Data, Privacy: What’s on the Cards

The Data Lawyer and Aureus Law Partners wish you a very happy 2019 (and we sincerely hope that in the new year, no one infringes your privacy, steals your data or leaves you with a lack of choice!). 

In this post, we take stock of some imminent developments within the realm of data privacy in India, and its potential impact on individuals and businesses alike. Needless to say, what’s on the horizon is mostly tied to what transpired in the last year.  

Aadhaar and Other Laws Amendment Bill

On December 17, 2018, the Cabinet approved certain amendments to the Prevention of Money Laundering Act, 2002 (the “PMLA”), the Telegraph Act, 1885, and the Aadhaar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act, 2016 (the “Aadhaar Act”) that are intended to pave the way for use of Aadhaar details for obtaining new mobile numbers or opening bank accounts when customers opt for its use ‘voluntarily’. We had written about the possible outcomes of this here: https://thedata.lawyer/2018/12/18/what-the-proposed-pmla-amendments-might-mean/.

The Bill was introduced in Parliament in this week. The Bill proposes a regime for allowing every client, beneficial owner, or person (such terminology depending on whether the necessary identification is in relation to telecom or PMLA requirements) who is sought to be identified, the voluntary choice of one of the following modes of identity verification:

  1. authentication under the Aadhaar Act if the party doing the verification is a banking company (under the PMLA regime), and by all persons licensed to ‘establish, maintain, or work a telegraph’ (read: telcos and ISPs); or
  2. offline verification under the Aadhaar Act (whether the offline verification will be paper-based or paperless mechanisms is not currently known and will be “through such offline modes as may be specified by regulations” says the Bill); or
  3. use of passport issued under Section 4 of the Passports Act, 1967; or
  4. use of any other officially valid document (“OVD”) or modes of identification as may be notified by the Central Government.

Simply put, the Bill allows Aadhaar e-KYC, Aadhaar offline KYC and other forms of KYC through passport or other OVDs, depending on the individual’s choice. 

Note that there are several additional steps that need to occur before we see the result of these amendments: these include the issuance of specific regulations that would, presumably, set out the details of how each of these various forms of identity verification are to take place. Here are a few additional points about the changes proposed in the Bill that one needs to keep in mind:

  • While the proposed changes to the PMLA currently contemplate the use of Aadhaar eKYC only by banking companies, the Bill also states that the Central Government may permit other types of entities that to use Aadhaar eKYC is they meet the standards or privacy and security set out under the Aadhaar Act. This leaves significant opportunity for regulatory widening of the permissibility of Aadhaar eKYC by – you guessed it – ‘fintech’ companies
  • Several industry bodies and associations have made representations to regulators in the past months, urging the adoption of ‘paperless’ processes for non-Aadhaar-authentication-based (read: non-Aadhaar-eKYC) identification processes; whether these have been accepted, and if so, to what extent, would only be apparent once the updated regulations are published and made available.
  • The Bill states emphatically that no person may be denied services for not having an Aadhaar number. But it keeps a window open for mandatory authentication of an Aadhaar number holder for the provision of any ‘service’ if such authentication is required by a law made by Parliament. Possibly, the ‘service’ in question is one for which the expenditure is incurred from, or the receipt thereform forms part of, the Consolidated Fund of India, as described in Section 7 of the Aadhaar Act.
  • Other noteworthy changes proposed by the Bill relate to granting of teeth to the UIDAI by allowing it to appoint officers and employees to discharge its functions, issue directions to any entity in the ‘Aadhaar ecosystem’, and also impose hefty fines ranging from one crore to additional penalties of upto ten lakh per day of an unremedied contravention. This is important, because one of the grounds on which the compulsory use of Aadhaar eKYC was challenged is that private players were allowed to gather demographic data without much oversight over their use, retention, or processing of such data. These changes may result in greater compliance by entities within the ‘Aadhaar ecosystem’; but note that the proposed changes in the Bill do not include specific provisions under which an Aadhaar number holder could file a complaint against an erring ‘Aadhaar ecosystem’ member: inquiries under the new Section 33A(l) of the Aadhaar Act may only be initiated upon a complaint made by the UIDAI. 

