Download Now
Home Blog Page 104

How to get an in-house counsel job

1

This article is written by Ashutosh. It gives in-depth knowledge about all the things that a fresher or a graduate law student needs to do in order to get an in-house counsel job. Other than this, this article also covers various other important aspects of an in-house counsel job such as its scope, duties, career path, earnings, skills, benefits, challenges, and other frequently asked questions related to an in-house counsel job. 

Table of Contents

Introduction 

Legal in-house counsel is a very crucial job in the legal field, almost all the big companies, MNCs and various other startups hire an in-house counsel to deal with the legal issues and problems that arise in the organisation. Earlier the role of an in-house counsel was only limited to handling the documents and other important paperwork of the organisation and sometimes giving legal advice to the members. They were also called paper pushers. 

Now the scope of in-house counsel has evolved and there have been a lot of opportunities coming up for the lawyers who wish to become in-house counsel. One of the most crucial things that an organisation looks for while employing an in-house counsel is their experience and skills and because of this particular factor, it becomes very difficult for fresh law graduates to become an in-house counsel in any organisation. 

Thus, addressing this issue here in this article we will be dealing with all the important things that a fresher must do in order to become an in-house counsel in the initial days of his career. We will also discuss various other important things related to an in-house counsel job. So, make sure to read this article till the very end to know all the important insights related to in-house counsel jobs. 

Who is an in-house counsel

Most law students are very well informed about what law firm lawyers are and what their responsibilities include. However, there are very few law students who even know about in-house role jobs and responsibilities of an in-house lawyer. If you are someone who has an idea about what is an in-house counsel and wants to pursue this career, you must first understand who is an in-house counsel and what they do. 

In-house counsel lawyers are also known as legal counsels and work as employees of any multinational company or corporation. Although their role includes many different responsibilities, in general, their main role is to advance the business of a corporation and make sure that the legal documents of the corporation comply with all regulations of the government. Most of the corporations have a team of attorneys that comprise the legal team of the company. Such teams are mostly divided into two groups including senior counsels and staff counsels. Lawyers who are hired as senior counsel are usually people who have more than 8-10 years of experience. The salary of senior counsel in a corporation is very high as compared to the staff attorneys. The team of attorneys is usually headed by the most senior or experienced counsel. This counsel is sometimes given the name General Counsel. He is also known as the Chief legal officer of the company. 

The task of supervising the staff attorneys is given to the senior counsels, they are also trusted with advising the board of directors and advising the company in its affairs. The staff attorneys, similar to the junior associates of a law firm, are entrusted with the task of research and drafting. Thus, the tasks and role of an in-house counsel differ from experience to experience. But the overall task remains the same – to advise the company on significant legal matters. 

What are the different in-house roles

There are multiple in-house roles available for in-house legal counsel, the role of an in-house legal counsel depends upon the size of the employer and the budget of their organisation and how much they are willing to spend on legal matters. Some of the most important in-house legal counsel roles are mentioned below. 

In-house counsel

In-house counsels are also commonly known as legal counsel or in-house lawyers, an in-house legal counsel provides their employer with accurate, quality and relevant advice on the whole spectrum of legal matters that can be applied to their business and their products or services. In-house legal counsels often consist of only one member of a larger legal team and their duty is to report to the head of legal or general counsel of the organisation. In-house counsels have a duty to take care of all the legal issues that arise in the organisation and also to give advice to the members of the organisation on how they can prevent themselves from falling into any dispute.

Sole in-house counsel

The sole in-house counsel is similar to an in-house counsel, and the responsibilities of the sole in-house counsel are also similar to those of an in-house counsel. The sole in-house counsels are responsible for advising their employer but in a different sense because they are the only lawyers that are employed in the organisation. The sole in-house counsel does not have a team nor do they have any seniors. They are responsible for all the legal matters of the organisation and are solely responsible for all the decisions they take in favour of the organisation. Sole counsels are required to often arrive at innovative and smarter approaches to work and solve the legal problems that arise.

Sole regional counsel

The sole regional counsels are also known as sole divisional counsel and just like the sole in-house counsel, the sole regional counsel is a lawyer who works for an organisation and is solely responsible for all the legal decisions that are taken by the organisation. These lawyers play a very important role in an organisation and they provide important advice to the board of directors of an organisation and enable them to work in compliance with all the rules and regulations. The sole regional council operates as the sole adviser in a specific location, division or office. Sole regional counsels handle a large amount of work as compared to the in-house counsel or sole in-house counsel and thus because of this, the sole regional counsels are paid more than these counsels. 

What are the duties of an in-house counsel

A few decades earlier, the role of an in-house counsel was restricted to a channel of communication between their employer i.e. the corporation and the law firms. Thus, their role was not very significant in the company and they had little to no power in the legal matters of the company. However, this scenario has changed over the years and now most of the corporations keep a legal team and they entrust their legal attorneys with all the legal matters of the company. This has also increased the practice areas of in-house counsels including areas such as international trade, antitrust laws, securities law, real estate law, intellectual property laws and so on. 

An in-house counsel has many duties and responsibilities depending on their positions and experience. The different duties of an in-house counsel include the following:

Legal advisory

A corporation, in its course of business, has to make many legal decisions that might affect its business. The in-house counsels are responsible for providing general advice to the corporation and discussing the rights, duties and obligations of the corporation in relation to any matter. The counsels also provide advice to the corporation on matters of taxation, agreements, policies, regulatory compliance, liabilities of the company etc. so that the interest of the organisation is not compromised and at the same time, they follow the regulations issued by the government. Having a legal advisor is very important for any company as a wrong legal move might land up the company in a bad position. 

Legal compliance

The work or business of a corporation often comes under various industries and the government issues various regulations pertaining to different industries. The legal counsels make sure that the businesses are adhering to the applicable regulations of the particular industry. Sometimes the counsels also have to work with outside counsels from firms to conduct legal compliance or audits. If the counsels fail to make the corporation comply with any applicable law it might lead to situations where lawsuits are filed against the company. 

Intellectual property management

Any corporation owns a number of intellectual properties, from trademarked logos, slogans, music used in ads, recipes used by food companies etc. It is one of the most valuable assets that a corporation owns.  Due to the huge amount of intangible or intellectual property held by a corporation, it becomes difficult to keep a tab on all the properties and to make sure that it is not getting infringed by any other entity. Thus, in-house counsels manage the Intellectual property by filing cases against the infringers and registering any new intellectual property created by the corporation. 

Representing the corporation in court

A corporation is a juristic personality which means that it can sue and be sued. Usually, many different kinds of cases are filed against corporations relating to various matters like insolvency, intellectual property issues, compliance issues etc. The in-house counsels represent the company in all the cases that are filed against the companies and they also file cases in the courts on behalf of the company. Furthermore, they track the proceedings and file the required paperwork in court relating to the cases.  

Drafting and reviewing contracts

All the contracts that a corporation requires in the course of its business are made by the counsel. These contracts might include, employer-employee agreements, client contracts, lease agreements, agreements with contractors, vendors, suppliers etc. They also review the contracts between the corporation and any other company to make sure that there are not any clauses in the contracts that will undermine the interests or position of the corporation.

Research

Legal research forms part of the daily work of every lawyer, whether you work as a corporate lawyer or start your own practice. A good lawyer invests a significant amount of his/her time in researching and reading documents as it gives clarity to the questions at hand. The legal counsel of a company also spends a notable amount of time in research to review and analyse the obiter dicta given in past cases and apply the same accordingly in the matter at hand. 

Maintaining paperwork for the corporation

There are many significant documents that are used in business transactions of a company. These documents are vital for the corporation and the company must keep a database of these documents as they might be used in future litigations of the company. Maintaining and storing the database is the responsibility of the legal counsel as they are the ones who will have to represent the corporation in the court of law, and eventually would need the documents for the cases. These documents might include, contracts with other corporations, agreements, business transactions, bylaws of the company, contracts with vendors, suppliers, contractors etc. 

Assist in making governance policies for the corporation

Although it is the responsibility of the human resources department to make governance policies for all the employees and make sure that everyone is abiding by the same, the need of legal counsel is required in drafting these policies because drafting governance policies is somewhat a legally technical work and the HR department is not equipped with the kind of skills required to make policies. Also, these labour policies have to be in compliance with many laws such as labour laws, companies act, POSH act etc. The lawyers have knowledge about these laws as these acts are a part of their law school course. The governance policies can include policies related to payroll (salaries), safety of women at the workplace, performance management etc. 

How can experienced lawyers become in-house counsel

Nowadays, most of experienced lawyers and attorneys want to become in-house counsel because of the lower workload and good payments. This line of work has gained a lot of prominence and because of this this role has become highly demanding for all the experienced lawyers as well as for freshers and young lawyers.

One of the main reasons why lawyers and attorneys are shifting towards in-house roles is because corporate firms have a lot of workload and the lawyers are overburdened with hectic work and they don’t have any work-life balance because of this. There are a number of young and experienced lawyers who still dream of becoming a partner in a big law firm but are unable to make it because of the politics and various other issues that take place in a law firm. The job of an in-house counsel has emerged as a good alternative for all those lawyers who are struggling in their law lives and want to move ahead in their careers. 

Most of the in-house legal teams are specific about the kind of lawyers they want to employ. Their first preference or the top most priority is those lawyers who have extensive knowledge and enough experience of work in other legal house teams. After this, they also want to hire experienced and knowledgeable lawyers from top law firms. In-house legal teams also pay a good salary to all the experienced lawyers and this is because the salary payment usually pales in comparison to what top lawyers and law firms charge. Therefore, if you are an experienced lawyer and have a proven track record and you are highly competent then you can easily get an in-house counsel job. Thus, it is suggested that all the lawyers who want to become in-house counsel to get enough knowledge and experience that is required in an in-house counsel and to connect and get guidance from already existing in-house counsel on how to excel in their skills. 

There are various in-house legal teams that recruit lawyers and attorneys on a large scale, such as insurance companies. The insurance companies hire an internal team of lawyers to process all the insurance claims filed by the customers. Finance and bank companies also hire a large team of lawyers to look after the legal issues and to process a large number of legal documents at a rapid speed, and these teams are structured like LPOs and nothing else. These kinds of hiring is also done by IT companies, IT companies also hire a team of lawyers to do high-level legal work and are paid higher fees and a separate captive LPO type structure that includes low skill repetitive work for a lower salary. The problem that arises with these teams that do mass recruitment is that in future you will face difficulties in finding a well-paid job when you are trying to shift to a different job in the future. 

In order to get recruited in a good organisation as an in-house legal counsel you need to be a specialised generalist. You should remain ready to deal with all the legal issues that your organisation throws at you. An in-house counsel is also responsible for handling all the competition law raids and defending a patent infringement suit on the same day when they are coming up with a new ESOP policy for the organisation. 

In order to stand out among all the competitors you need to learn the laws of other countries as well, because knowing the law of one country is not sufficient for an in-house legal counsel, because there are high chances that your organisation works and collaborated with various other foreign organisations, thus for this purpose it is very important for an in-house counsel to know the laws of various nations. As an in-house counsel, you may have to negotiate contracts on behalf of your organisation with the other organisations that have a different jurisdiction thus it is necessary for an in-house counsel to learn the laws of different countries. 

Career path to becoming an in-house counsel

For all the lawyers and attorneys who are confused about what should be their career path to pursue in-house counsel, we have a few important things that you must keep in mind and follow the same for better chances of employment as an in-house counsel.

Pursue a joint degree program

Firstly, all the lawyers who wish to become an in-house counsel must consider obtaining a business degree along with their legal degree, because this will help you out in being more qualified than other candidates. Not only the lawyers who have an MA, MS or MBA degree earn more than a lawyer who has a JD degree, but they also have more experience and a better understanding of the business world and therefore they make themselves in front of the employer and various other organisations who are looking to appoint in-house counsel. Thus, it is suggested for all the lawyers who wish to become in-house counsel to pursue multiple or joint degrees to increase their chances of employment in this heavy competition. Other than doing a joint degree or a business degree lawyers can also learn new skills such as writing and communication skills, learning these skills will increase the chances of your employment.

Mobilising personal network

One of the best resources available to a lawyer is his personal network. In-house lawyers who have built strong relationships with their colleagues within legal and all other departments have a high chance of getting employment through reference. It is very necessary for a lawyer to build a strong connection and personal network to get multiple opportunities for work in future, it is also advised to maintain a good reputation among all colleagues and seniors. These kinds of business relationships are reciprocal and pay dividends.

Utilise multiple resources

In-house counsels mostly deal with paperwork and handle all kinds of multiple legal documents of their organisation. Thus, it is very necessary for an in-house counsel to use various multiple resources in order to complete their work. The in-house counsels can easily seek out and schedule their meetings with their internal business contacts and ask all the questions and issues that they face and what are their long and short term strategic priorities that they aim for. By understanding all the main solutions and challenges they find themselves capable of adding more value when higher positions become available.

Keep your resume up to date

Lastly, one of the most important things that an in-house counsel needs to work upon is their resume. Make sure that your resume is up to date and accurate. Your resume must give a clear picture of your accumulated experience and skills to the employer. If an organisation carries out every aspect of the hiring procedure, then those responsible for interviewing and screening the candidate will quickly rule out any kind or level of expertise that does not go well with what the company is looking for. Whether or not the person responsible for hiring is a lawyer or not does not matter, they will focus on your resume and the things that you have mentioned there. Make sure to mention those things in your resume that you have personally achieved and don’t put any false information, as this can get you in trouble.

Ultimately, the career path of an in-house counsel cannot be paved with good intentions alone, you also need some additional skills and expertise. Being exceptional in your daily legal work is very important. 

Learn continuously

Development of talent takes advantage of various opportunities that companies provide so you can easily develop new soft and hard skills. It also helps an individual in staying relevant. In the current time scenario, it is very necessary for all lawyers to develop new technology skills. Currently, most of the companies are under the threat of cyber-attacks, and in such scenarios the in-house counsel is required to protect the sensitive data of their company and prevent any kind of data breach, thus in order to prevent these things and to safeguard the interest of the organisation they work for it is very necessary for them to learn new technology laws.

How to get an in-house counsel job as a fresher

There is no doubt that an in-house counsel job is one of the most attractive jobs in the legal field, and this is the reason why most of the lawyers nowadays want to shift to in-house legal teams. However, most of the companies and organisations want to hire lawyers and attorneys with in-depth knowledge and experience in the field of law as their in-house counsel. This is one of the biggest concerns for all the freshers because they don’t have enough experience and because of that they don’t get the opportunity to work as in-house counsel.

There are few things that a fresher can do in order to get themself an in-house counsel job without any experience. If you are a fresh law graduate and want to get an in-house counsel job then make sure that you read all the below mentioned things very carefully and keep that in mind while preparing yourself for an in-house counsel job.

Long term internships

It is true that companies and organisations don’t want to hire freshers but they do give internships to law students. Make a list of all the companies that give internship opportunities to law students, update your CV and cover letter and send an application for internship to all the companies and wait for their reply. If you get selected in any of the organisations then make sure that you make the most out of it, because these internships can help you in getting a in-house counsel job in that company. Make sure to be diligent throughout the whole internship and get your internship extended for a longer period. Build a good relationship with all the other employees of the company and assist them in legal work. Long term internships are a great tool for all the law students who want to get a job opportunity as an in-house counsel.

During your internship make sure that you get to know all the legal work that is being carried out in that particular organisation and try to develop all the skills that are required to carry out those legal works. This will increase your chances of employment in an organisation because they feel that you have got the required skills that they are looking for in an In-house counsel.

Target those companies that hire freshers

Almost all the lawyers and law students want to get an employment opportunity in a company organisation which pays heavy salaries and is a renowned company. If you do this and target only big companies then you will end up with nothing and this is because all the big companies and organisations always hire experienced lawyers and attorneys, they hire partners of top law firms and senior renowned advocates as their in-house counsel, thus, in short, there is no scope for you in such companies.

In such a scenario what you can do is do a little research and find out all the various companies and organisations that hire fresh law graduates. Or you can also look for organisations that have a huge legal team and they do mass recruitment of lawyers. By doing this you will have a higher chance of employment. 

Companies such as SREI, ICICI Bank, Reliance and ITC often hire a team of lawyers for the purpose of handling all their legal disputes. These companies don’t hesitate in hiring lawyers and when there is a large space for a legal team the bigger will be the chance of your employment. 

Any large in-house legal team is a potential candidate for hiring fresh law graduates, however, most of these in-house legal teams have their favourite campuses from where they hire, and they usually hire from those campuses from where they have a tie up. Thus, it becomes really hard for freshers to land jobs in these legal house teams unless they are studying in a college which has a tie up with these legal teams.

There are also various PSUs that hire freshers for the in-house positions, but to be very honest these are very lucrative and most of the PSUs hire freshers who top the CLAT LLM exam or some other tests. Not all fresh law graduates can grab these opportunities until and unless they have prepared for it or they have studied in a really good college. 

Develop exceptional skills and pursue additional courses from your initial days of college

One of the most important things that all the companies and organisations look for during the hiring or interview round is the skills a lawyer possesses. There are four most important types of work that is being carried out by in-house counsels namely, compliances, contracts, litigation and policy advocacy. 

Contract drafting is the most important skill that all fresh graduates must excel in if they want to work as in-house counsel. This is because in-house counsel are required to draft various legal documents for their organisation and if you don’t know how to draft legal documents then you are of no use to them. Being skilled at drafting contracts and negotiation can help you a lot in getting an employment opportunity as an in-house counsel.

Another critical area for in-house counsels in compliance, having in-depth knowledge of all the statutory compliances will make you an attractive hire for in-house legal departments. If you have heard from a lawyer that doing a CS course will help you in getting an in-house counsel job, then that is because CS is all about dealing with compliance. Though it is not compulsory to do a CS course to learn about compliance, you can also learn it from online courses or by studying on your own.

Policy advocacy is also one of the most important areas of work for all in-house lawyers. Under policy advocacy, an in-house counsel needs to engage with the government, bureaucrats, and politicians and they also need to put across policy positions that would be very important for the company, and they are also required to persuade them to not change or implement policies that may hurt the business of the organisation in future. Not all the companies and organisations have policy work for their in-house teams. However, in most of the tech companies and certain other industries which are highly regulated, such as alcohol, tobacco, transport, insurance policy is very critical.

Litigation is another major area of work for all the in-house lawyers. While the in-house counsels can not appear before the courts on their own they often manage litigation in various courts and instruct their litigators. The in-house counsels draft documents, build a strategy with the outside counsels and make certain critical strategic decisions.

Sometimes companies also hire in-house lawyers for a particular skill they are good at or which is required to carry out the activities in that particular company. Specific skills such as negotiation, acquisitions, handling consumer litigation, employment and labour law are in great demand. 

Target SMEs and startups

If you are a fresh law graduate or a very young lawyer, then you must try to get a job in small startups and SMEs that have 10-30 employees. Most of these organisations don’t have a legal team but they have enough legal work with which you can help them. These organisations find lawyers and attorneys to be expensive and because of that they usually hire fresh law graduates and provide them a chance to work with them. You can also intern with these organisations and help them out in making drafts and compliances. As you begin to assist them and you add value to their organisation they will be ready to provide you a job offer.

If you don’t get the job opportunity, you will definitely get valuable experience and you will also be able to build a network of professional connections that will help you a lot in the future and will also boost your career. 

Networking 

No lawyer should miss out on building networks with people they meet in their career, it doesn’t matter whether you are introvert or extrovert, if you are in the field of law you must go meet and build connections with your seniors, colleagues, batchmates etc. because you don’t know from where you can get a job reference. 

If you are doing an internship then make sure to connect with all the employees of the organisation you are working in, connect with them on LinkedIn, send them a request and have a little conversation and eventually make a bond with them. If you build connections and create a good bond with the members of your organisation then there are high chances that they will refer your name for a job opportunity. Sometimes people with good connections get an excellent job opportunity whereas an individual with exceptional skills fails to do so. Thus, you should never miss out on making a strong network. 

One of the best things that you can do to develop your networking is through LinkedIn, it is the best way of building new connections and connecting them with ease. If you are still not a LinkedIn user then make sure that the first thing you do after reading this article is to go to the LinkedIn website and create your account. It will be extremely helpful in increasing your network. If you want to know more about LinkedIn and how to use it then click on this link. 

Become tech savvy 

There has been a lot of demand for lawyers who have technological skills and those who know how to deal with the issues of technology. There are various organisations and companies that hire technology lawyers in their in-house legal teams, this is because with the growth of technology, there has been a huge rise in online frauds and cyber attacks, thus to deal with these kinds of issues they hire technology lawyers in their teams. 

In the current scenario, there are very few lawyers who have expertise in technology law and it is the best time for a fresh law graduate to develop an expertise in technology law. One main reason why one should learn technology skills and technology law is because most of the senior lawyers are not used to technology and they still stick to the traditional method of work. Thus, it is a great area of work for fresh law graduates to utilise this opportunity and get an in-house counsel job in a company that hires technology workers.

If you want to know about technology law and technology lawyers, then refer to this article.

What to do in law school to get in-house opportunity

A lot of law students want to pursue in-house counsel careers and because of that, there have been a lot of online courses created for such students. Many of these courses are created with the intent to prepare the law students to tackle all kinds of issues that are most common in corporate practice such as internal investigations and contract negotiations. 

Developing good writing abilities and communication skills is also very important for a law student to excel in the field of law. Law students must prepare themselves in their initial days of college to master all the tasks that are done in an in-house counsel team. You can take classes in legal writing and oral advocacy to polish your skills. Make sure that you do a lot of hard work in your law school and try to write and publish as many research papers and legal articles, this adds extra weight to your CV, and a good CV will always increase your chances of employment. 

Interested students can also take up management and business classes outside the law school to develop additional skills and expertise. By doing these classes, the student will be able to stand apart from the competition and they will become the first choice of all the recruiters. 

Speak to the corporate attorneys to gauge their interest in giving you an opportunity in the form of an internship or hiring you as a part-time law clerk, by doing this you will gain a lot of additional practical knowledge that will help you in getting selected. It will also allow you to establish contacts with some important persons who can in the future help you in securing a job opportunity as an in-house lawyer. 

Mistakes to avoid in order to land an in-house counsel job in an MNC

Most of the MNCs want to hire experienced lawyers who have already served as in-house counsel in any other company and organisation. It is extremely difficult for a fresher to land an in-house counsel job, MNCs only hire freshers from those universities with whom they have a tie up. Many fresh law graduates want to get a legal in-house counsel job in these MNCs because of the easy life and good salary they provide to the lawyers, but all the freshers make some common mistakes because of which they don’t get an opportunity to get employed in the MNCs. in this article we will be talking about the three most common mistakes that freshers make and because of which they lose the opportunity of employment. Read below to know about those mistakes.

Lack of practical knowledge

All the organisations and companies, whether small or big, always look for those lawyers who have the requisite legal knowledge to deal with any kind of legal issues. Most of the MNCs have four types of job roles namely, litigation, advisory, contracts and documentation, and compliance. Each of these roles is different from one another in terms of nature and requires a different set of skills to carry these roles properly. A fresher often does not know much about the laws and regulations governing the industry. They lack the necessary skills that are required to solve a particular issue. They don’t know how to proceed and what they are supposed to do. 

To be honest, none of the freshers have these skills from their initial days, because it takes time to learn all these skills. It is a very unrealistic expectation from the companies, but there are some individuals who have successfully got an employment opportunity as a fresher. The freshers who were able to get the opportunity stated that they started preparing for the job opportunities beforehand. They read all the relevant laws and took an online course which helped them in knowing about all updated laws. Speaking and connecting to various seniors and mentors to get some practical knowledge can also be extremely helpful.

Freshers are not ready for the job

Most of the freshers have a great expectation from their first job, they are always looking for a learning experience. That is not the case with MNCs, these MNCs work in a very different manner. They expect you to make quick decisions relating to all the legal issues that arise in the company. They expect you to give quick solutions to all the legal problems the company is facing without causing any harm to the company’s revenue. Freshers also lack flexibility and are too humble and because of that they succumb to the surroundings. To solve this issue, freshers need to have a reality check and ask themselves whether they are ready for this job opportunity or not. 

One thing which can help you in getting a job opportunity in an MNC is networking. If you have a desired company where you want to work then make sure to connect with the employees working in that company and check about the employability options. You can also take up online courses and gain additional knowledge that will help you in building a good reputation in front of the interviewers. During the interview make sure that you don’t leave any stone unturned and ask the recruiter any question that you want to know about related to the job profile. 

Don’t treat the company as a stop-gap agreement

Most of the freshers treat their job as a stop-gap arrangement till the time they get a better opportunity in any other company with a higher salary. This is one of the most common problems that most of the MNCs face. Most of the freshers believe that the best they can do is dig out hefty fees and salaries from their law degree by working at the top tier law firms, and because of these things they often keep switching their jobs. 

The problem of attrition has become so huge that the companies are now reluctant in giving employment to freshers. Owing to the growth of various law firms, startups and companies, freshers nowadays have endless opportunities. Most of the recruiters feel that the problems lie with the freshers but that is not hundred percent true, if the company provides enough benefits and stability to freshers then they won’t need to shift their job. It is important to understand that irrespective of all the challenges there are a lot of freshers who get employment opportunities in MNCs. If you prepare well and you are ready to face the challenges then you can also make it.

Why are in-house counsel jobs becoming extremely attractive

In-house counsels have a much better understanding of the business that they are hired to help than any other lawyer. The in-house counsel not only survive their job, but they actually enjoy doing their work, and they have the intelligence to think about all the critical stuff that will benefit their organisation. There are various reasons why lawyers and attorneys want to shift their corporate job to an in-house counsel job. We have listed some of the prominent reasons below in this article.

Higher job satisfaction

There are lawyers who like to get involved in a business and invest in an organisation that is growing rather than arguing and pleasing the judges. These lawyers help an organisation in their development and overall growth for their own job satisfaction. Many lawyers get into an in-house legal team in order to learn additional management skills that he was unable to learn in his litigation practice. Sometimes getting job satisfaction is even better than getting a six figure salary and not all lawyers work for money, some of them work for their own satisfaction. When an in-house counsel helps its organisation in developing, growing and overcoming all kinds of challenges he gets a satisfaction that nothing could match.

Legal in-house teams have better management

Many things that are acceptable in litigation chambers and big law firms are totally not acceptable in companies all around the World. One of the biggest problems that a junior lawyer faces in a corporate job or litigation is being overburdened with work and spending nights in the office. That is not the case with the legal in-house teams where the work is properly designated to all the lawyers and there is a proper timeframe in which they need to work and not beyond that timeframe. The work culture in a world-class company is far better than the work culture of a top law firm. Another area in which the in-house legal teams are better managed is in the area of technology. In-house legal teams use cutting edge technology that helps them in working more efficiently than a lawyer working in a law firm. 

In-house counsels perform more cutting edge work

Earlier there was a notion that in-house counsel are not lawyers and they are mere managers and they just need to sit in their office and look at the documents. Not any more, because in the past few years, the role of an in-house counsel has evolved a lot. Now in-house counsel’s role is not only limited to handling paperwork and documents, but they also deal with a lot of outside work, like going to the court, drafting the important documents, implementing strategies and many more. In-house lawyers are also upgrading their knowledge to a higher level and they are giving the lawyers of law firms a run for their money. And they can afford to do so because they spend a lot more time on a given problem than a law firm lawyer ever can, given all the financial constraints.

