Companies Act_Practical Problems_35

Company Y with a paid-up capital of Rs.50 lakhs entered into a contract with company Z in which a director of Y is holding equity shares of the nominal value of Rs.50,000. The director did not disclose his interest at the Board meeting under section 299 of the Companies Act, 1956. Is the director liable for his act?

As per Section 299, the disclosure of interest by directors do not apply to any contract or arrangement within two companies where any of the directors of one company or two or more of them together holds or hold not more than 2% of the paid up share capital in the other company. In the present case, if the holding is less than 2%, the director is not liable.

Companies Act_Practical Problems_34

Mr. Agent having ‘substantial interest’ in ABC Ltd is appointed as a Sole selling agent by the Board of Directors for a period of 5 years. The company’s paid-up share capital is Rs.49 crores. The Board did not place the matter in the AGM and communicated to Mr. Agent about his appointment, who in turn accepted the offer.
Examining the provisions of the Companies Act, 1956,
(a) Whether the appointment is in order?
(b) What course of action you would take as the Secretary of the company, in case Mr. Agent does not have substantial interest?

(i) the appointment of J is not in order, as there have been a number of violation on the part of the company as per the Companies Act, 1956. Appointment without the approval of the general meeting and without the approval of the Central Government is not valid since the company’s paid-up share capital is more than Rs.50 lakhs in this case. Moreover, since J has substantial interest in the company, approval of Central Government in Form 1 is must. Thus, the appointment of J is not in order.

(ii) the answer would not be different, as the capital (paid-up share capital) is more than 50 lakhs Rupees. In this case though the appointee (J) does not have substantial interest, but the company’s paid up share capital is more than 50 lakhs, consent of the company in general meeting (special resolution) and the approval of the Central Government is required.

Comapnies Act_Practical Problems_33

The Board meeting of Governance Ltd. has the following schedules:
1st Meeting - 1st January, 2005
2nd Meeting - 30th June, 2005
3rd Meeting - 1st July, 2005.
4th Meeting - 31st December, 2005.
State whether the Board Meetings are as per order/compliance of the provisions of the Companies Act, 1956. What would be your views if the meeting to be held on 30th June, 2005 is adjourned due to lack of quorum?

As per Section 285, in the case of every company, a meeting of the Board of Directors shall be held at least once in every three months and at least four such meetings shall be held in every year. The section does not state the gap between two board meetings. In the present case four meetings have been scheduled for the year 2005 even though the gap between two board meetings is more than 3 months. However, as per the section there appear to be no contravention.

If the Board meeting to be held on 30th June, is adjourned due to lack of quorum, again a meeting is held on some other date, the company shall not be deemed to have contravened the provisions of Section 285. If the said meeting is held on 30th June, 2005 and was adjourned for want of quorum, the meeting automatically stand adjourned by virtue of Section 288 (1) till the same day in the next week, at the same time and place. And if the same day is a public holiday, then the meeting stands adjourned till the next succeeding day which is not a public holiday.

Comapanies Act_Practical Problems_32

The financial year of a holding company ends on 31st March, while that of its subsidiary ends on 30th June. The subsidiary company wants to extend the financial year from 30th June to 31st March, so that the financial year of both the companies would coincide. Is it possible?

In this case, the financial year of the subsidiary precedes that of the holding company by 9 months. In case the subsidiary wants to extend the financial year from 30th June of one year to 31st March of the following year, the financial years of both the holding and subsidiary companies would coincide. But the extension sought for is for 9 months, i.e., from 30th June of one year to 31st March of the following year. Such an extension cannot be granted even by the Registrar under the proviso to sub-section (4) of section 210. It appears that the Central Government can, under this section, direct that the provisions of sub-section (4) of section 210 shall not apply in this case. Similarly, in order to ensure that the financial year of the subsidiary does not precede that of the holding company by more than six months, similar direction can be issued by the Central Government under sub-section (2) of this section, extending the financial year of the holding company from 31st march, 31st December. Here again, the extension will be for a period of nine months. The financial years of the holding and the subsidiary company
will not coincide. But, by virtue of direction under sub-section (2) the requirement of clause (c) of sub-section (2) of section 212 will be fulfilled.

Does IPO grading consider the price at which the shares are offered in the issue?

No. IPO grading is done without taking into account the price at which the security is offered in the IPO. Since IPO grading does not consider the issue price, the investor needs to make an independent judgment regarding the price at which to bid for/subscribe to the shares offered through the IPO.

Can the issuer company reject an IPO grade?

