I was just talking to a law student. His goal is to finish his LLB and land a nice job that at least pays INR 30,000.
How does he plan on getting it? Someone told him to do CS. Apparently, it will help him to get a job.
Doing the whole CS course to get a job that pays just 30k. FML.
As a law graduate, he can do so much better only if he learns some practical legal skills, such as contract drafting, drafting for civil and criminal cases, or even interns throughout the year in any local company or firm.
Even many LPOs will happily pay INR 30,000 or more to a law graduate who is sincere and hardworking.
If one can develop good corporate law skills and a nice CV to go with that, it is not at all difficult to land a job in a company or a law firm. What if the law student just invested the energy and money he will spend on doing the entire multi-stage CS course into learning the work a lawyer does in a law firm or a company? What if he spent time doing long term internships?
Company secretaries are hired to do compliance work. Lawyers are hired to handle contentious matters or provide very sensitive advice. Let’s just say that lawyers deal with matters which are far more high-stakes in nature.
A CS may deal with company law compliance. But a corporate lawyer is called upon when the shareholders have a dispute, or when the MCA or SEBI sends a notice, or when a multi-billion dollar deal with many moving parts needs to be structured.
The job of CS is to maintain hygiene, lawyers do surgery.
Guess who gets paid more?
There are plenty of lawyers who earn in crores. Ever hear of a CS who remains a secretary and still get to earn crores?
What kind of job will you get after you do CS? I heard that I can get a job in a company. As a CS or as a lawyer? Not sure. I want to be a corporate lawyer.
If you intend to get a job as a CS, please do that course. If you want to work in compliance, CS is one of the best courses you can do. Your LLB degree would be a nice-to-have decoration in your CV in that case.
But you will then not be working as a lawyer.
It really upsets me when law students are misguided towards studying CS because some uncle thought it will help the law student to get a job. It mostly doesn’t.
There was a time, about 10 years back, when there was a great dearth of CS professionals. Anyone who did CS could easily get a job worth 50K per month back then. Not any more!
There are a lot of CS professionals out there struggling to find a job or make ends meet. It’s not how it used to be in the 90s anymore. The uncles who know everything need to stop giving wrong information to the new generation.
It is a very long route for a lawyer to do CS to get a job in any case. Doing CS for a lawyer is taking a detour! Why CS, it is possible to get a job even if you learn baking science, but we don’t advise law students to learn baking science, do we?
A lawyer can get much better jobs by learning the skills that are relevant to the practice of law!
Take any area of law that is in high demand, and deep dive into learning relevant skills in that area of law. Do not waste time doing CS unless your goal is to become a company secretary.
Please share this information with your friends who are thinking of doing CS because it is a practical course. They will eventually thank you.
Also please refer them to check out practical legal courses from LawSikho.com
Here are some courses in which we are currently taking admission, each of which will be way more directly and immediately beneficial compared to doing CS:
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.
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“What’s a CCD?” the student asked a faculty in one of our online sessions.
His question instantly took me years back to a day I still vividly remember. We were sitting in a large third year commerce college class (yes, we did attend those classes) attending an auditing lecture by one of the professors who was a qualified chartered accountant. And he was mad at us. “T.Y. B.Com!”, he roared. “This is disgusting. Is there really no one in the class who can tell me what a GDR is?” He found it totally unacceptable that third year commerce students hadn’t read up enough to know and explain the mechanics of a Global Depository Receipt (GDR).
Even though he was addressing the class as a whole, I took his berating personally. How the hell was I not aware? Was I living in the current world?
Some families have excess money. Some families have excess food. I grew up in a family that had excess reading stuff – we had at least twice the number of magazine and book series subscriptions than the average household in that city. These were either business or general knowledge or some fictional stuff like India Today, Safari, a Gujarati magazine called Chitralekha etc. Newspapers were additional. Despite these resources, I simply wasn’t ‘read up enough’ to be able to answer the professor on that day, which made it worse.
Teachers like these shape you. They will consistently set a bar for you far higher than you have placed for yourself and then make you go for it. They make you dissatisfied. They make you hungry. Hungry enough to consume every shred of knowledge you come across and go searching for more. Hungry enough to question and challenge what you know continuously. Hungry enough to go experimenting and try out new combinations rather than sitting and anticipating outcomes.
Even till date I have this crazy curiosity and want to go exploring when my concepts are challenged. I recently had a conversation with a team member where he referred to non-convertible redeemable preference shares as ‘debt’ – never mind that it is recorded under the head ‘Share Capital’ in the balance sheet, he said. He basically challenged my fundas, which told me that ‘capital’ and ‘debt’ are never the same thing. Capital is ‘owned funds’ while debt is ‘loaned funds’. Further, Section 43 of the Companies Act, 2013 refers to preference shares as ‘preference share capital’. You are mandatorily required to create a capital redemption reserve if you want to redeem preference shares out of profits.
And yet, I saw the Zee Non-Convertible Preference Shares being traded on the debt segment in the BSE. Further, the recently issued FEMA (Debt Instruments) Regulations, 2019 treat the listed non-convertible, redeemable preference shares as debt instruments. But interestingly, listing of Non-Convertible Preference Shares is neither covered in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR) nor is it covered in the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. It has its own separate regulations called SEBI (Issue and listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013. Wow! Here’s where the same instrument is treated as capital by one law, debt by another and in the third case, the regulator has neither thought fit to bracket it as capital, nor as debt.
Interesting, isn’t it? I have been consistently intrigued by the world of securities. When someone referred to a Credit Default Swap (CDS) as a ‘weapon of mass destruction’, I wanted to know all about it. I got a chance to delve into this world in 2013 when the effects of the subprime lending crisis had fully crept over Dublin, where I was at that time. I did a course on the funds industry (Ireland is famous as a centre for fund administrators) and we had an excellent teacher. This guy dealt with hedge funds like he was telling some Hansel and Gretel story. I was hooked. I still remember waking up in the middle of the night thinking about a ‘contract for difference’.
If you sit down for a while and think how many varied areas the knowledge about securities and securities laws impacts, you’ll be stunned. Here are some:
Whenever you invest, you need to know about securities…..
Have you bothered to check out the portfolio of a mutual fund you invest in? They invest in – (you guessed it right) securities. Try www.mutualfundindia.com and you will get to see how much percentage of the fund resources are placed in which securities. The kind of securities it holds and the percentage of holding will determine the risk to which your money is subject.
Facing trouble with the registrar and share transfer agent for a company you invested in? Did your broker dupe you? Well, these are ‘intermediaries’ in a securities market. Knowing what legislation they are subject to will make you well aware of how to deal with them.
Investors would need to be aware of what rights are attached to the type of securities they hold. What are the returns from these securities and how you can exit from the investment – unless you are aware about these, keep your money safe in your pocket.
You will be taxed according to the securities you invest in….
Interest is taxed in your hands. Dividend is taxed at the point of distribution i.e. in the hands of the company distributing the dividends. Your investments in equity shares will be valued in a certain way for tax purposes and your investment in preference shares will be valued in another way. The long term capital gains for securities are determined differently than other assets. The long term capital gains of listed and unlisted securities are also determined differently from each other. If your income tax return reflects investments, you gotta be well aware of how you are taxed for these.
Wanting to make a quick buck from the stock market can get you fired from your job. And penalised.
You think you can predict how the shares of your employer company will move and make money out of it? Well, you can’t. There are securities laws broad enough to classify you as ‘insiders’. The company will definitely initiate proceedings against you and may even kick you out. If you had bet a high amount, you may even be penalised under the insider trading regulations if it seems your dealings affected the market price for others. In case you are working for intermediaries including investment banks, you may be prohibited from dealing in the securities of their clients as well.
Wanna know what other areas the amazing world of securities impacts? If you feel ‘hungry’ and want to binge on the knowledge of securities, come and join us in this course and we promise to feed your curiosities and make you long for more.
For the ones who got curious about the terms and did not take the trouble to research, a CCD is a compulsorily convertible debenture – a debt instrument which is mandatorily to be converted into equity shares of a company by its terms. A Credit Default Swap (CDS) is a derivative contract where someone agrees to compensate you in case the company to whom you had lent money (in the form of a bond) defaults in its payment to you. You have to pay a premium to the compensator. A Contract for Difference (CFD) is a contract where you bet simply on the price movement of shares or derivatives and the difference between the opening and closing prices is then settled, without any securities actually changing hands.
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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.
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This article is written by Gaurav Mitra, He is a practicing advocate in the Courts of Delhi and can be reached at gmitra12@gmail.com.
Introduction
The IBC was enacted to consolidate the laws pertaining to the reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner, so as to maximize value assets, promotion of entrepreneurship, availability of credit and balancing the interests of various stakeholders.1 After its enactment, the IBC has been subjected to several amendments as well as clarifications and interpretations of its provisions by the judiciary.
Most recently, the National Company Law Appellate Tribunal (“NCLAT”), interpreted the meaning of financial debt and the time value of money in the case of Shailesh Sangani v. Joel Cardoso and Another2(hereinafter referred to “Shailesh Sangani”), which has been discussed in this Article.
Financial Debt under the IBC
The Corporate insolvency resolution process (“CIRP”) is initiated by filing an application before the appropriate forum by, either an ‘Operational Creditor’ or a ‘Financial Creditor’ when a corporate debtor commits a default.3 As Shailesh Sangani4 deals with financial debt, it is relevant to understand not only what a ‘financial debt’ is, but also what constitutes a ‘default’ with regard to financial debt.
Section 7 of the IBC states a ‘default’ to be one which “includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.”5A ‘financial debt’ on the other hand, has been defined as6:
“Financial Debt” means debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes-
Money borrowed against the payment of interest;
Any amount raised by acceptance under any acceptance credit facility or its de-materialized equivalent;
Any amount raised pursuant to any note facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
The amount of any liability in respect of any lease or hire purchase contract which is dement as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
Receivables sold or discounted other than any receivables sold on non-recourse basis’;
Any amount raised under any transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;………”
Pertinently, the Hon’ble Supreme Court in Pioneer Urban Land and Infrastructure Limited and Another v. Union of India and Others7,while interpreting the concept of time value of money held that, a transaction does not necessarily need to culminate into money being returned to the lender or interest being paid over the money borrowed. Instead, it would include something that is equivalent to the money that has been loaned. This interpretation must be borne in mind while understanding the NCLAT’s decision in Shailesh Sangani.
InShailesh Sangani8the Appellant was a Promoter/ Shareholder/ Director of Respondent No. 2 i.e. ‘Priority Marketing Private Limited’ (“Corporate Debtor”).9 The Respondent No. 1 i.e. Joel Cardoso who claimed to be a shareholder of the Corporate Debtor filed an application under section 7 of the IBC seeking initiation of CIRP against the Corporate Debtor, on the ground that he had granted unsecured loans to the Corporate Debtor out of which a sum of Rs. 1,45,36,375/- remained due and payable.
The Corporate Debtor stated that this unsecured loan was a part of an overall settlement and it was ready to settle the cross-holding shares and loans inter- se the Respondents i.e. Joel Cardoso and the Corporate Debtor.10 It also stated that none of the loans under the quasi-partnership arrangement inter-se Respondents had any terms for repayment or interest.11
However, the NCLT Mumbai vide its order dated 31.08.2018 opined that the amount was arrived at pursuant to a mutual agreement between the parties and was reflected in the books of the Corporate Debtor under the head ‘long term borrowings’.12 Hence, the amount fell within the purview of ‘financial debt’, notwithstanding the fact no interest was payable.13
Being aggrieved by this order, the Appellant preferred an appeal before the NCLAT wherein, the Appellant contended that the amount claimed was not a ‘financial debt’ despite, admittedly, there being no consideration for the time value of money in the transaction.14 In fact, no interest was claimed by the Respondent No.1 or paid by the Corporate Debtor to Respondent No. 1, no TDS amount was deducted in respect of the payments, no tenure for the repayment of amounts was granted by Respondent No. 1 to the Corporate Debtor, and there was no time value of money in the transaction and no consideration for the time value of the money was agreed between the parties at the time of disbursement of money.15
While dismissing the appeal preferred by the Appellant, the NCLAT on 30.01.2019 held as follows16:
“the debt along with interest, if any, should have been disbursed against the consideration for the time value of money. However, the use of the expression ‘if any’ as suffix to ‘interest’ is clearly indicative of the fact that the component of interest is not a sine qua non from bringing the debt within the fold of ‘financial debt’. Hence, the amount that has been disbursed as debt against the consideration for time value of money may or may not be interest bearing. What is material is that the disbursement of debt should be against consideration for the time value of money. Clauses (a) to (i) of Section 5(8) embody the nature of transactions which are included in the definition of ‘financial debt’. It includes money borrowed against the payment of interest. Clause (f) of Section 5(8) specifically deals with amount raised under any other transaction having the commercial effect of a borrowing which also includes a forward sale or purchase agreement. It is manifestly clear that money advanced by a Promoter, Director or a Shareholder of the Corporate Debtor as a stakeholder to improve financial health of the Company and boost its economic prospects, would have the commercial effect of borrowing on the part of Corporate Debtor notwithstanding the fact that no provision is made for interest thereon. Due to fluctuations in market and the risks to which it is exposed, a Company may at times feel the heat of resource crunch and the stakeholders like Promoter, Director or a Shareholder may, in order to protect their legitimate interests be called upon to respond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long term borrowings. Once it is so, it cannot be said that the debt has not been disbursed against the consideration for the time value of the money. The interests of such stakeholders cannot be said to be in conflict with the interests of the Company. Enhancement of assets, increase in production and the growth in profits, share value or equity enures to the benefit of such stakeholders and that is the time value of the money constituting the consideration for disbursement of such amount raised as debt with obligation on the part of Company to discharge the same. Viewed thus, it can be said without any amount of contradiction that in such cases the amount taken by the Company is in the nature of a ‘financial debt’”.
Conclusion
A perusal of the definition of ‘financial debt’ would indicate that it is a debt along with interest, if any, which is disbursed against the consideration for the time value of money. As is abundantly clear from the provision itself, the definition is inclusive in nature. However, what is interesting to see is that the NCLAT through this judgment has given it a wider interpretation by stating that even stakeholders/shareholders of a company who have lent it money, without interalia any interest component or deduction of TDS, would still be considered as consideration for the time value of money. The NCLAT by this interpretation therefore, lays emphasis on the fact that receiving dividends, share values, enhancement of assets or profits or equity against the money lent, would also constitute a consideration for the time value of money. It is pertinent to highlight that such an interpretation has not been directly envisaged under the IBC and is hence, a way forward in the evolution of the IBC.
Endnotes
The Insolvency and Bankruptcy Code, 2016 at Page 1(“Hereinafter referred to as the “IBC”).
2019 SCC Online NCLAT 52
Section 6 of the IBC
Supra note iii
Explanation to Section 7 of the IBC
Section 5 (8) of the IBC
(2019) 8 SCC 416
Supra note iii
Id.
Id.
Id.
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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.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:
Sometimes, I discourage my students from interning with lawyers or law firms. Why?
I am a big advocate of internships as a very important way for law students to get very important training that helps them to hit the road running when they graduate. I suggest that a law student should intern as often as possible and try to spend longer durations at a single internship so that they are taken seriously and given more work.
However, I have noticed a disturbing trend.
Many lawyers who take interns do not give much work to their interns.
Interns are mostly given proofreading or case law research work. Some of them just follow around the lawyers in the court or sit in a corner and read old files.
While there is scope for learning from such activities too, but that rarely leads to superior skill development that truly prepares a law student for the jobs they desire.
I do not want my students to do mere proofreading and case law research during an internship. There could be a better use of that time.
After all, the opportunities to intern are special, and you need to look at them as an opportunity to not only learn, but perform in a way that your employer soon realizes that you are doing as much as an associate is expected to do, so hiring you would be a no-brainer.
If they do not have a vacancy to hire you, they should want to create one because they do not want to let go of you. Or at the least, they should refer you to their friends, not as a favor to you, but as a favor to those friends!
What could you do to earn such skills and reputation?
Read that again.
We believe that as a law student your goal should be to learn as much as a lawyer who completed 1 or 2 years of working at the job that you are seeking to bag. This ensures that you easily get the jobs that you are aiming for.
Being ahead of the curve helps.
It sounds difficult, doesn’t it?
The bar I am setting is definitely higher than what you will hear anywhere else, but this is exactly what we follow, and believe can change the way you look at your education and career planning.
This approach does not only ensure that you get a job, but that you do very well in that job.
It is an open secret that close to 50% of law graduates, even from top NLUs, who join big law firms from campus recruitment, end up leaving those coveted well-paid jobs within a few months. Many have to be gently encouraged to leave.
Yes, people who leave often cite the infamous stress of law firm jobs, but where does that stress come from?
If you do not know the work you have to do, and if you are thrown into the deep end of the pool to see if you swim or sink, stress and failure, in a large number of cases, are inevitable.
Even those who succeed and survive, could have done much better, and avoided a lot of pain, had they followed my approach, of not merely training yourself to crack an interview or bag a job, but train yourself to do the job you will eventually be doing when you get that job!
While the situation of A0 associates in big law firms is open for everyone to see, due to the prominence of the situation, it is not so different in other places.
The problem of low wages given to law graduates by lawyers is continuing to a large extent because law students are not learning how to do the job. They expect to be taught after they are already hired to do the job.
The majority will continue to do so. Let them.
What if you changed your mindset, and decided that you want to learn the work that lawyers are actually asked to do for clients?
What if you could learn how to draft and negotiate agreements?
What if you had practiced doing mock due diligence on imaginary data rooms and practiced drafting due diligence reports?
What if you could learn to do each of the compliances for a simulation acquisition deal?
What if you had to prepare a written statement or injunction applications for imaginary cases, or go through an entire mock arbitration, where you had to do each of the things that an arbitration lawyer would have to do in a real arbitration?
What if you had to draft replies to imaginary legal notices or write a memo for an imaginary board of directors?
What if you learned one or two such skills every week till the day you graduate?
I would think that these things should be happening in law colleges already, but in reality that does not happen.
Last year, KIIT Law School hired us to train their graduating batch to draft contracts. After they drafted 20 contracts back to back and got feedback on their drafting, they had a very different level of confidence, not just because they knew how to deal a few different types of commercial contracts, but they had begun to think strategically about the clauses they drafted.
However, such training programs are very rare. What is most common is rote learning of some sections and case laws, or most likely some class notes so you can write a few answers in the exam and finally get your degree after doing time in law college.
Therefore, if you want to learn the work the way I am suggesting, you are on your own. You have to learn it on your own dime and on your own time.
There are two ways to learn.
One is to find a lawyer who knows the work and is willing to spare the time to teach you. One of my friends practice tax law, and her dad showed her the ropes personally, and gave opportunities to appear in cases she would not have got to argue before many years of trawling court corridors if she worked for another lawyer.
The other is to take a practical training course like one from LawSikho. To supplement the simulated learning environment we provide you, I am pushing the students who take our courses to go and work with startups which have a single person legal team or no legal team at all.
These startups can’t afford lawyers in most cases and they are happy to take legal interns. They will let you take a shot at drafting, compliance and creating company policies. The way they see: a rookie legal intern is better than a good lawyer they cannot hire at all!
If they have just one lawyer in the team, even better. That lawyer will give you real work and push you to do it, rather than just asking you to fix formatting errors and proofread documents. This is simply because he has a lot to do and no resources.
Startups are almost always hard-pressed for resources, and who wants to intern in startups with no legal team? It is very counter-intuitive. These internships are very easy to get and very very productive.
This situation on its own may not have been that good for you, but if you have been doing a suitable course with LawSikho, you by now know a bunch of skills that you can go and implement in such places.
You can suggest to your reporting manager that you want to implement certain new policies or create standard form contracts for future use. You can review past contracts, or provide inputs on the contracts they are going to sign. Only if you knew how many contracts startups sign without ever running them by any lawyer at all, you will realize what a golden opportunity it is.
When I was a law student, I routinely worked on such contracts and even earned from the same.
You can find a way to handle the consumer cases they are facing in some creative way. You could identify major legal risks to the business model and draw the attention of the leadership of the company to the same while suggesting some solutions as well.
What’s best, you are helping real businesses with legal solutions and learning a lot about how business folks think about legal work. You learn what are their problems like only an insider knows. You even build a network with such entrepreneurs and managers which will last a lifetime.
These are invaluable transferable skills that you will be able to use if you work in a law firm or in-house legal team. These skills are amazing when you are trying to get your own clients. The network you build will even help you to find jobs or clients in the future because they will see you as a part of the startup ecosystem, one of their own rather than just another lawyer.
Plus, startups grow and need lawyers quite soon. If not this one, someone else will.
You can infiltrate the tribe of entrepreneurs that way.
Yes, I did this myself when I was a law student, with some crazy amazing results. The experience was far more valuable, though I managed to earn a fair sum too, which supported a student like me who had many financial difficulties otherwise and could not count on my parents for financing my dreams and goals.
Should you focus on earning? Not at all unless you are hard-pressed for money. At this stage, start by offering to work for free, preferably after college hours every day.
My students have been doing this, and have produced spectacular results. It does not matter if you are from the worst college in the country and if you have never mooted in your life. You certainly need not spend 5 years doing CS. By doing what I am suggesting you here, you can surpass all those who have the best CVs, because things written on paper are never as valuable as lessons learned from real battles won and lost.
Want to know more about how we can help you in your career journey? Reply to this mail and we will schedule a call with you.
All the best.
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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.
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This article is written by Arunima Sharma, a 3rd year law student from School of Law, Christ University, Bengaluru pursuing her degree in BA LLB. The article elaborates on the alcohol laws in the city of Mumbai in situations where a licence applicant wants to sell liquor.
Introduction
A liquor licence is a permit given to allow the trade of alcoholic beverages in each state by the state government. Every state has different regulations regarding granting the same but each involves a thorough examination of the details of the licence applicant. But as of 2019, Maharashtra is the only state that requires liquor licence for possession, consumption, or transportation alcoholic beverages.
In Mumbai, granting of licence is governed by Bombay Prohibition Act 1949 which governs possessing, consuming, purchase and transport of liquor. To get this licence, the holder must be 25 years of age or more.
Such liquor licence is issued under the Bombay Foreign Liquor Rules 1953. Rule No. 24, 44, 47 as well as the Special permit rules govern the process of licencing.
Classification
A licence may be an on-licence which allows the consumers in a bar or a restaurant to sit and consume alcohol but in the case of a permit to sell alcoholic beverages, an off-licence is required.
A broad classification of types of licence is in two parts- Wholesale and Retail- these two are differentiated, essentially, on the basis of the form in which the licence is given.
Wholesale
A license in Form C.I.W II, which permits a licence holder to sell duty paid country liquor in wholesale, is a wholesale licence.
Examples of wholesale licences are as follows:
Trade and Import Licence for removal of custom in case of Wine.
Licence for trade and wholesale of duty paid country liquor to the retail stores.
“(1) The State Government may, by rules or an order in writing, authorise an officer to grant a vendor’s licence for the sale of foreign liquor.
(2) A vendor’s licence shall be granted on the following conditions:
(i) the stock of foreign liquor with the licensee (except what is permitted for the disposal in the shop) shall be kept by him at [godown] approved by Government.
[* * *]
(iii) the licensee shall pay all rent, costs, charges and expenses incidental to warehousing and supervision;
(iv) the licensee may sell any part of the stock of foreign liquor to foreign liquor licensees or to chemists, canteens, messes and clubs, holding licences in the State, or to any persons outside the State, subject to such conditions as the Commissioner may impose;
(v) the licensee shall be permitted to sell foreign liquor only to holders of permits of authorizations;
(vi) the licensee shall be entitled to keep in his shop such quantity liquor as may be required by him from time to time for retail sale;
(vii) the licensee shall keep accounts and shall dispose of foreign liquor according to such instructions as may be given by the Commissioner, or any officer authorized in this behalf by the commissioner.”
Section 34 is the provision for the state government to grant a vendor’s licence for the purpose of sale of foreign liquor. Subsection 2 of this section states the prerequisite / the conditions required to be fulfilled for granting the licence. They are as follows:
The stock to be sold is in a government approved godown.
The licence to be acquired should pay for expenses related to this godown.
The licensee may sell a part of his stock to any person holding a licence in the state or outside the state as per the conditions laid down by the commissioner.
The sale shall be permitted only to holders of permits/authorizations.
Licensee is allowed to keep a particular quantity of liquor as required for retail sale.
The instructions of the commissioner regarding accounts and disposing off liquor should be followed.
“(1) The State Government may, by rules or an order in writing, authorize an officer to grant licences to the managers of hotels to sell foreign liquor to the holders of permits granted under this Act: Provided that the State Government is satisfied that such hotel has ordinarily a sufficient number of boarders eligible to hold permits.
(2) Such licences shall be issued on the following conditions:
(i) liquor shall be sold to the permit holders residing or boarding at the hotel,
(ii) Consumption of liquor sold shall not be allowed in any of the rooms of the hotel to which any member of the public has access,
(iii) The holders of hotel licences shall pay the expenses of any officer of the excise establishment, if any, required for grant and control of permits on the premises or for the supervision over the issue and consumption of foreign liquor in the hotel.”
Section 35 provides the provision to give licence to hotel owners to allow the sale of liquor to the holders of drinking permit. The primary condition under section 35(1) is that the state government should be satisfied that the hotel has sufficient number of boarders to hold the permit.
Subsection 2 lays down certain other conditions which are as follows:
The liquor should only be sold to permit holders.
Liquor consumption will not be allowed in public roms.
All expenses paid to any officer of an excise establishment are to be paid by the holder of hotel licence.
Documents required for obtaining a licence
The documents required to obtain a liquor licence are as follows:
An application that is addressed to the Excise & Taxation Officer as required.
A treasury receipt of Rs. 2000 (for lifetime permits) and a treasury receipt of Rs. 200 (for one year permit) has to be deposited under the head 039-State Excise.
Age Proof.
Address Proof.
Aadhaar Card.
Licencing processing
The licencing process for application of a liquor licence involves the following steps:
Obtain a Court Stamp
The applicant needs a stamp for Rs. 10 from any court or the town house.
Go to the Permit issuing office
The permit issuing office in Mumbai is the Collector’s office or also known as the Old Customs House. This office is located at Fort area, South Mumbai. Permit can also be issued at the regional offices in Malad West, Andheri, Bandra and Chembur.
Application form
At the issuing authority, the applicant has to collect an application form which will be available free of cost. This form has to be filled with the applicant’s correct details. These details include the following specifications:
Name of the Applicant
Date of Birth
Occupation
Age (Must be above 25 years of age)
Residential address of the applicant
Affixation of the stamp
The court fee stamp of Rs. 10 must be fixed on the application form after entering all the details.
Submission of form
The applicant now has to submit the application form filled with all the details along with the required documents as mentioned above, i.e., Photographs of the applicant, age proof, address proof and Aadhar card.
Payment of Fees
Lastly, the required prescribed fees must be paid along with the application from to initiate the process of grant of licence.
Digitalisation of licencing process
The state excise department has launched a portal- exciseservices.mahaonline.gov.in for granting of liquor licence. The required task is to key in your Aadhar card number online. A digital licence is granted soon after. The portal also allows you to check the status of a pending application.
A person applying for the liquor licence must be 25 years or above.
The following are the types of licence granted through the online portal but an applicant can apply for only one permit in a day:
Drinking Permit
One Day Permit.
Annual Permit.
Lifetime Permit.
Other Permits
Temporary licence- for hosting a function.
Licence for owning a functional brewery.
For Manufacturing wine, portable liquor and country liquor.
Possession, sale and import of molasses.
Licence is also required to manufacture medical and toilet preparations containing Alcohol, opium and other narcotic drugs.
Renewal of licence
The license granted to the liquor stores as an off-licence to distribute liquor as well as the on-licence where consumption is allowed on premises is valid only for a period of one year after which the licence holder may apply for renewal of the licence.
Certain documents required during renewal of any licence are as follows
Application in the prescribed form.
Rs.1/- Court fee stamp.
A challan of Rs. 25/- as application fee.
Licence fee challan as per the state government regulations..
Income tax/Sales Tax clearance certificate or affidavit.
A deed or a declaration for the current partnership status of the institution.
Ownership/ Tenancy papers.
The original licence.
Application Process
The application of renewal must be filled 30 days before the expiry of the original licence.
The challan worth Rs. 25/- is to be submitted along with the application form as application fees.
Renewal fees as per the state government regulations is to be paid in order to finish the process of renewal of a licence.
Cost of obtaining a licence
Temporary club Licence/ Party permit:
Above 100 people: Rs. 15,000.
Below 100 people: Rs. 10,000.
Mandatory FL-4 Licence for a private liquor party in a flat or a resort- Rs. 13,000.
Permit Rooms Licence- Rs. 5,44,000.
Licence for Beer Shops- Rs. 1,50,000.
In case only a few friends are together, they must have a drinking permit- Rs. 5.
In these cases if the person does not have the appropriate licence, he may be charged for illegal possession of Liquor. This is also applicable to a group of people drinking in an apartment.
Places where sale of liquor is prohibited
The sale of liquor is banned at the following places:
Within 500 Meters of any state and national highways.
This does not prohibit sale in municipalities.
2. Within 50 Meters from an existing place of worship.
This includes prohibition of Liquor in Municipalities and Municipal corporations.
3. Within 50 Meters from any educational institute.
This includes prohibition of Liquor in Municipalities and Municipal corporations.
4. Within 100 Meters of each other near any Local body.
5. Within 100 Meters of a hospital.
Taxational aspect
No service tax/GST can be levied on sale of liquor in retail shops. This was decided at the GST Council Meeting in 2018 and approved by the central government.
Retail licence holders who have acquired licence under FL-II, FL-BR-II, CL/FL/TOD-III is exempted from tax on sale of liquor purchased from registered dealers within the state.
Country liquor bar which is holding a CL-Ill licence is also exempted from tax under the same condition.
Further, the above two exemptions are applicable only if the liquor has been taxed at an earlier stage in the state.
Wholesaler licence holders who have acquired a licence in FL-i or CL-II and retailers holding licence in FL-II, FL-CL-TOD-III have to pay a tax rate which is equal to 25/125 x MRP when the liquor hasn’t been taxed at a prior stage.
In case of Bars, Restaurants and Clubs holding a liquor licence:
With grading 3 Star and below
5% tax rate on actual price of liquor is applicable on liquor which is purchased from within state from registered dealers. Further, tax should have been paid or become payable at an earlier stage.
With grading 4 Star and above
20% tax rate on actual sale price is applicable on liquor which is purchased from within state from registered dealers. Further, tax should have been paid or become payable at an earlier stage.
In cases of import of liquor from other states or countries, then a tax at scheduled rate limited to MRP x 25/125 of such liquor sold will be applicable additional to the 20% tax rate mentioned above.
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This article is written by HEMA MODI, a second-year student of Pravin Gandhi College of Law, Mumbai. It provides an overview of The Payment of Gratuity Act, 1972 and its different provisions, along with landmark judgements.
Introduction
The Payment of Gratuity Act is a genre of various statutes like the Minimum Wages Act, Employment and Social Policy, etc. which is an extension of labour laws and it lays down the minimum benefits to be provided to the employees. It is a social security enactment providing for the welfare benefits of the employees working in industries, companies and organisations.
Scope and Objective
The Payment of Gratuity Act,1972 was enacted with sole objective of providing gratuity i.e., a monetary award given for services rendered to the employees working in the factories, oilfields, mines, plantations, railway companies, shops or other establishments upon their superannuation (e.g.,old age retirement amount,etc.), retirement, resignation, death or disablement.
According to this Act, the continuous service means an uninterrupted service during the employment period. This includes the leave due to sickness, accident, lay off, strike, etc. If the interruption is of six months or one year, then the employee is not entitled to gratuity benefits. He/She should have worked for at least 190 days in mine or coalfield like establishment(where duration of work is only for 6 months) and 240 days in other areas.
Recently, a question arose before the Supreme Court of India that whether the services provided by the employees were regularised or not and whether they are entitled to gratuity amount or not in the case of Netram Sahu v. State of Chhattisgarh. The appellant employee had in all rendered 25 years and 3 months of service (22 years and 1 month as daily wager and 3 years and 2 months as regular work charge employees). However, the Appellant was not paid the gratuity amount by the State after his retirement because out of the total period of 25 years of his service, he worked 22 years as daily wager and only 3 years as a regular employee, the Supreme Court of India held that the state should release the gratuity amount of the employee because the Appellant had actually rendered the service for a period of 25 years. Because the services were regularised, the appellant was entitled to claim its benefit for a period of 25 years regardless of the post and the capacity on which he worked for 22 years. This shows that whether the services were regularized or not, is of no significance to the continuous service to the said Act.