Higher salary

There was a time when law firms used to pay a lot of money to their lawyers and there was no one paying that much amount of money to lawyers and advocates. Companies at that time did not even try to match the salaries offered by the law firms to the lawyers. Corporations later realised that having a good in-house legal team is a competitive advantage in the business and it will help them prevent any kind of legal dispute, and now because of that companies are not hesitating in allocating good budgets to their legal teams and in-house counsels. They have started to pay really well to the lawyers and they have started to hire top law firm partners and give them even better packages. 

Salaries provided by the companies to in-house counsels are even more than that of law firms and they also give certain other additional perks to their lawyers. Most of the in-house counsels get a salary of more than 7 lakh rupees.

Earnings of in-house counsel

There is no definite amount or salary of an in-house counsel, the salary of a legal in-house counsel depends upon the organisation they work in and the level of expertise they hold in this profession. Fresh law graduates who are employed under any startup or any other organisation earn on an average of 6 lakhs to 10 lakhs rupees per year. 

Any senior lawyer or the partner of a top law firm who has been hired by an MNC or any other big company or organisation can easily earn up to 50 lakh rupees per year. Thus, the salary of an in-house counsel depends on the organisation in which they are employed. 

Why work as an in-house counsel

There are various reasons why you should work as an in-house counsel, we have listed down some of the main reasons on why you should work as an in-house counsel, and they are as follows:

Practical legal experience

Most of the in-house counsels work on cases that are filled with legal concerns, whereas most of the new lawyers in a law firm are mostly assigned to a team that specialises in a particular area of law. An in-house counsel must always remain ready for various kinds of legal issues that arise in their organisation, whether it is a fairly simple matter of contract law or any complicated civil action.

Enough learning opportunities

For most of the in-house counsels, the most beneficial advantage of the job opportunity is the proximity to the daily tasks they do for the company, including all the activities that need legal expertise. Through this job opportunity, the in-house counsels also get a chance of improvising their legal skills, which could be very beneficial for them in their careers. 

Personal growth and intellectual stimulation

There are various opportunities for personal growth for an in-house counsel, an in-house counsel gains a lot of considerable professional growth from his work. During their employment as an in-house counsel, they get to learn about a lot of new business techniques and strategies, such as how to approach the management on a particular topic. This may include working closely with all the staff members and the managers, which gives an advocate insights into other aspects of the company.

Quality of lifestyle

In-house counsels have a very good quality of life, and it is one of their biggest advantages. The consistent nature of the in-house counsel’s workplace environment is amazing. The field of work of an in-house counsel is very different from the lawyers who work in an organisation and there are also no required billable hours, they don’t have any duty of acquiring new customers, and they also don’t need any partnership record.  

How to apply for an in-house counsel job

Freshers often get confused while applying for an in-house counsel job, and make mistakes that get their application rejected. So, here is a roadmap for all the freshers who are going to apply for an in-house counsel job. 

Know about your job

The first thing that you must do before applying for an in-house counsel job is to know about the working of an in-house counsel and the duties and responsibilities they have. Make sure that you familiarise yourself with all the different fields or areas of law in which in-housel works, namely, litigation, intellectual property, contract etc. 

Check on companies that are hiring

Do your research and make a list of all the companies and organisations that are hiring freshers. Research more and check what kind of roles they are offering to freshers. Make sure to attend networking events, attend various job affairs and connect with senior lawyers and other legal experts.

Develop skills and expertise 

After you make a list of all the companies and organisations that are hiring in-house counsels, make sure to check for what kind of work they are hiring. Once you get to know about the work they are looking for, develop relevant skills and expertise that can help you master those works. By doing this the recruiter will prefer you over anyone else.

Create an outstanding cover letter and CV

This is a very important step, when you apply for a job, the first thing that a recruiter looks at is your CV and cover letter.

Tips for a better CV

  • Make sure that you highlight all the achievements that you have, mention about your internships, legal courses etc.
  • Make sure to showcase all your analytical, writing and research skills
  • Mention all the certifications that you have, especially those that are industry specific or business related.

Tips for cover letter

  • In your cover letter make sure that you demonstrate the understanding you have about the company and the job role that they are offering, and why you need it, why you should be their choice.
  • In your cover letter, talk about your skills and expertise and how you can use them for the growth of the company.

Get ready for interviews

  • Once your application is selected you will be called for an interview round.  Once you are called for the interview make sure that you research all the things related to the company, and be well-versed with your CV. 
  • Practise all the commonly asked questions that interviewers ask 
  • Create your own questions that you can ask the interviewer

Ten things you must know in order to become a successful in-house counsel

An in-house counsel plays a very vital role in growing the business of a corporation. If the counsel fails to play his role properly and mitigate the risks for the corporation, the business might take a toll. Thus, it becomes very important that an in-house counsel must know a few things to understand his/her role before accepting the job. 10 things that every in-house counsel must know have been given below:

Understanding the company’s business

In order to truly help the company with legal matters, the in-house counsels must first try to deeply understand the business of the company. Most corporations deal with some products or services, so the counsel must have knowledge about the products or services given by their corporation. The counsel can themselves buy the product or services to understand the product. The in-house counsels must also try to learn everything about the business of the company including who the competitors are, what are the products or services of the competitor and what strategies are used by the company to tackle the competitors. This will equip the counsel with complete knowledge about the business and what goes in and out of the company. Thus, they would be in a stronger position while defending the company. 

Strengthen relations with people in the business

If you have joined as an in-house counsel, you will find a number of people in your team who will be most probably senior to you. As a newcomer, you must try to build good relations with them, ask them if they need you in any case, work on different projects with them, and learn as much as possible from the seniors. Also, try to work with different seniors if you get the opportunity and blend in with people as much as possible. In addition to seniors from the legal team, you must also try to make connections with the non-legal teams or people like the directors, managers etc. This will help you gain the trust of not only the legal team but of most of the teams. Provide the best quality of work and it will make you an invaluable asset for the corporation. 

Understand why you have been hired

Once you are hired as a legal counsel in the team, you must try to figure out why they hired you because hiring of employees in a company takes place for different reasons. Sometimes, people are hired to fill vacant places left by some other employee, sometimes the candidate proves to be extraordinarily good, sometimes there’s a need for an extra hand due to an overload of work etc. Once you figure this out, you must take on the role to fill in the shoes for which you have been hired. In addition to this, you also need to keep in mind that no matter why you were hired, legal counsels always have to act as advisors to the business in spite of whatever more responsibilities they are entrusted with. Thus, as an advisor of the corporation, you must recognise future risks, and help the corporation in making sound decisions. 

Communicate constructively with clients and seniors

As an in-house counsel, you will have to communicate not only with lawyers but also with many non-lawyers like your client, and other members of the company like directors, HRs, managers etc. Thus, you will have to simplify whatever legal issues you want to communicate with the non-lawyer members in a way that is clear for ordinary people. Additionally, you also need to have good listening skills to understand the concerns of your colleagues and stakeholders of the company. 

Working as in-house counsel is like working as a team

When you work in a law firm, you provide services to clients outside the firm who bring in their legal problems to the firm but when you work as an in-house counsel, you have to keep in mind that you are part of a team and all of you are working together to grow the business of the company. Thus, the attitude or mindset of those who work in a law firm is very different to those working as in-house counsel. As a lawyer, an in-house counsel needs to use law to advance the business of the company, they do not have to wait for companies to get into some legal problem and then give the solution like law firm lawyers whereas they have to in advance identify any potential legal risks and prevent the company from getting into the problem. 

Understand your value as an in-house lawyer and put in work accordingly

Law firms or outside counsels charge the companies on an hourly basis because their aim is to earn money by giving legal assistance to the company and they hardly care, whether it affects the business of the company or not. However, in-house counsels are far more valuable to any company because of the fact that they know every nook and corner of the business. Thud, once you are hired as an in-house counsel, the first thing you should do is understand the business of the company to be able to play your role effectively. 

Be well versed in different laws

Since the job itself is of legal counsel, you must be aware of the laws that the business requires. A business has to deal with several kinds of cases that come their way, some might be related to intellectual properties, some real estate, some companies law, insolvency etc. Thus, as an in-house counsel, you cannot restrict your practice or knowledge to any particular field of law, unlike law firm lawyers who have the option to work under different legal teams. 

Balance risks with goals of the company

There are many risks that a business might face, it is the responsibility of the in-house counsels to make policies for the company that are in compliance with the legal rules and also help the company to grow its business. For example- the counsels must not draft any such policies for the company that helps in growing the business of the company or is in the interests of the company but on the other hand compromises with the legal compliances or vice versa. 

Don’t hesitate to take help from seniors

When you start as an in-house counsel, you will be delegated a lot of work by your seniors, most of which would pertain to researching or sometimes drafting. While even as a newcomer you are expected to know how to go about these tasks, however, it is natural for a human to not know everything. And laws especially are so vast with so many interpretations that you are bound to make mistakes. Asking seniors might feel like you are showing that you don’t know anything, but doing a task incorrectly is going to land you up in an even worse situation. So, do not hesitate to ask your seniors whenever you are delegated work that is beyond your understanding or in which you have any doubts. This will also help you in learning more and more.  

Be flexible and fast with work

Working as an in-house counsel requires a lot of flexibility. You might wonder what being flexible as an in-house counsel means. So, as stated earlier, an in-house counsel must not restrict their knowledge and work only to legal work, they are expected to know about the business model, clients of the business, rival competitors, objectives of the business etc. This means that you will have to be flexible with your work, you must have an answer whenever the company falls in a pit because most of such times require legal remedies. You must also be quick in coming up with solutions as time is very crucial for companies. 

Essential skills for an in-house counsel

The role of in-house counsel is very crucial in a company. Also, companies do not hire any other person for the role of in-house counsel. In order to become a successful in-house attorney, you must possess some skills that are crucial to become a successful attorney and to excel at work. 

Contract drafting and document reviewing

A company deals with various contracts in a day, as an in-house counsel one of the major skills that one will require is to be able to review and draft contracts. In daily parlance, contracts are used by corporations in their dealings with different businesses. When in-house counsel join a company they are mostly given the work of reviewing a contract and to make sure that the clauses are not in conflict with the business. Thus, you must make sure to learn the skills of contract drafting and reviewing before starting a job as in-house counsel. 

Researching

A lawyer needs to ace research skills as it is very much needed in building arguments for a case. When it comes to in-house lawyers, they need to constantly be researching on some matter or the other, as there is always some issue going on or some policies to be made for which high quality researching is mandatory. 

Knowledge about business

As mentioned earlier in this article, the work of an in-house counsel is different to that of law firm lawyers because the main goal of in-house counsel is to protect the company from any legal hazard and prevent the same from happening in future. Thus, it is very crucial that in-house counsels get knowledge about how businesses work, especially the working model of their company. This is why most in-house counsels prefer to do CS or have already done CS as completing this course means that the person has enough knowledge about companies. 

Project management skills

In-house counsels are most of the time entrusted with leading the legal aspects of the creation of any new project, product or service. They need to meet the goals of the company, in the time frame given. Thus, in-house counsels must develop leadership and management skills so that they are easily able to execute, control and achieve the desired results of any plan. 

Challenges faced by a fresh law graduate

There are a lot of fresh law graduates who dream of becoming an in-house counsel, but they don’t know about the challenges that they will face in getting a job opportunity as an in-house counsel. Here we have mentioned some of the most common challenges and issues faced by fresh law graduates in getting an in-house counsel job.

  • One of the most common challenges that they face is the lack of experience and practical knowledge. Most of the fresh law graduates don’t have enough practical experience, and they don’t know much about the work of an in-house counsel. Thus, because of this they often get rejected in the interview round.
  • Most companies and organisations hire experienced lawyers such as senior advocates and partners of top law firms, and because of this, the chance of getting a job opportunity for a fresh law graduate becomes zero.
  • Fresh law graduates often don’t get recruited for an in-house counsel job because they lack industry experience and do not have enough knowledge of business and business laws. Thus, it is recommended for all the law students who want to become an in-house counsel to do some additional courses on business and business law to develop additional skills.
  • Law students lack networking skills, and most of the in-house counsel jobs are filled through reference. Thus it is very important to build a strong network from the initial days of your college to get job and internship referrals.
  • Fresh law graduates are often paid less salary than experienced lawyers and because of this they get disheartened, but that must not be the case because the salaries are given based on the level of experience, so staying calm and building a level of expertise will increase the salary eventually. 

Conclusion

Yes, getting an in-house counsel job as a fresher is a difficult task, but it is not impossible. There are a lot of fresh law graduates who have successfully secured in-house jobs through their hard work and dedication. In this article, we have emphasised upon all the important things that a fresh law graduate must do in order to get an in-house counsel job opportunity.

We hope that you have read the whole article and have understood what you are required to do, to get an in-house job opportunity. Make sure to start your preparation in the initial days and prepare according to a plan, take reference from this article and you are ready to go. Best of luck!

Frequently Asked Questions (FAQs)

What is the salary of an in-house counsel?

There are various factors upon which the salary of an in-house counsel is determined, some of the most important factors are level of expertise, reputation, additional skills and years of experience. Thus keeping all these things in mind the salary of in-house counsels varies from each other and it also varies from organisation to organisation. For example, a fresh law graduate who is employed in a medium sized company can get a salary of up to 7 lakh rupees per year, whereas, on the other hand, an experienced lawyer employed in a big and renowned organisation can easily earn up to 50 lakh rupees per year. 

What are the skills required to get an in-house counsel job?

If you are a fresh law graduate who wants to get an in-house counsel job, then it is very important for you to develop some additional skills. A few of the most important skills that a fresher needs to develop are contract drafting, business knowledge, and negotiations. Other than these skills you can also master various other skills to stand out in the competition and to become the first preference of the recruiter. 

Do companies hire freshers as in-house counsel?

Yes, there are some companies that hire fresh law graduates, but small companies and startups that can not hire senior advocates and partners of law firms often give job opportunities to fresh law graduates. All you need to do is do a little research and find out all the companies that are new and hire freshers.

What are the challenges faced by a fresher in securing an in-house counsel job?

There are various challenges that a fresh law graduate needs to face in order to secure an in-house counsel job, and some of the most common challenges are lack of years of experience, lack of practical knowledge, no networking skills, and not having enough business skills. If you want to secure an in-house counsel job then make sure that you work from the initial days of your college to face all these challenges successfully. 

Who is an in-house counsel?

An in-house counsel are lawyers who work for companies or businesses by providing them with legal guidance and advice in all matters. In-house counsels also represent their companies in a court of law. 

What does an in-house lawyer do?

There are various duties of an in-house lawyer who works in an organisation. Earlier there was a misconception that in-house counsels only sit on their desks and look at the papers. That is not the case because in-house lawyers are required to do a plethora of tasks such as drafting important documents, compliances, advisory, dealing with the clients etc. 

What internships should I do in my law school to make my CV  look good for a job as an in-house counsel?

Getting your CV ready from law school itself is great if someone wants to land up a job of an in-house counsel. In your initial years of the law school (first and second), you may do internships with NGOs and then with district court lawyers to learn basic knowledge about how courts work. Once you are done with these internships, by your third year you can start internships with law firms to learn more about how legal work is done. By the end of your third year, start looking for internships in MNCs and try to take long term internships in these companies. You can convert your long term internships into PPO (PrePlacement Offer) if you work hard during the internship. 

How can I get internships in the leading MNCs? I’ve heard they usually don’t take law interns. 

Yes, sometimes it’s true that many MNCs don’t take law interns because their industry of work is different and they already have a big legal team working and some don’t hire freshers. In such cases, you should use your personal connections. Ask your relatives if anyone works in any MNC, they can definitely help you in getting an internship in the MNC. Never hesitate to take help from personal connections, they are the best way to get internships in places that are reluctant in taking legal interns, and who knows, you might end up getting a job there. 

Reference

Download Now

Share Purchase Agreement : an insight

0

This article has been written by Sarika Gupta pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

In the whole world, the most preferable mode of business in an organised manner is considered through a company, where corporate finance and business transactions are key. SPA is an important document in the phase of share purchase within a company.

When entering a business, it may involve purchasing shares of the company.  In such cases, it is highly recommended to have a close look into a share purchase agreement. A share purchase agreement (SPA) is a business handshake with or “in legal terms,” a legal document in which ownership of the company’s share is transferred from the seller to the buyer of a target company to increase the company’s capital.

A share purchase agreement outlines the official announcement of the share purchase and the rules on which the seller and buyer both agreed.

A share purchase agreement ( SPA) contains all important pieces of information about the parties’ identities, share price and payment, the number of shares, basic warranties, and all these conditions on which the seller and the buyer agreed, regardless of company size, whether it’s big and public or small and private.

In addition, SPA sets out a tone of fairness and quality between the buyer and the seller.

Essential elements

Transparency on parties’ persona

The identity of an individual includes unique characteristics of the person; it is more than the name of the person. Transparency in identities promotes a strong feeling of trust, belongingness, and recognition between the parties, as well as solid business transactions. For successful business transactions, it is crucial to have clarity on the identities of the parties. It is never ignored in any kind of business if you want to set a long-term path for your business.

Description of the product

Explaining the transaction: The details of the product are not just a series of items; they are more than that. It is a necessary ingredient that we are putting into our business, which in turn creates a strong, trustworthy relationship between the parties that strengthens our business. A clear and clean product description gives the buyer a sense of confidence as well as builds trust in what he is going to purchase. The clarity in the description of the product helps the buyer understand what and why he is going to purchase that particular product. It is good to know about the product before buying it.

Purchase price and payment terms

Promise financial clarity: The price and payment are more than numbers; precisely mentioned purchase price and payment terms in a share purchase agreement build respect, belief, and mutual understanding between the parties.

To prevent any kind of misinterpretation or future disputes, it is important to be clear and concise while discussing the payments and the price terms of shares purchased subject to such modifications. It is recommended to be straightforward while negotiating price and payment terms to avoid any future disagreements. An open conversation while deciding the terms of an agreement is highly beneficial for both parties to maintain long-term business relationships.

Delivery process and requirements

Establish smooth transfer: The transfer procedures are not treated like a procedure only; this is a required condition for committing a smooth and effective handover of ownership that enables a quality factor in your business transactions. Adopting, a seamless transfer process is key to achieving fruitful relationships in business. When you lay down clear expectations to be delivered successfully, those clear and plain expectations build a strong and safe partnership between the parties that may be beneficial for future business as well.

Warranties and representations

Ensure trust: Warranties and representations in share purchase agreements are a very important element. When a buyer buys shares of a target company, the seller lays down some statements before the buyer, known as representations.

Representations given by the seller provide essential information that is related to the company’s current state, the company’s financial position, the company’s assets, etc. to the buyer of the shares. The seller gives assurance to the buyer that the representations are accurate and complete about the business of the company by giving warranties.

Governing law and dispute resolution

Ensuring enforcement and peaceful resolution: In a SPA, the governing law and governance clauses for dispute resolution are not just rules or formalities; they are the backbone and building blocks on which parties to the agreement can seek justice and fairness. It builds trust and also provides direction to the justice-seeking party on which direction they should go.

Legal protection builds a sense of long-lasting partnership in businesses. The presence of a dispute resolution clause,  along with an indemnification clause, in the SPA saves time as well as lengthy court processes in resolving disputes between the parties.

The necessity of SPA

A Share Purchase Agreement (SPA) confirms that the buyer and the seller are both in agreement to purchase the shares of a target company. The SPA outlines clarity and understanding due to the detailed information mentioned in the SPA about the share purchase between the parties.

SPA acts as a safeguard for both parties, as the confidentiality clause is present in the SPA agreement. In case any disagreement arises between the parties, the dispute resolution clause saves time and money. The SPA is a necessary document that makes sure that the buying and selling of shares go smoothly and fairly for each individual involved.

Can a  SPA be specifically enforced

A share purchase agreement is a legally binding agreement between the seller and the purchaser of shares of a target company. It contains the terms and conditions of the sale, including the purchase price, the number of shares that are sold,  representations, warranties, and other important pieces of information. Once both parties sign the share purchase agreement, they become legally obligated to fulfil their respective duties as per the agreement against each other. 

How to make SPA effective

In SPA, a common mistake that we see in most cases is not properly reviewing the seller’s warranties that he provides to the buyer.

To make an SPA effective, it is recommended that the seller carefully review all the warranties that he gave to the buyer to prevent any misunderstandings or costly dispute resolution.

Secondly, not paying careful attention to the rules that are given in “the articles of association” of a company.

For instance, the article might include prior approval from the board of directors for transferring the shares. So, it is important to be aware of the rules that are mentioned in the article of the company, which further helps in a smooth purchase and also fulfils compliance with the rules and regulations of the company.

Pros and cons of SPA

Pros

  • Those clearly outlined terms in the share purchase agreement regarding payment of shares, price of shares, number of shares, etc., reduce the chance of doubts or ambiguity for future misunderstandings between the parties.
  • The availability of a dispute resolution clause in SPA lowers the need to seek assistance from the courts, saves time, and reduces lengthy court litigation processes.
  • High enforceability of SPA due to the enlisted governing laws mentioned in the share purchase agreement. Governing rules and laws provide structure for the enforcement of the terms of the agreement, which creates a safe environment for both parties.
  • The warranties regarding the status and condition of the shares provided by the seller serve as a cornerstone for the availability of legal protection for the buyer of the share purchase.

Cons

  • For drafting a successful share purchase agreement, a well-versed legal expert is required who might demand a high fee for drafting and interpreting SPA.
  • In cases of multiple parties and complex transactions to be understood, the requirement of a legal advisory is a must condition to be fulfilled condition to prevent future complications, which is a time-consuming process.
  • As mentioned above, SPA provides legal protection to parties, but it may not estimate market fluctuations and unforeseen liabilities, and parties may still lack complete legal protection.
  • When all parties sign a share purchase agreement, making changes to the terms of an SPA is not an easy task; it needs to go through
  • a lengthy legal process once again, which may also demand the mutual consent of all parties to the agreement.

In case of cons, possible remedies

  • First and foremost, the share purchase agreement has a remedy clause in itself that provides solutions to disputes and breaches arising between the parties to the agreement.
  • Advice from a legal expert is something anyone can value. A legal expert can help you decide what to do next in the event of any legal complications.
  • An injunction order from the courts is another remedy that a non-defaulting party to the agreement may seek. It stops the defaulting party to the agreement from further breaching the terms.
  • For all real financial losses suffered by the non-defaulting party due to the defaulting party’s breach of the agreement, compensation is one more available remedy in that case.
  • The option of revocation of an agreement is also available in cases of disputes or breaches of the terms of the agreement.
  • Depending on the circumstances of the disputes, specific performance at the end of justice and fairness is also available as a remedy for a party who is not at fault.
  • The list of remedies doesn’t end here; there are many other remedies available for a party who faces challenges or disputes in the share purchase agreement that may include termination of an agreement, mediation, restitution, conciliation, arbitration, etc.

Significance of a SPA

A share purchase agreement (SPA) plays a pivotal role in the acquisition of shares in a company, offering significant advantages to both the buyer and the seller.

Legal framework for the transaction

A share purchase agreement establishes a legally binding framework for the transfer of shares. It outlines the terms and conditions of the acquisition, including the purchase price, payment terms, and the responsibilities of both parties. This agreement serves as a roadmap for the transaction, ensuring that all parties involved are on the same page and protected under the law.

Protection of buyer’s interests

For the buyer, a share purchase agreement provides several layers of protection. It ensures that the seller has the legal right to sell the shares, that there are no outstanding liens or encumbrances on the shares, and that the buyer acquires a clear title to the shares. The agreement also includes representations and warranties from the seller, providing the buyer with recourse in case of any misrepresentations or breaches of contract.

Due diligence and disclosure

A share purchase agreement facilitates due diligence by the buyer. It outlines the buyer’s right to access the company’s financial records, legal documents, and other relevant information. This due diligence process allows the buyer to make an informed decision about the acquisition and assess the risks involved. The seller, on the other hand, must provide accurate and complete information to the buyer, ensuring transparency throughout the transaction.

Allocation of risks and liabilities

A share purchase agreement clearly allocates risks and liabilities between the buyer and the seller. It specifies the conditions under which the buyer assumes the liabilities of the company being acquired, including any contingent liabilities or environmental obligations. This allocation of risks helps mitigate potential disputes and provides clarity for both parties.

Tax considerations

The share purchase agreement addresses tax implications related to the transaction. It takes into account the tax laws applicable to the buyer and the seller, ensuring compliance with relevant tax regulations. The agreement also outlines any tax-related warranties or indemnities, protecting both parties from unexpected tax liabilities.

Exit strategies

A share purchase agreement often includes provisions for future exit strategies. It may specify the conditions under which the buyer can sell the shares or the seller can reacquire the shares. This foresight ensures that both parties have a clear understanding of their options in the future.

Dispute resolution

The share purchase agreement outlines the process for dispute resolution in case of any disagreements between the buyer and the seller. It may include provisions for mediation, arbitration, or litigation, providing a structured approach to resolving conflicts amicably.

Process of SPA

The share purchase agreement (SPA) process is a legal contract between a buyer and seller that outlines the terms and conditions of a share purchase. It is a complex process that involves several steps and can take several weeks or months to complete.

  1. Negotiation:
    • The process begins with negotiations between the buyer and seller, where they discuss the terms of the agreement.
    • Key negotiation points include the purchase price, payment terms, closing date, and any contingencies.
  2. Due diligence:
    • The buyer conducts due diligence to assess the target company’s financial, legal, and operational status.
    • This involves reviewing financial statements, legal documents, and management presentations.
  3. SPA drafting:
    • Once the due diligence is complete, the buyer and seller work with their respective legal counsel to draft the SPA.
    • The SPA is a legally binding document that outlines the terms of the transaction, including the purchase price, payment terms, closing date, and any contingencies.
  4. Execution of the SPA:
    • Once the SPA is finalised, it is executed by both parties.
    • The execution of the SPA creates a legally binding contract.
  5. Closing:
    • The closing is the final step in the SPA process.
    • It involves the transfer of shares from the seller to the buyer and the payment of the purchase price.
    • The closing date is typically specified in the SPA.
  6. Post-closing obligations:
    • After the closing, there are certain post-closing obligations that may need to be fulfilled.
    • These obligations may include delivering additional information or documents, providing transition assistance, or complying with any other post-closing covenants.

The SPA process can be complex and time-consuming, but it is essential to ensure that the transaction is completed in a legal and orderly manner. By following the steps outlined above, buyers and sellers can help ensure a smooth and successful SPA process.

Warranties and indemnities in SPA

Warranties and indemnities are important contractual provisions in a share purchase agreement (SPA) that allocate risk between the buyer and seller of a company.

Warranties are statements of fact or representations made by the seller about the company’s business, financial condition, and legal compliance. They are intended to provide the buyer with comfort that the information provided in the SPA is accurate and complete.

Indemnities are contractual obligations of the seller to compensate the buyer for any losses or damages suffered as a result of a breach of warranty or other contractual obligation. They are designed to protect the buyer from any financial or legal liability arising from the purchase of the company.

Warranties in a SPA typically cover a wide range of matters, including:

  • The accuracy and completeness of the financial statements.
  • The absence of any material undisclosed liabilities.
  • Compliance with all applicable laws and regulations.
  • The absence of any material adverse change in the company’s business since the date of the SPA.

Indemnities in a SPA typically cover a wide range of matters, including:

  • Any breach of warranty.
  • Any liabilities or claims arising from the company’s business.
  • Any costs or expenses incurred by the buyer in defending against any claims or litigation.
  • Any losses or damages suffered by the buyer as a result of the purchase of the company.

