schemes (CIS). Under the scheme, agents were appointed and recruited from the local rural communities and these agents were supposed to collect money from the people by issuing secured debentures and redeemable preferential bonds on commission basis.  Thus, using this scheme huge amount of money was raised by over 100 companies under the Saradha Group. While all along this multi crore scam was taking place, SEBI completely failed to tackle and stop the scam from perpetuating even when it had detected a foul play by the Saradha Group way back in 2009.  Add to this, there were over multitudes of companies which were running similar fraudulent collective investment schemes (CIS), chit funds and multi level marketing scam which the SEBI has utterly failed to regulate and keep a check on their functioning. This in turn has duped a wide number of innocent investors mostly from rural areas.

The Securities Amendment Ordinance, 2013: Features

This perceptible regulatory gap is now sought to be addressed through the ordinance route. The Ordinance seeks to address the visible regulatory gap currently prevailing pertaining to CIS, chit funds scams.  The Ordinance brings out noteworthy changes, predominantly on the enforcement powers and authorities of SEBI. Also, there has been a substantial change relating to the expansion of the ambit and scope of collective investment schemes (CIS).

The Ordinance has formulated amendments to the three securities laws in India, which are (i) the SEBI Act, 1992, (ii) the Securities Contracts (Regulation) Act, 1956 and (iii) the Depositories Act, 1996. The key changes are as follows:

I.         Collective Investment Schemes

The scope of the CIS has been clarified in order to avert any uncertainty pertaining to SEBI’s domain over new methods of raising funds from the investors.

Under section 11AA of the SEBI Act, which details the parameters of a CIS, it is now stated that “pooling of funds under any scheme or arrangement” involving a corpus of Rs. 100 crores or more shall be deemed to be a CIS whether or not it is registered with SEBI. Hence, registration with SEBI is not a precondition and pre-requisite for such scheme to fall within the regulatory purview of SEBI.

II.         Enforcement Methods and Remedies

There have been many instances where although the SEBI has been successful in getting favourable conviction against the defaulters, quite often the enforcement has been very liberal and not desirable at all. The recent Sahara case aptly portrays the enforcement difficulties faced by the SEBI even when the former has been successfully convicted.  There have been considerable hindrances and log jams in enforcing the Court’s order against the persons guilty of non-compliance. These are sought to be rectified by the Ordinance by granting specific powers to SEBI to attach the violators’ property, bank accounts, and also the arrest and detention of the violator.

III.         Special Courts

One of the chief and pertinent sections of the Ordinance is that it seeks to establish a special court in order to ensure that cases involving securities regulation which go to the court are handled in a timely manner. However, the fact remains that visibly there has been no track record of criminal prosecution of securities offenders that may act as a deterrent. But again, as we have seen the constitutional challenge to the NCLT (National Company Law Tribunal) formed under the aegis of Companies Act, it remains to be seen whether such impediments would be faced by the securities law special court in its establishment and functioning.

IV.         Investigative Powers

Additional powers have been conferred upon the SEBI under Section 11C of the SEBI Act which deals with investigation of the fraudulent practices. The additional powers of search and seizure, recording of statements under oath would further strengthen the currently available powers of SEBI.

Furthermore, this ordinance has tried to resolve a bone of contention in various insider trading cases by conferring upon SEBI the right to call for information and record relevant information, including telephone data records. Thus this negates the requirement of direct evidence which is rarely available. Also, international developments like the conviction of Rajat Gupta and Rajaratnam in insider trading cases also demanded that SEBI ought to granted more power. The conviction of these persons in U.S. was obtained on the basis of call records.

Also, the power of SEBI is extended to obtaining information from international sources through regulators in other countries with whom it has entered into an arrangement for sharing of information.

Lastly, the Securities Amendment Ordinance has endeavoured to bring in worthy steps forward in fostering greater stringent regulations in securities, predominantly in the area of effective enforcement.

Reference to Arbitration under Section 8, Arbitration and Conciliation Act, 1996

With a view to avoid traditional court system, arbitration has, over a period of time, been able to secure a unique position. Despite all of its flaws, arbitration has now become a popular means of alternative dispute resolution. To make sure that no party, having agreed to arbitrate, institutes a suit before a civil court, Section 8 was inserted in Arbitration and Conciliation Act, 1996 (“Act”).

Assume a situation where a matter or issue, falling within the scope of arbitration agreement, is adjudicated by the court. This would certainly defeat the very purpose of arbitration. As far the Part I of the Act is concerned, this situation has been taken care of under Section 8.

