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Archives - 2002
SEBI Committee’s recommendations on electronic contract notes
The Securities and Exchange Board of India (“SEBI”) Committee on Straight Through Processing (“STP”) has in its report recommended the delivery of contract note information electronically in a secure and standard form and recognition of electronic contract notes as an alternative to paper based contract notes. Consequential to the enactment of the Information Technology Act, 2000 (“IT Act”) (with the consequential amendment to the Banker’s Books Evidence Act, 1891), the SEBI had permitted the use of electronic contract notes in the market vide a circular dated December 15, 2000. The circular provided that brokers were allowed to issue contract notes authenticated by means of digital signatures provided that the broker had obtained a digital signature certificate from a Certifying Authority (“CA”) under the IT Act. However, contract notes are currently generated in physical form by brokers and manually delivered to the investors and custodians, after which they are input into transaction processing systems by the investor and the custodian. This process of manual generation, delivery and input is operationally cumbersome, and fraught with operational risk. Further, there currently exists a lack of adequate CA’s in India to digitally certify contract notes. The Committee has thereby recommended that the Government grant legal recognition to electronic contract notes certified by overseas CA’s, as exiting players related to capital markets were global and did not have an existence in India.
The Committee has also recommended that the SEBI consider writing to the State Governments to waive the stamp duty payable on contracts as a result of the conversion of the contract notes to electronic form. This is because the issuance and maintenance of contract notes in electronic form would require a considerable one time and recurring investment and the imposition of stamp duty would increase the transaction cost and may defeat the very purpose of introducing STP. Further, the Committee has recommended that SEBI allow the maintenance of records in electronic form and has outlined various rules, regulations and statues that would require amendments to provide for the same.
Some of the other recommendations of the Committee include online connectivity between the depositories to permit easier settlement and adoption of ISO 15022 standard for financial messaging. In addition, the report also refers to issues relating to payment systems, which do not fall under the purview of the SEBI and would have to be referred to the Reserve Bank of India for action. The report forms part of SEBI’s continuing efforts to increase the efficiency and transparency in the Indian market, with a view to make it a more attractive destination for global investors. The road mad suggested by the Committee for STP implementation envisages brokers, custodians and fund managers being ready by December 2, 2002.
Source: The Economic Times, October 09, 2002
TRAI allows choice of STD, ISD carriers
The Telecom Regulatory Authority of India (“TRAI”), on July 24, 2002 issued directions, which provide that telecom providers of basic and cellular services will be free to select their own national long distance (“NLD”) and international long distance (”ILD”) carriers for carrying default traffic. The directions have been issued in order to enable operators concerned to carry out the required system modifications within a stipulated time frame, and provide the customer with both the facilities i.e. ‘Call by Call’ Carrier Selection (in which four extra digits i.e. Carrier Access Code are required to be dialed for routing of each call), as well as “Carrier Pre-selection”, (where a subscriber can intimate his choice in advance).
According to TRAI’s directions, for NLD services, basic and cellular service providers are given a time frame of three months to make arrangements in Call-by-Call carrier selection. With regards to Carrier Pre-selection, the TRAI has given a period of six months to cellular operators and nine months to basic operators. Similarly, in ILD services, the TRAI has asked cell operators to modify their network within six months for both categories of Call-by-Call carrier selection and Carrier Pre-selection category, while Basic telecom operators have been given a time of eighteen months.
The directions also provide that the amount to be paid by way of setup cost and the mode of its payment would be decided by mutual negotiations. Arrangement would be entered into, after such negotiations, under which the Standard Trunk Dialing (“STD”) or International Subscriber Dialing (“ISD”) operator would pay the necessary setup cost to the Access Provider in whose network the required changes were to be made. If the operators concerned fail to reach such an agreement within thirty days, they would be required approach the TRAI for a determination on the issue.
The sharing of default traffic had become a contentious issue when the TRAI had issued an order on January 25, 2002, stating that default traffic would be divided equally between all NLD operators. Bharat Sanchar Nigam Limited (“BSNL”) had moved the Telecom Dispute Settlement Appellate Tribunal (“TDSAT”) against TRAI's order stating that TRAI had no powers to decide as to who would get business, in terms of STD traffic and on what basis. BSNL is now believed to have sought time for responding to TRAI's order on modification of networks for offering choice of STD operator to subscribers, during the hearing of the NLD default traffic case involving BSNL and Bharti. The matter is now slated for hearing on August 12, 2002 at the TDSAT.
Source: The Economic Times - July 25, 2002 and August 01, 2002
Patentability Of Software In India
The Patents (Second Amendment) Act, 2002 (“Amendment Act”), as passed by both Houses of the Parliament, received the Presidents assent on July 11, 2002 and has been notified in the Official Gazette of India as Act No. 38 of the year 2002.
