In this article, Nidhi Shetty pursuing M.A, in Business Law from NUJS, Kolkata discusses Everything HR Managers need to know about Employees’ State Insurance Corporation (ESIC).

Introduction to Employees State Insurance Corporation (ESIC)

Employees’ State Insurance or ESI is a self-financing social health and security scheme providing insurance to Indian employees and workers. The Employees State Insurance was constituted to regulate a comprehensive insurance system which would help in safeguarding the needs of the employees in emergency situations like terminal illness, maternity, death, physical or mental disability or long term sickness. This act also extends the reasonable health care benefits to the immediate dependants of the employees and workers. The ESI i.e. Employees State Insurance is governed and administered by the Employee State Insurance Corporation (ESIC). ESIC is constituted in accordance with prior the rules and regulations stipulated in the Employees’ State Insurance Act, 1948.

ESIC is a corporation or an autonomous structure by a statutory creation made under the Ministry of Labour and Employment of the Government of India. The benefits that are bestowed by the ESIC to the workers are in accordance with the International Labour Organization (ILO) Conventions.[1] As the corporation is a legal entity on its own, it can raise loans and take the needful steps and measures for discharging funds and loans with the prior sanction of the central government. Further, it can acquire both movable and immovable property and all incomes derived from the said property shall vest with the corporations.[2]

Background of ESIC

The Government of India appointed Mr. B. P. Adarkar on March 1943, to create a report on health insurance scheme for industrial workers.[3] The report became the basis for the Employment State Insurance (ESI) Act of 1948.[4] The Employees SI Act was enacted in 1948 and came into effect on 24 February 1952.[5] The ESI Act was initially formulated for the factory workers. However, later the Act became applicable to all the establishments which had 10 (Ten) or more workers. As of 2011-12, the total number of beneficiaries is approximately 65.5 million.[6]

ESIC and ESI in Brief

The ESI fund is applicable to all the corporate bodies and establishments which engage a minimum of 20 workers. It is to be noted that these establishments must be covered only in the case where the establishment is located in the area which is tagged as ‘Notified Area’ under the ESI scheme. The ESI scheme which is maintained by ESIC, was initially applied only to the employees or workers who earn Rs. 15,000/- (Rupees Fifteen Thousand Only) or less per month as wages. This included all basic, DA and all allowances payable by cash. However, under a notification issued by Employees’ State Insurance Corporation (ESIC) Authorities, the wage limit of the employee covered was increased under the ESIC scheme from the existing limit of Rs.15, 000 to Rs.21, 000 with effect from January 1st, 2017. This new amendment aimed to bring an estimate of 50 lakh workers under the social security scheme of ESIC and also to bring affordable medical and health care benefits to not just for the workers and employees but also to their immediate dependent family members. The financial aspect need for this scheme is drawn mainly from the employees and the employer. ESI is basically a contributory fund in which both the employer and employee contribute 4.75% and 1.75% respectively to make it a total of 6.5%[7].  Percentage of the contribution of employee’s wage is less than that of the contribution of the employer. As per the norms, the government also contributes in expenses that are incurred during provision of health care. The employer who is payable of contributions in relation to any worker or employee shall make the payment of that contributions within a period of 21 (Twenty One) days of the last day of that particular calendar month in which the contributions fall due;

In case of any disputes or troubles that is related to the ESI scheme, it is heard in ESIC Court.

Advantages to the Employers

1. The Employer is absolved from the very liability of providing the health care and other medical allowances, reimbursement of any actual medical expenses or any insurance policies related to health.
2. The Employer is not needed to provide any sick leave, separately to his workers or employees

• The Employer’s Contribution towards ESI Scheme is stated to be qualified as expenses under the Income Tax Act.

The Relation between ESIC and Human Resources

 “Human resources are like natural resources; they’re often buried deep. You have to go looking for them, they’re not just lying around on the surface. You have to create the circumstances where they show themselves.” [8] the aforementioned quote correctly and clearly defines the aim and purpose of a Human Resource Manager. A Human Resource Manager is defined as ‘a person who in charge of the department that deals with the employment, training, support, records, etc. of a company’s employees’.[9] A Human Resource Manager is rightfully a link between the employer or the company and the employee. Companies put their best efforts to hire the best possible HR Manager for their company as an organization or a company works efficiently only if the Human Resource Team or Manager is sincere and dedicated towards their work, therefore, one needs to find the best possible person to be an HR in Company. The HR Manager’s work is not just limited to dispensing the monthly salary or to manage leave applications or being just the medium between the top management and employers and the lower management for the reasons of communication. The aforementioned duties are definitely vital but are only a part of their job. An HR Manger must be mindful of all the laws and acts made by the Legislation and interpreted by the Judiciary that are related to the benefit of the company and the employees.

As mentioned earlier a Human Resource Manger must be in par with all the legislations and regulations related to the company or the employees. Thus, it is needless to say that every HR Manger should be aware with the ESIC and the ESI funds, as it provides the needy employees the benefits that are bestowed to them by the Government of India.

The Human Resource Managers of every establishment under the ESI scheme are required to firstly identify all the workers and the employees who has an aggregate salary is up to Rs 21,000/- (Indian Rupees Twenty One Thousand Only) per month. Then as per the identification the employees’ CTC is to be carefully restructured. This restructuring shall include the contribution by both the employee and the employer under the scheme. With the help of this new CTC restructuring done by the HR Manager, the ‘Net Take Home’ monthly salary of the workers shall be contemplated. This restructuring of entire CTC and the changes in the monthly net take home salary must be intimated to all employees of the establishment by the HR Manager. Further, the HR Manager must also get IP numbers enrolled of any new employees who shall be covered under the ESI Act and the scheme as soon as possible. Post such enrollment it must be linked with the Aadhaar credentials of the employee.

Under the section 46 of the Employees State Insurance Act, the employees who fall under the bracket of beneficiary of the Act shall receive the following six (6) social security benefits:-

1. Health care and Medical Benefits: the workers and their family members get entire medical care benefits from the day the worker enters insurable employment. There is no upper limit on the expenditure on the treatment and cure of the Insured worker or his/her immediate family member. Medical and health care is also given to the retired and permanently disabled insured persons and their spouses. However, the retired or the disabled person must comply with rule of paying off a token of Rs.120/- (Rupees One Hundred and Twenty Only) as annual premium
2. Sickness Benefit: A person insured under the scheme shall be qualified to claim the sickness benefit for any sickness occurring during any benefit term in the case of contribution in respect of him or her which is payable for not less than 78 (Seventy-Eight) days in the corresponding term of contribution and the worker shall also be entitled to receive such benefit at the daily standard benefit rate for the period of his sickness. This form of benefit is provided in mode of cash compensation. The compensation is at the rate of 70% (Seventy Percent) of wages which is then payable to the insured persons. Such compensation is payable during the tenure of the sickness certified. The period of which shall be for a maximum of 9) (Ninety –One) days in one year. The insured employee or worker must contribute for a minimum of 78 (Seventy- Eight) days in a contribution term of 6 months in order to qualify for this sickness benefit.

There are following two Sickness Benefits:

1. Extended Sickness Benefit: this benefit is extendable up to a period of two (2) years. It is given in the case of listed 34 long-term and malignant sickness or diseases at an enhanced rate of 80% of wages.
2. Enhanced Sickness Benefit: this Sickness Benefit is equal to a full wage which shall be payable to the sick insured worker who is undergoing a sterilization for a period of 7 day for male and 14 days female workers respectively.

Maternity Benefit for insured female workers

Maternity Benefit fund for pregnancy or confinement shall be payable to the insured worker for a period of three months. This shall be extendable by further maximum of one month. However, this shall only be on medical advice at the rate of full wage and the same shall be in accordance to the contribution for a term of 70 (Seventy) days in the preceding year.

1. Dependants’ Benefit (DB): the Dependants’ Benefit as the name suggests is the benefits provided to the immediate dependants of the insured workers and employees. This is payable at the rate of 90% (ninety percent) of wage in manner of a monthly payment to the immediate dependants of a deceased Insured worker in the situation where death had occurred due to an injury during his employment or any occupational hazards. Dependants’ benefit shall be paid to the dependents of the insured person who dies as a result of an employment injury, in the following manner:–
2. In the event of demise of the insured worker, the dependents’ benefits shall be payable to the widow, children of the deceased in the following manner:–

• Benefit provided to the widow of the deceased insured worker during the term of life until she remarries shall be an amount which shall equivalent to the three-fifths of the full wage rate and, in the event where, there are two or more widows of the deceased worker, the total sum payable to both the widows are as aforesaid and shall be divided equally between the widows;
• Benefits given to each legitimate or adopted son shall be an amount equivalent to two-fifths of the full wage rate until the son(s) attain the age of eighteen (18) years:

PROVISO:  in the case where a legitimate or adopted son who is infirm, incapable and is completely dependent on the earnings of the deceased insured worker at the time of his death, the dependents’ benefits shall continue to be paid while the infirmity or incompetency lasts;

• Benefits in case of each legitimate or adopted unmarried daughter shall be a sum which shall be equivalent to two-fifths of the full wage rate until the daughter(s) attain the age of majority i.e. eighteen years (18) or until she gets married, whichever case is earlier:

PROVISO:  In the event where the legitimate or adopted unmarried daughter of the deceased insured person who is infirm, incapable and is completely dependent on the earnings of the insured worker at the time of his demise, the dependants’ benefit shall continue to be paid while the infirmity or the incompetency lasts and till she continues to remain unmarried:

PROVIDED FURTHER: If the total sum of the dependants’ benefit that shall be distributed among the widow(s) and legitimate or adopted children and widowed mother of the deceased person as aforesaid exceed at any time the limit of full wage rate, the share sum of each of the defendants, individually shall be reduced proportionately. This would lead to the total amount payable to the individual descendants to not exceed the amount limit of disablement benefits at the full rate of the wages.

• Benefit provided to the widowed mother of the deceased insured worker during his/her life term, an amount equivalent to two-fifth of the full rate shall be payable to her as compensation.
• In the event where the deceased insured worker does not leave behind a widow or legitimate or adopted child/children or a widowed mother, the benefits of immediate dependant shall be payable to remaining dependants as in the following manner:
• It can be given to a parent of the deceased insured worker other than the widowed mother as mentioned above or also to grand-parent, for their entire life term, at a sum which is equivalent to the three-tenths of the full rate of the wage. In an event, there are two or more parents which shall not include the widowed mother or grand-parents the total amount which shall be payable to the parents or grand-parents as mentioned earlier shall be equally divided between them; to any other–
• Any male dependant of the deceased insured worker, till he attains the age of eighteen years.
• Any female dependant, until she attains the age of eighteen years or until marriage, whichever is earlier or if widowed, until she attains the majority age i.e. eighteen years of age or remarries, whichever case is earlier;

Disablement Benefit

There are two types of Disablement Benefits, which are as following

1. Temporary disablement benefit (TDB): TDB is applied from the first day of entering insurable employment and the same is irrespective of payment of any contribution in any incident of an employment injury or any occupational hazard. This Temporary Disablement Benefit is payable to the insured worker so long as the disability of the insured worker continues at the rate of 90% (Ninety percent) of wage.
2. Permanent Disablement Benefit (PDB) : The Permanent Disablement Benefit shall be payable at the rate of 90% (Ninety percent) of wage in the manner of a monthly payment which shall depend upon the extent of loss of earning capacity of the insured worker as certified by a designated Medical Board

Other Benefits provided to the insured workers

• Expenses on Confinement: An Insured worker women or an I.P. in respect of his wife in situation of any confinement which shall occur at a place where the emergency and necessary medical and health care facilities under the ESI Scheme are unavailable or absent.
• Funeral Expenses: An amount of Rs.10, 000/- (Rupees Ten Thousand Only) is payable to either the immediate dependents or to the responsible person who shall be performing last rites from the first day of entering into the insurable employment.
• Vocational Rehabilitation to the insured worker: This benefit is provided to insured worker who are permanently disabled and are undergoing Vocational Rehabilitation Training at VRS.
• Physical Rehabilitation of insured workers: this benefit id given in the event of any physical disablement which occurs due to employment injury during its term.
• Medical and Health Care during Old Age: This form of benefit is given to Insured worker retiring on attainment of the age of superannuation or under VRS/ERS. It also applies to a person who is forced to leave their service due to any permanent disability of an insured worker and the spouse of the insured worker. However, he/she must pay a token amount of Rs. 120/- (Rupees One Hundred and Twenty Only) per annum for such benefit.
• Rajiv Gandhi Shramik Kalyan Yojana: This scheme (Yojna) is formulated for aiding in Unemployment allowance. • Rajiv Gandhi Shramik Kalyan Yojana was introduced w.e.f. 01^st April 2005. An Insured worker under the ESI Scheme who becomes unemployed after being insured for minimum three or more years, in event of closure of the establishment or the factory, retrenchment or permanent invalidity are entitled to the following allowances:

1. An Unemployment Allowance which is equal to 50% (Fifty Percent) of the total wage for a period of maximum of one year.
2. Medical and Health care for the insured worker and the immediate family members from the Hospitals or Dispensaries established under the ESI Scheme during the term IP receives unemployment allowance.
3. Vocational Rehabilitation Training shall be given for upgrading the skills –
4. Incentive to employers in the Private Sector for providing regular employment to the persons with disability :
5. A Minimum wage limit for Physically Disabled Persons for availing the ESIC Benefits under the scheme is Indian Rs. 25,000/- (Rupees Twenty Five Thousand Only).
6. An Employers’ contribution which shall be payable by the Central Government of India for a term of 3(Three) years.

Conclusion

The work of an HR Manager is vital in smooth functioning of any company or a corporate establishment. Only a company with happy workers and Employees can reach the heights of success the government of India continuously strive hard to bring benefits to the workers of India and bring their skills to the optimum level. The ESIC is one such step towards it. Such insurance benefits brings confidence in workers with lower wages. However, it is not possible for every worker to know their rights under the law of India. Here comes the work of the Human Resource Managers. They must efficiently make aware the worker of their rights of insurance benefits, in case of any mishaps or accident.
References

References

[1] BibleHR.com. what is ESIC? ESIC FAQ. Retrieved 1 January 2016

[2] K.M.Pillai. Labour & Industrial Laws (Fourteenth Edition, 2012 ed.). Allahabad Law Agency. ISBN 81-89530-71-2

[3] C M Abraham. Sociology for Nurses: A Textbook for Nurses and Other Medical Practitioners.

[4] Ibid.

[5] “Employee State Insurance: For a handful of contribution, a bagful of benefits24 February 2011

[6] Annual Report 2008-2009″,  Employees’ State Insurance Corporation

[7] Rule 51, The Employee State Insurance Act, 1948

[8] Ken Robinson, TED Talk

[9] Cambridge Dictionary

The post Everything HR Managers need to know about Employees’ State Insurance Corporation (ESIC) appeared first on iPleaders.

In thsi article, Noopur Kalpeshbhai Dalal pursuing M.A, in Business Law from NUJS, Kolkata discusses Can class action be effective in stopping oppression & Miss-management in Companies.

INTRODUCTION

Class Action Suit given in the Companies Act, 2013 is a successful instrument for the security of retail shareholders. While examining the different remedies accessible to minority shareholders under the Companies Act, 2013, the centre of this section is to investigate the reasonability of class activity in securing retail shareholders against securities misrepresentation by drawing correlations with the US Securities Class action structure.

SHAREHOLDER’S ACTIVISM

Absence of shareholder activism particularly among retail shareholders is the inherent shortcoming in the Indian corporate governance structure.[1] Considerately despite the fact that shareholders are the real owners of a Company, yet they cannot have control over the working and management of the Company unless they hold a major stake in the Company. Ownership Model in majority of the Companies in India, including Listed Companies, is majorly family oriented and promoter controlled[2]. This ceases the ownership structures of the corporate entities and leaves the power of control in the hands of insider’s who controls the management and administration of the Company[3].

While shareholders are entitled to many rights by virtue of the shareholders agreement, Retail shareholders due to their minor stake in the company are restricted to any detailed information. In spite of the fact that they have a the right to vote against any decision of the Company in the General meetings, they prefer to “vote with their feet” and exit the Company, by selling their stake, instead of challenging the decisions of the directors or major stake holders of the Company who have controlling power.

ADDITION OF REGULATORY FRAMEWORK FOR INCREASE IN SHAREHOLDER INVOLVEMENT

Shareholders enjoy the rights, individual as well as collective rights. Any shareholder of a Company limited by shares and holding equity share capital has a privilege to vote on each decisions made by the Company through passing of Resolutions.[4] For more involvement of scattered shareholders, recent changes in the Indian regulatory framework have accommodated elective strategies for voting on issues influencing the interests of shareholders by method for a postal ticket or through electronic means[5]. SEBI revised the listing agreement directing major 500 listed Companies to give e-voting window to its shareholders in regard of those businesses, which were executed through postal ballot[6]. While it stays to be observed that upto what extent the e-voting facility would collect more shareholder involvement, postal ballot facilty has however not given the coveted outcomes attributable to its limitations[7].

Small Shareholder’s representation of interest should be made through a person selected as their elective representative on the Board of the Company as mentioned in the Appointment of small shareholder’s director Rules, 2001 under the erstwhile Companies Act, 1956 has also remained ineffective[8]. The Companies Act 2013 has constrained its relevance only to the listed Companies. The draft rules issued by MCA stipulate that such Company may suo moto or on a notice by at least 500 or one tenth of small shareholders, choose a representative from the small shareholders who can be appointed as an independent director on the Board of the Company[9].

RULE OF THE MAJORITY

The general standard of Company law is that each shareholder holds equal rights with other shareholders in a similar class and any distinctions among the shareholders is chose by a vote of majority. The control of majority shareholders was maintained on account of Foss V. Harbottle[10]. It is currently a settled decision that, if there should be an occurrence of damage endured by any company, the remedy can be looked for by the Company itself in the limit of being the offended party.

Protection of rights of the minority shareholders the most important part is not accessible when the majority share does anything in exercise of the forces for the inner administration of the Company. The said rule was additionally emphasized in the case of Burland V. Eagle[11] and Pavildes V. Jemsen[12], conserve the right of majority shareholders to decide on any resolution. The Honourable Supreme Court of India in Rajahmundry Electric Supply Co V. Nageshwara Rao[13] stated that

“The courts won’t by and large meddle, at the example of the shareholders, in the matters of internal management and the administration of the Company by its directors insofar as they are acting inside the powers entitled to them under the articles of association of the Company. Also, if the directors are bolstered by majority of the shareholders in what they do, the minority shareholders can, when all is said in done do nothing about it.”

While this standard of non-interference by the courts in issues of internal administration of the Company has been acknowledged, an opposite view[14] has likewise been taken challenging that, the outright utilization of this method of reasoning in the Indian setting would not be attractive considering that Indian Companies don’t include countless small individual shareholder specialists yet have  money related establishments subsidizing 80% of the fund however they hold just a small ratio of shares. Henceforth it was held that barring them or rendering them voice less by applying the guideline of non-interference would be out of line and low. The contention that streams from this judgment is that control is not supreme but rather subject to certain exemptions. Perceiving the need to secure minority shareholders against the conceivable seizure by the controlling larger part, certain shields have been given in the precedent-based law and under the past Companies Act, 1956.

These incorporate assurance to the minority shareholders under Ultra vires acts, Fraud on minority, miscreants in charge, Breach of obligations and cases of oppression and mismanagement.

Rights of Minority Share Hodlers

Shareholder rights & remedies can be looked for either through individual actions or subordinate actions. Individual actions are accessible to minority shareholders on the grounds of Oppression and Mismanagement[15] wherein the imperative number of shareholders[16] may apply to the Honourable National Company Law Tribunal (NCLT).

More prominent protection to minority shareholders is presently given operation & Mismanagement under section 242 wherein NCLT is engaged to pass orders for the evacuation of the Managing Director, Manager and Directors of the Company, restricting any transfer or allotment of shares[17] and interestingly statutorily accommodating the recovery of undue increases made by any Managing Director, Manager or Director amid the time of his arrangement. The cash so recuperated can either to reimbursed to identifiable victims or credited to the Investor Education and Protection Fund. This extra powers of NCLT to expel the undue increases from the people responsible for the Company and reimbursement to identifiable casualties is proposed to give pay to speculators against misfortunes, which was heretofore inadequate.

CLASS ACTION SUIT

A class action suit, or an agent activity is a type of claim in which a large group of shareholders altogether convey a case to court as well as in which a large group of litigants are being sued.

This is the new arrangement embedded under the Companies Act,2013. The Companies Act,2013 accommodates class‐action claims, which can permit countless number of shareholders with common interest for an issue to sue or be sued as a group. Section 245 and 246 of the Companies Act, 2013 provides these provisions.

Under these, speculators might record class‐action suits if they are of the feeling that the issues of the Company are being directed in a way biased to the common interest of the Company, its shareholders or investors.

Class suits have a few points of interest, the financial aspects of conglomeration. Apparently, class suits limit prosecution by maintaining a strategic distance from various suits. The measure of pay being asserted by each inquirer might be too little to warrant singular interest.

CLASS ACTION IN OTHER COUNTRIES

1. Class activity gone for financial settlements begun in the USA is still overwhelmingly a US wonder, however a few European purviews have, recently, established a few arrangements allowing class action.
2. Outside of USA, Australia is a nation where securities class case is broadly pervasive, as courts have held prosecution subsidizing by legal counselors as admissible.

European wards permit class activity to be sought after by purchaser affiliations as it were also, not by people. This has been considered sensible as the goal is to limit entrepreneurial interest by firms.

WHO ARE ENTITLED TO FILE CLASS ACTION

Section 245 of the Companies Act, 2013 has been placed in the Chapter managing oppression and mismanagement, which accommodate class action. According to the said section, the accompanying might be dealt with as imperative number of shareholders or, on the other hand investors for documenting a suit under this Section:

The JJ Irani Committee has in its report[19] expressed that,

“In the event of misrepresentation on the minority by cheats who are in charge and control the Company itself acquiring an activity its own particular name, subsidiary activities in regard of such wrong non-rectifiable decisions have been permitted by courts. Such subordinate actions are brought out by shareholders in the interest of the Company and not in their own person capacity, in regard of the wrong done to the Company. So also the standards of “Class Action” by one shareholder for at least one of the shareholders of a similar kind have been permitted by courts on the grounds of people having some locus standi. Despite the fact that these standards have been maintained by courts on many events, these are yet to be reflected in law. The Committee communicates the requirement for acknowledgment of these standards”.

In light of these suggestions, the Companies Act 2013, while getting numerous arrangements upgrading the protection of minority shareholders likewise cleared a path for the incorporation of class activity under Section 245 of the Companies Act, 2013[20] for the assurance of small investors through a lawful premise.

PROCEDURE FOR FILING A CLASS ACTION SUIT AS PER SECTION 245(5) IS AS UNDER:

The essence of class action is involvement of all affected members in a solitary response to keep away from duplication of suit. For this reason, an open notice is issued to every one of the shareholders/ members from a class by the Tribunal on permission of an application for class action. A representative can be enacted by the members from the class suo moto, coming up short which the tribunal delegates the representative speaking to the members/ shareholders. The cost or costs are to be settled by the Company or, on the other hand some other member in charge of any oppressive action.

LIABILITY FOR MISSTATEMENT IN PROSPECTUS

CRIMINAL LIABILITY

Sec 34 of the Companies Act, 2013[21] provides that where a prospectus, issued, distributed or circulated under this section, incorporates any explanation which is false or deluding in the frame or setting in which it is incorporated or, then again where any incorporation or oversight of any issue is probably going to misdirect, each person who apply for the issue of the purchase of shares offered through the said prospectus might be liable under Sec 447 of the Companies Act, 2013.

CIVIL LIABILITY

Section 35 of the Companies Act, 2013[22] provides that where a man has subscribed for securities of a Company following up on any prospectus included, or the incorporation or oversight of any issue, in the outline which is deluding and has supported any loss or harm as an outcome thereof, the Company and each shareholder who is said in that under condition (a) to (e) might be liable to pay compensation to each shareholder who has incurred loss or harm because of the misstatement of the prospectus.

Inside the importance of this section, the Directors of the Company at the time of the issue and who is named in that as the promoter, director or any other person who has approved the issue of prospectus including a specialist under section 26(5) of the Companies Act 2013 will be held liable to pay compensation to each shareholder who has incurred such loss or harm.

Section 36 of the Companies Act, 2013[23] states that any individual who either purposely or neglectfully puts forth any expression, guarantee or information which is misleading, deceptive, false, intentionally disguises any material realities, to incite someone else to go into or to offer to go into:-

1. Any understanding for, or with a view to gaining, discarding, subscribing for or guaranteeing securities or
2. Any understanding the reason or the pretended intention behind which is to secure a benefit to any of the parties from the yield of securities or by reference to fluctuations in the share valuations or
3. Any contract for or with a view to getting credit facilities from any bank or any other financial institution;

In the above stated situations the Company and all its executives, directors & promoters as mentioned in the prospectus might be liable under Sec 447 of the Companies Act, 2013.

Section 447 of the Companies Act, 2013[24] accommodates discipline for misrepresentation which is detainment for a term which might not be under six months which might be reached out to 10 years and should likewise be subject for fine at the very least the sum involved in the fraud, yet which may reach out to three times the sum required in the misrepresentation.

Fraud as per this section can be explained as below:

1. “Fraud” in connection to undertakings of a Company or anyone corporate incorporates any concealment of any fact, exclusion, disguise of any reality or mishandle of position committed by any person of the Company or any other individual with the intrigue in any way, with plan to deceive, to increase undue advantage from, or to harm the interests of, the Company or its members or its creditors or any other individual, regardless of whether there is any fraudulent gain or fraudulent loss;
2. “fraudulent gain” implies the gain by unlawful methods for property to which a man gains is not legitimately entitled;

• “fraudulent loss” implies the loss by unlawful methods for property to which the individual losing is legitimately entitled”

The Companies Act, 2013 now accommodates particular provisions identified with any situation of fraud and in every single such occasion of misrepresentation, class action can be filed.

CONCLUSION

Thus from the above we can derive that Class Action is not some provision which is new for the Indian Legal Framework, as the same was already available in statutes including Civil Procedure Code, 1908 and the Consumer Protection Act 1986.

The Interest and rights of the all group of shareholders will now be protected as the these rules provide for filing of class-action suit in the Honorable National Company Law Tribunal (NCLT) for the misconduct done not only by the directors, promoters or majority of the shareholders of the Company but also against the Auditors, consultants and advisors who are involved in the said misconduct.

While many class-action suits were effectively documented in the US by holders of ADRs of Satyam, nothing should be possible here in India as the Companies Act 1956 did not allow this class action. Along these lines, the lawmaking body included particular class-action arrangements in the new Companies Act 2013.

Section 245, which applies to a wide range of Companies with the exception of banks, meets this shortfall. The section gives that a specific number or percentage of members/ shareholders and investors or any class of them’, whichever is less, can file an application before the NCLT under Class Action Suit for any matter related to Oppression & Mismanagement.

The aggrieved shareholders or investors can seek to restrict a Company from conferring an act which is ultra vires or is in breach of the Companies stated objects in the articles, announcing a resolution modifying the articles of association as void if such resolutions are passed by superseding material realities or through a misquote; limiting the Company from doing any business or activity which is in opposition to the Companies Act or any other law; controlling the Company from making a move in opposition to any resolutions passed by the shareholders; or granting damages, demand compensation or any reasonable activity from or against the Company, its directors, Auditors and at times even from consultants, experts or advisors.

On account of a Company & its directors, such damages or compensation can be requested for any unlawful, wrongful or fraudulent act or oversight by them; the Auditors, then again, can be considered responsible for any misleading or improper proclamation in their Audit report.

The Auditor’s obligation will be joint, i.e., of both the Auditor’s firm and the Partner who has prepared and signed the Auditor’s report.

To file a class-action suit, the depositors or shareholders should set up that the Management of the Company is misleading and the issues are biased to their or the Company’s advantages.

While Section 245 lays the substantive law and gives that any at least 100 shareholders or depositors, all things considered, can file a class action suit, different perspectives, for example, the minimum percentage of shareholders or depositors that would be required for documenting class-action as specified in the Rules led down by the Ministry of Corporate affairs.

Curiously, the arrangements for class-action are contained in the chapter of Oppression and Mismanagement under the Companies Act 2013; in this manner, an inquiry emerges what is the need a different provision for class-action when they can be secured under the legally existing provisions of Oppression and Mismanagement.

The remedies which are sought for from class-action are altogether different from the remedies received from the general provisions of Oppression & Mismanagement.

While, in the class-action, petitioners seek for a request restricting the Company and its directors from passing certain resolutions; remedies under general provisions of Oppression & Mismanagement could be the securing of allotment & transfer of shares as well as common interest of shareholders, restriction on change in the voting rights or class of shares.

The decree or order passed by NCLT in the case of class action suit will be restricting not just on the depositors or shareholders who filed the class action suit but on every one of its shareholders, investors, Depositors, Auditors, Directors and others.

Thus, a class action suit filed by shareholder or class of shareholders is effective in stopping oppression & miss-management in Companies.

References

[1] Varottil, U. (n.d.). The Advent of Shareholder Activism in India. SSRN Electronic Journal.

[2] Varottil, U. (2010). Evolution of Independent Directors in the Indian Corporate Governance. 6 Hastings BUS.L.J 281.

[3]  Sarkar, J., Sarkar, S. and Sen, K. (n.d.). A Corporate Governance Index for Large Listed Companies in India. SSRN Electronic Journal.

