This article is written by Shivani Verma, a student of Guru Gobind Singh Indraprastha University, New Delhi. In this article, she has discussed the principle of conjugal rights, its prerequisites, history, conjugal rights of husband and wife and its constitutional validity.
Introduction
One of the basic requisites of marriage is that the husband and wife should live together and respect each other’s mutual rights. Both husband and wife have some mutual obligations towards each other which can not be ignored come what may. This is a distinctive feature of a conjugal relationship. In no other relationship, right to society exists. The expression “conjugal rights” signify two ideas:
The right of the couple to have each other’s society.
The right to marital intercourse.
According to Manu, “Let mutual fidelity continue till death. Let a man and woman united by marriage, constantly beware, lest at any time disunited they violate their mutual fidelity.” This is the only positive remedy under the Hindu Marriage Act,1955 while other reliefs tend to weaken the marriage.
Conjugal meaning
The term “conjugal” means “matrimonial”. It refers to the relationship between a married couple. Conjugal rights are matrimonial rights of both of the spouses. One spouse is entitled to the society, comfort and consortium of each other. The expression “Restitution of conjugal rights” means the restoration of matrimonial rights. Provisions regarding restitution of conjugal rights are provided in various Personal Laws such as:
Prerequisites for grant of Restitution of Conjugal Rights
To obtain a decree of restitution of conjugal rights, the petitioner has to prove that:
From the society of the petitioner, the respondent has withdrawn.
The withdrawal by the respondent is without any reasonable excuse.
The court is satisfied with the fact that the statements made in the petition are true.
There is no legal ground for refusing to grant application.
Then the court may direct the respondent party, to live with the petitioner.
Withdrawn from society
It means withdrawal from all types of conjugal relationships. It includes:
Refusal to stay together,
Refusal to give comfort to each other,
Refusal to have marital intercourse, or
Refusal to discharge matrimonial obligations.
In Zavari vs. Zavari[1], the court held that in the petition of restitution of conjugal rights if the aggrieved spouse proves the withdrawal from the society by the defendant, the defending spouse must prove that he/she had a reasonable excuse to withdraw from the society in the court only then the decree of restitution of conjugal rights must be granted. When the husband persuades wife to come back from her parents home, stay with him and to resume marital life by writing letters and she is not ready to live with her husband because of the intimidating contents mentioned in the letter then the court will consider such letters to be harmless documents.
Without Any Reasonable Excuse
Without any reasonable excuse includes:
High standard of living is not maintained by husband,
The husband refuses to live with her in her paternal place, or
There is an agreement between the parties(ante-nuptial/postnuptial) and it is opposed to the public policy etc.
In the case of Shanti Nigam vs. Ramesh Chandra[2], the court observed that withdrawal from the society of the husband may be physical but without any intention to leave his company. So as long as wife completely cut herself and decided not to go to her husband and she breaks all marital ties with him then it will be a ground for a decree of restitution of conjugal rights. Refusal to quit the job at the instance of the husband is not a ground for a decree of restitution of conjugal rights. The court also said that it will not follow the old concept and rules, its decision will be based on considering the present-day situations..
Effect of the Decree of Restitution of Conjugal Rights
If the decree of restitution of conjugal rights is passed by the court than it is compulsory for the respondent to resume cohabitation with the plaintiff and if the respondent fails to do so within one year then it can act as a ground for divorce for the plaintiff.
In the case of Sushil Kumari Dang vs. Prem Kumar[3], the appeal of a wife against the decree of restitution of conjugal rights was allowed by the court. The husband filed a petition for restitution of conjugal rights because the wife has left his matrimonial home against his wish and consent and is living separately and she is not ready to come back. But the court through facts and circumstances of the case found that the intention of the husband behind this petition is not genuine. So the court allowed the appeal of the wife.
In Shanti Devi vs. Balbir Singh[4], the court provided the requirements for filing the petition for restitution of conjugal rights. The court said that it has to be seen whether one spouse has withdrawn from the society of the other without any reasonable excuse. The second requirement is that the court must be satisfied with the facts mentioned in the petition. And at last, there should be no legal ground for rejecting the petition. But if the husband is having a love affair with a girl, or his behaviour towards his wife is torturesome than these will be considered as reasonable excuses.
Resumption of Cohabitation
The petition for restitution of conjugal rights is not maintainable if the parties resumed the cohabitation. There can be a resumption of cohabitation by resuming to sexual intercourse in case their circumstances prove that setting up of a new matrimonial home is not possible. But it depends upon the intention of the parties. Mere acts of sexual intercourse will not be proof that the parties have resumed cohabitation.
If a spouse has withdrawn and later made several attempts to resume cohabitation with a bona fide intention and the other spouse refused, then, in this case, it was held that the spouse who initially withdrew from the society was entitled to the decree of restitution of conjugal rights as his/her original wrong was rectified by the bona fide offers made by him/her to resume cohabitation. The offer must be with a bona fide intention if such intention is not there than there can be no question of resumption of cohabitation.
Matrimonial Rights
Several rights and duties that start from the day husband and wife get married. Those rights and duties are known as “matrimonial rights”. After marriage, a wife has to leave her home and adjust with the new surroundings. In order to protect her from the various atrocities that she may face, various matrimonial rights are provided to her, such as:
Right to streedhan: wife has a right over all the streedhan she gets before and after her marriage. Streedhan is the property or gifts that are made to a woman before, during or after her marriage on which she has complete possession.
Right to residence: wife has a right to stay in the matrimonial home where she shares the society of her husband.
Right to a committed relationship: wife has a right to have a committed relationship, disloyalty on any ground from her husband’s side will be punishable by a court.
Right to live with dignity and respect: she must be treated with respect and must live with the same dignity as all other people in the house.
Right to maintenance by the husband: a husband must provide maintenance and financial support to her.
Right to child maintenance: in case of a minor child, the husband is responsible to maintain and provide financial support to the child.
In Swaraj Garg vs. K.M Garg[5], the court held that if a husband and wife are gainfully employed and the wife is earning more than the husband, then there are sufficient reasons for the wife to live separately. So, in this case, the court didn’t grant the petition for restitution of conjugal rights in favour of the husband. The court also said that there is nothing in Hindu Law saying that the wife has no right in choosing the place of a matrimonial home.
Judicial Separation
Instead of a divorce, if the parties are willing to give each other some time and don’t want to seek immediate dissolution of marriage then the remedy of judicial separation is asked for. It does not affect the legality of the marriage. It is a temporary suspension of marital rights between the spouses.
The Hindu Marriage Act,1955 provides the provision for judicial separation under section 10. If the cohabitation between the spouses didn’t resume for one year or more the decree of judicial separation act as a ground for divorce.
Section 10(1) states that the parties to a marriage solemnized before or after commencement of the Hindu Marriage Act,1955 may present a petition in order to obtain a decree of judicial separation on any of the grounds mentioned in Section 13(1), and the wife can also seek divorce on the grounds mentioned in Section 13(2).
In section 10(2) it is mentioned that after obtaining a decree of judicial separation, it is not obligatory for the parties to cohabit together but the court may revoke the decree if it finds it reasonable to do so.
Grounds For Judicial Separation
Following are the grounds for judicial separation –
Adultery towards the spouse: If a party had voluntary sexual intercourse with a person other than his/her spouse, then it can act as a ground for judicial separation for the other spouse.
Cruelty towards the spouse: When the petitioner is treated with cruelty, then the petitioner can claim the decree of judicial separation.
Desertion by the spouse: If one spouse deserts the other without a proper excuse, without his/her consent for a continuous period of two years then the neglected spouse can seek judicial separation on this ground.
Unsoundness of mind of the spouse: In order to get a decree of judicial separation a petitioner has to prove that the respondent has been incurable of unsound mind and the petitioner cannot be expected to live with the respondent.
Attempting to Convert one party to another religion: If one spouse converts him/her into another religion then it can act as a ground for judicial separation for the non-converting spouse.
Any of the parties are suffering from virulent and incurable leprosy: If one spouse is suffering from a virulent or incurable form of leprosy then the other spouse can file a petition for judicial separation on this ground.
Any of the parties are suffering from the venereal disease: If the respondent has been suffering from venereal disease in a communicable form then the petitioner can seek a decree of divorce on this ground.
If any spouse Renounce the world: If a spouse renounce the world, and before that he/she was married then the other spouse has a right to seek judicial separation.
If the spouse is missing from a continuous period of 7 years: If the spouse is missing for a continuous period of seven years and there is no information about the missing spouse from his near and dear ones then the petitioner can seek divorce.
Additional Grounds for Wife To Claim Judicial Separation
A wife can seek divorce on the grounds not only mentioned in Section 13(1) but also on the grounds mentioned Section 13(2).
Following are the grounds that are mentioned in section 13(2) –
Bigamy: Wife can claim a decree of judicial separation in case of bigamy, if she proves that that respondent-husband had married again before the commencement of this act and his other wife was alive at the time of the presentation of the petition.
Rape, sodomy, bestiality: If the husband is guilty of rape, sodomy, bestiality than the wife can seek judicial separation on this ground.
Non-resumption of cohabitation after the order of maintenance: If the cohabitation between the parties has not been resumed for a period of one year or more since the passing of the decree of maintenance under section 18 of the Hindu Adoption and Maintenance Act, 1956 or under section 125 of CrPC against the husband, then the wife can seek judicial separation on this ground.
Repudiation of marriage (at the option of puberty): If a girl is married before attaining the age of fifteen years then she can repudiate her marriage after attaining the age of fifteen years and after attaining the age of twenty years.
Effects of an Order of Judicial Separation
Following are the effects of an order of judicial separation –
The marriage is not dissolved in this case.
There is no compulsion for the spouses to live together or eat together as judicial separation is separation from bed to board.
After the decree, it is not necessary for the parties to cohabit together.
The parties can resume cohabitation with each other without undergoing the ceremony of marriage.
If either of the spouses marries during the period of the decree, then he/she will be liable for bigamy.
The wife is considered as independent women from the date of decree till separation.
The petitioner
If she is the wife, becomes entitled to alimony from the husband, and
If he is the husband, he may claim maintenance from wife under section 25 of the Hindu Marriage Act,1955.
History of Conjugal Rights
Evolution of conjugal rights is different in various countries. To establish a comparison, we will first be looking at the development of conjugal rights in English Law, Canada and Australia. After that, we will try and understand the history of conjugal rights in India and how it has changed over the years.
English Law
Earlier in English Law, the decree of restitution of conjugal rights was provided by ecclesiastical courts that were known as Court Christian or Court Spiritual. Later the decree was obtained through the Court for Divorce and Matrimonial Causes.
Before 1813, matrimonial offences did not include desertion in it, so a deserted spouse could ask for the remedy of restitution of conjugal rights. Once the decree was provided, the spouse had to return home and continue with his/her marital obligations. If one did not comply with the decree than he/she was punished with excommunication.
The Matrimonial Causes Act,1923 provides that the wives no longer needed to ask for a decree of conjugal rights on the ground of cruelty alone instead she was given the right to divorce her husband. This equalized the grounds for divorce for both husband and wife.
Supreme Court of Judicature(Consolidation) Act, 1925 repealed the Matrimonial Causes Act, 1925. Failure to comply with the order of conjugal rights would not be considered as desertion and will continue to be a ground for judicial separation. New provisions were also made by the act for finances, alimony that has to be provided by the husband to the wife, related to the share of property between husband and wife and the custody of children.
Restitution of conjugal rights has been a part of the law in Canada because traditionally Canadian family regulations were based upon concepts already existing in English Common Law except in Quebec. The legal action of restitution was abolished in Britsh Columbia by the Family Relations Act, R.S.B.C.1979 and through several other provisions.
In Alberta, the Family Law Act, 2005 abolished the action of restitution of conjugal rights. Moreover, the law has never been strict in Alberta. In fact, if the spouse does not comply with the degree, it serves as a ground for judicial separation.
In Saskatchewan, by repealing the section based on the restitution of conjugal rights it completely abolished the concept through the Family Maintenance Act, SS 1990-91.
In Nova Scotia, Matrimonial Statutes Repeal Act repealed six legislations, some of them referred to restitution of conjugal rights in the year 2012.
In New Brunswick, the legislation which included restitution of conjugal rights was repealed by “Act to Repeal the Divorce Act”.
Australia
Courts have no power to make a decree for restitution of conjugal rights as it was abolished by the Family Law Act, 1975. Section 114(2) of the Family Law Act, 1975 provided that the court can order a party to provide for conjugal rights or marital services. But it was last used in 1978 and has now become obsolete. This was also supported by the Australian Law Commission in 2010 which was in favour of this view and said that Section 114(2) is inconsistent with the principles of Family Law so it should be abolished.
India
Indian laws borrowed the principle of restitution of conjugal rights from the English law. These rights were borrowed from various colonies of England. For all the religious communities, due to the absence of any statutory law, the Indian law passed the order for restitution of conjugal rights.
The first time this principle was applied in India in 1886 in the case of Moonshee Bazloor vs. Shamsoonaissa Begum by the Privy Council. The importance of this principle was clearly laid down in the 71st Law Commission Report. This report provides that divorce and getting separated is the only solution, marriage is a sacramental tie and efforts should be made for reconciliation rather than breaking the tie completely.
Conjugal Rights of husband
Post marriage, husband and wife must live together. If in any circumstances the wife denies to stay with the husband and withdraws from his society without any reasonable excuse than the husband may file a petition for restitution of conjugal rights. If the court is satisfied and there is no legal bar to it, then the petition is granted.
Restitution of Conjugal Rights filed by the wife
In case, if husband withdraws from the society of wife, and denies to obey any matrimonial duty and deny to perform any matrimonial rights and that too without giving any proper excuse the wife may claim the right of restitution of conjugal rights by filing a petition in the court.
During this period can the wife claim maintenance?
Maintenance is provided to either of the spouses in case if he/she is not able to maintain themselves or they are not financially independent enough to earn a living for themselves.
Yes, the wife can claim maintenance under Section 25 of Hindu Marriage Act,1955. If the decree is not obeyed then the court may attach the properties of the husband. It is also applicable to the provision of judicial separation. Moreover, if the decree is not obeyed for a period of more than one year than it is considered as a ground for divorce.
Also, Section 18 of the Hindu Adoption and Maintenance Act,1956 provides the grounds under which wife can claim maintenance and the grounds where she cannot claim maintenance.
Wife denying husband Conjugal Rights
If the wife denies to enjoy the conjugal rights or withdraws from the society without any reasonable cause, then the husband can file a suit for restitution of conjugal rights.
Reasonable Cause
A reasonable cause could be any act that will make impossible for the wife to live with the husband. If the court is satisfied that the ground is a reasonable one, then the court will dismiss the petition otherwise it will pass a decree in favour of the husband.
The burden of proof lies on both the parties i.e. husband as well as wife.
Petitioner: husband needs to prove that the wife has withdrawn from his society.
Respondent: wife has to show a reasonable cause for doing so.
Circumstances under which withdrawal from the society of husband is justified
When husband remarries: in case the husband remarries when the first wife is still alive, then he loses the right of restitution of conjugal rights for the second wife and it is a valid ground for the wife to withdraw from the society of husband.
When conduct of the husband makes it impossible for the wife to live with the husband: In the case ofMoonshi Buzloor Ruheem v. Shamsonnissa Begum[6], it was held that if a husband treats wife with cruelty or there is gross negligence on the part of husband for performance of marital obligations, then it is the valid ground for refusing him relief.
In case, if the wife is living separately due to a different place of work: when the economic considerations require the wife to take up the job because it is necessary for the upkeep of the family.
In case, if there is no economic necessity for the wife to take a job and live separately, this was decided by the court in the case of Smt. Kailash Wati v. Ayodhia Prakash[7], in three parts-
If the wife is already working before and at the time of marriage, then it does not give the husband a right not to share his matrimonial home with her.
If the husband himself encourages the wife to take up employment after marriage then the husband cannot give up his right to live with his wife.
But if the wife takes up employment against the wishes of her husband then it is the case of unreasonable withdrawal.
Constitutional validity
The constitutional validity of section 9 of the Hindu Marriage Act,1955 has always been a matter of debate. It has been discussed in three landmarks and most important cases.
In 1983-1984, the High Court of Andhra Pradesh in T.Sareetha vs. T.Venkatta Subbaiah [8], observed that the decree of restitution of conjugal rights is uncivilized, barbarous, an engine of oppression and assailed. It is the grossest form of violation Article 14, 19 and 21 of the Constitution as it denies women her free choice as to whether, when and how she is to become a vehicle of procreation of another human being. The court also said that since it did not serve any social good, it must be held to be arbitrary and void offending Article 14 of the Indian Constitution.
The Delhi High Court, in Harvinder Kaur vs. Harmandar Singh[9] case not only upheld the validity but also discussed its advantages. He observed that the purpose behind the decree of restitution of conjugal rights is cohabitation and consortium and not only sexual intercourse, so there is nothing barbarous or coercive about it. It aims at stabilising a marriage and encouraging reconciliation.
The debate on the constitutional validity of Section 9 was settled by the Supreme Court in the case of Saroj Rani vs.Sudarshan Kumar[10]. The court overruled the judgment of Andhra Pradesh High Court and said that Section 9 of the Hindu Marriage Act, 1955 is not violating Article 14, 19 and 21 of the Constitution. In fact, it serves a social purpose by preventing breakup in a marriage. In case the order is disobeyed then the court has no right to enforce sexual intercourse between the spouses and if the parties don’t resume to cohabitation after one year of the passing of such decree then they can obtain a divorce on this ground alone.
The idea behind providing for restitution of Conjugal Rights
As marriage is considered a sacramental tie, in Hindu Shastra it is believed that a man is incomplete without his wife and they both need the company to provide support to each other. The idea behind is to preserve the marriage tie as far as possible through court intervention and ask the withdrawing party to join the other party.
Restitution of Conjugal Rights judgements
In the case of Rukmani Ammal vs. T.R.S.Chari[11], Pandrang Rao, J. held that for husband in order to obtain a decree of restitution of conjugal rights it is not necessary that actual cruelty must be established. Hindu Law is silent on the point that whether the husband has a right to seek the help of the court in securing the company of his wife. Hindu law does not consider a suit for restitution of conjugal rights proper. It was also held that whether the husband is entitled to the decree of restitution of conjugal rights must be provided after considering all the facts, equitable relief and equitable consideration must be sought.
In the case of Seetha yamma vs. Venkataramma[12], it was held by Bum, J. that in a suit for restitution of conjugal rights the court will consider the entire conduct of the parties and if it has been proved that the husband has neglected his wife and the suit instituted by the husband is not with a bona fide intention then the suit will be dismissed. It is not obligatory for a wife to prove that she has been subjected to violence by the husband in order to seek the decree for separate maintenance.
Qualifying criteria
When either of the spouses files the petition for restitution of conjugal rights, then he/she has to fulfil the basic criteria. The grounds on which the petition is filed are:
A valid marriage must be there.
The spouses are not staying with each other.
The withdrawal of one party from the society of the other should be without any reasonable cause.
The petitioner must have a bona fide desire to live with the spouse.
The complaint of restitution of conjugal rights is entertained by the Civil Courts in whose jurisdiction the following was performed.
The marriage of the parties was performed.
Husband and wife stay together.
Husband and wife last stayed.
What the aggrieved party can do?
The aggrieved party can file a petition in the district court. When the court finds out that the plea of the aggrieved party is based on true facts and they have no valid reason to dismiss it then the court passes the decree of restitution of conjugal rights in the aggrieved party’s favour.
Grounds for Rejection
The petition for restitution of conjugal can be rejected on the following grounds:
Any matrimonial relief can be provided to the respondent.
For the purpose of employment, the couple needs to stay separately.
If the action of the petitioner is not favourable for a marital relationship.
Confession made by the petitioner relating to marital misconduct on his part.
Restitution of Conjugal Rights and Divorce
The merging of a petition for divorce and restitution of conjugal rights is still under discussion. Some of the eminent jurisdictional powers are of the view that the petition for conjugal rights can be supported with an alternative prayer for divorce.
While some of them are of the view that the prayer for divorce and conjugal rights are of different nature and cannot be made together.
Most of them agree on the point that the petitions are mutually destructive as conjugal rights on reuniting the parties rather than separating them and it is the only positive remedy in the Hindu Marriage Act 1955, other remedy tries to disrupt the marriage.
Conjugal Rights in Islam
In Islamic law, it was observed that whenever the wife tries to file the suit for maintenance under section 2(ii) of Dissolution of Muslim marriages Act,1939 the husband used to counter it by filing the suit for restitution of conjugal rights. This makes the study of restitution of conjugal rights in Islamic law important.
What “Right to Conjugal Rights” Legally Means?
According to Tyabji, “When either of the spouses withdraw from the society of another without any reasonable excuse, the aggrieved party may apply by filing a petition for a decree of restitution of conjugal rights and if the court has no valid reason to reject the petition then the court may order the decree in favour of petitioner”.
It has the same meaning as provided in Hindu Law, restoration or marital relationship between husband and wife. But this right is available to the husband only because the husband can frustrate the wife’s petition for restitution of conjugal rights by pronouncing the decree for divorce. And another main reason behind it is that the suit for restitution of conjugal rights is filed by husband in most of the cases.
Origin of Right to Conjugal Rights
The Holy Quran under Islamic Law provides the husband with the right to keep their wives with kindness and they can part with them but with equal consideration. The husband has a reasonable right over his wife and not absolute. Husband has no conjugal rights if he had not paid the dower money
Prompt dower: If the husband fails to pay prompt dower the can refuse to live with him until the dower is paid. This right continues even if the marriage is consummated.
Deferrable dower: The husband gets the conjugal rights when the whole dower is paid as in case of deferrable dower the whole dower is regarded as prompt.
The doctrine of restitution of conjugal rights was made available to Muslims, Hindus, Christians, Parsis and others in Colonial India. With the increase of women empowerment due to the Dissolution of Muslim Marriage Act 1939, in order to counter it, the husband used this doctrine.
The Privy Council laid down in the case of Moonshee Bulzoor Ruheem vs. Shumsoonissa Begumthat marriage is a civil contract under Mohammedan law and the court has the power to enforce all the rights and duties which flow from it.
In the case of Abdul Kadir vs. Salima[13], the Allahabad High Court observed that the concept of restitution of conjugal rights must be based on principles of Muslim Law rather than the principle of justice, equity and good conscience. It also stated that the remedy of English ecclesiastical law, right to restitution of conjugal rights became a remedy for breach of marriage because the matrimonial relationship was being a civil contract.
Right to Restitution of Conjugal Rights Available to Muslims
In India, under General laws.
In Pakistan, Family courts have exclusive jurisdiction to entertain its suit under section 5 of the West Pakistan Family Courts Act,1964.
Islamicity of the Right of Restitution of Conjugal Rights
The Islamic personal law instructs the husband to keep the wife with kindness while aiming at preserving the marriage. When the husband is found guilty of gross cruelty towards his wife and deserts her on this account, he will not be allowed to get the relief of restitution of conjugal rights. This was the restriction that was put on the husband’s right to seek the decree of restitution of conjugal rights.
Muslim law provides a defence to the wife so that she can frustrate the husband’s suit for restitution
Non- payment of dower.
Cruelty: It includes both legal and physical cruelty
Physical cruelty: actual violence is included which causes injury to life, limb or health or causes a reasonable apprehension thereof.
Legal cruelty: It includes all the instances of cruelty stated in Section 2(viii) of the Dissolution of Muslim Marriage Act,1939.
Other Defences
If the marriage is performed during the iddat period.
If the law is satisfied with the reasons of wife for not living with the husband.
Irregularity of marriage.
If there is no harmony and happiness between the spouses the Islam permits separation.
Section 5 of the West Pakistan Family Courts Act,1964
If the husband gets the decree of restitution of conjugal rights then according to Order XXI, Rule 32 and 33 of the Code of Civil Procedure the court can attach wife’s property or can order her to make periodic payments to the husband for non- compliance with the decree.
This section was challenged in the case of Nadeem Siddiqui vs. Islamic Republic of Pakistan[14] as it was against the injunctions of Islam.
The court held that there are cases in which it is impossible for the husband and wife to live together so in that case, the court passes the decree of divorce.
Also, there is no Verse or Hadith which put a bar on the Family Court from passing the decree of restitution of conjugal rights.
Hence, it is not against the injunctions of Islam.
Decree of the court has much sanctity in Islam and Rule 32 and 33 of the Code of Civil Procedure gives to the decree of the court.
The laws of Pakistan has no power to force the wife to go to the house of the husband in order to comply with the decree passed in favour of the husband. Right to seek conjugal rights were brought as a countermeasure because of the certain grounds present under the Dissolution of Marriage Act,1939 which allow women to seek dissolution of marriage. Before British Raj, in Islamic Personal Law after the payment of dower, there was no concept of restitution of conjugal rights.
Restitution of conjugal rights is a highly debatable topic because it has a two-fold view, first is that it is a positive remedy that provides marriage with a second chance, another one is that it forces two unwanted people to live together. Before using this remedy each and every aspect of the case must be considered so that it doesn’t get misused.
Draft petition for restitution of Conjugal Rights
BEFORE THE METROPOLITAN MAGISTRATE
KARKARDOOMA DISTRICT COURT, NEW DELHI
PETITION NO. _______/ 2019
In the Matter of:
ABC ….Petitioner
Vs.
XYZ ..Respondent
U/S 9 of HMA
MEMO OF PARTIES
ABC
S/o JKL,
R/o A – 100,
Karkardooma,
New Delhi – 110096 ….Petitioner
Vs.
Mansi Mehta
D/o MNO,
R/o B – 26,
Prem Nagar,
Delhi – 110094 ….Respondent
Petitioner
Through
For PQR Advocates,
D- 44, Kapoor Building, Saket
New Delhi – 110019
Place: New Delhi
Dated: __.__.2019
BEFORE THE METROPOLITAN MAGISTRATE
KARKARDOOMA DISTRICT COURT, NEW DELHI
PETITION NO. _______/ 2019
IN THE MATTER OF:
ABC …….Petitioner
Vs.
XYZ …..Respondent
U/S 9 of HMA
APPLICATION UNDER SECTION 9 OF HINDU MARRIAGE ACT, 1955 FOR RESTITUTION OF CONJUGAL RIGHTS.
MOST RESPECTFULLY SUBMITTED:
That the instant application under Section 9 of the Hindu Marriage Act, 1955 is being filed by Petitioner for restitution of conjugal rights.
That the Petitioner is ABC, S/o JKL, R/o A – 100, Karkardooma, New Delhi – 110096.
That the Respondent is Petitioner’s wife, XYZ, D/o MNO, R/o B – 26, Prem Nagar, Delhi – 110094.
The marriage between the Petitioner and the Respondent was solemnized on_(date)_______, in New Delhi, according to Hindu rites, rituals and ceremonies, without any demand for dowry whatsoever.
That the Petitioner and the Respondent lived happily together at Petitioner’s place of residence.
That when the Petitioner came back home from the office on _____ at ______, he found out that the Respondent has packed all her belongings and left the house.
That after trying to contact the Respondent for an hour, the Respondent picked up the Petitioner’s call and told him that she won’t be living with him on anymore. When the Petitioner asked for a reason, the Respondent simply refused to say anything.
That the Petitioner found out that the Respondent has gone back to her parent’s house and he went there to understand the problem and bring her back.
That the Petitioner went to his father-in-law’s house on ________ and again on ________ to bring the Respondent back to his house; however, on one pretext or the other, the Respondent kept on declining to come along with the Petitioner to his house.
That the Respondent has deserted the Petitioner or/and has withdrawn from his company without any reasonable excuse.
That the Petitioner submits that he has been sincere, ready and willing to cohabit with the Respondent since the very beginning.
That the cause of action for this petition first arose on _________, when the respondent voluntarily deserted the Petitioner and withdrew from his society.
That this petition is filed well within the limitation period.
That this petition being chargeable with a fixed rate of court fee, the same is paid herewith.
The Petitioner craves liberty from this Hon’ble Court to file additional documents and arguments thereof, as and when needed, at a later stage.
It is further submitted that a prima facie case exists in favour of the Petitioner.
It is further stated that the Petitioner and the Respondent married and were living together in Karkardooma, New Delhi, which falls within the territorial limits of this Hon’ble Court’s jurisdiction, and therefore this Hon’ble Court has jurisdiction to entertain the instant application.
This Application has been filed bona fide and therefore ought to be allowed by this Hon’ble Court.
Prayer
In the light of the above-mentioned facts and circumstances, it is most respectfully prayed that this Hon’ble Court may be pleased to:
Pass a decree for restitution of conjugal rights again the Respondent.
Direct the Respondent to resume cohabitation with the Petitioner.
Pass any other order(s)/direction(s) as this Hon’ble Court may deem fit and proper in the interest of justice.
Petitioner
Through
For PQR Advocates,
D- 44, Kapoor Building, Saket
New Delhi – 110019
Place: New Delhi
Dated: __.__.2019
To know more about Approach of Family Court in settling Matrimonial Disputes, please click here.
Can we get ahead in life without taking stock of and addressing the emotional spaces that we go through? Is it a sign of weakness or wasting time to address our emotions or is it absolutely essential for sanity and therefore success?
My wife and I took a drive to the hills a couple of weeks back. We had a great time. The views were beautiful. We accomplished a mini road trip.
However, from time to time, anxiety took over. What is the forward momentum I’m losing out on by not being at work? Is it okay? I know it’s alright and necessary to take a break, but it’s difficult to accept that I need one. Anxiety slowly gnaws all over my body and strangles me when I’m not in the middle of action at work. It took me a lot of conscious effort to keep this anxiety in check.
When I was returning back, I felt rested. I also realized that I had not fully recovered from the tiredness, and that a few days’ longer break would enable me to rest fully.
At the same time, I knew I was incapable of taking a longer break, given my current mental and emotional state. I was not urgently needed at work, and could have afforded to take the time off.
My team was taking care of the basic necessities and there was no fire to put out anywhere. However, what was bothering me was that my absence meant a pause in kicking off some of our growth plans.
When I got back to work, the anxiety immediately disappeared. I was calm and focussed. I was in the thick of things and could restart the process of growth. That is when I felt at peace.
A couple of weeks after resuming work, however, the mountain of deadlines for our unprecedented goals started to frighten me. It is daunting for me to visualize how we will meet such ambitious goals.
It is ironic that I have been anxious to get back to work when I was on a break, and now that I’m back to work, I’m already feeling frightened and exhausted.
It is kind of frustrating.
In the past, I have tried to distract myself with other pursuits to avoid feeling this stress.
Martial arts.
Spending a disproportionate amount of time to volunteering at an organization focussed on self-development.
Each of the above activities served as a way to harness my nervous energy. There is no doubt that these activities were beneficial for me. They kept me sane and kept me going in incredibly difficult and stressful times.
Martial arts made me fit and mentally resilient. I became physically stronger. I gained a different kind of confidence.
Working on self-development enabled me to learn about training and coaching like I had never before. I found coaches who impacted my life in fundamental ways.
Also, by contributing to others who were working on their own self-development, my self-image and understanding of my capabilities as a leader grew tremendously.
Still, at times, they acted as escape doors to avoid the harsh realities and anxiety with respect to my work life. At this point, it is easy to get lured into thinking that you can take refuge into such activities rather than fight the battles of your life that keep you awake at night. I made that mistake a few times when I was younger.
although there are activities that add to my overall experience of well-being, they are not a substitute for my life’s purpose.
I have dedicated myself to working on creating the next level of legal education in the world. It is the hardest thing I have ever done. I have bet my career on it and spend the majority of my waking hours working on it. The work on legal education is an expression of my life’s purpose.
This is where the biggest accomplishments and rewards show up. Naturally, this is also where I also encounter the biggest obstacles, setbacks, betrayals, challenges and personal failures. This is also the one thing, therefore, that gives me dreams and nightmares the most. This is what I am most anxious about.
I look for escapes at times when all of this gets too much to handle. And I have turned to martial arts, yoga or self-development training at times not as a tool but as an escape at times. At the time it felt like the right thing to do, but very soon the high of such escapes wore off, and it felt like the world was suddenly less meaningful.
Distracting myself with anything else has only made my life feel less meaningful for me, every single time I went for it.
So how do I deal with anxiety now? I am learning to not cover up anxiety with more work, but to take rest. The real work for me right now is to be at peace with the fact that I need a rest from time to time, and that I am entitled to it. I am learning that I need it to be productive and effective.
I also need to accept an occasional slowdown when I need rest in the face of immediate tasks and overwhelming deadlines.
Accidentally, I also discovered something new. In the face of all the pressure, I realized that the accomplishments of our students and teams, especially when overcame difficult challenges and obstacles, brought me tremendous joy.
For example, it brought me satisfaction when one of the students of our Insolvency and Bankruptcy Code course, who is also an independent practitioner, wrote an article on the types of work insolvency lawyers can perform for different clients. I was very satisfied to see the clarity in her understanding. It signalled to me that the purpose of our course was, in a way, delivered well, because she now gets how a lawyer can add value to clients in the area of her work.
It may sound strange, but most young lawyers lack this understanding, and while it is easy to teach sections or case law, or even drafting, it is much harder to instill that kind of wisdom in a student where she really gets how she can add value as a lawyer. It is a very critical ingredient for success as a lawyer.
I felt incredibly proud when Komal Shah, our content head, prepared a breakthrough outline for our Securities Appellate Tribunal litigation course. Tribunal litigation in niche areas is an excellent career opportunity for lawyers. She has started identifying new career opportunities and the skills that lawyers need to develop in order to learn to tap into such opportunities on their own. This is the first step we take at the time of conceptualizing a course. This is the work that makes our courses stand out and add immense value to learners, even if they have many years of legal experience already!
Komal’s work will massively increase our ability to deliver value to our students. It will also enable us to grow faster. Remember what I love the most? Growth. And only when our students and colleagues grow, there is any chance of LawSikho growing.
We will be launching a lot of new specialised litigation courses in the next few weeks. It is an exciting time for us as LawSikho. Do check out Litigation Library if you want to benefit from the upcoming launch of new courses. We are hiking the price of Litigation Library after these launches, so I am giving you a heads up to benefit from the current introductory prices.
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Sorry, I digress.
When Harsh Jain, Senior Associate at Lawsikho, makes plans for training some of our new joinees to write chapters which add value to practising lawyers, I feel euphoric. I see how meticulous and detailed he is, and the high standards he is setting for everyone. As a leader at LawSikho, it makes me feel optimistic about the things we are going to do in the coming months. He is working on scaling our course creation process, because there are so many important legal subjects we have not even touched yet!
When Silpa Das, Associate at Lawsikho, created a fantastic outline for how to impart skills related to trademark litigation, I felt rejuvenated! This is an area where her interest lies, and when she creates a compelling outline for lawyers, I know she is on the right path.
These sources of joy took the “overwhelming pressure” away from the apparently difficult deadlines. I look forward to getting to work every morning!
Make no mistake – the overwhelming deadlines, however, are still sacred and written in stone. I will meet them, though I cannot see every step of the way.
However, what I am doing now is this. Instead of visualizing myself trying to shoulder the weight of a big mountain alone so that it does not collapse over me, I am visualizing those beautiful accomplishments of individual people which lie on the way as we go ahead to meet these deadlines.
I am imagining the victories of our team members when we meet these deadlines.
What kind of amazing feats will they accomplish when they do this?
How will that improve their confidence as lawyers?
How will that enable our customers to succeed? What new clients and matters will they be able to take up?
How will their practices grow?
How will that contribute to their earnings and their vision of their career?
How will that contribute to their quality of life?
Those bring me joy, and are worth putting tremendous effort in.
By the way, what happened to my struggle to be anxiety-free in a vacation?
Well, that part remains unresolved.
The anxiety probably remains because I want to build a team and organization that can grow in my absence at a certain velocity, and because that work is still not done. It won’t take forever, but we are still some distance away from it.
I’m still sharing an unresolved pain point with you because many of us consider such pain points to be problems in life which are to be avoided. On the other hand, these are exactly the challenges in life which one needs to solve, piece by piece, to create the life one wants.
That life will not be created some day in a distant time, but it reveals itself every moment, as we struggle with the obstacles on our path.
When I found joy in the accomplishments of Komal, Harsh and Silpa, a new part of my life and future unveiled itself. One that had freedom to rest, the satisfaction of training others and the growth of our organization.
Imagining a life where all three components exist simultaneously has been impossible earlier, till this happened.
The discovery that I could find joy in people’s accomplishments despite crazy deadlines has implications beyond my own career. It impacts the quality of my life. More joy in my career means I take back more joy to share at home, with friends. I am happier when I go to sleep, when I wake up, when I work out, and when I perform any other activity in my life.
I am that much happier in every area of my life.
Have you taken the time out to acknowledge your emotional spaces, and examine which pain points remain unresolved, unattended, ignored and buried?
If your pain points are around building a successful career in law, or if you are struggling to become a better lawyer with limited guidance, consider the following courses which are open for enrolment
This article is written by Shivani Verma, a student of Guru Gobind Singh Indraprastha University, New Delhi. In this article, she has discussed the provisions related to divorce by mutual consent, the procedure to file for mutual divorce and unilateral withdrawal of consent when the petition is already filed in the Family Court.
The Latin word “Divortium” means “to separate”. Divorce is not favoured and it is only granted in rare cases. Under uncodified Hindu Law, Manu has explained that wife, in any case, cannot be released from her husband by sale or abandonment. But the Modernist Divorce Reforms in independent India made divorce available bySection 13of the Hindu Marriage Act, 1955 to all the Hindus. This Act has been amended several times and new grounds for divorce are included with.
What is Divorce by Mutual Consent?
When both the parties agree on the dissolution of marriage in a cordial manner which is a more harmonious way rather than fighting in a court and defaming each other. In that case, they may file a petition in a District Court under Section 13B of the Hindu Marriage Act,1955 and the Court may grant them the decree for divorce. Proceedings before Panchayat will not affect the divorce, the parties have to get it processed through Matrimonial Courts.
Section 13B: Divorce by Mutual Consent
This provision was inserted by Marriage Law (Amendment) Act,1976 and was not originally made by the Hindu Marriage Act. Section 13B of the Hindu Marriage Act,1955 is on the same ground on which Section 28 of the Special Marriage Act,1954 is. This provision is retrospective as well as prospective from the commencement, which means that the parties whose marriage is solemnized before or after the Amending Act can seek the help of this provision in order to get a divorce.
This section explains that to seek divorce by mutual consent, the parties have to file a joint petition in a district court. For filing this petition it is important that for a period of one year or more, the parties are not living together, they have not been able to live together and they mutually agreed to take divorce and put an end to their marital relationship.
Section 13B(2) explains that the parties must wait for at least six months from the date they present the petition and before the ending of eighteen months from the date the petition is presented by the parties, they should together make a step forward to the court. After going through the case, if the court thinks that all the facts are true then it can grant the petition for divorce.
Divorce mutual consent latest judgement
Latest judgements related to divorce by mutual consent is provided in the whole article under different sub-topics such as:
The petition for divorce by Mutual Consent can be filed on the following grounds:
The petition must be presented to the court jointly by both the parties.
The motion before the court hearing the petition should also be by both the parties.
For a period of one year, parties must be living separately.
Parties are not able to live together.
Parties agreed mutually that marriage must be dissolved.
It is compulsory for the parties to wait for a period of six months. These six months starts from the date the parties filed a petition for divorce in the court.
Concerned parties must make a motion to the court before the expiry of eighteen months from the date the petition is presented for passing a decree.
Consent in the case of divorce by mutual consent should not be obtained by fraud, force or undue influence, as per the Section 23(1)(bb) of the Hindu Marriage Act,1955.
What are the different laws of Divorce by Mutual Consent?
The provision for divorce by mutual consent is presented in various personal laws such as:
Hindu Marriage Act,1955
Section 13B of The Hindu Marriage Act,1955 provides the provision for Divorce by Mutual Consent. It explains that if the parties that are living separately continuously for a period of one year and parties are not able to live together and have agreed to separate mutually then they can seek divorce by mutual consent.
The Muslim Women (Protection on Divorce) Act, 1986 and Personal Laws
According to The Muslim Women(Protection on Divorce) Act, 1986 and Personal Laws, Muslims can seek Divorce by mutual consent. There are two types of divorce by mutual consent in Muslim Personal Laws:
Khulla
Mubarat
Both under Khula and Mubarat, there is no need for giving any reason for divorce and in case of Mubarat no consideration passes from wife to her husband. So the wife (in case of Khula) or both husband and wife(in case of Mubarat) decides to separate on a no-blame basis. Resort to Khula and Mubarat are commonly seen in India as a mode for dissolution of marriage.
Divorce by Mubarat is very close to the provision of Divorce by Mutual Consent under:
Khula means to lay down. It also means that the husband lays down his right and authority over his wife. The wife proposes the husband for dissolution of marriage and she can do this by providing some kind of consideration to him. This may be by giving up her dower or something else. This totally depends on the wife that she provides the consideration or not. So this type of divorce starts from wife and husband can’t refuse it, but he can do negotiations related to the consideration.
In the case of Mst. Bilquis Ikram vs. Najmal Ikram [1], it was held that the wife has to satisfy the court that this marriage is forcing her into a hateful union after that she is entitled to Khula.
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Essentials of a Valid Khula
Competence of the parties: The parties must be of sound mind and have attained the age of majority.
Free consent: The husband should accept the proposal made by the wife. There should be free consent on the husband’s behalf. The consent should not be influenced by force, fraud etc.
Formalities: An offer must be made by the wife to free the husband from the matrimonial tie and husband needs to accept the offer.
Consideration: The wife has to pay something to her husband to seek her release. This could be anything property, money etc.
As soon as the proposal is accepted by the husband the marriage is dissolved, even if the payment for consideration is on a later date.
Mubarat (Mutual Release)
In this case, both husband and wife are willing to dissolve the marriage. So the offer of separation can come from either the husband or wife’s side. The essential features of divorce by Mubarat are as follows:
Both parties want to get rid of each other.
Both the parties are interested, so there is no need for consideration.
Legal Consequences of Khula and Mubarat
The effects are similar to that of divorce by any other method. The wife needs to undergo the period of iddat and husband has to maintain her during that period. After the completion of the period, marriage dissolves.
Difference Between Khula and Mubarat
Khula
Mubarat
Redemption of the contract of marriage.
Mutual release from the marriage.
Wife gives the offer and husband accepts it.
Either the husband or wife can make the offer and the other party can accept it.
Consideration is given by the wife.
There is no consideration involved.
Dislike is from the wife’s side.
Mutual dislike.
The Indian Christian Marriage Act, 1872
The provision of the Indian Divorce Act,1869 is applied to the Christain marriage in India. Their marriage can be dissolved under Section X of this act. Under Section XA (as amended in 2001) both the parties can file for divorce by mutual consent.
The Parsi Marriage and Divorce Act 1936
Under Section 32B Divorce by Mutual Consent is defined. It provides that whether the marriage is solemnized before or after the commencement of the Parsi Marriage and Divorce (Amendment) Act, 1988 they can file for divorce by mutual consent. The suit has to be filed by both the parties and the parties must be living separately for a time span of one year and they are not able to live together and decided mutually to separate. The suit cannot be filed unless the period of one year has expired from the date of marriage. If the court is satisfied from the facts and circumstances of the case, the Court can grant the decree for divorce.
The Special Marriage Act, 1954
The divorce by mutual consent is filed under Section 28 of the Special Marriage Act, 1954 in case of court marriage. The parties have to together file a petition in the Court claiming that it is not possible for them to live together and because of this they are living separately and they both decided to file for a divorce by mutual consent.
Also, both the parties are provided with a time span of six months to think about their decision but if the parties are fixed on their decision than after the completion of six months and before ending eighteen months the party can move in the Court. After getting satisfied with the facts and circumstances of the case and when there is no ground available on which the petition can be rejected than the Court can grant a decree for divorce by mutual consent in favour of the parties.
Step by Step procedure to file for a Mutual Divorce
Step 1: Petition to File for a Divorce
Firstly, a joint petition has to be filed by both the parties for dissolution of marriage to seek a decree for divorce. The petition is to be presented to the Family Court duly signed by both the parties. The spouses have to present the petition on the grounds that, they both are living separately for a consecutive period of one year. It is hopeless for the parties to live together and they have co-jointly decided to divorce.
If anyone of the party is not available then any family memberof such party can file the same on his/her behalf. After this, the ‘First Motion’ is established.
The court will give the date for pleading after a period of six months but the period will not be more than eighteen months. The time period after six months and before the completion of eighteen months is known as the cooling-off period. If the party doesn’t take action on a given date or if the parties pull back the case then the petition stands cancelled.
Paper Requirement
The papers that are required along with the petition are:
Birth details and family details.
Details of income.
Details of assets owned.
Income tax returns filed for a period of three years.
Jurisdiction of the Court
Place of a jurisdiction of the court can be the one where:
Couple last lived.
Their marriage was solemnized.
Wife is residing at present.
Step 2: Appearing Before Court and Inspection of the Petition
When the date is given by the Family Court, the parties have to be presented there with their respective lawyers who are representing them along with their documents. The court, in the first case, will tend to bring settlement between the parties so that they could drop the idea of getting a divorce. But if no parties agree then the court will move further with the petition for divorce.
Step 3: Passing Orders for a Recording of Statements on Oath
After the petition is examined by the court and the court is satisfied by it, then Court can order that the party’s statement to be recorded on oath.
Step 4: First Motion is Passed and a Period of 6 Months is Given Before the Second Motion
After the recording of the statement, the court passes an order on the first motion. Before the filing of the second motion, a time period of six months is granted to both the parties. Before the ending of eighteen months from the date of presentation of divorce petition in the Family Court, the second motion is filed.
Step 5: Second Motion and the Final Hearing of Petition
The parties appear and record statements before the Family Court, once they decided to go ahead with the proceedings and appears for the second motion. In the final hearing, the parties need to be present in the court.
The Supreme Court can waive off the period of six months given to the party if the court is satisfied that the parties are settled on the issues related to alimony, custody of the child or if the court is of the view that the waiting period will only extend the adversity of the parties.
Step 6: Final Decree of Divorce
The court passes the decree of divorce when it comes to the conclusion that all the facts and statements present in the petition are true and there is no scope of reconciliation between the parties. The divorce becomes final once the decree of divorce is obtained by the court.
No waiting in mutual consent divorce
There has been a conflicting view of the courts whether they should wait for a period of six months or not.
In the case of Grandhi Venkata Chitti Abbal[2] and Dinesh Kumar Shukla vs. Neeta [3], it was held that the waiting period of six months is compulsory otherwise it will hinder an important aspect of the Section 13B(2) of the Hindu Marriage Act,1955. The period can be reduced from six months on the discretion of the court.
There was another view that was provided in Hitesh Narendra Doshi vs. Jesal Hitesh Joshi’s case[4], it was held that the provision of six months was given for a specific purpose. The purpose behind this provision is that in the period of six months the parties can give time to each other, think about it once again, introspect about it and reconcile.
Can mutual consent divorce be withdrawn?
If one party changes its mind and wants to save his/her marriage then that party can file an application before the Court where their proceeding for divorce is going on, stating that he/she wants to withdraw his/her consent for the divorce as he/she wants to give a second chance to their marriage. In case if both husband and wife agree to the withdrawal then both can withdraw the case mutually and the court can dismiss such petition.
What if one of the spouses withdraws the mutual consent divorce petition after filing in the Family Court? What can the other spouse do under such situation?
The court grants no divorce decree in case either of the spouses files an application before the court declaring that he/she doesn’t want to pursue Divorce by Mutual Consent. It can be done during those six months when the petition is pending in the court.
The court can grant a divorce decree and dissolve the marriage if it comes to know that the unilateral withdrawal of consent is notgenuine. So the court will ignore the withdrawal of consent and will grant the decree.
If the money is accepted by wife at a later stage and she withdraws her consent and did not make any effort to reconcile in the last seven years then it cannot be called a genuine act.
There are several cases in which it is seen that the wife withdraws her consent by filing an application in the court in order to demand more permanent alimony than what was agreed upon. This is can be used as a tool for harassment.
Can the consent be withdrawn after filing for Divorce by Mutual Consent?
Cases under which the court has explained that the consent can be withdrawn after filing for divorce by mutual consent are:
In Jayashree Ramesh Londhe vs. Ramesh Bhikaji, the court held that no party can withdraw from the joint petition of divorce unless and until there is a consent of both the parties for the respective withdrawal.
Also, in the case of Nachhattar Singh vs. Harcharan Kaur the court held that once the parties voluntarily file the petition for divorce by mutual consent and all the conditions mentioned under Section 13B(1) of the Hindu Marriage Act,1955 are fulfilled, then it is not open for the party to withdraw the consent.
In the case of Sureshta Devi vs. Om Prakash, the court held that unless and until the decree of divorce is passed the mutuality of consent should be there. The purpose of giving a time span of six months is that there can be chances if the parties want to change their mind. It is not necessary that both parties change their mind. It can be done by one party also.
Later in the case of Ashok Hurra vs. Rupa Zaveri, the court said that the mutual consent should continue till the passing of the decree of divorce, even if the consent is not withdrawn by one of the parties during the time span of eighteen months.
In Anil Kumar Jain vs. Maya Jain, the court explained that consent that is given by the parties at the stage of filing of the petition must continue till the second stage when petition comes up for order and decree for divorce is passed. The Supreme Court while exercising its extraordinary power under Article 142 of the Constitution can pass several orders to provide complete justice to the party.
The court would consider that the consent for divorce was continuing if the party who is withdrawing the consent does not communicate it to the court either himself or by his/her counsel.
A Division Bench of Rajasthan High Court held that at the time of second motion the withdrawal of consent to divorce by the party must be by a positive act.
Circumstances under which courts don’t agree with unilateral withdrawal by a Spouse
If there is no sufficient cause for withdrawal of the consent then the court considers that the withdrawal of consent is done under some pressure. When one party withdraws its consent it amounts to mental cruelty after mutually agreeing to divorce.
Whether mere silence at the second stage would amount to withdrawal?
In the case ofSuman vs. Surendra Kumar [10], husband after filing the joint petition for divorce did not turn up at the second stage. The Family Court held that mere silence would not amount to a withdrawal of the consent as one party himself left the matter. So the conclusion has to be drawn in the favour of consent instead of the absence of consent.
Mutual divorce in India takes how long
The proceeding can go on till a minimum of three hearings or six months to one year depending from case to case. In some cases, if the matter is very serious than it can extend up to two years till ten years or more as the case may be.
Alimony in mutual divorce
The party can fix the maintenance or alimony through mutual consent if the parties are seeking divorce through mutual consent. According to the agreement a particular amount of money can be given either by the husband to wife or vice versa as the case may be. The amount to be paid is decided on several grounds such as respondents own income, the property he/she owns etc.
Can a working woman ask alimony in India
A working woman can ask for alimony in India. Mostly, the wife gets 20-35 percent of the husband’s net taxable income. A working woman can get maintenance if the court feels that she is not able to support her lifestyle which she enjoyed while she was married. The court can also grant maintenance in the case if she has dependants and she is not able to maintain them because her income is not that sufficient and also if she has some reasonable demands.
Divorce alimony calculator India
There is no fixed formula for calculating the alimony. The Court provides different alimony in different types of cases depending upon the facts and circumstances. The Court considers the status of the parties, their needs, husband’s capacity to pay, the number of people they have to support financially.
The alimony is decided by taking into consideration the total monthly income that they take home without tax, their educational background, years since they were married and the number of children they have. The Supreme Court has set alimony benchmark to be 25 percent of ex-husband’s net salary. The Court also said that 25 percent of the husband’s net salary would be just and equitable for the wife so that she can live her life with dignity.
In the case of Gaurav Sondhi vs Diya Sondhi [10], the Court laid down the procedure that has to be followed by the Matrimonial Courts while granting interim maintenance/maintenance. Following is the procedure for granting maintenance
The husband has to pay to his wife before the 10th day of every month. The Court can direct husband to pay such on a later date after taking into consideration all the facts and circumstances of this case which makes it impossible for him to pay on such date. The Court can pass orders to direct the husband to pay such maintenance on a later date.
If the wife is having a bank account then the husband is directed to make such payment directly in her account before the 10th day of the month.
The payment can be made through counsel if there is any difficulty in making it to the wife or the child directly. The husband can also deposit a draft/ crossed cheques in the name of the wife in the Court registry.
In case there is a default in first payment than the Court can forgive it. But if there is a default in second payment without a proper reason then the court can add penalty up to 25 per cent of the amount of monthly maintenance.
If there is a default in third and fourth then the penalty may increase up to 50 per cent of the monthly amount of maintenance.
It is the duty of the court to ensure that the order of maintenance is meaningful and provide support to the wife.
A written statement should be filed within a reasonable time if the interim maintenance is being paid and litigation expenses have been provided to the wife.
The Court must take into consideration the nature of employment of the husband while applying penalty because of default in payment. Husbands having irregular employment have more chances to make default in payment.
One sided divorce in India
Divorce without Mutual Consent
When one party to the divorce is not ready to seek divorce then the only option left to the parties is to fight for it in the Court. This is known as “Contested Divorce”. The Hindu Marriage Act,1955 provides numerous grounds for divorce.
Grounds for Divorce
The marriage which has been solemnized under Section 13 of The Hindu Marriage Act,1955 can seek divorce. The following grounds applies to both husband and wife:-
Adultery.
Cruelty.
Desertion.
Conversion.
Unsoundness of mind.
A Virulent or incurable form of Leprosy.
Venereal Disease in a communicable form.
Renunciation of world.
Presumption of Death.
Additional grounds for Divorce without Mutual Consent
Along with the above conditions, the parties can seek divorce on the following grounds:
After passing of the decree of judicial separation, cohabitation between the parties has not been resumed for a period of one year or more.
For a period of one year, from the passing of the decree of restitution of conjugal rights, there has been no restoration of conjugal rights.
Grounds on which only wife can seek divorce
Grounds that are provided only to the wife under The Hindu Marriage Act,1955 are:
Bigamy.
Rape, Sodomy or Bestiality.
Non-resumption of Cohabitation after the decree of maintenance.
Extramarital sex is known as “adultery”. Other than his/her spouse if a married person voluntarily indulges in sexual intercourse with a person of the opposite sex during the subsistence of his previous marriage then it is termed as adultery. These are sexual relations not allowed by marriage.
To prove adultery, circumstantial evidence is enough.
To establish adultery:
There should be voluntarily sexual intercourse. Circumstances under which the action will not be considered as adultery are:
An attempt to commit adultery.
Mere love letters will not establish the guilt of extramarital sex.
If there is an involuntary sexual act.
If the act is committed under intoxication, by force or fraud.
If a woman willingly commits an act considering another man to be her husband.
Sexual intercourse should take place after the solemnization of the marriage with the petitioner.
Even a single act of adultery will act as a ground for divorce.
When a child is born during the wedlock it is conclusive proof for the legitimacy of such child, unless it is proved that the child is born during the period when parties have no access to each other.
For example, the wife has been living separately since June 1973 and gave birth to a child in May 1974 was valid proof that the child was of a third person other than that of husband.
In Rajeev vs. Baburao [11], the court held that when a married person contracts a bigamous marriage after this act has been commenced then his wife can file a suit for divorce under this provision because the second marriage will be considered as void and any type of sexual intercourse with his second wife will amount to adultery.