The scope and extent of warranties and indemnities in a SPA can vary depending on the specific circumstances of the transaction. It is important for both buyers and sellers to carefully negotiate these provisions to ensure that their interests are adequately protected.

Here are some key considerations for negotiating warranties and indemnities in a SPA:

  • The scope and coverage of the warranties and indemnities.
  • The duration of the warranties and indemnities.
  • The limitations and exclusions on warranties and indemnities.
  • The remedies available for breach of warranty or indemnity.
  • The allocation of costs and expenses associated with warranties and indemnities.

Conclusion

A share purchase agreement is not only a legally binding document; it is a great combination of trust, respect, quality, mutual understanding, legal protection, and fairness between the parties to the agreement. These are all important ingredients in making a long-lasting business partnership.

long-lasting. A firm share purchase agreement may be achieved by carefully reviewing and negotiating the terms of the agreement.

It is highly recommended, not only for share purchase agreements but for all kinds of agreements that each party to the agreement must carefully look up to the whole agreement before signing the documents. Making changes to the agreement after signing the agreement is a lengthy process that may require us to follow the whole process again, and also the mutual consent of the parties involved.

Keep in mind that a solid SPA is not just a legal paper, it creates a bridge to a successful and long-term business partnership for the future that results in mutual growth of the parties.

References

Download Now

How to implement corporate governance in a startup

0

This article has been written by Hemang Mohanlal Doshi pursuing a Personal Branding Program for Corporate Leaders from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Introduction

Let’s begin by understanding what a startup means!!

As per the DPIIT (Department of Promotion of Industry and Internal Trade), an entity shall be considered a start-up:

  • From the date of incorporation/registration of the entity, as a private limited company or partnership firm or limited liability partnership, up to a period of 10 years from its date of inception.
  • Annual turnover of the entity has not exceeded 100 crore rupees for any of the financial years since inception, up to a period of 10 years
  • The entity is a highly scalable business model that has potential to generate employment and wealth in the fields of innovation, product development or improvement of processes and services

Corporate governance in startups

Corporate governance in startups refers to the system of principles, practices, and processes by which a startup is directed, controlled, administered and governed. It encompasses the framework through which a startup’s founders, investors, and other stakeholders ensure that the company’s objectives are met while promoting transparency, accountability, and ethical decision-making processes to drive the sustainable growth and success of the startup. This includes defining the roles and responsibilities of key individuals, maintaining financial transparency, and adhering to legal and regulatory requirements. The aim is to foster confidence among stakeholders, attract investment, and nurture a culture of responsible business conduct within the dynamic and innovative environment of a startup.

Why do startups need corporate governance

The Economic Survey 2021–22 has reported that India is the third largest country in the world after the US and China to have 70,000 startups, and many of those have even become unicorns in the industry. However, with the increasing number of scams like BharatPe, toxic work environment and cyber crimes, there is a demand for strong corporate governance in Indian startups. Good corporate governance maintains a healthy balance between the interests of investors, promoters, employees and customers. The four pillars of corporate governance are transparency, accountability, Responsibility and honesty, which promote better control and administration in startups. Good corporate governance helps to solve the following top 10 challenges and issues faced by any startups.

  • Founder-driven decision making: This helps to balance the autonomy of founders and helps in structured decision-making.
  • Transparency: Always ensure open communication and transparency in financial reporting and decision processes.
  • Board composition: Helps to build a diverse and skilled board to provide strategic guidance.
  • Conflict of interest: Helps mitigate conflicts of interest among stakeholders, particularly founders and investors.
  • Compliance: Helps to adhere to legal and regulatory requirements to avoid legal pitfalls and revenue losses.
  • Succession planning: Help develop plans for leadership transition to ensure continuity.
  • Ethical practices: Helps promote ethical behaviour and responsible business practices.
  • Risk management: Helps identify and mitigate risks associated with the operations.
  • Shareholder rights: Helps to define and protect the rights of shareholders by implementing policies and shareholder agreements.
  • Innovation and adaptability: Helps to integrate governance practices that foster innovation and adaptability.

Indian government and startup initiatives

The Startup India scheme is an initiative by the Indian Government to promote startups to generate employment and wealth creation. This scheme aims to merge India as a job creator nation instead of job seekers. This scheme is managed by the Department for Industrial Policy and Promotion (DPIIT).

Following are the benefits provided to a startup under DPIIT.

  • Self certification: Easy self certification allows startups to self certify compliance with 6 labour laws and 3 environmental laws using simple online procedure. Startups will be classified as ‘white category’ for environmental laws and only random checks will be done for self certified companies.
  • Simplification and handholding: Simplified process for compliance, exit process for failed startups, legal support, fast-tracking of patent applications.
  • Funding & Incentives: Exemptions on Income Tax and Capital Gains Tax for Eligible Startups under 80 IAC and Section 56.
  • Incubation & Industry-Academia Partnerships: Grants of 20 lakhs and 50 lakhs are provided by Seed Funds for startups to showcase prototypes and commercialisation.

Following are the business type suitable for startups in India:-

 Sole proprietorshipPrivate   LimitedCompanyLimited Liability partnershipPartnershipFirm
RegistrationNo registration is mandated by law. Good   for        very small        scale start-ups,home-grown businesses led by a single person.Needs to beregistered underCompanies act, 2013.Needs to be registered under Limited Liability Partnership Act,2008Registration is Optional. But it is recommended to be done.
Legal StatusPromoter/owner personally responsible for all liabilities.Separate entity. Promoter is not responsible for the Liabilities of such acompany directly.Separate entity. Promoter is not responsible for the Liabilities of such a company directly.Promoter/owner personally responsible        for all liabilities.
TaxationTaxed as anindividual on the basis of the proprietor’s income.Private Limited Companyprofits are taxed as per the slabs provided underIncome Tax Act, 1961 plus surcharge and cess asapplicableLLP profits are taxed as per the slabs provided under Income Tax Act, 1961 plus surcharge and cess asapplicablePartnership profits are taxed as per the slabs provided underIncome Tax Act, 1961 plus surcharge and cess asapplicable
Foreign ownershipForeigners not allowed to own soleproprietorships in India.Under the Automatic route, FDI in Pvt Ltd is allowed without prior approval of RBI. (Subject to conditions, please check for the latest policy.)Foreigners can invest in LLP without prior approval of RBI. (Subject to conditions, please checkthe latest policy.)Foreigners not allowed to be part of partnerships.

Current status of corporate governance for startups in India

As of 2024, the startup ecosystem in India is witnessing an increased recognition of the importance of corporate governance. While many startups are making strides in implementing governance practices, challenges such as regulatory complexities and varying maturity levels persist. Investors are increasingly emphasising governance during funding rounds, signalling a positive shift towards a more disciplined approach.

With upcoming many challenges and issues, startups in India are facing the following top 10 risks and those risks can only be mitigated by implementing good corporate governance and management practices.

  • Founder resistance: Resistance to relinquishing control may hinder the implementation of effective governance.
  • Lack of resources: Startups may struggle with limited resources to establish and maintain governance practices.
  • Rapid growth challenges: Scaling quickly may lead to gaps and challenges in adapting to growth and implementing good governance.
  • Regulatory changes: Adverse changes in regulations may impact the startup’s governance structure and day to day operation.
  • Investor expectations: Managing different expectations of founders, customers and investors regarding governance practices.
  • Cybersecurity threats: Due to usage of the internet and advanced technology in operation, startups are exposed to cybersecurity risks.
  • Talent retention: Good policies and HR practices are necessary to survive in today’s market dynamics.
  • Financial instability: Startups need to have sufficient funds and share capital to support daily operation in a very uncertain and volatile market.
  • Global expansion: Expanding internationally introduces new governance challenges and hurdles in the roadmaps ahead.
  • Brand and good will: Poor corporate governance can damage the brand name and good will of a company in the long run.

Provisions and sections set up by the government of India for startups

In India,the Companies Act 2013 has laid down legislation for good corporate governance for startups.This legislation outlines several provisions and sections that startups need to adhere to for effective governance:

  • Section 149: Specifies the mandatory appointments of directors, also specifies the minimum number of directors and the inclusion of independent directors.
  • Section 177: Specifies need of an Audit Committee to oversee financial statement disclosures and compliance.
  • Section 188: Requires companies to monitor related party transactions, onboard approval and shareholder consent.
  • Section 203: Startups need to appoint KMP(key managerial personnel) such as CEO, CFO, Company Secretary and Managing Directors mandatorily.

Mandatory government compliance and regulations for startups in India

All startups in India have to adhere to and comply with one or more requirements from the Companies Act, 2013, a few obligations from the Income Tax Department, and mandates from both the Central Government and the ROC. These compliances help streamline the operations of a startup and ensure effective corporate governance.

Rules and regulations from the Companies Act 2013

The Companies Act 2013 lays down specific requirements for corporate governance in startups from a regulatory point of view.

  • Appointment of directors: Startups must appoint directors, ensuring a balance between executive, non-executive, and independent directors.
  • Audit committee: Startups must have an audit committee for financial reporting and compliance.
  • Board meetings: Startups must conduct regular board meetings to discuss strategy, performance, and risk management.
  • Disclosure and transparency: Startups must be transparent through accurate financial reporting and timely disclosure of all relevant information.
  • Related party transactions: As regulations often govern transactions between the startup and its related parties, such as founders or key management personnel, startups must maintain transparency and approval processes for such crucial transactions.
  • CSR committee: Startups must have a CSR committee and contribute funds as deemed necessary.

Rules and regulations from the Income Tax Department

The Income Tax Department has a few mandatory compliances that startups must follow. These stipulated requirements include the following:

  • Timely filing of returns: Startups must adhere to deadlines for filing income tax returns to maintain compliance.
  • Documented transactions: Startups must keep comprehensive documentation of financial transactions for tax assessment purposes.
  • Compliance with tax laws: Startups must comply with all tax laws as applicable to their operations.

Rules and regulations from the Central Government & ROC

The Registrar of Companies (ROC) and the Central Government have outlined a few mandatory compliances, as follows:

  • Annual return filing: Startups must submit annual returns and financial statements to the ROC within the stipulated time frame.
  • Compliance certificates: Startups must have all necessary compliance certificates and file necessary forms as required by the ROC.
  • Changes and modification filings:Changes in directorship or shareholding should be reported as part of compliance and regulations.

Structure of board of directors in a startup

The composition of the board is a critical element in startup governance and should have a good structure. Following are the key pointers on board composition.

  • Founder representation: Balance founder representation with independent directors to ensure diverse perspectives.
  • Skill diversity: Having a board with a mix of skills and experiences relevant to the startup’s industry.
  • Independent directors: Appointing independent directors to provide unbiased guidance and oversight.
  • Formations of committees: Independent directors should be part of committees like CSR, Audit, Remuneration and Nomination to improve governance.

Top startups scams in India due to poor corporate governance

Good corporate governance always gives a good flying start to many startups, Poor corporate governance results in scams and fraud, resulting in financial losses to creditors, investors and customers. It is therefore important for creditors, investors and customers to be aware of typical frauds and scams associated with startups. Following are a few scams reported in India due to a lack of good corporate governance.

  • Stayzilla Case (2017): CEO of this hotel booking startup was arrested for misleading and not paying vendor’s due. This is an example of poor governance and lack of responsibility.
  • AirAsia India Allegations (2018): AirAsia India manipulated government policies to get an international licence as per the CBI report. This raises concerns over the transparency and honesty of corporate governance.
  • Oyo Rooms Controversies (2019): Oyo faced allegations of predatory pricing, not following its own agreements, including threatening hotels, and raising questions about its corporate governance and honesty.
  • TinyOwl Closure (2015): TinyOwl faced controversy during its shutdown, with reports of employees being laid off to fulfil its cash crunch and remain profitable. This raised concerns again about corporate governance, accountability and responsibility.
  • QNet Multi-Level Marketing Scam (2013): QNet faced allegations of deceiving $5 million investors with promises of high returns through their marketing schemes. This raised concerns about corporate governance and transparency.
  • Reebok India Scam (2012): Reebok’s Indian subsidiary faced 870 crore scam due to mismanagement. This scam raised concerns about corporate governance and honesty.
  • Pearls Agrotech Ponzi Scheme (2016):This scam involved collecting money from investors in lieu of agricultural land.  This raised concerns about corporate governance and accountability.

Future status of corporate governance for startups in India

Since the Government of India has simplified the processes and regulations for encouraging startups to thrive and grow, the future of startups is promising as the need for good corporate governance is gaining importance. Greater emphasis is placed on transparency, ethical practices and accountability in corporate governance to gain the confidence and trust of investors, creditors and customers. With the increasing usage of AI and robotics, the future foresees many IT applications and systems as part of corporate governance. Also, the Company Act 2013, NCLT, independent director and rating agencies will play a vital role and see major amendments and changes.

Suggestion

It is acknowledged that various initiatives have already been  laid down by the Companies Act 2013, and the Central Government of India, following the recommendations, can help enhance the rules and regulations to protect and safeguard investors interest in startups.

  1. Recommendation for section: The Companies Act 2013 should undergo an amendment that mandates the inclusion of AI and robotics systems and applications within the governance framework of startups to foster stricter vigilance and whistleblowing as per the needs of the hour.
  2. Recommendation for section: An amendment to the Companies Act 2013 is suggested, focusing on a section that grants special powers, roles, and responsibilities to NCLT, independent directors, and rating agencies. All three bodies should be empowered to conduct random audits in suspicious situations. independent director roles should be broadened to include corporate social responsibility, audit, and nomination and remuneration committees.
  3. Recommendation for addition of Business Type: After the massive success of Google, Facebook & Instagram as startup technology companies, the Companies Act 2013 should be leveraged to have a C-Corp structure. This would help startups raise funds easily for the Science and Technology sector.

Regulatory framework for startups in India

The regulatory framework for startups in India has undergone significant evolution in recent years, with the government recognizing the crucial role that startups play in driving innovation, job creation, and economic growth. Here’s an elaborated and expanded version of the input text:

  1. Startup definition:
    A startup in India is defined as a privately held company that is less than 10 years old, with an annual turnover of less than INR 100 crores, and is working towards developing or commercializing a new product, service, or process.
  2. Startup recognition:
    The Department for Promotion of Industry and Internal Trade (DPIIT) grants official recognition to startups through its Startup India initiative. Recognized startups gain access to various benefits, including tax incentives, regulatory relaxations, and government support programs.
  3. Regulatory simplification:
    The government has introduced simplified regulations for startups, such as self-certification of compliance with labor laws and environment regulations. Startups are also exempted from certain compliance requirements, such as maintaining a minimum paid-up capital or having a physical office space.
  4. Startup funding:
    To encourage investment in startups, the government has established several funding initiatives, including the Startup India Seed Fund Scheme and the Fund of Funds for Startups (FFS). These schemes provide financial support to early-stage startups and venture capital funds.
  5. Tax incentives:
    Startups are eligible for a number of tax incentives, including a 100% tax holiday on profits for the first three consecutive financial years and a reduced corporate tax rate of 15% thereafter. Startups can also claim tax deductions for expenses incurred on research and development (R&D).
  6. Regulatory sandboxes:
    Regulatory sandboxes are experimental environments where startups can test new products, services, or business models in a controlled regulatory environment. This allows startups to innovate without the burden of excessive regulation.
  7. Startup intellectual property (IP) facilitation:
    To protect the intellectual property rights of startups, the government provides various IP-related support services, such as IP awareness workshops and fast-track IP registration. Startups can also access patent pools and technology transfer mechanisms.
  8. Startup incubators and accelerators:
    The government supports the establishment of startup incubators and accelerators, which provide startups with mentorship, training, networking opportunities, and access to funding. These incubators and accelerators play a crucial role in nurturing early-stage startups.
  9. Exit options:
    To provide exit options for startups, the government has simplified the process of winding up companies and introduced employee stock ownership plans (ESOPs) for startups. ESOPs allow startups to attract and retain talent by offering equity shares to employees.
  10. Government support programs:
    The government offers a range of support programs for startups, including mentorship programs, training programs, and access to government procurement opportunities. These programs aim to enhance the competitiveness and sustainability of startups.

The regulatory framework for startups in India is dynamic and evolving, with the government continuously introducing new initiatives and reforms to support the startup ecosystem. These efforts are aimed at creating a conducive environment for startups to thrive and contribute to India’s economic growth.

Provisions for startup in the Companies Act of 2013

The Companies Act of India aims to encourage and support the growth of startups in the country. It includes several provisions designed to provide a conducive environment for startups and address their unique challenges. Here are some key provisions related to startups in the Company Act:

  1. Simplified registration process:
    • The Act streamlines the registration process for startups by allowing them to incorporate as a company or limited liability partnership (LLP) in a simplified manner.
    • Startups can file their incorporation documents electronically and obtain approvals quickly.
  2. Exemptions from compliance requirements:
    • Certain compliance requirements under the Act are relaxed or exempted for startups.
    • For instance, startups are not required to appoint an independent director for the first three years of their operations. They also have greater flexibility in terms of board meetings and shareholder resolutions.
  3. Tax benefits:
    • Startups are eligible for a tax holiday for three consecutive assessment years out of the first ten years of operation.
    • They can also claim deductions on certain expenses and investments.
  4. Funding and investment:
    • The Act encourages investment in startups by allowing angel investors and venture capitalists to avail tax benefits.
    • It also facilitates access to funding through government schemes and venture capital funds.
  5. Dispute resolution:
    • The Act provides for a fast-track dispute resolution mechanism for startups.
    • Startups can approach the National Company Law Tribunal (NCLT) for speedy resolution of their disputes.
  6. Regulatory sandbox:
    • The Act introduces the concept of a regulatory sandbox, which allows startups to test their innovative products or services in a controlled environment.
    • This provision aims to promote experimentation and innovation in the startup ecosystem.
  7. Employee Stock Ownership Plans (ESOPs):
    • The Act simplifies the process for startups to issue ESOPs to their employees.
    • ESOPs can be used as an incentive to attract and retain talent in startups.

These provisions of the Company Act aim to create a supportive framework for startups in India. They are designed to address the unique challenges faced by startups and facilitate their growth and success. By leveraging these provisions, startups can navigate the legal and regulatory landscape more efficiently and focus on building innovative solutions to drive economic development.

The Government’s recent move to allow startups to self-certify compliance with 6 labour laws and 3 environmental laws is a significant step taken to ease the regulatory burden on young businesses. This move will significantly benefit Startups in the following ways:

  1. Reduced regulatory burden: Self-certification eliminates the need for Startups to obtain multiple approvals and licences from different government agencies, simplifying the compliance process.
  2. Time and cost savings: By self-certifying, Startups can save time and resources that would otherwise be spent on obtaining and renewing licences. This can help Startups focus on core business activities and innovation.
  3. Flexibility and agility: The 5-year period for self-certification provides Startups with the flexibility to adapt and grow without the immediate pressure of obtaining multiple regulatory approvals.
  4. Compliance assurance: Self-certification requires Startups to demonstrate compliance with applicable laws, ensuring a level of responsibility and accountability. This approach fosters a culture of compliance within the Startup ecosystem.
  5. Enhanced ease of doing business: The simplified compliance process helps improve the ease of doing business for Startups, making India a more attractive destination for investment and entrepreneurship.
  6. Promotion of startup growth: By reducing regulatory hurdles, the Government is encouraging Startups to focus on growth, job creation, and innovation, contributing to the overall economic development of the country.
  7. Encouragement of formalisation: Self-certification provides an incentive for informal Startups to formalise their operations, ensuring better access to resources and support from the Government and investors.
  8. Alignment with global best practices: This move aligns India with global best practices, where Startups are allowed to self-certify compliance to reduce regulatory burdens.
  9. Streamlined process: The online portal for self-certification simplifies the process and ensures transparency in regulatory compliance.
  10. Improved investor confidence: A streamlined compliance process can enhance investor confidence in Startups, attracting more investment and fostering a vibrant entrepreneurial ecosystem.

Overall, the government’s decision to allow Startups to self-certify compliance with labour and environmental laws is a positive step that will support the growth and success of young businesses, contributing to economic development and job creation.

Conclusion

In a nutshell, this article covers all the mandatory requirements from the Companies Act 2013, Income Tax, Central Government & Registrar of Companies (ROC) for startups in India. This article also suggests using C-Corp structure and a well structured board of directors with an independent director as one of the key managerial personnel to attract & gain the trust of investors. Articles highlight that only good corporate governance in startups can help establish a permanent footing in today’s dynamic market and gain success and prosperity.

References

Download Now

Investigation agencies in India

0

This article is written by Trisha Prasad. The article analyses the establishment, functions, powers, and challenges related to various investigation agencies that are currently functioning in India. In an attempt to understand the concept of investigation agencies in India, this article also distinguishes the investigating agencies from intelligence agencies that also have a prominent role in the functioning of the country.

This article has been published by Shashwat Kaushik.

Introduction 

Investigation agencies involve a wide range of organisations, authorities, bodies, or agencies that are specifically tasked with carrying out investigations and other related activities with the aim of ensuring appropriate law enforcement, aiding the promotion of order and justice, and safeguarding national security. These agencies generally carry out inquiries, gather evidence, analyse evidence, and adopt other investigation measures to either uncover the truth behind a crime or offence and make a case for prosecution or to prevent any threats.

In the Indian context, investigation agencies are an integral part of the law enforcement mechanism and play a pivotal role in the detection, investigation, and subsequent prosecution of offenders. These agencies have distinct jurisdictions and specific mandates, functioning at different levels, including the national level, state level, and through special units. At the national level, agencies like the National Investigation Agency (NIA) and the Central Bureau of Investigation (CBI) are prominent agencies to combat terrorism and investigate major crimes, respectively. At the state level, the Crime Investigation Departments (CID) are a prominent group of agencies that function within the limits of their respective states and carry out investigations with respect to crimes committed or having effect within their jurisdictions.

Objectives of investigation agencies in India 

In the Indian context as well as globally, investigation agencies are established and vested with specific powers with the objective of maintaining law and order, preventing and investigating crimes, aiding in upholding justice, and protecting the security of the citizens of the country. The following are the basic objectives of investigating agencies in India:

  • Detection and investigation of crime
  • Prevention of crime
  • Disrupting criminal networks
  • Strengthening and facilitating the improvement and development of security and police forces
  • Protection of society and public safety
  • Aiding in the enforcement of laws
  • Combating national security threats, including terrorism
  • Ensuring accountability and promoting transparency when the public is involved.

Investigation agencies in India

Central Bureau of Investigation (CBI)

The CBI is an investigation agency in India that functions under the Ministry of Personnel, Public Grievances, and Pensions, the Government of India. The CBI is tasked with investigating major crimes, corruption cases, frauds, and other such cases that involve central government employees or cases referred to it by the Supreme Court, High Courts, or Central Government. It plays a crucial role in upholding justice, accountability, and preventing corruption.

History

The history and establishment of the CBI can be traced back to the Special Police Establishment (SPE), which was established by the Indian Government in 1941. The government realised the necessity of addressing the increasing corruption connected to the enormous expenditures during World War II. The SPE was set up in 1941 to investigate transactions with the Government’s War and Supply Department, where corruption and bribery were prominent. In the subsequent year, the jurisdiction of SPE was also extended to cover transactions on the railways. The Delhi Special Police Establishment Act, 1946, transferred the supervision over SPE to the Home Department. The CBI as we know it today was, however, only constituted as a result of the recommendations of the Santhanam Committee on Prevention of Corruption (1964), which emphasised the need for a Central Vigilance Commission and strengthening of the SPE. The CBI was officially established in 1963 by way of a resolution passed through the Home Ministry. The role of the CBI was further extended in the subsequent years to not only cover corruption and bribery but also other economic offences and conventional crimes.

Organisational structure

As of 2019, the CBI had 5000 members, 125 members of the forensic team, and around 250 law officers. The administration of the CBI is headed by an IPS officer of the rank of Director General of Police, designated as the Director, CBI. The CBI also includes members of the ranks of Special Director, Deputy Inspector General of Police, Additional Director, Joint Director, and Senior Superintendent of Police, among other members.

The Central Vigilance Commission Act, 2003 (CVC Act) amended the Delhi Special Police Establishment Act, giving the Central Vigilance Commission the power of superintendence in cases where an offence under the Prevention of Corruption Act, 1988 is being investigated while also elaborated on provisions for the appointment, tenure, and terms of service of the Director of the Special Police Establishment, or CBI. According to the CVC Act, the tenure of the director is for a period of 2 years. Further, as per the Lokpal and Lokayuktas Act, 2013, the director is appointed by the Central Government on the basis of the recommendation of a three member committee consisting of the Prime Minister, the leader of opposition in the Lok Sabha, the Chief Justice of India, or any other judge as nominated by the Chief Justice of India. If there is no recognised leader of opposition in the Lok Sabha, the leader of the single largest opposition party will become a member of the committee.

Divisions

  • The Anti-Corruption Division of the CBI is exclusively tasked with investigating corruption allegations against public officials, government employees, and individuals holding a position of authority in any public office or public institution. Corruption may be in the form of bribery, embezzlement, or any other means adopted by individuals, groups, or associations.
  • The Economic Offences Division of the CBI investigates matters that fall under the category of economic offences. This includes inquiry, investigation, collection of evidence, and prosecution for offences like money laundering, fraud, banking scams, and other similar white collar crimes.
  • The Special Crimes Division or Zone of the CBI is tasked with investigating major crimes that are of national or even international importance. There may be overlapping jurisdiction in this case as the special crimes division also deals with matters like economic crimes and corruption, along with other major and serious crimes. The international extent of its work area as well as its ability to deal with the most high-profile cases, however, make the powers, mandate, and jurisdiction of this division distinct from the previously mentioned divisions.
  • The Directorate of Prosecution can be considered the legal division of the CBI. It gives legal advice and guidance throughout the process of investigation. This division is expected to ensure that the collected evidence is admissible and that all the legal procedures and provisions are followed throughout the investigation process.
  • The Administration Division manages the general administration, logistics, and organisation of the CBI. This division consists of various sub-departments, including the legal department, human resource management department, IT department, resource management department, budgeting and finance, public relations, etc.
  • Policy and Coordination Division is responsible for formulating policies, rules, frameworks, strategies, and guidelines for the efficient functioning of the CBI. It undertakes various research and analysis initiatives and coordinates work between different divisions and departments of the CBI in order to ensure effective coordination between them as well as a more functional and efficient relationship between the divisions in terms of day to day functioning.
  • The Central Forensic Science Laboratory is a crucial department for the CBI as it provides forensic support to the agency. It analyses various physical forensic evidence, including DNA, finger prints, handwriting, cyber evidence, etc. This division uses its expertise to help corroborate evidence, recreate crime scenes for the purpose of investigation, and provide scientific findings as well as important expert evidence.
  • The Training Division conducts regular training programmes and workshops for existing CBI personnel as well as new recruits, with the aim of enhancing skills, expertise, professionalism, and personal development. This division ensures that all the officials and members of the CBI are updated on the latest developments in the realm of law enforcement.