[4] Section 47 of the Companies Act, 2013

[5] Section 110 of the Companies Act, 2013; corresponding section 192 A of the Companies Act, 1956 gives the power to the central government to declare the items of business that can be transacted

only through postal ballot

[6] SEBI vide Circular no.CIR/CFD/DIL/6/2012 dated 13th July, 2012

[7] Upadhyay Payaswini, The Firm: Welcome to the world of E-Voting dated July 12, 2012

[8] Jaleel Kishore Tania, ‘As a small shareholder your path to the Company’s Board is blocked” The

Business Standard dated 21st August, 2012

[9] Section 151 of the Companies Act, 2013 provides for the appointment of Small shareholder’s

director in case of listed companies as against Section 252 of the Companies Act,1956 which limited

it to public companies having paid up capital of Rs 5 crore or more or 1000 small shareholders.

[10] Foss V.Harbottle 67 E.R.189;(1843)2 Hare 461

[11] Burland V. Earle, (1920) A.C 83

[12] Pavlides V. Jensen (1956) Ch. 565

[13] Rajahmundry Electric Supply Co V. Nageshwara Rao AIR1956 SC 213

[14] Delhi High court in the case of ICICI v.Parasrampuria Ltd, SSL July 5, 1998

[15] Under section 241 of the Companies Act, 2013; Corresponding sections 397 &398 under the

Companies Act, 1956 have been combined under sec 241 of the Companies Act, 2013 and relief

sought under Oppression and mismanagement shall be sought through the Tribunal

[16] Under section 244, in case of a company having a share capital, not less than 100 members or not

less than 1/10 th of the total members or members holding not less than 1/10 th of the issues share

capital

[17] Sec 242(2)(d) of the Companies Act, 2013

[18] Section 244 of Companies Act, 2013

[19] The J.J Irani Report on Company Law (2005)

Available at http://www.mca.gov.in/Ministry/chapter1.html last accessed on 19.03.2014

[20] in Chapter XVI under Prevention of Oppression and mismanagement of the Companies Act, 2013

[21] Section 34 of the Companies Act, 2013

[22] Section 35 of the Companies Act, 2013

[23] Section 36 of the Companies Act, 2013

[24] Section 447 of the Companies Act, 2013

The post Can class action be effective in stopping oppression & Miss-management in Companies? appeared first on iPleaders.

In this article, Padamasre Manoj pursuing M.A, in Business Law from NUJS, Kolkata discusses Is it criminal offence to default on loans – Case Study: Vijay Mallya.

Vijay Vittal Mallya: Jack of all trades!

Mallya is the child of Vittal Mallya and Lalitha Ramaiah, from Bantwal, Karnataka. Vijay Mallya was taught at La Martinière Calcutta, where he was delegated House Captain of Hastings house in his last year, and at St Xavier’s College, Calcutta, where he graduated with a Bachelor of Commerce degree in 1976. While in school, Mallya interned in his privately-run companies. Subsequent to graduating, he interned at the American division of Hoechst AG in the United States. Vijay Mallya became the Chairman of United Breweries Group in 1983 at 28 years old, after his dad’s passing away. Vijay married an airhostess and had a boy; he then married his school girlfriend Rekha and had 2 children. Rekha was divorced and already had 2 children of which one is adopted by Vijay Mallya. He also seem to have had multiple interests and an exhuberant lifestyle that made him the “King of good times”.

Mallya was known for his pompous and diverse interests build into a lavish life style and had a hand in almost all types of industries, recreation and sports including motor racing, football, cricket and made the most of his money from the beverage industry.  We will look at the rise and fall of Mallya and most importantly if such entrepreneurs who cause huge debts to the country’s economy should be treated as ‘criminals’ and more serious actions to be taken against them.

Assets & Liabilities

Mallya’s assets had developed into a multi-national combination of more than 60 organizations, with a yearly turnover which expanded by 64% more than previous 15 years to US$11 billion in 1998–1999. He solidified the different organizations under an umbrella gathering called the “UB Group”, spun off non-core and revenue loss making organizations and concentrated on the center business of hard beverages. Over the years, he had differentiated and procured Berger Paints, Best and Crompton in 1988; Mangalore Chemicals and Fertilizers in 1990; The Asian Age daily paper and the distributer of film magazine, Cine Blitz, Bollywood magazine in 2001.

Vijay Mallya has to his credit the bringing back the sword of Tipu Sultan over an auction for Rs.1.7 crores and many other weapons that belonged to India which was captured by the British when they ruled India.   He also bid and purchased Gandhi’s glasses, sandals, pocket watch etc for Rs. 1.8 Mn from New York auction.

He is luxury personified and sports more than 250 vintage cars; yachts; private jets; Boeing planes, 200 horses et al.  He published the Kingfisher Calendar every year that had top model such as Deepika Padukone and Katrina Kaif modeling in swim suits. He was also the owner of Royal Challengers, team of Indian Premier League. He joined politics in year 2000 and was part of the Janata Party and later became member of Rajya Sabha.

United Kingfisher Beer has more than a half piece of the overall industry in India’s brew segment. This brand was accessible in 52 nations outside India and leads among Indian brews in the worldwide market.

United Spirits Ltd, the leader organization of the UB Group, accomplished the memorable point of reference of offering 10 crore (100 million) cases, turning into the second-biggest spirits organization on the planet by volume under Vijay Mallya’s chairmanship. In 2012, Mallya surrendered administration control of United Spirits Limited to worldwide spirit group Diageo, in spite of the fact that he held a stake in the business. In February 2015 Mallya was compelled to leave as Chairman of United Spirits, and he contracted to get a $75 million severance installment as a feature of that arrangement, however, the courts in India have obstructed that settlement. Kingfisher Airlines, built up in 2005, was a noteworthy business propelled by Mallya. It in the end wound up noticeably ruined and needed to be shut down. As of October 2013, it had not paid wages and salaries to its workers for 15 months, had lost its permit to work as an aircraft, and owed more than US$1 billion in bank advances. By November 2015 the sum owed to the banks had developed to $1.35 billion, and there were multiple levels of obligations owed to various parties.

Charges filed against Vijay Mallya

Vijay was an all-powerful body of business, economic and political power and led the life of a “King”.

Mallya is named and as a “resolute defaulter” under Indian law, including allegations of illegal tax avoidance, shell companies; money laundering, misappropriation, etc.

During July 2015, Central Bureau of Investigation filed a case against IDBI Bank officials and Vijay Mallya alleging that the loans that were sanctioned to Mallya were way above the limit and the right approval processes were not followed by the IDBI officials while granting the loan.

During March 2016, a local Hyderabad court issued a non-bailable arrest warrant against Mallya due to cheque payment default, where cheque issued for Rs.50 lakh  to the Hyderabad International Airport was dishonored by the Bank due to lack of funds.

During March 2016, another case against Mallya was filed by the Enforcement Directorate for transfer of funds abroad, to the value of Rs.900 crores. This was filed under the Prevention of Money Laundering Act (PMLA).

During July 2016 there were notices issued to the 17 public sector banks and financial institutions that had loaned money to Mallya. The Serious Frauds Investigation Office (SFIO) sent these notices and questioned the banks on documentation that was validated prior to granting loans for a loss making airline company. Kingfisher airlines was asked to furnish details of source of funds.  There was severe malfunction in administration of the airline and poor governance that led to this state of affairs.

There have been multiple cases filed against Vijay Mallya for overall default in payment amounting to about Rs. 9000 crores issued as loans by around 17 different public sector banks. Over a period of 6 years commencing 2012, there have been defaults in repayment of loans. The group of public sector banks that were impacted, including State Bank of India approached the Supreme Court on March 8, 2016, seeking for court order to ban Mallya from leaving the country without paying back the loans. However, Mallya had left the country before this order was issued.

The Mumbai court during July 2016 issued one more non-bailable warrant to Mallya based on the case filed by the AAI.  The Airports Authority of India claimed that 2 of the cheques issued by Mallya was not honored by the Banks and its value was Rs.100 crores.

On 11 June 2016, the Enforcement Directorate (ED) detailed it had attached ₹1,411 crore (US$220 million) rupees worth of Mallya’s Indian properties against unpaid credits totaling to ₹807 crore (US$130 million) provisionally. On 3 September, it issued a notice  for a further ₹6,630 crore (US$1.0 billion) worth of Mallya’s properties, including a farmhouse, shares in United Breweries and numerous other items  in Bengaluru esteemed at ₹565 crore (US$88 million). By December 2016, the ED had appended an aggregate of Rs 9661 crore worth of assets of Mallya and Kingfisher in India. This is one of the biggest notice of claim made by the ED in a Prevention of Money Laundering Act case till now. The ED additionally chose to send letters to the US, the UK and Europe asking for them to help in connection with Mallya’s case.

Mallya has charges against him under IPC 120 B and 420 as well as IPC 13 (1D) and 13 (2) part of Prevention of Corruption Act of Cheating, Conspiracy and Corruption. This case was investigated by a Special Investigating team (SIT) of officers in Delhi while the case was registered in Mumbai.

During the investigation, it was revealed that IDBI officials had a significant hand in enabling the fraudulent transactions and had approved loans amounting to Rs.1300 crores without adequate source of funds or appropriate documentation to Kingfisher Airlines.  Except for about Rs.260 crores, which was paid towards staff salaries and payment of loan outstanding the remaining amount of the Rs.1300 crores was used by Mallya for his lavish life style.

Kingfisher airline is charged for cheating Banks, despite being fully aware of the financial situation and fully knowing that the company was a non performing institution.  CBI investigations reveal that the Banks have also failed in their due diligence and have been approving high value loans inappropriately.

Is loan default a criminal offense?

Loan defaulters are being viewed as criminals due to the increase of awareness around the non -performing assets of banks and this is seen as corruption and criminal misconduct.  Basically, any non-repayment of loan, attributes towards breach of contractual agreement between the bank and the company. The first step in such cases is to take the situation to NCLT for redressal.

Any breach of contractual agreement will not qualify for a criminal offence. Parties impacted by this should file cases at the civil court for investigation and recovery of lost amounts. In such cases the most important aspect is if the defaulter had actually malicious planned for such a default.  If the intention of the defaulter was known at the time of commencing the action, then it can be classified as criminal misconduct and cheating.

WILLFUL DEFAULTERS

The Banking industry is carrying around Rs.66190 crores belonging to PSBs and 6816 suits have been filed against 1669 cases while the total number identified is around 7686 willful defaulters.

Such instances of willful default refers to, intentionally not disclosing complete assets, any act of misappropriating funds or misuse of one’s authority etc. falls under frauds category as per the latest amendment in The Companies Act, 2013. The Serious Fraud Investigation Office has been institutionalized under this Act and is empowered to investigate cases and any deviation or finding by this SFIO could lead to imprisonment upto 10 years as per Sec.447 of the Companies Act.

The new ‘willful defaulter’ category that was brought in by the Reserve Bank of India classifies the following :

• Any individual or company not paying dues or loans despite having the financial ability to pay
• If the intention is to divert funds thereby showing a loss situation or inability to repay loans
• Sales or transfer of the assets provided to the Bank as security without informing the Bank.

This ‘willful default’ falls under criminal proceedings against the loan defaulters. This can be initiated after providing sufficient time and notice for the borrower to repay so that the laws of natural justice is adhered to.

Some of the willful defaulters  list compiled recently by the Government and the public sector banks shows diamond merchants, airline services, media house, mining companies, realty developers and individual proprietors managing garment companies.

In most cases, borrowers of loans commence the business with positive intent of making profits and diversifying the business. It is when the business does not yield profit over a recurring period of time that companies go into bankruptcy and unable to repay loans. There are also situations when the asset that is being provided as security to the bank is not appropriately assessed.  For example, In Mallya’s case, his brand that was pledged for loan was for a value of Rs.6000 crores. However, the value that is now available when banks are trying to sell the brand and remaining assets is hardly Rs.6 crores.

The Directors of companies give their personal assets towards guarantees and this is treated as security for loans to be granted. Banks have the liberty to deal with these assets if the agreement is clear that the asset is pledged in lieu of the loan to the Bank and may be recovered in case of loan default. Indian Company law needs to be tighter in limiting the liability and thereby curtailing the amount of exposure especially in companies such as of Vijay Mallya where the entire business was solely owned by him.

IMPACT

The loan defaults made by Mallya has a significant impact on the following aspects :

Irresponsible behavior by a powerful citizen causes disruption to the socio-economic conditions and tampers the reputation of the country in the world forum on ‘ability to control loan defaults’.  This creates a ripple effect on investors wanting to enter India as they hear of the poor governance structure in the country and thereby have low confidence in the ability to do a corruption free business.  India is growing as an innovative and promising emerging market and such instances of bad loans weigh down the overall progress.  India’s total stressed loan value in February 2016 was around INR 8 Trillion, ie. USD 116 Billion.  While Prime Minister Modi is striving to improve the ‘ease of doing business’, the World Bank report released recently shows a movement by only 1 point for the nation.  Our country has responded to the World Bank that the 14 step process to commence business has come down to just 5 step process and therefore the ‘ease to do business’ in India has significantly improved. Having said this, the ease to do business rating also takes into account factors such as these, ie in the event of a default or fraudulent transaction, what is our capability to upfront identify, reprimand and curtail further losses. Does our judiciary system show strong action on such default.

The economy and financial sector of India runs centered at the banking industry.  There are a large number of public sector banks spread across the nation that lends to the poor and middle class through the profits obtained from the large scale business accounts, such as Kingfisher / UB group.  Any default by big ticket owners causes a significant drop in the lending capability and increases the bad debt for loan waivers in Bank books. There is improvement in this segment though. Around year 2000, India had 12.5% of stressed non-performing loans against overall loans granted, during 2016, it has improved to 4.3%. However, China has moved from 22% to 0% during the same period. So there is definitely room for us to tighten our laws and control such non-performing loans across the country’s bank books.  When loans are granted to companies without appropriate due diligence there is a false economic situation that is created and this causes sharp imbalance upon identifying default situations.

In Mallya’s case there is also cheating involved in not paying salaries to staff for a prolonged period of time causing living issues for the families and potential debts to pay bills, that those families underwent due to non-payment of money rightfully due to them.  There are a number of issues such as repayment of mortgage or personal loans that those staff may have, which is be paid depending on the salary that they get.

IPC classifies criminal cases as those pertaining to security threats; woman related harassment and abuse and any case of violence, armed forces related. Case such as Mallya’s is largely Corruption and exploitation of the system; cheating and fraudulent transactions; manipulation of public money causing loss to investors and shareholders. While it does not directly fall under criminal offence the law needs to be tightened to give higher punishment to such defaults.

While the case does not have loss of life or national threat involved, it has a detrimental and long lasting impact on a far wider population apart from the accused, Vijay Mallya.

In such cases, the system should severely penalize the Bank authorities who have sanctioned loans and failed to monitor payments in a controlled manner. Clearly there is poor process controls and lack of review and governance mechanisms that needs immediate focus.

My view is that our laws should modify and take such large scale, fraudulent and intentioned cases of default for review under the criminal offences category and order high severity punishments, in addition to ordering a tight window for repayment of the defaulted amounts.

Government action to curb the situation

One of the recent reports in the news showed that the Finance Minister Arun Jaitley had named 12 big companies that have joined the defaulters list on account of inability to pay dues and RBI will be initiating Bankruptcy proceedings on these companies.

These cases will be reviewed on priority by the NCLT, as the amounts put together of these 12 companies forms about 25% of the total non-performing assets in the Banking Sector. Each company owes more than Rs.5000 crores each to the Bank. The NCLT is being strengthened to be able to quickly review bankruptcy and insolvency cases.

Public sector banks holds about Rs.6 lakh crore of the total Rs.8 lakh crore non-performing assets in the Banking industry.

RBI should bring in robustness in tracking and resolving the issues with non-performing assets.

Prime Minister Modi, the Finance Ministry and legal body of India has been in discussions to bring in a 180 day timeframe by when defaulters should regularize.  In the event of non-compliance legal action will commence immediately towards imprisonment, penalties and recoveries based on the Bankruptcy and Insolvency code.

The new law around insolvency that has been made effective will resolve stressed assets issue by empowering banks to issue action notice against cases. This law also allows for change in leadership and removal of all ownership and rights in the company.

This will largely mitigate unnecessary investigation into banks and will tighten controls over defaulters.

Conclusion

Media plays a key role currently in exposing such cases both through private investigations and information leakages from the Banks themselves.  However, this results in blow up of the issue significantly higher than the reality and tarnishes the image of the individual and severely impacts the ability for the individual to restore the situation.

Responsible reporting by the media, honesty and integrity by Banking staff while conducting thorough due diligence prior to granting loans and individual borrower acting with integrity  fully understanding the implications of loan defaults; strengthened laws and deployment by NCLT; faster investigation and judgement will all enable move the needle on our capability as a nation, in this area.

References :

www.Indiatoday.in

www.economictimes.in

Article: King of good times

Article: Rise and fall of Kingfisher

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In this article, Parthapratim Das pursuing M.A, in Business Law from NUJS, Kolkata discusses All you need to know about Right To Information in India.

Right to information is the sign of advancement of human civilization

The right to information as propounded in the Right to Information (RTI) Act, 2005, is the culmination of a stage in the advancement of human civilization. It is the embodiment of one of the mature facades of the democracy flourishing in the country. This right is also an index of growth of human rights and liberties in their vital palpitations, spontaneously flowing from the democratic credentials of the Country.

With the mental growth and advancement of science, technology and industry the growing consciousness of human rights and liberties paved way for democratic form of governance. Freedom is an inbuilt desire in almost every animate being. Therefore the growing consciousness for various liberties resulted in revolutions against the autocracies and monarchies in the various parts of the world and the political scenario was visited by democracy, growing and flourishing in a big way, in many countries of the world. The one of the major endeavors of democracy was to accord growth of human liberties and dignity.

Since our independence was the result of centuries old struggle and sacrifice, the people cherished high hopes and aspirations from the new setup. Accordingly, the Constitution of India provided befitting provisions in the form of fundamental rights and directive principles of the State Policy.

Movement and development of Right to Information and its place in the Constitution of India

The Constitution of India does not explicitly grant a right to information. However, the Supreme Court of India has held in several cases that the right to information is implicit in the constitutionally enshrined Right to Life and Liberty in Article 21 supported by the Right to Constitutional Remedies in Article 32 which provides the right to approach the Supreme Court and High Court in case of any of these rights. Dynamic interpretation of these Articles by the Supreme Court over the years has lead to the development of the Rule of Law in India. The legal position has develop over a period of time through several court decisions.

In the absence of clear legislation on the right to information, the only resort left to the citizens was to knock at the doors of the courts every time they wanted to enforce this right.

In 1993, the Consumer Education and Research Council, Ahmedabad proposed a draft RTI Law. The Press Council Of India headed by Justice P.B. Sawant presented a draft model law on the right to information to the Government of India in the year 1996.

The first Legislation  in India enacted as the ‘Freedom of Information Act,2002’ which enabled a citizen of India to secure access to information under the control of public authorities, died in womb as the infrastructure required to make it operational could not be fully established. The Freedom of Information Act,2002 was repealed and replaced by a new legislation “The Right to Information Bill, 2005” which was introduced in Lok Sabha on 23.12.2004.

Right to Information (RTI), 2005 received the assent of the President on 15.06.2005 ( published in the Gazette of India Ext. Pt. II, S.1 dated 21.06 2005 ) and came into force on 12.10.2005 though some sections like Secs. 4(1), 5(1), 5(2), 12, 13, 15, 16, 24, 27 and 28 came into force with immediate effect. It extends to the whole of India except the State of Jammu & Kashmir. “Right to Information” means the right to information accessible under RTI, 2005 which is held by or under the control of any public authority. Any citizen is entitled to obtain information under this law, inspect work, documents, reports held by Public Authorities or even information relating to private authorities under the control of the Public Authorities. Citizen are entitled to take notes, extracts, certified copies of records and documents as also obtain information in the form of diskettes, floppies or in any other electronic mode or through print-outs where such information is stored in a computer or in any other device [sec. 2(j)].

It has been realized that RTI Act, 2005 will be in the interests of both the stake holders of the political system, that is, information providers viz., the government and all the other public organizations and the information seekers, viz., the members of the public. It is expected to promote transparency and accountability in public administration and thus help in improving the decision making process, as also in reducing corruption, nepotism and casteism. This will enhance manifold the credibility of the government. On the other hand, it will provide an empowering tool in the hands of the public through which they will secure access to information which enable them to make informed choices and thus facilitate individual participation in public affairs and also enable them to assert their democratic rights more effectively. In other words, RTI act,2005 has given due recognition to the fact that the right of access to information is the life-blood of a democracy since paucity of information stunts the development of a people as it deprives them of the opportunity to grow up to their optimum potential.

The Right to Information Act harmonizes the public interest

The Act envisages the harmonization of public interest with the right to information. In spite of all things said and done in favour of right to information, there are some areas where the public interest demands some element of secrecy. It has been felt that certain areas of Governance have to be kept outside the purview of the RTI Act, the same have been exempted under the specific provisions envisaged under the Act. Thus, a harmonious balance has been tried between the two.

As a matter of statutory provisions, the Act provides for imparting information being held by the public authority and it does not provide for redressal of grievances or entertaining suggestions for doing or not doing something. Though it aims at reforming the public administration by ensuring transparency and accountability and thus eliminating corruption, it does not provide for the remedy within its purview. It simply helps in unveiling what is happening within the system of governance through the public authorities. Therefore, there is no scope in the RTI Act to either make suggestions or to seek redressal of grievances.

Followings answers of some questions about right to information should be needed to know by every citizen of India:

What is the meaning of the word “Information”?

The concept of information under the Act has been given a wide scope. It has been defined in detail including the various modes and forms of information which can be accessed under the right to information. Since it is the key theme of the Act, its various connotations, forms and dimensions have been incorporated in the Act.

“Information” means any material in any form, including records, documents, manuscripts, files, memos, e-mails, opinions, advices, press releases, circulars, orders, logbooks, contracts, reports, papers, samples, models, data material held in any electronic form and information relating to any private body which can be accessed by a public authority under any other law for the time being in force.

What is the meaning of the word “Right to Information”?

“Right to Information” means the right to information accessible under this Act which is held by or under the control of any public authority and includes the right to inspection of work, documents, records, taking notes, extracts or certified copies of documents or records, taking certified samples of material; obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through printouts where such information is stored in computer or in any other device.

It is the right to obtain information from a public authority which is held or controlled by such authority. This right extends to every piece of information which has a public nature. Such as :-

• Inspection: means to see a work document or record closely, carefully and purposefully.
• Taking notes: may mean noting down certain information from the documents inspected.
• Certified samples of material: since it is to ensure transparency and to contain corruption, it authorizes the citizens to take samples from the material being purchased or used by the Public Authorities.

What is ‘public authority’?

A ‘public authority’ is any institution or authority or body of government established or constituted by or under the Constitution, or by any other law made by the Parliament or State Legislature, or by notification issued or order made by the Government of India or the State Government. The bodies owned, controlled or substantially financed by the Government of India or the State Government and non-Government organizations substantially financed by the Government of India or the State Government.

What is the method of seeking information?

Citizen, who desires to obtain any information under the RTI Act, should make an application to the Public Information Officer (PIO) concerned of the Public Authority in writing in English or Hindi or in the official language of the area in which the application is made. The application should be precise and specific. He should make payment of application fee at the time of submitting the application as prescribed in the Fee Rules. The applicant can send the application by post or through electronic means or can deliver it personally in the office of the public authority. The application can also be sent through an Assistant Public Information Officer.

This application may be written or in electronic form and it could be in writing or printed or may be sent through electronic means i.e. through e-mail or fax etc. As per circumstances and the conveniences of the applicant he may choose any mode. The choice of the language would be that of the applicant and the SPIO and ASPIO concerned cannot force the applicant to use a particular language. However, the SPIO may decide the mode of supply of information as per availability of the resources.

Whether it is required to give any reason for requesting the information?

An application making request for information shall not be required to give any reason for requesting the information or any other personal details except those that may be necessary for contacting him.

This provision tries to give a force and absoluteness to the right. This takes the right away from the purview of reasoning and justification. It is an absolute right to this extent and to obtain information under the Act, no reasoning or justification is required. Once the application is duly filed under the provisions of the Act, the SPIO has to give the information except when it is otherwise exempted under the Act. Once it is there that he is a citizen of India, he has the right to obtain information and beyond that he is not required to disclose any further details.

What are the fees prescribed by the Right to Information Act for seeking information?

A person seeking some information from a public authority is required to send , along with the application, a demand draft or a bankers cheque or an Indian Postal Order (IPO) of Rs.10 (Rupees ten) , payable to the Accounts Officer of the Public Authority as fee prescribed for seeking information. The payment of fee can also be made by way of cash to the Accounts Officer of the Public Authority or to the Assistant Public Information Officer against proper receipt. The application may also be required to pay further fee towards the cost of providing the information, details of which shall be intimated to the appellant by the Public Information Officer (PIO) as prescribed by the Right to Information (Regulation of fee and Cost) Rules, 2005. Rates of fee as prescribed in the Rules are :-

• Rupees two (Rs.2/-) for each page (in A4 or A3 size paper) created or copied;
• Actual charge or cost price of a copy in larger size paper;
• Actual cost or price for samples or models;
• For information provided in diskette or floppy, rupees fifty ( Rs. 50/-) per diskette or floppy; and
• For information provided in printed form, at the price fixed for such publication or rupees two per page of photocopy for extracts from the publication.

For inspection of records, the public authority shall charge no fee for the first hour, but a fee of rupees five for each subsequent hour or fraction thereto shall be charged. If the application is a BPL Card holder, and submits a proof in support of his claim, he is not required to pay any fee.

Retention of record

The Act does not require the public authorities to retain records for indefinite period. The records need not be retained as per the record retention schedule applicable to the concerned public authority. Information generated in a file may survive in the form of an OM or a letter or in any other form even after destruction of the file/record. Section 8(3) of the Act requires furnishing of information so available after the lapse of 20 years even if such information was exempt from disclosure under sub-section (1) of section 8.

Transfer of the application

Where an application is made to a public authority requesting for an application, which is held by another public authority; or the subject matter of which is more closely connected with the functions of another public authority, the public authority to which such application is made, shall transfer the application or such part of the application as may be appropriate to that other public authority and inform the applicant immediately about such transfer.

Once the application is duly transferred to the public authority under the provisions of the RTI Act, it is the liability and responsibility of the concerned public authority, to which the application is transferred, to provide the information which is in its possession or custody. If such public authority fails, it is not the responsibility of the transferring public authority.

Third party information

Third party in relation to the Act means a person other than the citizen who has made request for information. The definition of third party includes a public authority other than the public authority to which the request has been made.

Disclosure of third party information

Information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of third party, is exempt from disclosure. Such information should not be disclosed unless the competent authority is satisfied that larger public interest warrants the disclosure of such information. The third party should be given full opportunity to put his case for non-disclosure if he desires that the information should not be disclosed.

Time limit for disclosing information

Section 4(1) prescribes a time limit of 120 days for certain information to be disclosed suo motu at the level of the public authority. This is regarding the board information pertaining to functioning of an organization. The items mentioned in cl.(i) to (xvii) contain a comprehensive detail of establishment, procedure, duties, norms, rules, documentation, formulation of policy statement, staff pattern, salary structure, budget allocation, programmes concessions, permits, status of record, facilities available to the public and beneficiaries and the steps taken for the enforcement of right to information etc. It is basically to allow an insight to the citizens and without any specific request by an individual the detailed facts are notified to the public at large. Thus after such details are disclosed the basic purpose of the Act regarding transparency is achieved to a great extent.

Disposal of request

Subject to the proviso to sub-section (2)  of the section 5 or the proviso to sub-section (3)  of section 6, the Central Public Information Officer or State Public Information Officer as the case may be, on receipt of a request under section 6 shall, as expeditiously as possible, and in any case within thirty days of the receipt of the request, either provide the information on payment of such fee as prescribed or reject the request for any of the reasons specified in sections 8 and 9 : provided that where the information sought for concerns the life or liberty of a person, the same shall be provided within forty-eight hours of the receipt of the request.

Under the provisions of the Act, either the information is to be granted on payment of the prescribed fee, if any, or the application may be rejected on the grounds mentioned in sections 8, 9 or 24. There is no third option. Application means a valid application under the Act along with the payment of prescribed fee. However the information regarding corruption and violation of human rights cannot be declined even under section 24 of the Act.

Deemed Refusal

If Central Public Information Officer or State Public Information Officer, as the case may be, fails to give decision on the request for information within the period specified under the sub-section (1), the Central Public Information Officer or State Public Information Officer, as the case may be, shall be deemed to have refused the request.

What is the process of filing of an appeal?

An applicant can file an appeal to the first appellate authority if information is not supplied to him within the prescribed time of thirty days or forty-eight hours, as the case may be, or is not satisfied with the information furnished to him. Such an appeal should be filed within a period of thirty days from the date on which the limit of 30 days of supply of information is expired or from the date on which the information or decision of the Public Information Officer is received. The appellate authority of the public authority shall dispose of the appeal within a period of thirty days or in exceptional cases within 45 days of the receipt of the appeal. If the appellate authority fails to pass an order on the appeal within the prescribed time period or if the appellant is not satisfied with the order of the first appellate authority, he may prefer a second appeal with the Information Commission within ninety days from the date on which the decision should have been made by the first appellate authority or was actually received by the appellant.

Information concerning his or her right with respect to review the decision as to a number of fees charged or the form of access provided, including the particulars of the appellate authority, time limit, process and any other forms.

Any person who, does not receive a decision within the time specified in sub-section (1) or clause (a) of sub-section (3) of section 7, or is aggrieved by a decision of the Central Public Information Officer or State Public Information Officer, as the case may be, may within 30 days from the expiry of such period or from the receipt of such a decision prefer an appeal to such officer who is senior in rank to the Central Public Information Officer or State Public Information Officer, as the case may be, in each public authority:

Provided that such officer may admit the appeal after the expiry of the period of 30 days if he or she is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.

The Information Commission

The Central Government shall, by notification in the official Gazette, constitute a body to be known as the Central Information Commission to exercise the powers conferred on, and to perform the functions assigned to, it under this Act.