In the case of Veena Kalia vs. Dr Jatindra Nath Kalia [12], the court held that the husband is guilty of adultery, cruelty and desertion because after getting married he went abroad leaving behind his wife and two daughters. There he married again and had three children from. For 23 years they lived apart. The court grant the decree of divorce in the favour of wife and husband was ordered to pay ten thousand rupees per month.
Cruelty includes both physical as well as mental cruelty. Before the Amendment Act, 1976, it was only a ground for judicial separation and not a ground for divorce. Earlier view on cruelty was that there should be actual physical harm and reasonable apprehension to establish cruelty but this view was changed. Now mental cruelty is also considered as a more serious injury.
Cruelty can be established from facts and circumstances of the case. It mainly includes the behaviour of one spouse towards the other which causes suspicion in the mind of the party who is filing for divorce that it is unsafe to live with him/her.
Instances of Cruelty:
Physical Cruelty:
Burning any limb of the body.
Feeding something that is injurious to health.
Making an attempt on life.
Mental Cruelty includes:
False charge of unchastity.
Forcing the wife to adopt the life of a prostitute.
False charge of impotency.
Threats to commit suicide.
Keeping a concubine.
Neglect of the wife when she is seriously ill.
Repeated abuses
Continuous taunts, curses.
Injury caused to near and dear ones.
Cases wherein there was no cruelty
Petty quarrels.
Refusal of wife to resign the job.
Ordinary wear and tear of married life.
Consumption of alcohol by husband unaccompanied by abuses, insults and violence.
The court held the wife guilty of cruelty in the case of Dastane vs. Dastane [13]. The wife used to abuse parents and ancestors of the husband, she used to beat their child. She abuses her husband. Cursed the Dastane family, insults his husband in the presence of his students, tore the mangalsutra twice, rubbed chillies on the tongue of an infant child, defame him on a daily basis, used to nag him all night and don’t let him sleep, used to hide his shoes, keys and important documents, locked him outside the door on various occasions. The conduct of wife not only amount to physical cruelty but also amounts to mental cruelty.
In Bhagwat vs. Bhagwat [14], it was held that intention is not an essential element to establish cruelty. In this case, the husband strangulates wife’s younger brother on one and his son on another occasion. It was established that the husband in both cases acted due to a fit of insanity. So it was held that intention is not an essential element in order to establish cruelty and take divorce on this ground.
When one spouse intentionally abandons another spouse without his/her consent or without any reasonable cause is called desertion. It is withdrawal from the matrimonial obligation.
Essential elements of desertion
Deserting spouse has to prove two elements:
The factum of separation.
There should be an intention on his/her behalf to permanently end the cohabitation.
Deserted spouse is concerned with:
Absence of consent.
Absence of a reasonable cause.
The petitioner has to prove all these elements. All these elements must continue for the entire statutory period of not less than two years.
No Desertion without previous cohabitation
Cohabitation by the parties is an important element of a valid marriage. Desertion will not be established unless and until there is the previous cohabitation by the parties.
Types of Desertion
Desertion is of two types:
Actual desertion.
Constructive desertion.
In Actual Desertion, the deserting spouse gives up on the matrimonial home without proper excuse and justification. To prove Actual Desertion following facts must be established:
Parties must have parted.
There is an intention on the part of deserting spouse to desert the other spouse.
No consent is given by deserted spouse in this regard.
There should be no reasonable cause for desertion.
Desertion should continue for a period of two years as it is a continuing offence.
In Smt. Snehlata Seth vs. Kawal Krishna [15], the husband filed a petition for divorce on the ground of desertion as the wife left husbands matrimonial home. The Court rejected this petition saying that the wife left the matrimonial home only at the instance of her mother-in-law and she has a bona fide intention to return to her matrimonial home but the husband is not ready to take her back. So the Court rejected her petition on the ground that leaving matrimonial home like this will not amount to desertion.
In Lachman vs. Meena [16], the wife was living with her husband’s joint family. After five years of marriage, she went to South East Asia in order to handle her parents business. During this period her husband wrote her to return back to her home but she used to reply that her health doesn’t permit her to return. There was no intention on her behalf to return as it can be judged through the letters. So it was held by the Supreme Court that there should be not only factum of separation but also an intention to separate in order to establish desertion as a ground for divorce.
The court in the case of P.V.Veeraraghavan vs. S.T.Parrvathy [17], AIR 1974 Ker 43 held that where the intention to separate is not proved than the decree of judicial review will not be granted. In this case, the husband has insufficient means to afford a new matrimonial home. So he directed his wife to leave with him in his ancestral home with his parents and brothers but the wife did not agree to it. The husband filed a petition for judicial separation on this ground on which the court held that there was no intention to separate from wife’s side so no decree would be granted.
Constructive Desertion
It can be proved while the spouses are living under the same roof. It may not be withdrawal from a place but a state of things. It includes:
Intentionally neglecting the other spouse.
Ignoring opportunities for copulation.
Not performing his/her marital duties.
In the case of Disnhaw vs. Dinshaw [18], AIR 1970 Bom 341 the Court held that constructive desertion is a matter of inference that is to be drawn from the facts and circumstances of the case. If due to husbands treatment wife leaves then it is clear that the wife left due to husbands intended action. He wants her to leave. So it depends on the motive of the deserting spouse and its effect on the deserted spouse. If the deserting spouse has malice towards the deserted spouse and due to his actions and treatment the deserting spouse finds it difficult to live with the other than this can be the case of cruelty. But if the withdrawal from the society is with a valid reason than this withdrawal will not amount to cruelty.
The neglect should be such that it is clear that he/she has decided to break the wedlock.
The Supreme Court has dismissed the appeal of wife in the case of Savitri Pandey vs. Prem Chandra Pandey [19] because she charged her husband with the offence of desertion and in her own pleadings she mentioned that the parties have never consummated. The wife lived with her husband for a few weeks and put a fake charge on her husband that he tortures her. She started demanding all household articles as well as money and also put a false charge of adultery on her husband. The court held that consummation is a very essential aspect of desertion and according to her own pleadings the parties never consummated. So, the appeal was dismissed.
In Bipinchandra vs. Prahbavati[20] the court held that the guilty party can bring an end to desertion through the resumption of cohabitation, resumption to marital intercourse and through the offer of reconciliation.
If a Hindu cease or ceases to be Hindu by converting himself into another religion than the other party who is still a Hindu is entitled with the right to seek divorce under this section. Also, if children are born to him/her after the conversion gets disqualified from inheriting the property of any of their Hindu relatives.
A petitioner who seeks divorce on this ground has to prove the following:
The other spouse discontinued being a Hindu.
He has done so by accepting another religion.
This ground is not available to the converting spouse because then the spouse will take advantage of his own wrong. But if both the spouses convert into another religion then no one can seek the remedy for dissolution of marriage.
The court in the case of Sarla Mudgal vs. Union of India [21] and Lily Thomas vs. Union of India [22],held that simply because one party has changed its religion than a marriage which is solemnized according to one personal law will not dissolve the marriage solemnized under another personal law. Marrying another woman while the first wife still exists is an offence under Section 494, IPC. Justice Saghir Ahmad explained that where a person adopts another religion just because there is a plurality of marriage allowed and he gives up on his first marriage then he cannot be allowed to take advantage of his wrong by exploiting the religion, as religion is not something that should be exploited.
Before 1976, unsoundness of mind for one year was a ground for judicial separation and if it continues till three years then it will be a ground for divorce. But after the 1976 Amendment, no period is prescribed and moreover, it includes all types of mental cases, sub-normality and abnormality.
The petitioner has to prove that:
Respondent has been of unsound mind.
It is incurable.
It is of such kind that the petitioner is not expected to live with the respondent.
The Amendment Clause after 1976 also includes the following things under mental disorder:
There is no period prescribed for filing a petition under this clause but prior to the 1976 Amendment, it was one year for judicial separation and three years for divorce. The requirements are:
Respondent is suffering from leprosy which is an infectious disease resulting in disfigurement causing permanent disability.
Leprosy must be both Virulent and Incurable. Ordinary leprosy is not a ground for divorce. Virulent means highly poisonous, venomous.
The Communicable disease passes from one person to another, by the touch of that person or using his/her objects etc. The petitioner must give medical evidence in order to seek divorce on this ground. After the 1976 Amendment, there is no period prescribed for this.
By entering any religious order and renouncing from worldly affairs it amounts to “civil death”. To seek divorce on this ground the petitioner has to establish that:
Respondent has entered any religious order.
He/she has renounced the world.
A Spouse can only sue another spouse unless and until the second condition is also fulfilled. A person who renounces the world has no interest in society. It can be both Tyag and Sanyasa. Thus, mere tyag will not be considered under this ground it has to be coupled with sanyas.
If a person is not heard of being alive from his/her near or dear ones or his/her relatives for a period ofseven years then he/she seemed to be legally dead. But in case he/she was married before, then their spouse can seek divorce on such a ground. In this case, no alternate decree of judicial separation is passed.
In the case of Vinita Saxena v. Pankaj Pandit [23], the lady got married at the age of 24 years. The marriage lasted for three to four months and she was forced to leave her matrimonial home. Marriage was not consummated and the respondent was also not in a position to fulfil his matrimonial obligations too. They lived separately since 1993. They have never seen each other in thirteen years and there was no chance of reconciliation. The court decided in favour of the wife and granted the divorce.
Non-Resumption of cohabitation after the decree of Judicial separation or Restitution of Conjugal Rights
According to Section 13(1A)(i) of the Hindu Marriage Act,1955 after passing the decree of judicial separation, if the parties don’t resume cohabitation for a time span of one year or more than this can act as a ground for divorce for another party. Mere going together to some places do not amount to cohabitation. If the wife wants to resume the cohabitation but the husband dont want it or vice versa then this can also act as a ground for divorce.
Also, if there is no restoration of conjugal rights for a continuous period of one year or more after passing of such decree then this can act as a valid ground for divorce under Section 13(1A)(ii) of the Hindu Marriage Act,1955. Restitution of conjugal rights means that the parties must return to cohabitation.
If the husband marries again while his first marriage has not dissolved then he will be guilty of bigamy and wife can seek divorce on this ground. The necessary ingredients of this section are:
The husband should marry another woman.
Husband married again while his first wife is alive.
If a person has two wives then the co-wives can seek divorce on the following grounds:
Before the commencement of this act both the wives are married to him.
Petition for divorce is filed when both the wives are alive.
Both marriages must legally exist.
This section is for women, it provides support to the women as there are several cases in which the husband converts themselves into Islam so that they can get married to more than one wife.
All these three matrimonial offences are also crimes under IPC and punishment is provided for them. Sexual deviancy of the husband has been made a ground for divorce. If the wife proves that since the solemnization of marriage husband is guilty of rape, sodomy or bestiality she can be granted with the decree of divorce.
Rape– it is sexual intercourse by a man with a woman against her will. A wife can file for divorce on the ground that the husband has raped her. For this, she must be below the age of fifteen years because sexual intercourse with a girl below the age of fifteen years is rape.
Sodomy– Anal intercourse by a man with his wife or with another woman or with a man is termed as sodomy. Here, the consent of the victim and his/her age have no relevance in order to establish sodomy.
Bestiality– It means sex with an animal and it is covered by unnatural offences under Section 377, IPC.
When the court has passed the order that the husband has to provide maintenance to his wife, and if the husband did not obey the order of the court and cohabitation has not resumed between them for a duration of one year or upwards then, the court grant the decree of divorce in favour of the wife on this ground.
When a decree is passed under Section 18 of the Hindu Adoption and Maintenance Act,1956 and under Section 125 of the Criminal Procedure Code, 1973 then it becomes obligatory for the husband to pay maintenance to his wife and also to resume cohabitation within a time period of one year. If the husband fails to discharge his duty then, the wife can seek a divorce in the court. If the husband offers cohabitation and wife doesn’t respond to it she is within her prescribed rights.
This clause is for the girls who are married and have not attained the age of fifteen years. Consummation of marriage is irrelevant here. The wife can get a divorce under subsequent conditions:
She must be below the age of fifteen years at the time of marriage.
Marriage is repudiated by her before attaining the age of eighteen years and after attaining the age of fifteen years.
The wife has to prove repudiation and there is no such prescribed procedure for this. There was no such right available prior to the Amendment of 1976, the Amendment Act,1976 added this clause.
That is all about Divorce by Mutual Consent. So far it has been seen that divorce by mutual consent is a better way rather than defaming each other through a court proceeding in an uncultured manner. In fact, in the case of divorce by mutual consent, the divorce can be granted as soon as possible by taking into consideration all the relevant facts and circumstances of the case rather than getting a divorce on other grounds which will definitely involve more time, money and efforts of the parties.
This article is written by Ayushma Sharma of Faculty of Law, Aligarh Muslim University where she has discussed the Bhopal Gas Tragedy Case.
Introduction
The night of 2-3 December 1984, was the most unfortunate night for the Bhopal, in fact not only for Bhopal but for the whole world. Thousands of people lost their lives that night and many are suffering the consequences of the tragedy even now. The incident was caused because of the leakage of Methyl Isocyanate (MiC) gas from the Union Carbide India Ltd (UCIL) plant.
Bhopal Gas Tragedy Case Study
Background
The Union Carbide Corporation, an American enterprise established a pesticide plant in India because of its central location. The plant was supposed to produce Sevin, a pesticide. Union Carbide and the Indian Government had a deal, and under this idea, the Union Carbide had a 50.9% share and the Indian Investors had a 40.1% share. The plant was named as The Union Carbide India Limited (UCIL).
UCIL started its production of pesticide in 1979. While this pesticide was produced, a toxic liquid was also produced i.e., Methyl Isocyanate (MIC). Since MIC is a very toxic chemical it required great maintenance.
Around 1:00 a.m on 4th December 1984, when the MIC gas started swallowing up the whole of Bhopal people who were sleeping peacefully started feeling the change in the air. They ran for their lives but couldn’t escape their death. Some who were able to save their lives weren’t able to save themselves from the coming disabilities. All this happened because of leakage of the MIC gas from the tank E106.
Earlier, too, complaints were being made about the maintainability of the plant, of how MIC was leaking in small amounts. The previous incidents of leakage had also caused the death of some people and left others severely injured. But, the authorities paid no attention to it. The machines were worn out but no replacement was there.
The Gas Disaster
Around midnight on 3-4 December 1984, the MIC gas got leaked from the plant and got mixed with the fresh air in Bhopal. Suddenly, people started feeling uneasy, started vomiting, were having trouble while breathing, people started dying within a few minutes of inhaling the toxic gas. It was not only the human beings that suffered but animals, too, suffered and lost their lives.
People, in large numbers, were rushed to the hospital but at that time no doctor knew about the actual cause of death. No one knew about the leakage of the MIC. They just had a hunch about some leakage but exactly didn’t know about the leakage of MIC gas. Since doctors couldn’t operate properly without knowing the exact cause of the accident, so many people lost their lives.
It was reported that nearly 3000 people lost their lives and more than 6 lacs were severely injured. The survivors survived with permanent respiratory problems, and other complications. Children who weren’t even born at that time were born with some health issues.
The International Medical Commission
After the tragedy took place there was no proper health aid provided to the victims. The company was involved in lawsuits and was on the verge of closing down its business. On the other hand, the Indian Government had to face the wrath of the families of the victims and the other people all over India on a lack of carrying out an investigation and providing medical aid to the sufferers.
For the medical personnel to provide correct medical treatment to the victims they had to know the exact cause of the tragedy. So that based on the cause they could start their operation. A connection had to be established between the cause of the accident and the health attributes caused by the accident.
In 1992, Permanent Peoples’ Tribunal suggested the formation of an international commission to provide better medical treatment to the victims of the Bhopal tragedy. Later on, in 1993 Bhopal Group for Information and Action laid down a proposal for the same.
Finally, in the year 1993 International Medical Commission on Bhopal (IMCB) was organized to provide medical assistance to the survivors of the Bhopal tragedy of 1984. IMCB was a constitution of 15 professionals from 12 countries having expertise in the field of:
Environmental health
Respiratory medicine
Toxicology
Immunology
IMCB had co-chairpersons and they were, Dr. Rosalie Bertell and Gianni Tognoni. The main aim of the International Medical Commission on Bhopal was to provide some relief to the victims and to suggest some ways to prevent such disasters in the future.
The work was divided into 8 areas, and they are:
Clinical
Family Life
Epidemiology
Medical care
Drug Therapies
Accident Analysis
Claims
Review of published literature
A plan was laid out for investigation to know the actual cause of the exposure. This plan has three phases.
First Phase – In this phase, the symptom report was analyzed and distance was used as a substitute for exposure. It stated that respiratory and neurologic problems were the aftermath health effects of the exposure.
Second Phase – Lung function and respiratory organs were assessed. According to the report, there were excessive respiratory issues and the functioning capability of the lungs was reduced with each passing minute.
It was noticed that to know the exact level of risk factors involved it was necessary to analyze the exposure accurately. Also, to provide long-term care and medical aid it was mandatory for them to know exactly what they were dealing with.
Third Phase – This was the last phase of the process. In this phase, the victims were assessed individually based on exposure time, location and distance. Finally, the reports were compared to the findings from the distance surrogate to determine whether their association is better than that of distance alone.
Immediate effects of the Bhopal Gas Tragedy
The leak and its effects
Methyl Isocyanate (MIC) :
The colorless liquid used for the creation of pesticides.
Is highly toxic.
Since it is extremely reactive to water, it requires good maintenance.
A small amount of water is sufficient to increase pressure for converting the liquid into a toxic gas.
The UCIL had to store three tanks of MIC and its temperature was to be maintained below zero degrees celsius. Also, it was to be kept under pressure with the help of inert nitrogen. But, before the few days of the accident the tank, E106, in which the MIC was kept couldn’t hold the pressure any longer resulting in stopping of production for some time.
The tank even after being worn out couldn’t stop the production for a much longer time. The production process resumed after some time. But, on the night of 2-3 December 1984, because of a lack of maintainability, the water broke out from the connecting pipe and started getting mixed with the MIC liquid. This resulted in a strong heating reaction because of which pressure at a splitting pace was created and the MIC gas got released.
People who were leaving nearby started getting affected by the harmful gas. They started having a breathing problem, irritation in eyes, chemical burns on the skin, contraction of lungs. They were then taken to the hospital but without the main reason for the accident, the doctors couldn’t operate correctly.
Cause of Leakage
Though the main reason for the tragedy was the mixing of water with the Methyl Isocyanate because of leaks in the connecting pipes yet it was not the only reason that contributed towards the happening of the tragedy. There are many other reasons which contributed to this unfortunate event. All these small reasons are because of the lack of proper maintenance.
Following are the reasons that, too, have contributed to the Bhopal tragedy:
An inspection team came from Danbury, the United States to the Bhopal plant and found 61 safety problems. Out of these 61 problems 31 were major.
Main refrigeration and cooling system were closed down before 150 days of the accident
To lower the cost number of workers working were reduced.
Also, the specialized training was not given to the unskilled workers so that they could at least have an idea about the consequences of their actions.
As already mentioned, before this major tragedy there had already been minor leakages which cost the life of one worker and others were injured.
No supervisor was there for his night shift.
The pressure control valve of the tank E610 had not been working properly for over a month.
Negligence on the part of the maintenance authorities.
There was no backup plan in case of emergencies.
Another important thing to notice is that if the fire or the rescue squad had an idea of how to prevent the gas from spreading, or if there was any antidote chemical that could have been used to bring down the effects of MIC gas then, maybe some lives could have been saved.
The root cause was the lack of management on the part of the authorities. Also, it’s been said that the company had not informed all the concerned authorities about the emission of MIC gas. Had some authorities known about the gas maybe they could have prepared some backup strategies in case of a crisis.
Toxicology of MIC
Methyl Isocyanate is highly toxic. The American Conference of Government Industrial Hygienists stated that the level up to which a worker could be exposed to MIC without any harmful effects is 0.02ppm. As soon as the level is 0.4ppm it is toxic by inhalation, or by ingestion. At 5ppm, most people cannot detect it but because of symptoms, they get a warning.
The symptoms of exposure includes:
Chest pain
Irritation in the eyes
Breathing problem
Irritation in the nose and throat
Burning of skin
Coughing
When exposure level is above 21ppm it can result in:
Death
Bronchial Pneumonia – A condition that causes inflammation of the lungs
Lung edema – A condition caused by the accumulation of excessive fluid in the lungs, making it difficult to breathe
Emphysema – It means damage to the air sacs in the lungs resulting in shortness of breath
Therefore, storing methyl isocyanate requires proper care and caution, and especially when comes to water extra precautions must be taken. Methyl Isocyanate is very sensitive to water. It can be stored in glass or stainless steel, and temperature should be below 40-degree celsius or 104-degree Fahrenheit.
Attributed diseases to the gas exposure
The attributed diseases to gas exposure are as follows:
Ophthalmic Problems – The MIC gas irritated the eyes of the people. MIC gas caused burning, watering, and photophobia, redness of the eye, swelling of the eyelid.
Respiratory and Pulmonary Problems – Inhalation of MIC gas resulted in shortness of breath, suffocation and chest pain. When examined it was found that some victims had suffered necrotizing lesions in their respiratory organs
Reproductivity Toxicity – Gas leak resulted in high-risk factors to the fetus and it not only the gas leak that increased risk but the factors like stress and ingestion of drugs by the mothers.
Genotoxicity – The MIC gas had affected the genetic information of the victims within their cells which had increased their possibility of having cancer.
Neuromuscular Toxicity – It was found that the survivors of the accident had neuromuscular symptoms like numbness, pain, aches, and sensation of needles
The victims suffered many other health problems like carcinogenicity, immunotoxicity, psychological and neurobehavioral toxicity.
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Litigation
After the accident, many cases were filed on behalf of the victims since there was a problem in claiming compensation, and many people, especially the ones having low financial status, couldn’t afford to fight the case for a long time. These cases were filed against UCC in Bhopal as well as in the USA. An effort was also made to settle the matter outside of the court but it wasn’t successful.
Then, after some time passed, the Indian Parliament passed The Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985. According to Section 3 of the Act, the government of India had the power to file cases on behalf of every citizen who was entitled to claim the compensation. The government by Section 9 of the Act introduced “The Bhopal Gas Leak Disaster (Registration And Processing of Claims) Scheme, 1985”.
The Indian Government filed a lawsuit in the United States District Court of NewYork against UCC. But, the UCC pleaded that filing the lawsuit in an American Court was not convenient. They pleaded on the grounds of forum inconvenient (it means that the Court can refuse to take jurisdiction when the parties have more convenient forums to go to). UCC said that since the accident took place in Bhopal and all the evidence was there only so it was more convenient to try in Indian Courts.
So, Keenon J. accepted the plea of UCC and a new case was filed in the District Court of Bhopal. The District Court ordered UCC to pay a sum of Rs 350 crore to the victims. Next, UCC filed an appeal in the Madhya Pradesh High Court against the judgment of Bhopal District Court. This resulted in a decrease in the “interim compensation” from Rs 350 crore to Rs 250 crore. Simultaneously UCC tried to settle the matter directly with the gas victims outside the court. But, M.W. Deo J. of Bhopal District Court put an interim order on UCC to not to make any settlement with any victim until further orders of the Court.
Finally, after the propagation of the rule of Absolute liability, the Court held UCC liable for the Bhopal tragedy. Though people had their doubts that the Indian Judiciary won’t be able to handle the situation. They thought that the wrongdoers would escape from their liability under the rule of Strict liability but it didn’t happen. The Indian Judiciary brought fair justice to the victims.
On 14th and 15th February 1989, the Supreme Court in Union Carbide Corporation v. Union of India [1] ordered UCC to pay a sum of $470 million (Rs 750 crores) to the victims.
Principle of Absolute Liability
This liability is also known as “No-Fault Liability”.
Absolute liability is a liability where the accused is held liable but without any exception of getting excused from the liability. Normally, a person can be held liable only when he had mens rea (guilty mind) but in the case of absolute liability, a person can be held liable even if he had no intention of committing the offense.
The principle of absolute liability is similar to strict liability. In the case of strict liability, a person keeps something dangerous with him, and he knows that even the slightest mistake would cause a release of that thing resulting in the death of human beings. So, even if he took proper care and caution but still the thing escaped resulting in the death of a man, he can be held liable under strict liability.
The principle of strict and absolute liability differ only at one point. While on one hand under strict liability, a person is having options to escape the lability so arisen but, on the other hand under absolute liability a person has no such options available.
This doctrine of Strict liability was laid down in Rylands v. Fletcher[2] by Justice Blackburn.
Facts:
The defendant paid the contractor to build a reservoir on his land.
The contractors while doing their work discovered old coal shafts in the ground.
They decided not to do anything and carried on with their work.
The defendant didn’t know anything about this.
Later on, when the reservoir was filled with water the shaft broke and the water started bursting out of the reservoir.
As a result, the neighbor’s mine was flooded.
The respondent (neighbor) then, filed a suit against the defendant and claimed damages.
Judgment:
The House of Lords propounded the Doctrine of Strict Liability in this case stating that even if the accused did not have any intention of causing any harm to others yet he would be held liable for the same. This was so because of his mistake harm was caused.
Following are the words used by Blackburn J. while propounding the rule: [3]
“We think that the rule of law is, that the person who for his own purposes brings on his lands and keeps there anything likely to do mischief if it escapes, must keep it in at his peril, and if he does not do so, prima facie answerable for all the damage which is the natural consequence of its escape. He can excuse himself by showing that the escape was owing to the plaintiff’s default; or perhaps that the escape was the consequence of vis major, or the act of God: but as nothing of this sort exists here, it is unnecessary to inquire what excuse would be sufficient.”
Another important feature of Strict liability is that for the applicability of this rule the use of land should be non-natural.
The Doctrine of Absolute Liability was introduced in this case [4] by P.N. Bhagwati J.
Facts:
The defendant, Shri Ram Food and Fertilizer Industry belonging to Delhi Cloth Mills Ltd. produced dangerous chemicals.
M.C. Mehta had already filed cases against this industry demanding closure of units of this industry.
On December 4 the oleum gas leaked from one of the units of the industry.
Many people lost their lives in this accident including an advocate practicing in the Tis Hazari Court.
It is believed that the leakage was caused because of mechanical and human errors.
not even two days after the accident there was another minor leakage of oleum gas from the connecting pipes.
District Court ordered Shriram industry to stop their production of lethal gases and chemicals.
M.C. Mehta filed a Public Interest Litigation (PIL) under Article 32 of the Indian Constitution.
Judgment:
It was the second case of leakage of toxic gas after the leakage of MIC gas from the Union Carbide plant in Bhopal within one year. The Supreme Court knew that if they applied the Doctrine of Strict liability which was laid down in Rylands v. Fletcher case then the industries involved in hazardous work will escape liability by using an exception to the rule of the strict article.
Therefore, the Apex Court decided to introduce a new rule which will align the Indian circumstances. It laid down the rule of Absolute liability which did not have exceptions available to a person under strict liability. The court held the defendant was liable under the rule of absolute liability.
The Court held that the petitioners could claim compensation for the same on behalf of the victims after filing an action in an appropriate court.
The Court, while justifying the rule gave the following two reasons:
An industry knows all about its operations that are being carried out while producing commodities. It is, therefore, the industry’s responsibility to have resources and safeguards in case of any danger.
When an industry is involved in a dangerous or hazardous activity for profit then it owes an obligation towards the public for their safeguard. Therefore, in case of an accident, it has to compensate for the sufferers.
Bhagwati C.J. while laying down the new principal gave the following statement: [5]
“We are of the view that an enterprise which is engaged in a hazardous or inherently dangerous industry which poses a potential threat to the health and safety of the persons working in the factory and residing in the surrounding areas owes an absolute and non-delegable duty to the community to ensure that no harm results to anyone on account of hazardous or inherently dangerous activity which it has undertaken. The enterprise must be held to be under an obligation to provide that the hazardous or inherently dangerous activity in which it is engaged must be conducted with the highest standards of safety and if any harm results on account of such activity, the enterprise must be absolutely liable to compensate for such harm and it should be no answer to the enterprise to say that it had taken all reasonable care and that the harm occurred without any negligence on its part.”
The Court gave the following statement as well: [6]
“Where an enterprise is engaged in hazardous or inherently dangerous activity and harm results to anyone on account of an accident in the operation of such hazardous or inherently dangerous activity resulting, for example, in the escape of toxic gas, the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any of the exceptions which operate vis-a-vis the tortious principle of strict liability under the rule of Rylands v. Fletcher.”
Enactment of Acts
Even after so many years of the accident people living in Bhopal, especially in the places near the plant, are still being affected till date. They haven’t escaped from the consequences of the accident yet. Even now, children who are being born have some kind of problem which is about the accident.
The Government to prevent future environmental hazards caused because of the actions of human beings has decided to implement laws that would protect the environment. Laws that would ensure that in case of disputes some authority is there for a speedy trial.
The Environment Protection Act, 1986
The Environment Protection Act was enacted in the year 1986 after 2 years of the Bhopal tragedy. The main purpose of the Act is to safeguard the environment and prevent future hazards. It is said to be implemented based on the United Nations Conference on the Human Environment held in Stockholm in June 1972.
The Act contains five chapters and twenty-six sections. This Act is concerned with the protection of the environment, human beings, plants and animals, and prevention of any kind of future hazard like Bhopal tragedy.
This Act is also known as an Umbrella Act because it makes the Union and the State work in coordination for the various other laws like the Water Act and the Air Act.
The National Green Tribunal Act, 2010
This Act provides speedy trial to the cases related to matters concerned with environmental protection. In case of any violation of environmental law, or case human beings require protection against the use of hazardous chemicals this Act is applicable. The main purpose of The National Green Tribunal Act is to provide speedy disposal of cases.
This Act has five chapters and thirty-eight sections. This owns its established to Article 21 of the Indian Constitution which provides for “Right to a healthy environment”.
The Factories Act
The Factories Act, 1948 was enacted before the Bhopal accident. But, the provisions of this Act are in favor of the workers involved in factories, industries, and mines. The main purpose of this Act is to ensure the welfare of the workers, to improve the working conditions for the workers and also, it provides special provisions for women and children involved in the factories.
The Public Liability Insurance Act, 1991
According to the Public Liability Insurance Act,1991, a person can claim relief in case of an accident caused because of keeping any hazardous chemicals. The Act provides public liability insurance. This Act is based on “No-Fault Liability”. This means that it is the responsibility of the person to compensate for another irrespective of the fact that he was careful enough to avoid any kind of accident.
Widened scope of Article 21 of the Constitution of India
Article 21 of the Indian Constitution states that every person has a right to life and personal liberty. Unless a court order, a person cannot be deprived of this right. This Article is considered as the “mini-constitution”. It includes many other rights within itself like, Right to Privacy, Right to Shelter, Right to Information. The Apex Court of India has widened the scope of Article 21 from time to time and by making ‘Right to a clean and healthy environment’ a fundamental right it added more to its dimensions.
The Supreme Court in Subhash Kumar v. State of Bihar [7] held that the citizens of India have a fundamental right of living in a free pollution environment for their full enjoyment of life. This even compelled the local authorities to take measures to decrease the rate of pollution in their areas.
In Rural Litigation and Environment Kendra, Dehradun v. State of Uttar Pradesh [8] the Supreme Court admitted a Public Interest Litigation under Article 32 of the Indian Constitution and ordered some limestone quarries to close down their quarries. It was held that only those quarries which were fit for operating their business and caused less adverse effect could carry out their work. The fitness of a quarry was decided after an inspection.
Initially, there was no provision regarding the protection of the environment but with time, the Supreme Court realized its importance and incorporated it as a fundamental right. There are other provisions, too, in the Indian Constitution that direct the State and the citizens to protect the environment. These provisions include Article 39(b), 47, 48, 49, 48 A and 51 A (g).
Amendment in Penalty
According to Section 15(1) of the Environment Protection Act, 1986 if a person violates any provision of the Environment Protection Act then he shall be punished with imprisonment for a term which may extend to 5 years, or with fine which may extend to one lakh rupees, or with both. And, in case the offender continues to violate the Act then he has to pay an additional fine of Rs 5000 every day from the date of conviction till he stops violating it.
Section 15(2) states that in case the violation continues beyond a period of one year then he can be punished with imprisonment for a term which may extend to 7 years.
Introducing New Legislative Rules
Hazardous Rules, 2008
The Hazardous Wastes (Management & Handling) Rules, 1989 was enacted under the Environment Protection Act, 1986. Later on, it was amended in 2000 and then in 2003.
The Hazardous Wastes (Management, Handling & Transboundary Movement) Rules, 2008 is concerned with the proper management in handling storing, collecting, and disposing of the ‘hazardous wastes’. The Schedule 1, 2 and 3 of the Rule divides hazardous wastes into different categories. The definition of ‘hazardous wastes’ under this Rule does not include exhaust gases, biomedical wastes, wastewater, etc.
Chemical Accident Rules 1996
The production process of different commodities involves dealing with many dangerous chemicals. The use of these chemicals, if proper care and caution is not taken, involves a high-level risk in case of any mishap. Therefore, the government of India introduced Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules, 1996, so that in case of any emergency people would know exactly what to do.
Under these rules a Central Crisis Group, State Crisis Group and a District Crisis Group were to be formed, and these groups would deal with chemical mishaps and provide guidance in dealing with the issue. A list of hazardous chemicals has also been mentioned in the Chemical Accident Rules, 1996.
Conclusion
No matter how many years have passed, the aftermath of the Bhopal tragedy can still be seen today. Even after holding UCC liable the loss of those people who lost their lives and the ones who are still suffering cannot be measured. Though it is important for the government to promote globalization it should ensure that there are no risks involved. Also, it is the need of the hour that the laws made are implemented in the best way possible because nothing is more important than the lives of the people.
Arbitration is a method of dispute resolution is favoured by the disputant parties to resolve various commercial and civil disputes, the construction sector is one such sector, where arbitration can prove to be beneficial to all stakeholders taking into account the complexity involved in such matters. The Construction Sector is mainly divided into three segments a) Infrastructure, b) Residential and c) Commercial construction.
Anatomy of Construction Dispute
Construction disputes are more complex (technically as well as factually). Typically construction disputes occur between the owner and the main contractor, subcontractors, sub-subcontractors, architects, end purchasers and design professionals.
The factors that contribute to the construction dispute are as follows:
Failure to administer the contract due to ambiguous terms of the contract or technical issues, force majeure;
Employer/contractor/subcontractor failing to understand their obligation under the law or incomplete design ;
Organizational behaviour and culture;
Poorly drafted contract, errors in contract document or incomplete claims.
Construction Arbitration vis a vis Generic Arbitration
Unique Nature of Dispute
Construction disputes are unique due to the involvement of multiple parties. Some of these parties may not be directly connected with the dispute but are nonetheless affected parties. The life of a construction project may be spread over a few years. During a project cycle, a large volume of data will be generated which will need to review and analyzed at the time of the dispute, this may not be the case in generic arbitration.
Construction arbitration involves dispute(s) arising from violations of specifications for materials and workmanship; Violations of terms of the agreement; Interpretation and/or application of contractual provisions; Commencement time and delays; Maintenance and defects; Payment defaults of employer or contractor; and Changes in contract costs.
Calculating the quantum of Damages
In generic arbitration, the parties generally pre-estimate the loss and contract clauses provide how damages are to be calculated or there is pre-estimate amount decided by the parties, however in construction arbitration the issues range overtime schedule, cost, reasons of delay, technical and expert opinion, laboratory experiments of faulty equipment, defects in designs, etc, so to decide damages or compensation, Arbitrator must take help of expert surveyors and specialist.
Multiple Stakeholder in Construction Disputes
There is a multitude of parties involved in the construction project, therefore, delays, inefficiencies; defects can be a result of several participants such as owners, architect, designer contractors, sub-contractors, etc., along with their separate contractual agreement, each having its dispute resolution provisions. To achieve a universal resolution of the entire dispute, parties may want to join all the interested parties into a single proceeding, so an award can be apportioned appropriately and inconsistent decisions avoided.
Very High Stakes are involved in the Construction Business
The high stakes involved in most of the government contracts and other private infrastructure projects the importance of arbitration for dispute resolution is very apparent. It is estimated that a roughly 70000 crore is stuck in Arbitration and the NHAI itself 22,000 crores is held up in arbitration.
Arbitration Contract
A template clause will not aid in the effective resolution of construction Arbitration, therefore as compared to generic arbitration, however in case of Construction Arbitration all the aspect of the construction disputes that may arise in the lifecycle of a project, differing in size, nature, and complexity. The clause could waive off certain rights like oral examination, or restriction on several witnesses to avoid delay the whole process, as compared to generic arbitration, in construction and infrastructure arbitration the use of oral witness is very low. Therefore arbitration clause should be drafted to suit the needs of the specific situation encountered by the parties. Construction Arbitration involves deciphering of complex contracts and documentation. A lot of data in the form of multiple agreements, cost accounts, emails, schedules, design, statutory permissions, court matters, minutes, etc., are required to recreate the timeline of events, the analysis of which is time-consuming and cumbersome.
It involves a complex point of law and procedure
Decisions in disputes are governed by substantive law and terms of the contract; fairness and natural justice which are for rules of conduct of the arbitration. Law should permit arbitration to be inquisitorial rather than adversarial to be more fair and quick. In the Middle East, for example, there are several national law requirements, some unstated, with which compliance is mandatory if an award is to be enforceable.
Arbitrators
In generic Arbitration, a retired judge or senior lawyer may be adequate as an Arbitrator, but not in case of Construction Arbitration. Given the complexity of the dispute, an Arbitrator must be well versed with the industry, construction contract, cultural and local environment, knowledge of relevant laws and legal precedents, legal systems, strong leadership quality in the management of the case, tech-savvy, weekday availability. Tribunal should be balanced as we have seen that there are many stakeholders involved in the matter.
Experts requirement will be inevitable
Thorough and convincing expert testimony can help a party prevail on any of the hosts of issues that typically arise in construction disputes. Experts in construction matters are often used to decipher engineering standards, analyze schedule delays, perform forensic accounting and find the root causes of defects, market conditions for loss of revenue claims to weather patterns for claims of force majeure.
Institutional Arbitration vis-a-vis Ad Hoc Arbitration
A lack of framework to conduct ad hoc arbitration in an impartial and time-bound manner makes the process no better than litigation. In a generic arbitration, parties may be able to resolve their dispute smoothly but looking into the complexity of construction arbitration an institutional arbitration is favoured as there is a cap on cost, the surety that arbitrator is neutral and all the information is kept confidential a promise and finally minimum 12 to 24 months. It gives guaranteed resolution; all that is required is that a clause is added in the contract that all disputes will be settled through a particular arbitration centre. E.g. Construction Industry Arbitration Council, Nani Palkhiwala Arbitration Centre, and London Court of International Arbitration India, Singapore International Arbitration Centre.
Interim Measures
Parties to Arbitration cannot wait for a long period for eventual remedy as there will be a number of factor including financial burden. There are times when parties to construction cases will need such interim measures to maintain the status quo until the tribunal provides the award based on the full hearing on the merits. In Generic arbitration, the parties may not insist on interim measures, however, due to high stake matters, it becomes essential to give interim reliefs. The Bombay High Court has recently granted ad-interim relief to a Chinese heavy industry giant. He has claimed Rs. 100 Crores as unpaid dues against the purchasers to whom it sold the machinery.
Conclusion
Global practices need to be developed and institutional mechanism needs to be in place to adequately address the multitudes of issues arising out of Construction Arbitration such fast track arbitration, interim relief, procedural formalities, the applicability of inquisitorial law and support of legislature and judiciary as the problems of Construction Arbitration is very different from Generic Arbitration.
Reference
Construction Industry Arbitrations: Recommended Tools and Techniques. (2019). [online] Paris, France: International Chamber of Commerce (ICC). Available at: http://www.iccwbo.org [Accessed 25 Jul. 2019].
Strengthening Arbitration and its Enforcement in India – Resolve in India (online), New Delhi: Niti Ayog
Arbitration Act: Bombay HC relief to Chinese Manufacture under Part I : Bar & Bench. [Accessed 24 Jul.2019]
Benefits of Institutional Arbitration and their role in Construction Industry: CA Rajkumar Adukia
Effective Handling of Construction & Infrastructure Arbitration in India (2015) (online), New Delhi: Law Senate. Available at: http://www.lawsenate.org [Accessed 25 Jul. 2019].
Shaikh, S., Magar, D. and Parkar, F. (2019). Claims and Disputes in Construction Projects. International Journal for Research in Applied Science & Engineering, [online] 4(XI), pp.252-257. Available at: http://www.ijrset.com [Accessed 25 Jul. 2019].
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
In this Article, Ayushma Sharma of Faculty of Law, Aligarh Muslim University has discussed Road Accident Compensation Claim.
Introduction
Every year many people lose their lives in road accidents. Sometimes it is because of their fault and the other times, they have to pay for the actions of the others. But what is the remedy available to a person who suffers because of the wrong actions of others? The Motor Vehicles Act, 1988 is the remedy. It is through this Act that all the offenders are held liable and in the form of punishment they have to compensate the victim.
This Act aims at preventing motor vehicle accidents, and if in case it happens, it ensures that the victim gets justice and the person who caused the accident gets punished.
Motor Vehicle Act, 1988
The Motor Vehicle Act of 1988 is a comprehensive Act that has replaced the Motor Vehicle Act, 1939. It was implemented on 1st July 1989. The first Act that came in force regulating the road transport vehicles was the Motor Vehicles Act, 1914. The Act of 1914 was later on replaced by the Motor Vehicles Act, 1939. Later on, with the changing time the need to introduce new changes became urgent so, Motor Vehicle Act, 1988 was enacted.
It is an Act that covers all the aspects of road transport vehicles.
It is a legislation that ensures the welfare of the public after they meet with an accident.
Chapter II of the Act deals with the ‘Licensing of Driver of Motor Vehicles’. Section 10 defines ‘Driving License’ as a license issued by the concerned authority to the driver of any vehicle to drive his vehicle otherwise than as a learner.
Chapter III deals with the ‘Licensing of Conductors of State Carriages’.
Chapter IV of the Act covers ‘Registration of Motor Vehicles’. Under this Section 39 tells about the necessity of registration.
‘Liability without Fault in certain cases’ comes under Chapter X of the Act. Section 140, Section 141, and Section 142 deal with Liability to pay compensation in certain cases.
On the principle of no-fault, provisions as to other rights to claim compensation for death or permanent disablement and permanent disability respectively.
where Section 177 covers the aspect of General provision for punishment of offences.
It includes the concept of ‘Third Party’. The ‘third party’ here means those innocent people who are helpless and have been affected because of the reckless driving of the drivers.
According to Section 3 of the Act, no person can drive a vehicle without any authorized driving license, and without any driving license authorizing a person to drive a transport he cannot drive such a vehicle.
Section 4 states that unless a person attains the age of majority (18 years) he cannot drive a vehicle.
From Section 35 to Section 65 procedure for the registration of the vehicle has been laid down and it has been made mandatory to get one’s vehicle registered.
It is necessary for the vehicle owner to get third party insurance as stated from Sections 145 to 164.
Motor Accident Claim Tribunal
Motor Accident Claim Tribunal is a tribunal established for the cases falling under the Motor Vehicles Act, 1988. The main purpose of the Claims Tribunal is to ensure speedy trial of cases and that justice is being delivered.
The claimant should apply to claim within a reasonable period. According to Section 173, the appeals against the Claims Tribunals will lie before the High Courts. The appeals will have to be filed within 90 days from the date of the decision. If in case the claimant is late to file the appeal then he has to give a reasonable reason for such delay. If satisfied, the Court will then admit the appeal. In case the amount in dispute in appeal is less than Rs10,000/- then it shall not be entertained.
The Motor Accident Claim Tribunal deals with the cases that involve loss of life or property, or in case of injury. The Claims can be filed in the appropriate Claims Tribunal. The judges who preside over the tribunals are the judicial officers from Delhi Higher Judicial Services. High Courts of different states supervise these Tribunals.
As per Section 165(1) of the Act, a State Government can, by issuing a notice in the Official Gazette, can establish a new Motor Accident Claims Tribunal in the area specified in the notice. Section 165(2) gives liberty to the State Government to appoint as many numbers of members as it deems fit. But from the members appointed one has to be the Chairman.
Section 165(3) states that for a person to become a member of Claims Tribunal following conditions must be satisfied :
He is or should have been a judge of a High Court
He is or should have been a judge of a District Court
He is qualified enough to be appointed as a judge of a District Court or a High Court
As stated under Section 165(4) if there are two or more Claims Tribunal in an area then the Government based upon order, either general or special, can distribute work amongst them.
Section 166 of the Motor Vehicles Act, 1988
Section 166 of the Act tells about who can apply for compensation in Motor Accident Claims Tribunal.
Who can claim compensation in MACT cases?
As per Section 166 of the Act, a person claims compensation if :
he has sustained an injury
he is the owner of the property
he is the legal representative of the person who died in the motor accident
he is the agent authorized by the injured person, or by the legal representatives of the deceased, as the case maybe
Compensatory Provisions under the Motor Vehicles Act, 1988
There is no prescribed limit within which the claim application has to be filed. But claiming the compensation after a long unnatural period might result in raising doubts in the minds of the Tribunal. Therefore, even though there is no prescribed limit to apply for compensation it should be claimed within a reasonable time.
According to Section 165(1) of the Motor Vehicles Act, 1988 the Claims Tribunal can entitle compensation to the claimant in the following circumstances –
When the accident involves death or bodily injury to a person
When the accident results in the loss of any property of a third party
When such accidents arise out of the use of motor vehicles
Where can compensation be claimed?
The application for the claim can be filed in the following tribunals :
The Claims Tribunal where the claimant resides
The Claims Tribunal where the owner of the vehicle resides
The Claims Tribunal where the accident took place
Claim Assessment
The Supreme Court in National Insurance Company Limited v. Pranay Sethi [1] laid down the guidelines for assessing the amount of compensation to be paid by the offender to the accident victims who are self-employed, or have fixed salary, or have a permanent salary. The Court held that the concept of ‘just compensation’ should be based on reasonableness, equity, and fairness.
If the age of the deceased was between 40-50 of age and had a permanent job then the addition of 50% of his actual salary was to be made
If the deceased was above 50 years then there would be no addition
If the deceased had a fixed salary or was self-employed then his actual salary at the time of his death was to be considered.
Later on, in Pranay Sethi’s case, this assessment of compensation in case of death in a motor accident was analyzed. The Court held that giving addition only to the deceased who had a permanent job was unreasonable. It should be extended to others as well. The Court gave the following statement:
“To have the perception that he (self-employed person) is likely to remain static and his income to remain stagnant is contrary to the fundamental concept of human attitude which always intends to live with dynamism and move and change with the times”.
Further, the Court stated that when the Claim Tribunals use different methods of assessment it results in a lack of uniformity. So it’s better to work on the ‘principle of standardization’ while assessing compensation.
The future prospects for the victims who died in motor accidents were determined in this case. A new category was also added which included the deceased who had been self-employed or had a fixed salary. It is as follows :
If the deceased had a permanent job –
Age
Addition made
Below 40 years
50%
Between 40-50 years
30%
Between 50-60 years
15%
If the deceased had been self-employed or had a fixed salary –
Age
Addition made
Below 40 years
40%
Between 40-50 years
25%
Between 50-60 years
10%
The Court also added few other heads for giving compensation in case of :
Loss of estate
Rs 15,000
Loss of consortium
Rs 40,000
Funeral
Rs 15,000
It was decided that these amounts were to be increased after three years at the rate of 10%.
To assess compensation how much damage has been caused should also be assessed. Damages are divided into two types :
Pecuniary Damage –
Pecuniary damages mean expenses that are borne by the claimant on the medical treatment, transportation, loss of income up to the date of trial, future loss of earning.
Non-pecuniary Damage –
This type of damage can also be referred to as the’ general or special damage’.
It includes damages for physical pain, suffering, shocks, sufferings likely to be suffered in the future, loss of basic amenities of life.
Types of claims
There are three types of claims under which compensation can be claimed, and they are :
No-Fault Liability –
This liability is dealt with under Section 140 of the Act. The claimant, in this case, doesn’t have to prove the fault on the part of the other party, there is no joint liability. But this liability arises only when the person claiming has been permanently disabled, or if he dies. The compensation that the claimant can claim is Rs 50,000/- in case of death, and Rs 25,000/- in case of permanent disability.
Permanent disability under this Act means :
permanent loss of power of any member or joint muscle
permanent disfigurement of face or head
permanent deprivation of the sight of either eye, or ear, or any member or joint
Hit and Run –
Section 161 of the Act deals with the claims made under Hit and Run cases. In such cases, the accused hits the victim with his vehicle and instead of helping him chooses to run away. As per Section 161(3) in case a person is injured he is to be paid a sum of Rs 12,500/- and in case of death, his legal representatives will get Rs 25,000/-.
Structured Formula Basis –
The Motor Vehicles Act, 1988 was amended in the year 1994. This amendment introduced a new section of the Act i.e., Section 163 A. According to this section a claimant does not need to prove the fault of the driver. The owner (defined under Section 2(30) of the Motor Vehicles Act, 1988) or the insurer has to compensate the claimant, but on the condition that the identity of the accused has to be revealed. Also, there is another condition under which the claimant can either file a complaint under Section 140 or Section 163 A. If his complainant has already been granted compensation under Section 140 then under this section he will only get the balancing amount.
Concept of Just Compensation
The Apex Court in, Ramla and others v. National Insurance Company Limited and others [3] held that ‘just compensation’ is that compensation which is determined on the basis of the evidence produced. It cannot be considered as time-barred and doesn’t give a reason to file another case for an already increased amount. The Court also held that the Courts have the power to award compensation more than what is claimed by the claimants.
In the above-mentioned case, the claimants sought an increase in compensation awarded to them by the Kerala High Court which was Rs 25,000/-. The Supreme Court stated that under the head of ‘loss of dependency’ the amount wasn’t sufficient. Therefore, it enhanced the amount to Rs 28,000/-.
When both the victim and the driver are at fault?
Not every time it is compulsory that only one party is at fault. In some cases, it is more than two parties who are at fault. In such circumstances two options are there :
Contributory Negligence –
Here, the claimant along with the driver had contributed to the accident. It not only the negligence on the part of the driver but the claimant too. So, if the claimant has equally contributed to the happening of the accident then his compensation would be reduced to half. Otherwise, his compensation will be reduced in proportion to his negligence.
Composite Negligence –
In composite negligence, the accident happens because of the fault of two or more parties excluding the victim. Here, there is no fault on the part of the victim. Thus, when more than two parties are involved in an accident and claim compensation under the third-party, the compensation will be decided in respect of the composite negligence on the part of drivers of those vehicles.
Accident caused by an underage driver
If an accident is caused because of the underage driver then the insurance company is not liable to compensate the victim. The parents or legal guardian of such a child will be held liable.
Compensation available to a child (victim) in case of an accident
Normally when a person dies in an accident then the compensation is assessed based on his earning capacity and his age. But what happens when a child dies in an accident. It is not as if he earns in his family so then how will the compensation be decided in such a case.
The Supreme Court in one of its cases has stated that if a child dies in an accident then while deciding the compensation child’s educational qualification, his performance in school will be considered. If the child was good in his studies then it would mean a bright future which directly means more loss. So, he would get more compensation. But still, it can be said that there is no standard way of calculating claim in case of death of a child.
Compensation available in a motor vehicle accident if the victim is a wife
Once again it is a situation where the victim is not the earner of the family. The compensation cannot be reduced on the pretext that the victim is not the earner of the family so, some other member can take care of the family. Therefore, in 1994, the legislature had fixed the income of a non-earning person at Rs 15,000/- per month and in case of a spouse, it would be ⅓ rd income of the spouse who is earning for computing of accident claims.
Can a bus passenger claim full compensation in case of a bus accident?
In M. Jaganath v. Pallavan Transport Corporation[4] the Court held that in a bus, it is the responsibility of both the driver and the bus conductor to make sure that the passengers don’t get injured in any way.
“ The fundamental duty of both the driver as well as the conductor is to verify specifically, whether any passenger is getting into the bus or is getting down from the bus, before actually the bus is moved from the bus stop where it is stopped, irrespective of the fact whether that place of stopping is a bus stop or not.”
Thus, it can be said that in case of an accident of a bus passenger, it will be the duty of the owner or the insurance company to compensate the victim.
FIR is enough to award compensate road accident victims
A bench of Supreme Court headed by Indu Malhotra J. and A. M. Sapre J. in one of the cases held that for a victim to claim compensation it was not necessary to file a claim petition. The Claims Tribunal and the Courts can entitle compensation based on the FIR that the victim made after the accident. In this case, the husband of the petitioner had died in a road accident in 2003. Since she couldn’t produce the required evidence and not file the petition in a correct way the Claims Tribunal and the State High Court refused to award her compensation.
The Supreme Court stated that it was not reasonable on the part of the Claims Tribunal and the State High to not give the petitioner compensation. The motor accident claims are a way to provide some solace to the victims and their families, especially for those who don’t know the correct procedure of claiming compensation or what to do after an accident.
The Court then awarded a compensation of Rs 11 lakh to the wife of the deceased and also interest at the rate of 6% was also added from the date of filing the claim petition to the date it was paid. The compensation was to be paid jointly by the insurance company and the owner or the driver of the offending truck.
Own damage claim in motor insurance
When a person’s vehicle is damaged in an accident then he is supposed to inform the insurer and the police to assess the damage. This type of situation comes under own damage claim in motor insurance.
Third-party insurance claim settlement
What is Third Party Insurance?
It is necessary for a motor vehicle’s owner to get third party insurance. If a person has met with an accident and a third party is injured then the third can be insured by the insurer. In other words, it covers a person’s legal liability when he injures a third party in an accident. The third-party includes ‘government’ as per Section 145(g) of the Act. So, we can say that the third-party means every human being.
Claiming Process
The third-party can choose to file a claim against the person who has caused the accident and that claim is most likely to be settled by the insurance company. The claiming process depends on the consequences of the mishap. Following are the two claiming processes based on the major happenings :
Property Damage
After the happening of the accident which resulted in damage to the third party’s property, the third party can choose to file a compensation claim against the person. For this, he has to first file an FIR (First Information Report) in the closest police station and obtain the insurance details of the vehicle. Then he has to submit the said documents while filing the claim. The Court will then decide the amount of compensation. Though the maximum compensation that a person can get in case of damage to property is Rs 7,50,000/-.
Injury, or Disability, or Death
If in an accident a person has suffered disability or injury or has lost his life then the victims and the legal representatives of the deceased can file a claim petition in any Motor Accident Claims Tribunal as provided in the Act. But before this, they have to file an FIR in the police station that has jurisdiction over the accident. Also, the third party has to get the documents related to the vehicle’s insurance. The Claims Tribunal will then decide the case. If the owner wants, then, he can settle the matter outside the court as well.
Amidst all this, the claimant has to also inform the insurance company about the claim petition filed against him to make him aware of the claim.
Can a Pillion Rider and a Co-passenger Claim Compensation in case of Two-wheeler and Car Accident respectively?
The insurance company is not liable to compensate a pillion rider or a co-passenger. It is only possible if the policy included this aspect from the beginning the required amount was being paid for the same
In case of an accident resulting because of the negligent driving of the owner of the two-wheeler or a car then the co-passenger or the pillion rider of such car or two-wheeler will not be considered as the third-party
Claim Application
For the claimant to file a claim application he has two options :
First, under Section 163 A of the Act where the claim is assessed based on ‘Structured Formula’.
