India Business Law Journal – May 2020

Existential wobbles

Recovering confidence is key

Economies and people across the globe continue in some chaos thanks to a virus that has been replicating itself within humans for at least the past six months. This is not the first time humankind has faced a threat from what is essentially a tiny wisp of genetic code, and it won’t be the last.

The confidence exhibited in recent years in our ability to control our destinies and day-to-day lives has taken a beating. Add to this the fact that heightened risks we see at every turn are playing on our psyche and colouring our responses. Are leaders within companies and governments aware of the extent of this existential wobble? Are they alert to the need for a change in status quo? Can they be entrusted with the enormous task at hand? The patchy and often less-than-adequate responses to the ongoing challenge may suggest the full picture is yet to register and this is far from ideal.

Meanwhile, as restrictions on movement begin to relax in many places, a so-called “new normal” is taking root. As such, even as companies across India face a host of legal challenges, some have been able to reel in big-name international investors to participate in their deals. Even so, there is little certainty about the contours of this new normal.

This month’s Cover story provides excerpts from a discussion where a stellar panel of in-house counsel discuss how companies can navigate the post-lockdown challenges. Observing that while every company would have a crisis management plan, “they certainly did not have anything that could encapsulate a situation of this enormity”, notes Manjaree Chowdhary, executive director and general counsel at Maruti Suzuki India. She cautions that it is vital for companies to do over and above what is required of them when considering the current situation from a people’s perspective. “Any and every precaution that you take, and you are required to take by law and by the directions of the government, etc., you can only top that up,” says Chowdhary.

As for the impact of suspending sections of the Insolvency and Bankruptcy Code that deal with filing insolvency applications, Srivals Kumar, general counsel and senior vice president of legal at real estate developer Raheja Universal, says: “There are very good chances that a certain proportion of promoters may misuse this provision.” Kumar suggests that while the insolvency regime is kept on hold for now, steps must be taken to ensure that the long-term prospects of companies are not jeopardized.

Meanwhile, pointing out the pandemic has brought some pleasant changes within the legal profession, Rajendra Misra, general counsel of the Indian Hotels Company, says: “In our wildest of dreams, we couldn’t have imagined lawyers and courts working from home … The way technology has been adopted has been fantastic.”

In Are you being watched?, we turn the spotlight on issues to do with striking the right balance between a pandemic response and privacy concerns in the context of the government adopting trace-and-track apps. The article lays out the risks and challenges for individuals and businesses.

Writing in Vantage point Mansha Shukla, director, legal affairs for South Asia at Discovery, strikes a hopeful note with the observation that adversity fuels innovation: “People, on the other side of this pandemic, are unlikely to return to their pre-lockdown habits entirely. We will see the rapid rise of specific sectors, including new-age businesses such as technology-led healthcare (telemedicine), digital streaming platforms, insurance, medical devices and artificial intelligence-led companies.”

This month’s What’s the deal? provides advice on how to manage outsourcing contracts. Even as outsourcing companies are facing severe operational challenges, it should be noted that no straightjacket formula can be applied while invoking and applying the force majeure clause. In addition, parties need to make a holistic assessment of the risks, legal rights, remedies and duties enumerated in other clauses of outsourcing agreements such as those pertaining to changes in service levels, business continuity and disaster management plans.

This month’s Intelligence report looks at the financial services sector, which lacks a regime for the resolution of insolvencies. In the recent past, large banking and financial companies such as Yes Bank, IL&FS, DHFL and others have experienced serious trouble, and in so doing have damaged public trust in the financial system. Add to this a persistent and substantial bad-debt balloon in the banking system for various reasons, including alleged window dressing, evergreening of non-performing assets and fraud, and a systemic malaise is revealed.

This could be the perfect time to introduce a composite and comprehensive law for the resolution of financial institutions, removing the potential for any possible subjectivity and conflicts of interest, injecting transparency and independence, and removing the possibility for surprises, even welcome ones.

Such actions would create confidence and provide stakeholders with the ability to timely and proportionately engage, address their interests, and remain aware and informed of developments. Enabling such positives is vital as the economy continues to grapple with what has been described as the biggest economic shock since the Great Depression.