Controlling Authority
The controlling authority shall be appointed by the appropriate government for the proper administration of this Act. The government may appoint different controlling authority for different areas also.
An employee is entitled for the payment of gratuity if he/she has rendered five years of continuous service on his superannuation, retirement, resignation, death, disablement. However, the five years of continuous service is not mandatory in the case where the termination is due to death or disablement. A retired person is also entitled to gratuity amount along with his pension. This was held in the case ofAllahabad Bank and others v. All India Allahabad Bank Retired Employees Association, where the honorable court held that pensionary benefits may include both pension amount and gratuity amount but gratuity amount is a must to be paid to the employees.
In the case of death or disablement by accident or disease, the employer is under obligation to pay the gratuity amount to the employee’s nominee or the legal heir, as the case may be, irrespective of the number of years continuous services has been rendered.
The Act also has a provision for the minors as a legal heir in which the controlling authority has to invest the amount in such banks or other financial institutions for the benefit of the minor until he/she becomes a major.
Further, the Act provides for the services rendered for at least 6 months where the gratuity amount will be calculated at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned, provided that the amount paid for the overtime work will not be considered.
The amount of gratuity shall not exceed Rs. 10 Lakhs.
An employee holds a right to receive a gratuity for services rendered, however, this right of an employee can be curtailed in two conditions:
If the termination is due to willful omission or negligence causing loss, or damage, or destruction of property belonging to the employer.
If the termination is due to riotous or disorderly conduct or constitutes of an offence which is immoral in nature.
Compulsory Insurance
Section 4A of the Act provides for the compulsory insurance to every employer other than those belonging to the Central Government or State Government through Life Insurance Corporation. However, those employers are exempted from this provision who have an established and registered gratuity fund in their company. The government may also make rules for the enforcement of this section as and when necessary. Violation of this provision by anyone may lead to penalty.
Power to Exempt
The Act provides the power to exempt to the appropriate government by notification to declare any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted from gratuity if the government is of the opinion that the establishment has favourable benefits not less than what this Act has been providing. The same law applies to any employee or class of employees.
Nomination
According to this Act, it is necessary for the employee to prescribe for the name/names of the nominee soon after completing one year of service. In case of a family, the nominee should be one among the family members of the employee and other nominees shall be void. Any alteration or fresh nomination must be conveyed by the employee to the employer who shall keep the same in his safe custody.
Determination of the Amount of Gratuity
The person entitled to receive the gratuity amount shall send an application in writing to the employer. The employer shall calculate the gratuity amount and provide notice in writing to the concerned employee and the controlling authority. The payment should be made within 30 days from the date payable to the employee. Failure of payment within the prescribed limit will result in payment of simple interests. However, if the delayed payment is because of the employee then the employer is not entitled to pay the simple interests.
In a landmark case ofY.K. Singla v. Punjab National Bank, the highest court of India, the Supreme Court had to decide whether an employee whose gratuity has been withheld under Regulation 46 of the Punjab National Bank (Employees) Pension Regulations is entitled to get interests because of the delay after the completion of the proceeding? The court held that even though the provisions of the 1995 Regulations, are silent on the issue of payment of interest, the appellant would be entitled to interest, on account of delayed payment under the Payment of Gratuity Act for the benefit of the employee.
The disputes arising between the employee and employer shall be referred to the controlling authority and proceeding for the resolution presided by the controlling authority shall be considered to be judicial proceeding. The controlling authority has the authority to enforce the presence of any person and examine his oath, production of relevant documents and issuing commissions for the examination of witnesses if required. After due inquiry and giving the parties a reasonable opportunity of being heard, the controlling authority may determine the matters and pass appropriate orders. The aggrieved party can apply for appeals to the government.
Inspectors Appointed for the Purpose of this Act and their Powers
The government may appoint an inspector or inspectors who are deemed to be a public servant under Section 21 of Indian Penal Code for the purpose of ascertaining whether any of the provisions of this Act are being violated or not complied with and take necessary measures to ensure the fulfilment of all the provisions of this Act.
Recovery of Gratuity
If the employer delays in the payment of gratuity amount under the prescribed time limit, then the controlling authority shall issue the certificate to the collector on behalf of the aggrieved party and recover the amount including the compound interest decided by the central government and pay the same to the person. However, these provisions are under two conditions:
The controlling authority should give the employer a reasonable opportunity to show the cause of such an Act.
The amount of interest to be paid should not exceed the amount of gratuity under this Act.
Penalties
Violation of the provisions of the Act shall entail certain penalties. They are:
For avoiding any payment, if someone makes a false representation or false statement shall be punishable with imprisonment for 6 months or fine up to Rs. 10,000 or both.
Failure to comply with the provisions of this Act shall be punishable for a minimum of 3 months which may extend upto 1 year or a fine of Rs. 10,000 which may extend upto 20,000.
Non-payment of gratuity under the Act will lead to offence and the employer shall be punishable with imprisonment for at least 6 months and which may extend upto 2 years unless the court provides for the sufficient reason for less payment.
Exemption of Employer from Liability
An employer if charged with any offence punishable under this Act, shall be exempted from any liability, if he provides sufficient reasons for his conduct of the act or some other person doing that act without his knowledge. The other person if found guilty will be charged with the same punishment as an employer shall be charged.
Cognizance of Offences
The court cannot take cognizance of the offences punishable under this Act unless the amount of gratuity to be paid has not been paid or recovered within 6 months from the expiry of the prescribed time. In such cases, the government shall authorise the controlling authority to make a complaint where the authority has to make a complaint to the metropolitan magistrate or judicial magistrate of first class within 15 days of the authorisation.
Protection of action taken in good faith
The controlling authority shall not be under any legal proceeding if the acts done by him is in good faith or under any rule or any order.
Protection of Gratuity
No exempted gratuity which is payable under this Act to the employee by the employer shall be liable to the attachment of any order or decree by any court.
Act to override other enactments
Since the Payment of Gratuity Act is complete in itself, therefore, this Act has an overriding effect on all provisions, regulations and statutes relating to gratuity. The landmark case for this provision isUniversity Of Delhi vs Ram Prakash And Ors.which states that any provision which is more beneficial for the employees should be considered to be having overriding effect.
Power to make rules
The power to make rules in the Payment of Gratuity Act, 1927, shall rest with the appropriate government and declare by notification.
Validation of amendments made in this Act
The rules made has to be presented before both the houses of the parliament when in session. If both the houses are in conformity for the annulments or the modifications, then it shall be applicable immediately otherwise such modifications will have no effect.
Conclusion
The Payment of Gratuity Act, 1927, is a welfare statute provided for the welfare of the employees who are the backbone of any organisation, company or startups. The gratuity amount encourages the employee to work efficiently and improve productivity. Recently, by the Payment of Gratuity (Amendment) Act, 2018, the central government has tried to promote social welfare by providing leverage to the female employees who are on maternity leave from ‘twelve weeks’ to ‘twenty six weeks’.
However, the scope of this Act is limited to large scale companies or organisations and is not applicable to organisations where the number of employees is less than 10. Yet, the Act in its entirety is complete and therefore it overrides other Acts and statues in relation to gratuity. The only need of the hour is to change or modify the implementation of the Act as this Act is still not followed by many companies or corporations.
This article is written by Gurkaran Babrah, a first year law student at Symbiosis Law School. Noida. This article discusses various aspects under the Labour And Industrial Laws.
Introduction
Contract of employment is mostly used in labour laws and Industrial laws. It is a written agreement between an employer and an employee which states the rights and duties of both the employer as well as the employee. The agreement specifies the salary/wages, duration of employment, timings, employee benefits, employee responsibilities, Employment absence, Dispute resolution, grounds for termination and stipend (if any).
Employee versus Independent Contractor
These two terms are often misunderstood by a number of people. These two have different meanings and are different in its legal application. Therefore, it is imperative to understand these terms. To determine whether a person is an employee or an independent contractor, there are a number of factors which are taken into consideration.
Employee
Independent contractor
An employer is covered by a number of federal and state employment and labour laws.
Whereas an independent contractor is not covered by labour laws.
An employee works for a single employer.
Whereas an independent contractor can work for more than one employer.
An employer works under the direction of the employer.
An independent contractor does not work under the control and direction of the employer.
An employee is eligible for workman’s compensation benefits.
An independent contractor is not eligible for workman’ s compensation benefits.
An employee is required to attend the office and work on the official premises of the employer.
They can work from anywhere from any location constraint.
Employee versus Consultant
Employees and consultants are two different things. Employees are considered to be a part of the organisation. They work for the organisation. Their actions are considered to be the legal actions and are considered to be the actions of the organisation itself. Employers and employees have relationships in an organisation and it’s a different kind of relationship. It is the duty of the employer to maintain a safe environment and to provide basic needs to their employees. Whereas consultant is a completely different person. He/she provides his or her services to the organisation and does not directly work under the organisation. A consultant does not the benefits which a regular employee gets. They are hired for a specific task, i.e., to evaluate and advise.
Express and Implied terms
There are two types of terms and these are express and implied terms.
Express terms are those terms which are specifically stated either orally or in writing. The law requires that the express terms should be put into writing and they should be handed to the employee in a written statement.
Whereas implied terms are those terms which are not stated explicitly. These are general terms like the right to equal pay, and duty of care, etc.
Good faith and Fidelity
When there is a contract of employment, there are always implied and express terms. Sometimes everything is not written in a contract. There are implied terms in a contract. Acting in good faith means that the employer would honour these provisions and will not terminate the contract for other reasons. The covenant of good faith and fair dealing requires the employer to fire the employee when they have good cause.
Fidelity is also similar to good faith. Fidelity means that the employee will serve his employer with loyalty. In a contract of employment, the employer is expected to act in good faith and fidelity because each and everything is not written in a contract of employment. There are certain things which are assumed. There the employer is expected to act in good faith and fidelity.
Right to suspend an employee
The employer has the right to suspend an employee if, found misbehaviour or misconduct is found on the employee’s part. Generally, when employees are hired or the staff is selected they are made familiar with the rules and regulations of the organisation. Their consent is also taken that they will follow and adhere to the rules and regulations of the organisation. Thus, they give the right of suspension to the employer.
To suspend an employee means not to allow him/her to continue the work. The question arises that why, when and how an employee can be suspended. Employees are mostly suspended on the grounds of misconduct or misbehaviour. Intoxication, fighting or physical abuse, lewd behaviour, theft, fraud, sabotage, offensive behaviour and bullying are examples of misconduct. An employee is suspended to stop him to continue his/her misbehaviour. He/she may be stopped from interacting with other employees as it can put a bad effect on business.
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Scale of subsistence allowance
Subsistence means necessities. It means that supporting oneself, especially at a minimum level. Subsistence allowance is defined under Section 10 (A) of the Industrial Employment (Standing Orders) Act, 1946.
Subsistence allowance means that when an employee is suspended by the employer and the investigation is still pending against the employee, the employer has to pay the subsistence allowance to the employee.
For ninety days, he/she will be paid fifty per cent of the wages which he/she was getting before suspension. If the investigation is still pending after the ninety days then, the employee will be paid seventy-five per cent of the wages. But the delay in the completion of the investigation should not be attributable to the conduct of the employee.
Transfer of employee
Under the agreement, the employer can transfer the employee. He/she can have their employees to work for another company. These transfers are considered to be the legal transfers if the employee has given his/her consent. Here is an example of it. Suppose if (employer 1) has hired an employee and wants to transfer him/her to (employee 2). He can transfer him with employee’s consent.
The employee will remain legally employed to (employer 1). He will be paying wages to the employee. (employee 1) will not be bound to any terms which were not in the original agreement. But if the employee does not give his/her consent then the employer can not make a transfer.
In this case, the manager (appellant) of a mill wanted to transfer its 4 workmen. So he ordered the transfer to another mill. Subsequently, he bought that mill. The concerned workmen (respondent) protested against the order and did not want that transfer to happen. As a result, they were served with the notice of disobedience of standing orders and were further dismissed from the service.
The law tribunal found that the appellant had no right to transfer its employees because there was no free consent from the employees. The appellant came before the supreme court and said that the right of transfer of an employee by the employer is implicit in every contract of service. But, the question was whether a person employed in a factory can be transferred to other factory without his consent.
It was held that other than any statutory provision, the right of an employer to transfer its employees are governed by the terms and conditions of the contract between them or by implied terms.
But in this contract, there was no express agreement regarding the transfer and it can not necessarily be implied that the employer has the right to transfer its employees to any of its concerned place. Therefore, the employer (appellant) can not transfer its employees (respondent).
Customary practices may ripen into an implied term There are some instances where a customary practice somehow leads to implied terms in a contract. Sometimes customary practices are considered to be the standard practice. For example, if someone has called an electrician to get some work done then it is generally presumed that he will bring his own equipment because this is the standard practice.
In this case, the respondent was working as a clerk in the company. He worked there for 30 years. After he retired, he claimed that he was entitled to get the 3 months wages as ex gratia payment. He claimed it because it was considered as an established practice and the same was paid to all who had rendered services for more than 30 years.
Therefore, he contended that it was an implied term of the contract that whoever will render service for more than 30 years will get this payment. The petitioner refuses to pay the amount. The judge of the labour court in his judgement said that since it is a long-standing practice. The petitioner has to pay the said amount as the respondent has rendered his services for more than 30 years.
Sources of Contract of Employment
There are a number of sources of employment. These include advertisements, employment exchanges, educational institutions, recommendation of existing employees, factory gates and labour contractors. These are further explained below:
Advertisements
Advertisements is a very common and widely used method of employment. Advertisements are given in newspapers, blogs, professional journals and etc. They attract a large number of applicants. To attract the job seekers advertisements are prepared in a very good manner. Preparation of advertisements is also a specialised task as it affects the job seeker very positively if the advertisement is well-drafted.
Employment exchanges
Employment exchanges is a very good source of employment. These exchanges are run by the government agencies and are often related to unskilled, semi-skilled, skilled and clerical posts. For some organisations, it has been made compulsory for them that they should notify the employment exchanges about vacancies. If there are vacancies then Employment agencies helps to provide job the job seeker.
Educational institutions
Educational institutions also plays an important role as a source of employment. In professional courses, the companies visit the campuses of reputed universities. Companies offer packages to the students. If the student accepts that particular package then he/she starts working in that company. Recruitment from Indian institute of technology (IITs) is a fine example of this process.
Recommendation of existing employees
Recommendation of employees is another source of employment. The employees who are already working in the organisation are asked to assist employers and help them in the recruitment process. They are asked to recommend the candidates who are actually interested in the job and who are willing to put such efforts to accomplish the goals of the organisation. The present employees generally know the candidates which there are going to recommend.. Rewards are given if the company selects the candidates recommended by them.
Factory gates
Factory gates is also known by the name of “direct recruitment”. It is generally for unskilled and semi-skilled workers. In this, a notice is placed outside the organization specifying the details of the job, time period of the job, and salary. A number of workers gathered outside the factory. Whenever there is a need for workers, the personal manager scrutinize them and select them on the spot. The workers selected are known as ‘Badli workers’.
Labour contractors
The practice of labour contractors is very much prevalent in the country. This is mostly used for unskilled and semi-skilled workers. The labour contractors keep themselves in contact with the labourers. When required they bring these labourers to the workplaces and they get commission on the number of workers supplied by them.
Appointment letter
Appointment letter is an official legal document given by the employer to the employee. It is a confirmation letter that the job offered by the organisation is accepted by the employee and he/she has accepted the terms and conditions of the job. It contains all relevant details of the job and is mentioned that what is expected of the employee, job timings, salary, number of hours one has to work, and sick day leaves. The appointment letter should not contain irrelevant details. There is a structure of writing an appointment letter. It should be written on the organization’s letterhead pad mentioning details of the person who is writing that appointment letter with his/her signature at the end.
Statutorily imposed terms and conditions of service: Standing Orders
Standing orders defines the terms and conditions of recruitment, discharge, disciplinary action, holidays, leave, etc. Standing orders are mentioned under the Industrial Employment (Standing Orders) Act, 1946. Prior to these orders, the law of demand and supply used to prevail in the labour market. The employer and the employee used to mutually bargain the terms of employment. This process continued for a long time but after a certain time employees thought that they don’t have that adequate bargaining power. Though the terms and conditions are made in favour of employers.
As a result, they started gathering themselves into trade unions and collective bargaining. All this started creating problems and it started hampering industrial peace. Workmen started putting their demands in front of the employees. To deal with all these issues legislature came into the picture and introduced the Industrial Employment (Standing Order) Act, 1946.
In this case, the respondent was a conductor in Rajasthan state road transport. When he was on duty on badi chopped, Ajmer route, a surprise inspection was done and was found that 6 passengers were travelling in the bus without tickets. The respondent was dismissed from the service.
The respondent wanted to have departmental proceeding so he preferred an appeal. His appeal was dismissed. He further preferred review before the reviewing authority. His review was also dismissed. The respondent further filed a civil suit against the dismissal order in the court of additional munsif and judicial magistrate. The appellant challenged the jurisdiction of the court and said that being an industrial dispute, this should be resolved in an industrial tribunal.
The judge heard both parties and declared the orders of dismissal illegal and ordered the reinstatement of financial and other benefits to the respondent.
“Industrial or other establishment” under Payment of Wages Act,1936
Industrial and other establishments are mentioned under Section 2 of the Payment Of Wages Act, 1936. These include:
Tramway service, or motor transport service;
Air transport service other than employed in air, naval or military services;
Dock, wharf, or jetty;
Inland vessel;
Mine, quarry or oil-field;
Plantation;
Workshop in which articles are manufactured or produced with a view to transport or sell them;
Establishment in which any work relating to the construction, development, or maintenance of buildings, roads, bridges or canals, or relating to operations connected with navigation, irrigation, or the supply of water or relating to the generation, transmission and distribution of electricity or any other form of power is being carried on.
“Factory” under the Factories Act, 1948
The law related to the regulation of factory labourers was embodied under the factories act,1934. This act was amended a number of times because it revealed some defects. On the other hand at the same time, the industrial sector was booming and it was getting difficult to continue with this law, therefore, the legislature restructured the law and introduced the factories bill in the legislature.
Factory is defined under Section 2 (m) of the Factories Act. It says:
“Whereon ten or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
“Whereon twenty or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on without the aid of power, or ordinarily so carried on.
Matters for which Standing Orders should contain provision
Section 3 (2) of the Industrial Employment (Standing Orders) Act,1946 states that:
“Provision should be made for every matter mentioned in the schedule which may be applicable to the industrial establishment, and where model standing orders have been prescribed, shall be, so far as is practicable, in conformity with such model.”
These matters are:
Type of workman, i.e permanent, temporary or probationers;
Shift working;
Attendance and late coming;
Requirement to enter premises by certain rules and liability to search;
Termination of employment, notice given by the employer;
Suspension or dismissal on the grounds of misconduct;
Manner of intimating to workmen periods and hours of work, holidays, pay-days.
Collective settlements
Collective settlement is also known as collective bargaining. This process is mostly used by the workmen who are represented through trade unions. It is a method in which a dispute is resolved through a settlement. It is a process of negotiation and bargain from employer and employee to come to a conclusion. The terms of the agreement are discussed and both the employer and the employee discuss their viewpoints and then they come to a conclusion.
Employment manuals, etc
Employment manual are also known by the name of employee manual and company policy manual. This manual is given by the employer to the employee. Employment manual is like a welcome gesture. It contains all the relevant information related to the job. Company policy, rules, disciplinary and grievance procedures and what is expected of employees. All this is mentioned in the employment manual.
Types of Employment Contracts
Contract with a “permanent” employee
As the term suggests contract with an employee on a permanent basis means that the employee will work with the organisation on a permanent basis. He/she will receive all the benefits from the organisation. By holding a permanent position the employee will be eligible and will receive all the benefits from the employer. This term is defined in The Industrial Employment (Standing Orders) Central Rules, 1946. It says that a permanent employee is one who has satisfactorily put in three months of continuous service.
Contract with a “temporary” or “fixed-term” employee
Temporary or fixed-term contracts are those contracts which focus on specific task, or on a particular project. These are characterised by a limited duration of time. These kinds of contracts are mostly found in labour markets and serve a specific purpose. The person is employed for a limited duration and he/she is asked to perform the specific task.
“Probationer”
The term “Probation” or “probationary period” is a status which is given to employees. This status allows the employer to check the abilities of the employee. The employer can closely evaluate and check the reliability, honesty, interactions with co-workers, supervisors and customers.
The time period of the probationary period varies from time to time. If the probationary performs well and does well in his period then he is removed from probationary status. On the other hand, if the probationer does not do well in his/her probationary period, the employer has the right to terminate their contract of employment.
Ajit Singh the respondent was a superintendent at the office of district food and supplies controller at Patiala, Punjab. Narinder Kumar Malhotra was employed as a sub-inspector at the same office of food and supplies, Patiala. He was dismissed from the service and the order was sent to the office of the respondent (Ajit Singh). The order of dismissal was to be delivered to Narender Kumar but it was not served to him.
The responded was dismissed and disciplinary proceedings were initiated against him on the basis of a charge sheet. The respondent went against the order which was rejected by the state government. The respondent filed a writ petition in the High Court of Punjab and Haryana challenging the order of suspension.
Contract with a “casual” employee
Casual employees are those employees who are mostly engaged on an as-needed basis. They are engaged in a work which is mostly casual in nature. The employee does not have the rights the way the permanent employees have. Casual employees are not entitled to the benefits the way the permanent employment are. A casual employee is entitled to guaranteed working hours, annual leave or etc.
“Badlis”
The term “Badli” is defined in The Industrial Employment (Standing Orders) Central Rules, 1946. A badli is a worker who is appointed in the post of a permanent employee. If a badli has completed a period of one year, then, he/she will cease to exist a badli worker and will be converted into a permanent employee. A baldi becomes a permanent employee after the completion of the probationary period.
In this case, there was a mill in which there were certain goods which were essential in the process of manufacturing. These goods were detained by the excise duties for the non-payment of central excise duty. As a result, there was disruption in the functioning of the mill.
The respondent demanded that the affected employees should get their wages for the period in which the mill was not working. His demand wasn’t accepted by the appellant. The respondent filed an application before the labour court. After hearing both the parties court made liable to pay 50% of the basic wages and dearness allowance to the affected employees.
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“Part-time” employee
As the term suggests part-time employees are those employees who don’t work on a permanent basis. Part-time employee is an employee who work for fewer hours, has less number of responsibilities, and limited benefits. Service of part-time employee is protected under the Industrial Dispute Act, 1947.
Persons who are employed on a part-time under supervision or guidance of an employer, they can benefits of continuous service. They also have the right to challenge their dismissal, their services are terminated without fulfilling the provisions mentioned under Section 25F of this Act.
“Regularisation” of or granting “permanence” to “temporary or casual employees”
Regularisation and permanence are two different concepts. The supreme court has deliberated on regularisation of employees. The court said that the organisations who give jobs to the employees on a temporary basis or to casual employees and then convert them into regular employees is against the law of the land. The temporary employees have no right of regularisation of jobs.
In the landmark case of state of Karnataka vs Uma Devi, the court held that the state should employ the employee according to the rules and regulations of permanent recruitment.
If “State” is the employer
Public employment in a democratic, republic, socialist and sovereign nation has to be with the rules and regulations by the government of that nation. The appointment of persons by the state and its instrumentalities should be in accordance to the procedure of regular employment.
Adherence to Article 14 and 16 in the process of public employment
Article 14 talks about the right to equality. It says that the state shall not deny any person equality before the law or equal protection before law within the territory of India.Article 16 talks about that there should be equal opportunity in terms of employment for all citizens. There should be no discrimination on grounds of race, sex, place of birth, caste or any of them. But regularisation of employees from a temporary job into a permanent job violates these articles.
For example, if a person is hired for a job whose period is of six months. But after six months the period of that job is increased from six months to two years. The person who was employed for that job for six months and now with the increase in period in the job the same person is employed. This process of regularisation violates the fundamental articles. Because it deprives others of getting employment opportunity.
Therefore, the process of public employment in a democratic, republic, socialist and sovereign nation has to be with the rules and regulations by the government of that nation.
“Regularisation” versus “permanence”
“Something that is irregular for want of compliance with one of the elements in the process of selection which does not go at the root of the process can be regularised and that it alone can be regularised”.
This was concluded in the state of Karnataka vs umadevi case. Workers demanded that they were working from a long time as a temporary employee and they wanted them to be converted into a permanent employee. Whereas permanence is a different concept. It cannot be equated with regularization.
In this case, the respondents were employed on daily wages in commercial taxes department in some districts of Karnataka. They were engaged for more than 10 years hence they claimed that they are entitled to be made permanent employees and are entitled to all benefits of permanent employees.
The government did not accept the recommendation. They further went to administrative tribunal but the tribunal rejected their claim. Further, they went to the high court of Karnataka. The court challenged the decision of the administrative tribunal. The high court ordered that they are entitled to salaries and wages as permanent employees.
Rights under Industrial Disputes Act and cognate legislation
In case of any dispute between an employer and an employee, the rights are mentioned under The Industrial Disputes, Act 1947. The Act has defined “Industrial Dispute” as a dispute between an employer and an employee, or employers and employees, between workmen and workmen which shall be connected with the employment, non-employment or within the conditions of labour contract.
The Act has provided various authorities to settle disputes. These include appointment of conciliation officers, board of conciliation, courts of inquiry, labour courts, tribunals, and national tribunals for settlement dispute.
There are various legislations which are made to protect the rights of the employees. Payment Of Wages Act, 1936, Payment Of Bonus Act, 1965, Minimum Wages Act, 1948, Trade Unions Act, 1926, Employees Provident Funds and Miscellaneous Provisions Act, 1952, Payment Of Gratuity Act 1972, and many more are there.
“Unfair Labour Practice”
Section 186 (2) of The Labour Relations, Act defines “ Unfair labour practice” as “any unfair act or omission that arises between an employer and an employee involving:
Unfair conduct by the employer relating to the promotion, demotion, probation (excluding dismissals of probationers) or training of an employee or relating to the provision of benefits to an employee;
The unfair suspension of an employee or any other unfair disciplinary action short of dismissal in respect of an employee.
Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971
In this case, the respondent was appointed as an assistant (clerical) in daily wage basis with effect from 12 August 1985. He said that he has continued till 12th august, 1996 and has completed more than 240 days of service.
The labour court in case held that the termination of services is responded as a workman was illegal. Further, the court directed that the responded would be entitled to continue in service with the full back wages.
In this case, the respondents were working on daily wage basis. There was a plantation watchmen, wireless operator and a helper. they all claimed that since they were working from more than 10 years their service should be regularised.
The appellants refused to pay and said that the scheme of regularization was applicable to only those persons who were employed before July 1, 1984.
The appellants contended that respondents not being recruited through the proper procedure were backdoor entrants and regularization of them in government service would be a violation of the fundamental rights of the constitution.
The landmark case of State of Karnataka vs Umadevi was referred and the request of regularization of the job was not accepted by the court. It was held that such regularisation leads to violation of article 14 and article 16 of the constitution.
Illegal “retrenchment” Employees Union v Mineral Exploration Corpn. Ltd.
The appellant was a registered trade union. (Respondent no.1) was a public sector undertaking which was managed and controlled by the ministry of mines and was engaged in the exploration of mineral resources for rapid growth of the industry. Respondent no.1 was having various projects throughout the country.
The workmen engaged in mineral exploration corporation have completed minimum 8 years and a maximum of 20 years of service and were not regularized nor paid regular wages. The workmen started demanding regular wages and on the other hand, the corporation started retrenching their employees. An industrial dispute was raised under the provisions of The Industrial Disputes Act, 1947.
The question was raised hat the actions of the corporation of not regularizing the service and not giving the wages as that of permanent employees is justified or not?
Definition of “workman” under the Industrial Disputes Act, 1947
Under this act, a workman is defined under Section 2 (s) of the act. It says that a workman is a person who is employed in an industry for manual, skilled,semi-skilled, unskilled, clerical, technical, operational, managerial, supervisory work.
The terms of employment can be implied or express for any proceeding under this act in case of any dispute. This act does not include:
Persons who are employed in the air force, navy or in military,
Who is employed in police services, or an officer of a prison, or
Who is employed in the managerial, or administrative capacity?
Definition of “retrenchment”
Retrenchment is defined under Section 2 (oo) of The Industrial Disputes Act,1947. It says that it is a termination by an employer of the service of the workman for any reason. But it should not be on the grounds of as a punishment under the disciplinary action
Section 25(G) of the Industrial Disputes Act, 1947
Section 25 (G) states that if an employer wants or starts retrenching its employees then, he/she has to retrench the workman who belongs to the same category in that establishment. Further, it states that retrenchment should on the basis of “last come first go rule”. The employer will have to first retrench the last person employed.
Private employers
Private employer means any person, company, corporation, labour organization or association. In the private sector, it has fewer legal barriers to hiring and laying off employees, although they are subject to anti-discrimination rules, and they carry legal liability associated with human resources. If revenue suddenly drops, however, the private sector company can eliminate job positions and can lay off employees.
Conclusion
Every organisation needs employees who will work for the organisation and will help them to achieve the predetermined goals of the organisation. During the recruitment process, there is always a contract of employment between an employee and an employer. The terms and conditions should be laid down very clearly and in case of any dispute, employees have various rights under labour and industrial laws. Some of them are discussed in this article. Contract of employment is a necessary element and it is a legal document because it defines the duties of both the employer and an employee. It has also been discussed about regularisation and permanence with relevant case laws. The recruitment in any organization or company should be according to the fair guidelines given the government otherwise it may deprive others of equal opportunity.
Labour and Industrial Laws, 10th edition by H.L Kumar, volume 1 and 2
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This article is written by Shristi Suman, a second-year student of Symbiosis Law School, Hyderabad. In this article, the provisions of EU Competition Laws in relation to particular sectors have been discussed.
Introduction
European Competition law ensures fair competition among enterprises. It prevents large enterprises from creating a condition that would curb the opportunities for suppliers and customers to do business with their competitors. Treaty any Functioning of the European Union (TFEU) deals with internal market competition. Articles 101 to 109 of TFEU contains rules for internal market competition and prohibits agreements between undertakings which are anti-competitive. Competition laws apply not only to private enterprises but also extends to public undertakings, public services and services of general interest. Sector-specific objectives and smooth working of the market sector can be ensured by applying rules of Competition law on the sectors.
Nuclear Energy
Nuclear energy accounts for approximately one-third of all of Europe’s electricity. The market supports 8 million jobs with €70 billion turnovers per year. The challenge which the sector is facing currently is an unpredictable investment framework and unstable design of the market. Nuclear energy produces almost 50 per cent of low carbon electricity and hence, is seen as the future for low carbon electricity. Rules for usage of nuclear energy are included in the Euratom Treaty. Rules regarding the aid for the nuclear industry have been put down in the Euratom Treaty under Article 106a (3) and in TFEU under Article 107.
State aid can be defined as an advantage that an undertaking receives from national public authorities. To ensure that there isn’t any disproportionate effect of State aid under TFEU, Article 107(c) is included in TFEU. The Commission checks on the compatibility of State aid and objectives of the internal market. In order to anticipate and curb inconsistencies in State aid between the Member States, the EEAG has been adopted. Member States are free to make support schemes but it has to be in compliance with the requirements set by EEAG.
Market at hand should be taken into consideration while applying competition law instruments and therefore, they should be adjusted accordingly. It is important that both the things are taken into consideration and then, accordingly the instruments should be designed and applied to the specific market sector. State subsidies are given for reduction of investor uncertainty. If the legislative instruments are not designed well then it may result in a distorted competition. The legislative instruments should not only stimulate innovation in the long term but also shouldn’t distort competition in the very short or short term. The support mechanisms of instruments of competition law must comply with rules. State intervention should be done in a manner that it does not maximize distort competition in the market sector.
The military equipment sector is a large industry with a turnover of approximately EUR 97 billion. The industry gives direct and indirect employment to 1.2 million people. The industry is a major sector but at present, is facing challenges like market fragmentation and decreased spending.
The defense equipment sector is governed by the EU on the basis of Article 352 of the Treaty and Article 173 of TFEU consists of EU industrial policy. However, the internal market rules (i.e. single market rules of EU) cannot be applied in the military equipment sector as the same has been restrained under Article 346(1) of TFEU. it states that “a Member State may take up measures that are considered to be necessary in order to protect the essential interests of its security, it can be connected with the production of or trade in arms, munitions and war materials.’’
EU defense industry policy on:
European defense equipment market: a Green Paper on defense procurement was presented by the Commission with the aim of creation of defense equipment market in the EU between Member States clear and open basis. Green Paper was presented with the aim to raise competitiveness in the industry and make use of resources available, more efficiently. The standardization of military equipment for the EU is important so that all the Member States’ markets can be integrated. Several steps were taken for standardization by launching EDSTAR (European Defence Standards Reference System portal), EHDP (European Handbook for Defence Procurement), EDSIS (European Defence Standards Information System) etc. they lay down basic standards for materials that are to be used for military equipment which will be developed or which are already developed and needs to undergo modification.
