Author: Signzian

Certification process, effects due to delays and the scope for legal minimalism in the domain.

Government of India recently announced that they are going to stop physical publishing of the Official Gazette, which is the official press/media of the Government. Any law or rules which are made by the government need to be published in this Gazette for them to become operational. The Government has recently proposed to convert the Gazette into an electronic form. Indian government estimates that this move will save Rs. 40 crores and 90 tonnes of paper annually, thus proving a commendable measure reflecting minimalism by the government of India. This brings us to another aspect of publishing by a government agency- Courts.

Process of Obtaining Certified Copies

Taking out official copies of court orders as per todays procedure is a task in itself. The process is so cumbersome that there are specialized agents in court to just take out certified copies. Several orders are passed during the tenure of a case. The only way to know the order is to either inspect and read it from the court file or apply and get a ‘certified copy’ of the order. Even the parties to a case are not given copies of the court order without applying for a ‘certified copy’.

Typically, the process for a certified copy (“CC”) is as follows –

• An order is dictated by the judge to a typist, who types it on a computer (typewriters were used earlier).
• The order is then printed through a computer and signed by judge.
• The same is then kept in the case file.
• Applicant makes an application to Court Registry for CC.
• Court Registry takes the application to the Judge.
• Judge approves the application for CC.
• The application comes back to Registry.
• Registry initiates photocopy of the order from the court file.
• The copies come back from photocopy section.
• The copies are stamped by court seal and signed.
• Applicant then needs to follow-up and receives the CC after it is ready.

Usually, it takes around 3–5 days to get this CC. In some courts (because of pendency) it might even take around 30 days to get CC. These orders are nothing but a publication by a government arm, but the process and method adopted takes us back to the 18th century.

Online Judgements as Example

Today all Supreme Court judgments are published online. Some High Courts and Tribunals have also started online publishing. However, these online orders are not given the status of ‘Certified Copy’ and you will still have to follow the 18th century method to get a CC from these courts.

Substantial Injustice due to delay in obtaining CC –

Sometimes, the mechanical procedure of procuring a CC through the lethargic administrative system of the Courts can lead to gross injustice to ordinary citizens.

Illustration: Law provides that in case a person is arrested by the police he can apply to the court for bail (i.e. his release). In case he makes this application in the first court (i.e. Magistrate) and is rejected, he can challenge this order of the Magistrate before a higher court (i.e. Court of Sessions). But to be able to challenge this first order from Magistrate before the higher court, he would need to get a CC. However, because of the overburdened court machinery, he may not get CC the same day and will not be able to approach the higher court immediately. Which means a person would have to spend time in jail only because the CC was not received in time. Thus. as CC is the only authentic proof of an order being passed. Any delay in obtaining it can result in immense hardship for litigants.

Applying Minimalism to this process of court orders

The Judiciary can take a cue from the government of India which has chosen online platform to publish laws. If laws can be published online, then court orders which are based on those laws can also be published online.

Few things that need to be taken care of –

a. Authentication

The court orders today are authentic only when signed by the judge and then stamped with his seal. How do we ensure this for online judgments?

The Ministry of Corporate Affairs can serve as good guidance that respect. It has completely digitised its process of company incorporation sound compliance. A certificate of incorporation (i.e. a government approval to formation of a company) is no longer physical but only digital. It is signed via digital signature of the Registrar of Companies and the original is uploaded on the Ministry website.

 

In the same way, judges can authenticate their orders by attesting their digital signatures as done by the Registrar of Companies.

a. Fraud and Forgery

Digital media like a ‘pdf’ can be edited and therefore it may be argued that the same cannot be relied upon. The idea in a digital India would be to rely only on a digital copy and hence instead of a paper order what the authorities should insist on is the web link on which the order is uploaded. Any action to be taken by any authority should be only after verification online.

In fact, an online order provides immediate opportunity to verify a court order. There are cases where forged court orders are circulated and have been used. The only way for verification of such orders would be to go and inspect the court file and see if they match. Thus an online order takes care of such cumbersome verification procedure as well.

b. Revenue earned by CC

A nominal fee is charged for issuing CC. The same is done considering the manpower involved for physically photocopying large files and huge number of documents. In case of a digital order such costs will be substantially reduced.

