Bisleri Drinking Water– Is the water clean? Think Again

It is said ‘Water is Life’; no wonder so much emphasis is put on potable clean water. Many diseases are spread by unclean water and therefore we have a whole water purification industry. Packaged drinking water is generally sold in the market as clean portable drinking water.

Having the above construct in mind, I too purchased a 20 litre water bottle for residential use sold under the brand name of ‘Bisleri’. The bottle was bought from the Bisleri distributor in the area under an invoice no. 899 (picture 1 below). The bottle was delivered by the distributor to my place which was first washed by him with the left over water from the bottle jar (picture 2 below). The 20litre Bisleri bottle was sealed and was opened by me personally.

Bill 899

Picture 1 – Bill No. 899

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Picture 2 – Bottle Jar

After opening the 20 litre Bisleri bottle, it was toppled into the empty jar, when we noticed particles floating in the jar. There were visible sediments in the water, some as large as a few inches. It seemed as the water was not even filtered let alone be clean and potable. It is sad to note that the water being sold as pure for drinking has particles of a few inches in size floating in it (Pictures 3- 8 below). Definitely the water does not have the ‘Sweet taste of purity’ nor can I ‘Play Safe’ with it.

(Plz click the pictures below to enlarge them for a better view)

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Picture 3: Partials marked in red above

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Picture 4: Partials marked in red above

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Picture 5: Partials marked in red above

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Picture 6: Partials marked in red above

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Picture 7: Partials marked in red above

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Picture 8: Partials marked in red above

Product Details:

  • Product: Bisleri 20 litre Packed Drinking Water
  • Batch Code: 249 (SY / SS) (Picture 9)
  • Date of Manufacture: September 6, 2014
  • Time of Manufacture: 14:19
  • Product Issues: Unpure Water / Sediments as large as a few inches in the water
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Picture 9: Batchcode

Update (20-9-2014): I had written to the Company, and got a response that someone will come to collect the sample for Lab testing purpose. No one has come for the past one week.

Update 2 (20-9-2014): A person from Bisleri came and collected the contaminated bottle and delivered a fresh piece. I have written to Bisleri to let me know the reasons for contamination and the rectification measures taken by them so that this is not repeated in the future.

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Studying Law from UK

India is a common law country which is largely based on the English common law and was introduced during the British Raj. The basic statutes governing the civil and criminal justice system of India are:

  • Indian Penal Code – 1860
  • Indian Evidence Act – 1872
  • Code of Criminal Procedure – 1973
  • Code of Civil Procedure – 1908
  • Law of Torts
  • Indian Contract Act – 1872
  • Negotiable Instruments Act – 1881

As we can see above majority of the above laws were introduced during the British Raj and were on the lines of the British laws. The Indian Penal Code is broadly based on the English Common law customized for Indian peculiarities[i]. The Indian Evidence Act is primarily based on the English Evidence Law with a few exceptions[ii]. There is no specific act dealing with the law of torts in India. The law of torts applicable in India is the English law of torts and the rules of the English law can be applied to the Indian context. The Indian Contract Act and the Negotiable Instruments Act are primarily based on the principles of English Common Law[iii].

An LLB degree from UK will primarily have the following subjects[iv]

  • Common Law reasoning and institution
  • Criminal Law
  • Law of Contract
  • Public Law
  • Land law
  • Law of Torts
  • Law of Trusts
  • Jurisprudence
  • Various Optional Subjects

 

The Indian LLB degree course typically contains[v]

  • Law of Torts
  • Law of Contract
  • Criminal Law
  • Constitutional Law
  • Family Law
  • Environmental Law
  • Administrative Law
  • Property / Land Laws
  • Company Law
  • Jurisprudence
  • Various Optional Subjects

As can be seen above, the compulsory subjects of the UK LLB degree are compulsory subjects of the Indian LLB degree and most of these subjects have roots in common law. Hence, there are various overlaps in the LLB degrees of UK and India.

The Bar Council of India recognizes certain law degrees of UK Universities. A student holding such a foreign degree needs to give an examination for getting the bar council of India membership to be eligible for practicing law in India. A student holding an Indian LLB is also required to give a bar examination for being eligible for practising law. The six subjects tested for foreign students are[vi]

  • Constitution
  • Contract Law and Negotiable Instruments
  • Company law
  • Civil Procedure Code and Limitation Act
  • Criminal Procedure Code
  • Indian Legal Profession and Code of Ethics

The benefits that I see by getting a Law degree from the UK is that the holder is eligible to practise in various countries (including India) by completing the requirements of the bar council of that specific country. Further, in this era of globalization and cross border transactions, an understanding about international laws will be an added advantage for any business manager.

The university of my choice would be the University of London which offers degrees on a residential as well as correspondence basis[vii] and is a well reputed university in the UK and the world.

The article is written for Knowledge is Great initiative by Indiblogger and British Council.


