INVESTMENT LAW

Category - A

Answer any four questions: 4 x 10 = 40marks

1. Security is also an instrument evidencing rights and interests in securities. Explain

with illustration.

Answer: Section 2(h) of the Securities (Contract Regulation) Act, 1956 – specifies
different types of securities – Clause (iii) – Any document evidencing rights and interest
in the securities is also a security within the definition – Example: Letter of Allotment;
Rights Entitlement in Rights issues etc.

2. A person with ineligibility in a promoter group can also disqualify the issuer
company from accessing capital marks. Comment.

Answer: SEBI (ICDR) Regulation, 2018 – Regulation 5 / 61 / 102 – for the issuer to be
eligible to make issue – The above provision highlights circumstances where any
member of the promoter group is disqualified – issuer is also disqualified – Regulation
2(pp) – Provide for the definition of the promoter group.

3. Explain the various thresholds for attracting obligation to make an open offer under
SEBI (SAST) Regulations?

Answer: SEBI (SAST) Regulations – Reg. 3, 4, 5 - (i) 25% of the shares with voting rights
– (ii) 5% of the shares with voting rights in a financial year by a person holding more
than 25% shares; (iii) Acquisition of Control.

4. Explain the sectoral approach adopted by the Reserve Bank of India for regulating
Foreign Direct Investment.

Answer: Section 6 of the FEMA – RBI’s power to regulate - Capital Account Transaction
– FEM (Issue and Transfer of shares by a person resident outside India) – Regulation
16 - Sectoral cap for the sectors/ activities is the limit indicated for any particular
sector. The total foreign investment shall not exceed the sectoral/ statutory cap.

5. Why is the corporate form of vehicle the preferred mode of raising capital?

Answer: The student must illustrate the concept of “Separate Legal Personality”, and
the same becomes the reason of the preferred mode of raising capital

6. What do you understand by “fit and proper person criteria” for intermediaries? In
case of non-compliance by intermediaries, what measures can SEBI take?

Page 1 of 6
Answer: SEBI (Intermediaries) Regulations, 2008 – Schedule II described the “Fit and
Proper Person Criteria” - (a) integrity, honesty, ethical behaviour, reputation, fairness
and character of the person; (b) the person not having a criminal charge as provide the
in the regulations.

7. Explain how the provisions related to the allocation of securities in an IPO advance
the protection of investors?

Answer: Regulation 32 of SEBI (ICDR) Regulations, 2018 – Allocation in Net Offer –

Where the companies do not have a profitable track record, the allocation size to the
retail investor is small – but, where the companies have good financials, the allocation
size is greater.

8. How is a Private Placement of specified securities by a company with its shares

listed over a recognised stock exchange Regulated by SEBI?

Answer: Regulation 2 (nn)- SEBI (ICDR) Regulations – Preferential Issue – by listed

issuer on private placement basis – Regulation 3 – SEBI (ICDR) Regulations applies on
Preferential issue by a listed issuer – Chapter V regulate the preferential issue.

Category - B
Answer any 4 questions: 4 x 15 = 60 marks

1. Decide whether open offer obligations under SEBI (SAST) Regulations, 2011 will
be attracted in the following transactions referring to the appropriate provision
and reasoning:

a. Sarkar Rao acquires 30% equity shares of ADVO Private Limited through a
preferential issue. – Acquisition of shares of a Private Company not covered
under Regulations.

b. Sarkar Rao subscribes to 4000 Compulsory Convertible Debentures (CCD) of

ADVO Private Limited, having its securities listed on National Stock Exchange.
Post conversion of CCDs will provide 31% shares with ADVO Private Limited
voting rights. – – Acquisition of shares of a Private Company not covered under
Regulations.

c. Sarkar Rao, son-in-law of Ramesh Mehta, acquires 6% equity shares of

TreeHouse Ltd. (a listed entity). Ramesh already holds 21% of Tree House
Limited. – Regulation 10 of SEBI (SAST) Regulation - Son-in-law not covered
within the definition of Immediate Relatives – Exemption will not apply -
Covered – Further Sarkar and Ramesh are also not covered in the definition of
person acting in concert or promoter group – hence their holdings will be
distinct – The Acquisition does not breach thresholds.

Page 2 of 6
2. Examine the following facts and answer whether the same is correct or incorrect
using relevant law provisions. Merely stating correct or incorrect without the
help of relevant legal provisions will not qualify for any marks.

a. A Company with a market capitalisation of Rs. 2000 crore has equity

shares worth Rs. 300 crores listed on the Bombay Stock Exchange. –
Incorrect – Rule 19(2)(b) – Minimum public shareholding shall be for the
shares worth 4000 Crores

b. An unlisted company invites subscriptions from 210 investors through a

private placement offer cum application letter for convertible debentures
in the same financial year. – Incorrect – Section 42 of the Companies Act,
2013 read along with Rule 14, of Companies (PAS) Rules, 2014 - Beyond
200 in a financial year will be deemed to be public offer.

c. A Company having its securities listed on the National Stock Exchange

invited subscription of securities through Rights Issue from the existing
shareholders for raising Rs. 8 Cr. without following SEBI Regulations –
Correct – SEBI (ICDR) Regulations – Regulation 3 – Applicable only when
the issue size is for more than 10Cr.

3. Shoe Marker Ltd., a public listed company incorporated in India, issued Global
Depository Receipt (GDR) outside India. Mr. Raj Bansal, an investment advisor,
raised several loans from Shoe Marker Ltd. and its other subsidiaries for the
subscriptions of the GDRs. He utilised the loan amount to buy GDR, only to
eventually sell the GDRs to certain foreign investors. These foreign investors
then converted GDRs into equity shares of the Shoe Marker Ltd. (in India) and
sold such converted shares on the Indian Stock exchanges to Domestic
investors. The scheme was found to be fraudulent, and SEBI issued a Show
Cause Notice to Shoe Marker Ltd. and Mr. Raj Bansal, viewing the above
transaction as a fraudulent arrangement for the subscription of GDR and, after
that, monetising those GDR through the sale of underlying shares of the GDRs.
Do you think SEBI has the power to exercise control and regulate the public issue of
GDR taken outside the territory of India? State with reasons.
Answer: SEBI v. Pan Asia Advisors Case – SEBI has Jurisdiction – where the
effect of the fraudulent activity is on the

4. Mr. Sarkar Naik is a promoter of Delight Industries Limited, which has its share
listed on the National Stock Exchange. Delight Industries is proposing to raise
capital through an initial public offer. However, the issuer company needs to
determine the eligibility to make a public offer due to defects in the eligibility of
the following members in the promoter group. (each condition is independent)

Page 3 of 6
 i. Daughter of Mr. Naik is declared as a wilful defaulter. – Regulation 5 –
SEBI (ICDR) Regulations 2018 – Clause (c) – defect in the member of
promoter group is not a bar for eligibility of the company.

ii. Married daughter of Mr. Naik, who is not in control or involved in any
manner in the management of Delight Industries, is barred by SEBI from
accessing the capital market for three years on 20th October 2021. -
Regulation 5 – SEBI (ICDR) Regulations 2018 – Clause (a) – defect in the
member of the promoter group is a bar for eligibility of the company –
direct or indirect control is not a requirement in the provision.

iii. Brother-in-Law of Mr. Naik is declared as a fugitive economic offender. –

Regulation 5 – SEBI (ICDR) Regulations 2018 – Clause (d) – defect in the
member of promoter group is not a bar for eligibility of the company –
Further, brother-in-law is not a part of the promoter group as well – see
Regulation 2(pp).
State with reasons and relevant provisions the impact of each of the above
relations of Mr. Naik on Delight Industries in making a public offer.