Second, under Section 166 of the Act where the judge assesses the case based on the evidence available.
The application can be against any of the following people :
Owner of the vehicle
Driver
Insurer
Once the complaint about the accident has been registered by the police it is then forwarded to the Claims Tribunal within 30 days from the date the report was prepared.
Motor Accident Claim Petition Format
Click here to see the prescribed format of Claim Petition :
Following are the documents that must be attached to the Claim Petition while submitting it:
Copy of the FIR registered in connection with the said accident.
Copy of the MLC/Post Mortem Report/Death Report as the case may be.
The documents of the identity of the claimants and the deceased in a death case.
Original bills of expenses incurred on the treatment along with treatment record.
Documents of the educational qualifications of the deceased, if any.
Certificate of Disability in an injury case.
The proof of income of the deceased or injured.
Documents stating the victim’s age.
The cover note of the third party insurance policy, if any.
An affidavit in supporting the above-mentioned documents and revealing the relationship between the claimant and the deceased.
Offences and penalties under the Motor Vehicles Act, 1988
Some of the penalties and offences under the Act of 1988 are given below :
As per Section 181 of the act if a person drives a vehicle without his driving license or drives before he attains the age of majority then he will be punished with a fine which may extend up to Rs 500/- or shall be imprisoned for a term which may extend to three months, or with both.
According to Section 183(1) if a person drives his vehicle at a speed which is beyond the speed limit mentioned in Section 112 of the Act then he will have to pay the penalty which may extend up to Rs 400. In case he is convicted second time for the same offence under this section then the fine will be extended up to Rs 1,000/-.
Section 184 of the Act imposes a fine up to Rs 1,000/-, or with a term of imprisonment which may extend to six months if a person drives at a very dangerous speed risking the lives of people on the road.
If a person drives a vehicle while he is under the influence of drugs then he will have to pay a fine which may extend up to Rs 2,000/-, or with a period of imprisonment which may extend to six months. This is according to Section 185 of the Act.
Section 190(1) – As per this section if a person drives a vehicle which is not fit for driving and he is aware of that defect then he will be punished with a fine of Rs 250/-. If because of this, an accident is caused resulting in injury or some property damage then he will be punished with imprisonment for three months, or with a fine which may extend to Rs1,000/-, or with both.
Restriction for Claims under Motor Vehicles Act, 1988
Some restrictions are always there in every provision. The same thing happens when claims are made in theMotor Vehicles Act, 1988. Given below are the limitations that have been put on the claims under the Act of 1988 :
Section 163 B states that if a claimant is authorized to claim compensation under both the sections, i.e., Section 140 and Section 163 A then he can file his petition under only one of the sections and not both of them.
After awarding the compensation, the person who is supposed to pay the amount has to pay it within the 30 days of the judgment given by the Court.
Even though the amount of compensation has been standardized under the Act (Rs 50,000/- in case of death and Rs 25,000/- in case of injury) the Court still has the liberty to enhance the compensation.
In case there is a delay in giving judgment then the simple interest will be applied to the number of cases from the date of the accident.
Reasons why the Motor Accident Claims get rejected
It is not necessary that whenever a claim is made the insurance company will pay for the damages or any other bill. In some cases, they can refuse to pay based on some circumstances. Some of these circumstances are as follows :
Where there is inappropriate use of the vehicle. Inappropriate use of vehicles incorporates situations where the vehicle is parked at some wrong side or overloading of vehicle than the prescribed limit.
If the person is driving without a legal driving license and meets with an accident.
If the person is drunk while driving, or under the influence of any type of intoxicant substance.
If the insurance policy of the vehicle is expired then it hasn’t been renewed.
If the vehicle involved in the accident is second hand and its insurance has not been in the name of the new owner.
After the accident, if the owner has repaired the vehicle himself and asks the insurance company for insurance, then, in that case, there are chances that it would be rejected because the insurer couldn’t see the cause of the accident first.
Motor Vehicles (Amendment) Bill, 2019
The Motor Vehicles (Amendment) Bill was introduced in Lok Sabha which later on passed it. Now, the Bill is pending for consideration before the Rajya Sabha. The Bill seeks to amend the present Motor Vehicles Act, 1988 Following are some of the changes that will be introduced through the Bill :
Compensation for the victims –
A scheme will be introduced by the Government through which cashless treatment will be made available to the road accident victims in the ‘Golden Hour’ (it is the first hour after the accident where the chances of saving the life are high).
The Bill will increase the minimum compensation available in case of hit and run i.e., in case of death, it will be increased from Rs 25,000/- to Rs 2,00,000/- while it will be increased from Rs 12,500/- to Rs 50,000/- in case of injuries.
Also, interim relief will be provided to claimants seeking compensation under third-party insurance.
Compulsory Insurance –
A Motor Vehicle Accident Fund will be set up to provide compulsory insurance to all the motor vehicle owners.
This Fund will be used for the following purposes:
to treat persons injured in accidents in their golden hour.
to provide compensation to the families of the victims who died in a hit and run case.
to compensate a person who suffered grievous hurt in hit and run cases.
to compensate persons as prescribed by the Government.
Good Samaritans –
As mentioned in the Bill, a ‘good samaritans’ is a person who renders medical or non-medical assistance to the victim after the accident.
The assistance should be
in good faith
without expecting anything in return
Voluntarily
While assisting the injured person, if the person dies or suffers injury due to the mistake of the samaritan then he will not be held liable for any civil or criminal proceedings.
Recall of Vehicles –
If there is any defect in the vehicle and it causes any damage to the environment, or the owner, or other road users then the Government will have the liberty to recall the vehicle.
In the case of a recall, the manufacturer of the vehicle will have to
refund the full cost of the vehicle to the buyer.
replace the defective vehicle with another vehicle having better or similar specifications.
Road Safety Board –
A National Road Safety Board will be created to advise the Central and the State Government on the safety rules and traffic controlling rules including:
vehicles licensing and registration
rules relating to road safety
standards of motor vehicles
usage of enhanced technology
National Transport Policy –
A National Transport Policy will be constituted after consulting the State Government through which
planning framework for the road transports will be established.
structure for grant of permits will be introduced.
priorities will be specified for the transport system.
Offences and Penalties –
Penalties will be increased for violating the provisions of the Act
in case of drink and drive the penalty will be increased from Rs 2,000/- to Rs 10,000/- and he will be imprisoned for at least two years.
in case of non-compliance with the standards of a motor vehicle by the manufacturer, the penalty can be raised to Rs 10 crore, or imprisonment for a term, not more than 1 year, or both.
penalty for exceeding the speed limit will be between Rs 1,000/- to Rs 1,500/-.
The Government can also increase the fine every year by up to 10%.
Motor Accident Claim cases in India
The Motor Accident Claim cases of India are as follows :
In this case, a bus met with an accident and the driver of the bus was not the actual owner of the bus. Also, the actual owner had rented the bus to a Corporation who had appointed the driver of the bus. So, the actual owner was not in the possession of the bus. The Court held the Corporation liable for the accident and was asked to pay compensation to the victims.
The appellant, in this case, was a cart puller. One day he met with an accident which resulted in his leg being amputated. His monthly income was Rs 3,300/-. He no longer was in a position to support his family and to earn a livelihood. The Apex Court decided his compensation based on his nature of work. It was found that his loss of earning capacity was not less than 90%. Therefore, he was given a total compensation of Rs 4,01,400/- for mental agony Rs 30,000/-, for diet Rs 15,000/- and for loss of future earning Rs 3,56,400/-.
When the question of correlation between the physical disability suffered in an accident and the loss of earning capacity resulting from it was raised before the Supreme Court, it held that the effect of physical disability on the earning capacity of the victim is to be ascertained.
In this case, the Court held that if in case any liability is there concerning the third party risk and the vehicle is not insured then the risk will have to be borne by the owner himself.
Latest Supreme Court judgments on motor accident claims
The Supreme Court, in this case, asked the Government to ascertain the feasibility of establishing a Motor Accident Mediation Authority in every district to ensure speedy trial of accident claims. This judgment has two main features :
In the year 2017 1,47,000 people lost their lives approximately which is more than the total population of Shillong, an Indian state.
These deaths gave an exceptional rise to the number of accident claims that had already been there causing an increase in the number of backlog cases in Indian litigation.
The Apex Court, thus, realizing the necessity of resolving these claims asked for setting up of the Mediation Centers. The Court also pointed out the need for introducing an Indian Mediation Act in the parliament since the need for mediation was not only limited to motor accident claims.
In this case, the Supreme Court laid down the guidelines for assessing the amount of compensation to be paid by the offender to the accident victims who are self-employed, or have fixed salary, or have a permanent salary. The Court held that the concept of ‘just compensation’ should be based on reasonableness, equity, and fairness.
The guidelines have already been discussed above in ‘Claims Assessment’.
Conclusion
Laws are made for the benefit of the people. The Motor Vehicles Act, 1988 is made to prevent accidents, it is a very important law that requires serious implementation. Therefore, it is not only the Government that has to work towards its implementation but the public as well. Every person must make sure that he does not violate its provisions because in true sense it is the act of a person that results in an accident.
This article is written by Shivani Verma, a student of Guru Gobind Singh Indraprastha University, New Delhi. In this article, she has discussed various important aspects related to Fundamental Duties.
Fundamental duties of India
As an Indian citizen, certain rights and duties are provided to us. The duty of every citizen is to abide by the laws and perform his/her legal obligations. A person should always be aware of his/her fundamental duties. 11 fundamental duties are laid down by the Indian Constitution.
Origin and scope of fundamental duties
Origin
On the recommendations of the Swaran Singh Committee, the fundamental duties were added by the 42nd Amendment, 1976 in our Indian Constitution. The fundamental duties were originally 10 in numbers but in 2002, the 86th Amendment increased its number to 11. The 11th duty made it compulsory for each and every parent and guardian to provide the educational opportunities to their child who is more than 6 years but less than 14 years of age. These duties are borrowed from the Constitution of Japan.
Neither there is a direct provision in the Constitution for the enforcement of these duties nor there is hardly any legal sanction in order to prevent violation of these duties. These duties are obligatory in nature. The following facts provide for the importance of fundamental duties:
A person should respect the fundamental rights and duties equally because in any case, if the court comes to know that a person who wants his/her rights to be enforced is careless about his/her duties then the court will not be lenient in his/her case.
Any ambiguous statute can be interpreted with the help of fundamental duties.
The court can consider the law reasonable if it gives effect to any of the fundamental duties. In this way, the court can save such law from being declared as unconstitutional.
Fundamental duties taken from
The fundamental duties are taken from the USSR (Russia) constitution. The addition of fundamental duties in our constitution have brought our constitution aligned with the Article 29(1) of the Universal Declaration of Human Rights and with various provisions of the modern constitution of other countries.
11 Fundamental duties
Only one Article that is Article -51A is there in Part-IV-A of the Indian Constitution that deals with fundamental duties. It was added to the Constitution by the 42nd Amendment Act, 1976. For the first time, a code of 11 fundamental duties was provided to the citizens of India. Article 51-A states that it is the duty of every citizen of India:
To respect the Constitution, it’s ideals and institutions, the National Flag and National Anthem–Ideals like liberty, justice, equality, fraternity and institution like executive, the legislature, and the judiciary must be respected by all the citizens of the country. No person should undergo any such practice which violates the spirit of the Constitution and should maintain its dignity. If any person shows disrespect to the National Anthem or to the National Flag then it will be a failure as a citizen of a sovereign nation.
The noble ideas that inspire the national struggle to gain independence, one should cherish them–Every citizen must admire and appreciate the noble ideas that inspired the struggle of independence. These ideas focus on making a just society, a united nation with freedom, equality, non-violence, brotherhood, and world peace. A citizen must remain committed to these ideas.
One should protect and uphold the sovereignty, unity and integrity of India– This is one of the basic duties that every citizen of India should perform. A united nation is not possible if the unity of the country is jeopardized. Sovereignty lies with the people. Article 19(2) of the Indian Constitution put reasonable restrictions on the freedom of speech and expression in order to safeguard the interest and integrity of India.
One should respect the country and render national service when called upon–Every citizen should defend the country against the enemies. All the citizens apart from those who belong to the army, navy etc should be ready to take up arms in order to protect themselves and the nation whenever the need arises.
One should promote harmony as well as the spirit of common brotherhood amongst the citizens of India, transcending religious, linguistic, regional or sectional diversities and to renounce practices that are derogatory to the dignity of the women– Presence of one flag and single citizenship not only reflects the spirit of brotherhood but also directs the citizen to leave behind all the differences and focus on collective activity in all spheres.
One should value and preserve the heritage of our composite culture– India’s culture is one of the richest heritages of the earth. So, it is compulsory for every citizen to protect the heritage and pass it on to future generations.
One should protect and improve the natural environment including forests, lakes, rivers, wildlife and a citizen should have compassion for living creatures– Under Article 48A this duty is provided as a constitutional provision also. The natural environment is very important and valuable for each and every country. So each and every citizen should make efforts in order to protect it.
One should not only develop the scientific temperament and humanism but also the spirit of inquiry and reform– For his/her own development it is necessary for a person to learn from the experiences of others and develop in this fast-changing environment. So one should always try to have a scientific temperament in order to adjust with these changes.
One should always safeguard public property and abjure– Due to unnecessary cases of violence that occurs in a country which preach for non-violence, a lot of harm has already been done to the public property. So, it is the duty of every citizen to protect the public property.
One should always strive towards excellence in all spheres of life and also for the collective activity so that the nation continues with its endeavour and achievements– In order to ensure that our country rises to a higher level of achievement, it is the basic duty of every citizen to do the work that is given to him/her with excellence. This will definitely lead the country towards the highest possible level of excellence.
One should always provide the opportunity of education to his child or ward between the age of six to fourteen years– Free and compulsory education must be provided to the children who belong to 6 to 14 years of age and this has to be ensured by the parents or guardian of such child. This was provided by the 86th Constitutional Amendment Act, 2002.
The features of Fundamental duties are as follows:
Both moral and civic duties have been laid down under the fundamental duties, like, “the Indian citizens should not only cherish the noble ideas that lead to the freedom struggle but they should also respect the Constitution, the National Flag and National Anthem”.
Fundamental rights can be applied to foreigners also but the fundamental duties are only restricted to the Indians citizens.
The fundamental duties are not enforceable in nature. No legal sanction can be enforced by the government in case of their violation.
These duties are also related to Hindu traditions or mythology like paying respect to the country or promoting the spirit of brotherhood.
Fundamental duties and Indian constitution
The Constitution was adopted in the year 1949, but it did not contain the provisions for fundamental duties. The Parliament of India not only realised the need to insert fundamental duties in the Indian Constitution but it also felt that everyone should perform such duties. A new part, that is Part IVA, was inserted by the 42nd Amendment Act, 1976 which provides for several fundamental duties that needs to be followed by the citizens of India.
These duties are considered as “directory” as these duties cannot be enforced through the writ of mandamus because they don’t cast any public duties. Fundamental duties are the basic reminder of our national goals and basic norms of political order. They inspire an individual to inculcate in himself/herself a sense of social responsibility. The Supreme Court said that the fundamental duties can be used to interpret any statue which is uncertain. These duties provide educational and psychological value to the citizens of India. These duties uphold the spirit of Democracy and patriotism.
In the case of Ramlila Maidan Incident[1], the court held that the word “fundamental” is used in two separate senses in our Indian Constitution. When this word is used for rights then it means that these rights are very essential and any law which will violate the fundamental rights will be declared as void. But when this word is used for the duties then it is used in a normative sense as it set certain goals before the state which the state should try to achieve.
42nd amendment 1976
The 42nd Amendment Act, 1976 was approved during the Emergency period. The Indian National Congress which was at that time headed by Indira Gandhi approved this amendment. This amendment was regarded as the most controversial amendment. The provisions that were provided by this amendment act came into force on different dates. Most of the provision came into force on 3 January while others came into force from 1 April 1977. This amendment is also known as “Mini-Constitution” or “Constitution of Indira” because wide changes were brought to the constitution. 11 Fundamental Duties were laid down by the 42nd Amendment.
86th amendment 2002
Only a few constitutions in the world provide the guidelines stating the obligations and duties of the citizens. To govern the rights and the duties of its citizens, Canada and Britain lay significance on the Common Law and its judicial decision. It is said that one should be taught to follow fundamental duties at a younger stage because if this will happen then it will not be important to list the duties in the Constitution as it will not affect its implementation.
The Unnikrishnan Judgement[2] provided that all the citizens who are below the age of 14 years have a right to free and compulsory education. Due to an increasing public demand for education, the government worked towards making education a fundamental right. In 2002, an amendment was inserted in Article 51A. Article 51(k) was added after Article 51(j) which stated that it is a fundamental duty of every citizen who is a parent or a guardian to provide opportunities for free and compulsory education to a child who is between 6 years to 14 years of age.
It is compulsory for all the educational institutions to organise a teaching lesson of at least one hour a week on the protection and improvement of the natural environment.
It is the duty of the Central Government under Article 51-A (g) to introduce this lesson in all the educational institutions.
The Central Government should also distribute books free of cost on the same subject in all the institutes.
To give rise to the consciousness among the people towards a clean environment, the government should organise ‘keep the city clean’ week at least once in a year.
The Chairperson of this committee was Sardar Swaran Singh who was given the responsibility to study the Indian Constitution during the National emergency. After declaring the emergency Indira Gandhi put the responsibility on this committee to study the Constitution and amend it keeping in mind the past experiences. Several changes were incorporated into the Constitution by the government based on the recommendations of the committee.
The need and necessity of fundamental duties was felt during the emergency period. So in 1976, a committee was set up who made the recommendation for the same. The recommendation was made for including a separate chapter in the Indian Constitution under the heading Fundamental Duties. Citizens will be aware of their duties while enjoying their fundamental rights. This suggestion was accepted by the government and a new article that is Article 51A was included in the Indian Constitution which had 10 fundamental duties in it earlier. The government also said that it was a mistake that was made by the original framers of the India Constitution to not to include the fundamental duties at that time. The committee suggested for 8 fundamental duties but the 42nd amendment had 10 duties. Out of all the recommendations, not every recommendation was accepted.
Some of the recommendations that were not accepted are:
In case of non-compliance with the fundamental duties, the Parliament can impose penalty or punishment.
In a court of law, such punishment or law won’t be questioned.
Fundamental duties also include the duty to pay taxes which was rejected.
Justice Verma committee
In order to plan a strategy and methodology for working out a programme that was started worldwide for making the fundamental duties enforceable in every type of educational institution and to teach these duties in every school, Justice Verma Committee was established in 1998. The committee took this step because it was aware of the non-operationalization of the Fundamental duties. The committee found that the reason for non-operationalization was due to lack of strategy for its implementation rather than lack of concern.
Various criminal laws have been enacted which provide punishment to the people who encourage enmity between people on the grounds of race, religion, language etc.
The imputations and assertions that are prejudicial to the nation’s integrity and unity are considered as punishable offences under various sections of the Indian Penal Code, 1860.
If the members of the Parliament or the state legislature indulge in any corrupt practices like asking votes in the name of religion then they will be held liable under the Representation of the People Act, 1951.
Rights and duties are correlative. The fundamental duties serve as a constant reminder to every citizen while the Constitution specifically conferred on them certain fundamental rights. Certain basic norms of democratic conduct and democratic behaviour must be observed by the citizens. The then ruling party, Congress, claimed that what the framers of the Constitution failed to do is being done now. This omission was rectified by introducing a chapter on citizen’s duties towards the nation. In India, people lay more emphasis on rights and not on duty.
This view was wrong. In this country, there has been a tradition of performance of one’s duties even in partial disregard of one’s rights and privileges. Since time immemorial emphasis was on individual’s KARTAVYA which is the performance of one’s duties towards society, his/her country and his/her parents. The Geeta and Ramayana also provide that people should perform their duties without caring for their rights.
Traditional duties have been given a constitutional sanction. If one clearly looks in the Constitution not only he/she will discover his/her rights but also the duties. A careful look at the Constitution will definitely solve the question of the people who claim that the Constitution only provides for the rights to the citizen and not the duties of the persons towards the society. The Fundamental Rights that are provided to all the citizens are present in the Preamble of the Indian Constitution like liberty of thought, expression, belief, faith and worship. These are not absolute rights as the state can put reasonable restrictions on them in the interest of society. The remaining Preamble put emphasis on the duties like justice, social, economic and political.
The government in order to create a strong foundation with a strong national character introduced fundamental duties. It not only lay emphasis on human dignity but also creates a feeling of harmony in the community. Our society can only be uplifted if each and every citizen focuses on bridging the gaps that have been created in the society, by performing their duties towards the society. Judicial reforms help in enforcing such duties from time to time because there is no provision in the Indian Constitution for their enforcement. If every person wants their fundamental rights to be realized then everyone should fulfill their duties.
The importance of fundamental duties are as follows:
Fundamental duties act as a constant reminder that the citizens while enjoying their fundamental rights should not forget about their duties towards the nation.
These duties act as a warning signal for the people against any type of antisocial activities.
These duties gives a chance to the people to have an active participation in the society rather than being a spectator.
These duties promote a sense of discipline and commitment towards the society.
The courts can use fundamental duties for determining constitutionality of law. If any law is challenged in court for its constitutional validity and if that law is providing force to any of the fundamental duties then that law will be held reasonable.
If the fundamental rights are enforced by a law then in case of its violation the Parliament can impose penalty or punishment for the same.
The Supreme Court of India ordered cinema halls to play National Anthem while portraying the Nation Flag. This was a remarkable step taken by the Supreme Court while giving the importance to the fundamental duties.
Criticism of fundamental duties
There were various grounds for criticism for fundamental duties. These include:
Critics don’t consider the list of fundamental duties as exhaustive. They feel that many more important duties like paying taxes, casting votes that were also suggested by the Swaran Singh Committee were not included in this list.
A common man cannot understand the complex words like composite culture that are present in the fundamental duties. Due to lack of understanding, the true meaning cannot be established. For him/her such words are difficult to understand. Moreover some duties are ambiguous in nature.
These duties cannot be enforced by a court of law so, critics feels that it is of no use to include these duties in the Constitution.
Some duties are of such a nature that they are being performed by the citizen in each and every case like paying respect to the National Flag and National Anthem. So there was no need to include these duties in the Constitution.
These duties are placed in Part IV-A of the Indian Constitution that is after the Directive Principles of the State Policy, that’s why not much importance is given to them. According to the critics it should be placed in Part III after the Fundamental Rights.
Fundamental duties case laws
In the case of Bijoe Emmanuel vs. State of Kerala[4] which is popularly known as the National Anthem Case, on refusing to sing the National Anthem in the school, three children of the Jehovah’s Witnesses were expelled from the school. There was a circular that was issued by the Director of Instructions, Kerala which made it compulsory for the school students to sing the National Anthem. These three children did not join the singing of the National Anthem but they stood up out of respect. They didn’t sing the National Anthem because their religious faith didn’t permit it and it was against their religious faith. They were expelled on the ground that they violated their fundamental duties and committed an offence under the Prevention of Insult to National Honours Act, 1971. The court reversed this decision of the High Court because they did not commit any offence and also they committed no crime under the Prevention of Insult to National Honours Act, 1971 as though they did not sing the National Anthem but they stood out of respect.
In M.C.Mehta (2) vs. Union of India[5], the Supreme Court held that it is compulsory for all the educational institute to organise a teaching lesson of at least one hour a week on the protection and improvement of the natural environment and it is the duty of the Central Government under Article 51A (g) to introduce this in all the educational institute. The Central Government should also distribute books free of cost on the same subject in all the institutes and also raise consciousness amongst people towards clean environment. The government should organise ‘keep the city clean’ week at least once in a year.
In the case of AIIMS Students Union vs, AIIMS[6] the Supreme Court held that the fundamental duties are equally important like the fundamental rights so the Court strike down the institutional reservation of 33% in AIIMS which is also coupled with 50% reservation discipline-wise which was violative of Article 14 of the Indian Constitution. The court also said that just because they are duties they cannot be overlooked. They have the same importance which the fundamental rights hold.
In Aruna Roy vs. Union of India[7], the court upheld the validity of the National Curriculum Framework for School Education which was challenged on the ground that it violated the Article 28 of the Indian Constitution and it was anti-secular because it provided for value development education relating to the basics of all religions. The court said that the NCFSF does not mention anything related to imparting religious instruction which is prohibited under Article 28 and education neither violate Article 28 nor the concept of secularism.
In order to make a right balance between Fundamental Rights and Duties the petitioner in the case of Hon’ble Shri Rangnath Mishra vs. Union of India[8] wrote a letter to the President so that he can give directions to the State in order to educate citizens in the matter related to fundamental duties. This letter was treated as a writ petition by the Court. But by the time this matter would be heard a report was submitted to the Government of India by the National Commission who was reviewing the Constitution at that time. Following suggestions were provided by the commission in the court:
In order to sensitise the people and to create general awareness regarding the fundamental duties, the State and the Union Government should take proper steps on the lines that were recommended by the Justice Verma Committee.
For generating awareness and consciousness of citizens related to fundamental duties, modes and manners needs to be adopted.
The court took into account the recommendations made by the National Commission and also directed the government to take necessary steps. The writ was disposed of.
In Government of India vs. George Philip[9], the compulsory retirement was challenged by the respondent from the service. Two years of leave was granted to him by the department to pursue advanced research training. After the repeated reminders he overstayed in foreign, so, an inquiry was instituted against him and the charge was proved. The High Court provided him with a remedy to join the service again on one clause that no back wages would be provided but the Supreme Court had set aside this order. The Supreme Court said that according to Article 51A(j) one should always strive towards excellence in all spheres of life of an individual and also for the collective activity so that the nation constantly rises to a higher level of endeavour, achievements and excellence could not be achieved unless discipline is maintained by the employees. The court also said that no order should be passed by the courts which destroy the essence of Article 51A and the order passed by the High Court, in this case, was destroying the essence of the Article.
The court in the case of Dr. Dasarathi vs. State of Andhra Pradesh[10], held that under Article 51(j) every citizen must abide by its duty to always strive towards excellence in all spheres of life and also for the collective activity so that the nation constantly rises to a higher level of endeavour and achievements. For this, the State can provide ways to achieve excellence according to the methods which are permitted by our Indian Constitution.
In the case of Charu Khurana vs. Union of India[11] the Supreme Court held that the State should provide for opportunities rather than curtailing it. The court also said that the duty of the citizen have also been extended to the collective duty of the state.
Enforcement of Fundamental Duties
The fundamental duties not only guide the citizen but also guides the legislative and executive actions of elected or non-elected institutions, organisations and municipal bodies. Duties are only observed by the citizens when either it is made compulsory by the law or under the influence of role models etc. So this makes it necessary to make suitable legislation whenever it is important for the citizens to observe the duties. These duties should be made operational only when the directions have been provided by the legislature and judiciary and still there is a violation of fundamental duties. But if the existing laws are inadequate and they cannot enforce the required discipline then the legislative vacuum needs to be filled.
The legal utility of fundamental duties and directive principles is the same. Fundamental duties are addressed to the citizens whereas directive principles address to the state and there is no legal sanction in case of their violation. If a person does not care about his/her fundamental duties then he/she does not deserve the fundamental rights. These duties are not legally enforceable but if any act is done by a citizen that is in violation of the fundamental duties then it would be considered as a reasonable restriction on the relevant fundamental rights.
The 42nd Amendment, incorporated duties in the Constitution and these are statutory duties and shall be enforceable by law. If there will be a failure to fulfil those duties and obligations then the Parliament, by law can impose penalties. The success of this provision will solely depend upon the manner and the person against whom these duties would be enforced. If the duties are not known to all, then there would not be proper enforcement of these duties. Due to the illiteracy of the people, they are not politically conscious of what they owe to the society and country. Homes, universities, or any other place can be made the centres for imparting in the performance of their obligations.
Fundamental duties complement fundamental rights
The Constitution of India not only provide with the fundamental rights but also with the fundamental duties. Although the fundamental rights were introduced in the Constitution much before the fundamental duties and are also enforceable by the court. 42nd Amendment, 1976 introduced the fundamental duties. But these duties are not enforceable. These are the moral duties of a responsible citizen. The fundamental duties must be complementary to the fundamental rights.
Article 21 of the Indian Constitution provides for Right to education and Article 51A(k) provides that all parents and guardians must provide their children with free and compulsory education at the age of 6-14 years. This shows that fundamental rights and duties are complementary to each other.
But in today’s time people only want their rights and don’t want to perform their duties. There are many examples which shows that people while using their fundamental rights avoid their fundamental duties.
The recent example can be taken of what happened in JawaharLal Nehru University. People while exercising their fundamental right of Freedom of Speech and Expression raised anti India slogans in the campus of the university. While exercising this right they violated their fundamental duty that is laid down in Article 51A(c), that is the “power, unity, integrity of the country must be protected by its citizens”.
Many political leaders often attract votes in the name of religion. While doing this they violate their fundamental duty that is provided in Article 51A(c) that is “the power, unity, integrity of the country” must be protected by its citizens. They divide the society into different religion and caste.
Democracy cannot establish its deep roots in the society until and unless the citizens don’t compliment their fundamental rights with their fundamental duties. While enforcing their fundamental rights they should fulfill their fundamental duties.
Relationship between the fundamental rights, directive principles and fundamental duties
The relationship between the fundamental rights, directive principles and fundamental duties are as follows:
In cases where there was a conflict between the constitutional validity of the legislation with the fundamental rights, then the Directive Principle of State Policy have been used to uphold the constitutional validity of such legislation. The 25th amendment in 1871 added Article 31C which states that any law enforced which was to give effect to the directive principles that were provided in Article 39(b)-(c) would not be held invalid on the grounds that they derogated from the fundamental rights that are present in the Articles 14, 19 and 31 of the Indian Constitution. The 42nd amendment proposes that Article 31C should be made applicable to all the Directive Principles. But the Supreme Court struck down this suggestion as it violates the basic structure of the Indian Constitution. For forming the basis of the legislation related to social welfare the fundamental rights and the directive principles have been used together.
The Supreme Court of India after the Kesavananda Bharati Case[12], adopted a view that fundamental rights and directive principles are not only complementary to each other but they both supplement each other by providing some goals to establish a welfare state by the means of social revolution.
The Supreme Court has also upheld the constitutional validity of various statutes which promote the objects that were laid down in the fundamental duties. These duties are not only obligatory for all the citizens but the Court can enforce them by making various laws. For this the Supreme Court has already given direction to the state in order to ensure effective implementation of these duties.
Fundamental duties are not enforceable through courts but fundamental rights are enforceable through the Supreme Court under Article 32 of the Constitution and the High Court has the power to issue writs for the enforcement of the fundamental rights under Article 226. The fundamental duties and the directive principles of the state policy that are provided in Part IV of the Indian Constitution are taken into account by the Courts while interpreting the fundamental rights or any restrictions that are imposed on such rights.
The court in the case of Javed vs. State of Haryana[13] held that the fundamental rights have to be read with fundamental duties which are provided in Article 51A of the Indian Constitution and with the directive principles of the state policy that are provided in Part IV of the Constitution. They cannot be read in isolation.
In the State of Gujarat vs. Mirzapur[14] the Supreme Court held while considering the provisions regarding Article 48, 48-A and Article 51(g) that the directive principles of state policy and fundamental duties that are provided in Article 51-A of the Indian Constitution plays a significant role while testing the constitutional validity of any statutory provision or of any executive act. The Court also said that the reasonableness of any restriction that is cast by the law on the fundamental rights in the form of regulation, control or prohibition can be tested by taking the fundamental duties and the directive principle of state policy into account.
The court in Ramlila Maidan Incident[15] held that a balance has to be maintained between the fundamental rights and restrictions on one hand and fundamental rights and fundamental duties on the other hand. There would be an imbalance if importance is given to only fundamental rights or to the fundamental duties. Duty is considered as a true source of right. The courts consider the fundamental duties that are present in Article 51A while examining the reasonableness of the legislative restriction on exercise of various freedoms. The court also said that duties like protecting the sovereignty, unity and integrity of the country, provide safeguard to public property etc. are not insignificant.
It was observed in N.K. Bajpai vs. Union of India[16] that there is a common thread which runs between Part III, IV and Part IV-A of the Indian Constitution. First part provides us with the fundamental rights while the second part provides us with the basic principle of governance of the state and the third part provides the fundamental duties of the citizens of India. The court should consider all the constitutional aspect of fundamental rights, fundamental duties and the directive principle of state policy while interpreting any provision.
Conclusion
The non-enforceability of the fundamental duties won’t affect its importance. Fundamental duties are an important aspect of a democratic state because it not only allows people to enjoy their rights but also reminds them to perform their duties which they have towards the nation. The word ‘fundamental’ which is attached to the duties makes them utmost important and thus it is required that they are to be followed by everyone. Many duties have also been set up as a separate law and are made enforceable by the law but this does not reduces the value of other duties that are provided in Article 51A. It is not only the duty of the government to provide everything in the Constitution, it is the people who should also be conscious about their role in the society. Even duties like paying taxes, right to vote must be performed by each and every citizen of the nation. These duties inculcates a sense of social responsibility in everyone. While interpreting the fundamental rights these fundamental duties are always taken into account.
This article is written by Shivani Verma, a student of Guru Gobind Singh Indraprastha University, New Delhi and Pankhuri Anand, a student of Banasthali University, Rajasthan. In this article, elaborative discussion on the Article of Association including its contents, effects, entrenchment, the procedure of alteration and amendment has been done.
What is AOA?
The by-laws, rules and regulations which help in governing the management of internal affairs of the company and also conduct the company’s business are known as the “articles of association” of a company. The term article has been defined inSection 2(5) of the Companies Act, 2013. They mean articles of association of a company which were originally framed or altered from time to time that to be in pursuance of any previous company law or of this Act. All the regulations contained inTable A in Schedule I of the Act are also included in articles, so far these regulations apply to a company. A very crucial and pivotal role has been played by articles in regulating the affairs of the company.
The full form of AOA is Article of Associations.
Importance of Articles of Association
The articles of association is a very important document for a company as it holds the rules, regulations and bye-laws for internal administration and management of the company. The articles are basically for the internal management of the company.
All the powers of directors and other officials are described in the articles. All the rights and obligations are prescribed under the articles of association. In the articles of a private company, all the restrictions are also laid down. All the provisions regarding the shares are also mentioned under the articles of association. In a matter of internal conflict, it is the article of association what’s referred to.
There are several rules, rights and provisions which leads to the importance of an article of association such as:
The valuation of intellectual rights and assets are done in accordance with the articles.
The appointment of directors and other key personnel are done in accordance with the articles.
All the meetings either board meetings, annual meeting or a general meeting or any type of meetings are conducted in accordance with the articles.
The managerial operations are dealt with the articles.
The voting rights and other rights of shareholders are dealt with the articles of association.
The audit and accounts are managed through the articles.
The appointment, removal and remunerations are managed by the articles.
The borrowing power is decided by the articles.
The winding of the company is done according to the articles.
The dividend policy is decided by the articles.
So, the articles of association hold key importance in any company or organisation as whole internal management is done in accordance with it.
Article of Association meaning in Hindi
In Hindi, we call articles of association as “साहचर्य के अनुच्छेद” that is “sahacharya kay anuchched”. So it is basically a document which regulates the rights of the members of the company as well as provides the manner in which the affairs of the company is to be conducted by its members.
Features of Articles of Association
The features of Article of Association are:
It is a part of the constitution of an organization.
It is a contract between the members and among the members themselves.
It lays down the duties of stockholders also.
Some statutory clauses should be included in the article of associations and other clauses can be chosen by the stockholders to make them the by-laws of the organization.
The Court can declare a clause ultra vires if it is unreasonable.
Article of associations can be inspected by anyone as they are a public document.
Special interest in the provision of Articles of Association is taken by the lender of the organization.
Contents of the Articles of Association
All the rules and regulations of the company for its own working are set out through the articles.
Clauses of Articles of Association
Adoption of preliminary contracts:, A statement adopting all preliminary contracts.
Number and value of the shares: What is the total number of shares and what is the value of shares needs to be mentioned.
Issues of preference share: The number of preference shares issued need to be mentioned.
Allotment of shares: How many shares have been allotted to whom and what are its values should be mentioned in the articles.
Calls on shares: How much money is to be called on shares is to be mentioned.
Lien on shares i.e., if the member is unable to fulfil his debt to the company, who will retain the possession of shares.
Transfer and transmission of shares: The provisions related to the transfer of shares need to be mentioned in the articles.
Nominations: All nominations need to be mentioned.
Forfeiture of shares: How can a company forfeit its shareholders.
Alteration of capital: The provisions related to the alteration of shares must be mentioned in an article of association.
Buyback: How can a company buy back its shares from existing shareholders.
Share certificate:The provisions regarding the share certificate is required to be mentioned in the articles.
Dematerialisation: The process by which securities are converted into electronic format.
Conversion of shares into stock: Procedure to be adopted for the conversion of shares into stock should be mentioned.
Voting rights and proxies: All the voting rights and proxies need to be mentioned.
Meeting and rules regarding committees.
Directors: their appointment and delegation of power.
Nominee directors: Who can be appointed as a director to the board of a company in order to represent the interests of his appointor on that board.
Issue of debentures and stocks: How can the debentures and stocks be issued.
Audit Committee: All the provisions regarding the audit committee along with its functions and powers must be prescribed in the articles.
Managing director, Whole-time director, Manager and Secretary.
Additional directors: Who can be the additional directors.
Seal: what will be the official seal of the company.
Remuneration of directors: The amount of remuneration to be provided to the directors.
General meetings:When will the general meeting to be held.
Director’s meetings: When will the director’s meetings will be held.
Borrowing powers: Every company should have borrowing power and the provision regarding the borrowing power must be mentioned in the articles.
Dividends and reserves: The amount of dividends to be distributed and reserves to be kept.
Accounts and audit: When will be an audit of the accounts will be done.
Winding up: The provisions related to the winding up of the company is required to be mentioned in the articles. in this procedure is required to be followed during the winding up.
Provisions regarding common seal: Contains all the provisions regarding common seal.
Capitalisation of reserves: The amount of reserve that needs to be capitalized.
While the preparation of the articles of association, the utmost caution should be exercised. Certain provisions of the Company Act are also applicable to the company at the same time “notwithstanding anything to the contrary in the articles”. So, the articles must contain the provisions in respect of all matters which are required to be contained therein so that the workings of the company couldn’t be hampered later.
Entrenched Articles of Association
The articles of association may contain the provisions for entrenchment. This concept was not included in the Companies Act, 1956. Entrench means to establish such type of attitude or habit which is very difficult to change. Thus this clause makes some amendments in the article of association difficult. If the company wants then it can include entrenchment provisions in the articles of association. This provision can be made either at the time of incorporation of the company or after the incorporation of the company by way of an amendment in the articles of association. In the case of a private company the amendment that is made to include the provision of entrenchment must be agreed by all the members and in case of a public company special resolution has to be passed to include this provision.[Section 5(4)]
Section 5(3)states that the alteration in the articles of association should be such that the altered provisions become more restrictive than those applicable in the case of a special resolution.
Whenever the condition of entrenchment are brought then it must be notified to the registrar in the manner prescribed under [Section 5(5)].
Articles are now compulsory in all cases.
Understanding Articles of Association
Rights of the members of the company, inter se, are dealt with by the articles of association. Hierarchy wise, the Articles of Association are subordinate to the memorandum of association.
The role played by articles is subsidiary to the memorandum of association. The memorandum of association is accepted as the charter of incorporation of the company. After its acceptance, the articles proceed to define the rights and duties and also the powers of the governing body between themselves and the company. Further, the articles define the mode and form in which the business of the company shall be carried on and the changes in the internal regulations of the company shall be made.
The scope and powers of the company are laid down by the memorandum of association, whereas, the ways in which the objects of the company are to be carried on and to be framed and altered by the members:
By defining the powers of the officers of the company and through the establishment of the contract both between the members of the company and the company and between the members inter se, the internal management of the affairs of the company is regulated by the articles.
Ordinary rights are governed through the above-said contract.
Alteration of Articles of Association/ Amendment of Articles
A company is empowered with the statutory rights to alter its articles, provided the altering of articles is subjected to the provisions of this Act and the conditions contained in the memorandum.Section 14 of the Companies Act, 2013 lays down the provision for the alteration or amendment of the articles of association of the Company. This section specifies that subject to the provisions of this particular section and the conditions of the memorandum, a company may alter its articles through a special resolution and add that any alteration made shall be as valid as if it was originally contained in the articles.
A company can amend its articles of association under Section 31 of the Companies Act, 2013 which states that in order to amend or repeal any provision in the article of association there should be a special resolution. A company can amend its articles of association by a special resolution of the shareholders. These amendments should meet the requirements and restrictions of the Companies Acts.
Section 31(1) states that, if the alteration is about converting a public company into a private company then such alteration must be approved by the Central Government.
In Section 31(2), it is given that when the resolution for amended in the article of association is passed that resolution can take effect on the day it is passed or it can be on a later date provided in the resolution.
Section 31(3) provides that in case if the company is formed under Act No. 19 of 1857 and Act No. 7 of 1360, the power of altering the article extends to altering any provision contained in Table B that is annexed to Act 19 of 1857. In case of an unlimited company that is registered under such acts, the altering power extends to altering any regulations related to the amount of capital or its distribution in the form of shares, regardless of those regulations that are contained in the memorandum.
If the alterations are inconsistent with the requirements of Section 12 of the Companies Act, 2013 then a private company is prohibited from altering its article. The alteration of some article is restricted with some limitations in order to protect the interests of the minority members.
Altering Articles of Association
The alteration can be in case of:
Conversion of a public company to a private company.
Conversion of a private company to a public company.
The right to alter the articles is an essential factor for a company because it cannot in any manner deprive itself of the powers to alter its articles.
The alteration of articles can be done in any of the following manners
By adopting a new set of articles;
By the way of addition or insertion of new clause/s;
By removing a clause/s;
By amending a particular clause/s;
By substitution of a particular clause/s.
Restrictions on Alteration of the Articles of Association
There are certain limitations subject to which a company can exercise the power to alter its articles, which are as follows:
Powers given by the memorandum shall not be exceeded by the alteration. The memorandum shall prevail in the event of a conflict between alteration and memorandum.
Alteration of articles must not be inconsistent with the provisions of any other statute or with the provisions of Company Act, 2013.
When on alteration there is a conversion of the company from a private company to a public company or vice-versa then the company also needs to follow the additional procedure of conversion prescribed by the law for the conversion of a public company to a private company and conversion of a private company to a public company.
The alteration which has anything illegal or opposing public policy must not be included.
The alteration must be beneficial for the company, that is it must be bona fide for it. If in a case alteration is beneficial for the majority of the shareholders and not beneficial for the company as a whole then the alteration is considered bad. Thus, alteration of articles cannot lead to discriminating between the majority and the minority shareholders of the same company for the sake of keeping the former at an advantageous position.
No alteration can constitute fraud by the majority on the minority.
By alteration, the provision of retrenchment can also be inserted into the articles which put the effect that several provisions of articles can be altered only when the condition or procedure for alteration has complied with the procedure followed in the case of a special resolution.
The provisions for retrenchment can be inserted only when agreed by all the members in the case of a private company and in case of a public company by special resolution.
No retrospective effect shall take place by alteration of articles. Articles come into operation only from the date of the amendment.
Subject to the above conditions, the alteration of the articles of the company can be done and no clause which is not alterable can be included in the Articles.
Alteration against memorandum of association
There are situations when changes in the articles of association influence the memorandum of associations. In the case of Hutton vs. Scarborough Cliff Hotel Co.[2], in the general meeting a resolution was passed by providing the power to issue new shares with preferential dividend but no such power was provided by the memorandum. This alteration was declared inoperative as the issuing of new shares with the preferential dividend was considered as a variation of the constitution of the company fixed by the memorandum. Memorandum was silent as it neither authorises nor it prohibited the issue of preference shares. The court said that either expressly or impliedly the power of alteration of the articles is only subject to what is clearly prohibited by the memorandum.
The court in the case of Andrews vs. Gas Meter Co. Ltd [3], held the issue of shares valid. According to the 5th clause of a company’s memorandum the nominal capital of the company was €60,000, and it can be divided into 600 shares of €100 each. There was no provision related to preference shares either in memorandum or articles of associations. After passing a special resolution directors issue share bearing preferential dividend. The court said that if this had been forbidden by the memorandum then such issue will be invalid. But there was no such clause so this issue was valid.
Alteration in breach of contract
Some alteration in the articles of association operates as a breach of contract with an outsider. In Chithambaram Chettiar vs. Krishna Aiyangar [4], a company secretary accepted the job on the remuneration of Rs. 50 per month. This provision was provided in the articles of association. after the alteration, the monthly remuneration reduces to Rs. 25 per month. The court held that if the contract totally depends upon the provision of the articles of association then the alteration will naturally be operative but if the company has entered into an independent agreement than the company may repudiate it by changing articles but will be answerable in damages for breach.
In Hari Chandana vs. Hindustan Insurance Society [5], the plaintiff has taken insurance from the defendant company and they promised the plaintiff to pay a certain amount of money on a specified date. The company altered its article of association and the fund that has to be paid was to be paid out of a special fund. When the date of payment arises the special fund was insolvent. The plaintiff then sued the company. The court, in this case, held that the effect of alteration leads to a fundamental breach of contract which the company has previously entered with the plaintiff and in respect of this new article has become inapplicable.
Increasing liability of members
Unless and until a member gives his consent in writing who is protected by limited liability he/she cannot be converted into a member with unlimited liability. Only with the consent of the respective member an alteration increase the liability or let the member purchase more shares.
Fraud on minority shareholders
The power of alteration must be exercised fairly that is it must not constitute a fraud on the minority. This power should be exercised in good faith and in the interest of the company.
Procedure for alteration of Articles of Association
According to the procedures laid down under Section 14 of the Companies Act, 2013, the following procedures are to be followed for the alteration of the articles of association:
Step 1: Not less than 7 days less notice is required to be issued along with the agenda of the board meeting and in case of urgent business, a shorter notice in writing should be sent to every director of the company on his registered address to call for a “Board Meeting” where the proposal for alteration of the articles of association will be presented.
STEP 2: The meeting of the Board of Directors will be held:
For the consideration and decision that the alteration of the articles of association is required.
To pass approval for the alteration of articles for the approval of shareholders.
To authorise any director to sign, certify and fill the form for alteration in the registrar office or any statutory body required to do such act and to give effect to the procedure of alteration.
For passing the special resolution as laid down under Section 14 of the Companies Act, 2013, fix a date, time, venue and date for the general meeting.
The draft notice of the general meeting along with the statement of explanation is approved which is annexed with the notice as held under Section 102 of the Companies Act, 2013.
A director or Company Secretary is authorised in order to issue and sign the notice for the general meeting.
STEP 3: The draft is prepared and circulated to all the directors for their comments within 15 days from the date when the Board meeting has been concluded by any means of communication like a post, by hand, email etc.
STEP 4: A shareholder’s meeting is also required to be conducted on the date which has been fixed for the alteration of articles with the 3/4th majority. In the case of a private company having provision for entrenchmentSection 114(2) is required to be followed along with Section 5(4).
STEP 5: After the special resolution is passed, a certified copy of the special resolution is required to file before the registrar with 30 days of passing the resolution underSection 114of the Companies Act, 2013.
STEP 6: The alteration is then prepared, signed and compiled in the general meeting.
STEP 7: All the necessary amendments in all the copies of the articles of association is made.
As discussed in the case ofSouthern Foundries v. Shirlaw [6] the company can alter its article even it would lead to a breach of contract but in those cases, the damages due to breach must lie against the company.
Effect of Alteration of the Articles of Association
The alteration of articles has the same binding effect as that of the original articles. These altered articles are referred to as originally framed articles or may be altered from time to time. The articles shall have a binding effect on both the company and its members to the same extent as if it was signed by the company and by each member.
The government is of the view that when the amendment of the articles of association of the company leads to the expulsion of a member from the management then it is against the principle of the company jurisprudence and considered ultra vires. The alteration should not lead to any provision which is contrary to law and when the alteration made is in accordance with the law then such alteration is valid and effective as the articles which have been framed originally.
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Legal effects of articles of association
Following are the legal effects of the articles of association:
The members are bound to the company
The article creates a contract which binds the members as well as the company. Each member is bound to the company and they have to follow the articles as well as the memorandum.
The members are equally bound by the articles made originally as well as which are altered from time to time as held in the case of Malleson v. National Insurance Co. [7]
Member can bring legal action against the company
As the articles bind the company and the members, if a company infringes the articles, a member can bring an action against it. For example, if a company does an improper payment of dividend then even an individual member can sue the company for an injunction. Also, the company is bound to the individual members with respect to their rights.
Normally an action in case of a breach of articles can be brought only by the majority of members. The individual members or the minority of members cannot bring suit except when the suit is for the enforcement of personal rights or to abstain the company from doing any illegal or fraudulent act.
The members are bound to the other members
The members inter se are bound by the articles and each member is bound by the other members. But, this does not imply that the articles lead to the creation of an express contract among the members of the company. So, the member of the company does not have the right to bring a suit against other members for enforcement of articles.
The company is bound to the outsiders
The company is bound to the outsiders and by outsiders, it means any person who is not a member of the company. Between the outsiders and the company, the articles do not give any contractual rights against the company. Even if the name of outsiders are mentioned in those documents as the company have contemplated for carrying out business then also there lies no contractual obligation.
Articles of Association when compulsory
For the following classes of company, it is mandatory to have their own an article of association and also, it must be registered:
Unlimited company
An unlimited company has been defined under Section 2(92) of the Companies Act, 2013 as a company having no limit on its member’s liability.
Companies limited by guarantee
The company having its member’s liability limited by guarantee has been defined underSection 2(21) of the Companies Act, 2013.
Private companies limited by share
A private company has been defined underSection 2(68) of the Companies Act, 2013 and a company with its liability limited by share has been defined underSection 2(22) of the Companies Act,2013.
Articles of Association under English Law
The concept of Articles of Association under the English Law is very similar to that of India. In the U.K. the law governing articles of association is The Companies Act, 2006 of the U.K. According to the Act, every company is required to have an article of the association if it is formed in England and Wales. No company can be formed legally without the articles of association. Under English Law, even while the formation of the company a set of model articles are required.
In every registered office, a copy of the articles of association is required to be kept. Just like the provisions in Indian Law, the articles of association can also be altered under English Law. There is a provision for the amendment of the articles of association by way of special majority i.e., with the agreement of the 75% shareholders.
Under English law, the articles of association may override the articles of association. Generally, the articles should be in accordance with the Companies Act, but it is not possible that always the provisions of Company Law will be suitable for every company. So, the articles of the company can override the company law under the English Legal System. To vary or exclude some of the provisions are allowed under English Law.
But, under the Indian Legal System, the articles must be in accordance with the Companies Act, 2013.
MOA VS AOA
Sr. No.
MOA
AOA
1.
Fundamental data is contained in MOA which is required at the time of incorporation of the company.
Rules and regulations that govern the company are contained in the articles of association.
2.
It must be registered at the time of incorporation of the company.
It is not necessary to register the articles of association.
3.
It is the supreme document.
It is not the supreme document, it is subordinate to the memorandum.
4.
It does not provide the company with the power to do something against the provision of the Companies Act.
It cannot exceed the powers contained in the memorandum of association as it is a subsidiary document.
5.
It should have six clauses.
According to the decision of the company, it is drafted.
6.
It contains powers and objectives of the company.
It provides the rules by which these objectives are to be implemented.
7.
It is the dominant instrument and it controls the articles of association.
The provision which is invalid to the memorandum will be declared as invalid.
Forms and Signatures of Articles
The forms and signatures of articles are dealt with the provisions laid down underSection 398 of the Companies Act 2013. The articles of association according to this section requires to be in:
The articles are required to be filed under this Act in the computer-readable format and should be authenticated.
The articles should be delivered or served into electronic form in the prescribed manner.
The articles should be available for inspection in electronic form.
The submission of the articles to the registrar in electronic form should be made through the official portal made by the central government. For filing of the document in addition to the electronic means when required the application made in physical means is also required. The document needs to be signed by each subscriber of the memorandum of association along with their registered address and such signature must be made in the presence of one witness who will attest the signature.
Articles in relation to memorandum of association
Memorandum of association is a supreme document and article of association is a subordinate document. The articles should not contain any such provision whose effect will alter the condition that is provided in the memorandum. This is because the object of the memorandum is to provide the purpose for which the company is established whereas the articles provide the manner in which the conduct of the company has to be carried out. Alteration in the articles of association is done by a special resolution whereas in case of memorandum some of the conditions of incorporation cannot be altered except with the sanction of the Company Law Board.
Unless and until the rule of ultra vires is abolished the memorandum will differ with the articles of association in a principal aspect. If the company does something that is beyond the memorandum than it is completely void and incapable of ratification whereas if a company does anything in contravention of the articles of association then such provision will be held irregular and can always be confirmed by the shareholders.
It was suggested in Anderson Case [8], that if there is ambiguity in the memorandum then the articles registered at the same time may be used to explain it.
Constructive notice of memorandum and articles of association
The two most important documents of every company that are a memorandum of association and articles of association are registered with the registrar of the company. These documents become public documents as these documents are registered at the office of the registrar which is also a public office. So they are open and accessible to the public. It is the duty of each and every person dealing with the company to read and inspect all the documents. It is presumed that he knows all the contents of the documents at the time of coming into a transaction of the company. Whether a person actually reads them or not he will be presumed in the same position that he has read them. This type of presumed notice is called constructive notice.
The practical effect of this rule is provided in the case of Kotla Venkataswamy vs. Rammurthy [9]. In this case, the plaintiff accepted a deed of mortgage that is executed by the secretary and working director only. But, the articles of association requires that all the deed needs to be duly signed by the working director, managing director and the secretary. The court held that if the plaintiff consulted the document carefully then she must have rejected the document rather than accepting it. So nevertheless the bond is invalid.
Another effect to rule of constructive notice is the person who is dealing with the company has not only read the documents but he/she has understood them completely. There is constructive notice not only for memorandum and article of association but also for all the documents like special resolutions etc.
Statutory reform of constructive notice
This is more or less an unreal doctrine because people know a company through its officers rather than its documents. Section 9 of the European Communities Act, 1972 has repeal this doctrine. Section 35 of the Companies Act, 1985 incorporate the provisions of Section 9. In the case of TCB Ltd vs. Gray, Financial Times[10], the company was held liable because the debenture issued by the company was duly signed the solicitor as attorney of a director of the company but it was mentioned in the article of association that all the documents need to be signed by the director directly.
But this was changed in the case of Dehradun Mussorie Electric Tramway Co. vs Jagmandardas [11], the articles of association provided that the directors can delegate their powers other than the power to borrow. So even an overdraft taken by the managing agents would be binding on the company.
Doctrine of indoor management
Various principles in the corporate world help to ensure the safety of stakeholders. The doctrine of indoor management is one such principle that was evolved 150 years ago. The doctrine of indoor management is exactly the opposite of the doctrine of constructive notice. It provides some protection to the outsiders against the company as it softened the hardships that are faced by the outsiders while dealing with the company.