[vii] http://www.londoninternational.ac.uk/llb  (The correspondence degree may not be recognised by the Bar Council of India as an eligible foreign degree)

The list and eligibility criterion of  the Bar Council of India for eligible foreign degrees / universities is given here.

Consumer Complaints on Quality

As per section 2(1)(b) of the Consumer Protection Act, 1986 (“Act”) a Complaint means an unfair trade practice, goods bought by a consumer which suffer from a defect, services availed by a consumer suffer from a deficiency, overcharging by the trader or goods which are hazardous and sold in contravention of law.

The essential features of a complaint is that it ought to be filed by a consumer, and there needs to be a dispute with the manufacturer or trader. This dispute may be on any category mentioned above. A special case of disputes is a complaint on quality of products.

The word quality is not defined by the Act. As per Black’s Law Dictionary, Quality means, “In respect to persons, this term denotes comparative rank; state or condition in relation to others; social or civil position or class. In pleading, it means an attribute or characteristic by which one tiling is distinguished from another.”[i] and Satisfactory Quality means “Goods that are sold have a degree of implied quality that it will meet certain requirements or standards in terms of durability, use and appearance.”[ii]

In essence, quality is the state or condition of a product which needs to have a certain minimum requirements either expressed or implied. These minimum standards may be contractual or could be mandated by law.

In India, consumers typically donot sue the manufacturers on quality issues as many times quality standards are not expressly spelt out in the contracts. Also the suits for quality are also coupled with deficiency of service suits as the consumer would have gone to the manufacturer to rectify the defect many times.

Further, the manufacturers typically take the defence of expert opinion. onus of proof and prompt service to counter the claims for quality and deficiency of service.

  • Expert Opinion: In the case of Bajaj Auto Ltd. and others v/s Mr. Lawrence Mario Braganza, the Hon’able State Consumer Disputes Redressal Forum of Goa had concluded that an expert opinion is not required. Mere fact that the consumer had to take the product to the service centre regularly makes one believe that there is some defect in the product. The learned judges commented in the above case that “If a new vehicle requires such constant repairs and replacement there is obviously some problem in the vehicle and it is the duty and responsibility of the opposite parties who earn profits on such sale, to see that the consumer does not face hardships, inconvenience, and expense.” Therefore, it is a misconceived notion that for claiming defective quality an expert opinion is required. If the consumer has taken the product for repair many times and still it does not fuction satisfactorily, then we can safely state that the product may suffer for a quality defect. The onus of getting an expert opinion then is transferred to the defendant (ie. the manufacturer).

In Kirloskar Oil Engines Ltd. v/s Rishabh Fashion India(P) Ltd. by the Hon’able State Consumer Redressal Commission, Delhi, the learned judges stated  “It is not for the consumer to engage an expert or engineer or some other expert to verify whether the goods have manufacturing defect or not. He is a wronged person and to expect him to incur unnecessary expenses in availing the services of an expert is too much.  The onus lies upon the trader or manufacturer to show that their goods did not suffer from manufacturing defect.”

  • Onus of Proof: In the case of MGF Automobiles Ltd. V/s Neelam Trading Co. and others the Hon’able State Consumer Redressal Commission, Delhi stated that “It is a misconceived notion that unless and until the vehicle suffers from inherent manufacturing defect it may not be declared as a defective vehicle.  The onus lies heavily upon the manufacturer to prove that the vehicle does not suffer from any inherent manufacturing defect that may need its replacement or may need for refund of the cost of the vehicle.  Mere allegations as defective of the vehicle are sufficient to shift this onus as to put another burden upon the consumer who has already suffered at the hands of the manufacturer to incur further expenses to engage an automobile expert to get the opinion whether it has inherent manufacturing defect or not, is neither the requirement of the law nor even otherwise prudent to make the consumer suffer further.” The learned judges further stated that “Whenever a consumer decides to purchase a brand new vehicle or goods at considerably high price and does not choose to have a second or third hand vehicle  the minimum expectation  of a consumer is that he would not face inconvenience or physical discomfort or other kind of financial loss etc. for getting the defects removed every second or third day.  Otherwise the very intention of a consumer to go for a very costly brand new vehicle should suffer such a blow that he would undergo immense mental agony, harassment, emotional suffering, physical discomfort and would deem himself as subject of injustice”.

The aforesaid position in law has also been reiterated by the Hon’able State Consumer Redressal Commission of Orissa in Kinetic Engineering and others V/s Kanan Bala Biswal and others. The learned judges commented “we have got reason to believe that in spite of attempts made by opposite party No.1, to remove the defect in the vehicle soon after it was sold to the complainant, its defect could not be removed.  Therefore, in absence of any expert’s opinion from either side, it cannot be ruled out that the said vehicle suffers from inherent manufacturing defect and is of no use.” The said position was reiterated in Sooraj Automobiles Limited V/s Sadananda Sahu and another reported in II (2007) CPJ 130 and Voltas Limited v/s Amritpal Kaur in the Hon’able State Consumer Redressal Commission of Chandigarh.