Defense procurement and intra-EU transfers of defense products: EU can also procure products that are related to defense through Directive 2009/43/EC by intra-EU transfers. For procurement by intra-EU transfers, relevant guidelines are established under Directive 2009/81/EC. Through the Directive 2009/43/EC which is based on intra-EU transfers of defense-related products and the Directive 2009/81/EC which is based on defense and security procurement, the EU has set some guidelines which are necessary in order to establish an EU framework in this area.
European defense equipment agency: the functions which are performed by the European Defense Agency is to develop, promote and enhance European armaments cooperation, to strengthen the technological and industrial base of the European military and create a competitive European military equipment market and improve on research and technology in relation to military equipment.
The EU military equipment sector has faced European competition law in context to the integration process. For the integration process, there is a need to curb mergers and acquisitions that can reduce competition in the market sector. Where a merger can create dominant companies in the market sector is to be controlled by applying the principles of EU competition law. EU lays down two procedural instruments for maintaining economic rationality by EU merger control of the Member States:
The Exception of Defence– The member states are expected to act fairly, openly and comply with competition rules at EU level. An exception can be provided only in a case where production or trade is for arms, munitions and war material, where it is considered to be necessary for the protection of national security by a Member State. In such a circumstance, the Member States can deviate from EU competition law by invoking Article 346 of TFEU.
The Exception of Public Safety of Article 21 Paragraph 4 of the Merger Regulation- Article 21(4) of the Merger Regulation enables a Member State to take appropriate measures if necessary in order to protect legitimate interests other than those which are taken into consideration under Article 346 of TFEU. These measures are taken in case of public safety, media plurality, prudential rules. The exception of Public Safety of Article 21(4) unlike Exception of Defence enables Member States to take appropriate measures without giving a prior notice for it also these exceptions cannot set aside the European Law as a whole but only enables the Member States to supplement the Law with additional national measures. The Commission allows on the restrictions of mergers. However, a Member State is not enabled to allow a merger which has been already forbidden by the Commission.
There are about 11 million farms and 44 million people engaged in the food supply chain in the European Union. The food supply chain along with the added value of employment, food processing and manufacturing industry, wholesale trade, and sales distribution sector accounts for 12 per cent of EU value. On average each household spends approximately 15 per cent of its budget on food. Farming and food sector alone generates about 6 per cent of European gross domestic product and is the largest exporter and importer of food products in the world.
Council Regulations 1184/2006 and 1308/2013
Application of EU competition rules to agricultural products:
It consists of the rules with respect to Articles 101 to 106 of TFEU. It is stated that Article 101(1) and 102 of the TFEU is applied in relation to the production of or trade in agricultural products that are produced or traded in the agricultural sector. All the agricultural products are covered under this regulation except for those which are included in Regulation (EU) no. 1308/2013 and Regulation (EU) no 1379/2013.
Regulation 1184/2006
Article 1 of the Regulation lays down that Article 101 and 102 subjects to Article 2 will be applied to production or trade-in the products listed in Annex 1 of the Treaty. Article 2 lays down that Article 101(1) would not apply to those agreements which form an integral or vital part of a national market organization or which are necessary for the attainment of the objectives which are provided in Article 39 of TFEU. In case these exemptions (derogations) are allowed by the Commission, it must be followed by adequate reasons for allowing it.
Regulation 1308/2013
Regulation 1308/2013 lays down a common organization of agricultural markets for the sectors which are mentioned in Annex 1 of the Treaties. It adopts a similar approach for application competition laws as Regulation (EU) no. 1184/2006.
In the case of Milk Marque Ltd, the question before the court was to consider the relationship between competition law and EU rules on the agricultural sector. The court said that the mere existence of some EU rules would not deprive (NCA’s) National Competition Authorities of their right to apply national laws to a milk-producing company who enjoys a powerful position in the market. It, however, laid down that they must not use any measure which might undermine or compromise the aims of the common agricultural policy.
Annexure I products
In case a product is not mentioned in Annex 1 of the Treaty, then that product cannot take the benefit of exemptions which were given in Article 2 of Regulation (EU) no. 1184/2006 and would only be subject to competition rules as an industrial product.
In the case of BNIC v Clair, the court held that cognac was an industrial product and was not entitled to the benefit of an exemption (derogation).
In BNIC v Yves Aubert, the question before the court was that Brandy can be treated as a product under the agricultural products or not. It was observed that Brandy was not listed in Annex 1 and so would be treated as an industrial product and not an agricultural product.
The First Derogation: National Market Organizations
It is provided by Article 2 of Regulation (EU) no. 1184/2006 that Article 101 would not be applied to those agreements which form an integral part of the national market organization whereas, Regulation 1308/2013 laid down a common organization for many agricultural products, and so, in turn, most of the national marketing organization ceased to exist. The Commission deduced and interpreted this derogation of Article 101(1), strictly.
In the case of FRUBO v. Commission, it was held that a Dutch fruit-marketing organization would not get the benefit of exemption of Article 2(1) since it isn’t a national marketing organization.
In the New Potatoes case, rules were laid down by seven economic committees in France, to regulate the concerns related to the production and marketing of new potatoes. The Commission was to decide on the applicability of Article 101(1) and on the question of whether the system constituted a national market. As there was no common organization of the market in question, it was decided that this term must be defined in a way that would be consistent with the objectives of the common organization under the second exemption of Article 2 of Regulation (EU) no. 26. Therefore, the objectives of the common agricultural policy, included in Article 39 TFEU, was taken to be in the first exemption of Article 2 of the Regulation.
The Second Derogation: Common Market Organization
Article 2 and Article 209 of Regulation (EU) no. 1184/2006 and Regulation (EU) no. 1308/2013 respectively enables agreements that are necessary for the attainment of the objectives laid down by common agricultural policy. Article 39 of the Regulation lays down the objectives of agricultural policy as follows:
To increase agricultural productivity
To ensure a standard of living for the people related to the agricultural sector
To stabilize the agricultural markets
To ensure that the supplies are available
To ensure consumers pay a reasonable price for agricultural products.
The objectives which are laid down by Article 39 of the Regulation is both social and economic in nature with the aim of securing the interests of both producers and consumers in the market sector.
Coal and Steel
Coal and Steel market sector was previously controlled by the Treaty of Paris of 1951. The Treaty of Paris established the European Coal and Steel Community for the sector. The Community established dealt with rules for competition in the market sector. The rules were similar to that of Articles 101 and 102 TFEU except for some significant differences. The Treaty of ECSC expired on 23 July 2002. After the expiration of the Treaty, the coal and steel market sector is governed and is now subject to Articles 101 and 102 TFEU and the EUMR. To explain the consequences of the expiry of the Treaty of ECSC on coal and steel sectors, Communication was published by the Commission.
Transport
Article 90 to 100 of TFEU includes provisions for transport. Under this Treaty road, rail, inland waterway transport and sea transport, air transport are dealt with differently under different Articles. Provisions regarding road, rail, inland transport are included in Article 90(1) and regarding sea transport, air transport in Article 90(2). The sole reason for the distinction between the categories is that the latter is subject to international laws and arrangements. Articles 101 and 102 applies to the transport sector. In 1962, it was observed by the Council Regulation 141 that Regulation 17 which included the powers of the Commission to enforce competition rules on the market sectors, did not apply to the transport sector. The gap in law was needed to be filled and so three Regulations were introduced. First Regulation was Council Regulation 1017/68 which provided for application of competition rules on road, rail, inland waterway transport. Second Regulation which was introduced was Council Regulation 4056/86 which gave power to Commission to apply competition rules on maritime transport. The third Regulation was Council Regulation 3975/87, it was introduced to deal with and apply competition rules on the air transport sector.
Inland Transport
Legislative Regime
Council Regulation 1017/68 provides for an exception for certain agreements. There are some technical agreements which do not infringe Article 101 and there are also some cooperation agreements between small and medium-size undertakings that benefit from Regulation of block exemption. The said Regulation was then repealed in 2009 by a new Council Regulation 169/2009. After Regulation 169/2009, the exception of certain technical agreements was included in Article 2 and for block exemption in Article 3.
There were several other Council Directives which were adopted by the Council in the first railway package of 1991, with an objective to introduce the rail transport sector to competition rules. The rail transport sector under UK law is subject to a complex regulatory regime, and the office of Rail and Road (ORR) has the power of application of the Competition Act 1998 to enforce competition rules and the Enterprise Act 2002 to the sector.
Practical Application of the Competition Rules to Inland Transport
In the case of EATE Levy, the agreement between French waterway carries and French forwarding agents was condemned for imposing a levy of 10% on freight charges for a boat to the destinations which were outside France, as it was discriminatory for French carriers; the Court of law upheld the Commission on appeal.
In case of Tariff Structures in the Combined Transport of Goods, the criteria of Article 101(3) had been considered to be satisfied by the commission in case of a tariff structure agreement between two or more rail companies of European Union for the sail of rail haulage in the international combined transport of goods.
In the European Night Services case, the Commission observed that the criteria of Article 101(3) are satisfied in a case where a joint venture is established by five rail operators for the object of providing night sleeper services between the UK and continental Europe through the Channel tunnel.
Maritime transport
The maritime transport market sector can be divided into two categories; tramp services and liner services. It is in the liner services sector that the Council Regulation 4056/86 was repealed by Regulation 1419/2006. The aim set by Regulation 1419/2006 was to bring competition in the shipping industry.
Legislative Regime
Procedural Rules
The Commission got the power to enforce Articles 101 and 102 by Regulation 17. The Regulation did not apply to the maritime transport market sector. The power to enforce Articles 101 and 102 in relation to the international maritime transport sector was provided to the Commission by Council Regulation 4056/86. Regulation 1/2003 repealed these special procedural rules. The Commission was not empowered to enforce competition rules by Regulation 4056/86 in case of cabotage. Cabotage refers to services between ports within the regime of a Member State. Exemptions are provided under Article 32 of Regulation 1/2003 which was later repealed by Regulation 1419/2006. The Commission has the power to competition rules to the entire maritime transport market sector under Article 101 and 102.
Substantive Rules
Article 2 of Regulation 4056/86 excluded the exception of ‘technical agreements’ from Article 101. Article 3 and 4 of Regulation 4056/86 provides for block exemption for liner conferences. Linear conferences refer to agreements that are formed between carriers of maritime transport services. Regulation 4056/86 was then repealed by Regulation 1419/2006 but Article 1 of the Regulation provided transitional relief until 2008 for linear conferences that benefited from the block exemption. To provide guidance to interested stakeholders who were affected when block exemption ended, Guidelines were provided by the Commission for application of Article 101 TFEU to maritime transport services. It included the extent to which the competitors may exchange information by infringing Article 101.
Block Exemption for Shipping Consortia
Commission gets the authority to grant block exemption to some of the shipping consortia by Council Regulation 246/2009. The Commission adopted Regulation 906/2009. It confers block exemption on shipping consortia when they are for international liner shipping services. In a circumstance where consortium includes restrictions like price-fixing to third parties, the block exemption does not apply.
Practical Application of the Competition Rules to Maritime Transport
The Commission and operators in the maritime transport market sector do not always maintain a harmonious relationship. In several judgments, the Commission has found a violation of Articles 101 and 102. In the case of Secretama, the first time a fine was imposed on an operator under Article 16(3) of Regulation 4056/86 for giving incorrect information to Commission when it was requested.
The Commission is also entitled to impose fines when operators fail to submit to investigations under Article 18 of Regulation 4056/86. The first decision of the Commission to impose a fine under Article 101 and 102 for substantive infringement was taken in case of French West African Shipowners’ Committees. The substantive infringements arose under both Article 101 and 102.
In the case of Cewal, the fine of approximately Euro 10 million was imposed on members of the liner conference by Commission as they used their dominant position collectively to remove their main independent competitors. They lowered their freight rates, offered loyalty rebates, etc. these practices were found to be abusive by the Commission.
Air Transport
Legislative Regime
There have been several measures taken for the liberalization of air transport. In 1987, the first Directive was adopted. Council of Ministers has issued the Directive on fares to check on scheduled air services between the Member States and on sharing the passenger capacity between the Member States. In 1990, a Regulation 2343/90 was issued for air carriers so they can access scheduled intra-EU routes. In 1991, the Regulation 249/91 was adopted by the Council. It provided for air cargo services between the Member States. Regulation 295/91 which was later replaced by Regulation 261/2004 was regarding compensation to passengers who were denied to board for air transport. Regulation 2407/92 included provisions regarding the license of air carriers and Regulation 2408/92 provided for the provision for EU air transport carriers to have access to intra-EU routes. Regulation 2409/92 establishes that the air transport carriers of the EU can decide on and set their own fares. Regulation 95/93 provides a common set of rules on airports for the allocation of slots to ensure that they are made available on an open and non-discriminatory basis. Regulation 2299/89 established a Code of Conduct for Computerised Reservation Systems.
Despite these Regulations, free competition in air transport markets does not exist, some of the causes are lack of slots at premier airports, bilateral agreements between the individual Member States, other countries having access to air space, etc.
Earlier, air transport was subject to competition rules under Regulation 3975/87. The power of Commission for enforcing the competition rules in air transport market sector to air transport services between EU airports and air transport services which are between EU airports and other countries(not EU airport) can only be controlled by Commission according to the procedure which is provided for Articles 104 and 105 TFEU. this position is made simpler by application of Regulation 1/2003 and Regulation 41/2004 which lays down that the Commission’s powers under Regulation are not limited to those within the EU but apply to all routes.
Practical Application of the Competition Rules to Air Transport
Many cooperation agreements have been reviewed by the Commission under Article 101 in the air transport sector. Individual exemptions were granted by the Commission to cooperative agreements for the cases which were before Regulation 1/2003.
For example, Lufthansa/SAS, Australian Airlines/ Lufthansa, Societe Air France/Alitalia Lienee Aeree Italiane SpA and Austrian Airlines/SAS. The cases which arose prior to Regulation 1/2003, the Commission sometimes granted individual exemptions to cooperation agreements that were subject to conditions and obligations. that was true of the first three cases cited above.
After Regulation 1/2003, the Commission thought of closing the Australian Airlines/SAS caseon the basis of commitments that were offered by the parties under Article 9. However, the case did not reach a final decision.
In the case of British Airways/American Airlines/Iberia, the Commission accepted commitments under Article 9 of Regulation 1/2003 that would lead to the divestment of slots at London Heathrow and Gatwick airports and associated remedies that would facilitate entry and/or expansion on air routes between London and various US cities such as New York, Boston, Dallas and Miami; as a consequence the Commission closed its investigation. The Commission worked closely with the US authorities for this case, especially with the Department of Transportation.
In some cases, where there’s an alliance between two airlines then it may fall to be considered under the EUMR rather than Article 101. This happened in the case of Alitalia/KLM, where the Commission regarded the alliance as a full-function joint venture, even though the parties did not create a corporate vehicle for the cooperation; the Commission cleared the merger after the parties agreed to modify the transaction to address its competition concerns. The Commission cleared a merger subject to conditions in the case of Air France/KLM, the clearance was unsuccessfully challenged in the General Court by a third party.
In the case of Ryanair/Aer Lingus, the Commission prohibited the proposed acquisition of Aer Lingus by Ryanair, a decision that was upheld on appeal to the General Court.
The Commission also blocked the acquisition which was proposed by Olympic Airlines of Aegean Airlines which would have led to a quasi-monopoly on the Greek air transport market. Mergers were cleared after Phase 2 investigations which can be seen in the cases of Lufthansana/SN Holding (Brussels Airlines)and Lufthanasa/Austrian Airlines on the basis of remedies offered to address the concerns about a reduction of competition on various routes. The remedies basically concentrated on the divestment of slots at certain airports which resembled those in the British Airways/American Airlines/Iberia case.
Another Phase 2 investigation, of KLM/ Martinair, concluded in an unconditional clearance. There have been many several other mergers between airlines that were reviewed and were cleared by the Commission. Apart from the cooperation agreements and mergers in the air transport sector which were mentioned, the Commission also proceeded against cartels (or alleged cartels) in this air transport sector.
It was seen in the case of SAS/Maersk Air, that the Commission imposed fines of Euro 39.4 million on SAS and Euro 13.1 million on Maersk for sharing market sector, especially because of the consequence that SAS acquired a de facto quasi-monopoly on the Stockholm to Copenhagen route. On appeal, the decision of Commission was upheld. In 2010, a fine was imposed by Commission of Euro 799 million on 11 airlines for participation in a cartel under the provision of air cargo services.
In the UK the CC considered that BAA’s ownership of seven UK airports was not good and beneficial for competition in the market sector and using its powers under the Enterprise Act 2002, required BAA to divest itself of three airports.
Regulated Industries
Demonopolization, Liberalization, and Privatization
A monopoly existed in the market sector until recent years. With the development of infrastructure facilities and services in the sector, the countries introduced economic reforms and competition laws. It further, resulted in increased competition in market sectors. The introduction of economic reforms and competition laws in the market sector also resulted in privatization and demonopolization. In order to make the introduced initiatives effective, it was important to implement those initiatives within a sound framework of competition law. Competition law provides for the policies within which these initiatives can work effectively.
Monopoly traditionally existed in the market sector as the infrastructure facilities and services were provided only to state-owned enterprise or to private enterprises. There was a restriction on entry to the market sector. It was later realized that the monopoly is likely to restrict the development of the market sector. Many state-owned enterprises in most sectors failed and as a result of it, in the 1990s there was an increase in private sector enterprises. It was seen that the private enterprises reduced costs and increased supply in the competitive market scenario and therefore, reduced the financial burden which was imposed by the market sector.
Simultaneously, it should also be recognized by the governments that the interventions imposed must be more liberal and explicit so that the possibility of misguided interventions is reduced.
EU law and the Liberalization of Markets
Considerable steps have been taken by the EU commission towards the liberalization of utilities and the development of a single market. Directives were adopted in the sectors of electronic communications, post and energy markets in order to enhance competition in the market sectors. EU Commission also applies the principles of competition law to the sectors. The market sectors can also be liberalized removing unjustified public restrictions of competition. The regulatory rules can also be removed to make the market sector liberal. The Commission and NCA’s can also pinpoint and criticize the restrictions which are imposed by State in relation to competition in the market sector. The practice of criticism by the EU Commission and NCA is known as ‘competition advocacy’.
Regulatory Systems in the UK for Utilities
Regulatory regimes were provided for the enterprises which were established as private enterprises in the 1980s and 1990s in sectors like telecommunications, gas, electricity, water, aviation and rail transport. The regimes provided guidelines on various matters along with guidelines for price control. According to the guidelines on price control, under normal circumstances and in the normal process of competition, competitive prices to consumers would not be faced.
Many other regulatory obligations were imposed like to avoid certain cross-subsidies and share essential facilities, not to discriminate unduly between market participants, etc. the regulatory in sectors act as a surrogate for competition. This is done by imposing constraints on enterprises. The regulators also have the responsibility to protect consumers, promote competition in the market sector and control on prices by price control.
The operation of Regulated enterprises is subject to licenses that impose obligations on them and checks on the conduct. If the subjection is removed, Regulated enterprises can be discriminatory and exploitative and can hinder fair competition in the market sectors. The licenses are monitored by the regulators. In a situation of a dispute with regulated enterprise, with regards to the terms licenses, regulators can make a ‘modification reference’ to the Competition and Markets Authority (CMA). The Competition and Markets Authority then decides on the matters of dispute. The Sectoral regulators also have the power to decide on the disputed matters.
Price Caps
One of the problems which are faced by the regulated industry is price control. One of the main features of Competition law is that the price is not determined by the State itself or an agency by it is determined by the market. One of the main problems which exist in the regulated industry is the control of prices. A central proposition of competition policy is that the price should be determined by the workings of the market and not by the state or an agency of the state.
Competition authorities can take action against excessive prices. In cases where there is a monopoly or near-monopoly, especially in relation to services like voice telephony, broadband services or the supply of electricity then price control becomes necessary. Where this is the case then various techniques can be deployed by Commission authorities to determine what the price should be. One method of capping prices is to fix an upper limit on the rate of return which is permissible on the capital invested in the industry. However, there’s a possibility that this may encourage regulated bodies to over-invest so that they can expand the base on which they can earn profits. This technique may increase profits but it does not improve efficiency.
In the UK there is a formula to control price function. The price control function is exercised through the RPI minus X formula. The regulated enterprises are allowed to increase their prices only by the increase in the Resale Prices Index, less a particular percentage as fixed by the relevant regulator. Over a period of time, this formula leads to a reduction in prices in real terms, thereby benefiting the consumers and forcing the privatized industry to increase efficiency in so that they can continue earning the profit. The ‘RPI minus X’ formula is relatively simple to apply as the regulatory simply sets the figure and after that, the only thing which is necessary is to check that the price is not being exceeded. When deciding the value of X for the purpose of ‘RPI minus X’, after this the regulator is then asked to determine the extent to which added efficiency is possible within the industry in question.
Electronic Communications
EU Law
Legislation
There are two ‘streams’ or ‘sets’ of Directives in relevance with the electronic communications sector. The first consists of Directives adopted by the Council of Ministers and the European Parliament under Article 114 TFEU to bring about harmonization necessary for the establishment of an internal market.
A series of Directives that dates back to 1990, was adopted under Article 114 and by the end of that decade, the telecommunications, media and information technology sectors were converted to a single regulatory framework. The regulatory framework was then called to be electronic communications and it should cover all transmission networks and services.
This led to the adoption of second set of directives; a package of five Directives and one Decision in 2002. The package which was adopted was amended in 2009 by two further Directives. Under this regulatory framework, national regulatory authorities are required to impose regulatory obligations on enterprises that are in the electronic communications market sector and has significant market power. For the purpose to impose regulatory framework in any market sector, the meaning of the word dominance shall be used and be interpreted in the same way as given in Article 102. The Commission also published a Recommendation on Relevant Product and Service Markets which are regulated in accordance with the rules set out in the package. A new Recommendation was published in 2007 and 2002 by the Commission in which the guidelines were published.
Application of EU competition law
The Commission has been actively applying the competition rules to the telecommunications sector for many years. In 1991, the Commission published Guidelines on the Application of EEC (European Electronic Communication) Competition Rules in the Telecommunications market sector. Part I is entitled ‘Framework’ and discusses the relationship between the competition rules and sector-specific regulation. Part II deals with market definition, and Part III provides a detailed analysis of the application of the principles of competition law to access agreements.
The Commission has adopted numerous favorable decisions related to strategic alliances in the electronic communications sector and has also approved the GSM MoU Standard International Roaming Agreement, which enables GSM mobile telephone users in one country to use the network in another country.
In the case of T-Mobile Deutschland/O2 Germany, the Commission authorized an agreement that would enable the parties to roam on one another’s 3G networks. On appeal, the General Court critically examined the Commission’s finding that the roaming had the effect of restricting competition and so the court partially annulled the decision.
UK Law
Prior to OFCOM (Office of Communications), the Director-General of Telecommunication had powers to regulate the media and communications industry. The position of the Director-General of Telecommunications has now been abolished, and his powers have been transferred to OFCOM. OFCOM is a single regulator for the media and communications industries and has considerable regulatory powers under the Communications Act 2003. OFCOM is required by the EU regulatory framework to review certain markets to determine whether the market is ‘effectively competitive’. If OFCOM determines that a market is not effectively competitive it must identify enterprises and impose specific regulatory obligations or maintain or amend such obligations where they already exist.
OFCOM has concurrent powers with the OFT to apply Articles 101 and 102 TFEU. A Guideline has been adopted for it under Competition Act 1998. The Guideline provides for the application of competition in the Telecommunications Sector and explains the application of the competition rules in this sector. It especially discusses the approach that will be taken to determine the costs in a network industry such as telecommunications.
OFCOM has adopted numerous decisions in which it concluded that there had been no infringement of the EU or the UK competition rules. Many disputes in the electronic communications sector are now being dealt with, not under competition law but under sector-specific legislation. In practical terms, this may be a simpler and quicker way to address problems of market failure. OFCOM also has concurrent powers with the OFT in relation to market investigation references under the Enterprise Act 2002.
Postal Sector
EU Law
Legislation
The development of EU competition law and policy in the postal sector has come about because of the initiatives which were taken by the Council of Ministers and the Commission.
The Postal Services Directive (97/67/EC) is the Directive which established a regulatory framework for the EU postal market sector and The universal service obligation (USO) is the core of the Directive (97/67/EC). The Directive provides flexibility to the EU Member States and also allows them to adopt elements of domestic postal services according to their own needs.
The Directive lays down the following objectives:
Tariff principles and transparency of accounts for universal service provision;
the setting of quality standards for universal service provision;
the harmonization of technical standards;
the creation of independent national regulatory authorities.
As regards the 1st two matters the Directive establishes minimum standards and maximum limits to the permissible monopoly. Member States are enabled to confer lesser, but not broader, monopoly rights than those set out in the Directive. Article 7(1) provides essentially that the services which may be reserved (that is which may remain monopoly) shall be ‘the clearance, sorting, transport, and delivery of items of domestic correspondence, provided they weigh less than 350 grams. The monopoly was reduced to letters weighing less than 50 grams by Directive 2002/39/EC. The monopoly was abolished by Directive 2008/06/EC in 2010; the remaining Member States followed suit two years later. All postal services in the EU are open to competition. The Directive 2008/06 also contains provisions relating to the universal service and the powers and role of independent national regulatory authorities. The Commission and the national regulators together operate within the framework of the European Regulators Group for Postal Services.
Application of EU Competition Law
The Corbeau Case and the Universal Obligation
There is general agreement among the Member States that there are societal benefits in the maintenance of universal postal services, of a specified quality, which must be provided in all Member States at affordable prices for the benefit of all users, irrespective of their geographical location. People living in remote rural areas should have access to these services on no less favorable terms than those living in urban places; there is an obvious benefit, in terms of social unity, if all members of society can communicate with one another through the postal system, no matter where they live. A complex policy issue is to determine whether, and if so how large a legal monopoly needs to be granted to the undertaking charged with performing this universal service in order to enable it to perform its duties; this question turns in part on how costly the universal service obligation is to the undertaking that has to perform it. Clearly the maintenance of a universal service is likely to be expensive, and the relevant provider will need to be assured of sufficient profits to pay for it; competitors should not be able to ‘pick the cherries’ or, depending on taste, ‘skim the cream’ and earn profits from profitable services, while leaving the unprofitable services to the undertaking charged with the universal service obligation.
These issues came before the Court of Justice in the Corbeau Case, Corbeau had been charged with infringing a Belgian criminal law which conferred a monopoly on the regicide Posts to collect, carry and distribute post in Belgium. Corbeau offered local courier services, but not a basic postal service. The Belgian court sought a prior ruling on the compatibility of the monopoly conferred by Belgian law with Articles 102 and 106 TFEU. The task for the Court of Justice was to determine whether Belgium was in breach of Article 106(1) in maintaining in force a measure contrary to Article 102, or whether the rights conferred on Regicidal Posts satisfied the terms of Article 106(2). This provision does permit a restriction of competition or even the elimination of all competition- where this is necessary to enable an undertaking to carry on the task entrusted to it, at para 15 of its judgment the Court noted that it could not be disputed that Regicidal Post was entrusted with a service of common economic interest , the question was the extent to which a restriction of competition was necessary to enable it to carry on that function. The Court continued at para 17:
The starting point of such an examination must be the basis that the obligation on the part of the undertaking entrusted with that task to perform its services in conditions of economic balance presupposes that it will be possible to counterbalance less profitable sectors against the profitable sectors and hence justifies a restriction of competition from individual undertakings where the economically profitable sectors are concerned.
In the following paragraph the Court of justice notes that, in the absence of a monopoly, it would be possible for individual undertakings to concentrate on the economically profitable operations’ (in other words, to ‘cherry-pick’). But the Court went on, at paragraph 19: However, the barring of competition is not justified as regards specific services removed from the service of general interest which meet special needs of economic operators and which call for certain additional services not offered by the traditional postal service, such as collection from the senders’ addresses, greater speed or reliability of distribution or the possibility of changing the destination in the course of shipment in so far as such specific services, by their nature and the conditions in which they are provided, do not compromise the economic balance of the service of common economic interest performed by the holder of the exclusive right.
In paragraph 20, the Court said that the application of the foregoing tests would be a task for the national court dealing with the case. The importance of this carefully crafted judgment is clear: postal monopolies may be consistent with EU competition law, but subject to the important tests set out in paragraph 19. That paragraph makes clear that it is possible, as a matter of law, that a Member State may have conferred a monopoly that is wider than is legal for the purpose of maintaining the universal service, and that, where this is the case, the monopoly rights in question may be ineffective. The first package of measures in the postal sector attempts on the one hand, in Directive 97/67, to determine the permissible limits of the legal monopoly and on the other, in the Commission’s Notice, to explain the circumstances in which a legitimate monopolist might nonetheless be found guilty of infringing the competition rules. The Commission has itself taken action to strike down monopolies that go beyond what is justified under the Corbeau judgment.
The Commission’s Notice on Competition in the Postal Sector
The Commission’s Notice includes details regarding the application of competition law rules in the postal market sector. It also lays down the procedure and expectations of the Commission to apply the competition rules in the postal sector. The Commission’s notice on competition in the postal sector is divided into nine parts. After a preface and a discussion on the terms of the Notice, it considers market definition in the postal sector.
Para 3 of the notice, discusses the issue of cross-subsidization, the position of public undertakings and the freedom to provide services are then discussed which then followed by state measures and state aid. Part 8 discusses Article 106(2) TFEU in relation to services of general economic interest.
Cases and decisions
In the case of Spanish International Courier Services, it was held by the Commission held that it was unlawful for Spain to reserve to the Spanish Post Office as the country already has a monopoly on the basic postal service which is an ancillary activity of international courier services. The Spanish Post Office was not able to meet the demand for international courier services practically and effectively. It was also seen that the postal service failed to cover the entire territory of Spain and also it did not extend its services to other countries in the world. There was a limited supply and technical development was also slow because of the reasons mentioned above as per Article 102(2)(b) of TFEU.
In Slovakian postal Legislation v Commission case, the Commission held that Slovakia had infringed Article 101 of TFEU as the country extended the monopoly of the Slovakian Post Office over the basic letter service to hybrid mail services.
In Deutsche Post case, a fine of Euro 24 million was imposed by the Commission on the incumbent operator in Germany for offering loyalty rebates to customers of its business parcels service, and it also observed that the business was guilty of predatory pricing.
In the case of New Postal Services, the business was in Italy and it guaranteed delivery in Italy on a Day-or-Time basis. The Commission observed that the Italian Decree was excluding market competition for a specific type of hybridized electronic mail service and thus, was contrary to Article 106(1) in conjunction with Article 102.
In Reims II case, the Commission observed that when there is an agreement between the postal operators of the EU and other operators for payment of an amount when a letter is posted to be delivered in the territory of other operators then in such cases, criteria of Article 102(3) is satisfied. The amount paid is known as ‘terminal dues’.
There has been a long-running battle between the Union Francaise de l’ Express and La Poste of France. A fine of Euro 2.5 million was imposed on the Belgian postal operator by Commission as the company was giving a more favorable tariff for its general letter mail service to those customers who also used its new business-to-business mail service.
In the case of UPS v Commission, rejection of a complaint by the Commission was upheld by the General Court. UPS filed a complaint that Deutsche Post was abusing its dominant position as it was using the income from its reserved letter market in order to finance the acquisition of a shareholding in the express parcels operator DHL and was hence, guilty.
UK Law
UK postal services competition law is similar to that of EU competition rules on the postal sector. OFCOM regulates competition law in the territory. On issues relating to fair access, commercial terms, universal service, and competition law are dealt with by OFCOM. A number of Acts is applied by the UK for the postal market sector. Under the Postal Services Act 2011, it is the primary duty of OFCOM to carry out functions to secure the postal service sector.
Energy
Energy Sector in European Union was a monopoly and it was only after the mid 90’s that the Member States decided to open the market sector to competition. This resulted in the formation of an internal energy market. Numerous competition issues resulted due to a high concentration of pre-existing market participants and a lack of opportunity for entry in the market for new participants. In the 1990s, most of the market participants i.e. companies were still owned or controlled by the European Union and the Member States publically. The liberalization of the energy market was first brought in force in 1996. After that several other legislation was adopted which gradually resulted in market integration from market liberalization.
EU Law
Competition law works for the protection of competition between different market participants in the market sector. EU Competition law is, therefore, an instrument to achieve the aim of competition law. The main motive is to avoid harmful competitive practices of companies and to achieve effective competition in the market sector.