Substantive requirement of Section 8 of the Arbitration Act, provided in sub-section (1), can be read as:

                                  “A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.”

From a bare reading of the section, it becomes clear that judicial intervention is sought to be minimised. Let us now proceed and analyse the section. Since the Act is based on 1985 UNCITRAL Model law on International Commercial Arbitration (“Model Law”),[1] it is vital to first compare Section 8 in its light.

Section 8 of Arbitration Act and Article 8 of UNCITRAL Model Law

Section 8 of the Act has not exactly followed the language of Article 8 of Model Law. Firstly, Model Law uses the term “court”, while Section 8 of the Act uses the term “judicial authority”. Now, there can be situations when an authority, which is not a court, can nonetheless act judicially [Example: Tribunals]. Secondly, last line of Article 8 of the Model Law is not present in the Section 8 of the Act:

                            

      “................unless it finds that the agreement is null and void, inoperative or incapable of being performed”

Contrary to this, Section 8 of the Act nowhere mentions this requirement. One probable reason can be the encouragement that was sought to given to arbitration, with minimum judicial interference. In Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd,[2] Supreme Court held that (3-judge bench decision):

                                  “Unlike Section 45, the judicial authority under Section 8 has not been conferred the power to refuse reference to arbitration on the ground of invalidity of the agreement. It is evident that the object is to avoid delay and accelerate reference to arbitration leaving the parties to raise objections, if any, to the validity of the arbitration agreement before the arbitral forum and/or post-award under Section 34 of the Act.” (emphasis supplied)

Since the question of minimum judicial interference has arisen, it would be interesting to refer Section 5 of the Act which puts a limit on the judicial intervention. Though the objective of minimum judicial interference finds support in Section 5 of the Act, it has been held that the same should not be used for interpreting Section 8 of the Act.[3]

As to what is “judicial authority”, we have already analysed it in another post. However, to provide a brief overview, the term “judicial authority” has been retained especially in view of policy of least intervention, which cannot be limited only to the courts.[4]

Use of the term “judicial authority”, in Section 5 and Section 8 of the Arbitration Act, 1996, is also not a recognition by Parliament that Part I will apply to the international commercial arbitrations held outside India.[5]This point is important given the criticism of Bhatia International v. Bulk Trading S.A. judgment, which made Part I applicable to arbitrations held outside India.[6]

To know more about the term “judicial authority”, see this post -  "Judicial Authority" under Section 8 of the Arbitration and Conciliation Act, 1996

Conditions to be satisfied for the application of Section 8

For the application of Section 8 of the Act, there are certain conditions which need to be satisfied. The conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 before the court can exercise its powers are:[7]

            (1) There must be an arbitration agreement;

(2) A party to the agreement brings an action in the court against the other party;

(3) Subject-matter of the action is the same as the subject-matter of the arbitration agreement;

(4) The other party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute.

(5) Along with the application the other party tenders the original arbitration agreement or duly certified copy thereof.

(6) Whether the reliefs sought in the suit are those that can be adjudicated and granted in arbitration.[8]

(7) Whether all the parties to the suit are parties to the arbitration agreement.[9]

As far as the requirement under sub-section (2) is concerned, even a duly certified copy is acceptable.[10]Further, the photocopies of the lease agreements could be taken on record under Section 8 of the Arbitration Act for ascertaining the existence of arbitration clause.[11]

Mandatory nature of Section 8

On comprehending the language of Section 8 of the Act, it would become clear that a judicial authority is obliged to refer the parties to arbitration. The provision is not discretionary in nature but mandatory. A civil court has no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration.[12] That is, if an application, having satisfied the requirement of Section 8, is made, the court has to refer the parties to arbitration.[13]Its application cannot be denied merely on a plea of estoppel.[14]

"First Statement on the Substance of the Dispute"

Under Section 8 of the Act, a party, seeking for arbitration, should so apply ‘not later than when submitting his first statement on the substance of the dispute’. In Rashtriya Ispat Nigam Ltd. v. Verma Transport Co.,[15] Supreme Court held that the expression “first statement on the substance of the dispute” contained in Section 8(1) of the Act is different from the expression “written statement”.[16]It was held that:

                                  “The expression “first statement on the substance of the dispute” contained in Section 8(1) of the 1996 Act must be contradistinguished with the expression “written statement”. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived its right or acquiesced itself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the 1996 Act, may not be held wholly unmaintainable. We would deal with this question in some detail, a little later.”[17]