The aforesaid position in law was again reconfirmed in Hyundai Motors India Ltd v/s Affiliated East West Press (P) Ltd. and others by The Hon’ble State Consumer Redressal Commission, Delhi. The learned judges exclaimed “It is again a misconceived notion that in respect of the vehicle expert opinion should be obtained so as to find out whether it suffers from any manufacturing defects or that the vehicle could be declared as a defective vehicle.  Section 13 of the Act, only confines to defect in the goods which could be determined without proper analysis or test of the goods without obtaining a sample of the goods and sealing it, authenticating it and sending the sample so sealed to the appropriate laboratory for making analysis or test”. The Commission further exclaimed “If a brand new vehicle starts giving problem within a short duration of one month and is taken to the garage time and again at the cost of time and expenses incurred by the consumer, the amount of mental agony, harassment and emotional trauma and physical discomfort the consumer suffers is immeasurable in terms of money, though money is known as the panacea for all maladies.”

Hence, it is an incorrect notion that the onus of proving that there was a quality defect in the product lies with the consumer. If the consumer can satisfactorily show that he took reasonable care in product usage and had to suffer regular breakdowns and multiple visits to the service centres, the onus of proof shifts to the defendant.

  • Deficiency of Service: As mentioned earlier, deficiency of service is a ground that goes hand-in-hand with quality disputes. The reason for this is that the defendant would try to take the defence of prompt service whenever the product was brought in for repair.

In a decision of the Hon’able Orissa State Commission reported in 91 (2001) CLT (O.S.C.) 29 in a case in between Binod Kumar Bhawsinka vrs. Tata E&L Co. Limited and others, it has been held that manufacturer / dealer, if fails to rectify the defect during warranty period, it amounts to deficiency in service.  Almost similar findings is there by the Hon’ble National Commission in a case reported in IV (2007) CPJ 161 (NC) (Hindustan Power Plus Limited vrs. Santosh Drillers and others).  In this case, despite of repair, due to manufacturing defect, machine did not work during warranty period. Further, in a decision of the Hon’able State Commision of Orissa reported in 2003(1) OLR (CSR)-74 (Sanjay Kumar Agarwal vrs. M/s. LML Limited and two others, the dealer and manufacturer are directed to pay back the price of the scooter with interest which scooter suffered from inherent manufacturing defect and could not be rectified by the dealer and the manufacturer.  In a case in between M/s. Bajaj Auto Limited and another vrs. Sri A. Nageswar Rao and another, reported in 2001 (II) O.L.R. (CSR) 13, the Hon’able State Commision of Orissa has observed that there is non-rectification of defect in the scooter by the dealer during warrantee period though the purchaser of the scooter is entitled for the same free of cost. The above position in law was reiterated in Mithila Motors Limited v/s Abdul Razaque and others by the Hon’able State Commision of Orissa.

In the case of Atul Vijay Madan v/s Tata Engineering and Locomotive Co. and others the Hon’able Consumer Disputes Redressal Comission, Maharashtra commented that “We would like to mention here that the Members sitting on Bench are owning cars and it is their personal experience that before giving delivery for any defect rectified, one has to sign Satisfaction Note, then only the car is allowed to be taken out from the Service Centre by any Authorised Dealer.  So, the Sterling Motors or for that matter Tata Motors cannot be allowed to argue that every time defects were rectified and the complainant noted down his Satisfaction Note and put his signature.  This was the simple formality the poor consumer has to follow to take delivery of the car from the Service Centre after some jobs done at the instance of consumer.  So, no value can be attached to the Certificate allegedly signed by the complainant in favour of Sterling Motors to hold that the car was delivered every time free from defects as was tried to be contended before us by the Counsel for the O.Ps.”

The Hon’able National Consumer Disputes Redressal Commission, New Delhi in the case of Bombay Brazzerie vs. Mulchand Agarwal & Anr. (First Appeal No. 613/95). The learned judges commented “Deficiency in service has two aspects- (i) claim for the amount of actual loss and (ii) damages for inconvenience, harassment and mental tension.

In  Ruxley Electronics v. Forsyth [1996] AC 344, HL, Ruxley, the builder had been contracted to build a 7 ft. 6” swimming pool but constructed a 6 ft. deep  swimming pool.  The pool was safe for diving and the shortfall did not decrease its value.   At first instance the trial Judge rejected the  claim  for   GBP 21,000/- for  reinstatement  but awarded  GBP 2500  for loss of  amenity.   For certain reasons  the loss of amenity  award was not in issue in the House of Lords.   However, several of the Law Lords commented on it.    Lloyd of Berwick LJ  said  that “He (the judge) took the view  that  the contract was one ‘for the provision of a pleasurable amenity’.   In the event, Mr. Forsyth’s pleasure was not so great as it would have been if the swimming pool had been 7 feet 6 inches deep.   This was a view which the judge was entitled to take.” However Lord Mustil  indicated a more principled approach to the assessment of damages in such  situation he said,  “The law must cater for those occasions where the value of the promise to the promisee exceeds  the financial enhancement of his position which full  performance will secure.  This excess, often referred to in the literature as the ‘consumer surplus’ is usually incapable of precise valuation in terms of money, exactly because it represents a personal, subjective and non-monetary gain.  Nevertheless where it exists the law should recognise it and compensate the promisee if the misperformance takes it away.”