Legislation
Antitrust
Through this instrument, the European Commission can impose fines within its powers on companies that are dominant and are exercising anti-competitive behaviour. It also determines whether the behaviour of the dominant company is on the whole EU internal energy market or only on the internal electricity market.
Merger Control
This instrument is used by European Commission to make sure that companies don’t merge up to become dominant as it may impede effective competition in the market sector. Merger control also allows new companies to enter the market sector as it keeps check that the market shares are not limited to a few dominant dominant companies.
State Aid Control
Companies that receive state aid i.e. government support usually has an advantage over its competitors. Through this instrument, state aid is prohibited unless there is a reason to provide it and it should only be for economic development. European Commission ensures that the prohibition of aid is complied with effectively and applied only where it is required. State aid control is used to overcome market failures by the European Commission. It ensures a market sector which is free from undue competition.
Application of EU Competition Law
The Commission has investigated a number of agreements in the energy sector. The privatization of the electricity industry in Great Britain led to a decision that Article 10 (3) applied to the Scottish Nuclear, Nuclear Energy Agreement. In 1995 the Commission gave its approval to a joint venture established by nine gas companies to construct and operate a gas interconnector between the UK and Belgium. The Commission has also approved a number of long term agreements for the supply of gas and electricity. However, it has taken action (or is taking action) in a number of cases involving territorial restrictions and profit-sharing mechanisms in gas supply agreements.
In the case of Ijssel power station, the Commission held that an agreement between all the generators of electricity in the Netherlands and a joint subsidiary that only the latter could import and export electricity to and from that country entailed a restriction of competition that infringed Article 101(1).
Following the Commission’s sector-based inquiry, it brought a number of cases under Article 102 in the energy sector. This enforcement action led to a striking number of decisions under Article 9 of Regulation 1/ 2003, in which structural commitments were offered to, and accepted by, the Commission to address its concerns about barred practices by vertically-integrated undertakings. In Romanian Power Exchange /OPCOM, the Commission imposed a fine of just over Euro 1 million on OPCOM, the operator of the only power exchange in Romania, for discriminating on the basis of nationality and place of establishment on the market for services facilitating short term trading in electricity in Romania.
The Commission has investigated several mergers involving undertakings in the energy sector. The Commission prohibited proposed acquisition by EDP, the existing electricity company in Portugal, of GDP, the existing gas company; the Commission’s decision was upheld on appeal to the General Court.
UK Law
The regulatory regimes for the gas and electricity sectors are respectively contained in Gas Act 1986 and the Electricity Act 1989. Both sectors are regulated by the Gas and Electricity Markets Authority (GEMA), which is assisted by the Office of Gas and Electricity Markets (OFGEM). GEMA has concurrent powers with the CMA to apply Articles 101 and 102 TFEU. A Guideline has been adopted under the Act, the Competition Act 1998:the Guideline set down rules to be applied in the energy sector in Northern Ireland. GEMA imposed a fine of Euro 46 million on National Grid for abusing its dominant position in the market for the supply of domestic gas meters. On appeal, GEMA’s finding of abuse was upheld by the Competition. Appeal Tribunal (CAT) and Court of Appeal, but the fine it had imposed was reduced to EURO 15 million.
In 2008 GEMA conducted an Energy Supply Probe and concluded that in important respects the energy markets were working well. Amid popular concerns about energy prices, however, in 2013 the Government announced that OFGEM (working with the CMA) would review the state of competition in energy markets every year. Following its first annual review, in 2014 GEMA found that there were features of the markets for the supply and acquisition of energy that was harmful to competition, such as vertical integration and weak customer responses, and made a market investigation reference to the CMA.
Water
The Water Industry Act of 1991 established a Community called the Water Services Regulation Authority in the UK. The community was regulated by the Office of Water Services (OFWAT). The Water Services Regulation Authority (WSRA) fixes the prices for providing water to the households. The competition in the market sector was increased after the Water Act 2003 was introduced as it provided for water services to non-household users and increased opportunities for the market participants. The Water Act 2014 further increased opportunities for market participants in England as the retail and wholesale competition was introduced in relation to the supply of water.
WSRA has powers to apply Article 101 and 102 of the TFEU in the market sector. A guideline was established for managing the Water and Sewerage sectors under the Competition Act 1998. In some instances, there have been complaints regarding exclusionary and dominant behaviour of the incumbents in the market sector but the WSRA has proved that there was no interference by the incumbents or complaint itself was one that could be pursued under competition law.
In the case of Albion Water v. WSRA, WSRA rejected two complaints which were against an incumbent water undertaking, Dwr Cymru but on appeal, it was found that the incumbent undertaking was actually guilty as it used its dominant position to infringe on the rights of Albion Water. had rejected two complaints against an incumbent water undertaking, Dwr Cymru. WSRA’s decision was set aside and declared to be null.
Conclusion
The European Union competition law deals in different sectors of the European Territory. It works for regulating fair competition practices of market sectors. The European Commission aims to guarantee fair pricing to consumers as well. EU Commission looks on and investigates anti-competition practices, mergers and state aid in order to ensure equal opportunities for all market participants in different sectors. The sectors like nuclear energy, military equipment, and agriculture are completely or partly excluded from EU competition law. The coal and steel market sector are dealt with under the European Coal and Steel Community treaty. EU competition rules apply to the transport sector, the electronic communication sector, the postal sector, and the energy sector.
This article is written by Madhuri Pilania, a first-year student pursuing BBA.LLB from Symbiosis Law School, Noida. This article deals with the Employees Compensation Act, 1923.
Introduction
Every employee needs a secured job and wants to get compensation for the expenses he has incurred. This is a requirement that needs to be fulfilled by the company whether it is small scale or large scale. After all, a company’s success depends on its employees. Therefore, the protection of employees’ and their safety is a top priority of a company. This article is all about how much compensation is given, under what conditions, who is entitled to claim compensation and a lot more.
Main features of the Act
The “Employees Compensation Act, 1923” is an Act to provide payment in the form of compensation by the employers to the employees for any injuries they have suffered during an accident. Earlier this Act was known as the Workmen Compensation Act, 1923. When the employer is not liable to pay compensation-
If the injury does not end in the entire or partial disablement of the employee for a period exceeding three days.
If the injury, not leading in death or permanent total disablement, is caused by an accident which is directly attributable to:
The employee having at the time of the accident is under the influence of drink or drugs;
The willful disobedience of the employee to an order if the rule is expressly given or expressly framed, for the purpose of securing the safety of employees; or
The willful removal or disregard by the employee of any safety guard or other device which has been provided for the purpose of securing the safety of employees.
Principles Governing Compensation
Who will be receiving the compensation on behalf of the deceased?
A widow or a minor who is a legitimate son or unmarried daughter or a widowed mother is entitled to compensation;
If the family of the deceased is wholly dependant on the earnings of the employee at the time of his death or a son or daughter who has attained the age of eighteen years;
A widower;
A parent other than a widowed mother;
A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or illegitimate or adopted if married and a minor or if widowed and a minor;
A minor brother or an unmarried sister or a widowed sister if a minor;
A widowed daughter-in-law;
A minor child of a predeceased son;
A minor child of a predeceased daughter where no parent of the child is alive, or;
A paternal grandparent if no parent of the employee is alive.
Nature of Liability
Imagine what will happen if an employee who is working putting in great benefits gets to know that he/she will not be getting any benefits. After all, people tend to do something to get something in return. When the principle of vicarious liability is applied, the employer is liable to pay compensation irrespective of his/her negligence. Employer anticipates it as damages payable to the employees but it is actually a relief for them. An Employer becomes liable when employees have sustained injuries by any accident or unavoidable situations during the course of employment. The question arises: Will an employee who is a part-time worker would still be entitled to the benefits of the Act? Yes, the employer will still get the benefits of the Act.
Who may get the compensation? To what extent the employers are liable?
To be eligible for the Employees’ Compensation Act’s benefits there are some requirements which need to be fulfilled:
You must be an employee of the Company or Organisation.
You must have been injured at the workplace or the job was as such that you have been injured.
Doctrine of added peril
When an employee performs something which is not required in his duty, and which involves extra danger, the employer cannot be held liable to pay compensation for the injuries caused. In the case of Devidayal Ralyaram v/s Secretary of State. It was ruled that the doctrine of added peril was used as defense and the employer was not liable for the compensation.
Adjudication of Compensation
The adjudication is done by the commissioner in calculation of the amount of compensation. The quantum of compensation is calculated from the date of the accident.
Self-inflicted Injury
If a worker inflicts an injury to himself or herself it is a self-inflicted injury. The injury may be intentional or accidental but the employer is not liable for such injuries. There are some types of jobs that have a high risk for self-inflicted injuries which include-
Law enforcement
Medical employees
Farmers
Teachers
Salespeople
Contributory negligence
Employees owe a duty to their employers to carry out their work with reasonable care so as to avoid accidents and injury. Employers are vicariously liable for the negligence of their employees but are entitled to claim a contribution or indemnity from their negligent employee in appropriate circumstances. So if there is negligence on the part of both employee and the employer then the employer will be liable to pay compensation to the extent of his own negligence, not of the employee. Hence, the compensation amount may reduce as the employer will not be liable for the negligence of the employee.
Employees’ Compensation
Section 3: Employer’s liability for Compensation
Employer’s liability in case of occupational diseases
There are certain occupations which expose employees to particular diseases that are inherent-
Infra-red radiations;
Skin diseases due to chemical or leather processing units;
Hearing impairment caused by noise;
Lung cancer caused by asbestos dust and Diseases due to effect of extreme climatic conditions.
Example- Miners are at a risk of developing a disease called silicosis. Sometimes miners also develop lung diseases due to exposure to dust. The people who work in agricultural lands, develop diseases through spraying of pesticides. These pesticides are toxic in nature and are health hazards to many farmers.
There are thousands of workplaces where occupation itself is dangerous in nature.
Provided that the employer shall not be liable:
(a) if any injury does not result in the total or partial disablement of the employee for a period exceeding three days;
(b) if any injury does not result in death or permanent total disablement caused by an accident which is directly attributable to-
if the employee is under the influence of drink or drugs at that time,
the willful disobedience of the employee to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of employees,
the wilful removal by the employee of any safety guard or other devices which he knew to have been provided for the purpose of securing the safety of employees.
Part A of Schedule III
If an employee contracts any disease that is mentioned in occupational diseases or the employee is employed for a continuous period of six months (this does not include the service period) and not less than that, the employer shall not be liable to pay the compensation as the disease will be deemed to be injury and it shall be considered as out of course of employment.
Part B of Schedule III
Diseases caused by phosphorus or the toxic substance present, all include exposure to risk concerned.
Diseases caused by mercury or toxic substances found exposure to the risk concerned.
Diseases caused by benzene or the toxic substances found which pose risk to the concerned.
Diseases caused by nitro and amino toxic substances of benzene involve risk to the concerned.
These diseases are considered occupational diseases, and they are deemed to be out of the course of employment and therefore the employer will not be liable to pay the compensation.
Part C of Schedule III
If an employee contracts a disease that is mentioned as an occupational disease which is specific to that employment, during a continuous period that is less than the period mentioned under this part of Schedule 3 is known as occupational diseases. It will be deemed that the disease has arisen out of and in the course of the employment, the contracting of such disease will be deemed to be an injury by accident within the meaning of this Section:
Pneumoconiosis is a disease caused by sclerogenic mineral dust (silicosis, anthracosilicosis, asbestosis) and silico-tuberculosis if silicosis is an essential factor in causing the resultant incapacity or death, such diseases are considered as occupational diseases.
For instance, an office of KLM Consultant was located in a new place. The new place had large areas, and a new wallpaper was also placed, the area painted, and a new carpet was also laid. Employees worked in cubicles. However, within a month of shifting, one of the employees, Rahul Sharma complained of skin allergy. At the new workplace, there were no windows in the cubicle where Rahul had shifted. A photocopy machine was near to his cubicle. Since his shifting, he started complaining of unpleasant odors, a feeling of excessive tiredness and irritation in eyes, nose, and throat.
Click Above
Also, some paint boxes were kept at the office which was still not removed even after his complaining. He also complained about the increasing noise and distraction there. The rashes which started a week ago with itching and redness now turned more grievous and had spread from the initial location of the hand to surfaces of the wrists. Due to his allergic condition, Rahul had to visit a doctor who advised him to avoid going out. As Rahul had to incur expenses on visiting the doctor and medicines, he approached his employer for compensation.
The company had bought a workplace compensation insurance policy from the insurance company. The Company KLM Consultant considered it as an occupational disease and approached the employee’s compensation insurance company to recover its legal liability and hence pay the compensation to Rahul.
After checking all the documents submitted by Rahul, the insurer considered it as an occupational disease and agreed to settle the claim. The insurer covered medical expenses incurred by Rahul on his treatment.
Section 3(3)
The Central Government or the State Government gives a notification in the Official Gazette which species the diseases which will be deemed to be occupational diseases under the provisions of sub-section(2) and in the case of notification by the state government, these diseases are declared by the Act.
Section 3(4)
No compensation will be payable to an employee unless the disease is directly attributable to a specific injury that arises out of or in the course of employment.
Employment
Underemployment, an employee is one who works under the employer and has to work as per the terms of the company or the employer.
Personal injury
A personal injury can be compensated only in some circumstances. Injury sustained by the employee must be a physical injury. Example- If a person is discriminated on the basis of:
Age
Sex
Sexual Orientation
Transsexual person
If a person is having a disability
Religion and belief
Colour, Nationality
Pregnancy and Maternity leave
Marriage or Civil Partnership
In the case of Richmond Adult Community College v McDougall (2008), M has suffered injuries mentally, psychological disorders as he was offered a job as a database assistant in a college. But when it learned about the medical history and the psychological disability M was suffering from, the college withdrew the offer. M brought a disability discrimination claim from the college. The tribunal accepted that m was suffering from mental impairment but she was not disabled within the meaning of Section 1 of the Disability Discrimination Act, 1995.
The Act provides that compensation is provided to employees and their dependants only if the injuries from the accident includes occupational diseases. The accident must occur in the course of employment the Act also applies to railway servants and persons employed in any such capacity as specified in Schedule 2 of the Employees Compensation Act. The people employed in factories, mines, plantations, vehicles, construction works, and certain other hazardous occupations come under Schedule 2.
A fatal accident is one where there is death or a high risk of loss of life of the employee. In the case of a fatal accident, the employee might die or suffer severe disablements and injuries. On the other hand, non-fatal accidents are those accidents that do not have a high probability of death. In the case of non-fatal accidents, the employee or the workman might suffer disabilities or any type of personal injury.
Both fatal and non-fatal accidents are covered by the Employees Compensation Policy, provided such accidents result in the mentioned contingencies in the act. Fatal accidents are taken as those which result in death, or permanent total disablement, permanent partial disablement or fatal injuries. If any of these contingencies occur, the employees’ compensation policy would pay the claim faced by the company. In the case of non-fatal accidents though, the covered contingencies might not occur. The employee or worker might not face any type of disablement or injury from such accidents. If the employee or workman suffers from a type of disablement and the disablement does not last for more than 3 days, the claim would not be paid. As a result, in several employees’ compensation policies, non-fatal accidents are usually not covered unless they cause a disablement which lasts for more than 3 days.
In Lister v Romford Ice and Cold Storage Company Limited, House of Lords upheld the decision of the Court of Appeal that an employee owed a duty in contract to his employer to take reasonable care in the use of a vehicle at work. In the event that the employer was liable to pay damages arising from the employee’s negligence, the employer could bring a claim to recover that loss from his employee.
Arising out of and in the course of employment
Three factors determine whether the act is arising out of or in the course of employment:
When the injury occurred, the employee must have been engaged in the business of the employer. Also, he must not be doing something for his personal benefit. The accident must occur where the employer was performing his duties.
The injuries occurred because of the risk incidental to the duties of the work or services or if the nature or condition of employment is inherent.
When there is a causal connection between the accident and the place where the employee is working, compensation is payable for the disability or death of the person according to the Employees Compensation Act. This is the Doctrine of Notional Extension of the workplace. The theory of this doctrine was executed in some cases:
There was a truck driver who was told by his employer to drive a petrol tanker. The driver found a leak in the tank and sought permission from the employer to look for the source of the leakage. While searching he lit a matchstick and the tank caught fire. The driver received burn injuries and died. It was held by the court that the family members of the deceased would be entitled to compensation since the accident took place at the workplace and in the course of employment.
Willful disobedience of orders or safety devices, etc.
If the employee disobeys the order expressly given or denies to obey any rules. The rules are made for the safety of the workmen but if they disobey the accident might happen.
The accident can take place if the employee willfully disregards the safety guards or any other device.If the employee knew that he has been provided safety for the purpose of securing employees and still disregards it is said to be done wilfully.
Compensation under Agreement
A compensation agreement ensures that an individual will get paid for the services he or she has provided to a company as an employee. A compensation agreement ensures that an individual will get paid for the services he or she provides to a company as an employee.
The question of compensation and negligence of employee
The question of compensation and negligence of employees is explained above in contributory negligence. When there is negligence on the part of the employer and employee, the employer is liable to pay compensation only to the extent of his negligence. He will not be liable to pay the full amount of compensation. So in the case of negligence of the employee, he will get only a part of compensation.
Alternative Remedy under Section 3(5)
Any right to compensation cannot be conferred by an employee in respect of injuries,if he has instituted a suit for damages in a civil court, in respect of any injury against any employer. No suit for damages shall be maintainable by an employee in any court of law.
Liability of Insurance Company
If any claim is due to the insurance company, the company cannot escape liability arising out of claim simply because notice was not issued to the company. For instance, if a notice is issued to the owner of the vehicle it is sufficient to get insurance from the company. In the case of Ram Karan v. Vijayanand the petition was filed by Ram Karan under section 482 of the code of criminal procedure because he had been illegally deprived of the benefits of the premature release. It was a violation of Articles 14, 19 and 21 of the Constitution of India. It was held that he was entitled to be released as per the rules.
Liability of Insurance Company or owner of vehicle
The question is whether the insurance coverage is available to the insured employer-owners? The owner of motor vehicles, in relation to their liabilities under the Employment Compensation Act on account of motor accident injuries caused to their employees would include additional statutory liability foisted on the insured employers under Section 40 of the Compensation Act.
Section 4: Amount of compensation
Where death results from the injury-
In case the employee dies, an amount equal to fifty percent of the monthly wages multiplied by a factor as per given in the Schedule 4 of the act or rupees eighty thousand is given whichever is more.
Where permanent total disablement results from the injury-
In case the employee has total disablement the amount given is sixty percent or rupees ninety thousand whichever is more.
Where permanent partial disablement results from injury-
In the case of permanent partial disablement, the compensation provided is equal to disability as sixty percent or rupees ninety thousand.
Liability of Insurer
The liability of the insurer is determined on the basis of the wages of the employee. The amount of wages is covered under the insurance policy. The company will be liable to indemnify only that portion of the amount which is under wages.
Causal connection between disease and occupation
The amount of compensation is paid when the insurer certifies that the injury is the result of an occupational disease.
Application of law of pleadings
An application for pleadings can be filed by the employee under the amount of compensation when he/she thinks that the amount that is decided is not appropriate with respect to the injury incurred.
Section 4-A: Compensation to be paid when due and penalty for default
When the employer does not accept liability for compensation to the extent claimed, he shall be bound to make a payment may be provisional and such payment shall be deposited to the employee or the commissioner.
The commissioner can direct the employer to pay interest in addition to the amount at the rate of twelve percent per annum. The rate of interest can also increase which may be specified by the Central Government.
Section 5: Method of calculating Wages
The basis for the calculation of compensation is the monthly wage system. It means the amount of wages deemed to be payable for a month. A case dealing with the method of calculating wages was Zubeda Bano v. Maharashtra Road Transport Corporation, 1990.
When the employer has been giving service to the employer during a continuous period of not less than twelve months preceding the accident, and when the employer is liable to pay compensation, the employee will be liable one-twelfth of the total wages. The employer is required to pay the compensation which is due for payment to employees in the last twelve months of that period.
Section 6: Review
Any half monthly payment can be reviewed by the commissioner under this act if there is an agreement between the parties or if there is an order given by the commissioner. A certificate of a qualified medical practitioner will be accompanied that there is a change in the condition of the employee subject to the rules and regulations under the Act.
Any half monthly payment may be reviewed, can be continued, increased, decreased or ended under the act or if the accident is found which resulted in permanent disablement. Such an employee may get less amount because he had already received by way of half monthly payments.
Section 7: Communication of Payments
Commutation of half- monthly payments- Any right to receive half- monthly payment agreement between the parties is commutation of payments. If the parties do not agree and the payment continues for not less than six months then on the application of either party, the Commissioner will redeem the payment of a lump sum amount which was agreed by the parties.
Section 8: Distribution of Compensation
Rights of heirs of dependents
Compensation will not be provided to the employee whose injury has resulted in death and lump sum payment will also be not provided who is under a legal disability. The compensation may be deposited to the commissioner and a direct payment will not be allowed by the employer to the employee.
In the case of a deceased employee, an employer can make payment to any dependant advances. The compensation will amount to equal to three months’ wages of the employee and the amount shall not exceed the compensation payable to the dependant. If the amount exceeds, it may be deducted by the commissioner from the compensation and repaid to the employer.
An amount not less than ten rupees which is payable may be deposited with the commissioner on behalf of that person.
The receipt of the commissioner will be sufficient discharge of the amount if any compensation is deposited with him.
When any compensation is deposited with the commissioner and he is payable to any person, he may if the person to whom the compensation is to be payable is not a woman or a person with a legal disability then he may pay the money to the person who is entitled to get the compensation.
When any lump sum amount is deposited with the commissioner and he is payable to a woman or a person who is legally disabled, such amount can be invested for the benefit of any other woman or a person with a disability. The commissioner may direct the amount in such cases.
Section 9: Compensation not to be assigned, attached or charged
Compensation not to be assigned, attached or charged, save as provided by this Act, no lump sum or half- monthly payment payable under this Act shall in any way be capable of being assigned or charged or be liable to attachment or pass to any person other than the workman by operation of law, nor shall any claim be set off against the same.
Section 10: Notice and claims of the accident
A claim for compensation cannot be entertained by a commissioner unless the notice of the accident is given in a certain manner.
Condonation of delay
It means that if the employee has delayed in claiming for the compensation it is said to be condoned.
Section 10A: Power to acquire statements from employers regarding fatal accidents
When a commissioner receives information about the death of an employee, because of an accident that is arising out of or in the course of employment, he can send a registered post or a notice to the employer of the employee, to submit a notice within thirty days of service. The statement or notice shall be in a prescribed form mentioning the circumstances under which the death took place. Also stating that whether the employer is liable or not to deposit compensation on the death of the employee.
Section 10B: Reports of fatal accidents and serious bodily injuries
A notice is required to be given to any authority when any law is in force for the time being, if any accident occurs on the premises of the employer which results in the death of employee or serious bodily injury the person on behalf of employer is required to give a notice within seven days of the death. This person shall send a report to the commissioner giving details of the death or serious bodily injury. It will be done only when it is provided by the state government that instead of sending the report to the commissioner it is sent to another authority to whom a notice can be given. “Serious bodily injury” means injury to a limb or permanent loss of sight or hearing or fracture of limbs or the insured person is absent from work for more than twenty days.
Section 11: Medical Examination
When an employee brings to the notice that he has met with an accident, before the expiry of three days he will be examined free of charge by a qualified medical practitioner.
If the employee refuses to submit himself or herself for examination or in any way obstructs the same, his right to compensation shall be suspended.
If the employer voluntarily leaves without having been examined in the place where he is employed, his right to compensation shall be suspended until he returns and offers himself for examination.
The incorporation of words “assessment of loss of earning capacity by the qualified medical practitioner” in Section 4(1)(c)(ii) has some purpose and it is not a case of ambiguity.
If there’s no provision that the Commissioner to see the compensation and he ignores the medical practitioner’s report, there is no question of avoiding it by Commissioner.
When a person(principal) is in the course of some business or trade, with any other person(contractor) for the execution of any work, the principal will be liable to pay the amount to the employee who has been employed in the business. The principal is liable because compensation has to be claimed from the principal and the amount of wages will be calculated by the employer.
When the principal will be liable to pay he will be indemnified by the contractor or any other person from whom the employee can claim compensation. The agreement between the principal and the contractor about the right amount and indemnity will be settled by the commissioner.
On, in or about the premises
If the accident occurred at a different place that is either on the premises of the workplace or any other place, the employee will not be able to recover compensation from the employer. Other than this no other constraint is there and employees can recover compensation from the contractor instead of principal.
Section 13: Remedies of employer against a stranger
When an employee recovers compensation as he suffered any injury and creates a legal liability of some other person other than the person by whom the compensation was paid, the other person will be entitled to be indemnified by the person who is liable to pay damages.
Section 14: Insolvency of employer
When an employer enters into a contract with any insurer in respect of any liability to an employee, and if the employer becomes insolvent or makes a composition or scheme or arrangement with his creditors in this event the company is insolvent. The employee can recover the amount of compensation if the company is winding up and it is the case of insolvency.
If in any case in the case of insolvency,the contract of the employer with the insurer is void or voidable due to any reason such as non compliance on the part of the employer, if the contract is not void or voidable the insurer may be entitled to prove in the proceeding or at the time of liquidation for the amount to be paid to the employee.
In case the liability of the insurer to the employee is less than the liability of the employer to the employee, the employee may prove for the balance amount of the compensation in the insolvency proceedings or at the time of liquidation.
When the compensation is a half monthly payment, the amount due for the said purpose will be taken in a lump sum amount. The amount payable will be half monthly payment, if it be could be redeemable it will be proof.
The insolvency of the employer shall not be applied where a company has wound up voluntarily merely for purposes of reconstruction of the company or amalgamation with another company.
Section 14-A: Compensation to be first charge on assets transferred by Employer
When an employer transfers his assets or property before any amount is due to him in respect of any compensation, and the liability accrued is now before the date in law it is the first charge on that part of the assets or property so transferred as it consists of immovable property.
Section 15: Special provisions relating to Masters and Seamen
When the person injured in the aircraft is the master of the ship and he is the employer, but the accident happened and commenced on the ship, it is not necessary for the seaman to give any notice of the accident for compensation for the injuries suffered.
In such cases the death of the seaman or the master, the claim for compensation may be made within one year without the notice after the news of death is received by the claimant. Also if the ship is deemed to have been lost, within eighteen months of the date on which the ship was or is deemed to have been lost.
Section 15-A: Special provisions relating to captains and other members of the crew of aircrafts
If the captain of the aircraft is serving and he is the employer but an accident occurs, any crew member or the captain it is not necessary for any crew member to give notice of the accident.
In such cases the death of the seaman or the master, the claim for compensation may be made within one year without the notice after the news of death is received by the claimant.Also if the ship is deemed to have been lost, within eighteen months of the date on which the ship was or is deemed to have been lost.
When an injured captain or any other crew member of the aircraft or the ship is discharged from any depositions or testimony of a witness is taken by a judge or magistrate the central government or any state government may enforce any proceedings on the basis that the evidence is admissible:
if the deposition or testimony of witness is authenticated by the signature of the Judge, Magistrate, or consular officer before it is made.
if the person who is accused or he/she is the defendant is having the opportunity by himself or his agent to cross-examine the witness.
if the deposition or the testimony of the witness is or was made in the course of a criminal proceeding and the proceeding was made in the presence of the person who is accused.
Section 15-B: Special provisions relating to employees abroad of companies and motor vehicles
The special provision related to employees abroad and motor vehicles will be applied to the persons or employees who are recruited by the companies registered in India and under the Motor Vehicles Act, 1998.
The notice of the accident and the compensation claimed may be served on the agent of the company. Or the notice may be served on the local agent or the owner of the motor vehicle in the country of the accident.
In case the employee dies, the provisions made in this section 15-B shall apply. The claim for compensation may be made within one year after the news of the death of the claimant has been received.
Therefore, in case of any compensation claimed, the commissioner shall entertain the claim. Although as provided in the section is not much preferred in due time.
Section 16: Returns as to Compensation
The state government can direct any person who is employing an employee at a specified class, specified time and authority that is specified in the notification of official gazette. The state government may also direct to specify the number of injuries in respect of compensation and the amount that has been paid by the employer during the previous year as compensation.
Section 17: Contracting out
If an employee has made a contract or agreement before or after the commencement of the act, and if he voluntary ceases the right to compensation from the employer it shall be considered null and void. The employee cannot seek compensation for any personal injury arising out of or in the course of employment and the liability will be reduced of any person who is entitled to pay compensation under this Act.
Section 18-A: Penalties
Penalties Arise when whoever-
Fails in maintaining a book that is required to maintain under sub Section 3 of Section 10.
The person fails to make a report that is needed to send under section 10B.
Fails to inform the employee of his rights to claim compensation needed under Section 17A. He or she will be punished with fine which is not less than fifty thousand rupees that can be extended to one lakh rupees.
No prosecution can take place under this section.
Commissioners
Section 19: Reference to Commissioner
The question arises about the liability of any person under the act, who will pay the compensation. A question arises about the person who is injured or not or how much amount is to be given or the duration of the compensation. Also about the extent of the disability the person who is suffering and will get compensation. All such issues are to be resolved by the commissioner.
Jurisdiction of Civil Court
The Jurisdiction of the civil court does not have the authority to settle, decide or deal with questions that are not required to be dealt with under the act if it dealt by the commissioner.
Section 20: Appointment of Commissioner
Commissioner means a commissioner for employee compensation appointed under Section 20. The state government or the central government may appoint any person to be commissioner for workmen’s or employees’ compensation act in some specified areas. Every commissioner is identified as a public servant in the Indian Penal Code.
If the state government appoints more than one commissioner for any area, a specific order may regulate the business.
Any commissioner may choose a person or more persons who possess knowledge and assist him in holding the inquiry.
Section 21: Venue of proceedings and transfer
The provisions under the act will be subject to the commissioner as well if there is a matter related to rules and regulations. The rules made under the act before the commissioner for the area where-
The accident happened that resulted in the injury.
If the employee dies and if the dependent claims compensation it will reside.
Employer’s office is registered.
No matter should be processed before a commissioner other than the commissioner who has jurisdiction in the area where the accident happened. It shall not happen without giving notice in the manner prescribed.
If the employee is the mater of the ship or seaman or a captain or crew member of the aircraft or employee in a motor vehicle, meets with an accident outside India, then such matter shall be done by the commissioner.
Section 22: Form of Application
No other application for any matter of the commissioner for dependants should be made for compensation. Until and unless some question arises between the parties there is no settlement as per agreement.
Liability of insurer
The insurance company and the insurer are the same and it provides the insurance policies to the employer. The employer takes the insurance for the employee for the risks associated with their work. So when there is an accident and injury occurs the employer claims the insurance for the employee. In this case, the employer is the insured.
Defective application
An application to a commissioner can be made and it will be accompanied by a fee as prescribed. If the applicant is illiterate or because of any other reason is not able to furnish information in written form then the application shall be in the direction of the commissioner.
Section 22-A
The power of commissioner is required to further deposit in the cases which talks about fatal accidents-
When any amount is deposited by an employer as compensation payable in respect of an employee whose injuries resulted in his death, and the commissioner thinks that amount or sum was not sufficient, he may state a notice in writing giving reasons, he may call upon the employer to show why he could not make a further deposit within such time as stated in the notice.
If the employer fails to satisfy the Commissioner, the Commissioner may make an award determining the total amount to be paid, and requires the employer to deposit the deficient amount.
A person may appear or become a witness for the purpose of examination, an application or act is required to be made by a person to a commission. It may be done on behalf of a legal practitioner or an official of the insurance company or registered trade union or an inspector appointed under Section 8 of the Factories Act, 1948, or any other officer which is specified by the state government with the permission of the commissioner or a person who is authorised to do so.
Section 25: Method of Recording Evidence
The commissioner makes a brief written message(memorandum) of the evidence of every witness as the examination process proceeds. The memorandum should be in written form and duly signed by the commissioner. The form so signed by the commissioner must be in his own handwriting and it will be a part of the record.
Section 25A: Time limit for disposal of cases relating to compensation
The Commissioner can dispose of the matter relating to compensation under this Act within a period of three months from the date of reference and intimate the decision in respect thereof within the said period to the employee.
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Section 26: Cost
All costs, incidental to any proceedings before a Commissioner, shall, subject to rules made under this Act, be in the discretion of the Commissioner.
Section 27: Power to submit cases
A commissioner can submit a Question related to law so that the High Court can decide the compliance with the standards or rules if the High Court wants to do so.
Section 28: Registration of agreements
A memorandum should be sent by the employer to the commissioner when a lump sum amount is payable as compensation due by the agreement either half monthly payment or payment being payable to a woman or a person with a legal disability. The memorandum must be genuine and should be registered in the prescribed manner.