Whether the RTI Act has overriding effect on the other Acts?

Right to Information had been held as implicit in the right of free speech and expression guaranteed under the Article 19(1)(a) of the Constitution. However, the free flow of information was restricted by legislations like the Official Secrets Act, the culture of secrecy within the bureaucracy and the low level of literacy and awareness of rights among the people. The Act aims at bringing total transparency. The preamble clearly states that it intends to harmonize the need to keep certain matters secret but at the same time reiterating the paramountcy of the right to know. Thus the Act intends to bring in a total change in the mindset of secrecy generated by the colonial legislations such as the Official Secrets Act and the Law of Evidence. This Act has been given an overriding effect on the other Acts including the Official Secrets Act, 1923. If any provision of the Official Secrets Act prohibits the publication of particular information and the same is allowed under the Right to Information Act, the information shall be published notwithstanding the provisions otherwise provided under the Official Secrets Act. Therefore section 22 when read together with the provisions of section 8(1) of the Act, would mean that it may overrule the conflicting provisions of Official Secrets Act, 1923 but the orders passed by courts and tribunals regarding the dissemination of information will have to be honored.

Right to Information and Right to Privacy

Section 8(1)(j) – information which relates to personal information disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central or State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger interest justifies the disclosure of such information; provided that the information which cannot be denied to the Parliament or a State Legislature shall not be denied to any person. The information which is purely personal nature and which has nothing to do with public interest. It may relate to an individual. This information may have strictly personal contents which may result in invasion to individual’s privacy, if disclosed. Broadly speaking it may be confidential report of an official, Income tax returns of an individual, Bank Account, Property statement etc. this is an attempt to keep the private life separate from public life. If the Information pertaining to a private individual has no connection with the public interest, it cannot be disclosed under the Act in normal course.

However, if the concerned SPIO or the appellate authority is satisfied that greater public interest would be served in the disclosure of the information and it is desirable to do so, such information may be disclosed. But such decisions are not taken in routine by concerned authorities. The interest of the individual would have to be balanced against the public interest.

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In this article, Mitakshara Goyal gives the jurisprudential answer on the status of Indian Rivers as juristic persons.

Recently, the Supreme Court has stayed the decision of the Uttarakhand High Court in the petition, Mohd. Salim v. State of Uttarakhand. The Court distinctly took the initiative to hold rivers Yamuna and Ganga as juristic persons (legal entities) capable of enjoying all legal duties, obligations, and rights as a living being. Subsequently, this legal personality along with the corresponding rights was extended to the Ganga Yamuna glaciers in a follow-up order, that fed into these holy waters.

It is the first time that Indian courts have ever recognized any part of natural environment as a legal person. This decision wasn’t restricted to these two holy waters, but all their tributaries, streams, every natural water body flowing simultaneously flowing into these rivers. But the question arises what extraordinary condition as to what triggered such an extraordinary decision? Moreover, the extent to which this radical judicial decision will amend the depleting health of the water bodiess is to be analyzed.

FACTS

It has been widely identified that the ecological state of the rivers with respect to excessive water pollution and illegal constructions has led to their destruction. The above-mentioned judgment was triggered was the ineffective application of the judicial decision on a petition of protection of Ganga and Yamuna banks from illegal constructions in 2005. A local resident, Salim had filed a petition due to encroachment at the banks of Shakti canal in the Dehradun district of Uttarakhand and asked the Court to initiate the Central government to manage the water resources accordingly.

The Court in this petition dealt with issues of federalism regarding the extent to which State could order the Central government through its judiciary. However, Justice Rajiv Sharma and Alok Singh upheld it to be well within the scope of the judiciary to pass such a guiding order considering the state individual supremacy as a character of federalism.

In December 2016, it was held that the people eviction of individuals involved in the encroachment of banks of Yamuna, and the Central government is required to clarify the division of jurisdiction of the state governments of Uttarakhand and U.P. It further directed a constitution of Ganga Management board, under Section 80 of the Act, effective within three months. Moreover, it prohibited any mining activity on the riverbed and flood plain of Ganga. However, as the Court analyzed the progress regarding the situation of the river in the disputed land, it was alarming. The encroachments and constructions were untouched and the State settlements were stalled. Additionally, there seemed a lack of sense of the alarming destruction of the waterbodies by the State actors who did not bother to constitute a management board as previously directed by the Court.

This regrettable insouciance and inability of the State to make necessary actions for the protection of the natural waterbodies was recognized as an ‘extraordinary situation’ for the Court to make a radical intervention for the well-being of these depleting natural resources. It was observed that most of the agrarian society of India has been dependent on these enormous water bodies for physical sustenance and wellbeing of the community. India’s majority population rely on the lands irrigated by the Ganges and Yamuna for daily livelihood as these holy waters intersect more than fifty cities. The alarming gallons of garbage and sewage dumped in these waters have made these two holy

The alarming gallons of garbage and sewage dumped in these waters have made these two holy waters, the two most polluted water bodies in the world. The several failed attempts to clean these rivers due to the enormity of the task has been a constant concern of environmentalists and ecologists all over the world. The Court recognized the callous human activity that was not only depleting the sacred waters of Yamuna and Ganga, but also risking the potential future of the Nation. To expedite the protection of the depleting water resources, it declared the waterbodies as juristic person in the Indian legal framework, with all corresponding rights, duties and liabilities of a living person. The following sections would elucidate the different parameters adjudicated upon by the Court to come to this conclusive decision to impose a ‘juristic’ personality to the two waterbodies, Ganga and its tributary Yamuna.

NEW ZEALAND’S INSPIRATION

This adventitious unprecedented decision was inspired by the prior decision by the government of New Zealand in 2012 (came into effect in 2017). A recent Bill named Te Awa Tupua (Whanganui River Claims Settlement), passed on March 15, 2017, settled the 140 years long dispute and negotiation based on historical claims by the Maori tribes relating to the Whanganui river and declared it to be a living person with legal rights. The legislation provided two officials, one from the one from the Whanganui iwi and one government representative, to represent the interests of the river as a legal entity. It was observed that the wellbeing of the river was linked to the sustenance of the people, that makes river’s identity equivalent to that of a person. This recognition was made to enhance the ability to enforce legal environmental protections that it is entitled to, along with claiming compensations for the abuses it suffers by mankind.

SIGNIFICANCE OF ‘MAA GANGA’

Further, the Court highlighted the significance of the Ganges along with its largest tributary Yamuna, to derive its juristic personality in the Indian legal system. Ganges (referred to as Maa Ganga) originates from Gangotri in Uttarakhand and travels 2500 kilometres stretch through several states including 52 cities and 48 towns and the nation of Bangladesh before discharging into the Bay of Bengal. The Yamuna is its largest tributary and emanates from Yamunotri in Uttarakhand. The Court reinstated the existence of these water bodies as vital to the physical and spiritual sustenance to maximum communities cohabiting from mountains to the sea. The Court stated “ All the Hindus have deep ‘

The Yamuna is its largest tributary and emanates from Yamunotri in Uttarakhand. The Court reinstated the existence of these water bodies as vital to the physical and spiritual sustenance to maximum communities cohabiting from mountains to the sea. The Court stated “ All the Hindus have deep ‘astha’ in rivers Ganga and Yamuna and they collectively connect with these rivers. The rivers are central to the existence of half of Indian population and their health and wellbeing.”

Furthermore, The Court recognised the ‘startling revelation’ made by the senior joint commissioner, Ministry of water resource & Ganga rejuvenation, that “despite long correspondence, neither the state of UP nor the state of Uttarakhand is cooperating with the central government for the constitution of Ganga Management Board”. Along with the discussion on the inaction of the State government, the laxity of the Central Government to implement a cleansing program worth 20000 crores for the water bodies in 2014 has been stressed upon. The Court gave the Centre eight weeks to set up Boards for cleaning the rivers. Thirteen out of 20 existing or proposed treatment plants were in Uttarakhand. These were to be either set up or upgraded. The central government had planned to start implementation with 40 villages that it had marked for development. The Court gave a three-month period to the Uttarakhand state government to form a state Ganga Management Board. Moreover, The Court authorized the suspension of the District Magistrate if he failed to clear the government land within seven days from the date of the order.

Highlighting the severity of the extraordinary situation of loss of existence of the Ganges and Yamuna, the Court additionally stated that “there is utmost expediency to give legal status as a living person/legal entity to Rivers Ganga and Yamuna (citing) Articles 48-A and 51A(g) of the Constitution of India”

“PARENS PATRIA”!

Using the above-mentioned fact situation, the first order majorly held a valid jurisdiction of the state of Uttarkhand to do direct the Central Government for essential actions to protect the endangered nature, recognizing the rivers as juristic person within the Indian legal system. However, the recent most comprehensive order declaring glaciers too have a legal personality, focused on the concept of ‘parens patriae’ as a juridical concept for the states within a federal structure as an aid to protect their natural environment. ‘Parens Patria’ is recognized as the guardianship of the state of the rights of entities which are unable to fight for their own rights. This empowers the states within a federal structure, to assert the rights of rivers on their behalf, against being polluted, or diverted, or their environment being violated within several human activities. It highlights the inherent role of the sovereign as parents of the country, to claim protection for the entities that are impaired to claim their rights themselves. Though on the face of the decision, it seems to be an ideal solution to the emerging environmental issues regarding the natural living entities, however, it is imperative to dwell into the implementation of the order and the impact of the same.

IMPLEMENTATION OF THE ‘LEGAL STATUS’ OF THE RIVERS:

The Courts designated the authority of representation of the rivers to file all complaints about any violations of the rights of the rivers. After the two orders, the Chief Secretary, State of Uttarakhand, Director NAMAMI Gange Project, Mr. Praveen Kumar, Director (NMCG), Mr. Ishwar Singh, Legal Advisor, NAMAMI Gange Project, Advocate General, State of Uttarakhand, Dr. Balram K. Gupta, Director (Academics), Chandigarh Judicial Academy and Mr. M.C. Mehta, Senior Advocate, Hon. Supreme Court, have been provided with the status of loco parentis as the human face to protect, conserve and preserve all the Glaciers including Gangotri & Yamunotri, rivers, streams, rivulets, lakes, air, meadows, dales, jungles, forests wetlands, grasslands, springs and waterfalls in the State of Uttarakhand. Moreover, they are meant to ensure the preservation and maintenance of the juristic persons against the individuals exploiting it for personal errands. Along with these negative rights, they must carry on schematic programs for the cleansing and rejuvenation of the water bodies and get the required funds sanctioned for the same. This includes the protection of the universal character of the river of free flow which can be maintained by regulating the obstructions and commercial constructions such as dams and hydropower projects. However, the extent to which these custodians will be successful their exercise of power to mitigate the depletion of natural resources seems questionable.

EFFECT OF THE LEGAL STATUS

The effect of the legal status can be derived from the New Zealand decision that upheld the legal status of the river which wasn’t supposed to be used interchangeably with ‘legal rights’. This status of the river highlighted that the law would make no differentiation between harming the tribe and the river in case of exploitation of the river, because they are one and the same.

Similarly, in the Indian context, it implies that earlier, to bring a claim against an industry for pollution of a water body, the complainant had to prove violation of its legal and vested interest in the river. The damage cause by the challenged activities should have a direct nexus to the hampering of the livelihood and the cohabiting communities around the river. Once proven, a certain amount of damages and compensation was to be paid to the affected parties. However, after the High Court’s order, rivers are treated as living individuals accorded with same fundamental rights. Thus, any lawsuit against the exploitation or damage to the river, would include the river as a party through the Court designated representatives. The burden of proof would be on the accused party to prove either that it lacked participation in any prohibited activities against the river or the challenged activities were legally justifiable.

INCONCLUSIVENESS IN THE CONCLUSION OF THE DECISION

Though the New Zealand case has several similarities with the present case on protection of the natural resources, there is a distinct difference in the personhood between the holy waters Ganga and Yamuna as opposed to Whanganui river in New Zealand. The decision majorly recognized the river as a juristic person with the aim to determine power distribution agreement about the management of a protected restricted area with its limits and boundaries being distinctly clear. However, in India, Ganga and Yamuna have no limited scope of boundaries as they seem to diverge into to everlasting tributaries. Being trans boundary rivers, there are several tributaries merging in the holy waters, not only from Indian states but also from Bangladesh and Nepal. In such a case, it is difficult to visualize the official of Uttarakhand representing all the states where the holy waters pass and have tributaries merging into them.

Secondly, though the Uttarakhand High Court decision depicts judicial activism and the uniqueness of such an unprecedented decision, its effectuality can be disputed on its limited scope of enforceability that extends only to Uttarakhand. The issue of territorial jurisdiction crops up, due to the recognition of the entire river basic as a living person. There seems to be excessive exercise of powers beyond the jurisdiction of the Court., Though matters regarding water come under the State list, however, through Entry 56 of the Union List, the Union government can legislate on inter-state rivers like the Ganges and its tributaries. This decision might amount to inter-state conflicts, as each state will have its own territorial claims over the living person that is the Ganges.

Additionally, the Court has not thrown light on as to who exactly will be prosecuted in case of compromise of the rights of the entity? This seems to provide unfettered discretion in the hands of the government analyzing the causes of the violation of the rights that tends to move against the poor and marginalized. Since there have been no guidelines formulated by the Court to recognize the offenders in such cases, it is most likely to target the unaided underprivileged community that have the least to add to the violations of the rivers and other natural resources. It seems very unlikely that the officers will hold the great industries contributing carbon dioxide or other greenhouse gasses to the atmosphere, as liable. One of the instances based on which this prediction is based is the Courts statement about the protection if holy waters in Haridwar. It directed the District Magistrate in Haridwar to ensure the restriction on accessibility of beggars near the Ghats, myopically viewing beggars and the underprivileged communities responsible for depletion of the holy rivers.

Furthermore, the concept of parens patria was also deployed by the Indian government, in the Bhopal Gas tragedy case to represent the claims for compensation for the victims. However, the district court denied India the right to exclusively represent the plaintiffs and never provided whether India had proper standing to sue under parens patriae. This was viewed as a “disaster” for the case causing continued failure.

Moreover, there is an evident logical inadequacy in the present decision. There seems to be no reason to distinguish one inanimate object from other. Recognizing only the objects related to the Ganga and Yamuna, denying the same juristic personality of the other distinct rivers seems problematic. It’s a slippery slope to literally anything being granted personhood status, so long as someone believes it has value. There seems to be decisive factor to determine the extent the imposition of such artificial legal personality can restricted in the case of inanimate subjects. Will soon trees, forests, rocks, hill be recognized as juristic persons and how viable will such a situation be?

These questions triggered from the indeterminate and superficial decision of the Court that though seems to be a rich legal decision, but lacks efficacy in actual applicability of the same. There seems to be a need to identify the to ascertain standards and measures for the protection of the natural resources and whose violation would have harsh implications that must be well implemented. Environmentalists and lawmakers should collectively provide legislations of regulating and harmonizing the human activities and the ecological development of natural resources simultaneously.

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In this article, R. Anupam Pillai pursuing M.A, in Business Law from NUJS, Kolkata discusses Corporate Social Responsibility: An Overview For Companies to Opt Effective Framework.

Introduction

In the recent years, business environment has seen a dynamic change in the market when it comes to brand positioning and creating goodwill amongst the customers. Corporates have been more conscious and aware regarding the stakeholders’ rights.[1] As corporates have been viewed as establishments that pander to the business sector request by giving items and administrations, and have the onus for making riches and employments, their business position has customarily been a capacity of money related execution and benefit. Notwithstanding, over the past few years, as a result of climbing globalization and pressing natural issues, the observation of the part of corporates in the more extensive societal connection inside which it works, has been changed. Stakeholders (workers, group, suppliers and offer holders) today are redefining the part of corporates considering the corporates’ more extensive obligation towards social order the earth, past investment execution, and are assessing whether they are leading their part in a moral and socially dependable way.

As an aftereffect of this movement (from simply monetary to ‘financial with an included social size’), numerous discussions, establishments, and corporates are embracing the term Corporate Social Responsibility (CSR). It has been observed that with such changes, companies have pulled up the strings in order to have better image in the global market [2]. In order to do the same Corporate Social Responsibility, has played a vital role in remodeling the company’s brand value and position. It is not a mere business practice but rather phenomena to show respect towards the society which has always stood up to serve the essential needs of the company, straight from the nascent stage of production to that of ensuing route for market stability and sustainability.

Corporate Social Responsibility does not have any concrete definition but it has been evolved as a concept based on the principle of “to give back from where we take”. It is a  commitment to  improve community well-being  through discretionary  business practices  and contributions  of corporate resources.[3] In the recent years there has been a lot of change in the corporate scenario in India and now this concept finds its place in the legislations to make Indian counterparts understand the need of the same.

This paper shall explain the necessity of legal framework for implementation of CSR and when, why and how any company does needs to implement the same.

Emergence Of Csr Spending As A Legal Compulsion

As a result of cross-outskirt exchange, multinational undertakings and worldwide supply chains, there is an expanded mindfulness on CSR concerns identified with human asset administration rehearses, natural security, and well-being and security, in addition to everything else. Investigating the CSR exercises by corporates is in this manner progressively getting required.[4]

In an increasingly fast-paced global economy, CSR initiatives enable corporates to engage in more meaningful and regular stakeholder dialogue and thus be in a better position to anticipate and respond to regulatory, economic, social and environmental changes that may occur.

Financial investors are increasingly incorporating social and environmental criteria when making decisions about where to place their money, and are looking to maximise the social impact of the investment at local or regional levels. [5]

Arguments against CSR spending as a matter of legal compulsion

Theoretical and Jurisprudential Argument

There are many objections that could be made to mandatory CSR spending, both theoretical and pragmatic. These arguments fall into two categories: those that argue that mandatory CSR spending goes too far, and those that argue that mandatory CSR spending does not go far enough.

Those, similar to Friedman, Hannsman, or Macey, who might contend that required CSR spending goes too far, would demand that the proposition makes advertise wasteful aspects that may harm the economy over the long haul. India, all things considered, has been doing great under its liberal monetary administration. Unfathomably, its GDP has been expanding at a rate of very nearly eight percent for each year.

It is one of the fastest-growing economies in the world, and the rising tide has, to at least some extent, lifted all ships. Even the lower classes have benefited from privatization and globalization. Although millions of Indians remain in poverty, millions more have broken past the poverty line and are edging closer to a middle-class existence.[6]

Perhaps the most salient argument against mandatory spending is that it might put India at a competitive disadvantage in the global marketplace and might slow or reverse the country’s near-miraculous growth. Those who already have little might, contrary to the proposal’s aims, fall farther away from the prospect of a middle-class lifestyle. Even if we were to accept Greenfield’s premise that inequality is a market imperfection. Others would contend that the market does require intervention, and perhaps quite rightly, that the proposal is not developed or regulatory enough. Without a coercive enforcement mechanism, it is unlikely that the law would garner sufficient compliance.

In the Western nations, laws do not stipulate mandatory CSR quantum; they only make disclosure of CSR spending mandatory in the annual reports. Thus, with the enactment of Companies Act, 2013 India has become the first country to have CSR spending mandated by the law.

Criticism against Such Mandate

The Planning Commission has been of the view that CSR should not be made mandatory; rather companies should take up CSR voluntarily. Making CSR mandatory will lead to corrupt practices and meddling by high-handed implementing authorities. Some members believe that making CSR mandatory would encourage companies to reduce wages, fudge accounts, or indulge in unfair practices. The best way would be to make them more accountable to the system and the society by rewarding good behaviour, and the way do that is to empower SEBI to move towards global standards and enforce them strictly.[7]

Earlier, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said that making CSR mandatory would amount to “privatizing taxation.” He said if the Government wants it can increase the rate of corporate tax to 32 per cent from the current 30 per cent rather than making it mandatory for companies to spend 2 per cent on CSR and add complications.

Experts also agree with the Planning Commission and ask when companies are already paying taxes, why the Government is not able to use that money effectively for social welfare activities? They also feel politicians and political parties too will be able to pressure the corporates if CSR becomes compulsory.

Corporates’ Reaction over such spending

Section 135 of the Companies Act, 2013 is seen with suspicion by the corporate houses, although the government position was clarified by Veerappa Moily, the then Union Corporate Affairs Minister,“We are not interested in micro-management of a company. Section 135 is just an oversight clause.” While the Minister of Corporate Affairs indicated that some executives were supportive of the two percent mandate, most of India Inc. was immediately up in arms.[8]

The Confederation of Indian Industry asserted, “The law should not specify any amount to be spent on CSR activities. It should be left to the decision of the board.”[9] Infosys Technologies CEO Kris Gopalakrishnan, the Managing Director of Sonata Software B. Ramaswamy, Wipro Chairman Azim Premji, and Piramal Group Chairman Ajay Piramal, all openly spoke out against the measure.[10] But corporate India feels that it would lead to unwarranted intrusion into its affairs as well as harassment through vexatious inquiries by government inspectors to verify the mode and extent of compliance with the law. It has been vociferously claiming the right to decide its CSR for itself and according to its own enlightened self-interest and conscience.

Arguments favoring CSR spending as a legal mandate

The major standpoint of mandating CSR spending, instead of imposing extra charges, would be the safeguarding of the organization’s self-rule in choosing how its assets are utilized. To some degree, the organization would be “free” to put its assets in the group straightforwardly or in a neighborhood non-benefit or national NGO. Organizations could utilize the cash to additionally limit externalities, past the prerequisites of natural law, or they could make positive externalities by building schools or giving specialists more far reaching benefits. [11]

Additionally, companies may invest their money more efficiently than the government would, and in ways that will inure to their long-term benefit. An explanation for the prominence of education spending, for example, may be that investing in schools promises to have direct returns for the company. A more educated local workforce is certainly a boon to any industry, especially the information technology sector, which continues to grow in India. Given the level of corruption that persists in many developing countries, corporations may actually produce more impactful public goods than governments at a lower cost.

The second major argument for mandatory CSR spending is that countries like India are desperately in need of funding for development. However, if hampered by a liberal and competitive global economy, it is difficult for them to impose steep taxes or comprehensive regulation. Although as per Greenfield’s contention that corporations really are public enterprises, it makes good sense to require them to contribute to the public good—primarily by making money, but secondarily by spending some portion of it on development. Two per cent CSR spending would simply bring India in line with CSR expenditures in the United States,[12] and the money for development is certainly more desperately needed in India, where at least one-fifth of citizens live in poverty and where the public health and education systems are famously dysfunctional. Hence it would help in better funding for the welfare of poor and needy.

Legal Provisions Pertaining To CSR Activities Amongst Various Corporates

International Legal Instruments and Guidelines

In the recent past, certain indicators and guidelines such as the SA8000, a social performance standard based on International Labour Organization Conventions have been developed. International agencies such as United Nations and the Organization for Economic Co-operation and Development have developed compacts, declarations, guidelines, principles and other instruments that set the tone for social norms for organisations, though these are advisory for organisations and not mandatory.[13]

One of the United Nations Millennium Development Goals calls for increased contribution of assistance from country states to help alleviate poverty and hunger, and states in turn are advising corporates to be more aware of their impact on society. In order to catalyze actions in support of the MDGs, initiatives such as Global Compact are being put in place to instrumentalize CSR across all countries. As the world’s largest, global corporate citizenship initiative by the UN, the Global Compact, a voluntary initiative is concerned with building the social legitimacy of business.

The Global Compact is a framework for businesses that are committed to aligning their business operations and strategies with ten universally accepted principles that postulate that companies should embrace, support and enact, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption.[14]

Voluntary Guidelines, 2009: An attempt to answer few calls regarding CSR

With a specific end goal to help the organizations to embrace capable administration hones, the Ministry of Corporate Affairs has arranged an arrangement of deliberate rules which demonstrate a portion of the center components that organizations need to concentrate on while leading their undertakings.

These rules have been set up in the wake of considering the administration challenges confronted in our nation and in addition the desires of the general public. The profitable recommendations gotten from exchange and industry chambers, specialists and different partners alongside the universally predominant and rehearsed rules, standards and principles in the range of Corporate Social Responsibility have likewise been considered while drafting these Guidelines.[15]

Each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals. The policy should be framed with the participation of various level executives and should be approved by the Board.

Core principles of Voluntary guidelines are as follows:

• Care for all stakeholders.
• Ethical functioning.
• Respect for human rights.
• Respect for workers rights and their welfare.
• Respect for environment.
• Activities for social and inclusive development.

Implementation Guidance under Voluntary Guideline, 2009

1. The CSR approach of the business substance ought to accommodate implementation steps which ought to incorporate distinguishing proof of activities, setting quantifiable physical focuses with time allotment, hierarchical system and obligations, time lines and observation. Organizations may band together with nearby specialists, business affiliations and civil society/non-government associations. They may impact the production network for CSR activity and spur representatives for willful exertion for social improvement. They may advance an arrangement of appraisal and effect evaluation while undertaking CSR exercises in a specific zone. Independent assessment may likewise be embraced for chosen ventures/exercises now and again.
2. Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter.
3. To share experiences and network with other organizations the company should engage with well established and recognized programmes/platforms which encourage responsible business practices and CSR activities. This would help companies to improve on their CSR strategies and effectively project the image of being socially responsible.
4. The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports, and other communication media.[16]

In spite of these guidelines there was a sole need to include CSR spending as a mandate provision under Companies Act, 2013 for the reason being changing scenario of business environment in India.

CSR vis-à-vis Companies Act, 2013 and Companies (Corporate Social Responsibility) Rules, 2014

According to Section 135 (read with Schedule VII), of Companies Act, 2013 (“Act”), “Every company with a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more in a financial year will have to form a corporate social responsibility (CSR) committee, consisting of three or more directors, of which at least one would be an independent director.”[17]This committee has to ensure that the company spends, in every financial year, at least two per cent of the average net profits made during the three immediately preceding years, towards CSR activities. Secondly, Schedule VII of the Act enumerates various activities to be covered under CSR. The Act also makes it compulsory for the company to specify reasons if it fails to spend the amount.[18]

In 2014, the rule making committee of MCA has published the draft CSR rules and uploaded the same on MCA website for public discussion and debate. Later on the said rules came into effect as Companies (Corporate Social Responsibility) Rules, 2014(“Rules”). Highlights of the Rules are mentioned herein[19]:

1. Under the Rules, net profit is defined to mean ‘net profit before tax’ as per books of accounts and shall not include profits arising from branches outside India.
2. While the reporting framework under the Rules suggest that the unspent amount of the specified CSR spend to be rolled over to the succeeding financial years, it does not clarify whether the excess spend of over and above 2 percent mandatory CSR spend in any particular financial year can be carried forward in succeeding financial year or not.
3. The Rules provide the format in which all qualifying companies shall report the details of their CSR initiatives in the Director’s report and in the company’s website.

For better clarity to the procedural aspects of CSR implementation, the Rules enlightens following points.

Definition of the term “CSR”– The term CSR has been defined under the CSR Rules which includes but is not limited to:

• Projects or programs relating to activities specified in the Schedule; or
• Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule.^[20]

CSR Policy: As per Rule 6 of the Rules, CSR policy of a company;

• Shall enlist all the activities covered by the company pursuant to Schedule VII and not covered by the activities done in due course of business;
• Shall also monitor the process of such program or projects. and
• Shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.[21]

CSR Committee: Pursuant to Rule 3 of the Rules, the Committee shall be constituted as per Rule 5, which stipulates;

• For unlisted public company or private company, in case there is no independent director then it is not necessary to have one in the CSR Committee;
• For private company with only two directors, the CSR Committee shall only comprise with those two;
• For foreign company the constitution shall be pursuant to Section 380(1) of the Act.[22]

CSR Expenditure: It is the expenditure pertaining to CSR activities including contribution to corpus for projects or programs as approved by the Board.

CSR Reporting: The company shall report the CSR activities at the end of Financial Year ending on 1^st April of every year, in the Board’s Report as per Annexure mentioned in the Rules. In case of a foreign company, the reporting shall be done in the balance sheet as per Section 381(1)(b) of the Act.

Hence the Act and Rules describes the manner and scope of such CSR spending by the Companies. There is another peculiar issue of how to implement and manage CSR under the said garb of regulations, which has been described in next paragraph.

Steps in implementation of CSR framework in a company

Understanding threshold for applicability of CSR provisions to a Company

As per applicable provisions of Act and Rules, every qualifying company as per Section 135 (read with Schedule VII), of Companies Act, 2013, “Every company with a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more in a financial year will have to form a corporate social responsibility (CSR) committee, consisting of three or more directors, of which at least one would be an independent director.”[23] Furthermore the appointment of committee and policy eventually comes into play once a company ensures that it is covered under the said ambit.

Role of CSR Committee

1. Every qualifying company needs to constitute a CSR committee of the Board consisting of 3 or more directors.
2. Though the CSR provisions under the Act required minimum 3 directors for constitution of CSR committee, the issue that needs to be clarified is whether qualifying private companies (which requires minimum two directors only) would be required to appoint one more director only to constitute CSR committee and comply with the CSR provisions.[24]
3. The mandate of the said CSR committee shall be:
4. To formulate and recommend a CSR policy to the Board;
5. To recommend amount of expenditure to be incurred on CSR activities;
6. To monitor the CSR policy of the company from time to time.

Guidelines regarding spending in CSR activities by companies

The company can set-up a not-for-profit organisation in the form of trust, society or non-profit company to facilitate implementation of its CSR activities. However, the contributing company shall specify projects/programs to be undertaken by such an organisation and the company shall establish a monitoring mechanism to ensure that the allocation to such organisation is spent for intended purpose only.