Therefore, getting the product for repair multiple times by the consumer proves without reasonable doubt that the product suffers from an inherent quality defect and also amounts to deficiency of service by the manufacturer.

Conclusion:

In essence, complaints on quality of a product can stand judicial scrutiny and the suits can be successful. The consumer ought to know his rights and should have cooperated with the manufacturer to take necessary steps in resolving quality issues/defects in the product.


Sony A55: Great semi-pro DSLR (Easy for novices)

The Good :

1) Lightweight . You donot seem tired if you carry it for day trips
2) In body Stabilization : Due to the sensor-shift stabilization any lens you attach to the camera is automatically stabilized. If you can get old Minolta lenses, they will automatically stabilize.
3) AF Points : The camera has a 15 point AF (out of which 3 are cross type). There are hardy any cameras in this price range that have these many autofocus (AF) points.
4) GPS: The camera has an in-built GPS. Quite useful if you use GPS tagging in your photographs. This GPS info is stored as an EXIF.
5) 10 FPS : The camera can shot at 10 FPS. This is quite useful for shooting fast action pictures. Competitive devices offer upto 6 FPS
6) Video Recording : You can record video continuously for atleast more than 10 mins (ie till sensor heat up). Competing devices have limited continuous video recording till 4-5 mins.
7) Autofocus during Video: As it has a translucent mirror, the camera can autofocus during video capture. This is not the case with traditional DSLRs.
8) Tilting LCD. Full 360 degree tilting LCD.

The Bad:

1) Battery : The battery life is quite poor. It only lasts for half a day. I recommend buying an extra battery with the camera.
2) Ergonomics : The grip is not quite good. My hand is unable to fully grip the camera. On long shooting hours the hand begins to paid a bit.
3) LCD Oil Deposits: Sometimes unable to view the LCD properly in sunlight as oil from face / hands easily gets deposited on it.
4) Buttons : Sony has reduced the number of buttons in the newer DSLRs and has buried options in the menu. It was a bit confusing in the beginning but now have got used to it.

Sony has come out with a decent DSLR which employs the translucent mirror; due to which autofocus is improved and the camera can continuously autofocus during video recording.  The salient features of the camera are –

1) Pellicle mirror: The camera has a translucent mirror in front of the sensor. As per Sony’s docs 70% of the light goes to the sensor and the 30% light is diverted to the AF system. This way the camera can take pictures and autofocus at the same time. The camera does not have a OVF (Optical View Finder) but an EVF (Electronic View Finder). This means that the image you see through the EVF is the one which you will get when the picture is taken.

2) Sensor Shift Stabilization : When a photo is clicked there is obvious shake of hand, if a tripod is not used and the photos may get blurred. This is sorted out by stabilization which can be done in the lens or in the body of the camera.  If the stabilization is in the lens then all the lenses used should be image stabilized. Sony employs sensor shift stabilization which is in the body. Due to this even if a non IS lens is used the camera body stabilizes it. Therefore you may use old Minolta lenses and they will automatically get stabilized. Some people state that in-lens IS is better than in-body IS. I have not faced any problems till date with my in-body IS. I have shot extensively at 300mm.

3) A 15 point AF : Sony A55 has a 15 point AF out of which 3 are cross type. Competitor brands have –

  • Nikon D5100: 11 AF points and 1 Cross point
  • Cannon 600D: 9 AF points and 1 cross point.

Cross type points are important as they function in a portrait mode (You use the camera in landscape mode). In portrait mode the cross type AF points are more accurate.

4) Shoots Faster : This is one of the few cameras which can shoot at 10FPS. Competitor brands can shoot at 3.7 FPS for Cannon 600D and 4 FPS for Nikon D5100.

5)    GPS: A55 has an inbuilt GPS which is very useful for tagging pictures. No other competing camera has a GPS. The A55 also has a GPS assist data which is installed by the Sony application (included in the CD) via the net. This assist data helps in getting the GPS fix within seconds. I get the GPS fix within 3-5 secs. You will need to update the GPS assist data every month (as it is only useful for 30 days).

6) Battery Life: The camera’s battery is quite weak. It hardly lasts for a day. I generally carry an extra battery which is more than sufficient. Looking at the pros above this little con is Ok and can be managed with a little planning. The competing brands have significantly better battery life.

7) Video Autofocus : A55 is the only camera which can autofocus while shooting videos. This has been possible due to the new mirror design. (Pellicle Mirror).

8) Other Cool Features: The camera has other features mostly found in Point and Shoots like Smile Shutter, Face detection, Panorama Shooting, Shooting 3D pictures etc… A pro may not use these features but for a person upgrading from a Point and Shoot this is definitely an interesting feature.