However, a memorandum cannot be recorded before seven days after the communication has taken place between the commissioner and the concerned parties.
Section 29: Effect of failure to register agreement
The employer will be liable to pay the full amount of compensation if the registration of the agreement of memorandum is not sent to the commissioner as required under the section. The employer will pay the compensation as he is liable to pay under the provisions of the Act (Section 4). Until the commissioner directs to deduct more than half of the amount to be paid to the employee as compensation.
Section 30: Appeals
An appeal may lie to the High Court by following the orders of the commissioner.
A lump sum amount as compensation is awarded as an order, and redemption of half the monthly payment is away.
An order may refuse to allow gain of a half monthly compensation.
Distribution of compensation by order among the family members of the deceased, or disallowing of any claim of a person.
Substantial Question of Law
If there is difficulty in applying the facts to the law it will not amount to a substantial question of law. Reference case- Asmath Bedi(dead) v. Marimuthu.
The period of limitation under section 30 is sixty days if a person makes an appeal. An appeal lies against the order of commissioner who will compensate only when a substantial question of law. The scope in section 30 of the Act for appealing against the order that is passed by the commissioner is very limited. An appeal shall not lie against any order unless a substantial question of law.
Can courts intervene on question of fact?
Yes, the courts can intervene on the question of fact. This was done in the case of Mangala Ben vs Dilip Motwani. It was first held that there is no substantial question of law. In the opinion of the Court, the finding of the Commissioner does not prove that the deceased was in the employment of the owner. The learned Commissioner further held that the claimant did not produce any evidence to prove that the deceased was employed for the purposes Dilip Motwani’s trade or business. He observed that in the absence of such evidence, the deceased cannot be held to be an employee. In the opinion of the court, the Commissioner committed error of law in holding that the burden lay on the claimant to prove that the deceased was employed for the purposes of the respondent’s trade or business. The appellate court has no jurisdiction to entertain an appeal unless the same involves a substantial question of law, Nisan Springs (Pvt) Ltd v. Om Jain, 1990.
When does an appeal lies?
An appeal lies when there is a judgment passed by the court but the employee or his dependants are not satisfied and then they appeal.
Effect of death of claimant
If the injury of the employee results in his death, the employer shall give compensation in addition to the compensation that is deposited with the commissioner. A sum of five thousand rupees and not less than that will be given to the eldest surviving dependant of the employee.
Third proviso to Section 30(1)
Provided further that no appeal by an employer under clause (a) shall lie unless the memorandum of appeal is accompanied by a certificate by the Commissioner to the effect that the appellant has deposited with him the amount payable under the order appealed against.
Review, Revision, Remand, and Writ
If an employee is not satisfied with the decision of the court regarding the compensation, he can appeal for review by the court. Review can be made only after the decree is passed by the court or an order is made. If there is an error in the decision by the court appeal can be made for revision which can be done only by the High Court. An employee can writ if he has been wrongly remanded. Remand means In custody of the court.
Appeal not accompanied with certificate by the Commissioner under Proviso (3)
If the appeal is not accompanied by a certificate by the commissioner that is payable and deposited with him then no appeal by the employer under clause (a) shall lie against the law. The period of limitation under the section for the appeal will be sixty days.
Condonation of delay
If the appeal by the employee is delayed it is known as condonation of delay. An appeal is filed when the employee is not satisfied by the decision of the court and want to appeal again for the decision. So when the employee gets delayed in appealing the suit it will be condoned.
Section 30-A: Withholding of certain payments pending decisions of appeal
The commissioner may withhold the payment of any amount which is deposited with him when an employer appeals under section 30 and it is directed by the High Court.
Section 31: Recovery
The commissioner can recover any amount payable by any person as arrears of land revenue. The commissioner will be deemed to be a public officer if there is an agreement for the payment of the compensation under the meaning of section 5 of the Revenue Act, 1890.
Rules
Section 32: Power of the State Government to make rules
The state government has the power to make rules and regulations for the purpose of this act. These rules provide all the matters without prejudice namely:
The state government prescribes certain intervals where an application may be made under Section 6 is subject to conditions when not accompanied by a medical certificate by a qualified practitioner.
The state government prescribes some intervals where an employee is required to submit himself to undergo certain medical examination of section 11.
The state government prescribes a procedure that needs to be followed by the commissioners. It is required when there is disposal of cases under the act and by the parties.
The state government regulates the transfer of matters. It also regulates cases from one commissioner to another and also transfer of money in some cases.
Section 34: Publication of rules
The power to make rules in Section 32 will be subject to the conditions of the rules which are made after previous publication. Rules so published in the Official Gazette will have an effect in the Act.
Section 35: Rules to give effect to arrangements with other countries for the transfer of money paid as compensation
The Central Government may make rules for transfer money to any foreign country which is deposited with a commissioner under the act by a notification. A person who resides in a foreign country or is about to reside may be awarded the money deposited under the law relating to employees. The amount related to fatal accidents shall not be transferred without the consent of the employer under the commissioner.
Section 36: Rules made by the Central Government to be laid before Parliament
Every rule made under the act by the Central government is laid before each house of parliament while it is in session for thirty days. It may be done in one session or in two sessions before the expiry of the session. The houses may make any modifications in the rule or the houses may agree that the rule should not be made.
Conclusion
The Act is basically made for the employees so that when they incur expenses for the injury suffered during an accident, they can get compensation from the employers. The basic rule of Vicarious liability applies in the act. The employer is the master and the employee is the servant. The employee gets compensation only when the injury takes place in the course of employment and in the workplace.
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This article is written by Ritwik Guha Mustafi, a student of School of Law, Christ University, Bangalore. The author, in this article, has discussed the case of Navtej Singh Johar V. Union of India and critically analysed it with the help of decided cases.
Introduction
There has been no dearth of debates on the issue of the rights of homosexuals in India. The constitutionality of section 377 of the Indian Penal Code (hereinafter I.P.C) of 1860 which spoke about unnatural offences and inter alia, criminalised homosexuality was also a very controversial issue. The whole concept of homosexuality was perceived as against the course of nature and therefore undesirable in the society. Debates against the criminalization of homosexuality focussed on the articles 14, 15, and 21 of the Indian constitution which are fundamental rights and envisage equality, non-discrimination on basis of sex, and personal liberty respectively and that section 377 violates these rights. In essence, homosexuality is an enduring pattern of romantic, emotional, and/or sexual attractions to people of the same sex [1]. The case of Navtej Singh Johar v. Union of India is a landmark case which decriminalized homosexuality and in the process, addressed some important constitutional questions.
Facts
Coming to the facts, Navtej Singh Johar (petitioner) who was a dancer and identified himself with the LGBT (Lesbian, Gay, Bisexual, and Transgender) community filed a writ petition in the court seeking inclusion of right to sexual autonomy and right to choose the sexual partner within the ambit of right to life under article 21. He also sought the declaration of section 377 of the I.P.C. as unconstitutional. He contended that the language of section 377 is vague and there is no intelligible differentia between natural and unnatural sexual acts. He also said that section 377 discriminates on the basis of sexual partners and has a ‘chilling effect’ on freedom of speech and expression by denying the expression of one’s sexual identity through choice of romantic partners. Also, section 377 violates the right to privacy by putting the LGBT people in fear of humiliation due to their lifestyle.
The respondent (Union of India) left the question of the constitutional validity of section 377 to the wisdom of the court. They, however, contended that the acts of homosexuality were against the concept of constitutional dignity [2].
The issues before the court were:
Whether the rationale adopted in the Suresh Kaushal judgement was proper or not?
Whether section 377 violates articles 14 and 15 of the constitution?
Whether section 377 violates the right privacy under article 21?
Whether section 377 has a ‘chilling effect’ on article 19 (1) (a) by criminalizing gender expression by the LGBT community? [3]
As for the first issue, the court opined that improper rationale was adopted in the Suresh Kaushal case. Even if a certain section of the society is in minority, it has to be protected by the fundamental rights. The court overruled Suresh Kaushal case.
For the second issue, the court held that there is no reasoned classification between natural and unnatural sexual acts. The intimacy between consenting adults of same-sex is outside the jurisdiction of the state. Section 377 also discriminates a segment of people for their sexual orientation without any reasonable ground. So, it violates Articles 14 and 15 of the Constitution of India.
Thirdly, the court said that not granting privacy to LGBT community merely because they are a minority is violative of the fundamental right to live with dignity [4]. Also, carnal intercourse between two people of same-sex in private is not derogatory to public morality. Also, the LGBT community has been marginalized for long and they do have a fear of being shunned from the society.
Finally, the court said that gender identity is intrinsic to a person’s identity and denying the same will be violative of one’s dignity [5]. Due to section 377, LGBTs often find themselves stigmatized. Homosexuals also face a lot of pressure. So, they often hide their identity. It has immense social ramifications.
The 5-judge bench unanimously declared section 377 as unconstitutional insofar as it criminalises consensual sexual acts of adults in private.
The Navtej Johar case is not the first case in India which dealt with the rights of homosexuals. There are two important precedents which dealt with this issue. Before analysing the Navtej Johar case, it is important to look at the evolution of judicial interpretation about the rights of homosexuals. These precedents are:
Naz Foundation, an NGO committed to HIV-AIDS prevention filed a lawsuit in Delhi High Court seeking legalisation of homosexuality as criminalization of homosexuality led to hindrances in its initiatives. High Court dismissed the petition on grounds of no locus standi of the petitioner. An appeal was made to the Supreme Court. The apex court said that section 377 creates unreasoned classification and targets homosexuals. Public disgust is not a proper ground for criminalizing homosexuality. The word ‘sex’ under article 15 includes ‘sexual orientation’ as well and since article 15 prevents discrimination based on sex, section 377 is violating article 15. Right to life under article 21 includes ‘right to health’ and section 377 is a hindrance to it as the homosexuals often hide their identity due to criminalisation of homosexuality. So, adequate treatment is not provided. Section 377 was declared unconstitutional insofar as it criminalises consensual sexual acts of adults in private.
Suresh Kaushal (petitioner) challenged the decision of the apex court in the Naz Foundation case wherein the apex court legalised homosexuality. The petitioner contended that the documentary evidence of the Naz foundation was non-reliable. The apex court can’t take over the work of the legislature. Section 377 is gender-neutral and there is no violation of Article 14. Right to privacy under article 21 doesn’t include elements of section 377. Finally, the petitioner said that if homosexuality is legalised, the institution of marriage and social structure would break down.
The respondent re-stated the arguments concerning the violation of the fundamental rights of homosexuals under articles 14, 15, and 21 due to section 377 of I.P.C. The respondent also contended the need of flexible laws as per the changing needs of society.
The apex court said that homosexuals are in minority in the country and laws needn’t be changed for their interests. Court said that section 377 was a pre-constitutional law and had it been violative of any provision under Part III, it would’ve been struck down long ago. So, section 377 was held to be constitutionally valid.
Navtej Johar Judgement Analysis
This case consisted of substantial questions of law which had far-reaching implications and consequences. Various constitutional provisions were taken into account in this case. First of all, let’s look at the language of the disputed Section 377 of the IPC- “Whoever voluntarily has carnal intercourse against the order of nature with any man, woman, or animal, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall be also liable to fine” [8]. This section’s language suggests that no person is to have carnal intercourse against the course of nature with other person or animal and consequently, the act of homosexuality was considered as against the course of nature for a long time as heterosexuality was supposed to be mandated by the whole society through the respective customs, religious beliefs, and traditions.
Needless to say, the homosexuals faced severe repercussions due to this. They were not only seen as criminals without a justified reason but also they were grossly discriminated against in fields of education, work etc. The basic human rights were denied to them just because of their gender identity and sexual orientation. The various organs of the state also remained oblivious of this issue till the Naz Foundation v/s Govt. of NCT, Delhi case wherein homosexuality was legalised by the apex court. This was overruled by the apex court’s judgement in the Suresh Kumar Kaushal v/s Naz Foundation case. One of the major grounds taken in the aforementioned case was that since the LGBT community is in minority in the country, their interests can’t be given priority over societal values and morality.
This ground was beautifully struck as invalid in the Navtej Johar case wherein the court said that constitution is for every individual in the country, regardless of whether it is a part of a minority group or that of majority. India doesn’t support any majority group rule. Every section of society is entitled to equal treatment. The preamble of the constitution also points towards this. So, the researcher opines that the court took a correct stand in this case and the reasoning was also proper.
The court also said that the discrimination is created in the social environment against the homosexuals and that due to the fear of being humiliated and punished, in most cases, the homosexuals hide their gender identity, ignore their necessary requisites such as healthcare, and actually, have a stigma attached to themselves due criminality attached to them. Also, a major characteristic of law is that it can’t remain stagnant in the face of the rapidly changing needs of society. The law has to evolve and be flexible.
So, criminalisation of homosexuality is to be done away with. The researcher supplements the court’s views by stating that sexual orientation is a matter of choice. It can’t be forced upon someone. Indu Malhotra, J. opined in this case that homosexuality is a variation, not abhorrence. Due to the pressure upon the homosexuals, they turn into bisexuals and this has large social ramifications [9]. The researcher would like to state that due to such attitude shown by the society towards homosexuals, the very spirit of the Indian constitution is violated. The objective of the constitution becomes questionable as the homosexuals are forced to live an undignified and insecure life. Criminalising homosexuality only aggravated the already-sensitive issue.
Now coming to the issue of privacy, it is to be noted that privacy i.e. protection against unreasonable interference is an essential element of living a proper and dignified life. The researcher would like to connect this issue with that of denial of the right to speech and expression of homosexuals. Now, there has to be a balance between the fundamental rights and their reasonable restrictions. The counter-argument by the respondents, in this case, was that homosexuality degrades public morality and notions of decency. This argument is not legally sustainable as what happens within the four walls of a room between two consenting adults regardless of their sex can’t be reasonably foreseen to have a derogating effect on public morals as a private act can’t deprave morals of the society.
Also, the Indian society has become much more liberal in the current times. The conservatives may have a feeling of ‘disgust’ for certain ‘out-of-line’ practices but it can’t be seen as a proper ground for denying basic rights to a particular section of society. Also, many western countries have recognised homosexuality. It is high time for India to do the same. The court correctly held in this case that not giving privacy to homosexuals is denying them a dignified life and personal liberty under article 21 and also that by denying the expression of homosexuals regarding their sexual choice or gender identity, their right to freedom of speech is being unreasonably curtailed. So, section 377 was to be struck down insofar as it concerned with the consensual sexual acts between two adults in private. Other parts of the section were to remain intact.
Finally, the researcher feels that the court gave a good and courageous judgement in this case. The judgement upheld constitutional morality and also indicated towards the shift of the Indian society from an archaic to a pragmatic one. This judgement focused more on the desired goals of the fundamental rights rather than on societal perceptions. Also, the issues in concern were answered properly. This judgement laid down the foundation for other historical progressive judgements such as the Joseph Shine case (decriminalization of adultery) and the Sabarimala case (rights of women to enter a worship place).
Conclusion
The judgement in Navtej Johar case is undoubtedly a historical one. As a result of this judgement, the homosexuals can now live in a more dignified environment and can freely express themselves. The judgment also underlined the progressive realisation of people’s rights. However, is this end of the problem? The answer is ‘no’ as still there is discrimination meted out against homosexuals as there is no proper legislation which addresses this issue. The court had ordered the government to take certain measures for upholding the interests of homosexuals but no specific steps have been taken.
The need of the hour is overreaching legislation which provides equality to all persons on the basis of sexual orientation, gender identity, and other grounds. The law should impose obligations of equality and non-discrimination on every person [10].
So, the historical judgement has to be supplemented with positive government efforts to give meaningful life to homosexuals. The organs of the state have to coordinate with each other. That will have an even more positive impact of the court’s judgement.
References
Hershel Goldwasser & Hillel Goldberg, Homosexuality, 29 Tradition: A Journal of Orthodox Jewish thought, 96-102 (1955).
Navtej Singh Johar v. Union of India, (2018) 1 SCC 791 (India) [globalfreedomofexpression.columbia.edu/cases/navtej singh johar v/s union of India].
Do you succeed in life by following what everyone else wants you to do, by being the most agreeable person in the room, by not speaking your mind?
I have met people who have managed to survive through life in that way, and even have climbed some organizational hierarchies.
However, outlier success does not come from that. If you want to succeed big, you succeed one tough conversation at a time.
A tough conversation does not mean a rude conversation or a mean conversation, it does not mean a conversation where you win and the other person loses.
A tough conversation is a conversation that requires emotional commitment, clear intention and hard work. It is a conversation where you have to step out of your comfort zone. And perhaps, you have to push the other side in the conversation out of their comfort zone too.
Imagine that you are infatuated with someone and you have to ask her or him out. It is a tough conversation.
Imagine that you need a raise at your job, and you need to ask for it. It is statistically proven that those who ask for a raise, when they deserve it, are many times more likely to get it than those who do not ask.
It’s a tough conversation, it is sort of confrontational, but it is key to progress.
Maybe an employee or a vendor is not performing. You need to have that tough conversation about letting them go.
I have learned from experience how hard those conversations can be, to the detriment of the interests of my organization, and how prone I am to postponing such conversations.
A tough conversation is at times pointing out hypocrisy or calling people out on their bigotry.
Sales is also hated by so many people as a job option because it involves a lot of emotionally draining, tough conversations. Cold calling is tough conversations of another level, but watch Wolf of Wall Street if you want to know the kind of results it can lead to. It has power.
I would never study law if I did not have certain tough conversations with my parents and held my ground.
Deal negotiations are tough conversations. Arguing before the judge is a tough conversation. Talking to a client about charging the fee that you deserve requires a tough conversation. Following up when you are not getting paid is also a tough conversation.
When you are just a law student or an intern, it is a tough conversation to ask for work, to ask for opportunity, to ask what you have to do in order to get a PPO.
Most people will never ask their boss what it would take for them to get a raise or get a promotion, simply because they find it impossible to have such a tough conversation.
People suffer in silence than have a tough conversation that could change everything.
Talking to my coach about what I am doing wrong and what I am not doing enough and facing the shortcomings of my character and approach and analyzing the reasons for my failure – those are tough conversations.
To write about my misdeeds and sharing my failures and misadventures openly with everyone also count as tough conversations for me, and that’s how I train myself to be habituated to having tough conversations.
So many people would never share their best wisdom and the most exciting stories of their life because they are scared of the conversations that may follow their revelations!
We need to reframe our approach to tough conversations. When we stand up and speak of our interests and our views, when we confront those whose interests are against those of ours, when we stand up for our values and principles, when we confront our own failures, none of that is easy or palatable, and we will certainly face pushback, but our progress entirely depends on how successfully we handle those tough conversations.
Tough conversations are not only about rebellion, or speaking your mind or speaking truth to power, it is also very often about speaking with compassion, about restoring integrity, about being kind where we have failed to do so in the past.
It is often about setting aside our self interest and talking about collective good.
It is often about finding a solution to a problem that is considered too hairy, too scary to be touched. It is about opening up old wounds so they can finally heal.
For me, it is about moving the conversation towards fairness, towards my vision of a better world, towards a world where we can take justice for granted.
A tough conversation at a time led to our constitution being drawn up, a document that has survived the test of time.
Tough conversations make history. Tough conversations build careers.
Tough conversations set apart those destined for greatness, from the hoi polloi who will leave no mark in this world.
Do you have those tough conversations? With yourself, with parents, with colleagues, with clients?
With the people you hate and the people you love?
Would you like to get on a call with me and have a tough conversation about your career, about what’s happening, about what’s next, about how you can jump to the next orbit? Respond to this mail and let us know. My team will schedule a call between us.
We deliver our courses to you, one tough conversation at a time. Come and experience how that works:
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.
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This article is written by Akshat Agrawal, student of School of Law, Christ University, Bangalore. The author, in this article, has critically analysed the judgment of Indian Young Lawyers Association & Ors v. The State of Kerala & Ors.
Introduction
The debate on the issue of Sabarimala has been a burning topic in recent times and the temple has been in news due to its age-old customary practice. The temple of Sabrimala is situated in Kerala and is one of the most famous and well-known temples for the Hindus. The ancient temple is dedicated for the worship of Lord Ayyapan who is also referred to as ‘Dharmashastha’ who according to a belief is the son of Shiva and Mohini, the feminine incarnation of Vishnu. The Sabarimala temple is managed by the Travancore Devaswom Board. The priests of the temple and the authorities due to their traditional and conservative mindset excluded the admittance of menstruating women from the age of 10 to 50 years in the temple premises as it was believed that it questioned the sanctity and purity of the deity of the temple. This was an ancient and customary practice by the authorities for not allowing the women to enter into the temple which was continued from a long period.
This century’s age-old restrictive practice by the temple authorities was challenged through a Public Interest Litigation (PIL) by Indian Young Lawyers Association, a group of five women lawyers in the Hon’ble Supreme Court of India. It was contended that Rule 3(b) of the Kerala Hindu Places of Worship (Authorization of Entry) Rules, 1965 that states “Women who are not by custom and usage allowed to enter a place of public worship shall not be entitled to enter or offer worship in any place of public worship” is in violation of basic fundamental rights given by the Constitution of India.
The petitioners have prayed in the PIL for issue of appropriate writ or direction commanding the Government of Kerala and Devaswom Board of Travancore, to ensure entry of female devotees between the age group of 10 to 50 at the temple at Sabarimala which has been denied to them on the basis of certain custom and usage and to declare Rule 3(b) of the Kerala Hindu Places of Public Worship (Authorization of Entry) Rules, 1965 as unconstitutional being violative of Articles 14, 15, 25 and 51A(e) of the Constitution. The Supreme Court accepted the petition and on 28 September 2018, overturned the restriction on the entry of women, declaring it unconstitutional and discriminatory. The Supreme Court in a 4:1 majority said that the temple practise violates the rights of Hindu women and that banning entry of women to shrine is gender discrimination.
Background
Customs and Traditions have always been an essential and integral part of every religious and cultural sect in the Indian context. Different customary practices in various religions have existed in India for a long time. Some of these practices are considered and given that level of importance that people even agree to sacrifice their lives. The practice of not permitting and allowing entry to the women in the Sabrimala temple is another example of such customary practices that have been prevailing for a long time.
This issue of restriction of women from entering the temple was challenged before the Kerala High Court in 1991 in the case of S. Mahendran v. The Secretary, Travancore Devaswom Board, Tiruvanathpuram and others. The division bench of the Kerala High Court ruled in favour of the defendants and gave a decree stating that the restrictions have been existing since time immemorial and the prohibition by the Travancore Board does not violate the Constitution of India or the pertinent 1965 Kerala Law.
There have been several incidents and cases over the decades where the matter came up questioning as to what constituted a religion and its practices and the courts have come a long way in determining these practices. There is a need to determine what constitutes a religion and also the difference between religious practices and superstitious beliefs and it can be ascertained only with the doctrines of that religion itself. Thus, it can be primarily said that the views of followers of the religion are important and crucial to determine what the essentials of that particular religion are.
There have been several cases in the past that led to the establishment of doctrines that would determine the essentials of religions. In the case of Sri Venkataramana Devaru v. State of Mysore the trustees of the temple of Sri Venkataramana of Moolky, challenged the Madras Temple Entry Authorisation Act, 1947 which threw open the doors of the temple to the Harijans. The petitioners claimed the right to exclude other communities from entering their temple as a matter of religion. The Court recognised that the exclusion was under the ceremonial law of the Hindus and was, therefore, an essential practice.
In another case of Mohd Hanif Quareshi v. State of Bihar, the Qureshi Muslims of Bihar petitioned to the Supreme Court challenging the ban on cow slaughter on the ground that it infringed on their fundamental right to religion as they were compelled by their religion to sacrifice cows on Bakrid. The Court, looking into the Islamic religious texts, found that there was no evidence to show that sacrifice of cows on Bakrid was essential practice for the Qureshi Muslims.
Thus there have been several instances where the court had to distinguish between the practices of religion and mere adornments to it. The courts through its decisions could be seen distinguishing between religious practices and superstitious beliefs. The case of Sabarimala is one such example where the Supreme Court determined and drew a parallel between Right to Religion and Right to Equality as the basic fundamental rights given by the Constitution of India and through its judgment uplifted the ban which was imposed on women from entering the temple.
India, being a country of diverse culture and people, society and religion are an inseparable part. The case of Sabarimala is a controversy between Fundamental Rights and Religion. The status of women in Indian society has always been less than that of men due to the domination of patriarchal philosophy and mindset of people. Women had to fight and struggle to attain their position equally as men at various public platforms. The case of Sabarimala is also an example of women fighting against the patriarchal philosophy of religious order which prohibits their entry to the temple.
The five-judge bench of the Supreme Court who decided upon the matter and gave the verdict reasoned different things and had various opinions for the same. Justice Indu Malhotra had a dissenting opinion regarding the matter. Several arguments were brought in front of the Supreme Court from the petitioners and the respondents. The petitioners contended that this restrictive practice by the temple authorities by not allowing women to enter the temple is clearly violative of their fundamental rights given by the Constitution of India and is discriminatory to them.
The Constitution of India guarantees the right to freedom of religion for every individual and groups under Article 25 and Article 26 where every person is free to practice propagate and profess any religion of his choice. Moreover, Article 15 of the Constitution prohibits the state from discrimination against any citizen on the grounds of religion, race, caste and sex.
The respondents, on the other hand, defended that the constitution also grants to every religious denomination the right to determine its own rules and stated the primary reason for not allowing the entry of women to the temple as the naisthika brahmacharya nature of the deity Lord Ayyapan. It was claimed that the presence of women questioned the purity and sanctity of the deity and also it distracts the devotees. The Court dismissed the reason on the ground of equality and perpetration of stereotypes in the society. It was of the view that both men and women are equal and no one should be discriminated or restricted in any form. The ideology of purity and pollution of the temple authorities for not letting the menstruating women enter the temple was clearly in violation of Article 17 which talks about abolition of untouchability in any form.
The Supreme Court took into consideration the Essential Practices Test which has been consistently used by the courts from time to time. It empowers the court to determine whether a religious practice is an ‘essential practice’ or not as per the notions and beliefs of that religious community. This test was coined by the Supreme Court in 1954 in the case of The Commissioner, Hindu Religious Endowments, Madras v Shri Lakshmindra Thirtha, Swamiyar of Shri Shirur Mutt. The test lays down that what constitutes an essential part of religion will be ascertained with reference to the tenets and doctrines of that religion itself.
The five-judge bench of the Supreme Court gave their verdict on the majority of 4:1. Chief Justice Dipak Mishra and Justice Khanwilkar believed that devotion could not be subjected to gender discrimination and exclusion on the grounds of biological, physiological features like menstruation is unconstitutional and discriminatory. Both men and woman have a right to worship bestowed on them and the practice by the temple authorities was discriminatory and violative of the Indian Constitution. Justice Chandrachud opined that any religious practice or custom that violated the dignity of women by denying her the entry just because she menstruates was completely unconstitutional. The judgment contained lines as “The stigma around menstruation has been built up around traditional beliefs in the impurity of menstruating women. They have no place in a constitutional order. The menstrual status of a woman cannot be a valid constitutional basis to deny her the dignity of being and the autonomy of personhood (Para 5).”
In the five bench judge of the Supreme Court, Justice Indu Malhotra, being the only woman judge, to a much surprise gave a dissenting opinion. She based her judgment on the notion that issues of deep religious sentiments and morality, the courts should not intervene even if it seems discriminatory. It is a matter of personal faith and India is a land of diverse faiths. Judges cannot intervene and decide on whether a practice is violative of fundamental rights or not. A religious denomination has freedom to believe and even practice even if their beliefs are illogical or irrational. She held that the fundamental right to equality guaranteed to women under Article 14 cannot override Article 25, which guarantees every individual the right to profess, practice and propagate their faith.
Justice Malhotra sets a dangerous precedent by stating that courts should not delve into the rationality of religious practices. One should not forget that if it were not for the judiciary’s activism, the rigid societal structures would have still clawed on to the unbending orthodoxy. The judgment of the Supreme Court on Sabarimala had multiple effects. On one hand, many people have supported the decision and on the other, many people including many women have criticized the Supreme Court for such a verdict in a belief that the court had infringed their religious beliefs and morals.
The implications of this judgment by the Supreme Court are far fledged. After the verdict, many changes mainly gender-specific would be seen in the infrastructure of temple premises. Moreover only be pronouncing the verdict would not ensure its applicability at the ground level. The court needs to make sure about the happenings at ground level and needs to ensure that the women are not denied entry. Sabarimala is not the only temple where discrimination exists on the ground of religious beliefs, but there are many other temples in the country where men are not allowed. This verdict has opened the floor for the Supreme Court as to analyze whether the judiciary needs to intervene in these aspects as well and are these practices also discriminatory.
Conclusion
The judgment of Sabarimala records for the battle between religious beliefs and practices and notions of equality for every citizen. The Sabarimala decision is bold and empathetic in its kind. There are different notions of morality, customs and religions but through the case, the Supreme Court highlighted the highest notion of morality that is the Constitutional Morality. In this era of 21st Century where on one hand we talk about development, growth, prosperity, global leader and world power, on the other hand, we are still tied with the chains of our deep-rooted conservative ideologies of certain customs and beliefs and hence fail as a society and as a nation.
The women in the society are discriminated on grounds of gender and sex and they are still considered submissive to men due to the patriarchal mindset of the people at large. The movements of feminism have come a long way in ensuring and giving rights to the women but we still have a long way to go. India being a country of diverse people and culture, the area of religion is a sensitive topic to touch upon. The Supreme Court through its judgment cleared the tussle between fundamental rights and traditions. Traditions have always been an important and essential part of our society and it is one of the famous things for which the country holds its identity. But traditions which hamper the basic essence of the constitution and rights of a particular class of people in the society due to mere natural biological process certainly needs to be questioned. The Constitution of India guarantees certain fundamental rights to all the citizens wherein Right to Equality and Right to Religion are two of them. The Supreme Court through its verdict of removing the ban on women from entering the Sabarimala temple again established the supremacy of Constitution above all other aspects and ensuring that the rights of women are not violated due to certain long-prevailing customs and traditions.
This article has been written by Avni Sharma, a 2nd year student intern from National Law University Odisha. The article talks about Dividends, Audit and Accounts and the legal provisions pertaining to the same.
Every company in the market requires maintenance of Dividends, Audits, and Accounts as these form the basis of the financial planning of the company. This article talks about the foundational concepts given under the Companies Act, 2013 (the Act). Dividends are provided under Section 2(35) of the Act and Audits are mentioned under Section 224 of the Act.
In this article, we will have a look at meanings, legal aspects, and case laws in relation to Dividends, Audits and Accounts.
Dividends
The word ‘Dividend’ finds its origin in the Latin term “dividendum” which means ‘to divide’. When a company borrows money from the shareholders, it naturally shares its profits. This share of profit is known as a dividend. Notably, dividends do not form a part of the rights of shareholders but only when the dividends are declared by the company, the right to claim the dividends arise.
Dividend fund
We will now move forward to understand other terms related to dividends. Dividend fund is the amount of cash which is to be distributed as dividends. In some places, it also refers to the maximum amount of cash which may be paid out as dividends.
In Lubbock v. British Bank of South America, it was held that all the receipts of the company, other than those related to the issue of shares to its shareholders will be combined positively in the calculation of the total amount of dividend fund.
Statutory provisions
The statutory provisions are mentioned in the Companies Act, 2013. The Act has always been dynamic in nature and has been amended whenever the lawmakers felt a need to set the norms according to the present requirements. The major amendment came in 2013 when the Companies Act, 1956 was repealed and was replaced with a new Act known as the Companies Act, 2013. The new Act contains standards according to modern times and its requirements.
The following table represents all the imperative legal provisions in relation to dividends:
Sec. of the Companies Act, 2013
Matters Dealt with
Section 51
The section states about payment of dividend in proportion with the amount of each share.
Section 91
The companies have the authority to close its register of Members, Debenture holder or any other security holders.
Section 123
(a) The section states the announcement and the declaration of dividends.
(b)(5) The dividend shall only be paid to the person himself, or his or her bank, or his or her order.
Section 124
The section states the account to be maintained for Unpaid Dividend.
Section 126
The section lays emphasis on the rights of shareholders to dividend, bonus shares, etc.
Section 127
The section explains the punishment in case of non-payment of dividend.
Separate bank account for dividend
We will have a look at the conditions and requirements for the payment of dividends. The requirements include:
Compliance with Sections 73 and 74 of the Companies Act, 2013.
Grant of a Proportional Dividend.
Deposition of Dividend in a separate Bank Account.
Payment of the money only to the shareholders.
The mode of payment must be in cash only.
Unpaid dividend account.