Company may also implement its CSR programs through not-for-profit organisations that are not set up by the company itself.  Such spends may be included as part of company’s prescribed CSR spend only if such organisations have an established track record of at least 3 years in carrying on activities in related areas. Companies may also collaborate or pool resources with other companies to undertake CSR activities.  Only CSR activities undertaken in India would be considered as eligible CSR activities.  CSR activities may generally be conducted as projects or programmes (either new or ongoing), however, excluding activities undertaken in pursuance of the normal course of business of a company. CSR projects / programs may also focus on integrating business models with social and environmental priorities and processes in order to create shared value. CSR activities shall not include activities exclusively for the benefit of employees and their family members.^[25]

How to implement CSR effectively?

The following checklist shall be mentioned for effective implementation of CSR program or project;

1. CSR Policy to be implemented as per the special resolution by the Board meeting.
2. Projects/Programs for implementation of CSR activities shall be compliant with Schedule VII of the Act
3. CSR Committee shall be constituted pursuant to Section 135(3) of the Act and Rule 3 of the Rules.
4. CSR fund shall be made pertaining to the CSR expenditure.
5. Average net profit to be calculated pursuant to Section 198 of the Act for the purposes of contribution to be made as per Section 135 of the Act.
6. Annual Board Report shall be made as per Annexure of the Rules.
7. Auditing report shall mention about the CSR expenditure.

For better understanding of CSR framework and its applicability we shall discuss a case study on how a well-known company has implemented CSR and carries CSR activities for inclusive growth and development.

Case Study for implementation of CSR under Companies Act and Rules

The case study referred herein has been conducted for the purpose of understanding how CSR has been implemented and what CSR activities come under the ambit of Rules. For the purpose of this article the following illustration elucidates how CSR activities are carried by Bhilai Steel Plant, SAIL, India.

CSR department, BSP was established in October, 2006 but the initiatives related to CSR were practiced by the BSP since its inception. Earlier the CSR related work were managed by Peripheral Department, BSP. There are 17 members including both executive and non-executive posts in the CSR department. The office of CSR, BSP is located at Sector-6, Bhilai, Durg, Chattisgarh. The vision of CSR department, SAIL is “Making a meaningful difference in people’s lives” explains the SAIL’s initiatives to be directed to the better welfare of the people. While implementing various initiatives the department has changed its perspective of doing work for mere philanthropic motives and has taken care of the very concept of CSR in mind by strictly working for the benefit of the society in which the plant operates and not for employee welfare as there has been a separate Employee’s Welfare Association. The area of action for CSR activities have been defined within a periphery of 16 kilometers, surrounding the BSP which includes a total of 136 villages. Directorate of Public Enterprise,2013 guidelines are followed that explains the procedure for doing activities related to Corporate Social Responsibility. The Corporate Social Responsibility Policy of SAIL is as follows:

SAIL recognizes that its business activities have direct and indirect impact on the society. The Company strives to integrate its business values and operations in an ethical and transparent manner to demonstrate its commitment to sustainable development and to meet the interests of its stakeholders. The Company is committed to continuously improving its social responsibilities, environment and economic practices to make positive impact on the society.

Guiding Principles

Toward this commitment, the Company shall:

1) Create a positive footprint within the society to make a meaningful difference in the lives of people by continually aligning its initiatives to the goals for sustainable development.

2) Maintain commitment to quality, health and safety in every respect of the business and people.

3) Undertake ethical business practices across the supply chain.

4) Make positive impact on the environment and promote good environmental practices.

5) Promote equality of opportunity and diversity of workforce throughout its business operations

On account of following CSR policy, CSR dept., BSP has undertaken various initiatives as a part of CSR in the defined area of 16kms periphery surrounding BSP. These initiatives can be further divided into following heads:

Education

1. BSP offers subsidized education to children belonging to weaker section and Below Poverty Line (BPL).
2. BSP has joined hands with Akshay Patra Foundation for providing free midday meals to 25,000 under-privileged children in and around Bhilai, with the support of State Govt. of Chhattisgarh. An MOU was signed between SAIL & APF and as part of the undertaking the Chhattisgarh State Govt. will be providing subsidy and food grain etc. for 5 years and BSP will provide 50% of the cost of the meal i.e. Rs. 3/- per meal. The program was started on 27th January 2009 and by 1st April 2009 the scheme was covering 25,000 children. Currently a temporary centralized kitchen set-up by BSP is supplying midday meal to 123 Govt. schools, including both primary & upper primary, and covering more than 30,000 children enrolled in these schools.
3. BSP has ensured high literacy levels above than the national average at these schools so that it has made efforts to fulfill Minimum Development Goals of Achieving universal primary education (Goal 2) and Promoting Gender equality and Empowerment (Goal 3).

Infrastructure

1. 21 Model Steel Villages have been identified out of which 19 have been completed.
2. Infrastructure activities include construction of community halls, public toilets, road pavements, bore wells, cultural halls, bus stands, playgrounds, additional classrooms, health centre etc. have been constructed at these villages with an annual expense of 25 lakhs per annum on rotational basis.

Health and medical care

1. 248 medical camps have been done and more than 14000 patients were treated.
2. Special camp for physically disabled was conducted on January 15,2013 for distribution of artificial limbs/ aid to 263 patients.
3. A mega medical camp took place at Marra village, Patan block, Durg, that benefitted about 4200 patients.
4. 16 medical camps were organized at Rowghat mines covering 6409 patients.
5. 14 medical camps were organized at Rajharah mines covering 5232 patients.
6. With the help of Muskan, an NGO a rehabilitation centre has been created for treatment of children with mental disabilities.

Sports and Culture

1. Khel mela was organized on November 12, 2012 at Narayanpur.
2. All India Football Tournament was organized at Narayanpur.
3. Lok Kala Mahotsav was organized at Bhilai for 3 days as well as at Rajharah, Rowghat an Nandini in May,2012.
4. 5 Gramin Lokostova were organized in 5 MSV’s.

Income Generation

1. Vermi Compost Scheme launched in 3 MSV’s, covering over 30 villages as well.
2. SWAYAM SIDHA, a self help group comprising of women in rural areas help in income generation by selling handmade agarbattis and papads.

Skill Development

• Vocational Training to 483 youths were provided in 44 courses.
• A new training course of 4 months duration for training nursing aid/ bedside attendant has been started.
• Bahu Kaushal Bal Vikas Prashikshan Shivir has been conducted for development of different skills of school children.

Women Empowerment

• A seven member small group has been formed namely Sapta Bahna to propogate CSR activities in Piperchedi and nearby villages.
• Adoption of 16 girls from Rowghat village for training them with nursing course has been done.

Access to proper water resources

Water harvesting has been done by constructing a pond at Sector-7, near Siyan Sadan, Bhilai, Durg.

Environment

• More than 3,20,000 trees have been planted.
• Smokeless Chullah have been provided to 4000 families in 21 MSV’s.
• Awareness initiative had been organized to ban use of polythene.
• Solar lanterns have been distributed in the villages.
• With the help of INSDAG, Kolkata, 8 bullock carts made up of steel have been distributed.

Steps in which CSR activities are carried on are as follows

1. Base line Survey is carried for the need assessment of the beneficiaries in a sample area with the help of an NGO. In BSP, Society for Rural Industrialization (SRI), Ranchi conducts the base line survey.
2. This need based assessment is carried against the allotted budget which comprises of 2% of Profit After Tax (PAT) by SAIL.
3. Impact Assessment is done by third party to check whether the scheme/ program has been properly implemented or not. In BSP, NABARD conducts then impact assessment.
4. (Audit, both internal as well as external is done at regular intervals.

Some issues and challenges faced by CSR, BSP

1.  With coming up of DPE guidelines the CSR department is very open to get all sort of questions pertaining to fund and budget allocation under Right to Information Act,2005, this makes the department to work more accountable and responsible.
2. There are instances were there is chance of theft of construction materials in villages as there’s lack of supervision.
3. Sarpanch’s tenure is for 5 years and it seems to be a hectic job to get clearance or NOC on time.
4. There are instances when there is a need for further assistance required or demanded by the village community regarding maintenance of roads or buildings which is not viable at times.

The above mentioned case study explains what are the points which a company needs to keep in mind while implementing CSR activities and how to ensure it complies with all regulations per se.

Conclusion

CSR has seen paradigm shift from philanthropic event to legal mandate. With coming up of Rules and Section 135 of Companies Act, 2013, there has been plethora of issues pertaining to its applicability and scope of implementation.

The proposed mandatory 2 per cent CSR spending is actually unnecessary for two reasons: One, its proper implementation is impractical and two, social pressures and adoption of voluntary operational norms are more effective. International bodies also prophesize “soft norm” rather than legal binding “hard” rules. There is another reason against mandatory CSR spending. It is the changed nature of today’s world. The widespread penetration of Internet around the world has turned it as a powerful platform for information dissemination and expressing concerns. This has increased pressure on companies to mind their conduct and heed public opinion.

Finally, more and more companies are discovering that integrating CSR strategies make their operations more profitable and sustainable. This presents an opportunity for NGOs and social organization. They can expect greater partnership with the corporate world in the coming future. It is in their interest to gear up for such collaborations and utilise core competencies of the business houses.

References

[1] Robyn Lansdowne, Jillian Segal, ‘The Social Responsibility of Modern Corporations’, 2 U.N.S.W.L.J. 336 (1977-1978), p.338.

[2] C.V. Baxi, Ajit Prasad, Corporate Social Responsibility: Concepts and Cases,[1st edn, Excel Books 2005], p. 8.

[3] Phillip Koetler & Lee Nancy,  Corporate Social Responsibility: Doing the Most Good of Your Company and  Your

Cause, (2005) at  21, John Wiley & Sons Inc..

[4] Harsh Shrivastava, Shankar Venkatasweran, The Business of Social Responsibility: The Why, What and How of Corporate Social Responsibility in India, [New Delhi, 2005], p.24.

[5] N. Balasubramanian, Corporate Boards and Governance, [Sterling Publishers, 1998], p.158.

[6] C.V. Baxi, Ajit, Supra note 2, p.5.

[7] Companies spending 2 pc on CSR will have a multiplier effect: Finance Minister, The Economic Times,(2013), available at  http://articles.economictimes.indiatimes.com/2013-11-11/news/43930407_1_csr– committee-csr-activities-new-companies-act,

[8] CSR   clause   just   “an   oversight”    provision,    says   Moily,    Moneycontrol,   available   at, http://www.moneycontrol.com/news/wire-news/csr-clause-just-quotan-oversightquot-provision-says-moily_635048.html,

[9] Akhila Vijayaraghavan, Indian Industries Oppose Mandatory CSR Reporting, Just Means (2010), available at http://www.justmeans.com/editorials?action=readeditorial &p=26759

[10] IT   CEOs   back   Premji   against   mandatory   CSR,   TIMES   OF   INDIA,   (2011),   available   at  http://articles.timesofindia.indiatimes.com/2011-03-26/software-services/29191926_1_csr-azim-premji corporate-social-responsibility,

[11] C.V.Baxi, Supra note 2, p.5.

[12] Viji Sundaram, Vinod Khosla To Donate Half His Fortune to Charity, New America Media (2011),  available

at http://ethnoblog.newamericamedia.org/ 2011/05/vinod-khosla-to-donate-half-his-fortune-to-charity.php,

[13] KPMG, Whitepaper on CSR, (2006), available at http://www.kpmg.com/in/en/services/advisory/risk-compliance/documents/whitepaper%20on%20csr.pdf

[14] Ministry of Corporate Affairs, Corporate Social Responsibility Voluntary Guidelines, 2009.

[15] Ibid.

[16] Corporate Social Responsibility Voluntary Guideline,2009, Taxmann Online, available at  http://www.taxmann.com/datafolder/Flash/Flashbn22-12-09_2.htm,

[17] Section 135, Companies Act, 2013.

[18] Company Act 2013: CSR and Corporate India, DNA India, available at,  http://www.dnaindia.com/analysis/column-company-act-2013-csr-and-corporate-india-1949600,

[19] Companies (CSR) Rules, 2014, Ministry of Corporate Affairs, also available at http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification2_2014.pdf

[20] Corporate Social Responsibility – Indian Companies Act 2013, Mansukhlal and Co., (2015) available at

http://www.mondaq.com/india/x/366528/Corporate+Governance/Corporate+Social+Responsibility+Indian+Companies+Act+2013

[21] Rule 6, Companies (Corporate Social Responsibility) Rules, 2014

[22] Rule 5, Companies (Corporate Social Responsibility) Rules, 2014

[23] Section 135, Companies Act, 2013.

[24] New Rules for Corporate Social Responsibility, available at http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/new-rules-for-corporate-social-responsibility-in-india-its-effectiveness-and-legality.html?no_cache=1

[25] Ashima Chachara, Corporate Social Responsibility- Highlights, CAclubIndia, available at  http://www.caclubindia.com/articles/corporate-social-responsibility-highlights-18846.asp#.UzMSO_mSx65,

The post Corporate Social Responsibility – An Overview For Companies to Opt Effective Framework appeared first on iPleaders.

In this article, Raghav Vaid pursuing M.A, in Business Law from NUJS, Kolkata discusses steps to take in case of false charges filed under IPC.

Many people in India are facing the issue of false and frivolous cases. The most common of all the malicious cases relates to Section 498A of the IPC, false domestic violence allegation under the Domestic Violence Act, lean towards a demand for provisions which talk about misuse of law. Eg: to add misuse clause to charges of rape for punishing women making false rape allegation.

The Supreme Court in Raj Talreja vs Kavita Talreja[1] has held that filing false criminal complaint and making baseless allegations against spouse amounted to cruelty to life partner under Hindu Marriage Act and divorce could be granted on that ground.

A bench of Justices namely: Adarsh Kumar Goel and Deepak Gupta allowed divorce plea of a husband on the ground that his wife not only filed false criminal complaint against him before Police but she had also made baseless allegations of dowry demand and torture against him in letters written to various authorities including chief minister of Rajasthan and Chief Justice of High Court.

Parties to the appeal got married in 1989 according to Hindu rites and rituals. Out of this wedlock a son was born in the year 1990. It is not disputed that till the year 1999 both husband and wife lived together with the parents of the husband. In the year 1999, the couple shifted to their own residence. On 19.03.2000, the husband left the matrimonial home and, soon thereafter, on 25.03.2000, filed a petition for grant of a decree of divorce dissolving the marriage.

It is not disputed that the wife filed a suit praying for injunction that the husband should not be permitted to enter the matrimonial home. On 07.11.2000, certain news items appeared in the newspapers in which serious allegations were made against the husband. These newspaper reports were based on the intimation given by the wife. On 04.12.2000, the wife filed a complaint to the State Women Commission making serious allegations against the husband. Thereafter, on 05.12.2000, she sent a similar letter to the Chief Justice of the High Court as well as the Superintendent of Police. Finally, on 07.12.2000, she made another complaint to the Chief Minister.

On 16.03.2001, these complaints were found to be false. On 12.04.2001, a First Information Report (for short the ‘FIR’) was registered at the instance of the wife against the appellant husband under Section 452, 323 and 341 of the Indian Penal Code. The police investigated the matter and filed a report on 30.04.2001 stating that there is no merit in the FIR. According to the police, the injuries on the person of the wife were self-inflicted and she has filed a false FIR. It was recommended that the criminal proceedings be initiated against her under Section 182 of the Indian Penal Code (for short ‘IPC’). It is not disputed that till 16.03.2001, such criminal proceedings were initiated against the wife.

The husband moved an amendment application in the divorce petition incorporating all these facts and alleging that due to filing of the false complaints before various authorities he had been subjected to cruelty by the wife. This is the only issue raised before us. The learned trial Judge dismissed the petition. The appeal filed by the husband was also dismissed. Hence, this appeal.

It would be pertinent to mention that in the year 2012, 11 years after the police had submitted its report and after proceedings had been initiated against the wife, the wife filed a protest petition against the cancellation of FIR against the husband, in which notice was issued by the court below.

However, on a revision being filed by the husband, the revisional court allowed the revision petition and quashed the order of the trial court. As a result, there are no criminal proceedings pending against the husband.

Mr. Agrawal, learned counsel has contended that the acts of the wife in leveling defamatory allegations and filing false complaints against the husband amounts to cruelty. On the other hand, Ms. Makhija, learned senior counsel has submitted that her client is not at fault and cruelty has not been proved. She further submits that her client wants the status of being a legally married woman and she prays that the appeal be dismissed.

The first is a newspaper report dated 07.11.2000, in which it is reported that the wife had alleged that she was beaten by her husband and his family members many times for not fulfilling the demand of dowry. There were allegations that she was kept like an orphan and twice attempts had been made to set her on fire. These allegations were made in a letter sent by the wife to the police. Thereafter, the wife sent a similar complaint to various authorities including the State Women Commission, Rajasthan. She sent a telegram to the Chief Justice of the Rajasthan High Court again alleging that her husband and in-laws had attempted to burn her and engaged goondas to eliminate her. Complaint was also made to Chief Minister of Rajasthan. The matter was referred to the police.

On investigation by the police, the allegations were found to be totally false. Thereafter, the wife filed a complaint against her husband and 3 other persons alleging house trespass against them and that she had been assaulted and threatened to leave the house. In this case also, the final report of the police is that the complaint is baseless and false and the injuries were self-inflicted.

As noted above, these findings of the police have attained finality and as on date there is no criminal case pending against the husband. It is more than obvious that the allegations levelled by the wife are false. It may be true that these allegations were levelled after the divorce petition had been filed and the wife may have been in an agitated state of mind. However, that did not give her a right to make defamatory statements against the husband. The falseness of the allegations is borne out from the fact that the police did not even find it a fit case to be tried. After the police filed its cancellation report, the wife kept silent and after 11 years she filed a protest petition.

This Court in Para 16 of K. Srinivas Rao v. D.A. Deepa has held as follows:

“16. Thus, to the instances illustrative of mental cruelty noted in Samar Ghosh v. Jaya Ghosh, 2007 (4) SCC 511, we could add a few more. Making unfounded indecent defamatory allegations against the spouse or his or her relatives in the pleadings, filing of complaints or issuing notices or news items which may have adverse impact on the business prospect or the job of the spouse and filing repeated false complaints and cases in the court against the spouse would, in the facts of a case, amount to causing mental cruelty to the other spouse.”

In Ravi Kumar v. Julmidevi, the Supreme Court while dealing with the definition of cruelty held as follows:

“19. It may be true that there is no definition of cruelty under the said Act. Actually such a definition is not possible. In matrimonial relationship, cruelty would obviously mean absence

of mutual respect and understanding between the spouses which embitters the relationship and often leads to various outbursts of behaviour which can be termed as cruelty. Sometime cruelty in a matrimonial relationship may take the form of violence, sometime it may take a different form. At times, it may be just an attitude or an approach. Silence in some situations may amount to cruelty.

Therefore, cruelty in matrimonial behaviour defies any definition and its categories can never be closed. Whether the husband is cruel to his wife or the wife is cruel to her husband has to be ascertained and judged by taking into account the entire facts and circumstances of the given case and not by any predetermined rigid formula. Cruelty in matrimonial cases can be of infinite variety—it may be subtle or even brutal and may be by gestures and words. That possibly explains why Lord Denning in Sheldon v. Sheldon, (1966) 2 WLR 993 held that categories of cruelty in matrimonial cases are never closed.”

Cruelty can never be defined with exactitude. What is cruelty will depend upon the facts and circumstances of each case. In the present case, from the facts narrated above, it is apparent that the wife made reckless, defamatory and false accusations against her husband, his family members and colleagues, which would definitely have the effect of lowering his reputation in the eyes of his peers. Mere filing of complaints is not cruelty, if there are justifiable reasons to file the complaints. Merely because no action is taken on the complaint or after trial the accused is acquitted may not be a ground to treat such accusations of the wife as cruelty within the meaning of the Hindu Marriage Act 1955 (for short ‘the Act’). However, if it is found that the allegations are patently false, then there can be no manner of doubt that the said conduct of a spouse leveling false accusations against the other spouse would be an act of cruelty. In the present case, all the allegations were found to be false. Later, she filed another complaint alleging that her husband along with some other persons had trespassed into her house and assaulted her. The police found, on investigation, that not only was the complaint false but also the injuries were self-inflicted by the wife. Thereafter, proceedings were launched against the wife under Section 182 of IPC.

The High Court while dealing with the plea of false complaints held that there was no reason to hold that the criminal complaint filed by the respondent-wife was false and mala fide. We are unable to agree with this finding of the High Court and the court below. Both the courts below relied upon the statement of the wife that her husband had often visited her house and she fulfilled her marital obligations. These observations are not based on any reliable or cogent evidence on record. It is not disputed before us that the wife continues to live in the house which belongs to the mother of the husband whereas the husband lives along with his parents in a separate house and the son and daughter-in-law of the parties live with the wife.

The son is working with the husband. Ms. Makhija has very fairly stated before the Court that the husband had always fulfilled his paternal obligations to his son and is continuing to pay maintenance to his wife as fixed by the court.

Though we have held that the acts of the wife in filing false complaints against the husband amounts to cruelty, we are, however, not oblivious to the requirements of the wife to have a decent house where she can live. Her son and daughter-in-law may not continue to live with her forever.

Therefore, some permanent arrangement has to be made for her alimony and residence. Keeping in view the status of the parties, we direct that the husband shall pay to the wife a sum of Rs.50,00,000/- (Rupees Fifty Lakhs only) as one time permanent alimony and she will not claim any further amount at any later stage. This amount be paid within three months from today. We further direct that the wife shall continue to live in the house which belongs to the mother of the husband till the husband provides her a flat of similar size in a similar locality. For this purpose, the husband is directed to ensure that a flat of the value up to Rs.1,00,00,000/- (Rupees One Crore Only) be transferred in the name of his wife and till it is provided, she shall continue to live in the house in which she is residing at present.

The appeal is accordingly allowed. The judgment and order dated 01.03.2013, passed by the High Court in D.B. Civil Miscellaneous Appeal No.1432 of 2004 and the judgment and decree dated 05.08.2004, passed by the Family Court, Udaipur in Civil Case No. 56 of 2000 are set aside. The petition for divorce filed by the husband under Section 13 of the Act is decreed and the marriage of the parties solemnized on 13.04.1989 is dissolved by a decree of divorce. The wife shall be entitled to permanent alimony of Rs. 50,00,000/- (Rupees Fifty Lakhs Only) and a residential flat of the value of up to Rs.1,00,00,000/- (Rupees One Crore Only), as directed hereinabove. Pending application(s), if any, stand(s) disposed of.

Relevant Sections of the Indian Penal Code- Punishing filing of false and frivolous cases

Section 191: Giving false evidence

Whoever, being legally bound by an oath or by an express provision of law to state the truth, or being bound by law to make a declaration upon any subject, makes any statement which is false, and which he either knows or believes to be false or does not believe to be true, is said to give false evidence.

Explanations

• A statement is within the meaning of this section whether it is made verbally or otherwise.
• A false statement as to the belief of the person attesting is within the meaning of this section, and a person may be guilty of giving false evidence by stating that he believes a thing which he does not believe, as well as by stating that he knows a thing which he does not know. This section is applicable to both criminal and civil cases.
• Hitches: Only those lies which are made on oath are considered as a crime under this section, so effectively it gives a wide loophole for anyone to make a false complaint, false petition/pleadings; and the accused/defendant will have to run around in police, courts, to raise a proper defence. Only after evidence stage, this section becomes useful.

Section 192: Fabricating false evidence

Whoever causes any circumstance to exist or makes any false entry in any book or record, or makes any document containing a false statement, intending that such circumstance, false entry or false statement may appear in evidence in a judicial proceeding, or in a proceeding taken by law before a public servant as such, or before an arbitrator, and that such circumstance, false entry or false statement, so appearing in evidence, may cause any person who in such proceeding is to form an opinion upon the evidence, to entertain an erroneous opinion touching any point material to the result of such proceeding is said “to fabricate false evidence”.

Comments: Again, applicable to both civil and criminal trials.   E.g. if a doctor makes a false medical certificate of injuries for a false DV complainant woman, this section could be used to punish the doctor.

Hitches: Prima-facie there doesn’t seem to be problem, except of course that this is something again which can be proven only after evidence/cross-exam stage; which stage may get delayed for years in Indian courts.

Section 193: Punishment for false evidence

Whoever intentionally gives false evidence in any of a judicial proceeding, or fabricates false evidence for the purpose of being used in any stage of a judicial proceeding, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine; and whoever intentionally gives or fabricates false evidence in any other case, shall be punished with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine.

Comments: The explanations make it clear that a judicial proceeding includes not just trial in court, but also a process of investigation made under direction of court.

Hitches: Given that the explanations describe what constitutes judicial proceeding in detail, it doesn’t include investigation by police though, so any false or fabricated evidence given to police is not covered under this section.

Section 194: Giving or fabricating false evidence with intent to procure conviction of capital offence

This section covers cases of false or fabricated evidence which may lead to conviction of another person under a capital offence (death penalty), so being a provision for rare scenarios it can be skipped from our analysis.

Section 195: Giving or fabricating false evidence with intent to procure conviction of offence punishable with imprisonment for life or imprisonment

Comments: This section covers cases of false or fabricated evidence which may lead to conviction of another person for life imprisonment, so being  a provision for rare scenarios it can be skipped from our analysis.

Section 196: Using evidence known to be false

Whoever corruptly uses or attempts to use as true or genuine evidence any evidence which he knows to be false or fabricated, shall be punished in the same manner as if he gave or fabricated false evidence.

Comments: This is a short and sweet section, which says that using a false evidence knowingly is as good as giving or fabricating false evidence, as far as the law and punishment is concerned.

Section 197: Issuing or signing false certificate

Whoever issues or signs any certificate required by law to be given or signed, or relating to any fact of which such certificate is by law admissible in evidence, knowing or believing that such certificate is false in any material point, shall be punished in the same manner as if he gave false evidence.

Comments: This could include situations where a responsible person signs and approves a certificate prepared by another official, even after knowing that it is false.  Treated to be same as false evidence.

Section 198: Using a true a certificate known to be false

Whoever corruptly uses or attempts to use any such certificate as a true certificate, knowing the same to be false in any material point, shall be punished in the same manner as if he gave false evidence.

Comments: Extending on previous sections, this adds an offence of use or even attempt to use a false certificate, to be treated as false evidence.

Section 199: False statement made in declaration which is by law receivable as evidence

Whoever, in any declaration made or subscribed by him, which declaration any Court of Justice, or any public servant or other person, is bound or authorized by law to receive as evidence of any fact, makes any statement which is false, and which he either knows or believes to be false or does not believe to be true, touching any point material to the object for which the declaration is made or used, shall be punished in the same manner as if he gave false evidence.

Comments: This extends the provisions and clarifies that any kind of false declaration — presumably even if the person making declaration didn’t know how it will be used later – will be treated similar to false evidence.

Section 200 – Using as true such declaration knowing it to be false

Whoever corruptly uses or attempts to use as true any such declaration, knowing the same to be false in any material point, shall be punished in the same manner as if he gave false evidence.

Explanations: A declaration which is inadmissible merely upon the ground of some informality is a declaration within the meaning of sections 199 and 200.

Section 201: Causing disappearance of evidence of offence, or giving false information to screen offender

Whoever, knowing or having reason to believe that an offence has been committed, causes any evidence of the commission of that offence to disappear, with the intention of screening the offender from legal punishment, or with that intention gives any information respecting the offence which he knows or believes to be false.

[1] Raj Talreja vs Kavita Talreja (CIVIL APPEAL NO. 10719 OF 2013)

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In this article, Rittika Chowdhary pursuing M.A, in Business Law from NUJS, Kolkata discusses Implementation issues in GST.

GST – the next big thing!

We are standing at the brink of the biggest change in the taxation structure in one of the strongest economies of the world now; the whole business community is waiting with baited breath as to how this change is going to impact one and all in the times to come. Analysis of possible losses on account of higher tax rates; presentations on how the working capital requirement is going to shoot up in the coming few months!

Yes! We are talking about the much talked of, much looked forward to – Goods and Service Tax, more commonly known as GST, and its implementation in India.

GST – brief overview

Just a brief heads-up on the tax that is aimed to make way for the integrated tax structure in the Indian economy, the following is an excerpt from the “Concept Paper” published by the Government of India on Goods & Service Tax.

The salient features of GST are as under:

1. GST is applicable on “supply” of goods or services. Earlier the provisions stated that tax was applicable on the manufacture of goods or on sale of goods or on provision of services; GST is based on the principle of “destination based consumption” taxation vis-a-vis the existing origin based taxation.
2. GST is a dual charge, with the Centre and the States simultaneously levying it on a common base. Centre would levy Central GST (CGST) and States (including Union territories with legislature) would levy State GST (SGST). Union territories without legislature would levy Union territory GST (UTGST).
3. In place of CST, Integrated GST (IGST) would be levied on inter-State supply of goods or services. IGST would be collected by the Centre. This is to ensure that the credit chain is not disrupted (Manufactureràwholesaleràretaileràconsumer)
4. Import of goods would be treated as inter-State supplies and therefore, IGST will be applicable on it. Additionally applicable customs duties will also be leviable; import of services would be treated as inter-State supplies and will attract IGST.
5. Some of the taxes that are currently levied by the Center which GST would replace are:
   • Central Excise Duty;
   • CVD;
   • Special Additional Duty of Customs(SAD);
   • Service Tax;
   • All cess and surcharge;

These taxes are collected by the Centre.

1. State taxes that would be subsumed within the GST are:
   • State VAT;
   • Central Sales Tax;
   • Purchase Tax;
   • Luxury Tax;
   • Entry Tax (All forms);
   • Entertainment Tax; Taxes on advertisements, lotteries, betting and gambling;
   • Cess and surcharge that are related to supply of goods or services.