Hence, reply to an interim injunction application would not deprive a person from making an application under Section 8 of the Act. It is also evident from sub-section (3) of Section 8 that the pendency of an application under Section 8 before any court will not come in the way of an arbitration being commenced or continued and an arbitral award being made.[18] Further, the judicial authority `referring the parties to arbitration' under section 8 of the Act, has no power to appoint an arbitrator.[19]

Inclusion of “Third Party” in Arbitral Reference

Arbitration agreement is based on the principle of party autonomy. Hence, under Section 8, it would be very difficult to force a non-signatory to arbitration agreement to arbitrate. In Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya,[20] Supreme Court was of the view that:

                                  “.....there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators”.

Further, in this case, court held that if a matter lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement; there is no question of application of Section 8.[21]The issue of inclusion of non-signatory was once again brought before the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.[22]Though, in this case, court was dealing with Section 45 of the Act, correctness of the law in Sunkandya Holdings (supra) was questioned. Court, however, declined to examine the correctness of Sukanya Holdings (supra) thereby stating that:

                                  “...in that case the Court was concerned with the disputes of a partnership concern. A suit had been filed for dissolution of partnership firm and accounts also challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit. The Court noticing the facts of the case emphasised that where the subject-matter of the suit includes the subject-matter for arbitration agreement as well as other disputes, the Court did not refer the matter to arbitration in terms of Section 8 of the Act. In the case in hand, there is a mother agreement and there are other ancillary agreements to the mother agreement. It is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act. Thus, the dictum stated in para 13 of the judgment of Sukanya [(2003) 5 SCC 531] would not apply to the present case.” (emphasis supplied)

Unlike Chloro Controls (supra), the issue in Sukanya Holdings (supra) was not related to a composite transaction but to a partnership firm. It would be interesting to see the viewpoint of the court if an issue, related to composite transaction, comes before it under Section 8.

Above analysis contains a brief overview of Section 8 of the Arbitration and Conciliation Act, 1996

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[1] UNCITRAL Model Law on International Commercial Arbitration, 1985

[2] Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, 248; See also India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd., (2007) 5 SCC 510, 516

[3] Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531, 535

[4] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552

[5] Id, at 622

[6] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105

[7] P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539, 542; Magma Leasing & Finance Ltd. v. Potluri Madhavilata, (2009) 10 SCC 103, 114

[8] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, 542

[9] Id

[10] Atul Singh v. Sunil Kumar Singh, (2008) 2 SCC 602, 609

[11] Bharat Sewa Sansthan v. U.P. Electronics Corpn. Ltd., (2007) 7 SCC 737, 747

[12] Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503, 515

[13] Kalpana Kothari v. Sudha Yadav, (2002) 1 SCC 203, 208; Magma Leasing & Finance Ltd. v. Potluri Madhavilata, (2009) 10 SCC 103, 114; P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539, 542; Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens, (2007) 3 SCC 686, 691; Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275, 284; SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, 648

[14] Id

[15] (2006) 7 SCC 275

[16] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, 544

[17] Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275, 289

[18] Vijay Kumar Sharma v. Raghunandan Sharma, (2010) 2 SCC 486, 489

[19] State Of Goa vs M/S Praveen Enterprises on 4 July, 2011

[20] Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531, 535

[21] Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531, 536

[22] Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641

Understanding D.U. Copyright Conundrum: What the Court Should Do

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha]

The on-going litigation between a group of leading publishers and a small photocopying shop attached to Delhi University has all the elements of a legendary 'fair dealing' debate in copyrighted works. This case holds paramount significance in mapping the future of use of copyrighted books and materials for affordable dissemination of knowledge in schools and colleges.

BRIEF FACTS OF THE CASE

A small photocopying shop, Rameshwari photocopy services, attached to Delhi University is entrusted by the university with complying extracts from various copyrighted books and materials. Now, the Oxford and the Cambridge publishing houses have alleged that by photocopying the copyrighted books and materials, the photocopying shop and the Delhi University have violated their copyright. Allegedly, the publishing houses have sued for copyright infringement. 

THE TWO LEGAL QUESTIONS INVOLVED

Generally, matters involving copying materials from copyrighted sources involve two fold tests in order to ascertain whether the copied material is permitted or not.