Prior to the passing of the Amendment Act, software, more particularly a computer programme, could only be protected by copyright law, under the provisions of Section 14(b) of the Copyright Act, 1957, as a literary work. Computer programme, as defined under the Copyright Act means “a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result”.
The Patents Act, 1970 (“Patents Act”) defined an ‘invention’ as any new and useful art, process, method or manner of manufacture or a machine, apparatus or other article or a substance produced by manufacture and it included any new and useful improvement of any of them, and an alleged invention. The patentability of software in India was therefore ambiguous until the recent Amendment Act. Under the provisions of the Patents Act before the amendments, software could not be patented but patents could be obtained in respect of novel hardware integrated with software.
The Amendment Act has now introduced a new definition of the term ‘invention’: “a new product or a process involving an inventive step and capable of industrial application”. This is a wider definition than the definition of ‘invention’ before the amendment. However, Section 3(k) of the Amendment Act now provides that ‘mathematical or business methods or computer programs per se, or algorithms’ are excluded from the ambit of patentability. There exists no Indian jurisprudence to interpret the term 'computer program per se', however the legislative intent behind the inclusion of the term “per se” after ‘computer programme’ in Section 3(k) could be to not completely exclude computer programs from being patented.
The expression “computer program per se” can be interpreted by drawing an analogy from the interpretation assigned to the expression “as such” in Article 52(3) of the European Patent Convention (“EPC”), and the practice evolved by the European Patent Office. Upon a combined reading of Articles 52(2) and 52(3) of EPC ‘programs for computers as such’ are not patentable. Although the EPC does not define the term “as such”, the European Patent Office case law has evolved a workable definition of the term, which allows almost all kinds of software that causes a “technical effect” to be patented. A computer programme is considered to have a technical effect, if it causes, when run on a computer, an effect that goes beyond the "normal" physical interactions between a programme and a computer. If such an effect can be found, the programme can be a patentable invention. For example, a computer programme which increases the efficiency of a machine or a computer programme which decodes electronic signals more accurately to provide better relay.
In conclusion, software programs, subject to the above conditions are now likely to be patentable under Indian patent law.
Source: Patents (Second Amendment Act) 2002
TRAI issues regulation on Reference Interconnection Offer
The Telecom Regulatory Authority of India (”TRAI”) vide a notification No. 409-10/2002-TRAI (FN), dated July 12, 2002 issued the Telecommunications Interconnection (Reference Interconnect Offer) Regulation, 2002 (“Regulations”) to ensure effective interconnection between different Service Providers and to regulate arrangements amongst Service Providers of sharing their revenue derived from providing telecommunication services. Interconnection agreements would be required to be entered between all types of operators such as basic, cellular mobile, national and international long distance operators and also operators who provide a combination of these services.
The
Regulations envisage publishing of a Reference Interconnect Offer (“RIO”)
by telecommunication Service Providers holding a significant market power. The
TRAI has also issued a Model RIO and Guidelines to RIO, with the Regulations.
The model RIO contains terms and conditions, which are generic in nature and
bring forth the various principles and elements involved in proper and effective
interconnection. The Regulations provide that Service Providers with a market
share of 30% of total activity in a licensed telecommunication service area
would be required to publish within 90 days from the date of issue of the regulations,
a RIO, describing their technical and commercial conditions for interconnection,
including the costs for interconnection usage based on the Model RIO and the
Guidelines to RIO.
Service
Providers would not be required to obtain prior permission for entering into
Interconnect Agreements, but the Agreements would have to be registered with
the TRAI in accordance with the Regulations. The RIO published by a Service
Provider would form the basis for all Interconnection Agreements to be executed
and the prior approval of the TRAI would be required prior to making any changes
in the said RIO’s. Interconnection Agreements would be required to be entered
into by Service Providers based on published RIO’s. However, the Regulations
provide that the Interconnection provider and the seeker would be free to modify
and/or add terms and conditions stipulated in the published RIOs for entering
into individualized agreements to suit a specific type of network and other
special requirements.
Interconnection is important in a multi-operator scenario, like that prevailing in India and the Regulations are a significant step in the right direction. Interconnection will play a crucial role in achieving the objectives of telecom liberalization, such as promoting efficiency, through competition, establishment world-class telecommunications networks, and maximizing universal access to telecommunications services.
Source: The Economic Times, July 13, 2002
The Patents (Second Amendment) Bill, 1999 (“Bill”),
which was revised based on the recommendations of the select committee, has
been passed by both Houses of Parliament.