5. InfoBeam Ltd., a company listed on the Bombay Stock Exchange, has been served
with a notice for initiating proceedings of the Corporate Insolvency Resolution
Process. The notice was received on 20.12.2022 and was made public on
26.12.2022.
Mr Shashank Chawla, Legal Officer of InfoBeam, traded in the securities on
InfoBeam over the Bombay Stock Exchange as per the following:

Date Nature of Transaction Market Price Volume

15-12-2022 BUY INR 50 1000 Shares
16-12-2022 BUY INR 52 2000 Shares
21-12-2022 BUY INR 51 3000 Shares
23-12-2022 SELL INR 52 2500 Shares
24-12-2022 SELL INR 50 3000 Shares

Will the above trade-in securities by Mr. Shashank Chawla fall within the insider
trading definition of SEBI (Prohibition of Insider Trading) Regulations, 2015?

Answer:

- Definition of Insider – Connected Person – Shashank Chawla – Insider

- Unpublished Price Sensitive Information – Mere Notice is not price sensitive

information – Filing of CIRP is price sensitive, but not the mere the notice 0
Reference can be Drawn from “Material Information” as provided under SEBI
(LODR) Regulations, 2015

Page 4 of 6
 - As no price sensitive information – No case of insider trading

6. Dream Infotech Ltd. came out with an Initial Public Offer through a book-built
method in 2021, with 5% of the issue size reserved for its employees. The IPO was
oversubscribed 15.5 times in the retail category, 28.09 times in the Non-
Institutional Category, 17.18 times in the QIB category and only 0.015 times in the
employee category. 95% of the employee reservation was subscribed by 12
individuals with investment value ranging from 16 -18 lakhs per employee. These
12 individuals had joined the issuer company just 6 – 8 months before the public
announcement of the IPO and terminated their employment soon after the
commencement of the IPO. These 12 employees sold their holdings subscribed in
IPO within three days of listing and commencement of trading.

a) Whether is there any violation/defect in the reserved portion of the IPO?

Employee reservation – attended by 12 individuals – Regulation 33(2) of
SEBI (ICDR) Regulations, 2018 - the aggregate of reservations for employees
shall not exceed five per cent. of the issuer's post-issue capital, and the
allotment's value to any employee shall not exceed two lakhs rupees – Thus,
the investment value was in breach of regulations.

b) Assuming there was a violation in the reservation, if these 12 employees

would not subscribe, what would have happened to the unsubscribed
portion?
Regulation 33 (2) - any unsubscribed portion in any reserved category may
be added to any other reserved category, and the unsubscribed portion, if
any, after such inter-se adjustments among the reserved categories shall be
added to the net offer category

7. IDIDI Bank, a foreign bank registered and regulated by the laws of Denmark, has a
branch office in India. The bank intends to invest further in the banking sector of
India. What modes are available to banks to set up offices and invest in an Indian
subsidiary?

Explain the requirement concerning sectoral limits and conditions for investment in
Banking (Private Sector) through which IDIDI can invest in India.

Answer: FEM (Issue and Transfer of Securities) 2017 – Regulation 16 - Sectoral

Limit for the Banking Sector is 74%. Entry is allowed through Automatic Route up
to 49% and Government route beyond 49% and up to 74%.

- Setting up of a subsidiary by foreign banks

(i) Foreign banks will be permitted to either have branches or subsidiaries

but not both.

Page 5 of 6
 (ii) Foreign banks regulated by the banking supervisory authority in the
home country and meeting Reserve Bank's licensing criteria will be
allowed to hold 100 per cent paid-up capital to enable them to set up a
wholly owned subsidiary in India.

(iii) A foreign bank may operate in India through only one of the three
channels viz., (i) branches (ii) a wholly-owned subsidiary (iii) a subsidiary
with aggregate foreign investment up to a maximum of 74 percent in a
private bank.

(iv) A foreign bank will be permitted to establish a wholly-owned subsidiary

either through conversion of existing branches into a subsidiary or
through a fresh banking license.

8. Milkyway Ltd., a company incorporated in India, is looking to expand its space

exploration programmes in India. For financing this expansion plan, it approached
Rover Inc. (USA), which has agreed to contribute to the capital of Milkyway Ltd.
through private placement. As per the terms of the agreement, the Indian Company
will issue 20,00,000 partly paid equity shares, for which 30% consideration will be
paid at the time of issue, and for the unpaid part, a call can be made by the Company
anytime during 24 months from the date of issue. Further, the Indian Company also
agreed to issue 6,00,000 share warrants, for which 25% of the consideration must
be paid upfront. The remaining can be paid before conversion anytime within three
years. Rover Inc., post private placement and assuming complete conversion of
share warrants, will hold 51% equity shares with voting rights of Milkyway Ltd.

Decide whether the above transaction will be permissible per law relating to foreign
direct investment. Support your answer with relevant legal provisions.

Answer: Regulation 2(v) of the FEM (Transfer and Issue of Securities) Regulations, 2017
- Partly paid shares issued to a person outside India shall be fully called up within
twelve months of such issue. Twenty-five per cent of the total consideration amount
(including share premium, if any), shall be received upfront.

Regulation (v) - In share warrants, at least twenty-five per cent of the consideration
shall be received upfront and the balance amount within eighteen months of issuance
of share warrants.

Page 6 of 6
 NATIONAL LAW SCHOOL OF INDIA UNIVERSITY, BANGALORE

Foreign Trade and Law Relating to Commercial Transactions

Instructions:
1. No clarifications can be sought on the Question Paper.
2. Bare Acts, notes, articles, books or any other material are not permitted while writing
the examination.

Part A
Optional Questions (1-9): Answer any four questions; 10 marks each (10x4= 40 marks). The
responses to the questions in this Part should be short and pointed.

Question 1: Which are the two elements of the non-discrimination principle embodied under
the GATT?

Answer key: The two non-discrimination principles are MFN and National Treatment. The
MFN treatment ensures that any advantage, favour, immunity or privilege given to a product
originating from any country is given to the product originating from a GATT Contracting
Party/ WTO Member. MFN principle is embodied in Article I of the GATT.

The national treatment requires that the imported product and the like domestic product are
given the same treatment within the territory of the GATT Contracting Party/WTO Member.
NT principle is embodied in Article III of the GATT.

Question 2: “Like products” and “directly competitive and substitutable products” are treated
differently in the national treatment provisions of the GATT. Explain with the help of an
example.

‘Like product’ is a sub-category of ‘directly competitive and substitutable product’. However,

the obligations in relation to these categories are different, especially in the context of Article
III: 2 of the GATT. Any taxation on an imported product which is in excess of the like domestic
product, without anything more, will be treated as a violation of GATT Article III: 2, first
sentence. However, in respect of the directly competitive and substitutable products, certain
slight differences in taxation will not be considered as per se inconsistent. The excess taxation
should be considered as ‘affording protection’. The concept of ‘affording protection’ will
require consideration of a number of factors including the nature and type of measures, its
architecture, revealing nature, etc.