Watch this space for timely updates on the Bill’s journey through Parliament. 

Review Petition against the Aadhaar Judgment

Even as the Government and the regulators showed sluggishness in reacting to the Supreme Court’s Aadhaar judgment (in the matter of Justice K.S. Puttaswamy (Retd.) v. Union of India & Others), we hear that a petitioner by the name of Imtiyaz Ali Palsaniya has made some quick moves to file a review petition against this judgment, contending that various grounds urged in applications filed in the matter had not been considered by the Hon’ble Court in its judgment. The petition purportedly sets out eight grounds for reviewof the judgment, of which the following is of interest to us:

“The absence in the judgment of any direction by the Hon’ble Court for deletion of Aadhaar data which already is in the possession of private companies, entities, schools, colleges, work places, banks, post offices, telecommunication service providers, etc. The petitioner contends that such a direction ought to have flowed as a consequence of the Supreme Court Bench’s reading down of Section 57 of the Aadhaar Act. While the contention appears logical, it remains to be seen whether it garners the apex court’s interest. If it does, it is hoped that the directions if any issued, are not impractical to comply with.”

The Information Technology Intermediaries Guidelines (Amendment) Rules

On December 24, 2018, the Ministry of Electronics & Information Technology (“MeitY”) issued a draft of “The Information Technology [Intermediaries Guidelines (Amendment) Rules] 2018” inviting public comments on certain measures to regulate social media, which had Indian social media buzzing for several hours. 
Among others, the draft Rules state: 

“When required by lawful order, the intermediary shall, within 72 hours of communication, provide such information or assistance as asked for by any government agency or assistance concerning security of the State or cyber security; or investigation or detection or prosecution or prevention of offence(s); protective or cyber security and matters connected with or incidental thereto. Any such request can be made in writing or through electronic means stating clearly the purpose of seeking such information or any such assistance. The intermediary shall enable tracing out of such originator of information on its platform as may be required by government agencies who are legally authorised.”

Since a previoushome ministry notification authorising 10 intelligence and security agencies to intercept data on computers, mobile devices, and servers caused uproar, the Government gave a longer reaction time to stakeholders on this one.  

While the Government’s efforts to reign in the internet and social media – much in contrast to the fundamental premises on which these are designed – are nothing new, one wonders what would happen to intermediaries if they are ever called upon to handover information or assistance of a nature that they are ill-equipped to even store, let alone handover. Even a law-abiding intermediary would be hard-pressed to think of all the types of information that might fall under a description as vague as “information concerning cyber security…matters connected with or incidental thereto”. It is hoped that stakeholders take due notice of such draft rules and regulations and make known their difficulty in complying with them. 

And in parting, let’s mention the Draft Personal Data Protection Bill, which generated much discussion and debate, but has not been presented before Parliament in the current session. With general elections around the corner, and a veritable sea of representations and suggestions having been made to MeitY in response to its invitation of comments from the public, the date of the Bill’s passing into law, as well as its final form, remain matters of speculation. 2019 promises to be an interesting year for privacy and data protection!

Here’s how you can reach the authors:
Bhavin Patel (bhavin.patel@aureuslaw.com)
Hemant Krishna (hemant.krishna@aureuslaw.com)

Case Update: Supply of foods/beverages on-board a train to be treated as pure supply of goods

Taxpayer is involved in the business of supplying food to passengers travelling via Rajdhani Trains and other mails/express trains on basis of the menu approved by Indian Railway. Primarily, the Taxpayer was supplying food via three different modes. Firstly, supply of food through the food plaza / food stalls on the railway platforms; Secondly, supply of food on board the trains, including mandatory supply of newspapers; Thirdly, supply of food on board the mail/express trains. The Taxpayer preferred the application for advance ruling under Section 97 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) before the Authority for Advance Ruling (“Authority”). On basis of the materials and records placed before the Authority, an advance ruling was sought in relation to the rate of GST applicable on the said supply of foods/beverages, and the mandatory supply of newspapers on board the trains by the Taxpayer.