• Exports would be exempted, that is zero-rated.
• Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST/UTGST paid on inputs may be used only for paying SGST/UTGST. In other words, the two streams of input tax credit (ITC) cannot be cross utilized, except in specified circumstances of inter-State supplies for payment of IGST. The credit would be permitted to be utilized in the following manner:
  • ITC of CGST allowed for payment of CGST first and then IGST;
  • ITC of SGST allowed for payment of SGST first and then IGST;
  • ITC of UTGST allowed for payment of UTGST first and then IGST;
  • ITC of IGST allowed for payment of first IGST, then CGST and then can be adjusted for SGST/UTGST.
  • ITC of CGST cannot be used for payment of SGST/UTGST and vice versa.

The Input Tax Credit (ITC) will be made on a broader base; it will be made available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business.

GST – what it means for the common man?

One of the benefits of GST is that there are no more hidden taxes, and a consumer is being made more aware of what all taxes he is actually bearing. Instead of just the sales tax or the service tax that he sees in the invoices that he gets in his hands for the restaurants or malls, what are the other taxes that are making way out of his pocket, without him realizing the same!

However, the more basic questions which are still cropping in the minds of common man is whether GST good for the economy; whether it is going be good for a common man? How does it affect the common man, what difference does it make for him?  Why is it that everyone seems to be scared of GST? Will it lead to inflation?

“Change” is something which we try to avoid as long as possible, which is why there is a study to that effect as well, which is more popularly known as “Change Management”.

With India moving towards GST, what the entire industry is facing is effect of Change Management. We are all very comfortable and used to the idea of “Excisable Goods” / VAT / octroi; and here we have another tax to capture – a new tax to adhere to. So there are bound to be hiccoughs in the same.

Implementation issues in GST

Let us see what all are the potential implementation issues in GST. Summarizing them in no particular order:

Transitional procedures

GST is undoubtedly a revolution. A country like India which comprises of more than 30 states shall come under one tax law. However, integration of the different tax laws in one bracket is a huge challenge for the government as well.  Initially several states were opposing inclusion of products via.  Alcohol, tobacco etc. under GST as they may cause loss of major revenue to the State Government.  Compared to the other existing provisions there is lot ambiguity in the definition and meaning of many transactional terms. Altogether new procedures are followed on all transactions on every day basis; still we have a long way to go. Government must focus on effective superseding GST with existing tax laws of d country

Lack of clarity on provisions

GST is coming up with a set of provisions which are much similar to the existing guidelines, as because the fundamentals of taxation are still the same. GST is aimed at making the “extremely complex” tax structure of India into a simplified one. So it is obvious that there will be some points which the lawmakers are unable to see from an execution point of view. Some of these are discussed below:

Tax Returns for GST

From the preliminary discussions on the tax returns, the number of returns to be submitted seemed to have grown manifold, as the provisions requires separate returns for each of the state where a assessee is registered. If one makes a unbiased judgement, then adding all the returns prepared under all the taxes prevalent in the country, the number of returns under GST seem to be same. But what is important and what is different from the older returns is the nexus that is drawn between two assessees. The tax credit which say Mr. A is claiming (as the tax charged by Mr. B), must reflect in the return of Mr. B as payable tax, in order for Mr. A to take benefit of the input credit. This requires a robust infrastructure with appropriate nomenclature for identification of invoices / vouchers is enabled (in the least), so that no credit is lost in the value chain. It also requires huge preparedness for the industry as well to adhere to the strict time lines for availing credit.

Forms related to sales tax

As per the Central Sales Tax law, for availing the concessional rates of sales tax (in case of inter-state sales), certain forms were issued by the dealers. Such forms have been done away with. It effectively means that there is no “concessional” sales tax rate now. The absolutely positive part of it is that the extra burden of this sales tax (CST was non-cenvatable), has been done away with. So at one hand, there is some breathing space, but there is always another side to the coin as well. The transitional provisions do not specifically talk about the manner in which the Forms for the pre-GST period will be dealt with.

Road permit issuance

This is a rather interesting clause, as there are states like Haryana, Maharashtra where there is no requirement of a road permit for movement of goods in those States, and then there are states like Jharkhand, Andhra Pradesh where strict guidelines for Road permits are in place. There is ample ambiguity as to how the state wise check-posts will be functioning in the absence of the road permits for states where they were earlier a necessity. An entrepreneur will actually have to be on their toes in the first few weeks, as we are in a country where there are unscrupulous characters trying to take advantage of the ignorance of the transporters on various fronts. We have seen ample number of such cases when Andhra Pradesh was split into 2 States.

IT infrastructure preparedness for implementation

Government

Another key implementation issue could stem from the proposed technology backbone of the GST system. GST system will be the aggregate of seamless documentation, recording of debits, and dispersal of credits, in addition to the already existing IT system which is in place for the existing tax laws. The Goods and Services Tax Network (GSTN) is the information technology platform that will be used in order to record all GST-related transactions. An ambitious endeavor, the platform aims to hold up to 70 million user accounts.

Industry

For manufacturers and traders, GST requires an extremely robust accounting system where there is minimum gap between receipt of invoices and their subsequent booking. Earlier the concept of taking credit was based on the receipt of goods from the vendors; now the concept will shift drastically to “booking” of invoices. Where a seller has booked his sales invoice and made payment of the taxes on the same to the government, it is equally important for the buyer to book his purchase in order to claim the credit. The knock-off has to happen in the government records in order to have the benefit of the tax credit. It requires huge discipline on the part of the entire industry to enjoy the maximum benefit of this ambitious tax structure.

Consensus on tax rates between Centre and States

There were lots of talks of the revenue neutral tax rates which were to be decided between the Centre and the States. For all states which are high on manufacturing capacity, the revenue loss for them is going to be huge. For GST to be a success, all hands must come together to make the push.

Carry forward of Input tax credit from old regime to GST regime

The GST regime begins from 1^st July 2017 at midnight. It subsumes a whole net of taxes, both cenvatable and non-cenvatable. For the stock of goods lying with the traders/manufacturers as on 30-Jun-2017, there is a Input Tax Credit of Excise Duty, Input Tax Credit of Service Tax, et al which would seemingly become cost to them overnight. In order to mitigate the loss, the lawmakers gave the option to take credit of excise duty and service tax for all possible invoices till 30-Jun-17. The result of this clause has been that manufacturers are trying to push maximum material so as to reduce their stock, and the corresponding costs. The manufacturers are taking credit for all material received till such date.

Makeshift arrangement for revenue loss for States

GST has the significant effect on the revenues of the state. Each State had the full authority to use the amount collected through local sales tax without any further sharing formula or subject to the approval from Central Government.  This was a major tussle in the implementation of GST in the past. Several State Governments has restrained their support in the implementation of GST due to this fear of potential revenue loss.  State Governments were demanding compensation from Center as they foresee major dent in revenue due to GST.  The demand for compensation was for 5 years however nod was given Central Government only for 3 years and the debate is still ongoing.

Settlement of old taxes dispute cases

As all are aware there are several running issues with the existing tax system of the country. Issues might be the results of improper drafting of legislation, incorrect understanding and interpretation of statue or may be even the benefit of doubts due to the facts of the law. With the effect of all these several cases are running at the various levels of tribunals or courts at present.  Introduction of new tax law may help in overcoming the legal issues under one legislation, however there has to be proper alignment of the existing cases with the new tax law.  Accurate planning of managing and closing the existing disputes at the earliest will be required from the government authorities, in order to prevent administrative burdens and confusions.

GST provision pertaining to “taxable event”

This is a totally practical problem which users will face one the GST regime is in place, and till such time there are adequate rules and guidelines issued as to where the sales is to be declared. GST is a destination based tax. So for a user who is providing services for commissioning a plant in Visakhapatnam, even though he is registered in the state of Maharashtra, for this one service, his tax liability actually arises in the state of Andhra Pradesh, even though he has no registration in that state. Invoices are required to be booked within a fixed tenure after providing the services; in the industry, we have several instances where the customers do not act in good faith to acknowledge the services so received. This calls for direct loss to the service provider. Other instances pertaining to supply of goods has yet another implication on whether IGST is applicable for movement of goods within the same state, but just that the consignee and the buyer are different entities, and based in different states. Rules, notices on clarity for the same are required to be issued by the government for these.

Shortening of the list of exempted goods & services

Since the objective of GST is to reduce the complexity of the plethora of taxes and the exemptions thereupon, and also to increase the tax net, several of thebenefits/concessionss that were available to assessees in the older tax regime have been done away with, or so to say. The list of exempted goods and services has been left to bare minimum, thereby taxing almost everything. Furthermore, the limits for mandatory registration for assessee has been lowered from the old tax schemes, thereby increasing the base on which tax will now be applicable.

Increase in Working capital requirement

GST comes with a rate which is seemingly on the higher side. Earlier excise duty was chargeable on manufacture of goods, but was paid when goods moved from the manufacturer premise. There was a timing gap nonetheless. Now even stock transfer is taxable. Nothing goes out from the GST net. One potential issue that could arise as a result of the administrative shift is the non-payment of taxes by the supplier. In that case, the buyer will end up having to pay for not only her share of the tax, but also for the supplier’s share of the tax under the proposed tax code. Further, problems could arise, if for some reason there are inconsistencies found in the supplier’s documentation at some later stage. Under this scenario, the buyer will be forced to pay back the tax reimbursement to the government with interest. This problem is usually fixed by market forces, however, as any non-compliant suppliers will soon find themselves losing customers as a result of their negligence. The government has also put in place a mechanism to help with the issue, by providing a publicly available compliance rating system which will allow consumers to pinpoint defaulters as the system starts to take effect over the coming years.

Anti-profiteering Clause

GST is being sold as a concept that aims to bring down costs for the consumer. How this benefit is to be passed, is something which has not been adequately addressed in the legislation so far. The clause included in the GST legislation requires that businesses pass any benefits from the change in tax systems to the end consumer; but it does not provide any mechanism for the monitoring of anti-profiteering activity. There is no way to capture the savings made by the user. As has been suggested by the authorities, the clause, and any subsequent investigation, will instead be triggered by “credible complaints”. How does one really ensure the credibility of the complains?! In a way, this is like giving the tax officials a free hand regarding what is savings and what is not! This kind of situation will give rise to yet another plethora of court cases in front of the various appellate authorities and like.

GST – blessing or not

The GST Scorecard will be out shortly. But for the real result of whether GST is actually the tax which unifies India under one tax head will be evidenced in the coming days.

GST is a much-needed tax reform, and if implemented correctly, can do wonders for India’s economy. Not just that it will eliminate double taxation and lower the product prices, GST will also assimilate the informal sector into the greater Indian economy and provide a much needed boost for India’s flagging export market. Yet there are implementation issues that could be problematic for India’s small businesses and, perhaps more importantly, undermine public trust in GST.

The documentation requirements and their subsequent effects on cash flow and small businesses are difficult to sort out. It is something that one has to live with, given the fact that GST is but the future of the indirect taxes of India.

The GST is an ambitious plan, and government has set similarly formidable benchmarks for its implementation. If not implemented correctly, this version of the GST can have adverse-negative affect the Indian economy for years to come.

This was all on Implementation issues in GST. Hope tha article added value to your knowledge. What are your views on Implementation issues in GST? Comment below and let us know.

References

1. http://www.cbec.gov.in/resources//htdocs-cbec/gst/gst-concept-status-ason05Apr2017.pdf
2. http://www.cbec.gov.in/htdocs-cbec/gst/index

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In this article, Rituraj Singh Bhati pursuing M.A, in Business Law from NUJS, Kolkata discusses Legal framework and regulations governing financial inclusion in India.

Financial inclusion refers to injection of financial, banking and other necessary facilities to the minor sector of the society which is deprived of the said facilities. The major factor of the financial inclusion is that the services provided under the head of financial inclusion should be affordable to the people belonging to low-income segment group. As it can be understood by the name, “financial inclusion” refers to every practice such as savings, credit, transfers etc. The financial inclusion is a basic need for sustainable growth of the country. The sustainable growth of the country is depended upon the stability of the lower income group of the country. More stable the lower income group of the country; the country is understood to be in a better flourishing state than the country whose lower income group society is not stable and growing. The motto of financial inclusion is to provide the services to the people who are deprived of such services and are unreached. Hence, banking is the key factor of the inclusion, as it tends to open branches in the remote sectors, rural areas and the backward areas of the country that are deprived of the ways to financially plan their income and save it up in the banks for further usage and also the credit of that saved amount with an ease, wherever and whenever required at utmost affordable costs. Whereas, the backward sector of the country is least aware about the financial literacy and this is the major factor hindering the steady as well as sustainable growth of the country. Sustainable development demands participation from a vast sector of the economy; in fact as much as sections of the society to perform. Pertaining to these lacunas, the government as well as the Reserve Bank of India planned and provided Automatic Teller Machines (ATM’s), internet banking, cashless cards (credit and debit cards) etc. to a vast number of population but still the most benefited sector out of these services is the urban population and the rural population still lacks general information about these facilities or on the other hand the rural and backward communities of the economy still prefer the ages old techniques of financial transactions due to lack of awareness, lack of education, lack of safety in the rural areas pertaining to these modern techniques.

The goal of the Financial Inclusion is to create a mass that is self-dependent and self-sustained people knowing enough and competent to take their own financial decisions which in turn allows maximal investments in government schemes, educational schemes, entrepreneurial projects, businesses, retirement plans, banking schemes, insurances; which in turn can benefit the mass at large and also can provide the economy a steady inflow which acts as a backbone of any healthy economy and ensures growth. The lack of supply in the inclusion sector pertains to the low demand from the zone where it desires the most to expand. People in rural zones do not prefer this type of banking services due to language barriers, typical and twisted procedures, non-availability of bank branches in the remote areas of the country, low income generation amongst the rural population, no steady income, financial illiteracy and numerous of such factors due to which there is no healthy demand of financial inclusion in the backward sections of the country and society.

Financial inclusion introduces the lower income group with the banking sector, which helps to protect the income of the people for the times they need it the most. It also safeguards the people from the independent and un-regulated money lenders who implement such rates of interests as regulated by them and also trouble the debtors with every means possible. The financial inclusion has helped put a stop on such practices by the money lenders as there are banks opening in remote areas of the country and the banks are allowing the backward areas of the country to attain loans on low, steady and government regulated interests.

The government as well as the Reserve Bank of India has undertaken various innovative steps to increase the demand of the Financial Inclusions is the rural areas by launching easy KYC(Know Your Customer) schemes, Kisan Credit Cards and special benefits on it only for farmers, buying of the produce on Special Supported Price by the Government, payments to the farmers re done directly to their bank accounts, subsidies are granted directly to the bank accounts, bank accounts are made necessary to obtain special benefits and schemes regulated by the government, use of bank information and ‘aadhar’ information of the fair price shops, linking of aadhar cards to the bank accounts to assure that the benefits are allocated to the right person, banks and governmental bodies now a days educate the rural people about their rights and benefits which are given to them by the government and what benefits they are missing out on by not having bank accounts, opening of bank accounts of small children to teach them about savings, Jan-Dhan accounts, handing of Gas subsidy directly to the bank accounts, Zero Balance accounts for people falling under Below Poverty Line, Adhar Scheme, payment to the people under Rural Employment Guarantee Scheme only by the way of bank accounts, payment of insurance claims are to be done directly to the bank account, any relief granted by the government id transferred directly to the banks, scholarships are transferred directly to students bank accounts, compulsory Bank Account for every salaried employee whether government employee or private employee etc. through these changes and schemes the government is trying to create a subtle demand or Financial Inclusion which can be in turn fulfilled.

Despite of these efforts, some of which are carried out after 2002 the growth of financial Inclusion in India is quite sluggish. As per the stats provided by The Government of India 51.4% of the total population which is into farming is still deprived of accessing their formal credit; which shows the indebtedness of the economy at large. As per this rate the present situation of the general indebtedness have decreased which is a good sign in favour of the schemes and regulations passed by the government as well as Reserve Bank of India but it may be still lacking the quantum of growth India requires to keep on the pace of the rising economy.

Financial Inclusion in India – 2002

Major changes in Financial Inclusion in India were seen from the year 2005 and onwards as the result of the fact findings of the Khan Committee, which was setup in 2004 by The Reserve Bank of India urging recommendations regarding the betterment of Financial Inclusions in the deeper parts of the country where the banking system had still not been established. As the result of the recommendations of the Committee many changes were brought into the inclusion system of the country which starred simplifying the procedure and availability of Banking Sources in rural and untouched parts of the country.

POLICIES UNDERTAKEN BY RBI

Basic Saving Bank Deposit (BSBD)

Reserve Bank of India advised all the nationalised banks to open accounts with Basic Saving Bank Deposits; meaning such type of accounts featuring basic saving and transacting features such as no minimum balance clause, cash deposit and withdrawal feature from the branches as well as ATM’s, credit/debit cards, access to electronic payments channels etc. This policy resulted in increased number of general accounts across the country. The rural population reacted positive to this policy as the accounts were featured with zero balance limit, ATM Cards were allotted; helping in easy transaction of money etc.

KYC Norms to be simplified

Reserve Bank of India directed the banks to simplify its norms to register a person as a customer of the bank for the sake of simplicity in process for opening a bank account especially for bank accounts to contain amount of Rs. 50,000/- and credit up to Rs. 1,00,000/-. A large proportion of the population of India is either financially illiterate or totally illiterate which caused difficulty in opening the account and filling the formalities required to be filled in form. The RBI directed the banks to accept Aadhar Card as a proof of identity as well as address of the customer.

Branch Authorization Policy simplified

For increasing the density of branches per capita in India the Reserve Bank of India authorised and gave liberty to the Scheduled Commercial Banks to open Branches in Tier-2 to Tier-6 cities/centres under the general permission as subjected to reporting of the newly opened branch or the branch to be opened. Further liberalizing the policy RBI authorised the domestic scheduled commercial banks to open its branches in tier-1 cities/centres upon general conditions subjected to specific conditions. This step resulted in increasing number of bank branches per capita; especially in tier-2 to tier-6 cities which largely includes rural areas.

Compulsory opening of branches in Un-banked Villages

Reserve Bank of India directed the banks to compulsorily open 25% of the total number of its branches opened in a year in tier-5 and tier-6 centres which generally consists of villages. This step resulted in increased branches in rural areas which further resulted in increasing the number of people connected to accounts for regular transactions.

Establishment of Financial Literacy Centres

Reserve Bank of India revised the guidelines in 2012 which stated opening of Financial Literacy Centres which should conduct Financial Literacy Campaigns once a month in rural areas and if possible more than once. Though one campaign a month is compulsory. Through these campaigns the banks make it definite that people are well educated about their rights and duties related to banking regulations and encourage them to opt for financial inclusion services.

Licensing of new banks

Reserve Bank of India has started licencing new banks for properly implementing the Financial Inclusion scheme throughout the country. This new licencing emphasises upon new and innovative business models targeting rural and those areas which are still out of reach of banking sectors.

Kisan Credit Cards

Government of India and Reserve Bank of India have with collaborated directions started issuing Kisan Credit Cards to farmers of the country. The scheme was started in 1998-99 and till date numerous of farmers are equipped with kisan credit cards which are issued keeping in mind the necessities and benefits of farmers.

Rural Infrastructural Development

National Bank for Agriculture and Rural Development (NABARD) provides loans and deputes amounts to the state governments for the development of infrastructure, agriculture sectors, rural connectivity and social frontiers. These loans have been gradually increasing with every financial year.

Cheap e-commerce transactions

Government has initiated e-commerce sites and mobile apps to encourage banking transactions rather than cash transactions which result in regulated and easy money transfer which can be accessed anytime and anywhere.

Establishment of Financial Stability and Development Council

The government established this regulation body upon recommendations of Raghuram Rajan committee in 2008. The council looks after and nurtures the financial regulations and acts as well as macro prudential regulations which refer to the regulations to be enacted in rural or tier- 5 & 6 centres. The committee was the first of the regulatory bodies to look after the rules and regulations regarding the financial inclusion which is the major demand for the economy to grow at this rising rates. The council looks after the maintenance of financial stability, financial literacy amongst the rural class of the economy, development of the financial sector at root levels as well as inter regulatory coordination for a stable and easy to use financial prudent.

Relaxation in provisions of Prevention of Money Laundering Act

The Government revised some of the provisions of the Prevention of Money Laundering Act and relaxed some of its provisions for the special class of the economy which were rightly benefitted by the changed provisions. The provisions were relaxed to increase the bank in flow and financial transactions through a channelized route i.e. through a bank. Some provisions were relaxed for better and fluent transactions whereas some other provisions were also revised keeping in mind the availability and accessibility of the bank accounts and services. The change in these provisions provided an easy way and relaxed regulations to open small accounts with basic amenities and features to all. The revision allowed the banks to easily and hassle freely provide ATM cards to the account users, instant opening of small savings accounts, increased transaction limit through e-banking or cards etc.

Pradhan Mantri Jan Dhan Yojna

This is the most recent advancement to encourage financial inclusion in India by our Present Prime Minister Shri Narendra Modi, launched on 15^th of August 2014 on his first Independence Day speech further enabling the financial prudence and independence of citizen of India. The yojna (scheme) was launched with a goal to provide the banking facilities to all, at all times. This universal availability of banking solutions would, in turn, help the economy to grow at a better pace as the transactions through a channel recognized by the government will increase and increase with a rapid speed. This will also let the government track the movement of the money which will help in curtailing the flow of black money in the economy which slowly degrades the economy by stealing and converting the white money into cash which is totally tax exempted as it is out of notice of the authorities and regulatory bodies.

The major benefits provided by the scheme are:

1. Basic Savings Accounts: General savings accounts with zero balance limit (no frill accounts) and an overdraft facility of Rs. 5000/-.
2. “RuPay” Debit Card: A debit card available on easy terms and covering a term insurance of Rs. 1,00,000/- as accidental damage fund inbuilt with the card.
3. “RuPay” Kisan Card: A credit card specially built keeping in mind the needs of financial transaction as by the farmer community of the country. The card embeds inbuilt crop insurance subjected to notification which helps the farmers in case of crop damage and the card is also allowed to make more free transactions than a normal commercial card.
4. Micro Finance: The scheme provides micro finance or the household utilities and betterment of infrastructure in Rural Areas as well as Semi Rural areas. The finance is available on businesses as well as crops and building bathrooms with subsidy.

The scheme was launched as a national priority.

Gaps and Lacunas

The financial inclusion in India though growing gradually is still insufficient as compared to the size and complexity of the nation. Financial inclusion is a concept new to the context of India arising in the late 60’s but gaining a steady and sustainable growth since 2005 onwards; things have changed after 2005 and the government of India as well as Reserve Bank of India have undertaken various steps to conquer the weak inclusion in the rural parts of the country. Despite of certain good and favourable changes recommended by distinct committees since a decade, pure implication of the recommendations advised was not possible in such a vast terrain and this further makes it typical and difficult for the people of rural background to connect with the schemes and regulations launched for their sole benefit.

Some of the major drawbacks in the line of Financial Inclusion in India are as follows:

No codified context

The government of India as well as The Reserve Bank of India has launched numerous schemes benefiting and advocating the motive of financial inclusion in the country and have also taken measures to educate people and institutions about the importance of the sectors of inclusion but still have lacked in creating and implementing a codified and written context on the reference. By making the rules and regulations rigid and written, the goal of financial inclusion can be achieved with a steady and sustainable way. The regulations passed by the different committees are not to be found in a single place and that makes it difficult for the authorities and officers working in the financial sectors to follow the regulations and avoid the conflict and clash between different regulations passed by different notifications.

Suitability

The suitability of the regulations and rules are quit rigid and universal across the country; whereas with such a vast terrain of the country in context the schemes should be handed over to the states to apply, procure and implement as per the conditions and the needs of the areas to be encountered and covered under the schemes. The universality of the regulations makes them a little less benefiting to the context of the sector or the zone where it is applied.

Awareness

Though directing the banks to conduct councils and camps one a month in rural districts; the efforts are not resulting in the way they should. People of maximum states are unaware by the working of the banks and where there is unawareness for the banks there is no point in talking of the benefits to the public. The public should be made aware and educated about the schemes provided for their benefits in very simple way and in regional languages. It is seen that the authorities whom the work of the awareness of the schemes is given are negligent towards the work and often do not explain the proper benefit of the schemes and quite often it is also seen that the people hired by the government for the promotions of these schemes in rural areas are themselves un-educated and un-aware about the benefits and disadvantages of the schemes. India is ranked the lowest in the Asia-Pacific region amongst the 16 countries. For a country so rapidly growing this result matters and is unacceptable for a hinder less and steady growth of the economy as well as population.

Conclusion

The following steps are necessary for the betterment of financial inclusion.

1. Further expansion of the bank networks whether through branches, through ATM’s, through Kiosks etc.
2. Focus of the Banks on credit rather than saving accounts opening. India has surpassed the barrier of the savings accounts, the govt. and the RBI should emphasize upon the expansion to the credit facilities to the rural parts of the country.
3. To set the “priority sectors” such as weaker section of the economy, farmers, as the lending targets in next few years.
4. Provide a codified ceiling to the interest rate; putting barriers to the allowance of interest rate to be provided and to be collected in context of loans.
5. To allow different business models in the banking sectors which are driven as per the work schedule rather than a full proof profit schedule.

The government has realised that the financial inclusion is not something which we just need it is the need of the hour. Every sector whether low or high of the country needs to grow at the same pace, which is still a long seen prospect, as growth cannot be said to be complete if only the highs get higher.

[1] Government of India (2008).

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In this article, Rohit Upadhyay pursuing M.A, in Business Law from NUJS, Kolkata discusses the procedure for transfer of a case from one court to another.

Introduction

The judiciary has been paramount institution for determination of any legal dispute. The judiciary has been a watch dog to keep an eye on the legislature and executive authorities to control their arbitrary actions and to keep a check on their activities which may be either driven by their whimsical or by any hidden interest. The judicial authorities are vested within various courts and at many levels as deemed to be proper by the respective High courts. The Indian judiciary has a huge extravagant burden on its shoulder of pendency. In a broader classification, the trails could be separated in two classes namely-

1. Civil law and
2. Criminal law.

Civil Law

The Civil laws are the laws which relate to disputes between individuals, individual and a company, individual and an organization, or organization against any organization. The scope of the civil law is a wrong doer and against such wrong doing the court may award penalties or cost to the wrong doer and compensation to the victim who has suffered any unwarranted loss due to such behavior. In civil law, the burden of proof is leveled at the preponderance of probability, which means that both the parties of the litigation have to make their best possible effort to establish their case and then based on the level of prudence of the pleading the court would determine the case.

In civil law a case is instituted by the plaintiff against the defendant and ends up with a judgment. Either party who may be aggrieved by the judgment of the court may prefer and appeal against the order passed by the court. The punitive action of the civil law would in the form of compensation. The example of civil laws are Indian contract act, 1872, Civil procedure Code 1908.

Criminal law

Criminal wrongs are those which possess the potentiality of damaging the society at large. Generally, criminal acts are those acts which have an overall impact on the society and influence a major share of the society with its occurrence. The criminal law covers all the offences and crimes under different laws and statutes. The criminal case against an individual may be instituted by a First information report (F.I.R) or by presenting a private complaint against a person. Whenever a complaint is preferred to any magistrate he may after taking cognizance and observing any substance in the complaint may issue necessary instruction for further investigation and fact finding of the case. The burden of the proof in such criminal cases lies on the prosecution which is here referred as the state to establish its case far beyond reasonable doubt against the offender. In case if the prosecution fails to do that the benefit of doubt would flow towards the accused. The party which may be dissatisfied by the judgment of the court may approach the competent superior authority to file an appeal against the order of trail court. The punitive consequence of criminal law would be fine or imprisonment of may be even both the criminal court also have superior jurisdiction to order the offender to pay the victim against his crime as under victim compensations scheme. The example of criminal laws are Indian Penal Code, 1860, Criminal procedure code, 1973, Narcotic drugs and psychotropic substance, 1985

Objective for transfer of cases in courts

The entire judiciary is viewed with utmost respect and with an expectation that the judiciary would do very fair and equitable justice to the person coming before them or pleading for genuine redressal of any complaint of grievance. The court should always maintain a fair view that court should not only do fair justice but the justice should be pronounced in such a manner that a clear message should be made to everyone that justice is made. The judiciary is the most sanctified body to deliver justice and has always maintained a very strict view regarding fairness in trail procedures and trail fairness. So in order to protect the reputation of the courts and the maintain high order of moral standards between the members of judiciary the code of Criminal Procedure and the civil procedure code have enough reasonable grounds to transfer cases from one court to another court.

The main intention of delivering justice or to decide a matter is to address a public sentiment although there are various provisions regarding appeal. But such practices would impart tremendous pressure on the mechanism of judiciary and the judiciary would further be burdened with more pendency and delayed justice to all which may consequently create more dispassion and unrest about judicial processes. So to address all such burning issue the statutes already provides certain provisions regarding the transfer of cases from one court of trail to another court of trail.

The hierarchy of the courts is followed as per the table drawn below.

Power of Civil courts to transfer cases

The civil procedure code, 1908 is a concise legislature to determine the litigation aspect and to determine the course to be adopted for trial. Section 15 of the C. P. C, 1908 provides that the every case should be filed in the lower court competent to try that matter. This avoids absurdity regarding the jurisdiction of maintenance of claim and place of filing claim.

Section 22 of the C.P.C 1908- Power to transfer suits which may be instituted in more than one Court.

When a trail is lying pending before a court and the same jurisdiction is shared by many other territorial or other court the defendant who may have objection to the jurisdiction of the place of trial of the court may after moving an application to all the relevant parties of the legislation may be given with an opportunity to be heard and argue and then the court may determine the merit of the case and order further instructions. In civil cases when the case is for obtain a specific possession of a property it is preferred to file the case within jurisdiction of the court under which the property or any other achievable of the defendant are available.

Section 23 of the C.P.C 1908- To what court permission lies.

This section of C. P. C 1908  deal with the provisional part used to exercise this right hand how the application regarding  such transfers be made and whom to be made with such applications. As per the statute the application may be preferred to any court which is immediate superior to the trial court or the appellant court of that trial court. Subjected to following circumstances: –

When the appellant court is same:- when the suit is to be shifted or transferred to  court which have same court of appeal or under same subordination such transfer application would be preferred to appellant court.