Students are expected to refer to some of the landmark cases such as Japan- Alcoholic
Beverages, Korea- Alcohol, etc.

Question 3: What types of subsidies are prohibited under the SCM Agreement? Explain the
rationale for prohibition.

Answer Key:
Export subsidies and import substitution subsidies are per se prohibited under the SCM
Agreement. Export subsidies are considered to directly distort the export market. Import
substitution subsidies are contingent upon the use of domestic over imported products.
Import substitution subsidies are considered to encourage domestic production and limit the
importation of competing products from other countries. These two categories of subsidies
are prohibited because they are designed to directly affect trade and thus are most likely to
have adverse effects on the interests of other Members.

Question 4: Product packaging often include nutritional facts provided on a voluntary basis.
Which is the correct category to identify such documents – technical regulation or standards?
Justify your answer with reference to the TBT Agreement.

Answer Key:

According to Annex I the WTO Agreement on Technical Barriers to Trade (TBT), technical
regulation is a document which lays down product characteristics or their related process and
production methods, including applicable administrative provisions with which compliance is
mandatory. Nutritional facts given on a voluntary basis will not come within the purview of
technical regulation. They come within the category of standards. In other words, any
information given on a voluntary basis will not be a technical regulation.

Question 5: Concept of public policy under the Arbitration and Conciliation has opened a
pandora’s box. How has the Indian Parliament clarified the meaning of public policy under
the 2015 Amendment?

Answer Key: Section 34(2)(b)(ii) of the Arbitration and Conciliation Act empowers the Courts
to set aside the arbitral award if an award is in conflict with the “public policy of India”.
Additionally, the courts are empowered to refuse the enforcement of a foreign award at the
request of a party against whom it is invoked on the ground that the arbitral award is
contrary to the “Public Policy of India” under Section 48(2)(b).

Since the term ‘Public Policy’ is not defined, either in the Arbitration Act or in any other
statute , the Supreme Court, in a number of decisions (E.g. Renusagar v General Electric Co;
ONGC v. Saw Pipes Ltd, ONGC v. Western Genco, etc) had noted that term public policy is
like an ‘untrustworthy guide’ or an ‘unruly horse’. Some of these court decisions led to an
extensive interpretation of the concept ‘fundamental policy of India’. In light of this, the
Parliament introduced the following explanations in 2015.

“Explanation1.- For the avoidance of any doubt, it is clarified that an award is in

conflict with the public policy of India, only if,-

The making of the award was induced or affected by fraud or corruption or was in
violation of Section 75 or Section 81; or

It is in contravention with the fundamental policy of Indian law;

It is in conflict with the most basic notions of morality or justice’

 Explanation 2:- For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not entail a review on
the merits of the dispute.”

Question 6: What is the meaning of “ordinary course of trade” under the Anti-dumping
agreement?

Answer key: Under the Anti-dumping agreement, a product is considered as being dumped,
i.e, introduced into the commerce of another country at less than its normal value, if the
export price of the product exported from one country to another is less than the comparable
price, in the ordinary course of trade, for the like product when destined for consumption in
the exporting country. The concept of ‘ordinary course of trade’ is used to determine the
comparable sales for the purpose of dumping margin.

A product is considered to be not sold in the ordinary course of trade, if it is sold at a loss or
below its cost (cost of production plus S, G&A) or produced in a non-market economy or is
affected by considerations such as party affiliations (i.e. producer selling the product to a
related company, etc). Sales which are made under particular market situations may also not
come under the category of ‘ordinary course of trade’.

Question 7: What are the two major conventions relating to the enforcement of foreign
arbitral awards in India? Also explain the conditions applicable for enforcement of foreign
arbitral awards in India under the Arbitration and Conciliation Act of 1996.

Answer Key: The Conventions are the Geneva Convention (1927) and the New York
Convention (1958). First of all, it must be in in relation to an “arbitral award”, i.e., arising from
an agreement in writing as recognized under the Convention. Second, it must be a “foreign
award”, which means the seat of arbitration should be outside the territory of the enforcing
State. According to Section 44 of the Arbitration and Conciliation Act, there is an additional
reciprocity requirement which means that Indian awards must be enforceable in the country
of the seat of arbitration.

In respect of Geneva Convention, there is a requirement that a competent court at the seat
of arbitration certifies that the arbitral award is final.

Question 8: Which are the key differences between an FOB contract and a CIF contract?

The acronym CIF stands for “cost, insurance and freight” and FOB stands for "free on
board.” These are terms are used in international trade in relation to shipping, where goods
have to be delivered from one destination to another through maritime shipping. The terms
are also used for inland and air shipments.

In the context of FOB shipping, the seller pays all transportation costs and cost upto the port
of embarkation. Once the goods are boarded on the nominated vessel, then the buyer is
responsible. In the context of CIF, the seller covers the costs, insurance, freight (especially
marine freight). Once the cargo has been delivered to the buyer’s destination port, then the
buyer assumes liability for delivery.

Question 9: The law relating to carrier’s responsibility under the different logistics legislations
in India is not uniform and also fragmented. Explain with the help of examples.

The Indian Logistics sector is currently governed by several distinct laws (such as Carriage by
Road Act, 2007, Railways Act, 1989, Carriage by Air Act, 1972, Indian Carriage of Goods by Sea
Act, 1925, Indian Bills of Lading Act, 1856 and the Multimodal Transportation of Goods Act,
1993). The existing domestic laws on carriage of goods have individual liability regimes for
each mode of transport, each of which differs substantially in terms of rules on delay,
consequential damages, and exoneration from liability.

For example, under the Carriage of Goods by Road Act, the common carrier is liable for the
loss or damage to a consignment. This liability is limited to amount that is prescribed in the
Act, unless a higher risk rate is fixed. However, under the Carriage by Air Act, the carrier is
liable for the loss, destruction or damage of goods, at 250 francs / KG of goods, and 5000
francs for hand luggage, in the case of passengers. Again in the context of Carriage of Goods
by Sea Act, in the event of loss, or damage to goods, the carrier’s liability is limited to 666.67
SDR per package or unit, or 2 SDR per KG, of the gross weight of the goods, unless the nature
and value have been declared to be higher prior to shipment. Under the MMTG, the liability
depends upon the leg of the transportation in which the loss has taken place. In other words,
the liability regimes are different under different carrier laws.

Part B

Attempt 4 questions from Part II (from 10-18) (15 x4= 60 marks)

Question 10: Marouba is a developing country and a Member of the WTO. Marouba has
domestic production only in limited sectors such as textiles, fisheries and agriculture. Textiles
alone contributes to 40 percent of foreign trade. Marouba is negotiating a free trade
agreement with United Highlands, a developed country Member of the WTO. As part of the
trade agreement, Marouba would like to keep out the entire textile sector from the purview
of the free trade agreement. United Highlands is not apparently pleased with the decision to
keep out a major sector, but has reluctantly agreed to sign the free trade agreement.

The Trade Minister of Marouba seeks a legal advice from you on the WTO compatibility of the
free trade agreement with the WTO. The memo should be short be short and concise and no
longer than 500 words.