Taxpayer was of the view that the supply of foods/beverages from food stalls / food plazas at the platforms and on board the trains would be taxable at the rate of 5% integrated tax (“IGST”) in terms of the Entry No. 7 of Notification No. 11/2017 – Central Tax (Rate) dated June 28, 2017 (“Rate Notification”). Further, the supply of newspaper would be exempt from GST as per the Entry No. 120 of Notification No. 2/2017 – Central Tax (Rate) dated June 28, 2017 (“Exemption Notification”). The jurisdictional Commissioner (CGST) agreed to the views of the Taxpayer except with respect to supply of foods/beverages on board the trains, which would be taxable at the rate of 18% IGST, being the supply of ‘outdoor catering’ services.Basis the perusal of contracts / agreements, the Authority observed that for supply of food on the trains, there are three transactions, one between the passengers and the Indian Railways, second between Indian Railways and Indian Railway Catering and Tourism Corporation (“IRCTC”) and third between IRCTC and the Taxpayer. The present application pertains to the third transaction vis-à-vis between IRCTC and the Taxpayer.

The Authority observed that the train is a mode of transport and hence cannot be treated as a restaurant, eating joint, canteen, etc. Accordingly, the catering services provided on-board a train are not covered under S. No. 7(i) of the Rate Notification, as claimed by the Taxpayer. Further, with respect to the treatment of said supply of food/beverages on-board a train as composite supply of services, the Authority ruled that since no element of service is involved, the same shall be treated as pure supply of goods. In similar terms, the supply of foods/beverages from the food stalls on the platform shall be treated as pure supply of goods. Further, the supply of newspapers, which is separately invoiced, shall be exempted from GST in terms of the S. No. 120 of the Exemption Notification. Accordingly, the application for Advance Ruling was disposed off by the Authority.

(In Re: Deepak and Company; Advance Ruling No. 02/DAAR/2018; Authority for Advance Ruling, New Delhi)

In case of any queries or clarifications on this subject, please feel free to reach out to Manish Parmar, Senior Associate, Aureus Law Partners at manish.parmar@aureuslaw.com.  Views are personal.

Liquidated Damages – Implications under the Goods & Services Tax Laws

Liquidated damages (“LD”) mean a fixed or pre-determined sum that is required to be paid upon breach of a contract, which may arise due to non-fulfilment of the obligations, delay in fulfilling the obligations or abandonment or termination etc. Hence, LD damages are directly connected to the actual injury and losses incurred by a party due to failure or delay in performance of obligations under the contract by either party. These LD clauses/ obligations are prevalent in construction contracts where the provisions relating to timely and milestone performance of the project are incorporated. For instance, EPC onshore/ offshore sub-contracts have milestone-based implementation, hence any delay in execution / completion of the same causes huge losses to the project owners. LDs cover this contingency.

Commercially, the LDs are considered to be a measure of compensation for a pre-determined loss arising out of breach of contract. However, in a recent matter of In re Maharashtra State Power Generation Company Limited dated May 18, 2018, the Authority for Advance Ruling, Maharashtra (“Authority”) under GST ruled that the amount of LD deducted from the payments made to the contractor/ vendors would amount to supply of service by the project owner / Taxpayer. The said ruling along with the factual background is discussed hereunder:

Factual Background

The Taxpayer approached the Authority under Section 97 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) seeking an advance ruling on levy of GST on the amount of LD deducted from the contract price agreed with the contractors/ vendors. The main issue for this ruling was as to: (i) whether the LD would be treated as ‘sale’; and (ii) whether this would be liable to GST as separate from the contract value/ price. The Taxpayer relied upon the ruling in GSTR 2003/11 issued by the Australian Tax Office under the Australian Goods and Services Tax Act, 1999, wherein the deduction from the contract price was held to be towards deficiency in the provision of services, and therefore the same would not attract GST. Also, reliance was placed in the matter of Commissioner of C. Ex., Chandigarh-I v. H.F.C.L. (Wireless Division) reported as 2015 (11) TMI 893 – CESTAT- New Delhi, wherein it was held that if a taxpayer is liable to pay a lesser amount than the generically agreed price as a result of a clause stipulating variation in the price, on account of liability to ‘liquidated damages’ on account of delay in delivery of manufactured goods then such resultant price would be the ‘transaction value’. Further, the Taxpayer submitted before the Authority that the provision of such a clause in the contract is to ensure that the completion of the project does not get delayed.

