Preservation of Documents

Background

As In-House Counsel, we understand, realise and recognize importance of information contained in various corporate documents. With advent of electronic and digital governance it has become very difficult to set up systems, policies and procedures around Preservation of Documents. With SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (the LODR) the question of the company’s policy on Preservation of Documents has once again become an imperative. Regulation 9 of the LODR has now mandated that every listed company’s Board of Directors shall approve the policy for Preservation of Documents. [i] Under the Indian laws (for that matter the laws of any jurisdiction) there are various statutory provisions under respective legislations that mandate Preservation of Documents.

Apart from obligations provided for Policy on Preservation of Documents under LODR, there are plethora of laws that prescribe conditions of preservations of Documents under them. Some of the laws that quickly come to mind are:

  1. Corporate Laws
  2. Direct and Indirect Tax Laws
  3. Labour Laws
  4. Commercial Laws
  5. State and Local Laws
  6. Industry specific Laws

It thus becomes imperative to ensure that the Preservation of Documents Policy to be approved by the Board that takes into consideration the Company’s obligations under various applicable legislations. Besides the statutory documents, every organisation maintains some other documents like the third party contracts that are required to be preserved for specified periods. In addition certain internal document such as business plans; budgets etc. are generally preserved for longer duration.

Challenges

In good old days, each office had a designated person who was custodian of documents. He ensured that documents were collated, properly filed and retrieved as and when required. Inward and outward registers were maintained by this person. He also had a register with index of files. With almost every transaction now happening in digital space, the physical files do not contain necessary documents, the designated person is gone. The documents are a mix of physical and soft copies. The documents are residing on server, attached to the mails or simply on individual’s desktop/laptop. Completeness of the relevant documents that can recreate a transaction for its understanding is wanting. The documents and information is very scattered, even if it is available for retrieval. Almost 55% of corporate documents are in public domain. All public filings are available for public view. Most of the other information is available from governmental agencies through RTI. The transparency levels have considerably increased. The challenge on reconciling the data to ensure that there is consistency, “no conflict” is leading to allegations of Misleading Or False Information (MOFI). The Evidence Act, 1872 has now been amended to include Section 65B[ii] that lays down the procedure for admissibility of evidence contained in the digital records. Overruling its earlier decision [iii]that electronic record is a secondary evidence, the Supreme Court of India[iv] while holding that “an electronic record by way of secondary evidence is not be admitted in evidence unless the requirements under Section 65B are satisfied” clarified that “notwithstanding what we have stated herein in the preceding paragraphs on the secondary evidence on electronic record with reference to Section 59, 65A and 65B of the Evidence Act, if an electronic record as such is used as primary evidence under Section 62 of the Evidence Act, the same is admissible in evidence, without compliance of the conditions in Section 65B of the Evidence Act.” This would in effect mean that evidentiary value of digital records can be established by public or governmental authorities very easily and that inconsistencies in same information contained two different documents can lead to MOFI and its criminal consequences. Soon Indian judiciary will move towards drawing presumptions if defendant companies fail to respond to data discovery. Challenges surrounding the Preservation of Documents assume monstrous proportion if we consider various State laws, the stamping requirements and requirements of notarial attestation or solemn affirmation.

There is no easy fix or rule that can work in this field. One will have to befriend the monster or count the Dracula’s teeth (as they say).

Policy & Ready Reckoner

One needs to go threadbare and deep in terms of understanding all applicable laws including industry specific laws. Thereafter one has to prepare a ready reckoner based on applicable laws, provisions stipulating preservation of documents and duration for which documents need to be preserved. Preservation of Documents Policy needs to be well-articulated, simple in understanding and translated in vernacular languages, if need be. Policy for POD should contain Board of Directors’ statement of intent, categorization of risks associated with the documents, confidentiality thresholds (on the principles of “need to know” basis). You want to ensure that neither BoDs, nor KMPs are in personal capacity responsible for MOFI accusations. It is therefore imperative that the POD Policy incorporates roles and responsibilities in such a manner that owners and custodians are identified clearly, their roles are envisioned and how they coordinate with each other or integrate with the Document Management System (DMS) is spelled out. You also want to ensure that documents are not preserved beyond its requirement. In this regard it is essential to spell out what you are going to redact or destroy periodically.

List & Classification

Preparing an exhaustive list of Statutory Documents is the most essential part of POD. One has to give sufficient time and understand the letter and spirit of why a particular document is required to be preserved under the statute. Applying a standard rule that all statutory documents require to be preserved permanently, may lead to some catastrophic outcome. You may also want to set up a system that updates the legal environment to incorporate amendments in laws. On an average, almost 10 compliance requirements in various legislations are changing every week. The speed, with which legislative changes are taking place, might make your list redundant in about a month’s time.

Legal Advisory

Seek proper legal advice to ensure exhaustiveness, accuracy and authenticity regarding your POD Policy, procedures and practices. It is also important that in this process you ensure that privileges attached to the documents or information is not breached.

[i] Regulation 9: Preservation of documents

[ii] 65A. Special provisions as to evidence relating to electronic record: 65B. Admissibility of electronic records:

[iii] Re: State (NCT of Delhi) v.Navjot Sandhu alias Afsan Guru 2005 (11) SCC 600: Overruled by Constitution Bench of the Supreme Court of India.

[iv] Re: Anvar v Basheer 2014 (10) SCC 473 is now considered as revolutionary law in the digital space.

Regulation 9: Preservation of documents
65A. Special provisions as to evidence relating to electronic record: 65B. Admissibility of electronic records:
Re: State (NCT of Delhi) v.Navjot Sandhu alias Afsan Guru 2005 (11) SCC 600: Overruled by Constitution Bench of the Supreme Court of India.
Re: Anvar v Basheer 2014 (10) SCC 473 is now considered as revolutionary law in the digital space.

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