Answer Key: It is the assumption that the free trade agreement is an agreement envisaged
under Article XXIV of the GATT. In that context, specifically in relation to Article XXIV: 8, there
is a requirement to include “substantially all trade” within the coverage of the free trade
agreement. It can be argued that the exclusion of textile sector which contributes to 40
percent of the trade will not achieve substantially all trade.
However, Marouba can justify the arrangement under the 1979 Enabling Clause, which
provides for special and differential treatment. Therefore, the proposed trade agreement is
compatible with WTO although it may not meet the requirements of Article XXIV. Students
are expected to cite the WTO Appellate Body ruling in Turkey – Textiles.

Question 11. Dominica is rich in cocoa production and is a major exporter of dark chocolates.
It exports its major production to developed countries. Manoa is a major consumer of
Dominica’s dark cholates. In recent times, Manoa is also encouraging local production of milk
chocolates, but by using substantially unsweetened baking powder and small quantities of
cocoa. The retail sales tax on dark chocolates is 10 percent, however, on chocolates with
unsweetened baking powder, the retail sales tax is only 2 percent. Manoa is apparently of
the view that the differential tax structure is imposed based on health grounds.

Dominica is apparently aggrieved by this measure. Prepare a short note not exceeding 500
words examining whether Manoa’s measure is GATT consistent.

Answer Key:

Manao’s measures need to be examined under the national treatment provisions of the
GATT, especially GATT Article III: 2, first sentence and second sentence. The key question is
whether the imported product and the domestic products are “like products”. Students are
expected to examine the 1970 border tax adjustment (BAT) criteria. Based on the AB ruling in
EC – Asbestos, it may be possible to argue that the products are unlike, especially on the
grounds of physical characteristics and consumer perceptions.

Students are also expected to raise arguments under Article III: 2, second sentence which is
related to ‘directly competitive and substitutable products”.

Finally, Manao may be able to justify the measures under Article XX(b) of the GATT, which is
related to measures necessary to protect ‘human health’.

Question 12. Asshai, a developed Member country, is the world’s leading manufacturer and
exporter of Printed Circuit Boards (PCB), a product primarily used in the production of
electronic devices such as computers, smartphones, smartwatches, etc. Qarth, a developing
Member country, relies heavily on PCB imports for its domestic production of electronic
items. In 2020, military tensions began escalating between Essos and Asshai, two
neighbouring countries, over a pre-existing land border dispute. Responding to military and
economic threats posed by Essos, Asshai closed-off all non-military commercial sea and air
ports in its territory and instituted export restrictions on several critical products, including
PCBs.

The breakdown of supply chain and logistics in Asshai, and the export restriction on PCBs
resulted in contraction in Qarth’s domestic production of electronic items. Faced with such
circumstances and desirous of developing domestic capacity in PCB production, Qarth
allocated 50,000 acres of land in its eastern province of Soros for the setting up of PCB
manufacturing units.

To attract investment and encourage the production of PCBS, Qarth:

1. Ordered the Association of Electronics Manufacturers – a registered society of private
manufacturers and traders of electronic items– to create a central pool of funds
derived from members’ annual subscription fees, and voluntary donations received.
This fund will be used to reimburse, in whole or in part, the interest paid by entities
towards commercial loans taken for the purpose of research, design and
development of PCBs for commercial use in Qarth.
2. Authorised its Central Bank to forgive the repayment, by PCB developers, of up to
30% of the loan principal, provided they are able to show that the buyers of the
domestically produced PCBs are electronics manufacturers whose foreign exchange
earnings constituted at least 40% of their total income in the concerned financial
year.
3. The Soros Provincial Government grants all entities in the manufacturing sector an
85% rebate of the patent, copyright and design fees and other administrative charges
paid.

Volantis,a ,a manufacturer, finding that its PCB exports to Qarth has significantly reduced over
the last two years, has engaged you to examine the WTO consistency of Qarth’s measures.
Prepare a brief memo of possible claims that Volantis may raise for consultation at the WTO.

The memo should be short be short and concise and no longer than 500 words.

Answer Key:

The range of measures taken by Qarth can be classified as industrial subsidies. Students
should examine whether these measures qualify the definition of a ‘subsidy’. Subsidy is
defined as a financial contribution granted by a government of a public body which confers a
benefit. Moreover, the subsidies need to be specific.

In this case, a mere direction by the Government to the Association of Electronics

Manufacturers cannot be considered as a financial contribution as no direct financial payment
from the government or a public body is envisaged. It is, therefore, not an actionable subsidy.
However, in the second scenario, a debt/loan forgiveness to the PCB developers can be
considered as a financial contribution and therefore a subsidy. It also confers a benefit on the
concerned industry and is specific. Similarly, a rebate on patent, copyright and design fee can
be considered as a financial contribution. However, since the fee rebate is available to all
manufactures, it cannot be considered as “specific subsidy”.

Question 14: Indica, a WTO Member, provides the following subsidy to the agriculture sector.
 I. General services ( for example, research aid, extension services, pest control services,
marketing & promotion services, infrastructural services, public stockholding at
market prices & domestic food aid, decoupled income support, income insurance
programmes)
II. Direct payments (crop insurance for natural disasters, crop failure programme,
environmental programmes, regional assistance programmes, rural family assistance
and insurance programme).
III. Subsidies for meeting 5 percent additional trade performance in a foreign markets.
IV. Minimum support price for grains at a specified price.

Analyse each of the above categories of subsidies and comment under which category (red,
blue, amber or blue) these subsidies fall under in relation to the WTO Agreement on
Agriculture. The analysis should be short and concise and no longer than 500 words.

Answer Key: The first category of measures are by and large non-trade distorting measures
and fall within the category of “green box”. These subsidies are nil, or minimally trade
distorting measures. The category of measures are also support which are broadly non-trade
distorting. Some of these measures are outlined in Annex II of the Agreement on Agriculture.

The second category of measures are for meeting specific targets in relation to exports. These
subsidies are export subsidies and are prohibited. These measure falls within the Red Box.

The third category of measures are domestic support measures specified under Annex III of
the AoA. Minimum support measure provide market price support. These subsidies are not
prohibited, but are actionable. It belong to the category of Amber Box.

Question 15: State whether the following are true or false with proper explanation.

a. Private lawyers can represent Members before WTO panels and Appellate Body.
b. Non-members can participate as third parties in WTO dispute settlement proceedings.
c. Panels are obliged to accept and consider amicus curiae briefs.
d. Members’ schedules of commitments are multilateral agreements.
e. Application of safeguard measures to imports is an exceptional measure.

The memo should be short be short and concise and no longer than 500 words.

Answer Key:

After the EC – Bananas, ruling private lawyers can represent a Member in a WTO panel of AB
proceedings.

Non- Members cannot participate as third parties in WTO DSU. Only Member governments
can participate in the dispute settlement process.
Panels are not obliged to accept amicus curiae briefs. It is upto the panels to accept and
consider them (See US- Shrimp). However, Members have the option to include such briefs
as part of their submissions.

Member’s schedules are an integral part of the Agreement. See EC- LAN, EC- Chicken Cuts,
etc. It is also clearly provided in Article II: 7 of the GATT.

Application of safeguard measure is an exceptional measure under Article XIX of the GATT.