Observations of Authority

The Authority observed that contract price and LD are two distinct aspects of the contract, and deduction of LD from the contract price merely facilitates the settlement of accounts. The Taxpayer contended that LD helps in mitigating the impact of higher costs in form of interest during construction and administrative charges. Taxpayer further contended that it was never its intention to get supplies/ project delayed nor did the contractors want to make delay and thereby causing it to tolerate. Therefore, LD could not be termed as service provided to the contractor. However, the Authority observed that the provision of LD in the contract is squarely covered by the clause (e) of the Para 5 of the Schedule II annexed to the CGST Act. The said entry provides that ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act’, shall be treated as supply of services. The Authority ruled that the amount of LD deducted from the payments made to the contractor/ vendors is income in the hands of the Taxpayer and would amount to supply of service by the Taxpayer. Accordingly, the Authority held this would be classified under Heading 9997, and GST at the rate of 18 percent would be levied on the amount of LD deducted from the contract price.

Conclusion

While the said ruling is binding on the Taxpayer and the Revenue in respect of the particular issue in question, the same may have a persuasive precedential value. Also, it may have a bearing on how the clauses relating to LD is negotiated in contracts in the future.

Aureus’ New Office – Defence Colony

Over the past 5 years, Aureus Law Partner's Delhi office was working out of Chittaranjan Park in New Delhi - fondly called '1778' by us. 1778 gave us our first office, from where we launched, and how!  We expanded to Mumbai, to Dehradun/Haldwani, Kolkata and recently to Bhopal. Our team size grew, progress was heady, but we treaded cautiously, 'slow and steady' was the mantra.  1778 was a little out of the way, a little further off from the courts than is usual, and needed a visitor to enter the heart of what is known as Delhi's "Mini Calcutta".  We did feel that we should move to a location closer to the courts as our litigation practice steadily grows. Also, access was to perhaps be an issue going forward on account of development of Delhi Metro stations leading to traffic congestions at various key points of entry and exit to CR Park. 

We shortlisted Defence Colony -  a veritable "Wall St." for lawyers of Delhi, as it were. D-306, Defence Colony has now been finalised as Aureus' new home, and the move from CR Park stands completed. 

The location is perfect to catch up for a meeting while you wait for a hearing in the Supreme Court or the Delhi High Court. Along with various senior counsels in close proximity, D-306 offers the required comfort to be able to prepare, visit and conduct an effective briefing as well as hearings, without spending inordinate time on travel. 

Do give us a call and feel free to visit us at D-306, Third Floor, Defence Colony.  Coffee, conversation and an eclectic company of colleagues await you. 

Our other details remain the same. 

Applicability of Limitation Act to Insolvency & Bankruptcy Code, 2016

The Limitation Act, 1963 (“Limitation Act”) is a law of repose, peace and justice which bars the remedy after lapse of a particular period by way of public policy and expediency without extinguishing the right in certain cases. This is based on a public policy principle that a claimant who has slept over its claim cannot seek to enforce the said claim/rights at a later stage, as it will prejudice the right of the other party. Therefore, when the Insolvency and Bankruptcy Code, 2016 (“Code”) is silent on the applicability of the Limitation Act on the proceedings brought under the Code it poses some interesting issues: which have been discussed in the recent past in a number of cases before the National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”). This article aims to highlight some of the said important judicial pronouncements.

To view the article, please click this link.

Please allow Flash to run on your computers for the article to load.