1.      Is the dealing ‘fair’?

2.      Is the copying done for a permissible purpose?

Copyright law in India and all across the world recognize that sometimes using/reproducing/distributing parts of a copyrightable work, without making payments to the copyright holder, are necessary and permissible. This is the essence of 'fair dealing'.

1.      ‘Fair Dealing’ enshrined in Section 52 of the Indian Copyright Act, 1957

The fair use doctrine is recognized as a valid defense to copyright infringement in most countries including India, where Section 52 of the Copyright Act permits one to “fairly deal” with any copyrighted work for “private or personal use including research”. Section 52 (1) (i) of the Copyright Act, 1957 as amended in 2012 reads as follows-

52. Certain acts not to be infringement of copyright. – (1) the following acts shall not constitute an infringement of copyright, namely:

(i) The reproduction of any work-

i.                    By a teacher or pupil in the course of instruction; or

ii.                  As part of the questions to be answered in an examination

iii.                In answers to such questions;

Now, from the bare reading of the aforesaid provision, it is clear that as far as the reproduction for the purposes defined in point (i) to (iii) above is concerned, the same is  exempted from the purview of infringement. Thus, Section 52 (1) (i) of the Copyright Act would clearly reveal that any such reproduction whatsoever is justifiable as non-infringing work.

2.      Copying done for the permissible purpose

Firstly, it needs to be ascertained as to how much the Delhi University/ photocopying shop has copied. Secondly it also needs to be seen whether the extracts copied is permissible under the Indian copyright law or not?

A very comprehensive and exhaustive analysis done by SPICYIP blog[1] points out that the extracts which have been copied by the Delhi University/photocopying shop comes out to meager 10 % of the entire book/ material. The fact that it is well within the ‘global standard’ of 10% cements up the DU stand.

It is now apt to say that the court ought to declare that extracts copied from copyrighted books/materials constitute as non-infringing given that S.52(1)(h)(i) of the Indian Copyright Act does not lay down any quantitative limit on permissible reproduction. In my opinion, the court should allow for the permissible copying of the copyrighted material up to 20% keeping in mind the socio-economic conditions of India.

LESSONS FROM CANADIAN COPYRIGHT CASE

At this point, it is very imperative to analysis the recent Canadian Supreme Court decision on the issue of ‘fair dealing’ and ‘permissible purpose’ pertaining to copying extracts from the copyrighted books and materials.

Analysis of Alberta (Education) v. Canadian Copyright Licensing Agency (Access Copyright), 2012 SCC 37] Case-

In this particular, the Canadian Supreme Court has ruled that copying extracts from the copyrighted books/materials do not constitute infringement as it is protected under the aegis of ‘fair dealing’ and ‘permissible purpose’ if the extracts from a part of teaching materials. Now, the relevance of this case in Indian context is discussed.

The Indian Copyright Act provides as follows:

(1) The following acts shall not constitute an infringement of copyright, namely: 

      (a) A fair dealing with any work, not being a computer programme, for the purposes of- 

 (i) Private and personal use, including research; 

 (ii) Criticism or review, whether of that work or of any other work;

Similar exceptions are also found in the section 29 of the Canadian Copyright statute. Thus, in this particular Canadian case, the Supreme Court of Canada ruled that copying extracts for teaching purposes does not constitute infringement.

Now, we may refer to Sec. 52 (1) (a) of the Indian Copyright Act which provides for ‘fair dealing’ together with the recent Canadian decision to aptly examine the scope in the Indian copyright act.

Sec. 52(1) (a) (i) particularly refers to ‘private use’ whereas the Canadian statute uses the term ‘private study’. The Canadian decision held that the interpretation of the word ‘private study’ should not mean that users should view the copyrighted works in utmost isolation. Thus the Canadian case basically says that whether the study is done alone or in group, copying extracts for teaching purposes would clearly fall within the ‘permissible limits’ and hence non-infringing per se. Therefore, similar line of argument could also be taken by the DU/photocopying shop to defend their stance.

Unfortunately, in the backdrop of the pertinent arguments advanced, the Delhi High Court has granted an interlocutory order restraining the photocopying shop and the university from further copying and circulating the course packages or the extracts compiled from the books. Thus, it is highly desirable upon the Hon’ble Court that it should allow the photocopying of extracts from the books/materials and vividly lay down a sound foundation for a ‘fair dealing’ and ‘permissible purpose’ in copyrighted books/materials.

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[1] http://spicyipindia.blogspot.in/2012/09/delhi-university-must-defend.html; last visited on 19/07/2013 at 11:50 pm