Powers and functions

The CBI has, over time, come to exercise the following powers and functions:

  • Investigate serious crimes like fraud, murder, corruption, economic offences, and other cases that may be termed “high-profile cases”;
  • The powers and functions of the CBI and its officers are similar to those of the state or union territory police;
  • Collaborate with other investigation agencies that are present in India in order to thoroughly investigate crimes;
  • Take up and investigate cases in relation to infringement of economic laws in consultation with the concerned departments;
  • Coordinate the activities of anti-corruption bodies as well as state police whenever necessary;
  • Maintain statistics of crimes and disseminate criminal information when required;
  • Act as the “National Central Bureau” for Interpol. This means that the CBI is the designated agency or point of contact for all interpol activity involving India.

Investigation

The CBI begins its investigation upon receiving information about any crime that falls within the ambit of its jurisdiction. However, it is essential for one of the following conditions or prerequisites to be fulfilled before the CBI can begin its investigation.

  • If the CBI wants to suo-moto begin an investigation, it can do so only in Union territories. This is further restricted to the offences that are specifically notified by the Central Government under Section 3 of the Delhi Special Police Establishment Act.
  • If the CBI wants to investigate any offence in the territory of another state, the prior consent of the state must be sought. The Central Government may also direct the CBI to investigate an offence in any state only after the concerned state government has consented to the investigation. The consent in question can be a specific consent that may be given on a case-by-case basis when requested by the CBI or a general consent that is usually given to the CBI for a period of six months to one year and renewed from time to time. The general consent may be withdrawn, thereby preventing the CBI from investigating new cases without obtaining specific consent.
  • If the Supreme Court or the High Courts order the CBI to investigate an offence, there is no necessity for the concerned state government to give consent for the investigation.

National Investigation Agency (NIA)

The NIA is a specialised investigation agency in India tasked with the duty to deal with terrorism and threats to national security. In simple terms, the NIA is the premier counter-terrorism body in India. This autonomous body was established by the central government in 2009 and functions under the jurisdiction of the Ministry of Home Affairs. The NIA has a relatively wider scope and territorial jurisdiction when compared with other investigation agencies in the country.

History

The NIA was constituted on 31st December 2008, as a result of the 26/11 terror attack in Mumbai the same year. The 2008 terror attack that struck Mumbai resulted in the deaths of around 150 people and left many injured. The attacks reflected a gap in the existing intelligence, investigations, and security measures that were in place in the country at that time. The Indian government bodies and overall security management in the country were deemed to be underprepared to predict, prevent, and deal with the occurrence and consequences of terrorist attacks.

In December 2008, the National Investigation Agency Bill 2008 was introduced in parliament by the then Home Minister, P. Chidambaram. The bill received the assent of the President and was officially enacted on 31st December, 2008, as the National Investigation Agency Act, 2008. The NIA was subsequently established, pursuant to the Act, with the aim of countering terrorism in the country.

Features of the National Investigation Agency Act, 2008

  1. The Act consists of 5 chapters, or 26 sections, and 1 schedule;
  2. The Act is applicable to the whole of India. The applicability of the Act also extends to Indian citizens living outside the Indian territory as well as any person who is involved in the service of the government, irrespective of whether they are present within or outside India. Additionally, the provisions of the Act also apply to persons on ships and aircraft that are registered with India;
  3. The Act provides for the procedure for the investigation and trial of those offences that fall under the jurisdiction of the NIA;
  4. The Act specifically provides for the establishment of the NIA by the Central Government as a counter-terrorism body;
  5. The Act provides for the constitution of or designation of certain sessions courts as “special courts” by the government, either central or state, who are also expected to lay down, in detail, the powers and jurisdictions of these courts. The Chief Justice of the concerned High Court must be consulted before such a designation is made;
  6. The Schedule annexed to the Act provides a list of offences that fall under 8 existing statutes that can be investigated by the NIA. 

Organisational structure

  • The Central Government plays a supervisory role over the NIA, which functions under the Ministry of Home Affairs.
  • The NIA is headed by an IPS officer who is designated as the Director-General and discharges the same powers as the Director-General of Police.
  • The director general may be assisted by a special or additional director general. 
  • The NIA also has inspector generals who assist the director generals. These IGs may often be tasked with heading or supervising the 19 regional branches of the NIA that are functioning across the country today.

Powers and functions

The NIA is vested with the following powers and functions:

  • Investigate cases and offences in any part of the country;
  • Investigate into matters that threaten the sovereignty, integrity, and security of India, as well as any acts that hamper India’s friendly relations with other countries;
  • Investigate violations of legislation that was enacted to implement international treaties and conventions;
  • Investigate terrorist activities, hijacking of aeroplanes and ships, bomb blasts, human trafficking, cyber terrorism, etc;
  • Transfer the investigation to the state government with the prior approval of the central government for an expeditious investigation process.

Investigation

The NIA has the power to investigate if the following procedure or prerequisites are fulfilled:

FIR or referral

When an FIR related to a scheduled offence (an offence under Schedule 1 of the NIA Act) is filed with the state police, the state police shall forward such information to the state government. The state government shall then forward the same to the central government. The latter has a period of 15 days to analyse and determine whether the offence contained in the FIR is a scheduled offence. If the central government is satisfied that there is a scheduled offence, the NIA will be directed to begin investigating the said offence.

Central Government takes suo moto cognizance of offence

The central government may also take suo moto cognizance of any offence if it feels that a scheduled offence has been committed. Upon taking cognizance, the NIA will be directed to begin the investigation.

Bureau of Police Research and Development (BPR&D)

The BPR&D is an organisation under the Ministry of Home Affairs that undertakes research and policy-making activities with the aim of modernising and improving the efficiency and professionalism of police forces in India.

History

The BPR&D was established by the Indian Government in 1970 under the Ministry of Home Affairs, effectively replacing the existing Police Research and Advisory Council. This move was made with the aim of modernising India’s police forces.

Organisational structure

  • The Director General’s office heads the BPR&D. The overall leadership, management, direction, or final decision-making function lies with this division. The director general’s office plays a supervisory role and oversees the implementation of policies, rules, initiatives, and objectives of the organisation. This division is also in charge of representing BPR&D in its interactions with other government agencies and stakeholders.
  • The Research Division is tasked with carrying out research, analysis, evaluation, and surveys in relation to various aspects of crime, policing trends and patterns, law enforcement, and issues in criminal justice. Recommendations are made by the division on the basis of their research and study.
  • Development and Modernisation Division of the BPR&D works on the promotion of modern methodologies, technology, and efficient development of the police forces in India. Apart from promoting, the department also facilitates the deployment of new technology and practices throughout the concerned police forces in the country.
  • The Administrative Division deals with the administrative, financial, logistical, and general organisational aspects of the agency. It is in charge of human resources, resource management, budgeting, etc.
  • The Training Division designs and delivers training programmes, workshops, exercises, and other initiatives for the benefit of existing personnel at all levels of the police force as well as new recruits. This division also creates modules and training material as and when deemed necessary, updating it on a regular basis.

Powers and functions

  • Identify the needs and problems of police forces in India;
  • Research and carry out studies related to improvement in the Indian police forces;
  • Suggest methods to overcome challenges and improve the police force;
  • Keep up with the latest science and technology, as well as global standards;
  • Monitor and maintain quality training for the Indian police forces;
  • Assist in ensuring the modernization of police forces as well as other corrective facilities;
  • Assist the Ministry of Home Affairs with standards and quality requirements for equipment and infrastructure;
  • Coordinate the work of the National Police Mission.

Crime Investigation Department (CID)

The CID is an investigating agency at the state level. It can be considered to be an extended investigation branch of the state police. This means that each state has its own CID that works under and in collaboration with the state police. The CID is tasked with investigating complex cases that are beyond the regular powers of the police within the limits of the concerned state.

History

The origin of CID can be traced back to 1902, when the British Government first established it in India on the basis of the Frazer Commission’s recommendations. It is based on the criminal investigation departments of the British Police Forces, which were first established in Britain in 1878. The first CID was officially established in Bombay and has been functional since 1905.

Organisational structure

CID is headed by an officer with the rank of Additional Director General of Police. Other ranks within the CIDs also include superintendents, deputy superintendents, inspectors, and sub-inspectors. All officers or members of CIDs are generally designated as “detectives,” and the same is reflected in their titles, before the police rank that they hold. Other officers also include legal advisors, ministerial staff, and auditors.

Powers and functions

  • Investigation of complex criminal cases at the state and district levels that are often beyond the powers or abilities of local police forces;
  • Assisting local police in investigating and solving cases that require special skills, expertise, and resources;
  • Establish and administer specialised units to deal with specific types or categories of crimes like narcotics, human trafficking, white collar crimes, etc.;
  • Facilitate coordination and collaboration between law enforcement agencies that function in different states for the purpose of investigating crimes that are multi-jurisdictional in nature;
  • Conduct training and capacity-building programmes for local police forces in order to enhance investigation skills and update police personnel on new technologies and methods used in crime detection and prevention;
  • As an investigation agency, the role of CID is primarily focused on the detection and investigation of complex crimes. At the same time, CID also plays an important role in the prevention of crimes by engaging with relevant stakeholders in all sections of society on the basis of vulnerability. CID is also tasked with organising awareness programmes and carrying out outreach programmes for the purpose of preventing crimes.
  • Registration, detection, investigation, and subsequent prosecution of specific classes of crimes as entrusted by the state government or director general of police;
  • Carry out rescue operations in cases like human trafficking.

Difference between CBI, NIA, and CID

S.noBasisNIACBICID
1.JurisdictionNational level investigation agency specialising in counter-terrorism and similar national security threats.National level investigation agency specialising in the investigation and prosecution of serious crimes like murder and fraud.State level investigation agency that deals with complex criminal cases within states.
2.Primary functionInvestigate and incorporate methods to counter-terrorism, insurgency, and other threats to national sovereignty and security.Investigate major crimes and corruption cases that involve central government employees or any other cases referred by the Supreme Court or High Courts.Investigate, prosecute, and prevent crimes like human trafficking, murder, cyber crimes, etc., within the territorial limits of a state.
3.StructureAn autonomous agency under the Ministry of Home Affairs. It is headed by an officer of the rank of Director General.Operates under the Ministry of Personnel, personal grievances, and pensions under the Central Government. It is headed by a director and divided into various divisions that either deal with specific crimes or the internal administration and organisation of the CBI.Functions under the state police of the concerned state. Each CID unit is headed by an officer of the rank of additional director general of police and has its own hierarchy.
4Statutes and legal authoritiesEmpowered under the National Investigation Agency Act, 2008.Empowered under the Delhi Special Police Establishment Act, 1946, and other relevant Acts like the Lokpal and Lokayuktas Act, 2013.Empowered to investigate crimes as per existing criminal laws like the Code of Criminal Procedure, 1973.
5.Coordination and collaborationCollaborates with state and national level law enforcement agencies as well as international agencies and counterparts in other nations.Collaborates with state police, national and state intelligence, and law-enforcement agencies based on the requirements of individual cases.Collaborates with local police forces and other law enforcement agencies within the state. In certain cases, the CID collaborates with other CID branches in other states or police forces in other states in cases that are multi-jurisdictional in nature.

Directorate of Enforcement (ED)

The ED is an economic intelligence and investigation agency in India that is primarily tasked with ensuring the enforcement of the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) and the Foreign Exchange Management Act, 1999 (FEMA).

History

The establishment of the ED can be traced back to 1956. It was established as a unit under the Department of Economic Affairs with the purpose of ensuring the enforcement of the Foreign Exchange Regulation Act, 1947. The scope of the ED has expanded over the years to include other economic regulations like the PMLA and FEMA.

Powers and functions

  • Investigating foreign exchange violations like smuggling of foreign currency, illegal transactions, and unauthorised foreign investments;
  • Investigating major cases of fraud and money laundering, as well as tax evasion and other forms of generation of proceeds or “income” through activities that are classified as crimes;
  • Freezing and subsequently seizing any assets that were acquired by illegal means or involved in financial fraud and money laundering;
  • According to the provisions of FEMA, the ED has the power to investigate any person or place, arrest any person, search any place or for any person, and seize property.

Organisational structure

The ED functions under the control of the Department of Revenue, Ministry of Finance. The Directorate is headed by a Director who may be assisted by additional directors,joint directors, and deputy directors, along with other support staff.

Directorate General of Income Tax (Investigation)

The Directorate General of Income Tax (investigation) is an agency under the Ministry of Finance that is entrusted with the duty of investigating any violation of income tax laws, including but not limited to money laundering, fraud, and tax evasion. The Investigation Department of the Central Board of Direct Taxes (CBDT) plays a supervisory role, controlling the functioning of the Directorate General of Income Tax (investigation). The directorate has offices in all major cities and towns across India.

Additionally, the Directorate General of Income Tax (Intelligence and Criminal Investigation) in New Delhi as well as other major cities in India was established to carry out both intelligence functions as well as investigation functions into criminal matters related to income tax in specific jurisdictions and among specific classes of people.

Difference between intelligence and investigation agencies in India

S.noBasisINVESTIGATION AGENCYINTELLIGENCE AGENCY
1.Primary functionInvestigate specific offences or crimes and gather information, including evidence for prosecution or conviction of the offender.Gather and interpret information or intelligence, usually in relation to national security, with the aim of combating threats to national security.
2.Scope of operations/ JurisdictionInvestigation agencies tend to have their scope of work restricted to specific jurisdictions (state, union territories, regional or central level) as well as specific subject matters. The NIA, for example, is restricted to dealing with matters in relation to counter-terrorism.Intelligence agencies can function both domestically and internationally. These agencies can collect intelligence or information of any kind and to any extent as is necessary for securing the national security of the country. 
3.Nature of workInvestigation agencies function in a manner that is relatively more open or transparent to the general public. The nature of the work done is more overt and involves the gathering of evidence for prosecution by adopting methods like forensic analysis, inquiry, surveillance, undercover operations,etc.Intelligence agencies function in a more secretive and confidential manner. They often engage in long-term strategic analysis of various threats and security risk factors. Sensitive information is gathered and interpreted through covert operations, including analysing patterns, observing trends, and predicting or forecasting potential threats to national security.
4.Relationship with law enforcement activitiesInvestigation agencies aid or supplement law enforcement in the country. The work done by such agencies often goes hand in hand with law enforcement activities.Intelligence agencies work independently from law enforcement. However, there may be occasional sharing of intelligence by these agencies with law enforcement bodies when the need arises.
5.ExamplesNational Investigation Agency (NIA), Central Bureau of Investigation (CBI)Research and Analysis Wing (RAW), Intelligence Bureau (IB)

Conclusion 

The NIA is a specialised agency that focuses on countering terrorism and threats to national security. The CBI has a wider jurisdiction and scope of work when compared to the NIA, investigating major crimes, corruption, fraud, and other such cases that have national significance. Similarly, the CID also deals with major crimes and complex criminal activities at the state level, functioning in collaboration with the state police. The BPR&D is the think tank and development agency that primarily works towards the improvement, development, and modernisation of police forces in India. Lastly, the ED and Directorate General of Income Tax (Investigation) deal with economic matters. The former deals with economic crimes like money laundering and economic fraud, while the latter specifically deals with ensuring the enforcement of tax laws and compliance in India.

In conclusion, investigation agencies in India play a crucial role in ensuring accountability, upholding the rule of law, and protecting national and public security and interests. These investigation agencies, including the NIA, CBI, CID, BPR&D, ED, and Directorate General of Income Tax (Investigation), as mentioned above, function under different mandates and jurisdictions with a common objective of law enforcement and protection.

Frequently Asked Questions (FAQs)

Can a state government request the NIA to investigate any matter?

A state government can refer a case or request the NIA to investigate any matter through the central government. The concerned state government must request that the central government hand over the process of investigation in any specific case to the NIA, provided that there is sufficient and satisfactory reason to believe that a scheduled case or offence as provided under the NIA Act is involved.

How can an individual lodge a complaint or file any information with the CBI?

An individual can approach the CBI with a complaint in relation to any corruption involving central government employees, economic crimes, or special offences only. Any branch of the CBI, located in various regions and cities across the country, can be approached for the purpose of filing a complaint. Information can be sent to the CBI through post, SMS, e-mails, phone calls, the CBI’s website, or by approaching the concerned branch in person. It is important to note that the CBI does not entertain anonymous or pseudonymous complaints.

Do different investigation agencies collaborate with each other?

There are cases or situations that require different investigation agencies to collaborate and work in coordination with each other due to the complex and multifaceted nature of the issue, case, or situation that is being investigated. These collaborations are usually in the form of information or intelligence sharing and joint operations.

Can individuals approach investigation agencies in India?

Yes, individuals, including members of the general public, victims, witnesses, informants, legal practitioners, etc., can approach most investigation agencies to either provide information about any offence relevant to that agency’s jurisdiction or file a complaint either for themselves or on behalf of someone else. Most agencies have their own helplines, email-ids, postal addresses to which complaints or information can be sent. Individuals may also approach the branch offices or the head office of the agencies to file a complaint.

References 

Download Now

Krishna Kumar Singh vs. State of Bihar (2017)

0

This article is written by Harshita Agrawal. The article specifies the profound conclusions and landmark rulings delivered by the Honourable Supreme Court in the case of Krishna Kumar Singh vs. State of Bihar (2017). The article also discusses thoroughly the factual background, legal arguments and the complexities of the judgement along with underlying relevant and significant rationales. It also sheds light on the crucial legal principles and the decision of the court thereupon followed by different statements and contentions accustomed to the law.

This article has been published by Shashwat Kaushik.

Introduction 

The primary law making power under the Indian Constitution is vested with the legislature and not the executive but it is possible that when the legislature is not functioning and the circumstances so arise to take an immediate action and to prevent any harm to the public interest due to legislature’s inability to enact laws to address the urgent situation, the President or the Governor is vested with the power to promulgate ordinances under Article 123 and Article 213 of the Constitution of India respectively. Article 123 of the Constitution of India provides that the President shall have the power to legislate by ordinances at any time when it is not possible to have a parliamentary enactment on the subject, immediately. The Governor’s power to make ordinances as given under Article 213 is similar to the ordinance making power of the President and carries the equivalent legal authority as an enactment by the State Legislature. The President can make an ordinance only when the State Legislature or either of the two Houses is not in session. The ordinance can only be promulgated on the recommendation of union ministers but keeping in mind that the power can be disseminated as mentioned in concurrent, union and state list of the Indian Constitution. This article aims to specify the conditions and incidents which address when any ordinance is made and by the very rule the law is applicable but when it ceases to operate and the law is still valid. The case of Krishna Kumar Singh vs. State of Bihar (2017) clarifies the same.

Details of Krishna Kumar Singh vs. State of Bihar (2017)

Name of the case

Krishna Kumar Singh vs. State of Bihar

Name of the court

Supreme Court

Date of the judgement

January 2, 2017

Citation

(2017) 3 Supreme Court cases (SCC) 1

Bench

J. T.S. Thakur (concurring), J. Madan B. Lokur (dissenting), J. S.A.Bobde (majority), J. Adarsh Kumar Goel (majority), J. Uday U. Lalit (majority), J. D.Y.Chandrachud (majority), J. L. Mageswara Rao (majority)

Authored by 

Justice D. Y. Chandrachud

Name of the parties

Appellant: Krishna Kumar Singh

Respondent: State of Bihar

Statutes and laws involved in the case

In the case law of Krishna Kumar Singh vs State of Bihar (2017), several statutes and laws were involved which were contingent upon the particular legal issues addressed in the case. Some of the relevant statutes and laws commonly cited in cases concerning governmental actions, ordinances and constitutional affairs in India include:

Background of the case

On January 2, 2017 a seven-judge bench of the Hon’ble Supreme Court issued its verdict in the case of Krishna Kumar Singh vs. State of Bihar (2017). The Bihar government enacted the State of Bihar Non-Government Sanskrit Educational Institutions (Taking Over of Administration and Control) Ordinance” in 1989. The case may have originated from legal challenges questioning the validity or implementation of the ordinance, potentially involving issues concerning constitutional law, administrative law and education policy. The legal proceedings involved arguments and deliberations concerning the constitutional authority of the governor to promulgate ordinances, the procedural requirements for enacting such measures and the implications for the affected educational institutions. The enactment aimed to bring together 429 private Sanskrit educational institutions under state control and to grant Bihar jurisdiction over the hiring of professionals in the school. Subsequent to this initial ordinance, several others were enacted without being presented to the legislative body for approval and thus failing to become law. A new ordinance was immediately implemented once the previous one ceased to operate. Ultimately, the case would have been adjudicated upon by the judiciary, probably entailing proceedings at various court levels, with significant implications for the governance and oversight of private educational institutions in Bihar.

Facts of Krishna Kumar Singh vs. State of Bihar (2017) 

The case revolves around the constitutional validity of the re-promulgation of an ordinance. In 1989, the Bihar government passed an ordinance named the Bihar Non-Government Sanskrit School (Taking over of Management and Control) Ordinance (1989). According to this ordinance, the 429 Sanskrit schools which were privately controlled would be now taken over by the Bihar government making the employees and teachers of those schools be transferred to become the government employees and teachers. The first ordinance was followed by a succession of other ordinances and no law could ever be passed related to these ordinances since none of them were presented before the State Legislature.

As a result, they filed a petition before the High Court of Patna for payment of their salaries and other dues on the basis that they were now government employees with effect from coming into force of ordinance no. 32 of 1989 and they continue to be so thereafter since the validity of the ordinance is up to 30th of April 1992.

Judgement of Patna High Court 

In this case, the main issue addressed by the Patna High Court was the legal and constitutional validity of the re-promulgation of the ordinances. The petition was dismissed by the High Court establishing the fact that re-promulgation without sufficient justification is not permissible under the law. The reference of the case D.C. Wadhwa vs. State of Bihar (1986) was taken in court and the Patna High Court ruled that the fundamental principles of constitutionalism were not taken seriously. The High Court also held that 305 schools were genuinely entitled to receive salaries till the date of 30 April 1992, the last day of the validity of the ordinance. Additionally, all the management of the private schools would be governed by the same regulatory framework in place prior to the enactment of the promulgation of the first ordinance. However, the drawback of the decision in D. C. Wadhwa is that having spelt out constitutional doctrine, the constitutional bench ended only with a ‘hope and trust’ that law making through re-promulgation of ordinances would not become the norm. This trust has been proven false by the continued issuance of re-promulgated ordinances in subsequent cases. The ultimate direction was to invalidate one ordinance regarding intermediate education which remained in effect. Notably, D. C. Wadhwa did not tackle the legal status of actions taken under ordinances that have expired or have been rejected.

Appeal to the Supreme Court: Two-judges bench 

Against the above order, an appeal was filed in the Supreme Court of India. The two-judges bench comprising Justice Sujata V. Manohar and Justice D. P. Wadhwa also held that the re-promulgation of ordinances by the Governor of Bihar clearly violates the constitutionality of Parliament. However, they differed in their opinion regarding the validity of the first ordinance. The initial ordinance herein this case is the Bihar Non-Government Sanskrit Schools (Taking Over of Management and Control) Ordinance, 1989, also known as Ordinance 32 of 1989 which was enacted with the aim of taking control over 429 out of 651 private Sanskrit schools. This disagreement led to the case being referred to a higher authority resulting in reference to an appeal to a three-judge bench. Referring to the framework in the Constitution, the Constitution Bench observed that what the actual process of ordinance is and the power to promulgate an ordinance that is essentially a power to meet in extraordinary situations and cannot be allowed to be “perverted to serve political ends.” In the verdict given by the divisional bench, it was also mentioned that the Constitution has entrusted the legislative function upon the legislature comprising representatives of the people and if the executive is allowed to perpetuate the provisions of the ordinances through re-promulgations without subjecting it to legislative scrutiny, it would result in infringement of the law by the executives. The executive cannot invoke emergency powers that are applicable only when the parliament is not functioning. Such actions would bluntly undermine the democratic process enshrined in our constitutional framework.

Reference to three-judges bench 

However, because of the difference in the opinion of the validity of the first ordinance of the two-judges bench, the matter was referred to a three-judge bench to balance the opinion and after reviewing the mentioned facts and legal validity of the case, it was referred again to the larger bench.

Reference to five-judges bench 

In the year 1999, the three-judge bench referred it to the bench of five-judges as it raised substantial questions regarding the constitution and the validity of the re-promulgation of the ordinance as it was re-promulgated many times without placing it before the legislature for the judicial review. 

Reference to seven judges bench 

On 23rd November 2004, the matter was referred to a seven-judge bench. The judgement which was given on January 2, 2017, by the seven-judge constitution bench of the Hon’ble Supreme Court deemed the promulgation of ordinances as a violation of the constitution and a means to undermine democratic legislative processes. The court also declared that wherever the President under Article 123 and the Governor under Article 213 decide to issue ordinances, they will not be immune from judicial scrutiny.

Issues raised before the seven judges bench

  • Whether the rights, duties and obligations of the said ordinance exist even after it ceases to operate or not?
  • Whether an ordinance can be re-promulgated as per the constitution or not?
  • Whether it is mandatory on the part of the executives to present ordinances before the Parliament for judicial scrutiny or not? 
  • Whether the procedure of re-promulgation was legally valid and followed by the Bihar Governor or not?
  • Whether the ordinance making power was misused by the executives in any manner or not?
  • Whether the petitioners were entitled to any legal right after the termination of the ordinance or not?
  • Whether there is any punishment under the ordinance after it was repealed or not?

Arguments of the parties

The main issue of disagreement between the parties in the mentioned case was the constitutional validity of the promulgation and re-promulgation of ordinances issued by the President or Governor under their respective Articles.

Petitioners 

The petitioners in the given case were seeking relief on the basis of the ordinances. They brought to the attention of the Hon’ble Court their right to claim salaries and other benefits from the government, citing their classification as ‘government employees’ conferred on them by the said ordinance. 

They also concluded that they were entitled to receive salaries and benefits from the government, starting from the day of the promulgation of the first ordinance and should continue to gain even after the time when the last ordinance ceased to operate.

Respondent 

The respondent raised the claim about the validity and consequences of actions taken under an ordinance prior to the date when it is said to be ‘cease to operate’ after being disapproved by the legislative assembly. 

The arguments led that since the ordinances were invalid, they were not obliged to pay any salaries or benefits to the teachers and other staff of the said schools.

Laws discussed 

Article 123 of the Constitution

It states the power of the President to promulgate ordinances during the recess of Parliament. The President has the power to issue ordinances when Parliament is not functioning to address urgent matters. The ambit of this ordinance-making power of the President is co-extensive with the legislative powers of Parliament, that is to say, it may relate to any subject in respect of which Parliament has the right to legislate and is subject to the same constitutional limitations as legislation by Parliament.

There are certain peculiarities which have to be followed while making of an ordinance:

  • This power is available to the President only when both the Houses of Parliament are not functioning and are in need of a law enacted by the Parliament. 
  • The power is exercised by the President only with the approval of his union cabinet.
  • The ordinance must be laid before Parliament when it re-assembles and shall automatically cease to have effect at the expiration of 6 weeks from the date of re-assembly or before resolutions have been passed disapproving the ordinance. The period of six weeks will be counted from the latter date if the Houses reassemble on different dates.
  • An ordinance may be withdrawn at any time by the President.

In R. K. Garg vs. Union of India (1982) referring to the similar power of the President to promulgate ordinances under Article 123, a constitutional bench of this court said that “upon initial examination, it may seem rather unusual that the authority to enact laws was entrusted by the framers of the constitution to the executive. Traditionally, within a democratic political framework, legislative power is deemed to exclusively belong to the elected representatives of the people and vesting it in the executive through responsibility to the legislature would be undemocratic as it might enable the executive to misuse this authority by securing the passage of an ordinary bill without subjecting it to legislative debate. 