9) Auto Mode mode and Auto+ mode: Really good. The camera chooses all the features and makes is simple for novices. The camera functions similar to a point and shoot. I generally use aperture priority hence will not be able to comment further on the same.

10) White Balance: The camera has good WB control and gives fairly life like colours. The presets are usually sufficient. I have rarely used a grey sheet for custom WB. The AWB also functions well in most situations. Firmware version 2 has also been released by Sony which has the following benefits  –

  • Picture Effects: In camera filters to select various effects like Posterization, Partial Colours, high contrasts etc…Partial Colour effect is quite interesting and you get good shots with the same.
  • D-Range Button: You may assign any function to the D-Range button. It has seen not many use it and reassigning it is a good feature.

Nokia Lumia 800 – Review

The GOOD:

1) Excellent touch screen
2) Stylish looks and adecent effort by Nokia

THE BAD:

The Issues: Now comes the long part –
1) Issues in connecting to Exchange Server: I had a tough time getting my exchange server online. As compared to Android, where I could setup exchange in 1 step within precisely under a minute. Lumia took ~ 3-4 steps and at least 5-10 minutes.

2) Call Receiving: Some of the issues faced in call receiving are –

a. When you get a call and you donot want to take the call, there is no provision to reply with an SMS. This is an important function for a business phone. Nokia should seriously add it to their next OS update.
b. While talking on the phone, if you get an SMS / Email the SMS alert tone goes off while you are talking. Because of this you cannot hear the other party. This seems to be a bug and should be rectified in a business phone as during the day you keep getting many phones and emails and while speaking you donot want the email alert tone going off and interrupting the phone call.

3) Phone Dialler:

a. The icons below are very small and sometimes difficult to press
b. The dialler history need to be colour coded so that it is easy to identify outgoing, incoming and missed call. Currently it is difficult to do so. Further all calls to a single number can be clubbed.
c. The dialler needs to have a sort facility to show outgoing, incoming and missed calls separately

4) Emails:. Grouping of emails is a little buggy and groups wrong emails as a conversation. (EDIT: You can only attach photos to an email. Any other files like .ppt, .doc etc.. cannot be attached. As a business phone where you work on these files on the move, unable to attach them to emails is a BIG drawback. Nokia / Windows needs to come up with an update sorting this issue)

5) Nokia Drive / Maps:

a. You cannot use the phone while downloading maps. If you exit the screen the download automatically stops.
b. Downloading on a wifi will keep the screen ON till the download completes. This should not be the case. There should be a provision for background download.
c. Provision should be to download the maps on the PC and then transfer to the phone.

6) Documents Transfer: Connecting the phone via USB does not show it as a drive on the computer. Hence, you cannot transfer files from the PC to the phone

7) Currently there is no Gtalk for Windows 7.5 (the OS on Lumia)

8) Quick Access to connectivity: You cannot quickly access GPS, Wifi and phone ringer. This should be within 1-2 clicks which is not the case. You need to navigate all throughout the menus. Hence, for quickly putting the phone on silent / starting GPS etc.. is a problem.

9) From the main screen, we should be able to go into the emails. If one receives a message one should keep getting a notification. One should not be checking my emails intermittently. For example in a Black Berry a light blinks if you get an SMS / Email.

10) Limited Apps for Windows 7.5 like No Swyping keyboard like Swype.

11) The price of the phone is a little in the higher side keeping in mind only a 512 mb RAM and no slot for expandable memory. All competing brands these days have 1GB memory in this price point and have slots for expandable memory.

12) The battery is not very good and last barely a day on a normal use. It has died couple of times on me during office. It is best to keep a USB charger to charge from Laptop / desktop.

Can Minors be sued

The common notion is that minors cannot be sued for their civil wrongs. This typically enumerates from the concept that all contracts with minors are ‘void ab initio’, meaning that all contracts with minors are not valid enforceable contracts in the eyes of the law.

However, minors can be sued for their civil wrongs in the law of Torts. They are liable for both wrongs of omission and commission. There are many instances where minors have been held liable for assault, libel , slander, fraud, embezzlement etc… Where knowledge, malice or use of the faculty of mind is required to prove the liability, then the defense of minority can be set up and this defense is generally rebutted by proving sufficient maturity of the minor and that he could understand the effects of his acts.

As a minor is not liable under a contract, therefore a contract cannot be converted into a tort thus making the minor liable. This would be an indirect way of enforcing a contract and thus defeating the purpose of protecting minors under the law of contracts.

Parents may be held liable for the wrongs committed by their children where the wrong was committed due to parent’s own negligence or by allowing the child to commit the wrong.