Question 16: Set out the differences between a “domestic” arbitral award and a “foreign”
arbitral award.

Based on the applicable law and case decisions, comment whether the Indian courts have
supervisory jurisdiction over foreign arbitral awards.

Answer Key:
Domestic awards are governed by Part I and foreign awards are governed by Part II of the
Arbitration and Conciliation Act, 1996. Enforcement of the domestic award is governed by
Section 36 and foreign awards by Section 48 (NY Convention ) and Section 57 (Geneva
Convention).

In Bhatia International, the Supreme Court had interpreted Section 2 of the Indian Arbitration
and Conciliation Act 1996 in a manner that allowed Part I of the Act (which provided for
remedies such as awarding interim relief and setting aside of arbitral awards) to be applied
even in the context of arbitration seated outside of India.

Foreign arbitral awards were routinely challenged under Section 34 of the Arbitration and
Conciliation Act on ground of “against the public policy of India”. However, the concept of
public policy, which was expansively interpreted, has now been constrained. Otherwise, only
the courts at the seat of arbitration will have supervisory jurisdiction of the award. In Balco
V. Kaiser Aluminium, the SC noted: “Thus, it is clear that the regulation of conduct of
arbitration and challenge to an award would have to be done by the courts of the country in
which the arbitration is being conducted. Such a court is then the supervisory court possessed
of the power to annul the award. This is in keeping with the scheme of the international
instruments, such as the Geneva Convention and the New York Convention as well as the
Uncitral Model Law. It also recognises the territorial principle which gives effect to the
sovereign right of a country to regulate, through its national courts, an adjudicatory duty
being performed in its own country.”

Question 17 Explain how the responsibility of cost and risk vary in incoterms such as EXW,
FOB, CFR, CIF, DAP and DDP.

Answer Key:

EXW means, Ex Works. In this case, the buyer has to pay for the transport costs. FOB means
“free on board”. Under FOB the delivery takes place when the goods ate loaded on the vessel.
Accordingly, the risk of loss or damage shifts from the seller to the buyer at the rails of the
ship. In the case of CFR, the exporter pays for and arranges transportation to the port of
destination. CFR differs from CIF, in which case, the seller pays to cover the cost of shipping
as well as the insurance to protect against potential damage of loss. In CIF contract, the seller
assumes the responsibility for the shipment and covers the cost of insurance until the goods
reach the point of destination. DAP means, “delivered at place”. In this case, the buyer pays
the costs and taxes of import clearance, but it is the buyer’s responsibility to deliver goods at
a named place indicated in the contract of carriage. DDP means, “duty delivered paid”. In this
case, the seller assumes the responsibility of costs and the risk from the beginning to the end.

Question 18: There is a discussion to provide a Logistics Identification Number (LIN) to

logistics service providers similar to the concept of Permanent Account Number (PAN) in the
field of Income Tax Law. What are the advantages as well as the challenges in implementing
this concept.

Answer Key:

The concept of LIN was considered in the context of the proposed uniform logistics law. At
present, there is no compulsory registration of logistic service providers under the concerned
carriage legislations in India. LIN can be useful in recognizing the logistics service providers.

The challenge however is that the logistics sector in India is fragmented and the nature of
services provided under this sector are different. There are already certain mechanisms to
identify the logistics service provider through Forwarding Agent Number, Transporter GSTN
Number, FSSAI license/registration number, etc. Furthermore, there is also no single
administrative ministry or regulator in India for logistics services unlike the tax authorities
under the Income Tax Act. In addition, there are administrative challenges in requiring the
mandatory registration. The other concern is that mandatory registration is not very useful
when the level of compliance is low.

(End of the question paper)

 NATIONAL  LAW  SCHOOL  OF  INDIA  UNIVERSITY  
BANGALORE  
 
PROFESSIONAL  AND  CONTINUING  EDUCATION  2021-­‐22  
II  YEAR  MASTERS  IN  BUSINESS  LAW  
 
LAW  OF  INTELLECTUAL  PROPERTY  RIGHTS  
 
SUMMATIVE  ASSESSMENT-­‐SUPPLEMENTARY  [DECEMBER  2022]  
 
Time:  180  Minutes  
Max.  Marks:  100  
 
 
 
ANSWER  KEY  
Category  A:    
 
1. Question:   Critically   examine   the   infringement   of   Trademark   under  
the  Trademarks  Act  1999  with  the  help  of  decided  cases.    
 
                     
Candidates are expected to refer in their answers to grounds of
infringement provided under section 29 of the Trademarks Act
1999. In particular, the candidates shall explain the
circumstances leading to likelihood of confusion because of use
of similar/ identical marks in respect of identical / similar
goods or services; where the use of well-known mark is leading to
taking unfair advantage of the reputation of the well-known
mark or detrimental to the distinctive character or repute of
the well known mark [popularly called as ‘dilution doctrine’];
use of trademark in trade names; use in advertisements
contrary to honest commercial practices.
The background materials from page 170 to 177 provide details
and cases, in addition to the class discussions.

2. Question 2: Comment   on   doctrine   of   equivalents   as   a   test   for  

determining  infringement  of  patents  and  examine  the  limitation  on  
the  doctrine  of  equivalents.    
 Doctrine of equivalents is applied when the elements in the
claim of patented invention and the elements used by the
alleged infringer are not the same, whereupon the Court would
determine whether the element used by the alleged infringer
performs substantially the same function, in substantially the
same way and gives the same result as that of the element in
the claim and if the answer is in the affirmative, such element
is considered as equivalent and it will be infringement by
equivalents..
The important limitation on the doctrine of equivalents if
Prosecution History estoppel wherein the patentee will not be
able to invoke doctrine of equivalents if he had surrendered
such elements from the claim in the course of prosecution of his
patent application. It happens when broad claims are narrowed
down.
Reference to at least the cases provided in the Reading Module
from Page140 to 142 is expected, in addition to the cases
discussed in the class.

3. Question 3: Critically  comment  on  the  literary  and  artistic  works  as  
constituting  protected  subject  matter  under  Copyright  law.    

Candidates are expected to refer in their answers to the

definition of literary works as well as artistic works in the
Copyright Act 1957, the interpretation given by the Court in
University of London Press Case, different works falling under
Literary work and artistic work, interpretation of ‘any other
work of artistic craftsmanship’. Reference to information
provided in the Reading Module Pages 55 to 61 is expected in
addition to the classroom discussion.

4. Question 4: Discuss   the   test   for   determining   Novelty   and   utility   of   the  
claimed  invention,  with  the  help  of  relevant  cases.    
 
 Candidates are expected to refer in their answers information
provided in the Reading Module from page 108 to 114.
Explaining the test for novelty and utility.

5. Question 5: Critically   examine   the   requirements   for   registration   of  

a  design  and  exceptions  therefor

Candidates are expected to examine the essential requirements

of Design [features of shape, configuration, pattern
ornamentation, lines, colours that are original or novel,
applied to an article and capable of appeal to the eye] and the
procedure relating to registration [application, objection,
acceptance, registration, cancellation]. The candidates shall
refer to the excluded subject matter. The information on these if
provided in the Reading Module, from Page 225 to 233.

6. Question 6: Critically   examine   the   requirements   for   registration   of  

a  design  and  exceptions  therefor

Candidates shall refer in their answers to National treatment,

rule of priority and the common rules relating to the Paris
Convention. The information is provided in the Reading
Module from pate 20 to 22.