According to Turquand’s rule which is also known as the doctrine of indoor management, it is not the responsibility of the person who is dealing with the company to enquire those internal proceedings related to the contract are followed if such person is satisfied that the transaction he/she enters into is in accordance with the memorandum and articles of association. This doctrine states that the people who are dealing with the company to presume that the internal proceedings are according to the document which is submitted to the Registrar.
Origin of doctrine of indoor management
Form Royal British Bank vs. Turquand [12], the doctrine of indoor management was originated. In this case, there was a provision in the articles of association which states that the borrowing of money can be done on bonds and for this, a special resolution needs to be passed in a general meeting. The company said that they are not bound to pay the money as no such resolution was passed in a general meeting. But it was held that the company is bound to pay back the money as the plaintiffs have a right to infer that a resolution was passed related to this in a general meeting as directors could borrow subjected to the resolution.
Basis of doctrine of indoor management
This doctrine came to be the fundamental principles of Corporate Law and it continued to be applied because of various reasons such as:
Internal matters of a company are not meant for public knowledge. A third-party can only presume the intention of the company but can’t ascertain the information that they are privy to.
If not for the doctrine, the company could escape creditors by denying the authority of officials to act on its behalf.
Exceptions to the Doctrine of indoor management
Following are the exceptions to the doctrine of indoor management:
Knowledge of irregularity: if the person who is dealing with the company has knowledge about the fact that there is a lack of authority of the person who is acting on behalf of the company. The outsider is well known about the irregularity so this doctrine will not apply in this case.
In the case of Howard vs. Patent Ivory Co. [13], the directors of the company could not borrow more than 1000 pounds without the approval of the company’s general meeting but the director borrowed 3500 pounds from another director that too the consent of the company’s general meeting. So the court held that debentures up to 1000 pound are good as the was aware of the facts.
Forgery: a company is never bound by the forgery done by its officers. So this rule doesn’t apply when a person relies on a forged document as nothing can validate forgery. In the case of forged transactions, illegal transactions or a transaction which are void-ab-initio there is a lack of consent.
In Rouben vs. Great Fingal Consolidated [14], the signature of two directors were forged by the secretary of the company and the certificate was issued without the authority. The signatures of the two directors were important as it was a clause in the articles of association. The court, in this case, held that the holder of the certificate cant take advantage of this doctrine as it was a forged document.
Negligence: if the person dealing with the company behaves negligently then, in that case, this doctrine will not apply. Thus when an officer does something which he should not have done it and the person dealing with such officer rely on him rather than making proper enquiries than the person cannot take the help of the doctrine of indoor management.
Binding force of memorandum and articles
Section 36 of Companies Act states that when the memorandum and articles of association are registered it binds the company and the members the same way as if each member and the company have respectively signed the documents.
Binding on members in their relation to company
The provision of the articles of association bound the members to the company. Articles of association constitute a contract between a company and its every member.
Binding on company in its relation to members
The company is bound to the members the same way members are bound to the company and if there is a breach of articles on the part of the company then the member is entitled to an injunction in order to prevent the breach.
But no binding in relation to outsiders
In order to give effect to the articles, neither the company nor the member is bound to the outsiders. No contract can be constituted between the company and the outsider through the article of associations.
How far binding between members
The law has not yet finally decided that how far the articles bind one member. It depends on the articles of association that how far one member will be bound as it only defines the rights and liabilities of the members.
Conclusion
The articles of association can be found in every company and it is a document containing the rules, regulations and bye-laws for the efficient and hustle free administration of the company. The articles of association are compulsory for a few classes of the company such as an unlimited company, a company whose shares are limited by guarantee and a private company. The articles of association have all the important subjects which are required for the management and administration of the companies. It can even be altered or amended when required by following the procedures laid down in the Companies Act, 2013.
The provisions regarding the article of association were different in many aspects under the Companies Act,1956 but after the 2013 Act, many provisions were amended. Like earlier the amendment could not lead to the conversion of the company to public to private and private to the public but after the Act of 2013, it is possible. Similarly, there was also no provision of retrenchment, but after the 2013 Act the provision of entrenchment was also introduced. The article of association holds a very important position in any company and all the major aspects of a company’s management are dealt with the articles of association.
This article is written by Aayushi Swaroop, a student of the National University of Study and Research in Law, Ranchi. The article talks about the dishonouring of cheques and the various aspects to it. From, the types of cheques, to the reason behind dishonouring, the punishment and penalties, the inclusions and exceptions- everything has been incorporated in this article.
Introduction
A cheque is a medium of exchange that promotes cashless transactions in an economy. The use of cheques as a medium of exchange has increased with time. People prefer to give cheques in transactions, instead of carrying currencies. Carrying currencies, especially when the amount is too large, is a risky business. Since cheques are mere paper issued by the bank authority to make payments, it, therefore, becomes a convenient way to carry out transactions as the chances of occurrence of theft or being robbed, reduces.
When the payee receives the mentioned amount by producing the cheque before the bank, the cheque is said to have been honoured by the bank. In case the bank refuses to pay the amount in exchange of his cheque, the cheque is said to have been dishonoured by the bank. Dishonouring of cheques or cheque bounce is when a ‘Payee’, that is, the person who is to receive the payment via cheque, fails to meet with the requirement of the bank, that is, there isn’t sufficient funds in the bank or the amount mentioned in the cheque exceeds the amount of money present in the bank. The maker of a cheque is called a ‘Drawer’, while the person directed to pay (the bank) is called ‘Drawee’, and the person in whose name the cheque is being signed is called the Payee.
A cheque is a document which orders a bank to pay or transfer a certain sum of money, mentioned on the cheque, from the account of the person issuing the cheque to the person whose name the cheque bears.
Section 6 of the Negotiable Instruments Act, 1881 defines cheque as a bill of exchange which is drawn on a specified banker and would not be payable unless on demand. A cheque is inclusive of an electronic image of a truncated cheque and a cheque in electronic form.
A ‘cheque in electronic form’ refers to the exact mirror image of the paper cheque which is generated, written and signed in a secure manner. The digital signature, either with or without a biometric signature, and asymmetric crypto-system, ensure minimum safety standards.
‘Cheque truncation’ refers to a system of cheque clearance where a physical paper cheque is converted into an electronic form through digitalization. It is done to transmit the cheque to the paying bank.
There are three parties to a cheque
The person who issues the cheque is called the drawer.
The person on whom the cheque is drawn, which is always the banker, is called drawee.
The person to whom the payment is being made is called the payee.
Characteristics of a cheque [36]
A cheque, although it has many features in common with bills of exchange and in many ways is governed by the same rules and principles [1] and in the enactments also, the general term ‘bill’ considers cheques under its head [2], it differs from bills in some respects.
Where a cheque is always drawn on a bank or a banker and can be drawn on demand without any days of grace [3], a bill of exchange is a negotiable instrument in writing, instructing a third party to pay a stated sum of money at the mentioned future date or on-demand. Thus a bill of exchange which is drawn on a banker, if it is not payable on demand, then, it would not be called a cheque [4].
For example, when the District Board Engineer issues an order on Government Treasury, it is not called a cheque as the Government is not a bank carrying out business for profits. [5]
Since there is no requirement of acceptance along with the prompt demand, there is also no privity of contract between the banker and the payee. Therefore, the payee cannot sue the bank when a cheque is not honoured by them.
A cheque is supposed to be drawn upon funds in the hands of the banker. [6]
The person who issues the cheque is not discharged by the failure of the holder of the check to present it in due time. This is subject to an exception where the drawer has sustained damage due to the delay as laid down under Section 84 of the Negotiable Instruments Act, 1881.
The drawer of the cheque has to mention the date on which he is issuing the cheque. And from the date mentioned over there, the cheque remains valid for a period of 3 months.
Name of the payee
A cheque has to carry the official name of the person to whom the payment has to be made, that is, the payee. Name is for the identity of the person.
The option of ‘or bearer’
It is optional to fill the ‘or bearer’ slot mentioned on the cheque. It has to be filled when the payment being made via cheque is not to be received by a specific person but by whoever receives it (the ‘bearer’).
Sum of money
This is the most important part, where the drawer cites the amount of money he has to pay. The limit upon this option is that the amount being mentioned should not exceed what has been agreed upon with the bank or should also not exceed the amount present in the drawer’s account.
Amount in numbers
The sum of money that has been mentioned in words has to be written in digits as well. This provision has been included so as to ensure that both, the amount mentioned in numbers and words matches, so as to ensure the bank with the amount of money, the drawer is asking for. Sometimes it so happens that one wants to draw 1000 rupees and mistakenly adds one extra zero. This way, there could occur many false transactions. Hence, this provision has been introduced.
Section 18 of the N.I. Act states that in case of discrepancy between the amount mentioned in digits and the amount mentioned in words, the number written in words shall prevail.
Pre-printed account number
A cheque already carries the account number of the person signing the amount. This has been included for the banks to easily find out from whose account the payment has to be made.
Signature of the drawer
The cheque being issued has to be signed by the person issuing it. This way the cheque gets authorized and is ready to be presented before the bank for encashing it.
Pre-printed cheque number and MICR code
The bottom of the cheque carries the MICR code and cheque number in printed form so that the cheque cannot be manipulated.
Types of cheque
Bearer cheque
It refers to those cheques which can be drawn by the person whose name is written on the cheque. Since in this case, the bank does not ask for the identification of the person when the cheque is presented to it, bearer cheque involves great risk, as anybody who mistakenly finds this cheque would be able to withdraw the money.
For example, if Katappa endorses a cheque to his friend, Bahu Mali, Bahu Mali would be able to collect the amount from the bank.
Order cheque
This is a cheque in which the word ‘bearer’ has been removed and replaced with ‘or order’ to ensure that it is payable only to the person mentioned therein as the payee, or to any other person to whom the cheque has been endorsed. The bank, in this case, could complete the transaction only when it identifies the payee, to its satisfaction, as the same person whose name the cheque carries.
Section 15 of the Negotiable Instruments Act, 1881 defines endorsement as an act where the holder of the cheque signs on the back of the cheque or any other negotiable instrument, with the intention of transferring the rights therein is called endorsing a cheque.
Crossed cheque
A cheque that carries two parallel lines on either the top right or top left corner of the cheque is referred to as a crossed cheque. Along with the two parallel lines, words like ‘& CO.’, or ‘account payee’, or ‘not negotiable’ may be written. No cash transaction takes place when a crossed cheque is presented. The payment is directly transferred to the payee’s bank.
Uncrossed/Open cheque
A cheque which does not have a cross on it is called an open or uncrossed cheque. It can either be a bearer cheque or an ordered cheque, where the payment could be encashed at any bank and the payment could be received, either at the counter of the bank or could be transferred directly to the account of the payee.
Anti-dated cheque
When the person issuing the cheque mentions a date earlier than the date on which it is being presented to the bank than the cheque is called a anti-dated cheque. An anti-dated cheque is valid only up to 6 months from the date mentioned therein. For example, I am to issue a cheque to Dr. Gareeb Gulati today, 17th July, 2019, but I mention the date on the cheque as 31st July, 2019.
When suppose a contract is delayed anti-dated cheques can be issued to avoid any unnecessary trouble to the party.
Post-dated cheque
While issuing the cheque, when the drawer mentions a future date rather than the date on which is it being issued, then such cheques are called post-date cheques. For example, if a check is being issued on 5th September, 2017 and carries a date of 6th September, 2018, then it would be called a post-dated check and the payee can withdraw it only after 6th September, 2018.
So, in cases where the person issuing the cheque does not have sufficient balance in his account, but is bound by a contract to pay the amount., then he could issue a post-dated cheque.
Stale cheque
As per the Reserve Bank of India’s (RBI) guidelines, which is into effect from 1st April, 2012, a cheque is valid only up to 3 months from the date of the cheque. Once the duration expires, the bank would not collect the cheque as banks do not collect stale cheques.
Mutilated cheque
When a torn cheque is presented before the bank, divided into two or more pieces, it is called a mutilated cheque. In this case, the bank will not accept the cheque. But under certain circumstances, like if the cheque is mildly torn, the bank may accept it, though with the drawer’s confirmation for crediting the same.
Blank cheque
A cheque which carries only the signature of the person issuing the cheque and does not contain all the requisites, like the amount to be paid, date, etc. is called a blank cheque. A blank cheque is referred to as carte blanche in legal parlance.
This type of cheque comes in to picture when the payment is to be made based upon an uncertain future event. Or it can even be used for the purpose of gifts. For example, Kabir, a father, out of love of her daughter, Naina, becoming a doctor, gives her a blank cheque, saying she could fill it with whatever amount she likes. However, the problem with blank cheques is that one could easily be used for illicit purposes. In the above example, Naina could sign an amount which is not reasonable and take away all the amount her father had in the bank.
In order to avoid crimes like illicit use of blank cheque, one should follow these instructions:
Use ‘A/c payee’ instead of ‘or bearer’
In case a blank cheque is being signed is required that one writes ‘A/c payee’ on the right-hand side top corner of the cheque. It should be written between two parallel lines crossing the sides. And the option of ‘or bearer’ has to be removed. This is done in order to ensure that the blank cheque is being given to a specific person and not to anybody who finds the cheque, as is the case in when ‘on bearer’ is written on the cheque.
Write the name of the payee in closed space
After the name of the payee has been written, it is important that horizontal line encloses it. This is so that nobody could add a name or surname and falsely issue the money in his own name.
The amount written in words should end with only
The amount that is to be paid when written in words should end with only to make it definite. Also, any extra space should not be between the words, and also not while writing the digits. For example, while writing the digits, the digits after a point, i.e. paisa, should be determined with ‘/’ and not space.
Do not sign on the MICR band
It is very important to put one’s signature just above the name and ensure that the MICR band is not affected. If not followed then the cheque would not be read by the bank and would further lead to the dishonouring of the cheque by the bank.
Make sure you mention the date
In case a person leaves the column of date, then there is a high possibility that someone could use it as per his/her own convenience and mention the date at the time when he knows that your account would not be having sufficient fund to discharge the liability. This would lead to dishonouring of the cheque.
Do not overwrite
Most of the cheques get dishonoured due to overriding. One must avoid overwriting on cheques.
Self cheque
A self cheque is one where the account holder’s name is mentioned on the cheque and can be used to encash money in physical form from the branch where the drawer has an account.
Pay yourself cheque
It is a crossed cheque issued in the bank’s name in order for the bank to deduct money from the account of the drawer in exchange for buying bank’s products like drafts, pay orders, fixed deposit receipts, etc.
Travellers’ cheque
The cheques which are used by a person while he is travelling is called traveller’s cheque. These cheques can be encashed in any other country where foreign currencies are acceptable.
Banker’s cheque
They cheques which are issued by banks itself guaranteeing payment, and which cannot be dishonoured as the money is paid to the bank beforehand, are called banker’s cheques.
Cheque Cancel
A cheque on which the word ‘cancelled’ is hand-written between two parallel lines crossing the cheque is called a cancelled cheque. It is bereft of any requisites and is presented as a proof of having an account with the bank.
Need for a cancelled cheque
A cancelled cheque is required at the time of opening a savings account or current account in the bank.
When a person desires to have an Electronic Clearance Service (ECS) from the account, he will have to produce a cancelled cheque before the bank.
A cancelled cheque is required for KYC (Know Your Customer) purposes.
If a person has to withdraw funds from Employee Provident Fund, one will have to present a cancelled cheque.
The person who is applying for a loan, attach a cancelled cheque in order to send the request for processing the loan amount.
When a person wants to buy an insurance policy, he is required to submit a cancelled cheque along with other documents.
A cancelled cheque has to be submitted while opening a Demat account, that is, an account for transacting money. A Demat account is where an investor keeps his share in electronic form. Since the stocks in this account remains dematerialized is also known a dematerialized account. (Dematerialization refers to the process of converting physical shares into electronic form.)
When repayment of a loan is made by availing the facility of EMIs (Equated Monthly Installment), one is required to present cancelled cheque when finalising the method of repayment using EMIs.
E-Cheque
E-cheque was developed by a consortium of Silicon Valley IT researchers and merchant bankers in their quest for improved methods of transaction which is safe and secure. Since its development, it has been in wide use, with crores of transactions taking place every day.
Meaning
With the rapid advancement in payment technologies, e-commerce transactions have experienced tremendous growth. One such payment method, where payment is made via the internet or any other data network, is the use of e-cheque. An e-cheque is a document in electronic form which acts as a substitute for physical paper cheques. E-cheques carry signatures in digital form, that is, e-signatures.
Therefore, it is a mode of payment via the internet where no physical paper is required and payments could be made using cheques in electronic form. This method is known to be a faster and safer way of making payments as it comes with several security features, like, authentication, public-key cryptography, digital signatures and encryption, etc.
E-cheque advantages and disadvantages
Among many competitions cropping up, one competition is between cash and electronic money. The public demand for a virtual wallet is on the rise. The various advantages and disadvantages associated with this method are stated below:
Advantages to the customer
Since there is no physical movement of the cheques, customers do not have to worry about their cheques getting lost in the process. It thus reduces the possibility of loss of cheques.
E-cheques are a swifter way of making payments and so the payment gets cleared within a span of 3-4 working days. It, therefore, saves one’s time.
This method of exchange is more secure than physically carrying cheques as there is a risk of becoming a victim of theft or robbery.
This method is cost-effective as it does not involve much use of a resource, or use of many resources.
Since the electronic payment method keeps a record of all the previous transactions and one could access the history of their payments within seconds and control their expenses.
The customer is required to pay a very low commission in comparison to UPT (Unattended Payment Terminal). Here UPT refers to the self-service solutions, that is, where the customers could activate the transactions themselves.
This method has a comprehensible user interface which makes it a user friendly method. It reaches people from every corner of the world.
Any person, from anywhere, at any time, can make use of this method provided there is internet facility. This also makes it a convenient method of making payments.
Advantages to the bank
The paper clearing process becomes less risky and convenient as everything is done online.
Advance methods of verification and reconciliation, therefore, fewer chances of making mistakes.
There are no geographical restrictions.
Since there is no physical carrying of cheques, therefore, it is cost effective and also saves the time of the banks.
Since the accounting servers look into the cheques getting honoured, there are no cases of dishonouring of cheques.
E-cheques reduces the cost of processing as it does not require any manpower to process and also there is no fee for depositing or transacting money.
Setting up an e-cheque platform is less resource consuming. It reduces the use of fuel thereby helping in the reduction of emissions of greenhouse gases which is was created while transporting paper cheques.
Disadvantages of e-cheque
Not many people are technologically sound and therefore could not avail this facility.
Increased chances of misuse of these methods, hacking, online frauds, etc.
The major challenge posed by banks are the thousands of unauthorized transactions that take place without any traceable records.
Since here transactions are made via the internet, the possibility of network failure remains high, which leads to delayed payments.
It is not necessary that both the payer and the payee should have access to e-cheques facility.
The total number of transactions per day and the total amount of money which can be drawn in a single transaction and per day is subject to restrictions.
Reasons for Dishonour of Cheque
Insufficient amount in the account to meet the payment amount.
If, before presenting the cheque to the bank, the drawer closes his account.
Overwriting on the cheques.
Absence of signature or mismatching of signature with the specimen’s signature which the bank is having.
On the order of the drawer to stop the payment on that cheque.
Absence of the payee’s name or if it is not written clearly.
If there is no match found between the amounts mentioned in figures and digits.
Absence of the account number or if it is not clearly written.
If any court orders to stop the payment on the cheque.
Upon the death or unsoundness of mind or insolvency of the drawer.
If the changes made on the cheque are not approved by the drawer.
Absence of date or mentioning of incorrect date.
When the date mentioned has expired the duration of 3 months.
If the cheque comes in tormented state, i.e. torn, wet or spotted.
The section states that when a person who has an account with the bank wants to make a payment from that account to some other person for the discharge, in whole or in part, of any debt or other liability, and that is returned by the bank is it called dishonouring of the cheque. The reason for returning the payment could be insufficient bank balance to meet the payment requirement or when the mentioned amount exceeds the value supposed to paid from that account by an agreement made with the bank. Such a person would be punished with imprisonment which may extend up to 2 years, or with fine which may extend to twice the amount of the cheque, or with both.
This provision would not be applicable if:
The cheque has been presented to the bank within the period of six months from the date of the cheque or within the period of its validity (which is 3 months), whichever is earlier;
The payee or the holder, within 30 days of the receipt of information by him from the bank regarding the return of the cheques as unpaid, makes a demand for payment from the drawer of the cheque, for the mentioned amount by giving a notice, or in writing, in the due course of the cheque, as the case may be; and
The drawer of the cheque fails to make a payment to the payee of the said amount or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.
Essentials for actions under the provision
Following are the conditions that need to be met to constitute an offence within the ambit of this section.
The cheque that has been issued must be for the purpose of discharging, in whole or in part, any debt or any other liability.
It is required that cheques be presented to the bank before the period of 6 months or within the period of its validity (which is 3 months), whichever comes earlier.
Within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid should the payee or the holder give a notice in writing. This should be done by the payee or the holder in due course.
Once the drawer has received the receipt of notice by the payee or the holder in due course, the drawer should have failed to make payment for the amount mentioned in the cheque, within the period of 15 days from the date of receiving the receipt of the said notice.
A complaint should be filed within one month from the date of expiry of the grace time of 15 days, after the non-payment of the amount due on the dishonoured cheque. This should be done before a Metropolitan Magistrate or any authority not below the rank of Judicial Magistrate of the first class. If the complainant satisfies the court that he had sufficient cause for not making a complaint within such period, the court may take cognizance of it. This has been mentioned under Section 142 of the Negotiable Instruments Act, 1881.
The offences that fall within this Act are compoundable offences. Compoundable offences are the ones where the party could agree to make a compromise and may choose to drop the charges which they have levied.
One of the essentials of this section is that the debts that is to be recovered is legal.
Legally Recoverable Debts
Section 138 of the Negotiable Instruments Act, 1881 incorporates the term “debt or other liability”, which refers to legally enforceable debt or other liability. [42]
For example, if a cheque which has been dishonoured was issued against a time barred debt, then no liability would arise under Section 138, as the debt was not legally recoverable. Also, in cases where a cheque is being issued as a gift or a donation or for any other charitable purpose, it would not be covered under the ambit of this section [Mohan Krishna v. Union of India].
Summary of the essentials
It is necessary that the cheque gets dishonoured
According to Section 138 of the N.I. Act, it is necessary that the cheque is dishonoured by the bank. This is to ensure that the payee gets his payment without any hazard. The given provisions do not apply to the dishonour of other negotiable instruments.
The purpose of the cheque is to discharge a legally recoverable debt
A cheque is issued by the drawer for the purpose of discharging, either the full amount of a partial sum of money, of the debt that he holds towards the payee. The term debt in this situation refers to those debts which are legally enforceable. In case the drawer issues a cheque as a gift or for the purpose of charity, then such cheques cannot be dishonoured as they are not for the reason of discharging legally enforceable debts. Hence, no liability would arise under Section 138 of the N.I. Act.
Validity period
For the cheques to get honoured, it is necessary that it be produced during its validity period, that is, within 3 months from the date on which it was drawn..
Insufficient funds
In the case where the amount mentioned on the cheque exceeds the bank balance, the cheque would get dishonoured. Also, if the sum of money mentioned on the cheque exceeds the limit of the sum of money that was supposed to be withdrawn as per the agreement with the bank, the cheque would not be honoured by the bank.
Special remarks
If a cheque comes with either, ‘account closed’, or ‘refer to the drawer’ or, ‘stop payment’, written on it, then by virtue of Section 138, the cheque would not be honoured by the bank.
Failure to pay within 15 days
If the drawer fails to make the payment within the validity period and the payee issue a notice warning the drawer to pay it within 15 days, and still the drawer does not pay the money, the liability shall arise within the scope of Section 138 of the NI Act.
Legal Notice for Cheque Dishonour
Legal notice of dishonour of cheque refers to the information which the payee gives to the drawer, about the fact that the cheque has been dishonoured. (What a bank sends to the payee intimating the latter of the dishonour of the cheque is called a ‘return memo’.) This notice serves the one who is to be held liable for not following the rules and regulations laid down in the principle. The notice acts as a warning for the offender, bringing to his notice his liability.
If the authority delays the giving of the notice, then the plaintiff might be discharged from his liability with respect to the dishonouring of the cheque.
Notice of dishonour by whom
The notice of dishonouring of cheque(s) is released by a party when he wanted to hold some prior party liable for the dishonouring of the cheque(s). The party giving the notice could be
The holder, or
A party to the instrument who remains liable for it.
The notice may be sent by the payee or the holder of the cheque in due course.
Service of notice
Under Section 27 of the General Clauses Act, 1897 there is a presumption regarding the service of notice, according to which, the service of notice would come into effect only when it has been sent to the correct address by registered post. As per the provision, if a person is filing a case under Section 138 of the Negotiable Instruments Act, 1881, it is not necessary for him to state in the complaint that the service of notice given to the accused was either evaded by him or that he had a role to play in the return of the notice unserved. However, stating the same may help strengthen the Complainant’s case by giving an impression of the Drawer’s guilt to the court.
In the case where the notice could not be served or delivered as the house of the drawer was locked, Section 27 of the General Clauses Act, 1881 would apply to a notice sent by post as decided in the case of V. Raja Kumari v. P. Subbarama Naidu & Anr.[8]. The court also clarified that the burden of proof for the claim that the notice was not really served and that no liability could arise for not being responsible for the non-service would be on the drawer.
There are certain guidelines which were laid down regarding the rule that the notice would be considered as served if provided the court with proper reasons like unavailability of the person at the house, doors locked, or shop closed, etc. the guidelines were laid down in the case of (at present in) Kalamba Jail v. Gautam Umed Parmar [9]:
Service of notice cannot be put to question if the notice has been sent to the correct address of the drawer, fulfilling the requirement under Section 138(b) of the N.I. Act, 1881.
There is no need for emphasizing on the mode or manner of issuing a notice to the drawer.
For filing of the case, the court must be convinced that a case under the given section is applicable and that it meets the statutory requirements.
The drawer can then defend himself by stating that he did not have the knowledge of the notice which was delivered to him or that the notice was never tendered or, the postman’s notice is false or fake or, that the notice was delivered at the wrong address altogether.
Essential Documents for filing the complaint
Under Section 142 of the Negotiable Instruments Act, 1881, there is only one eligibility requirement for filing a complaint and that is, the complaint is filed by the payee or the holder in due course. The complainant should be a corporeal person, capable of making a physical appearance in the court. [10]
The basic documents required for filing the complaint
The complaint should have been filed under Section 138 of the Negotiable Instruments Act, 1881, containing an outline of the facts.
There is also a requirement for pre-summoning evidence by way of Affidavit.
At the time of filing the complaint, the complainant should produce a list of witnesses.
All the documents essential to the case should be submitted along with the list of the documents being submitted.
At the time of filing the complaint, the client should handover a Vakalatnama in favour of his counsel which is to empower the advocate to act on behalf of his client.
The notice of demand (legal notice issued by the payee to the drawer under Section 138) along with the original cheque return memo has to be presented with the complaint.
Other supporting documents required for filing the complaint
Where a party to the case is a company , a copy of a board resolution is required which authorises the complainant’s advocate for representing its case in the legal proceedings.
The original, and no photocopied, or scanned document, of the dishonoured cheque, has to be submitted.
A Copy of the legal notice has to be provided.
A copy of the return memo has to be provided.
Limitation Period
From the date of issuance of receipt of the notice by the drawer, a 15 days period (‘Notice Period’) is given in order to make the payment of the amount of the dishonoured cheque. Pursuant to clause (b) of Section 142 of the Negotiable Instruments Act, 1881, if a complaint is registered under Section 138 of the Act, it should have been filed within one month of the expiry of these 15 days. However, the court has the power to overlook the delay in case the complainant provides a reasonable argument for such a delay.
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Jurisdiction of Courts
In an amendment made to the N.I. Act in 2015, that is, the Negotiable Instruments (Amendment) Act, 2015, it was laid down that the jurisdiction of filing a complaint under section 138 of the Act would be the place where the drawee bank is situated. The court, in the case of Dashrath Rupsingh Rathod v. State of Maharashtra & Anr. [11], stated that, “Logically, the place, site or venue where the judicial inquiry of the case and the trial of the offence should take place should be restricted to the area where the drawee bank is situated.” But, later, after the amendments, in the case of Sh. Vikram Monga v. Sh. Sanjay Dhingra [37], the court in para 13 has specified that the Section 142(2) lays down: The offence under Section 138 of the N.I. Act would be inquired into and would be tried only by the court whose local jurisdiction:
In case where the cheque is delivered to encash it from the account, then the case would be filed in that branch where in due course, the holder or the payee, as the case may be, was maintaining an account; or
In case where the cheque has been issued by the drawer otherwise through an account, then at that place where the branch of bank is located in which the drawer in the due course has been maintaining an account.
How to initiate the case under the section
After the cheque has bounced, the payee would warn the drawer of the cheque that he would initiate a proceeding under the N.I. Act, if the drawer does not clear the payment within a period of 15 days from the date of receipt of legal notice.
In case drawer doesn’t make the payment within these 15 days, then the payee is entitled to initiate complaint proceedings under Section 138 of the N.I. Act within 1 month of the end of such period.
There exists no format for drafting such notices, as it is just to inform the drawer that a case is being filed against him for making a default on payment.
The constituents of the demand notice would be:
A statement clarifying that the cheque was presented to the bank within its validity period (3 months).
Statement describing the debt and the circumstances surrounding the manner of incurring such debt.
The demand notice should also contain all the information regarding the dishonoured cheque, like why it was dishonoured, etc.
The sum of money that the drawer needs to pay within 15 days of receiving such notice.
Court Fees
There exists no blanket provision for court fees across states. Different states charge different court fees. The fees which the court charges is not much in such cases. Depending upon the amount stated in the cheque, the court fees may vary.
In Delhi, the court fees for cheque bounce matters is merely Rs 2, for which a court stamp is required to be applied to the Complaint. In the state of Madhya Pradesh, the following schedule of fees is applicable.
Amount mentioned on the cheque
Court fees
Upto Rs. 1,00,000
5% of the amount of dishonoured cheque, subject to minimum Rs. 200
More than Rs. 1,00,000 and less than Rs. 5,00,000
Minimum Rs. 5,000 + 4% on amount in excess of Rs. 1,00,000
More than Rs. 5,00,000
Minimum Rs. 21,000 + 3% on the amount in excess of Rs. 5,00,000 subject to maximum Rs. 1,50,000.
Procedure after the complaint has been admitted and the court has taken cognizance of the case
The court would issue a summons in favour of the person being accused, for appearing in the court on the date specified by the court itself.
In case, if the person being accused by dishonouring of cheque, fails to appear before the court on the specified date, then the court has the power to issue a bailable warrant upon the request of the complainant.
In case, the person being accused of the offence does not make an appearance even after issuance of a bailable-warrant, then the court may order to issue non-bailable warrant against him.
Scheme of Prosecution under Section 138
The procedure prescribed under Section 138 of the Act talks about the punishment in cases of dishonouring of cheques but does not lay down the process to be followed during the investigation of the said offence.
In order for the parties to initiate prosecution, the payee or holder in due course claiming payment is required to file a written complaint before the appropriate authority having territorial jurisdiction.
The complaint filed should mention all allegations that the payee seeks to make against the drawer of the dishonoured cheque and those allegations should be based on the following ingredients that constitute the offence of dishonouring of cheque under Section 138 of the N.I. Act:
That, it has to be proved that the person had issued a cheque while having a bank account with the respective bank;
That, when the signed cheque was produced before the bank, the bank without making any payment, returned it;
That, the cheque was presented within the period of 6 months from the date when it was drawn, or within its validity period, whichever is earlier;
That, the payee, on receiving an intimation from the bank regarding dishonour of cheque (through a return memo), sent him a notice in writing, asking for the payment of the amount mentioned in the cheque;
The notice being issued by the payee should have been sent to the drawer within a period of 30 days from the date of the receipt of the information by the payee from the bank, regarding non- payment of the amount mentioned on the cheque and for the return of the cheque;
That, if in those 15 days from the date of the receipt, the drawer of the cheque does not make the payment, he would be held liable for the dishonouring of the cheque under Section 138.
Redressal for defendant in case under Section 138
Filing of Summary Suit
The process of filing a summary suit is an alternative remedy being civil in nature available to the creditor of a debt for the recovery of the debt amount, which the creditor may opt for when the limitation under Section 138 runs out or otherwise. Under Order XXXVII of the Code of Civil procedure, 1908 the plaintiff has the right to file a ‘summary suit’ which ensures that the defendant does not get any chance to defend himself unless he seeks permission from the court to do so. A summary suit may be filed for promissory notes, cheques, etc and is widely used in civil matters. It doesn’t give rise to criminal charges as the purpose of issuing it is only to recover the amount from the defendant at the earliest possible time.
Cognizance of Offence
Conditions essential
It is Section 142 of the Negotiable Instruments Act, 1881 that deals with cognizance of offences. It states that the following conditions need to be met to hold the drawer liable for the offence of dishonoring a cheque:
The person who is to be paid, i.e., the payee or the holder, is required to file a written complaint in due course of time.
Pursuant to what has been mentioned in Section 138(c), one needs to file a complaint within a period of 1 month from the date on which the cause of action arises.
Section 138 of the N.I. Act, empowers only the Metropolitan Magistrate or a Judicial Magistrate of the First Class to handle cases of the dishonoring of cheques.
Liability of Drawer of Dishonoured Cheque
Section 143 of the N.I. Act, 1881 gives the court the power to try Section 138 cases summarily.
Section 143 of the Act states that:
Overriding what has been mentioned in the Code of Criminal Procedure, 1973 (2 of 1974), all the cases registered under this section will be tried by a First Class Judicial Magistrate or by the Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials.
The High Court holds the power to appoint a second class Magistrate to try summarily any offence who could punish with fine and imprisonment both. But, the term of imprisonment should not exceed a period of 6 months.
If in any case, the Magistrate finds that the accused should be punished for a term more than 1 year than in that case he could recall for a witness and hear or rehear the case in the same manner as laid down in the Code of Criminal Procedure, 1973.
The Section also asks for a continued trial, that is, the trial should continue consistently until a decision had been made by the court. This is done in the interest of justice. It is subject to restrictions on the ground that if the court finds that a case needs adjournment for reasons of being recorded in writing.
Every trial being carried under this section should be conducted at a faster rate along with efficiency and shall be able to conclude a trial within 6 months from the date of filing of the suit.
The Magistrate may send a copy of the summons, issued in the name of the accused or a witness, to their place of residence or place where they carry out their business, either through courier services or speed post, as directed by the Court.
Amendments to the Negotiable Instruments Act
The Negotiable Instruments (Amendment) Act, 2015
The following provisions were included after the amendment to the Act in 2015:
The compensation for loss caused should not exceed 20% of the amount mentioned in the cheque.
In case the drawer is exempted from all the charges then the payee will have to return the money which he had received as compensation. The compensation has to be paid along with the RBI’s Prevailing interest rate, to the drawer.
The compensation should be paid within 60 days from the date the court orders to do the same. This period can further be extended to 30 days if the court is satisfied with the reason for seeking such an extension.
This Amendment was another attempt to reduce the number of cases of dishonouring of cheques. The Amendment laid down that there should be provision for interim relief and repayment of deposits.
Interim Relief/ Interim Compensation
In the case of dishonour of cheques it was the complainant who had to face the expenses of the lengthy process of court proceedings, therefore it was introduced via 2018 Amendment that the complainant should be given interim compensation. This would make the drawer take the case seriously.
Duration
It has been provided that the compensation be paid within 60 days from the date of passing an order by a competent court. It further allows an extension for 30 days, when the court is satisfied with the reason for doing so.
Repayment of interim compensation
Within 60 days from the passing of the order by the court which may extend to 30 days when provided the court with a satisfactory reason, the complainant is required to repay the interim compensation, only when the drawer of the cheque has been acquitted of all the charges. The interim compensation has to be repaid along with an interest at the bank rate as published by the RBI.
Repayment of deposit
The Appellate Court has the power to ask for the repayment of the deposit at any time when the appeal is pending before the court. In case where the appellant gets acquitted of all the charges, he would be able to receive the deposit from the complainant along with the rate of interest specified by the RBI. The repayment of the deposit has to be made within 60 days from the date of the order by the Appellate Court. This can further be exceeded by 30 days if the court is given satisfactory reasons for doing so.
Purpose
Purposes which the Negotiable Instruments (Amendment) Act, 2018 was meant to fulfill:
To find out why there was an undue delay in the final resolution of the cases of cheque bounce.
To ensure that the payee, that is the person in whose name the cheque was issued, gets relief.
To make sure that no frivolous and unnecessary litigations are taking place.
To ensure that the parties to a litigation do not have to spend a lot of time and money.
Hereafter, Section 143-A was inserted in the N.I. Act, 1881 which states that:
The court, in cases of dishonouring of cheques, holds the power to ask the person who is issuing the cheque, i.e. the drawer, to give interim compensation to the drawee.
The compensation amount would be 20% of the amount mentioned in the cheque.
The court holds the power to ask the drawer of the cheque to pay the interim compensation either in the summary trial or summons case, where he pleads that he is not guilty or in any other case after the charges have been framed.
Under Section 143 of the N.I. Act it was laid down that:
Summary trials can take place in cases of cheque bounce as per the Section 262 to 265 of the Criminal Procedure Code, 1973.
The offence would be punishable with imprisonment with will not exceed the period of 1 year and fine that would exceed Rs. 5,000.
If either at the beginning of the trial or during the period of its continuance if the magistrate realize that the case is not suitable for summary trial as the punishment would increase the term of 1 year, then the offence would be tried as summons case.
It was also made known that a person can either go for a civil suit in case he wants mere repayment (with interest) (Summary Suit) or can file a complaint under criminal law (Section 138).
Section 148
The Appellate Court under this section has the power to direct payment pending the appeal against conviction, under section 138 of the N.I. Act. The court has the power to order a minimum of 20 % of the fine or compensation awarded by the trial court. And this minimum 20% of the amount shall be paid along with the amount that has already been paid by the person who has filed an appeal under section 143-A. The amount deposited can be recovered anytime while the appeal is pending, on the ground that payment has to be made to the complainant.
Section 138 NI Act Punishment
The punishment for committing the offence is to pay a fine with may be twice the amount of money that has been mentioned in the cheque or imprisonment up to 2 years. It was by virtue of the Negotiable Instruments (Amendment) Act, 2002, to the Act that the period of imprisonment was increased to 2 years.
In a case where the offender is a company or a firm or any other financial institution, every one of those people would be held liable who was having the power to exercise control over the business conduct.
Nature of the Offence
Under the civil suit, the holder of the cheque can file a case for recovery of the sum of money which the drawer was supposed to pay to him.
Under the Negotiable Instruments Act, 1881 the criminal liability of the offender of dishonouring of cheques is laid down in the provisions laid down from Section 138 to 142. Criminal liability arises in cases where the cheque has been dishonoured because of insufficiency of funds or for exceeding the limit which is supposed to be paid, as per what has been mentioned in the agreement with the bank.
Speedy Disposal
As laid down in the case of M/S Meters and Instruments Private Limited v. Kanchan Mehta [16], an accused under Section 138 of the N.I. Act can be discharged from his liability without taking any consent from the complainant, when the court is satisfied that the complainant has been compensated adequately.
The guidelines which were laid down by the Supreme Court in the particular case are:
Any offence which falls under the ambit of Section 138 of the N.I. Act would be dealt with in accordance with the provisions under Criminal Procedure Code, 1973.
Under Section 258 of the Criminal Procedure Code, 1973, the court holds the power to discharge the offender if the court is satisfied that the complainant has received adequate compensation.
The primary nature of the object under Section 138 is to compensate the plaintiff. The offender receives punitive punishment only when there is negligence while enforcing the compensatory damage, like delay in compensating the plaintiff.
Compounding of an offence needs to have the consent of both the parties. But, there is an exception which says that if the court is satisfied with the fact that the plaintiff has received adequate compensation, then the court can exempt the accused from his liabilities.
Under Chapter XVII of the Act, the procedure for the trial of cases would be done summarily.
The Magistrate has been given the power under Section 143(2) of the N.I. Act that it can pass an order stating that the particular case could not follow the rule of summary trial, as the term of punishment would go beyond the specified limit of one year.
In case the above mentioned order has been passed in a particular case, it has to be first rectified the court had the jurisdiction to pass such orders within the scope of Section 357(3) of the Criminal Procedure Code, 1973. It has also to be ensured that the said court has awarded compensation and punishment with imprisonment within the scope of Section 64 of the Indian Penal Code, 1860 and recovery under Section 431 of the Criminal Procedure Code, 1973.
If any other evidence apart from affidavit and bank’s slip is being submitted to the court, it has to be recorded as preliminary evidence by the Magistrate.
Such affidavits can be produced before the court anytime during the period when the proceedings are going on.
Landmark judgements under Section 138 of NI Act
In Krishna Janardhan Bhat v. Dattatraya G. Hegde[30] laid down the essentials required for filing a case for dishonouring of cheque(s). These ingredients comprise of- existence of some legally enforceable debts, the cheque be paid in due course of validation, and the cheque, when presented before the bank, should have been returned unpaid to the payee, due to insufficiency of funds in the account or for exceeding the limit of the sum of money mentioned in an agreement with the bank.
In K.A. Abbas H.S.A. v. Sabu Joseph & Anr. [31] a case for dishonouring of a cheque, with an amount of 5 lakhs rupees, under Section 138 of the N.I. Act, was filed against Mr. Abbas. The cheque had bounced due to insufficiency of the sum in the bank account. The defendant was asked to pay a compensation of 5 lakhs rupees to the plaintiff by the High Court of Kerala. Upon an appeal, the Supreme Court complied with the order passed by the High Court of Kerala. Monetary compensation to the plaintiff was allowed to ensure that they are being taken care of under the Criminal Justice System, as mentioned in Section 157(3) of the Criminal Procedure Code, 1973.
In Dashrath Rupsingh Rathod v. State of Maharashtra[32], the three judge bench of the Supreme Court said that in order to file a complaint under Section 138 of the N.I. Act, on the grounds of dishonoring of cheques, the complainant can file the case in the courts under whose jurisdiction the offence has been committed.
Supreme Court Latest Judgements on Section 138 NI Act
Section 141
In Himanshu v. B. Shivamurthy & Anr. [29] the appellant was the Director of the company, named Lakshmi Cement and Ceramics Industries Ltd. She claimed that she had signed the cheque in the capacity of the Director of the company and so the company should be held liable and her. The court for this matter referred to the Section 141 of the N.I. Act, which stated that calling the company before the court to present his argument was crucial to the process of prosecution in such cases. The mentioned section basically talks about the concept of vicarious liability in cases of dishonouring of cheques under Section 138 of the N.I. Act. An important point within the scope of Section 141 of the N.I. Act is that it will hold liable every one of those people who at the time of the commission of the offence was holding the power for conducting the business of the company.
Mediation
In the case of Dayawati v. Yogesh Kumar Gosain, [17] the court has marked that: the cases falling within the ambit of Section 138 of the N.I. Act, marked as criminal compoundable cases, can be sent to the mediation centre. This case also laid down the procedure to be followed and also demarcated the contents of settlement while transferring the case to mediation.
Promoting digital mechanism for dispute resolution
In the case of M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta, [18] the court has ordered for speedy disposal of cases. The court has said that in cases where an online platform can be a better measure for dispute resolution, the case should be dealt online without any appearance of the parties. An example could be, traffic challans. The court emphasized on the point that the advancement in technologies must be put to use to avoid overcrowding in courts.
Dishonoured cheque has to be complemented with other factors to constitute an offence
In the case of Smt. Asha Baldwa v. Ram Gopal, [19] the petitioner defended herself by stating that, it is not sufficient reason to produce a dishonoured cheque and claim compensation, it is also necessary that the rule laid down under Section 141(2) of the Negotiable Instruments Act, 1881 be satisfied which says that the Company or its Partners or the directors can be held liable only when the had the knowledge of such offence, or when they have attributed to it or consented to it, or there has been any negligence on their part, or any person working under them, like the manager, secretary, etc.
Important holdings:
Any person who is not directly responsible for the commission of such offence either to the company or the directors, should have consented to the commission of such an offence.
It has to be proved that the only role assigned to the petitioner was to hand over the cheques, and that she had not consented to the commission of the offence of dishonouring of that cheque.
The case clarified that the purpose of the rule laid down under Section 138 of the N.I. Act is that the person making the promise should abide by it. As per Section 139 of the N.I. Act, the court shall assume that the cheque delivered is of the same nature, that is to discharging either the entire amount of debt which he is liable to pay or a partial amount, as has been described in Section 138 of the N.I. Act.
No third party would be held liable for the offence committed under Section 138 of the N.I. Act, other than in cases where the offender is a company or a firm, or any other financial corporation.
Therefore, in the present case the court held that Asha was not liable as she had no role to play, as although she was the one who handed over the cheques, she had no knowledge about the offence.
No evidence on behalf of the defendant
In the case of Kishan Rao v. Shankargouda, [20], the defendant in the Trial Court could not produce any evidence which could eliminate the doubt that there is no liability or debt on his part. The Trial Court passed the order of conviction against the defendant. When an appeal was made in the High Court, the Court subsided the conviction and review the case and found that the defendant was to be held liable since he has no evidence to defend himself. But the act of keeping aside the Trial Court’s order of conviction was questioned. When a further appeal was made in the Supreme Court, the Court clarified that the High Court cannot overlook the judgement delivered by the Trail court, in order to review a case. The Supreme Court complied with the order of the High Court and the defendant was held liable as he had not produced any evidence in his defence.
Fake signature
The Supreme Court, in the case of Canara bank v. Canara Sales corporation & Ors. [21] had stated that in the case where the cheque presented before the bank carries a fake signature, the bank in no capacity can honour the cheque, and if it does so it would be held liable.
Where Directors are vicariously liable
In Jayalakshmi Nataraj v. Jeena & Co. [22], the court held the Managing Director vicariously liable for dishonouring of cheque under section 138 of the N.I. Act stating that no plea on the ground that Jayalakshmi did not participate in day-to-day administration of the company and that she does not have the knowledge of the company’s doing, would be accepted.
Recent Amendments to the NI Act
There had been earlier Amendments to the act. The recent Amendment made in 2015 has made changes to the provisions related to the jurisdiction of the courts. It says, where the parties to a case were living far away from each other and faced difficulty in penal actions, the holder of the cheque can now file the suit in the area where he resides or at the place where the cheque was tendered. This provision was incorporated in order to reduce the expenses and to make drawers of the cheque more conscious while signing a cheque. It also asked that the cases of the same nature to be filed or transferred to those courts which have jurisdiction in that matter as per the newly implemented Section 142A. [38]
The Amendment made to the Negotiable Instruments Act, 2018, known as the Negotiable Instruments (Amendment) Act, 2018, which came into effect on 1st September, 2018 gives the court the permission to levy not more than 20% of the amount mentioned in the cheque on the offender within a period of 60 days from the date when trial court issues order for paying such compensation.
The Amendment also asks for the payment to be made either during the summary trial or when the summons is delivered, wherever the drawer is held liable for dishonouring a cheque.
Moreover, the Amendment also gave the Appellate Court the power to impose a minimum of 20% of fine or compensation on the accused in addition to the interim compensation which has already been levied on him.
Miscellaneous
Liability of joint account holder
We are all well versed of the phrase, “no one shall be held liable for the acts of another person”. Therefore, under Section 138 of the N.I. Act, 1881, it is only the drawer of the cheque who would be held liable in case there is a joint account holder(s). This provision was laid down in the case of Mrs. Aparna A. Shah v. Sheth Developers Pvt. Ltd. and Anr.[12].
Jugesh Sehgal v. Shamsher Singh Gogi [13], the court laid the essentials to constitute an offence under section 138 of the Act. One such ingredient says that no criminal liability would arise in case the loss has been caused by the action of some third party. The legal principle of vicarious liability arises only in exceptional cases.
Liability when the companies
As laid down in the case ofN. Rangachary v. Bharat Sanchar Nigam Ltd. [14], In the person who is at fault is a corporate legal entity, that is, either a firm or a company, etc.in that case, the person who would be in charge and responsible for all the business conduct taking place in the company, shall be held guilty of the offence and would receive punishment accordingly.
The person being prosecuted under the given circumstances can plead innocence on the ground that- (1) he didn’t have the knowledge of an offence being committed, or (2) that he had exercised due diligence to ensure that the cheque is cleared and that it does not get dishonoured.
Exception
In the case where the company or the firm, or any such financial corporation, is at default and the person responsible for such business conduct of the company has been appointed by the Central Government or the State Government, then he cannot be prosecuted for the offence.
Therefore, the company and the person handling its business can be prosecuted either jointly or independently as laid down in the case of Sheoram Agarwal v. State of Madhya Pradesh[15].
Vicarious liability
Section 141 of the N.I. Act, 1881 acts as a general exception to the rule of criminal law which says that some third person can be held liable for the acts of another person. And the person would be vicariously liable for the acts of another person.
Liability of independent directors
Under the Negotiable Instruments Act, 1881, there is no provision stating that the directors of the company would be held liable for any mistake during business transactions of the company. This is so because it is not the directors who manage the business conduct of the company. A Director can only be held liable if there exist facts which are a contract to the usual nature of the powers exercised by the directors.
Redressal for person holding bounced cheque issued by a company
The Director can defend himself by stating that the cheque that had bounced was issued by the company without its knowledge to the board of directors of the company, or that no authorization was sought from the board of directors of the company. It was in N. Rangachary v. Bharat Sanchar Nigam Ltd. [23] that the court said, it is not possible for the holder to know of the company’s day to day affairs or management. Also, it was stated that the directors of the company are the ones in charge of the company’s affairs. Therefore the plaintiff will have the right to hold all the directors of the company liable for the dishonouring of the cheque(s).
Issuance of notice to directors of the company
It was in Krishna Texport and Capital market Ltd. v. Ila.A. Agarwal and Ors. [24] that the court laid down, that there is no need for issuing a notice to the Director(s) of the company. Whether the name of all the Directors or those who are in power to regulate the conduction of business in the company, on whom the court has levied charges, shall be included in the complaint filed before the court.
Liability in case of offence by Partnerships.
It was in Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd. [25] that the Supreme Court laid down that if a partner has been vested with the power to control or monitor or manage the conduct of business of the firm or has consented to the commission of the offence of dishonouring of cheques would be held liable under Section 138 of the N.I. Act.
Filing of case by holder of power of attorney
The conditions under which the person having the power of attorney can file a case of dishonouring of cheques under Section 138 of the N.I. Act was laid down in the case of G. Kamalakar v. M/s Surana Securities Ltd. & Anr. [26]. It says:
A case can either be initiated or disposed of by the person having the power of attorney, given that the principal has the knowledge of the same.
The person having the power of attorney can testify on behalf of his principal, the physical presence of the principal is not required.
The principal should legally empower the person having the power of attorney to file a case under Section 138 of the N.I. Act.
Cheque reported lost
The High Court of Kerala in K. Sadanandan v. Satheesh Kumar[27] has laid down that in case the bank returns a cheque stating the reason that it has been lost, it would not invite liability under Section 138 of the Negotiable Instruments Act, 1881. A liability would only arise when a bank returns the cheque because of non-payment. The reason for non-payment on the part of the bank could be:
The sum of money present in the account is insufficient to meet the debt requirement
The sum of money mentioned on the cheque has exceeded the limit decided in an agreement with the bank.
Before instituting a case under this case, it has to be rectified by the court that all the essentials required to constitute a crime under Section 138 of the N.I. Act has been met.
Dishonour of Cheque issued as security for repayment of loan
In Sampelly Satyanarayana Rao v. India Renewable Energy Development Agency Limited, [28] the Supreme Court has pronounced that any post-dated cheque which has been marked as a security in a loan agreement, is presented before the bank for repayment of the loan and is dishonoured, then the liability would arise under Section 138 of the N.I. Act, 1881. The term ‘security’ here refers to the cheques signed for the purpose of repayment of the loans. When the instalment of the cheque is delayed or remains due then the repayment of the loan also becomes due.
Death of party
Death of the complainant
When the original complainant dies, the proceedings would not stop and the case would be his son who would be continuing with the complaint filed taking cognizance of the offence. [39]
In case if the complainant died at the time of producing evidence in court in order to defend himself, it would be his heirs who would be continuing with the prosecution. [40]
Death of the accused
In case of death of the accused, the legal heirs would not be allowed to continue the prosecution. [41]
Successive presentation of cheques
A payee is allowed to present cheques any number of times in the court of law. Every time he presents a cheque and it gets dishonoured he would have the fresh right favouring him. Although, the payee would not have the right to course of action every time he presents the cheque and it gets dishonoured. So, the can choose to produce cheques again and again before the court during the validity period if that cheque without going for any peremptory action under Section 138(b) of the N.I. Act.
Showing intent
Earlier an offender in case of dishonouring of cheques could not be held liable unless the element of mens rea was involved in the commission of the offence, as per the requirement under Section 415 and 420 of the Indian Penal Code, 1860. It was only after the Banking, Public Financial Institutions and Negotiable Instrument Laws (Amendment) Act, 1988, Chapter XVII, dealing with dishonouring of cheques, incorporated under Section 138-142 were established in the Act of 1981.
In Mayuri Pulse Mills and Ors. v. Union of India and Ors. [33] the High Court of Bombay had said that the element of men rea is not a necessary element to constitute a crime under Section 138 of the Negotiable Instruments Act, 1881. Although the Latin maxim actus non facit reum nisi mens sit rea, (which means, the commission of the crime is complete when bad intention is complemented with wrongful conduct on the part of the offender of the crime), is the essence of constituting an offence under the Indian Penal Code, 1860, the same is not required in case of dishonouring of cheques. The court under the case pronounced that in some cases it is not necessary for the element of mens rea to be present in the commission of the crime. In such situations, the legislature can impose either strict or absolute liability on the offender of the crime.
The decision made in the given case implies that mere offence pf dishonouring of the cheque would constitute an offence under Section 138 of the N.I. Act, 1881.
In B. Mohan Krishna v. Union of India [34] the court had laid down that the offender of the crime shall not willingly absent from instituting the element of mens rea while committing the crime. If he does so then he would be violating Article 14 of the Constitution of India.
The line “such person shall be deemed to have committed an offence” [35] under Section 138 of the N.I. Act, implies that the given section calls for strict liability in case of the cases of dishonouring of the cheques. If the offence is committed out of any other grounds other than what has been mentioned in Section 138 of the N.I. Act, 1881, then the case would not involve the application of Section 138 of the N.I. Act.
Conclusion
The cheque bounce cases had seen tremendous rise with as much as 40 lakhs cases pending before the courts as said by the Supreme Court of India. But, after the amendments made in 2015 and 2018 which came with a promise to dispose of the cases at the earliest and also ensure that the victims get relief, has brought transparency in the system by preventing the people from defaulting on their payments. Therefore, the process under Section 138 has helped in facilitating commercial transactions, as people now feel more secure. This has also helped in keeping up with the modern banking system.
This article is written by Aayushi Swaroop, a student of National University of Study and Research in Law, Ranchi. In this article, she has written about what white collar crimes are, its various types and how it is growing at a faster rate and impacting our society.