Diplomatic Immunity

Diplomatic immunity is contained in Article 31 of the Vienna Convention which states –

A diplomatic agent shall enjoy immunity from the criminal jurisdiction of the receiving States. He shall also enjoy immunity from its civil and administrative jurisdiction except in the case of:

(a) a real action relating to private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission;

(b) an action relating to succession in which the diplomatic agent is involved as executor, administrator, heir or legatee as a private person and not on behalf of the sending State;

(c) an action relating to any professional or commercial activity exercised by the diplomatic agent in the receiving State outside his official functions.

A diplomat thus enjoys immunity from all criminal activities and cannot be tried in the jurisdiction of the receiving state. He is also immune from civil jurisdiction with the above 3 exceptions. However, the diplomat is always liable to the jurisdiction of the sending state and thus even though he may not be tried in a foreign court for criminal / civil acts, he can be tried for the same acts in the domestic courts.

Taxation of a Private Equity and Venture Capital Fund

Summary:

Over the past decade India is witnessing a Private Equity boom due to the robust economic growth and domestic demand. There is no surprise that India saw the largest deal activity in CY 2010 for the Asia Pacific region. The private equity / venture capital investments in India doubled from CY 2009 to US$ 9.5 bn in CY 2010.[1]

These private equity / venture capital Funds raise money from many institutional and high net worth investors. A general concern of these investors is the taxation of their investments in these private equity / venture capital Funds. This paper aims to provide an overview on Indian taxation laws.

SEBI Registered Venture Capital and Private Equity Fund:

The Income Tax Act, 1961 defines a Venture Capital Fund under section 10(23)(FB) stating that a venture capital fund means –

  1.  operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) or operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);
  2.   which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder;
  3. which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf;

All funds fulfilling the above 3 characteristics may be classified as a venture capital fund for Income Tax purpose. Therefore under section 10(23)(FB) of the Income Tax Act, any income of a venture capital company or venture capital fund from investment in a venture capital undertaking is exempt from tax in the hands of the fund. This income will however be taxed in the hands of the investor at the time of distribution u/s 115U of the Income Tax Act.

As per section 115U of the Income Tax Act –

1)      Notwithstanding anything contained in any other provisions of this Act, any income received by a person out of investments made in a venture capital company or venture capital fund shall be chargeable to income-tax in the same manner as if it were the income received by such person had he made investments directly in the venture capital undertaking.

2)      The person responsible for making payment of the income on behalf of a venture capital company or a venture capital fund and the venture capital company or venture capital fund shall furnish, within such time as may be prescribed, to the person receiving such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in the prescribed manner, giving details of the nature of the income paid during the previous year and such other relevant details as may be prescribed.

3)      The income paid by the venture capital company and the venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the person receiving such income as it had been received by, or had accrued to, the venture capital company or the venture capital fund, as the case may be, during the previous year.

4)      The provisions of Chapter XII-D or Chapter XII-E or Chapter XVII-B shall not apply to the income paid by a venture capital company or venture capital fund under this Chapter.

Explanation: For the purposes of this Chapter, “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (23FB) of section 10.

Therefore the important points from section 115U is that

  • Income is chargeable to tax in the hands of the investors
  • The nature (head of the income) donot change. Ie. If the fund has received a long term capital gain, it will charged to tax in the hands of the investor as long term capital gain.
  • The tax liability arises in the financial year of the distribution of income by the fund to the investors and not at the time the income was earned by the fund.
  • The fund would provide a Form 64 to the investor and the income tax authority providing the details of the income so distributed.

As per rule 12C  –

1)      The statement of distributed income shall be furnished by the 30th November of the financial year following the previous year during which such income is distributed, to the Chief Commissioner or Commissioner of Income-tax, within whose jurisdiction, the principal office of the Venture Capital Company or the Venture Capital Fund, as the case may be, is situated.

2)      The statement of distributed income which is to be furnished under sub-section (2) of section 115U by the Venture Capital Company or the Venture Capital Fund shall be in Form No. 64, duly verified by an accountant in the manner indicated therein.

Therefore, the fund will issue a Form 64 to the investor and submit a copy to the income tax authority. The investors will pay their tax based the form 64. Form 64 needs to be certified by an Accountant as defined in section 2 sub section 28 of the Income Tax Act. An Accountant is a member of the Institute of  Chartered Accountants of India. The fund needs to appropriate the income earned in the proportion of the beneficial interest of the investors in the fund. The Form 64 will also carry the PAN numbers and ward numbers where the investors file their return. In case a fund has many investors, this could be an administrative bottle neck.

A venture capital undertaking is defined  u/s 10(23)(FB) as a domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the –  

  1.  business of—
    1. nanotechnology;
    2. information technology relating to hardware and software development;
    3. seed research and development;
    4. bio-technology;
    5. research and development of new chemical entities in the pharmaceutical sector;
    6. production of bio-fuels;
    7. building and operating composite hotel-cum-convention centre with seating capacity of more than three thousand; or
    8. developing or operating and maintaining or deve-loping, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA; or
  2. dairy or poultry industry;

Funds that donot have income under section 10(23FB) of the Income Tax Act:

Now a question arises what happens if the investment are not made in the above 9 sectors by the fund. As the fund is structured as a Trust, the Representative Assessee provisions u/s 160-164 of the Income Tax Act or clubbing provisions u/s 61 of the Income Tax Act will apply depending upon the structure of the Fund.