Article 133 of the Constitution

As per Article 133 of the Indian Constitution states about appellate jurisdiction of the Supreme Court in appeals from the High Court in regard to civil matters. As per this Article an appeal to the Supreme Court is permissible from any judgement, decree or final order issued in a civil proceeding by a High Court within the territory of India, provided that the High Court certifies under Article 134A:

  • that the case pertains to a significant question of law of general importance
  • that in the High Court’s view, the said question warrants adjudication by the Supreme Court

Regardless of the provisions in Article 132, any party appealing to the Supreme Court under clause (1) may assert, among other grounds, that a significant question of law regarding the interpretation of the constitution has been incorrectly adjudicated.

Furthermore, notwithstanding the content of this article, no appeal shall be entertained by the Supreme Court from the judgement, decree, or final order rendered by a single judge of a High Court, unless Parliament stipulates otherwise by law.

An illustration of this Article can be found in the landmark judgement of Ramesh vs Gendalal Motilal Patni (1966) where an appeal by special leave against an order of the Bombay High Court. Under the judgement, a claim officer overruled the allegations stating that although the debt had merged in a decree, it would be considered as a secured debt and the amount was also recoverable. Further, the officer asked for the statement of claim but instead, the respondent preferred an appeal against the main order before the board. The board held that it is not in the hands of the claim officer to determine the nature of the debt and only the civil court can decide this issue.

Article 213 of the Constitution

It states about the power of the governor to promulgate ordinances during the recess of the legislature. If at any time except when the legislative assembly of a State is in session, or where there is a legislative council in a State, except when both Houses of the Legislature are in session, the Governor is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such ordinances as the circumstances appear to him to require.

Provided that the Governor shall not, without instruction from the President, promulgate any such ordinance if-

  • If a bill containing the same provisions as under the constitution has required the previous section of the President
  • He would have deemed it necessary to reserve a bill containing the same provisions for the consideration of the President
  • An Act of the State Legislature containing the same provisions would under this constitution have been invalid under having been reserved for the consideration of the President, it had received the assent of the President.

The ordinance must be laid before the State Legislature when it re-assembles and shall automatically cease to have effect at the expiration of six weeks from the date of the re-assembly unless disapproved earlier by that legislature.

A demonstration of the above Article in action can be found in the landmark judgement of A. K. Roy vs Union of India (1982) where it was firmly established under Article 213 that an ordinance is a law and should only be treated like one. The legislative action under our constitution is subject to certain limitations and any law made by the legislature and is incompetent to pass will be subjected to be violated in Part Three of the constitution. The motive of the legislature in passing a statute is beyond the scrutiny of the courts and the court has no right to examine its provision before giving the approval. The need and emergency of a legislative act is only determined by the legislative authority and not by the court. An ordinance passed under Article 123 and Article 213 stands on these bases only. An ordinance cannot be treated as an administrative decision and it also has certain limitations under the Indian Constitution.

Article 356 of the Constitution

Article 356 of the Constitution of India stipulates that in the event of a breakdown of constitutional machinery in states, if the President upon receiving a report from the Governor of a State or otherwise concludes that the State Government cannot function in accordance with the provisions of this Constitution, the President may issue a proclamation-

  • Assume some or all functions of the State Government, as well as the power vested in or exercisable by the Governor or any state body or authority excluding the State Legislature;
  • Declare that the powers of the State Legislature will be exercised by or under the authority of the Parliament;
  • Enact any additional provisions deemed necessary or desirable by the President to achieve the objectives of the proclamation, including the suspension either fully or partially of any constitutional provisions related to state bodies or authorities.

Provided that nothing in this clause shall authorise the President to assume himself any of the powers vested in or exercisable by the High Court, nor does it permit the suspension, either fully or partially of any provision of this constitution pertaining to High Courts. Any such proclamation may be repealed or altered by a subsequent proclamation and each proclamation issued under this Article shall be laid down before every House of Parliament. Unless it is a proclamation revoking a previous one, it will cease to be effective after two months unless approved by resolutions passed in both Houses of Parliament before the said period expires.

Provided that if any such proclamation (not being a proclamation revoking a previous proclamation) is issued while the House of the People is dissolved or if its dissolution occurs during the aforementioned two-month period, and if the Council of States passes a resolution approving the proclamation but no resolution regarding it is passed by House of the People before the expiration of the said period, then the proclamation will cease to be effective thirty days after the House of the People first sits after its reconstitution unless before the expiration of the said period of thirty days a resolution approving the proclamation has been also passed by the House of the People.

Provided that a proclamation that has been approved shall cease to be effective on the expiry of six months from the date of its issuance unless revoked before then.

Provided that if and so often as a resolution approving the continuance in force of such a proclamation is passed by both Houses of Parliament, the proclamation will continue in effect for an additional six month period from the date it would otherwise have expired under this clause unless revoked. Nonetheless, no such proclamation shall remain valid for more than three years in any circumstance.

Provided further that if the House of the People is dissolved during any six-month period and if the council of State passes a resolution supporting the continuation of such a proclamation, but no resolution regarding its continuance is passed by the House of People during that period, then the proclamation will cease to be effective thirty days after the House of the people first convenes after its reconstitution unless a resolution supporting the continuation of the proclamation is also passed by the House of the people within the said thirty-day period.

Doctrine of colourable legislation

This legal principle of the “doctrine of colourable legislation” aims to prevent the unconstitutional use of legislative authority of the government. If the legislature is prohibited from doing something, it should not be done in any manner or pretence of doing the act within the legal validity. The principle stems from the maxim ‘what cannot be done directly, cannot be done indirectly’. However, a legislature may pass a law in such a way that it gives a colour of constitutionality while, in reality, that law aims at achieving something which the legislature could not do so. Such legislation is called a colourable piece of legislation and is invalid. 

To take an example in Kameshwar Singh vs, State of Bihar (1952), the Bihar Land Reforms Act, 1950 provided that the unpaid rents by the tenants shall vest in the state and one half of them shall be paid back by the state to the landlord or zamindar as compensation for acquisition of unpaid rents. According to a provision in the state list under which the above law was passed, no property should be acquired without payment of compensation. The question was whether the taking of the whole unpaid rent and then returning half of it back to who were entitled to claim is a law which provides for compensation. The Supreme Court found that this was a colourable exercise of power of acquisition by the State Legislature, because ”the taking of the whole and returning a half means nothing more or less than talking of without any return and this is naked confiscation, no matter in whatever specious form it may be clothed or disguised”. The executives are obligated to uphold their position in a dignified manner and the decisions should be based on the public’s aspirations. The judiciary has the authority to prevent governmental abuse of power. When the government oversteps its legislative power by enacting laws beyond its jurisdiction, the judiciary holds the power to scrutinise these laws and nullify them if deemed unconstitutional.

Final judgement of the case in 2017

The Supreme Court has covered all the key aspects and provided a landmark judgement relating to the constitutional validity of the re-promulgation of ordinances. The seven-judge bench of the court in the ratio of 5:2 held that re-issuing ordinances without limit is unconstitutional. In the above case, the bench declared that the powers granted to the President and Governor under Article 123 and Article 213 respectively are not exempted from judicial review. The judgement was authored by Justice D. Y. Chandrachud on behalf of himself along with J. Bobde, J. Lalit, J. Goel and J. Nageswar Rao stated that while the constitution grants the executive the authority to issue ordinances, it is a conditional legislative power that can only be exercised when the Legislature is not in session. The court also highlighted the significance of the decision in D. C. Wadhwa vs State of Bihar, (1986) where the re-promulgation of ordinances was deemed to be a violation of the constitution.

Concurring opinion

Then Chief Justice T. S. Thakur rendered a concurring opinion and raised a relevant question regarding the obligations imposed by Article 123 and Article 213 of the constitution to present ordinances before the legislature. This observation underscores the complexity of the nature of the constitutional provisions signalling the need for further judicial scrutiny.

Dissenting opinion

The dissenting opinion was given by Justice Madan Lokur stated the following-

  • Article 213 does not mandate the presentation of an ordinance before the legislature
  • Since an ordinance carries the weightage of a legislation, its validity should not hinge on whether it was tabled before the legislature or not.
  • The ordinance, regardless of whether it is presented before the legislative assembly, is solely determined as per the provisions of Article 213(2)(a) of the constitution and by the legislative assembly itself.
  • The executive’s authority over the fate of an ordinance post-promulgation is restricted to its withdrawal by the governor of any state under Article 213(2)(b) of the constitution and the majority of control rests with the State Legislature, which serves as the primary legislative body of the state. 

Rationale behind this judgement

Article 123 and Article 213 grant the President and Governor respectively the authority to promulgate ordinances. The ordinances empower the government to enact immediate legislative measures when the parliament is not functioning. The powers of these executives are not exempted from judicial review and also the re-promulgation of ordinances without placing them before legislative scrutiny undermines the democratic legislative process. Even though the ordinance is considered equivalent to law, it does not grant upon the President/Governor an independent legislative authority. Moreover, Article 213 imposes a mandatory constitutional duty on the executive to present the ordinance before the legislature. It is mandatory because the legislature has to determine:

  • The need, validity and expediency to promulgate an ordinance.
  • Whether the ordinance should be approved or rejected?
  • Whether an Act incorporating the provisions of the ordinance should be enacted?

The decision in D. C. Wadhwa vs State of Bihar, (1986) given by the court that re-promulgation of an ordinance is unconstitutional as it undermines the intent of Article 123 and Article 213, outlining a restrictive power to issue ordinances. 

Another significant point is that the impact of the ordinance should be irreversible and it should be in the interest of the public to justify the continuation of the said ordinance. The court has the authority to determine the validity of the exercise of the power. Additionally, the power of the ordinances is subject to legislative oversight, in line with the principle of legislative supremacy, and the executive is collectively accountable to the legislature. A crucial point made was that an ordinance issued under Article 123 and Article 213 holds the same power and impact as a law passed by the legislature only if it was presented before the legislature and it ceases to operate six weeks after the legislature has resembled or earlier if a resolution disapproving it is passed. Moreover, they stated that an ordinance can also be revoked. The power to issue an ordinance does not grant the President or the Governor the authority to act as a separate legislative body or an independent source of law making.

Landmark cases referred in Krishna Kumar Singh vs. State of Bihar (2017) 

There are certain landmark judgements which proved to be a reference to take an appropriate judgement regarding the present case law. The below mentioned case laws highlighted the abuse of power exercised by the authority and the decision of the court mentioned thereafter. The ordinance is a law that must be treated as such. However, those with the power to promulgate and re-promulgate ordinances need to present them before the Parliament within a stipulated time limit to avoid judicial review. This ensures that the authority to re-promulgate ordinances is used in a bonafide manner and not abused by the executives in any manner.

D.C. Wadhwa vs. State of Bihar (1986)

D. C. Wadhwa was a professor and had a PIL challenging the power of the governor to re-promulgate the various ordinances. After extensive research, he found out the misuse of the ordinance-making power of the governor of Bihar as 256 ordinances were re-promulgated by the government ranging between one and fourteen years without the consideration of the legislation or even a single change in the ordinance. The argument leads that the respondent is an outsider having no legal interest in the validity of the ordinances and thus has no right to say or not a stand in the writ petition. It was also mentioned in their argument that the ordinances were already being represented for their constitutional validity and the remaining ones are on their way to becoming an Act of the Parliament.

The judgement of the case law leads that since re-promulgation of ordinances by the governor will be considered as a colourable exercise of power making it unconstitutional. The Hon’ble Court also mentions the fact that laws are made in accordance with the Constitution and not by the power of the executive.

State of Orissa vs. Bhupendra Kumar Bose (1962)

In the landmark ruling of State of Orissa vs. Bhupendra Kumar Bose (1962), the principle of asserting a right was established which draws upon the analogy of a provisional enactment. The High Court hereunder this case dismissed the petition as the claims and objections were delayed which resulted in not the publishing of the age of all the qualified voters. 

The High Court claimed that this drastic confusion of the period in filing the claims and objections had directly affected the results of the election, and by depriving the rights of the several eligible voters whose contributions led to any possibility of changes of the result. It was clearly an abuse of power by the authority of Orissa Municipal Corporation as they notified the period for 14 days only whereas the candidate had 15 days for their soliciting of campaign. 

In view of the High Court, the petitioner had been unable to prove the fact that the contravention of rules by them could not affect the results in any manner. Thus, a proper order of injunction has been passed against by the petitioner by the High Court. However, the judgement met hereunder proved to be a limited liability and not widely regarded as influential.

T. Venkata Reddy vs. State of Andhra Pradesh (1985)

In the case of T. Venkata Reddy vs. State of Andhra Pradesh (1985), the Supreme Court clearly stated that an ordinance is equivalent to law and cannot be treated as an administrative action or a decision taken by the executives. 

This case also asserts the right to draw upon the analogy of a provisional enactment much like the case of State of Orissa vs. Bhupendra Kumar Bose (1962). The apex court also held that when the constitution stipulates the power to issue ordinances, it will be considered equivalent to an Act and should possess all the characteristics of a legislative Act which includes its rights, protection and constraints as mentioned in the constitution. 

S. Krishnan vs. State of Madras (1951)

In the reference to the landmark judgement of S. Krishnan vs. State of Madras (1951), the Madras High Court stated that the arguments were not inclined to be put forward by the respondents and the claim could not be supported since the position of the instructors had been eliminated and the role of lecturer has been designated as an entry-level position. Hence, the court is of the opinion that granting the respondent’s claim would not serve any legitimate purpose and could result in confusion regarding the dispensation of benefits. 

Considering the judgement made by the Hon’ble Supreme Court for the aforementioned case law, the court hereby grants the writ appeals and rejects the writ petitions. Given the circumstances, there will be no requirement for either party to bear the cost. In light of the judgement passed by the division bench, the issue raised in the writ petition has already been settled. 

S.R. Bommai and ors vs. Union of India (1994)

The case of S. R. Bommai vs. Union of India (1994) proves a milestone in India’s constitutional jurisprudence. This landmark judgement holds significance due to its examination of the constitutional framework governing center-state relations. India follows both federal and unitary governance. By establishing clear guidelines for the imposition of the President’s rule under Article 356 of the constitution, the judgement effectively halted the dismissal of the State Government by the President. 

The ruling of the Supreme Court also stated that the President’s power to issue proclamation is not absolute and subject to judicial review and also concluded that floor tests affirmed secularism is an integral component of the constitution’s basic structure.

Analysis of Krishna Kumar Singh vs. State of Bihar (2017) 

The judgement in the above said case law broadened the ambit of judicial review concerning ordinances and also increased the transparency in their implications. It empowers the court to scrutinise the actions of both the President and the Governor, ensuring that the issuance of an ordinance is deemed necessary through a thorough assessment of its validity.

Often we witness the government by-passing a constitutional framework of deliberation through ordinances and their repeated re-promulgation. The verdict in the case of Krishna Kumar Singh vs State of Bihar (2017) broadened the scope of judicial review for ordinances, hence, enhancing its transparency and effectiveness. The judgement empowers the court authority to review the President’s and Governor’s power to promulgate ordinances.

Article 123 of the Constitution outlines the rules for using an ordinance as an extraordinary measure. It is evident that the government has been using this more like regular lawmaking, which makes the executives more powerful than Parliament in a democratic system. The court’s verdict is important because it checks the executive’s misuse of power. It aims to assess whether certain rights, privileges or obligations should continue after the ordinance expires or not. However, the problem arises where an ordinance is inherently irreversible despite being contrary to the public interest. Even though it is a gap in the judgement, it would not weaken the judgement as a whole.

Since the reasoning of the Supreme Court was largely based on the judgement of D. C. Wadhwa vs State of Bihar (1986) which held that re-promulgation of ordinances without placing it for legislative scrutiny clearly violates the fundamental essence of constitutionalism and it was also held very clearly by the Apex Court that Parliamentary supremacy will prevail over the executive.

Conclusion 

The case of Krishna Kumar Singh vs State of Bihar (2017) strikes a significant balance towards the order passed by Justice Chandrachud in which it was stated clearly that the executive must not abuse the authority given to them and also highlighted that the need for the ordinance is clearly a necessity to promulgate if the Parliament is not functioning. 

The judgement was delivered with a majority of opinions and though there is still a gap in how we evaluate the rights and duties after the ordinance lapses, it does not weaken the stance of the judgement. The then Chief Justice in his concurring opinion stated that the interpretation of this matter remains open. 

Frequently Asked Questions (FAQs)

What is meant by promulgation and re-promulgation of ordinances?

Ordinance is a law which is promulgated by the President of India when both the Houses of Parliament are not in session. It has the same effect as any law and must be recommended by the union cabinet helping in taking immediate action.

The re-promulgation of an ordinance means to extend the life of an ordinance. Usually, an ordinance ceases to operate after six weeks from the date of re-assembly of the Houses but the re-promulgation is valid only after the legislative consideration and if it fails to do so, the said ordinance would be considered as unconstitutional and invalid in the eyes of the law.

What is the meaning of concurring and dissenting opinions of a judge?

A concurring opinion is expressed by a judge who agrees with the majority of the judgement but for different reasons or additional comments. It also provides alternative or additional legal reasoning that supports the majority’s decisions. It also offers supplementary legal viewpoints but does not alter the judgement.

A dissenting opinion is expressed by a judge who not only disagrees with the majority judgement in a case but also offers an alternative perspective on the case along with disagreements with the legal reasoning or conclusions of the majority. While a dissenting opinion does not have a binding effect on the outcome of the case it may influence future judgement and also may criticise or reject existing precedents relied upon by the majority.

References

Download Now

Laxmi Dyechem v. State of Gujarat (2012)    

0

The article is written by Clara D’costa. This article discusses the case of M/s Laxmi Dyechem v. State of Gujarat (2012) in detail including the issues raised, arguments of the parties, judgement and the rationale behind the judgement. It analyses the debate regarding whether the dishonour of the cheque was due to the respondent company’s signatories having done the signatures that were inconsistent or that no image was found or that there was an inconsistency regarding the signatures on the cheque and the bank records did not match would constitute an offence and attract penal liability as per Section 138 of the Negotiable Instruments Act, 1881.

Introduction

Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “N.I. Act, 1881”) holds a significant importance in the realm of commercial transactions and financial dealings. It specifically deals with the dishonour of a cheque due to insufficient funds in the account of the drawer. Under this Section, the recipient of the bounced cheque has the legal right to initiate legal proceedings against the drawer. The primary objective of Section 138 is to ensure credibility and trustworthiness in financial transactions, thereby safeguarding the interests of the parties involved.

The Laxmi Dyechem vs State of Gujarat(2012) talks about the legal provisions of the N.I. Act, 1881, mainly Section 138, which deals with the dishonour of cheques. Laxmi Dyechem (the appellants) raised arguments challenging the decision of the lower court in Gujarat. A total of hundred and seventeen cheques given by the respondents were dishonoured and sent back by the bank as they did not match the signatures on the record of the respondent. This compelled the appellants to take legal action against the Company and its authorised signatories before the District and High Court but the orders were given in the favour of the respondent. 

Therefore, Laxmi Dyechem appealed before the Supreme Court wherein the Court emphasised on the main essential of Section 138 of the N.I. Act, 1881 and allowed it. This case presents a significant legal challenge that has drawn attention from legal experts and professionals alike. 

Details of the case

  • Case name: M/s Laxmi Dyechem v State of Gujarat (2012)
  • Bench: Justice T.S. Thakur and Justice Gyan Sudha Mishra
  • Type of case: Criminal appeal 
  • Appeal no.: 1910- 1949 of 2012 filed in the Supreme Court of India (arising out of S.L.P. (Crl.) No. 1780-1819 of 2011)
  • Date of the judgement: 27th November 2012
  • Laws discussed: Section 138 and Section 139 of the N.I. Act, 1881, Section 482 of the Code of Criminal Procedure, 1973

Facts of Laxmi Dyechem v. State of Gujarat (2012) 

  • M/s Laxmi Dyechem located in Gujarat was involved in the production and manufacturing of chemicals where they were supplying Naphthalene Chemicals to the respondent- for a few years. The respondents had an ongoing transaction account with the appellants wherein the value recorded of the goods supplied amounted to ₹ 4,91,91,035/- (Rupees four crore ninety one lakh ninety one thousand and thirty five). 
  • The respondent-company issued several post-dated cheques under the signatures of its authorised signatories towards the sum payable to the appellants. However, to the dismay of the appellants one hundred and seventeen cheques returned dishonoured. The Bank notified the appellants that the signatures of the respondent-company’s signatories weren’t complete or the signatures on the cheque did not match with their bank records and no image was found.
  • Upon receiving the notification from the bank, the appellant informed the respondents through a notice sent under clause (b) of Section 138 of the N.I. Act, 1881 to pay their dues. The respondents further sent the appellants a letter dated 30th December, 2008 informing the appellants to return the old cheques in exchange for new ones. However, the cheques were never issued to the appellants as respondents argued that fresh cheques were subject to account settlement due to the new bank mandate. 
  • The respondents therefore did not end up paying the due amount despite notices being issued by the appellants giving rise to forty different complaints that were then filed against the respondents under Section 138 of the N.I. Act, 1881.
  • Further, the court acknowledged the offence and issued summons to the respondents for presenting themselves before the court. At this stage, Shri Mustafa Surka, one of the accused, filed special criminal applications No. 2118 to 2143 of 2009 backed by the prayers to end the trial against the authorised signatories appointed by the respondent-company. Further, the respondents argued that dishonour on the grounds that the signatures were ‘incomplete’ or ‘no image found’ would not attract penal liability under Section 138 of the N.I. Act. This argument was accepted by the High Court of Gujarat and it ruled in the favour of the appellants through order dated 19th April, 2010. 
  • Thereafter, special criminal applications No. 896 to 935 of 2010 were then filed by the remaining signatories thereby challenging the lawsuit that was initiated against them. They challenged the proceedings under the same grounds that were taken by Shri Mustafa Surka.
  • The High Court of Gujarat further allowed the said petition by a common order dated 27th August 2010 on the grounds that the endorsement that the cheque has bounced due to ‘incomplete or different signature of the drawer’ or ‘no image of the signature found’ do not fall under the conditions mentioned in Section 138 of the N.I. Act, 1881.
  • A case was then initiated before the High Court of Gujarat to exercise powers given under Section 482 of the Code of Criminal Procedure, 1973 and the order was passed in favour of the accused signatories from the respondent-Company and the Gujarat High Court held that the lawsuit initiated against the respondents did not stand.
  • The High Court of Gujarat had taken into consideration the provisions mentioned as per Section 138 of the N.I. Act, 1881 and stated that since the dishonour was due to the signatures being inconsistent, it did not come under the ambit of Section 138.
  • This led the appellants to appeal before the Supreme Court of India wherein the Supreme Court accepted the appeal and revoked the order of the High Court of Gujarat and dismissed the Special Criminal Application filed by the respondents–authorised signatories.The trial court was then ordered by the Supreme Court to proceed with the lawsuit that the appellants filed against the respondents.

Issue raised

Whether the dishonour of a cheque due to the signatures of the drawer being incomplete or that no picture was found or that the cheque and the bank records of the authorised signatories were inconsistent would constitute an offence and attract penal liability under the provisions of Section 138 of the N.I. Act, 1881?

Arguments raised by the parties

Appellant’s arguments:

  • The Appellant’s counsel argued that the respondent company issued cheques to settle their accounts with the appellants but the cheques were returned as dishonoured from the bank as the signatures of the signatories were incomplete, did not match and no image was found.
  • The appellants immediately issued a statutory notice to the respondents under Section 138 of the N.I. Act, 1881. The respondents asked the appellants to give the old cheques back and assured newly issued cheques in exchange. However, they failed to do so despite a notice being given to them and hence a lawsuit under Section 138 of the N.I. Act 1881 was filed against them.
  • They also argued that the respondents, despite ensuring payments towards their accounts in the books of Laxmi Dyechem, did not further pay towards them.

Respondent’s arguments:

  • The respondents claimed that the cheques were being rejected by the bank due to a ‘change in the mandate’ and no other reason under Section 138.
  • The counsel for the respondent further argued for quashing the proceedings against the respondents stating that the signatures ’were incomplete’ or ‘signatures were different’ or ‘no image found’ cannot be considered as offences under Section 138 of the N.I. Act, 1881.
  • Further, they also contended that they had offered to issue new cheques and even pay a substantial amount towards the settlement of their accounts.
  • On behalf of the signatories, the respondent’s counsel argued that the dishonour had taken place due to a change in the mandate and after the accused had resigned from their respective positions.
  • Furthermore, they also argued that failure of the company to pay towards the settlements of their dues cannot be considered as dishonesty of the person drawing the cheques.

Laws discussed 

Section 138 of the Negotiable Instruments Act, 1881

The main objective while presenting this Section was to inculcate faith in the efficiency of banks and to make the negotiable instruments more reliable by making dishonour of these instruments an offence. 

The Section talks about a cheque which is drawn on an account held by a person with the bank for payment of funds to another person from that account, for the discharge of all or part of any debts or other liabilities and is returned to the bank without payment. In case the dishonour of the cheque is due to the balance on the credit account being insufficient for the cheque to be paid or if the amount is more than the amount agreed to be paid from the account by the bank, the cheque shall be deemed to have been dishonoured. Without prejudice to the provisions of this Section, a person shall be liable to a term of imprisonment of up to two years or to a fine of up to twice the cheque’s value, or both.

While Section 138 penalises dishonour of a cheque, it also provides security to the drawers for reasons wherein the dishonour has taken place without a malicious intention of the drawer. It visualises the administration of a notice to be sent to the signatory of the dishonoured instrument and grants prosecution only after the statutory period has expired and when the drawer fails to make the payment that is due within the time period.

Section 139 of the Negotiable Instruments Act, 1881

This Section states that unless the contrary is proved, it shall be presumed that the holder received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.

It was further discussed in this case that under Section 139, the presumption made is rebuttable during the trial but it cannot be denied that it is in the favour of the complainant as it shifts the burden to the person drawing the particular instrument when it is dishonoured.

Section 482 of the Code of Criminal Procedure

This Section states that nothing in the code shall be considered to limit or affect any inherent powers of the High Court to make such orders as may be necessary to give effect to

  • an order under this code,
  • prevent abuse of the process of any court, or
  • secure the ends of justice.

Judgement in Laxmi Dyechem v. State of Gujarat (2012)

Whether the dishonour of a cheque under this case would constitute an offence and attract penal liability according to Section 138 of the Negotiable Instruments Act, 1881.

  • The Supreme Court allowed the appeal and disposed of the orders of the High Court of Gujarat while dismissing the Special Criminal Applications that were filed by the respondents.
  • The Supreme Court decided that while relying on the cases mentioned below, evidence and provisions that the appeal shall be allowed and the criminal applications filed by the respondents shall be set aside.
  • The trial court was further ordered to continue with the lawsuit filed by the appellants.
  • The court held that since dishonour of a cheque on the grounds that accounts have been closed attracts penal liability under Section 138 of the N.I. Act, 1881, dishonour on the grounds that ‘signatures are inconsistent’ or that the ‘picture is not found’ will constitute dishonour under Section 138 of the N.I. Act, 1881.