Amongst all these requirements, one of the most important is to have a separate bank account for payment of dividends. The companies need to maintain a separate bank account with a scheduled bank. The dividend must be deposited in the same account within a period of five days from announcing such dividends. A separate bank account is also opened for Unpaid dividends so that any such unpaid dividend is deposited in that separate account. This is according to the provision mentioned under Section 124 of the Act.
Now that we know the requirements of the payment of dividends, let us have a look at the conditions which need to be fulfilled in order to declare dividends.
Depreciation
There are certain requirements that need to be fulfilled before the declaration of dividends.
Depreciation: Schedule II of the Companies Act, 2013 specifies the provision for depreciation on all depreciable assets. The depreciation on all such assets must be provided before declaring the dividends.
Transfer to reserves: The company may add any amount of profits which was agreed to be provided in the documents of the company. It is only after this transfer to reserves, that declaration of dividends must be made.
Fee reserves: Any company must not pay dividends out of any reserves except fee reserve.
Set off previous year losses and depreciation: The companies must not provide dividends before setting off the loss from the previous year or depreciation that was not provided in that year.
Reserve Fund
According to the Companies Act, 1956, a compulsory amount needs to be transferred to reserves if the dividend declared exceeds 10 percent of the total profit. The table below represents the percentage of profits that need to be compulsorily transferred to the reserves.
Percentage transferred to dividends
Percentage that needs to be transferred to reserves
10%-12%
2.5%
12%-15%
5%
15%-20%
7.5%
Above 20%
10%
Compulsory reserves
These compulsory reserves got repealed in the Companies Act, 2013. According to the new Act, there is no mandatory requirement of putting any percentage of profits to reserves. The discretion rests with the company whether it wants to transfer anything to the reserve funds or not.
Unpaid dividend account
Section 124 of the Companies Act, 2013 specifies the treatment of unpaid dividends.
The definition refers to this account as an ‘Unpaid Dividend Account’. Any amount which was declared but is still unpaid shall be transferred to this account within 37 days of the declaration. The company shall make a list containing all necessary details of the persons who have not been paid the dividends. The persons who are entitled can claim their money from the company. If such a payment is not claimed within seven years, then the company can transfer the money to the Investor Education and Protection Fund, established under Sub-Section (1) of Section 125.
“Thus, the shareholder continues to retain the title but loses agency. The company concerned is relieved of the responsibility of holding the shares or reflecting it in its list of shareholders.” When it was asked about the transfer of the amount to fund after seven years.
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Payment to registered holders
The payment shall be made only to the registered shareholders as per Section 123(5) of the Companies Act, 2013. The amount is payable in cash through cheque only. The payment may also be made to the shareholder’s order or banker after due authorization.
Effect of declaration
Effect on stockholder’s equity:
The stockholder’s equity can be calculated by subtracting Company’s liabilities from its assets. The type of Dividend issued determines the effect on stockholder’s equity. The value of dividends is deducted from its retained earnings.
Effect on cash:
The balance sheet has an effect where the cash is reduced after the declaration of dividend payments. So, the effect of the declaration comes on both cash and shareholder’s equity.
Interim dividend
When we wish to look at the legal aspect of the definition, we need to refer Companies Act, 2013. Section 2(35) of the Companies Act 2013, mentions the definition as ‘including interim dividend’. Interim dividend, as mentioned in the definition refers to those dividends which are declared between two annual general meetings. It is also essential for the companies to make a substantial amount of profit in order to declare interim dividends.
For example, declaration of an interim dividend of Rs. 0.005 per share on Feb 20th, but since interim dividends are paid out before the end of the fiscal year, the financial statements that accompany interim dividends are unaudited.
Payment of interest
Section 127 of the Act states that if there is a default in the payment of dividends, the company if such act has been done in full knowledge, is liable to pay such amount at 18 percent per annum until the default payment is made. This interest is paid on the amount which is unpaid and such an amount is known as ‘Dividend in Arrears’.
Investor Education and Protection Fund
Section 125 of the Act, mentions about the Investor Education and Protection Fund (IEP), where money gets transferred on certain occasions which are mentioned below:
Money from the Central government for the purposes of this fund.
Donations received on account of this fund.
Amount of Unpaid Dividend Account under Section 124(5) of the Act.
The amount lying in the IEP fund established under Section 205C of the Companies Act, 1956.
The money of the fund can be utilized for the promotion of investor’s education, awareness, and protection. It can also be used for other purposes such as repayment of unpaid dividends, matured deposits, etc.
Capitalization of profits
Capitalization of profits refers to the transformation of retained earnings to the capital stock. It does not have any effect on shareholder’s equity because it is a mere transfer from one account to another account. It refers to the simple process of utilization of profits as the capital of the company.
Bonus shares
Bonus shares are those accumulated shares of the company which are given out additionally, without any extra costs on the basis of the number of shares held in the company. For instance, if Investor A holds 200 shares of a company and a company declares 4:1 bonus, that is for everyone one share, he gets 4 shares for free. That is a total of 800 shares for free and his total holding will increase to 1000 shares.
Accounts
We have talked about the dividends of a company, at length. We shall now talk about the accounts of the company. When we want to know more about the legal aspect of Accounts of a company, we have to refer to the Act. Section 128 of the Act states that every company must maintain true, and fair financial statements. The accounts must be at a place in India that can be easily accessed within seven days if there was a notice provided. The accounts may as well be placed in an electronic mode. If there is a branch outside India, the company shall keep the records in the registered office and a summarised copy of all returns must be sent periodically to the registered office if the company is registered under the Act.
When it comes to conducting any investigation, all the employees must cooperate in providing any required part of the accounts. It is specified that accounts of at least preceding eight years must be preserved in good order.
There are several important sections from the Companies Act that must be taken into account when we talk about the accounts of any company. The table below will represent all the other relevant provisions:
Section of the Companies Act, 2013
Matters dealt with
Section 129
Financial Statements of the Company
It should follow Schedule III of the Act.
It must comply with the norms in Section 133.
It must not display any deviation.
Section 130
Presenting the accounts on a court or a tribunal’s order.
Section 131
Revising the financial statements in case of discrepancy.
Section 132
Constitution of a National Financial Regulating Authority.
Section 133
The Central Government shall be making standards for the Company’s accounting standards.
Section 135
The company’s Corporate Social Responsibility is contained in the section.
Directors’ Responsibility Statement
Directors are responsible for the Company’s accounts and its accuracy. The directors release a statement known as the director’s responsibility statement, which assures on the account of the Companies Act, 2013 that the directors have taken due care in the preparation of the documents. The documents produced are true and fair, nothing is forged and everything which has been recorded contains due proof. The statement contains:
The financial statements, which are prepared in accordance with the financial reporting framework provided by the law, gives a true and fair view of the financial position and profit or loss of the Company and the undertakings included in the consolidation are taken as a whole;
The Strategic Report, covered in the Statutory Information, will generally include a fair representation of the development and performance of the business and the standing of the Company and the undertakings included in the consolidation will be taken as a whole, together with a description of the principal risks and uncertainties that they face; and
The Annual Report and Accounts, which are taken as complete, will be fair, balanced and understandable and they will provide the necessary information for shareholders to calculate the Company’s performance, business model and strategy.
Preservation of books of account
The Act requires companies to preserve the statutory registers which contain the records of the Company’s accounts. These registers are required to be produced before the Registrar of Companies (ROC) within a limited period of time. The provided table below shall provide all the necessary books, which are required to be produced before the Registrar of Companies.
Sr no.
Necessary Document
The function of the necessary document
1.
Register of Companies
It contains all necessary basic details such as the Name, PAN CARD number, address, payment due dates, etc.
2.
Register of Members of the Company
This contains several important lists such as,
The list for members separately.
The list for debenture holders.
The list for other security holders.
3.
Register for Key personnel Management
The list contains all necessary details about the director and the key managerial staff.
4.
Register of charges
Register of charges contains details of all the charges which were registered with assets and properties. The register must be updated at all times because of the tax importance that this register holds.
5.
Register of renewed and duplicate share certificates
This register, as the name suggests, keeps a record of all renewed and duplicate share certificates.
6.
Register for employee stock options
Employees are provided a chance to invest in the company’s shares, this is known as Employee Stock Options. This register contains details of such shares.
Accounts to comply with accounting standards
The accounting standards are written policies and documents that provide standards for the recognition, measurement, treatment, presentation, and disclosures of accounting transactions in the financial statements. These help with comparing the financial accounts of this year with the previous years. The comparison helps in tracking the growth of the company.
The accounts of a company must comply with accounting standards once set because separate accounting standards have different norms, which are difficult to track. So, the companies are required to follow one set of accounting standards which will be easier for the law to authenticate and verify.
National Advisory Committee on Accounting Standards (NACAS)
NACAS was set up by the Companies (Amendment) Act, 1999. After the enactment, section 210A of the Companies Act, 1956 established this authority which would check that the companies are following the set accounting standards by the Central Government. However, with the introduction of the Act of 2013, a modified version of NACAS was introduced, known as the National financial regulatory authority. NFRA has two objectives:
Formulating policies and standards for the companies.
Regulatory nature, by way of which, it would help in the improvement of the quality of services provided by the companies.
Further, NFRA has the power to investigate in case of knowledge of any mishandling of accounts, which was not included in the NACAS. In fact, NFRA has all the powers of a civil court vested in the Civil Procedure Code, 1908. NFRA may also impose penalties if the offense is proved.
The intention of the legislature in forming the NFRA was to increase the powers vested in the NACAS so that, the implementation of the regulations may happen smoothly.
Right of inspection
Section 171 of the Act gives the members of the company, the right to information regarding the accounts of the company. It must be open for perusal at the time of the Annual General Meeting. These books should also be available for perusal in all business hours. In case, the company denies access to the books to any of the members, the ROC may have the books issued to the concerned person within a period of thirty days from such request.
Financial Statements
Section 129 of the Act provides for the maintenance of the financial statements. Section 2(40) must include a balance sheet, profit and loss account/income and expenditure account, cash flow statement, statement of changes in equity. Schedule III includes detailed requirements of the financial statements.
Audit
Audit is an examination of the books and accounts of the company. The examination also includes statutory records, and vouchers of an organization to ascertain the fairness of the financial statements, as well as non-financial disclosures, in order to present a true and fair view of the concern. There are two main types of audits: external audits, internal audits.
External Audits: External Audits are performed by Certified Public Accounting firms, in order to perform an external check.
Internal Audit: This is to make improvements in the company.
Let us now have a look at the auditor, who performs these audits.
Appointment of auditors
Section 139 of the Companies Act, 2013 states the appointment of an Auditor. In the first annual general meeting, the company shall appoint a person as to its auditor. In each annual general meeting, there must be ratification by the members.
Written consent of the auditor to such appointment
Certificate that
(a) The auditor is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;
(b) The proposed appointment is as per the term provided under the Act;
(c) The proposed appointment is within the limits laid down by or under the authority of the Act;
(d) The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
After the appointment, the auditor must have a meeting with the ROC within 15 days of appointment. These rules must comply with ADT-1.
Remuneration of auditor
Section 142 of the Act states that the remuneration of the auditor will be decided in the same way that the auditor was appointed. Remuneration includes expenses incurred in the process connected with the audit or any expenses that the company had facilitated with. It does not include any remuneration related to any service other than related to the audit itself. Schedule III of the Act also mentioned that the payment made to the auditors must be disclosed.
Removal
The auditor appointed may be removed from his office before the expiry of his term only by way previous approval of CG and a special resolution of the company to be passed in a general meeting within 60 days of receipt of approval of CG. However, it must be noted that the auditor is given a fair chance to represent himself or herself. The auditor must provide a statement to the ROC within a period of thirty days from the date of removal. The auditor may be punished with a fine between 50,000-5,00,000 in case of non-compliance.
Qualifications
An auditor must comply with the norms of the Companies Act, 2013.
Individual: Only if is a CA holding certificate of Practice as per Section 2(17) of the Companies Act, 2013.
Audit Firm/LLP: Majority of partners who are CA are practicing in India, appointed in Firm name. Only the partners who are CA’s are authorized to act as auditors and sign.
Powers and duties of auditors
The powers can also be described as the rights of the auditor. The rights are listed below:
The auditor may inspect the books of accounts of the company.
The auditor may ask for any clarifications.
The auditor must get the invitation to attend the general meeting.
The auditor has the power to make any statements in the meeting.
The auditor must be indemnified for the expenses and losses incurred.
The auditor has the power to visit any branches of the company.
With a lot of power comes a lot of responsibility. The auditor has the below-mentioned duties:
They must make special inquiries and investigations in order to ascertain the truth.
The report made by the auditor must be made available to the shareholders.
If there are any answers in negative, they must state the reason for doing so.
The matters related to the Central Government must be included in the Report.
The audit report must be signed by him.
The auditor must give a report upon the prospectus.
The statutory report must be signed by him.
They must declare the company solvent.
They must assist in all the investigations.
They must assist the Advocate General.
Default in disclosing fraud
The auditors also have a duty to report fraud (if any). If the auditor defaults in disclosing fraud committed by the companies, the auditor must face heavy penalties in view of the same. The penalties depend upon the size of the fraud, not disclosed.
Special audit
A special audit is defined as an audit that is carried out in a specific area of organizational activity. These are helpful when we wish to present the analytics of a specific department of work. For instance, Cost Audits are specifically done in order to check the cost of the products supplied.
Power of Registrar to call for special information
In order to facilitate investigations, the ROC has the power to call for documents containing information regarding the accounts of the company. The power is also eligible for random scrutiny checks on the companies. Section 234 of the Companies Act, 1956 mentioned the power to call for information but the present Act does not definitively mention the power.
This power helps the ROCs to check on the companies. The companies are also aware of this fact and therefore, they refrain from making any fraudulent representation in the documents.
Seizure of documents by Registrar
The registrar has the power to seize any documents that he might feel may have discrepancies within them. Section 234A of the Companies Act, 1956 mentioned this power. But, the present Act of 2013, does not contain such a provision.
Audit of cost accounts
The products go through various cost centers before getting actually made into a finished product. The accounting starts from the raw material stages itself. This helps with understanding the standard cost of the product. These financial accounts come under the ambit of cost accounting and the audit of cost accounts is known as Cost Audit.
The cost audit is performed to undertake the verification of the cost accounts of the company. The auditing is performed in order to check whether the cost accounting plan has been adhered to. Frauds can be prevented to a large extent if the cost audits are performed in a prescribed manner.
Cost audits have various advantages to the management as well as auditors. By cost audits, wastage in the material can be checked, inefficiencies in the production can be calculated in terms of money and can be accounted for, errors in costing techniques can be checked. The advantages of cost audits are very facilitative for the management as well as the auditors.
Conclusion
Dividends, accounts, and audits are the three most important parts of the company. This article presented a legal perspective on these aspects of a company. The repeal of the Companies Act, 1956 shows the progressive thought process of Indian Legal standards. After the New Act brought in 2013, the laws have transformed into the requirements of current global challenges as well. We look forward to the accurate implementation of these laws so that India can become one of the best financially regulated countries.
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This article is written by Barathwaz T, third semester student of School of law Christ University, Bangalore.
What are the Protected Categories of User Data under GDPR?
The whole concept of GDPR revolves around the elements of protecting the personal information of natural persons and its associated use relating to individuals in the EU from individuals, organisations or companies. This protection of privacy does not apply for legal or deceased person. The restrictions are applicable only if the use or process of data is for reasons other than personal or activities carried out in the household. The categories of user data, that is protected under GDPR which are “personal data” and “sensitive data”.
Before moving the concept of “Data Subjects” has to be clarified. Data subjects are those natural persons whose data enables one to identify the person. The following are some examples of categories of data subjects.
Directors
Shareholders
Public officers
Beneficiaries
Volunteers
Contractors/consultants/freelancers
Website end-users
Application end-users
Personal data
Understanding of the term “personal data” is essential. Article 4 (1) of the GDPR defines “personal data”. Personal data or information is an identification or recognition that is associated with the natural person. It can be in the form of direct information that reveals the person’s identity or it can be a group of “innocent” data such as height, job position etc, put together will serve the purpose. In layman’s terms it the information that clearly indicates a natural person is his personal data. Personal data that is served encrypted, pseudonymised and de-identified, but can be used to identify the person will still be governed under GDPR and be considered personal data. To get more clarity as to the ambit or categories of personal data, follow the table below.
Internal
Financial
Historical
External
Social
Tracking
Knowledge and Belief
Account
Life History
Government Identification and Name
Professional / Employment and business
Contact information
Authentication
Ownership
–
Ethnicity
Criminal
Location
Preference
Transaction Information
–
Sexual
Public life
Personal device Identification
–
Credit
–
Behavioural
Family
–
–
–
–
Demography
Social Network
–
–
–
–
Mental Health
Communication
–
–
–
–
Physical Character
–
–
GDPR applies to all regardless of the technology used for processing or collecting personal data. GDPR is technology-neutral and applies to both manual and automated information collection systems, only criteria being a predetermined data organisation technique. All personal data is governed under GDPR irrespective of the data storage mechanism, be it use of IT or paper or video surveillance, the data is subject to GDPR.
Sensitive data
“Sensitive Personal Data” is a subset of personal data which receives a higher pedestal of regulation and a ban on its collection without the explicit permission of the data subjects, except for a few special situations enlisted in Article 9 of GDPR. Categories of such data are as follows:
genetic data,
biometric data,
racial or ethnic origin,
religious or philosophical beliefs,
political opinions,
sex life and sexual orientation,
health data.
Exemptions to this general rule is given under the second paragraph of Article 9. It has ten exemptions to it, they are as follows: (to know more click here)
Explicit Consent,
Employment,
Vital interest,
Membership organisations,
Information in public domain,
Legal proceedings,
Public interest,
Public health,
Medicine, and
Research.
Do Users Own Their Data? User Rights Under GDPR and how companies can comply with those liabilities.
GDPR has enlisted a set of eight rights that all EU citizens are entitled to under chapter 3 of the GDPR. All data controllers and processors have to take up exercises to comply with and protect the rights of the citizens. To move further, it is very important to understand the terms “Data controller” and “data processor”. The data collector is an individual, company or any other organisation that decides purpose and means of processing data. Data processor is someone who processes data on behalf of the controller.
The Right to Be Informed
If a data controller or a data processor use or process personal data of someone then the person has the right to know about it. The GDPR requires disclosure of:
The details of the person processing his or her data.
Contact details ought to be shared with the data subjects.
The reason behind the processing of their data.
Detail of the legal basis upon which their data is collected.
The duration of storage and process of their data.
If the information is shared then, the details of the third party and its associated reason.
What rights does the controller or processor have over their data?
All the above-said disclosure has to be made by the data controller or data processor, whosoever uses or processes the data. The common practices amongst businesses is to create a privacy policy which is required by the law for every organisation to make before using or processing the personal data of the European Union citizens.
Creating privacy policy
The only way in which the data controllers and processors can fulfil this requirement is by having a privacy policy. The privacy policy shall be that document that will ensure compliance if at all the users exercise their right to be informed.
Under Article 15 of the GDPR, a customer can ask for information regarding the use and process of the personal data that are used. This is technically known as Subject Access Request. Recital 59 mandates for the facilitation of the exercise of the rights of data subjects. This information shall include:
Confirmation as to the usage of data.
Copy of all the personal details of the user.
Any form of information provided in the privacy policy.
Subject Access Request
GDPR all advocates for a system that provides for electronic request. It is always necessary to create a subject access request form.
One of the fundamental principles of data processing is “accuracy. This is not just principal it is also given as a right to the user under article 16; right to rectification. This right granted to the user gives the opportunity for the user to request to change any data or modify any data that is inaccurate that is being held by the data controller or processor.
For a company to invest in a separate rectification form is unnecessary because the volume of such requests are too minuscule. Hence it is always advisable to make rectification request procedure in the privacy policy or dedicated web page which deals with the rectification of user data in the simplest manner possible.
The right to erasure is also called as the right to be forgotten which is mentioned under article 17 of the GDPR. This right was a codification of an existing principal which stems from the case Google Spain v AEPD, Mario Costeja González (2014). In this case, Mario Costeja Gonzalez succeeded in his efforts to get google to remove all the reference that it has made to him in the search results. However, no right is absolute. Data subjects cannot enforce this right against all the data controllers and processors, but such right shall be exercised in certain situations like:
The data is no longer used.
On withdrawal of consent by the user.
If there is a legal obligation to do so.
If the data of the user is unlawfully obtained.
Certain conditions related to children under Article 8.
To comply with these if at all a customer requests to exercise his right it shall be well addressed in the privacy policy. Check out the privacy policy of Silverado to see how their privacy policy has included this clause which talks about the right of erasure.
Click Above
The Right to Restrict Processing
This right to restrict processing is available to the users under article 18 of the GDPR. This guarantees a substitute right when the right to erasure is not feasible due to any situations that are mentioned above. User can demand the company or the data controller to restrict the use of his or her personal data to specific terms and conditions even though he has failed in exercising is right of erasure.
It is always advisable to have an electronic system for handling restricted data when the user demands to exercise his right. Recital 67 suggests tips to manage this type of request from users:
Moving restricted data into a separate system through which it can be operated.
Temporarily remove the data from the website or the place where such data is stored.
Make the data temporary unavailable to be accessed by the user or any other user who uses your website or who has access to any such systems.
The Right to Data Portability
Article 20 of GDPR gives users the right to demand a copy of personal data that the company process and the right to transfer their personal data to whomsoever they want to. However, this right is not absolute and can’t be exercised by the users when it is done on a legal ground other than consent.
A company can save itself from obliging to the exercise of rights by users, by getting consent or contracting with them for providing such user data and it’s associated processing. Other ways to save oneself from such request is by creating a third party system to provide such services.
Third Party System
Company shall consider creating a third party service which shall enable them to do data portability on behalf of their uses. Such services are offered in most of the European countries including the UK. Recital 69 solicits for easy facilitation of data transfer of data subjects from one company to another or from one controller to another in a technically organised manner. Companies can also consider creating their own systems instead of outsourcing the service to a third party, the only concern being such systems have to be technically organised, commonly used and machine-readable format.
Article 21 of GDPR deals with this right of objection, by the data subjects against processing their data. This right of objection does not mean that the data subjects can request to delete the information stored. This right is very important in case of direct marketing, as the user can absolutely object to processing their information for the purpose of direct marketing and if such exercise of the right of objection is made it is mandatory for the companies to comply with it. However, exercising of this right other than direct marketing needs little more complex legal ground that has to be established by the data subject to enforce his right.
Recital 70 solicits companies and other data users to make an attempt in creating awareness about the right to object in clear terms. It is always better to give an unsubscribe link while sending marketing emails sent to the customers.
Rights Related to Automated Decision-Making and Profiling
Article 22 of GDPR talks about this rate of data subjects it is also one of the most unpopular rights amongst all rights that are guaranteed in the GDPR. This right of the data subjects relating to their Automated Decision-Making and Profiling is not applicable to all types of companies. To know the type of companies that must be concerned in ensuring compliance will be all those who are involved in automated decision making and profiling activities.
Automated decision making means any system generated output that is not intervened by human interaction, for example, systems that generate credit score to customers based on their past credit performance. Profiling is using pool data to predict the behaviour of a specific group. Companies that are involved in such activities or using such a system in the business operation have to provide for a review by humans (stall or employee) mechanism which shall be done on-demand to exercise of the rights of users.
Consent under GDPR and How to Obtain such User Consent
Consent under GDPR
Data being one of the most sensitive and vital information about a person: the GDPR has prohibited the processing of such data but has also allowed for six grounds on which such data shall be processed. These six grounds are provided under Article 6(1) of the GDPR. One such ground is the consent of the relevant party. Article 7 of GDPR exclusively deals with valid consent, which requires consent to be freely given, specific, informed and unambiguous. To have a better understanding of the elements of consent under Article 7, it shall be discussed in detail.
Free consent involves a voluntary declaration of the data subject. Such consent obtained must be free from any form of undue influence and pressure.
Informed and specific consent shall be ensured by means of disclosing a few essential information such as the controller’s identity, kind of data to be processed and the purpose etc. The power of the data subject to withdraw the consent at his will can be an addition to the list of information to be disclosed.
The last element is that the consent so given has to be unambiguous. To ensure ambiguity the shall be an affirmative act or clear communication. Under GDPR the concept of implied consent is not recognized, hence there shall be clear and unambiguous consent.
As discussed above, obtaining consent is not a silver bullet; it is too complicated as all the elements of consent have to be fulfilled. Also, the concept of implied consent is not recognised. Therefore, it is always better to choose consent as the last choice while obtaining or processing the information from the customer because of the above said reason and also, it can be withdrawn by the data subject at any time in the future. Usually, business organisations to whom the processing of data is a core activity, don’t rely on consent as a base to obtain information.
How to Obtain such User Consent
If at all consent is inevitably the only base that one can rely on, it is advised to follow the steps below to ensure that the consent so obtained has fulfilled the requirements under GDPR.
Methods of data collection
Consent request forms: digital and on physical paper;
Opt in-box in an electronic form to be ticked by the customer;
Make opt-in button or create link online to get their consent;
Making dashboard preferential settings;
Send a Consent Request form through the mail;
Oral consent request is also an efficient source or;
Any other equally efficient means of acquiring consent.
The method of obtaining consent shall be any of the above, but the real question is whether these methods address all the elements of consent. The withdrawal to such consent should be very easy to be done by the party.
General instances where consent is required
Consent for cookies
Most websites use the default application of the cookies on to users and if the users have the freedom to opt-out of this from the dashboard. This is the conventional way of obtaining cookie consent. With the advent of GDPR, free consent has become very strict which renders the conventional methods invalid. Look at South Bank’s conventional approach to cookie consent, which under GDPR is not valid consent.
Refer to the cookie consent of European Central Bank which meets all the requirement of valid consent. This cookie policy entails all the elements of consent under GDPR.
The cookie consent of the European Central Bank is for very basic, check out Experia’s consent request which involves various types of cookies out of which the user can choose the type of cookies that one wants.
Consent for Sending Marketing Material
The conventional methods the websites and other digital forums use is the pre-ticked boxes that help users automatically the subscribers of their email list. However, this method does not qualify as free consent under GDPR. To make sure that there is compliance with all the elements of free consent is fulfilled; one should adopt practice similar to Dynastar which enables the users to enter their email id by themself if they do so, it is deemed to be that free consent is given. Double opt-in is a very popular way to ensure that the consent is given, in this method the user is asked to confirm his or her subscription.
Consent for Third Party Marketing
The conventional methods the websites and other digital forums use is they share the details of the third party or directly send in their marketing material to the users, both of which are prohibited under GDPR. The best way to get around this problem is by using bundled consent request. This technique requires the data controller to acquire consent for sharing the information with the third party and also includes the relevant information of the third parties to whom the information is shared. This is bundled with the other consent request protocols. Take a look at how Escapio has handled the bundling technique in its website.
GDPR: purposes for which data can be collected (and processed) or not
GDPR talks in detail about the six lawful bases or instances that will be invoked while collecting or processing user data. These bases are scenarios in which it will be legal to process personal data of people.
Consent: is a no brainer, as we have discussed in the earlier section as to the element, ineffectiveness of consent, situations where consent is needed and methods of getting consent. Another most important part about consent is that it should be easy for the user to opt-out if he wants to.
Contractual obligation: is one of the most common and simple bases available for businesses to process data under GDPR. A business organisation shall process user data on a contractual basis. Which shall then be a contractual obligation of the user to provide access to his data and give permission to process such data obtained. The contractual relationship does not give the data processors an absolute right to the user’s data, any data so processed outside the scope of the contract shall be substantiated with any other legal basis.
Legitimate interest: of the user can be a legal base for processing the data. This processing activity is what the user would generally expect to be done by the processor when he gives his data like fraud protection and marketing activities. To use legitimate interest as a base to process the data of the user a balancing test shall be undertaken: is the processing activity of the business so essential to the functioning of the business? Does this activity of the business cause less risk to the privacy and freedom of the data subject? If the answer to either of the questions is “no”, then the business cannot use legitimate interest as a legal basis to process such data.
Vital interest: is an interest that is associated with an emergency situation where personal data of the subject is very vital to the life of the data subject; situations like a medical emergency
Legal requirement: arises when the processing activity is necessary as a legal obligation arising out of a statute or any other equally efficient legal document. These obligations may arise under security, consumer law or employment laws.
Public interest: can be invoked only by a government organization or government authorized agents who can process the data of the users.
Pointers to be noticed before choosing a legal base
There shall be a legal base that the business will decide before processing the data of the data subjects. This legal base so selected shall be final and the business can’t be alternated between two legal bases whenever necessary. Also, the legal base has to be decided before processing the data, it can’t be chosen after all the processing is done.
The processor has to be open with the legal base that it has opted, and should be able to demonstrate it at all times of the process. Also, the data processors should be able to demonstrate the way in which the data or the consent (if gotten) was obtained.
The type of legal base that is used to get users data will significantly affect the way in which the rights of the users are exercised. So, a firm which is willing to obtain user data must also think in lines of this to arrive at a perfect base to process data.
If the organisation uses multiple bases to process data, it shall be obliged to distinguish between the legal bases that are being used to process different types of data.
There is no hierarchy of legal base that is ranked most or least desired. The appropriate base shall solely depend on the purpose for which the data is being processed.
It is important to be noted that there is a special group of data that is categorized as sensitive personal data that attract a higher level of regulation and collection of which without the consent is not permitted. These types of data needs a different legal base, unlike regular personal data that is being processed.
How should an Indian business operating in the EU or collecting EU User data comply with GDPR?
Any organisation who use or process EU citizens’ data irrespective of their presence or operation in the EU region. All startups and other organisations who wish to collect or process the data of EU citizens, then the compliance part kicks in. The following is an account to ensure compliance of the GDPR for all those small and medium firms out there struggling to comply due to paucity of resources. Territorial applicability of the regulation is given under Article 3 of the Regulation.
Create a robust GDPR compliant Privacy Policy
A privacy policy is the first step towards ensuring that there is transparency in the way the data is collected and processed by the controller or processor, also it is the right of the data subject to know how his or her data is used. Hence, GDPR advocates for a robust privacy policy that the controller can use in the above-mentioned benefit of the data subject.
A privacy policy is a public document as mentioned under the GDPR in Article 12, 13, and 14 which also mentions about the privacy principles that have to be adopted.
Characteristics of a Privacy Policy under GDPR
The policy must be easily accessible by the data subjects.
The policy shall be very transparent, clear, concise and unambiguous in nature.
The language should be plain and simple and special care has to be given to when the request is made to a child (16 Years old).
The privacy policy should not entail any kind of charge that is associated with the procurement of the document.
In addition to this, GDPR also talks about the type of information that has to be written in a privacy document. This information substantially differs, if the information is directly obtained from the data subject and indirectly obtained from the data subject.
Information to be provided if directly obtained from the data subject
Information and contact details of the controller and its DPO (Data Protection Officer).
The purpose and need for the processing of users’ data.
The legal basis that has been invoked.
Mention the recipient or the categories of recipients of the users’ data.
The details are to be provided if the data is shared with any third country and the safety measures taken, to avoid data breach of any nature.
The retention period for which the controller will have access to the data and the categories that are used to fix such a retention period.
The existence of the rights of the user has to be expressly mentioned in the policy document.
Withdrawal procedure that has to be followed by the data subject when he or she wants to enforce his or her right.
The right to lodge a complaint to a superior authority.
If the legal base is of a contractual or statutory in nature, then the consequence of not providing the requisite information has to be given.
Provide information about the automated information system that has been adopted by the organisation in profiling and other information.
Information to be provided if indirectly obtained from the data subject
All the above said information except point 10.
And, add categories or types of data that is obtained.
Click on the link here to see a sample template of a privacy policy from the GDPR.EU website.
Obtain valid consent
Obtaining consent and other ways in which consent can be obtained is discussed in detail in the earlier part of the document. Please refer the same for more information regarding the same.
Appoint a Data Protection Officer (DPO)
GDPR mandates for a DPO who will be the enterprise’s data security leader. The core functions of a DPO is to formulate data managing strategies and ensuring compliance with the GDPR.
A DPO has to be appointed at all public organisations that stores or processes the data of citizens of the EU. However, there is a threshold that has to be reached for this purpose. DPOs must be appointed for public authorities when data processing is the core activity of the business which deals with personal data on a large scale or when the special category of data is constantly being used in a very large scale.
GDPR has in its language made it clear that the size of the enterprise does not contribute as a factor when deciding the need for a DPO but has rather mentioned that the size and scope of the data being used should be the factor. However, the concept of large scale is not being discussed in the GDPR. This shall be decided with the help of the four determining factors they are:
Data Subject
Data Items
The period of data retention
The geographical range of processing
Data controllers and Data processor
Under the GDPR regime, the roles and responsibilities of a data processor and controller have been made very stringent. If an organisation or business wish to be a GDPR compliant then they can’t afford to miss out on the data controller and data processor responsibilities.