IPO grade/s cannot be rejected. Irrespective of whether the issuer finds the grade given by the rating agency acceptable or not, the grade has to be disclosed as required under the DIP Guidelines. However the issuer has the option of opting for another grading by a different agency. In such an event all grades obtained for the IPO will have to be disclosed in the offer documents, advertisements etc.

When am I required to obtain the grade for the IPO?

IPO grading can be done either before filing the draft offer documents with SEBI or thereafter. However, the Prospectus/Red Herring Prospectus, as the case may be, must contain the grade/s given to the IPO by all CRAs approached by the company for grading such IPO.Further information regarding the grading process may be obtained from the Credit Rating Agencies.

What is ‘IPO Grading’?

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below.
IPO grade 1: Poor fundamentals
IPO grade 2: Below-average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above-average fundamentals
IPO grade 5: Strong fundamentals
IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO.

Patent Act_43

Does India have provision for grant of EMR?

Yes. The necessary amendment to: the Patents Act, 1970 came into force on 26 March 1999. The provision is applicable with retrospective effect from 1 January 1995.

Patent Act_42

What is an EMR?

TRIPS requires that member countries of the WTO not having provision in their laws for granting product patents in respect of drugs and agrochemical, must introduce Exclusive Marketing Rights (EMR) for such products, if the following criteria are satisfied:

1. A patent application covering the new drug or agrochemical should have been filed in any of the WTO member countries after 1 January, 1995;

2. A patent on the product should have been obtained in any of the member countries (which provides for product patents in drugs and agrochemical) after 1 January 1995;

3. Marketing approvals for the product should have been obtained in any of the member countries;
4. A patent application covering the product should have been filed after 1 2. January 1995 in the country where the EMR is sought;

5. The applicant should apply seeking an EMR by making use of the prescribed form and paying requisite fee. EMR is only a right for exclusive marketing of the product and is quite different from a patent right. It is valid up to a maximum period of 5 years or until the time the product patent laws come into effect.

Patent Act_41

What is 'mail box' provision?

TRIPS requires that countries, not providing product patents in respect of pharmaceuticals and chemical inventions have to put in a mechanism for accepting product patent applications w.e.f. 1 January 1995. Such applications will only be examined for grant of patents, after suitable amendments in the national patent law have been made. This mechanism of accepting product patent applications is called the "mail box" mechanism.

Patent Act_40

What is 'mail box' provision?

TRIPS requires that countries, not providing product patents in respect of pharmaceuticals and chemical inventions have to put in a mechanism for accepting product patent applications w.e.f. 1 January 1995. Such applications will only be examined for grant of patents, after suitable amendments in the national patent law have been made. This mechanism of accepting product patent applications is called the "mail box" mechanism.

Patent Act_39

Does India have any law for protecting new plant varieties?

Yes, India has enacted the New Plant Variety and Farmers Rights. Protection Act in 2001 which, in addition to meeting the technical features of UPOV, provides rights to farmers to use the seeds from their own crops for planting the next crop. Further, there are provisions for benefit sharing with farmers and penalty for marketing spurious propagation material.

Patent Act_38

What is the criteria for deciding protection of a plant varieties ?

There are 5 main criteria to arrive at a decision whether a plant variety is really new or not. These have remained unchanged between 1978 and 1991 Acts of the Convention. These criteria are:

1. Distinctness : The variety shall be deemed to be distinct if it is clearly Discountable from any other variety whose existence is a matter of common knowledge at the time of filing of the application .The object of this criterion is to ensure that the candidate variety can be identified amongst all other varieties whose existence is known, whether or not they are protected. An application for protection or for the entry of a variety in an official register in any country causes the variety to be recorded as a matter of common knowledge. In other words, the application for the protection should be filed with UPOV before disclosing it to any other agency.

2. Uniformity: The variety shall be deemed to be uniform if, subject to the variation that may be accepted from the particular features of its propagation, it is sufficiently uniform in its relevant characteristics.The objective of this criterion is to ensure that the individuals representing the variety which is a candidate of protection, form a group which is identifiable on the basis of the description of its characteristics. In other words, the variation between individuals within a variety must be less than that within a species. In the absence of this condition it would become impossible to identify distinct varieties within species.
The degree of uniformity is determined taking into account the mode of reproduction of the species and all the genetic structure of varieties. The same levels of uniformity cannot be required for a strictly self pollinating species or for a species which is vegetatively propagated. An acceptable level of uniformity would ensure that it can be used for agricultural production. In this regard the difference between the protection, given by UPOV and patent system can be noted.