Rationale behind and precedents relied on 

The Supreme Court while deciding the judgement relied on the NEPC Micon Ltd. v. Magma Leasing Ltd. (1999), wherein the appellants issued cheques to discharge the liability which was returned with the comments as “account close”. The issue raised here was if dishonour due to this reason was culpable under Section 138 of the N.I. Act, 1881. While the appellants argued that it did not fall under the contingencies of Section 138, the court noticed a clear gap in the opinions of various High Courts throughout the country and held that dishonour due to “account close” also attracted the penal liability under Section 138 of the N.I. Act, 1881.

The contention that Section 138 of the N.I. Act 1881 should be interpreted strictly or should not be in disregard of the object that is sought to be achieved by the statute that was rejected by the Supreme Court.

The court further relied on the decision given in the Kanwar Singh v. Delhi Administration (1965) and Swantraj v. State of Maharashtra (1975) and held that the drawer’s suggestion of a narrow interpretation would result in the loss of the intent of the provision.

The Supreme Court then relied on the judgement given in the State v. M.K. Kandaswami (1975), where the court asserted that the intent of a penal provision which is remedial in nature should not be sidelined. If there are multiple constructions, then the court should sideline the interpretation that would defeat the statute’s purpose and go forth with the one that will protect the efficacy and workability of the statute.

The Supreme Court also relied on the observation of Lord Denning in the Seaford Court Estate Ltd. vs. Asher (1949) where he stated that the English language does not have mathematical precision and therefore the Judges should consider the social conditions and effect of their interpretation. They should also make sure that the basic legislative intent is not defeated.

The court further referred to the verdict in the M.M.T.C. Ltd. and Anr. v. Medchl Chemicals and Pharma (P) Ltd. and Anr. (2002) where there was a dishonour due to “stop payment” directions of the drawers. Therefore, there would be a presumption under Section 139 of the N.I. Act, 1881 for the cheque being under consideration. 

This is also observed in the verdict given in the Goaplast (P) Ltd. v. Chico Ursula D’souza and Anr. (2003) and Modi Cements Ltd. v. Kuchil Kumar Nandi (1998). Here, the court noted that even if the cheque was dishonoured on the grounds of “stop payment”, it would still attract a penalty and presumption under Section 138 and Section 139 of the N.I. Act, 1881 respectively. The authority shows that despite being dishonoured for “stop payment”, the court should presume the cheque being drawn was in whole or in part, for any debt or liability. This can further lead to a rebuttal by the accused on the grounds that the “stop payment” wasn’t initiated because of insufficiency in funds although the onus probandi lies upon the accused. The court can therefore not quash a complaint in this regard.

Further, relying upon the above mentioned judgements, the court agreed that there was no further reason to strictly interpret the two contingencies mentioned under Section 138 of the N.I. Act, 1881. The court held that since dishonour of a cheque on the grounds that accounts have been closed attracts penal liability under Section 138 of the N.I. Act, 1881, dishonour on the grounds that ‘signatures are inconsistent’ or that the ‘picture is not found’ will constitute dishonour under Section 138 of the N.I. Act, 1881.

Furthermore, the court concluded that it is possible to derive an equivalent outcome about the bank’s specimen signature being changed by the drawer of the cheque or in the case of an organisation- the mandate of those authorised to sign the cheques on its behalf being changed. These modifications could be brought upon with a fraudulent and malicious intention which ultimately leads to dishonour of the cheque signed by the signatories.

According to the court, there is no difference when dishonour of the cheque has taken place due to modification of the authorised signatories which lead to dishonour or wherein the drawer changed his own signatures or issued instructions to the bank for stopping payment.

As long as the changes made resulted in the cheque being dishonoured, it would attract penal liability under Section 138 of the N.I. Act, 1881 subject to any additional conditions. In occasions when the drawer did not intend to invite such dishonour shall not directly be in the purview of Section 138 of the N.I. Act, 1881 as it has to be preceded by a statutory notice where the drawer is given an opportunity to make changes and arrange for the payment that is due.

However, the court stated that if the drawer does not clear the dues in the time given under the statute, then the dishonour shall constitute an offence and will be punishable. In cases where there was a lawful recovery of debt or discharge of liability, the trial court will examine by relying on the evidence produced keeping in view the statutory presumption- unless rebutted the cheque is considered to have been issued for a valid consideration.

The learned counsel for the respondent had argued that the offer made by the respondent company was in exchange for the old dishonoured cheques. They also argued that the cheques that were issued fraudulently by the authorised signatories had then resigned from their positions therefore dishonour cannot be construed as an act of dishonesty. Matters wherein the cheques are given for amounts in excess of the payable amount is a matter for examination at the trial. As the cheques were issued by authorised signatories appointed by the respondent company, it gave rise to the presumption that they were meant to discharge a lawful debt or liability. It was also stated that such allegations of fraud are matters that are beyond the scope of a court under Section 482 of the Code of Criminal Procedure, 1973 and shall be decided at the trial itself.

The court further stated that the proceedings against the signatories of the cheques cannot be quashed merely due to the different lines of defence taken by them. The decisions of the court in the National Small Industries Corporation Limited v. Harmeet Singh Paintal and Anr. (2010) and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. (2005) stated that the authorised signatories are liable to be prosecuted along with the company.

The Supreme Court allowed the appeal, revoked the orders passed by the High Court of Gujarat along with dismissing the Special Criminal Applications filed by the respondents.

Analysis of Laxmi Dyechem v. State of Gujarat (2012) 

This case involved legal arguments regarding what exactly constitutes an offence under Section 138 of the N.I. Act,1881. The main legal issue at hand was whether dishonour on grounds that the signatures on the cheques were missing, image was not found and the signatories’ signatures on the given cheques being inconsistent with those recorded in the bank constituted as an offence culpable under Section 138 of the N.I. Act, 1881. 

In this case, the key aspect was the interpretation of Section 138 of N.I. Act, 1881. It was concluded by the court that strict interpretation of Section 138 can often lead to ignorance of the main legislative intent which is to provide justice. The court delved and examined the evidence presented by both the parties in order to determine the intent behind the dishonour of the cheque. While relying on the Modi Cements v. Kuchil Kumar Nandi (1988), the court stood firm on the statement that the “amount of money…is insufficient to honour the cheque” is an expression that is the genus and “account closed” is its species.

Current relevance of the case 

This case highlighted the importance of adhering to legal obligations when making a transaction that involved issuing and handling cheques. The court therefore after a thorough analysis upheld justice by quashing the order of the High Court of Gujarat and enforced accountability on both the signatories and the respondent company. Overall, the Laxmi Dyechem vs State of Gujarat (2012) served as a significant reference point in understanding the importance of correct interpretation of the law, preserving the legislative intent and holding the accused accountable.

It is crucial to understand the implications of this judgement in the current legal landscape as Section 138 of the N.I. Act,1881 holds significance in shaping commercial transactions and business dealings. By examining the implications of this judgement, we can gain valuable insights into how contractual agreements and payment obligations are enforced within the Indian legal system. Furthermore, this judgement serves as a reminder of the significance of adhering to legal frameworks and honouring business agreements to maintain trust and stability in commercial relationships

Conclusion

In an era where financial frauds with respect to negotiable instruments have been on a constant rise, it was necessary to have a judgement that would set a benchmark to avoid the loss of justice. It gave effect to the intention behind the framework of the N.I. Act, 1881 and its provisions thereby making sure that the wrongdoers do not escape from the clutches of the legal system.

Adoption of a correct interpretation and holding the signatories accountable for culpability under Section 138 of the N.I. Act, 1881 protected the rights of the appellants. The court reviewed the relevant law and judgements related to dishonour of cheques in order to make an informed decision and keep the legislative intent behind the framing of Section 138 of the N.I. Act,1881 as a priority.

This case highlighted and emphasised the importance of keeping legal intent of a statute intact and maintaining accountability in case of dishonour of a cheque.

Frequently Asked Questions (FAQs)

Should insufficiency of funds be the only ground that attracts penal liability under Section 138 of the N.I. Act, 1881?

It was directed in the Laxmi Dyechem vs State of Gujarat (2012) that dishonour of cheques due to a mismatch in signature and non-payment of dues despite issuance of notice shall also constitute an offence under Section 138. 

Furthermore, even in the Goaplast (P) Ltd. v. Chico Ursula D’souza and Anr. (2003) and Modi Cements Ltd. v. Kuchil Kumar Nandi (1998), it was held that even if the cheque was dishonoured on the grounds of “stop payment”, it would still attract a penalty under Section 138 of the N.I. Act, 1881. In the case of NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) wherein the cheques that were issued by the appellants in discharge of its liability were returned by the company with the comments as “account close” also attracted the penal liability under Section 138 of the N.I. Act, 1881.

What is Legal Notice under Section 138 of the Negotiable Instruments Act, 1881?

A Legal notice is a formal document that is sent to a person or an organisation in order to inform the receiver about one’s intention to undertake legal action against them. Generally, a legal notice is sent to address an issue to the opposite party. A legal notice is the first step to make the opposite party aware of one’s grievance and take the necessary actions to correct it. In the Laxmi Dyechem v. State of Gujarat (2012), the respondent did not pay the dues even after a duration of 15 days from the date of the receipt of that legal notice and hence it gave rise to penal liability under Section 138 of the N.I. Act, 1881.

A legal notice under Section 138 of the N.I. Act, 1881 visualises the administration of a notice to be sent to the signatory of the dishonoured instrument and grants prosecution only after the statutory period has expired and when the drawer fails to make the payment that is due within the time period.

References

Download Now

Essentials of Contract Law : history and theory

0

This article has been written by Manjula K S pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

A contract in India is an important piece of legislation that bestows rights, duties and obligations on intending parties entering into it for the completion of their business in today’s world. Indian Contract Act is the most important enactment which created a bridge between the parties entering into contract with multinational companies to conclude their successful business globally. Indian Contract Act has completed more than 150 years of its history. From the inception of the enactment of the Contract Act, 1872, the modifications with regard to the law  were as per Indian conditions and adaptability to the Indian economy. Therefore, to date, the Indian Contract Act, 1872, holds good. With the growth of technology and e-commerce, contract law in India has undergone several changes and has adopted the digital world. The Information Technology Act, 2000, introduced provisions for electronic contracts and recognised them as legally valid. The Indian Contract Act, 1872, was also amended in 1997 to include provisions for electronic contracts.

History of Indian Contract Act, 1872

  •  Indian Contract Act, 1872 was first enacted on 25th April, 1872 which came into existence on 1 September 1872 and it applies to the whole of India.
  • Indian Contract Act is the main source of law regulating contracts in Indian law, followed by the old English Common Law, which was subsequently amended due to general principle of codification.
  • Earlier in 1872, English common law was in force, which led to many difficulties and inconveniences. To overcome and regulate the contract between parties’ statutes were enacted.
  •  Hindus were governed by Hindu law and Muslims were governed by customary law and usages.

Evolution of Contracts during Ancient and Medieval  period:  

There was no code of contract during the ancient and mediaeval period. The moral and legal principles were adopted from sources such as the Vedas, Dharmashastras, Smritis and Shrutis, wherein the agreements and transactions were conducted and followed as per the guidelines enumerated under Dharma and Artha. During the mediaeval period, various kingdoms and dynasties, such as the Mauryas, Cholas, Guptas and Delhi Sultanate, contributed to the legal development by following the legal guideline of dharmashastra in shaping the contractual relationships between two individuals or groups of individuals, where the essential elements for transactions were free consent and open consensus of terms and conditions between them.

Evolution of contract during Islamic period

The Islamic legal system was governed by the rules of the Mohammedan Law of Contract professed under Quranic principles during the Islamic period. The word contract under the Islamic legal system is a conjunction of Ijab, i.e., the proposal and Qubul, i.e., the acceptance.  The legal system during the Islamic period was known as Fatawa Alamgiri, based on the Hanafi School of Islamic Jurisprudence, which was a compilation of legal opinions touching on various aspects like inheritance, marriage, divorce and succession. The contractual matters were addressed by Islamic law and the judges, known as Qadis, were responsible for resolving the disputes and abiding by the principles of fairness, honesty and contractual obligations.

Evolution of contract during Roman period

During the Roman period, contracts played a crucial role in facilitating and identifying various contractual transactions and legal agreements in the form of promises according to their requirements, which needed to be fulfilled in order to make them enforceable. Some of them are:

Types of contracts 

Stipulatio (Stipulation): In ancient Rome, it was the most common verbal form of agreement where one party made a promise and the other accepted it, covering a wide range of transactions from sales to loans.

Mancipatio (Symbolic): It was a formal procedure consisting of symbolic gestures and the presence of witnesses involving the transfer of ownership through the symbolic act of the buyer holding copper and scales indicating the weighing of the purchase price.

  • Legal formalities: Contracts involving free individuals were made through simple verbal agreements with the symbolic transfer of ownership, where a third party would act as an arbiter, and the transfer would be complete when the arbiter declared it.
  • Enforceability: Roman contracts were generally binding, and breach of a contract could lead to legal consequences. The Roman legal system provided remedies for the non-performance of contracts, including monetary compensation or specific performance by way of redress in cases of dispute.
  • Evolution over time: As society evolved, the Roman legal system adapted to new economic and social realities, leading to changes in contract practices.
  • Contractual elements: Contracts in ancient Rome included essential elements such as offer, acceptance and consideration. Some contracts required specific formalities, while others were more informal, depending on the nature of the agreement.

Evolution of contract during Hindu period

During the Hindu period, contracts were influenced by Manusmriti, a well known Dharmashastra, an outlined principle for contracts, emphasising the ancient legal and ethical texts that provided fairness and ethical conduct for righteous living. Elements of contracts are based on mutual consent (Samanvaya) between the parties. Essential elements included an offer (Agraha), acceptance (Pratigraha), and a lawful object (Artha). Fulfilling contractual obligations was considered essential. Failure to perform could lead to legal consequences. The legal system during this period often relied on community and religious authorities for dispute resolution. The social and religious dimensions with regard to legal transactions were guided by the dharmic principles, which adhered to the ethical standards of the contract. Some concepts from the Hindu period, such as emphasis on fairness and mutual consent, continue to influence modern contract law in India.

Evolution of contract during the British Period

During the British colonial period, contracts played a crucial role in shaping economic and social relations. Contract law was primarily governed by the English common law, which was transplanted to the colonies and the judiciary applied the principles to local circumstances. Various types of contracts were prevalent, including sales contracts, lease agreements, employment contracts and trade agreements, and were instrumental in facilitating trade, commerce and the functioning of the colonial economy. In order to enforce contracts based on fair business practices and maintain order, the British colonial authorities established a legal mechanism to resolve contractual disputes through courts or appointed officials. During the colonial period, land contracts played a pivotal role in the acquisition and transfer of land, which led to many disputes leading to legal battles and tension between settlers and indigenous populations. The legal framework and the concept of contracts established during the British period continued to influence the legal system and have adapted the legal structures to suit their evolving needs.

Theory of contracts

The theory of contract helps to understand how people and organisations construct and develop legal agreements. The theory of contracts in India is primarily governed by the Indian Contract Act, 1872. The legislation outlines the essential elements of a valid contract, the rights and obligations of the parties involved and the remedies available in case of a breach.

A contract is defined as an agreement enforceable under law, where an agreement is a promise or set of promises forming consideration for each other. The parties to the contract are referred to as “promisor” and “promisee.”.

Essential elements of a valid contract

  • Offer or Proposal and Acceptance: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such an act or abstinence, it is said to be a proposal. There must be a lawful offer by one party and a lawful acceptance by the other party.
  • Intention to create legal relations: The parties must intend to create a legal relationship and the agreement should not be of a social or domestic nature.
  • Lawful consideration: As part of the agreement, something of value must be exchanged between the parties.
  • Capacity of parties: The parties to the contract must be competent to enter into a contract, i.e., they should be of sound mind, major and not disqualified by law.
  • Free consent: The consent of the parties to the contract must be free, and not be induced by fraud, coercion, undue influence, misrepresentation or mistake.

Types of contracts

Valid contract: A contract is one that meets all the essential elements and is enforceable by law.

Void contract: A contract that lacks one or more essential elements and is not enforceable by law.

Voidable contract:  A contract that is valid but can be voided at the option of one of the parties due to factors like coercion, undue influence, fraud, etc.

Parties are required to perform their contractual obligations as per the terms agreed upon and contracts can be discharged through their performance, mutual agreement, impossibility of performance, breach or operation of law.

The remedial measure for breach of contract is damages by way of compensation awarded to the innocent party for the loss suffered due to the breach. The court can even order specific performance of the agreement, requiring the defaulting party to fulfil the contractual obligation.

Landmark cases on contract law in India

Contract law is a complex and ever-evolving field, and India has a rich history of landmark cases that have helped shape the development of the law.

Hadley vs. Baxendale (1854)

Hadley v. Baxendale (1854) is a landmark case in the field of contract law that established the principle of “foreseeability.” The case involved a contract between a plaintiff, Hadley, a miller, and a defendant, Baxendale, a carrier, for the delivery of a crankshaft. Due to a delay in the delivery of the crankshaft, Hadley suffered losses caused by the subsequent delay in the operation of his mill.

The crucial issue in the case was the extent of the carrier’s liability for the losses faced by the miller. The court held that the carrier was only liable for losses that were reasonably foreseeable at the time the contract was entered into. The court reasoned that the carrier could not be held responsible for losses that were beyond the scope of what could have been reasonably anticipated based on the information available at the time of the contract formation.

This principle of foreseeability has since become a fundamental aspect of contract law, guiding the assessment of liability for breach of contract. It requires that the parties to a contract consider the potential consequences of their actions and take reasonable steps to mitigate any foreseeable losses.

The Hadley v. Baxendale case set a precedent for determining the appropriate measure of damages in contract disputes. It established that the plaintiff can only recover damages that are directly and naturally resulting from the breach of contract, as long as they were reasonably foreseeable at the time the contract was formed.

The principle of foreseeability has practical implications in various areas of contract law. For instance, in cases involving late delivery of goods, the courts will consider whether the buyer made the seller aware of any special circumstances that would make the delay particularly damaging. The foreseeability principle also comes into play in cases related to consequential losses, lost profits, and mitigation of damages.

The Hadley v. Baxendale case continues to hold significant relevance in contract law, ensuring that liability is proportionate to the foreseeability of losses and that parties are encouraged to consider potential consequences when entering into contractual agreements.

Mohori Bibee  vs. Dharmodas Ghose (1903)

The landmark case of Mohori Bibee  vs. Dharmodas Ghose (1903) set a precedent in contract law by establishing the principle of “minority,” which safeguards minors from entering into legally binding contracts. The plaintiff, Mohori Bibee, was a minor when she entered into a contract to sell her property to Dharmodas Ghose. The court meticulously examined the validity of the contract and ultimately ruled that it was null and void.

This pivotal decision was based on the recognition that minors lack the legal capacity to enter into binding agreements. The court reasoned that minors are often inexperienced and impressionable, making them susceptible to exploitation and undue influence. To protect vulnerable minors from the potential consequences of ill-advised contracts, the court established the principle that contracts entered into by minors are generally void.

The court’s decision in Mohori Bibee vs. Dharmodas Ghose has had a lasting impact on contract law. It has served as a cornerstone for subsequent legal developments and continues to be cited as a precedent in cases involving minors’ contractual capacity. The principle of “minority” has been codified in various jurisdictions, ensuring that minors are afforded legal protections when it comes to entering into contracts.

The case also highlights the importance of contractual capacity, which refers to the legal ability of individuals to enter into and be bound by contracts. Contractual capacity is influenced by factors such as age, mental capacity, and legal status. By establishing the principle of “minority,” the court acknowledged that minors lack the requisite contractual capacity to enter into binding agreements, thereby safeguarding their interests and promoting fairness in contractual relationships.

Shankarrao vs. State of Maharashtra

Background

The case of Shankarrao vs. State of Maharashtra, decided by the Supreme Court of India in 2006, is a landmark case that established the principle of “frustration” in Indian contract law. The principle of frustration provides that a contract may be discharged or terminated if an unforeseen event occurs, making it impossible or impracticable to perform the contract.

Facts of the case

In this case, the plaintiff, Shankarrao, was a farmer who entered into a contract with the State of Maharashtra to supply 1500 metric tonnes of sugarcane to a sugar factory. The contract specified that the sugarcane was to be supplied between November 1997 and March 1998. However, due to a severe drought in the region, Shankarrao was unable to cultivate enough sugarcane to fulfil the contract. As a result, he could only supply 600 metric tonnes of sugarcane to the sugar factory.

Court’s decision

The Supreme Court held that the contract between Shankarrao and the State of Maharashtra was frustrated due to the drought. The court noted that the drought was an unforeseen event that made it impossible for Shankarrao to perform his contractual obligations. The court further held that Shankarrao was not liable for breach of contract and was not required to pay damages to the State of Maharashtra.

Significance of the case

The Shankarrao case is significant because it established the principle of frustration in Indian contract law. This principle provides a way for parties to a contract to be excused from their contractual obligations when unforeseen events make it impossible or impracticable to perform the contract. The principle of frustration has been applied in a number of subsequent cases, and it is now a well-established part of Indian contract law.

Implications of the case

The Shankarrao case has several implications for businesses and individuals who enter into contracts.

  • First, it highlights the importance of including a force majeure clause in contracts. A force majeure clause is a clause that excuses the parties from performing their contractual obligations in the event of an unforeseen event. By including a force majeure clause in a contract, the parties can protect themselves from being held liable for breach of contract in the event of an unforeseen event.
  • Second, the Shankarrao case emphasises the need for parties to a contract to act in good faith. If a party to a contract knows or should know that an unforeseen event has made it impossible or impracticable to perform the contract, that party must notify the other party as soon as possible. Failure to do so may result in the party being held liable for breach of contract.
  • Third, the Shankarrao case provides a way for parties to a contract to resolve disputes amicably. If a dispute arises over whether a contract has been frustrated, the parties can attempt to resolve the dispute through negotiation or mediation. If negotiation and mediation are unsuccessful, the parties can resort to litigation.

Important provisions of Indian Contract Act, 1872

The Indian Contract Act, 1872, is comprehensive legislation that governs the formation, interpretation, and enforcement of contracts in India. Enacted during the British Raj, the Act has been influential in shaping the legal framework for commercial transactions in the country. Here are some of its key provisions:

  1. Offer and acceptance: The Act defines an offer as a proposal made by one party (the offeror) to another party (the offeree), with the intent to create a legally binding agreement. Acceptance is the unconditional assent to the terms of the offer by the offeree. A valid contract is formed when the offer is accepted without any modifications or counter-offers.
  2. Consideration: Consideration is the price paid or promised for the performance of an act or the promise of an act. It is an essential element of a contract, as it creates a legal obligation for both parties. Consideration can be anything of value, such as money, goods, services, or a promise to do or refrain from doing something.
  3. Capacity to contract: The Act specifies the legal capacity of individuals and entities to enter into contracts. Minors (persons under the age of 18), persons of unsound mind, and persons disqualified by law are generally considered to lack the capacity to contract.
  4. Free consent: A contract is voidable if it is entered into under the influence of coercion, undue influence, fraud, misrepresentation, or mistake. The law protects parties from entering into contracts under duress or when they are not fully aware of the terms and conditions of the agreement.
  5. Legality of object: A contract is illegal and void if its object is unlawful, immoral, or opposed to public policy. For example, contracts involving the sale of illegal drugs, gambling, or prostitution are not enforceable under the Indian Contract Act.
  6. Performance of contracts: The Act imposes a duty on both parties to perform their contractual obligations in good faith. It provides for the remedies available to parties in case of breach of contract, such as damages, specific performance, and injunctions.
  7. Discharge of contracts: A contract may be discharged by performance, mutual agreement, breach, frustration, or operation of law. Discharge by performance occurs when both parties have fulfilled their respective obligations under the contract. Discharge by mutual agreement takes place when the parties agree to terminate the contract before its completion.

The Indian Contract Act, 1872, is a foundational piece of legislation that has stood the test of time. Its provisions have been interpreted and applied by courts in numerous cases, shaping the legal landscape of India’s commercial and business environment.

Conclusion

By analysing the development of contracts from the ancient periods, from the Roman to the Muslim period to the Hindu period, it can be concluded that contracts were deeply rooted in ethical and moral principles, with an emphasis on fairness and mutual consent. These contracts played a crucial role in shaping economic and social relationships within the community, though the technicality and modes and means of punishment may vary, the vital principle among all the laws remained the same. It is further concluded that ancient contract law shares similarities with modern contract law, particularly in terms of cultural context and legal formalities, which provides insight into the legal and economic structure. The Indian Contract Act, 1872, is the backbone of contract law in India, with a with a rapidly changing technical landscape that is constantly evolving to keep pace with new challenges and opportunities in the emerging digital world.

References

Download Now

Negotiation skills for freelancers : securing competitive rates in the US market

0

This article has been written by Hima Bindu Chatri Remote freelancing and profile building program from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Introduction

Negotiation holds the key to getting ahead in the workplace, resolving conflicts, and creating value in contracts. When disputes arise in business and personal relationships, it’s easy to avoid conflict in an effort to save the relationship.

As a business, you need to set a clear work scope and be clear about your budget during the negotiation process. As a freelancer, you need to know the value of your services going into the discussion, and you should stand firm on your value.

In the US market, negotiation plays an essential role in business culture. Big or small industries have their own rules and systems. Enhance the market value of the company by conducting comprehensive market research, analysing competitor rates, and exploring industry websites for valuable insights.

Negotiation is one of the leadership skills that help businesses reach their goals. Negotiation skills are essential in the workplace. It plays an important role in connecting with clients or new people.

If clients offer them their market value or above, they’ll feel more comfortable working on future projects for clients. Letting a freelancer suggest the pay rate is a good starting point, but you still need to know what a fair price is for both; them and the client’s business. Treating freelancers fairly is the best way to negotiate. 

Benefits of negotiation skills in the US market

Mastering negotiation skills in the US market opens doors to lucrative opportunities and empowers professionals to navigate complex business landscapes with confidence.

Building strong relationships with clients

People who have healthy relationships are more likely to feel happier and more satisfied with their lives. Positive customer relations are long-term, mutually beneficial relationships between a customer and a company. These relationships are built by creating a stable environment of trust that results in the continued growth of the customer and the organisation.

Productive communication skills during negotiations

Communication is the backbone of negotiation. Communication is key to building strong relationships, so make it clear from the beginning that you will work with your client. A healthy conversation ensures a mutually beneficial deal and avoids misunderstandings that could prevent the parties from reaching a compromise.

Negotiation avoids future conflict

Both parties agree on a common solution, which reduces the chances of future conflicts to a great extent. Delivering an excellent solution through good negotiation skills ensures that the solution to the conflict is not short-term. It focuses on creating long-lasting solutions because both parties make an adjustment only when the solution is satisfactory.

Negotiation creates an environment for business success

A high standard of negotiation skills ensures the accomplishment of a goal, which creates an environment of business success. This also increases the chances of future business transactions.

Decide to fly solo or offer your services on online freelancing platforms 

Knowing you possess highly demanded skills, such as being a great programmer, marketer, designer, virtual assistant or customer service representative, is not enough to succeed in making a living as an online freelancer. Our other hard key skills are needed to succeed in a freelancing career: selling, negotiation, communication, time management, project management, and business management. Depending on your field of studies or past professional experience, you may have developed some or all of them at different levels.

Research freelancing platforms: The first main thing freelancers do is research good platforms and websites that are a good fit for applying and creating accounts, consult with other freelancers, and directly pitch for work. 