7. Question 7: Discuss  briefly:    

a. Absolute  grounds  of  refusal  under  Trademarks  law    
b. Originality  under  Copyright  law    

a) Candidates shall discuss the contents of section 9 of the

Trademarks [9(1), 9(2) and 9(3) of the Trademarks Act
1999 relating to absolute grounds of refusal of registration
of Trademarks.
b) Candidates shall discuss the concept of originality, referring
to the class room discussion on ‘sweat of the brow test’,
‘modicum of creativity’ test and the ‘skill and judgment ‘
test referring to the important cases of University of London
 Press case, Feist Publication case, CCH Canada case and
EBC cases respectively.

8. Question 8: Examine   briefly   the   various   rights   of   the   owner   of  

Copyright  under  the  Copyright  Act  1957.    
 

Candidates are expected to discuss the rights of reproduction,

issue of copies, public performance, communication to the
public, to make sound recording, to make cinematograph film,
translation, adaptation in relation to literary, dramatic and
musical works and other rights referred in section 14 relating
to Artistic works, sound recordings, cinematograph film and
computer programs. Reading module from page 63 to 69
provides for the same and the class room discussion has
highlighted important cases.

CATEGORY B:

Question 1:

Issue: what are the grounds for obtaining compulsory licensing

under the Patents Act 1970
Rule: Section 84 to 92 of the Patents Act. In particular three
grounds: That the reasonable requirements of the public are not
satisfied; that the patented product is not provided at
reasonably affordable price and that the patented product is
not ‘worked’ in India.
Application: The requirement was 1000 bottles whereas the
production was only 500 bottles; the price was 2,00,000 per
person, which is unaffordable to patient; the entire product was
only imported and not manufactured in India
Conclusion: There exists grounds for issue of compulsory
license—the requirement of seeking voluntary license and
refusal by the patentee, reasonable period completed.
Question 2:
Issue: whether work is copyright protected? Whether the
reproduction in audio form is done without authorization from
copyright owner and hence infringement? Whether such
reproduction is fair dealing under copyright law?
Rule: Copyright law confers copyright in the literary works—
Book is literary work—rights assigned to the publisher-
publisher owner of copyright—owner has several rights under
section 14—one such right is right of reproduction—
Reproduction without authorization is infringement under
section 51-reproduction by a person with disability in an
accessible format is not infringement under section 52(1)(zb).
Application: person with disability has utilized the fair dealing
provision of section 52(zb) for the purpose of accessing the
copyrighted work.
Conclusion: The act of Gunasheela will not be infringement of
copyright and will be protected under exception under section
52 of the copyright act.

Question 3:
Issue: whether use of well-known trademark results in ‘taking
unfair advantage’ or detrimental to the distinctive character or
repute of the well-known mark? Whether respondent under the
Trademarks Act can register such a mark?
Rule: Section 11(2) refers to relative grounds of refusal and
specifies that if a mark similar to well known mark is used on
dissimilar goods or services and such is use will amount to
‘taking unfair advantage of reputation of well known mark or
will be detrimental to the distinctive character or repute of the
well known mark, Trademark Office may refuse registration of
the mark.
Application: In the given case, use of well-known mark
[similarity] is likely to cause ‘blurring’ or ‘tarnishment’ of the
well-known mark. Section 11(2) is applicable to reject
registration
 Conclusion: The Trademark Office must refuse Treeport
Bhawan’s application.
Question 4:
Issue: use of trademark in comparison with popular-well-known
trademark results in taking unfair advantage of the reputation
of the well-known trademark? And hence amounts to
infringement [dilution] as well as disparagement?
Rule: section 29(4) of the Trademark Act provide for ground
for infringement wherein use of a mark with reputation leading
to taking unfair advantage is infringement. Section 29(8)
refers to use of trademark in advertisement that is contrary to
honest commercial practice as amounting to infringement of
trademark.
Application: use of ‘Harley Davidson’ is taking unfair
advantage of the reputation of the Harley Davidson trademark.
The reputation of the mark easily transferred to goods [here
motorbikes]. There is also comparison but it is not presenting
the Harley in bad condition.
Conclusion: Shogun is liable for infringement under section
29(4) of the Trademarks Act.

Question 5:

Issue: whether Jeevan textiles have acquired design rights over

the pattern applied on the fabrics? Whether use of similar
pattern on the fabrics amounts to infringement of designs?
Rule: essential requirement for registration of design are: any
shape, configuration, pattern, ornamentation etc that are
original or novel applied to an article and has an eye appeal.
Section 15(2) of the Copyright Act provides that if the
pattern..etc is applied to an article for more than fifty times
and the design is not registered, there subsists no copyright in
design.
Application: Jeevan textiles did not register the design [pattern
applied on the fabrics] and applied for more than 50 times.
 Conclusion: Prathibh fabrics is not liable for infringement of
design
[Candidates may refer to decided case of Microfibre [Delhi
High Court]

Question 6:

Issue: whether the method claimed and the product clamed are
patent eligible subject matter or not ?
Rule: Patent Act provides that any Invention that satisfies the
requirement of Novelty, capable of industrial application and
having inventive step is eligible for patent. Under section 3, it
provides for exclusion from patentability. Section 3 (j) excludes
plants and animals as well as essentially biological processes for
production of plant.
Application: the method is not a claim over essentially
biological process or a claim for plant or animal. If other
requirement of Novelty, Non-obviousness and capable of
industrial application are satisfied, it may be eligible.
Similarly the product—transparent tray is not in itself
excluded under section 3. Hence if it satisfied other criteria of
patentability, it may be eligible
Conclusion: They are patent eligible subject matter since it is
not a claim for essentially biological process for producing
plant and the tray is a manufactured product not expressly
excluded under section 3.

Question 7:

Issue: whether there is infringement of Geographical Indication

rights y the retailer-Jagmohan?
Rule: Registration of GI ‘Mysore Silk sarees’ with the GI
Registry—Infringement of GI under the GI Act-since there is
no provision for transfer or license under GI Act, it should be
through authorized channels of distribution.
 Application: use of the Geographical Indication ‘Mysore silk’ on
the sarees that are not manufactured by the producers of
Mysore silk amounts to infringement under the GI Act.
Conclusion: respondent is liable for infringement of GI of KSIC.

Question 8:

Issue: whether contents uploaded are infringing works? Whether

the platform provider had knowledge of infringing activities on
its platform? Whether it provides material contribution to the
infringing activities on the platform? Is it liable under
‘secondary liability’?
Rule: Section 51(a)(ii) of Copyright Act holds liable anyone who
for profit provides place for communication to the public of
copyrighted work without authorization. The law relating to
contributory infringement provides that is there is ‘knowledge’
of infringing activity and ‘material contribution’ by the
platform provider for the primary infringer is liable for
contributory infringement. The case laws support [Sony case,
Napster case, Grokster case in USA, Myspace case in India]
Application: Renewedlife’s activities indicate that it provides a
platform for uploading and downloading of alums and
audiovisual works of copyright owners by users of the platform.
If the ‘knowledge’ element is established, the platform should
become liable for secondary liability.
Conclusion: Although users upload the contents, the platform
provider may become liable for secondary liability.
 NATIONAL LAW SCHOOL OF INDIA UNIVERSITY
BANGALORE

MBL II YEAR SUPPLEMENTARY EXAMINATION DECEMBER 2022

Duration: As per exam guidelines

Marks: 100
Instructions:
1. Rely on the question paper as it is. No clarifications can be sought. In
case of any ambiguity in the question, state your assumption and
answer accordingly.
2. Mention the applicable statutory provisions and applicable case law as
discussed in class.