Introduction
“The practitioners of evil, hoarders, the profiteers, the black marketeers, and speculators are the worst enemy of our society. They have to be dealt with sternly. However well placed important and influential they maybe, if we acquiesce in wrongdoing, people will lose faith in us.” -Dr. S. Radhakrishnan
The most influential criminologist of the 20th century and also a sociologist, Edwin Hardin Sutherland, for the first time in 1939, defined white collar crimes as “crimes committed by people who enjoy the high social status, great repute, and respectability in their occupation”. The five attributes of the given definition are:
It is a crime.
That is committed by an important person of the company.
Who enjoys a high social status in the company.
And has committed it in the course of his profession or occupation.
There may be a violation of trust.
Related to the corporate sector, white collar crimes are defined as non-violent crimes, generally committed by businessmen and government professionals. In simple words, crimes committed by people who acquire important positions in a company are called white collar crimes.
White collar crime in India
Corruption, fraud, and bribery are some of the most common white collar crimes in India as well as all over the world. The Business Standard on 22.11.2016 published a report titled ‘The changing dynamics of white collar crime in India’ stating that in the last 10 years, the Central Bureau of Investigation (CBI) has found a total of 6,533 cases of corruption out of which 517 cases were registered in the past two years.
Statistics showed that 4,000 crores worth of trading was carried out using fake or duplicate PAN cards. Maharashtra showed a rapid increase in the number of online cases with 999 cases being registered. The report also mentioned that around 3.2 million people suffered a loss because of the stealing of their card details from the YES Bank ATMs which were administered by Hitachi Payment Services.
Advancement in commerce and technology has invited unprecedented growth in one of the types of white collar crimes, known as cybercrime. Cybercrimes are increasing because there is only a little risk of being caught or apprehended. India’s rank on Transparency International’s corruption perception index (CPI) has improved over the years.
In 2014, India was ranked 85th which subsequently improved to 76th position in 2015 because of several measures to tackle white collar crimes. In 2018, as per the report of The Economic Times, India was placed at 78th position, showing an improvement of three points from 2017, out of the list of 180 countries.
India is a developing country and white collar crimes are becoming a major cause for its under development along with poverty, health, etc. The trend of white collar crimes in India poses a threat to the economic development of the country. These crimes require immediate intervention by the government by not only making strict laws but also ensuring its proper implementation.
Reasons for the growth of white collar crimes in India
Greed, competition and lack of proper laws to prevent such crimes are the major reasons behind the growth of white collar crimes in India.
Greed
The father of modern political philosophy, Machiavelli, strongly believed that men by nature are greedy. He said that a man can sooner and easily forget the death of his father than the loss of his inheritance. The same is true in the case of commission of white collar crimes. Why will a man of high social status and importance, who is financially secure, commit such crimes if not out of greed?
Easy, swift and prolong effect
The rapid growing technology, business, and political pressure has introduced the criminals to newer ways of committing white collar crimes. Technology has also made it easier and swifter to inflict harm or cause loss to the other person. Also, the cost of such crimes is much more than other crimes like murder, robbery or burglary, and so the victim would take time to recover from it. This would cut down the competition.
Competition
Herbert Spencer after reading ‘On the Origin of Species’ by Darwin, coined a phrase that evolution means ‘survival of the fittest’. This implies that there will always be a competition between the species, and the best person to adapt himself to the circumstances and conditions should survive.
Lack of stringent laws
Since most of these crimes are facilitated by the internet and digital methods of transfer payments, laws seem reluctant to pursue these cases as investigating and tracking becomes a difficult and complicated job. Why it becomes difficult to track it is because they are usually committed in the privacy of a home or office thereby providing no eyewitness for it.
Lack of awareness
The nature of white collar crimes is different from the conventional nature of crimes. Most people are not aware of it and fail to understand that they are the worst victims of crime.
Necessity
People also commit white collar crimes to meet their own needs and the needs of their family. But the most important thing that the people of high social status want to feed their ego.
The reasons behind white collar criminals going unpunished are:
Legislators and the people implementing the laws belong to the same class to which these occupational criminals belong.
The police put in less effort in the investigation as they find the process exhausting and hard, and often these baffling searches fail to promise favourable results.
Laws are such that it only favours occupational criminals.
The judiciary has always been criticised for its delayed judgement. Sometimes it so happens that by the time court delivers the judgement, the accused has already expired. This makes criminals loose in committing crimes. While white collar crimes are increasing at a faster rate, the judiciary must increase its pace of delivering judgements.
Chronological Background
Popularly known as the Carrier’s case, it was the first case of white collar crimes which was documented in the year 1473 in England. In this particular case, the agent was entrusted with the responsibility of the principal to transport wool from one place to another. The agent was found guilty of stealing some of this wool. The English Court after this case adopted the doctrine of ‘breaking the bulk’ which means that the bailee who was given the possession of goods tried to break it open and misappropriate the contents.
However, the growth of industrial capitalism has taken criminality to the next level. The bourgeois institution dwells into committing such crimes out of greed and misery to have and to be able to attain more. In 1890 in America, the Sherman Antitrust Act was passed, which made monopolistic practices illegal. The penalties imposed on offenders of white collar crimes in Great Britain and the adoption of competition or antitrust laws by other countries were not as sweeping as the Sherman Act.
In the late 18th and early 19th century, a group of journalist rose the sentiments in the mass seeking reforms. By 1914, Congress was seen making great efforts in strengthening the sentiments laid down by the Sherman Act. This Act proved out to be more stringent in comparison to the Sherman Act in dealing with the monopolistic illegal practices.
Historical background
Edwin Sutherland’s Definition. It was in 1939 when for the first time Edwin Sutherland, an American sociologist, defined white collar crimes. He described it to be crimes committed by a person of high social status and respectability who commits such crimes during the course of their occupation.
Criticism
Coleman and Moynihan pointed out that Edwin Sutherland’s definition had certain ambiguous terms, like:
It has not laid down any criteria for who these ‘persons of responsibility and status’ would be.
Also ‘person of high social status’ is not clear. It is perplexing as the meaning of the phrase in law could be different from its general definition.
Sutherland’s definition did not take the socio-economic condition of the person into consideration. It only showed the dependency of white collar crimes on its type and the circumstances in which it was committed.
Mens rea, i.e. guilty mind and actus reus, i.e., wrongful conduct are two essential elements to constitute a crime. However, Sutherland’s definition implies that according to him white collar crimes does not necessarily require mens rea.
Morris’s Comments.In 1934, Albert Morris advanced that, the illegal activities that people of high social status involved in during the course of their occupation, must be brought with the category of crime under which their illegal activity falls. He also asserted that it should be made punishable.
E.H. Sutherland’s demarcation. Sutherland again came into the picture and clarified that the crimes which would be committed by people belonging to high socio-economic groups, during the course of their occupation, would be termed as ‘white collar crimes’. And further said that the traditional crimes would be denoted as ‘blue collar crime’.
So he drew a distinction between white collar crimes, i.e. corruption, bribery, fraud, and blue-collar crimes, i.e., traditional crimes like robbery, theft, etc. After this, criminology in the year 1941 finally recognized the concept of ‘white collar crimes’.
Difference between white collar crime and blue-collar crime
The term ‘blue collar crime’ came into existence some time in the 1920s. The term was then used to refer to Americans who performed manual labor. They often preferred clothes of darker shade so as to stains less visible. Some used to wear clothes with a blue collar. These worked for a low wage on an hourly basis. White collar crimes have been prevalent since centuries and it is not new to all types of businesses, professions and industries.
The difference between ‘blue collar crimes’, which are crime of a general nature, and ‘white collar crimes’ was laid down by the Supreme Court of India in the case of State of Gujarat v. Mohanlal Jitamalji Porwal and Anr[2]. Justice Thakker elucidated that one person can murder another person in the heat of the moment, but causing financial loss or say committing economic offences requires planning. It involves calculations and strategy making in order to derive personal profits.
Here are the characteristics of white collar crimes which distinguish it from other crimes of general nature:
Meaning
Blue-collar crimes refer to people who work physically, using their hands, whereas white collar crimes refer to knowledgeable works, who use their knowledge to commit crimes.
New v/s Traditional
Where blue-collar crimes refer to traditional crimes that have been committed since ages, the concept of white collar crimes has recently developed. It’s a new species of crime.
Mens rea
To constitute a crime element of mens rea and actus reus is must. Where mens rea is an essential element of blue collar crimes, its involvement in white collar crimes is not necessary.
Independent of social and personal conditions
White collar crimes have no relation with the social conditions, like poverty, or personal conditions of the offender albeit it matters in the conventional nature of crimes.
Direct access to the targets
Since the offenders who commit white collar crimes are people at a higher position in a company they have easy, direct and valid access to their targets. The case is different with blue-collar crimes. For example, if Jhethalal decides to commit theft in the house of Babitaji, he will first have to break the door or make a passage of entrance to get inside Babitaji’s house and thereafter commit theft.
So, before actually committing theft, Jhethalal will first have to get access to Babitaji’s house. Whereas in white collar crimes, one can have direct access to their target making use of one’s higher position and power.
Veiled offenders
In the case of white collar crimes, one does not have to come face to face with the victim and so their identity remains veiled. Whereas in case of blue collar crimes, one has to come face to face in order to inflict injury upon others.
Involvement of politicians
In many cases it has been found that the offenders have strong connections with politicians and sometimes, politicians are also involved in committing the crime thus making it difficult for the victims to take action against such offenders.
Greater harm
The harm caused by white collar crimes are much more difficult to bear than those inflicted by blue collar crimes. Also, the harm caused by white collar crimes could cause great harm, not only to the public, but to the other institutions and organizations as well.
White collar crimes causes huge loss to companies. In order to recover the loss, these companies eventually raise the cost of their product which decreases the number of customers for that product. This works according to the law of demand states that, other things being equal, when the price of a commodity rises, it’s demand would fall and when the price lowers, its demand would increase.
In short, the price of the commodity is inversely proportional to its demand. Since the company is in loss, the salaries of the employees are lessened. Sometimes the company cut down the jobs of several employees. The investors of that company and its employees finds it difficult to repay their loans. Also, it becomes hard for people to obtain their credits.
For example, a US-based IT cognizant landed up paying 178 crore rupees to settle the charges levied on it under the Foreign Corrupt Practices Act by the Securities and Exchange Commission. The company had bribed an Indian Government Official from Tamil Nadu to allow the building of a 2.7 million square feet campus in Chennai. Apart from loss in paying 2 million dollar bribery amount, the company also had to bear extra charges of 25 million dollars to get free from the charges.
Effect on the employees
White collar crimes endanger employees. They become conscious of their working conditions, whether it is safe anymore or not. They start doubting if they are safe and that they can still be given in their trust to the company.
Effect on customers
The most important concern of the customers is whether the products which they are using is safe or not. This doubt rise to see the rate at which white collar crimes have been increasing.
Effect on society
White collar crimes are harmful to the society for those people who should be cited as a moral example and who must behave responsibly are one committing such crimes. The society thus becomes polluted.
When the former director of Andhra Bank and the directors of a Gujarat based pharma company, Sterling Biotech, were arrested for their involvement in 5000 crore fraud case. They used to withdraw money from bank accounts of several benami companies. This was one big scam which put the people in fear.
Also in 2018 the Punjab National Bank (PNB) found that fraudulent transactions of value 11, 346 crore rupees have been taking place in its Mumbai branch. “The Staff there used to fake LoU ( Letter of Understanding) for the buyer’s credit to the company of Nirav modi and Gitanjali Group”, as published in the Business World.
Loss of confidence
Stock fraud or trading scandals, like that happened in the U.S. in the 1980s, makes people lose faith in the stock market. Barry Minkow, a teenager and the owner of the business of carpet cleaning built a million dollar corporation in the 1980s. But, he was able to achieve this only through forgery and theft.
He managed to create more than 10,000 counterfeiting documents and sales receipts without coming to someone’s notice. His company although created through fraud was able to make market capitalization of 200 million dollars and leased 4 million dollars of land. Later, he was sentenced to 25 years of imprisonment.
Eron was the seventh largest energy trading company, based on revenue, in U.S. Forgery made them waive off hundreds of millions of debts out of their book. The investors thought that the performance of the company was really good and stable. But later on it as found that the incredible numbers on revenue records were fictitious. The famous Eron scandal where all the retirement accounts were wiped out it was found that people had loss their normality, their power and public confidence.
Effect on offenders
The authorities have shown no consensus on the definition of white collar crimes. There are no accurate statistics available to analyse the causes and effects of such crimes and therefore government fails to take exact measures to prevent them. Also, though these crimes are on the rise, they are generally not reported.
These crimes have no eyewitnesses as they are committed in camera, which means that the offenders commit these crimes while sitting in a closed room or in their personal space using their computers, and nobody could know about what they are doing on their computer.
This makes it difficult to track the offenders. All these loopholes becomes an incentive for the offenders to fearlessly commit such crimes because the punishment is also for a short term unlike in blue-collar crimes. Offenders are mostly seen roaming freely which poses a danger to the society.
Effects on the temperament of the affected person
The target of the offenders are generally elderly people with little access to liquid assets and their cognitive ability is less than that of younger people. So they become an easy target for the offenders. The victims of such crimes often undergo depression and are seen to have suicidal tendencies, because sometimes the loss incurred is unbearable.
The renowned startup founder, Vijay Shekhar Sharma, the person who founded the widely used app for transaction namely Paytm, became a victim of blackmailing by his personal secretary Sonia Dhawan. She along with others stole his personal data along with sensitive business plans, to extort money from him. Also, Sharma received regular calls stating that his personal information would be revealed to the public if he doesn’t give the required amount to them. Sharma was put under a lot of pressure.
Project report on white collar crime in India
Various committees were formed to look into white collar crimes and set up rules and regulations to prevent them and ultimately eliminate them.
The Report on the Commission on the Prevention of Corruption, 1964
On the recommendations by the Committee on Prevention of Corruption, headed by Shri K. Santhanam, the Central Vigilance Commission was created in 1964. The Central Vigilance Commission is now the apex institution for vigilance, independent of any executive authority. Its function is to address corruption in government offices and to monitor all vigilance under the Central Government. This organization seeks its advice in planning, executing and reviewing their vigilance work.
The role that the Central Vigilance Commission plays is:
To supervise the work of Delhi Special Police Establishment in only those matters which relate to the offences which have been committed under the Prevention of Corruption Act, 1988.
To direct the Delhi Special Police Establishment in discharging their responsibility given to them under sub-section (1) of section 4 of the Delhi Special Police Establishment Act, 1964 .
The Report on the Commission of Inquiry on the Administration of Dalmia Jain Companies, 1963
In the 1930s Dalmia Group run by brothers, Ramkrishna Dalmia and Jaidayal Dalmia, merged with Sahu Jain Family to form Dalmia-Jain Group. This business was ultimately split between the two families and again between the two brothers in 1948. On the allegations of corruption against the group, Vivian Bose Commission of Inquiry into the affairs of Damila-Jain group of companies was set up in 1963.
The committee said that because of the group’s collection of black money, undisclosed assets and undetermined income tax liabilities, the dissolution or split had become so complicated that it could not be officially said that the groups had split. The Commission headed by Justice S.R. Tendulkar and after his death by Justice Vivian Bose, sentenced Ramkrishna Damia on charges of tax evasion, perjury and criminal misappropriation of funds in 1962.
The Report on L.I.C. Mundra affairs
It was in the 1950s when, Haridas Mundhra, a stock speculator was arrested and imprisoned in the case of the first big financial scandal of newly independent India. At that time, Jawaharlal Nehru was the Prime Minister of India. His daughter Indira Nehru was married to Feroze Gandhi, who was also a Member of Parliament. Feroze Gandhi was the driving force behind the anti-corruption movement which led to the imprisonment of Ramkrishna Dalmia.
When Feroze Gandhi finally came to power he questioned whether the newly established Life Insurance Corporation had used premiums from the policyholders. Ultimately a committee was set up which was headed by the retired judge of the Bombay High Court, Justice M.C. Chagla which came to the conclusion that Mundhra be sent to jail on the ground of, as many as 124 prosecutions against him and 113 of them resulting in convictions.
Das Commission Report, 1964
In the case of R.P. Kapoor v/s Pratap Singh Kairon [3], Pratap Singh Kairon, who was the Chief Minister of Punjab was accused of using wealth to boast his high status of and also of his family at public expense. The Commission exempted him on the ground that a father could not be held liable for actions of his grown-up children. The Commission clarified that a son cannot be stopped from carrying out a business of his choice except that the son cannot use his father’s political position and power to exploit others. The petition was therefore dismissed by the court.
Administrative Reforms Commission on Reports
Administrative Reforms Commission’s 4th report titled ‘Ethics in Governance’ had made amendments and included new provisions in order to reduce the number of white collar crimes in India.
The report introduced a new provision stating that partial funding by the state is allowed in elections so as to avoid illegitimate and unnecessary expenditures by the political parties.
It suggested an amendment to section 8 of the Representation of the People Act, 1951, keeping people facing charges in case of a grave or heinous crimes and corruption out of participating in elections.
The report on the election of the Chief Election Commissioner and other Election Commissioners decided to form a collegium in order to select them. The collegium would consist of the Prime Minister of India, the Speaker of Lok Sabha, the Law Minister and the Deputy Chairman of the Rajya Sabha as its members. This would prevent in wrongful exercise of power and prevent manipulation by the authorities enjoying dominance.
It was proposed that an office of ‘Ethics Commissioner’ be formed by each House of the Parliament. This office would be regulated by the Speaker or the Chairman to follow the code of ethics, to advise the body whenever required and maintain records of the office.
Most importantly the Commission asked the Government to recognize ‘collusive bribery’ as a special offence. The Commission advanced that section 7 of the Prevention of Corruption Act needs an amendment for the inclusion of ‘collusive bribery’ as an offence. This would prevent the public servants from performing such acts which leads to loss to the public.
The Commission also recommended to take immediate measures for the implementation of Benami Transactions (Prohibition) Act, 1988.
The Commission gave protection to whistleblowers on the grounds of confidentiality. And also made harassment and retaliation against them a punishable offence.
The Commission said that the media should have their Code of Conduct and self regulating mechanism to avert from wrongful actions and government be allowed to disclose the cases of corruption to media in order to help them fight against corruption in the country.
The Commission made an important decision stating that the head of the office should be given the responsibility to take proactive vigilance on corruption.
There are other provisions that were presented by the Commission before the Government thereby assisting the Government in their fight against corruption and other malpractices by the people at higher positions in the authority.
Law Commission 47th Report
In its 47th report, the Law Commission said that since a corporation does not have a physical body, no pain can be inflicted upon them as a punishment. A corporation does not have a mind that can be accused of guilty intent and therefore new penalties should be created to punish them for their illegal and wrongful acts.
The Commission found that the real penalty for the corporation would be to experience a curtailment in their reputation. And that they be called a disgrace. The commission said that not only the directors or managers should be punished but the corporation as well. The people should be able to link the offence with the name of the corporation also.
The Commission recommended the inclusion of the following provisions in the Indian Penal Code, 1860:
In every one of those cases where the offence has been committed by the corporation and the punishment includes imprisonment or fine and imprisonment both, the court will have the power to impose on these offender fine only.
In every one of those cases where the offender is the corporation and the punishment for his offence can be either imprisonment and any other punishment other than fine, than in that case the court shall have the power to impose on such offenders fine only.
In this section, ‘corporation’ should mean an incorporated company or other body corporate. It would also include firms and other association of individuals.
Like the above mentioned provisions, the Commission in its report has mentioned the punishment the offender corporation or company would be subjected to.
The Report by Santhanam Committee
The Santhanam Committee was the first body to recognize the intensity of the crimes committed by the people of high social standards, which was acknowledged by the 29th report of the Law Commission released in 1972. Santhanam Committee in its report on the Prevention of Corruption has talked about the reasons behind the prevalence of white collar crimes in India.
The technological advancement and development in scientific temperament has been assigned as the major reason behind the growth of white collar crimes. These large numbers with advanced disposition is being regulated by only a handful of elite who form the monopoly. The need of this technologically and scientifically advanced era is to make these masses adhere to the rules laid down by the elites to conduct them. Those who fail to do so land up becoming the offender of white collar crimes.
The committee showed its concern regarding the great damage that these crime can cause to the public morals. The case of white collar crimes are so complex and since people are not much aware about it, it is only the experts who can recognize such crimes and protect themselves from becoming a victim of it.
Types of white collar crime in India
The ambit of white collar crimes is varied. Some of the white collar crimes that have been reported in India are:
Blackmail
Section 503 of the Indian Penal Code, 1860 defines blackmailing or criminal intimidation as, making a demand for money or any other consideration by imposition of threat to cause physical injury, or to cause damage to ones property, or to accuse one of a crime, or to expose somebody’ secret. The threat can be induced in the following ways:
By revealing a secret of the person which the offenders knows if revealed will cause great embarrassment to the victim. For example, if A, the Managing Director of the company XYZ, knows that B, a female employee of the same company, was bearing the child of somebody other than her husband. A asked B to commit forgery on the account papers so that he could embezzle 20 lakhs rupees from the company without anybody knowing about it, or else he would reveal her secret which would cause great embarrassment not only to her but her family as well.
By revealing those matters of the victim which are sensitive enough to cause financial loss to him. For example, if X knows that the property Y owns has been fraudulently been taken over from Y’s parents by deceitfully taking their signatures on the will. The X, a senior manager of a law firm, asks Y, a junior employee of the same company, to take out the file containing the personal details of the chief secretary of the company from the storehouse of the company. When Y refuses to do so, X threatens to reveal her secret of forgery to the police. X is said to be blackmailing B.
By doing acts which could falsely accuse the other person of a crime, thereby affecting his life in many ways. For example, when X, an officer at senior most post asks her secretary to marry his son else he would falsely accuse her of embezzlement of 10 lakhs rupees from the company, which actually has been done by X. This is blackmailing as a white collar crime.
By revealing a report which shows that person’s involvement in a crime. For example, M, the lawyer of N, and an old enemy of his, which N has no idea about, in a murder case, asks him to pay him double the amount else he would give the court the recordings in which M has confessed that he had murdered the person and the manner in which he has committed the same. This is blackmailing.
When does blackmailing become a white collar crime
For blackmailing to be considered under the ambit of white collar crime, it should be committed by or show an involvement by someone enjoying higher social status in an occupation.
Credit card frauds
These frauds are committed when one person uses the credit card of another person unauthorizedly to obtain goods of value, he is said to have committed credit card fraud against the other person. For example, in 2003 in Mumbai, Amit Tiwari, a 21 years old engineering student was arrested for using too many names, for having too many bank accounts and too many clients, all false managed to defraud a Mumbai-based credit card company, CC Avenue, of around 9 lakhs rupees.
This case brought to the notice of the authorities that credit card frauds have not been recognized by the Information Technology Act, 2000. The loophole in the law has caused a great loss to the company.
As per the report released by the Economic Times, it was found that over 900 cases of credit/debit cards and internet banking have been registered during the period of April-September, 2018. All these cases involved an amount of 1 lakh rupees and above. Minister of State for Electronics and IT (2018), S.S. Ahluwalia, informed that the Reserve Bank of India by 30th September, 2018 had registered a total of 921 cases of credit/debit card fraud.
In 2017 a Metropolitan Magistrate became a victim of credit/debit card where the victim received two messages for two transactions done from his debit card, not in India, but abroad. The victim claimed that those transactions did not have his consent. A complaint of cheating under Section 420 of the Indian Penal Code, 21860 was filed.
Currency Schemes
These schemes basically refers to the practice of determining the value of the currency in the near future. The determining of the value is not based on any firm evidence though.
According to a report, ‘Trend and Progress of Banking in India’ released by the Reserve Bank of India, published by the Financial Express in January, 2019, it was alleged that the banks have lost 41,168 crore rupees in the financial year of 2018 which shows a 72% rise from what was in 2017. The reason behind this rise is the fraud against currency schemes. The report cited that fraud have turned out to be a major concern with a 90% rise of such cases in the credit portfolio of banks with the major chunk of fraud being concentrated in off-balance sheet operations, foreign exchange transactions, deposit accounts and cyber-security.
In these cases the victims are asked to make an advance payment of the sum. They would be promised to be receiving just the double of what they have invested. But one the money has been given, no track of the offenders can be found. In these cases, the scammers target those people who have already lost much amount somewhere. An appeal is made to their sentiment that the amount they are investing would be doubled and they would be able to recover the loss caused from the last transaction done by them.
The commission of this type of fraud had originated from nigeria. The first case of ‘Nigeria 419’ in India was registered in August in 2003 where Piyush Kankaria, a Howrah-Kolkata based businessman filed a multi-million fraud case under Section 420 of the Indian Penal Code, 1860. Piyush, out of financial crises, had become a victim to this fraud where he had to claim 7.5 million dollars from an account in return for 3 million dollar and for which Piyush had already advanced a mobile handset as a gift.
Scams in the boiler room
Boiler room refers to the office which are frequently changed, that is, the office which is not stable and shifts regularly. In these cases, the scammer creates a website giving all fake or false information. The address given on the website would be a temporary one, the toll-free number would be invalid, though all will appear legitimate on the screen. By the time one realizes that they have been defrauded, the scammer moves on to another similar scam at some other place.
It was recently in 2019 itself when a person by the name of Rohit Soni, from Rajasthan, who was a B.com. Graduate created a fake Amazon website similar to the original website. How Rohit made a profit out of it was by providing the customers with a link which gave access to an app named ‘4Fun’, and for every download he received a sum of 6 rupees.
Exempt securities scam
Exempt securities scam refers to the selling of securities by a company without filing a prospectus. This offence is committed against wealthy people who are persuaded to invest in a business. The offenders pitch a fraudulent investment as ‘exempt ‘ securities. A fake promise is made to the victim that the business would go public. These scams involves a great risk and make you lose all your investments.
It was in 1992 when an Indian stockbroker, Harshad Mehta, was held guilty with as much as 27 charges released against him for having committed various financial crimes under the securities scam of 1992. Harshad had been accumulating huge wealth through massive stock manipulation facilitated by the use of fake or worthless bank receipts.
The Bombay High Court, as well as the Supreme Court of India, held him guilty for being a part of a huge financial scandal involving 4999 crore rupees. This scandal had taken place against the biggest stock market that is the Bombay Stock Exchange (BSE). After having lived in jail for 9 years Harshad Mehta dies in 2001.
Scams in the foreign exchange market
In the foreign exchange market, investors buy and sell currencies depending upon its exchange rate. These markets are often dominated by large and developed banks that have plentiful resources at hand. The staff in such organizations are well skilled and trained in using the advanced technology and therefore it becomes difficult to beat these professionals.
In the foreign exchange market, it is not new to see people becoming prey to the illegal or fraudulent schemes known as forex schemes. Since these schemes are often carried online from another country, the chance of losing your money is high as one is likely to buy services from those firms which are not legitimately set up can market their services ultra vires. It is easy to fake things online. The result of these scams could be that the money one invests might get stolen and one might lose everything that he had invested.
As per the report published by the Times of india in 2017, the Central Bureau of Investigation has held a total of 13 private companies responsible for sending unknown foreign remittances which hold the value of 2,253 crore rupees under bogus imports of goods during 2015-2016.
Similarly in 2015, as published by the Times of India, the Bank of Baroda was alleged to have been involved in forex scam worth rupees 6,172 crore. This money was sent from India to Hong Kong for importing cashew nuts, pulses and rice. However, at a later stage it was found that nothing was imported and instead all this money went into 59 different bank accounts of several companies.
Similarly, in 2015-16, the Directors of a Mumbai-based company called M/s Stelkon Infratel Pvt. Ltd., Manish Prakash Shyamdasani and Mungaram Hakmaram Dewasi, were held liable for their indulgence in large scale illegal foreign remittances under fraudulent imports of goods 2015-16.
Offshore investing scams
These scams induces a person to send their money ‘offshore’ to some other country to get more money in return than invested. These scams mostly aim at exempting a person from paying taxes. But the ultimate result of it is that people land up paying money in back taxes, and penalties.
The major risk involved in these scams is that the victim in cases of foreign investment are not able to seek remedy from the civil court and thus one is not able to recover the invested money.
It was in 2008 when Ketan Parekh, a stockbroker from Mumbai, and the Director of the Madhavpura Mercantile Co-operative Bank, was convicted for his involvement in the scam that happened between 1998 to 2001 in the Indian Stock Market. Parekh was held responsible for rigging price artificallicy of securities.
He had been able to do this by borrowing money from various banks including his own bank which he was the Director. What parekh used to do was, at first place, he purchased large stakes from small market capitalization companies. He continued to do so unless a large sum of money has been accumulated and then jacked up the prices via circular trading with other traders, collusion with other companies as well as with the large institutional investors. This led to a huge rise in the prices of the shares. For example, the price of the shares of Zee telefilms rose from 127 rupees to 10,000 rupees. These stocks were referred to as the ‘K-10’ stocks and Parekh was given the name of ‘Pentafour’.
For the purpose of looking into such a scam, Joint Parliamentary Committee was set up which found Parekh guilty of circular trading of money and rigging the prices of 10 companies from 1995 to 2001, on a false pretext.
Scam against the pension of a retired person
Older people have their retirement accounts where they keep their savings for the period after retirement from their services. Usually, money from these accounts can be withdrawn only after the attainment of a certain age, and only a certain sum of money can be withdrawn in a year, and also some tax is imposed on the money withdrawn.
Some company can fake such accounts. It can ask the person to invest in their bank where they would be able to keep their savings safely. The bakers asks the person to buy the shares of the company from their savings which would be repaid by granting 60-70% loan from the invested money and the rest would be kept by the bank as a fee. These promises turns out to be fake and the investment made, worthless. There is a high possibility to lose one’s retirement savings in totality to such scams.
It was in 2009 when India Today published a report on pension scams in India. The report said that in Uttar pradesh, a huge amount of money which was supposed to be used for giving pension to the 60-years-old people, who were Below the Poverty line (BPL) and used to earn 300 rupees per month were being given to younger people.
The scheme was basically meant for the older people from the lower strata of the society. The divesting of the money to young people was assisted by the Uttar pradesh Government by issuing fake BPL cards and certificates showing false age. This helped each beneficiary of the scheme to earn 3,600 rupees annually, half of which was given as a commission to the official who has helped the very person in forging the documents.
Double dip scam
The person who has already been a victim of a scam is likely to become a victim again. And when it happens, it is called a double dip scam. The offender in the first instance can store the information of the victims and pass on to other such offenders, thereby assisting them in making money fraudulently.
The case might also be that the first offender calls you again and you spill out your grudge from the first fraud that you have become a victim of. The scammer then offers you to recover your money in return for a small fee. One would again lose one’s money in this way.
Unveiling the double dip scam taking place within political parties, the India Today has published a report back in 2016 when politicians were found to have converted back money into white money for 40% commission. The political parties were found double-dipping as brokers for undeclared wealth. There politicians used to do the business of converting black money into white in near to their offices in Ghaziabad, Noida and Delhi.
Such types of situation where politicians indulge in wrong practices have been very common for the politicians enjoy powerful position which comes with various powers, they tend to manipulate things and make illegal profits, which are basically the money supposed to be used for public welfare. And ultimately it is the common people who suffers the most.
Scam by building a relationship
In such cases the offender targets a group of people, or organizations or communities. The offender in cases are somebody close that the victim. He builds a relationship of trust with the victim, or become a member of the same religious community against whom he has committed fraud, and then misusing the faith people have planted in him, he gains profit by cheating those people. These scams are also called affinity scams.
Ponzi scam
Ponzi scam, also known as pyramid scam is a type of affinity scam where the scammer would through emails and advertisements offer one to earn huge profits by sitting at the comfort of their living room, only by investing a certain amount of money. They also keep exciting offers like early birds would be able to make more profits. After investing their money in such schemes people land up having nothing in their hand, as the scammer runs away with the money leaving behind no clue of their existence so as to track them.
The cases of ponzi scheme in India are:
In November, 2018, Gaylen Rust of Utah was accused by the Government for running ponzi scheme and generating huge wealth, like that if 25-40% per year,which is about 47 to 200 million of money. It was found that more than 200 people had become a victim of this scheme.
In the same year when Gaylen ruth was found guilty, in the month of September, a person by the name of Claud R. ‘Rick’ Koerber, from Utah itself, was found guilty of running a ponzi scheme. Under this the investors in the property had suffered a loss of 100 million.
In 2017, Michael Scronic from New York, was held levied with civil and criminal charges, causing a loss of 27,000 million dollars to the investors.
Pump and dump scam
A company who owns a large amount in a low-priced stock, which is actually an illegitimate business, will find potential investors and persuade them to invest in their stock. As more people would invest, the price of the stock would increase and when it reaches its peak the scammers would sell all the shares, earn profit and run away, taking with him all your money.
It was in 2015 when Rakesh Jhunjhunwala was said to have raised his wealth by purchasing 2,50,000 odd shares because of which though his shares of the ‘Surana Solar’ experienced an 18% rise, but after the dump-sum scam was discovered, the prices quashed. That is how a loophole in the system was also discovered.
The happening of such scams reveals that there is no proper system to check the authenticity of the information being supplied. And taking the advantage of such a loophole, the Surana Solar made namesake deals easily with the investors causing them great loss.
Scams by way of sending spam emails
Often the scammer sends spam mails making fake offers and promises. In the year 2017, a record of 7.5 million cases of spam mails was discovered. Once you reply to such emails you get caught in the trap as these mails are fraudulent. Most of these mails are regarding microcap stock where investments are highly risky when compared to other stocks.
The customers of the ICICI Bank became a victim of such scam where certain group of people representing themselves to be an official of the bank, asked for sensitive information about tye bank account and defrauded them. The fraud was finally discovered by the manager of the bank when a few of the customers who had received such spam mails filed a complaint. Such a scam in the IT Act is defined as ‘phishing’.
The act of embezzlement
When a person who has been entrusted with money or property to use it for his own use and benefits starts using it any manner other than what it has been given for in an illegal manner then the person would be liable for embezzlement. The act of embezzlement may be characterised as criminal breach of trust which has been defined in section 405 of the Indian Penal Code, 1860.
It defines criminal breach of trust as an act where a person who has been entrusted with a property misappropriated it or falsely converted it to his own use or dispose of it without any law allowing him to do so. Embezzlement is a misappropriation of someone’s property where a person has an intent to cause loss to the other person and criminal misappropriation is an offence under Section 403 of the Indian Penal Code, 1860.
The essential elements that constitute the crime of embezzlement are as follows.
The two parties must share a fiduciary relationship, that is, a relationship based on trust.
It is important that the defendant receives a certain amount of money or asset by making wrongful use of this relationship.
The defendant while embezzling the asset or money should act like he is the owner of that goods or he owns the money which he is giving to another person
There should be an intention to deceive on the part of the offender.
Some examples of embezzlement and the respective sector in which they are committed as a white collar crime are:
In Banking sector the bank tellers, who are people directly dealing with the customers gives them access to the funds of the bank for work.
The clerks or the cashiers in stores gives the customers or any person access to the till money kept in the store. Till money refers to the money which the bank keeps with it to meet everyday requirements for cash money.
It is often found that the company provides a car to its senior employees for official work. But these cars are seen to be used for purposes other than official duties which amount to embezzlement.
Many big companies, in order to make their employees technologically sounds provide them with electronic gazettes which are either sold in the market for a certain amount of money or used for some other purpose different than what the company has assigned.
Fraud with the insurance company
Sometimes the case may be that people use false documents to obtain insurance from the insurance company. For example, a person can fake the price of her property by raising its value on the fake documents and obtain insurance for that fake amount. They make the papers in such a way that it seems legitimate and insurance company get defrauded.
The case can also be that the consumer deliberately stage an accident, theft, injury or any other damage which comes under insurance policy. Or they sometimes exaggerate the damage caused. They even go on to omit or provide false documents or application or information to claim insurance. Also insurance fraud can be committed by an insurance company, agent or consumer where they deliberately deceive the other person for illegitimate financial gain.
Two officials of the Life Insurance Corporation of India were arrested for falsely extracting 3 crore rupees as death claims from the company. The officials forged documents they manipulated around 190 insurance policies with the account numbers of their acquaintances in place of the real nominee. Though the origin policy holders were alive they could not make out the fraud that has been made to them.
Relevant Legal provisions under the Indian Penal Code, 1860
Section 205 which deals with false personation in suit or in a proceeding.
Section 420 that deals in cheating and inducing someone to deliver property with dishonest intentions.
Section 464 which talks about making false documents.
The kick-back fraud
A kickback fraud is one in which one person bribes another with something of value in order to convince the other to take a favourable decision. For example, a contractor in order to get the approval for building complex bribes the government official with a promise to give a small art of the land to him. In another example, a biomedical company offers a doctor to advertise his products by advising it to his patients and in return, the company would provide him with free travelling for the next 5 years.
Abhishek Verma, the youngest billionaire at the age of 28 in 1997, known as the ‘Lord of War’, was arrested for his involvement in the Scorpene submarines deal case, AgustaWestland VVIP helicopter bribery scandal and Navy War room leak case. He was accused of having received kickbacks for a total sum of 200 million dollars.
Racketeering
It refers to a wrongful act or says criminal act of a person where he indulges in illegal business with a profit motive.
The number of cases of racketeering has experienced a rise in the recent times. According to a report published in India Today in February, 2019, Raju alias Hakla was arrested for his involvement in 113 cases of murder, dacoity and robbery. A kidney racket case was revealed in 2019 where a businessman from Gujarat, Brijkishore Jaiswal, was about to undergo an illegal kidney transplant. This happened in Powai’s Hiranandani hospital. When the wrongful practice was unveiled, the CEO of the hospital, Sujit Chatterjee and 5 other people were taken under arrest.
Fraud in buying and purchasing of securities
When the broker of a company wrongfully shows the inflated price of stocks in order to make people invest in his stock, it is called securities fraud.
In 2019, pursuant to the report published by News18, Anilesh Ahija, known to the public as Neil, CEO and Chief Investment Officer of Premium Point Investments LP (PPI), an investment firm that managed hedge funds along with Jeremy Shor, former PPI trader, was arrested on the charge of securities fraud.
They collectively participated in a scheme to inflate the net asset value for hedge funds by more than USD 100 million. They started manipulating the funds by raising the value of the securities and thereafter obtained inflated quotes for the PPI which helped them raise USD 100 million. This kept the real value hidden and got the people into the trap by showing the inflated value of the securities of the PPI.
Fraud over calls
Commonly known as telemarketing fraud, these frauds are made over the phone calls. Here, a person is approached to make an investment for building a charitable organization, or asks for their bank account details to obtain a certain amount for charitable purposes. The amount received is then used for any other purpose other than the one it has been taken for.
Paul Witt, a Supervisory Data Analyst at Federal Trade Commission provided an information for its consumer stating that, according to a report on the number of cases of fraud, it has been found that people have lost 1.48 billion in 2018 which shows a rise of 38% from what was in 2017.
Fraud in welfare activities
Welfare fraud is committed when a person tries to seek profit from the State or the Federal Government by deriving benefits from its activities like public assistance, food stamps, or medical facilities, etc.
For example, Abdul Karim Telgi, was accused in the stamp paper case in India where he appointed 350 fake agents to spread the scam around 12 States. This business included selling stamp papers to banks, insurance companies, and those firms which dealt in stock brokerage. He was able to club around 200 billion rupees.
Using wrong weights
The Consumer Forums are flooded with cases where shopkeepers use false weight to sell their goods. The people who become victims of these frauds are the ones who are illiterate. The illiterate could not make out if their are being defrauded by the seller. This sort of crime was prevalent at a very large scale in the early times. Now that digital weighing machines are used, the rate of these crimes have reduced. Also, since the literacy has gone up over a period of time, sellers face a difficulty in befooling their customers.
InEmperor v. Kanayalal Mohanlal Gujar [13] Sawkar, the accused, bought certain quantity of hirda from the vendor, Savleram. ‘Adholis’ which are primitive methods of measuring weights was used to measure the hirda. Despite warning from the patil of the village to not use these weights as they didn’t give accurate measures, Sawkar agreed to use them and later on seize the adholis and filed the suit. Sawkar said that false weight have been used to measure hirda but the court said that since he had agreed to the same and also Savleram didn’t had bad intent, Savleram would not be held liable for fraud.
Common types of white collar crime in India
Bank fraud
Bank fraud is a criminal act where a person, by illegal means, withdraws either money or assets from the bank. The fraud can also occur when a person falsely represents himself to be a bank or financial institution and withdraws money or assets from the people.
Therefore we conclude that bank fraud can be committed in two ways:
By using illegal means to withdraw money or assets from the bank or any financial institution.
By falsely representing oneself to be a bank or any financial institution, the person extracts money or assets from people.
Bank frauds are punishable in India under the Indian Penal Code, 1860. Various sections like Section 403 which deals with criminal misappropriation of property, section 405 which deals with criminal breach of trust, section 415 which deals with cheating, section 463 deals with forgery and section 489A deals with counterfeiting of currency, deals with the crime of fraud in banks.
Types of bank fraud
Imitating a financial institution
When one person falsely representing himself to be a financial institution, either by establishing a fake company or by creating a fake website in a manner that it would attract people and make them invest in that bank, then that person is said to have committed bank fraud.
The Times of India reported that two men were arrested for creating a fake website of State Bank of India and running a racket therein. They have been able to defraud people for rupees 1 crore. The two men were Sahil Verma and Monu from Haryana. They were alleged to have cheated against any people and made fraudulent use of the computer resources.
Defrauding by means of checks
Offenders in this case obtains a job whereby they could have access to the company’s post offices, mail boxes, corporate payrolls, etc. Once they gain access, they steal the checks and thereafter deposit it in a fake account created by them.
The timesnownews.com had published a news asking people to beware of fake emails being said to them in the name of RBI (Reserve Bank of India) lottery. The email contained the logo of RBI along with the address its head office in Delhi. Although RBI had circulated a warning against it, the id again came into circulation taking into its grip many innocent citizens.
Falsely getting loans approved
Sometimes the person who is applying for a loan fakes information on the loan application and provides wrong documents to show himself as eligible for the loan. An individual can also wrongfully claim to be bankrupt, after obtaining a loan from the bank. This would also amount to bank fraud.
Anuj Pandey was arrested by the M.P. Nagar police for producing false documents and obtaining loans from the bank.
Bank fraud using internet
People often become a victim of internet fraud. A person may create a fake website representing itself as a financial institution and advertising in such a way the it lures people to invest in that bank.
Three persons from West Bengal and Orissa were alleged for creating a fake website named, ‘Rail Vikas Nigam Limited’. The website made fake representation to people regarding job opportunities. The accused who were arrested were, Narayan Patra and Govind Sinha. The victims complained that any information regarding working of the company, its achievements, and other advertisements were being reported on the official website but no recruitments were taking place.
There has been an unprecedented rise in the number of bank fraud cases as reported by livemint.com. According to a report by the Reserve Bank of India (RBI), a total of 5,916 cases of bank fraud has been reported in 2017-18 involving a sum of 41,167.03 crores. This included high profile fraud cases like that of Nirav Modi and Vijay Mallya.
Bribery
Bribery is a white collar crime where a person asks for money, or a favor, or something of value in order to get the other person’s work done. For example, if an electoral officer asks a person to offer him wine and only then will he be allowed to give vote, it would amount to bribery.
The punishment for bribery has been provided under Section 171E of the Indian Penal Code, 1860 which says that any person who commits such an offence would be imprisoned for a term which may extend to 1 year or with fine or both. Also, Section 13 of the Prevention of Corruption Act, 1988 has penalised acts constituting an offence under this head, being engaged in by public officials.
Types of bribery
Where public official bribes or is bribed
If any public official demands, or exchanges something in return for performing his duty which he is bound to perform within the power of his office, then he would be held liable for bribery under the Prevention of Corruption (Amendment) Act, 1988. ‘
Also, if a person attempts to bribe a public officer for his own advantage or for getting his work done, then that person, along with the public official, will be held liable.
Where a witness bribes or is bribed
When any witness demands, exchanges, or receives bribery in any form to give false testimony, or for bringing in a fake witness in the court, then he would be held liable under the crime of bribery.
Where a foreign official bribes or is bribed
It is illegal to bribe a foreign government official with money or gift. Government officials often indulge in this type of white collar crime to maintain important business contacts.
Bribing bank officials
It is illegal to bribe a bank official, director, manager, etc.with either meals, entertainment, or any other way, either for employment, or wages or hike in salaries.
Where a sporting official bribes or is bribed
A sporting official may ask for a bribe to ‘fix’ a match. In this case the one briefing and the one who received the bribe, both will eventually be held liable for committing a crime.
Bribing in an industry
Kickbacks are often associated with industries like, health industry, or in pension plans, etc. For example, one pension provider bribes the broker of a company to convince that company, to accept his pension offer and not offers made by other pension providers.
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Cybercrime
As the use of computer and internet is increasing, so is the crime related to it. The crimes which involves the use of computer, coupled with the use of internet are called cybercrime. It is where the computer is used as the object of the crime or as a tool to commit an offence.
The only legislation which deals with the offences related to cybercrime is Information Technology Act, 2000. The exact definition of cybercrime hasn’t been provided in any of the acts or laws as it is not possible to define such a nature of crime where computer and internet is involved.
Categories of cybercrime
Property
This sort is similar to a real-life instance where a person illegally possess someone’s bank account or credit card details. Here the hacker intrudes into the personal details related to the account or credit card to gain access to the funds, to make purchases or to run phishing scams. Also by using malicious software one gains access to the confidential information.
Individual
Where a person illegally distributes that information which the law prohibits from publishing, like, distributing pornography. This sort also includes trafficking and stalking.
Government
A crime against the government is called cyber terrorism. This includes crimes like hacking government websites, military websites or distributing propaganda. These criminals are usually terrorists or enemies from different nations. This crime is the most serious one, and its rate is presently very low in India.
The major types of cyber crimes prevalent in India are as follows:
It is the publishing and distributing of obscene material of children in electronic form. Child pornography is a heinous crime that occurs. It has led to various other crimes such as sex tourism, sexual abuse of the child, etc.
The rates of this crime have increased over the years because of the access to internet being so easy. According to a report published in the Times of India in 2019, there has been a total of 10% rise in the cases of child pornography, inclusing offences like rape and molestation, in 2018 as registered under teh Protection od Children from sexual Ofeences Act (POCSO).
Mumbai police presented a report stating that between January 2015 and May 2019, a total of 4,551 such cases have been reported in Mumbai. The POCSO Act which includes crimes like rape, sexual assault, sexual harassment, child pornography comprises 33% off the total crime being committed against children. The maximum crimes under POCSO Act was recorded in Uttar Pradesh.
After the amendment in the POCSO Act in 2012 several provisions have been amended to bring in stringent punishment agaisnt child pornography.
Section 4 and 5 have made penlities more stringent and has included death penalty as punishment for crimes like sexual assult of achidl or performing penetrative sexual assualt with a with.
Section 9 of the Act provides protection to children in time of natural calamities and where the children are made subject to injection of hormones or any other chemical substance to attain sexual maturity earlier than their age permits. This is doen for teh puprse of erforming penetrative sex assault.
Section 14 and 15 impose penalties on those offenders who refrain from deleting or destroying those pornographic contents or reports which involves a child. They post it intentionally and then share it with others committing a crime against that child.
The growth in online sexual harassment has seen an increase in India. The harassment faced by women online, is the mirror image of the harassment faced by them in the real world. A survey conducted by Feminism in India states that 50% of women in major cities of India have faced online abuse. What is more shocking is that the instances of cyber stalking against men also show an increase. Experts have found the ratio of stalking of women and men to be 50:50.
Terrorism can be defined as, “the unlawful use or threatened use of force or violence by a person or an organized group against people or property with the intention of intimidating or coercing societies or governments, often for ideological or political reasons.”
Mark M. Pollitt defines cyber terrorism as, “the premeditated, politically motivated attack against information, computer systems, computer programs, and data which results in violence against noncombatant targets by sub national groups or clandestine agents.”
To have a clear definition of cyber terrorism is difficult as the scope of cybercrime is very broad, and sometimes involve more factors than just a computer hack.
Characteristics of Cyber Terrorism:
Attack is predefined and the victims are specifically targeted.
The attack made has an objective, to destroy or damage specific targets such as political, economic, energy, civil, and military structure.
Attack may have an intention of opposing any religious group’s information infrastructure to insight religious racket.
Destroy enemy’s capabilities to further operate within their own arena.
Major cases relating to cyber terrorism
Case 1
The website of the Bhabha Atomic Research Centre (BARC) at Trombay was hacked in 1998. The hacker’s gained access to the BARC’s computer system and pulled out virtual data.
Case 2
In 2002, numerous prominent Indian web sites, notably that of the Cyber Crime Investigation Cell of Mumbai were defaced. Messages relating to the Kashmir issue were left on the home pages of these web sites.
Case 3
In the Purulia arms drop case, the main players used the internet extensively for international communication, planning and logistics.
Case 4
In 2007, the two Indian doctors involved in the Glasgow airport attack used computers for terrorists’ activities.
Case 5
Former Indian President, Dr. A.P.J. Abdul Kalam has expressed concern over the free availability of sensitive spatial pictures of nations on the internet. He pointed out that the internet could be utilized effectively for gathering information about the groupings of terrorists. According to him, earth observation by “Google Earth” was a security risk to the nation.
Money laundering
When a person, the launderer, converts his illegal money into legitimate money, and thereby succeeds at hiding his illegally earned money, is said to have committed the crime of money laundering. In India “Hawala transaction” is the name given to the crime of money laundering. Money laundering has been defined under Section 3 of the Money Laundering Act, 2002.
They money launderers do their job in such a manner that not even the investigating agencies are able to trace the real source of the money. This is how people who invest their black money in capital market succeed at converting the black money into legitimate wealth.
The three major steps involved in money laundering are:
Investment
As the first step, the launderers invest their illegal money into the black market via agent or banks in the form of cash. This is done either through formal or informal agreements.
Manipulating the details
The second step is to hide the details of the real income of the launderer. In order to do so, the launderers, often deposits their money in the form of bonds, stocks, etc. into a foreign bank.They prefer to invest in those bank that does not reveal the identity or the details of the account holder. This helps in manipulating the information of the owner of the money and the details regarding the source of the money.
Making what is illegal, legal
The final step is where the black money introduced into the market is finally converted into legitimate money and introduced into the financial world.
Cases of money laundering in India
BCCI (Board of Control for Cricket in India) was alleged to have laundered dollar 23 billion by introducing itself into the market of arms and drug smuggling.
In the case of Anosh Ekka v. Central Bureau of Investigation,[4] Anosh Ekka was alleged to have been involved in money laundering as, after becoming the minister acquired a huge amount of movable and immovable assets in his name and in the name of his family within a short span of 3 years. The Supreme Court held the accused liable for looting and laundering huge amount of public wealth. He delayed the judgement and also manipulated the evidence against him. He was also accused of abusing the lawmaking process and contempted on the justice delivery system.
In Arun Kumar Mishra v. Directorate of Enforcement, [5]five people created a fake account in the Punjab National Bank (PNB), and thereby collected money as personal gains and caused huge loss to PNB. The money laundering case was not held in this case as the offence did not fall under any provision of the Prevention of Corruption Act. And under Article 20(1) of the Constitution of India, it has been said that ex-post facto laws have no effect. Under the said Article it is a fundamental right to not be prosecuted by a law that did not exist at the time of commission of the offence. However, the court said that once money laundering has been fully established against the petitioner, the Enforcement Directorate can initiate a fresh proceeding against him under the law which in force thereafter.
Tax evasion
Tax evasion is when a person deliberately forges his state of affairs in order for the authorities to levy less amount of tax. This can either be done by an individual, a corporation or a trust. It is a false means of escaping government taxes. In simple terms, Tax evasion and avoidance both is an offence which is used to reduce one’s tax burden. The offence of tax evasion is punishable under Chapter XXII of the Income-tax Act, 1961, which can impose heavy amount of fine or even send you to jail.
Tax evasion= (amount of income that has to be reported) – (the actual amount reported)
Situations where one could be penalised for tax evasion
Failure to file income tax returns
If a person fails to fulfil the requirement of filing the income tax returns as laid down under Section 139 (1) of the Income Tax Act, 1961, then a fine of rupees 5,000 or more could be imposed.
Parbodh Anand sold his flat which was registered in his own name. The buyer of the flat gave the amount in the name of both, Anand and his wife. Since the flat was registered only in Anand’s name therefore the capital gains that his wife had becomes taxable, which they did not pay and therefore landed up receiving a tax notice.
Not providing a PAN card or giving a fake one
If a person does not provide a PAN (Permanent Account Number) to his employer, at the time of employment or provides a fake PAN number, then, he would be subject to a penalty of rupees 10,000.
The Economic Times had published a report stating that 4 men were arrested for running 6 fake firms who were in the racket of GST evasion amount to a total of 60 crore rupees. They were alleged to have used various fake documents, including fake PAN (Personal Account Number) cards. These fake firms have been able to generate 615 crore rupees which led to causing huge loss to the general public.
Giving false information under form 26AS
Under Section 203AA of the income Tax Act, 1961 one is required to fill in Form 26AS. It is very important to look into the information which has been provided because any wrong information would lead to severe punishment. Similarly, one would be punished even if he/she has provided wrong information regarding income, expenses or investment.
Pursuant to the report published by the Economic Times it was found that around 15,000 crore rupees was tax exempted by the employers regarding the medical bills If an employee desirese tax-exempt reimbursements he is given Leave Travel Allowance and HRA by his employer. Those who have the bills or receipts of the same can only pay the sum. But those who didn’t have the bills or receipts tend to use fake documents to get reimbursements.
Punishment for not paying self-assessment tax
If a person fails to pay, either the entire sum or partial amount, self-assessment tax then under Section 140A (1) of the Income Tax Act, 1961, he would be considered as a defaulter. If not provided with a justified reason for the delay in payment, the assessing officer under Section 221(1) of the Income Tax Act, 1961, may impose a penalty.
In Galaxy Nirmaan Pvt. Ltd. v. Acit, new Delhi[12] The assessing officer had levied a penalty on the appellant in the case for non-payment of the self-assessment tax in the year 2010-11. A penalty of 1,09,71,691 rupees was imposed under Section 140A(3) of the Income Tax Act, 1961.
Giving a wrong account of income to escape tax payment
Section 271(c) of the Income Tax Act, 1961 states that if a person conceals his real income in order to reduce the amount of taxes, he would be liable to 100% to 300% of the amount of the tax evaded by him. Section 271AAB lays down the different situations where the penalty would apply.
The article published on livemint talks about a case where a resident of Haryana was arrested for running racket where about 90 firms presented bogus invoices to evade taxes. The Directorate General of GST Intelligence (DGGSTI) found a total of 110 debit cards and blank cheque books linked to 173 bank account.
Keeping silence on the income tax notice
The assessing officer, under Section 142(1) or 143(2), can issue a notice, asking the person to either file the return of income or asking the person to give all the details in writing, in case the person has failed to comply with the notice given to him by the Income Tax Department.
A Times of India report stated that: “Mridul stood shivering outside the magistrate court in Mumbai for he could have been given rigorous punishment for having defaulted on the notice given by the Income Tax Department for 30 days. The Notice was for not having deposited TDS which she had collected from the employee’s salary.
Cellular phone fraud
The Cellular phone fraud refers to tampering, manipulating or making an unauthorized use of cellular phones or service. The offender in this case would make a fake account in your name and get an access to your bank account details, credit card details, and make payments without your consent. The offender may even sell your cell phone to other criminals to use it in commission of illegal acts.