3. Stability: The variety shall be deemed to be stable if its relevant characteristics remain unchanged after repeated propagation or, in the case of a particular cycle of propagation at the end of each such cycle. The idea is to ensure that the variety will be identical to the description established at the moment of granting protection after repeated propagation.
Stability, as well as uniformity may be lost if the rights holder fails to maintain the variety true to the description established when the rights were granted.

4. Novelty: The variety shall be deemed to be new if, at the date of filing of the application for breeders right, propagating or harvesting material of the variety has not been sold or otherwise disposed of to others, by or with the consent of the breeder for the purpose of exploitation of the variety. It is also understood that a variety to which people have had free access in the past cannot be protected because then the interest of those who have relied on the free access, will suffer.
As it is some time necessary to see the response of the market to new varieties before deciding whether or not to apply for protection, grace period has been included. The period is one year prior to the date of application in the country where the application is filed and in countries other than that in which the application has been filed and six years in case of trees and vines and four years for all other species.

5. Appropriate denomination: The variety shall be designated by a denomination which will be its generic designation. The premise that the variety denomination must be its generic designation class for a requirement that 'denomination must enable the variety to be identified'. Users and consumers need to have some method of knowing that a sample is a sample of a particular identified plant variety; because it is often not possible to identify it from its appearance. This is facilitated by requiring that a specific denomination and only that denomination be used to identify a variety in trade.

Patent Act_37

What is UPOV?

UPOV is an abbreviation of Union Pour la Protection des Obtentionsw Vegetable (Union for protection for new varieties of plant). It is an international convention which provides a common basis for the examination of plant varieties in different member States of UPOV for determining whether a plant variety merits protection under UPOV or not

Patent Act_36

Is there any system for protecting new plant variety?

New plant varieties cannot be protected in India at present. However, in many countries such plants can be protected through Breeders Rights, patent and UPOV Convention India is under an obligation to introduce a system for protecting new plant variety. The protection can be through patent or a sui generis system or a combination of these two systems.

Patent Act_35

What is the cost of filing a PCT application?

The schedule of fees is as given below
1. (a) Basic fee up to 30 sheets of a patent application (Approx. Rs. 19,500) : 650 Swiss francs (b) Basic fee for a patent application having more than 30 sheets : 650 Swiss francs plus; sheet in excess of 30 sheets : 15 Swiss francs for each

2. (a) Designation fee if designation is less than 11 designation: 150 Swiss francs per (b) Designation fee if designation is more than 11: 1650 Swiss francs

3. Handling fee: 233 Swiss francs

4. Search fees are additionally payable

5 All fees payable are reduced by 75% for applications filed by any applicant who resides in a PCT Contracting State where the per capita national income is below 3000 US dollars. If there are several applicants, each must satisfy the criterion. It may be noted that no concessions are available in the national phase or regional phase applications; respective fees in these phases will have to be paid by the applicant.

Patent Act_34

Which is the appropriate office in India in relation to international applications?

An international application can be filed in any of the Branch Offices of the Patent Office located at New Delhi, Chennai, Mumbai and Kolkata (Head Office). Any of these Offices shall function as receiving office, designated office and elected office for the purpose of international applications filed under the Treaty.
An international application shall be filed in the Patent Office which would process the application in accordance with these rules and the provision under the PCT.

Patent Act_33

What is the benefit of the delayed processing?

(a) By the end of the 20th or the 30th month the applicant is in a better position to assess the quality of the invention being protected as a detailed search report or an examination report or both would be available to help making an assessment.
(b) Applicants can re-evaluate their decision about filing applications in all the designated countries after a long gap of 20 or 30 months.
(c ) If not satisfied, applicants may decide to drop a few countries from the list. This decision would also be influenced by the changing market conditions.
(d ) Applicants can delay their investment in respect of the national phase or the regional phase applications by 20 or 30 months without sacrificing priority.

Patent Act_32

What is the meaning of delayed processing of the application by the national phase or the regional phase?

A search report on the patent application filed with a receiving office is received by the applicant/inventor 16 months after the priority date which is nothing but the date of submitting the application in the receiving office. The International Bureau of the WIPO publishes the application and the search report 18 months after the priority date. The original application is then sent to the designated offices indicated in the application. Within two months of this i.e. by the 20th month, the applicant will have to formally apply to the patent offices of these countries for grant of patents by paying official fees and completing other formalities stipulated by these offices . In case translated copies of the application are required, the same has to be furnished by the applicant. Inspite of submitting the request for grant of patents in designated countries in the 20th month after the priority date, the priority in these countries is the same as the date of filing the original PCT application.