The revised Bill aimed at broadening the scope
of compulsory licencing of patents. It did not define “public health and emergency”,
but empowered the Health Ministry to intervene when necessary and declare a
situation of public emergency. The revised Bill provides the Central Government
with the authority to make a declaration in the Official Gazette and
grant compulsory licences if the
patented invention is not available to the public at low costs, or in circumstances
of national emergency, extreme urgency, or public non-commercial use.
The revised Bill also contained a “Bolar” provision,
which limited the exclusivity benefits available to a patent holder during the
twenty years duration of the patent. As per the Bolar provision, companies would
be able to conduct research on a patented product during the lifetime of the
patent, thereby enabling them to start production and sales immediately upon
the expiry of the patent.
The Bill has also done away with the cap of
four per cent on the royalty payable to multinational companies supplying medicines
and proposes to fix this royalty on a case-to-case basis.
The Bill also
specifies that a “mathematical or business method or a computer program per
se, or algorithms” shall not be patentable inventions. This has raised the
issue amongst experts as to whether a computer program if embedded in a device,
would be patentable.
Source: The Economic Times, May 15, 2002
The Government proposes to introduce certain
amendments to an existing amendment bill in Parliament, which seeks to amend
the Negotiable Instruments Act, 1981. The bill recognizes virtual cheques and
makes stringent provisions for the dishonour of these virtual cheques.
These virtual cheques would be different from
normal physical cheques, as they would be authenticated through an electronic
signature. Government officials have explained that the bill would cover two
types of virtual cheques: cheques which are introduced in electronic form and
cheques which are submitted in physical form but are converted into virtual
form once it enters the banking system and goes for clearance.
However, it is important to note that the Information
Technology Act, 2001, which gives legal recognition to digital signatures, is
not applicable to the Negotiable Instruments Act. Therefore, while making an
amendment to the Negotiable Instruments Act, a consequent amendment would also
be required in the Information Technology Act to make this provision effective.
Source: The Economic Times – May 09, 2002
In January 2001,
the Department of Telecommunications (“DoT”) allowed basic telecommunication
operators to offer Wireless in Local Loop (“WiLL”) based mobile services
to customers at a tariff of Rs 1.20 for a three-minute outgoing call and free
incoming calls. Thereafter, the Cellular Operators Association of India (“COAI”)
had opposed this decision before the Telecom Disputes Settlement Appellate Tribunal
(“TDSAT”) on the grounds that only cellular operators were licenced to
offer mobile telephony services. However, in March 2001, the TDSAT ruled in
favour of the basic operators. Thereafter, the COAI filed a petition with the
Supreme Court.
In its petition, the COAI sought to set aside the order of the TDSAT and also sought to quash the decision of the DoT which permitted basic operators to provide WiLL services. The petition stated that the “public interest” claim used to justify the WiLL services was misleading. Additionally, COAI also pointed out that with WiLL monthly rentals at Rs 450 to Rs 550, the difference in tariffs between existing fixed-line service and WiLL was huge and significant. Moreover, the petition also stated that the no free calls could be made under WiLL, thereby making it unaffordable for target-fixed line customers in the rural areas and low-income subscribers.
However, yesterday,
a division bench of the Supreme Court refused to grant a stay on DoT’s decision,
which allowed basic operators from offering WiLL services. The Court has however,
issued notices to the Union of India and basic operators regarding the petition
filed by COAI. The matter is kept for final hearing on July 19, 2002.
Source: The Economic Times, May 08, 2002
Proposed amendment to Cable TV Act for the introduction of CAS
The Cable TV Networks
(Amendment) Bill (“Bill”), which was passed by the Lok Sabha (Lower House),
was not cleared by the Rajya Sabha (Upper House) in the Parliament. The
Bill seeks to amend the Cable Television Networks (Regulation) Act, 1995 (“Cable
TV Act”) to introduce a Conditional Access System (”CAS”), thus making
set-top boxes mandatory for pay channels. According to the proposed amendment,
consumers will be charged only for the pay channels they watch and will be required
to pay a fixed rate for free-to-air channels.
It is proposed that the government will regulate the cost of free-to-air
channels, which would be made available in the present mode, without set-top
boxes and the charge for the pay channels will be determined by market forces.
The system of CAS would be implemented in phases. Initially, the set-top boxes
would be mandatory in the metropolitan cities and in the second phase, it would
be made mandatory in other cities.
The broadcasters and some of the cable operators
have been lobbying for CAS largely because broadcasters feel that the cable
television operators do not report accurate number of subscribers, which results
in loss of revenue for the broadcasters. On the other hand, the cable operators
are of the view that they are at the mercy of the broadcasters, who can stop
access to channels whenever there was an important event. The introduction of
CAS is likely to provide a level playing field for the broadcasters, cable operators
and viewers. However, there exist certain unaddressed issues with regards to
the implementation of CAS, due to the absence of a regulatory authority under
the Cable TV Act and the high cost of set-top boxes. News reports indicate that
a Presidential Ordinance may be passed while the bill is still pending in Parliament.