The use of the IMEI number of a mobile phone without taking the permission of the person who owns it is punishable with imprisonment for a maximum term of 3 years as laid down in the Mobile Device Equipment Identification Number, Rules, 2017. This provision has been made in combination of Section 7 and Section 25 of the Indian Telegraph Act, 1885. Where section 7 gives the DoT (Department of Telecom) the power to make rules for the conduction of telegraph and telecom services, section 25 says that any damages if caused to the telegraph lines, machines or any such equipment will be imprisoned for up to 3 years or fine or both.
According to an article published in the Business Standard the social media frauds, where crooks use stolen identities and credit card details to obtain illegal gains, have increased by 43% in 2018. Using mobile applications, mostly whatsapp, facebook and instagram, to defraud people have seen a rise of 680% between 2015 and 2018.
This pose a threat to the online social media users and they need to be conscious and careful while using it. This calls for taking proper protection of one’s account and credit card details while providing it online on a website.
Computer fraud
When a computer is used to gain profits by defrauding people, it is called computer fraud. It is punishable under section 43 of the Information Technology Act, 2000. It penalizes the offender by asking him to pay compensation. It can be done via the internet, internet devices or internet services. The following activities amount to illegal use of computer- phishing, social engineering, DDoS, viruses, etc.
The various types of computer fraud are
When a mail becomes widely circulated, ie. hoax mail, and thereafter is used by the crooks for illegal activities via computer.
When a person tries to access or secure access to another’s computer, computer system or computer network without his/her permission.
Where the computer is used to download or copy or extract any data or computer database or information from a computer or its system or its network. The information or data under this head includes those data as well which is stored in the ‘recycle bin’ folder.
When a person tries to damage or cause disruption to a computer, or the computer system or the computer network.
Where a person tries to stop a person who has legal or authorized access to a computer from using a computer, or computer system or a computer network.
Where a person assists another person in gaining access to another person to operate a computer or a computer system or a computer network.
Whereby manipulating or tampering any computer, computer system or computer network., charges another person for the services availed.
Where a person diminishes the value of the data by tampering or manipulating the computer, computer system or computer network.
Where a person steals, conceals, destroys or alters or causes any person to steal, conceal, destroy or alter any computer source code used for a computer resource with an intention to cause damage.
There can be computers in a company which can be accessed only by a few technical team members. If an employee who is not authorized to use it, uses it for personal gains by illegal means and he would be said to have committed a crime.
When a person having complete knowledge of how the system of a computer works, tries to set patterns in data set without being authorized to do so by introducing in the system any spyware or malware he is said to have committed a white collar crime.
The news of accounts getting hacked is very common. Hackers often hack account to gain access to personal information of the user and then using that information to do an illegal act.
It is no big deal for computer experts to introduce in the system any virus that would disrupt its working and cause loss of data to the user.
Counterfeiting
Counterfeiting is a criminal act defined under section 28 of the Indian Penal Code, 1860, where the imitation of something authentic takes place in order to steal, destroy or replace somebody’s original work. This facilitates gaining profits from illegal transactions and deceiving a person who believes that the representation is made to him is true and the imitated work is of more value.
The crime of using counterfeiting is generally related to coins and currencies and is punishable under section 489B of the Indian Penal Code, 1860. In some cases, it also relates to imitating of products like clothes, bags, shoes, watches, art, toys, etc. Counterfeit products carry fake logos and brand names and in some products, harmful chemicals have also been found leading to the death of the person using it.
The cases of counterfeiting coins have experienced a serious rise in India. On 4th July 2019, three people were caught by the Special Task Force of Kolkata upon finding fake Indian rupees with them whose total face value was rupees 6,50,000. In Rajkot, two people were caught recently with 1,080 counterfeit currency notes having a face value of 21.60 lakh, as per the Times of India report.
Extortion
Extortion is a crime under section 383 of the Indian Penal Code, 1860. When one party coerces another party for payment of money, or property or services, he is said to have committed the crime of extortion. It is called a white collar crime because an officer may use his official right and make use of his higher position in the company to threaten another person for giving money, or transferring property, or for providing services.
The important elements which constitute the crime of extortion as laid down in the case of People v. Fort [6] are:
There should be a communication of demands by one party to another
In order for the fulfilment of the demands, the other party or his family should be threatened to cause some injury
There should be an intent to extort money from the other party for some advantage. The other party should be threatened to do or not to do something.
For example, David Letterman, an American television host, was extorted for a sum of $2 million in case of involvement in sexual relationships with female employees. The suspect, Robert Halderman, was later caught and punished.
In another case, a famous actress and model, Cindy Crawford and her husband became a victim of dollar 100,00 extortion case where their daughter’s picture in which she was tied and gagged was to be revealed in the public if the couple did not adhere to the demands of the suspect.
Fake employment placement rackets
There have been many cases where a student or a person looking for a job has been deceived by offenders who claim to provide placement or jobs to them and later on run away with the money they have taken as an advance to provide them with employment. Section 66D of the Information Technology Act, 2000 states the penalties to be imposed on a person for cheating on another person through personation using computer resources.
For example, Ajay Kolla, the CEO of Wisdom Jobs was arrested along with 13 other staffs in January, 2019 on the charge of false recruitment. Wisdom Jobs was an award-winning recruitment firm which was established in the year 2009. Since then, Ajay Kolla had duped around 1.04 people, earning nearly 70 crore rupees out of fake placement promises as reported by the Economic Times.
Forgery
Forgery, as defined under Section 464 of the Indian Penal Code, 1860, refers to the counterfeiting of checks or securities with the intention of defrauding the other person. It is very common in the accounting section of the company where the clerks or the staffs make false records and run away with company’s money thereby causing loss to that company.
For example, in 2019, Ravi Prakash, CEO of TV9 News Channel, was removed from his post on the charge of forgery. Based on the ABCPL press note, NDTV in its report said that, Ravi Prakash in order to misguide the Registrar of companies, had forged the signature of the secretary of the company. It was also alleged that Ravi Prakash moved by self interest and bad intention, had filed false cases against the new directors. He convinced the third parties to file false cases against the company, thereby, preventing the directors from carrying out their work.
White collar crime in other professions
White collar crime in medical profession
The problem of the relationship between the doctor and the patient had been recognized long back by the penologists. Manu said that the ones indulging in false practices, for example, where a doctor makes false diagnosis report, heavy fine would be levied on him. Removing of immature fetus was considered to be a heinous crime and such person was called to be subject to severe punishment.
There have happened many cases where the medical practitioner have had no license to practice medical profession. The doctor treating the patient had turned out to be a fake doctor who has only deceive the patients by not treating them properly and running away with their money.
Examples of white collar crime in medical profession could be- issuing fake medical certificates, facilitating illegal abortions, selling sample drugs and medicines directly to the patients or to the chemists in India. Sometimes, the professionals in the medical field are seen giving advice to criminals of how to escape the allegations using medical grounds.
In Karnataka, two doctors, K.H. Jnanendrappa and K.M. Channakeshava, were charged with making fake medical certification for Abdul Karim Telgi, who was involved in a multicrore stamp paper racket in order to help him get bail on the ground of health issues . Therefore, under the Prevention of Corruption Act, 1988 they both were held liable with 7 years imprisonment and with a fine of 14 lakh rupees each
White collar crime in legal profession
Legal practitioners often for money or other services by their clients, present false evidence, fake witnesses in the court. Legal practitioners with the ministerial support involves in wrongful practices and violate all their ethical standards for some amount of money. Manipulating evidences and faking witnesses by bringing in professional witnesses, gives the case another turn, because of which many times the real accused is left free and the innocent is sent behind the bars.
It was in 2006 when D.K. Gandhi, a resident of Delhi filed a case against the wrong practices of his lawyer. Gandhi had appointed the lawyer for a certain amount of money. The lawyer was supposed to dispose off the case as early as was possible. The case was settled in the first hearing itself and Gandhi was to receive the compensation amount. However, the lawyer refrained from giving the amount to is client, Mr. Gandhi, unless an extra sum of 5,000 rupees was paid to him.
So in the case of D.K. Gandhi v. M. Mathias[10] when referring to the what the Supreme Court had said in Jacob Mathew v. State of Punjab[11], held the appeal and left the matter to be decided by the State Commission based upon the law.
In the case of Jacob Mathews, the Supreme Court had said that: in law of negligence, the professionals from different professions like, legal, medical, or architecture, or any other would be held liable for negligence in practicing their profession if that either of the two given conditions are satisfied: a. He did not have the required skill that was needed to be professed and, b. Even if he has the required skills to be professed, he did not exercise the same.
White collar crime in the engineering profession
Engineers, like mining engineers, are often found to be involved in malpractices like providing substandard works and materials and also not maintaining the records or maintaining bogus records. These types of scandals are often reported on new channels and cause huge losses to the company.
In April 2019, India Today reported that an assistant engineer by the name of S.F. Kakulte was arrested for negligence because of which a bridge had collapsed. Along with Kakulte four other engineers and the chief engineers of Bombay Municipal Corporation were involved in the project. The Structural Auditor, Neeraj Desai, was also arrested for negligence in the report. He claimed that beams, pillars, metal fixtures were audited but the concrete slabs were not mentioned in the inventory given to him for the audit as a result 6 people had died and 35 were seriously injured
White collar crime in education
Many private educational institutions involve themselves in false practices like using fictitious documents to and fake details in order to obtain grants from the government to run their institutions. The teachers and staff are often seen to be working at very low wages than what was the signing amount. These false practices help the institution raise the high sum of illegal money.
It was in 2019 when the New India Express had reported that a senior railway ticket checking staff was arrested by the Central Crime Branch, for leaking out the questions papers of the exams for the post of constables and sub-inspectors in return for money.
It was in 2013 when the Time of India published an article stating that the Gujarat Technological College had been appointing engineers for lecturership were not even qualified with a B. Tech degree. Yogesh Patel, who was a lecturer of Civil Engineering at S.R. Patel Engineering College which is affiliated to Gujarat Technological university, had not even cleared his Bachelor’s degree.
He had failed in some subjects like the applied mechanical and earthquake engineering. And he even went for checking papers and also received a remuneration for his work. An inquiry into how a person who is not eligible for the post of ad hoc, that is temporary, lectureship was appointed for teaching purposes.
India is a country that are faced with various problems on a serious level, like that of starvation, illiteracy and health issues on a large scale. Moreover, India is the second largest populated country in the world, and administration of the mass becomes a problem. Despite having stringent laws, the administration often fails in implementing them, as keeping control such a large number of people becomes difficult. In such circumstances it is very likely for white collar crimes to flourish. The various other causes for the growth of white collar crimes in India are as follows:
The white collar crimes are committed by people who are financially secure and perform such illegal acts for satisfying their wants. These crimes are generally moved by the greed of the people.
Poverty is considered as a major cause for underdevelopment in India. Poverty is a cause for financial and physical duress among the major chunk of population. Since people are so much in need of money, they easily get attracted by the false representations made to them. They forget to look into the veracity of the representations being made to them.
The gravity of white collar crimes are more intense than other traditional crimes. White collar crimes causes one great loss at all levels, i.e. financial, emotional, etc. Corporate mishaps, like false pharmaceutical tests, costs more lives than the crime of murder.
With the advancement in technology, faster growth rate of industries and business, and political pressure have introduced the offenders to newer, easier and swifter methods of committing such crimes.
With the introduction of the people to the internet and digital world, where big transactions takes place within seconds and where reaching out people from all over the world is a matter of few minutes, criminals have got an incentive to commit more crimes and hide anywhere in the world.
Our law enforcement agency also become reluctant to deal with such crimes as these cases are very complicated and tracing a suspect is a difficult job. The investigation in case of white collar crimes is much more consuming than that in traditional crimes.
Even when the offender of the white collar crime has been caught, the judiciary fails to punish them. The major reasons behind the failure to hold these criminals accountable for their wrongful acts are:
The legislators and the ones implementing the laws belongs to the same group or class to which the offender belongs and therefore land up assisting these criminals instead of taking actions against them.
The investigating officers put in less effort in doing their job as they are not able to connect the small evidences that they get. And despite efforts they don’t get major evidences in such cases as everything is done online and tracing things or person becomes difficult.
We don’t have laws on such types of crime and therefore offenders are left free. In many cases due to loopholes in law, it becomes favourable to the offenders.
The existing laws do not provide stringent punishment that would prevent people from being involved in such types of crimes. The suspects do not have any incentive to not participate in these types of crime.
It is disappointing to know that despite white collar crimes being prevalent in the society and many people getting under its grip, no measures are being taken to prevent the commission of such crimes. The reason behind this is that white collar crimes are committed by influential people who enjoy higher social status.
The emergence of white collar crime in India
white collar crime in the ancient time
It is said that crimes have been taking place since the time human beings started living together. There are various crimes which have swept away with times and there are some which have found different dimensions to them with the society becoming modern. The ancient Vedic text says that the concept of white collar crime has existed in society from the very beginning.
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The crime of bribery
The concept of bribery is not a new concept in Indian society. References to these crimes can be found in the various sacred book.
Narada had once said that if a man gives something out of fear, anger, lust, grief, in jest or by mistake or through a fraudulent act by a minor, or in an intoxicated state would be considered as a bribe.
Yagnavalkya once had proposed that the king, the supreme authority, should kill the dishonest officer and reward the honest ones. He further adds that those people who will try to extort a person, their property would be confiscated and then transported.
Kautilya in his Arthashastra has claimed that the functions of the ones in power will be monitored and in case of any negligence, they would be charged.
Health
The health of the people has always been a matter of concern for the people. In the ancient time also, to prevent an epidemic from breaking out, selling of dog’s meat was made punishable. Yajnavalkya, Vijnaneswara and Kautilya proposed the different kinds of punishment one could be subject to if they get involved in the sale and purchase of dog’s meat.
It was Ashoka who established hospitals for human beings and animals taking into consideration the health of the mass. In his edicts, Ashoka, warns people to not use meat as a food material and abstain from killing birds for food.
Using of false weights in stores
To keep the economy on the right track it is essential to refrain from wrongful market tactics. In ancient times, the shopkeeper often used false weights and measures to make profits. Kautilya said that in order to avoid such wrongful market practices by the shopkeeper there should be a supervising officer who would look into the transactions happening in the market. Kautilya along with Yajnavalkya had suggested the imposition of a fine in case one is caught practising wrongful tactics in the market.
Section 8(3) of the Legal Metrology Act, 2009 defines such offences which involve the use of false measures or weights other than the standard measure or weights required. Section 25 of the Legal Metrology Act, 2009 penalises the offenders with fine with may extend up to 25,000 rupees and for subsequent offences, the punishment shall imprisonment which may extend to a period of 6 months or with fine or both.
Counterfeit coins
The Indian economy was the first economy where coins were used as a medium of exchange. In ancient times it was the guild who was in charge in monetary matters. Coins were minted in silver, gold and copper which were manufactured under the control of the State authority. Kautilya introduced a rule which said that the one who counterfeits the coins would be penalised. He used the word ‘Nanaka’ for counterfeit coins and the ones who manufactured it was called ‘Kutarupa Kara’.
Growth in the modern era
In India rapid industrialization after the First World War (1914 to 1919) led to a class divide. There existed two classes of people, the capitalist, the class owing the major means of production, or say the bourgeois institution and the proletariats or the working class. The extreme business condition with the fast growing economy led to the social exclusion of the proletariat class.
The high level of competitiveness and greed for enjoying monopoly led to the growth of criminalist behaviour. The seed of white collar crimes was planted by this time. Where the nation was busy in the freedom movement, and fighting war, these criminal acts grew up posing a threat to the growth of the Indian economy.
Courts and white collar crime in India
The white collar crimes have not been defined anywhere in the law, but there exists various legislations which imply the existence of such crimes. In the recent years with the emergence of new technologies and advancement in different sectors, like the industrial sector, business sector, etc., these crimes have experienced a rapid growth.
We are well aware of the fact that more than 3 crore cases are pending before the Indian judiciary. In this case, it would be very difficult to dispose of the cases of white collar crimes as early as possible.
In order for faster disposal of the cases of white collar crimes, it is important that fast track courts and tribunals are set up in the country. Also, once the case would be decided as final by the tribunal or the fast track court, then, that decision would be binding on the parties. The parties would not be allowed to raise the same issues, in the same case again before another court.
White collar crime investigation
White collar crime investigation process
There has been a recent growth in the investigation process of white collar crimes in India. With the increase in the number of anti-corruption marches, the companies are experiencing an increase in a time-to-time investigation. These internal investigations acts as a watchdog against any unwanted activity. This further prevents the company from embarrassing raids. In India, there is no strict procedure which needs to be followed while conducting these internal investigation relating to the white collar crimes.
With the breakout of the #MeToo movement, companies have got an incentive to fasten their investigations in sexual harassment cases.
For example
When the CEO of ICICI Bank, Chanda Kochhar was facing charges of fraud, the bank resorted to internal investigation by Reserve Bank of India, Securities and Exchange Board of India and Central Bureau of investigation. To look into the matter an independent committee was set up which was headed by retired supreme court judge, Justice B.N. Srikrishna.
When Binny Bansal, Co-founder and group chief executive of Flipkart, was alleged for serious misconduct, the bank decided for an independent investigation which would be carried out on behalf of Flipkart and Walmart.
White collar crime investigation techniques
There are a few basic techniques for the investigation of white collar crimes, and they are:
There should be an informant in the team who would give the first hand information about a white collar crime taking place or had taken place in a company and keeps the investigating officers updated with all that was, is or will be going on in the company. Unless and until somebody informs the police about the crime, no investigation can take place. Therefore, the role of informants become important.
Involvement of undercover agents. The presence of undercover agents are important as they help in tracing those evidence which are not prima facie evidence. They also help in giving information regarding people who go underground and then commit serious offences. Since tracking such people is not possible by the police officers, they appoint undercover agents who without any hint to the accused gets all the details about him.
Introducing the examination of the physical evidence in the laboratory is very crucial for deciding a case. The medical evidences play a key role in giving a direction to a case. If not manipulated, then the medical tests are very efficient in determining who the accused would be in cases of serious offences, like rape.
Police officers are often seen conducting physical surveillance through dogs and electronic surveillance through CCTVs, or tracking call records, etc. These surveillance helps in tracking down even the smallest of evidence against the suspect.
Interrogation is that tool in the hands of the police which helps in taking out those information from the suspects which they would not have otherwise given.
Wiretapping where the law permits to do it helps in proving the guilt by way of producing call record in the court. In some cases, call records are sufficient evidence to hold a person guilty of an offence.
Legislation against white collar crime in India
There are several provision that exists for identifying white collar crime. Government in order to ensure that the criminal committing white collar crime be punished has brought in the following legislations-
The Companies Act, 1960
The Income Tax Act, 1961
Indian Penal Code, 1860
The Commodities Act, 1955
The Prevention of Corruption Act, 1988
The Negotiable Instrument Act, 1881
The Prevention of Money laundering Act, 2002
The Information Technology Act, 2005
The Imports and Exports (control) Act, 1950
The Special Court (Trial of offences relation to Transactions in Securities) Act, 1992
The Central Vigilance Commission Act, 2003
Penalties for white collar crimes
Sentencing in white collar crime in India
Punishment for fraud
Section 447 of the Companies Act, 2013 provides punishment against the commission of fraud. It states that in case a person is found guilty of an offence of fraud he would be imprisoned for a period not less than 6 months and which extend to 10 years. And he will also be subject to fine which should not in any case be less than the amount involved in fraud and which may extend to 3 times the amount involved in the fraud. In case the fraud has been committed against the interest of the general public than the term of imprisonment would not be less than 3 years.
Punishment for false statement
Section 448 of the Companies Act, 2013 states that: if a person deliberately makes a false statement, knowing it to be false or deliberately omits any material fact, knowing it to be material than he would be held liable for his wrongful act. This false statement can be made either through return, report, certificate, financial statement, prospectus, statement or any other documents required for the purpose mentioned under this Act or any rules made under it.
Punishment for furnishing false evidence
Section 449 of the Companies Act, 2013 provides for punishment for furnishing false evidence. It states that if any person gives a false evidence in a court of law:
Either upon an examination on oath or solemn affirmation; or
When any company is about to dissolve or otherwise also in case of any matter arising under this Act, in any affidavit, deposition or solemn affirmation,
He shall be punished with imprisonment and fine both. The imprisonment will not be less than 3 years and may extend to 7 years and fine may extend to 10 lakh rupees.
Punishment when no specific punishment or penalty has been provided
Section 450 of the Companies Act, 2013 states that in case a punishment or penalty for a crime, which has been committed either by an officer of a company or by any other person who contravenes any of the provisions of this act, then under this section he would be penalized with a fine which may extend to 10 lakh rupees. In case the contravention continues the person would be asked to pay a fine which may extend to 1,000 rupees everyday till the intervention continues.
Punishment when the default has been repeated
Section 451 of the Companies Act, 2013 lays down that, when a company or any officer of that company commits an offence for which he has already been penalized and has also faced imprisonment, in case commits the same offence again within a period of 3 years, than that company and every one of those officers involved in the commission of the offence for the second time shall be punished with twice the amount of fine, in addition to the term of imprisonment provided in the act for that offence. But, in case the offence was committed after a period of 3 years of commission of the offence for the first time then this rule would not be applicable.
Appointment of adjudicating officers
Section 454 of the Companies Act, 2013 says that the Central Government, by an order stated in the official gazette, has the power to appoint an adjudicating officer who will have the right to adjudicate penalty under the provisions of this act. The Central Government will also decide the jurisdiction for the officers.
The adjudicating officer can impose a penalty on the company or its officers on the grounds of noncompliance with the given provision under the Act. In case an officer who has been penalised by the adjudicating officer is dissatisfied with his action, he could file an appeal to the regional director would be having jurisdiction in that matter.
Implications of white collar crime in India
The rate at which white collar crimes are increasing has become a matter of concern globally. It has been found that the detriment that white collar crimes cause to society is much more than other forms of crime. Moreover, India is a developing nation and so an unprecedented increase in white collar crime hampers its image along with being a hazard in the growth of its economy.
Moreover, white collar crimes cause emotional traumas, not only to the victims of the crime but to the society at large. Where the victim is not able to bear the expenses of white collar crime that he had evidence, the society starts losing faith in the authorities. If the authorities at higher positions, who have enormous powers, start using it in a wrongful way, then who else will the citizens trust.
Also, as these crimes are flourishing all over the country, people don’t find themselves secure anywhere, neither in the physical world nor in the virtual world. Where people were introduced to the digital world to avoid tiring jobs like standing in the queue to deposit or withdraw money from the bank and reduce other sorts of physical labour, it has not become the biggest platform for the commission of white collar crimes. Nowhere does the people find themselves safe.
Above all, despite several movements against the white collar crimes and instituting several rules and regulations via enchantments, the government has not been able to do much for the victims of the white collar crime. The complicated nature of the method of committing such crimes makes it difficult for the authority to find evidence. That is why many criminals move freely and this has become the main reason for the crime to flourish. The criminals don’t find any incentive to commit such crimes which helps them make easy money.
Also one of the major reasons for such crimes to flourish is that media coverage of very few cases takes place in case of white collar crime. Often the media person and the offenders fall under the same group or class and stars favouring them instead of showing their reality to the people.
Moreover, people sitting at a higher position, who commits such crimes, buy the media persons or threaten them to close their channel, in order to stop the media coverage of their wrongful or illegal acts which they commit or have committed during the course of their occupation.
Before the High Court of Allahabad, the learned counsel on behalf of SEBI claimed that the company is being wrongly accused as the company was not in a position to pay its debts, including payments to its investors. When the advertisement by the company was put to question, the council said that the advertisement was given in 2003 while the order was passed in 2004, when the company was not in a position to payback its debts.
Moreover, the sum of money which the investors were claiming was nowhere cited. The main claim of the counsel made the legislatures raise the punishment from 1 year to 10 years and also increased the fine which may now extend to 25 crores by amending the laws under section 24(1) of the SEBI Act. At last, Ravi Arora, the accused, was held liable.
There were two appellants in the present case against whom a charge sheet was filed for committing an offence under Section 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988 read with Section 109 of the Indian Penal Code, 1860 in separate trials. It was alleged that both the accused had accumulated disproportionate wealth as per their income when they were they members of the Legislative Assembly.
When the Central Bureau of Investigation (CBI) initiated its investigation it was found that the father of the appellant had acquired huge properties and same as the case with the appellants. The High Court held that the appellant had provided a totally different office(s) of the accused than they were actually holding at that time. Thus the sanction under Section 19 of the Prevention of Corruption Act, 1988 was held to be without any merit.
This case was filed against several ministers of the State of Jharkhand along with the Chief Minister for having the possession of unaccountable money. The High Court had requested the Central Government to transfer the case from Enforcement Directorate to CBI by way of power given to it under Section 45 (1A).
It was alleged that the ministers were in possession of hefty amounts of money and though no evidence was found to charge them with money laundering case, a strict investigation was proposed.
The ministers were said to be the owners of property not only in India but abroad as well. Therefore, the court asked for an investigation to determine this wealth was acquired by making use of the official position. It was to be clarified if a white crime has been committed under the Prevention of Corruption Act, 1988 and under the Indian Penal Code, 1860.
The CBI started its investigation under Prevention of Corruption Act, 1988 and the Indian Penal Code, 1860 as the power to carry on investigation under Prevention of Money Laundering Act was only with the Enforcement Directorate, which is of course subjected to the power given to the Central Government under Section 45 (1-A) of the Prevention of Money-laundering act.
The measures that can be adopted to prevent the commission of white collar crimes are:
The top investigating agencies of the country like the Central Bureau of Investigation, the Enforcement Directorate, the Income-tax Department, The Directorate of Revenue Intelligence and the Customs Department, needs strengthening, by way of implementing strong regulating policies. The Central Vigilance Commission should monitor the working of the officials sitting at top positions and also cross-check their works, so as to ensure transparency in the system.
As the method of commission of such white collar crimes is advancing, so should the training of the investigating officials. It often happens that ageing officers are well experienced to understand the nature and techniques, but are not able to utilise the technology for tracking the suspect. This happens due to lack of training. So, every investigating officer must be trained in such a manner that, no matter how complicated the case is, they would be able to easily resolve it.
To uproot the existence of such crimes, it is very important to include strict laws into the system. Less amount of fine and shorter period of imprisonment makes it very casual for the offenders to commit such crimes.
Fast track courts and tribunals should be set in all the parts of the country for the early disposal of these cases. The tribunal should be provided with the power to fine or imprison someone who has been held guilty. Such measures would lower the rates of occurrence of white collar crimes.
The electronic and print media should be utilized in the right way to spread awareness about white collar crimes. The general people need to be aware of such crimes and that they are taking place everywhere, from a small cafe to big multinational companies. Also, they need to be aware of the remedies they could seek in case they become victim to such crimes.
Stringent laws and hefty fine and long term imprisonment should be given to the offenders for committing such crimes. And for this to happen, the Indian Penal Code, 1860 should be amended and include provisions for the white collar crimes. For example, the IPC could have a separate chapter dealing with white collar crimes.
The government may establish a separate body which would look into the matter of crimes and criminality prevailing in the country. The independent body could be named as the National Crime Commission. Since their entire work would be related only to the crimes and would be an independent body, it could work more efficiently towards reducing criminality in the country.
Conclusion
white collar crimes have two surprising features, first, that they are non-violent crimes, though the criminals have the tendency to gain control or have a sense of entitlement, and, second, that they are committed by people in the higher profession.
However, these crimes are also committed by poorly paid underlings, although the mastermind behind the commission of such crime could be a rich person enjoying a higher social status in his occupation. white collar crimes are often committed because of peer pressure or are dependent on the culture of the company.
As our society is growing towards modernity and the world is experiencing new technological advancement, the rate of crime is also increasing at a faster rate. Particularly the growth in white collar crimes has been enormous. From the medical profession to educational institutions, these crimes are being committed everywhere.
The cases of online fraud are also increasing at an alarming rate. India, as a developing nation, has faced difficulties in leading its economy towards growth because of these crimes in general and corruption in particular.
The investigating officials are in need of training where they could acquire the skill to trace these criminals, otherwise tracking of whom is difficult, complicated and tiresome job. The investigating officials’s work should be scrutinized to ensure transparency in the work as the white collar crimes are committed by people enjoying higher social status in their occupation.
The government must make laws that are strict enough to reduce the commission of such crimes. And the system should be such that not only there exist laws giving strict punishment to the accused but also dispose off maximum cases in a short while. If not done so then people will soon lose complete faith in the system, as these crimes are committed by people who should act as a role model for the society.
The media has a key role to play in reducing the rate of increasing white collar crimes. It has been noted that most of the white collar crimes go unreported. So, if the media becomes more active towards publishing frauds and scams at higher levels and revealing how do the people at higher position in a company use their powers arbitrarily, and also make efforts in making people aware about the white collar crimes, and avoid corrupt practices, then this would definitely help in reducing the rate at which the white collar crimes are being committed.
This article is written by Soma-mohanty of KIIT School of Law, Bhubaneswar. In this article she has mentioned about the establishment of Payment Banks, how it has helped economically backward people, about the advantages and objectives of the Payments Bank and the list of Payments Bank working in India so that people can access them easily.
Payment Banks
The concepts of payment banks are brought forward by the Reserve Bank of India. This concept was brought forward by the Committee on Comprehensive Financial Services for Small Business and Low Income Households. Then the Reserve Bank of India framed the guidelines for the payments of the bank.
The notice for the application was given and after the submission of the list of all 41 applicants who had applied, the list was published after which an external advisory committee was set up to look into the licence application and to make the evaluation. Consequently, 11 entities out of 41 applicants were selected and were given “in-principle” licence. This licence had the validity of 18 months and within the period the entities had to fulfil all the requirements and failure would be led to lapse of licence.
Payment bank is a type of bank which is not involved in any type of credit risk. This type of banks provides credit to smaller units such as Low-income household, migrant labour workforce, small business units and unorganized sectors. It has no provision of issuing credit cards or advance loans to the customers.
The services provided by the payments bank are as follows.
Remittance service
Automated Teller Machine Service
Debit cards for money transaction
Net banking service
Bill payments service
Mobile banking service
Third-party fund transfer
The objective of payment banks
The main objectives of the payment banks are to provide financial inclusion to the following sections.
Low-income household
Migrant labour workforce
Small business
Unorganized sector
It aims to provide saving accounts to those who are not able to create a savings account as they are afraid to pay heavy maintenance.
Importance of payment banks
Aid to the poor in India
Earlier days poor people used to face a lot of problems in the matter of money transactions. We have seen that most of the poor people leave their village and settle in towns to earn money. The people belonging to this migrating class face hurdles in sending money to their families back in the village.
Thus the payment bank provides them with a saving account, which can be opened by them easily and it has tie-ups with commercial banks which provide ATM. Thus making money transfer easy and smooth for poor people.
Earlier maintaining a savings account used to cost a lot and if the person fails to maintain the mentioned amount, they are fined. Thus poor people were not able to open a savings account.
But payment banks provided scope for the poor to save their hard-earned money.
Payment banks provide a higher rate of interest than other commercial banks. Thus it increases the amount of savings.
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Alternative of traditional banks
Rural areas have always been neglected and thus the people of rural areas face a lot of problems. Village people need to travel to cities to get their money transactions done. This is because traditional banks do not open branches in small villages.
Opening a traditional bank in every part of India puts an effect on the economy, thus it is not possible to open more branches in areas with less population. But it is not mandatory for the payments bank to open branches in every part as they can operate through mobile phones.
The people just need to complete their KYC and link their Aadhaar card to their number and they can easily send and accept money in their account through online transfer.
Payments bank provide interest on small amounts even, thus it increases the savings.
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Guidelines for licencing of payment banks
Following are the guidelines for licencing of payment banks.
Scope of activities
The payments bank are allowed to accept demand deposits which include current deposit as well as saving bank deposits. This deposits can be done by the small business unit, individual, and other organisation who are eligible. The Deposit Insurance and Credit Guarantee Corporation of India (DICGC) scheme permits the payments bank to get the deposits covered under this deposit insurance scheme.
Though the payments bank are provided to carry on payments and remittance services and demand deposit products to small businesses and low-income households, a maximum limit is put forward. Every customer is entitled to deposit a maximum of Rs. 1,00,000. The Reserve Bank of India has the authority to increase the maximum limit but it depends on the performance of the banks.
The payments and remittance services are performed by the payments bank by Automated Teller Machines (ATMs), Business Correspondents (BCs) and mobile internet banking. When funds are accepted through payments or remittance service at one endpoint, it can be done through Business Correspondent, branches and various channels. And payments at the other end can be done through Automated Teller Machines (ATMs), Business Correspondents (BCs). if the instruction is issued under the PSS Act, then cash-out at Point-of-sale terminal is allowed. The payments bank has been authorised by the PSS Act to be the part of any network regarding card payment.
Payment banks do not have the authority to issue credit cards but they have the right to distribute ATM as well as Debit Card.
The payments bank are provided with the right to provide internet banking service to the customers. The objective behind the setting up of the payments bank is to provide well skilled and developed technology to lessen the cost of banking solution. While offering internet banking service the payments bank should ensure that the system running consists of business partners, third party service providers and risk management systems and control management. The payments bank should run there internet banking service in accordance with the guidelines provided by the Reserve Bank of India in the matter of cyber crime, information security, electronic banking and technology risk management.
The payments bank has the right to choose any bank of its choice to establish a Business Correspondent relationship with. But this relationship should be established according to the provisions of Business Correspondent laid down by the Reserve Bank of India.
All the transactions regarding the remittance or settlement can be done by payments bank. The payments bank has the authority to accept the remittance that is to be sent and receive remittance from multiple banks. But these transactions should be done by the approval of the Reserve Bank of India through authorised payment method such as RTGS, NEFT, IMPS.
Payments bank are permitted to undergo cross border settlement transaction and its transactions can be made by personal payments as well as settlement through the current account. The Reserve Bank of India has the right to allow the payments bank to undertake foreign exchange transactions.
Payment banks after fulfilling the requirement of the provision mentioned in the sectoral regulators of products with the permission of the Reserve Bank of India can be granted to undertake non-risk sharing simple financial services.
There is a provision of bill payments of the customer provided by the payments bank. The payments bank complete the utility bill payment, etc.
If the promoter is involved in any financial or non-financial activity, then the activity should be performed differently. There should be no association of the financial and non-financial service activity with the services of payments bank such as banking as well as financial services.
The payments bank should be differentiated from all other banks. Thus, it is mandatory for the payments bank to add “Payments Bank” to their name.
Deployment of funds
The payments bank are not authorised to get involved in lending activities. Its is mandatory for the payments bank to maintain Cash Reserve Ratio (CRR) with the Reserve Bank of India. The payments bank has to invest at least 75% of its demand deposit balance in the Government security or Treasury Bills and it should have the maturity up to one year with the eligibility security maintenance of Statutory Liquidity Ratio and for the purpose of liquidity management as well as operational functions it should be having 25% in current or fixed deposit in association with other scheduled commercial banks.
When the payments bank issues the balance outstanding under PPIs, there should be flexible investment between Statutory Liquidity Ratio of eligible Government securities or Treasury Bills and bank deposit, so that it is done with compliance to CRR AND SLR on its “overall outside demand and time liabilities” including its deposit balances and outstanding balances in PPIs issued.
It is essential for the payment banks to manage their liquidity, so it is required for them to get involved in the payment and settlement system which enables them to get access to the inter-bank uncollateralised call money and the collateralized repo and CBLO market.
Capital requirement
The payment banks are more subjected to operational risk than to credit as well as market risk. For the operation, payment banks are required to invest in technological infrastructure and to get a shield against the operational risk the payment bank requires capital. A minimum amount has been fixed for equity capital of the payment bank. It is mandatory for the payment banks to maintain a minimum capital adequacy ratio which is 15% of its risk-weighted assets, uniformly and the ratio can be changed according to the rules of the Reserve Bank of India.
Tier capital
Percentage
1.
Tier I capital
7.5% of risk weighted assets
2.
Tier II capital
100% of total Tier I capital
As the payments bank will not have significant risk-weighted assets, its compliance with a minimum capital adequacy ratio of 15 per cent would not reflect the true risk. Therefore, as a backstop measure, the payments bank should have a leverage ratio of not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
But the capital adequacy ratio of the payment banks would be computed under the Basel Committee’s standardised approaches as they are not permitted to deal with sophisticated products.
Foreign shareholding
The total paid-up capital should be below 10% and aggregate limit should not exceed 24% of the total paid-up capital in the matter of Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs), individual FII / FPI holding. But if the Board of Directors passes a resolution followed by the special resolution to that effect by its General Body, then the total paid-up capital can be increased by 49% by the bank.
In payment banks, the foreign shareholdings are processed and regulated according to the amendments and rules of Foreign Direct Investment policy. The policy laid down by Foreign Direct Investment policy for private sector banks is the same as for the payment of banks even.
According to the existing regulation of Foreign Direct Investment policy, 74% of the paid-up capital from foreign investment is allowed in both the private sectors as well as the payment of banks.
Out of the 74% of the paid-up capital invested, 26% of capital should be held by the residents.
The individual holding in the matter of Non-resident Indian (NRI) is hindered to 5% of total paid-up capital on both repatriations as well as non-repatriation basis.
The aggregate limit for Non-resident Indian (NRI) should not exceed more than 10% of total paid-up capital on both repatriations as well as non-repatriation basis.
When a special resolution is passed by the banking company in association with the General Body then the Non-resident Indian (NRI) are allowed up to 24% of total paid-up capital on both repatriations as well as non-repatriation basis.
Voting rights
A shareholder has the certain right of voting according to the Bank regulation Act,1949, in private sector banks but these rules are not applied to the payment banks.
Prudential norms
The prudential norms are regulations of RBI which are not applicable for the payment banks as they do not have the provision to provide loans and provide advances. But the payment banks are open to establishing a robust operational risk management system, which enables them to get exposed to operational risk. The payment banks have more possibility to liquidity risk but if they work according to the provisions of RBI’s liquidity risk management, their application would be extended.
Promoters’ contribution
There is no provision laid down for limiting the shareholdings of promoters. But in case of the promoters of the payment bank are entitled to hold at least 40% of its paid-up equity capital for the first five years, which is from the commencement of its business.
Business plan
To get payment banks to licence it is mandatory for applicants to submit their report of business plans as well as projects report attached to the application.
It is necessary to mention the strategies for setting up a payment bank, in the business plan.
Following are the requirements needed to be present in the business plan
Business model
The access points of the bank in rural and semi-urban areas
Control policy of customer grievance redressal
Joint venture partnership with a scheduled commercial bank
The business plans submitted should be transparent.
The applicants with business plans aiming to set up access points in the under-banked States/ Districts, North-East, East and Central zone of India would be given more preference.
To increase the effectiveness of network access points in remote or rural areas by setting up their ATMs or using another network branch.
The main objective of the payment banks should be to lower the costs of setting up networks and to extend the.
Corporate governance
The payment banks have a board consisting of a majority of independent directors.
The corporate governance formulates the guidelines for the payment banks. It consists of certain criteria for directors as per the rules of RBI and it is regulated from time to time.
Other conditions
BCs, ATMs and other networks are the instruments required to be operated in remote areas by the payment banks. It is not mandatory for the payment banks to open 25% of branches in unbranched rural areas but it is required to operate at least 25% of the physical access point in the rural centres. It is also mandatory to establish a controlling office to look into the running of all the access points, it controls the various outlets in the rural areas and also looks after the customer grievance redressal to satisfy the customers. The operations of the payment banks should be done in accordance with the norms as laid down by the Reserve Bank of India. New innovations are also accepted but the payment banks need to get their plans approved by the Reserve Bank of India and can execute accordingly.
The payment banks ought to have an organised and technical Customer Grievances Cell to look into the complaints of the customers.
The payment banks should work according to the provisions provided by the Reserve Bank of India. If they divert from the provisions and do not follow the conditions, then it would lead to cancellation of the licence
Procedure for application
The application for the payment banks shall be submitted according to Rule 11 of the Banking Regulation (Companies) Rules, 1949. In the format of form III of Rule 11 of the Banking Regulation (Companies) Rules, 1949
The business plan attached to the application should be according to the paragraph 11 of Rule 11 of the Banking Regulation (Companies) Rules, 1949
Other required information should be provided according to the Annex.
Procedure for RBI decision
The submitted application for the request of setting up a payment bank would be screened by the Reserve Bank of India to check the eligibility of the applicant. The Reserve Bank of India has the right to add up some more criteria according to the “fit and proper” to enhance the development.
There is a committee which is formed to evaluate the application for setting up payment banks and the committee is known as the External Advisory Committee (EAC). it consists of skilled professionals like bankers, chartered accountants, finance professionals, etc.
The applicants can be called to give more information required to the External Advisory Committee and it has been vested with the right to get clarification regarding any information provided by the applicant in the application form. Then the External Advisory Committee submits the recommendation to Reserve Bank of India for consideration. And after looking into the matter the outcome for setting up a payment bank would be given by the Reserve Bank of India and its decision would be final.
Then the Reserve Bank of India provides in-principle approval to set up the payment bank with the validity of eighteen months. And if the applicant can’t set up the payment bank within the stipulated time, then it lapses automatically. Thus the applicants are needed to set up the payment bank in the given time.
After the Reserve Bank of India issues the in-principal approval to the applicants for setting up the payment bank and it is seen that the promotors or the companies/entities are involved with
The names of the applicants for the licence of payment banks as well as the names of applicants whose application was approved are provided in the website of Reserve Bank of India, to provide transparency.
Payment banking is highly investment business thus it is required to put forward a selective basis to get the licence of payment bank and those criteria are
An applicant who fits in the given requirement
Applicant having faultless record track
Applicant providing organised and efficient customer service
Small finance banks and payment banks
Basis
Small finance banks
Payment banks
Meaning
Small finance banks are niche category banks that provide banking service of accepting and depositing of money for the section of people who are not eligible for.
Payment bank is a type of bank which is not involved in any type of credit risk. This type of banks provides credit to smaller units such as Low-income household, migrant labour workforce, small business units and unorganized sectors. It has no provision of issuing credit cards or advance loans to the customers.
Scope of activities
Small finance banks accept the deposits and lend money to small business units, farmers with marginal earning, small business earning unit and unorganised sectors.
There are no restrictions provided in the field of operations of the small finance banks.
The payments bank can issue ATMs or Debit cards.
The payments bank can’t issue credit card
The payments bank provides channels for payments as well as remittance service through Automated Teller Machines (ATMs), Business Correspondents (BCs).
The payments bank provides internet banking service to the customers.
Facilities provided
Small finance banks can provide forex to their customers
Small finance banks have provision to sell mutual funds, insurance and pensions.
Small finance banks are not restricted to convert themselves into a full-fledged bank.
Payment banks provide internet banking service for customers.
Payment banks provide mobile banking services.
Payment banks provide forex at minimal charges as compared to other banks.
The customers can proceed their bill payments through payment banks.
Facilities excluded
Small finance banks can’t provide a large sum of loan to their customers.
Small finance banks do not have the provision to indicate the shares available to be sold or bought by general investing of public.
Small finance banks cannot deal with equity flow, number of folios, etc.
Payment banks do not have the right to provide credit cards to their customers.
Payment banks have the provision for extension of loans.
Payment banks accept the deposit of NRI.
Eligible promoters
Resident individuals or professionals having banking and finance experience of 10years
Non-banking Finance Companies (NBFCs)
Micro Finance Institution (MFIs)
Local Areas Banks (LABs)
Non-banking Finance Companies (NBFCs)
Corporate houses
Telecom companies
Business correspondents
Examples
Equitas Small Finance Bank
Utkarsh Small Finance Bank
ESAF Small Finance Bank
Capital Lab Small Finance Bank
Fincare Small Finance Bank
Suryoday Small Finance Bank
Janalakshmi Small Finance Bank
Ujjivan Small Finance Bank
A U Small Finance Bank
Aditya Birla Payments Bank
Airtel Payments Bank
Paytm Payments Bank
Fino Payments Bank
India Post Payments Bank
NSDL Payments Bank
Best payment banks in India
Best payment banks in India in 2019
RANK
PAYMENT BANKS NAME
1.
Aditya Birla Payment Bank
2.
Paytm Payment Bank
3.
Airtel Payments Bank
4.
India Payments Bank
5.
Jio Payment Bank
6.
NSDL Payments Bank
7.
Vodafone m-Pesa Payments Bank
8.
Fino Payment Bank
Payment bank list in India
There was an application of 41 organisations to get the approval for provisional payments bank but Reserve Bank of India approved only 11 out of the 41 applicants. The lists of the approved applicants are as follows.
Sl. no
List
1.
Aditya Birla Nuvo Limited
2.
Airtel M
3.
Cholamandalam Distribution Services Limited
4.
India Department of Posts
5.
Fino PayTech Limited
6.
National Securities Depository Limited
7.
Reliance Industries Limited
8.
Shri Dilip Shantilal Shanghvi
9.
Paytm Payments Bank Limited
10.
Tech Mahindra Limited
11.
Vodafone m-Pesa Limited
List of active payment banks
Sl no.
List of active banks
1.
Aditya Birla Payment Bank
2.
Airtel Payment Bank
3.
Indian Post Payment Bank
4.
Fino Payment Bank
5.
Jio Paytm Payment Bank
6.
Paytm Payment Bank
7.
NSDL Payment Bank
Latest payment banks in India
Out of 41 applicants, only 11 entities were given the licence for the payments bank in India. But out of the 11 entities, only 4 of them are functional till date and rest 7 payments bank are not functioning anymore.
List of those 4 payments bank functioning is as follows:
The term “Nidhi” translates to “funds” and accordingly, a Nidhi Company is a non-banking financial entity registered under the Companies Act 2013 (the Act) with the predominant objective of pursuing prudence and savings amongst its members, receiving deposits from and lending money to its members for their mutual benefit. Section 406 of the Act and the Companies Rules 2014 provide for Nidhi Company and other ancillary matters related to such Companies. In order to be qualified as a Nidhi Company, an entity has to be notified as a “mutual benefit society” by the Central Government. They are so notified because their transactions are strictly limited to its shareholders and members. Their principal source of funds is the contribution received from such members as deposits and their principal source of earning is from the interest received upon the structured lending of such funds to its members.
Nidhi Companies being a category of a non-banking financial company (NBFC) comes under the ambit of the Reserve Bank of India (the RBI) that holds the authority to issue directions to such Companies. Considering the fact that the scope of every Nidhi Company is limited to its shareholders and members, the RBI has exempt Nidhi Companies from the core provisions of the RBI Act and other directives and compliance requisites applicable to NBFCs. In addition, the Central Government has enacted and notified the Companies (Nidhi Company) Rules 2014 to exhaustively provide for the law and procedure applicable to such Companies.
Prerequisites for Nidhi Company
Every Nidhi Company shall be a Public Company bearing “Nidhi Limited” in its name and shall be incorporated with a minimum equity share capital of Rs. 5,00,000 (Rupees Five Lakhs Only). Every Nidhi Company shall comprise of 7 members and 3 Directors. Nidhi Companies are barred from issuing Preference Shares, Debentures or any other debt instruments and from admitting any body corporate, trust or minor as its member.
Registration Process for a Nidhi Company
The first step in the process of registering a Nidhi Company is to file an application in the RUN facility of the Ministry of Corporate Affair’s (MCA) Portal in order to check for availability of name, followed by obtaining the Class 2 Digital Signature Certificate (DSC) of all the proposed Directors.
After successfully completing both the above-mentioned steps, the applicant has to duly fill and submit, in the prescribed form and manner, the SPICe 32 Form for the Nidhi Company’s incorporation. Such form has to be annexed with the Memorandum of Association (MOA), Articles of Association (AOA), PAN Card, ID Proof and Address Proof of the First Directors, Consent of the proposed Directors to act as Directors and Self Declaration in form DIR-2 and INC-9 respectively, Address Proof of the Company’s Registered Office along with the NOC from the Owner of the Premises as applicable, latest Utility Bills of the Registered Office.
Upon filing the SPICe 32 Form in the prescribed form and manner, with the prescribed registration fees and stamp duty, the MCA issues the Incorporation Certificate within 15-20 days and such Incorporation Certification shall be conclusive evidence that all formalities have been duly complied with.
Post-registration, a Nidhi Company ought to secure a minimum membership of 200 members within the first year of its operation in order to avoid the “default” status. However, in the event a Nidhi Company is unable to secure membership of 200 members, the Company shall apply to the Regional Director, MCA, for additional time within 30 days of closure of the financial year in the prescribed NDH-2 Form.
Further, upon registration, every Nidhi Company ought to maintain a Minimum Net Owned Fund of Rs. 10 lakhs or more and shall maintain the net owned fund to deposit ratio at 1:20. By net owned fund to deposit ratio is meant if the Nidhi Company has Rs. 20 lakhs as its net owned funds, then the deposit limit for such Nidhi Company shall be Rs. 4 crores.
Annual Statutory Compliance
Every Nidhi Company ought to comply with the applicable provisions of the law except those that are expressly exempt. Every Nidhi Company, apart from the income tax returns, ought to annually file the Auditors Certificate, NDH-1and NDH-3 Forms instead of the regular AOC-4 and MGT-7 that are filed by other companies incorporated under the Companies Act.
The auditor’s certificate is required to declare that the Nidhi Company has complied with all the provisions of the law and the applicable Act.
Form NDH-1 certifies that the Nidhi Company has duly complied with the above-mentioned post-registration requirement. Such form has to be certified by a practising Company Secretary or Chartered Accountant or Cost Accountant and ought to be filed within 90 days of the closure of the financial year. In. the event a Nidhi Company requires an extension in filing Form NDH-1, it shall apply to the Regional Director in Form NDH-2 along with the prescribed extension fees and the Regional Director shall pass an order within 30 days of the receipt of such extension application.
Form NDH-3 declares the half-yearly returns of the Nidhi Company and such returns shall be duly certified by a Company Secretary or Chartered Accountant and shall be filed within 30 days from the completion of each half year.
Prescribed Corporate Structure of a Nidhi Company
Share Capital and Allotment
The Companies Rules provides that a Nidhi Company shall issue equity shares at a nominal price of not less than Rs. 10 per share and that, such Nidhi Company shall not levy service charge on such an issue of equity shares.
The Rules also provide that, every depositor shall be allotted a minimum of 10 equity shares or shares worth Rs. 100 and further that, each saving or recurring deposit holder shall hold at minimum 10 equity shares worth Rs. 10 each.
Acceptance of Deposits
As stated above, a Nidhi Company is barred from accepting deposit beyond 20 times its Net Owned Assets. A fixed deposit can be accepted for a minimum period of 6 months and a maximum period of 60 months, whereas, a recurring deposit can be accepted for a minimum period of 12 months and a maximum period of 60 months and interest paid for such deposits shall not exceed the maximum rate of interest prescribed by the Reserve Bank for NBFCs.
The rules further provide that, every Nidhi Company shall invest in unencumbered term deposits an amount not less than 10% of its outstanding deposits with either a post office or a scheduled commercial bank.
Loan
A Nidhi Company can extend loans to only its members subject to the following limitations:
If the total deposit amount is less than Rs. 2 crores, then they can extend a loan of up to Rs. 2.0 lakhs.
If the total deposit amount is more than Rs. 2 crores but less than Rs. 20 crores, then they can extend a loan of up to Rs. 7.50 lakhs.
If the total deposit amount is more than Rs. 20 crores but less than Rs. 50 crores, then they can extend a loan of up to Rs. 12.0 lakhs.
If the total deposit amount is more than Rs. 50 crores, then they can extend a loan of up to Rs. 15 lakhs.
Such loan can be extending only against securities like immovable property, gold or silver. In case the security given is gold or silver, then the repayment period shall not exceed one year and in case the security given is immovable property, then the repayment period shall not exceed seven years. Further, the rate of interest charged on such loans shall not be in excess of 7.5% above the highest interest rate offered on deposits by that Nidhi Company and shall be on basis of the reducing balance method.
Dividend
A Nidhi Company cannot declare dividend in excess of 25% of their profits or such higher amount as approved in writing by the Regional Director provided there has been no default in repayment of any dues, the Nidhi Company has complied with all applicable laws and an amount equal to its dividend is transferred to its General Reserve.
Returns
Every Nidhi Company shall comply with the statutory filing requirements as mentioned above in part V of this article.
Branches
The rules provide that, a Nidhi Company can open branches only if has earned profits (PAT) continuously for the preceding three financial years, and that, it can open a maximum of 3 branches within the district. In the event the company proposes to open more than 3 branches with the district or outside, then it shall obtain the prior permission of the Regional Director and intimate the Registrar within 30 days of such opening. A Nidhi Company is barred from opening branches or centres beyond the territorial limits of the State in which its registered office is located.
In the event a Nidhi Company intends to close any of its branch, it shall publish an advertisement in a local newspaper at least 30 days prior to such closure and further shall intimate the Registrar within 30 days from such closure.
General Restrictions on Nidhi Company
Every Nidhi Company is barred from engaging in the business of chit fund, leasing finance, hire-purchase finance or any insurance-related businesses. They are also barred from opening current accounts for its members, acquiring any body corporate by purchase of securities or acquiring control over the management, accept deposits or lend money to persons other than its members, pledge any of the member’s assets given to them as security, enter into partnership agreements for its primary activities, issue any advertisements to solicit deposits or pay brokerage to anybody for mobilizing deposits.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
Ananaya Agrawal is first-year student at National Law University, Delhi.
Introduction
The reason why one might want to justify promise to be the basis for a contract is that too often contract law becomes vulnerable to getting reduced to a subcategory of tort law or fiduciary obligation.
The distinctive feature of contract law is that it concerns private obligations that have been voluntarily chosen/assumed by parties intending to create a legally binding promise. However, its theoretical basis is vulnerable to being recast as a special type of tortuous obligation arising when a party is placing their reliance on another’s promise of present or future conduct. Alternatively, when we consider cases for a breach of contract where the court has not only awarded expectation damages but also a part of the gains the promisor has made ex post the breach the “supracompensatory” remedy drags contract law closer to fiduciary obligations as the court has placed an obligation on the promisor to fulfill the terms of the contract for the interest of the promisee not only in terms of the benefit they were expected to receive but further on to the future gains that became possible such as the profit made by the defendant promisor owing to his breach of the contract.
As Daniel Markovits writes, “This should perhaps come as no surprise. A legal form that establishes special obligations of a sort that do not arise among strangers but equally rejects the affirmative and open-ended obligations that arise among intimates deprives itself of the most natural arguments in its favour. And this has rendered the grounds of contract uncertain, and contract itself vulnerable to encroachments from tort or fiduciary law.”
There thus arises a need to reassert contract as an independent field of law apart from tort law (to which it traces its common law origins) and fiduciary obligation (to which it has been linked due to recent court decisions). This can be done if we are able to show that contractual obligations are chosen by parties entering into a promise created out of their free will.
Reasons Entering into a promise
Promise can be understood as a tool of human beings which used for interaction, transactions and forming relationships with others in social, economic and to some extent even political spheres of our lives. In a liberal world, we are all free individuals who seek to create objects of work having value so as to live our lives fruitfully. For this purpose, we employ the common natural resources in various shapes and forms.