The data controller is a legal, natural or authority who decides as to why and how the data is being processed. In instances where there are more than one legal, natural or authority who decides as to why and how the data is being processed, then they shall be collectively referred to as “Joint Controllers”. The data processor is simply that organisation or business who undertakes the activity of processing the data supplied by the data controller. This transaction is commercial in nature where the controller is the customer of the processor.
Joint controller compliance
Each controller who is a part of the joint controller of data shall be able to clearly and unambiguously demonstrate his specific responsibility in the joint controllership to any individual or any other superior authority.
If the joint controllers are from an EU state then their relationship shall not violate the municipal laws of their respective EU member state.
Each controller who is a part of the joint controller of data shall be able to clearly and unambiguously demonstrate the nature and type of arrangements that have been established with the other controllers in the joint controllership.
Controller’s compliance
The implementation of the data privacy policy (Discussed earlier in the article).
Implementation of a code of conduct (Discussed later in the article).
Implementation of the certification process mentioned in GDPR (Discussed later in the article).
The controller has to adhere to a few principles during the two stages of deciding “why” and “how” the data is being processed. These principles include technical and organizational measures. The most important ones are:
Pseudonymization of the data given by the users.
Encrypting all the personal data.
Adhere to the principle of CIA: confidentiality, integrity and availability.
Creating a resilient processing system.
Ability to restore data in case of mishaps.
A system that supports audits, inspection and other security measures.
The processing and collection of information shall be related only to the current purpose.
The controller is obliged to select only processors who are GDPR compliant.
The controller has to do data protection impact assessment (DPIA) on a regular basis (Discussed later in the article).
Controller’s compliance outside the EU region
The above-said responsibilities of the controller have to be adhered to, in addition, a representative has to be appointed by the controllers and also ensure the following pointers:
The representative should be within the EU.
The representative shall be in a position to engage with the supervisory body and individuals to respond to issues and ensure compliance under GDPR.
The representative shall act as a mere mediator and does not reduce any kind of responsibility that lies with the controller.
The appointment of such a representative shall b in a written mandate.
Processor’s compliance
The data processing shall be undertaken only on the basis of a written statement that requires the data processors to do so also, the same shall be documented.
The data processors should be able to demonstrate the GDPR compliance in a clear and unambiguous manner.
The processor is prohibited from outsourcing the processing work from a third party who process the data for them, without written consent from the controller.
If a processor is under any special data regulation under any municipal laws of the member state, the same shall be communicated to the controller beforehand.
The processor has to commit to be confidential with the data which is being dealt with.
Assistance as to the compliance by the controller has to be provided by the processor.
On-demand by the controller, the processor must deletes the information.
The processor has to record all the information regarding the processing including:
Name and other details of the controller, processor and DPO of the organisation they deal with.
The purpose for which data processing is done for each controller.
Categories of data subjects and types of data.
Details of 3rd party transfer.
Details of 3rd party country’s involvement.
Data retention period of the data for each controller.
Technical and organizational systems that are employed by the processor.
Data Breach compliance
The organisation (controller or processor) has to ensure that there is a mechanism which ensures that there is no possibility of a data breach, but it is close to impossible to give 100% protection. So the GDPR mandates for regulations that have to be followed during times of data breach. The organization have to ensure the data breach is been communicated to:
The supervisory authority and;
The individuals whose data is possibly breached.
For both these notifications, there is a communication procedure that has to be followed by the organisation that has been internally made. Such an internal mechanism has to be in line with the following guidelines:
Communication to superior authority
Communication has to be made within 72 hours of the occurrence of such a breach.
If the information breach has occurred from the side of the processor it has to be informed to the controller without any delay.
Provide the contact details of the Data Protection Officer.
Documentation of the facts related to the breach that occurred, and make it available to the authorities.
Nature of the breach.
An approximate number of data records affected and the number of individuals affected.
Consequences that might arise due to the breach.
Propose the measures to mitigate the losses that have occurred.
Communication to individuals
The notice has to be made immediately to the data subjects individually.
The notice has to be made in a clear and unambiguous manner.
Data Protection Impact assessments (DPIA)
GDPR recommends undertaking a DPIA with respect to the nature of data processing and especially when moving or adopting new technology. If the DPO is present then the controller ought to take his guidance before running a DPAI. The following are the instances where the GDPR mandates for a compulsory DPIA:
When huge amount of special category data is being processed.
When an automated system for profiling and other activities are extensively used.
Large scale processing of publicly accessible data.
Other instances of similar nature, when mandated by the relevant authorities.
What is the prime focus while doing a DPIA?
Examine the purpose of processing.
Examine the method of processing.
Assess the risk associated with individuals’ freedom.
Measures to mitigate in case of any breach or loss.
Code-of-conduct and certifications
The GDPR recommends for a professional community to represent various types of processors and controllers to come up with code of conduct that can be aligned to the GDPR, which will help these small group of organizations to comply with the data protection law.
GDPR also encourages for certification of the level of security that is being served by the organisation. This shall help the consumers to make an informed decision. To know more about the Code-of-conduct and certifications please refer to the official document of GDPR.
GDPR and reciprocity arrangements of EU with other countries for data transfers
Though GDPR is an EU based law there is a need for a robust mechanism that has to be set in place, so as to ensure there is smooth flow of data transfer. This is so important in the regime of liberalisation and globalisation where all the organisations are dependant on each other to survive in the market. To ensure this the EU authorities have created a mechanism known as the “Adequacy decision”.
The adequacy decision is a finding undertaken by the EU regarding the data protection laws of other countries, territory, sector or organisations to ensure whether the country has a data protection regime that is as robust as the GDPR. If the country, territory, sector or organisation is covered under adequacy decision then a restricted data transfer shall be undertaken.
Andorra, Argentina, Canada, Faroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand, Switzerland, Uruguay, Japan and USA (Privacy Shield). Data transfer to these countries is expressly permitted.
India is not on the list does it mean that it forecloses any kind of data transfer between India and EU members.
What to do if there is no adequacy decision?
A legally binding and enforceable instrument between public authorities or bodies
A restricted data transfer can be made between two public authorities or organisations provided that they create a legal instrument which provides for safeguards of the rights of the data subjects whose data is being processed. This legal instrument must include appropriate safeguards which must include enforceable rights and effective remedies for the individuals whose personal data is being transferred by means of this legal instrument. If the organisation does not fall under the category, who has the power to enforce a legal document then the organisation might consider creating an administrative document which is equally effective.
Binding corporate rules
Binding corporate rules is a group document that is signed by both the receiver and sender through which restricted data transfer can be made. These rules are just like code of conduct operating within an MNC through which restricted data transfer can be made. Members of BCR are usually involved in a joint economic activity such as merger or franchise etc.
These BCRAs have to be submitted for approval by the EEA supervisory authority where one of the participant’s head office is located in that EEA region. This is done in order to ensure that there are adequate safety measures that have been incorporated in BCR by the parties.
Standard data protection clauses adopted by the Commission
Standard data protection clauses are contractual clauses that have to be incorporated in and contract that has been entered between a sender and the receiver while dealing with the restricted transfer. These contractual clauses are created by the commission to ensure that safety has been given due regard to. The contractual clauses provide for obligation and the rights of the data provider and the receiver. Under this clause, an individual can directly exercise his or her right against a data export or a data importer.
An approved code of conduct together with binding and enforceable commitments of the receiver outside the EEA
An approved form of data transfer can be made if the receiver has agreed to a code-of-conduct that ensures the safety of the user data, which is directly enforceable by the data subject on the receiver in case of mishaps.
GDPR approves such forms of code-of-conduct and encourages private parties to do so. This is very recent and because of this, there is no code-of-conduct that is in practice right now.
Certification under an approved certification mechanism together with binding and enforceable commitments of the receiver outside the EEA
This is an approved form of transferring restricted data. Under this method, the receiver has certification under a scheme that is approved by the superior authorities. The certificate scheme must include all safety measures that can be included to protect the rights of the data subject.
This is also a new option that has been introduced under the GDPR and there is no certification scheme that is available which has been recognized by the superior authorities.
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A proprietorship is a state or right of owning a business or holding property. Generally, proprietorship and sole proprietorship are terms which have simultaneous usage. Since the business done under proprietorship is not registered, there exist no legal boundations as such. In India, these types of businesses are operated in unorganised sectors. The major idea is that there is unlimited liability of the proprietor, unlike a partnership where there is a limited liability. There exists a stark difference between limited and unlimited liability. Limited liability means that for any of the act, offences, debts and loans of other partners not all the shareholders and the partners are legally responsible. They are responsible to the extent of a particular nominal value. This is in relation to financial risk. Moreover, unlimited liability bears all the financial losses and gains on the proprietor only. However, there are a lot of questions which needs to be answered, such as what are the advantages and disadvantages of proprietorship? How can these be termed under one particular umbrella term? The advantages and disadvantages are clearly illustrated in the following excerpt.
Meaning Of Proprietorship
Proprietorship refers to a type of business organization where one person or a family owns a particular firm. A sole proprietorship is also known as the sole trader, individual entrepreneurship or proprietorship which denotes a type of enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity. The sole proprietorship is one of the easiest types of business in order to establish or take apart in the business arena due to a lack of government regulation. As such, these types of businesses are enormously popular among sole owners of businesses, individual self-contractors, and consultants. Many sole proprietors do business under their own names because creating a separate business or trade name is not always necessary.
Difference between sole proprietorship, partnership and company
There are no formalities which are involved in creating a sole proprietorship that will become operational under the owner’s name, other than obtaining licenses or permits related to the trade or profession of the owner. For instance, a plumber or electrician might have to obtain a license. An in-home day care provider might need to meet certain inspection requirements. A sole proprietor who uses fictituos name for the business must file an assumed name certificate with the state or local government. Two or more people who agree verbally or in writing to operate a business for profit constitutes a general partnership. If a particular general partnership operates under a fictitious name, the partners must register it with the state or local government. Each partner has the right to participate in the management and arrangement of the business and to share equally in profits and losses, however, partners may agree in writing to an unequal allocation of management control and profits and losses. Partners and sole proprietors have the same exposure to personal liability. A general partner signing a partnership agreement and filing a certificate of limited partnership with the state forms a limited partnership. Unlike a general partnership which only has one class of partners, limited partnerships have at least one general partner and one or more limited partners. As in a general partnership, limited and general partners also share profits and losses that they then report on their personal income tax returns. A particular corporation is created by filing articles of incorporation with the state in which the company will be doing business. The filed articles contain the information about the new corporation pertaining to the street address, the number of shares of stock the corporation may issue and the type of business it will conduct. Corporations are owned by shareholders who do not participate in their management or operation and instead elect a board of directors to handle management responsibilities. The officers, such as a president and vice-president, are appointed by the board to oversee day-to-day operations. It is common for a small corporation to have only one shareholder who is the sole officer and director as well.
The Legal Aspect And Liability
The liability of a sole proprietor is unlimited. This means that unlike firms where partnership exists, a sole proprietor is subject to potential losses based on the company’s obligations. Thus, there is no partners to help cover financial commitment. It has to be done by the sole proprietor itself if he is at the risk when sued or owes debts on their business. The lawsuits create a lot of problems for partners with unlimited liability. A sole proprietorship is not necessarily registered or incorporated. It is the most ideal form of business organisation and the ideal choice to run a small or medium scale business. It is completely different from the partnership as a sole trader is the absolute owner whereas in partnership two or more people agree to operate a business. The important aspect of the sole proprietorship is that there exists a lack of legal formalities. There is no separate law to govern it. The only license is required to carry out the desired business and it allows for ease of doing business with minimum hassles[1]. The owner is the only risk bearer in a sole proprietorship. Also, he is the one who enjoys all the profits with any other stakeholders. In legal terms, the business and the owner are one and the same. There is no separate legal identity.
Advantages Of Proprietorship
The sole proprietorship is a business which does not have specific registration process requirements and the proprietor’s legal identity is used by the business. They are not treated as separate persons. The major advantages are as follows:
Easy Establishment
The business of proprietorship is really easy to establish. It is not a mammoth task. It does not have any prior registration process formalities and requirements to be fulfilled. As it is the identity of the proprietor which is used as the legal identity of the business as well. The PAN and Aadhar cards of the promoter can be used to obtain the identity of the business that needs to be optionally created and protected. Its establishment is not a difficult task like other firms and companies which are required to be registered.
Easy Operation
Since there is only one single person who is operating the entire business, it becomes very easy for the sole proprietor to operate his/her business without any hassles and external interference. S/he becomes the sole decision-maker and does not need to consider any other bundle of opinions. The investment done in the business is entirely the proprietors only and no extra interference exists in the operation of the business.
Profits
Being a sole proprietor, an individual becomes the whole and sole beneficiary of all the profits as well. It is a one-person company which makes the proprietor eligible for the entire profits gains. The proprietor is not required to distribute it amongst others under any legal formality rather it helps the proprietor to gain more money than invested. In other firms and companies such as partnerships, LLPs, a minimum of at least two persons are involved. It is the only business in which only one man involvement exists.
Taxation and Compliances
The proprietorship firms are not registered with any of the Government authority like the Ministry of Corporate Affairs, the compliance requirements are very minimal. The proprietor is required to file income tax returns if the firm has the income of more than 2.5 lakhs per annum. Moreover, the proprietor who has crossed the age of 60 years would be required to pay taxes only if the income is above 3 lakhs. Also, the proprietor who has attained the age above 80 years would be required to pay only when the taxable income is above 5 lakhs. The income tax liability can also be reduced by other methods as well. The methods are as follows:
The proprietor can make a contribution in various provident funds, life insurance premiums, also to the subscription to certain equity share or debentures.
The contribution to certain pension funds also helps.
Income from the royalty and royalty on patents also give a massive advantage.
The caring of the dependent is being done by the proprietor would help him availing the deduction in income tax liability.
Confidentiality
The proprietor is the sole owner of the business s/he is undertaking. This means that there is no leakage of any information to the third party in any way. The privacy of business is clearly maintained. There is no need to provide any details to the Government as well since the proprietorship is not registered except the income tax payments. This shows that the proprietorship firms are more private than the private companies itself as the details of the private companies gets published from time to time.
No Limited Liability
Unlike an LLPs and other companies which are registered and possess limited liabilities, in a proprietorship, there is no limited liability. The concept of a limited liability says that the partners are liable for the amount of investment done by them. This means that liability is limited and the partners will be liable for only some nominal value. Whereas in the proprietorship there is no concept of limited liability and hence everything has to be bear by the proprietor.
The disadvantage of the proprietorship
As far as there are manifold advantages of the proprietorship, there also exist certain disadvantages of a proprietorship. The disadvantages are as follows:
Unlimited Liability
This can also prove to be the biggest disadvantage as the proprietor is the sole owner of the business. This means that at the occurrence of any loss the proprietor would be the only person who must meet all the liabilities at any cost. The personal assets get used for discharging any liabilities and debts. Nobody else can be made liable.
Obtaining Funds
There exists a difficulty in obtaining the funds as well. A sole proprietor is a person who can never indulge in the sale of business interests and shares as his work is of sole traders. It deprives the entity of receipt of any type of equity funding. This means that the person who is running the business in proprietorship finds it really difficult to get any of the funds from banks, companies, for that matter, from private persons as well. The banks wary in lending the sums of money to a proprietor as the existence of the firm is tied directly to him itself. Whereas in LLPs and in companies, more than one person becomes responsible for the liabilities and the business continuation is nonetheless ensured even if there is any death or insolvency of one of the partners. This is clear that it is easy for a registered company or an LLP to raise loan whereas it becomes extremely difficult for the sole proprietor to raise the same. This is due to the risk factor which is associated with the proprietor as there is uncertainty factor which exists.
Higher Taxes
A proprietor can also be subject to the incidence of payment of higher taxes. Proprietorship firms are taxed as if the individual is being taxed. This means that the income tax rate for a proprietorship firm is based on certain slabs. There are certain benefits which a company might enjoy but a proprietor cannot. For example; the income tax rate for the company for income up to 10 lakhs is lowered. The income tax rate is much higher for a proprietorship when compared to a company of LLP.
No Business Write-Offs
There are no business write-offs which exists in a proprietorship. A proper business write-off can reduce the amount of taxable income of tax one owes. It actually deducts the cost of running the business from one’s own income. But being a sole proprietor, again this benefit does get availed by the individual running such business.
Owner’s sole Control
There exist the whole and sole control of the owner itself. This means that it is the owner who makes all the decisions without any external interference. This makes it more difficult for the business to grow as well the employees also do not get many opportunities to grow. Also when more employees are added up, it is the owner only who is allowed to take any vacation or a holiday. Usually, employees get off or vacations.
How To Start Proprietorship In India?
In order to start a proprietorship in India, there is no government registration needed. Neither there is no need to go for online registration portal and fill-up the form with the submission of any document. But a current open bank account is required in the name of the business. A current bank account proves that the specified location has been specified from where the business will operate. Since it is a one-man organisation, there is no fee to be paid for starting the same. There are no government regulatory paperwork and compliances. There are no separate income tax returns that are to be filed. In order to start the sole proprietorship in India, there are two things which are essential that are choosing the business name and selecting the location as the place of doing the business.
In order to receive payment in the name of the business, the need of proof of the existence of the firm and the address proof is required. The documents required are as follows:-
Pan card and ID for the address proof of proprietor is required.
The business address proof is another important document.
The government registration documents (two in number) confirming the name and address of the business.
CA Certificate is also required which can make from a CA who would charge a nominal fee.
Conclusion
In order to sum up, it would be right to say that a business always comes with its pros and cons. On the top of it, proprietorship business is not a piece of cake. A one-man business needs complete determination and courage to run it. It brings about various advantages and disadvantages which should be overcome much more easily by the person aiming to run the business. However, if the challenges are well tackled, it could bring about enormous advantages and benefits to the proprietor. A proprietor can also make the employment of certain persons in order to run the business more smoothly but the losses and the profits incurred in the business are solely his own. Nobody else has any right on the same. Hence, it implies that in order to run a business of proprietorship kind, one must be a pro and should construe each and every aspect of the same with great details.
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An internet shutdown is an intentional shutting down of internet services or electronic communication by the government. This is done within a specific location to control the flow of communication and to prevent people from spreading messages that may incite violence.
Internet shutdowns have become a very common phenomenon in our country over the past few years. India has witnessed the highest number of internet shutdowns as compared to any other country in the world. In 2019, India has had 81 shutdowns so far, out of which 55 were in the Union Territory of Jammu & Kashmir alone. When tallied from 2012, the number of shutdowns goes up to a stunning 354. These alarming numbers make one wonder where the government derives the authority to order these shutdowns from and whether there are legal safeguards in place to protect the fundamental rights of the citizens. Earlier, internet shutdowns were ordered under the authority of Section 144 of the Code of Criminal Procedure, 1973. Section 144 authorises a District Magistrate or an Executive Magistrate empowered by the State Government to pass orders as are deemed necessary for public safety and public tranquillity. This section is used most frequently to curb unlawful assemblies but has also been widely used to order internet shutdowns.
A legal framework to govern internet shutdowns was created for the first time in the year 2017 with the intention of directing how such shutdowns may be ordered. Rules were issued for this purpose by the government and these Rules are called the Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017 (hereinafter referred to as “the Rules”). They provide for the manner in which directions to suspend telecom services are to be issued. These Rules were issued under the Indian Telegraph Act, 1885. However, there is no definition of “telecom services” in the Rules or the Telegraph Act, 1885. A broad definition has been provided in the Telecom Regulatory Authority of India (TRAI) Act of 1997, which has defined it to include all telephonic services.
Who can issue an order for an internet shutdown?
In the case of the Government of India, an order for suspension of telecom services can be issued by the Secretary to the Government of India in the Ministry of Home Affairs and in case of a State Government, such order can be issued by the Secretary to the State Government in-charge of the Home Department(hereinafter referred to as “the competent authority”). The Rules mention that every such order must contain reasons for the issuance of such directions.
In situations of “unavoidable circumstances”, such an order can be issued by an officer of the rank of a Joint Secretary to the Government of India or above, who has been authorised to issue such order by the Union Home Secretary or the State Home Secretary as the case may be. However, such an order will have to be confirmed by the respective competent authority as mentioned above within a period of 24 hours. If such confirmation is not received, the order will cease to exist after 24 hours.
Is the order reviewed?
Yes, every order for suspension of telecom services is reviewed by a Review Committee. The competent authority has to forward a copy of the order to the Committee by the next working day.
The Review Committee consists of the following persons:
When it is constituted by the Central Government: The Cabinet Secretary (who shall be the Chairman), the Secretary to the Government of India In-charge, Legal Affairs and the Secretary to the Government, Department of Telecommunications.
When it is constituted by the State Government: The Chief Secretary (who shall be the Chairman), the Secretary Law or Legal Remembrancer In-Charge, Legal Affairs and the Secretary to the State Government (other than the Home Secretary).
The Review Committee has to meet within 5 working days of the issue of the order and it has to record its findings as to whether the order has been issued in accordance with the provisions of Section 5(2) of the Telegraph Act. However, the Rules are silent as to what steps are to be taken if the Review Committee finds that the order was not issued validly. No power has been given to the Committee to strike down the order.
It is also important to note that the Review Committee is composed entirely of members of the Executive. This appears to be a conflict of interest as the competent authority and the members of the Review Committee are all part of the Executive and it brings up questions about the impartiality of the review process. The Committee should have, ideally, consisted of members of the Judiciary.
In what situations can such an order for suspension of telecom services be made?
The Rules do not provide for the grounds under which a shutdown can be ordered. It merely states that such an order can be issued in cases of “public emergency” or “public safety”, but no definition has been provided of what constitutes a public emergency or what is public safety.
However, if we read the Rules in conjunction with the Telegraph Act, the situations in which telecom services may be suspended are as follows – a) on the occurrence of any public emergency, or b) in the interest of public safety where it is necessary, or c) expedient to do so in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign states or public order or, d) for preventing incitement to the commission of an offence.
These grounds should be given a strict interpretation and should be taken to mean that such an order should be issued only when there is a grave danger to public order. The Rules should have also included a list of situations in which such suspension of telecom services should not be ordered, such as when internet services were suspended over the fear of widespread cheating in a particular exam.
How will the order be conveyed to the service provider?
The service provider (telecom authority or internet service provider) must have a designated officer in every licensed service area or State or Union Territory who shall receive and handle all such orders. The order for suspension shall be communicated to such designated officer in writing or by secure electronic communication and it shall be sent by an officer “not below the rank of Superintendent of Police or equivalent rank”.
Has a timeline been specified in the Rules for such suspension of telecom services?
No, a timeline hasn’t been laid down for such suspension and this is one of the major drawbacks in these Rules. A maximum time period should have been provided beyond which shutdown should not be allowed to continue. This would have gone a long way in upholding the rights of citizens and in ensuring that citizens are not deprived of internet services for an inordinately long time. However, since no such time limit has been provided, governments are free to order suspensions for an indefinite period of time. This is a worrisome situation given that governments are wont to order shutdowns when there is even a slight possibility of a law and order problem.
Conclusion
A plain reading of the Rules shows that adequate legal safeguards have not been put in place to ensure that an order to suspend internet services is issued only in dire circumstances. For the rules to be completely effective, strict limitations should have been provided regarding the grounds under which a shutdown can be ordered. Also, as mentioned above, a maximum time limit should have been provided for the continuance of such suspension.
In today’s day and age, access to the internet is considered as a fundamental right. The internet is used by citizens to exercise their right to free speech and expression. Being one of the most important rights available to citizens in a democracy, it should be taken away only in the most adverse situations, where is no other recourse. Also, it is important to note that the internet is also used for various activities such as e-commerce, banking transactions, streaming of media and numerous other functions that are intrinsic to day-to-day life, especially in urban areas. In such a case, taking away access to the internet can seriously hamper the commercial prospects of innocent people, while causing a huge loss to the economy of the country at the same time. Research has shown that the internet shutdowns from 2012 to 2017 cost the Indian economy nearly 3 billion dollars. That is a huge number for a developing country.
While maintaining law and order and protecting human life should be the priority for every government, care should be taken that this does not infringe on the fundamental rights of the citizens for an extended period of time. Another important point is that the Rules do not contain a provision for issuing a notification prior to shutting down of internet services. As a result, citizens are caught unawares and do not have the time to make preparations to reduce the impact of the shutdown.
Checks and balances are the need of the hour. A blanket internet shutdown creates uncertainty among the public and may also cause widespread panic. Alternate solutions must be devised such as ways to prevent the circulation of any inflammatory material online. Exceptions should also be made for members of the press residing in areas where a shutdown has been ordered. It is important that news about the prevalent conditions in such areas is made available to the public at large. This can also go a long way in quelling any unrest among citizens.
To conclude, these Rules must be looked into by the government and the necessary changes must be made to give more teeth to these Rules. India must make sure that the democratic ideals of the country are maintained and the fundamental rights of citizens are upheld to the highest possible degree.
Endnotes
Internet shutdowns. (n.d.). Retrieved from https://internetshutdowns.in/
Telecom Regulatory Authority of India Act 1997, s. 2(k)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(1)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(1)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(2)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(5)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(6)
Indian Telegraph Act 1885, s. 5(2)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(4)
Temporary Suspension of Telecom Services (Public Emergency or Public Safety) Rules, 2017, r. 2(3)
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After a lot of toils, hard work, determination, emptying of pockets one qualifies from being called a ‘Plaintiff’ to a ‘Decree Holder’, and in the process on an average anything upwards from a decade to more than one decade is consumed. During this journey, the plaintiff who started as an innocent and reluctant litigant metamorphosis’s into a half-baked lawyer. It is akin to a nursery toddler who after years of devotion, sacrifices, and dint of hard-work finally has a post-graduate degree in hand, which in our case we shall call ‘Decree of Sale’.
However, fruits of labor shall only mature after the execution of the ‘Decree of Sale’. The word execution, is not defined but understood to be, ‘a judicial act by which a public officer is empowered to carry judgments or orders into effect’? In other words, it means the carrying into effect the judgment or order delivered in a court of law. Order 21 along with 106 rules in its kitty is the most extensive of all in the Civil Procedure Code (CPC), 1908, it lays bare the procedure involved along with relevant sections, which we shall have at our command to conquer the ultimate summit.
Introduction
Mostly, the decree of sale of immovable property is awarded for enforcing mortgage deed, charge, or for recovery of money or any other kind of encumbrances as deemed fit by the court. The person in whose favor decree is awarded is called the ‘Decree Holder’, (DH) and the one incumbent to satisfy it is ‘Judgment Debtor’ (JD). Decree of sale comes into being upon adjudication by any court exercising original jurisdiction, and the same can be applied for execution after the prescribed period of appeal, provided it is not preferred by the JD. Per contra, this can go on until the JD gives up or exhausts all his legal remedies.
Limitation & Executing Court
Period of limitation under ‘The Limitation Act, 1963’ for filing of execution petition is 12 years from the date that the decree becomes enforceable. The same shall be filed in the very court that exercised original jurisdiction. However, the court may transfer the same for execution to any other court directly, even if it is situated outside the State. This could be for various reasons such as the immovable property to be sold falls under the territorial jurisdiction of that court etc. While transferring the decree for execution, the court shall send all relevant documents viz. copy of the decree, certificate setting forth that due claim remains unsatisfied or any part that remains, etc.
Written Application
DH shall move a written application in the court that originally passed the decree or the court to which it has been transferred for execution. The application shall contain all the essential information viz. suit number, name of parties, date of the decree, any appeal preferred or pending, amount due, name of the person against whom execution is sought, and most importantly the mode in which the assistance of the court is required. Presently, we are discussing for the purposes of attachment and sale of immovable property to the satisfaction of the decreed amount. DH should take care to quote the amount which in his estimate is the true value of the immovable property to be sold.
After the executing court has satisfied itself that all defects if any have been cured in the application and has provisionally evaluated without prejudice to the right of the parties the correct amount for the execution of the decree vis-à-vis value of the immovable property a show-cause notice is issued to the judgment debtor. It is an opportunity for him to raise his claims or objections against the execution of the decree on the day and date fixed for hearing. Show cause notice is necessary only if the execution petition is filed after 2 years of passing of the decree, or is against a legal representative or assignee or receiver where DH is declared to be insolvent. However, the court may in its wisdom issue process instead of show cause notice if it foresees unreasonable delay or ends of justice are threatened.
Application for Attachment
Once after the court has decided upon the claims or objections if any, raised by the judgment debtor, against the execution of a decree; the DH shall move an application requesting attachment of immovable property preceding sale. Though sale can take place without attachment, this shall further help in protecting the interests of the DH. The application shall contain complete details of the immovable property so as to help in its identification. Also elaborate the extent of JD interest in the said property, as per his information and belief. Whenever possible, the DH holder shall produce extracts from the registrar’s office showing various details such as interest of parties if more than one, revenue due to the government, encumbrance’s if any in the immovable property, etc.
Prohibiting Alienation of Property
After due diligence, the court shall pass an order prohibiting the JD from transferring or charging the property in any manner such as sale, gift, lease, mortgage or otherwise. The same shall apply to all who may be interested to receive it. Such prohibitory order shall safeguard DH’s interests. The same shall be drawn in writing and posted at a conspicuous place adjacent to the immovable property in question, and also at collector’s office if the said property is land paying revenue to the government. Besides affixing, it shall be publicly proclaimed with the beating of drums and other means. This order shall also require the presence of the JD debtor in court on date fixed for settling the terms of the proclamation for sale.
Objections to Attachment
All claims or objections regard to the attachment of property on the ground that such property is not liable to be attached shall be filed before the executing court. However, such applications shall not be entertained by the court if the claim or objections is preferred after the attached property has already been sold or is unnecessarily delayed by design. In such circumstances, only remedy available to the applicant is to file a separate suit, and the court shall be bound by such outcome. However, w.r.t. all questions pertaining to right, title or interest they shall be adjudicated by the executing court itself.
Preparing Notice of Sale & its Proclamation
The executing court is empowered to attach property, and publicly auction it to pay the person entitled proceeds of the sale in satisfaction of the decretal amount. In this regards, the court shall issue a notice to both DH and JD to present themselves in court on the day and date fixed for drawing proclamation of sale notice. It is prepared in the language of the court and contains all the essentials viz. time and place of sale, specifications and description of property to be sold, revenue assessed if any due, any encumbrance to which the property is liable, decreed amount, estimate value of the property as ascertained by the court, judgment debtor and decree-holder or any other material information necessary that shall aid the purchaser in its evaluation. Care is taken to sell only that part of the property that is necessary to satisfy the decree. The court is also empowered to summon anyone, or demand documents deemed necessary in preparation of this proclamation notice. Henceforth, the court shall order the Nazir of the Court for causing service of this drawn proclamation of sale. The same shall be published and announced by beat of drums. A copy of the same is affixed on a conspicuous part of the property and the courthouse. After performing all such acts, Nazir shall prepare a report for the information of the executing court.
Warrant of Sale
The court shall issue a warrant of sale order in the name of the bailiff to publicly auction as per the details mentioned in the warrant on the date and place specified and report back to court with an endorsement certifying the manner in which sale has been executed or the reason why it has not been executed.
Adjournment, postponement or stoppage of sale
The court may at its discretion adjourn sale to a specified date and hour, and so can an officer conducting the sale but after recording reasons thereto. And if the auction is taking place within the precincts of the courthouse then only after leave of court.
Sale can be adjourned when the bid amount is not adequate.
Sale can be adjourned if the purchaser fails to pay 25% of the bid amount immediately on closing of bid, and postponed if he does not pay the remaining sum within 15 days of the successful bid.
Provided, if the JD is able to satisfy the court that if the given time he shall be able to raise the decreed amount either by way of leasing, mortgaging or selling the property in question or other property the court may postpone the sale on such terms and for such period as it deems fit. The court shall grant a certificate to the JD in this respect. All monies raised by JD shall be paid to the DH.
If for any reason purchaser defaults on paying the full bid amount then after defraying the expenses involved in the auction, the remainder sum may be forfeited in the favor of the government, if the court so decides. And the property shall be resold after issuing a fresh proclamation.
The sale could be stopped any time before the lot is knocked down if the JD tenders to the officer conducting the sale the full decreed amount along with costs and expenses or on producing proof of its deposit in executing court.
Sale can stay pending adjudication of any claim or objection even if it is received after proclamation of attachment and advertisement for sale. Or conditionally allowed pending adjudication that if property is sold the same shall not be confirmed or pass orders subject to such terms and conditions as to security etc.
Note: If adjournment exceeds 30 days then fresh proclamation is to be issued, published and affixed as mentioned earlier.
Application to set aside the sale
Any person claiming an interest in the property sold may apply to the court to set it aside subject to payment in court 5% of purchase money and sum equal to that specified in proclamation notice i.e. decreed amount.