------

PART A (Each question is for 10 marks)

Question 1

“The head of income ‘salaries’ is very wide and covers all payments received by an
employee.” Comment on this statement with reference to the relevant statutory
provisions and case law discussed in class.

Expected answer:

Refer to section 15 and discuss the conditions required to be fulfilled to fall under
the head salaries

Section 16 - discuss the amounts that are allowed to be excluded from the
computation of salaries

Section 17- discuss ITC judgment

Question 2

“The head of ‘income from other sources’ is a ‘catch-all’ head of income and as a
result, all income is subject to tax under one head of income or another.”

What is your opinion of this observation? Do you agree or disagree? Provide

reasons along with reference to relevant statutory provisions and examples.

Expected answer:

Explain scope and ambit of ‘income from other sources’. Refer section 56. Do
incomes that fall under another head of income but available as deductions or
exemptions get covered under ‘income from other sources’? Explain through
examples - sub-letting of a building, deductions available for salary income.

Question 3
Page 1 of 8
“Article 246A of the Constitution of India is in sharp contrast to the constitutional
scheme of distribution of taxation powers that prevailed till the introduction of GST.”

Comment with reference to constitutional provisions as well as the sources of

GST law in India.

Expected answer:

Briefly discuss the earlier indirect tax regime. Discuss Article 246 and give
examples from list 1 and list 2 of the seventh schedule.

Discuss Article 246A - The Parliament as well as the Legislature of every State
has power to make laws with respect to GST.

Illustrate with reference to sources of GST law in India - CGST Act, SGST Act,
IGST Act, GST (compensation to states) Act, UT GST Act and rules/ notifications
issued thereunder.

Question 4

“Environment related taxation addresses market failure by ensuring that the cost of
pollution is in effect transferred on to the polluter. Pollution is a negative externality
and a tax structure that targets reduction thereof would effectively minimise the
environmental cost of economic activities.”

Write a critique of the above (illustrate with reference to tax measures that have
been adopted).

Expected answer:

What is a negative externality? (costs of an economic activity that are not

reflected in the cost of said activity and not primarily borne by those directly
involved in the transaction or activity)

Discuss carbon tax/emissions tax. Refer to other forms of environmental taxation

such as tax of market transactions of cars, fuel, plastic bags etc (Ireland, UK).
combination of taxes and subsidies.

Challenges: (i) In order to correct inefficient market outcomes suggests that the
size of the tax should be equal to the cost of the negative externality; (ii) No way
to accurately measure the societal cost or externality; (iii) Difficult to measure the
effectiveness of public policies in deterring or reducing externalities.

Question 5

Describe and distinguish between composite supply and mixed supply under GST
law in India, and provide illustrations for each.

Expected answer:

Page 2 of 8
Composite Supply - Section 2(30), 2(90) r/w Section 8, CGST Act

- Two or more taxable supplies of goods or services or both, or any combination

thereof
- Which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business
- One of which is a principal supply (“principal supply” means the supply of goods
or services which constitutes the predominant element of a composite supply and
to which any other supply forming part of that composite supply is ancillary)

Composite supply shall be treated as a supply of such principal supply

Mixed Supply - Section 2(74) r/w Section 8, CGST Act

- Two or more individual supplies of goods or services, or any combination thereof

made in conjunction with each other
- Single price
- Where such supply does not constitute a composite supply

Mixed supply shall be treated as a supply of that particular supply which attracts
the highest rate of tax

Atleast one example for each should have been constructed by the student.

Question 6

“Adam Smith’s four canons of taxation reflect the social contract theory as
formulated by John Locke and Thomas Hobbes”. Comment.

Expected answer:

Explain Adam Smith’s four canons of taxation.

Discuss how did John Locke’s social contract theory understand taxation.

Based on the above, comment whether you agree with the statement or not.

Question 7

“Persons falling within high-income groups earn and spend more than low-income
earners. As a result, they pay more income tax as well as GST.” Comment on this
observation in view of the discussions in class.

Expected answer should at least cover:

Explain different tax rate structures - progressive, regressive

Explain progressive structure of personal income tax - How does that align with
the ability to pay principle? Refer to marginal utility of income. Refer to effect of
exemptions and deductions.

Page 3 of 8
Explain regressive structure of GST - Refer to absolute versus relative tax burden.
Classification of goods and services along with differential tax rates align with the
ability to pay principle?

Question 8

The definition of the term ‘consideration’ under GST law in India has a very wide
sweep. Explain the different forms of payment to a supplier of goods/services that
will be covered within the ambit of the said definition. Provide illustrations to the
extent possible.

Expected answer:

Refer section 2(31) CGST Act. Identify different types of payments covered under
it - payment in money, payment in kind, agreeing to do an act or forbear from an
act.

Students should have given one or two illustrations.

PART B

Question 1

A Ltd. is a GST registered manufacturer of handlooms, spinning machines and

weaving machines. Handlooms are exempt from GST whereas spinning and
weaving machines are liable to GST at 12%. A Ltd. is located in Thane,
Maharashtra and customers of A Ltd. are textile manufacturers located in
Gujarat and Karnataka and are registered for the purposes of GST in the said
States.

A Ltd. delivered 5 spinning machines to the factory of B Ltd. in Mangalore

(Karnataka) and B Ltd. paid Rs 1,00,000 as consideration for the same.

C Ltd. registered under Gujarat GST Act was a customer of A Ltd. C Ltd.
unilaterally terminated the contract that had been signed with A Ltd. for supply
of 20 handlooms. C Ltd. offered to pay A Ltd. Rs 10,00,000 as compensation on
account of the said termination, and A Ltd. accepted the same.

Explain GST implications on the above, including classification as intra-state

supply or inter-state supply. (10 marks)

Students are expected to discuss supply, consideration, location of supplier, place

of supply, valuation - with reference to the given facts.

For payment by C, discuss GST liability on amount received as compensation for

losses suffered. Is it payment for tolerating the breach (supply of service) or for
damages for non-performance (no supply involved)? Refer to advance ruling in
Fast Track and Bombay High Court judgment in Bai Mamubai Trust case.

A Ltd. received maintenance and repair services for the manufacturing equipment
used in its business premises at Thane. It also received inspection and testing
Page 4 of 8
services, in relation to the spinning machines manufactured, before they were
dispatched to the customer in Karnataka. Advise on availability of credit on the
GST paid by A Ltd. for the said services. (5 marks)

Students are expected to discuss whether conditions of availing credit are fulfilled
as well as whether it will be full credit or only proportionate credit, along with
reasons. (for inspection and testing it is full credit, but for maintenance and
repair services it is partial)

(Total 15 marks)

Question 2

Q is a salaried employee working in HMS Ltd. and is paid a salary of Rs. 100,000
per month. It is due to be paid by HMS Ltd. on the last day of every month. HMS
has a policy that an employee should serve two weeks notice period before leaving
employment. However, if an employee wants to leave the company before the
agreed notice period, then HMS will recover an amount equal to the unserved
notice period from the employee by deducting it from the salary payable for the
work done by the employee. Q did not wish to serve any notice period. Will the
amount deducted in lieu of notice period form part of salary income for Q for
income tax purposes?

