Centre for Aerospace & Defence Laws (CADL) Directorate of Distance Education NALSAR University of Law, Hyderabad Course Material M.A. (AVIATION LAW AND AIR TRANSPORT MANAGEMENT) 2.3.10. - Aviation Corporate Laws Compiled by: Prof. (Dr.) V. Balakista Reddy (For private circulation only) COURSE OUTLINE The times when only government used to exercise monopoly on the civil aviation sector are long gone and in its place there has been a splurge of entry of private entities and investors in the domestic and international aviation market. Aviation sector in India has been transformed from an over regulated and under managed sector to a more open, liberal and investment friendly sector since 2004. In order to regulate the business of aviation in India, the varied range of corporate laws that are applicable to regular business enterprises are also applicable to aviation business. Corporate Laws provide the business enterprises with a legal form that possesses these five core attributes. By making this form widely available and user-friendly, corporate law enables entrepreneurs to transact easily through the medium of the corporate entity, and thus lowers the costs of conducting business. The dominance of private corporations including the aviation corporate enterprises over our economy and society is such that they have come to colonize our thinking. Aviation Corporate Law deals with the formation and operations of corporations and is related to commercial and contract law. A corporation is a legal entity created under the laws of the state it’s incorporated within. State laws, which vary from state to state, regulate the creation, organization and dissolution of their corporations. A corporation creates a legal or “artificial person” or entity that has standing to sue and be sued, enter into contracts, and perform other duties necessary to maintain a business, separate from its stockholders. The objective of this paper is to train the corporate law professionals in the legal formation of corporations and to construct joint ventures, licensing arrangements, mergers, acquisitions, and the countless other transactions entered into by corporations. Other areas of practice include business formations, securities law, venture capital financing, business agreements, internal forms, and business tax consultations. It is of paramount importance for the course participants to familiarize themselves with the fundamental law of business before starting an aviation business as it will help you operate your business without the hindrances of ignorance. Hence the first module of the paper deals with the fundamentals of company law. Any discussion on the corporate law is incomplete without deliberating upon the mother of corporate laws in India i.e. the Indian Companies Act 2013. It lays down the fundamental legal provisions on start, conduct and regulation of business. Given the growing trend of mergers and acquisitions in the field of aviation sector, the second module is entirely dedicated towards an elaborate discussion on the issue of mergers and acquisitions. The initial chapters of the second module dwell upon the significance, rationale, procedures and varied forms of mergers and acquisitions. The module thereafter digs deeper in to the cases of mergers and acquisitions in the aviation sector and the contemporary issues that have arisen in the last few years. Another significant aspect of the civil aviation business is related to the competition law and competition norms. Hence the third module contains a detailed discussion on the competition 1 law of India. The second part of this module consists of a detailed discussion on the emerging issues which have arisen due to application of competition law to Indian civil aviation sector. Over recent years the global aviation sector has witnessed the rapid growth of air travel in emerging markets, the continuing growth of low cost carriers across the globe, and regulatory changes to global emissions trading schemes to name but a few developments. Increased FDI inflows, surging tourist inflow, increased cargo movement, sustained business growth and supporting government policies are the major drivers for the growth of aviation sector in India and have opened up new doors of intersection between the business and aviation norms. Domestic airlines have been allowed to fly overseas, forge partnerships with foreign carriers while foreign carriers in turn have been interlining with domestic airlines to access secondary destinations. The fourth module on business opportunities in aviation sector focuses on such new contemporary issues that have arisen due to application of business laws on civil aviation. The module thus discusses these contemporary issues. The final module of the paper briefly throws light on other corporate laws which carry the potential to affect business venture in aviation sector. 