However, by virtue of living in a society, we also find a use for the talents, resources or company of other human beings which makes us want to engage in a form of quid pro quo with the other party. In other words, we seek to obtain something of value from the individuals around us due to which we find the need to enter into a transaction of sorts. Once another person has the capacity to provide us with something that we seek, we have an incentive to create a relationship for co-operation with that person and thus emerges the reason for creating a promise.
When a promise is made, the promisor has given the promisee a right which can be enforced against him. This right did not exist with the promisee before, thus the promisor doing or not doing what he has now promised to do or not to was previously a morally neutral choice. By his act of promising, the promisor has exercised his will as a free individual and made it a morally binding duty upon himself. Why might one create such a duty so as to restrict our future freedom?
As Charles Fried explains, “When my confidence in your assistance derives from my conviction that you will do what is right (not just what is prudent), then I trust you, and trust becomes a powerful tool for our working our mutual wills in the world. So remarkable a tool is trust that in the end, we pursue it for its own sake; we prefer doing things co-operatively when we might have relied on fear or interest or working alone.”
Therefore, it can be argued that in order to really ensure co-operation or trust among two people regarding a give-and-take, the affirmations made should be such that the other party can rely upon your statement and can direct his action accordingly. That there is some amount of surety of performance is not just in the interest of the promisee but also necessary for the promisor. If the promisee can not expect to hold you, as a promisor, to your claims, then the nature of your reciprocal arrangement will inevitably be such that neither can you have a reason to expect anything of the other party.
As we want to rely upon our promise we want there to be certainty in our transaction and hence we make a promise. Therein also emerges a moral obligation to uphold our promise because the other party is also placing a reliance on our promised conduct.
A promise is also, thus, placed a higher pedestal than a mere expression of our intentions. For example, if I tell you that I plan to grow some exotic plants in my garden and bring some to share at your housewarming party, and you thus invite me to this party for which I don’t bring the plants, can I be said to have broken a promise? The answer is no, because even though I have reason to know that you could be relying on my previous statement and my not bringing the plants will cause you harm (in terms of expectation or otherwise), I have not wronged you because I have not given you a cause for relying upon my communication. I merely stated my intention or plans for future action but did not give you any reason to direct your future actions keeping in mind our communication. An easy method to test whether my words constitute a promise is to check whether they invite another party to rely upon them. In this case I have not done so as I have only communicated my idea for the future yet at the same time I retain my choice or will to change my future of course of action. I have not granted you a right as against myself and hence have not bound my liberty to act differently in the future.
The bare reason theory
Therefore, promises are binding because when we make a promise, we are asking the other party to depend on us fulfilling our part of the deal. Our promises will have no value if it is not trusted upon. Thus, in order to maintain the effectiveness of our power to promise, which in turn encourage co-operation in achieving one’s goals and creation of relationships of dependency and trust, we must fulfil our promises.
Promise as the basis for the contract also delivers the rationale for the doctrine of promissory estoppel in contract law which is the idea that when promisee has altered their position by relying upon the promisor’s promise then they are entitled to performance even though they may not have provided consideration or have suffered detriment owing to their reliance.
The above analysis also highlights that the reason for keeping a promise is the fact that we have made a promise in the first place and not specific to the content of the promise. As has been described by Joseph Raz, “promissory reasons are content independent reasons”. He further adumbrates: “If I promise to feed your cat next week, to come to your party…or whatever the action I promise to perform (or to refrain from) the reason is the same: my promise. Of course, these are different promises. But normatively speaking, they are the same, they are all binding on me because they are promises I made, regardless of what is the act promised.”
This is a school of thought is also known as the Bare Reason Theory i.e. we have reasons to act as we promised because we have promised to act as such. A promise is itself the bare reason to uphold the promise because it’s a product of the use of a valuable normative power which enhances our life by giving us a degree of control over the same. Thus also emerges the reason for the contract as promises to be binding. As Fried too summarizes, “The moralist of duty thus posits a general obligation to keep promises, of which the obligation of the contract will only be a special case in which certain promises have attained legal as well as a moral force. But since a contract is, first of all, a promise, the contract must be kept because a promise must be kept.”
Limitations of the bare reason theory
However, this bare promise theory is not without its own gaps. A promise when made may be in our present interests but there is no guarantee that its performance will not prove to be impossible, costly or simply inconvenient for our future selves. For example, you promise to supply seven kilos of rice to a merchant in two weeks at a given price but towards the delivery date, you receive a second offer from another merchant who quotes three times the first consideration if you deliver the bags of rice on the same date to him instead. Now the rules of economic efficiency appear.
Despite having a moral obligation towards the first merchant fulfil your end of the bargain, you have an incentive to forsake the initial promise and supply the goods to the second merchant. Even if you are sued for breach of contract, you can offer to pay the damages and still get away with a neat profit. Though such an approach would be deleterious to the overall concept of promise and its social utility, there is nothing stopping you in this particular case from rescinding your promise save for the moral duty to not do so and societal censure. However, even morality and social censure are not complete bulwarks against breaking a promise.
The moral duty arises because we wish to protect ourselves from the guilt of not performing but the moment we are able to relieve ourselves of such pressures, moral duty ceases to have force. Take for instance the fact that you will be shelling out the sum of damages in order to compensate the promisee; now they will be receiving nothing less and nothing more than what they would have got had you performed your promise. So should you then be blamed for taking advantage of a better deal when your profiting thereof has not caused any uncompensated loss to the other party? Indeed, it is true that your profit might have accrued to the promisee but again, your own promise entitled him to nothing more than what you had given him reason to believe he would receive and you shouldn’t be penalized for deciding to maximize your happiness or utility but shifting to a more gainful course of action. The same calculation of utility that induced you to enter into the contract can at a later date, encourage you to breach the contract.
Similarly, if the chances of societal condemnation are reduced- say that very few people have any chance of finding out, or that the promisee is dead, or that the actual effect of the revelation shall have minimal consequences on your reputation and power to make promises- then again you have an impetus to break your promise.
Conclusion
Thus, we realize that neither moral considerations nor social criticism can provide a complete reason to uphold one’s promises. We create promises when they suit our self-interest in the best manner known to us, and when some better alternative comes along, we make the switch after weighing the costs of breach alongside its gains. Hence a promise may be a crucial stepping stone towards entering into a contract, but it is not a foolproof justification for fulfilling the contract’s terms or for enforcing the terms of the contract. Therefore, all legal systems have an additional criterion for converting a mere promise into a contract such as the intention to create legal relations, consideration, capacity to contract etc. and so despite a promise not being a comprehensive justification for upholding a contract, the promise remains the basis for the formation of a contract. Hence contract law remains an independent field of law as its raison d’être arises out the morally binding nature of promises that are made legally enforceable.
If you want to read about the Essentials of a contract Click Here
If you want to know about the Formation of contract of sale Click Here
In this blogpost, Aayushi Swaroop, student, National University of Study and Research in Law, Ranchi, writes about what is doctrine of estoppel, its types, various case laws and the different sections which have dealt with the doctrine.
Introduction
Dealt from Section 115 to 117 of the Indian Evidence Act, 1872 Doctrine of Estoppel is that provision which prohibits a person from giving false evidence by preventing them from making contradicting statements in a Court of Law. The objective of this doctrine is to avert the commission of fraud by one person against another person. This doctrine holds a person accountable for false representations made by him, either through his words or through his conduct.
Meaning of Estoppel
Section 115 of the Indian Evidence Act, 1872 incorporates the meaning of estoppel as when one person either by his act or omission, or by declaration, has made another person believe something to be true and persuaded that person to act upon it, then in no case can he or his representative deny the truth of that thing later in the suit or in the proceedings. In simple words, estoppel means one cannot contradict, deny or declare to be false the previous statement made by him in the Court.
Exempli gratia,
Simran, a leading entrepreneur, wants to buy a car. Raj is her good friend who owns a classic car of great worth. When Simran contacts Raj to help her in purchasing a car, he says that she can buy his car which he has been planning to sell for some time now. Simran buys his car. Later on, the car becomes Raj’s property. Raj takes the defense that when he sold that car to Simran, he had no title over it. The court held that Raj would be liable and will have to prove his want of title.
If Thanos is an employee of company XYZ but in court, he denies to be an employee of that company, then, later on he could not claim the salaries and emoluments from that company.
A, an agent of C, mortgaged his property to B which he was in the possession of but was not the owner. B, the mortgagee, in good faith, believing the representation to be true took the mortgage. Thereafter, he obtained a decree and the property was sold. The real owner of the property, C, claimed that it was his property and that A had no power to mortgage them. The court would stop A from making such a claim under the doctrine of estoppel.
M, a tenant in the house of N, falsely representing to Q that he had transferable rights over the property and thereafter transferring property to N, later on, cannot claim that he had no transferable interest in the property. He would be estopped from doing so under the doctrine of estoppel.
Principles of Estoppel
Conditions for application of Doctrine of Estoppel
The following conditions are to be satisfied in order to apply the doctrine of estoppel:
The representation must be made by one person to another person.
The representation made must be as to facts and not as to the law.
The representation must be made as to an existing fact.
The representation must be made in a manner which makes the other person believe that it is true.
The person to whom the representation is being made must act upon that belief.
The person to whom the representation would be made should suffer a loss by such representation.
Nature of estoppel
The legal principle of the doctrine of estoppel is viewed as a substantive rule of law, albeit, it has been described as a principle under the Indian Evidence Act, 1872.
Types of Estoppel
Estoppel by a matter of Record or Quasi-record
Alike res judicata once a court has given the judgement, the parties, their representatives, their executors, etc. all are bound by that decision. This doctrine stops the parties to a case, from raising another suit in the same matter or to dispute the facts of the case after the decision has been made by the court.
Situations where estoppel by record or quasi record arises are as follows:
Where the dispute between the parties on the facts have been decided upon by the tribunal which was entitled to take decision in the particular case, and when the same dispute arises again in the matter subsequent to the first one, between the same parties;
Where the issue raised between the parties which has been resolved by the judiciary, incidently comes again into question in the subsequent proceedings between the same party.
Where an issue raised on the facts, affecting the status of the person or thing, has been willing determined in a manner that in the final decision it be included as a substantive part of the judgment in rem of the tribunal that has been setup to decide the particular case. This should take place when the same issue comes directly in question in subsequent civil proceedings between any party whatever.
For example, if Nano has been held guilty in a murder case, then neither he, nor his representative, Mantro, nor his executor Berna, would be allowed to raise a suit again in the same matter. Parties are stopped from doing so under this doctrine.
This doctrine has been dealt in:
Section 11 to 14 of the Code of Civil Procedure, and
Section 40 to 44 of the Indian Evidence Act, 1872.
The judgements by the court can be of two types
Judgements in rem
Delivered by a competent jurisdiction, this type of judgements tells about the status of the person or a thing. For example, family court dissolving or establishing a marriage. Irrespective of whether the parties belong to the case or not, a judgement in rem is binding on all.
Judgement in personam
The judgements which are binding on the parties and their privies, and which determines the rights of the parties to a suit or the proceedings are called judgements in personam.
Judgement not falling under the said jurisdiction
In case if the judgement given by the court does not fall under the respective jurisdiction then the application of the doctrine of estoppel will have not effect. Section 44 of the indian Evidence Act, 1872 states that in case the party wants to avoid the application of the doctrine of estoppel, he/she can plead that the court delivering the judgement has no jurisdiction over the matter or that it is fraudulently doing so.
Estoppel by Deed
It is the concept where two parties enter into an agreement by way of a deed as to certain facts. This implies that neither he nor his representatives or any person claiming under him can deny the facts mentioned and agreed in the deed.
For example, Mickey Shroff decided to make his will in favor of his two sons, Lion Shroff and Wolf Shroff, and his daughter’s son Deer Shroff. Lion Shroff induced some third person to buy Deer Shroff’s share of the property. This deed was attested by Wolf Shroff who was not aware of the facts mentioned in the deed. Deer Shroff died without giving birth to a male child. Lion Shroff filed a suit to recover the property from the third party. Here Lion Shroff would be estopped but not Wolf Shroff as Wolf was not aware of the facts of the deed.
Estoppel by Pais or Estoppel by Conduct
The elucidated meaning of ‘Estoppel by Pias’ is ‘Estoppel in the Country’ or ‘Estoppel before the public’. It has been discussed in Ss. 115 to 117.
Estoppel by conduct means when a person through agreement, misrepresentation or negligence makes the other person believe in certain things upon which the other person had taken some action causing a change in their current situation, then the first person cannot deny the veracity of the statements given by him in the latter stages.
In the case of Sardar Chand Singh v. Commissioner; Burdwan Division, [1] Chang Singh, the Managing Director of Messrs., was denied any revolver license as he was accused in a gruesome murder case and other cases. When the District Magistrate issued an order that he could not hold any revolver license on the grounds of public order and safety, Chand made no appeal. This planted a reasonable belief that he has consented to it. Later on when makes an application to the District Magistrate to reconsider his case, it was denied following the doctrine of ‘Estoppel by Conduct’.
Estoppel by election
Kantabai offers his maid Meena Malhotra her second-hand car. Meena out of generosity says that she would not take it for free. Kantabai says to Meena that she has the freedom to take it as a gift or to make a payment as per her willingness. Meena has the option to either take it as a gift or claim a right over it by purchasing the car. Now, Meena makes the payment and takes the car in her possession. After a year, Meena becomes bankrupt and asks Kantabai to return the money which she had given to her as the payment for buying the car, as she now wants it as a gift.
According to the doctrine of estoppel by election the person receiving the gift or claiming the right can enjoy one of them and not both of them. So Meena cannot now go back upon it and take the other option.
In para 17 in the case of Revision v. Lekshmy Sukesini Devi,[2]the court clearly stated that: Parties should not take inconsistent pleas as it makes the conduct far from satisfactory. And also that parties should not take inconsistent stands and lengthen the proceedings unnecessarily.
In another case, the petitioner was given a land on licence and not on interest. In the terms and conditions of the contract it was stated that in case a dispute arises, the decision of the chairman would be the final one. The land was given to the petitioner to build an amusement park on it. While building the park it was found that the necessary actions have not been taken for the establishment of the park and as a result half of the land remained undeveloped, which went on to violate the conditions of the contract. In the suit filed, the court said that the doctrine of estoppel cannot be pleaded in the given circumstances.
Equitable estoppel
When a person tries to take a legal action that would conflict with his previously given statements, claims or acts, this legal principle would prohibit him from doing so. So, the plaintiff would be stopped from bringing a suit against the defendant who acted pursuant to the commands of the plaintiff.
Suppose Tetanus gives his gold jewellery to Vaccine, the most famous jeweller in the town, for repairing. Vaccine, while handing over the jewellery to Tetanus after repair informed that a mark has been made by mistake at the back of the jewellery. Tetanus didn’t mind that and took the jewellery happily with her. Later on if she brings a suit against Vaccine, she would be stopped under this principle as her suit would run counter to her earlier statement of forgiveness for the damages caused to her jewellery by mistake.
Estoppel by negligence
This principle allows one party to claim a right over the property of another party who might not be having the possession of it. This reflects that the person being estopped owes a duty to the other person whom he had led into wrong belief.
In the case of Mercantile Bank of India v/s The Central Bank of India Limited [3] a firm of merchants committed a series of fraud and until it came to the notice of the authorities, enjoyed high repute in the state of Madras. This firm was known for groundnuts-merchant and exporters. Both the plaintiff and defendant financed the consignments of ground-nuts purchased and each received a ‘railway receipt’ in respect of their consignment.
The merchants needed a loan so what they did was, at first pledged the railway receipt from the Central Bank to obtain a loan and then again fraudulently pledged it to the Mercantile Bank also. The plaintiff, the Central Bank had filed a suit for conversion of the goods against Mercantile Bank. It was held that there was no negligence as Central Bank didn’t owe a duty to the Mercantile Bank and so Central Bank was not estopped from having a prior title as ‘pledgees’.
Estoppel by Benami Transaction
Badrinath, the owner of land, decides to hand over the apparent ownership of his property to Kaju Rastogi. Badrinath does so and acknowledges that Kaju has paid him the consideration for the promise. Now, Kaju Rastogi sells this land to Tripti Sanoon, a film actress, in good faith and for a good amount of money, as by gaining ownership over the property Kaju has also gained the right of disposition over that property. Badrinath hates Tripti Sanoon and asserts his title over the property. But he would be estopped from doing so under the given legal principle. And this is what benami transaction means.
In Li Tse Shi v. Pong Tse Ching, [4]the husband died in the year 1925. His entire will was made in the name of his wife. In 1930 their son misrepresenting somebody else to be his father bought the property of his father from the same seller who had sold the land to the father. Later the grandson of the person who died, rented the land to a company and when the company stopped paying the rent and the grandson complaint, the wife or the mother claimed the title over the land as her husband had made the will in her name. But it was held that the principle of estoppel by benami transaction could be applied as she was already aware of the fraudulent selling and purchasing of land by her son.
Estoppel on a Point of law
The Doctrine of estoppel does not apply to statutes but only to the facts. Estoppel, if applied to the law would go against public policy and general welfare of the society. The principle of estoppel can never be invoked for the purpose of defeating the provisions of law.
For example, if a minor, representing himself to be a major, enters into an agreement with Mr Kanjilal for the sale of a plot of land, the agreement would be void. And nothing would stop the minor from taking the defence that the agreement was void ab initio, as it was true that at the time when he entered into the agreement he was a minor.
In Jatindra Prasad Das v. State of Orissa & Ors. [5]the High Court of Orissa laid down that estoppel cannot arise against statutes and statutory provisions. It was further said that statutory provisions cannot be disregarded in any case, not even on the grounds of precedent or previous administrative decision.
In the case of Olga Tellis & Ors. v. Bombay Municipal Corporation & Ors.[6], pavement dwellers who migrated to India, because of proximity to their place of work started living on the pavements in Bombay. Bombay Municipal Corporation (BMC) initially allowed them to stay as they constituted the major part of the population of Bombay.
Later on when the pavement dwellers were evacuated, Olga Tellis, a journalist raised questions against this action. It was upheld that no estoppel can arise against the Constitution of India or against the fundamental right, i.e. the right to life and livelihood in this case.
Estoppel and tax laws
In I.T. Commissioner v. Firm Muar [7] the court upheld that doctrine of estoppel would not hold in the case where a non-taxable income under Income-Tax Act, has been taxed. Also once it has been said that a tax would be collected then one cannot give up on it. Further, stating that the tax would not be collected would not bind the state government from collecting it, as decided in Mathura Prasad v. State of Punjab [8].
Unambiguous laws cannot be dodged
In Sales Tax Officer v. Kanhaiya Lal[9]it was formulated that the doctrine of estoppel would not arise in cases where the law clearly, without any ambiguity, states that the plaintiff should be given relief. When any law is absolute and has no exception clauses, than anybody acting against it would be acting beyond powers which would be void and the party getting affected by it can file suit claiming estoppel against it. Whereas if any exemption clause exists in the law then relaxation can be given based upon it. The party would not be said to be acting ultra vires and estoppel can be claimed as mentioned in the judgement of Delhi university v. Ashok Kumar [10].
Principles determining that there cannot be any estoppel against statute
Categories under which the doctrine of estoppel cannot be applied against the state:
By entering into bilateral agreement parties can contract himself out of the statutory provisions,
There must exist some provision in the statute which prevents the parties from entering into such types agreements which the parties would have entered into,
The provision should be such that it satisfies the interest of the public at large,
The provisions should not be such that only a particular category of people can avail its benefits, and,
Merging of the agreement between the parties into a court’s order where the parties have been discouraged from performing its obligation imposed on them by law, because of certain actions by the parties.
By saying that there can be no estoppel against the statute it is meant that where the converse of a provision mentioned in a statue exists, the party would not be estopped by his previous given statement(s).
In Jai Jai Ram v. Srimati Laxhmi Devi[11]the court gave a verdict that what appears to be a law is actually a law or not is dependent on the truth of the facts and on the situation of the parties which keeps on changing. Whether what impersonates a law is really a law or not has to be decided by the courts.
In National Oxygen Ltd., Madras v. Tamil Nadu Electricity Board[12]relying on the Schedule mentioned in the Act a new industry was given concession on tax for the next five years from the days of its commencement. The state Government of Madras under a section of the Act had the power to bring amendments to the schedules of the Act. Pursuant to this, the State government brought an amendment to the above-mentioned schedule and made it a subject to certain conditions. This was done before the completion of 5 years of that industry. The industry in his suit pleaded estoppel to which the court said that no estoppel would arise against the government.
Proprietary Estoppel
We often see promises being made and later broken. While in some cases we can do nothing about it, but in certain circumstances, particularly in matters related to land or property, there is a possibility to bring a claim to enforce a broken promise. This is called proprietary estoppel. In Thorner v. Major[13]it was laid down that in order to claim a right under proprietary estoppel these things have to be proved:
That representation has been made.
That the party believed it to be true and acted upon it.
That the party suffered a loss as a result of such representation.
In James v. James[14]Allen and Sandra had two daughters and one son. The son worked for the major part of his life with his father eventually becoming a partner. When making the will, Allen gave some land to one of his daughters which created a dispute in the family leading to the dissolution of the partnership. Later Allen distributed his property amongst the three ladies of his house, cutting down the name of his son. Son brought a case of proprietary estoppel against the women and also challenged the validity of Allen’s will. It was held that nothing has been shown or said with clarity that Aleen would transfer his entire will to him.
In Gyarsi Bai v. Dhansukh Lal, [15]it was established that in case the first two conditions are met but the third one is not and hence the doctrine of estoppel cannot be evoked.
Estoppel by Convention
In the case of the Republic of India v. India Steam Ship Company Limited, [16]it was observed that estoppel by convention arises when parties to a transaction assume the facts or the law. This assumption might be made by both the parties or either of the parties. Under this principle, parties to an agreement could not deny to the assumed facts, because if the party or parties are allowed to go back on their assumptions, it would be unfair and lead to injustice.
In a meeting between the landlord and the lesses, it was decided that the landlord would send demands at the end of the year and the receipt would be given to any one of the lessees. However, certification was not made a requirement for the recovery of the service charged under the agreement. The doctrine of estoppel by convention would apply whereby the landlord could recover the service charges which could not be challenged by the lessee as there was no certification. This was decided in the case of Clacy & Nunn v. Sanchez & Others.[17]
Estoppel by Acquiescence
When one party, through a legitimate notice, informs the other party about the facts of a claim, and the other party fails to acknowledge it, that is, neither he/she challenges it nor does refute it within a reasonable period of time. The other party now would be estopped from challenging it or making any counterclaim in the future. The other party is said to have accepted the claim though reluctantly, that is, he/she has acquiesced it.
Contractual Estoppel
Pappi Lahari from Bihar entered into a contract with Batman from Chennai whereby Pappi would supply 100 bales of cotton to Batman in exchange of 25,000 rupees. While signing the contract they agreed to the fact that in case of any dispute between them, the case would be filed in the court of in Tamil Nadu. Once agreed the parties cannot, later on, assert to change the jurisdiction in the particular case. They are bound by the principle of contractual estoppel.
This principle would apply even when the original statement made by the parties is not true.
In Peekay Intermark Ltd. v. Australia and New Zealand Banking Group Ltd. [18]it was laid down that when the parties to the contract gives consent to a fact, neither of them can deny the existence of such facts to which they have agreed, especially when considering those aspects of their relationship towards which the agreement had been directed. The contract would itself give rise to contractual estoppel.
Conflict Estoppel
When one person through his speech or conduct makes the other person believe in a particular thing and induces him to act upon it, he would be estopped from taking any conflicting or contrary or erratic position, which could cause loss to the other party.
For example, Sattu in an agreement with Kabir says that he would not roam with his girlfriend if he offers him a ride on his bike every day until his birthday. Kabir follows his instructions. Sattu after few days says that the number of rides would be two per day and only then will he not chase Kabir’s girlfriend. After 2 months he asks that the bike ride be replaced with a ride in his car. Here Sattu cannot take conflicting positions. Once there has been an agreement to offer one ride everyday on the bike, he cannot contradict that and make other demands, he would be estopped from doing so.
Issue Estoppel
Father of Neena had given words to his friend that Neena would get married only to his son, Thangabali when they become adults. When they grew up, Thangabali went for a court marriage with Neena. Just before the signing of the documents, Neena ran with her lover Rahul. Thangabali filed a case stating that Rahul has forcefully taken Neena with her and that there was an agreement whereby they were supposed to get married to each other only. But Neena confessed that her father and Thangabali were forcing this marriage on her and that she wanted to marry her childhood friend Rahul. The court said that the agreement is void and the matter was dismissed.
After 5 years it was found that Rahul has filed a suit where he claims that Thangabali has been following him and his wife everywhere taking the plea that it was because of his work. It was found that Thangabali has been meeting Neena over a period of time. This case again raises the issue of whether Neena was forced by Rahul or Thangabali for marriage. Here issue estoppel would apply and re-litigation of the said issue would be not be allowed.
Difference Between Issue Estoppel and Res Judicata
Res judicata is the final decision made by the court. It prevents the parties from relitigation the issues that were or could have been raised in the specific case.
Whereas, the issue estoppel is a legal principle which says that even if the court has made a decision the relitigation of that issue would be prohibited on a different course of action involving either of the parties from the first case.
Sl. No.
Estoppel
Res judicata
1.
Estoppel is that rule which prohibits a person from contradicting what was earlier said by him in a court of law.
Res judicata is that principle which prohibits the other courts from deciding on the same matter, between the same parties which has already been decided by a competent court.
2.
Estoppel is based upon the rule of equity which is the natural law of the land.
Res judicata has been recognized by the law as a legal procedure.
3.
The rule of estoppel looks into the aspects of equity, justice and good conscience.
Res judicata deals only with the aspect of public policy.
4.
Estoppel arises from the words or the action or conduct of the party.
Res judicata arises out of the decision taken by the court, that is the final decision of the court.
5.
Estoppel bans a person from rebutting what has been once said by him before the court.
In this case, the court is banned from hearing the cases which has already been decided by a competent court.
6.
Estoppel prevents the parties from performing certain acts which is denying to what was earlier said by him.
Res judicata prevents the court from performing certain action which is dealing with the same case which has already been decided by some other court.
7.
The principle of estoppel has been incorporated from sections, 115 to 117 of the Indian Evidence Act, 1872.
The principle of res judicata has been incorporated under section 11 of the Code of Civil procedure, 1908.
8.
Estoppel is implied through the actions or the conduct of the parties.
Based on previous decision given by a competent court, Res judicata is claimed by the parties.
Collateral Estoppel
The doctrine of collateral estoppel safeguards a criminal from being prosecuted for the same issue as raised in the earlier trial in more than one criminal trial.
In the case of Ashe v. Swenson[19] six men who were playing poker when they were robbed by three or four men. They stole one of the victim’s cars and ran away. Next morning 3 men were found near the stolen car and Ashe was found at some distance. Ashe was put to trial and was found not guilty due to lack of evidence. Weeks later he was called for trial in case of robbery against the second victim. It was held that the second trial be dismissed as the prosecution of a crime arising out of the same course of events is not permissible by the law.
Judicial Estoppel
It prevents a party from making conflicting or contradicting statements as to what was previously said in the court as this would adversely affect the court proceedings and also cause disrepute to the court. It was held in First National Bank of Jacksboro v. Lasater [20], a bankrupt person by not following the schedule and preventing from giving all the information of his property finally lead the estate to shut down due to bankruptcy. After this, he started claiming a title over the property on the ground that the trustee never took any action against it. It was held that the creditors were automatically entitled to the property and asserting title over the property in such manner is not permissible.
Legal Estoppel
It means that the assignor or the grantor, in the subject matter of assignment or grant, cannot in the latter stage deny the validity of title. In Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co.[21]the court reached a conclusion that the legal principle of estoppel by deed should apply to the patent right as well. Law clearly recognizes that assignor of the patent for novelty or utility cannot say that a patent is void.
He would be estopped by law from doing so. In such cases court is allowed to view the art or work in order to understand what that thing was which was assigned and to decipher the primary and secondary character of the assigned patent. This would also assist them in determining the extent to which the doctrine of equivalents could be invoked against the one infringing it. It is believed that the court would not make any assumptions other than that the invention presented a sufficient degree of utility and novelty which would justify the issuing of the patent assignee.
Overview
Evolution of Doctrine of estoppel
The study of the evolution of the doctrine of estoppel can be done by comparing its development in English law and Indian law.
Development in English Law
The foundation for this doctrine was first laid down in English Law, in the case of Hughes v. Metropolitan Railway Co. [22]In the particular case, Hughes leased his land to Metropolitan Railway Company to carry out repair work. The defendants were required to complete it in 6 months time period, and if it failed the lease would stand forfeited. The parties to the agreement negotiated another agreement by which the railway company was to purchase the freehold of the land.
Both the parties were under the delusion that transfer of property would take place and therefore the defendants didn’t carry out the repair work. He believed that sooner he would be having the freehold of the property and those repairs are of no use to him. But towards the end of the 6 months period, the negotiation dissolved and the plaintiff gave the notice to forfeit the lease.
The court upheld that when negotiation was initiated there was an implied promise to forfeit the lease with respect to the limited time period. The Railway company acted upon this promise which proved out to be detrimental to them. The doctrine of estoppel was thus applied and the railway company was given more time to complete the repair work.
Even after this case, the doctrine of estoppel had not gained much attention until Lord Denning delivered his judgement in the case of Central London Property Trust Ltd. v. High Trees House Ltd. [23]The defendants, High Trees, rented his flat to the plaintiff in return for a certain amount of money. Due to the outbreak of World War II this amount was reduced to half as his occupancy rate was decreasing. When the war ended the defendant continued to pay half of the amount of rent, claiming that the plaintiff had not mentioned any time period while entering into the agreement. Plaintiffs sued the defendant for payment of the full amount of rent.
Applying the principle of estoppel laid down in the case of Hughes v. Metropolitan Railway Co. [24] the court said that it was implied that the reduced rate is limited to the time till the war continues, and so the defendants are liable to pay the full rent.
Development in Indian Law
The Doctrine of estoppel in general and promissory estoppel, in particular, was recognized in India from the case of Sourujmull And Ors. v. The Ganges Manufacturing Co.[25], where the Calcutta High Court determined that this doctrine would also apply in other situations where a person can be estopped from performing certain acts or depending completely upon particular arguments or claim or contention. This implies, as laid down in the judgement, that the doctrine of estoppel is not limited to the law of evidence.
Estoppel Example
Estoppel Example Real Estate
A real estate contract is the one where purchase and sale, or exchange, or transfer of the real estate, i.e. land, building, etc. takes place between the parties. The sale and purchase of the land(s) are governed by the laws of the state to which the particular land belongs. The essential elements required to bring such contract into force is similar to that required in contracts under the Indian Contract Act, 1872.
Estoppel in a real estate contract only means that the estoppel letter issued by the association or its management company would be legally binding on the parties. Such letters would contain the dues, and other assessments and fees that the closing owner would be responsible to pay and the coming owner owes.
Exceptions to Estoppel
Following are the exceptions to the doctrine of estoppel
This doctrine does not apply when both parties have the entire knowledge of the things in their matter.
Estoppel cannot be applied against statutes and regulations. It should not come in conflict with the statutes and regulations.
It would not apply to cases where one party has exceeded his power while acting or taking a decision.
It cannot be applied against the sovereign acts or the government.
Difference between Estoppel and Promissory Estoppel
The Doctrine of promissory estoppel binds a party by his promise made to the other party, having faith in which the other party has taken an action. The party cannot make contracting or conflicting statements later on, neither he can go back on his words. In Motilal Padampat Sugar Mills v. State of Uttar Pradesh And Ors. [26]the state of Uttar Pradesh first promised to exempt the new industrial units from paying sales tax for an initial period of 3 years.
Based on this the plaintiff took a huge amount of loan to set up a new industrial unit. Later on the government made a change in its promise and said that only partial concession would be allowed to which the plaintiff agreed. But the government yet again changed the policy and this time said that no concession would be given.
The court said that the defendant made a representation to the plaintiff. Laying his trust in it, plaintiff took a large sum of money as a loan. So, now the government would have to exempt the plaintiff from paying taxes for an initial period of 3 years as per the principle of the doctrine of promissory estoppel.
Sl. No.
Estoppel
Promissory Estoppel
1.
Representation is made to an existing fact.
Representation of a future intention is made.
2.
It is supported by parties consideration.
It is supported by parties future conduct and not a consideration.
3.
Estoppel has been dealt in section 115 to 117 of the Indian Evidence Act, 1872.
There exists no provision in the Indian Evidence Act, 1872 which defines promissory estoppel.
4.
It is only available as a defence
It can be used as a cause for action to obtain damages.
5.
Estoppel has been dealt in tort law.
Promissory estoppel has been dealt in the Indian Contract Act, 1872.
Difference between Estoppel and Waiver
A waiver is the deliberate or voluntary relinquishment or abandonment of a known right or privilege. For example, an insurance company in its policy has stated that the policy would stand cancelled in case of non-payment in 30 days after the notice for the same has been given. Mr. X failed on payment and requested the company to consider his application soliciting an extension of one week. The company considers Mr. X’s application and by doing so has waived the original deadline for payment.
The difference between estoppel and waiver was explained by the Supreme Court in the case of Provash Chandra Dalui and Ors. v. Biswanath Banerjee and Ors.[27]. The court held that the most important element in case of waiver is that there must be intentional relinquishment of a known right and should be willing done by the party. Where waiver asks for an involvement of intention by the party to surrender a right, in the doctrine of estoppel the element of intention is irrelevant. And what becomes important in estoppel is that the party must suffer loss as a result of the false representation made to him. In case of estoppel it is not required that the part give up on the right, the doctrine of estoppel would anyway arise.
The Doctrine of estoppel prevents a person from denying his previous statement made in a court of law as it could cause injury or loss to the other party.
Sl. No.
Estoppel
Waiver
1.
Estoppel cannot be the cause of action although it can facilitate or aid the enforcing of a cause of action by preventing the defendant from not denying what was earlier said by him.
Since waiver is contractual, that is, it is an agreement to release somebody out of an agreement by waving the previous set policy or to assert a right. Therefore, a waiver can be a cause of action.
2.
In this, the injured party will have to prove that injury, loss or harm occurred.
No such requirement is there in the waiver.
3.
It is not necessary for the parties to know the truth or have the knowledge of the reality.
In the case of waiver the parties involved have the knowledge of the real facts and they know the truth.
4.
There might be situations where acquiescence would amount to estoppel.
In case of waiver, along with acquiescence, some act or conduct is also necessary.
5.
Parties use the doctrine of estoppel as a defence in a court of law and not as a cause of action.
Waiver can be used as a cause of action for claiming damages.
6.
Illustration:
In Dawsons Bank Limited v. Nippon Menkwa Kabushiki Kaisha, [28]the principal gave the right to his agent to make an agreement on behalf of him. While making an agreement the agent waived the principal’s right. The principal now becomes bound by the contract.
In the same case, the principal would become bound by the contract and not estoppel as the agent actually had the powers to do so, i.e. he can waive the rights of the principal, by the previous contract made between them.
No Estoppel Against Minor
Section 3 of The Maturity Act’, 1875 defines a minor to be a person who is under the age of 18 years and Section 11 of the Indian Contract Act, 1872 says that parties entering into a contract should be competent, i.e. should be a major, of sound mind and barred by no law to enter into a contract. A contract with a minor is void ab initio which means void from the very beginning.
So when a minor misrepresenting himself to a major enters into a contract, then he cannot be made liable for it, not even on the grounds of estoppel. The minor can always plead that at the time of entering into the contract he was a minor.
In the case of Ajudhia Prasad And Anr. v. Chandan Lal And Anr.[29]two minors fraudulently entered into a mortgage deed by concealing the fact that they were minor as a guardian has been appointed for them under the Wards Act. The court held that no estoppel would arise in this case.
Estoppel Cases
Provisions
There are three sections under the Indian Evidence Act, 1872 which talks about the situations where the plea of estoppel can be taken and where it cannot be taken, and they are Section 115, 116 and 117.
It defines estoppel as a principle which prohibits a person from denying what was earlier said by him in the Court. The court in Pickard v. Sears[30] said that estoppel is where:
One party by his words or actions makes a representation
The other party believing in his words acts on that
Or alters his position
then the party would not be allowed to deny the things he previously said.
In the third clause, the altering of the position should be such that going back would be unjust or unfair in the eyes of law, as established in the case of Pratima Chowdhury v. Kalpana Mukherjee. [31]
Necessary Elements of Representation
The representation made can be done in two ways:
By words
Through conduct which includes negligence
In Bhagwati Vanaspati Traders v. senior Superintendent of Post Offices, Meerut[32] the plaintiff purchased one N.S.C. for which he paid only a certain amount and not the entire amount of money. The defendant closed the account of the plaintiff and refunded the amount without any interest on the ground that it was not opened in according to the rules and regulations. On the plea of estoppel, the court said that the plaintiff himself had purchased the N.S.C. and that no misrepresentation was made to him by the defendant.
Intention to deceive
The main requirement of estoppel is to bring the person into action based on the representations made to him. It is not important that the person making the representation has the knowledge or motive behind the representation being made. It is also not necessary that the representation being made is fraudulent in nature or that it has been made under a mistake or misapprehension. [33]
Only the person to whom the representation is being made can act
The principle of estoppel would not apply to a person who got a piece of second hand information about the representation, unless the representation was intended to be made towards him or that it was a general representation where anybody could act upon it. [34]
For example, Tarak Mehta, head of a telecom company, makes an announcement that upon a recharge of 200 rupees one would get unlimited talk time for one year. Mr. Atmaram, a vendor, seeing the add started working hard and collect the required amount. Now, acting upon it got the recharge done of the said amount. After 2 months he complained that the offer has stopped on his phone. Later on, he finds that the company has terminated its earlier policy and reduced the time limit to 1.5 months. The doctrine of estoppel would apply as he had relied on the representations made to him.
Should be based on existing facts
In order to apply this doctrine, it has to be ensured that the representation made should be based upon the existing facts and must not be a representation relating to a future promise.
For example, if Donkey Pandey promises to his friend Monkey Pandey that whenever he would be making his will, he would be signing it in his name. Later on, when Donkey makes his will, not even a part of his will was in monkey’s name. Now, such promises have no legal consequences as it is a de future promise.
In Steel Authority of India Ltd. v. Union of India[35]it was held that once the party has claimed that they are contractors and not employees of the company, although they were one, they cannot, later on, change the plea and say that they are the employees of the company.
Party is required to plead estoppel
Since the doctrine of estoppel is a rule under the Indian Evidence Act, it is required that it should be pleaded. The party claiming the plea of estoppel must clearly mention in its pleading the facts which point that he had acted upon the representations made to him by the other party. In case the party does not mention this in its pleading the above said requirement, then it cannot claim the doctrine at a later stage.[36]
Representation includes representation of law
Representation includes representation of facts as well as representation of the law. Suppose, the director of a company withdrew bills on the grounds that a private law gives them the power to do so. In this case, while the statement of facts is true there has been an error in the inference of the law. The person making the representation, i.e. the director, in this case, would not be estopped from denying that the inference of the law was not correctly made. However, in the particular case, the fraudulent representation made as to the legal effect of those bills and gained some advantages out of it would be estopped from retaining the advantages gained.
Representation being made should not be debatable
The representation being made should be clear and bereft of any ambiguity. It might be that the representation has more than one interpretation but those interpretations should be such that the purpose for which the representation is being made should not be defeated, that is, the sense for which the representation contended should not be destroyed.
Acting ultra vires is not permitted
If a party through representation succeed at creating a state of things which he is otherwise barred from creating by the law then he would be stopped from acting beyond its powers. “Thus, a corporate or statutory body cannot be estopped from denying that it has entered into a contract which was ultra vires for it to make.”[37]
If the Truth is known to both the parties
If the party to whom the representation was being made somehow recognizes that it was a false representation then he would not be entitled to the claim of the doctrine of estoppel as decided in the case of Permanand v. Champa Lal.[38]
The plea of the doctrine of estoppel cannot be sought in a case where the representation has acted as a breach of duty on the part of that party who was to take advantage of such representation. If a party who was to make use of a representation conceals certain facts than the doctrine of estoppel won’t apply.
Intention
If the party making the representation-
Has the intention to act upon it in the same manner in which it was represented to be acted upon
Has made it in such a way that any reasonable, prudent person would consider it as true, and makes the other person believe that he also has to act upon it in the same manner
In that case it would not be necessary that the representation be false to the knowledge of the party who is making it.
InB. Coleman & Co. v. P.P. Das Gupta [40] it was observed that the doctrine of estoppel does not apply unless the representation being made amounts to the contract or license of the party who is making it.
The other party acted upon the representations made to him
It is an essential requirement for the claim of estoppel that the party to whom the representation was made acted upon it by having faith in it. The party must make a change in his position based on the representation made. [41]
It has to be ensured that no other party or say, some third party take advantage of representation being made to some party. For example, if A has made a false representation to B and planting his faith in it, B has acted upon the representation, then only he can claim the plea of the doctrine of estoppel. Some third party, suppose C cannot take advantage of the same.
Also, it is not sufficient that the party to whom the representation was made has acted upon it by believing it to be true, it has to be proved that the representation has influenced him and based on that influence he has altered his position.
The party making the representation can also revoke it
The party making the representation can anytime withdraw it even if it has been acted upon by the party to whom it was made. After withdrawal the party can make the same representation to some other party, acting in a manner that it has never been previously made.
Representation after alteration in position
It is important that the party to whom the representation was made had altered his position based on his belief in the representation made to him. Representation after alteration in position would not allow a party to seek the claim of estoppel.
When an agent makes a representation
Representation made by the agent who was appointed by the principal to act on behalf of him will invite the pea of estoppel and it would be as much effectual as it would have been when made by the principal himself.
Party must act
It is imperative that the party to whom the representation is being made acts upon it by having considered it to be true. The motive and knowledge of the subject on which the representation is being made may not be known to the party who is making it.
Representation by words
Cases of representation made through conduct or made negligently by the party are more common than that of those made through words or statements. In a case where the reversioner of the widow along with the widow fraudulently misrepresented that the widow was a major and competent to handle her deceased husband’s business. The plaintiff believing this to be true entered into a contract with the widow. In the suit filed, the defendant was estopped from claiming that at the time of entering into the contract, the widow was a minor.
Representation through action or conduct
Representation under estoppel means that a party through his actions or conduct has intimated the other party that his actions is true and needs to be acted upon. The act should induce the other person to perform the act which he would otherwise have not done.
In Mohammad Imdadullah v. Mt. Bishmillah [42],Mohammeden acquired a piece of land in order to construct a school. For many years he made others believe that he has been carrying out this work under the authority of some other school. When he wanted to transfer the school building for making it an orphanage, the court estopped him from doing so.
In Mahboob Sahab v. Syed Ismail [43]the son of the Muslim father attested the deed in the sale of land by his father. The son at the time of attesting the deed raised no questions although he knew that it was not in his interest. So, later on when he filed a suit, he was estopped from challenging the sale.
Who can take advantage
Under the doctrine of estoppel the party who is making the representation, to whom the representation was made or to whom it was intended to be made can seek advantage. In case the representation is general in nature then any party can take advantage.
Evidence as a rule of law
As laid down in the case of Maritime E. Co. v. General Diaries[44]that estoppel is only a rule of evidence which can bring the party to an action. It cannot give rise to a cause of action.
In Hard M.B. v. H. Electricity Supply Co. [45]the court held that since estoppel is only a rule of evidence which can be pleaded under certain circumstances, it cannot be used to discharge a party from the legal obligation to obey a law.
Case Laws [46]
Estoppel when applied to Insurance Company
In Life Insurance Corporation v. O.P. Bhalla and Ors.[47], the assured failed to pay the second installment and the policy lapsed. Later, the corporation accepted 3rd and 4th installment and also the 2nd installment with an interest. This policy ultimately came to an end with the death of the assured. The nominee of the assured claimed the insured amount from the corporation. It was found that before entering into a contract with the corporation, the assured had undergone an operation about which he didn’t inform the insurer. The court said that the assured’s act of keeping the information with him would not allow him to take the plea of estoppel. The defence that disclosing it would not have made any difference if it was not accepted.
Estoppel when applied to Educational Institutions
In Sanatan Gauda v. Bharampur University [48], the student took admission in a law college and successfully complete his two years. In his final year university objected from releasing his result of the pre and intermediate examination on the ground that he is not eligible to do so. The Student had submitted all the required documents at the time of admission and also has obtained the card for writing his final examination. The court declared that the university would be estopped from doing so, i.e. declaring the result of that student.
In Kumar Nilofar Insaf (Dr.) v. State of Madhya Pradesh[49], while taking the admission in the medical college, the college released a merit list for house-job. When the same merit list was released for the admission in the M.D. course, the plaintiff filed a suit. The court estopped the plaintiff since he had consented to the first merit list.
Estoppel when applied to tenancy
In Dataram S. Victore v. Tukaram S. Victore[50],the tenants while filling the form for an agreement clearly stated that he would be living along with his brother and his wife and it was accepted. The court dismissed the order of eviction and estopped the landlord from terminating the tenancy on the ground of lease.
Estoppel when applied to employers
In Shiv Kumar Tiwari deceased represented by L.R. v. Jagat Narain Rai and Ors. [51], the plaintiff was a lecturer in college. He was appointed on a temporary basis and was given approval on a yearly basis. After some years the college stopped giving approval to him and a new lecturer who is the defendant in the case was appointed by the education department.
The plaintiff filed a suit against the college. The civil court decided in favour of the plaintiff and said that the plaintiff was a permanent lecturer. This decision was taken in the absence of the education department and the defendant. Subsequent to this, the Deputy Director of that locality, basing his decision on the judgement of the Civil court, declared that the plaintiff was the permanent lecturer of the college.
The plaintiff’s plea of estoppel was not considered acceptable as the Deputy Director was not a party to the decision taken by the court and therefore he has no authority to make such decisions. Further, the judgement given by the civil court could be challenged under the Specific Relief Act.
In Anil Bajaj (Dr.) v. Post Graduate Institute of Medical Education and Research [52], the plaintiff was allowed to go abroad on the condition that within 2 years he will have to resume office else his service would be terminated. He did not return within 2 years and as said he was terminated from the job. The plaintiff cannot rely on the doctrine of estoppel as he was aware of the consequences that would follow.
Estoppel when applied to employees
In State of Maharashtra v. Anita [53], the court upheld that once the person has been appointed as an employee under a contract and has accepted all its terms and conditions, he would be estopped if in the later stage he challenges the term of the appointment.
Estoppel when applied to the selection board
In Central Airman Selection Board v. Surendra Kumar Das [54]the apex court laid down that if the person himself has made false representation and induced the authority to act upon it then he could not challenge it on the grounds of promissory estoppel. The authority upon finding that it has been misled can cancel the agreement.
Estoppel when applied to Development Authority
In H.V. Nirmala v. Karnataka State Financial Corporation[55],an inquiry officer was appointed with appellant’s consent. He participated in the inquiry proceeding and cross-examined a number of witnesses and still found nothing in favour of the appellant. The appellant could not question his appointment.
The section states that during the continuance of the tenancy, the tenant of the immovable property or any person claiming through such tenancy can deny to the fact that at the beginning of the tenancy it was the landlord who had the title over the immovable property. Further, the Section also explains that a person who came upon an immovable property by the license cannot deny the fact that the person from whom he got the license, that is, in whose possession the immovable property, had the title at the time when he got his license.
Tenant- landlord relationship
A relationship between a tenant and a landlord can be created either by written contract or verbal contract. The beginning of the tenancy can be marked by the taking of possession of the land, or by the payment of rent, or other circumstances.
If X leases his land to Y and Y takes the possession and starts paying the rent and later on X sales the land to Z, then Y can make his payment to Z. Here, Y and Z have formed the tenant-landlord relationship.
Scope of section 116
It is concerned with those estoppels which occurs between:
Tenant and his landlord
Licensor and licensee
Title of the landlord cannot be denied
Once a tenant enters into a relationship of landlord and tenant, receives the possession of the property and finally enters into the premise, during the period of such possession may deny to things or course of action by the landlord which is against to what was mentioned in the agreement. A tenant in no case claim that the landlord has no title over the property.
In Moti Lal v. Yar Md [56],the judge said that the tenant cannot say that the landlord has no more interest in the property when the landlord filed a suit for default payment and ejectment. It is only after leaving the possession can the holding of title by the landlord be questioned as mentioned in Suraj Bali Ram v. Dhani Ram [57].
In Sri S.K. Sharma v. Mahesh Kumar Verma [58],where defendant upon attaining a higher post was allotted a premise by the railway company. In the case, it was said that even when it was not known whether the land belonged to the railway company or not, the officer will have to evacuate the premises after retirement.
Can landlord plead estoppel
In the following situations, the landlord can plead estoppel:
When the tenancy itself stands disputed then the tenant can challenge the landlord’s title on the property. The tenant would not be estopped from doing so.
In cases where the tenancy has been moved by fraud, coercion, misrepresentation or mistake.
If no such circumstances occur than the tenants would be restricted by the doctrine of estoppel. However, the tenants are always at liberty to overturn the lease or change its status as a lessee.
The Case is similar in the licensor- licensee relationship.
In E. Parashuram v. V. Doraiswamy [59],the Bangalore Mahanagar Palike owned land which was leased to Mr. Dhanpal for the period of next 10 years. It was found that Mr. Dhanpal had decreed the land to Mr. Doraiswamy. A decree was passed in the name of Mr. Dhanpal whereby the vendors were directed to execute the reconveyance of deed in Dhanpal’s favour. Thereafter, pursuant to the orders, all the documents were to be kept in Dhanpal’s possession. Sooner it was found that the vendors were trying to claim ownership over the property. This was brought to the notice of the assignee, Mr. Doraiswamy, who filed a suit of eviction in court.
In the second instance regarding the purchasing of land by Mr. Doraiswamy, it was found that at the initial stage, the signature of Mr. Doraiswamy was also taken along with Mr. Dhanpal and when this mistake was rectified by the corporation by deleting the signature of Mr. Doraiswamy, he challenged it.
The court in the first instance upheld that the landlord could not be denied the title to the land even though certain disputes still remain unresolved with the corporation. In the second instance, the court said that no jural relationship existed and thus exceptions under Section 116 of the Indian Evidence Act cannot be pleaded.
Estoppel applied when tenancy is in existence
In Udai Pratap v. Krishna Pradhan [60],the continuance of tenancy was defined as a period during which the tenant enjoys the possession of the property and is seeking benefits from it.
The Tenant cannot deny the title to the landlord, neither at the beginning of the tenancy nor during its continuance. The Tenant would be estopped from denying the title of the landlord only when the tenancy is continuing. Once the tenancy ceases to exist, the tenant will have the right to deny title to the landlord.
For example, HUM is the tenant of land which belongs to TUM. As soon as HUM takes possession of the property, the tenancy comes into existence and continues until it comes to an end. During this TUM cannot be denied title to the property by HUM. But once the tenancy lapses, HUM will have the right to question the interest of TUM in the property.
Title at the beginning
The tenant can not deny the title to the landlord at the beginning of the tenancy. However, tenants can exercise certain powers like:
He would not be estopped from claiming that on the death of the landlord the property would be transferred or the title would be delegated to the tenant and not to some third party.
He can prove that till the day before signing the lease, the landlord had no title over it.
The tenant can prove that during the tenancy period the landlord lost his title over the property either through his acts or because he was barred by the law. [61]
Licensor- Licensee relationship
In licensor- licensee relationship the same rule operates like that in the landlord-tenant relationship. When a licensee obtains the possession through licence cannot deny the title to the licensor unless the relationship ceases to exist.
A allowed B to use the washroom in his backyard. B fraudulently made the duplicate keys of those washrooms and refused to vacate. In court A cannot in his suit for ejectment say that B holds no title over those washrooms as he was the one who gave him access to them.
Estoppel in mortgagor- mortgagee relationship
When upon the contract of mortgage, a property has been mortgaged by one person to another and the person to whom it has been mortgaged, i.e. the mortgagee, has taken possession, then the parties to the contract cannot deny the right of each other under the contract as proposed in Arjun Singh v. Mahasaband [62].
In a situation where the mortgage is about the end and payment has to be made by the mortgagee, in that period if the mortgagee claims that the mortgagor seems to have no interest in the property, he would be estopped from doing so. The rule under mortgagor-mortgagee relationship gives rise to the doctrine of estoppel only when the claims under the suit filed is based on the contract of mortgage and in cases of repudiation of the mortgage.
The section states that the acceptor of the bills of exchange cannot deny the person who is supposed to draw the bills, from drawing it or endorsing it. Also no bailee or licensee can deny the fact that at the time when the bailment and license began, the bailor and the licensor had the authority to make bailment or to give license.
The person accepting the bills of exchange can deny that the bills of exchange were really drawn by the very person who showed to have drawn it.
If the bailor mistakenly delivers the goods to some third party instead of the bailee, he can prove that a third party has the right over the goods bailed against the bailor.
Scope
This section demarcates that the person who accepts the bills of exchange although cannot deny that the person drawing the bills has the authority to draw or to endorse it but can deny that the bills were actually drawn by the person by whom it appeared to have been drawn.
The bailee or the licensor cannot deny the fact that at the beginning of bailment or grant, the bailor or the licensor had the authority to perform it. But a bailee can prove that the third party to whom the goods were delivered instead of the bailor had the right against the bailee.
Conclusion
The Doctrine of estoppel is an important principle which protects people against fraud or misrepresentation. There are several instances where an innocent person becomes a prey to false representations made to them by some party. Sometimes the case may be such that the plaintiff suffered huge losses. This doctrine avoids such situations and charges the person for his wrongful conduct.
This legal principle gives an incentive to every one of those people who tries to make false representations to other and induces them to act upon it by planting their faith in them, and incur losses as a result of such false representations, by not performing such acts, else they would be held liable.
Small and medium enterprises might be classified as such due to their smaller size, lack of scale and limited capital assets, yet interestingly enough, they form over 90% of the industry in India and employ a huge number of people (upwards of 100 million.) Studies confirm that after the agriculture industry, MSMEs are the second-highest generators of employment in terms of the sheer number of people that they bring into the workforce. Also, they generate around 30% of the GDP of our country. On the occasion of the UN MSME day conference last year, Union Minister Giriraj Singh even mentioned that there had been 4 crore jobs created by MSMEs in the span of four years, and this marks a tremendous feat for smaller establishments.
The new notification pertaining to MSMEs was published by the government on the 22nd of January, 2019 and follows a notification dated 2nd November, 2018.
What is the classification requirement of MSMEs based on a recent notification
An Amendment was introduced by the government in 2015, which was formally adopted in the year 2018.
As per the recent classification, MSMEs are now identified and segregated on the basis of their business turnover. This notification does not make any distinction between manufacturing companies and service companies. There was earlier a need to make a distinction between the nature of the firm, however, this is not the way to go now. The Act has now made a distinction between three tiers-
Micro-Enterprise
A micro-enterprise is a unit, the annual turnover of which does not cross 5 crores.
Small Enterprise
A small enterprise is a unit which has a turnover of more than 5 crores, but less than 75 crores.
Medium Enterprise
A medium enterprise is a unit which has an annual turnover of more than 75 crores, but less than 250 crores.
These amounts are subject to modification by the government, but would not be allowed to be in excess of thrice the amount that is mentioned in Section 7 of the MSME Act.
