The Union Budget 2019 was announced on 5th July, 2019. Start-ups took centre stage as the Finance Minister announced a host of relief measures for them. Even in the interim budget presented in February, 2019, start-ups figured prominently as part of the vision for the development of Indian economy over the next decade.  There was emphasis on “Make in India” with particular reference to start-ups, MSMEs, defence manufacturing, automobiles and electronics.

An insight into some of the major goodies announced by the Finance minister for the start-ups in the budget:

  1. It is proposed to start television programme(s) with national television channels exclusively for start-ups. The objective being to highlight and discuss issues affecting the start-ups that have a bearing on the growth, funding and tax planning. The channel is proposed to be executed by start-ups themselves.
  2. Tax provisions / proposals have been introduced with the intention / objective of stimulating the entrepreneurial spirits. By incentivising start-ups, it is also intended to promote digital economy. A simplified tax administration, especially for start-ups will ensure greater transparency.
  3. In order to resolve the “angel tax” issue, start-ups and their investors who file relevant declarations will not be subjected to any kind of scrutiny in respect of valuations of share premium.
  4. It is proposed to put in place an e-verification mechanism to establish the identity of investor as well as the source of funds. This way, while there is sufficient transparency in the process as well as statutory compliance, this will further not require any scrutiny by the Income tax department.
  5. The Central Board of Director taxes (CBDT) has been directed to put in place special administrative arrangement to address issues of pending assessments as well as redress start-up grievances. To achieve this, it has been decided that no inquiry / investigation / verification can be initiated by an assessing officer unless such officer obtains prior approval of their supervisory officer.
  6. It is proposed to extend relief of valuation of shares to Category II Alternative investment funds as well. Presently start-ups are not required to justify fair market valuation of their shares issued to Category I Alternative Investment Funds (AIF). By relaxing the statutory compliance requirement for Category II AIFs as well, valuation of shares will end up being beyond the scope of scrutiny of the Income tax department. The objective of such relaxation being ease of doing business – from the point of view of raising funds as well as from the compliance perspective.
  7. The period of exemption of capital gains arising from sale of residential house for investment in start-up has been extended by another 2 years - upto 31st March, 2021.
  8. The period of set off and carry forward of losses in case of eligible start-ups has been relaxed. It is proposed to enable them carry forward losses on satisfaction of any one of the two conditions – (i) continuing to hold 51% shareholding / voting power OR (ii) continuity of 100% of original shareholders.
  9. The condition of holding minimum of 50% of share capital or voting rights in the start-ups is proposed to be relaxed to 25%.
  10. It is proposed to relax the restriction of transferring new asset (computer / computer software) to 3 years (from 5 years)
  11. Profit linked deduction was introduced for start-ups. This has been done with a view to promote employment opportunities and growth in start-ups.

One of the biggest concerns’ because of which the start-up fraternity was up in arms was the imposition of the angel tax. The start-up community has made several representations with the IT department and the government to alleviate the burden of the tax.

The union budget 2019 has put that to rest by announcing the exemption of paying angel tax subject to filing requisite declarations. Eligible start-ups only have to file a duly signed self-declaration by with DPIIT for availing tax exemption.

Why “Angel” tax is no “angel” after all?

When start-ups (unlisted companies) raise capital /funds through issue of shares, it mostly does so at premium. Tax is imposed on the differential amount between fair market value of the company and the amount of premium. This is because under section 56(ii) of the Income Tax Act, the excess amount is treated as “income from other sources”. The rate of was an exorbitant 30.9%. While this applied to not only already existing private companies, this applied to new start-ups as well. Invariably start-ups took early stage funding from residents in India. Such tax is called “angel tax” as it largely affects angel investors investing in start-ups. Such angel tax is applicable to the capital raised from Indian investors only. Funds sourced from non-residents and venture capital funds were exempt from this tax.

Challenges of “angel” tax

One of the biggest challenge was valuation of start-ups. Start-ups which are nascent are almost always valued basis their intangible assets such as goodwill and estimated future projections. This makes the valuations subjective. The credibility of fair value arrived through such valuation is always questionable.  Higher valuation would benefit promoters as it means parting with lesser equity. However, this could also lead to discreet money laundering. Therefore the angel tax was introduced as an ‘anti-abuse’ provision.

As such start-ups have very few sources of funding. Normally they have to go to angel investors to raise funds. The exorbitant tax rate of 30.9% often deterred angel investors from investing. Such rate of tax, the investible surplus becomes lesser thus affecting growth prospects.

Start-up: the future of economic development

India is considered the 3rd largest start-up ecosystem after USA and China. World over investors and venture capitalists are optimistic about the potential and growth of the Indian start-ups. The Department of Industrial policy & promotion (DIPP now called “DPIIT”) has recognized 19,840 start-ups and has granted angel tax exemption to almost 600 start-ups. With around 32 unicorn start-ups based in India, and the trade faceoff between USA and China, this seems to be the right time to accelerate the Indian start-up ecosystem. They will have create further jobs and generate revenues. As the President of India stated in the Parliament about India reaching 1,00,000 start-ups by the year 2024, the abolition of angel tax is the first step towards the same. Start-up and stop not until the goal is achieved.