A nominal fee though, may be charged for accessing these orders as are charged by the Ministry of Corporate Affairs in case you want to inspect any company documents.

Implementation:

This does not require any major innovation for courts as today most of the orders are typed on a computer. Case statuses are also regularly updated on the district court website by the court office. Therefore, the court office can at the same time of updating the next date upload the pdf copy of the judgment along with the digital signature of the judge.

The Supreme Court, many High Courts, Tribunals and some of the District Courts are already uploading the orders on their websites daily. All that needs to be done is to give these orders the status of Certified Copies. Other courts can slowly follow suit.

Law Commission Report:

The Law Commission in its 188th Report published way back in 2003 had in fact made this suggestion and observed that once the digital signatures are valid, certified copies can be issued to the litigants on Internet under the court’s Digital Signature Certificates.

But Alas! Even after a period of 12 years from the publishing of the report, the archaic methods of obtaining CC still remains.

Conclusion

Adopting a process of obtaining Certified Copies online would save a huge chunk of time for lawyers, litigants, court clerks and the entire machinery. It will also go a long way in saving paper. Publishing them online is an easy task as most orders are typed and printed from a computer anyway.

Originally published at legalminimalist.org on February 23, 2017.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

Peer to Peer (P2P) lending is revolutionizing the financial landscape by offering an alternative platform for borrowing and lending money. By directly connecting borrowers with individual lenders, it bypasses traditional financial intermediaries like banks, leading to quicker, more transparent, and often more favorable loan terms. This model not only democratizes access to credit for many underserved segments but also presents an attractive investment opportunity for individuals seeking better returns than traditional savings vehicles. As the popularity and trust in P2P lending grow, it’s poised to reshape how consumers and investors perceive and engage with the credit market.

After Securities Exchange Board of India (SEBI) released its Discussion Paper on Crowdfunding, the Reserve Bank of India (RBI) also has decided to regulate the online lending and borrowing market. While it is easy to digest the thought and attempt made by SEBI through its discussion paper considering the involvement of “securities” and “public” in the whole process of crowdfunding, the same is not the case with RBI’s consultation paper (“the paper”). One fundamental point of difference between these two regulatory bodies is that SEBI comes into the picture whenever there is involvement of “securities” and “public” but RBI does not get involved in every activity when there is “money” and “transaction” involved because there are several other enactments which deal with other aspects of transactions which take place in money. One such activity is money lending which is a State subject and it is to be governed by the individual states, leaving RBI with no role to play.

Keeping that in mind, this article will further analyze how, at several instances, RBI is trying to regulate P2P lending platforms by exceeding its jurisdiction.

Nature of P2P Lending

Firstly, one needs to understand that P2P lending is not just something to do only with start-ups but is in fact a much bigger idea than that. Here the borrower can either be an individual or a legal person requiring a loan and hence this new area has the capability to satisfy temporary monetary needs of individuals as well.

Proposed Regulations

(i) Permitted Activity: The P2P Lending Platform will only act as a facilitator for borrower and lender. Various requirements need to be met by the platform, such as:

• Display of the amount of lending and borrowing on balance sheet.
• No ‘financial activity’ can be carried out on its own, and compliance to The Reserve Bank of India Act, 1934 is necessary.
• Assurances of any returns cannot be given/made.
• Information about suitability of a lender and creditworthiness, reliability of a borrower can be given on the platform.
• Advertisement will be regulated.
• The platform cannot take part in the financial transaction between lender and borrower and move through banking channels between the two.
• No cross-border transaction will be allowed.

(ii) Prudential Requirements: The prudential requirements will include a minimum capital of Rs 2 crore. Also, leverage ratio may be prescribed. There can also be a cap on the total investment by a Lender.

(iii) Governance Requirements: The management and operational personnel of the platform would need to be stationed within the country and a financial background of promoters and board needs to be thoroughly conducted.

(iv) Business Continuity Plan (BCP): There must be an arrangement like a ‘living will’ or alternative arrangement in the form of an agreement for continuation of its operations. The Platform must also contain risk management systems and a Business Continuity Plan. There should be a back-up for the data since the Platform acts as a custodian of cheques, agreements and other details.