Q also purchased 100 equity shares of M Ltd. (listed on BSE) on April 2020 for Rs
5,000 and sold the same in June 2021 for Rs 10,000. Advise on income tax
implications.

Explain with reasons and reference to relevant statutory provisions.

(Total 15 marks)

Students are expected to discuss section 15 (due vs. paid) and apply that to the
facts of the case.

For shares - all the conditions for taxation of capital gains along with reference to
the given facts should be discussed by indicating the relevant provisions
(existence of a capital asset, long term or short term capital asset, transfer, profit
or gain from the transfer).

Question 3

Wayfarer Pvt. Ltd. is engaged in the travel business and makes all kinds of
arrangements for its customers such as booking of air tickets and railway tickets,
hotel reservations, as well as taxi service arrangements. Wayfarer’s website
indicates the various destinations for which it can make the aforesaid
arrangements. Once users submit specific details of their requirements, the
prices and applicable terms and conditions can be viewed before making the
booking and payment. Its customers usually use the said website for the
Page 5 of 8
purposes of making the required bookings. Wayfarer has branch offices as well in
a few cities where customers may walk-in to make the bookings.

Wayfarer incurred an expenditure of Rs 15 lacs on its website. The said expenses

had to be incurred for registering and securing the domain name for a 10 year
period (further renewable, as per industry practice), designing of the website and
development of its content as well as a continuing contract to update the
information on the website from time to time.

Wayfarer seeks your advice. Should the above be treated as capital expenditure or
revenue expenditure? Give reasons. Explain what would be the affect of such
classification on computation of income tax.

Expected answer should address:

How are capital and revenue expenditure characterised; Honda Siel case; How should
you determine whether an expenditure is capital or revenue in nature; Empire Jute case.

Apply the above understanding to conclude whether the expenditure in question is

capital or revenue expenditure; Draw upon the given facts; Refer to any of the other
cases discussed on this issue as would substantiate the conclusion that you reach.
Explain deductibility of expenditure; Section 37.

(Students may have adopted different approaches in their reasoning and ultimate
characterisation. Marks to be given based on the above mentioned expectations as well
as strength of the reasoning)

Question 4

Samudra Ltd., a company based in Bangalore, has its primary objective, as stated
in the Memorandum of Association, to procure leases on residential apartments
in Bangalore (average lease term is 20 years) and to sub-let the apartments
(usually for a one year term at a time). Samudra has declared the income that it
receives as business income. The income tax officer has argued that the rental
money is income from house property.
 
Decide whether the income from letting of property is assessable as “profits and
gains of business” or as “income from house property” and discuss the tests to be
applied in such a case.

(15 marks)

Expected answer:

Refer to both cases - Chennai Properties and Raj Dadarkar. “Each case has to be looked
at from a businessman's point of view to find out whether the letting was the doing of a
business or the exploitation of his property by an owner.” - Chennai Properties case

Apply the case to the given fact situation. This will be characterised as business income.
Discuss why the argument for classifying as income from house property may arise.

Page 6 of 8
Question 5

National Law School of India University appointed a contractor to construct a new

hostel building that had to be completed before March 1, 2021. The contractor
delayed the construction by 2 months. The construction contract provided for
payment of damages at 0.5% of the contract price for every month of delay in
completion of the hostel building construction. The contractor paid the same to
NLSIU. Advise NLSIU on GST implications of the same.

(15 marks)

Expected answer:

Identify this as a case of liquidated damages. Explain the issue around GST exposure on
liquidated damages.

Discuss advance ruling in Fast Track and Bombay High Court judgment in Bai Mamubai
Trust case.

Apply the above to facts of the case and answer. (GST is inapplicable on payment of
damages since they are in the nature of compensation for loss caused by action/
omission of the payer and not referable to a supply.)

Question 6

The assessee carried on business as selling agents of various manufacturers and

entered into about dozen agency agreements for that purpose. It was normal
incident of the assessee’s business that the agency agreements might be
modified, altered or discharged from time to time. One of the agreements which
was for a period of three years was terminated at the end of the second year and
a payment of Rs.1,00,000/- was given as compensation. The assessee contends
that this was a capital receipt. Decide the issue and also outlining the differences
between revenue receipt and capital receipt, and the affect on computation of
income?

(15 marks)

Expected answer:

Discuss the difference between revenue receipt and capital receipt, and the affect on
computation of income.

Discuss the nature of the receipt in this case i.e why it is not in the nature of capital
receipt.

Discuss Sec 28(ii)(e) of income tax act.

Question 7

For the assessment year under dispute, the assessee filed her return of income
declaring total income at Rs. 75,00,000. During the assessment proceedings the
Page 7 of 8
assessing officer noticing that though the assessee received a sum of Rs.
6,90,00,000/- in the relevant year, she did not include it for the purposes of
computation of tax liability. The officer, therefore, called upon the assessee to
explain the reason thereof. In response, it was submitted by the assessee that she
is an actor, model and an entrepreneur, and had earlier invested in a company, of
which now the other shareholders desired to sell their shares. She was not willing
to sell her shares, and refused to sign the mandate to be given to the merchant
bankers to sell the shares at the best possible price. She, however, found later
that her signature was forged on a sale mandate given to the merchant bankers,
and filed a criminal complaint with the economic offences wing of the police in
respect of such forgery. After filing of the aforesaid complaint by the assessee, the
other parties approached the assessee to settle the matter amicably and a deed of
settlement was executed between them for settlement of the dispute. As per the
terms of the settlement deed it was agreed to pay a sum of Rs. 6,90,00,000/- to
the assessee on the condition that the assessee will withdraw the criminal
complaint filed by her against them. Subsequently, the assessee received Rs.
6,90,00,000/- upon withdrawal of the complaint.

The assessing officer seeks to assess income tax on the said amount received,
under section 28 of the Income Tax Act, 1961.

The assessee believes that the same is not liable to income tax. Advise the
assessee on income tax implications on the said amount.

(15 marks)

Expected answer:

Explain about the scope and ambit of section 28 of the income tax act that entails
discussion on revenue receipts and capital receipts.

Examine the nature of the amount concerned - is it revenue in nature? No. Is it explicitly
covered anywhere in section 28? No. What is important is which facts and details are
highlighted and emphasised in the answer, and how well reasoned is the response.

Question 8

XYZ was a dealer in second-hand cars. He was registered for GST and operated a
second-hand car scheme. Last year, it was alleged that he stole a total of 10 cars
and was convicted of stealing five of those vehicles. The tax officer contended that
the sale of stolen cars by XYZ amounted to a supply. XYZ contended that GST
was not chargeable on stolen cars. What is your opinion?

(15 marks)

Students are expected to discuss: What is the taxable event for GST? How has supply
has been defined? Is supply equivalent to sale? Is it necessary for there to be a transfer of
title for supply to take place? Weight has to be given for developing a sound reasoning in
support of the conclusion.

Page 8 of 8