On what basis enterprises were earlier classified as MSMEs
Enterprises which fall within the purview of section 7 of the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 are considered to be MSMEs. The Act makes for segregation of companies into manufacturing or service firms respectively.
Section 7 took into account the quantum of investment in plant and machinery by either a manufacturing firm or a service firm. In the case of a manufacturing company, the applicable threshold was 10 crores as an investment, and in the case of service companies, the threshold stood at 5 crores.
What are the advantages that MSMEs are entitled to the statute
MSMEs enjoy certain definite advantages when it comes to day to day business. Firstly, as per Section 15 of the MSME Act, where a seller delivers any goods or performs any service, then the buyer is bound to pay on or before the due date of payment. This should not exceed 45 days from the date of acceptance or the deemed date of acceptance.
Section 16 provides for even more stringent measures to reward a seller. It says that where the buyer fails to make good his payment to the seller, then he will be bound to pay compound interest at three times the rate that has been prescribed by the RBI. This section makes it very difficult for a buyer to not pay on time, or to evade payment.
There are also other statutory benefits that are given to MSMEs in the form of privileges and preference in the insolvency and bankruptcy process, and also by means of benefits through easy loans and better access to finance and also subsidised interest rates on loans.
What are some of the other privileges that MSMEs enjoy, as per the law
MSMEs have a distinct advantage where it comes to tenders floated by the government. They are also entitled to waiving of electricity bills and stamp duty exemption. Banks also give loans to MSMEs without imposing any collateral requirements. Registration under the MSME Act,2006 is also beneficial in terms of speedy resolution of disputes that go up for arbitration.
What is the new notification that applies to MSMEs in India
Vide notification no. S.O. 5622 (E) of 2nd November, 2018, the Government has specified that all companies who received goods or services from an MSME and whose payments for those goods and services exceeds the stipulated time frame of 45 days ( as per Section 9 of the MSME Act) shall be required to file a half-yearly return with the Ministry of Corporate Affairs, and mention the total amount of payment which is payable and the reason for the delay in payment. This is an effort by the government to make it even easier for MSMEs to recover the money that is due to them, and also to discourage any laxity or delay in respect to payment.
What is the order that has led to the latest notification by the Government
In keeping with the powers conferred on it by Section 405 of the Companies Act, the government passed an order called the Specified Companies (Furnishing of information about the payment to micro and small enterprise suppliers) Order, 2019.
Filing Requirements
All specified companies would be required to file Form 1 in order to make declarations about whether they owe any outstanding amounts to an MSME entity. These filing requirements would have to be carried out by entities within 30 days of passing of this notification. The time period has been prescribed in order to introduce a sense of urgency in the filing process and to ensure speedy settling of accounts.
Each company which is classifiable as a “specified company” being either a private or a public company, shall file form 1 and offer an explanation as to the following –
Initial Reporting
This would imply the date of notification of this order, within a period of thirty days from the date of publication of the notification of 22 January, 2019 (by end-February i.e.)The outstanding dues which are yet to be paid to small/micro suppliers or enterprises, for over 45 days from the date of actual acceptance or the deemed date of acceptance must be mentioned by the specified company. The reason for the delay must also be mentioned. Date of deemed acceptance would be the date of acceptance of that delivery if no objection is made by the party that is to make acceptance of the goods.
Half-yearly Reporting
The Bi-annual reporting requirements have to be carried out by 31st October for the period of April to September, and by 30th April for the period October- March.
The details which need to be recorded within the form are as follows- Details of the company; Particulars relating to name of suppliers and the amount of payment due; the total amount that is outstanding as of date; Regular Return of Outstanding dues to Micro and Small enterprises; Reasons for delay in payment; Attachments if relevant; Declaration by CEO/ Director or Company Secretary.
What is the penalty that has been prescribed, for Non-Conformance
If a company is in contravention of the provisions of this notification, then every officer who is responsible for non-compliance will be liable to pay an amount of INR 25,000. Further, the officer who is found to be in default may also be imprisoned for a period of 6 months. The fine may be extended up to an amount of 3 lakhs.
Importance of the Notification
The government has taken it upon itself to ensure speedy and sure repayment to MSMEs who otherwise also enjoy statutory protections. This step by the government has been important because bigger establishments usually have more capital and resources unlike the smaller institutions, which would not survive if credit flows were negatively impacted.
Are there any risks which go beyond these provisions
The Insolvency and Bankruptcy Code, and the regime that it defines does pose a risk to the MSME entities. This is because the MSME is defined as an operational creditor, and therefore is at the bottom of the pyramid when it comes to repayment. If a company goes into liquidation under the Insolvency and Bankruptcy Code, then its dues might not be paid to an MSME supplier that it had transacted with. That is one great risk that the government still has to address.
Important Advice for Companies
Companies should go through their records and ascertain whether they have been recipients of goods and services by an MSME. Once they have established that there are unresolved payments, they should take care to complete the reporting duties and not be in contravention of the law. The ramifications of non-contravention could be financial and also result in jail-time where wilful negligence is found to exist. An oversight could, therefore, prove to result in heavy penalties.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
This article is written by Soma Mohanty of KIIT School of Law, Bhubaneswar. In this article she has mentioned about the essentials, conditions,revocation process in the guarantee contract.
Contract of Guarantee
A “contract of guarantee” in Section 126 of Indian Contract Act, 1872 is defined as a contract, in which a person promises to perform an act or discharge the liability of a third person in case of his default.
Contract of guarantee involves three parties.
Surety
Principal Debtor
Creditor
The guarantee may be in written form or oral form.
Surety
A person who gives a guarantee in a contract is called surety according to Section 126 of the Indian Contract Act, 1872.
The surety is the person who is responsible to pay when the person.
Example: “A” takes a loan from “B”, and “C” promises to pay back the amount if “A” fails to pay it on time. In this case, “C” is said to be a surety.
Principal Debtor
A person for whom the guarantee to pay back the amount on his default is given in a contract of guarantee is said to be the principal debtor according to Section 126 of the Indian Contract Act, 1872.
Example: “A” takes a loan from “B”, and “C” promises to pay back the amount if “A” fails to pay it on time. In this case, “A” is said to be the principal debtor.
Creditor
The creditor is the person to whom the guarantee is given by the surety to pay the amount back on default of the principal debtor according to Section 126 of the Indian Contract Act, 1872.
Example: “A” takes a loan from “B”, and “C” promises to pay back the amount if “A” fails to pay it on time. In this case, “B” is said to be the creditor.
Contract of Indemnity
According to Section 124 of the Indian Contract Act, 1872, when a party contracts with the other party and promises to bear the loss suffered by the other party, while executing the duty.
Example: “A” enters into a contract with “B”. “A” promises to indemnify “B” if it enters into a deal with “C”. Then “B” entered into a deal with “C” and suffered loss. In this case, “A” is liable to pay for the loss suffered by “B”.
Essentials
There should be a valid contract.
The loss should be suffered by the indemnity holder.
The loss suffered should be the consequence of the conduct of the indemnifier.
Differentiation between contract of indemnity and contract of guarantee
Contract of Indemnity
Contract of Guarantee
In this type of contract, one party promises the other party to pay for the losses suffered to him due to the conduct of the promisor or another person.
In this type of contract, one party promises the other party to be liable for the default of a third party.
Two parties are involved in this contract.
Indemnifier
Indemnity holder
Three parties are involved in this contract:
Surety
Principal debtor
Creditor
The promisor is the person who is primarily liable.
In this case, the principal debtor is primarily liable and the surety is secondarily liable.
The promisee is to be liable for loss suffered.
The promisee is to be liable in the case of default.
There is only one agreement existing between the indemnifier and indemnity holder.
There exist three agreements;
Between surety and principal debtor.
Between surety and creditor.
Between creditor and principal debtor.
Surety’s Liability
Surety’s liability is coextensive to the liability of debtors according to the Section 128 of the Indian Contract Act, 1872
Example – “B” the principal debtor is not paying back the sum of money borrowed and also the interest to “c” who is the creditor. In this case, “A” who is the surety would be liable to pay on the default of “B”.
In the above illustration, the surety has the right to recover the sum of money from the debtor.
The surety has the right to limited liability.
Example – “B” has taken a loan of amount rs 20,000 form “C”. Here “A” who is the surety, state that he would be liable on default of Rs 10,000. So in this case, “A” acted to be the surety for the limited amount as stated.
Surety’s liability towards the creditor comes to play as soon as the debtor is found in the state of default.
If the contract between the creditor and the debtor is found to be void then the surety would be considered to be primarily liable.
Example – “B” is a minor who enters into the contract. “B” took a loan of a certain amount from “C”. in this case, “A” who is the surety would be primarily liable as he has given a guarantee to the contract.
Kinds of Guarantees
There are two types of Guarantee:
Specific Guarantee
Continuing Guarantee
When a guarantee is given only for a specific/ particular transaction is called a specific guarantee.
When a guarantee is given on a series of the transaction then it is called continuing transaction.
Example
“A” guarantees the payment to be made by “B” to “C”, on the transfer of goods for july month. After the end of the july month, “C” again send goods to “B”. in this case “A” would be liable for the default by “B” incurred in the month of july only.
Example
“A” guarantees payment to “B”, for selling pens of Rs.1000 at the end of every month to “C”. so “B” started supplying pens to “C” on payment at Rs. 1000. But after somedays “B” started supplying the pens at Rs. 2000 to “C”. it was seen that “C” was not able to pay for it. In this case, “A” would be liable for the payment of Rs. 1000 as per the contract.
Revocation of Guarantee
In the case of a continuing guarantee, revocation can be made under certain circumstances.
According to Section 130 Indian Contract Act, 1872, a continuing guarantee can be revoked any time but there should be a notice given to the creditor by the surety.
Illustration: “A” guarantees payment of Rs. 10000 to “B” on purchase of coal to be made by “C”. Then “B” supplied the coal of Rs. 5000 to “C”, “A” gives a notice to “B” coal dealer not to supply coals to “B” further. In this case, A is liable for the payment of supply of coal worth Rs. 5000. But “A” won’t be liable for any further supply made after the notice of revocation.
According to Section 131 Indian Contract Act, 1872, revocation of continuing contract takes place on the death of the surety. There is no requirement of notice under these circumstances.
Discharge of a surety
Sections
Provision
Section 130
Revocation by notice.
Section 131
Revocation on surety’s death.
Section 133
A surety can be discharged when there is variation in the contract between the debtor and creditor, and he was not made aware of it.
Section 134
A surety can be discharged, when the debtor is discharged by the creditor.
Section 135
A surety can be discharged, when a debtor enters into a contract with the creditor without the consent of the surety.
When the contract is to extend the time for the debtor to pay a debt or a promise not to sue the debtor.
Section 136
A surety can be discharged, when the creditor enters into a contract to extend the time for payment of the debt by the principal debtor with a third party.
Section 137
A surety can be discharged, when the creditor fails to take any legal action on the principal debtor against the default.
Section 139
When a creditor omits to do an act, which infringes his duty towards the surety, then surety would be discharged.
Section 140
When a surety pays the default amount of the debtor, he is liable to get all the securities of the debtor that the creditor has against the debt.
Section 141
Surety has the right to get benefit from the creditor’s securities.
What is the Contract of Guaranteee?
A “contract of guarantee” in Section 126 of the Indian Contract Act, 1872 is defined as a contract, in which a person promises to perform an act or discharge the liability of a third person in case of his default.
There are three parties in Contract of Guarantee:
Surety
Principal debtor
Creditor
There are two kinds of guarantee:
Specific guarantee
Continuing guarantee
Essentials of a Contract of Guarantee
There should be an agreement between all the parties in the contract. i.e,
Between surety and principal debtor.
Between surety and creditor.
Between creditor and principal debtor.
In this, the principal debtor is primarily liable and surety is secondarily liable.
The contract made can be in written or oral form.
It should be a valid contract with free consent.
The creditor should not hide any facts that would affect the surety’s liability.
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Period of Limitation
The limitation period for enforcing a guarantee is 3 years from the date of issue of the letter of guarantee.
Rights of a Surety
Against the Creditor
According to Section 141 of the Indian Contract Act, 1872, the surety has the right over the security of the debtor, which was kept in the form of security by the creditor against the debt.
Exception: Even if the surety is not aware of the security which the creditors have kept, he would be liable to get it after the discharge of his obligation.
Against the Principal Debtor
According to Section 140 of the Indian Contract Act, 1872, when a surety discharges his obligation towards the creditor on default, then the principal debtor is liable to pay the amount back to the surety. Thus he holds the status of the creditor in this case. This is known as the right of subrogation.
According to Section 145 of the Indian Contract Act, 1872, the principal debtor promises to indemnify the surety. In this situation, the surety has the right to recover the sum of money he has paid under the guarantee.
Against co-sureties
When a surety discharges his obligation towards the creditor and pays more on behalf of co-sureties then, he would be liable for the payment of extra sum from the co-sureties.
Rights of a Surety
Surety’s liability is coextensive to that of the debtor’s liability. It means that in the case of default of the debtor, the degree of liability of the debtor towards the creditor is the same as the liability of surety towards the creditor.
Example – When “B” borrowed money from “C”, with “A” as the surety, then it was found that “B” was in default. In this case, “A” is bound to pay for the principal amount as well as the interest to be paid.
Short Notes on Continuing Guarantee
Continuing guarantee under Section 129 of the Indian Contract Act, 1872, is defined as a guarantee which is given on a series of transactions.
Illustration – “A” guarantees payment to “B”, for selling pens of Rs.1000 at the end of every month to “C”. so “B” started supplying pens to “C” on payment at Rs. 1000. But after somedays “B” started supplying the pens at Rs. 2000 to “C”. it was seen that “C” was not able to pay for it. In this case, “A” would be liable for the payment of Rs. 1000 as per the contract.
Features of continuing guarantee
The guarantee must be ancillary and subsidiary.
A contract of guarantee is not one uberrimae fidei (insurance contracts) but a contract of strictissima (strictest letter of the law).
The continuing guarantee can be revoked under certain circumstances.
Revocation of Continuing Guarantee
Revocation by Notice
According to Section 130 Indian Contract Act, 1872, a continuing guarantee can be revoked any time but there should be a notice to the creditor by the surety.
Illustration: “A” guarantees payment of Rs. 10000 to “B” on purchase of coal to be made by “C”. Then “B” supplied the coal of Rs. 5000 to “C”, “A” gives a notice to “B” coal dealer not to supply coals to “B” further. In this case, A is liable for the payment of supply of coal worth Rs. 5000. But “A” won’t be liable for any further supply made after the notice of revocation.
Death
According to Section 131 Indian Contract Act, 1872, revocation of continuing contract takes place on the death of the surety. There is no requirement of notice under these circumstances.
The Television Industry is equally important likewise all other industries who produce goods, services and strengthen our economy. Television in India is considered as important as the other basic facilities. The Television Industry gives a stable rise to Indian economy due to its place in Indian’s home as a part of entertainment, Learning, Timepass activities, gaming, cultural development through running the various cultural and religious channel, up to date about worldly matters through news and very important by various educational programs.
According to reports of FICCI, our television industry has grown-up up to Rupees Seven Hundred and forty Billion ( Rs 740 Billion) in the year 2018 which has been registered as a growth of 12 % in Indian Marketplace. In the year 2018 itself, TV viewing households have been recorded as 197 million which is a percentage increase of 8 over the year 2017. The major contributory part is Film channels as well as entertainment contents.
Legislations related to Labour engaged in Television Industry
Usually, all labour-related legislation are applicable to those who are working in the Television Industry or media sector.
But there are some key labour legislation that regulates the conditions of employment in this sector are detailed as follows:
The Working Journalist and other Newspapers Employees (Condition of Service) and Miscellaneous Provisions Act, 1955 and The Working Journalists (Condition of Services) and Miscellaneous Provision Rules, 1957
The Working Journalists and other Newspaper Employees (Condition of Service) and Miscellaneous Provisions Act, 1955 provide for the regulation of clear service conditions for working journalists and other persons those are employed in any newspaper agency or an establishment. This Act makes provisions of fixing and revising rates of salary/wages regarding journalists working in any establishment and as per this act also, the central Government shall be constituting a Wage Board as required on time to time.
The Central Government has set up a monitoring committee at a central level under the Ministry of Labour affair in order to supervise the compliances of recommendations put forward by that wage board.
Subsequent to receipt of advice of wage Board, the Central Government is required to publish an order in terms of approval and such order shall be applicable on all those newspaper establishments for whom that wage board has been recommended.
All ALCs (Assistant Labour Commissioners) of the Labour Department, in their respective districts, have been appointed as “Inspectors” for execution enforcement under this Act
Here, The Deputy Labour Commissioner has been approved for the recovery of the amount which is due to newspaper employees ( if any) under the provisions laid down as per this Act.
Thought such amount can also be recovered by issuing a certificate of the amount to the Concerned collector and for recovery of such amount as arrears of land revenue.
The penalty recommended for contravention of such provisions under this Act or any rule made thereunder shall be punishable with a fine of rupees two hundred (Rs. 200/-) which may extend to rupees five hundred (Rs. 500/- ) for repeated violation.
A Working Journalist
A working journalist is that person whose major avocation is as a journalist and who is employed either as a whole time journalist in one or more newspaper enterprises and which includes an editor, a news editor, a writer, any sub-editor, Leader or feature writer, a correspondent, a reporter, a copy tester, a cartoonist, a news photographer or any proofreader but who does not include any such person who is (i) being employed in any managerial or any administrative capacity; or (ii) is being employed in a supervisory capacity who performs either due powers vested in him or by the nature of the duties connected to his place of work or by function of a managerial nature. [Please Refer Section 2(f)]
Newspaper is any written publication work which contains news for public or contains such other categories of written periodical work or printed publication work as it can be, from time to time, can be informed or notified by the Central Government by publishing notification in the Official Gazette. (Refer Section 2(b) please)
Newspaper establishment means any such establishment which is under the control of a person or a group of persons whether it is integrated or not, for the creation or publication of newspapers which may be one or more, or for running any news agency or new association and comprises of newspaper establishments as specified under the Schedule.
Details: – For the purpose of the above-mentioned clause:
Some different units, businesses, departments and branches of newspaper establishments shall be treated as part thereof,
Any printing press shall also be considered to be a newspaper establishment if the principal business is of printing newspaper. (Refer Section 2(d )
Other key provisions under this Act are as following
The provisions of the Industrial Disputes Act shall be applied to a working journalist with some amendments. The notice period as referred in the Industrial Disputes Act related to retrenchment has been extended up to six months in the case of an editor and up to three months in case of a working journalist. ( Please refer section 3)
The Industrial Employment (Standing Orders) Act, 1946 has been made applicable to every such newspaper establishment in which there are twenty or more newspaper employees get employed. (Refer Section 14)
Gratuity shall be payable to those working journalists who have completed minimum service of three years. (Refer Section 5)
The Employees’ Provident Fund Act 1952 shall also be applicable to every such newspaper enterprise in which twenty or more than twenty persons are employed on any day of the Calendar year. (Section 15)
Working hours and weekly rest: No working journalist will be allowed to work more than one hundred and forty-four hours (144 Hours ) during any time span of four consecutive weeks, from which the time for meals shall be excluded. In a working day, the total working hours shall not exceed six hours and during the night shift, the working duration shall be Five and Half an hour ( 5½ hours ) only. All working journalist shall be given one day off as weekly rest in a week.
Above mentioned provisions shall not be applicable to news editors, editors, reporters, correspondents or the news photographers. (Section 6 of the Act and Rule 7 of the Rules)
As per the Act, a working journalist is entitled to get ten holidays (10 holidays) in a year and he is also entitled to “compensatory holiday” within a working period of next 30 days in place of his duty attending on a holiday.
A working journalist is also entitled to get Fifteen days (15 days) casual leave and one month earned leave. The earned leaves can be accumulated only up to 90 days in every year.
A female working journalist is entitled to get twenty-six weeks’ maternity leave on full wages as per the Maternity Benefit Act, 2017.
Those people who are working as non-journalists, their leaves and other service conditions in respect of those people shall be regulated as per the provisions laid in the Factories Act, 1948 and applicable state factory rules.
Other Safety measures for Women labour in the Television Industry
All women related laws are applicable to the Television Industry likewise as applicable to other industries and establishments.
The acts and rules intended for Women protection are applicable in Television Industry i.e. POSH Act [Sexual Harassment of Women at Work (Prevention, Prohibition and Redressal ) Act 2013 ], The Maternity Benefit Act, 1961 etc.
The special provisions in order to curb depiction of sex and violence in films by the censor board
The songs and trailers of all Indian films for telecasting over National Television Channels (i.e. Doordarshan TV ) are subjected to pre-censorship now.
In the Television Industry, at each Examining Committee platform now it is mandatory that 50% of the total members are women.
Health and Safety measures as per Factories Act and applicable factories rules for working women in television Industry
Training, Educational, Vocational Training and learning programs being run for the benefits of women labour in the television Industry
Maintenance of Register, Records and Muster Rolls
In relation to a newspaper establishment, Every employer shall prepare and maintain the following registers:
A Register of employees in “Form D”
Service registers in respect of all working journalists in “Form E”
A Leave register in respect of all working journalist in “Form F”
A Muster roll in “form G”
The Cine-workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 & the Cine-workers and Cinema Theatre Workers (Regulation of Employment) Rules, 1984
The objective of the Cine-workers and Cinema Theatre Workers (Regulation of Employment ) Act, 1981 is to make certain that all cine- workers are protected from exploitation and misuse. The Cine Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 make available the regulation of employment conditions of certain cine-workers as well as certain cinema theatre workers and matters related to them.
A ‘Cinema theatre’ stands for a place which is licensed under “Part III of The Cinematograph Act 1952“ and/or under any other law as applicable in a State for the exhibition of a cinematograph film for the time being.
A cine-worker is a person who is employed, directly or indirectly ( through any contractor, any other person etc ) and that person is engaged to work as an artist (including performer, actor, singer, vocalist, music player or artiste) in connection with feature film production work or that person to do any other work which may be unskilled, skilled, technical, manual, supervisory, artistic or otherwise and of whose remuneration with respect to such services is by way of monthly wages, which may as per minimum wages act as applicable to that state a and where such remuneration is paid as a lump sum amount.
A Producer, with regard to a feature film, means such a person by whom the arrangements necessary for the creation of such film (including the raising of funds/finance and employing cine -workers for the making of such films) are undertaken.
The Act forbid the employment of any cine–worker without any written agreement with the film producer or where if any cine -worker is working through a contractor or any other person, with the film- producer or such contractor or another person through which the cine – worker is working. Such agreement shall be registered with the competent authority as notified under the law by the Film – producer. The Agreement shall be in Form A as mentioned under the Rules.
Penalties
Whoever contravenes or disobey the provision laid down as per Act and Rules applicable, Shall be punishable with a fine which not less than Rupees Ten Thousand ( Rs.10,000/-) and can be extended up to Rupees Fifty Thousands (Rs.50,000/- ) as the case may be.
Child labour in the Television Industry
Child labour exploitation in Television Industry has equally been observed likewise other industries and manufacturing establishments especially the “Child Labour”.
There is no secret that in reality shows and Television serials in which children are made to participate, they get work pressure which deprives them of an ordinary childhood and simultaneously burdens them to work more and finish their schooling work at the same time. The children have no concern with publicity but work burden in this age gives a serious impact on young and tender minds. The children are the future of the nation and their childhood must be safeguarded.
In June 2017, though our Indian government introduced the Child Labour (Prohibition and Regulation) Amendment Rules, 2017 and ratified ILO’s two conventions held in the year 2017 and some special provisions are added into the Act related to child actors engaged in of audiovisual activities and entertainments, Reality Shows, big or short films, Television Serials etc.
Following are some significant compliance which is to be implemented by Media Company / Film producers before taking up child artists into any audiovisual entertainment program:
Prohibition to employ children in any occupation and process: According to Section 3 of this amended Act, children (i.e. a person who has not attained the age of 14 years, shall be prohibited from working in any occupation. Though, in order to align it with societal conditions of our nation, where children can also contribute appreciably to the family source of income by being a part of family businesses, this section exempts those helping their family or family work other than any “hazardous occupation” or processes described in the Schedule, after his schooling hours / during his vacation period, from the purview of this Act.
Working Conditions for children for media entertainment: Section 3 of this Act, also exempts children working as artist (musician, dancer, actor, singer, performer etc) in any audiovisual activity or in such industry which includes television serials, songs, dance performance, advertisement, films, or any such nature of entertainment or any sports activities apart from circus etc from the perspective of the prohibition if the approved safety measures, are complied.
According to these rules, the producers are to comply following certain conditions:
To obtain permission from District Magistrate and to furnish an undertaking in Form C of these rules to the District Magistrate before the beginning of any such activities in the district.
To submit a list of all child participants, the consent of their parents or guardian as the case may be, the name of every person from the event or production who shall be taking responsibility for the safety and security of these children during the course of work.
To arrange suitable amenities and educational facilities for children in order to ensure that there is no disconnection from his learning lessons in school,
Not to allow children to work continuously more than twenty-seven days
To make sure that all screening work of his films as well as television programs shall be made displayed with a disclaimer detailing that in case any child has been involved in the shooting, then all applicable safety measures are taken ensuring that there is no exploitation, no abuse and no neglecting of such children during the whole course of shooting,
To appoint one accountable person for every five children for the protection, care and hobbies of the children during production, event or shooting
At least 21% of income earned by the child from the shooting, production or event shall be deposited in his account as “fixed deposit” in any nationalized bank on child’s name which can be credited to that child on achieving his majority age
No child shall be made to participate in any such sport activity including any informal entertainment work or any audiovisual which is against his consent, will and approval.
Conclusion
The Labour related Acts and Rules applicable to Television Industries provide safety and protection from exploitation to “low paid artistes and technicians” and women worker and more important “child labour” who are engaged in the production of feature films in Television Industry regarding to their terms and conditions of employment, their payment of wages and provision of other amenities for them.
The provisions of “The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 “shall apply to each cinema theatre in which there are five or more than five workers are employed on any day of the preceding twelve months.
The provisions of “ The Payment of Gratuity Act 1972” shall be applicable to every worker who gets employed in a cinema theatre in which there are five or more than five workers are employed or were employed on any day of the preceding twelve months.
In case of arising of any dispute concerning to contravention or breach of the terms conditions of the written agreement, that aggrieved cine -worker can approach the Conciliation Officer for mediation purpose. The Conciliation Officer shall be investigating the disputes and all matters affecting the qualities/merits and shall endeavour right settlement and encourage both parties to come to “ A fair and amicable settlement” in order to resolve the dispute.
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Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
Government Officials are the people on the ground who execute/implement various government policies and schemes. However, there may be cases wherein some official may be found guilty of misconduct. It is imperative that a mechanism exists to investigate cases of misconduct against government officials.
It is also fair to provide systems wherein free and just investigation is done where an alleged wrong-doing has been reported against any official in line with the principle of natural justice.
Article 311 of Constitution of India provides the necessary safeguards, primarily 2 safeguards to the government officials in relation to their tenure of office,
1) An official cannot be dismissed by an authority subordinate to the appointing authority of the official. 2) An official cannot be dismissed or reduced in designation/rank, except after an inquiry which provides full opportunity for the government official to defend himself.
Disciplinary Proceedings are initiated against a government official who is alleged to have committed misconduct.
The procedure to be followed in disciplinary proceedings is provided in Service Rules and Standing Orders of the Government.
The Procedure follows as
(1) Complaint lodged against the Government Officials
The process starts when a complaint is received against a government servant. The complaint may be made by a citizen or within the department of the employee.
(2) Carrying out Preliminary Inquiry
The main objective of this inquiry is to determine whether there is a Prima Facie case against the government official. This is essentially a fact-finding exercise to rule out a frivolous or false complaint. The preliminary inquiry is conducted by the officer superior to the government official on the directions of the disciplinary authority(DA). After reviewing the preliminary inquiry Report the DA decides to hold a departmental inquiry or complaint to be dropped. It may not be necessary to hold a preliminary inquiry before initiating Proceedings; however, it is advisable if,
It will help in establishing actual wrongdoer
Principle of Natural Justice is followed
Helps clear vagueness of the complaint etc.
The inquiry should be provided in writing and be factual, should not be judgemental, it basically must point if there appears enough evidence to initiate a full-fledged proceeding or not.
(3) Show Cause Notice to Official
The show-cause notice will clearly convey the official about the misconduct reported against him/her. It is only issued if preliminary inquiry points out that prima facie there is a case of wrongdoing by the official. The Show Cause will convey what is the misconduct reported against the government official and the expectation is to solicit his/her response to the show-cause.
(4) Response against Show Cause Notice
Once the Preliminary Inquiry has held the delinquent official prima facie responsible for misconduct, he/she is required to submit his reply to the show-cause notice within the stipulated period. Failure to respond within time can lead to proceedings being initiated Ex-Parte.
(5) Serving of Charge Sheet
If the reply of the Official is considered unsatisfactory by DA, then the stage is set for a formal investigation. The first step in the regard is the serving of “Charge Sheet” to the official. The charges should be communicated in writing to the delinquent in the form of a charge sheet clearly stating the misconduct reported against him/her. It is a primarily a document containing the allegations of misconduct levelled against the employee concerned.
In a disciplinary proceeding, the charge sheet is very important. It should be framed with great care and skill. A faulty charge-sheet may annul the whole proceedings and make this exercise futile.
Important Guidelines for Filing Charge-Sheet are provided below
It must be served in a timely manner to maintain relevance.
The charge must be specific, and precise and show clearly the responsibility of the Official for the misconduct
The language of the charge -sheet should be simple and unbiassed
The charge should give full details of the incident, a copy of the Preliminary Report may also be provided
The charge-sheet should be served within a reasonable time
It should be handed over to the employee concerned and its receipt be obtained from him. In case he refuses to give a receipt, such an endorsement can be made on it, in the presence of at least two witnesses.
(6) Response to the Charge-sheet
The official must submit his written reply to the charge-sheet within the time specified, the time may be extended by the competent authority. Failure to submit his explanation would enable the authority to proceed ex-parte. The authority will not wait for the reply indeterminately.
(7) Scrutiny of Response of Official
The main decisions which will come out of the scrutiny of delinquent’s response will be:
The Official accepts the Charge and asks for mercy, no enquiry needs to be conducted and the proceedings move to impose a penalty
DA is satisfied with the response and decides to drop the charges
DA feels that minor penalty will suffice, the proceedings move to impose a penalty
DA feels that the misconduct warrants Major Penalty then a regular Departmental Enquiry will be held.
(8) Appointment of Inquiry Officer (IO) & Presenting Officer (PO)
While appointing IO & PO the following needs to be kept in mind,
Should be Senior in Rank of the Delinquent Officer
Choice of IO should be as per the nature of Offence
Any Official with purported “Bias” to be excluded.
A retired officer, board, Court etc. may be appointed Inquiry Authority
(9) Legal Assistance for Official
Following principles of natural justice, the Delinquent Official will be provided with all support to prove his innocence, which may include a Colleague or even a Retired Official.
(10) Attendance and Examination of witnesses
The Department will lead the proceedings with calling of witnesses, the Official will have Rights to cross-examine the witnesses. IO is vested with the power to summon the witnesses.
(11) Findings and Report of the IO
The findings are to be produced so that the DA can with full confidence take a decision against the Govt. Official. The report should contain-
Background of the case.
Charges against the Official
Response of Official
Appointment of IO
The evidence and witness testimonies
The response from Official
Reason for acceptance or rejection of evidence led by either party
Conclusion arrived for each charge
(12) Findings and Issuance of Show Cause Notice to Official
If the DA basis the Report finds the Official innocent the charges are dropped, and enquiry is terminated
If the DA is of the opinion the Official is guilty, he/she issues Charge-Sheet to the Official specifying the misconduct and proposed penalty.
(13) Response to the Show Cause Notice and consideration of past records
The delinquent is required to submit his reply to the Show Cause Notice within the stipulated period.
If delinquent makes a request for a personal hearing to put forward his case, it must be given to him to ensure this does have an adverse impact on a later stage.
The DA may consider the past service record of the Official while imposing a penalty.
(14) Penalty Proposed
The Penalty to given will depend upon the gravity of the misconduct.
The Rules enumerate the following two kinds of penalties: –
(a) Minor Penalties such as,
(i) Censure
(ii) Withholding of promotion
(iii) Recovery from pay
(iv) Withholding of increment of pay,
(b) Major Penalties such as
(i) Reduction to a lower designation
(ii) Delayed promotion
(iii) Compulsory retirement;
(iv) Removal from service and
(v) Dismissal from service.
(15) Final Order
After above, finally, order for imposing the penalty is passed by the disciplinary authority.
The Final Order should closely align with a judicial order and always contain,
Should be a self-contained conforming to the legal requirements.
Should be like “speaking order”, indicating clearly the points for consideration, the decisions thereon and the reasons on which the decisions are based.
The reasons should reveal links between the facts considered and the conclusions reached.
It also enables the delinquent to make his case for going in appeal or revision before a higher administrative authority or approaching the Higher Court, against the decision.
(16) Remedies against Penalties
If the government official is not satisfied with the decision of the DA, he can do the following,
(A) Constitutional Remedies
As a citizen of India is entitled to protection under the Constitution of India. Therefore, he may approach the Supreme Court under Article 32 and the High Courts under Article 226 of the Constitution of India.
(B) Administrative Remedies
(i) Appeal
The Govt. Official may prefer an appeal to the appellate authority. An appeal shall generally be preferred within a period of 45 days from the date of delivery of the order.
(ii) Revision
In case he is not satisfied even with an order of the appellate, he can file revision with the revisional authority, as prescribed by service rules.
Conclusion
The procedure for taking disciplinary action against a Government official appears to be a lengthy and detailed one. The fundamental idea is to ensure necessary rules are available to investigate cases of misconduct against officials who may not discharge their duties properly and also if charged with misconduct he is allowed redressal as per Principle of Natural Justice before being penalised.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
This article has been written by Ritika Khare, a BLS LLB graduate from Government Law College, Mumbai.
Introduction
Can different shareholders in the same company have different kind of voting rights, based on mutual consent? This has become an important question in the modern startup world, where it is believed that there can be genius founders or wizards who should be able to control the future of a company even when their shareholding is greatly diluted to raise money for growth. This is how Mark Zuckerberg retained control over Facebook even as his shareholding in Facebook reduced far below 50%.
There is no doubt it will be very popular in India, especially with promoter driven and family driven companies. But what are the rules here? Let’s jump into that.
Well known companies like Alibaba, Facebook and Google have structured their shareholding in dual category, including, Class A and Class B shares, differentiated on the basis of distinct voting rights and dividend payments, generally which provides founders, executives and family, the ability to control majority voting power with a relatively small percentage of total equity. Multiple share class issuance involves issuance of one class to the general public, while the other is offered to company founders, executives and family.
The number of companies opting for a dual-class structure is booming. Technology startups to be specific are mostly utilising the strategy of differential voting rights strategy to retain control over their assets. Google is trending example of the strategy which annoyed so many for boasting market capitalisation amongst the top worldwide, by issuing Class B shares to founders which is 10 times the amount of votes as ordinary shares class A shares sold to the public.
Dual-class shares with differential voting rights (DVRs) are used by companies to allow promoters and founders to retain management control of the company even when they don’t own a majority of the shares. In 2004, Google went public with a dual-class equity share structure in which stock held by the founders had ten votes per share, while stock held by the public had one vote per share. As a result, Google’s founders collectively held 66.2 percent of shareholders’ total voting power while holding only 31.3 percent of the total shares.
Since Google’s IPO, other companies have gone public with similar capitalisation structures. LinkedIn in 2011, followed by Facebook and Groupon in 2012, and more recently, Lyft and UBER, (and soon to go public Pinterest), have all issued shares with DVRs. The firm Alibaba chose to list in New York instead of the Hong Kong exchange principally because it was allowed to list multiple class of shares with DVRs.
In India, dual-class shares were first used by Tata Motors in 2008, but since then, only five companies have used this equity structure primarily because it was frowned upon by India’s market regulator SEBI. However, in an about-face, SEBI recently issued a White Paper in which it stated that dual-class shares were a practical way for emerging technology companies to raise critical capital without fear of loss of ownership. It proposed that firms be allowed to keep dual-class share structures with DVRs for five years after the initial public offering (IPO). In response, IndiaTech, a lobby of technology-based startups in India backed by founders of Ola and MakeMyTrip, proposed that the sunset period for which companies be allowed to keep stocks with differential voting rights be extended to 20 years.
SEBI, however, released a consultation paper on Issuance of shares with differential voting rights[1], for public comments and pursuant to the comments received as per requisite timeline, SEBI released Framework for issuance of Differential voting rights[2]. The consultation paper, however, recommends that both fractional rights (FRs) and superior rights (SRs) be allowed.
Differential Voting Rights IPOs
In foreign countries
In 2017, a total of 195 companies went public on U.S. exchanges. 23, or 19%, had dual-class structures with unequal voting rights.Last year, a total of 246 companies went public on U.S. exchanges. Out of which 15, or 11%, had dual-class structures with unequal voting rights[3].
Foreign Companies which issued dual-class shares are:
Alphabet (the parent company of Google), Berkshire Hathaway, Box, Comcast, Fitbit, Ford Motor Company (which was allowed to float dual-class shares in 1956 despite it being against American Stock Exchange rules), Groupon, LinkedIn, Netflix, UPS, Wayfair, Zynga.
In India
Tata Motors issued DVR shares in the year 2008, Pantaloons retails and Gujarat NRE Coke Limited in the year 2009, Jain irrigation systems limited in the year 2011. The DVR mechanism in India is quite unique. It is also possible to issue shares with inferior voting rights which is less than one vote per share. Both the classes of shares are listed in India, whereas precedents from the US and regulations from HK and Singapore permit listing of the ordinary shares and shares while the multiple rights, held by the founders, remain unlisted[4] (except a few cases such as Alphabet).
Impact of DVRs on the growth of company
A company may choose to issue shares with differential voting rights for obtaining investments without offering voting rights to the investor and thereby avoiding any attempts at a hostile takeover. Similarly, an investor intending to invest into a public listed company, may avoid the implications of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (Takeover Code) on acquiring a substantial portion of the voting rights in a company. The Takeover Code requires an acquirer to make an open offer to the public in the event that the acquirer intends to acquire such number shares which amount to more than 25% of the total voting rights in the company. By subscribing to a large number of shares with differential voting rights, an investor may get entitled to receiving higher returns on investment without having to undertake an open offer as mandated under the Takeover Code.
Shares with differential voting rights are favourable to private companies which do not have abundance of dispensable funds or distributable profits and are susceptible to a hostile takeover. Issuance of shares with differential voting rights affords an opportunity to such private companies to broaden their capital base without having to lose control over or management of the company.
The most imperative purpose which proves to be the biggest advantage of the issuance of DVRs is that it goes a long way in the protection of rights of the minority stakeholders. The management of company does not get diluted by the ingress of increasing number of shareholders. The management and control remain in the hands of handful of skilled members and yet the company can satisfy its ever-increasing capital requirements without much complexity. Its straightway affects the structuring of the company in a positive manner It prohibits any harmful impact in the skeleton of policies, rules and regulations which a company decides for its functioning, due to enlargement of the membership. Since, the administration and control of the company is in safe hands the chances of hostile takeovers and related threads are reduced.
DVRs if given a comprehensive glance, seems to be a perfect device for passive investors. It is an ideal investment strategy for those who want to earn more dividends without much painstaking. Sometimes the technicalities involved in the whole investment procedure is very difficult for any investor to comprehend, in such a case DVRs prove to be a boon for these credulous investors. Moreover, the holders of DVRs enjoys all other rights such as bonus shares, rights shares etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.
In the past decade, India has witnessed a tremendous surge in entrepreneurial efforts, especially in the technology space; and one of the key issues faced by founders is to raise funds for growth without diluting control. SEBI’s attempt to address this concern, by improving access to the Indian capital markets through a regulated DVR regime, is timely. However, it will be successful, only if the Companies Act requirement of a three-year track record of distributable profits is relaxed for technology / start-up companies.
Framework for issuance of differential voting rights shares
SEBI has approved the SR – Shares Framework in the backdrop of the ongoing debate on listing of Indian companies with shares having differential voting rights (DVRs) and the need for relaxing existing regulations to permit technology – based companies to access domestic capital markets with the promoter or founder of such company retaining control, akin to structures seen in the United States of America, Hong Kong, and other internationally recognized stock exchanges. In recent times, both the Hong Kong Stock Exchange and the Singapore Stock Exchange have permitted listing of companies having shares with DVRs. However, both exchanges permit only ordinary equity shares carrying one vote per share to be listed and offered to the public. Other classes of shares that carry DVRs cannot be offered to the public and must be held by shareholders as unlisted and untradeable.
A company with SR – Shares that intends to undertake an initial public offer of its ordinary shares (Issuer Company, and such initial public offer an IPO) is required to comply with certain eligibility conditions in addition to those prescribed under the existing Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR Regulations). Set forth below are the key eligibility related proposals mooted by SEBI:
(i) the Issuer Company must be a technology – based company, i.e., intensive in the use of technology, including information technology, biotechnology, nanotechnology, data analytics or intellectual property in order to provide products, services, or business platforms that create substantial value addition;
(ii) the member holding SR – Shares (SR Shareholder) should be a part of a promoter group whose collective net worth does not exceed INR 5,000 million. For the purpose of determining the collective net worth of the promoter group, the investment of the SR Shareholders in the shares of the Issuer Company are not to be considered;
(iii) the SR – Shares can be issued only to promoters or founders of the Issuer Company who hold executive position(s) in the Issuer Company;
(iv) the SR – Shares should have been held by the promoters or founders of the Issuer Company for a period of at least six months before the filing of the red herring prospectus in connection with the IPO; and
(v) the issue of SR – Shares should have been authorized by a special resolution passed at a general meeting of the shareholders.
The total voting rights exercised by SR Shareholders cannot exceed 74 per cent of the total voting share capital of the Company and no SR – Share can carry more than ten votes for every SR – Share held. Additionally, SR Shareholders will be treated at par with shareholders holding ordinary shares in all matters, except in relation to voting rights.
SR – Shares are required to be listed on the stock exchanges after the Issuer Company has completed an IPO. All SR – Shares are to be subject to lock-in restrictions after completion of the IPO until such time that the SR – Shares have been converted to ordinary shares of the Issuer Company. Inter-se transfer of the SR – Shares among the promoters of the Issuer Company is not permitted during such lock-in period, and no pledge or other encumbrance can be created on SR – Shares.
An Issuer Company is required to ensure that the audit committee constituted by its board of directors comprises only independent directors. Additionally: (a) the board of directors of such Issuer Company must consist of at least 50 per cent independent directors, and (b) other committees constituted by the board of directors must have independent directors constituting at least two thirds of its members.
After the consummation of the IPO, the voting rights of an ordinary shareholder of the Issuer Company and an SR Shareholder will be considered to be identical in the following circumstances: appointment or removal of an independent director or the statutory auditor of the Issuer Company; voluntary transfer of control of the Issuer Company by the promoter in favour of another entity; approval of related party transactions, as defined under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations), involving an SR Shareholder; voluntary winding up of the Issuer Company; approval of any changes to the memorandum of association or the article of association of the Issuer Company, other than such changes that would affect the SR – Shares; initiation of a voluntary resolution plan under the Insolvency and Bankruptcy Code, 2016; utilization of funds for purposes other than in the ordinary course of business by the Issuer Company; approval of material transactions as determined in accordance with the materiality threshold prescribed under the SEBI Listing Regulations; approval of delisting or buy-back of shares of the Issuer Company; and such other provisions as may be notified by SEBI from time to time.
SR – Shares shall stand mandatorily converted into ordinary shares on the fifth anniversary of the listing of SR – Shares, unless extended for an additional period of five years by way of a resolution passed by the shareholders of the Issuer Company. It is pertinent to note that SR Shareholders will not be permitted to vote on such resolution. The SR – Shares Framework, however, does not specify if such resolution for extension of the SR – Shares must also be a special resolution. SR – Shares automatically convert into ordinary shares upon the occurrence of certain material events including death or resignation of the SR Shareholder, or a merger or acquisition that results in the SR Shareholder relinquishing control over the Issuer Company.
POTENTIAL AMENDMENTS TO VARIOUS SEBI REGULATIONS
In order to give effect to the SR – Shares Framework, certain amendments are required to be made to the SEBI Listing Regulations, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), and Securities Contracts (Regulations) Rules, 1957 (SCRR). Accordingly, set forth below are some of the key amendments that may be expected:
Pursuant to Rule 19(2)(b) of the SCRR, companies that have multiple classes of equity shares at the time of undertaking an IPO must make an offer of each such class of equity shares to the public during the IPO. Additionally, the minimum dilution and subscription requirements prescribed under the SCRR must be met for each class of equity shares issued by the company. Considering that as per the SR – Shares Framework, SR – Shares would be listed on the stock exchanges without the requirement of being offered to the public for subscription, suitable amendments will have to be made to the SCRR.
Regulation 3 of the Takeover Regulations requires an acquirer who acquires shares or voting rights in a listed company to make an open offer and public announcement thereof, when such acquisition, taken together with shares or voting rights already held by such acquirer and persons acting in concert with the acquirer, gives the acquirer the right to exercise 25 per cent or more of the voting rights in such listed company. The conversion of SR – Shares into ordinary shares of the Issuer Company at the end of the prescribed term of five years, or upon the occurrence of certain events as highlighted above, may result in an increase in the voting rights exercisable by non-promoter shareholders (holding ordinary shares of the Issuer Company) beyond 25 per cent, triggering open offer and public announcement obligations. Accordingly, SEBI will be required to amend Regulation 10 of the Takeover Regulations to exempt non-promoter shareholders having 25 per cent or more voting rights due to the conversion of SR – Shares into ordinary shares from undertaking an open offer and a public announcement thereof under the Takeover Regulations.
Amendments to the SEBI Listing Regulations Regulation 41(3) of the SEBI Listing Regulations prohibits a listed company from issuing shares in any manner that might confer on any person superior rights in relation to voting or dividend vis-à-vis the rights attaching to equity shares that have already been listed. Accordingly, SEBI will be required to amend Regulation 41(3) of the SEBI Listing Regulations to permit listing of SR – Shares.
Demerits of DVRs worldwide including India
DVRs can be seen as downright unfair. They hand over power to a select few, who are then allowed to pass the financial risk onto others and create an inferior class of shareholders. Managers holding super-class stock can spin out of control with few constraints placed upon them. Families and senior managers, regardless of their abilities and performance, can entrench themselves into the operations of the company. Finally, dual-class structures may allow management to make bad decisions with few consequences.
Hollinger International is the best scenario of negative effects of dual-class shares. Former CEO Conrad Black controlled all of the company’s class-B shares, which gave him 30% of the equity and 73% of the voting power. He ran the company as if he were the sole owner, exacting huge management fees, consulting payments and personal dividends. Hollinger’s board of directors was filled with Black’s friends who were unlikely to forcefully oppose his authority. Holders of publicly traded shares of Hollinger had almost no power to make any decisions in terms of executive compensation, mergers and acquisitions, board construction poison pills or anything else for that matter. Hollinger’s financial and share performance suffered under Black’s control.
Proponents of dual-class shares also argue that DVRs protect new emerging companies from hostile takeovers. Founders of new technology companies feel they are vulnerable to capital-sharks and risk losing control over the firms they have founded in their search for capital. But these fears appear to be exaggerated given that there are other ways to prevent such takeovers. LinkedIn and Facebook, for example, have corporate charters with staggered boards which can only be repealed by an 80-percent shareholder vote—a difficult threshold. In staggered boards, the terms of the board of directors are staggered to prevent more than a small fraction of the board being replaced at any one time. These boards provide effective protection against hostile takeovers making use of dual-class shares redundant. Another effective strategy is the use of a “poison-pill” which involves allowing the founders to buy shares at huge discounts, or having preferred stock that is convertible to common shares should the company be threatened with a hostile takeover.
Experiences of US companies that have had dual-class structures illustrate why such structures can be detrimental to shareholders. In a capitalist system, the primary purpose of a corporation is to produce goods and services that maximise shareholder wealth. In such a system, dual-class share structures with differential voting rights result in disproportionate voting and economic rights. This results in management being unaccountable to market discipline, allowing them to divert funds to benefit themselves and indulging in unprofitable empire building and value-destroying acquisitions.
SEBI should be extremely cautious about permitting dual-class shares to be listed on the exchange. In a rapidly evolving financial economy like India, corporate governance is an area of critical importance. Sustainable businesses are essential for the country’s growth and prosperity, and the discipline and control imposed by outside shareholders on a company’s management are crucial to developing sustainable businesses.
Conclusion
The contentions for and against double class structures regularly appear to be comparative, changing just in tone contingent upon which side the declarant underpins. To an adversary of double class, the majority of the highlights that make the structure bothersome are frequently precisely the highlights that make a supporter of the structure contend that it is valuable. As one faultfinder unexpectedly remarked, “the benefit of a double class offer structure is that it ensures pioneering the board from the requests of customary investors. The impediment of a double class offer structure is that it shields innovative administration from the requests of investors[5].
Differential shares is not a new concept, neither in India or across the world. The response received even after the existence of such shares in almost all the economies is ambivalent. The reasons for such response s are manifold. Shares with lower voting rights trade at a discount in the stock market along with shares with higher voting rights. Thus, the opportunities are minimal in such shares, for increased income from capital appreciation. As a result, individual shareholders do not respond very enthusiastic, while invariably interest in control is shown by larger or institutional investors. Higher dividends are rarely sufficient compensation for the loss of control in such a situation.
Restructuring of the equity shares to one class alone is liable to criticism on the ground of excessive regulation. The freedom to adopt a convenient capital structure provides companies with the option to devise optional capitalisation strategies. Market forces step in and ensure that the company does not proceed along that path, where such strategies do not make proper business sense, as has been a case in many countries. The end result is that the structure that is best suited and most desirable for the particular needs of the corporation is achieved, thereby maximising the efficiency of the individual corporation as well as that of the economy which it operates.
Last Sunday, a 16-year-old teenager from Pennsylvania, called Kyle Giersdorf, won a video game championship, the Fortnite World Cup and received a prize money of USD 3 million.
Shocking! So much money for playing a video game!
I hate my life. I work so hard and people are paid millions to play video games. My parents raised me wrong!
Just joking.
Before you feel like that, just think for a moment why this happened. There is nothing illogical about it.
Global revenue from online gaming competitions have hit 1.1 Billion USD! There is nothing shocking about video game players winning big ticket prize money just like sports professionals in cricket or golf do. This is a new trend, and it is here to stay.
I want you to take away to very important lessons.
The first is that if you are really good at something, whatever it may be, and you put in work to become the best in the world, there are great rewards in it.
Nothing is too small.
Even if you become really good at angling, karaoke or cycling down a hill, or do t, in today’s world you have the opportunity to showcase your talent, win prizes, and become a mini celebrity.
I recently went to an event, where I was called as an influencer along with some other kids. They were all in their teens! They were TikTok and Instagram influencers. They had accumulated millions of followers each, by posting 15-45 second videos of dancing, doing make up, cooking, hairstyle, funny faces and stuff like that! And they were being paid INR 10,000 each to attend the event for an hour or two.
I wanted to see if there is a lawyer on TikTok. Then I discovered the story of a TikTok lawyer. He posts 30 second videos on legal solutions on TikTok. And he provides his phone number to call. He charges Rs. 2000 per call, and it has been working like fireworks.
Still, the majority of people are mostly going after the wisdom their parents followed. They are thinking in outdated ways that preclude them from participating in the new opportunities of a fast changing world.
So here is the second lesson for today. Please pay attention to the emerging trends, there are great opportunities in them. The future is here, and you do not even know. If you are not clued in, one day you will wake up with a shock and realise the playing video games has become equivalent of Tennis, and TikTok has killed Facebook.
Please do not think like the rest of the 14,99,999 lawyers in this country. Think how you could be different. Where are the opportunities of tomorrow arising? Can you prepare yourself to capitalize on them?
The government has 64,000 crores lying with it in the PF account because a lot of people do not know how to claim it. Is there something you can do about it? Would you be open to being the PF lawyer who ensures poor and uneducated workers get their money recovered and take a cut from it? Imagine how much money you could make if you just created an information system and a way to handle clients for such a service.
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Do you know that over 14,000 crore worth of insurance claims lapse because after insurance companies ask for documents claimants fail to provide them in our country? What kind of businesses could be built around that?
Once I started building a business around unrecovered money, and it took me 7 months to go from 0 to 8 lakhs revenue per month. I just did things differently. I reinvented the business model, and it worked like I never expected. I had to shut it down for personal reasons, one of them being that I was not in a position to handle such a fast growing business given my deteriorating health and need to move out of Delhi at the time.
Akosha did a great job with consumer cases back in 2014. They pivoted to become something bigger, leaving behind a golden opportunity, a vacuum and a blueprint of how to build a multi crore business. Nobody went after it. Till date.
This is the second lesson. There are secrets. Most of the people in the world do not bother to find out the secrets and only follow the crowd like sheep.
They are too comfortable following traditional wisdom. They do not have the courage to follow their own conviction, or to experiment, or to put their name, face and reputation in line for something new to happen.
When would we have people in the legal industry who go after the real opportunities instead of doing the business of law just how people have done for the last 10 generations?
I laugh at people who say there are no opportunities in the legal field, and it’s hard to make it as a junior lawyer. You are playing the wrong games. The older generations have an upper hand if you play their games by their rules. You will never win, unless you wait for decades.
CS was a great profession 10 years back, when there was a real shortage of CSs in the market. Not today, when everyone has 3 cousins who have done CS till various levels. But the same wisdom from 10 years back is being handed out to kids and their parents!
How about setting new rules? How about introducing technology and mediums that are going viral and the last generation have no clue about them yet? Where could you get that winning leverage? Are there waves you could ride if you position yourself right?
These influencers were complaining about how their payments are often delayed by brands, and how there is no clarity of whether TDS is 2% or 10%. They also have difficulty in managing taxes. Should they be paying GST? Most of them should set up a company or LLP, and they have no idea. They do not enter into proper contracts, and get into trouble.
Is there a lawyer amongst you who will make TikTok videos on such issues, or write blog posts and reach out to this new class of social media stars?
You could be the guy winning the 3m prize by playing a video game, but most of you are just trying to get into cricket, football or tennis till date. Waiting in the queue, as if there is no other game in town.
I get it, it’s better to win the football world cup, but what about the 3m? Not too bad, either, right? How many people would play Fortnite that seriously? Could not be as many people as those trying to get into cricket, or even badminton, I am sure.
What could be your fortnite as a professional? As a lawyer or CS?
Do respond back and share your thoughts.
You may ask me how I have implemented my own advice.
When I started blogging, it was a new trend. I started early, and managed to build a blog that has been read by 1 Cr people in last 12 months.
I decided that legal education system is broken, and that lawyers of future need courses that can teach them practical aspects of law business, save time and increase their earning potential. And that is what I have been doing since 2012.
Our courses at LawSikho are unparalleled. What we offer, no university or institute can offer. Just check our course syllabus, weekly exercises and learning objectives. And then go and ask a university or even online course provider if they can teach you those things. Also ask successful lawyers if you need to learn these things, and how learning such things will aid your career.
You will require no further convincing.
All the best! The future is here, and most people are still sleeping. Make the best of it! Be at the vanguard of the change in the legal industry.
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