Top 10  Freelance Platforms to pitch dream job as well as Best Freelance Websites to Find Work

  • Fiverr
  • Toptal
  • Upwork
  • YunoJuno
  • lemon.io
  • Revelo
  • Index.dev
  • CloudDevs.com

Freelancing type: digital marketing, web development, social media, software development, financial consulting, writing, graphic design, data entry, etc.

Understand your worth: The first step in pricing your freelancing services is understanding the value of your work.

Estimate time and cost: Freelancers estimate how many hours there are for clients in a week according to the fixed hourly wage rate. This is based on the cost of the quality work service provided to the freelancers. 

Consider your target audience: Freelancers always update their top skill techniques and work experience mentioned in their Upwork or LinkedIn profiles, so customers can directly connect with them.

Offer packages: Freelancers should carefully check all details of the offer package, along with work details. Freelancers select a  package that is a good fit  and offers a more efficient goal.

Negotiate from a position of strength

Negotiation deals are ongoing every day in the US market. The first few times, negotiating with clients is a bit challenging, but after getting experience from 2 to 3 instances, we find it helpful to think about it as just a piece of cake. Practice makes a man perfect; before meeting a client, prepare well and conduct a mock interview with your friend or instructor. It helps you feel very confident.

Securing competitive rates in the US market can be achieved through thorough market research, understanding the pricing strategies of competitors, and offering unique value propositions to customers. It is also important to build strong relationships with suppliers and negotiate favourable terms to lower costs.

Building strong negotiation skills for a position of strength includes:

Focus on the negotiation skills

The negotiation skills required to close contracts serve not as the final destination, but as the basis for perfecting a contract’s performance. Improve your negotiation skills by acquiring knowledge of market value  and watching videos on current rates. 

Problem-solving skills

Most negotiations occur to find a solution to an issue. With excellent problem-solving skills, you propose viable and intelligent solutions that are beneficial for both parties. Problem-solving skills are very helpful in any stage of the work platform and in dealing with different clients.

Setting clear-cut objectives and goals for negotiations

Setting realistic targets is essential to the success of any negotiation. Ensure that your target is achievable, based on the information and research you have conducted. Freelancers always have a clear idea and target before connecting with the client about what rate they have to discuss or negotiate. Check the market value with other freelancers, then set their goals for negotiations.

Try to create a win-win outcome in negotiations

Win-win outcomes occur when each side of a dispute feels they have won. Since both sides benefit from such a scenario, any resolution to the conflict is likely to be accepted voluntarily. The process of integrative bargaining aims to achieve, through cooperation, win-win outcomes. When both sides are satisfied with their agreement, the odds of a long-lasting and successful business partnership are much higher. 

Negotiation rates are dependent upon long term contract 

In the US, negotiation rates depend on long-term contracts as well as on good relationships. A negotiation is a strategic discussion that involves two or more parties to resolve an issue in a way that each party finds acceptable. These are some tactics that help in the negotiation period with US clients.

Collaborative tactics

Negotiation strategy is linked to showing positive long-term relationships. One of the most important strategies is to use collaborative negotiation to build a strong foundation of trust and partnership. It ultimately leads to a higher lifetime value for both parties. 

Understand their needs and motivations

Before meeting the client, do your homework and research all the details, like the party’s background, objectives, preferences and needs. Strive to understand what they value, what they fear, and what they expect from the contract.

Communicate clearly and transparently

The communication culture in the US tends to be direct. Clear and transparent communication is vital in debt collection. Provide debtors with all the necessary information regarding their debt, including outstanding balances, interest rates, and any applicable fees. Avoid using complex legal language that may confuse debtors. Instead, use simple language to ensure that they fully understand the situation. Transparency builds trust and helps lay the foundation for open and good communication.

Focus on interest, not positions

Stay focused on the interest, not on the position. In interest-based negotiation, the purpose is to reach a mutually acceptable outcome, sometimes mutually beneficial to both parties. The parties facing any problem do come out, so they should be dense on the problem and not on the person. The interests of both parties are similar, with strong matches.

Be flexible and creative

Flexibility is also the main key to choosing the right negotiation strategy. The strategy works differently with different people or with changing market situations. Choose the right strategy at the right time. Freelancers must be flexible, don’t try to stick with one strategy because what works in the current situation might not work for future situations.

Freelancers think creatively, so clients are impressed by their new thoughts. Being unique from other freelancers builds your performance rate. Try to use good examples in front of clients, which help them understand scenarios.

Honesty from both parties for a fair deal

Both the freelancer and the client deal fairly with each other, aiming for no profit and no loss. They understand that both are in the same boat at negotiation time. It’s important to remain honest and transparent with clients throughout the entire negotiation process. You may find the conversation more productive when both sides are honest and open with each other. 

Know the details of the project

It is absolutely crucial to know the details of a freelancing project before you even get down to the negotiations. The client will provide you with a rough outline of the project and then immediately ask for your rates. To navigate this situation, it’s best to state your rate and final output rate according to the nature of the work. After, you can ask the client to provide you with more in-depth details on the project for a good idea guideline.

Negotiations in the US are direct and transparent

During negotiation time, Americans tend to say what they think, to be clear about their direct expectations, and to deliver their opinions in a forthright manner.

  • American negotiation culture is very straight and direct.
  • Proceedings are exactly giving directions or instructions about work.
  • Trust is placed in the contract as opposed to in relationships.

In the USA, ‘business is not personal’ means that business agreements and outcome goals take priority over personal feelings.

As such, avoid taking offence to the elements of American negotiation culture that differ from your home culture.

How competitive is the US market

The United States market offers the best opportunity. To win the global competition for new jobs and industries, the US must continue to have an efficiently trained and more skilled workforce. In today’s increasingly global economy, skilled professionals will be best positioned to secure high-wage jobs and fuel American prosperity.

Economists have identified four types of competition- perfect competition, monopolistic competition, Oligopoly and monopoly.

Tip

If you’re not sure what to charge, it’s a good idea to talk to another freelancer to find out what they charge. From there, you can consider your experience and set your rate accordingly.

Frequents Asked Questions (FAQs)

How did the freelancer fix the rate?

Freelancers have to look at the client’s work history to see if they paid other freelancers for previous projects and check average pay rates. You should have an idea of what other freelancers have bid on a project, so you know your rates are competitive. 

Why are negotiation skills important?

Without any idea or knowledge of negotiation skills, how can freelancers convince clients of the correct rate for the correct job? Negotiation is helpful from both the freelancers and the client’s point of view, with both agreeing to their deal.

How to improve negotiation skills?

By learning and practicing negotiation skills through upskilling and knowing the current market rate, experienced freelancers can be guided with a few tips and advice to successfully land their dream job. Every time, make sure the market value is set according to their position by checking all the market sites. 

What are the US general negotiating styles?

Negotiations in the US are results oriented: American culture places a great deal of value on ‘getting things done’ and doing so as quickly and efficiently as possible. It means they love to pin the negotiation process to a scheduled time, with milestones to mark progress along the way.

Americans spend quality time getting to know freelancers before and during the negotiation process. Due to the result-oriented approach, wins, milestones and targets take more importance than relationships.

Conclusion

Freelancers negotiate rates more smartly towards contracts with US clients.  Freelancing can be a great way to build a career on your own terms, with greater flexibility, independence, earning potential, etc. responsibility for managing your own business, inconsistent income, and a lack of benefits.  

Ideally, you should be thinking from the point of view of the client. What the client thinks about freelance work and work will make all the difference when it comes to common goals, long-term relationships and agreements.

References

Download Now

Abhayanand Mishra v. the State of Bihar (1961)

0
fraud

This article is written by Monesh Mehndiratta. The present article provides a detailed analysis of the landmark judgment in the case of Abhayanand Mishra v. The State of Bihar (1961). It provides the facts of the case, issues involved therein, judgment of the court and opinion of judges. It further explains the law applied and provides a critical analysis of the case and goes on to explain the difference between attempt and preparation with the help of different theories of attempt.

This article has been published by Shashwat Kaushik.

Introduction

Do you know the difference between attempt and preparation?

Well, let me explain it with an example. 

We all prepare for exams by making notes, studying and understanding the concept and then write the exam. The stage of preparation of notes, understanding the concept, and learning important points is the stage of preparation. When we sit and write the exam, it is an attempt. This is because we have taken one step further from the stage of preparation towards the final stage, i.e., the result. 

Similarly, in the case of crime, the stage of preparation is when a person is preparing to commit a crime and collecting required material like weapons, making plans, discussing with other criminals, etc. As soon as he does an act in furtherance towards the commission of a crime, it is an attempt to commit the crime. For example, a person bringing a gun to commit the offence of murder is preparation, but the moment he tries to shoot amounts to an attempt irrespective of whether anyone was shot by the gun or not. The difference between the two can be understood better with the help of the present case discussed in the article, i.e., Abhayanand Mishra v. The State of Bihar (1961). The article explains the facts of the case, the issues involved, judgement of the court, opinion of judges, laws applied and its analysis 

Details of Abhayanand Mishra v. the State of Bihar (1961) 

Name of the case

Abhayanand Mishra v. The State of Bihar

Citation

1961 AIR 1698, 1962 SCR (2) 241, 1961 (2) CRI. L. J. 822, (1962) 3 SCR 241

Date of judgement 

24.04.1961

Bench

Justice Raghubar Dayal, K. Subbarao

Name of the appellant 

Abhayanand Mishra 

Name of the respondent 

State of Bihar 

Law Involved

Sections 420 & 511 of the Indian Penal Code, 1860

Brief facts of Abhayanand Mishra v. the State of Bihar (1961)

The facts of the case are such that the appellant applied to appear in the M.A. Examination in English at Patna University in 1954 as a private candidate. He represented himself as a graduate who obtained a B.A. Degree in 1951. He also represented himself as a teacher by attaching certificates from the headmaster of the school and inspector of schools in his application. The University, as a result of his application, allowed him to appear for the M.A. Examination and asked him to remit the required fees and submit his photographs. When the appellant fulfilled the above requirements, his admission card was dispatched to the headmaster of the school. 

However, the University was informed that the appellant is neither a graduate nor a teacher as a result of which inquiries were conducted revealing that all the documents furnished with the application were forged. The appellant not only lied about the fact of him being a graduate and a teacher but also the fact that he had been debarred from taking any University examination for a certain number of years because of his corrupt practices at University examinations was kept hidden. The complaint was filed in this regard under Section 420 IPC, and he was prosecuted. The court convicted the appellant for attempting to cheat by false representations, deceiving the university and inducing the authorities for admission. The present special leave petition had been filed by the appellant under Article 136 of the Constitution, against the decision of the Patna High Court, dismissing the appeal filed by the appellant against his conviction in the case. 

Issues involved in the case

  • Whether the appeal filed by the appellant against his conviction is maintainable?
  • Whether the conviction of the appellant under Sections 420 and 511 of the Indian Penal Code, 1860 is correct?

Contentions of the parties 

Arguments by the appellant 

The counsel representing the appellant contended in the Hon’ble Supreme Court that the appellant did not commit an attempt to cheat the university, but his acts amount to preparations for the same. Another contention raised was that if he had appeared in the M.A. Examination, it would not have harmed the reputation of the University in any way. The appellant argued that the apprehension and notion of the University’s reputation being harmed and destroyed is too remote and cannot be gathered from the facts of the present case.  

The appellant thus, contended that his conviction was not maintainable because of the following grounds:

  • No pecuniary value has been attached to the admission card and, hence, cannot be called property under Section 415 of the Indian Penal Code, 1860. 
  • His acts were mere preparation to commit the offence and there was no attempt of committing the offence. Thus, no offence of cheating under Section 420 IPC can be made out. 

Arguments by the respondent 

The respondent, on the other hand, relied on the evidence given by the Accountant of the University in the Patna High Court, stating that the appellant himself enquired about his admission card and application and the signatures of the appellant in the application. The government writing expert was called to match the handwriting on the application with that of the appellant and his signatures. It was further pointed out that the appellant neither replied to urgent communications made by the Controller of Examination of the University nor made any inquiry with respect to the submission of documents. The respondent argued that the appellant submitted an application for admission which is an attempt to commit the offence of cheating with the university.

Judgement of the Patna High Court

The Patna High Court relied on the expert opinion on the signatures made by the appellant and the handwriting of the appellant and observed that it was the same as that of the appellant, which is not a coincidence. The court also pointed out that the fraud came into the picture when the inspector of the university went for an inspection and was informed by the locals that one person named Abhayanand Mishra, who had not passed the B.A. examination, had been allowed to appear in M.A. Examination. 

The court refused to accept the contentions of the appellant and, upon finding the correctness of the evidence, sentenced the appellant to 2 years’ rigorous imprisonment along with fine of Rs. 500/- which, if not submitted, led to 6 months rigorous imprisonment. 

Judgement of the Supreme Court

Ratio decidendi 

The Hon’ble Supreme Court held that the appellant in the present case had an intention to obtain the necessary permission and admission by deceiving the university, and for this, he not only sent an application but followed it up by enquiring about the same and taking further steps by submitting the required fees. Upon the submission of the required fees and photographs, the university issued the admission card. It cannot be said that the appellant did not attempt to commit an offence and that his acts did not go beyond preparation. 

The Court further made a distinction between attempt and preparation. The stage of preparation started when he prepared the application. The moment he submitted the application or dispatched the same to be submitted to the university, he entered the stage of attempting to commit an offence. Thus, the court held that the appellant successfully deceived the university, because of which an admission card was also issued but failed to sit in the examination. Therefore, the court upheld the conviction of the appellant under Sections 420 for cheating and 511 for attempting to cheat the university, of the Indian Penal Code, 1860 and dismissed the appeal. 

Obiter dicta 

In the present case, the Hon’ble Supreme Court observed that deception means to conceal the facts dishonesty, which is essential to prove the offence of cheating. With respect to the contention of the appellant that the admission card has no pecuniary value and therefore, is not a property, the court pointed out that even though the admission card holds no pecuniary value but is important for a candidate seeking admission, without which he or she cannot appear in the examination. The Court also relied on the judgement delivered in the case of Queen Empress v. Appasami (1889), where it was held that a ticket for entry into the examination hall of the university for the matriculation test comes under the ambit of ‘property’. The court further pointed out that if the university had allowed the appellant to appear and sit in the examination, it would have harmed its reputation and the university would not have done so if true facts were known by the authorities. 

Another contention of the appellant was that the acts do not go beyond the stage of preparation and so the offence of attempting to cheat is not made out was held to be wrong by the court. The Court instead pointed out that there is a thin line difference between the two and that a person first makes an intention to commit an offence, followed by preparation and then attempts to commit an offence. If he succeeds in his attempt, an offence is committed, or else he will be said to have attempted to commit an offence. Thus, an attempt begins when preparation is completed and a person makes the first move to fulfil his intention of committing an offence. The moment he takes the first step towards fulfilling his intention, it is said to be an attempt. Thus, according to the Hon’ble Supreme Court, an attempt is punishable when a person, while attempting to commit an offence, does something in furtherance towards the commission of an offence. 

In the case of cheating, the first step would be an act leading to deception. When a person takes the first step to deceive the other, it is said to be an attempt to cheat and this is done with an intention to commit the offence. The Court further observed that whether any act amounts to an attempt to commit an offence is a question to be decided on the facts of the case, nature of the offence and steps involved in the commission of a particular offence. For an attempt to be punishable under Section 511, it is not necessary that the step started must result in the commission of the crime. Finally, the court gave two important essentials for an act to be punishable under Section 511 of the Indian Penal Code, 1860:

  • Intention to commit an offence.
  • Preparations for the commission of offence and an act towards committing an offence. However, it is not mandatory that such an act may be the penultimate act but must be done during the course of committing the offence. 

Laws applied in Abhayanand Mishra v. the State of Bihar (1961)

Section 420 of IPC

Section 420 of IPC, 1860 deals with the offence of cheating and delivery of property by dishonest inducement. The essentials are:

  • To deceive and dishonestly induce a person.
  • Delivery of property or, 
  • To make, alter or destroy any valuable security or something signed or sealed having the capability of being converted to a valuable security. 

The punishment for the offence of cheating is imprisonment extending up to 7 years and fine. The offence of cheating is cognizable, non-bailable and non-compoundable. 

Section 511 of IPC

This section provides punishment for attempting to commit an offence punishable by imprisonment. Any person who attempts to commit an offence punishable by imprisonment of life or other imprisonment and for which no punishment is provided in the Indian Penal Code will be punished with imprisonment up to half of the life imprisonment, half of the longest imprisonment provided for the offence or fine or both. 

In the case of Malkait Singh v. State of Punjab (1968), the accused was charged with the offence of attempting to smuggle paddy, which was punishable in the state of Punjab. However, the Supreme Court held that the acts amounted to mere preparation and not an attempt, as the accused had time to change his mind and could be stopped from committing the offence. Hence, the accused was not convicted. 

Different stages of crime

In order to understand criminal law and crimes, it is necessary to understand the different stages involved in the commission of a crime. These stages help to determine the liability and culpability of an accused. There are four stages of crime, which we will understand one by one:

  • Intention 
  • Preparation 
  • Attempt 
  • Final commission of crime

Intention 

This is one of the first stages of crime wherein a person forms a malafide or wrong intention or mental state to commit a crime. It is also one of the main elements of crimes. Its importance can be understood through a maxim – actus non facit reum nisi mens sit rea which means malafide intention along with guilty act constitutes an offence. However, a person cannot be punished for merely wrongful intentions. In order to make a person liable for punishment, intention must be accompanied by some guilty or wrongful act. IPC does not define the term ‘intention’ but defines terms like ‘dishonest’ (Section 24), ‘fraudulently’ (Section 25), and ‘voluntarily’ (Section 39) through which intention can be accrued. 

Preparation 

The next stage is preparation, wherein a person with a wrongful intention prepares to commit a crime. He or she gathers and collects necessary weapons and tools required, makes necessary arrangements and plans for the commission of crime. For example, if a person has an intention to kill another person, he or she will buy a knife, gun or other tools and plan the murder. This buying of tools, planning and making arrangements to commit a crime is known as preparation. Generally, this stage is not punishable as it is difficult to prove a person’s intention to commit a crime. However, there are exceptions where mere preparation is also punished due to the severity and gravity of the crime. These are:

Attempt

The next crucial stage in the commission of a crime is an attempt. When a person takes a step in furtherance of preparation towards the commission of a crime, it is known as an attempt. In this stage, a person does an overt act towards completion of an offence but falls short of completion. This stage is punishable because a person has done an act or omission towards the commission of a crime, which also proves his intention to commit a crime. For example, if a person with the intention to kill another person brought a knife, entered the house of another person and tried to attack him, but the victim managed to run away, the accused will be liable for an attempt to commit an offence of murder and not murder. 

Final commission of crime

When an attempt is successful and yields the desired result as thought by the accused, it is known as final commission of crime. If the stage of attempt leads to the completion of an offence, it results in the commission of a crime. For example, when a person attacks another person with a knife with the intention to kill him and successfully stabs the person, leading to his death, a crime is committed, and the accused will be punished for the offence of murder. 

Difference between attempt and preparation 

Preparation and attempt are the two stages of crime. The major difference between the two lies in the fact that preparation precedes attempt. The moment a person takes a step in furtherance of preparation towards commission of crime, he enters the stage of attempt. Generally, preparation for the commission of an offence is not punishable except in offences like collecting arms with an intention of waging war against the government, making preparations for counterfeiting coins and government stamps etc. This is because intention, which is one of the most important elements of crime, is difficult to prove. However, an attempt to commit an offence is punishable. One question that comes into play is what amounts to attempt. There are many tests and theories in this regard.

Proximity test

According to this test, if all the steps involved in the commission of a crime have been completed except the consequence, then it amounts to an attempt to commit an offence. The acts of the person must place him in a direct proximate relationship with the victim and contribute towards the final act. 

In the case of State of Maharashtra v. Mohd. Yakub (1980), the customs officers, after getting information regarding the smuggling of silver, went to the seashore and found a truck and some people unloading bags of silver. The issue was whether the accused should be punished for attempting to smuggle silver. The Court held that the prosecution failed to prove that the accused had taken any step towards the commission of the crime and, hence, cannot be punished. However, the court also made a distinction between attempt and preparation, stating that mere preparation of a crime is not punishable until and unless a step in furtherance is made. In order to make the accused liable, his acts must be reasonably proximate to the completion of offence which was missing in the present case. 

Factual impossibility test

This test provides that the commission of a crime failed due to any factual or physical impossibility. It is not a defence to any criminal liability. In the case of Asgarali Pradhania v. Emperor (1933), a man tried to commit the offence of miscarriage by giving poison to his pregnant wife. However, the wife did not consume the poison. The man again forced the wife to consume copper sulphate, but he was not aware of the fact that it was not harmful. The court held that the commission of crime in this case was factually impossible, and hence, the accused cannot be convicted for the offence of attempting to cause miscarriage. The court also observed that intention, along with preparation followed by some act towards the commission of a crime, constitutes an attempt to commit the offence. 

Repentance test

This test provides that if the accused had time to repent and decides to change his mind about committing the crime and backs out from proceeding further, he would not be punished for the offence of attempt, and his acts would amount to mere preparation. This test is based on the doctrine of locus poenitentiae.

In the case of Malkait Singh v. State of Punjab (1968), the accused had time to repent and change his mind, and moreover, the truck carrying paddy was stopped well within the Punjab boundary, the accused was not convicted for the offence of attempt. The Court held that the test to determine whether an act amounted to an attempt is whether the acts already done are of such nature that if the offender changes his mind and decides not to proceed further, his acts would be harmless. In this situation, the offender would not be liable for the offence of attempting to commit a crime. 

Impossibility test

This test provides that if a person tries to commit an offence which becomes impossible due to his act or omission, he will still be punished for the offence of attempt under Section 511 of IPC. For example, if a person tries to shoot with an empty gun or steal from an empty pocket, he will be punished irrespective of the fact that the commission of the offence was incomplete due to his act or omission. 

However, it must be noted that there are two kinds of impossibility – legal impossibility and factual impossibility. Legal impossibility means that a person committed such an act or omission which is legally not possible. In such a situation, he will not be held liable for the attempt. For example, shooting a shadow. Factual impossibility, on the other hand, occurs when a person tried committing an offence from his part but could not do so due to some external or internal factors which made it impossible. For example, A shoots B from a gun with an intention to kill but B is not killed because the gun was empty. A will be held liable for the attempt because he did everything to kill B but could not do so due to factual impossibility and had no knowledge of the gun being empty. 

Equivocality test

According to this test, a person would be punished for the offence of attempt if his acts unequivocally indicate that he had an intention to commit a crime. For example, a person having an intention to commit robbery breaks the lock and enters the house of another person at night. However, if he is caught while stealing valuable items, he would be punished for attempting to commit robbery because he had an unequivocal intention to do so. 

Analysis of Abhayanand Mishra v. the State of Bihar (1961) 

There are four stages of crime namely, intention, preparation, attempt and final commission of crime. When these stages are executed successfully, a crime is committed. Out of these four stages, generally, only two are punishable, i.e., attempt and final commission of the crime. Attempt, when successful, results in the commission of an offence. However, if failed, it is still punishable by virtue of Section 511 of the Indian Penal Code, 1860. Intention and preparation alone are not punishable, but there are some exceptions where preparation is punishable. For example, collecting arms with the intention of waging war against the government, counterfeiting coins, etc. 

Questions often arise as to what amounts to attempt and when this stage starts. The Courts have been interpreting the laws to find answers to grey areas. The courts have held, in multiple cases, that when a person does something in furtherance of the commission of an offence or takes a step towards committing a crime, it is an attempt. Courts have also distinguished between attempt and preparation. The present case is one such case wherein the accused sent his fake documents to the university to sit in an examination, which led to the offence of cheating. However, he argued that his actions were just preparation so, he cannot be held liable. The Court, on the other hand, rightly pointed out that the moment he sent his documents and application to the university, he entered the stage of an attempt which was punishable. Hence, he was held liable for the offence of attempting to cheat. 

Conclusion 

It must be noted that not every stage involved in the commission of crime is punishable in the criminal law. The law provides punishment only for those stages which can prove that a crime is about to be committed or has been committed. Attempt and preparation are the two most crucial stages wherein people mostly get confused as to when these stages begin and end. Section 511 provides punishment for attempting to commit a punishable offence. It provides punishment for attempting to commit such acts/omissions for which punishment has been prescribed under the Indian Penal Code, 1860. This means that this provision does not provide punishment for a commission of offence but an attempt to commit an offence. For example, attempt to murder, attempt to commit theft, attempt to cheat, etc. Acts/omissions which fell short of the final commission of an offence and did not yield the desired result of the commission of crime. However, people usually get confused between preparation and attempt and think that preparing for the commission of an offence is an attempt. This presumption is false as an attempt is a step in furtherance of preparation towards the commission of a crime. Courts have tried to clearly distinguish between the two stages through various landmark judgements. 

The present case is one such case wherein the court distinguished between attempt and preparation. An attempt is punishable by virtue of Section 511 of IPC. However, preparation is not. The reason for this is that the intention to commit an offence or an illegal act cannot be proved at the stage of preparation unless a person did something in furtherance, i.e., an attempt. However, in cases like wagging war, counterfeiting coins and currency etc, a person can also be punished at the stage of preparation. These offences are serious and grave in nature, and hence, the preparation is punishable as the intention to commit an illegal act can be deduced from the preparation itself. 

Frequently Asked Questions (FAQs)

Who represented the respondent in the above case?

Advocates H.R. Khanna and T.M. Sen represented the respondent in the present case. 

Who represented the petitioner in the above case?

The petitioner/appellant was represented by advocates H.J. Umrigar, P. Rana and  M.K. Ramamurai. 

Who gave the judgement in the present case at the Patna High Court?

Justice H.K. Chaudhari gave the judgement in the present case in the Patna High Court.

References 

Download Now

Anil Rai vs. State of Bihar (2001)

0

This article has been written by Soumyadutta Shyam. It delves into the facts of the case, the law discussed therein, the judgement by the Patna High Court, the subsequent appeal to the Supreme Court, the issues raised in the appeal, the arguments advanced by the parties, the final judgement and a comprehensive analysis of the case.

This article has been published by Shashwat Kaushik.

Introduction 

Delay in the deliverance of justice often results in frustration, anguish and a feeling of helplessness for people seeking justice. The judicial procedure is lengthy and complex, leading to people spending years awaiting decisions to be delivered in their cases. The maxim “Justice delayed is justice denied” is relevant in this context. Timely and decisive delivery of justice is crucial to ensure that the rule of law prevails. It is also important to maintain the credence of the common population in the justice system of a nation. The Supreme Court has, on numerous occasions, stated the fact that delay in delivering justice is infringement of the Right to life under Article 21 of the Constitution

In this case of Anil Rai v. State of Bihar (2001), the Apex Court provided guidelines relating to the delivery of judgements, envisaging them to be followed by all courts. The Court criticised the Judges of the Patna High Court for the unnecessary delay in delivering the judgement in this case. It was observed, holding back the judgements tends to shake the faith of the parties in the outcome of litigation. 