The private equity / venture capital fund can be incorporated as a determinate or indeterminate trust and revocable or irrevocable trust.

  • Determinate Trust: A fund can be said to be determinate if at the time of formation of the trust the shares of all the beneficiaries is specific and know. The important point here is ‘at the time of formation’. This means when the trust deed is prepared, the details of all the investors should be there and should form a part of the trust deed.  This has major implications for fund raising as the trust can be formed only after all the commitments have been received and the fund will close at the time of registering the trust deed. Hence, due to the structure of the fund only a single close is achievable. Multiple fund closings will not be possible as in such a scenario at the time of trust creation the all the fund investors will not be known and the shares of the investors will not be specific or determined.
  • Indeterminate Trust: A fund would be indeterminate if the shares of income of the investors are not specific at the time of formation of the fund. Hence, the fund may be formed with minimum capital commitment from the sponsor or anchor investor, which is rupees five crores at present. As an indeterminate fund does not require the investors to be known at the time of fund formation, it can have multiple closings. This generally helps in fund raising activities as the fund may be open for a longer duration. It may also push sales activity as the subsequent close investor would not come in a completely blind pool.

A Fund can also be structured as a revocable or irrevocable trust –

  • Revocable Trust: A revocable trust is one that may be revoked or its provisions may be altered by the settler of the trust.
  • Irrevocable Trust: An irrevocable trust is one where the provisions of the trust / assets cannot be modified / revoked by the settler during the lifetime of the beneficiary. The irrevocable transfer is defined under section 62 of the Income Tax Act as –

1)      The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer—

 

  1. by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee ; or
  2. made before the 1st day of April, 1961, which is not revocable for a period exceeding six years :

 

Provided that the transferor derives no direct or indirect benefit from such income in either case.

2)      Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income.

Therefore a private equity / venture capital fund may be structured as an –

  1. Irrevocable Determinate Trust
  2. Irrevocable Indeterminate Trust
  3. Revocable Determinate Trust
  4. Revocable Indeterminate Trust

Taxation of Various Fund Structures:

The structuring of the Trust is very important to determine the taxation under The Income Tax Act, 1961. An Irrevocable Trust will be taxed as per the provisions of section 160-164 of the Income Tax Act. Under these sections the trustees are taxed as a ‘Representative Assessee’ on behalf of the investors.

  • Irrevocable Determinate Trust: In such a scenario the trustees of the Fund will pay the tax at the applicable tax rate of the income earned by the fund under the respective heads of income. This tax paid will be ‘qua’ (on behalf of) the beneficiaries of the Fund. Because, the trustees have paid the tax qua the investors, the income received by the investors  ought not to be taxed again in their hands. The trustees are liable to pay the tax at the applicable tax bracket of the investor. This implies that the respective share of each investor will be determined and then the applicable tax will be paid by the trustees qua the investors base on the particular investor’s tax bracket. This is a tedious task as during the payment of tax the trustees need to get confirmation from all investors of the fund regarding their  tax status and tax bracket. They also have to take into account any carry forward or set-off of losses in the tax computations of the individual investors. This becomes an administrative hassle for the venture capital / private equity fund. As the investors in a venture capital / private equity fund  are high net worth individuals or institutions who come in the top taxable bracket, the trustees can pay the tax assuming all the investors come under the top taxable bracket. The investors may claim a refund  if the trustees have paid excess tax on their behalf or have not taken into account the carry forward or set-off of losses.
  • Irrevocable Indeterminate Trust: As the shares of the investors are indeterminate the provisions of section 164 of the Income Tax Act will apply. As per section 164 of the Income Tax Act –

1)      Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as “relevant income”, “part of relevant income” and “beneficiaries”, respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate :

 Provided that in a case where—

  1. inone of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or
  2. the relevant income or part of relevant income is receivable under 1[a trust declared by any person by will and such trust is the only trust so declared by him]; or
  3. the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or
  4. the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession,

 tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons

As the investors in a private equity / venture capital  funds will either high networth individuals or institutions, they will be having other incomes. Therefore the provision of section 164 (1)(i) of the Income Tax Act will apply and the Fund will be treated as association of persons and tax will be paid by the trustees at the maximum marginal rate. Once the Trustees of the fund have paid the tax ‘qua’ the beneficiaries, the income received by the beneficiaries ought not to be taxed in their hands.