2 TABLE OF CONTENTS MODULE I: FUNDAMENTALS OF COMPANY LAW 1.1. Introduction to Company Law 1.2. Types of Companies 1.3. Formation and Incorporation of Companies 1.4. Prospectus and Allotment of Securities 1.5. Share Capital-Types 1.6. Meetings 1.7. Directors 1.8. CSR in the Aviation Industry MODULE II: CORPORATE RESTRUCTURING & JOINT VENTURES IN AVIATION 2.1. Need and Scope of Corporate Restructuring 2.2. Various Modes of Corporate Restructuring 2.3. Legal Framework of Corporate Restructuring 2.4. Mergers & Acquisitions 2.5 Joint Venture 2.6 Take Over 2.7 Mergers and Acquisitions in Indian Aviation Industry MODULE III: INSOLVENCY, WINDING-UP AND LIQUIDATION OF COMPANIES 3.1. Bankruptcy and insolvency-An Introduction 3.2. Insolvency 3.3. Fast track insolvency resolution process 3.4. Issues in airline insolvencies in India 3.5. Winding-up of a company 3.6. Liquidation Process MODULE IV: COMPETITION LAW AND COMPETITION ISSUES IN AVIATION 4.1 Overview of the competition Act, 2002 4.2 Need for Competition 4.3 Elements of Competition Law 4.4 Indian Aviation Sector-An Overview 4.5 Low Cost Air Carriers 4.6 Competition Issues in Aviation 3 MODULE V : BUSINESS OPPORTUNITIES IN AVIATION SECTOR : RECENT DEVELOPMENTS 5.1. Choosing Between Bilateralism and Multilateralism: Approaches for Improving Market Access in the Indian Civil Aviation Industry 5.2. Aircraft Hijacking: An Analysis Of New Legal Issues 5.3. Aviation Insurance: Have A Safe Flight 5.4. Train The Pilots – Brain The Economy 5.5. Fractional Ownership Indian Scenario: A Jurisprudential Analysis 5.6. Emerging Regulatory Issues and Challenges 5.7. Project Finance in Aviation 5.8. Special Economic Zones and Airports 5.9. Aircraft Leasing In India: An Overview 5.10. Economic Regulatory Authority of India 5.11. Financing of Aircraft MODULE VI: AVIATION START-UPS: PRACTICAL AND LEGAL ISSUES 6.1 What is Start-Up Company 6.2 Start-Up Policy in India 6.3 Exemptions for Startups 6.4 Financing Start-Ups 6.5 Foreign Exchange Management Act, 1999 6.6 Intellectual Property Rights 6.7 Start-ups and Labour Legislations 6.8 Environmental Laws Relating to Start-Ups 4 MODULE I FUNDAMENTALS OF COMPANY LAW 5 INTRODUCTION- JURISPRUDENCE OF COMPANY LAW Company Law in India, is the cherished child of the English parents. Our various Companies Acts have been modelled on the English Acts. Following the enactment of the Joint Stock Companies Act, 1844 in England, the first Companies Act was passed in India in 1850. It provided for the registration of the companies and transferability of shares. The Amending Act of 1857 conferred the right of registration with or without limited liability. Subsequently this right was granted to banking and insurance companies by an Act of 1860 following the similar principle in Britain. The Companies Act of 1856 repealed all the previous Acts. This Act covered aspects of incorporation, regulation and winding up of companies and other associations. This Act was recast in 1882, embodying the amendments which were made in the Company Law in England upto that time. In 1913 a consolidating Act was passed, and major amendments were made to the consolidated Act in 1936. In the meantime England passed a comprehensive Companies Act in 1948. In 1951, the Indian Government promulgated the Indian Companies (Amendment) Ordinance under which the Central Government and the Court assumed extensive powers to intervene directly in the affairs of the company and to take necessary action in the interest of the company. The ordinance was replaced by an Amending Act of 1951. HISTORY AND DEVELOPMENT OF THE CONCEPT OF COMPANY LAW IN INDIA 1. Companies Act, 1956 (Bhaba Committee Recommendations) The Act came into force on 1st April, 1956 and it was enacted with a view to consolidate earlier laws relating to companies and other associations. This act was based largely on Bhaba Committee recommendations. The Companies Act, 1956 consisted of 658 sections and 15 schedules. This Act provided the legal framework for corporate entities in India and was a mammoth legislation. As the corporate sector grew in numbers and size of operations, the need for streamlining this Act was felt and as many as 24 amendments had taken place since then. The Companies Act, 1956 had undergone changes by amendments in 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1971, 1977, 1985, 1988, 1996, 1999, 2000, 2002 and 2006. The provisions of Companies (Second Amendment) Act, 2002 were not enforced except that of definitions and the constitution of NCLT (National Company Law Tribunal). The Companies Act, 1956 was also amended pursuant to the enactment of the Depositories Act, 1996. Unsuccessful attempts were made in 1993 and 1997 to replace the present Act with a new law. Companies (Amendment) Bill, 2003 containing important provisions relating to Corporate Governance and aimed at achieving competitive advantage was also introduced. Full and fair disclosure of various matters in prospectus; detailed information of the financial affairs of company to be disclosed in its account; provision for intervention and investigation by the Government into the affairs of a company; restrictions on the powers of managerial personnel; enforcement of proper performance of their duties by company management; and 6 protection of minority shareholders were some of the main features of the Companies Act, 1956.