When the appellant courts are different: – when both the courts of trial lies under different court of appellant jurisdiction. Then the application would be preferred to the high court under which both the courts are subordinate to.  The High court after observing the substance of the complaint would decide the application and dispose it off accordingly.

When both the trail court are under different High courts:- In a case where both the litigant parties claim under the court which have different High court  jurisdiction. Then such an application shall be preferred to the High court which has jurisdiction over the court in which the case was firstly instituted.

Power of criminal courts to transfer cases

The Supreme Court is the highest court of criminal appeal but the right to prefer an appeal to the Supreme Court lies in some exceptional cases. The original court of criminal appeal is the High Court as per the Code of Criminal Procedure. The Supreme Court has the largest authority regarding the administrative functions of all its subordinate court.

Section 406 Cr. P. C 1973 – Power of Supreme Court to transfer cases and appeals

The Supreme Court is vested with the widest discretionary power to make any such order to transfer any specific case or appeal or any matter lying pending before one high court to another high court to meet up the end of justice and satisfy the principle of fair justice. The application to transfer such case from one High court to another high court would be moved by any person who is under apprehension of any unfair action or he may not find proper justice for him or Attorney General of India. The provision made under section 406 of Cr. P. C majorly relies upon the discretion of the Supreme Court. The applicant is not under any obligation to establish conclusively that in absence of this transfer the interest of justice regarding him would fail. The applicant will have to reasonably substantiate his contentions regarding the application. The Supreme Court is not only vested with the authority to transfer files form one High court to another High Court. The Supreme Court also has authority to the transfer any case from one court to another court which is in subordination to the Supreme Court. Any objection if arose by the court under which the matter is lying pending. Although the trail court may ensure the Supreme Court about maintaining the principle of fair and equity, but the Supreme Court would take all reasonable measure to transfer that case to some other court which may be either to the court of same competence of may be court lower or higher competence.

Section 407. Cr. P. C 1973- Power of High Court to transfer cases and appeals.

The high court is also vested with the similar authorities to transfer a case from one court of its sub ordinance to another court of its sub ordinance or the high court may even the try the case by itself. The following are the ground on which an application to transfer the case could be made to the high court.

1. When the court could reasonably apprehend that the fairness of the trail would be prejudiced by the trail if conducted with the same court which has been trying the case currently.
2. When the high court is of the opinion that the trail of the case may involve decision of some questions which are substantial question of law and could only be dealt by the high court in expedite manner.
3. The High court may take into consideration of the convenience of the parties for such to meet up the end of justice and towards the expedience of justice for both the parties.

The High court after receiving any such application from the applicant the court may even if require conduct an enquiry and then decide whether such transfer is in the interest of justice or it is filed with an intention to defeat the justice. If the grounds of filing such application are found to be false, frivolous or vexatious the court would dismiss the application. The Attorney general of the state may also file application of such transfer to the High court with an affidavit which on oath would again affirm the contents of the application. The trail court can also refer to the High court any such cases which may need transfer from one court to another to meet the ends of justice.

Section 408. Cr.P.C – Power of Sessions Judge to transfer cases and appeals.

In sub ordinance to the High court the session court also have vested authority to transfer one from one court to another under his jurisdiction within his session division.  This order may be made b y the court for better delivery of justice and settle the sentiment of the victim. An application shall be preferred on following grounds:-

1. When the court is reasonably satisfied that the subordinate court is unable to deliver justice to the aggrieved. The sessions court by his own accord may take all reasonable measure for expedite delivery of justice by the court.
2. The application could be filed by the lower court to the sessions court which may demand such transfer or by the own accord of the court. Or by the application moved by the parties involved within that course, or the court may even consider the report of the lower court which favors or recommends such transfer from o0ne court to another. To deliver justice.
3. The applications which is made to the sessions court should be in consistence with the provisions of 407 (3) (4) (5) (6) (7) and (9). Before deciding any such application of transfer the copy of the application should be provided to the public prosecutor and with a reasonable opportunity to argue on the application filed by the applicant. If in case this exercise is not performed in the same manner the application becomes void. No further actions could take place from thereof.

Section 409 Cr. P .C Withdrawal of cases and appeals by Sessions Judges.

Further in section 409 Cr. P. C the Sessions judge is vested with additional administrative functions regarding transfer of case from one court under his subordination to another court under his subordination under following circumstances:-

1. The Sessions judge can withdraw cases and appeals from any of the judges under his subordination. And after obtaining such transfer file from the assistant Sessions court or from the Court of Chief Judicial Magistrate.
2. The Sessions judges also have authority to recall or withdraw any appeal which is lying pending before any Add. Sessions judge. After obtaining such file from transfer the Sessions court may order it to be made over to any other Add. Sessions judge.

• When any of such withdrawal affected under sub section 1 and 2 of section 409 Cr.P.C. the sessions judge may personally keep the matter with himself and then further the case would be tried in his court or may act in accordance to the provisions of this act.

Section 410 Cr.P.C Withdrawal of cases by Judicial Magistrates.

The Chief judicial magistrate or the Chief metropolitan magistrate are vested with the authority to withdraw any case from any judicial magistrate either first class or second class which is in subordination to him and may inquire into the substance of the trail conducted by the magistrate subordinate to him or may even transfer the trail from that judicial magistrates court to his court. In furtherance the Chief Judicial Magistrate can also authorize or further refer such inquiry to any magistrate under his subordination.

Any judicial magistrate may under the light of section 192(2) of the Cr.P.C can enquire into any case which is made over to him from any other judicial magistrate.

The grounds on which the cases can be transferred

The following are the grounds on which a case could be transferred from one court to another court.

1. To meet the ends of justice :- It is the utmost duty of the court to take all such measures to meet up the ends of justice and to pronounce the judgment which should also send a good message in the society that justice was not only done it was done with an impact that it appears that justice is done. The court is the most trusted and sacred institution. And every person holds a very high relative position and respect for court and its decisions. So the courts have extra moral obligation to keep the spirit of trust and confidence alive within this machinery. This ground to meet the ends of justice have a vide connotations it could be easily understood that this authority would have high degrees of discretionary powers. Which could be used in accordance with the factual quantum to provide justice to all the subject litigants. The factual matrix of every trail weather civil or criminal proceedings is quite different so in order to ascertain a pre-managed situation for dealing may not ensure a fair trial or may even end up causing irreparable loss to the interest of the litigants. Therefore the court has been vested with such discretionary authority to determine such question regarding transfer of court.
2. As per the inquiry report of any superior judicial officer such as any Chief judicial magistrate or any sessions judge the trail must not be conducted by a particular magistrate or any other officer such a report shall also be deemed to be a valid ground for such transfer of a case from one court to another.
3. The trail court deems it fit to be transferred from its purview or the determination of the trail may involve such substantial question of law. Determining substantial question of law far above its jurisdiction would render the complete trail fruitless.
4. The court have a limited jurisdiction over the subject matter of the dispute in such limited or shared juridical issue the court trying the matter will have a liberty to transfer the case to the court which have competent jurisdiction to try that matter conclusively so that the complete trail could not be failed because of lack of complete jurisdiction.
5. Mutual collision between the party and other judicial officer. The possibility of corruption is no stranger to the judicial fraternity. in such cases to avoid the failure of interest of the actual aggrieved party between the litigants the court provides reasonable opportunity to the party which may have such apprehension.
6. The judicial officer being engaged or involved in the litigation by some or the other. In such scenario the litigant parties have complete freedom to approach the authorities for avoiding any collision of interest when capitalized through any characterized persons.
7. The judicial officer may be made as witness. If any judicial person has been made as a witness to any trail this surfaces the end of the ability of that person to conduct the trail. Such actions may append breach of ordinary prudence of fair trail and may impeach the interest of justice.
8. When the court or any judicial authority is working in contravention to the principles of natural justice. Any if such breach when reported to the authority continues to happen the aggrieved party would be free to take shelter for preferring transfer of case.
9. Any mutual disturbance or unethical relationship between the lawyer or the judicial officer may also prefer an application of transfer of case from one court to another.

Conclusion

The transfer of case from one court to another may not change the nature of the trail or the relief nor does it changes the subject position but with the addition of such provisions the legislature and the judiciary imparts a huge impression on the subject about the principle of equity and good conscience. Transfer of cases from one court to another would also ensure that the litigant parties are assured to the justice done to them.

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In this article, Abeer Sharma pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses How the Presidential Election takes place.

The essence of the election process of the President of India is enshrined in Article 54 of the Constitution of India. In order to supplement and give shape to this Constitutional provision, the legislature has enacted the Presidential and Vice-Presidential Election Act, 1952, which is accompanied by the rules made under its authority, the Presidential and Vice-Presidential Election Rules, 1974.

The entire conduct of the Presidential election is held under the watchful eye of the Election Commission of India, which has the following responsibilities:

• Preparation of the electoral roll.
• Planning and execution of the electoral process.
• Ensuring that the election is conducted in a free and fair manner.
• Calculation of votes and declaration of the winning candidate.

Qualifying criteria for President

Any individual wishing to contest for the post of President must first ensure that he/she qualifies for the position, the criteria of which are laid down in Article 58 of the Constitution. These are:

• Must be a citizen of India.
• Must have completed 35 years of age.
• Must be eligible to be a member of the Lok Sabha.
• Must not hold any office of profit under the Government of India or the Government of any State or under any local or other authority subject to the control of any of the said Governments (Exceptions are the offices of President and Vice President, Governor of any State and Ministers of Union or State).

Explanation of Qualifying Criteria

 Who is eligible to be a member of the Lok Sabha?

A Presidential candidate is eligible to be a member of the Lok Sabha when he conforms to the criteria which are laid down in the Indian Constitution (Articles 84 and 102) and the Representation of People Act, 1951 (Sections 8 to 10-A).

What is an office of profit?

The concept of “office of profit” was devised to maintain the independence of legislature and prevent the conflict of interest that would arise if an individual was both a member of the legislature as well as working in an executive role that would accrue to him any significant pecuniary gains. Under Indian law, an office of profit is any position or appointment made by or under the authority of the government – be it the Central             Government, State Governments or local authorities. In case someone is the holder of such an office, he would first have to resign before contesting an election for President.

Eligibility Criteria for Electors

The President is the official Head of State, and is chosen with the help of an indirect election process by an electoral college consisting of the elected members of the Parliament of India and the Legislative Assemblies of the States and the Union Territories of Delhi and Puducherry.

What is an indirect election?

A direct election occurs when the citizens of a country vote directly for their representatives. For instance, the election process to the Lok Sabha is an example of a direct election.

An indirect election,  on the other hand, is a process in which the ultimate voters (i.e. the citizens) don’t get to choose the candidate, but rather choose electors who will subsequently make the decision for them.

What is the exact composition of the Presidential Electoral College?

While the Electoral College comprises of legislators, not all members of the legislative branch are eligible to be electors in the Presidential election. Legislators can be grouped into two categories based on how they ascend to their position:

Elected members: These are legislators that have been chosen after undergoing the process of an election. In the case of the Lok Sabha and State Legislative Assemblies, this refers to individuals who have become members as a result of the general elections and state legislative elections, respectively, and in the case of the Rajya Sabha it refers to individuals who have become MPs  after an election has been held in their relevant State Assemblies.

Nominated members: These are legislators that are appointed to their post by the President or Governor (as the case may be) without undergoing an electoral process. Nominated members include the following:

• 12 members nominated to the Rajya Sabha by the Central Government amongst persons who have special knowledge or practical experience in respect of such matters as literature, science, art and social service.
• 2 members nominated to the Rajya Sabha by the Central Government to represent the Anglo-Indian community
• 1 member nominated to the State Legislative Assembly by the State Government in case it feels that the community is underrepresented. Every State is empowered to make this nomination.

Out of the Indian Parliament (both houses) and the State Legislative Assemblies, only the elected members are eligible to participate as electors in the Presidential Election. The nominated members are, correspondingly, ineligble. Additionally, members of the Vidhan Parishad (in states which have one) are not eligible to be part of the electoral college.

Are legislators from Union Territories eligible to be part of the electoral college?

As a result of the 70^th Amendent Act to the Indian Constitution, elected Legislative          Assembly members of the Union Territories of Delhi and Puducherry are also to be included in the electoral college. The other UTs do not have a Legislative Assembly.

Voting Shares of the Electoral College

Not only is the election of the President conducted through an electoral college, but it also doesn’t follow the concept of “one man, one vote.” Given the fact that the election is an indirect one, and geared to represent the choice of the country as a whole, the Constitution prescribes a specific formula to calculate the value of the vote cast by every elector.

Given that the national parliament as well as the state legislatures participate in this electoral process, the formula calculating the the weightage of votes is based on two fundamental principles:

Uniformity

The formula aims to secure uniformity in the scale of representation of all the different States in the country, to emphasize the equivalent status of all States despite the differences in their size, population, or other characteristics.

Parity

The formula tries to secure parity between all the States as a whole and the Union in order to uphold the idea of a federal government structure.

The formula provides for different methods of computing the vote weightage for MPs and MLAs.

Calculation of the vote share of an MLA

The formula for calculating the vote share of an MLA can be represented as follows:

Calculation Note: Calculations that end in fractions exceeding 1/2 will be rounded up to the nearest whole number, whereas fractions of less than 1/2 will be rounded down.

The way this formula operates can be better illustrated through the following hypothetical example of the State of Andhra Pradesh:

Step 1:-

Multiply the total number of elected MLAs with 1000:

294×1000 = 2,94,000

Step 2:-

Divide the State population by the result of Step 1:

4,35,02,708/2,94,000 = 147.968

Step 3:-

Given the fact that the result of step 2 is a decimal number, and the decimal part is a fraction greater than 1/2 (or, in other words, more than .5), the number will be rounded up to the nearest whole number, giving us the value of 148.

Important Note: Originally, the Constitution intended the population figures to be continuously updated to reflect the results of the immediate preceding census. However, in order to promote family planning measures throughout the country, the Parliament passed the 42^nd Amendment Act which was later updated by the 84^th Amendment Act. According to the 84^th Amendment, the census figures of 1971 are to be taken as the population of each state, and these figures will be in operation until the first census after the year 2026 is conducted. In other words, the 1971 population figures will be fixed until the 2031 census, and the 2032 Presidential election will be the first Presidential election to use updated population figures.

Calculation of the vote share of an MP

The formula for calculating the vote share of an MP can be represented as follows:

It can be deduced from this formula that the value of an MP’s vote is directly dependent on the vote value of all MLAs. The following steps will be required in order to get the final value:

Step 1:-

Calculate the value of the votes of all MLAs from every state in accordance with the formula prescribed in the section above and then find the grand total of these values

For instance, if the value of the vote of an MLA from Andhra Pradesh is 148 and there are 294 elected MLAs, then the total vote share of Andhra Pradesh will be 148×294 = 43,512

Repeat this process for each state and then add up all the total vote shares of each state to find the sum of vote value of elected members of all the Legislative Assemblies.

Step 2:-

 Divide the grand total value found in Step 1 with the total number of elected members in both the Lok Sabha and Rajya Sabha (543+233 = 776). The resulting number will be value of the vote held by every MP.

As can be seen from everything detailed above, the “voting power” of each elector varies depending on whether they belong to the Union or the State legislature, or which State they belong to in the latter case.

What if a State’s Legislative Assembly has been dissolved?

It must be remembered that the calculation of vote shares will be dependent on the number of State Legislative Assemblies which are in existence at that point of time. Therefore, if President’s Rule under Article 356 of the Constitution has been imposed on a State and it hasn’t been re-constituted in time for the President’s election, the election will go on             regardless. The legislators who were in power prior to the dissolution of the Assembly will not be eligible to qualify as electors, and the MP vote shares will be calculated wihout factoring in their vote values. However, it is the moral responsibility of the Election Commission to schedule elections in such a manner that they may be as representative of the nation’s will as possible.

Conduct of Election

Preliminary Activities

The Election Commission shall publish a notice informing the public about its plans to conduct the Presidential Election at the specified dates and venues. Prospective candidates can begin planning their election game-plan following this notice.

In order to secure one’s Presidential candidature and contest the elections, the interested individual has to complete a few specific procedural tasks, aside from filling out the requisite paperwork and declarations:

Securing nominations

To be eligible for the electoral process, a candidate must get his nomination papers signed by 50 electors as proposers as well as 50 electors as seconders.

Paying the Security Deposit

A prospective candidate is also required to submit a security deposit of Rs. 15,000 along   with his nomination papers. This deposit will normally be refunded to him, unless he loses and the number of votes he got is less than 1/6th of the amount he would have needed in order to win the election. The amount of votes he would’ve needed in order to win is, of course, a variable number and depends upon the number of candidates contesting the elections and the number of electors present.

System of Election

The election of the President of India is achieved through the system of proportional representation by single transferable vote.

The way this works can be illustrated in the following way:

• Suppose there are five candidates in a particular election.
• All members of the Electoral College  will be required to mark their preferences on their ballots. In other words, they will have to rank all five candidates from 1^st to 5^th.^[1]
• After everyone has cast their vote, the counting process takes place.
• In order to be declared the winner, a candidate is required to get the prescribed quota of votes. The winning quota is determined by the following formula:
• Winning quota = 50% of all valid votes polled^[2] +1

The value of votes a contesting candidate gets in the first round is determined in the following way:

Number of ballots on which candidate is first preference X Value of vote which each ballot paper of a member (MP or MLA) represents.^[3]

If the election took place under the rules of the first-past-the-post system, then figuring out the winning candidate would have been quite straightforward – the candidate with the most number of votes, no matter by how small a margin, would be elected President. However, under the proportional representation by single transferable vote system, it is not necessary that the election will be completed in a single round.

In fact, there are a number of different ways the electoral process could pan out, depending on the total value of votes each candidate obtains in the first round.

To understand this process better, assume that the total value of all votes in an electoral college is 200^[4].

Scenario A

FIRST ROUND OF COUNTING

Keeping in mind the formula for the winning quota, a candidate needs to obtain at least 101 votes ([50% of 200] +1) in order to be declared the winner.

If the breakup of the votes polled ends up the way described above, then Candidate B will be declared the winner.

Scenario B

However, what if after the first round of counting, no clear winner emerges?

FIRST ROUND OF COUNTING

Given that nobody managed to reach the necessary quota of 101 votes, there will be a need to rely on subsequent rounds of counting.

The returning officer will exclude the candidate with the lowest number of first preference votes, which in this case is Candidate D. The 23 votes obtained by candidate D will be distributed amongst the remaining candidates.

This is where the preferences of each elector become relevant. Those 23 votes which originally belonged to D will be distributed among the remaining candidates keeping in mind the second preference of each elector.

For instance, out of the 23 votes that D obtained:

• 12 had B as the second preference
• 5 had E as second preference
• 5 had C as second preference
• 1 had A as second preference

These three candidates will receive these votes at the same value that C originally got them. The resulting vote shares of the remaining candidates would look like this:

SECOND ROUND OF COUNTING

As can be observed here, even after distributing the vote shares of the eliminated candidate, none of the remaining candidates have managed to reach the winning quota. Therefore, the process of elimination will have to be undertaken once again.

Now it can be seen that Candidate A  has the lowest tallied votes.  As a result, the number of votes he has gotten will be distributed among the remaining candidates.

Important note: It must be remembered that in the first round of distribution, one of Candidate D’s original vote shares had labelled Candidate A as the second preference. Therefore, when distributing that particular vote share, the returning officer will look at the third preference. The rest of the votes being distributed have A marked as the first preference, therefore the returning officer will look at the second preference marked and allott them accordingly (except for cases where the second preference is a candidate who has already been eliminated, in which case the returning officer will look at the third preference).

Out of A’s eliminated 31 votes, the returning officer finds that:

• 27 of A’s original votes have marked Candidate B as the second preference
• One of Candidate D’s original votes – which had been assigned to A after D was eliminated – has marked candidate B as the third preference
• Two of A’s original votes have marked Candidate E as the second preference.
• One of A’s original votes has marked Candidate D as the second preference. However, since D was eliminated after the first round, the returning officer looks at the third preference for that particular vote, which has been assigned to B.

After factoring in all this information, the returning officer will begin the third round of counting, the results of which will be as follows:

THIRD ROUND OF COUNTING

Given that Candidate B has attained the winning quota after the third round of counting, he shall be declared the winner of the Presidential Election.

The scenarios highlighted above are an extremely rudimentary illustration of how the system proportional representation by single transferable vote takes place. In a real presidential election, the returning officer would  be dealing with the votes of thousands of individuals, and he would have to keep in mind all the different values of their votes, depending on their designation and the State they’re from. He would have to take note of complex preference variations (some electors may even choose not to assign all preferences), and would have to eliminate invalid votes from valid ones. With the advent of electronic voting, however, the entire electoral process has become a whole lot more streamlined and efficient.

References:

The Constitution of India

Representation of People Act, 1951

Presidential and Vice-Presidential Election Act, 1952

Presidential and Vice-Presidential Election Rules, 1974

Press Information Bureau. ELECTION OF THE PRESIDENT OF INDIA – Backgrounder. 2017. Web. 29 June 2017. (The example and figures of Andhra Pradesh has been taken directly from this source)

^[1]It is not necessary that an elector must mark all of his preferences on the ballot paper. It is even acceptable if he only marks his first preference and leaves the rest blank.

^[2]A vote is considered valid if the ballot paper conforms to all the criteria laid down by the Election Commission. In case a ballot paper doesn’t match up to those criteria (for instance, if it has two candidates marked as first preference or any other defects), then it is deemed invalid and is excluded from the counting process entirely.

^[3] As has been mentioned earlier, the votes of all members will not be treated equally. For example, the vote of a single MP will be given more weightage than the vote of a single MLA. Similarly, there will be different values ascribed to the votes of MLAs of different states.

^[4] This is an extremely simplified example used for the sake of convenience. The actual total value of votes in a real Presidential election is invariably a far greater amount. Further, this illustration doesn’t break up the value of votes among individual members depending on their status.

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In this article, Aditi Katyan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Where to file a complaint regarding E-wallet Fraud in India.

Technology is a gift, that does not only make functioning of our day to day activities easier, but has also become a pertinent factor in determining the economic growth of any nation. With the declaration of demonetization in order to create a cashless economy and tackle the problem of corruption, the trend of e-wallets has increased in India.

E-wallet or digital wallet is an online platform that allows users to conduct the electronic transfer of finances. The users can also store their card number and other shopping details which provides them with a hassle free procedure to complete any transaction.[1]

The prominent e-wallets that are used in India include, Airtel Money, Citi MasterPass, Freecharge, Paytm etc. Although the e-wallets claim to provide the users with complete protection of their private information through encryptions and passwords, the increase in e-wallet platforms post demonetization has also lead to increase in the number of fraud cases regarding the same.[2]  Also, many a time there have been cases where certain e-wallet service providers are using software systems that are only password protected, which can be easily hacked into or stolen online.

There are various types of online frauds and theft related to e-wallets, namely

1. Identity theft – Since it is not possible to know if the person whose name is mentioned is actually using the ID also, many fraudsters obtain the banking information illegally so as to gain access to the account. Hacking into the personal accounts of individuals has also become easier because of availability of open Wi-Fi networks, and lack of awareness among individuals regarding mails containing virus software.
2. SIM Swap – Many times the imposter either poses as a representative from the e-wallet company or somehow gets access to the individual’s credentials, in order  to purchase a duplicate SIM  with a fake ID. The fraudster then blocks the current SIM of the person concerned and conducts financial transactions with the owner’s SIM by generating one time passwords.
3. Phishing attacks– The hoaxer makes the owner of the SIM use the personal banking information by sending fake emails, or using corrupted websites.
4. Brute Force – The owners using public Wi-Fi or having weak passwords fall under this trap, as the hacker cracks into the system using various permutations and combinations.
5. Malware– These are specifically designed mobile applications or programmes used by the cyber criminals to gain access to sensitive information either when the user downloads some unauthorized application or is sent to him/her via fraudulent attachment through e-mails.
6. Vulnerable payment technology– Even tough it is little difficult to detect the vulnerability in the online payment gateways, using advanced hacking and security systems cybercriminals use look up for any such risk and use it for their advantage.
7. Ransomware- This is one of the typical actions used by he hackers. After the hackers manage to gain remote access to all the important credentials of the victim, along with the device, the block the access to the device for the victim unless they are paid for it.[3]

When any individual is faced with any such situation where they are defrauded, the first and the foremost step for them is to inform the concerned bank through which their e-wallet account is linked. All the credentials should be changed and the cards should be hotlisted.[4] A detailed complaint should be filed with the banking fraud and online fraud cells that are run by the cyber crime unit. Furthermore, a written complaint needs to be filed with the bank, mobile service provider, the e-wallet company, and any such third party vendor who may be the source of any such fraud. A regular follow up with the complaint filed is required. In case the banks fail to redress to the complaint, legal route should be taken in order to avail appropriate judicial recourse. If the complaint is dismissed within 30 days, help from an ombudsman should be sought. As a last resort, in situations when the ombudsman also fails to provide appropriate relief, an appeal can be made to the RBI Deputy Governor.[5]

Apart from the complaint filing mechanism, the RBI has also issued updated and new guidelines ensuring strict regulations, customer security and access to interoperability. The e-wallets are controlled by the RBI through the Master Circulation published on online payment instruments. This circular enlists the protective measures for the e-wallet customers. These guidelines not only provide rules regarding minimum capital requirement or deployment of money collected but also rules for the e-wallet companies to establish grievance redressal cells.[6] In order to ensure safety, the RBI has also made rules for the service providers to submit their yearly annual reports that covers technology, hardware and compliance systems. These companies will also have to make sure that a separate log-in ID is provided for the pre payment instrument (PPI) account. This PPI should not be made part of any other services that are provided by the companies.[7]  All these online applications are also asked by the RBI to guarantee that their app is not allowed on rooted device and conduct a pre-check regarding any other embedded malicious codes on their applications before launching, so as to maintain proper security. [8]

However, even though the RBI has mentioned guidelines to protect the customers from e-wallet frauds, it fails to guarantee complete protection of the information as the issued circular merely asks the e-wallet service provider to take “adequate” measures for data security and prevention of frauds. There is no minimum standard provided by the RBI that is required to be maintained by these companies, nor has any appropriate liability been established in case any fraud occurs due to lack of security measures.

In situations when the RBI guidelines fail to provide proper recourse to the online fraud, the liability is imposed on the e-wallet company under Section 43A of the Information Technology Act, 2000,  that deals with the security of the information held by the private companies. But again these statutes only provide clauses that mention that the e-wallet service providers are required to maintain reasonable measures to ensure data protection of the customers.[9] Also, if the private corporation has proved that they have maintained reasonable standard for data protection, their liability is quashed despite the loss incurred by the customer.

In view of the fast shift in the payment methods from using hard cash to digital money, there is an urgent need to increase and establish necessary measures to ensure protection of sensitive information. Along with protecting the software programmes the security can also be increased by introducing hardware level security where protection is provided in the chip or the processor,  as the processed data is encrypted, tightly bound to the chip or processor.[10]

Along with the measures taken by the RBI and the efforts of  the service providers to increase their level of data protection, it is also required for the customers to exercise due diligence and caution during transactions using the e-wallets, such as: [11]

• Regularly monitoring their bank accounts and keeping a check on unusual activity.
• Refrain from sharing their data, credentials and sensitive information with anyone else.
• Transfer money into their e-wallets rather then link it directly to their bank accounts as it requires storage of personal information which makes it easier for the hackers to gain access
• Change passwords on a regular basis and ensure that the card number is not visible to the retailers during the payment.
• Exercise caution while downloading mobile applications, to prevent corruption from malwares.
• If possible, maintain separate email Ids for e-wallet transactions so as to maintain a distance from malicious spam and junk mails.
• Prioritise data protection over convenience and make sure to log out their e-wallets after use, this reduces the chances of fraudulent transactions in case of loss of mobile phones, etc. to a small extent.

Even though RBI measures and individual precautions will help in improving the protection status regarding e-wallets complaint, since most of the e-wallet owners are private in nature, it is necessary for them to provide better recourse to such situations as well. There are a number if instances reported regularly, where the victim is not only suffering because of loss of data, but also because the e-wallet company fails to recognize his/her grievance as well. The customer service is still not provided in the best possible way. The period after the announcement of demonetization was one of the most crucial time period for these service providers.[12] The number of people resorting to online payments mechanisms were increasing, and not most of them were fully aware of the functioning of the system, hence, it is very important for the private companies to own up to their duty as service providers as well.

The online payment gateway is a tripartite system, the banks, the users, and the service providers work hand in hand. The safety of his data is in the hands of the individual, hence, it is necessary to exercise due caution. The users should read the terms and conditions properly and thoroughly before signing up for the services of the e-wallets in order to ensure that the e-wallets have not shed their responsibility of customer protection in case of third party frauds. Also, proper rights and liabilities of the users need to be established in order to ensure faster and appropriate redressal mechanism in situations of fraud.[13]

REFERENCES

[1] http://economictimes.indiatimes.com/definition/e-wallets

[2] https://www.sumhr.com/digital-wallets-india-list-online-payment-gateway/

[3] http://www.businesstoday.in/magazine/money-today/investment/web-of-frauds/story/243774.html

[4]http://indianexpress.com/article/technology/tech-news-technology/what-to-do-if-you-are-a-victim-digital-banking-fraud-4425316/

[5] http://www.bgr.in/news/rbis-new-guidelines-for-wallet-services-strict-regulations-customer-security-access-to-interoperability-and-more/

[6] https://rbi.org.in/scripts/NotificationUser.aspx?Id=8993&Mode=0

[7] http://www.bgr.in/news/rbis-new-guidelines-for-wallet-services-strict-regulations-customer-security-access-to-interoperability-and-more/

[8] http://www.bgr.in/news/rbis-new-guidelines-for-wallet-services-strict-regulations-customer-security-access-to-interoperability-and-more/

[9] http://tech.firstpost.com/news-analysis/e-wallets-no-prescribed-security-standards-under-indian-e-wallet-laws-puts-your-financial-data-at-risk-351209.html

[10] http://www.indjst.org/index.php/indjst/article/view/111087/78779

[11] http://indianexpress.com/article/technology/tech-news-technology/what-to-do-if-you-are-a-victim-digital-banking-fraud-4425316/

[12] http://economictimes.indiatimes.com/magazines/brand-equity/why-is-customer-service-still-so-terrible-in-an-age-of-wallets-and-mobile-banking/articleshow/58802868.cms

[13] http://www.business-standard.com/article/pf/wallet-frauds-on-the-rise-116012400764_1.html

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In this article, Rajan S pursuing M.A, in Business Law from NUJS, Kolkata discusses How will RERA, 2017 affect Working Capital requirements by Builders.