DH, purchaser or any other person having interest in the distribution of proceeds from the sale may apply for setting aside the sale on grounds of fraud or material irregularity in publishing or conducting the auction, provided injury sustained is substantial. No such application shall be accepted if the applicant had an opportunity to approach the court on an earlier occasion but has failed to do so.
Purchaser may apply to set aside the sale on the ground that the JD has no saleable interest in the decreed property.
Pertaining to all of the above cases, notice is issued to the other party to show cause before adjudication.
Successful Sale
If a sale is successful, then the purchaser is required to immediately deposit 25% of the sale amount and the rest within 15 days of successful bid unless DH is the purchaser himself with the prior permission of the court.
Distribution of money realized from sale
After defraying expenses involved in the sale of property, pay to decree-holder his full entitlement, and if any balance remains that shall be given to the JD. If on the contrary money realized from sale is not sufficient to satisfy the decreed amount then the DH can apply to the court for recovery of balance amount provided it is legally recoverable.
Certificate to purchaser
Once the sale has become absolute, and there is no litigation pending in either of the courts i.e. executing court or courts of appeal the court shall issue a certificate in favor of the purchaser containing the details of the property and the day and date he is declared to be the absolute owner of the immovable property. If the property in question is occupied by a tenant the court shall issue a proclamation bringing to his notice the name of the new owner.
Finally, if for any reason the purchaser is being obstructed from gaining possession the court shall intervene on the application, and order the bailiff to put the purchaser in possession of the sold property.
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Only if human beings had their way they shall wish to live perpetually. However, laws of nature prevail over mankind and all living beings are destined to perish. So, the next best Homo sapiens’ desire is to preserve and pass his real assets from generation to generation or vernacularly ‘pust dar pust’, ‘naslan bad naslan’, ‘pidhi dar pidhi’.
Effects of perpetuity or generation to generation phenomena
Imagine an asset that shall forever continue to remain within a family till eternity, and deprive all others from enjoying its benefits. This impedes free and active circulation of property both for purposes of trade and commerce, as well as betterment of the property itself. Can you imagine, even the owner himself is denied the right to dispose it for higher value or to tide away difficult times. Similarly, the state is divested from earning revenue, which is only possible if property can change hands frequently. So, if perpetuities are allowed then even though the transferee has received the property, he has no power to alienate it. To quote Sir D. Mulla, “It is illogical to imagine a dead person below the grave controlling properties above his grave.” For this very reason, the state and the lawmakers felt the need for drafting the ‘Rule against perpetuity’.
Perpetuity may arise under two circumstances: –
Transferor of property is deprived of the power of alienation.
Remote interest is created in the property but without the right of alienation to the transferee.
However, a condition restraining alienation is void under section 10 of ‘The Transfer of Property Act,’ (TPA), andremote interest is governed by section 14 of TPA.
Rule against Perpetuity
Section 14 of the ‘The Transfer of Property Act, 1882’ (TPA) is rightly called ‘Rule against perpetuity’ as it limits the maximum time period beyond which property cannot be transferred. Starting from the date that the transferor transfers the property + lifetime of the last prior interest holder’s + gestation period of the unborn beneficiary + 18 years, ( ‘Age of majority of persons domiciled in India’ under section 3 of The Majority Act, 1875). This period is called the perpetuity period, and vesting of the property in the transferee cannot be postponed beyond this limit.
The above transfer is contingent to many other conditions viz. sections 5, 10, 13, 15, 16, 18 and 20 of TPA. However, it is to be borne in mind that section 18 of TPA allows transfer in perpetuity for benefit of public, and so provisions of section 14 & 16 do not apply in such cases.
Understanding section 13, 14 & 16 of TPA
These sections are complex and intertwined, so we will do ourselves a favor by breaking them threadbare.
Section 13 TPA
“Transfer for benefit of unborn person – Where, on a transfer of property, an interest is created for the benefit of a person not in existence at the date of the transfer, subject to prior interest created by the transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.”
Person in existence: To begin with, the ultimate beneficiary of the transfer is an unborn person, who is not yet in existence. Child may not be physically born, but from conception itself, he is considered as a person in existence. Transfer of interest in property is valid from the day of conception, though the same shall vest on birth of such child.
Prior Interest: Section 5 of TPA mandatestransfer of property inter vivos or between living persons only. Since, the transferor wishes to pass interest on to a person not in existence, to overcome this predicament a prior interest is created in favor of living person on the date of transfer.
Whole remaining interest: Prior interest transferred to a living person is lifetime interest, which means he can enjoy the benefits of the property without alienation. In other words, transferor transferred limited and not absolute interest. The remainder interest in the transferred property is the right of alienation, which is still held by the transferor. For the transfer to be valid in the hands of final beneficiary this right of alienation plus prior interests together should reach the beneficiary.
Additional salient features of Section 13 TPA
Transferor cannot fetter the free disposition of the property in the hands of more than one generation.
Section 13 does not prohibit successive interests, limited by time or otherwise, created in favor of several persons living at the time of transfer. Prohibited is grant of interest, limited by time or otherwise, to a person not in existence.
After the last life-interest if more than one, property must rest in someone for resting cannot be perpetually delayed.
When all the above conditions are met, then only the transfer is held to be valid under section 13.
Section 14 TPA
“Rule against Perpetuity – No transfer of property can operate to create an interest which is to take effect after the life-time of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong.”
After the life-time: Here again, to safe-guard against violating section 5 of TPA, transfer of property has to take place latest; during life-time of prior interest and conception of beneficiary, otherwise the transfer shall fail.
Attains full age: The degree of transfer of interest in favor of beneficiary can be broken into 3 stages. On conception interest is created, which becomes vested interest on birth i.e. as per section 20 of TPA, and on attaining age of majority; absolute interest that includes enjoyment of property, possession, alienation etc.
Section 16 TPA
“Section 16: Transfer to take effect on failure of prior interest – Where, by reason of any of the rules contained in sections 13 & 14, an interest created for the benefit of a person or of a class of persons fails with regards to such person or the whole of such class, any interest created in the same transaction and intended to take effect after or upon failure of such prior interest also fails.”
Prior Interest fails under section 13 & 14: Before section 16 comes into operation, the prior interest created should fail. This is because it does not fulfil either of the conditions mentioned in section 13 & 14 for a person or a class of persons.
Fate of second interest: On failure of prior interest, the second interest which too is created in the same transaction, and was to be exercised afteror on failure of prior interest, shall fail for all purposes.
Per contra under 15 of TPA, if interest is created in the same property for more than one person, then it shall be valid for only those who fulfil the conditions of section 13 & 14 and fail for the rest.
Application of law against perpetuity in the practical aspect
To understand the same let us study the 1934 judgment of High Court of Oudh in case titled Girjish Dutt vs. Data Din. Brief facts of the case are that one Mt. Sugga made a gift deed in favor of Mt. Ram Kali who is the daughter of Data Din, son of Mt. Sugga’s real brother. The gift contained three alternative contingent grants independent of each other namely: –
“12…..(1.) A grant to Mt. Ram Kali for life, with remainder to her sons and grandsons, dependent upon the contingency that there was a son or a grandson or sons or grandsons alive at the time of her death. (2.) A grant to Mt. Ram Kali for life, with remainder to her daughters for life, dependent upon the contingency that there were no sons or grandsons alive at Mt. Ram Kali’s death, but that there was a daughter or daughters alive at that time, and (3.) A grant to Mt. Ram Kali for life, with remainder to Data Din, dependent upon the contingency that there were no sons or grandsons or daughters alive at the time of Mt. Ram Kali’s death.”
Infra table about the gift deed: –
Validity of Gift deed as per Section 13 & 16 of TPA
Contingency
Interest transferred Life or Absolute
Ultimate beneficiary & Interest Transferred.
TPA section
One
Life interest in favor of Mt. Ram Kali
Remainder / Absolute interest in favor of son/grandson if alive at the death of Mt. Ram Kali
Transfer valid u/s 13
Two
Life interest in favor of Mt. Ram Kali
Life interest in favor of daughters i.e. in the absence of sons / grandsons.
Violates Section 13, as whole of the remainder interest of Mt. Sugga has not been transferred to daughters.
Three
Life interest in favor of Mt. Ram Kali
No issue of Mt. Ram Kali i.e. neither sons, grandsons or daughters.
Therefore, absolute interest is transferred to Mr. Data Din father of Mt. Ram Kali
In the absence of any issue the whole of remainder interest u/s 13 fails, and so does transfer to Mr. Data Din u/s 16.
“18. Admittedly Mt. Ram Kali had no children at the time when the gift was made in her favor and she died issueless. The gifts therefore in favor of her male or female descendants were in favor of unborn persons. These gifts were also clearly subject to the prior interest created by the same transfer in favor of Ram Kali. Section 13, Transfer of Property Act, requires that such a transfer in order to be valid must extend to the whole of the remaining interest of the transferor in the property. As the gift over in favor of the sons or grandsons of Mt. Ram Kali related to the absolute interest, it was clearly valid. It seems equally clear that the gift over to the daughters was void because the transfer in their favor related merely to a limited interest….”
“19. If we analyze the section it will be seen that three conditions are necessary for its implication: (1) There should be an interest created for the benefit of a person or a class of persons which must fail by reason of the rules contained in Sections 13 and 14; (2) there should be another interest created in the same transaction; and (3) the other interest must
be intended to take effect after or upon failure of the prior interest. We have already held that the interest created for the benefit of the daughters fails by reasons of Section 13, T.P. Act. It is also clear that the interest created in favour of Data Din is an interest created in the same transaction. There can therefore be no doubt about the first two conditions being satisfied. The only question is whether the interest created in favour of Data Din was one intended to take effect after or upon failure of the prior interest created in favour of the daughters. It is agreed by both parties and is also clear from the terms of the will that the gift in favour of Data Din was not intended to take effect after the gift in favour of the daughters. The intention of the donor clearly was that Data Din should get the property only in case the gift in favour of the male-descendants and the daughters of Ram Kali failed. The case therefore seems to be fully covered by the words “upon failure of such prior interest.”
Indian Succession Act (ISA) & TPA
Sections 113, 114, 115 and 116 of Indian Succession Act, 1925, (ISA) are true reflections of sections 13, 14,15 & 16 of TPA. This is because, transfer of property also takes place under ‘Indian Succession Act, 1925’(ISA). Itregulates intestate and testamentary succession i.e. when testator a person makes a will before his death for the disposition of his property or when he dies without making a will. A will comes into operation only on the death of the testator.
Exceptions to rule of perpetuity
Section 18 of TPA provides protection from rule against perpetuity when the transfer is in favor of public viz. advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind.
Does not apply to personal agreements that do not create interest in property.
Renewal of lease agreements.
Covenant for redemption of property under mortgage.
Charge created over property, as this does not amount to transfer of interest.
Contract of pre-emption.
Conclusion
The rule against perpetuities limits the duration by imposing certain restrictions on the use, enjoyment and transfer of property. Nevertheless, the rule against perpetuity along with relevant sections of TPA are complex and abstract in its application, especially when seen through the eyes of the transferor. Despite the best of intentions, the ultimate beneficiary or grantee may be deprived of their interests through an inadvertent choice of words while drafting the pertinent covenant. It shall not be an understatement that the majority of the so-called learned advocates drafting such instruments are themselves incompetent to understand the subtilties of the law.
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The one thing that I am really scared of: feeling.
Feelings always interfere with my plans and progress. Feelings also come with their friends: moods.
Moods and feelings together have ruined my life many times.
I wanted to top in class. I knew that I needed to start studying early, do some extra work, impress teachers and a bunch of things. However, whenever I sat down with books, moods and feelings, my two enemies will prevent me from making any real progress.
I will suddenly feel hungry, or bored, or feel like calling up the cute girl I recently encountered on Orkut (that was a major social network back in the day).
Sometimes when I managed to read 20 pages, I would feel that I need to go back and start reading from the beginning because I felt I did not remember what I just read well enough.
I would feel insecure that I was not doing enough.
I would feel bothered by every sound outside my room.
I would feel bothered that I did not have money to recharge my phone.
I would feel hungry, tensed, sad, anything at all, except for feeling like doing the work that I know I should do.
I would feel, feel, feel, and there was no end to that interference.
I could make a great plan for the next day, write it down, put it up next to my work desk and then go to sleep thinking that in the morning I would put it into action. At that time, seeing that plan, having made it, I felt great.
When I woke up in the morning though, I rarely felt like putting that plan to action in reality. I would then feel something else. And the great plan would go out of the window.
What has changed in the last 13 years since I went to law school? Almost nothing as far as my feelings are concerned. They are as erratic, as problematic, as interfering and cause as much trouble and interference with my life.
My mood is also as unpredictable and can destroy my ability or willingness to work on any given day.
Even now when I wake up in the morning and I am supposed to work out, I do not feel like it. I know I am supposed to meditate but I feel like checking my mail or WhatsApp. I know I should not smoke but I feel like I can’t concentrate on anything unless I would smoke. I know I need to get to the office early but I feel like lying down for a bit.
After lying down, I do not feel like getting up. At the same time, I also feel that I want to be a great success in life. I want to be rich, I want to be fit, I want to have a great impact on the world. I want to learn to paint, I want to write well, I want to have great relationships. All those are feelings too!
Feelings are not reliable, we need something more. We can not be a slave of our moods. If we cannot claim victory over moods and feelings, there is no tangible, long term success possible. Most people fail to defeat moods and feelings and therefore never achieve their full potential as human beings.
And that is how I had to learn more about commitment and habits.
I found commitments damn hard to keep when I started. However, as I started attaching more importance to commitments rather than my feelings, I became better at keeping commitments. I also try every trick in the book to ensure that I increase my chances of keeping my commitment.
I always try to make it easy to keep my commitments, and hard to avoid them. I always keep meetings in my office early in the morning when possible, which helps me to come to office on time! I have my assistant come home in the morning to make me work out. It helps me to wake up earlier. I have software to block out time-consuming apps during productive hours and sleeping hours, which helps me to get good sleep and not waste my time.
All these so I would not fall victim to my feelings and moods.
On top of that, I continuously remind myself that the only way I am going to succeed is by following my commitments, and by ignoring my moods and feelings!
I can never do this too much. The more I do it, the more it helps me to get improved results almost immediately.
I have reminders on my phone that reminds me multiple times of the day that success is possible only when I follow my commitments and ignore my moods and feelings.
However, even this is not the best tool at my disposal. The greatest weapon I have found to date is building new habits! Habits are the perfect antidote of moods and feelings. You do not wake up in the morning and not brush because you are not feeling like it, right? Almost everyone brushes their teeth first thing when they wake up.
And that is how a habit works.
I have written extensively about creating habits earlier. But I want to emphasize here that while good habits are our best friends in our quest for success and glory, bad habits coupled with moods and feelings are our worst enemies.
If you want success, start with your moods and feelings. Train yourself to ignore them.
Start with examining your habits. Which ones are you going to keep and what will you discard? What new habits are you going to develop?
Here is what happens when you enroll in a LawSikho course: you commit to solve 2 assignments every week, learn 2 new highly valuable and marketable legal skills and attend one live videos conference based class every week, write and publish one article every month, and our success coaches chase you down and hold you accountable if you don’t actually do it.
When it comes to your career, and learning new skills, do not live one feeling at a time. Let us help you to build some lasting habits that will serve you through your career.
It is unique! And it is very effective. Try it out, we have a 30 day refund policy for you. You have no risk! It’s on us if you don’t like it. We know you are going to love it so much that you will never want a refund once you do it.
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This article is written by Hema Modi, a second year student of Pravin Gandhi College of Law, Mumbai. It provides an overview of the Nature of company, types of companies, the advantages and disadvantages of incorporating a company and the procedures required for the incorporation, along with landmark judgments.
This article lay emphasis on the The Companies Act, 2013. Since this Act, being complex in itself, creates confusion in the minds of the people and they are afraid of establishing his/her company due to the intricacies involved in it. Therefore, this article has been written to help those people to understand the types of company, the rules and regulations and the procedure required to incorporate a company under Registrar of Companies.
Definition of company
According to Black law’s dictionary, the definition of company is “a voluntary association of a certain number of people having some common interests united by some commercial or industrial undertaking to carry out legitimate business.”
The Companies Act of 2013 in India defines company in the Section 2(20)as “a company incorporated under this actor under any previous company law”. This means that any corporation which is incorporated and registered under this Act or under other previous company Act will be called as a company.
A company is considered to be an artificial legal person according to Indian Constitution which have an independent legal entity and a common legal seal for its signatures.
Corporate Personality and Advantages of Incorporation
Independent Corporate Existence
A company is said to have an independent corporate existence since its incorporation because it holds a separate legal entity. In law, a company is considered to be an artificial person having similar rights and obligation as a natural person but no physical or natural existence. The property of the company is possessed by it and not by the individual members. All the contracts, entered into or any transactions made, are in the name of the company and not in the name of its members. A company can enter into partnership with other individuals or other companies and can buy any number of shares, debentures of another company. It can also join other companies by ascertaining to their terms and conditions.
The famous landmark case of Bates v. Standard Land Co., the question of the distinction of the personality of a person and a company was brought before the court. The court held that members of the company were the pillars by which any act or important decision can be taken by it.
The principle of independent existence of companies was established in india by the judgement of the High Court of Allahabad in the case of In Re: The Kondoli Tea Co. Ld. vs Unknownwhere it was held that the company was a seperate body altogether from the shareholders.
Limited Liability
One of the most important and essential advantages of incorporation and registration of companies is the limited liability. The term “limited liability” means the condition where the shareholders or the proprietors of the company are legally liable only for the debts which are equal to the nominal value of their shares invested. In other words, private assets of the shareholders are not at risk if the company goes into incurring debts or when the company becomes bankrupt.
To explain in simple words, if the company is not limited company, then if the company fails, then the personal assets like property, cars,etc. are seized for clearing his debts.
Perpetual succession
The literal meaning of the term “perpetual succession” is the continuance of a company or an incorporated firm unaffected by death of any of its members or the transfer of the company’s shares to a new entity.
This is a major advantage of a company because even though members come and go, but the company never dies and it enjoys the same rights and privileges. The company continues to exist for an indefinite period of time until the company shuts down due to some other reason. This also reduces the legal entanglements like deregistering of company and then again registering, etc. which happens in other business areas.
Transferable shares
According toSection 44of the Companies Act, 2013, the shares,debentures or any other interests of any member in a company shall be movable as well as transferable in the manner provided by the articles of the company. This means that the investors of the company are free to liquidate shares or encash money, whenever they are willing to at any point of time. This helps and motivates the investors to invest their money as they can get back their investments easily.
Separate property
The company is considered to be a separate independent legal entity formed by unification certain number of investors having some common business goals. The property or assets owned by the company does not belong to any of the members of the company. No members can claim the property and use it for personal purposes. If he/she does so, then they will be held liable for criminal misappropriation of company funds. Hence, the company has the full right to hold and enjoy property in its own name.
Capacity for suits
A proven fact is that where a right exists, there exists a liability, as well. Therefore, if the company has the right of incorporation, then there are certain liabilities for which it can be held liable. The company, hence, can sue as well be sued by other companies and people. The beneficial part is that no member, whether the managing directors or other directors, can be sued in the name of the company.
Professional management
Professional management refers to systematic management and administration of the company or the organisation. This helps the company to increase the productivity of the employees, optimum use of resources, reduce costs, accountability of employees and their effective control.
Access to money market
Money markets are those markets that trade in short-term loans between banks and other financial institutions. The participants of the money market is the banks that lend money to one another and to large companies when the companies are running short of company. The companies have a shoulder behind their back on which they can rely on for receiving funds in their need.
Disadvantages
Lifting the Corporate Veil
A ‘corporate veil’ is a fictional veil or a covering to the corporation when it gets incorporated under The Companies Act, 2013. The incorporation of company makes the company a separate and independent legal entity. Moreover, The Supreme Court of India in the case of R C Cooper v. Union Of India, had held that company is an artificial person. Therefore, the shareholders or members of the corporation cannot be held liable for it. Although there is the concept of limited liability and separate identity of a company which benefits the members, yet the shareholder may be held liable for the debts or other illegal activities of the incorporation. This principle is known as ‘Lifting the Corporate Veil’.
When it becomes necessary to determine the legal character of a corporation
It becomes necessary to determine the legal character of a corporation when the members like directors or the shareholders of the company start committing fraud, or other activities which are not in confirmation with the existing law.
The morale behind this is that a corporation although identified to be an artificial entity, yet it cannot perform any tasks or jobs without its agent i.e., it is incapable to do any work on its own. Hence, when its agent does or perform any illegal task in the name of the company, in order to reach to the right culprit, lifting of the corporate veil becomes necessary.
In the landmark judgment of Saloman v. Saloman Ltd. Co., the English law court held that company and its members are separate entity and therefore, the property owned by the company does not belong to its members. This paved the way for many members to commit illegal activities inside the veil of the corporation. However, later in due course of time, the court held that if the court feels that it is necessary to lift the corporation, then they can do that anytime and reach the real culprit.
For benefit of revenue
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An incorporated company have to necessarily pay taxes on the revenue generated by the company. Evasion of tax is illegal and has always been disregarded by the court.
In the landmark case of RE: Dinshaw Mackenzie Petit v. Unknown case where the founders of the company with the objective of enjoying high income and huge dividends, opened four new sham companies. The income generated through initial company was added into these four companies and the founder of the company was repaid in the form of pretended loan. In this way, the founder of the company divided his income in four parts and utilised the tax benefits. However, the court held that the formation of four companies was only to evade super tax and hence lifting of corporate veil was important here.
When company conceived and brought forth for fraudulent purposes
The judicial intervention is necessary for the courts to highlight the fraudulent activities of the company and to reach the right culprit who was responsible for those acts. With the passage of time, courts have performed their duties well and recognised the situations for lifting the corporate veil as and when necessary.
In the case of Gilford Motor Company v. MR. Horne, Mr. Horne was an ex-employee of the Gilford Motor Company. According to the terms of contract, he cannot solicit customers. However, in order to gain advantage, he founded another company in the name of his wife and solicited the customers. The company took legal action against him and filed a case in the court. The court in its judgement held that Mr. Horne had established the company with the strategy and intention to do fraud under the mask of the corporate identity. Therefore, the corporate veil has to be lifted here.
Another case of Jones v. Lipman, a man contracted to sell his land and thereafter changed his mind in order to avoid an order of specific performance. The Hon’ble Judge, specifically, referred to the judgements in Gilford v. Horne and held that the company here was “a mask which (Mr. Lipman) holds before his face in an attempt to avoid recognition by the eye of equity” he awarded specific performance both against Mr. Lipman and the company. The court was of the belief that no one will be allowed to abuse the corporate form.
Agency or trust
Under agency, it is the discretion of the court to decide whether the company is acting as an agent for the shareholders or not. If the company is acting, the shareholders may be responsible for the activities of the company which invalid from the point of law.
For better understanding, A company having power to act as an agent may do so as an agent for its parent company or indeed for all or any of the individual members if it or they authorize it to do so. The courts cannot lift the veil if there is no express or implied conditions in the agreement.
Furthermore, the court has the right to lift the corporate veil if a corporation is administered by board of trustees to check whether the shareholders in the trust have held the shares as per legal terms or not.
There was a case with the same fact known as Abbey v. Planning, where there was a trust who administered the educational institutions. The court was of the same view that if this trust does anything wrong, then the trustees shall be accountable.
Under statutory provisions
The Companies Act, 2013 provides for certain provisions to point out that person who shall be held liable for any such illegal activities. The person who is held liable is known as “officer who is in default” under Section 2(60) of the Act.
Following are the provisions in the indian law regarding “lifting of the corporate veil”:
Reduction of membership below statutory minimum (Section 45): Under this section, if in the case of public company, number of members is reduced below 7 and in the case of private companies, the number of members is reduced below 2 and still there is continuance of business in the company for more than six months, then all the members or any person who were well aware of it shall be severally liable for the debts contracted during that time.
Improper use of name (Section 147): Under Section 147(4) of this Act, an officer of a company, if signs any bill of exchange, promissory note, cheque wherein the name of the company is not mentioned in the correct manner, then such officer shall be held personally liable to the holder of the bill of exchange, unless it is duly paid by the company.
Liability for fraudulent conduct of business (Section 542): If the company is on the verge of closing, and it is noticed that the members form the shareholders of the company have done fraudulent activities to defraud the creditors of the company or any person, then such members or the person who were aware of that activity shall be held liable.
Failure to refund application money (Section 69(5)): Under this section, the directors of the company are jointly and severally liable for the repayment of the application money with interest, if the company fails to pay them within 130 days of the issuing.
Repeated Defaults ( Section 449) : Under this section, if a company commits an offence with a punishment of imprisonment or fine and is committed again and again within 3 years, then the company or the officer relating has to pay a penalty if twice the fine amount along with the punishment for that offence.
Formality and expense
The procedure followed for the incorporation of the companies is very complex and lengthy which restrains oblivious people from doing business. It requires a considerable amount of time and money. The other provisions of the Act like particular events for corporate audits, meetings, borrowing, editing to be conducted, filing of returns and other documents, etc.
Company is not citizen
The citizenship of india is decided under the Citizenship Act, 1955. According to this Act, the company, being an artificial person, cannot have citizenship and hence it cannot be called a citizen of India. Moreover, since the company is not regarded as the citizen, therefore, it cannot enjoy various rights provided by the Constitution of india.
Although the company is not a citizen of India, yet it possess domicile, residence and nationality. The question of whether a corporation can claim rights conferred to the citizens of india was decided by the Supreme Court of India in the case of Tata Engineering Locomotive v. State Of Bihar. The court held that although all the members of the company are indian, yet it cannot claim protection of fundamental rights because legal status of company is totally different from the legal status of its shareholders and members.
How are company formed?
According to section 3(1) of the Companies Act, 2013, there are three types of companies which can be registered. They are:
Public Company – When the company is formed by seven or more than seven persons.
Private Company – When the company is formed by two or more than two persons.
One Person Company – When the company has only one person as its member and he/she is the only shareholder of that company.
The company formed under this Sub-section can be classified into three types:
A company limited by shares.
A company limited by guarantee.
An unlimited company.
Classification of Companies
On the basis of classification of incorporation, there are two types of companies. They are:
Statutory Companies – The companies which are constituted by the special act of the Parliament or state legislatures. The companies act, 2013 is not applicable to them. Some of the examples are Life Insurance Corporation, etc.
Registered Companies – The companies which are incorporated according to the procedure of the Companies Act, 2013 and the Act is applicable to them. Some of the examples are Hindustan Unilever Limited, etc.
Registration and Incorporation
The Section 7of the Companies Act, 2013 explains to us the “incorporation of company”. The word ‘registration’ and ‘incorporation’ is often confused. The main difference between these two words is that when the company is incorporated, only those assets are taken into account which have been invested but in the registration, even the personal assets will be taken into consideration if the company runs into losses.
Procedure of incorporation of the company
The company shall have to register itself with the Registrar within its jurisdiction with the following documents and information of registration:
The memorandum and articles of the company shall be signed by all the members ascertaining the memorandum.
A declaration shall be prescribed by the Chartered Accountant, Advocate, Cost Accountant or Company Secretary, whoever is involved in the process. This declaration paper shall have a name of a person who may be a director, manager or secretary confirming that the rules made under the registration are complied with.
The correspondence address will be provided until the registered office is established.
An affidavit shall be signed by all the members for the promotion, formation and management of the company.
All members, directors and the other interested person shall provide their names with surnames, Director Identification Number, residential address, nationality and other particulars as may be required including the proof of identity.
The registrar on receiving the documents and information required for registration, shall issue a certificate of incorporation in the prescribed form and register the company under this Act.
On the date of issue of certificate of incorporation, the registrar shall allot a separate distinct corporate identity to the company.
There shall keep a copy of all the documents presented during the incorporation of the company till its dissolution.
If a member furnishes false information in any matters, of which he/she is aware of, he/she shall be liable for committing fraud underSection 447 of the Companies Act, 2013.
In any case, if it is proved that the company incorporated has furnished any information falsely, incorrectly or fraudulently, then the promoters, the person named as first directors and person making the declaration shall be held liable for committing fraud underSection 447 of the Companies Act, 2013.
In the case of fraudulency, the tribunal will be constituted who after giving reasonable opportunity of being heard to the company shall pass such orders which it shall deem to be fit and sufficient. Following orders may be passed by the tribunal:
Regulation of management of the company and its members.
Liability of the members.
Removal of the name of companies from the register of companies.
Winding up of company.
As the tribunal deems fit.
Certificate of incorporation
Section 18 of The Companies(Incorporation) Rules, 2014 provides for the issuing of a certificate of incorporation. The Certificate of Incorporation is the ‘birth certificate’ of the company showing its legal name and the date of incorporation. It is issued to all the entities who have registered with the Registrar of Companies. The certificate confirms the company’s existence and other important information like its date of incorporation, registration number, etc.
The Certificate of Incorporation is important for a company because this helps an investor to sell his/her shares. Even when the company applies for loans, this certificate is required.
Pre-incorporation contracts
As the word suggests, Pre-incorporation contract means those contracts which are made by or on behalf of the corporation at the time when it wasn’t registered under Register of Companies.
Legal status of Pre-incorporation Contracts
Since, the contract is signed by the promoter on behalf of the corporation acting as an agent of the company which is still not registered, the liability of such contracts comes under the promoters itself. However, before 1963, although the promoter was acting for the company, yet he was solely responsible for any activity of the company. After enforcement of Special Relief Act of 1963, the promoters heaved a deep sigh of relief because according to Section 15(h) of the Special Relief Act, the companies were made liable for the acts done.
In the case of Weaver Mills Ltd. v. Balkis Ammals, the scope of this principle was extended by the Madras High Court. The court held that the promoters even though fail to convey the properties bought on behalf of the company after its incorporation, will automatically be acquired by the company as its own asset.
On the other hand, under Section 19(e) of Special Relief Act, 1963, the company can be held liable by the other party of pre-incorporation contract, if there is such terms written in the contract.
Pre-incorporation contracts can be undertaken by the company in the following manners:
Introducing the contract when the company is being incorporated.
Making a fresh contract with the members of the company.
Accepting the benefits of the contract, either expressly or impliedly.
Commencement of business
The provision of the ‘Commencement Of Business’ was initially incorporated under the Companies Act, 1956, and was also included under section 11 of the Companies Act, 2013. Later on, in 2015, it was omitted by the legislature.
Recently by The Companies (Amendment) Act, 2018, it was added under Section 10A of the Companies Act, 2013.
According to section 10A of Companies Act, 2013, a company after its incorporation cannot begin its business unless and until it has obtained the Certificate of Commencement of Business and fulfilled the following conditions:
Filed a declaration within 180 days of incorporation which has a confirmation that all the members of the company have paid the value of their shares as per the agreement.
Filed a verification of its registered office address with the Registrar of Companies within 30 days of its incorporation.
Removal of the name of companies from the Registrar of Companies if the provisions of the Act is not complied with or if the company is not carrying out any business.
Steps to obtain Certificate of Commencement of Business
A declaration form has to be filled up along with bank statements of the company showing the payment of value of shares by the shareholders.
A certificate of registration have to be submitted.
Consequences of Non – Compliance
There is a penal provision for the non compliance of this provision under this Act. the defaulter is charged with a penalty of Rs. 50,000 on the company and Rs. 1,000 per day on every member of the company.
Other Provisions
Apart from complying with the rules, regulations and procedures, one must keep the following in mind while running the business. These provisions must be intimated or approved by the Registrar of Companies so that there is smooth running of business. They are:
Change in the members of the company.
Change in statutory auditor of the company.
Change of registered office.
Change in Memorandum or Articles.
Increase in capital.
The following provisions, according to the Companies Act, 2013 should never be violated.
The company should not do other activities which are not mentioned in the objective clause of the company’s contract.
The company should not issue securities to third party or to the public at large.
Conclusion
Legislation being the part of the government and companies being the most important part of economy to earn revenue for the country, they are taking initiative to make the company law simpler. But, being a responsible citizen of India, one should be aware of the post-registration compliance which is equally important for a corporation because in any case, penal action will be taken by the authorities for the non-compliance. Therefore, the promoters should be well aware of the next steps to be taken for the company. It is always recommended to ask the help of professionals for reducing chances of being non-compliant.
This article has tried to consolidate all the basic knowledge and the documents required to incorporate a company under the Companies Act, 2013. The advantages and disadvantages have also been highlighted. Since every coin has two sides, therefore incorporation also has both pros and cons. The legislature of india have been very effective in bringing out changes that are required in the said Act. The only change required for the incorporation is that in the technological world, the procedure of incorporation should be made online so that the complexity is reduced and time is saved of the members involved.
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