Summary: Hence, the taxation of the private equity / venture capital Fund can be determined by the following steps below –

  1. If the Fund is a SEBI registered venture capital fund and has received income under the provisions of section 10(23)(FB), then the income that falls under the definition of a venture capital undertaking will be exempt in the hands of the Fund. This income will be taxed in the hands of the investors only at the time of distribution u/s 115U.
  1. If the income of a SEBI registered venture capital  fund does not fall under section 10(23)(FB) or the fund is not registered with SEBI then we need to test the applicability of sections 160-164 (Representative Assessee provisions)
    1. If the Fund is structured as an irrevocable determinate trust then the income is taxed in the hands of the trust and the trustees pay the tax qua the investors at the applicable tax rates
    2. If the Fund is structured as an irrevocable indeterminate trust then the income is taxed at maximum marginal rate as an association of persons as per the provisions of section 164 of the Income Tax Act.
  1. If the Trust is a revocable trust then provision of section 61 apply where income of the trust, even if it is not distributed, is liable to be taxed in the hands of the investors on accrual basis at the applicable tax rate.

As it can be seen above the structuring of the Fund has a substantial tax impact. The structuring also has an impact on fund raising, as a determinate trust can have only one close compared to an indeterminate trust that may have multiple closings.

Taxation

* ‘Act’ Means the Income Tax Act, 1961.

Important Notice: The views expressed are personal views of the author. The author will not be liable for any tax implications on the PE/VC Fund, the investor or any other person. This is not a tax advice. The article should not be construed as a tax advice and the readers should consult their tax advisors.


[1] India Private Equity Report 2011, Bain & Company and IVCA

Using Trusts Structure to Ring-Fence the Assets

A ‘trust’ is an obligation annexed to the ownership of a property, and arising out of a confidence reposed in and accepted by the trustee, or declared and accepted by him, for the benefit of another or of another and the owner.

The above definition of trust brings out a few important concepts –

  1. It is an obligation attached to the ownership of the property. The obligation can be to utilize the incomes in a particular way, to transfer the property after a specified time or some other obligation which can be met from the trust property.
  2. arising out of a confidence reposed in and accepted by the trustee: This means that the obligation should be accepted by the trustee of the property.
  3. The obligation is directed to the benefit of others which may include the trustee himself.

The parties involved in this definition are

  1. Author: The person who reposes the confidence and transfers the asset in favour of trustee.
  2. Trustee: The person on whom a confidence is reposed. The trustee is also the owner of the property (ie. The property is transferred in the name of the trustee once the trust is created)
  3. Beneficiary: The person towards whose benefit the property is utilized. The beneficiary can be any 3rd person including the trustee.
  4. Trust Property: The property in question on which the obligation is attached.

Types of Trusts:

A trust can have all or any of the following features:

  • Revocable: Implying that the trust can be dissolved at the option of the author at any time during the lifetime of the beneficiary.
  • Irrevocable: Means that the trust cannot be dissolved by the author. However, if the objective of the trust is met it may be dissolved.
  • Determinate: This means that the beneficiaries and their respective shares are known at the time of trust formation. If their shares are unknown, then the trust is an indeterminate trust.
  • Discretionary: implying that the trustee has a discretion on applying the income and trust property to the benefit of the beneficiary in any proportion he deems fit. However, in a discretionary trust, the trustee cannot apply the trust property to the benefit of a person not a beneficiary.

What does ring-fencing the assets mean?

Ring-fencing implies that the assets of an individual are protected from depletion and no interest can be created on them. The protection of the assets may be from creditors, divorce settlements, family disputes and wealth and estate taxes to name a few.

As the assets of the trust lies with a separate person (ie. trustee) and not under the control of the author or beneficiary, the creditors cannot lay claim on the asset. Similarly in case of divorce as the asset is not owned by the husband, the wife’s claim on the asset for maintenance and division is not there. In many countries there is an estate tax at the time of death (ie. US has 50% estate tax and any transfer at the time of death requires a 50% tax to be paid). India too is contemplating reintroducing this tax.

Strategy for ring fencing assets through trust structure-

Structure: The trust should ideally be an irrevocable trust which implies that the transferor should not be having the rights to cancel the transfer once the trust is formed. In case of a revocable transfer, in case of insolvency, the official liquidator gets all the rights of the transferor and can revoke the transfer. At that time the trust property becomes the asset of the transferor and the creditors can lay claim on it. A similar situation cannot happen in case of a irrevocable transfer.

Discretion: The trust can either be discretionary or non-discretionary. If the Trust is a non-discretionary trust and any claims on the beneficiary *****, the creditors can claim the beneficial portion of the beneficiary hence getting the trust asset.  As a discretionary trust, the Trustee has the authority to decide what will be the beneficial stake of the beneficiary, the claims of the creditors can be kept at bay and the family property may be protected.

Documentation: The trust document and the appointment of trustee is a matter of solicitation based on the nature of asset, the objective of the trust and beneficiary situations. Other objectives may include safeguarding interest of family members (special needs children), tax efficiencies, attaching conditions to gifts, bequeathing wealth to charitable / religious purposes and avoiding family disputes.

Important Notice: The views expressed are personal views of the author. The author will not be liable for any tax / legal implications on the individual, the investor or any other person. This is not a legal advice. The article should not be construed as a legal advice and the readers should consult their legal advisors before taking any decision.