In the last week of June, the Central government approved amendment(s) to the Unlawful Activities (Prevention) Act. The cabinet also approved amendments to the draft National Investigation Agency (Amendment) Bill to widen scope of powers of investigation of the agency.  These amendments assume significance in the face of continuing terrorist attacks in India and on Indians globally.

The Unlawful Activities (Prevention) Act

The Unlawful Activities (Prevention) Act was enacted in 1969. It was first amended in 2004, then in 2008 and thereafter in 2012. This Act replaced the POTA Act. The object of this Act is to make powers available while dealing with activities directed against the sovereignty and integrity of the country.

Amendments to the UAPA

The First schedule of the Unlawful Activities (Prevention) Act contains an exhaustive list of almost 40 organizations considered as terrorist organizations and hence have been banned. The amendment to the Act will now include individual terrorists also in the list of “banned entities”. Therefore, the heads / chief of terrorist organizations some of whom have already been declared by the United Nations (UN) as “global terrorists” will now be declared by India as “individual terrorists”.

Expressly designating an individual as “terrorist” will lead to financial institutions blacklisting them thereby cutting off their source / access to funds or funding. Also governments will impose travel ban on them and restrict them from amenities. Such blacklisting of individual terrorists is in line with the United Nations Law that provides for designating individuals as “global terrorists”.
Such blacklisting will also put pressure on other countries to deal with such individuals in the same manner.

The National Investigation Agency Act

The National investigation Agency (NIA) is a central agency established by the government of India. Created after the Mumbai terror attacks in 2008, the objective was to establish a central agency to act as counter terror law enforcement agency. The agency is credited with a near 100% conviction rate up till now since its inception. The NIA was incepted to have concurrent jurisdiction to probe terror attacks in any part of the country including those offences that threaten the integrity and sovereignty of the country. To that extent it is in line with the UAPA. Such terrorist activities / offences include counterfeit smuggling of currency as well that aim at destabilizing the economy of any country. Various special courts have been created and Judges have been given powers to try and transfer cases of national importance. The NIA special courts are empowered with all powers under the Code of Criminal procedure for trying any offence.

Amendments to the NIA

The draft National Agency (Amendment) Bill seeks to widen the scope of the kinds of cases the NIA can investigate. The amendments seek to widen the scope of the NIA by including cybercrime cases that are registered under the Information Technology Act, 2000. It is proposed to include cases of human trafficking that have ugly interstate and inter country ramifications. To that extent, cases registered under the IPC will also fall under the ambit of the NIA. The amendments further propose permit searches to be conducted without the top police official’s consent. Though that is not the practice even now, the NIA does so in cases of a potential law and order situation. It is also proposed to allow the Judge of NIA to be designated by the position and not the name. One of the most significant amendments is to empower and enable the NIA to probe cases of terrorism on foreign soil especially if Indian nationals or interests are harmed. This enabling provision is crucial especially at a time when the Easter Sunday bombings in Sri Lanka killed and injured several Indians. Such investigation however has to be in line with the investigations provisions of the host nation.

The amendments to the UAPA and the NIA which have been in the pipeline since 2017 shall go to both house of the Parliament for approval in the current session. Once approved the amended provisions will give more teeth to premier central agency to investigate terrorist activities in the country and globally as well.



IBC: Rights of Suspended Board

Civil Appeal NO.8430 OF 2018 with WRIT Petition (CIVIL) NO.1266 of 2018

Vijay Kumar Jain Appellant(s) Vs Standard Chartered Bank & Ors Reposndent(s)


This year, a writ petition in before the Hon’ble Supreme Court arose out of an order passed by the National Company Law Appellate Tribunal that rejected the appellant’s application to direct the interim resolution professional (IRP) to provide all documents and details including resolution plans to the members of the suspended Board of the coprorate debtor company for them to meaningfully participate in the Committee of Creditors (CoC) meetings.

Facts of the case

Ruchi Soya Industries is the corporate debtor in question. Standard Chartered bank (SBC) and DBS are financial creditors which filed petitions before the NCLT. An interim resolution professional (IRP) was appointed and the Committee of Creditors (CoC) was duly constituted as well. Mr. Vijay Kumar Jain (appellant) was a director in the erstwhile Board of the corporate debtor company. Being a member of the suspended Board, he was given Notice and agenda to attend the CoC meetings. After the initial CoC meeting, Mr. Vijay Jain alleged that he was denied participation in further CoC meetings. He filed a miscellaneous application which was dismissed. He then filed an appeal against the dismissed miscellaneous application in the appellate tribunal of the NCLT which also upheld the rejection of the miscellaneous application. Aggrieved, Mr. Vijay Kumar Jain filed a writ appeal before the Hon’ble SC.


The counsels for Mr. Vijay Kumar Jain quoted in particular Section 24(3), 25 and 31(1) of the IBC read with the Rules and Regulations. They were of the view that once a resolution plan is passed by the Adjudicating Authority it shall be binding on the corporate debtor, guarantors and stake holders. The directors, in many instances are also the guarantors and have the right to know the resolution plan and challenge it.