The Real Estate (Regulation and Development) Act, 2016 was established and passed by the Parliament and came into force from May 1, 2016 with the notifications to be mentioned by all States and Union territories. Further, remaining provisions came into force from May 1, 2017, which was progressively notified and implemented by the state governments. A State-level Tribunal will regulate and monitor all the transactions in residential and commercial projects.

The Salient Features of this act majorly protect the Buyers and provide Transparent Transactions

• All Real Estate Projects and Real Estate Agents have to register with RERA including their on-going projects.
• No Sale can be made without registration.
• Project shall have certification through Affidavit for all Legal title and free from encumbrances.
• All the units have to be sold mentioning the carpet area at the time of Project delivery.
• Developer is liable to rectify any structural or workmanship defect within 5 years without any additional cost to buyer.
• Penal provisions for both promoter and buyer, in case of default, maximum 10% of the project cost or 3 year imprisonment or both.
• Promoter to upload the details of the project in RERA website.

Following features will affect the Working Capital Requirements by Builders

Challenging Provisions 1

No promoter shall advertise, market, book or offer or invite persons for sale in any manner in real estate without registration of the project under REA.

In general, most of the small-scale promoters are raising the funds from the market through pre-launches or some time with their broad idea of the project. This time-honored practice of raising funds is not possible now. As the project registration requires the sanctioned plan, layout and specifications of the proposed project from the competent authority. In addition, the registration requires a declaration, supported by an affidavit to establish the legal title of the land, encumbrances, deposit of seventy percent project fund as an allotment in separate account.

However, the requirement is to safeguard the buyer capital and seems reasonable, however in practical to get rid of all these clearances promoters to depend on the relevant authorities and government departments. This is one of the major causes for delay, which directly affects the commencement as well as promoting the project to seek for funding from the market.

So the earlier way of raising fund from the public by privately marketing properties in projects through informal investors and broker channels is become impossible for builders. In other hand, due to poor reputation over real estate business sector, banks are becoming reluctant to sanction the loans and making stringent regulations to avoid the bad loans.

Challenging Provisions 2

Seventy percent of the project cost collected from the allottees shall be deposited in a separate account to cover the risk of negative cash flow during construction;

In project financing, the cash flow is key role and the project does not required bulk finance during initial and development stage. The flow of cash becomes critical as the project progresses only upto 50 – 60% or in some case it will remain critical until the completion.

Hence, this provision is one of the biggest hurdles for the developers as they have to maintain an escrow account and keep bulky amount during initial stage itself, this will impact the cash flow and builders has to invest more finance to maintain the positive flow of cash to complete the project on time.

As the deposited fund is for specific project they cannot withdraw or divert or utilize the deposited funds of one project to any other project. Hence, this provision does not allow the space to utilize the idle funds and thus obstruct the growth of business as developer to invest more borrowed capital at highest cost to complete the project.

Challenging Provisions 3

Developer cannot receive a sum more than 10% of the total cost of apartment from the buyer as an advance payment.

From this provision, the funding option of developers from buyer is limited to only 10%. Therefore, the developer has to find the other way of funding which are very costly in reality.

Challenging Provisions 4

The Buyer has to pay for the Carpet area i.e. actual useable floor area of an apartment and not for built-up area.

This provision makes unambiguous state to buyer that what he is paying for and transparent, however built-up areas have also to be developed by the developer and it cannot be claimed from the customer. This creates an eventual financial burden to the developer on the carpet area itself.

In addition to the aforesaid challenging provisions, developer has to submit the track record of their projects while registration for any new project. The record includes their financial record and any poor fund management in past projects will affect the registration process.

Finally, the challenges are mostly with small-scale real estate developers or poorly-finance builder with no tangible and established financial discipline to raise formal capital for their project. This RERA Act brings back or improves the developer to well-capitalized agent.

Reference

1. The Real Estate (Regulation and Development) Act, 2016, published by Ministry of Law and Justice dated 26th Nov 2016.
2. The Government of Tamil Nadu Notification on RERA “Real Estate Rules 2017” published on 22.06.2017.

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In this article, Shamayem Fasih pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, does an overview of Limitation Act, 1963.

Law of Limitation in India

The word limitation itself says the meaning. The word limitation in its literal term means a restriction or the rule or circumstances which are limited. The law of limitation has been prescribed as the time limit which is given for different suits to the aggrieved person within which they can approach the court for redress or justice.

It is necessary to have certain basic knowledge regarding the law of limitation though it is not expected from every citizen to master various provisions which has been provided for limitation in different suits matters.

The basic concept of limitation is relating to fixing or prescribing of the time period for barring legal actions. According to Section 2 (j) of the Limitation Act, 1963, ‘period of limitation’ means the period of limitation prescribed for any suit, appeal or application by the Schedule, and ‘prescribed period’ means the period of limitation computed in accordance with the provisions of this Act.

The Law of Limitation signifies to prevent from the last date for different legal actions which can take place against an aggrieved person and to advance the suit and seek remedy or righteous before the court. Where a suit is initiated after the bar of limitation, it will be hit by the law of limitation. The main and the fundamental aim of the law of limitation is to protect the lengthy process of penalizing a person indirectly without doing any offence.

The law relating to Law of Limitation to India is the Limitation Act, 1859 and subsequently Limitation Act, 1963 which was enacted on 5th of October, 1963 and which came into force from 1st of January, 1964 for the purpose of consolidating and amending the legal principles relating to limitation of suits and other legal proceedings.

According to the provisions provided under the act, it is the litigation which is initiated, the Appeal which is entertained and the request which are made after the specified term which shall be dismissed even though the limitation is not raised as a defence. It is a suit which is initiated when the complaint is instituted to any of an appropriate officer in a normal case and where the person is a pauper. In other circumstances a suit is initiated when the request for leave to file a suit as a pauper is made and where the cases relating to the allegation which is against the company that is being wound up by a court, where the applicant initially sent his assertions to the official liquidator. Where the assertion is made in a form of set off or counterclaim, it shall be deemed as a separate litigation and in the case of set off it shall also be considered to have initiated on the date on which the preceding for set off is pleaded. It can be said that in a case of additional claim a suit shall be instituted within the same date on which the counterclaim has been made. With this a request by notice of motion is made in the High Court when the application is provided to the appropriate officer of that particular Court.

When a court is closed on the expiry date for filing any shoot to kill or application search suits API law application may be initiated on the reopening day of the court. An appeal or application shall be admitted by the court after the specified period if the litigant convinces to the court why showing inadequate cause for the failure to prepare a pill application within the specified period then the court can admit his appeal or application. It is the duty of a litigant to give appropriate cause for his failure for the filling of a suit appeal or application. Beside all this, it is the act which provides that where a person who is having an authority to file any suit or to make any request for the execution of defence who is a minor or insane or an idiot during the specified time of filing is to be considered. He may be initiated a to file a suit or application which shall be filed within the same time after his disability has come to an end, or at the time during which the specified term is to be considered she may initiate the legal actions or applications within the same term after both in capacities of disabilities of his have come to an end. Where else if the incapacity your disability continues of that person till his death, when the act West the authorities of that person on the legal representatives to initiate the legal actions or make any application after his death within the same period.

As provided under the Act, the legal disability shall not apply to any suits which are filed for the right of pre-emption or the limitation period and which are to be extended for a period and upon such conditions. While to do a calculation of the limitation period for any litigation, appeal or application, the date from which such period is to be considered, shall be deem to be exempted. A suit which are filed for review or revision or appeal of a judgment, the date shall be calculated from the date on which the judgment is delivered and the time of request for getting duplicate of the decree, or order appealed from or revised or reviewed shall be exempted. The Act also provides for other computation of limitation for suits against trustee, execution of a decree, effect of fraud or mistake. The Act states acquisition of easement by prescription for the enjoyment of the use of land without interruption for twenty years.

The Limitation Act, 1963 does not affect the provisions provided under The Indian Contract Act, 1872. The Act is made effective for the reason that it bars the jurisdiction of the court to entertain the actions that are frivolous and to avoid the long proceeding of the pending actions by the complainants.

The Salient Features are

• The Limitation Act contains 32 Sections and 137 Articles. The articles have been divided into 10 parts. The first part is relating to accounts, the second part is relating to contracts, the third part is relating to declaration, the fourth part is relating to decrees and instrument, the fifth part is relating to immovable property, the sixth part is relating to movable property, the seventh part is relating to torts, the eighth part is relating to trusts and trust property, the ninth part is relating to miscellaneous matters and the last part is relating to suits for which there is no prescribed period.
• There is no uniform of limitation for the suits under which the classifications has been attempted.
• The limitation period is reduced from a period of 60 years to 30 years in the case of suit by the mortgagor for the redemption or recovery of possession of the immovable property mortgaged, or in case of a mortgages for the foreclosure or suits by or on the behalf of Central Government or any State Government including the State of Jammu and Kashmir.
• Whereas a longer period of 12 years has been prescribed for different kinds of suits relating to immovable property, trusts and endowments, a period of 3 years has been prescribed for the suits relating to accounts, contracts and declarations, suits relating to decrees and instruments and as well as suits relating to movable property.
• A period varying from 1 to 3 years has been prescribed for suits relating to torts and miscellaneous matters and for suits for which no period of limitation has been provided elsewhere in the Schedule to the Act.
• It is to be taken as the minimum period of seven days of the Act for the appeal against the death sentence passed by the High Court or the Court of Session in the exercise of the original jurisdiction which has been raised to 30 days from the date of sentence given.
• One of the main salient feature of the Limitation Act, 1963 is that it has to avoid the illustration on the suggestion given by the Third Report of the Law Commission on the Limitation Act of 1908 as the illustration which are given are most of the time unnecessary and are often misleading.
• The Limitation Act, 1963 has a very wide range considerably to include almost all the Court proceedings. The definition of ‘application’ has been extended to include any petition, original or otherwise. The change in the language of Section 2 and Section 5 of the Limitation act, 1963 includes all the petition and also application under special laws.
• The new Act has been enlarged with the definition of ‘application’, ‘plaintiff’ and ‘defendant’ as to not only include a person from whom the application. Plaintiff or defendant as the case may be derives his title but also a person whose estate is represented by an executor, administrator or other representatives.
• According to Sections 86 and Section 89 of the Civil Procedure Code, it requires the consent of the Central Government before suing foreign rulers, ambassadors and envoys. The Limitation Act, 1963 provides that when the time obtained for obtaining such consent shall be excluded for computing the period of limitation for filing such suits.
• The Limitation Act, 1963 with its new law signifies that it does not make any racial or class distinction since both Hindu and Muslim Law are now available under the law of limitation as per the existing statute book. In the matter of Syndicate Bank v. Prabha D. Naik, (AIR 2001 SC 1968) the Supreme Court has observed that the law of limitation under the Limitation Act, 1963 does make any racial or class distinction while making or indulging any law to any particular person.

According to Halsbury’s Laws of England, the Main Objects of the Law of Limitations are as follows

Whereas it has been observed and expressed by the Court that there are almost three different types of supporting reasons for the existence of statutes of limitation.

1. That long dormant claims have more of cruelty than justice in them.
2. That a defendant might have lost the evidence to dispute the State claim.
3. That person with good causes of actions should pursue them with.

There are two Major Broad Considerations on which the Doctrine of Limitation and Prescription are based on

• That, the right which are not exercised for a long time are said to be as non-existence.
• That, the rights which are related to property and rights which are in general should not be in a state of constant uncertainty, doubt and suspense.

The main object of limit in any of the legal actions which is to give effect to the maxim ‘interest reipublicae ut sit finis litium’ which means that if the interest of the State is required that there should be a limit to a litigation and also to prevent any kind of disturbance or deprivation of what may have been acquired in equity and justice or by way long enjoyment or what may have been lost by a party’s own inaction, negligence or laches.

The intention in accepting the concept of limitation is that “controversies are restricted to a fixed period of time, lest they should become immortal while men are moral.”

There is a limitation to litigation which interposes the statutory bar. This statutory restriction after a certain period of time gives a status to enforce an existing right. Simply, it neither create any right in favour of any person nor does it define or create any cause of action against the particular person but it prescribes about the remedy. These remedy can be exercised only up to a certain period of time and not subsequently. The main object of the statute of the Limitation Act, 1963 is more over a preventive kind and not to interpose a statutory bar after a certain period of time and it gives a quietus to all the suit matters to enforce an existing right.

The major purpose of the statutory of the Limitation Act, 1963 is not to destroy or infringe the rights of an aggrieved person but to serve public in a better way and to save time. This statute is basically founded on the public policy for fixing a life span for the legal action which are taken place and to seek remedy in time with the purpose of general welfare. The object of providing a legal remedy is to repair the damage which is caused by reason of legal injury.

Redress of the Legal Injury from Legal Action when Suffered

The provisions of Limitation Act which are provided in the statute are the statute of repose, to suppress frauds and to supply deficiency of proofs which are arising from the ambiguity, obscurity or the antiquity. The presumptions proceed upon the claims which are extinguished or are ought to be extinguished whenever they are not litigated with the prescribed period of time.

The right has been measured as an equivalent with regards to making of the quick diligence to the person. It has discouraged the litigation by buying some common receptacle which has accumulated from the past times which are now unexplainable and have become inexplicable due to lapse of time. The Limitation Act is a law of repose, peace and justice which has barred the remedy after the failure of particular period of time. This is all because for the public policy and expediency without extinguishing any right in certain cases.

It has been the topic of discussion in the Supreme Court and different High Court about the object of the Law of Limitation. In the matter of State of Rajasthan v. Rikhab Chand [1], it has been observed by the Rajasthan High Court that the rules of limitation are mainly intended to induce the claimant in claiming the relief and also in avoiding the unexplainable delay and latches in a suit.

Whereas, in the matter of M.P. Raghavan Nair v. State Insurance Officer [2], it has been observed by the Kerala High Court that the Law of Limitation is based upon public policy mainly aiming at justice, repose and peace.

In the matter of Rajender Singh v. Santa Singh [3], it was held by the Supreme Court of India that “the object of the Law of Limitation is to prevent disturbance or deprivation of what may have been acquired in equity and justice by a long enjoyment or what may have been lost by a party’s own inaction, negligence or latches.”

In the matter of B.B. & D. Mfg. Co. v. ESI Corporation [4], it was observed by the Supreme Court that-

“The object of the Statutes of Limitations to compel a person to exercise his rights of action within a reasonable time as also to discourage and suppress stale, fake or fraudulent claims. While this is so, there are two aspects of the Statutes of Limitation — the one concerns with the extinguishment of the right if a claim or action is not commenced within a particular time and the other merely bars the claim without affecting the right which either remains merely as a moral obligation or can be availed of to furnish the consideration for a fresh enforceable obligation. Where a statute prescribing the limitation extinguishes the right if affects substantive right while that which purely pertains to the commencement of action without touching the right is said to be procedural.”

In Balakrishnan v. M.A. Krishnamurthy [5], it was held by the Supreme Court that the Limitation Act is based upon public policy which is used for fixing a life span of a legal remedy for the purpose of general welfare. It has been pointed out that the Law of Limitation are not only meant to destroy the rights of the parties but are meant to look to the parties who do not resort the tactics but in general to seek remedy. It fixes the life span for legal injury suffered by the aggrieved person which has been enshrined in the maxim ‘interest reipublicae ut sit finis litium’ which means the Law of Limitation is for general welfare and that the period is to be put into litigation and not meant to destroy the rights of the person or parties who are seeking remedy. The idea with regards to this is that every legal remedy must be alive for a legislatively fixed period of time.

The Law of Limitation is an adjective Law. It is lex fori. Thus, it can be said that the rules of the Law of Limitation are generally prima facie with the rules of procedure and which has not created any rights in favour of any particular person nor does they define or create any cause of action. It has been simply prescribed that the remedy can be exercised only for a limited fixed period of time and subsequently.

The two effective implementation which helps in for a quick disposal of a cases or matters and which are also effective for litigation are Limitation and compensation of delay, which plays a vital role before the court. The Law of Limitation helps to keep a check while pulling of cases where it prescribes the period of time within which a suit is to be filled and also it is the time which are available within which an aggrieved person can get the remedy conveniently and in an easy manner. Whereas the Law of Compensation of delay helps to keep the principle of natural justice alive and it also helps to state the facts that when different people might have different problem then the same kind of sentence or a same singular rule may not apply to all of them in a same manner. Thus, it is very much essential to hear the matter first from them and then decide accordingly whether they are fit in the criteria of the judgment or whether they should be given another chance. So, it can be said that Law of Limitation is very much important for the country like India and it also plays a major role in a court of law.

References

[1]AIR 1966 Raj. 213

[2]1971 Ker. L.J. 583 (DB)

[3]AIR 1973 SC 2537

[4]AIR 1972 SC 1935

[5](1998) 7 SCC 123

http://www.shareyouressays.com/119798/7-main-salient-features-of-the-limitation-act-1963

 http://lawyerslaw.org/the-limitation-act-1963/

 http://www.shareyouressays.com/119804/object-of-the-law-of-limitation-act-1963

 http://www.vakilno1.com/bareacts/limitationact/limitationact.html

 https://indiankanoon.org/doc/1317393/

 https://www.netlawman.co.in/ia/limitation-act-1963

http://www.dullb.com/Downloads/Semester3/LIMITATION_STUDY%20MATERIAL_SEM%203.pdf

http://www.legalservicesindia.com/article/article/condonation-of-delay-and-law-of-limitation-543-1.html

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In this article, Akriti Shikha pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses duties and responsibilities of a Director of a Private Limited Company.

INTRODUCTION

Private companies are a standout amongst the most widely recognized business entity in India. In a private Ltd. company, the Directors assume a critical part amid the incorporation procedure and post-joining process. Organization Director’s are in charge of the administration of their organizations and have duties to the organization’s representatives, its exchanging accomplices and the state. As a Director, one needs wide powers to help in advancing the organization. In any case, they confront genuine penalties in the event of manhandling of those forces.

Private ltd. company requires at least two directors, two members, and two shareholders to enroll itself lawfully. Be that as it may, a most extreme of fifteen directors is permitted in an organization according to the Companies Act, 2013 laid out by Ministry of Corporate Affairs.

MEANING OF DIRECTOR IN PRIVATE LIMITED COMPANY

Directors refers to as someone designated to the Board of a Company. Board of Directors refers to a group of individuals elected by the shareholders of a company to deal with the issues of company. Thus, Director is a man named or chosen by law, who manages, controls or coordinates the undertakings of an organization.

REQUIREMENTS TO BECOME A PRIVATE LIMITED COMPANY DIRECTOR

Appointment of a Director is not only a crucial managerial prerequisite, as well as a procedural necessity that must be satisfied by each organization. Only an individual can be appointed as a Director- a corporate, firm, association or other bodies with artificial legal personality cannot be appointed as a Director.

For a person to become a director in a Private Ltd. Company, such person is required a Director Identification Number (DIN) which can be obtained for any individual over the age of 18 years. Additionally, a Digital Signature Certificate (DSC) is required. The director cannot have a criminal record. He shouldn’t have been detained anytime before his appointment as a director.

As to residency necessities of a director, there is nothing in Companies Act, 2013 that denies the appointment of any individual who is a foreigner or NRI as a director of a Company.

MANNER OF APPOINTMENT

In a Private Ltd. Company, Articles of Association can recommend the way of appointment of any everyone of the Executives. In the event that Articles of Association are silent, the directors must be selected by the shareholders. Companies Act,2013 likewise allows the Articles to accommodate the appointment of 2/3^rd of the directors as indicated by the principle of proportional representation, if so received by the organization being referred to.

DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR

A person shall not be qualified for appointment as a director of an organisation, if:

• He is of unsound mind and stands so declared by a competent court;
• He is an undischarged insolvent;
• He has applied to be adjudicated as an insolvent and his application is pending;
• He has been indicted by a court of any offence, regardless of whether including moral turpitude or something else, and sentenced in regard thereof to detainment for at the very least six months and a time of five years has not slipped by from the date of expiry of the sentence.
• An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
• He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
• He has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
• He has not got the DIN.

TYPES OF DIRECTORS

1. First Directors

The first directors of most of the organisations are named in Articles of Association. In the event that Articles does not specify it, then subscribers to Memorandum of Association who are individuals shall be deemed to be until the directors are duly appointed.

2. Additional Directors

Anantalakshmi v Indian Trade & Investment Ltd[1] held that if the Articles of Association specifically provides, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors. However, an individual who fails to get appointed as a director in a general meeting cant be designated as Additional Director. They hold the position for a limited term i.e upto the date of following Annual general meeting or the last day on which meeting ought to have been held whichever is earlier.

3. Alternate Director

Alternate Director is somebody appointed by the Board of Directors in a general meeting to represent a director called the “original director” during his absence for a period of not less than three months from India.

4. Nominee Directors

Subject to the Articles of a company, the Board may appoint any individual as a director nominated by any financial institution in pursuance of the provisions of any law or of any agreement. Banks and Private Value speculators who concede obligation or value help to an organization for the most part force a condition as to appointment of their delegate on the Board of the concerned Organization. These nominated persons are called as Nominee Director.

5. Resident director

Every Private ltd. company must have no less than one director who resides in India for a total of not less than 182 days in the previous calendar year from the date of incorporation.

6. Managing Directors

A Managing Director is a Director who has substantial powers of management of the undertakings of the company subject to the superintendence, control and direction of the Board being referred to. It prohibits regulatory acts of a routine nature when so authorized by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank and so forth.

7. Whole-time/ Executive Director

A Whole time or an Executive Director incorporated a director who is in the whole-time employment of the company, commits his whole-time of working hours to the company being referred to and has a significant personal interest in the company as his source of income.

8. Ordinary Director

An Ordinary Director is a simple director who attends the board meetings of a company and participates in the matters put before the Board of Directors. These directors are neither whole- time Directors or Managing Directors.

WOMEN DIRECTOR REQUIREMENTS

There is no women Director requirements for a private ltd. company. However, every listed company and limited company having a paid-up share capital of Rs. 100 crore rupees or more or turnover of Rs. 300 crores or more are required to name atleast one woman Director.

DUTIES OF DIRECTORS

The following duties and liabilities have been imposed on the directors of companies, by the Companies Act of 2013 are:

• A director of a company shall act as per the Articles of Association of the company.
• A director of the company should act in good faith, in order to advance the objects of the company, for the advantages of the organization in general, and to the greatest advantage of the partners of the organization.
• A director of a company should practice his obligations with due and sensible care, expertise and industriousness and might practice free judgment.
• A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
• A director of a company s should not accomplish or endeavor to accomplish any undue pick up or advantage either to himself or to his relatives, accomplices, or partners and if such chief is discovered liable of making any undue gain, he might be subject to pay a sum equivalent to that pick up to the organization.
• A director of a company shall not relegate his office and any task so made should be void.

If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one Lakh Rupees and which may extend to five Lakh Rupees.

REMOVAL OF DIRECTORS

A Private ltd. company by ordinary resolution in an Annual general meeting or an extra ordinary General meeting can remove a director. Special Notice about the resolution to remove a director should be given to the members with a copy of the respective notice to be sent to the director to be removed. The director is given an opportunity of being heard in the meeting. If the director gives any written representation to the notice, then the said representation is given to all members. If the representation could not be given to all members, then the Director can request the said representation to be read out in the meeting. The members can pass an ordinary resolution, by simple majority and remove the director. The Company shall within 30 days from the removal of a director file Form No.32 and a copy of the resolution with the Registrar.

RESIGNATION OF DIRECTOR

A director may resign from his office by giving notice in writing. The Board shall, on receipt of such notice within 30 days intimate the Registrar in Form DIR-12 and also place the fact of such resignation in the Director’s Report of subsequent general meeting of the company and post the information on its website. The director should also forward a copy of resignation with detailed reasons for the resignation to the Registrar.

CONCLUSION

Along these lines, Companies Act, 2013 is absolutely an extremely creative and milestone enactment in regard of the obligations and duties of the executives of organizations moreover. Both general classes of chiefs, to be specific, the executives having financial association with the organization, and the free chiefs, have been appropriately thought to be under this develop enactment for executives. It looks to make the corporate administration and administration in India rather effective, completely responsible, straightforward, and maximally gainful to all partners and related experts, through this insightful enactment over obligations and duties of chiefs in Indian organizations.

References

• http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
• https://www.legalraasta.com/director-in-pvt-ltd-company/
• https://www.icsi.edu/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf
• http://www.caclubindia.com/articles/the-companies-act-2013-provisions-for-directors-18413.asp

[1] AIR 1953 Mad 467, (1953) IMLJ 275

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This article is written by Ramanuj Mukherjee, Co-Founder and CEO at At iPleaders and LawSikho.

Why every organization needs a dating policy

Office romances get a lot of footage on movies, television series and popular culture. It is so normalised that one may expect to find love or at least fleeting sexual encounters in the workplace. Think of how many of your favourite television series have important characters who are involved in a workplace romance at one time or other. Cops, spies, outsourced workers, doctors, lawyers, stock brokers – they are all having lots of sex with coworkers and some of them are even getting married.

So young people today join the workforce and treats the workplace as a place where they might meet a love interest or just get more sex. It may not be said loudly but the expectation exists.

It’s time that organizations begin to notice it. After all, it is not like India doesn’t have a harsh sexual harassment law or very difficult legal system. In the last few years the high and mighty have fallen time and again with scandals related to workplace sex and multiple sexual harassment accusations. CEOs, founders, investors and MDs have gone down in blaze after being hit with multiple sexual harassment complaints, with their own as well as the organization’s reputation ruined for the long term.

There are other less publicized costs of sexual harassment or even consensual sexual/romantic relationships in the workplace. And it is not just distraction or competition and resultant animosity amongst co-workers.

These relationships in the workplace, especially when undisclosed, can lead to conflict of interest, lack of trust among co-workers, poor judgement, favouritism, ethical breaches and of course harassment.

None of these bode well for an organisation. Most organizations are already battling a tough battle of hiring good people, retaining then, building a suitable and friendly culture, creating alignment between teams, keeping people energized and excited, ensuring an ethical and fair environment. None of these are easy. Adding relationship related dynamic complications to that or sprinkling in some jilted lovers and jealous co-workers is nothing short of disastrous.

How should organizations go about handling dating in the workplace?

There are a few approaches that seem to work and there are many that don’t work at all.

In my opinion, dating in workplace should be prohibited. If two people start dating or engage in a sexual encounter, they should immediately be required to disclose the same to the management, and one of them may be thereafter released in a planned way or given a role so that there is no conflict of interest situations.

If you allow your finance guy to date a vendor, or a product manager to date an engineer, or a lawyer to date his clients then I can only wish all the best for your organisation but would not be expecting the best at all. These are all terrible conflict of interest situations. I will never want to lead or invest in an organisation where people who are accountable to each other professionally are in sexual or romantic relationships and are not prevented by policy or required to disclose such conflict of interest. This is simply because that sort of pervasive conflict of interest, if allowed to thrive, costs untold losses which are sometimes very difficult to even discover or quantify.

One effective approach to dating policy in workplace is to ban dating co-workers and requiring immediate disclosure of relationship of a romantic or sexual nature. At iPleaders and LawSikho, we follow this approach.

Another good approach is to not ban it outright, but requiring the signing of a consensual relationship contract that both the parties in the relationship agree to. This should be connected with rigorous management of any conflict of interest. People can be shifted from one role to another or to a different team to avoid conflict of interest. This definitely bring down the number of casual workplace relationships as people know that there is a procedure they need to follow and hence are more serious when considering a relationship with a colleague. It also drastically reduce allegations of sexual harassment as people cannot later claim that they were pressured for being into a relationship. The organization should also get an indemnity from dating co-workers to protect itself from legal or other liabilities that may arise due to their existing relationship or as a repercussion to a future falling out.

The dating policy should also address if an employee or officer may date customers/ buyers. This is a special case of conflict of interest and represent a different set of challenges.

The dating policy is, of course, not to be confused with a sexual harassment policy and should be kept separate from a sexual harassment policy. Mixing them up, though done by some organizations, sends the wrong signal.

Do you think your organisation should or should not have a workplace dating policy? Why yes or why not? Please share your comments with us generously.

Here is a course related to Sexual harassment laws and workplace diversity that I co-created. Please check it out and recommend to your colleagues who may benefit from it.

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In this article, Ankit Suri pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Corporate governance and its role in Risk Management.

An insight into Corporate Governance

There are various definitions of corporate governance framed by various experts over the course of time. On analyzing the various definitions of corporate governance, a generally accepted definition can be coined as follows,

‘Corporate governance refers to the way in which companies are governed, and to what purpose it is concerned with practices and procedures for trying to ensure that a company is run in such a way that it achieves its objectives this could be to maximize the wealth of its owners, its shareholders, subject to various guidelines and constraints and with regard to other groups, with an interest in what the company does. Sound “corporate governance” may therefore be said to exist where the conflicting interest of all stakeholders in a company are ethically balanced.