(v) Customer Interface: Confidentiality of the customer data and data security would be the responsibility of the Platform. It will also need to provide to borrowers and lenders transparency, data confidentiality, minimum disclosures and proper grievance redress mechanism.

(vi) Reporting Requirements: Basic reporting requirements may be prescribed.

Dissecting the paper and analysing RBI Responsibility

1. Para 1.6 of the paper inter-alia states that:

“The platform provides the service of collecting loan repayments and doing preliminary assessment on the borrower’s creditworthiness.”

The question arises in a situation where both these functions i.e. of collecting loan repayments and doing preliminary assessment on the borrower’s creditworthiness are outsourced by the P2P platform as both of these activities though important are not core to the platform and not something that cannot be outsourced.

2. Para 1.6 of the paper further inter-alia states that:

“The fees go towards the cost of these services as well as the general business costs. The platforms do the credit scoring and make a profit from arrangement fees and not from the spread between lending and deposit rates as is the case with normal financial intermediation.”

Here RBI itself has made a fundamental classification of business activities undertaken by a financial intermediary and that of a P2P platform.

3. Para 5.4 of the paper which deals with the scope of RBI’s regulations also inter-alia state that:

“The notification can therefore specify that no entity other than a company can undertake this activity. This will render such services provided under any other organizational structure illegal. Alternatively, the other forms of structure may be regulated by the State Governments.”

RBI recognizes here that money lending activity is an activity which is not completely an unregulated space but can be regulated by the State Governments.

4. Para 4.3 of the paper which puts forth the arguments in support of regulating the activity is as follows:

• Considering the significance of the online industry and the impact which it can have on the traditional banking channels/NBFC sector.

“Impact on something that RBI regulates” cannot qualify as a reason for RBI to regulate something which it is not supposes to regulate. If this rationale were to be followed, RBI should also have power to regulate the securities market considering the situation that would have been in existence for the Banks & NBFCs had there not been any securities market and Stock Exchanges.

• If properly regulated, the P2P lending platforms can do this more effectively.

Making something more effective can only be done if the RBI is statutorily permitted to do so, and it is clear that is not the case.

5. For better understanding let us divide para 4.3. (iv) of the paper, because here RBI has tried to establish its jurisdiction.

a. Section 45S of RBI Act prohibits an individual or a firm or an unincorporated association of individuals from accepting deposits, if his or its business wholly or partly includes any of the activities specified in clause © of section 45-I (i.e. activities of a financial institution);

Attention must be paid to the fact that the providing platform for lenders and borrowers does not fall under the functions carried on by financial institutions.

b. if his or its principal business is that of receiving of deposits under any scheme or arrangement or in any other manner, or lending in any manner

It is important to note that there is no receiving of deposits done by the platform providers.

c. As per the Act, ‘‘deposit’’ includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form, but does not include any amount received from an individual or a firm or an association of individuals not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in any State.

The RBI Act once again has recognized that the money lending activity is to be regulated at the state level.

d. Since the borrowers and lenders brought together by a P2P platform could fall within these prohibitions, absence of regulation may lead to perpetrating an illegality.

At the end RBI has also accepted that borrowers and lenders are the persons which come under the purview of the RBI and not the platform itself. However, going by this logic, RBI should have power to regulate the money lenders also under the Money Lenders enactments of states.

In this whole clause the justification given by RBI has only shown how remote this industry is from its ambit and has failed to substantiate a solid claim for regulation.

Regulatory Space- State Governments

RBI’s own paper expresses doubts over the legality of these regulations over P2P lending platforms in Para 5.4 of the Paper, as money lending through money lenders is a state subject any regulations over P2P may need a legislative backing. Currently, it seems that the two regulators SEBI and RBI are trying to draw boundaries between themselves over crowdfunding and P2P lending.

Conclusion:

The consultation paper in its present form if developed into any regulations may provide for an easier entry for the large NBFCs to set up a P2P platform which might create an entry barrier for the new players willing to enter into this space and eventually few of these NBFCs might grab up substantial part of the future market of P2P lending by availing the early bird benefit and undertaking aggressive marketing, which eventually leads to brand recognition.

Originally published at legalminimalist.org on January 26, 2017.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.