The counsels of the interim resolution professional (IRP) on the other hand stated that as per sections 30(b), 39(2) of the CIRP Regulations, 2016 it was clear that the resolution plan was to be given only to the Committee of Creditors (CoC) for its consideration. They were of the view that the IBC expressly differentiated between “Committee” and “Participants”. “Participants” are expressly excluded from being provided information and documents and that the IRP was required to present resolution plans only to the CoC (and not participants). Further, they were of the view that the presence of the erstwhile Board members was only to provide information and assess the financial position of the corporate debtor company. They could not deliberate on the merits and de-merits of a resolution plan(s) as such plans affect only the creditors and not others.

From the perspective of the Committee of Creditors (CoC), their counsels argued that “information memorandum” and “resolution plan” were entirely different from one another. They could not be construed as “documents”. They further argued that members of the erstwhile Board were information givers and not information seekers. They brought to the notice of the Hon’ble SC that the Code expressly laid down provisions that a director who was also a financial creditor cannot participate in the meeting of the CoC due to potential conflict of interest. A director simplicitor could participate in such CoC meetings. They were of the strong view that confidentiality / credibility of the resolution plan would be breached if directors have access to the resolution plan meant essentially for the creditors. It could end up sabotaging the IRP process itself.

The Judgment

After due consideration of the exhaustive sections of the IBC and its Rules/Regulations and the arguments of all parties concerned, the Hon’ble Supreme Court, set aside the order of the appellate tribunal of the NCLT and pronounced its judgment in the following manner:

The IBC Code contains express provisions that state that directors – members of the erstwhile /suspended Board have a right to participate in every meeting of the CoC as they are vitally interested parties. Though they do not have a right to vote, they have the right to participate and discuss along with the members of the CoC, all resolution plans that are presented at such meetings. Therefore, they have a right to receive notice, agenda and all documents / information relevant to the resolution process. This would include the resolution plan(s) as well. As far as the confidentiality of the information is concerned, the IBC itself expressly states that a resolution professional can obtain an undertaking (say in the form of a non-disclosure agreement / confidentiality agreement) from members of the erstwhile Board to maintain confidentiality.

Note: For the full text of the judgment refer


Auditor Rotation



In commercial law, the amount wanting when a cask, on being gauged, is found not to be completely full..

Vadium mortuum

A mortgage or deed pledge; a security given by the borrower of a sum of money, by which he grants to the lender an estate in fee, on condition that, if the money  be not repaid at the time appointed ,the estate so put in pledge shall continue tot he lender as dead or gone from the mortgagor.


Waifs are goods found, but claimed by nobody; that of which every one waives the claim. Waifs are to b distinguished from bona fugitive, which are the odds of the felon himself, which he abandons in his flight from justice.



Getting Legal with HIV



Young Mr. Lincoln (1939) (Movie)

A 1939 American historical / biographical drama. This “facts meets fiction” story was also written as a book. It traces the early life of the American President Abraham Lincoln (played by Henry Fonda). It is a vivid depiction of the journey of Lincoln through his modest birth and beginnings, his becoming a lawyer encouraged by his first lady love who tragically died young and how he moved to Springfield to set up a law practice. In Springfield he met Mary Todd (Marjorie Weaver) who took a liking for him and is particularly impressed by the way Lincoln defended two brothers who were accused of murdering another man during a fight on their Independence Day. With pressure building on him and the victim’s family to prove the innocence of the brothers’, Lincoln deftly handled the witness claiming to have clearly witnessed the murder under moon light. With the help of an almanac, Lincoln deftly proved that the moon had set before the time of the murder and it was not possible for the moonlight to be so clear to enable witness a murder in a distance of about 100 yards. Basis this, the brothers are acquitted. An old classic must watch


Treason – Don Brown (2005) (Book / Novel)

From the stable of the former JAG officer and now Author Don Brown, comes his best seller – Treason which was published in 2005. It is the first of his Navy Justice Series. The story revolves around Zack Brewer a Lawyer a young JAG officer who is given the responsibility of prosecuting Islamic clerics in the Navy Chaplain Corp. The (t) reason – the clerics have infiltrated the Navy and incited sailors and marines into acts of terrorism. With his staunchest rival acting as his colleague in this prosecution and being pitted against an internationally acclaimed lawyer defending the clerics, the story unfolds about how unrelated incidents are not so unrelated after all.


GOLIATH (2016) (TV Series)

A web series that premiered on Amazon Video in 2016 and ran until 2018, Goliath focuses on the life of the “down and out” lawyer Billy McBride a former brilliant lawyer turned alcoholic. Disillusioned after a murderer (he previously acquitted on technical grounds) kills an entire family, Billy becomes an alcoholic seeking redemption. Meanwhile the law firm that help co found with his friend has become a goliath catering to the rich and powerful. In reluctantly dealing with smaller cases, he tries to redeem justice and truth.


A leader is one who knows the way, goes the way, and shows the way.”

– John C. Maxwell

© Copyright 2019 - A K Mylsamy & Associates LLP


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