Details of Anil Rai vs. State of Bihar (2001)

Citation

AIR 2001 SC 3173

Name of the Petitioner 

Anil Rai

Name of the Respondent 

State of Bihar

Bench

Justice K.T Thomas and Justice R.P Sethi 

Facts of Anil Rai vs. State of Bihar (2001)

The appellants, with other accused individuals, constituted an unlawful assembly for furthering the common object of murdering Lal Muni Rai and Chand Muni Rai, who were brothers.  Prior to the incident, the victims had hostile relations with the accused persons. On the day of the incident, Lal Muni Rai was returning home after attending an event at Panchayat Bhawan. As he reached a location north of the residence of Subhash Chand Rai , the accused grabbed and forcibly restrained him, armed with firearms. The commotion attracted the attention of some of Lal Muni Rai’s relatives, including Chand Muni Rai (Victim), Bipin Rai, Sishir Rai , Sanjiv Rai and Hoshila Devi, who were also prosecution witnesses in this case, rushed to the scene. Upon arriving at the spot, the witnesses saw Lal Muni Rai being restrained by all the accused except Subhash Chand Rai. Lal Muni Rai managed to free himself and tried to run away, but he was shot and killed by Avinash Chand Rai (Accused no.1). 

Subsequently, when Chand Muni Rai arrived at the spot, Subhash Chand Rai shot and killed him. Avinash Chand Rai also fired at other relatives, but none of them were injured. After the incident, three of the accused ran away from the place of occurrence and left the village. The remaining accused rushed towards the house of Avinash Chand Rai. The sounds of gunshots reached the nearby Kuchhila Police Station, prompting the arrival of Akhileshwar Kumar, A.S.I. and Arbind Kumar, A.S.I., and other policemen. They discovered the bodies of the victims and saw Hoshila Devi crying. Her statement was recorded at the crime scene. The accused also fired shots at the police personnel. 

Additional police forces, including the Sub-Inspector, were summoned to the scene to apprehend the accused individuals. During the search of Avinash Chand Rai’s residence, he was apprehended along with Anil Rai with possession of a rifle, four live cartridges, and six empty cartridges. On the rooftop of the building, two other individuals, Ram Parvesh Yadav and Bhajwan Yadav, were apprehended with a country made firearm and a regular double barrel gun. Amit Kumar Rai was caught with a gun and cartridges from Avinash Chand Rai’s residence. The remaining accused persons who tried to escape were captured later.

The prosecution presented 14 witnesses, including Prosecution Witnesses  1, 2, 5, 6 and 12. One witness, Mukati Singh (who has assisted police in search of Avinash Chand Rai’s house and termed as eye witness) turned hostile during the trial. The defence examined three other persons, including Dr. Basant Kumar, who conducted medical examinations on the wounded accused persons. 

After evaluation of the evidence, the Trial Court ruled that the prosecution was successful in establishing the guilt of the accused. Main accused Avinash Chand Rai and Subhash Chand Rai were convicted and sentenced under Section 302 of the Indian Penal Code (IPC), while the other accused were convicted Section 302 read with Section 149 of IPC. Additionally, all accused persons were convicted under Section 27 of the Arms Act, 1959. They were sentenced to life imprisonment for offences under Section 302 read with Section 149 of IPC and to rigorous imprisonment for one year for violation of the Arms Act, 1959.

Key individuals in the case

Accused Persons

As aforementioned, in the case, several individuals were accused of committing serious crimes:

  1. Accused No. 1: Avinash Chand Rai 
  2. Accused No. 2: Subhash Chand Rai 
  3. Accused No. 3: Awadh Bihari Rai 
  4. Accused No. 4: Anil Rai
  5. Accused No. 5: Awani Rai 
  6. Accused No. 6: Amit Kumar Rai
  7. Accused No. 7: Satya Narain Yadav
  8. Accused No. 8: Ram Parvesh Yadav alias Bharat Dusadh 
  9. Accused No. 9: Bhajwan Yadav alias Gorakh Kahar

Witnesses

Throughout the proceedings, several witnesses provided crucial testimony:

  1. Prosecution Witness No. 1: Bipin Rai
  2. Prosecution Witness No. 3: Sishir Rai
  3. Prosecution Witness No. 5: Sanjiv Rai
  4. Prosecution Witness No. 6: Hoshila Devi
  5. Prosecution Witness No.10: Dr. Jai Shankar Misra
  6. Prosecution Witness No.11: Akhileshwar Kumar A.S.I.
  7. Prosecution Witness No.12: Mukati Singh
  8. Prosecution Witness No.13: Arbind Kumar A.S.I. 

Law discussed 

This case dealt with issues of both Fundamental Rights set out by the Constitution as well as aspects of Criminal law.

Section 302 IPC : punishment for murder

Section 302 of the IPC provides an alternative punishment of either death or imprisonment for life with fine if an accused is found guilty of murder. In this case, the victims were shot to dead by Avinash Chand Rai  and Subhash Chand Rai . They were subsequently convicted of murder. Their conviction was affirmed by both the Patna High Court as well as the Supreme Court.

Section 149 IPC : common object

Section 149 incorporates the rule of vicarious liability and holds a person responsible for a crime that a person may not have personally committed, but by being a member of an unlawful assembly, they become liable. This Section lays down that every member of an unlawful assembly having a common object is liable for the acts carried out by any other member of that assembly, and is guilty of the substantive offence and punishable for that offence.

In this case, the other accused, apart from Avinash Chand Rai  and Subhash Chand Rai were sentenced as per Section 302 read with Section 149 of IPC. The appeal of Ram Parvesh Yadav and Bhajwan Yadav was partly allowed by the Patna High Court. The Supreme Court, partly granted the appeals presented by Awadh Bihari Rai (Accused no. 3), Anil Rai (Accused no.4), Awani Rai (Accused no.5), and Amit Kumar Rai (Accused no. 6), and revoked their sentence under Section 302 read with Section 149 of IPC. They were instead held liable as per Section 148 read with Section 149 of IPC as they did not intend to murder the victims, but only intended to assault the victims. 

Section 353(1) : judgement

Section 353(1) states that the judgement in all trials before any Criminal Court of original jurisdiction shall be delivered in open court by the presiding officer immediately after the conclusion of the trial or some subsequent time, for which the parties and their pleaders shall be notified:-

(i) by delivering the whole judgement; or 

(ii) by reading out the whole judgement; or

(iii) by reading out the operative part of the judgement and explaining the substance of the judgement in a language which is understood by the accused or their pleader.

The Supreme Court while explaining Section 353(1) of the CrPC, interpreted the meaning of “some subsequent time” mentioned in the Section as not more than a period of six weeks. Additionally, the Court observed that unnecessary delay in the delivery of judgement is in conflict with the principle of law.

Section 157 : procedure of investigation of the CrPC

Section 157(1) of the CrPC states that if from the information received or otherwise an officer-in-charge of a police station has reason to infer the commission of an offence which he is empowered under Section 156 to investigate, he shall immediately send a report of the same to a Magistrate empowered to take cognizance of such offence upon a police report and shall go in person or shall depute one of his subordinate officers to go to the spot to investigate he facts and circumstances of the case and if required, to take measures for the discovery and arrest of the offender.

In this case, the counsel representing Subhash Chand Rai alleged that there was delay in dispatching the copy of the FIR to the Area Magistrate. However, it was found that there was no delay in sending the copy of the FIR to the Magistrate. The purpose of dispatching a duplicate of the FIR to the Area Magistrate under Section 157 of the CrPC was also explained by the Supreme Court. The purpose of this requirement is to notify the Magistrate about the investigation of cognizable offences so that they can maintain control over the investigation and provide proper direction if required.

Section 27 of the Arms Act, 1959 : punishment for using arms, etc 

Section 27 of the Arms Act, 1959 sets out that a person who utilises any arms and ammunition in violation of Section 5, will be punishable with a prison term ranging from a  minimum of three years to a maximum of seven years and shall also be subject to a fine. Section 5 lays down relevant rules in relation to license possession of firearms.

In this case, the accused were found in possession of heavy arms and ammunition. During the search and seizure, Avinash Chand Rai was caught with a rifle, four live cartridges, together with six empty cartridges. Ram Parvesh Yadav along with Bhajwan Yadav, were caught with a country made gun and a double barrelled gun. Amit Kumar Rai (Accused No. 6) was apprehended with a gun and 5 cartridges. Thus, they were sentenced as per Section 27 of the Arms Act, 1959.

Article 21 of the Constitution : right to a speedy trial

Article 21 of the Constitution states, “No person shall be deprived of his life and personal liberty except according to the procedure established by law.” The “Right to Speedy Trial” has been held by the Supreme Court to be a fundamental right within the meaning of Article 21 of the Constitution. In Hussainara Khatoon v, Home Secretary, State of Bihar (1979), the importance of ensuring  a speedy trial was highlighted by the Supreme Court. A writ of habeas corpus was submitted for some under trial prisoners who had been in jails in Bihar for a long time awaiting their trial. The Supreme Court ruled that the “right to speedy trial” is a fundamental right intrinsic in the guarantee of protection of life and liberty set out under Article 21 of the Constitution. Speedy trial is the spirit of justice. It was further observed that in the United States, speedy trial is one of the Constitutional rights set forth in the sixth amendment. Any procedure that cannot guarantee a reasonably expeditious trial cannot be treated as reasonable, fair or just. Thus, the Court directed the Bihar Government to set free the under trial prisoners on their personal bonds.

In Moses Wilson v. Karturba (2008), the Supreme Court expressed its apprehension over the delay in disposing of cases and ordered the relevant authorities to take proper action promptly before the situation worsened. Here, a suit was instituted for a small sum of money in 1947, and it subsequently dragged on for 60 years. Therefore, the court conveyed a sense of  worry about the delay in disposing of cases in India. The Court observed that as a result of delay in disposing of cases, people were losing confidence in the judiciary.

In the aforementioned case, references were also made to cases such as  M.H Hoskot v. State of Maharashtra (1978), Hussainara Khatoon v. Home Secretary, State of Bihar (1979), A.R Antulay v. R.S Nayak (1992), Kartar Singh v. State of Punjab (1994) and other cases that clearly established “the right of speedy trial” as a part of Article 21 of the Constitution of India.

Further, the Supreme Court in this case, while quoting the case of  R.C Sharma v. Union of India (1976), stressed the need for expediting the delivery of judgements. The Court further observed that many cases remain in a “judgement reserved” state for extended periods. The need for cutting down the time between the completion of arguments and the delivery of judgements was also emphasised. The Court also suggested appropriate guidelines to be followed by High Courts in this regard.

Judgement of the Patna High Court

The Sessions Court sentenced nine persons for various crimes, including murder, on 4th May, 1991. Subsequently, the convicts presented their appeals before the Patna High Court. Whilst in prison, the convicts anticipated for their case to come before the High Court. It took five years for the case to reach the High Court. The Advocates representing the appellants addressed the contentions before  the Division Bench, and on 23rd August, 1995, the judges adjourned the appeals for an unspecified period for judgement. The accused and their family members nervously waited for the judgement, devoid of any progress on the matter in the Court. Unfortunately, one convict died in jail while awaiting the judgement. A significantly long period elapsed since the parties presented their arguments before the Court.

The judges did not show any haste until one of them came close to the date of superannuation. The appeals submitted by Subhash Chand Rai (Accused no. 2), Avinash Chand Rai (Accused no. 1), Awadh Bihari Rai (Accused no. 3) and Amit Kumar Rai (Accused no. 6) were dismissed. The appeal presented by Ram Parvesh Yadav (Accused no. 8) and Bhajwan Yadav (Accused no. 9) was partially granted in relation to their sentence under Section 302 read with Section 149 IPC, but their conviction under the Arms Act was upheld. Section 302 as aforementioned stipulates that  murder is punishable by life imprisonment or death, and may also incur a fine, and Section 149, makes members of an unlawful assembly liable if an offence is committed by any member of that unlawful assembly. However, the conviction and sentence of Ram Parvesh Yadav (Accused no. 8) and Bhajwan Yadav (Accused no. 9) under Section 27 of the Arms Act, 1959, which provides for the punishment for using arms, remained unchanged.

Appeal to the Supreme Court

A criminal appeal was presented before the Supreme Court via Criminal Appeal No. 389 of 1998 in this case. Avinash Chand Rai (Accused no. 1) and Subhash Chand Rai (Accused no. 2) were originally sentenced for murder under Section 302 of the IPC by the Trial Court. The other accused were accused convicted under Section 302 read with Section 149 of the IPC for common intention by the Trial Court. They were also convicted under Section 27 of the Arms Act, 1959 for using firearms. They were sentenced to life imprisonment for offences under Section 302 read with Section 149 of the IPC and to rigorous imprisonment for one year for violation of the Arms Act, 1959.  A Special Leave Petition was filed by Satya Narain Yadav (Accused No.7) which was dismissed by the Supreme Court because of his failure to produce of the surrender on 27.03.1998. The Supreme Court noted that a dual judge bench of Patna High Court took two years to deliver the judgements, while the accused were suffering in jail. The Court criticised the approach of the High Court in this case and questioned what consequence should arise when High Court judges fail to deliver judgements for many months or sometimes even years after the conclusion of the contentions.

It was alleged before the Supreme Court that the excessive, unexplained and negligent delay in pronouncing the judgements undermined the prerogative of appeal given in the Code of Criminal Procedure, 1973 (CrPC). Such delay violated the Right of Personal Liberty provided under Article 21 of the Constitution.

In light of such terrible and dreadful situations prevalent in some High Courts of the country, the Supreme Court examined the impact of such delays on the rights of the litigants. The Apex Court resolved to consider this aspect and give proper directions.

Issues raised

The pertinent question before the Supreme Court in this instance was – Whether the delay in delivering judgements infringe upon the Right to Personal Liberty set forth under Article 21 of the Constitution.

Arguments of the parties

Petitioners

The Advocate appearing for the appellants cited the judgements in Surendra Nath Sarkar v. The Emperor (1941), Jagarnath Singh v. Francis Kharia (1948) and Sohagiya v. Rambriksh Mahto (1961 BLJR 282) to demonstrate that only because of delays in delivering the judgement for the period between six months to ten months, the High Courts ruled these judgements as adverse in law and overruled them. In R.C Sharma v. Union of India (1976), the Supreme Court, after observing that the Code of Civil Procedure,1908 did not set out a time limit for delivering judgements ruled that an excessive delay between hearing of contentions and pronouncement of judgements, unless justified by rare and unusual situations, is really unacceptable even when written contentions are presented. It is common that a few points which the litigant believes to be crucial may not have been noticed. But, the pertinent point is that litigants should have some belief in the outcome of litigation. This belief is disturbed when there is a significant lapse of time between hearing of contentions and pronouncement of judgements.

The Advocate representing Subhash Chand Rai criticised the judgements of the Trial and High Court for different reasons. It was argued that because the witnesses favoured by the Courts were hostile towards the appellants, their testimony should not be trusted unless corroborated with material particulars. They also tried to use the delay in dispatching the duplicate of the FIR to the Area Magistrate to their advantage.  Additionally, they disputed that Hoshila Devi could not be regarded as an eyewitness since she did not actually see the incident. It was also claimed that the credibility of the statements of Prosecution Witnesses 1 (Bipin Rai) and 5 (Sanjiv Rai) could not be established since their names were not mentioned in the FIR.  

Moreover, the counsel appearing for the appellant pointed out contradictions in the statements of eyewitnesses and medical evidence regarding the victim’s wounds and the retrieval of a single-barrelled gun from Subhash Chand Rai. They argued that the prosecution failed to link the appellants to the crime, especially since the appellants made allegations that they were injured  by the police after their arrest. It was further claimed that the investigation was vitiated, so the accused should have been acquitted. As Mukati Singh was a hostile witness, whose testimony did not name Accused no. 2 i.e, Subhash Chand Rai, he should have been acquitted by setting aside the judgement in these appeals.

The advocate representing Subhash Chand Rai, criticised the testimony of Hoshila Devi, highlighting alleged contradictions between her statement and the medical evidence. They argued she couldn’t be considered an eyewitness, by questioning the reliability of her testimony and pointing out that she mentioned the accused using a rifle, but only a gun was found.  During her testimony at the trial, Prosecution Witness No. 6 (Hoshila Devi) provided a detailed account of the events observed by her. She recounted how she and her relatives rushed to the northern part of the village upon hearing commotion, where they found Lal Muni Rai being restrained by some people, including Accused Nos. 1, 3, 4, 5, 6 and 7, along with two others armed with guns and rifles. Despite Lal Muni Rai’s attempt to flee, Avinash Chand Rai shot him from behind, causing him to fall to the ground. Another unknown person also fired at Lal Muni Rai. When Chand Muni Rai arrived at the scene, Subhash Chand Rai shot him from the verandah. Subhash Chand Rai also fired shots at Hoshila Devi and others, who managed to escape but returned later. Hoshila Devi never mentioned that her husband, Chand Muni Rai, received only a single gunshot. This raises the possibility of another bullet fired by Subhash Chand Rai or a missed shot fired by another accused person affecting the victim, which cannot be dismissed. 

Judgement in Anil Rai vs. State of Bihar (2001)

Based on the eyewitness statements of Prosecution Witnesses 1, 2, 5, and 6,  the seizure of firearms from Avinash Chand Rai and Subhash Chand Rai, the hostility between them and the victims, and the medical evidence, the Supreme Court upheld the conviction and sentence of Avinash Chand Rai and Subhash Chand Rai. On the other hand, Satya Narain who filed a Special Leave Petition earlier was given the benefit of an altered sentence, as his conviction under Section 302 read with Section 149 IPC was set aside and as an alternative he was convicted under Section 148 read with Section 149 IPC and sentenced to three years rigorous imprisonment. 

The Supreme Court dismissed the appeals submitted by Subhash Chand Rai. The appeals submitted by Awadh Bihari Rai, Anil Rai, Awani Rai and Amit Kumar Rai were partially granted by revoking their conviction under Section 302 read with Section 149 of IPC. Instead, they were found liable for offences punishable under Section 148 read with Section 149 IPC and sentenced to three years of rigorous imprisonment. Additionally, the sentence under Section 27 of the Arms Act, 1959, was confirmed. 

Since, some of the accused persons such as Awadh Bihari Rai (Accused no. 3), Anil Rai (Accused no. 4), Awani Rai (Accused no. 5) and Satya Narain Yadav (Accused no. 7) had already served their sentences of the term of three years, they were released.

Rationale behind this judgement

The Supreme Court observed that while justice delayed is justice denied, justice withheld is much more detrimental. The Apex Court reiterated its judgement in M.H Hoskot v. State of Maharashtra (1978), where it was held that the procedure laid down by Article 21 of the Constitution denotes a “fair and reasonable procedure” that conforms to the civilised principles like natural justice, firmly rooted in the collective conscience. The right of appeal in criminal cases is deemed fundamental to civilised jurisprudence, and delaying the delivery of justice post-trial undermines this right. Granting the right to appeal to comply with the requirement  cannot be turned into a sham by extending the delivery of judgement for causes that are not accountable either to the parties involved or to the State or to the legal profession. Delay in disposing of appeals because of shortage of judges, deficient infrastructure, lawyers’ strikes, and situations accountable to the State is understandable. However, after the entire process of participating  in the justice delivery system has concluded and the only  remaining task is the delivery of judgement, no justification can be given for further postponement in adjudicating the rights of the parties, especially when it impacts any of the rights guaranteed by Part III of the Constitution.

The Supreme Court further delved into the meaning and interpretation of Section 353(1) of the CrPC. The court explained that the provision stipulates that the judgement in each trial in any criminal court of original jurisdiction should be delivered in open court immediately following the completion of the trial or at some subsequent time for which due notice will be given to the parties and their counsel. The phrase “some subsequent time” in Section 353(1) stated in this provision means delivering the judgement without unnecessary delay, as postponing the delivery of judgement is contradictory to the rule of law. Such delay should not exceed a term of six weeks under any circumstance. However, for High Courts, no specific time is prescribed in either the Code of Civil Procedure or the CrPC. Nevertheless, as the delivery of judgement is a fundamental aspect of the justice system, it must be devoid of delay. Unchecked delay in the disposal of cases will undermine the confidence of the people in the judiciary. The Apex Court asserted the need for conserving its stature, esteem, and honour for the achievement of rule of law. 

Guidelines for pronouncement of judgements by the High Courts

The Supreme Court in this case issued appropriate guidelines relating to the pronouncement of judgements by the High Courts. The guidelines are listed below:-

  • The Chief Justices of the High Courts may give proper instructions to the Registry that in a case when the judgement is reserved and delivered subsequently, a column may be attached in the judgement, on its first page, following the case title, the date of reserving the judgement, and the date of delivering may be distinctly stated.
  • The Chief Justices of the High Courts, on their administrative authority, should instruct the Court officers/ Readers of different benches in the High Courts to present each month the index of cases in those matters where judgements reserved are not delivered in that month. 
  • On observing that after the completion of the arguments, the judgement is not delivered within two months, the Chief Justice can further consider the suitability of issuing the statement of those cases in which the judgements have not been delivered in less than a term of six weeks from the date of completion of the arguments to the judges of the High Court for their information. Such communication should be delivered confidentially.
  • Where the judgement is not delivered within three months from the date of reserving it, any party to the case can submit an application in the High Court with a plea for early judgement. This application will be presented before the relevant Bench within two days after the expiry of three months from the date of reserving the judgement.
  • If the judgement in any event is not delivered in an interval of six months, any party can present an application before the Chief Justice of the High Court with a plea to transfer the case to a different bench for fresh arguments. The Chief Justice can allow the said plea or pass another order at his discretion.

Other aspect of the judgement 

While dealing with the appeals, the Supreme Court observed that Prosecution Witnesses 1, 2, 5 and 6, accepted by the Trial and High Court, had bad relations with the accused because of previous animosity. The stance of the law is that animosity is a “double-edged sword” that can be a motive for the crime as well as a reason for false incrimination. In regard to the antagonistic witnesses, the courts should carefully analyse their testimony to determine whether their testimony is believable, irrespective of the fact of animosity. When animosity is proved as motive for the crime, the accused cannot say that in spite of substantiation of crime the hostile witness should not be believed. However, this possibility must be considered when assessing the prosecution witnesses in relation to the participation of the accused in the crime. Testimony of eyewitnesses should not be dismissed simply because  the deceased was related to the eyewitnesses or because of some previous animosity between the accused and the witnesses. Just the fact of animosity in this instance, especially when it is presented as a motive for the crime, cannot be the ground for dismissing the testimony of the eyewitness.

Regarding the issue of sending the duplicate of the FIR to the Area Magistrate under Section 157 of the CrPC, the Supreme Court stated that the Section is drafted to keep the Magistrate informed about the investigation of cognizable offences, enabling them to supervise the investigation and issue proper instructions, if necessary, in accordance with Section 159 of the CrPC. However, where the FIR is filed promptly and the investigation commences without delay based on that FIR, the delay in forwarding the copy of the report to the Magistrate does not by itself confirm that the investigation has been compromised. In this case, the FIR was registered within 15 minutes of the incident, and many of the accused were caught immediately. Moreover, there was no delay in forwarding the copy of the FIR to the Area Magistrate. The Advocate representing the appellant Subhash Chand Rai did not provide any evidence to convince the Court that there was extraordinary delay in dispatching the duplicate of the FIR to the Area Magistrate.

The argument concerning the medical evidence regarding the nature of the injuries sustained by the deceased was also dismissed by the Court. The Court observed that the evidence was misinterpreted and exaggerated. Furthermore, it was observed that the weapon recovered from Subhash Chand Rai was a gun and not a rifle. The expert witness used the word “firearm”, which encompasses both guns and rifles. It is important to note that the expert witness was an expert in medical science and not a ballistic expert.

Further, the Apex Court rejected the argument put forth by the counsel representing one of the accused persons, which suggested that since Prosecution Witness no. 12 was proclaimed hostile and did name the Accused no. 2, the prosecution’s case should be deemed unsuccessful. The Court observed that the mere act of the court granting permission to the Public Prosecutor to cross-examine their own witness, despite being declared hostile, does not erase the evidence provided by the said witness. 

The other advocates representing the rest of the accused persons put forward that the conviction of their clients i.e, accused no. 3 to Accused no. 7 under Section 302 and 149 of IPC were not right. The Court, while examining the scope of Section 149 of IPC, stated that until it is conclusively established that all of the accused persons shared the common object and took part in the occurrence of the crime,  Section 149 cannot be applied. There was neither direct evidence nor circumstantial evidence to show that  Accused no. 3 (Awadh Bihari Rai) to Accused no. 7 (Satya Narain Yadav) had a mutual common object with Avinash Chand Rai (Accused no. 1) and Subhash Chand Rai (Accused no. 2) to cause the death of the victims. Even if there was a common object, it was just for rioting. However, there was enough evidence to show that Accused no. 3 (Awadh Bihari Rai) to Accused no. 7 (Satya Narain Yadav) constituted an unlawful assembly with the common object to use violence against Lal Muni Rai.

Analysis of Anil Rai vs. State of Bihar (2001) 

The case of Anil Rai v. State of Bihar (2001) highlights the importance of timely pronouncement of judgements, upholding the principles of fairness, equity, and the rule of law. The delay of two years in delivering the judgements by the Patna High Court, as highlighted by the Supreme Court, not only inflicted undue suffering on the appellants but also undermined the credibility of the justice system. As aforementioned, the prolonged delay in the delivery of judgements is not only a denial of justice, but also a violation of the fundamental right to speedy trial enshrined under Article 21 of the Constitution. 

The Apex Court reminded the High Courts of their constitutional duty. By critiquing the approach of the Patna High Court judges and issuing guidelines for timely delivery of judgements, the Apex Court emphasised the need for accountability and efficiency within the judicial system. These guidelines, though directive in nature, aimed to streamline the process of delivering judgements and prevent undue delays that erode public trust in the judiciary. It thus pointed out the detrimental effect such a long interval between the completion of arguments and the delivery of judgement might have on the outcome of the case.

Moreover, this case emphasises the significance of evidence evaluation in criminal proceedings. The Supreme Court’s examination of witness testimonies, medical evidence, and arguments highlights the importance of a thorough and impartial judicial review process.

Conclusion

The case of Anil Rai v. State of Bihar (2001) serves as a reminder as to how important it is for the courts to make decisions quickly and fairly. The Supreme Court’s intervention to address delays in delivering judgements, shows its dedication to protecting the right to a speedy trial and ensuring justice is served properly. By setting rules for timely judgements and carefully reviewing evidence, the Apex Court reaffirmed its role as the guardian and protector of the Constitution. Moving forward, the implementation of these guidelines is crucial to restoring public trust in the judiciary and upholding the rule of law.

Frequently Asked Questions (FAQs)

What is “common object” under Section 149 of the Indian Penal Code?

Section 149 of the IPC contemplates the commission of a crime by any member of an unlawful assembly in prosecution of a common object. This provision proclaims the vicarious liability of the members of an unlawful assembly, the common object of which is to commit a crime. If an unlawful assembly is formed with the common purpose of committing an offence, and if that crime is committed in furtherance of that object by any member of the unlawful assembly, all members will be liable for that crime.

Which Article of the Constitution recognises ‘Right to Speedy Trial’ as a fundamental right?

The Right to Speedy trial has been recognised as a fundamental right by the Supreme Court as an aspect of the Right to Life and Personal Liberty under Article 21 of the Constitution.

References

Download Now
logo
FREE & ONLINE 3-Day Bootcamp (LIVE only) on

How Can Experienced Professionals Become Independent Directors

calender
28th, 29th Mar, 2026, 2 - 5pm (IST) &
30th Mar, 2026, 7 - 10pm (IST).
Bootcamp starting in
Days
HRS
MIN
SEC
Abhyuday AgarwalCOO & CO-Founder, LawSikho

Register now

Abhyuday AgarwalCOO & CO-Founder, LawSikho