If applicant/inventor has requested for an examination report, the report is usually received by the applicant /inventor about 28 months after the priority date. Within two months of this, the applicant/inventor will have to formally apply for grant of patents in designated countries .The priority of the application is maintained in the designated countries.
36. What is the benefit of the delayed processing?

Patent Act_31

How are patent applications under PCT handled?

The patent office or nay other office designated by each contracting state becomes a receiving office for receiving patent applications These applications are referred to International Searching Authorities (ISA) which usually the patent offices, appointed to carry out the patent search on a global basis. In case the receiving office is also an ISA, a separate referral is not required . There is also a provision to get a patent application examined by international preliminary Examining Authorities which, in most cases are ISA.

Patent Act_30

What is the need for PCT ?

In order to protect your invention in other countries, you are required to file an independent patent application in each country of interest; in some cases , within a stipulated time to obtain priority in these countries .This would entail a large investment, within a short time, to meet costs towards filing fees, translation, attorney charges etc. In addition you are making an assumption which, due to the short time available for making the decision on whether to file a patent application in a country or not , may not be well founded .

Inventors of contracting states of PCT on the other hand can simultaneously obtain priority for their inventions without having to file separate application in the countries of interest ; thus saving the initial investments towards filing fees, translation etc.

In addition the system provides much longer time for filing patent application in member countries.The time available under paris convention for securing priority in other countries is 12 months from the date of initial filing.Under the PCT system to be sure that the claimed invention is novel. the inventor could also opt for preliminary examination before filing in other countries to be doubly sure about the patentability of the invention .

Patent Act_29

What is patent cooperation treaty (PCT)?

The patent cooperation treaty (PCT) is a multilateral treaty entered into force in 1978. Through PCT, an inventor of a member country (Contracting state of PCT can simultaneously obtain priority for his/her Invention in all/ any of the member countries, without having to file a separate application in the countries of interest , by designating them in the PCT application .India joined the PCT on December 7, 1998.

Practical Problems_Contract Act_83

Because of disagreements, quarrels and disputes between an old father and his modern young son, father by written agreement duly attested by Notary promises to pay Rs. 15000/- p.m. to his son for living separately. Decide about its validity.

Practical Problems_Contract Act_82

Can a proposer whose bid at an auction had been provisionally accepted subject to approval by competent authority revoke his bid prior to approval of competent authority?

Practical Problems_Contract Act_81

A, while still a minor by fraudulently misrepresenting his age, agreed to sell his property to B. Having received full consideration amount, A refused to perform his part of the bargain on the plea of minority. Can B recover the amount from A?

Patent Act_28

What is the system for protecting microbiological inventions and microorganisms?

The Indian Patent Act has no specific provision for patenting of microorganisms and microbiological processes. However, as a matter of practice microorganisms per se are not patentable in India. (However, a recent decision of the Kolkata High Court has held that microbiological processes are patentable in India). In order to meet the obligation under TRIPS. India is required to introduce a patenting of microorganisms. Draft laws in this regards have been formulated. It may, however, be noted that many countries allow both process and product patents in regard to microbiological inventions and microorganism per se. all such countries allow patenting of genetically modified microorganisms but a few also allow patenting of naturally occurring microorganisms if isolated from nature for the first time and if other conditions of patentability are satisfied.

Patent Act_27

Are there any differences in the filing of patent applications in respect of microbiological inventions and other inventions?

An inventor is required to deposit the strain of a microorganism in a recognized depository which assigns a registration number to the deposited microorganism. This number needs to be quoted in the patent application. Obviously a strain of microorganism is required to be deposited before filing a patent application. It may be observed that this mechanism obviates the need of describing a microorganism in the patent application. Further, samples of strains can be obtained from the depository for further working on the patent. There are many international depositories in many countries, which are recognized under the Budapest Treaty.

Patent Act_26

What is the Budapest Treaty?

This is an international convention governing the recognition of deposits in officially approved culture collections for the purpose of patent applications in any country that is a party to it. Because of the difficulties and on occasion of virtual impossibility of reproducing a microorganism from a description of it in a patent specification, it is essential to deposit a strain in a culture collection centre for testing and examination by others. The Treaty was signed in Budapest in 1973 and later on amended in 1980. India has become a member of this Treaty, with effect from December 17, 2001.