Source: The Economic Times, May 2002
The Department of
Telecommunications (“DoT”) on March 21, 2002 introduced guidelines for
issue of permission to offer Internet telephony services (“Guidelines”). Only licensed
Internet Service Providers (“ISPs”)
are now permitted to offer Internet telephony services within their service
area from April 1, 2002, subject to certain conditions outlined in the Guidelines.
The Guidelines define Internet telephony as “an Application Service, which the customers of ISPs can avail from their Personal Computers (“PCs”), capable of processing voice signals or other IP based Customer Premises Equipment”. However, the services that can be availed are restricted to only calls made from a PC to another PC within India as well as outside India and PCs in India to telephones outside India. Hence, calls from PCs in India to telephones within India are not permitted under the Guidelines. In addition, the service includes calls made from IP based terminals in India to similar terminals both in India and abroad, employing the IP addressing scheme of the Internet Assigned Numbers Authority. The National Numbering scheme/plan applicable to subscribers of basic/cellular telephone services cannot be employed for such communications involving transmission of voice over the public Internet. In addition, interconnectivity between ISPs who are permitted to offer Internet Telephony Services and those which have not been permitted to offer such services is not permitted under the Guidelines.
The DoT has chosen not to impose Quality of Service restrictions as well as a tariff for the Internet telephony services. However, the Telecom Regulatory Authority of India is free to review the policy and fix a tariff at any time during the validity of the licence. The Guidelines also provide that if found necessary, the licensor can impose a license fee as well as a Universal Service Obligation on the licensees.
ISPs desirous of offering Internet Telephony Services would be required to sign an amendment to their original licence agreement to be able to process and carry voice signals.
Source: The Economic Times, March 22, 2002
On
February 20, 2002, the Telecom Regulatory Authority of India (“TRAI”)
made recommendations to the Department of Telecommunications (“DoT”)
concerning Internet Telephony. While currently Internet Telephony is banned
in India, the DoT plans to permit the same by April 1, 2002 and it will use
the TRAI recommendations in formulating necessary policies.
The
TRAI recommendations define Internet telephony as “an application service, which
the customers of Internet Service Providers (“ISPs”) can avail from their
PCs capable of processing voice signals”. As per the recommendations, service
providers would be free to price their services, provided they specify if the
services offered are toll grade or of non-toll grade quality. A significant
recommendation is that ISPs should be allowed to offer Internet telephony for
national as well as international long distance calls without paying any additional
license fee. Basic, cellular and national long distance telephony providers
could be disappointed by this recommendation, which is contrary what the DoT
had announced earlier, as this move could adversely affect their revenues from
long distance telephonic traffic. However, the TRAI recommendations also specify
that PC-to-phone calls can be made only from an Indian PC to an overseas telephone
number i.e. not to a phone number in India.
Presently, a high-level panel has been set up under the TRAI chairman and comprising of the Telecom Engineering Centre and the industry to work towards defining the quality and inter-operability issues concerning Internet Telephony.
Source: The Economic Times, February 21, 2002
TDSAT stays TRAI's order on STD calls
The
Telecom Dispute Settlement and Appellate Tribunal (“TDSAT”) on January
31, 2002, stayed the Telecom Regulatory Authority of India's
(“TRAI’s”) order on the distribution of default Standard Trunk
Dialing (“STD”) traffic between Bharti Telesonics (“Bharti”) and
Bharat Sanchar Nigam Limited (“BSNL”) on alternate days for cell-to-cell
STD calls. BSNL had moved the TDSAT against TRAI's order of January 25, 2002,
stating that TRAI had no powers to decide as to who would get business (in terms
of STD traffic) and on what basis.
Section
12(4) and Section 13 of the Telecom Regulatory Authority of India Act, 1997
(“TRAI Act”) grants the TRAI powers to issue directions to service providers
as it may consider necessary for ensuring technical compatibility, effective
inter-connection between different service providers and regulation of arrangements
amongst service providers of sharing their revenue from providing telecom services.
BSNL’s arguments against the order passed by the TRAI are based on the fact
that new National Long Distance licensees should begin operations only after
issues like inter-connection, revenue-share and other technical matters like
billing facility are put in place.
TRAI
officials also clarified that the January 25 order was only for cell-to-cell
calls and not for all the STD calls. The case is now slated for hearing on February
8, 2002.
Source: The Economic Times, February 01, 2002