The essentiality of corporate governance cannot be over-emphasized as it is the “one key element in improving economic efficiency and growth as well as enhancing investor confidence”, as a result, the cost of capital is lower and firms are encouraged to use resources more efficiently, thereby sustaining growth. Corporate governance also helps to ensure that assets of the firm are secure and not subject to expropriation by individual groups within a firm who could wield excessive power. Corporate governance may, therefore be an instrument of checks and balances in the administration of a company.

Basics of Corporate Governance

Corporations

Corporations are a group of consensual, contractual relations among several constituencies.[1]

Corporate charter (or Articles of incorporation):

This is an agreement between the “corporation” and “state” in which it is incorporated as to how the corporation will be run; this includes:

• Authorized shares of the corporation.
• Corporation’s name.
• Corporation’s purpose.
• In return, the corporation pays franchise tax to state based on authorized capital of the company.
• A corporate charter may be amended after they are originally filed by incorporators by the majority or super-majority vote of shareholders.
• For public companies, vote requires:
• Proxy filing with Securities and Exchange Commission (SEC)
• Hiring of proxy solicitor to encourage shareholders to vote their shares

By-laws

• The main purpose of by-laws is to “Fill the gaps” left by the charter.
• They address board elections and composition, the appointment of officers, timing and conduct of corporate annual meetings, etc.
• By-laws may be amended by the board if permitted by the state of incorporation and charter; otherwise, it is amendable by shareholders.

Board of directors

• The board of directors are elected by shareholders at the annual stockholders’ meeting.
• Each share is generally entitled to one vote per director unless there is cumulative voting or multiple classes of stock.
• The winner of the voting is decided based on simple majority and hence the director who obtains the most votes wins.
• Directors are expected to maximize the value per share.

Directors’ Fiduciary Duties

• Directors have two duties to shareholders under the law:

Duty of care

1. Director must act in good faith and strive to exercise ordinary prudential care in making business decisions through processes
2. “Business judgment rule”: the presumption is in the favor of the director’s decision-making even if the expected results of the decision are not realized.
3. “Total fairness standard”: if the director has a conflict of interest, he/she must prove that his/her decision was fair to all parties.

 Duty of loyalty

1. A Director must act in the best interests of the corporation and not do things that harm the corporation.
2. The Director cannot compete directly with the corporation unless the other directors have expressly permitted the competing enterprise.
3. Failure to adhere to these two duties may lead to personal liability one part of the director.

Daily Governance of Corporation

Chief executive officer (CEO)

1. The board recruits and hires the CEO to run the day-to-day operations.
2. The CEO serves as the management’s representative to the board and is frequently the same person as chair of the board.
3. The CEO hires a management team (chief financial officer, chief marketing officer, and other “C-level” executives)
4. The board holds the CEO accountable for the corporation’s operating performance and the stock price performance.

Managers have fiduciary duties of care and loyalty that prohibit them from:

1. Competing with their employer
2. Appropriating business opportunities
3. Misappropriating corporate trade secrets and confidential information

Consequences for breaching duties to corporation:

1. Managers may be sued personally.
2. Manager’s employment may be terminated.

Sarbanes-Oxley Act

1. The management of public companies is responsible for structuring corporation with adequate “internal controls” so that the company has integrity in its financial reporting and other processes.
2. The corporation must report any deficiencies in and status of its internal controls in its public filings with the SEC.
3. This process provides current/prospective shareholders with a view on the perilousness of corporation’s internal management systems.

A brief overview of the development of Corporate Governance in the U.K and U.S

One of the main reasons corporate governance has made is mark is because of the separation of the ownership from management. The agency theory suggests that there could be a divergence in the interests of owners and managers. Corporate governance is an internal mechanism to minimize this divergence.[2]

 This section of the report reviews the disclosure requirements in four countries, “the United Kingdom, the United States, Australia and Germany” with regards to the board of directors, audit committee, internal control and risk aspects of corporate governance. A brief review of corporate governance development and regulations in each of the four countries is given below before the evaluation of their practices.

United Kingdom

The Cadbury Committee has played an essential role in the establishment of corporate governance practices in the United Kingdom, and many other countries. In addition to this, a number of committees, such as “Turnbull Report” , “Myners report”  and Higgs Report , have refined the corporate governance practices in the UK since the Cadbury Committee report in the early 1990s (Tricker, 2012). The “Financial Reporting Council” is the UK’s independent regulator, responsible for promoting corporate governance.

The United States of America

The United States is often seen as being the pragmatic case of the market-based model to corporate governance (Jackson, 2010). However, corporate governance failure in Enron resulted in high criticism of the corporate culture in the US and caused substantial changes through the Sarbanes-Oxley Act of 2002.

Public listed companies are also required to follow additional governance standards stipulated by stock exchanges in the country.

What is the Risk involved here?

Any and every business in today’s world faces risk on a daily basis. Their efficiency in managing those risks is all too apparent when major business failures unfold. Thereby making the first and foremost point clear that “failure” is often the result of poor risk management practices. Risk Management can be defined as a term which is used to describe the processes aiming as assisting organizations to understand, evaluate and take action on their risks with a view to increasing the probability of their success and reducing the likelihood of failure.

It is forgone conclusion that “effective risk management” gives comfort to shareholders, customers, employees and society at large that a business is being effectively managed and helps the company or organization confirm its compliance with corporate governance requirements. Risk management is relevant and an essential aspect in regard to all organizations, large or small. Effective risk management practices support accountability, performance measurement, and reward and can enable efficiency at all levels through the organization. Risk management requires a detailed knowledge and understanding of the organization and the processes involved in the business. The board of directors and management must appropriately select and manage the risks that a corporation takes as it seeks to increase the per share value of its stock.

Role of Corporate Governance in effective Risk Management

Risk, associated with a business, has a very broad ratio. With the intention of understanding the aspect of risk in corporations and businesses, it can be categorized into “three” kinds of risks namely:[3]

• Counterparty risk
• Interest rate risk
• Liquidity risk

Counterparty risk

• This refers to the kind of risk that an organization/person with which a corporation has a business relationship with, fails to perform its obligations.
• Defaulting by borrowers on their loan agreements with banks.
• Prospective buyers “fail to close” on the purchase of a contract with home sellers.
• Domino-like effect (must consider counterparties’ counterparty risk)

To mitigate this risk

• It is essential to avoid concentration of lenders, vendors, customers, etc. (i.e. diversify)
• This is relatively easier for a large company to do than for a small, entrepreneurial firm.

Interest rate risk

• This refers to the kind of risk where a shift in interest rates will adversely affect either the company’s assets or its liabilities.
• In the event of a corporation having $100 million of floating rate debt outstanding, a rise in interest rate will increase company’s interest expense burden.
• If the interest rate increases, the value of the investor’s fixed rate bonds will be reduced, since the bond prices rise when the interest rates fall and vice versa.
• The lower the coupon payment and the longer the bond has until maturity, the greater the interest rate risk.

To mitigate this risk

• The balance duration (weighted average cash flows) and mix of fixed/floating interest rate instruments between assets and liabilities
• Easier for large financial firms to do than for smaller and non-financial firms.

Liquidity risk

The possibility that the firm will not have sufficient cash on hand or immediately available credit to pay its bills as they come due.

Some possible causes

1. Accounts receivable go bad (due to counterparty risk).
2. Lenders get nervous and call the loan before due date
3. The unexpected order which necessitates the emergency purchase of inventory.

To mitigate this risk, keep higher cash balances

1. Cash is expensive.
2. Without sufficient profitability, raising equity to provide that cash is also expensive.
3. Keeping cash rather than investing it again can be costly.
4. Nevertheless, a failure to have sufficient cash can cause financial distress or bankruptcy.

Other types of risk

1. Product obsolescence risk.
2. Exchange rate risk (mainly for companies doing business internationally).
3. Succession risk: risk that company cannot adequately replace its current CEO[4]

Before looking into the details of methods to mitigate different kinds of risks that corporations and businesses undergo, it is essential to understand that Corporate boards and audit committees must first identify and confirm the particular risk involved and then move to thinking about way and ways to mitigate/eliminate those risks. In this respect,  the “UK Corporate Governance Code Main Principle” states, “The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor.”

CONCLUSION

Corporate Governance alone cannot be held responsible for the current Financial Crisis. However, Corporate Governance could have prevented some of the worst aspects of the crisis, only if effective governance operated throughout the period of time during which the problems were developing and before they crystallized. Furthermore, effective Corporate Governance could have helped to reduce the catastrophic impacts that the global and national economies are now suffering.

Corporate Governance has been an integral part of risk management since the dawn of companies, and should be stringently incorporated as its only interest is welfare of shareholders in terms of increase in shareholder wealth, increase in confidence on the investor and reduced cost of capital along with other benefits such as better brand equity, greater employee morale and greater confidence of creditors.

References

[1] http://www.oecd.org/daf/ca/risk-management-corporate-governance.pdf

[2] https://www.oecd.org/corporate/ca/corporategovernanceprinciples/42670210.pdf

[3] http://www.emeraldinsight.com/doi/abs/10.1108/09513570310492335

[4] https://www.icaew.com/en/technical/corporate-governance/risk-management

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In this article, Dhruv Shekhar discusses the American Cyanamid case.

The law of injunction in our country is one which owes its origins to the Equity jurisprudence as present and borrowed from English law[1]. The basic principle that an injunction is reliant upon is the latin maxim of ubi jus ibi remedium which translates to where there is a right there is a remedy[2].

Thus an injunction is a judicial remedy which either ensures that the party is required to refrain from doing a particular act or conversely is supposed to carry out a particular act[3]. In the former case it is referred to as a restrictive injunction and in the latter as a mandatory injunction. Injunctions find statutory basis in Order XXXIX of The Code of Civil Procedure[4], § 94 & 95 of The Code Of Civil Procedure[5] and § 36 & 42 OF The Specific Relief Act[6]

A further classification of the type of injunctions can be as the following (1) temporary or perpetual; (ii) prohibitory or mandatory; (iii) negative or positive; (iv) ad-interim or interim[7]. For the purpose of this article the focus is going to be on temporary/ interlocutory injunctions and one condition which used for granting it (as a part of the three pronged test laid down in American Cyanamid[8]).

An interlocutory or temporary injunction may be granted when the defendant threatens to dispossess the plaintiff or otherwise cause injury to the plaintiff in relation to any property in dispute in the suit. The Court in such circumstances is posited to grant an injunction to prevent either dispossession of the plaintiff’s property or to prevent any damage being inflicted in regard to the aforesaid property.

The central theme that is being explored in this article is an explanation of the American Cyanamid case and how it set a strong basis of the prima facie criterion for granting of a temporary injunction in a matter.

The Pre Cyanamid Era                        

The concept of prima facie criterion in the Pre- Cyanamid era was present, however there was rarely if ever a stringent imposition of this criterion.  The case of Stratford v. Lindley[9]  was one of the first cases where the concept of a prima facie case was strongly asserted. Even in the case of F. Hoffman[10], Lord Diplock stated the need to prove a strong prima facie case as being essential in determining the application for interim injunctions. However the uniformity in the assertion of the same principle was not the same in all cases.

The American Cyanamid Case

Interim injunction have often served as the edifice for Intellectual Property disputes[11]. The principle setting case of American Cyanamid also contented with an application for interim injunction against the respondent company Ethicon to bring about a product which infringed upon the plaintiffs patent ( i.e. absorbable surgical sutures of filaments made of a particular kind of chain polymer known as “a poly-hydroxyacetic ester” (“PHAE”).

The principles that were discussed upon in this case now serve as a trite law for it has established the three mandatory conditions that an applicant must fulfill for the court to grant his/her application for temporary injunction. They are as follows, 1) there is a prima facie case to be tried 2) the applicant will suffer irreparable damage if the interlocutory relief is refused 3) Balance of convenience resulting from granting or denying the interlocutory relief[12].

While the questions pertaining to the latter two aspects of irreparable injury/damage and balance of convenience have been assessed on a case by case basis. The perplexing issue has however often been confined as to what constitutes a prima facie case. In the aforesaid matter, Lord Diplock in his judgment states that a prima facie case would be made out if the plaintiffs raised a serious question to be tried. Thus the requirement to be satisfied appears as being that the plaintiff has to raise a serious question to be tried, rather than having to show a possibility of reasonable success at the trial[13].

Thus a serious question would be considered to be made as long as it the plaintiff’s case is not of frivolous and vexatious nature. This requirement imposes a very low burden as the assessment of the case at this stage does not take into account the relative merits of the case. In the years hence forth an interesting change took place in regard to the meaning of the prima facie case.

The 1996 Court of Appeals decision of Series 5 Software[14]serves as a very interesting interlude in this entire discussion. For on the question of prima facie case, this case states that relative strength of the claims made by the parties would be examined to determine this question. However since this was a Court of Appeals decision, English Courts have largely treated this matter as an anomaly and instead followed the principles established in the Cyanamid case .

Thus what can be perused from the multitude of English cases is that there appears little to separate the prima facie test as well the serious question test. While any attempt to use the second test would automatically entail an assessment of the parties in regard to the relative strengths of their respective positions, however the extent to which this is done appears to be far from clear.

Another interesting interlude that appears in a number of the reported English cases on interlocutory injunctions is the interchangeability with which Lord Diplock’s words were used to deal with the prima facie test[15]. The various terms used by Lord Diplock are as follows “frivolous or vexatious,” there must be a “serious question to be tried”, “real prospect of succeeding” and “an arguable case”.

The meaning of these phrases have been examined in two cases, namely Smith v. I.L.E.A [16]and Mother Care Ltd. v. Robson Brooks Ltd.[17]. When adjudicated upon by Browne L.J for the former matter and Sir Robert Megarry-V.C for the latter one, they were of the opinion that the three different wordings in Lord Diplock’s test should be treated as equivalents. Thus while the prima facie case principle is an essential part of the three pronged test for granting interlocutory injunctions. It’s arguable that this term has become an “umbrella term” which is inclusive of all the four statements to be used either as equivalents or on case by case and need basis[18]. Thus the rich jurisprudence of the English courts serve as a tool in the hands of the judiciary who can use any of the strains of the concept of a Prima Facie case, while assessing an application for interlocutory injunction. The question worth positing now is whether a similar development in the concept of prima facie case has taken place in the Indian legal landscape.

[1] A summary of a workshop on the Law of Injunctions held at Maharashtra Judicial Academy (18/01/2015), Page 1- http://mja.gov.in/Site/Upload/GR/Summary%20-%20%20workshop%20dt.%2018.01.2015.(Civil).pdf

[2] Shamnad  Basheer, Jay Sanklecha and  Prakruthi Gowda, Pharmaceutical Patent Enforcement: A Developmental Perspective, 603-635(2014) . This was Chapter 19 of the book  Ruth L. Okediji and Margo A. Bagley, PATENT LAW IN GLOBAL PERSPECTIVE 603-635 (2004)

[3]B. Chandra Sekhar Reddy And Others v. K. Naga Raju Yadav & Anr. 2013(2) ALD 626 84, para. 8. derived from Halsbury’s Laws of England (4th Edn.), Vol. 24, para 901, p. 511

[4] Order XXXIX of The Code of Civil Procedure

[5] § 94 & 95 of The Code Of Civil Procedure

[6] § 36 & 42 OF The Specific Relief Act- the conditions as present in English law ( as developed  in the American Cyanamid matter ) have not been directly embedded into  the provisions of various Indian statutes providing injunctive reliefs

[7] B. Chandra Sekhar Reddy And Others v. K. Naga Raju Yadav & Anr. 2013(2) ALD 626 84, para. 9

[8] American Cyanamid v. Ethicon Ltd [1975] AC 396

[9] JT Stratford & Son Ltd v Lindley [1965] AC 269

[10] F. Hofmann-La Roche A.G. v Secretary of State for Trade and Industry [1975] A.C. 295

[11] Feroz Ali K, Patent Infringement and the Law, THE HINDU BUISNESS LINE( Feb.28,2008), http://www.thehindubusinessline.com/todays-paper/tp-opinion/patent-infringement-and-the-law/article1617248.ece

[12] American Cyanamid v. Ethicon Ltd [1975] AC 396,  pg. 404-408 of the judgment as well as discussed in

Jean-Philippe Groleau, Interlocutory Injunctions: Revisiting the Three-Pronged Test,53, McGill L.J., 269, 269-71(2008)

[13] Mohir Naniwadekar, On ‘Prima Facie’ cases and ‘Originality’: Part I, SPICY IP( Nov.8, 2008), https://spicyip.com/2008/11/on-prima-facie-cases-and-originality.html

[14] Series 5 Software v. Clark  1996 C.L.C. 631

[15] Christine Gray, Interlocutory Injunctions since Cyanamid, 40, CLJ, 307, 307 (1981)

[16] Smith v. I.L.E.A [1978] 1 All E.R. 411

[17] Mother Care Ltd. v. Robson Brooks Ltd [1979] F.S.R. 466

[18] Thus, the term of “prima facie case” serves as the genus and those 4 terms serve as its species.

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In this article, Brinda Dubey pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the review mechanism prescribed by SEBI for the audit qualifications contained in the audit reports of the listed entities.

What is an audit qualification?

Audit Report is the communication to the shareholders/investors and other bodies by which an auditor expresses his opinion about the financial statement of the company audited by him. Audit report is an important aspect in the audit process. An audit qualification is typically a statement of the auditor’s opinion written on any check done by a professional auditor. It indicates that financial results presented by the management do not reflect the true and fair affairs of the financial transactions of the company and can hence have a considerable impact stakeholders’/investors’ decision making.

An audit provides those who have to rely on/look to financial statements, adequate assurance that the statements are in conformity with Generally accepted accounting principles and relevant regulations. The contribution of the independent auditor is to give credibility to financial statements, which are relied upon by creditors, bankers, stakeholders, the government and other interested third parties.

In case auditor has any reservation in respect of certain methods mentioned in the financial statements he may qualify his report. If the accounting standards issued by Institute of Chartered Accounts of India is not followed by the company the auditor may qualify his report.

Additionally as per Companies Auditors Report Order rules the auditor may qualify in his report in respect of inventories, Fixed Assets, loan given or taken by the company, internal control procedures, internal audit system, acceptance of public deposits, maintenance of cost records, payment of statutory dues, transaction prejudicial to the interests of the company, etc.

Audit qualification generally a suggests a lack of consensus between the auditor and the management. A modified/qualified audit report indicates that the financial statements/results are materially misstated. The impact of qualification/s may be quantifiable or may not be determinable.

Generally, qualifications are harbingers of negative perception for companies and should be avoided. This can be possible only if the issues are resolved between the management and the auditor.The management had to compulsorily include all adversities and qualifications in the board report from time to time as well and hence be answerable. Further, for qualifications that are not quantifiable (e.g. lack of sufficient appropriate audit evidence/scope limitation), the auditor is permitted to state the fact through a limitation of scope or disclaimer of opinion.

A clear description of all the substantive reasons of the qualifications should be included in the report and, unless impracticable, a quantification of the possible effect(s), individually and in aggregate, on the financial statements should be mentioned.When not practically feasible to quantify the effect of modifications made in the audit report accurately, the auditor may carry out plausible audit tests and base the estimates made by the management while clearly indicating the same thereto.

Previous review mechanism

As a regulator of companies which are listed, the Securities and Exchange Board of India recently, after taking into consideration best international practices based upon detailed analysis of the inspection systems of the audit regulators around the world, introduced some consequential amendments relating to a new mechanism to review audit qualifications contained in the audit reports of listed entities ,these amendments will come into for all the annual audited standalone/consolidated financial results, submitted by the listed entities for the period ended on March 31, 2016.

Till November 2015, listed entities were required to submit a form (Form B) for a qualified audit report together with annual report and a Form A if submitting an audit report with unmodified opinion. These forms are to be signed by the Chief Executive Officer/Managing Director, Chief Financial Officer, Auditor and Chairman of the Audit Committee.

The qualified opinion was reviewed by  Qualified Audit Report Review Committee (QARC) comprising of stock exchanges, representatives from the Institute of Chartered Accountants of India (ICAI), other stakeholders, and contingent on their recommendations, SEBI asked the companies to either get the opinion rectified or revise the financial information to address the qualifications. In cases where the QARC determined that the qualifications were major and explanations were not to their satisfaction, the audit report would be referred to the Financial Reporting Review Board (FRRB). If the FRRB was of the opinion that the qualifications were justified, SEBI  mandated a restatement of accounts of the company and require the company to inform its shareholders through intimation to the respective stock exchange. The revised financial information was submitted as pro-forma results (revision to the results already filed/ submitted) and companies would further adjust their next year financial statements for a prior period to the error however relaxation in terms of the period has been given to cushion from tax impacts.

The Board has also divested powers for the well being of the investors to take any action, regarding the above, as they saw fit. Further, annual report was filed at a later time than financial results which are to be filed within 60 days of the end of the year and Form B was required to be filed along with the annual report and no such information on qualifications was required with the filing of quarterly results.

The FRRB reviews financial statements of listed companies to determine to the possible extent their compliance with generally accepted accounting principles in the preparation and presentation of financial statements, disclosure requirements prescribed by regulatory bodies, statutes and rules and regulations relevant to the enterprise and compliance with reporting obligations of the enterprise as well as the auditor.

Changes after 2016 Amendment

Divesting of timely information to stakeholders which was one of the primary concerns was not being addressed by this mechanism, hence with the amendments certain changes were made to it along with the process getting more streamlined.

Primarily, a financial result of a company could be misstating by a significant amount and not known to the investors at the time investment decisions are being taken. Also, Form B provided limited information — i.e. qualifications with respect to management explanations and matters of quantification and the impact on the financial results were not prescribed in the form.

With the notifications of September 2016 May 2016, SEBI amended listing regulations which now require a ‘statement of cumulative impact of audit qualifications’ to be filed instead of Form B. Further, the statement needs to be submitted along with the annual financial results. Management of the company also has to provide it’s views on the qualifications. The listed entity will have to furnish a declaration in case there are no audit qualifications.

It seems that statement may be required for quarterly results as well. The statement contains detailed information such as net worth, net profit, turnover, total expenditure, earnings per share, total assets and total liabilities in a tabular form. the firms will have to make submission about details, types, frequency of audit qualification too.

Instead of simple qualification information, SEBI requires filing of numbers along with adjusted numbers. Frequency, types and details of audit qualifications done also have to be spelt out of each qualification separately.

Revisions rectify and fills lacuna of the previous requirements. The compliances might be more demanding but nevertheless, information is cumulatively disseminated at the right time. Most importantly, the most outstanding difference might be that the SEBI review mechanism of the qualified reports has discontinued. The review is undertaken by stock exchanges now.

There is not much clarity at present about the exact performance of the review but sections related to re-opening of accounts and revision to financial statements under the Companies Act 2013, have been made effective/notified in June 2016 following the constitution of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). These sections provide for the revision/ restatement for financial statements after approval from NCLT/ NCLAT. Additionally, unlike the existing Indian GAAP, the newly adopted IFRS converged standards (Ind AS) require restatement of previously issued financial statements, in case an error is noted for past periods. A sound interpretation of requirements hints that India might be gravitating towards  a world of restatement (a prevalent phenomenon in the west)

Similarly now, SEBI/ stock exchanges can apply to the Tribunal for restatement of financial statements of a company, if they believe that the accounts were prepared in a fraudulent manner, on the basis of qualifications filed along with financial results. This could be a significant change from the current practice of recording past period errors in the current year financial statements as a prior period item.

Restatements though have an unfavorable effect on the stock prices and is to be seen as and is viewed as walking on a bed of coals.

Even as we battle the implementation of the changes as they have been brought about in a short span of time, these recent changes should bring out more transparency and efficiency in financial reporting in the corporate sector. It is absolutely essential that corporates’ internal processes and systems are sturdy enough to withstand and deal with the changing requirements.

References

1. CIR/CFD/CMD/56/2016
2. CIR/CFD/CMD/15/2015
3. (Listing and Other Disclosure Requirements) Regulations, 2015 (‘Listing Regulations)
4. CIR/CFD/DIL/9/2013
5. http://taxguru.in/chartered-accountant/qualified-opinion-auditors-report.html
6. Newspaper reports

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In this article, Cheshta Jetly pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Advantages and Disadvantages of Incorporation of a company.

The term company, in its general sense, can be defined as a group of persons, associated together to achieve some common objective. In its legal sense, the term company, as per the Companies Act, 2013, under section 2(20), is defined as “a company incorporated under the Companies Act 2013 or any previous company law.”

The term only emphasises on the registration and the formation of the company and does not further look into its meaning, nature and characteristics. Therefore, the legal meaning to the term company can be summed up as;

1. Any association, under the Companies Act, 2013 or any previous Companies Act shall be termed as a company.
2. The misconception that it is a fictitious person is not true. It in reality is an artificial or a legal person, recognised by law, once it is registered and it owes similar rights and duties that a natural person has.
3. In V Javali v Mahajan Borewell, it was held that a company can be held liable for a statutory violation like an individual, but it cannot be imprisoned. Thus, any violation, as stated under the Companies Act attracts penalty and not imprisonment of the company.

Advantages of Incorporation of a Company

1. Creates a Separate Legal Entity: This states that a company is independent and separate from its members, and the members cannot be held liable for the acts of the company, even when a particular member owns majority of shares. This was held in the case of  Salomon v Salomon & Co. Ltd. (1897) AC 22. Salomon transferred his business of boot making, initially run as a sole proprietorship, to a company (Salomon Ltd.), incorporated with members comprising of himself and his family. The price for such transfer was paid to Salomon by way of shares, and debentures having a floating charge (security against debt) on the assets of the company. Later, when the company’s business failed and it went into liquidation, Salomon’s right of recovery (secured through floating charge) against the debentures stood prior to the claims of unsecured creditors, who would, thus, have recovered nothing from the liquidation proceeds. The claims of certain unsecured creditors in the liquidation process of Salomon Ltd., where Salomon was the majority shareholder, was sought to be made personally liable for the company’s debt. Hence, the issue was whether, regardless of the separate legal identity of a company, a shareholder/controller could be held liable for its debt, over and above the capital contribution, so as to expose such member to unlimited personal liability. The House of Lords held that, as the company was duly incorporated, it is an independent person with its rights and liabilities appropriate to itself, thus, making Salomon & Co. Ltd liable, and not Salomon.
2. Company has Perpetual Succession: The term perpetual succession means continuous existence, which means that a company never dies, even if the members cease to exist. The membership of a company changes from time to time, but that has no effect on the existence of the company. The company only comes to an end, when it is wound up according to law, as per the provisions of the Companies Act, 2013. Re Noel Tedman Holdings Pty Ltd (1967) Qd R 56 stated that a  companies  members may come and go but this does not affect the legal personality of the company
3. Can own Separate Property: Since a company is termed as a separate legal entity in the eyes of law, it can hold property in its own name and the members cannot claim to be the owner of the companies property(s). The Supreme Court, in the case of Bacha F. Guzdar v CIT Bombay stated that a company being a legal person, in which all its property is vested and by which it is controlled, managed and disposed of a member cannot, ensure the companies property on its own name. In Macaura v. Northern Assurance Co. Ltd., a shareholder of a timber company, held all shares of the company but one. He also insured the timber (asset of the company) on his own name, which was destroyed in fire. When he sought compensation, it was held that they were not liable to pay any money to the shareholder, in lieu of the timber since he did not own the timber and that timber, which the company owned was not insured.
4. Capacity to sue and be sued: The company has the capacity of suing a person or being sued by another person in its own name. A company, though can be sued or sue in its own name, it has to be represented by a natural person and any complaint which is not represented by a natural person is liable to be dismissed in the same way in which an individual complaint is liable to be dismissed in the absence of the complainant.
5. Easier access to Capital: Raising capital is easier for a corporation, since a corporation can issue shares of stock. This may make it easier for your business to grow and develop. If the in the market for a bank loan, that’s another reason to incorporate, since n most cases, banks prefer and easily lend money to incorporated business ventures.

Disadvantages of Incorporation of a Company

1. Cost – The initial cost of incorporation includes the fee required to file your articles of incorporation, potential attorney or accountant fees, or the cost of using an incorporation service to assist you with completion and filing of the paperwork. There are also ongoing fees for maintaining a corporation.
2. Double Taxation – Some types of corporations such as a C Corporation, have the potential to result in “double taxation.” Double taxation occurs when a company is taxed once on profits, and again on the dividends paid to shareholders.
3. Loss of Personal “Ownership” – 
If a corporation is a stock corporation, one person doesn’t retain complete control of the entity. The corporation is governed by a board of directors who are elected by shareholders.
4. Required Structure – 
When you form a corporation, you are required to follow all of the rules outlined by the state in which you filed. This includes the management of the corporation, operational requirements and the corporation’s accounting practices.
5. Ongoing Paperwork – Most corporations are required to file annual reports on the financial status of the company. The ongoing paperwork also includes tax returns, accounting records, meeting minutes and any required licenses and permits for conducting business.
6. Difficulty Dissolving – While perpetual existence is a benefit of incorporating, it can also be a disadvantage because it can require significant time and money to complete the necessary procedures for dissolution.
7. Lifting of Corporate Veil – From the juristic point of view, a company is a legal person distinct from its members [Salomon v. Salomon and Co. Ltd. (1897) A.C 22]. This principle may be referred to as the ‘Veil of incorporation’. The courts, in general, consider themselves bound by this principle. The effect of this Principle is that there is a fictional veil between the company and its members. That is, the company has a corporate personality which is distinct from its members. But, in a number of circumstances, the Court will pierce the corporate veil or will ignore the corporate veil to reach the person behind the veil or to reveal the true form and character of the concerned company. The rationale behind this is probably that the law will not allow the corporate form to be misused or abused. In those circumstances in which the Court feels that the corporate form is being misused, it will rip through the corporate veil and expose its true character and nature.

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